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. 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. 13 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, 2023 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, 2023 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, 2023 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 Our directors and executive officers, their ages and their positions held with our company are as follows: Name Age Position(s) Held with the Company Michael Campbell 68 Chairman of the Board and Chief Executive Officer Joel D, Stone 54 President and Chief Operations Officer Dean S. Skupen 63 Chief Financial Officer Steven Shum 54 Director Sean Fontenot 41 Director There are no arrangements between our directors and any other person pursuant to which our directors were nominated or elected for their positions. There are no family relationships among our directors or officers. The following biographical information regarding our directors and executive officers. Michael Campbell . Mr. Campbell became our Chief Executive Officer on September 12, 2018. For the past 20 years, Mr. Campbell has been the managing director of M1 Advisors LLC, a business advisory and consulting firm that has engineered, orchestrated and provided support and services to numerous private-to-public transitions, debt and equity financings and hyper- organic-growth and consolidation strategies in a wide range of industries. In addition, from December 2011 to February 2017, Mr. Campbell was the Chief Executive Officer and a director of NXChain, Inc., a publicly-traded start-up shell company in the cryptocurrency business that was a successor to AgriVest Americas Inc., a publicly-traded start-up shell company that sought to acquire cattle ranches in Brazil for conversion to soybean farms. Mr. Campbell spent the first 20 years of his career in the high-tech industry creating and operating various companies that included a computer retailing operation, data-storage peripheral company with three computer disk-drive manufacturing companies through joint ventures with the Russian, Chinese and Spanish governments, a specialized call-center company for telco broadband provisioning and an online broadband services ordering and order aggregation company with the Regional Bell Operating Companies. Joel D. Stone . Mr. Stone became our President and Chief Operating Officer on March 28, 2023. Mr. Stone has 24 years of broad-based operations, engineering, construction, integration, transformation, and technical leadership in the data center infrastructure, sourcing, and telecommunications industries. Prior to joining our company, Mr. Stone led the Global Site Sourcing teams for Meta Platforms that supported the data center infrastructure teams from 2019 to 2022. Prior to 2019, Mr. Stone served as Senior Vice President and Chief Operating Officer of RagingWire Data Centers, an NTT communications company, where he was responsible for critical facilities engineering, design, construction, and data center operations from 2016-2018. Prior to RagingWire, Mr. Stone served as Vice President of Global Data Center Operations for CenturyLink Communications, responsible for 58 data centers around the world and a global team of 600+ people from 2011to 2016. Prior to CenturyLink, Mr. Stone was Group Operations Director at Global Switch in London, one of the largest wholesale data center providers in Europe and Asia. Mr. Stone spent nine years at Microsoft where he was responsible for all North America data center operations. Earlier in his career, Mr. Stone built-out two state-of-the-art data centers in Silicon Valley (Santa Clara) for Cable & Wireless Communications. 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. 15 Steven M. Shum. Mr. Shum became a director of our company on October 7, 2021. Mr. Shum has been Chief Executive Officer of INVO Bioscience (NASDAQ: INVO) since October 2019 and a member of the board of directors of INVO Bioscience since October 2017. Prior to INVO Bioscience, Mr. Shun served as Chief Financial Officer of Eastside Distilling (NASDAQ: EAST) from October 2015 to November 2019. Prior to joining Eastside, Mr. Shum was an employee and a member of the board of directors of XZERES Corp. (OTCQB:XPWR), a global renewable energy company, from October 2008 until April 2015, where he served in various officer roles, including Chief Operating Officer from September 2014 until April 2015, Chief Financial Officer, Principal Accounting Officer and Secretary from April 2010 until September 2014 (under former name, Cascade Wind Corp) and Chief Executive Officer and President from October 2008 to August 2010. Mr. Shum also serves as the managing principal of Core Fund Management, LP and the Fund Manager of Core Fund, LP. He was a founder of Revere Data LLC (now part of Factset Research Systems, Inc.) and served as its Executive Vice President for four years, heading up the product development efforts and contributing to operations, business development, and sales. He spent six years as an investment research analyst and portfolio manager of D.N.B. Capital Management, Inc. His previous employers include Red Chip Review and Laughlin Group of Companies. He earned a B.S. in Finance and a B.S. in General Management from Portland State University in 1992. Sean Fontenot. Mr. Fontenot became a director of our company on October 7, 2021. Mr. Fontenot has spent more than 20 years as a self-employed IT and network specialist and in 2017 became an executive producer of independent films. Mr. Fontenot is a technology enthusiast and film producer that manages a 5013c foundation dedicated to (i) educating the public on the history of video, arcade, and computer gaming - including the technical aspects and the impact of games on society; (ii) fostering public interest in software development and gaming hardware to enable technological growth and inspire the next generation of developers, and (iii) developing public space for action sports’ recreation - including mentoring youths and building programs designed to help bridge the gender gap in various action sports categories as well as underserved community members. 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. 16 Director Independence Our board of directors has reviewed the composition of our board of directors and the independence of each director. Based upon information requested from and provided by each director concerning his background, employment and affiliations, including family relationships, our board of directors has determined that each of Steven Shum and Sean Fontenot is an “independent director” as defined under Rule 5605(a)(2) of the Nasdaq Marketplace Rules. In making such determinations, our board of directors considered the relationships that each such non-employee director has with our company and all other facts and circumstances our board of directors deemed relevant in determining independence, including the beneficial ownership of our capital stock by each non-employee director. Board Committees We do not have a standing Audit Committee. We do not believe that the lack of an Audit Committee has had or will have any adverse effect on our financial statements, based upon current operations; however, our board of directors will consider establishing an Audit Committee of independent directors as the number of directors increases. Until such time, our board of directors will perform the duties of an Audit Committee including delegating an auditor firm and interacting with them. We do not have a standing Compensation Committee. Presently, the salary and benefits of our executive officers are determined by our entire board of directors. As we continue to develop our data center and commence selling colocation services, we expect to increase the size of our board to include independent directors who will approve the compensation arrangements with our executive officers. We also do not have a Nominating Committee as we have not adopted any procedures by which security holders may recommend nominees to our board of directors. Code of Ethics Effective March 28, 2022, our Board of Directors adopted an amended Code of Business Conduct and Ethics that applies to, among other persons, members of our board of directors, our company’s officers, contractors, consultants and advisors. We will provide a copy of the Code of Business Conduct and Ethics to any person without charge, upon request. Requests can be sent to our company at the address on the cover of this Annual Report. Delinquent Section 16(a) Reports Section 16(a) of the Exchange Act requires our executive officers, directors and persons who beneficially own more than 10% of our common stock to file with the SEC reports of their ownership and changes in their ownership of our common stock. To our knowledge, based solely on review of the copies of such reports and amendments to such reports with respect to the year ended December 31, 2023 filed with the SEC, all required Section 16 reports under the Exchange Act for our directors, executive officers and beneficial owners of greater than 10% of our common stock were filed on a timely basis during the year ended December 31, 2023, except for (i) late Form 3 filings for Joel Stone and Dean Skupen, (ii) late Form 4 filings for Michael Campbell, Sean Fortenot and Steven Shum, and (iii) late Schedule 13D filings for Michael Campbell and Sean Fortenot. As of the date of the filing of this annual report, all such Form 3, Form 4 and Schedule 13D filings have been made. 17 Item 11. Executive Compensation. The following table sets forth all compensation awarded to, earned by or paid to the executive officers of our company during the years ended December 31, 2023 and 2022. 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 ($) Option/Warrant Awards (4) ($) Non-Equity Incentive Plan Compensation ($) Nonqualified Deferred Compensation Earnings ($) All Other Compensation ($) Total ($) Michael Campbell 2023 - - - 1,601,110 - - 204,179 (1) 1,805,289 Chief Executive Officer 2022 - - - - - 200,064 (1) 200,064 Joel D. Stone 2023 187,500 - - 409,968 - - 38,396 635,864 President and Chief Operating Officer (2) 2022 - - - - - - - - Dean S. Skupen 2023 - - - - - - 60,000 (3) 60,000 Chief Financial Officer 2022 - - - - - - 60,000 (3) 60,000 (1) Represented amounts earned by Mr. Campbell as a consultant to our company. Mr. Campbell became an employee of our company in March 2024. (2) Mr. Stone became our President and Chief Operating Officer on March 28, 2023. (3) Represents amounts earned by Mr. Skupen under his consulting agreement. (4) Reflects the aggregate fair value computed in accordance with the provisions of the Financial Accounting Standard Board Accounting Standards Codification Topic 718, or ASC 718. See Note 2 to our consolidated financial statements for the year ended December 31, 2023 included in this report regarding assumptions underlying the valuation of equity awards. These amounts reflect the accounting cost for these stock options and do not reflect the actual economic value that may be realized by the named executive officer upon the vesting of the stock options, the exercise of the stock options, or the sale of the common stock underlying such stock options. Employment Agreement On June 19, 2023, we entered into an Employment Agreement dated as of June 19, 2023 (the “Employment Agreement”) with Joel D. Stone, our President and Chief Operating Officer. Pursuant to the terms of the Employment Agreement, Mr. Stone will receive (i) an annual base salary of $250,000, which amount may be increased upon our reaching certain benchmarks described in the Employment Agreement, as determined in our sole discretion; (ii) an initial option grant of seven-year options to purchase 2,500,000 shares of our common stock for a purchase price of $0.50 per share, of which the right to purchase up to 1,250,000 shares will vest in equal installments over a period of three years and the right to purchase up to 1,250,000 shares will vest upon our completing certain milestones that are set out in the Employment Agreement; and (iii) the right to participate in all benefit plans offered to our senior executive officers. 18 The Employment Agreement also provides for certain severance benefits upon a termination by us without “cause” or by Mr. Stone for “good reason.” In the event of a termination by us without “cause” or by Mr. Stone for “good reason” after the first full year of employment, Mr. Stone will be entitled to (i) continued payment of his base salary for the lesser of six (6) months or the remaining term of the Employment Agreement, subject to Mr. Stone signing a timely and effective separation agreement containing a release of all claims against us and other customary terms; provided, however, that if such termination is between the 91 st day and the end of the first year of employment, Mr. Stone will be entitled to a pro rata portion of such payment. The Employment Agreement contains customary confidentiality restrictions and work-product provisions with respect to Mr. Stone, as well as customary non-competition covenants and non-solicitation covenants with respect to our employees, consultants and customers. Consulting Agreements On October 20, 2018, we entered into a consulting agreement with DSS Consulting Corporation, a corporation controlled by Dean Skupen, our Chief Financial Officer (“DSS Consulting”), pursuant to which DSS Consulting agreed to continue to provide consulting services to our company and to cause Mr. Skupen to serve as our Chief Financial Officer. The agreement with DSS Consulting will continue until terminated by either party. Pursuant to such agreement, DSS Consulting was issued 250,000 shares of common stock in March 2019 and DSS Consulting will be paid a monthly consulting fee in the amount of $5,000. The consulting agreement contains customary confidentiality restrictions and work-product provisions, as well as customary non-competition covenants and non-solicitation covenants with respect to our employees, consultants and customers. Equity Compensation Plan Information The following table provides information as of December 31, 2023, regarding our compensation plans under which equity securities are authorized for issuance: Plan category Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights Weighted- Average Exercise Price of Outstanding Options, Warrants and Rights Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) (a) (b) (c) 2021 Equity compensation plan approved by security holders 6,854,000 $ 0.53 3,146,000 Equity compensation plans not approved by security holders — — — Total 6,854,000 $ 0.53 3,146,000 19 2021 Equity Incentive Plan On October 4, 2021, we adopted our 2021 Equity Incentive Plan (the “Equity Plan”) to provide an additional means to attract, motivate, retain and reward selected employees and other eligible persons. Our stockholders also approved the Equity Plan on October 4, 2021. On November 28 2023, our board of directors approved an increase in the number shares of common stock reserved for issuance under the Equity Plan to 10,000,000 shares, subject to stockholder approval, which has not yet been obtained. Employees, officers, directors and consultants who provide services to us or one of our subsidiaries were eligible to receive awards under the Equity Plan. Awards under the Equity Plan are issuable in the form of incentive or nonqualified stock options, stock appreciation rights, stock bonuses, restricted stock, stock units and other forms of awards including cash awards. As of December 31, 2023, options to purchase an aggregate of 6,854,000 shares of common stock had been made under the Equity Plan, and 3,146,000 shares authorized under the Equity Plan remained available for award purposes. Purpose . The purpose of the Equity Plan is to further and promote the interests of our company and its stockholders by enabling us to attract, retain and motivate employees, directors and consultants, or those who will become employees, directors or consultants, and to align the interests of those individuals with the interests of our stockholders. Administration . The Equity Plan will be administered by an independent compensation committee appointed by the Board (the “Compensation Committee”), which will have general administrative authority for the Equity Plan. In the event that the Board has not appointed the Compensation Committee, then the Board shall have all the powers of the Compensation Committee under the Equity Plan. The Compensation Committee may delegate certain limited authority to one or more of our senior executive officers to grant awards to employees who are not subject to Section 16 of the Exchange Act. Additionally, the Compensation Committee may designate persons other than members of the Compensation Committee to carry out the day-to-day ministerial administration of the Equity Plan (other than with regard to the selection for participation in the Equity Plan and/or the granting of any awards to participants) under such conditions and limitations as prescribed by the Compensation Committee (the appropriate acting body, be it the Compensation Committee, the Board, or an executive officer within his or her delegated authority, is referred to herein as the “Administrator”). The Administrator’s determinations under the Equity Plan need not be uniform and may be made selectively among the Equity Plan’s participants, whether or not such participants are similarly situated. The Administrator has broad authority under the Equity Plan with respect to award grants including, without limitation, the authority to: ● select the Equity Plan’s participants; ● make awards in such amounts and form as the Administrator shall determine; ● impose such restrictions, terms and conditions upon such awards as the Administrator shall deem appropriate; and ● correct any technical defect(s) or technical omission(s), or reconciling any technical inconsistency(ies), in the Equity Plan and/or any award agreement. Eligibility. Persons eligible to receive awards under the Equity Plan include employees, directors and consultants, or those who will become employees, directors or consultants, of our company and/or its subsidiaries. Notwithstanding the above, incentive stock options may only be granted under the Equity Plan to our employees. Authorized Shares . The maximum number of shares of common stock that may be initially issued or transferred pursuant to awards under the Equity Plan shall not exceed 10,000,000 shares, all of which may be issued as any type of award permitted under the Equity Plan, including, but not limited to, incentive stock options. Types of Awards . The Equity Plan authorizes awards of stock options and restricted shares of common stock. 20 A stock option is the right to purchase shares of common stock at a future date at a specified price per share (the “Exercise Price”). The per share Exercise Price of an option generally may not be less than the fair market value of a share of common stock on the date of grant. The maximum term of an option is ten years from the date of grant. An option may either be an incentive stock option or a nonqualified stock option. Incentive stock option benefits are taxed differently from nonqualified stock options, as described under “Federal Income Tax Consequences of Awards Under the Plan” below. Incentive stock options are also subject to more restrictive terms and are limited in amount by the U.S. Internal Revenue Code (the “Code”) and the Equity Plan. Incentive stock options may only be granted to employees of our company or a subsidiary. Restricted shares are shares of common stock granted to Equity Plan participants, subject to such restrictions, terms and conditions, if any, as the Administrator deems appropriate, including, without limitation, (a) restrictions on the sale, assignment, transfer, hypothecation or other disposition of such shares, (b) the requirement that the participant deposit such shares with our company while such shares are subject to such restrictions, and (c) the requirement that such shares be forfeited upon termination of employment or service with our company for any reason or for specified reasons within a specified period of time or for other reasons (including, without limitation, the failure to achieve designated performance goals). Upon satisfaction or lapse of the applicable restrictions, terms, and conditions, subject to applicable securities laws, the participant will receive shares of common stock in exchange for such restricted shares. Dividend Equivalents; Deferrals . The Administrator may provide for the deferred payment of awards and may determine the other terms applicable to deferrals. The Administrator may provide that awards under the Equity Plan earn dividends or dividend equivalents based on the amount of dividends paid on outstanding shares of common stock. Assumption and Termination of Awards . Generally, and subject to limited exceptions set forth in the Equity Plan, if we dissolve or undergo certain corporate transactions such as a merger, business combination, or other reorganization, or a sale of substantially all of its assets, all awards then-outstanding under the Equity Plan will become fully vested or paid, as applicable, and will terminate or be terminated in such circumstances, unless the Administrator provides for the assumption, substitution or other continuation of the award. The Administrator also has the discretion to establish other change in control provisions with respect to awards granted under the Equity Plan. For example, the Administrator could provide for the acceleration of vesting or payment of an award in connection with a corporate event that is not described above and provide that any such acceleration shall be automatic upon the occurrence of any such event. Clawback . We may cancel any award under the Equity Plan, require reimbursement from a participant, and effect any other right of recoupment of equity or other compensation provided under the Equity Plan in accordance with any clawback policies adopted by us. Transfer Restrictions . Subject to certain exceptions contained in the Equity Plan, awards under the Equity Plan generally are not transferable by the recipient other than by will or the laws of descent and distribution and are generally exercisable, during the recipient’s lifetime, only by the recipient. Any amounts payable or shares issuable pursuant to an award generally will be paid only to the recipient or the recipient’s beneficiary or representative. The Administrator has discretion, however, to establish written conditions and procedures for the transfer of awards to other persons or entities, provided that such transfers comply with applicable federal and state securities laws. Adjustments . As is customary in incentive plans of this nature, each share limit and the number and kind of shares available under the Equity Plan and any outstanding awards, as well as the exercise or purchase prices of awards, and performance targets under certain types of performance-based awards, are subject to adjustment in the event of certain reorganizations, mergers, combinations, recapitalizations, stock splits, stock dividends, or other similar events that change the number or kind of shares outstanding, and extraordinary dividends or distributions of property to the stockholders. No Limit on Other Authority . The Equity Plan does not limit the authority of the Board or any committee to grant awards or authorize any other compensation, with or without reference to the our common stock, under any other plan or authority. 21 Termination of or Changes to the Equity Plan . The Board may amend or terminate the Equity Plan at any time and in any manner. Stockholder approval for an amendment will be required only to the extent then required by applicable law or any applicable listing agency or required under Sections 422 or 424 of the Code to preserve the intended tax consequences of the plan. For example, stockholder approval will be required for any amendment that proposes to increase the maximum number of shares that may be delivered with respect to awards granted under the Equity Plan (adjustments as a result of stock splits or similar events will not, however, be considered an amendment requiring stockholder approval). Unless terminated earlier by the Board, the authority to grant new awards under the Equity Plan will terminate on October 4, 2031. Outstanding awards, as well as the Administrator’s authority with respect thereto, generally will continue following the expiration or termination of the Equity Plan. Generally speaking, outstanding awards may be amended by the Administrator (except for a repricing), but the consent of the award holder is required if the amendment (or any Equity Plan amendment) materially and adversely affects the holder. Federal Income Tax Consequences of Awards under the Plan. The U.S. federal income tax consequences of the Equity Plan under current federal law, which is subject to change, are summarized in the following discussion of the general tax principles applicable to the Equity Plan. This summary is not intended to be exhaustive and, among other considerations, does not describe the deferred compensation provisions of Section 409A of the Code to the extent an award is subject to and does not satisfy those rules, nor does it describe certain elections under the Code (such as an election under Code Section 83(b)), alternative minimum tax, or state, local, or international tax consequences. With respect to nonqualified stock options, we are generally entitled to deduct, and the participant recognizes taxable income in an amount equal to the difference between the option exercise price and the fair market value of the shares at the time of exercise. With respect to incentive stock options, we are generally not entitled to a deduction nor does the participant recognize income at the time of exercise, although the participant may be subject to the U.S. federal alternative minimum tax. Upon a disposition of shares acquired by exercise of an incentive stock option before the end of the applicable incentive stock option holding periods, the participant generally must recognize ordinary income equal to the lesser of (i) the fair market value of the shares at the date of exercise minus the exercise price or (ii) the amount realized upon the disposition of the incentive stock option shares minus the exercise price. Otherwise, a participant’s disposition of shares acquired upon the exercise of an option (including an incentive stock option for which the incentive stock option holding periods are met) generally will result in only capital gain or loss. With respect to restricted shares, we are generally entitled to deduct and the participant recognizes taxable income in an amount equal to the excess of the fair market value over the price paid (if any) only at the time the restrictions lapse (unless the recipient elects to accelerate recognition as of the date of grant). If an award is accelerated under the Equity Plan in connection with a “change in control” (as this term is used under the Code), we may not be permitted to deduct the portion of the compensation attributable to the acceleration (“parachute payments”) if it exceeds certain threshold limits under the Code (and certain related excise taxes may be triggered). We have the authority and the right to deduct or withhold, or require a participant to remit to us, an amount sufficient to satisfy any income, payroll, and other taxes (including, without limitation, pursuant to the Federal Insurance Contributions Act and the Federal Unemployment Tax Act) to the extent required by law to be withheld with respect to any taxable event concerning a participant arising as a result of an award under the Equity Plan. Incentive Plan Awards The following table sets forth information relating to stock option grants made to our named executive officers during the fiscal year ended December 31, 2023. Date of Option/Warrant Grant # of Options Fair Value ($) (1) Michael Campbell (2) 12/6/23 3,454,801 1,314,780 Michael Campbell (2) 12/6/23 500,000 260,000 Michael Campbell 12/6/23 1,000,000 530,000 Joel D. Stone 06/19/23 2,500,000 1,175,000 Joel D. Stone 12/06/23 1,000,000 530,000 (1) Reflects the aggregate fair value computed in accordance with the provisions of the Financial Accounting Standard Board Accounting Standards Codification Topic 718, or ASC 718. See Note 2 to our consolidated financial statements for the year ended December 31, 2023 included in this report regarding assumptions underlying the valuation of equity awards. These amounts reflect the accounting cost for these stock options and do not reflect the actual economic value that may be realized by the named executive officer upon the vesting of the stock options, the exercise of the stock options, or the sale of the common stock underlying such stock options. (2) Represents options/warrants granted to M1 Advisors LLC, a company controlled by Michael Campbell. 22 Outstanding Equity Awards at Fiscal Year-End The following table sets forth outstanding equity awards to our named executive officers as of December 31, 2023. Option/Warrants Awards Stock Awards Name Number of Securities Underlying Unexercised Options/Warrants (#) Exercisable Number of Securities Underlying Unexercised Options/Warrants (#) Unexercisable Exercise Price ($) Expiration Date Number of Shares or Units of Stock that have not Vested Market Value of Shares or Units of Stock that have not Vested Michael Campbell (1) 3,454,801 - $ 0.54 12/31/2028 - - Michael Campbell (1) 500,000 - 0.54 12/31/2030 - - Michael Campbell (2) - 500,000 0.54 12/6/2030 - - Michael Campbell (3) 500,000 0.54 12/6/2030 - - Joel D. Stone (2) - 500,000 0.50 12/6/2030 - - Joel D. Stone (3) 500,000 0.50 12/6/2030 - - Joel D. Stone (4) 1,250,000 0.50 6/19/2030 - - Joel D. Stone (5) 600,000 0.54 6/19/2030 - - Joel D. Stone (5) - 650,000 0.54 6/19/2030 - - (1) Granted on December 6, 2023. Represents fully-vested options/warrants granted to M1 Advisors LLC, a company controlled by Michael Campbell. (2) Granted on December 6, 2023. One third vest on 1 st anniversary of grant date, one third on the 2 nd anniversary of grant date and one third on the 3rd anniversary of grant date. (3) Granted on December 6. 2023. These options vest at various times based on the achievement of various performance milestones. (4) Granted on June 19, 2023. These options vest at various times based on the achievement of various performance milestones. (5) Granted on June 19, 2023. One third vest on 1 st anniversary of grant date, one third on the 2 nd anniversary of grant date and one third on the 3rd anniversary of grant date. Aggregated Option Exercises There were no options exercised by any officer or director of our company during the year ended December 31, 2023. Director Compensation General. The following discussion describes the significant elements of the expected compensation program for members of our board of directors and its committees. The compensation of our directors is designed to attract and retain committed and qualified directors and to align their compensation with the long-term interests of our shareholders. Directors who are also executive officers (each, an “Excluded Director”) will not be entitled to receive any compensation for his or her service as a director, committee member or Chair of our board of directors or of any committee of our board of directors. Director Compensation Arrangements. Our non-employee director compensation program is designed to attract and retain qualified individuals to serve on our board of directors. Our board of directors, on the recommendation of our compensation committee, will be responsible for reviewing and approving any changes to the directors’ compensation arrangements. In consideration for serving on our board of directors, each director (other than Excluded Directors) will be paid an annual retainer. All directors will be reimbursed for their reasonable out-of-pocket expenses incurred while serving as directors. Cash Compensation. We did not pay any cash compensation to our directors during the year ended December 31, 2023. However, we intend to implement a cash compensation program for our board members in the future. Equity Awards. The following table sets forth the director compensation we accrued in the year ended December 31, 2023 (excluding compensation to our executive officers set forth in the summary compensation table above). Name Option/warrants Awards Total (1) Steven Shum $ 210,000 $ 210,000 Sean Fontenot 1,131,000 1,131,000 Total: $ 1,341,000 1,341,000 (1) Reflects the aggregate fair value computed in accordance with the provisions of the Financial Accounting Standard Board Accounting Standards Codification Topic 718, or ASC 718. See Note 2 to our consolidated financial statements for the year ended December 31, 2023 included in this report regarding assumptions underlying the valuation of equity awards. These amounts reflect the accounting cost for these stock options and do not reflect the actual economic value that may be realized by the named director upon the vesting of the stock options, the exercise of the stock options, or the sale of the common stock underlying such stock options. 23 Pension and Retirement Plans Currently, we do not offer any annuity, pension or retirement benefits to be paid to any of our officers, directors or employees, in the event of retirement. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. The following table sets forth, as of March 25, 2024, 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): Name and Address of Beneficial Owner Amount and Nature of Beneficial Ownership Percent of Class(1) M1 Advisors LLC (2) 11,009,000 40.20% Michael Campbell (2) 11,509,000 41.27% Joel Stone - - Dean Skupen (3) 325,000 1.28% Steven Shum 4) 408,655 1.59% Nanosha LLC 5) 10,774,386 39.14% Sean Fontenot (5) 11,524,386 40.75% All executive officers and directors as a group (5 persons) 23,963,051 76.71% (1) As of March 27, 2004, there were 25,330,540 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 (i) 8,954,199 shares of common stock owned of record by M1 Advisors LLC, a company controlled by Michael Campbell, (ii) currently-exercisable warrants to purchase 2,054,801 shares of common stock owned of record by M1 Advisors LLC, and (iii) currently-exercisable stock options to purchase 500,000 shares of common stock owned by Michael Campbell. The address of Michael Campbell and M1 Advisors LLC is 11753 Willard Avenue, Tustin, CA 92782. Mr. Campbell has sole voting and investment power over the shares held by M1 Advisors LLC. (3) Represents shares of common stock owned of record by DSS Consulting Corporation, a company controlled by Dean Skupen. DSS Consulting Corporation’s address is 30 N Gould Street, Suite 12829, Sharidan, WY 82801 Mr. Skupen has sole voting and investment power over the shares held by DSS Consulting Corporation. (4) Represents (i) 196,010 shares of common stock owned of record by Core Fund Management, LP, a company controlled by Steven Shum, (ii) 4,655 shares of common stock owned by Steven Shum and (iii) currently-exercisable stock options to purchase 404,000 shares of common stock owned by Steven Shum. The address of Core Fund Management, LP is 1515 SW 5th Avenue, Suite 606, Portland, OR 97201. Mr. Shum has sole voting and investment power over the shares held by Core Fund Management. (5) Represents (i) 8,574,386 shares of common stock owned of record by Nanosha LLC, a company controlled by Sean Fortenot, (ii) currently-exercisable warrants to purchase 2,200,000 shares of common stock owned of record by Nanosha LLC, and (iii) currently-exercisable stock options to purchase 750,000 shares of common stock owned by Sean Fortenot. The address of Nanosha Investments, LLC is 1202 Walnut Avenue, Long Beach, CA 90813. Mr. Fontenot has sole voting and investment power over the securities held by Nanosha Investments, LLC. 24 Item 13. Certain Relationships and Related Transactions, and Director Independence. A “related party transaction” is any actual or proposed transaction, arrangement or relationship or series of similar transactions, arrangements or relationships, including those involving indebtedness not in the ordinary course of business, to which we or our subsidiaries were or are a party, or in which we or our subsidiaries were or are a participant, in which the amount involved exceeded or exceeds the lesser of (i) $120,000 or (ii) one percent of the average of our total assets at year-end for the last two completed fiscal years and in which any related party had or will have a direct or indirect material interest. A “related party” includes: ● any person who is, or at any time during the applicable period was, one of our executive officers or one of our directors; ● any person who beneficially owns more than 5% of our common stock; ● any immediate family member of any of the foregoing; or ● any entity in which any of the foregoing is a partner or principal or in a similar position or in which such person has a 10% or greater beneficial ownership interest. Other than compensation arrangements for our named executive officers and directors, which we describe herein, the only related party transactions to which we were a party during the years ended December 31, 2023 and 2022, since December 31, 2023, or any currently proposed related party transaction, are as follows. Between December 11, 2023 and February 20, 2024, we entered into a series of exchange subscription agreements (each, an “Exchange Agreement”) with 14 holders (each, a “Holder”) of our outstanding promissory notes and, in certain cases, related outstanding stock purchase warrants, pursuant to which we and the Holders agreed to exchange their promissory notes, and, if applicable, related stock purchase warrants, for shares of our common stock. Pursuant to the Exchange Agreements, an aggregate of $5,417,459.50 of principal and accrued interest under the outstanding promissory notes and, if applicable, related stock purchase warrants was exchanged for an aggregate of 10,834,919 shares of common stock (the “Exchange Shares”). Nanosha Investments LLC, a limited liability company controlled by Sean Fontenot, a director of our company (“Nanosha”), entered into an Exchange Agreement with us pursuant to which it exchanged (i) a promissory note with outstanding principal and accrued interest in the aggregate amount of $4,287,193, and (ii) a warrant for the purchase of 1,540,000 shares of common stock, for 8,574,386 of the Exchange Shares. On February 12, 2024, Nanosha made a loan to us in the amount of $1,000,000 in consideration for which we issued to Nanosha a promissory note in the principal amount of $1,000,000 that bears interest at the rate of 10% per annum and matures on May 30, 2024 and a five-year warrant to purchase up to 200,000 shares of common stock with an initial exercise price of $0.50 per share. No payments have been made on the promissory note. 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, 2023 and 2022, 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, 2023 2022 Audit Fees and Audit Related Fees $ 45,000 $ 28,000 Tax Fees - — All Other Fees - — Total $ 45,000 $ 28,000 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. 25 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). 4.1 Description of Registered Securities 10.1 2021 Equity Incentive Plan (incorporated by reference to Exhibit Annex A to our Schedule 14C Information Statement filed on October 21, 2021). 26 Exhibit Number Description 10.2 Consulting Agreement dated as of October 10, 2018 between CalEthos Inc. and DSS Consulting Corporation (incorporated by reference to Exhibit 10.12 to our Annual Report on Form 10-K filed on March 31, 2022). 10.3 Employment Agreement dated as of June 19, 2023 between CalEthos Inc. and Joel Stone (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on June 27, 2023). 10.4 Form of Promissory Note dated February 12, 2024 of CalEthos Inc. to Nanosha Investments LLC. 10.5 Warrant dated February 12, 2024 of CalEthos Inc. issued to Nanosha Investments LLC. 14 Code of Conduct and Ethics of CalEthos Inc. (incorporated by reference to Exhibit 14 to our Annual Report on Form 10-K filed on March 31, 2022). 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** Inline XBRL Instance Document 101.xsd** Inline XBRL Taxonomy Extension Schema Document 101.cal** Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.def** Inline XBRL Taxonomy Extension Definition Linkbase Document 101.lab** Inline XBRL Taxonomy Extension Label Linkbase Document 101.pre** Inline XBRL Taxonomy Extension Presentation Linkbase Document 104 Cover Page Interactive Data File (embedded within the Inline XBRL 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. 27 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 9 th day of April 2024. 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 April 9, 2024 Michael Campbell (Principal Executive Officer) /s/ Dean S. Skupen Chief Financial Officer April 9, 2024 Dean S. Skupen (Principal Accounting Officer) /s/ Sean Fontenot Director April 9, 2024 Sean Fontenot (Director) /s/ Steven Shum Director April 9, 2024 Steven Shum (Director) 28 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 consolidated balance sheets of CalEthos Inc., (the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of operations and comprehensive loss, changes in stockholders’ equity (deficit) and cash flows for each of the years in the two-year period ended December 31, 2023, and the related notes and schedules (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the consolidated results of its operations and its cash flows for each of the two years in the period ended December 31, 2023 in conformity with accounting principles generally accepted in the United States of America. The Company’s Ability to Continue as a Going Concern The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1 to the accompanying consolidated financial statements, although the Company has net income it is primarily attributable to non-cash reversal of compensation for restricted stock units, has generated negative cash flows from operating activities, has an accumulated deficit and has stated that substantial doubt exists about Company’s ability to continue as a going concern. Management’s evaluation of the events and conditions and management’s plans regarding these matters are also described in Note 1. The consolidated 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) (“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 audit 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 audits, 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 audits 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 The 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. /s/ RBSM LLP We have served as the Company’s auditor since 2018. New York, NY April 9, 2024 PCAOB ID No. 587 F- 1 CalEthos, Inc. Consolidated Balance Sheets As of December 31, 2023 2022 Assets Current assets Cash and cash equivalents $ 308,000 $ 2,067,000 Prepaid and other current expenses 10,000 4,000 Total current assets 318,000 2,071,000 Data center costs 2,262,000 - Other assets - - Total assets $ 2,580,000 $ 2,071,000 Liabilities and stockholders’ equity (deficit) Current liabilities Accounts payable and accrued expenses $ 670,000 $ 540,000 Convertible promissory notes, net 341,000 4,613,000 Notes payable 11,000 61,000 Total current liabilities 1,022,000 5,214,000 Stockholders’ equity (deficit) Series A convertible preferred stock, par value $ 0.001 , 3,600,000 shares authorized; no shares issued and outstanding - - Preferred stock, par value $ 0.001 , 100,000,000 shares authorized; no shares issued and outstanding - - Preferred stock value - - Common stock par value $ 0.001 : 100,000,000 shares authorized; 24,345,598 and 24,495,621 shares issued and outstanding 24,000 24,000 Additional paid-in capital 20,807,000 11,480,000 Other comprehensive income 9,000 5,000 Stock subscription receivable ( 2,000 ) ( 2,000 ) Accumulated deficit ( 19,280,000 ) ( 14,650,000 ) Total stockholders’ equity (deficit) 1,558,000 ( 3,143,000 ) Total liabilities and stockholders’ equity (deficit) $ 2,580,000 $ 2,071,000 F- 2 CalEthos, Inc. Consolidated Statements of Operations and Comprehensive (Loss) Income For the Year Ended December 31, 2023 2022 Revenues $ - $ - Operating Expenses Professional fees 344,000 667,000 Equity-based compensation 3,032,000 ( 4,791,000 ) General and administrative expenses 38,000 52,000 Payroll and related expense 51,000 - Impairment loss - 154,000 Operating expense 3,465,000 ( 3,918,000 ) (Loss) income from operations ( 3,465,000 ) 3,918,000 Other income (expenses) Interest income 50,000 7,000 Gain on settlement of debt 23,000 - Financing costs ( 252,000 ) ( 1,744,000 ) Loss on extinguishment of debt ( 986,000 ) Total other expenses ( 1,165,000 ) ( 1,737,000 ) (Loss) income before provision for income taxes ( 4,630,000 ) 2,181,000 Provision for income taxes - - Net (loss) income ( 4,630,000 ) 2,181,000 Net (loss) income per share - Basic ( 0.24 ) 0.15 Net (loss) income per share - Diluted ( 0.24 ) 0.08 Weighted Average common shares outstanding - Basic 19,157,230 14,495,621 Weighted Average common shares outstanding - Diluted 19,157,230 29,342,327 Comprehensive (loss) income Net (loss) income ( 4,630,000 ) 2,181,000 Foreign currency translation gain 4,000 7,000 Comprehensive (loss) income $ ( 4,626,000 ) $ 2,188,000 F- 3 CalEthos, Inc. Consolidated Statement of Changes in Stockholders’ Equity (Deficit) For the Years Ended December 31, 2023 and 2022 Shares Amount Shares Amount Shares Amount Capital Receivable Income (Loss) Deficit (Deficit) Series A convertible preferred stock Preferred Stock Common Stock Additional Paid-in Stock Subscription Other Comprehensive Accumulated Total Stockholders Equity Shares Amount Shares Amount Shares Amount Capital Receivable Income (Loss) Deficit (Deficit) Balance December 31, 2021 - $ - - $ - 25,995,621 $ 26,000 16,269,000 $ ( 2,000 ) $ ( 2,000 ) $ ( 16,831,000 ) $ ( 540,000 ) Equity-based compensation - - - - - - 6,377,000 - - - 6,377,000 Forfeiture of equity-based compensation - - - - ( 1,500,000 ) ( 2,000 ) ( 11,166,000 ) - - - ( 11,168,000 ) Foreign currency translation income - - - - - - - - 7,000 - 7,000 Net income - - - - - - - - - 2,181,000 2,181,000 Balance, December 31, 2022 - - - - 24,495,621 24,000 11,480,000 ( 2,000 ) 5,000 ( 14,650,000 ) ( 3,143,000 ) Balance - - - - 24,495,621 24,000 11,480,000 ( 2,000 ) 5,000 ( 14,650,000 ) ( 3,143,000 ) Cancellation of shares equity-based compensation ( 10,000,000 ) ( 10,000 ) 10,000 - - - - Shares issued for extinguishment of debt - - - - 9,849,977 10,000 5,949,000 - - - 5,959,000 Equity-based compensation - - - - - - 3,368,000 - - - 3,368,000 Foreign currency translation income - - - - - - - - 4,000 - 4,000 Net loss - - - - - - - - - ( 4,630,000 ) ( 4,630,000 ) Net income (loss) - - - - - - - - - ( 4,630,000 ) ( 4,630,000 ) Balance, December 31, 2023 - $ - - $ - 24,345,598 $ 24,000 $ 20,807,000 $ ( 2,000 ) $ 9,000 $ ( 19,280,000 ) $ 1,558,000 Balance - $ - - $ - 24,345,598 $ 24,000 $ 20,807,000 $ ( 2,000 ) $ 9,000 $ ( 19,280,000 ) $ 1,558,000 F- 4 CalEthos, Inc. Consolidated Statements of Cash Flows For the Years Ended December 31, 2023 2022 Cash Flows From Operating Activities Net (loss) income $ ( 4,630,000 ) $ 2,181,000 Adjustments to reconcile net (loss) income to net cash used in operating activities: Impairment - 154,000 Amortization of convertible promissory note discounts - 1,526,000 Forfeiture of restricted stock awards - ( 11,168,000 ) Fair value of equity-based compensation 3,032,000 6,377,000 Gain on settlement of accounts payable ( 23,000 ) - Loss on extinguishment of debt 986,000 - Changes in operating assets and liabilities Prepaid expenses and other current assets ( 6,000 ) 3,000 Accounts payable and accrued expenses 606,000 107,000 Net Cash Used in Operating Activities ( 35,000 ) ( 820,000 ) Cash Flows From Investing Activities Project development cost ( 1,730,000 ) - Other assets - ( 105,000 ) Net Cash Used in Investing Activities ( 1,730,000 ) ( 105,000 ) Cash Flows From Financing Activities Repayments of notes payable - ( 50,000 ) Net Cash Used in Financing Activities - ( 50,000 ) Effect of exchange rate changes on cash and cash equivalents 6,000 ( 5,000 ) Net decrease in Cash ( 1,759,000 ) ( 980,000 ) Cash, Beginning of Period 2,067,000 3,047,000 Cash, End of Period $ 308,000 $ 2,067,000 Supplemental disclosure of cash flow information: Cash paid for interest $ - $ 5,407 Cash paid for income taxes $ - $ - Non-cash investing and financing activities Equity-based compensation capitalized $ 336,000 $ - Common stock issued from forgiven debt $ 4,974,000 $ - F- 5 CalEthos, Inc. Notes to the Consolidated Financial Statements For the Years Ended December 31, 2023 Note 1 – Organization and Accounting Policies ORGANIZATION AND ACCOUNTING POLICIES CalEthos, Inc. (the “Company” or “we”) was incorporated on March 20, 2002 under the laws of the State of Nevada. The Company is implementing its plan to build a clean-energy-powered data center operation using the latest energy-efficient building materials and cooling technologies and to provide wholesale colocation 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 invest in or joint venture with other more-established companies already in the industry that would add value to the Company’s business strategy. As of July 2022, the Company’s board of directors resolved to focus exclusively on developing a clean-energy-powered data center. Korean entity On November 5, 2021, AIQ System Inc. (“AIQ”) was incorporated in Seoul, Republic of Korea. AIQ is authorized to issue 3 million shares of common stock. At the date of incorporation, 10,000 shares were issued to the Company for 100,000,000 Korean Won, or approximately $ 89,000 , for 100 % ownership of AIQ. As of July 2022, AIQ was placed into a dormant state of operations. Basis of Presentation The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary from the formation date. All material intercompany transactions and balances have been eliminated in consolidation. Going Concern and Liquidity The Company incurred a net loss of approximately $ 4,630,000 for the year ended December 31, 2023, had an accumulated deficit of approximately $ 19,280,000 as of December 31, 2023 and had no recurring revenue from operations. 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. These conditions raise substantial doubt about the Company’s ability to continue as a going concern for one year from the issuance of these consolidated financial statements. The Company’s consolidated financial statements have been presented on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company is subject to a number of risks similar to those of other similar stage companies, including dependence on key individuals; successful development, marketing and branding of services; the 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 the Company’s operations and generating a level of revenues adequate to support the Company’s cost structure. F- 6 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 the development of the Company’s data center campus development, approvals for construction permits, construction times, delivery of critical equipment, market demand for the Company’s wholesale colocation data center services, the timing of customer commitments for data center space, the management of working capital, and payment terms and conditions for purchase of the Company’s 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 raise additional funding from investors or through other avenues, it may not be able to continue as a going concern. The accompanying audited consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. Use of Estimates The preparation of consolidated financial statements in conformity with GAAP and requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. Foreign Currency Translation The financial statements of foreign subsidiaries, for which the functional currency is the local currency, are translated into U.S. dollars using the exchange rate at the consolidated balance sheet date for assets and liabilities and a weighted-average exchange rate during the year for revenue, expenses, gains and losses. Translation adjustments are recorded as other comprehensive income (loss) within shareholders’ equity (deficit). Gains or losses from foreign currency transactions are recognized in the consolidated statements of operations. Fair Value Measurement Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants as of the measurement date. Applicable accounting guidance provides an established hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors that market participants would use in valuing the asset or liability. There are three levels of inputs that may be used to measure fair value: Level 1 - Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. Level 2 - Other inputs that are directly or indirectly observable in the marketplace. Level 3 - Unobservable inputs which are supported by little or no market activity. The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. As of and for the year ended December 31, 2023, the Company had no assets or liabilities that require fair value measurement. F- 7 Cash and Cash Equivalents The Company considers all highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents. Cash and cash equivalents are recorded at cost, which approximates its fair value. The Company maintains its cash and cash equivalents in banks insured by the Federal Deposit Insurance Corporation (“FDIC”) in accounts that at times may be in excess of the federally insured limit of $ 250,000 per bank. The Company minimizes this risk by placing its cash deposits with major financial institutions. As of December 31, 2023 and 2022, the Company had approximately $ 22,000 and $ 1,817,000 , respectively, in excess of the federal insurance limit, respectively. Prepaid Expense Prepaid expenses are assets held by the Company, which are expected to be realized and consumed within twelve months after the reporting period. Data Center Cost Data center cost is stated at cost, which includes the cost incurred to complete phase I of our data center development plan. Phase I costs include the option payment for the land and the cost of consulting firms to provide power and connectivity assessments, feasibility studies, engineering plans, and project benchmarking. Also data center cost includes internal cost such as payroll related cost and debt interest cost. In accordance with ASC 360-10-35, the Company reviews the carrying amounts of data center cost when events or changes in circumstances indicate the assets may not be recoverable. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss, if any. Where it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount of the cash-generating unit to which the asset belongs. The recoverable amount is the higher of fair value less costs of disposal and value in use. In assessing value in use, the estimated future cash flows to be derived from continuing use of the asset or cash-generating unit are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Fair value less costs of disposal is the amount obtainable from the sale of an asset or cash-generating unit in an arm’s length transaction between knowledgeable, willing parties, less the cost of disposal. When a binding sale agreement is not available, fair value less costs of disposal is estimated using a discounted cash flow approach with inputs and assumptions consistent with those of a market participant. If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying amount, the carrying amount of the cash-generating unit is reduced to its recoverable amount. An impairment loss is recognized immediately in net income. As of December 31, 2023, there have been no circumstances to indicate the asset may not be recoverable. Related Parties The Company follows Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) section 850-10 for the identification of related parties and disclosure of related party transactions. Pursuant to ASC section 850-10-20 the related parties include (a.) affiliates of the Company (“Affiliate” means, with respect to any specified Person, any other Person that, directly or indirectly through one or more intermediaries, controls, is controlled by or is under common control with such Person, as such terms are used in and construed under Rule 405 under the Securities Act); (b.) entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option of ASC section 825–10–15, to be accounted for by the equity method by the investing entity; (c.) trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; (d.) principal owners of the Company; (e.) management of the Company; (f.) other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and (g.) other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests. F- 8 The consolidated financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall include: (a.) the nature of the relationship(s) involved; (b.) a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; (c.) the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and (d.) amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement. Commitments and Contingencies The Company follows ASC section 450-20 to report accounting for contingencies. Certain conditions may exist as of the date the consolidated financial statements are issued, which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or un-asserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or un-asserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein. If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s consolidated financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed. Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. Stock-Based Compensation We account for our stock-based compensation under ASC 718, “ Compensation – Stock Compensation ” using the fair value based method. Under this method, compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. This guidance establishes standards for the accounting for transactions in which an entity exchanges it equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments. We use the fair value method for equity instruments granted to non-employees and use the BSM model for measuring the fair value of options. The stock based fair value compensation is determined as of the date of the grant (measurement date) and is recognized over the vesting periods. Income Taxes The Company accounts for income taxes in accordance with ASC 740, Income Taxes , deferred tax assets and liabilities are computed based on the difference between the financial reporting and income tax bases of assets and liabilities using the enacted marginal tax rate. ASC 740 requires that the net deferred tax asset be reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of the net deferred tax asset will not be realized. The Company accounts for income taxes using an asset and liability approach, which requires the recognition of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. The measurement of current and deferred tax assets and liabilities is based on provisions of enacted tax laws; the effects of future changes in tax laws or rates are not anticipated. If necessary, the measurement of deferred tax assets is reduced by the amount of any tax benefits that are not expected to be realized based on available evidence. F- 9 The Company has adopted guidance related to the accounting for uncertainty in income taxes which prescribes rules for recognition, measurement and classification in the financial statements of tax positions taken or expected to be taken in a tax return. The guidance prescribes a two-step approach which involves evaluating whether a tax position will be more likely than not (greater than 50 percent likelihood) sustained upon examination based on the technical merits of the position. The second step requires that any tax position that meets the more likely than not recognition threshold be measured and recognized in the financial statements at the largest amount of benefit that is a greater than 50 percent likelihood of being realized upon settlement. The Company’s policy is to recognize interest and penalties, if any, related to unrecognized tax benefits in income tax expense. The Company is not currently under examination by any taxing authority nor has the Company been notified of a pending examination. The statute of limitations for which the Company is generally no longer subject to federal or state income tax examinations by tax authorities is for years before 2013. Earnings Per Share The Company uses ASC 260, “ Earnings Per Share ” for calculating the basic and diluted earnings (loss) per share. The Company computes 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. The following table sets forth the computation of basic and diluted earnings (loss) per share for the years ended December 31,: SCHEDULE OF COMPUTATION OF BASIC AND DILUTED EARNINGS (LOSS) PER SHARE Numerator 2023 2022 Net (loss) income $ ( 4,630,000 ) $ 2,181,000 Effect of dilutive instruments – convertible notes interest - 204,000 Numerator for diluted EPS $ ( 4,630,000 ) $ 2,385,000 Denominator Denominator – for basic EPS 19,157,230 14,495,621 Effect of dilutive instruments Convertible promissory notes and accrued interest - 4,125,699 Restricted stock units - 10,000,000 Warrants issued for services 721,006 Dilutive potential common shares - 14,846,705 Denominator for diluted EPS 19,157,230 29,342,327 Basic earnings per share $ ( 0.24 ) $ 0.15 Diluted earnings per share $ ( 0.24 ) $ 0.08 Securities that could potentially dilute loss per share in the future were not included in the computation of diluted loss per share for the year ended December 31, 2023 because their inclusion would be anti-dilutive. Common stock equivalents amounted to 13,484,743 for the year ended December 31, 2023. F- 10 Recent Accounting Pronouncements The Company’s management reviewed all recently issued accounting standard updates (“ASU’s”) not yet adopted by the Company and does not believe the future adoptions of any such ASU’s may be expected to cause a material impact on the Company’s consolidated financial condition or the results of its operations. Note 2 – Data Center Costs DATA CENTER COSTS On 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 2024. 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 consolidated balance sheet. The Company is required to deposit an additional $ 84,000 into escrow (“Escrow Funds”) within 10 days after the execution of the purchase agreement. As of the issuance of these 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. The 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 %. If the Purchase Shares are issued at the Closing Date, the Company has agreed to repurchase the Purchase 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 share for 10 consecutive days, the Holder has the option for the Company to repurchase the Purchase Shares for $2.00 per share. As of December 31, 2023, the Company has incurred costs of approximately $ 2,262,000 for the development of the Data Center, which includes approximately $ 196,000 of capitalized interest related to the convertible promissory notes. Note 3 – Accounts Payable and Accrued Expenses ACCOUNTS PAYABLE AND ACCRUED EXPENSES The following table summarizes the Company’s accounts payable and accrued expense balances as of December 31,: SCHEDULE OF ACCOUNTS PAYABLE AND ACCRUED EXPENSES 2023 2022 Accounts payable $ 218,000 $ 186,000 Accrued expenses 330,000 28,000 Accrued interest 122,000 326,000 Accounts payable and accrued expenses $ 670,000 $ 540,000 Accrued Interest The following table presents the details of accrued interest as of December 31,: SCHEDULE OF ACCRUED INTEREST 2023 2022 Notes payable $ 7,000 $ 17,000 Convertible promissory notes 115,000 309,000 Balance, end of period $ 122,000 $ 326,000 F- 11 Note 4 – Notes Payable NOTES PAYABLE The table below summarizes the transactions for the year ended December 31,: SCHEDULE OF NOTES PAYABLE 2023 2022 Balance, beginning of the year $ 61,000 $ 61,000 Additions – – Conversion ( 50,000 ) – Balance, end of the year $ 11,000 $ 61,000 On July 7, 2020, the Company issued a promissory note in the principal amount of $ 11,000 . 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 % per annum. Events of default include failure to pay principal or interest, breach of covenants, breach of representations and warranties, borrower’s assignment of a 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 interest amount outstanding under this note was $ 11,000 and $ 4,000 , respectively, as of December 31, 2023. On April 22, 2021, the Company issued a promissory note in the principal amount of $ 50,000 (“2021 Note”). The interest on the unpaid principal balance accrues at a rate of 10 % per annum. The principal and any accrued interest was to be paid in a single installment on or before April 22, 2022 . If the Company fails to pay the balance of this note in full on the date or fails to make any payments due within 15 days of the due date, any unpaid principal shall accrue interest at the rate of 15 % per annum during the default. Events of default include failure to make any payment including accrued interest when due, voluntary, or involuntary petition of bankruptcy, appointment of a receiver, custodian, trustee or similar party to take possession of the Company’s assets or property, or assignment made by the Company for the benefit of creditors. The principal and interest amount outstanding under this note was $ 11,000 and $ 7,000 , respectively, December 31, 2023. In December 2023, the Company offer the 2021 Note holder to convert, without a time limit, the principal and interest into the Company’s common stock at a price of $ 0.96 per share. The holder agreed to convert the principal and interest of approximately $ 50,000 and $ 17,000 , respectively, (total $ 67,000 ) for 196,010 shares of the Company’s common stock with a fair market value of approximately $ 188,000 as of the date of conversions. As the terms of the conversion the Holders did not provide any concession to the Company and there was not an inducement to Holders to convert, because the offer did not have a time limit, the Company has accounted for the conversion in accordance with ASC 470-50-40-4. The difference between the fair value of the consideration paid of approximately $ 188,000 and the liability of $ 67,000 was approximately $ 121,000 , which was accounted for a loss on liability settlement. The loss on settlement was recorded as loss on extinguishment of debt on the statement of operations for the year ended December 31, 2023. Interest expense on these notes payable amounted to $ 9,000 and $ 14,000 for the years ended December 31, 2023 and 2022, respectively. Note 5 – Convertible Promissory Notes CONVERTIBLE PROMISSORY NOTES Convertible promissory notes consisted of the following as of December 31,: SCHEDULE OF CONVERTIBLE PROMISSORY NOTES 2023 2022 Principal Balance, beginning of year $ 4,613,000 $ 4,613,000 Additions – – Conversion ( 4,272,000 ) Balance, end of year 341,000 4,613,000 Discount Balance, beginning of year – 1,526,000 Additions – – Amortization – ( 1,526,000 ) Balance, end of year – – Net carrying amount $ 341,000 $ 4,613,000 F- 12 The effective interest rate used to amortize the debt discount for the year ended December 31, 2022 ranged from 4.76 % to 64.60 %. In December 2023, the Company offered each of the Convertible Promissory Note holders (“Holders”) to convert, without a time limit, the principal and interest into the Company’s common stock at a price ranging from $ 0.51 to $ 0.54 per share. As of December 31, 2023 approximately five of the Holders agreed to convert principal and interest of approximately, $ 4,272,000 and $ 634,000 , respectively, (total $ 4,906,000 ) for 9,656,019 shares of the Company’s common stock with a fair market value of approximately $ 5,771,000 as of the date of conversions. As the terms of the conversion was not in accordance with the original conversion feature, the Holders did not provide any concession to the Company and there was not an inducement to Holders to convert, because the offer did not have a time limit, the Company has accounted for the conversion in accordance with ASC 470-50-40-4. The difference between the fair value of the consideration paid of approximately $ 5,771,000 and the liability of $ 4,906,000 was approximately $ 865,000 , which was accounted for as a loss on liability settlement. The loss on settlement was recorded as loss on extinguishment of debt on the statement of operations for the year ended December 31, 2023. Interest expense on default convertible promissory notes amounted to $ 439,000 and $ 204,000 for the year ended December 31, 2023, respectively, of which $ 214,000 and nil was capitalized as data center cost, respectively. Note 6 – Commitments and Contingencies COMMITMENTS AND CONTINGENCIES Litigation From time to time, the Company may become subject to legal proceedings, claims, and litigation arising in the ordinary course of business. 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. Employment Agreement In June 2023, the Company executed an employment agreement (“Employment Agreement”) to employ an individual to be the Company’s President and Chief Operating Officer (“Executive” or “COO”). As compensation for services rendered, the Executive will be paid a base salary of $ 250,000 per annum. The Executive’s base salary may be increased as certain milestones are met, such as 1) when the necessary governmental permits are granted to start construction of the Data Center, 2) once the Data Center is operational and at least 25% of the planned MW’s of collation capacity is leased. Also, at the discretion of the Company, following each calendar year of continued employment, the Executive shall be eligible to receive a discretionary bonus of up to fifty percent (50%) of Executive’s base salary during the first year of employment, up to seventy-five percent (75%) of Executive’s then-current base salary during the second year of employment, and up to one-hundred percent (100%) of Executive’s then-current base salary during Executive’s third year of employment (the “Bonus”). Payment of the Bonus will be based on achieving certain goals and performance criteria established by the Company. In addition, the Executive was granted options to purchase 600,000 and 1,900,000 shares of the Company’s common stock (see Note 7 – Stockholders Deficit) for further information. The Employment Agreement also provides for certain severance benefits upon termination by the Company without “cause” or by the Executive for good reason. In the event of a termination by the Company without cause or by the Executive for good reason after the first full year of employment, the Executive would be entitled to (i) continued payment of the base salary for the lesser of six months or the remaining term of the Employment Agreement, subject to the Executive signing a timely and effective separation agreement containing a release of all claims against the Company and other customary terms; provided, however, that if such termination is between the 91 st day and the end of the first year of employment, the Executive will be entitled to a pro-rata portion of such payment. F- 13 Note 7 – Stockholders Deficit STOCKHOLDERS DEFICIT June 2023 – Stock Options As part of the Employment Agreement, as defined in Note 6 – Commitments and Contingencies, the executive was granted an incentive stock option (“Incentive Option”) and a non-qualified stock option (“Non-Qual Option”) (collectively “Stock Options”) to purchase 600,000 and 1,900,000 , respectively, shares of the Company’s common stock for $ 0.50 per share. The Stock Options are exercisable for a period of seven years from the date of grant, which was June 19, 2023 (“Grant Date”). The Incentive Option shall vest and become exercisable as follows: (i) options to purchase up to 200,000 shares of Common Stock shall vest and become exercisable on the first anniversary of the Grant Date; (ii) options to purchase up to 200,000 shares of Common Stock shall vest and become exercisable on the second anniversary of the Grant Date; and (iii) options to purchase up to 200,000 shares of Common Stock shall vest and become exercisable on the third anniversary of the Grant Date; provided that the Optionee is an employee in good standing with the Company on such applicable vesting date. The Incentive Option Grant Date fair value of $ 300,000 was calculated using the Black Scholes fair value option-pricing model with key input variables provided by management, as of the date of issuance: volatility of 339 %, the fair value of common stock $ 0.50 , estimated life of 5 years, risk-free rate of 3.99 % and dividend rate of $ 0 . For the year ended December 31, 2023, approximately $ 98,000 was earned. Of the amount earned of $ 98,000 approximately $ 74,000 was capitalized as date center cost and the remaining $ 24,000 was expensed as stock-based compensation. The Non-Qual Option shall vest and become exercisable as follows: (1) 216,666 shares on each of the first two anniversaries of the Grant Date and 216,668 shares on the third anniversary of the Grant Date, provided that the Optionee is an employee or Board member in good standing with the Company on such applicable vesting date. (2) the remaining 1,250,000 shares based on the Company completing the following milestones: a. 250,000 shares upon completion of the initial site development plan and Data Center design, and submission of a complete set of plans to Imperial County Planning and Development Department for approvals and permits. b. 250,000 shares upon the Company receiving permits necessary to start construction of the data center site and facilities (including but not limited to power substation, water delivery, pumping, storage and on-site distribution systems, fiber conduit lines and communications systems, and on-site roads, water, power and communications grid, warehousing, offices, administration, support and security buildings, perimeter walls and security systems). c. 250,000 shares upon the completion of construction of a complete data center facility and receipt of an occupancy permit for such facility, either for a Data Center facility to be built as a “build to suit” building for a hyperscale company or as a wholesale colocation building for enterprise IT customers. d. 500,000 shares upon signing a build-to-suit contract or one or more contracts being signed for 50% or more of a constructed and operational wholesale colocation facility’s capacity. The Company’s management has accounted for the Non-Qual Option in accordance with ASC 718 – Stock Compensation (“ASC 718”). ASC 718 requires the Company to estimate the service period over which the compensation cost will be recognized. Management has estimated that the first development phase (a) will be completed by March 31, 2024, the second development phase (b) by September 30, 2024, the third development phase (c) by March 31, 2025 and the fourth development phase by September 30, 2025. The estimated service period will be adjusted for actual and expected completion date changes. Any such change will be recognized prospectively, and the remaining deferred compensation will be recognized over the remaining service period. F- 14 The Non-Qual Option Grant Date fair value of $ 875,000 was calculated using the Black Scholes fair value option-pricing model with key input variables provided by management, as of the date of issuance: volatility range of 137 % to 338 %, the fair value of common stock $ 0.50 , estimated life range of 3.9 years to 5.0 years, risk-free rate range of 3.99 % to 5.24 % and dividend rate of $ 0 . The calculated compensation for the year ended December 31, 2023 was approximately $ 279,000 of which $ 209,000 was capitalized as data center development cost and the remaining $ 70,000 was expensed as stock-based compensation. December 2023 Stock Options In December 2023, the Board of Directors approved the issuance of stock options to the directors for the purchase of 500,000 , 750,000 and 404,000 of the Company’s common stock, for a total of 1,654,000 shares, to the three directors (“Directors Options”) for an exercise price of $ 0.54 , which was the fair market value of the Company’s common stock on the date of issuance. The Director Options vested on December 31, 2023 and expire on December 29, 2030. The Director Options grant date fair value of approximately $ 860,000 was calculated using the Black Scholes fair value option-pricing model with key input variables provided by management as of the date of issuance: volatility of 224.03 %, the fair value of common stock $ 0.54 , estimated life of 3.5 years, risk-free rate of 4.12 % and dividend rate of $ 0 . The Director Options grant date fair value of $ 860,000 was included in the equity-based compensation in the Statement of Operations for the year ended December 31, 2023. In December 2023, the Board of Directors approved the issuance of stock options to the Company’s CEO and COO for the purchase of 1,000,000 and 1,000,000 , respectively (“2023 Executive Options”) for an exercise price of $ 0.54 , which was the fair market value of the Company’s common stock on the date of issuance. The 2023 Executive Options vest, as follows: The both the CEO and COO 1,000,000 options vest and become exercisable as follows: (1) 166,667 shares on each of December 6, 2024, 2025 and 2026 for a total of 500,000 shares, upon vesting the options have life of seven years. (2) the remaining 500,000 shares based on the Company completing the following milestones (upon vesting the options have a life of seven year): a. 100,000 shares upon completion of the initial site development plan and Data Center design, and submission of a complete set of plans to Imperial County Planning and Development Department for approvals and permits. b. 100,000 shares upon the Company receiving permits necessary to start construction of the data center site and facilities (including but not limited to power substation, water delivery, pumping, storage and on- site distribution systems, fiber conduit lines and communications systems, and on-site roads, water, power and communications grid, warehousing, offices, administration, support and security buildings, perimeter walls and security systems). c. 100,000 shares) upon the completion of construction of a complete data center facility and receipt of an occupancy permit for such facility, either for a Data Center facility to be built as a “build to suit” building for a hyperscale company or as a wholesale colocation building for enterprise IT customers. d. 200,000 shares) upon the signing of a build-to-suit contract or one or more contracts being signed for 50% or more of a constructed and operational wholesale colocation facility’s capacity. The Company’s management has accounted for the 2023 Executive Options in accordance with ASC 718 – Stock Compensation (“ASC 718”). ASC 718 requires the Company to estimate the service period over which the compensation cost will be recognized. Management has estimated that the first development phase (a) will be completed by October 30, 2024, the second development phase (b) by February 2025, the third development phase (c) by April 1, 2025 and the fourth development phase (d) by September 1, 2026. The estimated service period will be adjusted for actual and expected completion date changes. Any such change will be recognized prospectively, and the remaining deferred compensation will be recognized over the remaining service period. The 2023 Executive Options grant date fair value of $ 1,060,000 was calculated using the Black Scholes fair value option-pricing model with key input variables provided by management, as of the date of issuance: volatility range of 232.67 % to 235.04 %, the fair value of common stock $ 0.50 , estimated life range of 4.5 years to 4.77 years, risk-free rate of 4.12 % and dividend rate of $ 0 . For the year ended December 31, 2023, the Company recorded compensation expenses of approximately $ 59,000 , of which approximately $ 21,000 was expensed as compensation expense and approximately $ 38,000 was capitalized as data center cost. F- 15 In December 2023, the Board of Directors approved the issuance of stock options to two consultants, an executive advisor and data center development advisor, for the purchase of 350,000 and 350,000 , for each consultant (collectively “2023 Consultant Options”) for an exercise price of $ 0.54 , which was the fair market value of the Company’s common stock on the date of issuance. The 350,000 options for data center development consultant vest, as follows: (1) 43,750 shares on each of December 6, 2024, 2025 2026 and 2027 for a total of 175,000 shares, upon vesting the options have life of seven years. (2) the remaining 175,000 shares based on the Company completing the following milestones (upon vesting the options have a life of seven year): a. 35,000 upon completion of the initial site development plan and Data Center design and 100% Construction Documents. b. 17,500 upon the Award of a GMP contract to a construction manager/company c. 17,500 shares upon the Company receiving permits necessary to start construction of the data center site and facilities (including but not limited to power substation, water delivery, pumping, storage and onsite distribution systems, fiber conduit lines and communications systems, and on-site roads, water, power and communications grid, buildings, perimeter walls and security systems). d. 35,000 upon the completion of all Network Ready meet me rooms in the first data center e. 70,000 shares upon the completion of construction of a customer-ready data center facility and receipt of an conditional occupancy permit for a Data Center facility. The Company’s management has accounted for the data center development consultant options in accordance with ASC 718 – Stock Compensation (“ASC 718”). ASC 718 requires the Company to estimate the service period over which the compensation cost will be recognized. Management has estimated that the first development phase (a) will be completed by October 1, 2024, the second development phase (b) by December 31, 2024, the third development phase (c) by April 1, 2025, and the fourth and fifth development phases (d) and (e) by September 1, 2026. The estimated service period will be adjusted for actual and expected completion date changes. Any such change will be recognized prospectively, and the remaining deferred compensation will be recognized over the remaining service period. The data center development consultant options grant date fair value of $ 189,000 was calculated using the Black Scholes fair value option-pricing model with key input variables provided by management, as of the date of issuance: volatility 322.83 %, the fair value of common stock $ 0.50 , estimated life of 5.5 years, risk-free rate of 4.12 % and dividend rate of $ 0 . For the year ended December 31, 2023, the Company recorded compensation expenses of approximately $ 7,000 , which was capitalized as data center cost. The 350,000 options for executive advisor, as follows: a. 70,000 upon completion of the initial site development plan and data center design and 100% construction documents. b. 35,000 upon the award of a GMP contract to a construction manager/company. c. 35,000 options upon the Company receiving the permits necessary to start construction of the data center site and facilities. d. 70,000 options upon the completion of a network-ready meeting room in the first data center. e. 140,000 options upon the completion of construction of a customer-ready data center facility and receipt of a conditional occupancy permit for a data center facility. The Company’s management has accounted for the executive advisors options in accordance with ASC 718 – Stock Compensation (“ASC 718”). ASC 718 requires the Company to estimate the service period over which the compensation cost will be recognized. Management has estimated that the first development phase (a) will be completed by October 1, 2024, the second development phase (b) by December 31, 2024, the third development phase (c) by April 1, 2025, and the fourth and fifth development phases (d) and (e) by September 1, 2026. The estimated service period will be adjusted for actual and expected completion date changes. Any such change will be recognized prospectively, and the remaining deferred compensation will be recognized over the remaining service period. The data center development consultant options grant date fair value of $ 182,000 was calculated using the Black Scholes fair value option-pricing model with key input variables provided by management, as of the date of issuance: volatility of 224.03 %, the fair value of common stock $ 0.50 , estimated life of 3.5 years, risk-free rate of 4.127 % and dividend rate of $ 0 . For the year ended December 31, 2023, the Company recorded compensation expenses of approximately $ 8,000 , which was capitalized as data center cost. SCHEDULE OF STOCK OPTION ACTIVITIES Number of Shares Weighted Average Strike Price/Share Weighted Average Remaining Contractual Term (Years) Weighted Average Grant Date Fair Value/Share Aggregate Intrinsic Value Balance, January 1, 2021 - $ - - $ - $ – Granted - - - - - Forfeited – – – – – Exercised – – – – – Expired – – – – – Balance, December 31, 2022 - - - - - Granted 6,854,000 0.53 7.00 0.51 2,980,000 Forfeited – – – – – Exercised – – – – – Expired - - - - - Balance, December 31, 2023 6,854,000 0.53 7.00 0.51 2,980,000 Vested and exercisable, December 31, 2023 1,654,000 0.54 7.00 0.52 695,000 Unvested, December 31, 2023 5,200,000 $ 0.52 7.00 $ 0.50 $ 2,285,000 F- 16 Warrants In November 2023, the Company issued two warrants to purchase 2,000,000 and 3,545,801 (“2023 Warrants”) to two of the Company’s directors. The 2023 Warrants have an exercise price of $ 0.54 , which was the fair value of the Company’s common stock on the date of issuance. The 2023 Warrants vested on December 31, 2023 and expire on December 31,2028. The 2023 Warrants grant date fair value of approximately $ 2,056,000 was calculated using the Black Scholes fair value option-pricing model with key input variables provided by management, as of the date of issuance: volatility of 123.0 %, the fair value of common stock $ 0.54 , estimated life of 2.5 years, risk-free rate of 4.33 % and dividend rate of $ 0 . The 2023 Warrants’ grant date fair value of $ 2,056,000 was included in the equity-based compensation in the Statement of Operations for the year ended December 31, 2023. During the year ended December 31, 2023, 100,804 warrants expired, and 1,567,500 warrants were forfeited with conversion of the associated Convertible Promissory Notes (see Note 5). SCHEDULE OF WARRANTS ACTIVITY Number of Shares Weighted Average Strike Price/Share Weighted Average Remaining Contractual Term (Years) Weighted Average Grant Date Fair Value/Share Aggregate Intrinsic Value Balance, January 1, 2022 2,021,304 $ 1.84 2.28 $ 1.80 $ - Granted - - - - - Forfeited – – – – – Exercised – – – – – Expired ( 253,000 ) 1.50 - 1.37 – Balance, December 31, 2022 1,768,304 1.84 1.58 1.86 - Granted 5,545,801 0.54 0.66 – – Forfeited ( 1,567,500 ) 1.86 – – – Exercised - – – – – Expired ( 100,804 ) 1.50 2.98 1.14 0.17 Balance, December 31, 2023 5,645,801 1.84 3.00 1.49 1,118,000 Vested and exercisable, December 31, 2022 5,645,801 1.84 3.00 1.49 1,118,000 Unvested, December 31, 2023 – $ – – $ – $ – Note 8 – Income Taxes INCOME TAXES For the period ended December 31, 2023, the Company generated a current income tax provision of Nil . Additionally, no deferred income taxes have been recorded due to the uncertainty of the realization of any tax assets. On December 31, 2023, the Company has net operating loss (“NOL”) carryforwards for Federal income tax purpose of $ 6,295,000 and for state income tax purpose of $ 6,288,000 that may be offset against future taxable income. For federal purposes, there is an unlimited carryforward period, and for state purposes, the net operating losses begin to expire in 2037 if not utilized by then. The income tax (benefit)/expense attributable to loss consisted of the following, for the year ended December 31: SCHEDULE OF INCOME TAX (BENEFIT) EXPENSE 2023 2022 Current provision for income taxes: Federal $ - $ - State - - Total current income tax - - Deferred tax expense: Federal - - State - - Total deferred tax - - Total income tax $ - $ - A reconciliation of the federal statutory income tax rate to the Company’s effective income tax rate is as follows: SCHEDULE OF RECONCILIATION OF INCOME TAX 2023 2022 Taxes calculated at federal rate 21.0 % 21.0 % Permanent differences ( 13.8 ) - State tax, net of federal impact - - Return to provision - - Other 2.3 14.4 Change in valuation allowance ( 9.5 ) ( 35.4 ) Provision for income taxes 0 % 0 % F- 17 The tax effects, rounded to thousands, of temporary differences that give rise to significant portions of the deferred tax assets at December 31, are presented below: SCHEDULE OF COMPONENTS OF DEFERRED TAX ASSETS 2023 2022 Deferred tax assets Net operating loss carryforwards $ 1,786,000 $ 1,661,000 Stock based compensation 328,000 9,000 Intangible assets 1,000 1,000 Impairment loss 38,000 38,000 Total deferred tax assets 2,153,000 1,709,000 Deferred tax liability Deferred tax liability - - Total deferred tax liability - - Net deferred tax assets 2,153,000 1,709,000 Valuation allowance ( 2,153,000 ) ( 1,709,000 ) Net deferred tax $ — $ — Deferred tax assets and liabilities are computed by applying the federal and state income tax rates in effect to the gross amounts of temporary differences and other tax attributes, such as net operating loss carryforwards. In assessing if the deferred tax assets will be realized, the Company considers whether it is more likely than not that some or all of these deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the period in which these deductible temporary differences reverse. For financial reporting purposes, the Company has incurred a loss in each period since its inception. Based on all available evidence, including the Company’s history of losses, management believes it is more likely than not that the net deferred tax assets will not be fully realizable. Accordingly, the Company provided for a full valuation allowance against its net deferred tax assets on December 31, 2023, and 2022. During the years ended December 31, 2023, and 2022, the valuation allowance increased (decreased) by $ 444,000 and $ ( 782,000 ) , respectively. The increase was mostly attributable to the increase in our net operating loss carryforwards. The total valuation allowance results from the Company’s estimate of its inability to recover its net deferred tax assets. On December 31, 2023, the Company has federal and state net operating loss carryforwards, which are available to offset future taxable income, of approximately $ 6,295,000 which for federal purposes has an unlimited carryforward period and $ 6,330,000 which for state purposes begins to expire in 2037. These carryforwards may be subject to an annual limitation under Section 382 and 383 of the Internal Revenue Code of 1986, and similar state provisions if the Company experienced one or more ownership changes that would limit the amount of NOL and tax credit carryforwards that can be utilized to offset future taxable income and tax, respectively. In general, an ownership change, as defined by Sections 382 and 383, results from transactions increasing ownership of certain stockholders or public groups in the stock of the corporation by more than 50 percentage points over a three-year period. The Company has not completed an IRC Section 382/383 analysis. If a change in ownership were to have occurred, NOL and tax credit carryforwards could be eliminated or restricted. If eliminated, the related asset would be removed from the deferred tax asset schedule with a corresponding reduction in the valuation allowance. Due to the existence of the valuation allowance, limitations created by future ownership changes, if any, will not impact the Company’s effective tax rate. The Company files income tax returns in the United States and the state of California. The statute of limitation is 3 and 4 years for Federal and California, respectively. The first year that remains open is tax year ended December 31, 2020 and December 31, 2019 for Federal and California, respectively. As of December 31, 2023 and 2022, there are no unrecognized tax benefits, and there are no significant accruals for interest related to unrecognized tax benefits or tax penalties. The Company is in the process of analyzing its NOL and has not determined if the company has had any change of control issues that could limit the future use of NOL. The NOL carryforwards that were generated after 2017 of approximately $ 6,338,000 may only be used to offset 80 % of future taxable income and are carried forward indefinitely. Note 9 – Subsequent Events SUBSEQUENT EVENTS The Company evaluated all events that occurred after the balance sheet date through the date the financial statements were issued to determine if they must be reported. The management determined there are no reportable events except for the following. In January and February 2024, the remaining convertible promissory notes principal balance and accrued interest of $ 341,000 and $ 115,000 , respectively were converted into 884,942 shares of the Company’s common stock. In February 2024, the Company issued 100,000 shares of the Company’s common stock to an individual who held a promissory note issued on August 31, 2018 by M1 Advisors LLC. In February 2024, issued a promissory note in the principal amount of $ 1,000,000 that bears interest at the rate of 10 % per annum and matures on May 30, 2024 and a five -year warrant to purchase up to 200,000 shares of common stock with an initial exercise price of $ 0.50 per share. In February 2024, the Company hired a consulting firm to develop an environmental health and safety program compliant with ISO 45001 requirements for an estimated fee of $ 200,000 . On March 1, 2024, the Company hired an individual as vice president of data center development with an annual salary of $ 225,000 . The salary increases to $ 240,000 and $ 250,000 on the 1st and 2nd anniversary dates, respectively. Also, the individual is eligible for an annual bonus of up to 25%, 35%, and 40% of the annual salary for the 1st, 2nd, and 3 rd calendar years, respectively. F- 18