UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the quarterly period ended September 30, ~~2022~~2023

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the transition period from __________ to __________

Commission File No. 000-50331

CalEthos, Inc.

(Exact name of registrant as specified in its charter)

Nevada		98-0371433
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

11753 Willard Avenue Tustin, California		92782
(Address of Principal Executive Offices)		(Zip Code)

(714) 352-5315

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

☐	Large accelerated filer	☐	Accelerated filer
☒	Non-accelerated filer	☒	Smaller reporting company
		☐	Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ☐ No ☒☒`

As of November ~~3, 2022,~~15, 2023, there were 14,495,621 outstanding shares of the registrant’s common stock, par value $0.001 per share.

TABLE OF CONTENTS

		PAGE
Cautionary Note Regarding Forward Looking Statements		iii

PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)	ii
	Condensed Consolidated Balance Sheets as of September 30, ~~2022~~2023 (unaudited) and December 31, ~~2021~~2022	1
	~~Unaudited~~ Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2023 and 2022 ~~and 2021~~(unaudited)	2
	~~Unaudited~~ Condensed Consolidated Statements of Changes in Stockholders’ Deficit for the ~~Each of the~~ three ~~quarters~~and nine months ended September 30, 2023 and 2022 ~~and 2021~~(unaudited).	3
	~~Unaudited~~ Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022 ~~and 2021~~(unaudited)	4
	Condensed Consolidated Notes to the Interim Unaudited ~~Condensed Consolidated~~ Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1211
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	1514
Item 4.	Controls and Procedures	15

PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	16
Item 1A.	Risk Factors	16
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	16
Item 3.	Default Upon Senior Securities	16
Item 4.	Mine Safety Disclosures	16
Item 5.	Other Information	16
Item 6.	Exhibits	16
	Signatures	17

~~-i-~~i

PART I - FINANCIAL INFORMATION

Item 1: Financial Statements

CalEthos, Inc.

For the Nine Months Ended September 30, ~~2022~~2023

Index to the Condensed Consolidated Financial Statements

Contents		Page (s)

Condensed Consolidated Balance Sheets as of September 30, ~~2022~~2023 (unaudited) and December 31, ~~2021~~2022		1

Unaudited Condensed Consolidated Statements of Operations for the three and nine months ended September 30, ~~2022~~2023 and ~~2021~~2022		2

Unaudited Condensed Consolidated Statements of Stockholders’ Deficit for ~~each of~~ the three ~~quarters~~and nine months ended September 30, ~~2022~~2023 and ~~2021~~2022		3

Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, ~~2022~~2023 and ~~2021~~2022		4

Notes to the Unaudited Condensed Consolidated Financial Statements		5

~~-ii-~~ii

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain information set forth in this Quarterly Report on Form 10-Q, including in Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere herein, may address or relate to future events and expectations and, as such, constitutes “forward-looking statements” within the meaning of the Private Securities Litigation Act of 1995. Statements which are not historical reflect our current expectations and projections about our future results, performance, liquidity, financial condition, prospects and opportunities and are based upon information currently available to us and our management and their interpretation of what is believed to be significant factors affecting our business, including many assumptions regarding future events. Such forward-looking statements include statements regarding, among other things:

	●	our ability to implement our current stated business plans;

	●	our ability to retain key members of our management team;

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

	●	our anticipated needs for working capital; and

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

Forward-looking statements, which involve assumptions and describe our future plans, strategies, and expectations, are generally identifiable by use of the words “may,” “should,” “would,” “could,” “scheduled,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” “seek,” or “project” or the negative of these words or other variations on these words or comparable terminology. Actual results, performance, liquidity, financial condition and results of operations, prospects and opportunities could differ materially and perhaps substantially from those expressed in, or implied by, these forward-looking statements as a result of various risks, uncertainties and other factors.

Readers should not place undue reliance on any forward-looking statements. Except as expressly required by the federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason.

~~-iii-~~iii

CalEthos, Inc.

Condensed Consolidated Balance Sheets

	As of September 30, 2022			As of December 31, 2021			As of September 30, 2023			As of December 31, 2022
		(Unaudited)					(Unaudited)
Assets
Current assets
Cash and cash equivalents	$	2,249,000		$	3,047,000		$	1,178,000		$	2,067,000
Prepaid and other current expenses		1,000			7,000
Prepaid and other current assets								12,000			4,000
Total current assets	$	2,250,000		$	3,054,000			1,190,000			2,071,000

Other assets		-			38,000
Data center costs								1,429,000			-
Total assets		2,250,000			3,092,000		$	2,619,000		$	2,071,000

Liabilities and stockholders’ deficit
Current liabilities
Accounts payable and accrued expenses	$	464,000		$	434,000		$	1,378,000		$	540,000
Convertible promissory notes, net		4,613,000			3,087,000			4,613,000			4,613,000
Notes payable		86,000			111,000			61,000			61,000
Total current liabilities		5,163,000			3,632,000			6,052,000			5,214,000

Stockholders’ 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; 14,495,621 and 25,995,621 shares issued and outstanding		15,000			26,000
Preferred stock,value								-			-
Common stock par value $0.001: 100,000,000 shares authorized; 14,495,621 and 24,495,621 shares issued and outstanding								14,000			24,000
Additional paid-in capital		11,488,000			16,269,000			11,711,000			11,480,000
Other comprehensive loss		17,000			(2,000	)
Other comprehensive income								8,000			5,000
Stock subscription receivable		(2,000	)		(2,000	)		(2,000	)		(2,000	)
Accumulated deficit		(14,431,000	)		(16,831,000	)		(15,164,000	)		(14,650,000	)
Total stockholders’ deficit		(2,913,000	)		(540,000	)		(3,433,000	)		(3,143,000	)

Total liabilities and stockholders’ deficit	$	2,250,000		$	3,092,000		$	2,619,000		$	2,071,000

See accompanying notes to these ~~Unaudited Condensed Consolidated Financial Statements.~~unaudited condensed consolidated financial statements.

CalEthos, Inc.

Unaudited Condensed Consolidated Statements of Operations

	2023			2022			2023			2022
	For the three months ended September 30,						For the nine months ended September 30,
	2023			2022			2023			2022
Revenues	$	-		$	-		$	-		$	-

Operating Expenses
Professional fees		48,000			136,000			234,000			558,000
Restricted stock grants		31,000			(11,168,000	)		55,000			(4,791,000	)
General and administrative expenses		13,000			24,000			54,000			59,000
Impairment loss		-			-			-			154,000
Operating (income) expenses		92,000			11,008,000			343,000			(4,020,000	)

(Loss)Income from operations		(92,000	)		11,008,000			(343,000	)		4,020,000

Other income (expenses)
Interest income		14,000			1,000			45,000			1,000
Gain on settlement of accounts payable		-			-			23,000			-
Financing costs		(20,000	)		(509,000	)		(239,000	)		(1,622,000	)
Total other expense		(6,000	)		(508,000	)		(171,000	)		(1,621,000	)

(Loss) Income before provision for income taxes		(98,000	)		10,500,000			(514,000	)		2,399,000
Provision for income taxes		-			-			-			-

Net (loss) income	$	(98,000	)	$	10,500,000		$	(514,000	)	$	2,399,000

Net income (loss) per share - basic	$	(0.01	)	$	0.74		$	(0.04	)	$	0.10
Net income (loss) per share - diluted	$	(0.01	)	$	0.56		$	(0.04	)	$	0.08

Weighted average common shares outstanding - Basic		14,495,621			14,176,349			14,495,621			24,769,518
Weighted average common shares outstanding - diluted		14,495,621			18,953,625			14,495,621			29,546,794

Comprehensive loss:
Net income (loss)	$	(98,000	)	$	10,500,000		$	(514,000	)	$	2,399,000
Foreign currency translation adjustment		-			20,000			-			19,000
Comprehensive (Loss) Income	$	(98,000	)	$	10,520,000		$	(514,000	)	$	2,418,000

2022 2021 2022 2021
For the three months ended
September 30, For the nine months ended
September 30,
2022 2021 2022 2021
Revenues $ - $ - $ - $ -

Operating Expenses
Professional fees 136,000 118,000 558,000 824,000
Restricted stock grants (11,168,000 ) 1,745,000 (4,791,000 ) 1,745,000
General and administrative expenses 24,000 13,000 59,000 18,000
Impairment loss - - 154,000 -
Operating (income) expenses (11,008,000 ) 1,876,000 (4,020,000 ) 2,587,000

Income(loss) from operations 11,008,000 (1,876,000 ) 4,020,000 (2,587,000 )

Other income (expenses)
Interest income 1,000 - 1,000 -
Financing costs (509,000 ) (187,000 ) (1,622,000 ) (226,000 )
Total other expense (508,000 ) (187,000 ) (1,621,000 ) (226,000 )

Income (loss) before provision for income taxes 10,500,000 (2,063,000 ) 2,399,000 (2,813,000 )
Provision for income taxes - - - -

Net income (loss) $ 10,500,000 $ (2,063,000 ) $ 2,399,000 $ (2,813,000 )

Net income (loss) per share - basic $ 0.74 $ (0.12 ) $ 0.10 $ (0.16 )
Net income (loss) per share - diluted $
0.56
$
(0.12
) $
0.08
$
(0.16
)

Weighted average common shares outstanding - Basic 14,176,349 17,602,886 24,769,518 17,282,889
Weighted average common shares outstanding - diluted
18,953,625

17,602,886

29,546,794

17,282,889

Comprehensive loss:
Net income (loss) $ 10,500,000 $ (2,063,000 ) $ 2,399,000 $ (2,813,000 )
Foreign currency translation adjustment 20,000 - 19,000 -
Comprehensive income (loss) $ 10,520,000 $ (2,063,000 ) 2,418,000 $ (2,813,000 )

See accompanying notes to these Unaudited Condensed Consolidated Financial Statements.

CalEthos, Inc.

Unaudited Condensed Consolidated Statements of Stockholders’ Deficit

For the Three and Nine Months Ended September 30, 2023 and 2022

Shares Loss Shares Amount Shares Amount Capital Receivable 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, January 1, 2022 - $ - - $ - 25,995,621 $ 26,000 $ 16,269,000 $ (2,000 ) $ (2,000 ) $ (16,831,000 ) $ (540,000 )
Restricted stock grants - - - - - - 3,170,000 - - - 3,170,000
Forgein currency translation income (loss) - - - - - - - - (3,000 ) - (3,000 )
Net loss - - - - - - - - - (3,926,000 ) (3,926,000 )
Balance, March 31, 2022 - - - - 25,995,621 26,000 19,439,000 (2,000 ) (5,000 ) (20,757,000 ) (1,299,000 )
Restricted stock grants - - - - - - 3,206,000 3,206,000
Forgein currency translation income (loss) - - - - - - - - 2,000 2,000
Net loss - - - - - - - - - (4,174,000 ) (4,174,000 )
Balance, June 30, 2022 - - - - 25,995,621 26,000 22,645,000 (2,000 ) (3,000 ) (24,931,000 ) (2,265,000 )
Forfeiture of stock-based compensation (11,500,000 ) (11,000 ) (11,157,000 ) (11,168,000 )
Forgein currency translation income (loss) - - - - - - - - 20,000 20,000
Net loss - - - - - - - - - 10,500,000 10,500,000
Balance, Sep 30, 2022 - $ - - $ - 14,495,621 $ 15,000 $ 11,488,000 $ (2,000 ) $ 17,000 $ (14,431,000 ) $ (2,913,000 )

	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’
	Shares		Amount		Shares		Amount		Shares			Amount			Capital			Receivable			Income (Loss)			Deficit			(Deficit)

Balance, January 1, 2023		-	$	-		-	$	-		24,495,621		$	24,000		$	11,480,000		$	(2,000	)	$	5,000		$	(14,650,000	)	$	(3,143,000	)
Foreign currency translation income		-		-		-		-		-			-			-			-			2,000			-			2,000
Net loss		-		-		-		-		-			-			-			-			-			(199,000	)		(199,000	)
Balance March 31, 2023		-		-		-		-		24,495,621			24,000			11,480,000			(2,000	)		7,000			(14,849,000	)		(3,340,000	)
Fair value of equity-based compensation		-		-		-		-		-			-			24,000			-			-			-			24,000
Cancellation of shares		-		-		-		-		(10,000,000	)		(10,000	)		10,000			-			-			-			-
Foreign currency translation income		-		-		-		-		-			-			-			-			1,000			-			1,000
Net loss		-		-		-		-		-			-			-			-			-			(217,000	)		(217,000	)
Balance, June 30, 2023		-	$	-		-	$	-		14,495,621		$	14,000		$	11,514,000		$	(2,000	)	$	8,000		$	(15,066,000	)	$	(3,532,000	)
Fair value of equity-based compensation		-		-		-		-		-			-			197,000			-			-			-			197,000
Net loss		-		-		-		-		-			-			-			-			-			(98,000	)		(98,000	)
Balance, September 30,2023		-	$	-		-	$	-		14,495,621		$	14,000		$	11,711,000		$	(2,000	)	$	8,000		$	(15,164,000	)	$	(3,433,000	)

Balance, January 1, 2022		-	$	-		-	$	-		25,995,621		$	26,000		$	16,269,000		$	(2,000	)	$	(2,000	)	$	(16,831,000	)	$	(540,000	)
Equity-based compensation on restricted stock awards		-		-		-		-		-			-			3,170,000			-			-			-			3,170,000
Foreign currency translation loss		-		-		-		-		-			-			-			-			(3,000	)		-			(3,000	)
Net loss		-		-		-		-		-			-			-			-			-			(3,926,000	)		(3,926,000	)
Balance March 31, 2022		-		-		-		-		25,995,621			26,000			19,439,000			(2,000	)		(5,000	)		(20,757,000	)		(1,299,000	)
Equity-based compensation on restricted stock awards		-		-		-		-		-			-			3,206,000			-			-			-			3,206,000
Foreign currency translation income		-		-		-		-		-			-			-			-			2,000			-			2,000
Net loss		-		-		-		-		-			-			-			-			-			(4,174,000	)		(4,174,000	)
Balance, June 30, 2022		-		-		-		-		25,995,621			26,000			22,645,000			(2,000	)		(3,000	)		(24,931,000	)		(2,265,000	)
Forfeiture of stock-based compensation		-		-		-		-		(11,500,000	)		(11,000	)		(11,157,000	)		-			-			-			(11,168,000	)
Foreign currency translation income (loss)		-		-		-		-		-			-			-			-			20,000			-			20,000
Net income		-		-		-		-		-			-			-			-			-			10,500,000			10,500,000
Net income (loss)		-		-		-		-		-			-			-			-			-			10,500,000			10,500,000
Balance, September 30,2022		-	$	-		-	$	-		14,495,621		$	15,000		$	11,488,000		$	(2,000	)	$	17,000		$	(14,431,000	)	$	(2,913,000	)

~~For the Nine Months Ended September 30, 2021~~

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, January 1, 2021 - $ - - $ - 16,634,951 $ 17,000 $ 8,744,000 $ (2,000 ) $ - $ (10,082,000 ) $ (1,323,000 )
Relative fair value of warrants issued with convertible promissory notes - - - - - - 3,000 - - - 3,000
Stock options issued for services - - - - - - 52,000 - - - 52,000
Stocks issued from debt forgiveness - - - - 75,000 - 98,000 - - - 98,000
Additional capital from debt forgiveness - - - - - - 68,000 - - 68,000
Net Loss - - - - - - - - - (92,000 ) (92,000 )
Balance, March 31, 2021 - - - - 16,709,951 17,000 8,965,000 (2,000 ) - (10,174,000 ) (1,194,000 )
Stocks returned - - - - (3,674,330 ) (4,000 ) 4,000 - -
Stock options issued for services - - - - 561,000 - - 561,000
Stock issued on exercise of warrants - - - - 1,435,000 2,000 - - - 2,000
Net loss - - - - (658,000 ) (658,000 )
Balance June 30, 2021 - - - - 14,470,621 15,000 9,530,000 (2,000 ) - (10,832,000 ) (1,289,000 )
Relative fair value of warrants issued with convertible promissory notes - - 1,687,000 - - 1,687,000
Stock-based compensation - 195,000 - 195,000
Restricted stock grants 11,500,000 11,000 1,539,000 - - 1,550,000
Net loss - - - - (2,063,000 ) (2,063,000 )
Balance September 30, 2021 - $ - - $ - 25,970,621 $ 26,000 $ 12,951,000 $ (2,000 ) $ - $ (12,895,000 ) $ 80,000

See accompanying notes to these ~~Unaudited Condensed Consolidated Financial Statements.~~unaudited condensed consolidated financial statements.

CalEthos, Inc.

Unaudited Condensed Consolidated Statements of Cash Flows

For the Nine Months Ended September 30,

		1			2
	For the nine months ended September 30,						2023			2022
	2022			2021
Cash Flows From Operating Activities
Net loss	$	2,399,000		$	(2,813,000	)
Adjustments to reconcile net loss to net cash used in operating activities:
Net (loss) income							$	(514,000	)	$	2,399,000
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Impairment		154,000			-			-			154,000
Amortization of convertible promissory note discounts		1,526,000			172,000			-			1,526,000
Fair value of equity-based compensation		-			770,000
Forfeiture of restricted stock grants		(11,168,000	)		-
Accretion of compensation cost for restricted stock awards		6,377,000			1,550,000
Forfeiture of restricted stock awards								-			(11,168,000	)
Equity-based compensation								55,000			6,377,000
Gain on settlement of accounts payable								(23,000	)		-
Changes in operating assets and liabilities
Prepaid expenses and other current assets		6,000			2,000			(8,000	)		6,000
Accounts payable and accrued expenses		32,000			18,000			450,000			32,000
Net Cash Used in Operating Activities		(674,000	)		(301,000	)		(40,000	)		(674,000	)

Cash Flows From Investing Activities
Data center costs								(854,000	)		-
Other assets		(106,000	)		-			-			(106,000	)
Net Cash Used in Investing Activities		(106,000	)		-			(854,000	)		(106,000	)

Cash Flows From Financing Activities
Proceeds from the issuance of convertible promissory notes		-			3,550,000
Proceeds from the issuance of notes payable		-			128,000
Repayments of Notes		(25,000	)		-			-			(25,000	)
Net Cash (Used in) Provided by Financing Activities		(25,000	)		3,678,000
Net Cash Used in Financing Activities								-			(25,000	)

Effect of exchange rate changes on cash and cash equivalents		7,000			-			5,000			7,000
Net increase (decrease) in Cash		(798,000	)		3,377,000
Cash, Beginning of Period		3,047,000			-
Cash, End of Period	$	2,249,000		$	3,377,000
Net decrease in cash								(889,000	)		(798,000	)
Cash, beginning of period								2,067,000			3,047,000
Cash, end of period							$	1,178,000		$	2,249,000

Supplemental disclosure of cash flow information:
Cash paid for interest	$	-		$	-		$	-		$	-
Cash paid for income taxes	$	-		$	-		$	-		$	-

Non-cash investing and financing activities
Relative fair value of warrants issued with convertible promissory notes	$			$	3,000
Accrued equity compensation granted	$	-		$	38,000
Common stock issued from forgiven debt	$	-		$	98,000
Additional capital from forgiven debt	$	-		$	68,000
Interest capitalized as data center cost							$	113,000		$	-
Stock based compensation capitalized as data center cost							$	166,000		$	-

See accompanying notes to these Unaudited Condensed Consolidated Financial Statements.

CalEthos, Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

September 30, ~~2022~~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 ~~containerized, immersion-cooled~~ data center ~~that provides~~operation using the latest energy-efficient building materials and cooling technologies and to provide wholesale colocation ~~data center~~ services to enterprise IT and hyperscale customers. In addition, the Company may acquire assets and all or part of other companies operating in the high-density computing industry or to invest in or joint venture with other more-established companies already in the industry that would add value to the Company’s business strategy.

InAs of July 2022, ~~due to the declining state of the bitcoin mining industry and market for its planned products,~~ the Company’s board of directors resolved to ~~discontinue the development in South Korea of the Company’s 5 nanometer ASIC chip and containerized, immersion-cooled bitcoin mining computer system and to~~ focus exclusively on developing ~~the~~a clean-energy-powered data center segment of its business strategy. The Company has suspended operations of its South Korean subsidiary and will decide in the next twelve months whether to use it to develop other products or dissolve it.

~~Amendments to Certificate of Incorporation~~

In October 2021, the Board of Directors authorized an amendment to the Articles of Incorporation of the Company to change the Company’s name to AIQ Blockchain, Inc. The name change has not yet been effected, and on July 2022, FINRA was notified that the Company was no longer changing its name or symbol and that the application was being withdrawn.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.

Basis of Presentation

The accompanying Condensed Consolidated Financial Statements and notes thereto are unaudited. The unaudited interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and note disclosures normally included in the Company’s annual financial statements have been condensed or omitted. The ~~September 30,~~December 31, 2022 condensed consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by GAAP. These interim unaudited condensed consolidated financial statements, in the opinion of management, reflect all normal recurring adjustments necessary for a fair presentation of the financial position, results of operations and cash flows for the interim ~~nine-months period~~nine-month periods ended September 30, ~~2022~~2023 and ~~2021.~~2022. The results for the nine months ended September 30, ~~2022~~2023 are not necessarily indicative of the results to be expected for the full year ending December 31, ~~2022~~2023 or for any future period.

These unaudited Condensed Consolidated Financial Statements should be read in conjunction with the Company’s audited Consolidated Financial Statements and the notes thereto for the year ended December 31, ~~2021,~~2022, included in the Company’s annual report on Form 10-K filed with the SEC on ~~March 31, 2022.~~April 17, 2023.

Liquidity and Going Concern

The Company incurred a net ~~income~~loss of approximately $~~2,399,000~~514,000 for the nine months ended September 30, ~~2022, of which $4,791,000~~ ~~was attributable to a non cash transaction for the reversal of compensation for restricted stock units, and~~2023, had an accumulated deficit of approximately $~~14,431,000~~15,164,000 as of September 30, ~~2022.~~2023 and had no recurring revenue from operation. 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 condensed consolidated financial statements.

The Company’s condensed consolidated financial statements have been presented on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

The Company is subject to a number of risks similar to those of other similar stage companies, including dependence on key individuals; successful development, marketing and branding of ~~products;~~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 ~~its~~the Company’s operations and generating a level of revenues adequate to support the Company’s cost structure.

The Company will need to raise debt or equity financing in the future in order to continue its operations and achieve its growth targets. However, there can be no assurance that such financing will be available in sufficient amounts and on acceptable terms, when and if needed, or at all. The precise amount and timing of the funding needs cannot be determined accurately at this time, and will depend on a number of factors, including 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 ~~products and~~wholesale colocation data center services, ~~the success of product development efforts,~~ the timing of ~~receipts~~customer commitments for ~~customer deposits,~~data center space, the management of working capital, and ~~the continuation of normal~~ payment terms and conditions for purchase of ~~goods and~~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 ~~substantially increase revenues, reduce expenditures, or otherwise generate cash flows from operations, then the Company will likely need to~~ raise additional funding from investors or through other avenues, it may not be able to continue as a going concern. The accompanying unaudited condensed consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

COVID-19

The continuing COVID-19 global pandemic has caused significant disruption to the economy and financial markets globally, and the full extent of the potential impacts of COVID-19 are not yet known. Circumstances caused by the COVID-19 pandemic are complex, uncertain and rapidly evolving. The impact of COVID-19 has not been significant to the Company’s results of operations, financial condition, and liquidity and capital resources. Although no material impairment or other effects have been identified to date, there is substantial uncertainty in the nature and degree of its continued effects over time. That uncertainty affects management’s accounting estimates and assumptions, which could result in greater variability in a variety of areas that depend on these estimates and assumptions as additional events and information become known. The Company will continue to consider the potential impact of the COVID-19 pandemic on its business operations.

Earnings Per Share

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

Securities that could potentially dilute loss per share in the future were not included in the computation of diluted loss per share for the three and nine months ended September 30, 2023 and 2022 because their inclusion would be anti-dilutive. Common share equivalents amounted to 14,495,621 as of September 30, 2023.

Recent Accounting Pronouncements

The Company’s management reviewed all recently issued accounting standard updates (“ASU’s”) not yet adopted by the Company and does not believe the future adoptions of any such ASU’s may be expected to cause a material impact on the Company’s condensed consolidated financial condition or the results of its operations.

Note 2 – ~~Intangible and Other Assets~~Data Center Costs

~~INTANGIBLE AND OTHER ASSETS~~DATA CENTER COSTS

On December 23, 2021, AIQ entered into a Technology Development Agreement (the “Agreement”) with PICOCEL, Co., Ltd. (the “Contractor” or “PICOCEL”) to develop a FPGA based Bitcoin mining simulation system. The Agreement was expected to be completed within 6 weeks for a total contract price of ~~198,000,000~~ ~~Korean Won (“KRW”) or approximately $167,000. Total payments made to PICOCEL as of September~~March 30, ~~2022 amounted to approximately $69,000. On March 17, 2022,~~2023, the Company ~~and PICOCEL entered into a mutual~~signed an option agreement to ~~cancel and terminate~~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 ~~Agreement.~~signing of the Option, which has been recognized as other assets in the condensed consolidated balance sheet. The Company is required to deposit an additional $84,000 into escrow (“Escrow Funds”) within 10 days after the execution of the purchase agreement. As of the ~~date~~issuance of these interim condensed consolidated financial statements, the escrow had not been set up. Once the escrow is set up, the Company will deposit the $84,000. If the Company does not exercise the Option by September 2024, the Escrow funds will be returned to the Company.

The Purchase Price is payable with a cash payment of $1,680,000 and the issuance of 840,000 shares of the ~~termination, PICOCEL had completed~~Company’s common stock (the “Purchase Shares”). At the ~~first phase~~closing of the ~~Agreement upon delivery~~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 ~~SHA-256 code and FPGA board simulator.~~closing date, with an interest rate equal to the Secured Overnight Financing Rate plus 2.0%.

On April 5, 2022, AIQ entered into a Technology Development Agreement (the “Agreement”) with NNS, Co., Ltd. (the “Contractor” or “NNS”) to develop a FPGA based Bitcoin mining simulation system. The Agreement was expected to be completed within 9 weeks for a total contract price of ~~99,000,000~~ ~~KRW, including~~ ~~9,000,000~~ ~~KRW VAT, or approximately $82,000. The payments are scheduled as follows:~~

~~SCHEDULE OF PAYMENTS~~

Amount
USD KRW
Within 5 days after signing the contract $ 41,000 49,500,000
Within 5 days after all conditions are met as stated in “Schedule B – Statement of Work” 41,000 49,500,000
Total $ 82,000 99,000,000

~~Payment of~~ ~~90,000,000~~ ~~KRW or approximately $69,000~~ ~~was made to NNS as of September 30, 2022 which was expensed and included in in the condensed consolidated statement of operations.~~

~~Impairment~~

During the six months ended June 30, 2022, the Bitcoin market was in a constant decline, and since the ASIC chip being developed by AIQ was planned to be used for Bitcoin mining machines, management believes that there is an impairment indicator as of June 30, 2022. Management plans to discontinue the operations of AIQ subsequent to June 30, 2022 and no more future cash flows are expected from AIQ.

Indicators of impairment include significant underperformance relative to historical or projected future operating results, significant changes in our use of the assets or in our business strategy, loss of or changes in customer relationships and significant negative industry or economic trends. When indications of impairment arise for a particular asset or group of assets, we assess the future recoverability of the carrying value of the asset (or asset group) based on an undiscounted cash flow analysis. If the ~~carrying value exceeds projected, net, undiscounted cash flows, an additional analysis is performed~~Purchase Shares are issued at the Closing Date, the Company has agreed to ~~determine~~repurchase the ~~asset’ (or asset group), typically a discounted cashflow analysis, and an impairment charge is recorded~~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 ~~excess of carrying value over fair value.~~Company to repurchase the Purchase Shares for $2.00 per share.

As of September 30, ~~2022, intangibles~~2023, the Company has incurred costs of approximately $1,232,000 for the development of the Data Center and ~~other assets were fully impaired. Impairment loss amounted to~~has capitalized approximately $~~154,000~~113,000~~, inclusive~~ of ~~a $12,000~~ ~~impairment of prepaid VAT~~interest expense related to the ~~services provided by PICOCEL and NNS.~~convertible promissory notes.

~~The table below summarizes~~On June 23, 2023, the ~~impairment loss~~Company signed a contract with HDR Engineering, Inc. to provide site assessment and feasibility to connect critical resources for data center operations and develop a shovel-ready development plan for the ~~nine months ended September 30, 2022:~~Company’s initial 80-acre site. The Company completed this development phase in October 2023 with an estimated cost of approximately $525,000.

~~SCHEDULE OF IMPAIRMENT LOSS~~

Amount VAT Total
PICOCEL $ 69,000 $ 5,000 $ 74,000
NNS 69,000 5,000 74,000
Total 138,000 10,000 148,000
Foreign exchange loss 4,000 2,000 6,000
Impairment loss $ 142,000 $ 12,000 $ 154,000

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 the dates indicated:

SCHEDULE OF ACCOUNTS PAYABLE AND ACCRUED EXPENSES

	September 30,		December 31,		September 30,		December 31,
	2022		2021		2023		2022
Accounts payable	$	251,000	$	221,000	$	508,000	$	186,000
Accrued expenses		2,000		99,000		193,000		28,000
Accrued interest		211,000		114,000		677,000		326,000
Accounts payable and accrued expenses	$	464,000	$	434,000	$	1,378,000	$	540,000

Accrued Interest

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

SCHEDULE OF ACCRUED INTEREST

	September 30,		December 31,		September 30,		December 31,
	2022		2021		2023		2022
Notes payable	$	18,000	$	9,000	$	23,000	$	17,000
Convertible promissory notes		193,000		105,000		654,000		309,000
Balance, end of the year	$	211,000	$	114,000
Balance, end of period					$	677,000	$	326,000

Note 4 – Notes Payable

NOTES PAYABLE

The table below summarizes the transactions as of the dates indicated:

SCHEDULE OF NOTES PAYABLE

	September 30,			December 31,			September 30,		December 31,
	2022			2021			2023		2022
Balance, beginning of the year	$	111,000		$	11,000		$	61,000	$	61,000
Additions		–			150,000			–		–
Payments		(25,000	)		(50,000	)		–		–
Balance, end of the year	$	86,000		$	111,000		$	61,000	$	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 $5,000, respectively, as of September 30, ~~2022. The note principal and interest are past due, therefore in default. For the nine months ended September 30, 2022 the Company has accrued approximately $2,000~~ ~~of default interest.~~

~~On February 19, 2021, the Company issued a promissory note in the principal amount of $25,000. The interest on the unpaid principal balance accrued at a rate of~~ 10~~% per annum. The principal and any accrued interest was to be paid in a single installment on or before~~ ~~February 19, 2022~~. If the Company fails to pay the balance of this note in full on the due date or fails to make any payment due within 15 days of the due date, any unpaid principal shall accrue interest at the rate of 15% per annum during the default (default interest). Events of default include failure to make any payment including accrued interest when due, voluntary, or involuntary petition of bankruptcy, appointment of a receiver, custodian, trustee or similar party to take possession of the Company’s assets or property, or assignment made by the Company for the benefit of creditors. The principal amount was settled in full on January 25, 2022.2023.

On April 22, 2021, the Company issued a promissory note in the principal amount of $50,000. The interest on the unpaid principal balance ~~accrued~~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 $50,000 and $18,000, respectively, as of September 30, ~~2022. The note principal and interest are past due, therefore in default. Interest accrued, including default interest, as of September 30, 2022 is $8,000~~.

~~On July 1, 2021, the Company issued a promissory note in the principal amount of $25,000. The interest on the unpaid principal balance accrues at a rate of~~ 10~~% per annum. The principal and any accrued interest was to be paid in a single installment on or before~~ ~~July 1, 2022. If the Company fails to pay the balance of this note in full on the date or fails to make any payments due within 15 days of the due date, any unpaid principal shall accrue interest at the rate of~~ 15% per annum during the default (default interest). Events of default include failure to make any payment including accrued interest when due, voluntary, or involuntary petition of bankruptcy, appointment of a receiver, custodian, trustee or similar party to take possession of the Company’s assets or property, or assignment made by the Company for the benefit of creditors. The principal amount outstanding under this note was $~~25,000~~ ~~as of September 30, 2022. The note principal and interest are past due, therefore in default. Interest accrued, including default interest, as of September 30, 2022 is $3,000~~.2023.

Interest expense on these notes payable amounted to $~~3,000~~9,000 and $9,000 for the ~~three and~~ nine months ended September 30, ~~2022, respectively,~~2023 and $~~4,000~~ ~~and $8,000~~ ~~for the three and nine months ended~~ September 30, ~~2021,~~2022, respectively.

Note 5 – Convertible Promissory Notes

CONVERTIBLE PROMISSORY NOTES

~~In 2021, the Company issued two convertible promissory notes amounting to $55,000~~ ~~and $3,850,000~~ ~~(the “Notes”), respectively. The total aggregate proceeds were $3,550,000~~ ~~due to a $355,000~~ ~~aggregate original issue discount. The Notes are non-interest bearing with the principal due and payable on~~ ~~March 1, 2022~~ ~~and~~ ~~August 31, 2022, respectively. Any amount of unpaid principal on the date of maturity will accrue interest at rate of~~ 10~~% per annum (default interest). Interest accrued as of September 30, 2022 is $35,000. The principal amount and all accrued interest are convertible into shares of the Company’s common stock, as of the date of issuance, at a rate of $1.00~~ ~~and $1.25~~ per share (“Conversion Rate”), respectively. The Conversion Rate is adjustable if, at any time when any principal amount of the Notes remains unpaid or unconverted, the Company issues or sells any shares of the Company’s common stock for no consideration or for a consideration per share (before deduction of reasonable expenses or commissions or underwriting discounts or allowances in connection therewith), which is less than the Conversion Rate in effect on the date of such issuance (or deemed issuance) of such shares of common stock (a “Dilutive Issuance”). Immediately upon a Dilutive Issuance, the Conversion Rate will be reduced to the amount of the consideration per share received by the Company in such Dilutive Issuance. Events of default include failure to issue conversion shares, the occurrence of a breach or default under any other agreement, any money judgment, writ, or similar process entered or filed against the Company or any of its property or other assets for more than $~~100,000~~, bankruptcy filing, application for the appointment of a custodian, trustee or receiver, insolvency, the Company’s common stock delisted, or dissolution, winding up, or termination of the business of the Company~~. The note principal and interest are past due, therefore in default.~~

~~In connection with the issuance of the Notes, the Company issued to the purchasers of the Notes stock purchase warrants (the “Warrants”) to purchase an aggregate of~~ ~~1,567,500~~ ~~shares of the Company’s common stock for a purchase price of $1.50~~ ~~to $1.87~~ ~~per share, subject to adjustments. The Warrants were valued using the Black Scholes option pricing model for a total fair value of $3,004,000~~ ~~based on a~~ 3~~-year term, volatility of~~ ~~404.91% to~~ ~~405.93%, a risk-free equivalent yield of~~ ~~0.27% to~~ ~~0.42%, and stock price ranging from $0.10~~ ~~to $1.95~~.

In accordance with ASC 470 - Debt, the Company has allocated the cash proceeds amounts of the Notes among the Notes, the Warrants and the conversion feature. The relative fair value of the Warrants issued amounted to approximately $~~1,690,000~~ ~~and the beneficial conversion amounted to $~~0~~, which amounts are being amortized and expensed over the term of the Notes.~~

~~The Company determined that the conversion feature of the Notes would not be an embedded feature to be bifurcated and accounted for as a derivative in accordance with ASC 815-15~~ ~~Derivatives and Hedging~~.

~~Financing cost recognized for the amortization of debt discount was approximately $1,526,000~~ ~~and $170,000~~ ~~for the nine months ended September 30, 2022 and 2021, respectively.~~

~~The convertible~~Convertible promissory notes consisted of the following as of the dates indicated:

SCHEDULE OF CONVERTIBLE PROMISSORY NOTES

September 30, December 31,
2022 2021
Principal
Balance, beginning of year $ 4,613,000 $ 708,000
Additions – 3,905,000
Balance, end of period 4,613,000 4,613,000

Discount
Balance, beginning of year 1,526,000 5,000
Additions – 2,045,000
Amortization (1,526,000 ) (524,000 )
Balance, end of period - 1,526,000
Net carrying amount $ 4,613,000 $ 3,087,000

	September 30,		December 31,
	2023		2022
Principal
Balance, beginning of year	$	4,613,000	$	4,613,000
Additions		–		–
Balance, end of year		4,613,000		4,613,000

Discount
Balance, beginning of year		–		1,526,000
Additions		–		–
Amortization		–		(1,526,000	)
Balance, end of year		–		–
Net carrying amount	$	4,613,000	$	4,613,000

~~Effective~~The effective interest rate used to amortize the debt discount for the nine months ended September 30, 2023 and 2022 ~~and 2021 ranges~~ranged from 4.76% to 64.60%.

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

SCHEDULE OF POTENTIAL FUTURE SHARES ISSUANCE OF CONVERSION NOTES

	September 30,		December 31,		September 30,		December 31,
	2022		2021		2023		2022
Principal	$	4,613,000	$	4,613,000	$	4,613,000	$	4,613,000
Interest		193,000		105,000		652,000		309,000
Total		4,806,000		4,718,000		5,265,000		4,922,000
Conversion price per share		1.00 – 1.25		1.00 – 1.25		1.00 – 1.25		1.00 – 1.25
Potential future share		4,028,844		3,947,394		4,212,000		4,125,699

~~The~~Interest expense on default ~~interest expense for the~~ convertible promissory notes amounted to $~~88,000~~ ~~and $48,000~~343,000 for the nine months ended September 30, ~~2022 and 2021, respectively.~~2023, of which $113,000 was capitalized as data center cost.

Note 6 – Commitments and ~~contingencies~~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. ~~In addition, the Company may receive letters alleging infringement of patent or other intellectual property rights.~~ The Company is not currently a party to any material legal proceedings, nor is the Company aware of any pending or threatened litigation that would have a material adverse effect on the Company’s business, operating results, cash flows, or financial condition should such litigation be resolved ~~unfavorably, except as follows.~~unfavorably.

~~On January 3, 2022, a complaint was filed against our company in~~Employment Agreement

In June 2023, the ~~Superior Court of California, County of Los Angeles titled~~ ~~Michael Sekula v. CalEthos Inc, Michael Campbell and Does 1-25~~ ~~(Case No. 22STCV00121) for, among other matters, failure~~Company executed an employment agreement (“Employment Agreement”) to ~~pay wages, fraud and other wage-related claims.~~ ~~In the complaint, the plaintiff claimed he worked under a consulting agreement as Vice President of Brand Management of our company and was~~employ an individual to be the Company’s President and Chief Operating Officer (“Executive”). As compensation for services rendered, the Executive will be paid a base salary of $~~4,000~~250,000 per ~~month~~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 ~~an option~~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 ~~50,000~~600,000 and 1,900,000 shares of ~~our~~the Company’s common stock that was to vest quarterly over the term of the agreement. In the complaint, the plaintiff alleged that, on or around March 27, 2020, the Company ceased paying the plaintiff despite the plaintiff’s continuing efforts on behalf of our company and that the Company agreed to continue to accrue his monthly retainer amount until such time that the Company received at least $~~100,000~~ ~~in funding. Plaintiff~~(see Note 7 – Stockholders Deficit) for further alleged that he continued to work for our company for 38 additional weeks in reliance on our promise of payment. The plaintiff claimed that our refusal to make the promised payments amounts to violations of the California labor laws and seeks damages in excess of $~~450,000~~.information.

~~On June 9, 2022, a Settlement~~The Employment Agreement ~~and Mutual Release was reached~~also provides for certain severance benefits upon termination by the ~~parties whereby as~~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 ~~consideration~~year of employment, the Executive would be entitled to (i) continued payment of the base salary for the ~~plaintiff’s execution~~lesser of six months or the remaining term of the Employment Agreement, subject to the Executive signing a timely and ~~compliance with the~~effective separation agreement ~~and plaintiff’s~~containing a release of all claims against the ~~defendants,~~Company and other customary terms; provided, however, that if such termination is between the ~~Company agreed~~91^stday and the end of the first year of employment, the Executive will be entitled to ~~pay~~ a ~~gross settlement amount~~pro-rata portion of $~~90,000. Such payment was made on June 23, 2022.~~such payment.

Note 7 – Stockholders Deficit

STOCKHOLDERS DEFICIT

~~Restricted Common~~ Stock ~~Awards~~options

~~On August 17, 2021,~~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 ~~entered into Restricted Share Award Agreements (the “Award Agreements”)~~on such applicable vesting date. The Incentive Option Grant Date fair value of $600,000 was calculated using the Black Scholes fair value option-pricing model with ~~two consultants pursuant to which~~key input variables provided by management, as of the ~~Company issued to~~date of issuance: volatility of 339%, the ~~consultants shares~~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 ~~Company in exchange for their future services.~~ nine months ended September 30, 2023, approximately $221,000 was earned. Of the amount earned of $221,000 approximately $166,000 was capitalized as date center cost and the remaining $55,000 was expensed as stock-based compensation.

The Awards had an initial term of one year, which was to be automatically renewed on a year-to-year basis unless either party gave a written notice of termination. The two consultants who entered into these agreements include:Non-Qual Option shall vest and become exercisable as follows:

	1)(1)	~~A consultant who was granted~~ ~~10,000,000~~216,666 ~~restricted share awards.~~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)	~~An entity, which is owned by~~
	(2)	the ~~Company’s CEO~~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 ~~majority shareholder, was granted~~ Data Center design, and submission of a complete set of plans to Imperial County Planning and Development Department for approvals and permits.
~~1,500,000~~	b.	250,000 ~~restricted share awards.~~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 ~~Award Grants as restricted stock compensation~~Non-Qual Option in accordance with ASC 718 – Stock Compensation (“ASC 718”). ASC 718 ~~required~~requires the Company to estimate the service period over which the compensation cost ~~would~~will be recognized. Management ~~had~~has estimated that the first ~~two~~ development ~~phases would~~phase (a) will be completed ~~within 15 months~~by March 31, 2024, the second development phase (b) by September 30, 2024, the third development phase (c) by March 31, 2025 and the Foundry Mask would be completed within 6 months for a total of 21 months service period. Compensation cost was to be recognized ratably over 21 months and in the same manner had the Company paid in cash.fourth development phase by September 30, 2025. The estimated service period ~~would~~will be adjusted for ~~changes in~~ actual and expected completion ~~dates.~~date changes. Any such change ~~was to~~will be recognized prospectively, and the remaining deferred compensation ~~was to~~will be recognized over the remaining service period.

~~The Company issued restricted stock grants totaling~~ ~~10,000,000~~ ~~shares to Hyuncheol (Peter) Kim, the Company’s former Chief Technology Officer, and~~ ~~1,500,000~~ ~~to a M1 Advisors LLC, a company owned by the Company’s chief executive officer. The value was $1.93~~ ~~per share on the date of issuance (“Grant Date”) for an aggregate fair value of $22,195,000~~

The ~~stock-based award compensation~~Non-Qual Option Grant Date fair value of $550,000 was ~~recorded~~calculated using the Black Scholes fair value option-pricing model with key input variables provided by management, as ~~an increase in deferred compensation expense,~~of the date of issuance: volatility range of 137% to 176%, the fair value of common stock $0.50, estimated life range of 3.9 years to 4.5 years, risk-free rate range of 4.7% to 5.2% and ~~additional paid-in capital in the Company’s books at the time~~dividend rate of ~~the grant.~~$0

On July 27, 2022, the Company sent Hyuncheol (Peter) Kim, the Company’s former Chief Technology Officer, a letter notifying him that the Company’s Board of Directors had resolved to discontinue the Company’s 5 nanometer ASIC chip and bitcoin mining machine project and that his consulting agreement will terminate at the end of August 2022. The restricted stock grant issued in connection with the consulting agreement will also be cancelled.

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

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

~~SCHEDULE OF COMPANY RESTRICTED STOCK AWARDS~~

Shares Deferred
compensation
Grant date fair value 11,500,000 $ 22,195,000
Accretion - (11,168,000 )
Forfeiture (11,500,000 ) (11,027,000 )
Balance as of September 30, 2022 - $ -

~~Restricted stock grant compensation expense for~~. For the three ~~and nine~~ months ended September 30, ~~2022, is as follows:~~2023, the Company recorded compensation expenses of approximately $18,000

~~SCHEDULE OF RESTRICTED STOCK GRANT COMPENSATION EXPENSE~~

Three months
ended Nine months
ended
September 30,
2022 September 30,
2022
2022 Accretion expense $ - $ 6,377,000
Reversal of 2021 accretion expense (4,791,000 ) (4,791,000 )
Reversal of 2022 accretion expense (6,377,000 ) (6,377,000 )
Restricted stock grant compensation $ (11,168,000 ) $ (4,791,000 )

~~Warrants Expired~~.

As of September 30, ~~2022, a total~~2023, the Company had 2,500,000 stock options outstanding, of which all were unvested, with weighted average remaining life, strike price and grant date fair value of ~~253,000~~7 ~~warrants expired.~~years, $0.50 and $0.47, respectively, and intrinsic value of nil.

~~Note 8 – Earnings (Loss) Per Share~~Warrants

~~EARNINGS (LOSS) PER SHARE~~

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

~~SCHEDULE OF EARNINGS PER SHARE BASIC AND DILUTED~~

Numerator 2022 2021 2022 2021
For the three Months Ended September 30, For the Nine Months Ended September 30,
Numerator 2022 2021 2022 2021
Net income (loss) $ 10,500,000 $ (2,063,000 ) $ 2,399,000 $ (2,813,000 )
Effect of dilutive instruments
Convertible notes interest expense 51,000 - 88,000 -
Numerator for diluted EPS 10,551,000 (2,063,000 ) 2,487,000 (2,813,000 )

Denominator
Denominator - for basic EPS 14,176,349 17,602,886 24,769,518 17,282,889

Effect of dilutive instruments
Warrants 748,432 - 748,432 -
Convertible notes 4,028,844 - 4,028,844 -
Dilutive potential common shares 4,777,276 - 4,777,276 -

Denominator for diluted EPS 18,953,625 17,602,886 29,546,794 17,282,889

Basic EPS $ 0.74 $ (0.12 ) $ 0.10 $ (0.16 )
Diluted EPS $ 0.56 $ (0.12 ) $ 0.08 $ (0.16 )

~~Securities that could potentially dilute loss per share in the future were not included in the computation of diluted loss per share for the three and~~ nine months ~~ended~~ending September 30, ~~2021 because their inclusion would be anti-dilutive. Common share equivalents amounted to~~2023, ~~3,942,608~~89,804 ~~for~~ warrants ~~4,612,607~~ ~~for convertible notes and~~ ~~11,500,000~~ ~~for restricted stock units for total of~~ ~~20,055,215~~ asexpired. As of September 30, ~~2021. For~~2023, the ~~three and nine months ended September 30, 2022, the Company had~~remaining outstanding balance of warrants was 1,678,500, with a weighted average exercise price of $~~4,777,276~~1.86, average remaining life of 0.39 ~~dilutive securities.~~years, weighed average grant date fair value of approximately $0.47.

Note 98 – Subsequent Events

SUBSEQUENT EVENTS

The Company has evaluated all events that occurred after the balance sheet date through the date when the financial statements were issued to determine if they must be reported. The management of the Company determined there are no reportable events.

1110

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with our financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the financial statements and related notes thereto in our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

This discussion contains certain forward-looking statements that involve risks and uncertainties. Our actual results and the timing of certain events could differ materially from those discussed in these forward-looking statements as a result of certain factors, including, but not limited to, those set forth herein and elsewhere in this Quarterly Report and in our other filings with the Securities and Exchange Commission. See “Cautionary Note Regarding Forward Looking Statements.”

Plan of Operations

As of the filing of this Report, it is our plan to continue our focus on building a large-scale, ~~clean-energy powered, containerized, immersion-cooled~~clean-energy-powered, data center operation ~~that will~~using the latest energy-efficient cooling technologies and to provide wholesale colocation services to ~~high-density computing,~~ enterprise ~~customers. While it was originally part of our strategy to build such a facility for our own utilization with the bitcoin mining systems that we planned to manufacture~~IT and use for our own bitcoin mining operations, going forward, our operating plan is to focus only on developing and building clean-energy powered, containerized, immersion-cooled data centers for enterprisehyperscale customers. To implement this plan, we ~~intend to complete the purchase of~~have optioned 80 acres of land for the initial phase of development and contracted HDR Engineering, Inc., a data center architect and engineering firm (“HDR”), to ~~negotiate~~provide master planning services that include site feasibility and a ~~Power Purchase Agreement with the local utility company for up~~shovel-ready site development plan. In addition, we are having on-going discussions and negotiations to ~~100 megawatts of~~acquire clean energy from the local power utility and nearby geothermal power plants and solar farms and contracting a network engineering firm to evaluate and engineer various paths to run conduit for accessing close-by internet fiber networks.

~~Once the land acquisition is closed,~~On June 23, 2023, we ~~intend~~engaged HDR to complete a ~~land use~~feasibility study and site development master plan. Once the plan ~~that~~is developed, we will ~~be submitted~~submit plans to authorities for approval and for permits to start construction. We expect, based on all related factors, that a submittable plan, which will include civil engineering, data center and infrastructure design and construction schedule, will take approximately ~~three~~six months to complete. Once submitted to the appropriate governmental departments and agencies for approval, it is expected that it could take another three months or more before we receive the required permits ~~for~~to start construction, and that the construction could take another six to twelve months ~~or more~~ to complete depending on supply chain issues at the time for data center, electrical and communication connectivity components of the data center build.

As we move through the development process to build a clean-energy powered ~~containerized, immersion-cooled~~ data center operation, we will continue to refine and finalize the courses of action needed to implement our business plan and operations. As a result, management has not fully determined our actual short-term or long-term capital requirements, which management expects to be substantial.

It is anticipated that we will incur significant expenses in the implementation of our business plan as described herein, and that we will require substantial financing to complete the development and construction of the planned data center operation. A failure to obtain this necessary capital when required on acceptable terms, or at all, could force us to delay, limit, reduce, or terminate our development plans, any commercialization efforts and any other operations. We may not be able to secure financing on favorable terms, or at all, to meet our future capital needs. In addition, even if we are able to obtain sufficient funding to commence our business operations, we may need to pursue additional financing in the future to make expenditures and/or investments to support the growth of our business. In addition, we may require additional capital to pursue our business objectives and respond to new competitive pressures, pay extraordinary expenses or fund our growth, including through acquisitions. Additional funding, however, may not be available when required on terms that are acceptable to us, or at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us when it is required, our ability to commence and grow our proposed business operations, to support our business and to respond to business challenges could be significantly limited.

We currently have only limited capital with which to pay these anticipated expenses. To fund our business plan going forward, we intend to raise funds from investors by issuing common stock, preferred stock and/or debt securities.

1211

Results of Operations

The table summarizes the results of operations for the three and ~~six~~nine months ended ~~June~~September 30:

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,						For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2022			2021			2022			2021			2023			2022			2023			2022

Revenues	$	-		$	-		$	-		$	-		$	-		$	-		$	-		$	-
Operating expenses
Professional fees		136,000			118,000			588,000			824,000			48,000			136,000			234,000			558,000
Stock based compensation		(11,168,000	)		1,745,000			(4,791,000	)		1,745,000
Equity-based compensation														31,000			(11,168,000	)		55,000			(4,791,000	)
General and administrative expenses		24,000			13,000			59,000			18,000			13,000			24,000			54,000			59,000
Impairment loss		-			-			154,000			-			-			-			-			154,000
Total operating (income)expenses		(11,008,000	)		1,876,000			(4,020,000	)		2,587,000
Total operating (income) expenses														92,000			(11,008,000	)		343,000			(4,020,000	)
Income (loss) from operations		11,008,000			(1,876,000	)		4,020,000			(2,587,000	)		(92,000	)		11,008,000			(343,000	)		4,020,000

Other income (expense)
Other income (expenses)													��
Interest income		1,000			-			1,000			-			14,000			1,000			45,000			1,000
Gain on settlement of debt														-			-			23,000			-
Financing costs		(509,000	)		(187,000	)		(1,622,000	)		(226,000	)		(20,000	)		(509,000	)		(239,000	)		(1,622,000	)
Total other expenses		(508,000	)		(187,000	)		(1,621,000	)		(226,000	)		(6,000	)		(508,000	)		(171,000	)		(1,621,000	)

Income (loss) before provision for income taxes		10,500,000			(2,063,000	)		2,399,000			(2,813,000	)		(98,000	)		10,500,000			(514,000	)		2,399,000
Provision for income taxes		-			-			-			-			-			-			-			-
Net income (loss)	$	10,500,000		$	(2,063,000	)	$	2,399,000		$	(2,813,000	)	$	(98,000	)	$	10,500,000		$	(514,000	)	$	2,399,000

Revenues

~~The Company~~We had no revenues for the three and nine months ended September 30, ~~2022~~2023 and ~~2021.~~2022.

Operating Expenses for the three months ended September 30, 2023 and 2022

~~Operating (income) expense~~Professional fees decreased to approximately $48,000 for the ~~nine~~three months ended September 30, 2023, as compared to $136,000 for the three months ended September 30, 2022. As the Company has shifted its operating activity toward developing the data center professional fees have either decreased or have been capitalized as development cost.

Equity-based compensation increased to approximately $31,000 for the three months ended September 30, 2023, as compared to $(11,168,000) for the three months ended September 30, 2022. During the three months ended September 30, 2022, ~~was $4,020,000, compared~~We had a cancelation of an equity-based compensation agreement for 10,000,000 shares of our common stock. Therefore, we had a reversal of approximately $11,168,000 of previously expensed equity-based compensation. The equity-based compensation of $31,000 related to ~~$(2,587,000)~~the issuance of an employment agreement during the second quarter of 2023.

General and administrative expenses decreased to approximately $13,000 for the ~~nine~~three months ended September 30, ~~2021. The increase of $6,607,000, in operating income, pertains primarily~~2023, as compared to ~~(1) reversal of $4,791,000 of stock-based compensation expense,~~$24,000 for the year ended December 31, 2021, related to the forfeiture of the stock-based awards. Since the Company discontinued the development in South Korea of the Company’s 5 nanometer ASIC chip and containerized, immersion-cooled bitcoin mining computer system, management determine that performance-based service would not be achievable. Also, the stock-based compensation for the nine months ended September 31, 2022 was nil, because of the reversal of unvested restricted stock awards, which was forfeited, compared to the stock based compensation expense of $1,745,000 for the nine months ended September 31, 2021. The expense of $90,000 for settling a legal case for the ninethree months ended September 30, 2022. The decrease was attributable to the capitalization of out-of-pocket expenses related to the development of the data center.

Operating Expenses for the six months ended September 30, 2023 and 2022

Professional fees decreased to approximately $234,000 for the six months ended September 30, 2023, as compared to $558,000 for the six months ended September 30, 2022. As we have shifted our operating activity toward developing the data center professional fees have either decreased or have been capitalized as development cost.

Equity-based compensation increased to approximately $55,000 for the six months ended September 30, 2023, as compared to $(4,791,000) for the six months ended September 30, 2022. During the six months ended September 30, 2022, we had a cancelation of an equity-based compensation agreement for 10,000,000 shares of our common stock. Therefore, we had a reversal of approximately $11,168,000 of previously expensed equity-based compensation. The equity-based compensation of $55,000 related to the issuance of an employment agreement during the second quarter of 2023.

General and administrative expenses decreased to approximately $54,000 for the six months ended September 30, 2023, as compared to $59,000 for the six months ended September 30, 2022. The decrease was attributable to the capitalization of out-of-pocket expenses related to the development of the data center.

Liquidity and Capital Resources

~~The Company’s~~Our financial position as of September 30, ~~2022~~2023 and December 31, ~~2021 were~~2022 was as follows:

Working Capital Deficit

	September 30, 2022			December 31, 2021			September 30, 2023			December 31, 2022
	(Unaudited)						(Unaudited)
Current assets	$	2,250,000		$	3,054,000		$	1,190,000		$	2,071,000
Current liabilities		5,163,000			3,632,000			6,052,000			5,214,000
Working deficit	$	(2,913,000	)	$	(578,000	)
Working capital deficit							$	(4,862,000	)	$	(3,143,000	)

AtOur working capital deficit increased by $1,719,000 as of September 30, ~~2022,~~2023 from $3,143,000 as of December 31, 2022. The increase was due to the ~~Company had~~use of cash of approximately ~~$2,249,000~~$233,000 for operating expenses and ~~prepaid expenses of~~ approximately $1,000. The working deficit increased by approximately $2,335,000 from December 31, 2021 to September 30, 2022. The increase in the working capital deficit was due primarily to the decrease in cash of $798,000$661,000 for data center development costs, and the increase in ~~convertible promissory~~our accounts payable and accrued expense of approximately ~~$1,526,000~~$838,000..

At September 30, 2022, the Company had outstanding promissory notes and accrued interest in the aggregate amount of $104,000 and outstanding convertible notes and accrued interest in aggregate amount of $4,806,000, all of which were past due and all of which were in default. See Notes 4 and 5 to the accompanying unaudited financial statements of the Company.

Cash Flows

For the Nine Months Ended
September 30,
2022 2021

Net cash used in operating activities $ (674,000 ) $ (301,000 )
Net cash used in investing activities (106,000 ) -
Net cash provided by (used in) financing activities (25,000 ) 3,678,000
Effect of exchange rate changes 7,000 -
Increase (decrease) in Cash during the Period (798,000 ) 3,377,000
Cash, Beginning of Period 3,047,000 -
Cash, End of Period $ 2,249,000 $ 3,377,000

	For the Nine Months Ended September 30,
	2023			2022

Net cash used in operating activities	$	(233,000	)	$	(674,000	)
Net cash used in investing activities		(661,000	)		(106,000	)
Net cash used in financing activities		-			(25,000	)
Effect of exchange rate changes		5,000			7,000
Increase (decrease) in Cash during the Period		(889,000	)		(798,000	)
Cash, Beginning of Period		2,067,000			3,047,000
Cash, End of Period	$	1,178,000		$	2,249,000

Cash flows used in operating activities

Net cash used in operating activities ~~increased~~decreased by ~~$373,000~~$441,000 during the nine months ended September 30, ~~2022 as compared~~2023 from $674,000 for nine months ended September 30, 2022. The decrease resulted from the reduction in our operating expense related to professional fees and general administrative expenses during the nine months ended September 30, ~~2021 due to an increase in cash expense of approximately $403,000.~~2023.

Cash flows used in investing ~~activity~~activities

Net cash used in investing activity increased by ~~$106,000~~$555,000 during the nine months ended September 30, ~~2022 as compared to~~2023 from $106,000 for the nine months ended September 30, ~~2021 due to payments for design and development work~~2022. The increase resulted from the expenditures during the nine months ended September 30, 2023 for the ~~Company’s ASIC chip which was discontinued in the third quarter of 2022.~~development activities for our data center project.

Cash flows used in financing activities

~~The Company had net~~Net cash used in financing activities decreased by $25,000 during the nine months ended September 30, ~~2022 due~~2023 as compared to $25,000 ~~repayment of notes payable. Conversely, it had net cash provided by financing activities during~~for the nine months ended September 30, ~~2021 mainly due to proceeds~~2022. The decrease resulted from ~~convertible promissory~~our not making any repayments of our outstanding notes ~~and notes payable amounting to $3,550,000 and $128,000, respectively.~~payable.

Capital Requirements

~~The Company estimates~~We estimate that itwe will require up to $2 million ~~of its current cash~~ for expenses and operating costs to complete the development of a comprehensive plan for ~~its~~our planned clean-energy powered, containerized, immersion-cooled data center operation. Once the plans are approved for construction by the requisite authorities, ~~the Company estimates~~we estimate the initial phase of ~~its~~our planned data center operation will cost between $60 to 75$75 million to build.

Past the plan development phase, ~~the Company~~we will need to raise capital in order to build ~~its~~our planned operations and achieve ~~its~~our growth targets, which ~~the company plans~~we plan to raise from investors by issuing common stock, preferred stock and/or debt securities. However, there can be no assurance that such ~~financings~~financing will be available in sufficient amounts and on acceptable terms when ~~it’s~~it is needed. The precise amount and timing of ~~the~~our funding needs cannot be determined accurately at this time, and will depend on a number of factors, including but not limited to the condition of the capital market, investor interest in our business plan, demand for ~~the Company’s~~our services by enterprise customers, the timing of approvals from authorities to start construction, the management of working capital, and reasonable payment terms and conditions for the purchase of the goods and services we will need to build our data center operation.

Critical Accounting Policies

The preparation of condensed consolidated financial statements in conformity with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying disclosures of our company. Although these estimates are based on management’s knowledge of current events and actions that our company may undertake in the future, actual results may differ from such estimates.

Principles of Consolidation

The consolidated financial statements include the accounts of ~~the Company~~our company and its ~~wholly owned~~wholly-owned subsidiary from the formation date. All material intercompany transactions and balances have been eliminated in consolidation.

Foreign Currency Translation

The financial statements of our foreign subsidiary, for which the functional currency is the local currency, are translated into U.S. dollars using the exchange rate at the consolidated balance sheet date for assets and liabilities and a weighted-average exchange rate during the year for revenue, expenses, gains and losses. Translation adjustments are recorded as other comprehensive income (loss) within shareholders’ equity (deficit). Gains or losses from foreign currency transactions are recognized in the consolidated statements of operations.

Debt and Debt Discounts

In accordance with ASC 470-20, Debt with Conversion and Other Options, ~~the Company~~we first ~~allocates~~allocate the cash proceeds of the notes between the notes and the warrants on a relative fair value ~~basis, secondly,~~basis. Secondly, proceeds are then allocated to the conversion feature.

~~The Company accounts~~We account for debt discounts originating in connection with conversion features that remain embedded in the related notes in accordance with ASC 470-20. These costs are classified on the consolidated balance sheet as a direct deduction from the debt liability. ~~The Company amortizes~~We amortize these costs over the term of ~~its~~our debt agreements as financing cost in the consolidated statement of operations.

Stock-Based Compensation

We account for our stock-based compensation under ASC 718, “Compensation – Stock Compensation” using the fair ~~value based~~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.

Recent Accounting Pronouncements

~~The Company’s~~Our management reviewed all recently issued accounting standard updates (“ASU’s”) not yet adopted by ~~the Company~~us and does not believe the future adoptions of any such ASU’s may be expected to cause a material impact on ~~the Company’s~~our condensed consolidated financial condition or the results of ~~its~~our operations.

Off-Balance Sheet Arrangements

As of September 30, ~~2022,~~2023, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Not required under Regulation S-K for smaller reporting companies.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Report, our Chief Executive Officer and Chief Financial Officer (our “Certifying Officers”), conducted evaluations of our disclosure controls and procedures. As defined under Sections 13a - 15(e) and 15d - 15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the term “disclosure controls and procedures” means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (“SEC”). Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including the Certifying Officers, to allow timely decisions regarding required disclosures.

Based on their evaluation, the Certifying Officers concluded that, as of September 30, ~~2022,~~2023, our disclosure controls and procedures were not effective.

The material weakness related to internal control over financial reporting that was identified at September 30, ~~2022~~2023 was that we did not have sufficient personnel staffing in our accounting and financial reporting department. As a result, we were not able to achieve adequate segregation of duties and were not able to provide for adequate review of the financial statements.

This control deficiency could result in a reasonable possibility that material misstatements of the financial statements will not be prevented or detected on a timely basis. However, our management believes that the material weakness identified does not result in the restatement of any previously reported financial statements or any other related financial disclosure, and management does not believe that the material weakness had any effect on the accuracy of our financial statements included as part of this Quarterly Report.

We will continue to monitor and evaluate the effectiveness of our disclosure controls and procedures and our internal controls over financial reporting on an ongoing basis and are committed to taking action and implementing additional enhancements or improvements, as necessary and as funds allow.

Changes in internal control over financial reporting.

There were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, ~~2022~~2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on the Effectiveness of Internal Controls

Readers are cautioned that our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will necessarily prevent all fraud and material error. An internal control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our control have been detected. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any control design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

~~The~~We know of no material active or pending legal ~~proceedings~~proceeding against our company, nor are we involved as ~~discussed~~a plaintiff in Item 3 of our Annual Report on Form 10-K for the year ended December 31, 2021 were settled during the nine months ended September 30, 2022. See Note 6 of the notes to the unaudited financial statements included in this report for a description of those proceedings and the resolution thereof.any material proceeding or pending litigation.

Item 1A. Risk Factors

We are a small reporting company, as defined by Rule 12b-2 of the Exchange Act, and are not required to provide the information under this item.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Sales of Unregistered Securities

There have been no sales of unregistered securities within the period covered by this report that would be required to be disclosed pursuant to Item 701 of Regulation S-K.

Repurchases of Shares or of Company Equity Securities

None.

Item 3. Default Upon Senior Securities

AtAs of September 30, ~~2022, the Company~~2023, we had ~~outstanding~~notes payable of $61,000, convertible promissory notes payable of $4,613,000 and accrued interest ~~in the aggregate amount~~ of ~~$104,000 and outstanding convertible notes and accrued interest in aggregate amount of $4,806,000,~~$675,000, all of which were past due and all of which were in default. See Notes 4 and 5 to ~~the~~our accompanying unaudited condensed consolidated financial ~~statements of the Company.~~statements.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information

None

Item 6. Exhibits

The following documents are filed as a part of this report or incorporated herein by reference:

Exhibit Number		Description
31.1		Certification of the Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of the Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certifications of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certifications of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		Inline XBRL Instance Document.

101.SCH		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 (formatted as Inline XBRL and contained in Exhibit 101).

SIGNATURES

Pursuant to the requirements of Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: November 14, ~~2022~~2023	CalEthos, Inc.

	By:	/s/ Michael Campbell
	Name:	Michael Campbell
	Title:	Chief Executive Officer

	By:	/s/ Dean S Skupen
	Name:	Dean S Skupen
	Title:	Chief Financial Officer

	Shares		Loss		Shares		Amount		Shares			Amount			Capital			Receivable			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, January 1, 2022		-	$	-		-	$	-		25,995,621		$	26,000		$	16,269,000		$	(2,000	)	$	(2,000	)	$	(16,831,000	)	$	(540,000	)
Restricted stock grants		-		-		-		-		-			-			3,170,000			-			-			-			3,170,000
Forgein currency translation income (loss)		-		-		-		-		-			-			-			-			(3,000	)		-			(3,000	)
Net loss		-		-		-		-		-			-			-			-			-			(3,926,000	)		(3,926,000	)
Balance, March 31, 2022		-		-		-		-		25,995,621			26,000			19,439,000			(2,000	)		(5,000	)		(20,757,000	)		(1,299,000	)
Restricted stock grants		-		-		-		-		-			-			3,206,000												3,206,000
Forgein currency translation income (loss)		-		-		-		-		-			-			-			-			2,000						2,000
Net loss		-		-		-		-		-			-			-			-			-			(4,174,000	)		(4,174,000	)
Balance, June 30, 2022		-		-		-		-		25,995,621			26,000			22,645,000			(2,000	)		(3,000	)		(24,931,000	)		(2,265,000	)
Forfeiture of stock-based compensation										(11,500,000	)		(11,000	)		(11,157,000	)											(11,168,000	)
Forgein currency translation income (loss)		-		-		-		-		-			-			-			-			20,000						20,000
Net loss		-		-		-		-		-			-			-			-			-			10,500,000			10,500,000
Balance, Sep 30, 2022		-	$	-		-	$	-		14,495,621		$	15,000		$	11,488,000		$	(2,000	)	$	17,000		$	(14,431,000	)	$	(2,913,000	)

	Amount
	USD		KRW
Within 5 days after signing the contract	$	41,000		49,500,000
Within 5 days after all conditions are met as stated in “Schedule B – Statement of Work”		41,000		49,500,000
Total	$	82,000		99,000,000

	Amount		VAT		Total
PICOCEL	$	69,000	$	5,000	$	74,000
NNS		69,000		5,000		74,000
Total		138,000		10,000		148,000
Foreign exchange loss		4,000		2,000		6,000
Impairment loss	$	142,000	$	12,000	$	154,000

	Shares			Deferred compensation
Grant date fair value		11,500,000		$	22,195,000
Accretion		-			(11,168,000	)
Forfeiture		(11,500,000	)		(11,027,000	)
Balance as of September 30, 2022		-		$	-

	Three months ended			Nine months ended
	September 30, 2022			September 30, 2022
2022 Accretion expense	$	-		$	6,377,000
Reversal of 2021 accretion expense		(4,791,000	)		(4,791,000	)
Reversal of 2022 accretion expense		(6,377,000	)		(6,377,000	)
Restricted stock grant compensation	$	(11,168,000	)	$	(4,791,000	)

Numerator	2022		2021			2022		2021
	For the three Months Ended September 30,					For the Nine Months Ended September 30,
Numerator	2022		2021			2022		2021
Net income (loss)	$	10,500,000	$	(2,063,000	)	$	2,399,000	$	(2,813,000	)
Effect of dilutive instruments
Convertible notes interest expense		51,000		-			88,000		-
Numerator for diluted EPS		10,551,000		(2,063,000	)		2,487,000		(2,813,000	)

Denominator
Denominator - for basic EPS		14,176,349		17,602,886			24,769,518		17,282,889

Effect of dilutive instruments
Warrants		748,432		-			748,432		-
Convertible notes		4,028,844		-			4,028,844		-
Dilutive potential common shares		4,777,276		-			4,777,276		-

Denominator for diluted EPS		18,953,625		17,602,886			29,546,794		17,282,889

Basic EPS	$	0.74	$	(0.12	)	$	0.10	$	(0.16	)
Diluted EPS	$	0.56	$	(0.12	)	$	0.08	$	(0.16	)