Company Quick10K Filing
Quick10K
Realsource Residential
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
10-K 2013-09-30 Annual: 2013-09-30
8-K 2018-12-20 Amend Bylaw, Exhibits
8-K 2018-10-26 Shareholder Rights, Accountant, Exhibits
8-K 2018-09-12 Enter Agreement, Sale of Shares, Control, Officers, Amend Bylaw, Exhibits
8-K 2018-08-28 Shareholder Rights, Amend Bylaw, Exhibits
PVOTF Pivot Pharmaceuticals 43
PRTX Protalex 26
BTHT Best Hometown Bancorp 12
WLB Westmoreland Coal 3
GNTW Globe Net Wireless 0
VISM Visium Technologies 0
HPGN Hypgen 0
GLFH Galenfeha 0
CSMO Cosmo Ventures 0
DESEO Deseo Swimwear 0
RSRT 2019-06-30
Note 1 - Organization and Accounting Policies
Note 2 - Convertible Promissory Notes
Note 3 - Stockholders' Deficit
Note 4 - Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part Ii- Other Information
Item 1. Legal Proceedings.
Item 1A. Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 3. Defaults Upon Senior Securities.
Item 4. Mine Safety Disclosures.
Item 5. Other Information.
Item 6. Exhibits.
EX-31.1 ex31-1.htm
EX-31.2 ex31-2.htm
EX-32.1 ex32-1.htm
EX-32.2 ex32-2.htm

Realsource Residential Earnings 2019-06-30

RSRT 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 form10-q.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
  For the quarterly period ended June 30, 2019
   
[  ] 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)

 

 

 

(Former name, former address and former fiscal year, if changed since last report)

 

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 [X] 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 [X] 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
[X] Non-accelerated filer [X] 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. [  ]

 

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

 

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

 

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

 

As of August 9, 2019 the registrant had 16,634,951 shares of common stock outstanding.

 

 

 

   
   

 

CalEthos, Inc.

 

Quarterly Report on Form 10-Q

 

Six and Three Months Ended June 30, 2019

 

TABLE OF CONTENTS

 

    Page
     
Cautionary Note Regarding Forward-Looking Statements -ii-
     
PART 1-FINANCIAL INFORMATION  
     
Item 1. Financial Statements (unaudited)  
     
  Condensed Balance Sheets as of June 30, 2019 (unaudited) and December 31, 2018 F-2
     
  Condensed Statements of Operations for the three and six months ended June 30, 2019 and 2018 (Unaudited) F-3
     
  Condensed Statement of Stockholders deficit for the three and six months ended June 30, 2019 and 2018 (Unaudited) F-4
     
  Condensed Statements of Cash Flows for the six months ended June 30, 2019 and 2018 (Unaudited) F-5
     
  Condensed Notes to Financial Statements F-6
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 1
     
Item 3. Quantitative and Qualitative Disclosures about Market Risk 4
     
Item 4. Control and Procedures 4
     
PART II-OTHER INFORMATION  
     
Item 1. Legal Proceedings 6
     
Item 1A. Risk Factors 6
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 6
     
Item 3. Defaults Upon Senior Securities 6
     
Item 4. Mine Safety Disclosures 6
     
Item 5. Other Information 6
     
Item 6. Exhibits 6
     
SIGNATURES 7

 

 
 

 

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.

 

Particularly in light of our current status as a shell company, there can be no assurance that the forward-looking statements contained herein will in fact occur. 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.

 

-ii-
 

 

CalEthos, Inc.

 

Six Months Ended June 30, 2019

 

Index to the Financial Statements

 

Contents   Page (s)
     
Condensed Balance Sheets at June 30, 2019 (Unaudited) and December 31, 2018   F-2
     
Condensed Statements of Operations for the three and six months ended June 30, 2019 and 2018 (Unaudited)   F-3
     
Condensed Statement of Stockholders deficit for the three and six months ended June 30, 2019 and 2018 (Unaudited)   F-4
     
Condensed Statements of Cash Flows for the six months ended June 30, 2019 and 2018 (Unaudited)   F-5
     
Condensed Notes to the Financial Statements (Unaudited)   F-6

 

F-1
 

 

CalEthos, Inc.

Condensed Balance Sheets

 

   June 30, 2019   December 31, 2018 
   (Unaudited)     
ASSETS          
CURRENT ASSETS:          
Cash and cash equivalents  $191,000   $- 
Cash held by officer   -    12,000 
Prepaid expenses   2,000    2,000 
Undeposited funds – common stock   16,000    16,000 
           
Total Current Assets   209,000    30,000 
           
Total Assets  $209,000   $30,000 
           
LIABILITIES AND STOCKHOLDERS’ DEFICIT          
CURRENT LIABILITIES:          
Accounts payable  $303,000   $180,000 
Convertible promissory notes, net   88,000    - 
           
Total Current Liabilities   391,000    180,000 
           
Total Liabilities   391,000    180,000 
           
STOCKHOLDERS’ DEFICIT          
Series A convertible preferred stock, par value $0.001, 3,600,000 shares authorized, 85,975 and 35,975, respectively issued and outstanding   -    - 
Preferred stock, par value $0.001: 96,400,000 shares authorized; no shares issued and outstanding   -    - 
Common stock par value $0.001: 100,000,000 shares authorized; 16,634,951 shares issued and outstanding   17,000    17,000 
Additional paid-in capital   8,626,000    7,660,000 
Accumulated deficit   (8,825,000)   (7,827,000)
           
Total Stockholders’ Deficit   (182,000)   (150,000)
           
Total Liabilities and Stockholders’ Deficit  $209,000   $30,000 

 

See accompanying notes to the unaudited condensed financial statements.

 

F-2
 

 

CalEthos, Inc.

Condensed Statements of Operations

(Unaudited)

 

   For the Three Months Ended
June 30,
   For the Six Months Ended
June 30,
 
   2019   2018   2019   2018 
                 
Revenues  $-   $-   $-   $- 
Operating Expenses                    
Professional fees   739,000    4,000    894,000    10,000 
General and administrative expenses   11,000    1,000    16,000    2,000 
Operating expenses   750,000    5,000    910,000    12,000 
Loss from operations   (750,000)   (5,000)   (910,000)   (12,000)
                     
Other expenses - Interest   (67,000)   -    (88,000)   - 
Loss before provision for income taxes   (817,000)   (5,000)   (998,000)   (12,000)
Provision for income taxes   -    -    -    - 
Net loss   (817,000)   (5,000)   (998,000)   (12,000)
Other comprehensive income (loss)   -    -    -    - 
Comprehensive loss  $(817,000)  $(5,000)  $(998,000)  $(12,000)
                     
Net loss per share  $(0.05)  $(0.01)  $(0.06)  $(0.02)
Weighted average common shares outstanding:                    
Basic and diluted   16,634,951    630,207    16,634,951    630,207 

 

See accompanying notes to the unaudited condensed financial statements.

 

F-3
 

 

CalEthos, Inc.

Condensed Statement of Stockholders’ Deficit

(Unaudited)

 

For the Three and Six Months Ended June 30, 2019

 

   Series A Convertible Preferred   Preferred Stock   Common Stock   Additional Paid-In   Accumulated   Total Stockholders’ 
   Shares   Amount   Shares   Amount   Shares   Amount   Capital  

Deficit

   Deficit 
Balance January 1, 2019   35,975   $-    -   $-    16,634,951   $17,000   $7,660,000   $(7,827,000)  $(150,000)
                                             
Proceeds for the sale of Series A Convertible Preferred Stock   50,000    -    -    -    -    -    69,000    -    69,000 
Relative fair value of warrants issued with convertible promissory notes   -    -    -    -    -    -    102,000    -    102,000 
Beneficial conversion feature associated with convertible promissory notes   -    -    -    -    -    -    118,000    -    118,000 
Net loss   -    -    -    -    -    -    -    (181,000)   (181,000)
Balance March 31, 2019   85,975    -    -    -    16,634,951    17,000    7,949,000    (8,008,000)   (42,000)
Relative fair value of warrants issued with convertible promissory notes         -                       -           -           -           -           49,000           -           49,000   
Beneficial conversion feature associated with convertible promissory notes   -    -    -    -    -    -    51,000    -    51,000 
Stock options issued for services   -    -    -    -    -    -    577,000    -    577,000 
Net loss                                      (817,000)   (817,000)
Balance June 30, 2019   85,975    $        $    $16,634,951   $17,000   $8,626,000   $8,825,000   $(182,000)

 

For the Three and Six Months Ended June 30, 2018

 

   Common Stock   Additional Paid-In   Accumulated   Total Stockholders’ 
   Shares   Amount   Capital   Deficit   Deficit 
Balance January 1, 2018   630,207   $1,000   $7,601,000   $(7,599,000)  $3,000 
Net loss   -    -    -    (8,000)   (8,000)
Balance March 31, 2019   630,207    1,000    7,601,000    (7,607,000)   (5,000)
Net loss                  (4,000)   (4,000)
Balance June 30, 2018   630,207   $1,000   $7,601,000   $(7,611,000)  $(9,000)

 

See accompanying notes to the financial statements.

 

F-4
 

 

CalEthos, Inc.

Condensed Statements of Cash Flows

For the Three Months Ended June 30,

(Unaudited)

 

   2019   2018 
         
Cash flows from operating activities          
Net loss  $(998,000)  $(12,000)
Adjustments to reconcile net loss to net cash used in operating activities          
Amortization of convertible promissory notes discounts   88,000    - 
Fair value of equity based compensation   577,000    - 
Changes in operating assets and liabilities:          
Accounts payable and accrued expenses   123,000    9,000 
Net cash used in operating activities   (210,000)   (3,000)
           
Cash flows from investing activities          
Cash held by officer   12,000    - 
Net cash provided by investing activities   12,000    - 
           
Cash flows from financing activities          
Proceeds from the issuance of convertible promissory notes   320,000    - 
Proceeds from the issuance of series A convertible preferred stock   69,000    - 
Net cash provided by financing activities   389,000    - 
           
Net increase (decrease) in cash   191,000    (3,000)
Cash, beginning of period   -    7,000 
Cash, end of period  $191,000   $4,000 
           
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  $151,000   $- 
Beneficial conversion feature associated with convertible promissory notes  $169,000   $- 

 

See accompanying notes to the unaudited condensed financial statements.

 

F-5
 

 

CalEthos, Inc.

June 30, 2019

Condensed Notes to the Financial Statements

(Unaudited)

 

Note 1 – Organization and Accounting Policies

 

CalEthos, Inc. (the “Company”) (fka RealSource Residential, Inc.) was incorporated on March 20, 2002 under the laws of the State of Nevada. Since the second quarter of 2016, the Company has been a “shell” company, as defined in Rule 12b-2 under the Exchange Act.

 

Change in Control

 

On May 16, 2018, certain majority stockholders of the Company, including certain former directors and officers of the Company, entered into a stock purchase agreement dated May 16, 2018 (the “Control Purchase Agreement”) with RealSource Acquisition Group, LLC, a Utah limited liability company (“RealSource Acquisition”), whereby RealSource Acquisition agreed to purchase an aggregate of 11,006,356 shares (440,256 shares after giving effect to the Reverse Stock Split (see Note 3) (the “Control Shares”) of the Company’s issued and outstanding shares of common stock for an aggregate purchase price of $180,000. Immediately prior to the closing under the Control Purchase Agreement on September 12, 2018 (the “Closing Date”), RealSource Acquisition assigned its rights under the Control Purchase Agreement to M1 Advisors, LLC, a Delaware limited liability company (“M1 Advisors”), pursuant to a purchase agreement and assignment and assumption of contract rights dated as of August 28, 2018 between RealSource Acquisition and M1 Advisors. M1 Advisors paid RealSource Acquisition $80,000 as consideration for such assignment.

 

Effective on the Closing Date, and in accordance with the amended and restated bylaws of the Company and the requirements of the Control Purchase Agreement, (a) each of Michael S. Anderson, Nathan W. Hanks and V. Kelly Randall resigned as directors of the Company, (b) Michael Campbell, the sole member of M1 Advisors, and Piers Cooper were elected to the Company’s board of directors, and (c) Mr. Hanks also resigned as president and chief executive officer of the Company, Mr. Randall also resigned as chief operating office and chief financial officer of the Company, Mr. Campbell was appointed the chief executive officer of the Company and Piers Cooper was appointed president of the Company.

 

On the Closing Date, the Company entered into a series A preferred stock purchase agreement dated as of the Closing Date (the “Preferred Purchase Agreement”) with M1 Advisors, which is an entity controlled by Michael Campbell, the Company’s chief executive officer and a director of the Company at such time, Piers Cooper, the Company’s president and a director of the Company at such time, the members of RealSource Acquisition, and the other investors who were signatories thereto (collectively, the Purchasers”). Pursuant to the Preferred Purchase Agreement, the Company sold to the Purchasers an aggregate of 15,600,544 shares of the Company’s series A preferred stock, which has since been re-designated as Founder preferred stock (“Founder Preferred Stock”), for an aggregate purchase price of $16,000, or $0.001 per share. Of the Founder Preferred Stock purchased, 9,320,414 shares were purchased by M1 Advisors, 4,674,330 shares were purchased by Mr. Cooper and an aggregate of 1,195,000 shares were purchased by the members of RealSource Acquisition or their assigns.

 

Immediately following the above transactions, an aggregate of 15,600,544 shares of Founder Preferred Stock and 630,207 shares of common stock was issued and outstanding. At such time, the shares of Founder Preferred Stock and common stock owned by M1 Advisors represented approximately 60.14% of the issued and outstanding shares of capital stock of the Company on a fully-diluted basis and the shares of Founder Preferred Stock owned by Mr. Cooper represented approximately 28.80% of the issued and outstanding shares of capital stock of the Company on a fully-diluted basis. The shares of Founder Preferred Stock acquired by M1 Advisors were purchased with funds that M1 Advisors borrowed from another entity controlled by Mr. Campbell.

 

On December 20, 2018, all outstanding shares of Founder Preferred Stock was converted in to shares of the Company’s common stock on a one-for-one basis pursuant to the terms of the Founder Preferred Stock.

 

F-6
 

 

Business Activity

 

Following the change in control, as described above, the board of directors determined to establish the Company in the rapidly-growing cannabis industry, initially in the State of California. The primary activity of the Company’s management is to seek and investigate various opportunities in the California cannabis industry, and if such investigation warrants, acquire assets and create a business around them, acquire part or all of an operating cannabis business or invest in a joint venture with other more established companies already in the cannabis industry. The Company will not restrict its search to any specific business, segment of the cannabis industry or geographical location and the Company may participate in a business venture of virtually any kind or nature that the board of directors believe is beneficial to the Company and its shareholders.

 

Financial Statement Presentation

 

The accompanying unaudited condensed financial statements have been prepared in conformity with generally accepted accounting principles in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 8-01 of Regulation S-X. Pursuant to these rules and regulations, certain information and note disclosures, normally included in financial statements prepared in accordance with GAAP, have been condensed or omitted. GAAP requires management to make estimates and assumptions that affect reported amounts and related disclosures. In the opinion of management, all adjustments (consisting of normal recurring items) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2019 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2019. The balance sheet as of December 31, 2018 has been derived from the audited financial statements at that date but does not include all the information and footnotes required by GAAP for complete financial statements. For further information, refer to the financial statements and notes thereto contained in the Annual Report on Form 10-K for the year ended December 31, 2018. The notes to the unaudited condensed financial statements are presented on a going concern basis unless otherwise noted.

 

Basis of Presentation

 

The accompanying condensed financial statements have been prepared assuming that the Company will continue as a going concern. The Company has no established operations. The Company incurred a net loss of approximately $998,000 for the six months ended June 30, 2019 and had an accumulated deficit of approximately $8,825,000 as of June 30, 2019. The Company has financed its activities principally through debt and equity financing and shareholder contributions. Management expects to incur additional losses and cash outflows in the foreseeable future in connection with its operating activities.

 

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

 

The Company is subject to a number of risks similar to those of other similar stage companies, including dependence on key individuals; successful development, marketing and branding of products; uncertainty of product development and generation of revenues; dependence on outside sources of financing; risks associated with research and development; dependence on third-party suppliers and collaborators; protection of intellectual property; and competition with larger, better-capitalized companies. Ultimately, the attainment of profitable operations is dependent on future events, including obtaining adequate financing to fund its operations and generating a level of revenues adequate to support the Company’s cost structure.

 

The Company will need to raise debt or equity financing in the future in order to continue its operations and achieve its growth targets. However, there can be no assurance that such financing will be available in sufficient amounts and on acceptable terms, when and if needed, or at all. The precise amount and timing of the funding needs cannot be determined accurately at this time, and will depend on a number of factors, including market demand for the Company’s products and services, the success of product development efforts, the timing of receipts for customer deposits, the management of working capital, and the continuation of normal payment terms and conditions for purchase of goods and services. The Company believes its cash balances and cash flow from operations will not be sufficient to fund its operations and growth for the next twelve months from the issuance date of these financial statements. If the Company is unable to substantially increase revenues, reduce expenditures, or otherwise generate cash flows from operations, then the Company will likely need to raise additional funding from investors or through other avenues to continue as a going concern.

 

F-7
 

 

Debt Discounts

 

The Company accounts for debt discounts originating in connection with conversion features that remain embedded in the related notes in accordance with ASC 470-20, Debt with Conversion and Other Options. These costs are classified on the consolidated balance sheet as a direct deduction from the debt liability. The Company amortizes these costs over the term of its debt agreements as interest expense-debt discount in the consolidated statement of operations.

 

Recently Adopted Pronouncements

 

Leases

 

The Company adopted Accounting Standards Update (ASU) No. 2016-02, Leases on January 1, 2019 using the modified retrospective method. For its operating leases in excess of 12 months, the Company recognizes a right-of-use asset and a lease liability on its balance sheet. The lease liability is determined as the present value of future lease payments using an estimated rate of interest that the Company would pay to borrow equivalent funds on a collateralized basis at the adoption date for the existing lease and at lease commencement date for new leases. The right-of-use asset is based on the liability adjusted for any prepaid or deferred rent, and lease incentives, as applicable. The lease term at the commencement date is determined by considering whether renewal options and termination options are reasonably assured of exercise. The Company has no long-term leases and such adoption had no impact.

 

Note 2 – Convertible Promissory Notes

 

In February, March and June 2019, the Company issued convertible promissory notes in the amounts of $110,000, $132,000 and $110,000, respectively (the “Notes”). The total proceeds were approximately $320,000, due to approximately $32,000 for an original issue discount. The Notes are non-interest bearing with the principal due and payable in February 2020 and June 2020. Any amount of unpaid principal on the date of maturity will accrue interest at rate of 10% per annum (default interest). The principal amount and all accrued interest are convertible into shares of the Company’s common stock, as of the date of issuance, at a rate of $1.00 per share (“Conversion Rate”). The conversion rate is adjustable if, at any time when any principal amount of the Notes remains unpaid or unconverted, the Company issues or sells any shares of the Company’s common stock for no consideration or for a consideration per share (before deduction of reasonable expenses or commissions or underwriting discounts or allowances in connection therewith), which is less than the Conversion Rate in effect on the date of such issuance (or deemed issuance) of such shares of common stock (a “Dilutive Issuance”). Immediately upon a Dilutive Issuance, the Conversion Rate will be reduced to the amount of the consideration per share received by the Company in such Dilutive Issuance. Events of default include failure to issue conversion shares, the occurrence of a breach or default under any other agreement, instrument or document involving any indebtedness for borrowed money of more than $100,000 in the aggregate, bankruptcy filing, application for the appointment of a custodian, trustee or receiver, insolvency, the Company’s common stock delisted, or dissolution, winding up, or termination of the business of the Company.

 

In connection with the issuance of the Notes, the Company issued to the purchasers of the Notes stock purchase warrants to purchase an aggregate of 176,000 shares of the Company’s common stock for a purchase price of $1.00 per share, subject to adjustments.

 

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 totaled approximately $151,000 and of the beneficial conversion totaled approximately $169,000, which amounts are being amortized and expensed over the term of the Notes. For the three and six months ended June 30, 2019, the amortization expense was approximately $67,000 and $88,000, respectively.

 

The Company determined that the conversion feature of the Notes would not be an embedded feature to be bifurcated and accounted for as a derivative in accordance with ASC 818-15 Derivatives and Hedging.

 

F-8
 

 

As of June 30, 2019, convertible promissory notes consisted of the following:

 

Principal Amount   $ 352,000  
Original issue discount     (24,000 )
Warrant discount     (114,000 )
Conversion feature discount     (126,000 )
Net balance   $ 88,000  

 

The discounts of approximately $264,000 will be amortized and expensed over the remaining contractual life of the convertible promissory notes. The amortization expense will be approximately $187,000 and 77,000 for the remaining six months of 2019 and for the year ending December 31, 2020, respectively. 

 

Note 3 – Stockholders’ Deficit

 

Issuance of Series A Preferred Stock

 

In January 2018, the Company issued and sold an aggregate of 50,000 shares of Series A Preferred Stock for an aggregate purchase price of $69,000, or $1.38 per share.

 

Issuance of Stock Options

 

The Company entered into three separate consulting agreements with provisions for the issuance of options under the Company’s 2019 Stock Options Plan to purchase 685,000, 250,000 and 15,000 shares of the Company’s common stock. The Options have a life of three years from the vesting date and an exercise price of $0.001 per share with the following vesting terms:

 

Option to purchase 685,000 shares

 

  i. 385,000 shares vest upon the signing of the consulting agreement; and
  ii. 300,000 shares vest on the first anniversary of the date on which the consultant serves as the Vice President of Capital Markets of the Company as a full-time employee.

 

Option to purchase 250,000

 

  i. 50,000 shares vest upon the completion of the Company’s first Retail Showcase Store;
  ii. 100,000 shares vest on the first anniversary date on which the consultant serves as the Vice President of Retail Store Development of the Company as full-time employee; and
  iii. 100,000 shares to vest 1/12th per month thereafter.

 

Option to purchase 15,000 shares

 

  i.

15,000 shares to vest upon the completion of the Company’s first Retail Showcase Store.

 

The options granted to the consultants are considered to be performance based awards to be vested once the individuals are considered to be employees of the Company. Each of the consultants has the option to become a full-time employee when the Company has received a minimum of $5,000,000 in debt or equity financing for the Company’s operations (the “Financing”). This is the time that the Company would begin to operate and use the Holders services. Until the Financing occurs, the Company will be in the predevelopment stage of its intended business model.

 

Of the options awarded, 385,000 stock option was granted and vested on April 1, 2019. For the three and six months ended June 30, 2019, the compensation expense, classified as professional fees in the statement of operations, was $577,000, which was calculated using the Black-Scholes fair value option-pricing model with key input variables provided by management, as of the date of issuance: volatility of 324%, fair value of common stock $1.50, term of option 3 years, risk free rate of 2.29% and dividend rate of $0.

 

Note 4 – 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 that there were no reportable subsequent events to be disclosed, except those already disclosed above.

 

F-9
 

 

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, 2018.

 

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, our management has not yet determined our corporate structure and the initial business in which we plan to engage, and we are still in the process of refining and finalizing the course of action needed to implement our proposed new business operations. As a result, management has not determined our actual short-term or long-term cash requirements, which management expects to be substantial.

 

We will require substantial financing to commence meaningful business operations and to achieve our goals, and a failure to obtain this necessary capital when needed on acceptable terms, or at all, could force us to delay, limit, reduce or terminate our product development plans, any commercialization efforts or 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 and 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 funds, however, may not be available when we need them 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 we require it, our ability to commence our proposed business operations, to continue to grow and support our business and to respond to business challenges could be significantly limited.

 

Until we finalize our plans and raise capital to execute our business plan, our operations will be minimal, so our operating expenses will be similarly limited. Our pre-operational expenses have been and will continue to be funded by private placements of our debt and equity securities and loans from our majority shareholder.

 

1
 

 

Critical Accounting Policies

 

Our financial statements are prepared using the accrual basis of accounting in accordance with accounting principles generally accepted in the United States (US GAAP). Our fiscal year ends December 31.

 

This Management’s Discussion and Analysis of Financial Condition and Results of Operations discuss our financial statements, which have been prepared in accordance with US GAAP. The preparation of these financial statements requires making estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenues and expenses for the reporting periods. On an ongoing basis, we evaluate such estimates and judgments. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ (perhaps significantly) from these estimates under different assumptions or conditions.

 

While all the accounting policies impact the financial statements, certain policies may be viewed to be critical. Our management believes that we do not have any significant accounting policies, given we had no meaningful operations as of June 30, 2019.

 

2
 

 

Results of Operations

 

Revenues

 

We had no revenues for the three and six months ended June 30, 2019 and 2018.

 

Expenses

 

Operating expenses for the three and six months ended June 30, 2019 were $750,000 and $910,000, respectively, compared to $5,000 and $12,000 for the three and six months ended June 30, 2018, respectively. The expenses in 2019 primarily included audit, filing, legal and transfer agent fees and consulting fees paid to outside third parties, including a one time expense of $577,000 for stock options issued to a consultant.

 

Net loss

 

Net loss for the six months ended June 30, 2019 and 2018 was $998,000 and $12,000, respectively, consisting primarily of filing fees, transfer agent costs, and legal and accounting expenses.

 

Liquidity and Capital Resources

 

Our financial position as of June 30, 2019 and December 31, 2018 were as follows:

 

Working Capital

 

   

As of

June 30, 2019

   

As of

December 31, 2018

 
             
Current Assets   $ 209,000     $ 30,000  
Current Liabilities     391,000       180,000  
Working Capital Deficit   $ (182,000 )   $ (150,000 )

 

At June 30, 2019, we had cash of approximately $191,000, prepaid expenses of approximately $2,000 and $16,000 in undeposited funds. Working capital deficit increased by approximately $32,000 from December 31, 2018 to June 30, 2019. The change in our working capital deficit was primarily due to an increase in cash and cash equivalents of $191,000. The cash balance was due primarily to the issuance of our series A convertible preferred stock for total proceeds of approximately $69,000 and the sale of convertible promissory notes for net proceeds of approximately $320,000. The increase in cash was offset by our cash used in operations of approximately $210,000 and an increase in our accounts payable and accrued expense of approximately $123,000.

 

3
 

 

Cash Flows

 

   

For the Six Months Ended

June 30,

 
    2019     2018  
             
Net cash from Operating Activities   $ (210,000 )   $ (3,000 )
Net cash from Investing Activities     12,000       -  
Net cash from Financing Activities     389,000       -  
Increase (decrease) in Cash during the Period     191,000       (3,000 )
Cash, Beginning of Period     -       7,000  
Cash, End of Period   $ 191,000     $ 4,000  

 

Our net cash used in operating activities was $210,000 and $3,000 for six-month period ended June 30, 2019 and 2018, respectively, resulting from operating expenses.

 

The increase in net cash from financing activity of $389,000 was due to the sale and issuance of our convertible promissory notes in the principal amount of $320,000 and our series A convertible preferred stock for gross proceeds of $69,000.

 

Plan of Operations and Cash Requirements

 

Following the Change of Control Transactions, as described above, our board of directors determined to establish our company in the rapidly-growing legal cannabis industry. As of the filing of this Report, our new management has not yet determined our corporate structure and the initial business in which we plan to engage, and we are still in the process of refining and finalizing the course of action needed to implement our proposed new business operations. As a result, management has not determined our actual short-term or long-term cash requirements, which management expects to be substantial.

 

We will require substantial financing to commence meaningful business operations and to achieve our goals, and a failure to obtain this necessary capital when needed on acceptable terms, or at all, could force us to delay, limit, reduce or terminate our product development plans, any commercialization efforts or 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 and 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 funds, however, may not be available when we need them 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 we require it, our ability to commence our proposed business operations, to continue to grow and support our business and to respond to business challenges could be significantly limited.

 

Until we finalize our plans and raise capital to execute our business plan, our operations will be minimal, so our operating expenses will be similarly limited. Our pre-operational expenses have been and will continue to be funded by private placements of our debt and equity securities or by loans from our majority shareholder.

 

Off-Balance Sheet Arrangements

 

As of June 30, 2019, 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.

 

We are a smaller reporting company and therefore are not required to provide the information for this item.

 

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.

 

4
 

 

Based on their evaluation, the Certifying Officers concluded that, as of June 30, 2019, our disclosure controls and procedures were not effective.

 

The material weakness related to internal control over financial reporting that was identified at June 30, 2019 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 June 30, 2019 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.

 

5
 

 

PART II- OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

None.

 

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.

 

None.

 

Item 3. Defaults Upon Senior Securities.

 

None.

 

Item 4. Mine Safety Disclosures.

 

None.

 

Item 5. Other Information.

 

None.

 

Item 6. Exhibits.

 

No.   Description of Exhibit
31.1   Certification of Principal Executive Officer Pursuant to Securities Exchange Act Rules 13a-14(a) and 15(d)-14(a), as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2   Certification of Principal Financial Officer Pursuant to Securities Exchange Act Rules 13a-14(a) and 15(d)-14(a), as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1   Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act 0f 2002
32.2   Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act 0f 2002
101.INS *   XBRL Instance Document
101.CAL *   XBRL Taxonomy Extension Calculation Linkbase Document
101.SCH *   XBRL Taxonomy Extension Schema Document
101.DEF *   XBRL Taxonomy Extension Definition Linkbase Document
101.LAB *   XBRL Taxonomy Extension Labels Linkbase Document
101.PRE *   XBRL Taxonomy Extension Presentation Linkbase Document

 

* XBRL (eXtensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

 

6
 

 

SIGNATURES

 

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

 

Date: August 14, 2019 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

 

7