The accompanying consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. As shown in the accompanying
consolidated financial statements, the Company had net losses of $2,254,686 and
$6,632,146 during the nine months ended September 30, 2022 and the year ended
December 31, 2021 , respectivelyand an accumulated deficit of $14,831,992 and
$12,594,976 at September 30, 2022 and December 31, 2021, respectively. These
factors raise substantial doubt about the Company's ability to continue as a
going concern for a period of one year from the issuance of these financial
statements. Management's plans are to obtain additional financing in the debt
and equity markets while it develops its business model. The Company's existence
is dependent upon management's ability to develop profitable operations and to
obtain additional funding sources. There can be no assurance that the Company's
financing efforts will result in profitable operations or the resolution of the
Company's liquidity problems. The accompanying statements do not include any
adjustments that might result should the Company be unable to continue as a
going concern.
NOTE 3. RECENTLY ISSUED ACCOUNTING STANDARDS
Management does not believe that any recently issued but not yet adopted
accounting will have a material effect on the Company's results of operation or
on the reported amounted of its assets and liabilities upon adoption.
In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and
Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in
Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments
and Contracts in an Entity's Own Equity). ASU 2020-06 reduces the number of
accounting models for convertible debt instruments and convertible preferred
stock, which results in fewer embedded conversion features being separately
recognized from the host contract as compared with current GAAP. Additionally,
ASU 2020-06 affects the diluted earnings per share calculation for instruments
that may be settled in cash or shares and for convertible instruments and
requires enhanced disclosures about the terms of convertible instruments and
contracts in an entity's own equity. ASU 2020-06 allows entities to use a
modified or full retrospective transition method and is effective for smaller
reporting companies for fiscal years beginning after December 15, 2023,
including interim periods within those fiscal years, with early adoption
permitted. The Company is evaluating the impact that this ASU may have on its
consolidated financial statements.
12
NOTE 4. STOCKHOLDERS' EQUITY (DEFICIT)
Preferred Stock
The Company has authorized 50,000,000 shares of Preferred Stock, of which
30,000,000 shares have been designated as Series A Convertible Preferred Stock,
with 30,000,000shares issued and outstanding, and 1,000,000 million shares have
been designated as Series C Convertible Preferred Stock, with 205,000 shares
issued and outstanding as of September 30, 2022.
Holders of Series A Convertible Preferred Stock hold rights to vote on all
matter requiring a shareholder vote at 100 common shares vote equivalent for
each share of Series A Convertible Preferred Stock held. As of the date of this
filing, our CEO, CFO, board chair and sole director, Julia Otey-Raudes, is the
sole holder of the 30,000,000 Series A Convertible Preferred Stock outstanding.
The Series C Convertible Preferred Stock, with 1,000,000 shares authorized and
205,000 issued and outstanding at September 30, 2022, has no voting rights, has
a Stated Value of $1.00 per share, and with a par value of $0.001 per share, is
redeemable after issuance by the Company at various increased prices at time
intervals up to the 6-month anniversary of issuance and is mandatorily fully
redeemable on the 12-month anniversary of issuance. The Series C Preferred Stock
is convertible by the holder into our common shares, commencing on the 6-month
anniversary of issuance at a 37% discount to the public market price.
On July 15, 2021, the Company designated 1,000,000 shares of Series C
Convertible Preferred Stock. The Series C Convertible Preferred Stock ranks
senior to the common stock with respect to dividends and right of liquidation
and has no voting rights. The Series C Convertible Preferred Stock has a 10%
cumulative annual dividend. Upon the occurrence and during the continuation of
any Event of Default. In the event of default, the dividend rate increases
to 22%. The Company may not, with consent of a majority of the holders of Series
C Convertible Preferred Stock, alter or changes the rights of the Series C
Convertible Preferred Stock, amend the articles of incorporation, create any
other class of stock ranking senior to the Series C Convertible Preferred Stock,
increase the authorized shares of Series C Convertible Preferred Stock, or
liquidate or dissolve the Company. Beginning 180 days from issuance, the Series
C Convertible Preferred Stock may be converted into common stock at a price
based on 63% of the average of the two lowest trading prices during the 15 days
prior to conversion. The Company may redeem the Series C Convertible Preferred
Stock during the first 180 days from issuance, subject to early redemption
penalties of up to 35%. The Series C Convertible Preferred Stock must be
redeemed by the Company 12 months following issuance if not previously redeemed
or converted. Based on the terms of the Series C Convertible Preferred Stock,
the Company determined that the preferred stock is mandatorily redeemable and
will be accounted for as a liability under ASC 480.
During the nine months ended September 30, 2022, the Company entered into
purchase agreements for the sale of 205,000 shares of Series C Convertible
Preferred Stock with Geneva Roth Remark Holdings. As of September 30, 2022, the
Company owes $7,650 in accrued dividends, reflected as interest expense, and the
carrying value of the Series C Preferred stock was $129,164, net of unamortized
discount of $75,836. During the nine months ended September 30, 2022, $221,250
of Series C Convertible Preferred Stock and accrued dividends of $11,063 were
converted into 153,892,604 shares of common stock.
On November 14, 2022, we filed with the SEC a Notification of Late Filing
pursuant to Rule 12b-25 of the Securities Exchange Act of 1934 indicating that
we were unable to timely file our Quarterly Report on Form 10-Q for the quarter
ended September 30, 2022, which was due on or before November 14, 2022. We
indicated at the time that we expected to file this quarterly report no later
than November 19, 2022, which is the fifth calendar day filing extension period
afforded registrants under Rule 12b-25 of the Securities Exchange Act of 1934.
As of November 19, 2022, however, we remained unable to file this quarterly
report. As such, from November 19, 2022 until December 22, 2022, the date of
filing of this Report, we were in default under the certificate of designations
for the Series C Convertible Preferred Stock with respect to its compliance
requirements, as a result of our delay in filing this quarterly report with the
SEC. On December 5, 2022, the Company received a written notice of default from
Geneva Roth Remark Holdings.
Common Stock
The Company has 6,000,000,000 shares of $0.0001 par value per share common stock
authorized.
On September 22, 2022, following approval by the Company's Board of Directors
and a majority of the outstanding voting stock of the Company, the Company filed
Fifth Amended and Restated Articles of Incorporation with the State of Nevada
reflecting an increase in the Company's authorized common stock from
5,000,000,000 shares at $0.0001 par value per share to 6,000,000,000 shares at
$0.0001 par value per share, effective September 23, 2022.
During the nine months ended September 30, 2022, 296,383,893shares of common
stock were issued by the Company for the conversion of $343,599 in principal and
interest of a convertible note.
During the nine months ended September 30, 2022, $221,250 of Series C
Convertible Preferred Stock and accrued dividends of $11,063 were converted into
153,892,604 shares of common stock.
During the nine months ended September 30, 2022, 13,219,047shares of common
stock with a fair value of $38,691were issued by the Company for financing costs
in relation to debt issuances.
During the nine months ended September 30, 2022, 29,285,714shares of common
stock were issued by the Company for services rendered with a fair value of
$76,800.
During the nine months ended September 30, 2022, 56,911,764shares of common
stock were issued by the Company with a fair value of $96,750 for the settlement
of $96,750 in liabilities.
13
NOTE 5. ACQUISITION
Asset Purchase Agreement
On October 4, 2021, Eco Innovation Group, Inc. (the "Company") entered into an
asset purchase agreement (the "Asset Purchase Agreement") with Spruce
Construction, Inc., an Alberta Business Corporation ("Spruce Construction") and
Timothy Boetzkes ("Boetzkes"), a resident of the Province of Alberta, Canada and
the sole shareholder of Spruce Construction, pursuant to which, the Company,
Boetzkes and Spruce Construction agreed to effect an asset purchase agreement
for existing construction equipment and form a new Canadian engineering and
construction company in Canada. The Company entered into the Asset Purchase
Agreement for the purpose of launching a green construction division in Alberta,
Canada.
Under the Asset Purchase Agreement, the Company agreed to pay Boetzkes one
million shares of the Company's restricted common stock and assume as liability
a contingent cash payment to Spruce Construction in the amount of approximately
$104,000, specifically to pay, from future net cash flow over the next 12
months, certain of Spruce Construction's expenses and liabilities, to purchase
from Spruce Construction for substantially all of the assets and business of
Spruce Construction, consisting of vehicles, tools and equipment for the
construction industry, the Spruce Construction name, and the existing book of
construction business of Spruce Construction. Pursuant to the Asset Purchase
Agreement, the Company, Boetzkes and Patrick Laurie, the CEO of the Company's
Canadian technology subsidiary, ECOIG Canada, have formed a new Alberta Business
Corporation to own and deploy the acquired construction assets, named Spruce
Engineering & Construction Inc. The Company owns 85% of the voting interests of
Spruce Engineering & Construction Inc., with Boetzkes owning 10% and Patrick
Laurie 5%.
The closing of the Asset Purchase Agreement was subject to the satisfaction or
waiver of customary conditions to closing, as disclosed in the term sheet for
the project disclosed by the Company and filed as Exhibit 10.1 in the Company's
Current Report on Form 8-K filed by the Company with the Securities and Exchange
Commission on August 11, 2021. The Company is accounting for the acquisition as
a business combination under the guidance of ASC805.
On April 21, 2022, the Company entered into an amendment number one to the Asset
Purchase Agreement with Boetzkes and Spruce Construction, to extend the due date
for the contingent cash payments under the Asset Purchase Agreement in the
amount of approximately $104,000USD ($130,000CAD) due to Spruce Construction
under the Asset Purchase Agreement. Under the Asset Purchase Agreement the
$104,000 USD ($130,000 CAD) payment was due at 6 months after closing, and
pursuant to the April 21, 2022 first amendment, that payment was due at 12
months after the closing date, or October 3, 2022. As of the date of this
filing, none of the contingent cash payments have been made to Spruce
Construction under the Asset Purchase Agreement. On December 29, 2022, the
Company entered into an amendment number two to the Asset Purchase Agreement
with Boetzkes and Spruce Construction, to extend the due date and establish a
monthly pay schedule for the approximately $104,000 USD ($130,000 CAD) in total
due to Boetzkes and Spruce Construction under the Asset Purchase Agreement.
Under the December 29, 2022 second amendment, monthly payments of approximately
$3,000 are now due beginning on January 31, 2023 to continue until the entire
balance is paid. Additionally, the Company agreed to provide compensation to
Boetzkes of one million restricted common shares in consideration for the
failure to pay by the original APA deadline, which was a result of inadequate
net cash flows within Spruce Engineering & Construction, Inc.
Lock-Up Leak-Out Agreement
On October 4, 2021, in connection with the Asset Purchase Agreement, Boetzkes
entered into a Lock-Up and Leak-Out Agreement with the Company pursuant to
which, among other thing, such shareholder agreed to certain restrictions
regarding the resale of the common stock issued pursuant to the Asset Purchase
Agreement for a period of six months from the date of the Asset Purchase
Agreement, as more fully detailed therein.
Shareholders Agreement
On October 4, 2021, in connection with the Asset Purchase Agreement, the Company
entered into a shareholders agreement (the "Shareholders Agreement") with
Timothy Boetzkes and Patrick Laurie. Under the Shareholders Agreement, Patrick
Laurie agreed to serve as the Chief Executive Officer and Timothy Boetzkes
agreed to serve as the Chief Operating Officer of Spruce Engineering &
Construction Inc. The Shareholders Agreement provides for certain terms of
governance, restrictive covenants including confidentiality and noncompetition,
and transfer restrictions on the parties' equity with regards to Spruce
Engineering & Construction Inc.
Employment Agreements
On October 4, 2021, in connection with the Asset Purchase Agreement, Spruce
Engineering & Construction Inc., of which the Company is the 85% voting equity
holder, entered into employment agreements (the "Employment Agreements") with
Timothy Boetzkes and Patrick Laurie, pursuant to which Patrick Laurie shall
serve as the Chief Executive Officer and Timothy Boetzkes shall serve as the
Chief Operating Officer of Spruce Engineering & Construction Inc. Ancillary to
the Employment Agreements, Boetzkes and Laurie also entered into restricted
stock award agreements governing their minority equity stakes in Spruce
Engineering & Construction Inc., which provide for a repurchase option allowing
Spruce Engineering & Construction Inc. to clawback equity in the event of the
employees' for-cause termination.
The acquisition of Spruce Construction is being accounted for as a business
combination under ASC 805. The Company is continuing to gather evidence to
evaluate what identifiable intangible assets were acquired, such as a customer
list, and the fair value of each, and expects to finalize the fair value of the
acquired assets within one year of the acquisition date.
14
The aggregate preliminary fair value of consideration for the Spruce
Construction acquisition was as follows:
Schedule of preliminary Fair value Acquisition
Amount
Notes payable issued to seller 103,689
1,000,000 shares of common stock 23,000
Noncontrolling interest 22,000
Total preliminary consideration transferred $ 148,689
During the nine months ended September 30, 2022, the Company has paid $0 against
the note payable due on October 3, 2022.
The following information summarizes the preliminary allocation of the fair
values assigned to the assets acquired and liabilities assumed at the
acquisition date:
Schedule Of Recognized Identified Assets Acquired And Liabilities
Accounts Receivable $ 30,577
Trucks 41,974
Goodwill 103,188
Vehicle Note Payable (27,041 )
Net assets acquired $ 148,698
As a result of the acquisition, The Company recognized goodwill of $103,188,
representing the difference between the value of the acquired business, the
assets acquired, and the initial noncontrolling interest of $22,000,
representing 15% of the total value of the business that was not acquired by the
Company.
NOTE 6. RELATED PARTY TRANSACTIONS
Accrued officer compensation as of September 30, 2022 and December 31, 2021 was
$477,042 and $381,800 related to services rendered by the Company's Chief
Executive officer, which is included under accounts payable related party.
Accrued material purchases as of September 30, 2022 and December 31, 2021, was
$28,662 and $0 related to materials purchased by a related party on behalf of
the Company, which is included under accounts payable related party.
NOTE 7. CONVERTIBLE NOTES
Convertible Notes Payable
On March 22, 2021, the Company entered into a convertible promissory note
agreement with Claudia Villalta for the issuance of a convertible promissory
note with a principal balance of $30,000. The note carries a 10% interest rate
per annum and is convertible at a fixed price of $0.06 a share into a total
of 500,000 common shares. Due to the variable conversion feature on the other
notes, this note is tainted with no net share settlement available, the note
conversion feature was bifurcated from the note and recorded as a derivative
liability. This note was in default as of September 30, 2022.
On June 4, 2021, the Company entered into a securities purchase agreement (the
"Labrys SPA") with Labrys Fund, LP ("Labrys"), pursuant to which the Company
issued a 12% promissory note (the "Labrys Note") with a maturity date of June 3,
2022 (the "Labrys Maturity Date"), in the principal sum of $1,000,000. Pursuant
to the terms of the Labrys Note, the Company agreed to pay to $225,000 (the
"Principal Sum") to Labrys and to pay interest on the principal balance at the
rate of 12% per annum. The Labrys Note carries an original issue discount
("OID") of $22,500. Accordingly, on the Closing Date (as defined in the Labrys
SPA), Labrys paid the purchase price of $202,500 in exchange for the Labrys
Note. Labrys may convert the Labrys Note into the Company's common stock
(subject to the beneficial ownership limitations of 4.99% in the Labrys Note) at
any time at a fixed conversion price equal to $0.023 per share but can be reset
if the Company issues instruments at a lower price. The Company paid $14,650 of
deferred financing costs which are amortized through the maturity date of the
note. During the year ended December 31, 2021 the Company made payments of
$77,000, reducing the outstanding note balance to $148,000. Due to the dilutive
issuance clauses on the conversion price, the note conversion feature was
bifurcated from the note and recorded as a derivative liability. During the nine
months ended September 30, 2022, $139,500 of principal and $27,000in accrued
interest was converted into 54,369,190 shares of common stock. In addition, the
Company repaid $8,500 in principal to settle the note in full.
On August 23, 2021, the Company entered into a securities purchase agreement
(the "Blue Lake SPA") with Blue Lake Partners, LLC ("Blue Lake"), pursuant to
which the Company issued a 12% promissory note (the "Blue Lake Note") with a
maturity date of August 23, 2022 (the "Blue Lake Maturity Date"), in the
principal sum of $150,000. Pursuant to the terms of the Blue Lake Note, the
Company agreed to pay to $150,000 (the "Principal Sum") to Blue Lake and to pay
interest on the principal balance at the rate of 12% per annum. The Blue Lake
Note carries an original issue discount ("OID") of $15,000. Accordingly, on the
Closing Date (as defined in the Blue Lake SPA), Blue Lake retained an additional
$9,450 of legal fees and paid the purchase price of $125,500 in exchange for the
Blue Lake Note. Blue Lake may convert the Blue Lake Note into the Company's
common stock (subject to the beneficial ownership limitations of 4.99% in the
Blue Lake Note) at any time at a fixed conversion price equal to $0.02 per share
but can be reset if the Company issues instruments at a lower price. Due to the
dilutive issuance clauses on the conversion price, the note conversion feature
was bifurcated from the note and recorded as a derivative liability. During the
nine months ended September 30, 2022, $100,116 of principal was converted into
111,680,000 shares of common stock.
15
The Company may prepay the Blue Lake Note at any time prior to the date that an
Event of Default (as defined in the Blue Lake Note) occurs at an amount equal to
100% of the Principal Sum then outstanding plus accrued and unpaid interest (no
prepayment premium) plus $7,530 for administrative fees. The Blue Lake Note
contains customary events of default relating to, among other things, payment
defaults, breach of representations and warranties, and breach of provisions of
the Blue Lake Note or Blue Lake SPA.
Upon the occurrence of any Event of Default, the Blue Lake Note shall become
immediately due and payable and the Company shall pay to Blue Lake, in full
satisfaction of its obligations hereunder, an amount equal to the Principal Sum
then outstanding plus accrued interest multiplied by 125% (the "Default
Amount"). Upon the occurrence of an Event of Default, additional interest will
accrue from the date of the Event of Default at the rate equal to the lower of
16% per annum or the highest rate permitted by law.
On November 14, 2022, we filed with the SEC a Notification of Late Filing
pursuant to Rule 12b-25 of the Securities Exchange Act of 1934 indicating that
we were unable to timely file our Quarterly Report on Form 10-Q for the quarter
ended September 30, 2022, which was due on or before November 14, 2022. We
indicated at the time that we expected to file this Report no later than
November 19, 2022, which is the fifth calendar day filing extension period
afforded registrants under Rule 12b-25 of the Securities Exchange Act of 1934.
As of November 19, 2022, however, we remained unable to file this quarterly
report. As such, from November 19, 2022 until December 22, 2022, the date of
filing of this Report, we were in default under the Blue Lake Note with respect
to its compliance requirements, as a result of our delay in filing this
quarterly report with the SEC. As of the filing date, the Company has not
received a notice of default regarding the Blue Lake Note.
The Blue Lake Note requires that the Company reserve from its authorized and
unissued common stock a number of shares equal to the greater of:
(a) 11,250,000 shares of our common stock, or (b) the sum of (i) the number of
shares of common stock issuable upon conversion of or otherwise pursuant to the
Blue Lake Note and such additional shares of common stock, if any, as are
issuable on account of interest on the Note pursuant to the Blue Lake SPA
issuable upon the full conversion of the Blue Lake Note (assuming no payment of
the principal amount or interest) as of any issue date multiplied by (ii) one
and a half. The Company is subject to penalties for failure to timely deliver
shares to Blue Lake following a conversion request.
The Blue Lake SPA and the Blue Lake Note contain covenants and restrictions
common with this type of debt transaction. Furthermore, the Company are subject
to certain negative covenants under the Blue Lake SPA and the Blue Lake Note,
which we believe are customary for transactions of this type. At September 30,
2022, we were in compliance with all covenants and restrictions.
In conjunction with the issuance of the Blue Lake Note, the Company issued
a five year warrant exercisable for 6,000,000 shares of common stock at an
exercisable price of $0.025 per share subject to anti-dilution and price
protection adjustments. The warrants are accounted for as a liability based on
the variable number of shares issuable under outstanding convertible debt and
the warrants.
On August 23, 2021, the Company entered into a securities purchase agreement
(the "Coventry SPA") with Coventry Enterprises, LLC ("Coventry"), pursuant to
which the Company issued a 10% promissory note (the "Coventry Note") with a
maturity date of May 9, 2023 (the "Coventry Maturity Date"), in the principal
sum of $150,000. Pursuant to the terms of the Coventry Note, the Company agreed
to pay $150,000 (the "Principal Sum") to Coventry and to pay interest on the
principal balance at the rate of 10% per annum. The Coventry Note carries an
original issue discount ("OID") of $30,000. Accordingly, on the Closing Date (as
defined in the Coventry SPA), Coventry retained an additional $7,200 of legal
fees and paid the purchase price of $112,800 in exchange for the Coventry Note.
Coventry may convert the Coventry Note into the Company's common stock (subject
to the beneficial ownership limitations of 4.99% in the Coventry Note) in the
event of default at a variable conversion price equal to 90% of the lowest
per-share during the 20 trading day period before the conversion. The note
requires monthly payments of $23,571 commencing on November 8, 2022.
In conjunction with the issuance of the Coventry Note, the Company issued
10,000,000 shares of common stock. The shares are accounted for as deferred
financing costs with a value of $30,000 which will be amortized through the
maturity date of the note.
On November 14, 2022, we filed with the SEC a Notification of Late Filing
pursuant to Rule 12b-25 of the Securities Exchange Act of 1934 indicating that
we were unable to timely file our Quarterly Report on Form 10-Q for the quarter
ended September 30, 2022, which was due on or before November 14, 2022. We
indicated at the time that we expected to file this quarterly report no later
than November 19, 2022, which is the fifth calendar day filing extension period
afforded registrants under Rule 12b-25 of the Securities Exchange Act of 1934.
As of November 19, 2022, however, we remained unable to file this quarterly
report. As such, from November 19, 2022 until December 22, 2022, the date of
filing of this Report, we were in default under the Coventry Note with respect
to its compliance requirements, as a result of our delay in filing this
quarterly report with the SEC. On December 21, 2022, the Company received a
written notice of default from Coventry Enterprises, informing us that the
default provisions of the note were in effect, bringing the principal balance of
the note from $150,000 to $180,000.
On February 4, 2022, the Company entered into a convertible promissory note (the
"SRAX Note") with SRAX, Inc ("SRAX"), pursuant to which the Company issued a 1%
promissory note with a maturity date of February 4, 2025 (the "SRAX Maturity
Date"), in the principal sum of $120,000. Pursuant to the terms of the SRAX
Note, the Company agreed to pay $120,000 (the "Principal Sum") to SRAX and to
pay interest on the principal balance at the rate of 1% per annum. The SRAX Note
was issued in exchange for services rendered. SRAX may convert the SRAX Note
into the Company's common stock (subject to the beneficial ownership limitations
of 4.99% in the SRAX Note) at the lower of $0.0033 or 85% of the lowest
per-share during the 5 trading day period before the conversion.
Convertible notes payable are comprised of the following:
Schedule of convertible notes payable
September 30, December 31,
2022 2021
Convertible note payable - Claudia Magdalena Villalta $ 30,000 $ 30,000
Convertible note payable - Labrys
$ - $ 148,000
Convertible notes payable- Blue Lake Holdings $ 49,884 $ 150,000
Convertible note payable - Coventry $ 150,000 $ -
Convertible note payable - SRAX $ 88,500 $ -
Total $ 318,384 $ 328,000
Less debt discounts $ (134,742 ) $ (198,781 )
Net $ 183,642 $ 129,219
Less current portion $ (183,642 ) $ (129,219 )
Long term portion $ - $ -
16
As of September 30, 2022, there were 988,668,188 shares of common stock that may
be issued under the convertible notes payable described above.
As of September 30, 2022 and December 31, 2021, unamortized debt discount was
$134,712 and $198,781, respectively. During the nine months ended September 30,
2022, the Company amortized debt discount of $251,239to interest expense.
Accrued interest on convertible notes was $40,234 as of September 30, 2022.
Convertible Notes Payable - Related Parties
On March 1, 2016, the Company executed two convertible notes of $4,902 each with
former executives of the Company. These notes are each convertible into
50,000,000 shares of common stock. These notes are non-interest bearing. On
October 14, 2019, one of these notes converted into common stock. In May 2020,
Robert L. Hymers purchased half of the remaining convertible promissory note and
its related conversion rights from John English in a private transaction. In May
2020, John English converted principal of $2,451 into 25,000,000 shares of
common stock. The remaining principal balance owed to Robert L. Hymers of $2,451
was convertible into 25,000,000 shares of stock at December 31, 2021. On January
10, 2022, the Company issued 18,500,000 shares of common stock to Hymers upon
partial conversion of the principal balance of the promissory note, so that as
of the date of this filing, the note is convertible into 6,500,000 shares of
common stock.
On November 14, 2022, we filed with the SEC a Notification of Late Filing
pursuant to Rule 12b-25 of the Securities Exchange Act of 1934 indicating that
we were unable to timely file our Quarterly Report on Form 10-Q for the quarter
ended September 30, 2022, which was due on or before November 14, 2022. We
indicated at the time that we expected to file this Report no later than
November 19, 2022, which is the fifth calendar day filing extension period
afforded registrants under Rule 12b-25 of the Securities Exchange Act of 1934.
As of November 19, 2022, however, we remained unable to file this quarterly
report. As such, from November 19, 2022 until January 6, 2023, the date of
filing of this Report, we were in default under the note with respect to its
compliance requirements, as a result of our delay in filing this quarterly
report with the SEC. On December 23, 2022, the Company received a written notice
of default from Robert L. Hymers III, informing us that the default provisions
of the note were in effect.
On December 9, 2019, the Company executed a convertible note with Pinnacle
Consulting Services Inc. ("Pinnacle"), which is owned by Robert L. Hymers III,
for $40,000 which matured on June 9, 2020. This note bears interest at 5% per
annum, which is convertible into shares of the Company's common stock. The note
is convertible at the option of the holder, into such number of fully paid and
non-assessable shares of common stock as is determined by dividing that portion
of the outstanding principal balance under the note by the Conversion Price,
which is a 35% discount of the lowest reported sale price of the common stock
for the 15 trading days immediately prior to the date of conversion. Due to the
variable conversion feature, the note conversion feature was bifurcated from the
note and recorded as a derivative liability. This note was in default as of
September 30, 2022. On December 23, 2022, the Company received a additional
written notice of default from Robert L. Hymers III, confirming that the default
provisions of the note were in effect and the note was in default as of
September 30, 2022.
On November 14, 2022, we filed with the SEC a Notification of Late Filing
pursuant to Rule 12b-25 of the Securities Exchange Act of 1934 indicating that
we were unable to timely file our Quarterly Report on Form 10-Q for the quarter
ended September 30, 2022, which was due on or before November 14, 2022. We
indicated at the time that we expected to file this Report no later than
November 19, 2022, which is the fifth calendar day filing extension period
afforded registrants under Rule 12b-25 of the Securities Exchange Act of 1934.
As of November 19, 2022, however, we remained unable to file this quarterly
report. As such, from November 19, 2022 until January 6, 2023, the date of
filing of this Report, we were in default under the note with respect to its
compliance requirements, as a result of our delay in filing this quarterly
report with the SEC. On December 23, 2022, the Company received a written notice
of default from Robert L. Hymers III, informing us that the default provisions
of the note were in effect.
On September 30, 2020, the Company executed a convertible note with Pinnacle for
$21,000 due on September 30, 2021. This note bears interest at 10% per annum and
is convertible (in whole or in part), at the option of the Holder, into such
number of fully paid and non-assessable shares of common stock as is determined
by dividing that portion of the outstanding principal balance under this Note by
the Conversion Price, which is a 35% discount of the lowest reported sale price
of the common stock for the 15 trading days immediately prior to the date of
conversion. Due to the variable conversion feature, the note conversion feature
was bifurcated from the note and recorded as a derivative liability. During the
nine months ended September 30, 2022 the note and all accrued interest was
converted in full into 46,894,863.
On October 19, 2021, the Company executed a convertible note with Pinnacle, for
$180,000, to settle outstanding consulting fees, due on April 19, 2022. This
note bears interest at 10% per annum and is convertible (in whole or in part),
at the option of the Holder, into such number of fully paid and non-assessable
shares of common stock as is determined by dividing that portion of the
outstanding principal balance under this Note by the Conversion Price of $0.0075
but can be reset if the Company issues instruments at a lower price. Due to the
dilutive issuance clauses on the conversion price, the note conversion feature
was bifurcated from the note and recorded as a derivative liability.
On November 14, 2022, we filed with the SEC a Notification of Late Filing
pursuant to Rule 12b-25 of the Securities Exchange Act of 1934 indicating that
we were unable to timely file our Quarterly Report on Form 10-Q for the quarter
ended September 30, 2022, which was due on or before November 14, 2022. We
indicated at the time that we expected to file this Report no later than
November 19, 2022, which is the fifth calendar day filing extension period
afforded registrants under Rule 12b-25 of the Securities Exchange Act of 1934.
As of November 19, 2022, however, we remained unable to file this quarterly
report. As such, from November 19, 2022 until January 6, 2023, the date of
filing of this Report, we were in default under the note with respect to its
compliance requirements, as a result of our delay in filing this quarterly
report with the SEC. On December 23, 2022, the Company received a written notice
of default from Robert L. Hymers III, informing us that the default provisions
of the note were in effect.
On March 23, 2022, the Company executed a convertible note with Robert Hymers
for $55,000 due on September 19, 2022. This note bears interest at 10% per annum
and is convertible (in whole or in part), at the option of the Holder, into such
number of fully paid and non-assessable shares of common stock as is determined
by dividing that portion of the outstanding principal balance under this Note by
the Conversion Price, $0.000098. On April 21, 2022, the Company and Hymers
entered into a debt exchange agreement, whereby the Company exchanged the
$55,000 Note convertible at a Conversion Price of $0.000098 per share for a
$60,000 note convertible at $0.002 per share, all other note terms remaining
unchanged. The Company determined that due to the change in fair value of the
conversion option being significant, the modification of the note should be
accounted for as a debt extinguishment, with the resulting loss on
extinguishment being recorded in additional paid-in capital because Mr. Hymers
is a related party. On December 23, 2022, the Company received a written notice
of default from Robert L. Hymers III, informing us that the default provisions
of the note were in effect.
17
On March 25, 2022, the Company executed a convertible note with Alma Otey, a
related party, for $23,000, due on July 13, 2022. This note bears interest at
10% per annum and is convertible (in whole or in part), at the option of the
Holder, into such number of fully paid and non-assessable shares of common stock
as is determined by dividing that portion of the outstanding principal balance
under this Note by the Conversion Price of $0.000098 but can be reset if the
Company issues instruments at a lower price. Due to the dilutive issuance
clauses on the conversion price, the note conversion feature was bifurcated from
the note and recorded as a derivative liability. The note requires monthly
payments of $7,333 until the balance is paid in full. During the nine months
ended September 30, 2022, the Company has made payments of $5,000 on the note.
Convertible notes payable - related parties are comprised of the following:
Schedule of convertible notes payable related parties
September 30, December 31,
2022 2021
Convertible notes payable - Pinnacle Consulting Services $ 205,000 $ 241,000
Convertible notes payable - Robert Hymers
$ 63,153 $ 4,875
Convertible notes payable- Alma Otey $ 15,000 $ -
Total $ 283,153 $ 245,875
Less debt discounts $ (3,600 ) $ (107,802 )
Net $ 279,553 $ 138,073
Less current portion $ (279,553 ) $ (138,073 )
Long term portion $ - $ -
As of September 30, 2022, there were 288,484,301 shares of common stock that may
be issued under the related party convertible notes payable described above.
As of September 30, 2022 and December 31, 2021, unamortized debt discount was
$3,600 and $107,802, respectively. During the quarter ended September 30, 2022,
the Company amortized debt discount of $218,195 to interest expense. Accrued
interest on convertible notes was $10,892 as of September 30, 2022.
Derivative liabilities
The Company determined that the conversion options in the certain of the notes
discussed above met the definition of a liability in accordance with ASC Topic
No. 815 - 40, Derivatives and Hedging - Contracts in Entity's Own Stock. The
Company bifurcated the embedded conversion option in the note once the note
becomes convertible and account for it as a derivative liability.
During the quarter ended September 30, 2022, the fair value of new derivative
liabilities on the new issuance of debt and Preferred C Shares amounted to
$504,501 upon inception, with debt discount of $504,501 recognized. The Company
recognized a combined loss on the change in fair value of the derivative
liability and settlement of derivatives through payment of convertible notes of
$373,841 during the nine months ended September 30, 2022. The Black Scholes
valuation model included inputs of volatility of between 209% and 705%, a
dividend yield of 0%, risk free rate of 0.28%-4.25% and a term of between 0.5
years and 4.5 years.
The table below presents the change in the fair value of the derivative
liability:
Schedule Of Derivative Liabilities At Fair Value
Fair Value as of January 1, 2022 $ 2,328,234
Initial recognition of derivative added as debt discount 504,501
Settlement of derivative liability as a result of
conversion of convertible notes (617,480)
Settlement of derivative liability as a result of
extinguishment of convertible notes (1,126,619 )
Market-to-Market (362,662 )
Fair Value as of September 30, 2022 725,974
NOTE 8. SUBSEQUENT EVENTS
Subsequent to September 30, 2022, the Company issued 276,778,125 shares of
common stock to Geneva Roth Remark Holdings, Inc. in conversion of 84,350 shares
of Series C Convertible Preferred Stock.
On November 1, 2022, the Company issued 38,900,000shares of common stock to an
accredited investor in conversion of a promissory note issued August 23, 2021 in
the principal amount of $150,000. An amount of $18,672 of the principal and
interest on the note was converted at a per-share conversion price of $0.00048.
18
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
This discussion and analysis may include statements regarding our expectations
with respect to our future performance, liquidity, and capital resources. Such
statements, along with any other non-historical statements in the discussion,
are forward-looking. These forward-looking statements are subject to numerous
risks and uncertainties, including, but not limited to, factors listed in other
documents we file with the Securities and Exchange Commission (the "SEC''). We
do not assume an obligation to update any forward-looking statements. Our actual
results may differ materially from those contained in or implied by any of the
forward-looking statements contained herein.
The outbreak of COVID-19 evolved into a global pandemic as COVID-19 spread to
many regions of the world. In response to COVID-19, governmental authorities
around the world implemented measures to reduce the spread of COVID-19. These
measures have and may continue to adversely affect workforces, customers, supply
chains, consumer sentiment, economies, and financial markets. In addition,
decreased consumer spending has and may continue to lead to an economic downturn
globally.
Specifically, numerous state and local jurisdictions have and may in the future
impose shelter-in-place orders, quarantines, shut-downs of non-essential
businesses, and similar government orders and restrictions on their residents to
control the spread of COVID-19. Such orders or restrictions have resulted in
temporary facility closures, work stoppages, slowdowns and travel restrictions,
among other effects, thereby adversely impacting our operations. As a result of
COVID-19, we have experienced a reduction in sales of our products and slower
lead times with respect to the manufacturing of our products. In addition, a
downturn in the United States economy may have an adverse impact on
discretionary consumer spending which may have a significant impact on our
business operations and/or our ability to generate revenues and profits.
The extent to which COVID-19 impacts our business and operating results will
depend on future developments that are highly uncertain and cannot be accurately
predicted, including new information that may emerge concerning COVID-19,
including variants such as the delta variant, and the actions to contain
COVID-19 or treat its impact, among others. We do not yet know the full extent
of the impacts of COVID-19 on our business; however, these effects could have a
material impact on our operations and financial condition.
Overview and Financial Condition
We are an innovative entrant into the green technology licensing and
construction space, and as a recently registered publicly traded company with
our initial S-1 registration statement declared effective as of January 15, 2021
and our common stock registered under Section 12(g) of the Exchange Act on April
27, 2022, we are one of the few publicly-traded green technology development
firms in the U.S. As of the date of this Quarterly Report, we have more than two
years of implementing our business plan under new management following our
change of control in late February 2020.
Our total operating and other expenses in excess of our gross profit have
resulted in a net loss of $6,632,146 for the year ended December 31, 2021, and a
net loss of $2,254,686 for the nine months ended September 30, 2022, which,
considered in light of our past financial performance, give rise to the going
concern statement below. In furthering our business, as described in Item 1
above concerning our business and operations, we are seeking to license
commercially viable green technologies that fulfill concrete market demands, and
develop product applications that we can sell into the market. Our technology
licensing and product development activities are spearheaded by Julia
Otey-Raudes, our Chief Executive Officer.
Green Construction Division - USA and Canada
Spruce Engineering & Construction, Inc. - Canada
Asset Purchase Agreement
On October 4, 2021, Eco Innovation Group, Inc. (the "Company") entered into an
asset purchase agreement (the "Asset Purchase Agreement") with Spruce
Construction, Inc., an Alberta Business Corporation ("Spruce Construction") and
Timothy Boetzkes ("Boetzkes"), a resident of the Province of Alberta, Canada and
the sole shareholder of Spruce Construction, pursuant to which, the Company,
Boetzkes and Spruce Construction agreed to effect an asset purchase agreement
for existing construction equipment and form a new Canadian engineering and
construction company in Canada. The Company entered into the Asset Purchase
Agreement for the purpose of launching a green construction division in Alberta,
Canada.
Under the Asset Purchase Agreement, the Company agreed to pay Boetzkes one
million shares of the Company's restricted common stock and assume as liability
a contingent cash payment to Spruce Construction in the amount of approximately
$104,000, specifically to pay, from future net cash flow over the next 12
months, certain of Spruce Construction's expenses and liabilities , to purchase
from Spruce Construction substantially all of the assets and business of Spruce
Construction, consisting of vehicles, tools and equipment for the construction
industry, the Spruce Construction name, and the existing book of construction
business of Spruce Construction. Pursuant to the Asset Purchase Agreement, the
Company, Boetzkes and Patrick Laurie, the CEO of the Company's Canadian
technology subsidiary, ECOIG Canada, have formed a new Alberta Business
Corporation to own and deploy the acquired construction assets, named Spruce
Engineering & Construction Inc. The Company owns 85% of the voting interests of
Spruce Engineering & Construction Inc., with Boetzkes owning 10% and Patrick
Laurie 5%.
The closing of the Asset Purchase Agreement was subject to the satisfaction or
waiver of customary conditions to closing, as disclosed in the term sheet for
the project disclosed by the Company and filed as Exhibit 10.1 in the Company's
Current Report on Form 8-K filed by the Company with the Securities and Exchange
Commission on August 11, 2021. The Company is accounting for the acquisition as
a business combination under the guidance of ASC805.
On April 21, 2022, the Company entered into an amendment number one to the Asset
Purchase Agreement with Boetzkes and Spruce Construction, to extend the due date
for the contingent cash payments under the Asset Purchase Agreement in the
amount of approximately $104,000 USD ($130,000 CAD) due to Spruce Construction
under the Asset Purchase Agreement. Under the Asset Purchase Agreement the
$104,000 USD ($130,000 CAD) payment was due at 6 months after closing, and
pursuant to the April 21, 2022 first amendment, that payment was due at 12
months after the closing date, or October 3, 2022. As of the date of this
filing, none of the contingent cash payments have been made to Spruce
Construction under the Asset Purchase Agreement. On December 29, 2022, the
Company entered into an amendment number two to the Asset Purchase Agreement
with Boetzkes and Spruce Construction, to extend the due date and establish a
monthly pay schedule for the approximately $104,000 USD ($130,000 CAD) due to
Boetzkes and Spruce Construction under the Asset Purchase Agreement. Under the
December 29, 2022 second amendment, monthly payments of $4,000 are now due
beginning on January 31, 2023 to continue until the entire balance is paid.
Additionally, the Company agreed to provide compensation to Boetzkes of one
million restricted common shares in consideration for the failure to pay by the
original APA deadline, which was a result of inadequate net cash flows within
Spruce Engineering & Construction, Inc.
19
The closing of the Asset Purchase Agreement was subject to the satisfaction or
waiver of customary conditions to closing, as disclosed in the term sheet for
the project disclosed by the Company and filed as Exhibit 10.1 in the Company's
Current Report on Form 8-K filed by the Company with the Securities and Exchange
Commission on August 11, 2021.
Lock-Up Leak-Out Agreement
On October 4, 2021, in connection with the Asset Purchase Agreement, Boetzkes
entered into a Lock-Up and Leak-Out Agreement with the Company pursuant to
which, among other thing, such shareholder agreed to certain restrictions
regarding the resale of the common stock issued pursuant to the Asset Purchase
Agreement for a period of six months from the date of the Asset Purchase
Agreement, as more fully detailed therein.
Shareholders Agreement
On October 4, 2021, in connection with the Asset Purchase Agreement, the Company
entered into a shareholders agreement (the "Shareholders Agreement") with
Timothy Boetzkes and Patrick Laurie. Under the Shareholders Agreement, Patrick
Laurie agreed to serve as the Chief Executive Officer and Timothy Boetzkes
agreed to serve as the Chief Operating Officer of Spruce Engineering &
Construction Inc. The Shareholders Agreement provides for certain terms of
governance, restrictive covenants including confidentiality and noncompetition,
and transfer restrictions on the parties' equity with regards to Spruce
Engineering & Construction Inc.
Employment Agreements
On October 4, 2021, in connection with the Asset Purchase Agreement, Spruce
Engineering & Construction Inc., of which the Company is the 85% voting equity
holder, entered into employment agreements (the "Employment Agreements") with
Timothy Boetzkes and Patrick Laurie, pursuant to which Patrick Laurie shall
serve as the Chief Executive Officer and Timothy Boetzkes shall serve as the
Chief Operating Officer of Spruce Engineering & Construction Inc. Ancillary to
the Employment Agreements, Boetzkes and Laurie also entered into restricted
stock award agreements governing their minority equity stakes in Spruce
Engineering & Construction Inc., which provide for a repurchase option allowing
Spruce Engineering & Construction Inc. to clawback equity in the event of the
employees' for-cause termination.
ECOX Spruce Construction, Inc. - USA
On January 4, 2022, the Company formed a subsidiary, ECOX Spruce Construction,
Inc., a California corporation ("ECOX Spruce Construction"), for the purpose of
starting a green construction division. Pursuant to a letter of intent (LOI)
between ECOX and Edgar E. Aguilar ("Aguilar"), a resident of California and
licensed California general contractor, Aguilar agreed to manage the operation
of ECOX Spruce Construction's construction business in California as its
Responsible Managing Officer. Under the Company's existing LOI with Aguilar,
Blueprint Construction will own 20% of the equity interests of ECOX Spruce
Construction Inc., and the Company will own 80%. ECOX Spruce Construction is in
the process of securing a general contractor license in California, with the
Company's Chief Executive Officer as principal applicant. That application was
approved and the Company is in the process of securing workman's compensation
insurance and bonding so that the license will become active. Once ECOX Spruce
Construction is fully licensed and bonded as a California general contractor,
the Company intends to seek certification as a Women's Business Enterprise.
Going Concern
Because of recurring operating losses, net operating cash flow deficits, and an
accumulated deficit, our independent auditors have indicated in their report on
our December 31, 2021 financial statements that there is substantial doubt about
our ability to continue as a going concern.
The continuation of our business is dependent upon our ability to generate
sufficient cash flows from operations to meet its obligations, in which we have
not been successful, and/or obtaining additional financing from our stockholders
or other sources, as may be required. The issuance of additional equity or
convertible debt securities by us could result in a significant dilution in the
equity interests of our current stockholders. Obtaining commercial loans,
assuming those loans would be available, will increase our liabilities and
future cash commitments.
20
Corporate Information
The Company's shares are quoted on the OTC Markets Pink Sheet tier, under the
symbol ECOX. Our executive offices are located at 16525 Sherman Way, Suite C-1,
Van Nuys, CA 91406, and our telephone number is (800) 922-4356.
We maintain an internet website, and our internet address is
https://www.ecoig.com. The information on our website is not incorporated by
reference in this Quarterly Report or in any other filings we make with the
Securities and Exchange Commission ("SEC").
We are an "emerging growth company," as defined in Section 2(a) of the
Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012
(the "JOBS Act"). As such, we are eligible to take advantage of certain
exemptions from various reporting requirements that are applicable to other
public companies that are not "emerging growth companies" including, but not
limited to, not being required to comply with the auditor attestation
requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or the
Sarbanes-Oxley Act, reduced disclosure obligations regarding executive
compensation in our periodic reports and proxy statements, and exemptions from
the requirements of holding a non-binding advisory vote on executive
compensation and stockholder approval of any golden parachute payments not
previously approved. If some investors find our securities less attractive as a
result, there may be a less active trading market for our securities and the
prices of our securities may be more volatile.
In addition, Section 107 of the JOBS Act also provides that an "emerging growth
company" can take advantage of the extended transition period provided in
Section 7(a)(2)(B) of the Securities Act for complying with new or revised
accounting standards. In other words, an "emerging growth company" can delay the
adoption of certain accounting standards until those standards would otherwise
apply to private companies. We intend to take advantage of the benefits of this
extended transition period.
We will remain an emerging growth company until the earlier of (1) the last day
of the fiscal year (a) following the fifth anniversary of the completion of this
offering, (b) in which we have total annual gross revenue of at least
$1.07 billion, or (c) in which we are deemed to be a large accelerated filer,
which means the market value of our ordinary shares that is held by
non-affiliates exceeds $700 million as of the prior September 30, and (2) the
date on which we have issued more than $1.0 billion in non-convertible debt
securities during the prior three-year period. References herein to "emerging
growth company" will have the meaning associated with it in the JOBS Act.
Additionally, we are a "smaller reporting company" as defined in Item 10(f)(1)
of Regulation S-K. Smaller reporting companies may take advantage of certain
reduced disclosure obligations, including, among other things, providing only
two years of audited financial statements, and, if their revenues are less than
$100 million, not providing an independent registered public accounting firm
attestation on internal control over financial reporting. We will remain a
smaller reporting company until the last day of the fiscal year in which (1) the
market value of our ordinary shares held by non-affiliates exceeds $250 million
as of the end of the second fiscal quarter of that year or (2) our annual
revenues exceeded $100 million during such completed fiscal year and the market
value of our ordinary shares held by non-affiliates exceeds $700 million as of
the end of the second fiscal quarter of that year.
Reports to security holders
We are required to file annual, quarterly and current reports with the
Securities and Exchange Commission and our filings are available to the public
over the internet at the Securities and Exchange Commission's website at
http://www.sec.gov. The public may read and copy any materials filed by us with
the Securities and Exchange Commission at the Securities and Exchange
Commission's Public Reference Room at 100 F Street N.E. Washington D.C. 20549.
The public may obtain information on the operation of the Public Reference Room
by calling the Securities and Exchange Commission at 1-800-732-0330. The SEC
also maintains an Internet site that contains reports, proxy and formation
statements, and other information regarding issuers that file electronically
with the SEC, at http://www.sec.gov.
Results of Operations - Three months Ended September 30, 2022 compared to Three
months Ended September 30, 2021
Revenues were $191,231 for the three months ended September 30, 2022, and gross
profit was $57,954, compared to none in the prior period. Revenues from the
Company's US and Canadian construction business began in late 2021 and in 2022.
Selling, general and administrative expenses consist primarily of payroll,
professional fees, sales and marketing, research and development and other
operating expenses. Selling, general and administrative expenses totaled
$196,916 and $245,036 for the three months ended September 30, 2022 and 2021,
respectively. For the three months ended September 30, 2022, we incurred $75,000
in executive compensation and $31,800 in consulting fees compared to $75,000 of
executive compensation and $126,500 in consulting for the three months ended
September 30, 2021, respectively, primarily from stock-based compensation.
21
The Company also recognized interest expense of $105,248, including amortization
of debt discount of $104,907, a derivative gain of $1,027,564, warrant gain of
$4,200, and an impairment of its investment of $4,194 during the three months
ended September 30, 2022. The Company also recognized a loss of $350,000 related
to additional shares to be issued to MCOA under the Share Exchange Agreement.
During the three months ended September 30, 2021, the Company recognized
interest expense of $110,874, including amortization of debt discount of
$119,548, a derivative loss of $64,080, A warrant fair value adjustment gain of
$22,282 and a loss of $38,519 related to additional shares to be issued to MCOA
under the Share Exchange Agreement.
As a result of the foregoing, we recorded net income of $326,560 and a net loss
of $637,727 for the three months ended September 30, 2022 and 2021,
respectively.
Results of Operations - Nine Months Ended September 30, 2022 compared to Nine
Months Ended September 30, 2021
Revenues were $618,992 for the nine months ended September 30, 2022, and gross
profit was $54,299, compared to none in the prior period. Revenues from the
Company's US and Canadian construction business began in late 2021 and in 2022.
Selling, general and administrative expenses consist primarily of payroll,
professional fees, sales and marketing, research and development and other
operating expenses. Selling, general and administrative expenses totaled
$507,881 and $387,440 the nine months ended September 30, 2022 and 2021,
respectively. For the nine months ended September 30, 2022, we incurred $225,000
in executive compensation and $203,550 in consulting fees compared to $425,000
of executive compensation and $673,097 in consulting fees for the nine months
ended September 30, 2021, respectively, primarily from stock-based compensation.
The Company also recognized interest expense of $708,873, including amortization
of debt discount of $647,418, a derivative loss of $362,662, a warrant gain of
$131,925, a loss on the forgiveness of debt of $8,692, a loss on the impairment
of investment of $63,253. During the nine months ended September 30, 2022, the
Company also recognized a loss of $1,086,323 related to additional shares to be
issued to MCOA under the Share Exchange Agreement. During the nine months ended
September 30, 2021, the Company recognized interest expense of $764,139,
including amortization of debt discount of $184,333, a derivative gain of
$160,795 a warrant fair value adjustment gain of $22,282. The Company also
recognized a loss of $331,019 related to additional shares to be issued to MCOA
under the Share Exchange Agreement during the nine months ended September 30,
2021.
As a result of the foregoing, we recorded a net loss of $2,254,686 and
$2,397,783 for the nine months ended September 30, 2022 and 2021, respectively.
Liquidity and Capital Resources
As of September 30, 2022 and December 31, 2021, the Company had cash of $15,398
and $28,534, respectively. Furthermore, the Company had a working capital
deficit of $4,049,241 and $4,509,624 as of September 30, 2022 and December 31,
2021, respectively.
During the nine months ended September 30, 2022, the Company used $536,581 of
cash in operating activities due to its net loss of $2,254,686, partially offset
by; amortization of debt discount of $647,418; expense from shares to be issued
to MCOA under the share exchange agreement of $1,086,323, stock-based
compensation expense of $76,800, derivative gain of $362,662 and an increase in
accounts payable and accrued expenses of $246,192.
The Company had no cash used in investing activities during the nine months
ended September 30, 2022. The Company had cash used in investing activities of
$68,640 for the purchase of intangible assets under license agreements and
purchase of furniture and equipment during the nine months ended September 30,
2021.
During the nine months ended September 30, 2022, the Company had net cash
provided by financing activities of $519,691, primarily from $112,800 of
proceeds on convertible debentures, $68,000 of proceeds from related party
convertible debentures, proceeds from sale of common stock of $167,900, proceeds
from sale of preferred C stock of $190,000, offset by repayments of convertible
debentures of $8,500 and repayments of related party convertible debentures of
$8,000 and repayments on notes payables of $2,509. The Company had cash net cash
provided by financing activities of $448,682, primarily from $505,482 of
proceeds on convertible debentures, $115,000 proceeds from sale of preferred C
stock and proceeds from sale of common stock of $45,450, partially offset by
repayments of convertible debentures of $217,250.
Our auditors have issued a going concern opinion on our annual consolidated
financial statements, meaning that there is substantial doubt we can continue as
an on-going business for the next twelve months unless we obtain additional
capital. Our only sources for cash at this time are investments by others in
this offering, selling our products and loans from our director. We must raise
cash to implement our plan and stay in business.
Management believes that current trends toward lower capital investment in
start-up companies pose the most significant challenge to the Company's success
over the next year and in future years. Additionally, with the January 15, 2021
effectiveness of our registration statement on Form S-1, as of January 15, 2021,
the Company is obligated to meet all the financial disclosure and reporting
requirements associated with being a publicly reporting company. The Company's
management will have to spend additional time on policies and procedures to make
sure it is compliant with various regulatory requirements, especially that of
Section 404 of the Sarbanes-Oxley Act of 2002. This additional corporate
governance time required of management could limit the amount of time management
has to implement is business plan and impede the speed of its operations.
22
Limited Operating History; Need for Additional Capital
There is no historical financial information about us upon which to base an
evaluation of our performance. As our business model and strategy were
reinvigorated with our February 2020 change in control and new management, we
are in a start-up stage of operations, and in general have generated limited
revenues since our inception. We cannot guarantee that we will be successful in
our business operations. Our success and performance are subject to all the
normal risks inherent in the development of a new line of business, including
our limited capital resources and the strength of our business partners'
business and financial positions, and the market for our green technologies.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements that have or are
reasonably likely to have a current or future effect on the Company's financial
condition, changes in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources.
Critical Accounting Policies
The preparation of financial statements in accounting principles generally
accepted in the United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. A change in managements' estimates or assumptions could have a
material impact on our financial condition and results of operations during the
period in which such changes occurred. Actual results could differ from those
estimates. Our financial statements reflect all adjustments that management
believes are necessary for the fair presentation of their financial condition
and results of operations for the periods presented.
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ECO INNOVATION GROUP, INC. 