UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
OR
For the transition period from to
Commission file number
| (Exact name of registrant as specified in its charter) |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
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| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area
code:
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||
| OTC Markets |
Securities registered pursuant to Section 12(g) of the Act: Common Stock.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
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 last 90 days.
Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-K (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files).
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☐ | Smaller reporting company | ||
| Emerging growth company | |||
If an emerging growth company, indicate by check
mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
The number of shares outstanding of the registrant’s common stock as of August 22, 2022 was
TABLE OF CONTENTS
| Part I – FINANCIAL INFORMATION | ||||
| Item 1. | Condensed Consolidated Financial Statements (unaudited) | 2 | ||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 18 | ||
| Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 22 | ||
| Item 4. | Controls and Procedures | 22 | ||
| Part II – OTHER INFORMATION | ||||
| Item 1. | Legal Proceedings | 22 | ||
| Item 1A. | Risk Factors | 22 | ||
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 23 | ||
| Item 3. | Defaults Upon Senior Securities | 24 | ||
| Item 4. | Mine Safety Disclosures | 24 | ||
| Item 5. | Other Information | 24 | ||
| Item 6. | Exhibits | 24 | ||
| SIGNATURES | 25 | |||
| 1 |
PART I FINANCIAL INFORMATION
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Information contained in this quarterly report on Form 10-Q contains “forward-looking statements.” These forward-looking statements are contained principally in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and are generally identifiable by use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend” or “project” or the negative of these words or other variations on these words or comparable terminology. The forward-looking statements herein represent our expectations, beliefs, plans, intentions or strategies concerning future events, including, but not limited to: our future financial performance; the continuation of historical trends; the sufficiency of our resources in funding our operations; our intention to acquire sustainable technology intellectual property rights; and our liquidity and capital needs. Our forward-looking statements are based on assumptions that may be incorrect, and there can be no assurance that any projections or other expectations included in any forward-looking statements will come to pass. Moreover, our forward-looking statements are subject to various known and unknown risks, uncertainties and other factors that may cause our actual results, performance, or achievements to be materially different from future results, performance or achievements expressed or implied by any forward-looking statements. These risks, uncertainties and other factors include but are not limited to: the risks of limited management, labor and financial resources; our ability to establish and maintain adequate internal controls; our ability to develop and maintain a market in our securities; and our ability obtain financing, if and when needed, on terms that are acceptable. Except as required by applicable laws, we undertake no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.
As used in this quarterly report on Form 10-Q, “we”, “our”, “us” and the “Company” refer to Eco Innovation Group, Inc. a Nevada corporation, unless the context requires otherwise.
| 2 |
Item 1. Financial Statements
Index to Financial Statements
| Page | ||
| CONDENSED CONSOLIDATED FINANCIAL STATEMENTS: | ||
| Balance Sheets, June 30, 2022 (unaudited), and December 31, 2021 | 4 | |
| Unaudited Statements of Operations, for the Three and Six Months Ended June 30, 2022, and June 30, 2021 | 5 | |
| Unaudited Statements of Changes in Stockholders’ (Deficit), for the Three and Six Months Ended June 30, 2022, and June 30, 2021 | 6 | |
| Unaudited Statements of Cash Flows, for the Six Months Ended June 30, 2022, and 2021 | 7 | |
| Notes to the Unaudited Interim Financial Statements | 8 |
| 3 |
ECO INNOVATION GROUP, INC.
CONSOLIDATED BALANCE SHEETS
June 30, 2022 | December 31, 2021 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable | ||||||||
| Prepaid expenses | ||||||||
| Total Current Assets | ||||||||
| Other Assets | ||||||||
| Furniture and Equipment | ||||||||
| Goodwill | ||||||||
| Investment | ||||||||
| Deposits and other assets | ||||||||
| Total Other Assets | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders' Deficit | ||||||||
| Current Liabilities | ||||||||
| Accounts Payable and accrued expenses | ||||||||
| Accounts Payable related party | ||||||||
| Convertible Notes Payable, net | ||||||||
| Notes Payable | ||||||||
| Deferred Revenue | ||||||||
| Warrant Liability | ||||||||
| Share Payable Liability | ||||||||
| Derivative liabilities | ||||||||
| Convertible Notes Payable Related Party, net | ||||||||
| Series C Preferred stock liability, net | ||||||||
| Total Current Liabilities | ||||||||
| Total Liabilities | ||||||||
| Stockholders' Deficit | ||||||||
| Preferred stock, par value $, authorized shares, issued and outstanding shares | ||||||||
| Common stock, par value $, authorized shares, issued and outstanding and shares at June 30, 2022 and December 31, 2021, respectively | ||||||||
| Common shares to be issued, and as of June 30, 2022 and December 31, 2021, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Other comprehensive income | ( | ) | ||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders' Deficit Attributable to Eco Innovation Group stockholders | ( | ) | ( | ) | ||||
| Noncontrolling interest | ||||||||
| Total stockholder's Equity (Deficit) | ( | ) | ( | ) | ||||
| TOTAL LIABILITIES and Stockholders' Deficit | $ | $ | ||||||
See the accompanying notes to these unaudited consolidated financial statements
| 4 |
ECO INNOVATION GROUP, INC.
CONSOLIDATED PROFIT AND LOSS STATEMENT
(Unaudited)
| For the Three Months Ended | For the Six Months Ended | |||||||||||||||
| June 30, | June 30, | June 30, | June 30, | |||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Cost of Revenue | ||||||||||||||||
| Gross Profit | ( | ) | ||||||||||||||
| Operating Expenses | ||||||||||||||||
| General and Administrative | ||||||||||||||||
| Development and Manufacture Expenses | ||||||||||||||||
| Executive Compensation | ||||||||||||||||
| Consulting Fee | ||||||||||||||||
| Total Operating Expense | ||||||||||||||||
| Operating Loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other Income (Expenses) | ||||||||||||||||
| Derivative gain (loss) | ( | ) | ||||||||||||||
| Warrant gain (loss) | ||||||||||||||||
| Loss on conversion of debt | ( | ) | ( | ) | ||||||||||||
| Impairment loss - Investment | ( | ) | ( | ) | ||||||||||||
| Other expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total Other Income (Loss) | ( | ) | ( | ) | ( | ) | ||||||||||
| Net income (loss) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Net loss attributable to noncontrolling interest | ||||||||||||||||
| Net income (loss) attributable to Eco Innovation Group | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Currency translation loss | ( | ) | ||||||||||||||
| Comprehensive Income (Loss) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Basic Loss per Common Share | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Diluted Loss per Common Share | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted Average Common Shares Outstanding Basic | ||||||||||||||||
| Weighted Average Common Shares Outstanding Diluted | ||||||||||||||||
See the accompanying notes to these unaudited consolidated financial statements
| 5 |
ECO INNOVATION GROUP, INC.
STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY/DEFICIT
For the Six Months Ended June 30, 2022 and 2021
(Unaudited)
| Preferred Stock A | Common Stock | Common Stock to be issued | Additional Paid-in Capital | Accumulated Deficit | Other Comprehensive Income | Total Equity of Eco Innovation Group | Noncontrolling interest | Total Equity | ||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||||||||||||||||
| Common stock issued for cash proceeds | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for conversion of notes payable | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for conversion of Series C preferred | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Settlement of derivative liability upon conversion of notes payable | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Comprehensive Loss | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2022 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||||||||||||||||||
| Common stock issued for conversion of notes payable | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for conversion of Series C preferred | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for financing costs | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for services | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for settlement of liabilities | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Settlement of derivative liability upon conversion of notes payable | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | ( | ) | |||||||||||||||||||||||||||||||||||||||||||
| Comprehensive Loss | — | — | — | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2022 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||||||||||||||||||
| Balance, December 31, 2020 | $ | $ | $ | $ | ( | ) | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||
| Common stock to be issued for services | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||
| Common stock for prepaid expenses | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Common stock to issued for license agreement | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for cash proceeds | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for investment | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2021 | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||
| Common stock cancelled | — | ( | ) | ( | ) | — | ||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for investment | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2021 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||||||||||||||||||
See the accompanying notes to these unaudited consolidated financial statements.
| 6 |
ECO INNOVATION GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Six Months Ended June 30 | ||||||||
| 2022 | 2021 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash | ||||||||
| used by operating activities: | ||||||||
| Derivative (gain) loss | ( | ) | ||||||
| Warrant (gain) loss | ( | ) | ||||||
| Depreciation expense | ||||||||
| Loss on conversion of debt | ||||||||
| Investment impairment loss | ||||||||
| Amortization of debt discount | ||||||||
| Interest expense on derivative issuance | ||||||||
| Share payable expense | ||||||||
| Stock based compensation | ||||||||
| Changes in operating assets and liabilities | ||||||||
| Accounts receivable | ( | ) | ||||||
| Prepaid expenses | ( | ) | ||||||
| Deferred Revenue | ||||||||
| Accounts payable and accrued expenses | ||||||||
| Accounts payable related party | ||||||||
| Net cash used by operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of intangible assets | ( | ) | ||||||
| Net cash provided by investing activities | ( | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from convertible debenture | ||||||||
| Repayment of convertible debentures | ( | ) | ( | ) | ||||
| Proceeds from sale of common stock | ||||||||
| Proceeds from sale of preferred C stock | ||||||||
| Repayment of notes payable | ( | ) | ||||||
| Proceeds from convertible notes payable, related party | ||||||||
| Repayment of convertible notes payable, related party | ( | ) | ||||||
| Net cash provided by financing activities | ||||||||
| Effect of foreign exchange on cash | ||||||||
| Change in cash | ( | ) | ||||||
| Cash, beginning of year | ||||||||
| Cash, end of year | $ | $ | ||||||
| Supplemental Cash Flow information | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
| Non-Cash transactions | ||||||||
| Common stock issued for investment | $ | $ | ||||||
| Common stock issued for Conversion of notes payable | $ | $ | ||||||
| Common stock issued for prepaid expenses | $ | $ | ||||||
| Common stock issued for Conversion of Series C Preferred stock liability | $ | $ | ||||||
| Discount issued on convertible debt | $ | $ | ||||||
| Intangible asset Capitalized | $ | $ | ||||||
| Settlement of derivative liability upon conversion of notes payable | $ | $ | ||||||
| Extinguishment of liabilities upon debt modification | $ | $ | ||||||
See the accompanying notes to these unaudited consolidated financial statements
| 7 |
ECO INNOVATION GROUP, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
For the Six Months Ended June 30, 2022
(Unaudited)
NOTE 1. NATURE OF OPERATIONS
Eco Innovation Group, Inc. (the “Company,”
“we,” “our,” or “Eco Innovation Group”), was incorporated in the State of
On February 28, 2020, our current CEO
and controlling Stockholder, Julia Otey-Raudes, took over management and control of the company, initiating a new business plan and winding
down the previous business. In the related change of control transaction, Ms. Otey acquired shares of super-voting Preferred
Series A stock on February 28, 2020, which represent all of the authorized and outstanding Series A Preferred Stock and a voting interest
of approximately
Under its business plan implemented in February 2020, the Company is an innovation incubator platform devoted to globally important paradigm shifts in technology, sustainable and carbon negative products development and practical deployment worldwide.
On February 20, 2020, the Company increased its authorized common shares to with a par value of $, on December 21, 2021, the Company increased its authorized common shares to with a par value of $, and on April 1, 2022, the Company increased its authorized common shares to with a par value of $. On June 8, 2022, the Company increased its authorized common stock from shares at $ par value per share to shares at $ par value per share, effective June 9, 2022.
The Company has authorized shares of Preferred Stock, of which shares have been designated as Series A Convertible Preferred Stock, with shares issued and outstanding, and 1,000,000 million shares have been designated as Series C Convertible Preferred Stock, with shares issued and outstanding. 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 Series A Convertible Preferred Stock outstanding.
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, Spruce engineering Construction Inc. The Company will own
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. On January 25, 2022, Eco Innovation Group, Inc. (the "Company"), through its California subsidiary ECOX Spruce Construction , entered into a staffing and administrative services agreement (the “Construction Services Agreement”) with Blueprint Construction, a licensed California general contractor (“Blueprint Construction”) and Edgar E. Aguilar ("Aguilar"), a resident of California and the principal of Blueprint Construction, pursuant to which, Blueprint Construction, Aguilar and ECOX Spruce Construction agreed that ECOX Spruce Construction will oversee the operation of Blueprint’s construction business in California. 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%.
| 8 |
Under the Construction Services Agreement, the Company agreed to manage all of Blueprint Construction’s contracting business on behalf of Blueprint Construction, for a renewable term of one year. Through ECOX Spruce Construction, the Company will provide all necessary corporate administration, shared services, compliance needs, construction staffing placement, general business infrastructure and support necessary for Blueprint’s performance under its general contracting and subcontracting projects as Blueprint’s exclusive provider of such services. Blueprint’s current active projects consist of a subcontracting agreement to renovate U.S. military base facilities, with a job value of $136,000. The Construction Services Agreement provides that ECOX Spruce Construction will receive a management fee equal to twenty percent (20%) of all collected cash revenues from Blueprint’s business.
Under its business plan implemented in February 2020, the Company is an innovation incubator platform devoted to globally important paradigm shifts in technology, sustainable and carbon negative products development and practical deployment worldwide. The Company seeks to license and develop innovative technologies in the sustainable and renewable energy field.
Accounting policies and procedures are listed below. The Company has adopted a December 31 year-end.
Basis of Presentation
The Company has prepared the financial statements in accordance with accounting principles generally accepted in the United States of America (GAAP). The results for the interim period are not necessarily indicative of the results to be expected for the year.
Use of Estimates
The preparation of financial statements in conformity with 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 revenue and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments
with original maturities of three months or less as cash equivalents. As of June 30, 2022, December 31, 2021, and December 31, 2020, the
Company had
Basic Earnings Per Share (EPS) is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS includes the potential dilution that could occur if options or other contracts to issue common stock were exercised or converted under outstanding convertible debt and outstanding common stock warrants.
Long-Lived Assets
The Company’s long-lived assets, including
intangibles, are reviewed for impairment whenever events or changes in circumstances indicate that the historical cost carrying value
of an asset may no longer be appropriate. The Company assesses recoverability of the asset by comparing the undiscounted future net cash
flows expected to result from the asset to its carrying value. If the carrying value exceeds the undiscounted future net cash flows of
the asset, an impairment loss is measured and recognized. An impairment loss is measured as the difference between the net book value
and the fair value of the long-lived asset. During the quarter ended June 30, 2022, and the years ended December 31, 2021 and 2020, the
Company evaluated long lived assets for impairment determined
Derivative Financial Instruments
The Company does not use derivative instruments to hedge exposures to cash flow, market or foreign currency risks. The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. The Company used a Black Scholes valuation model to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement or conversion of the instrument could be required within 12 months of the balance sheet date.
Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 establishes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted price in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). These tiers include:
| 9 |
| · | Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets; |
| · | Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and |
| · | Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. |
The estimated fair values for financial instruments are determined at discrete points in time based on relevant market information. These estimates involve uncertainties and cannot be determined with precision. We measure our investment in marketable securities at fair value on a recurring basis. The Company’s trading securities are valued using inputs observable in active markets and are therefore classified as Level 1 within the fair value hierarchy. Investments and derivative liabilities are valued on a recurring basis.
The following summarizes the fair value of assets and liabilities measured on a recurring basis:
| June 30, 2022 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Assets | ||||||||||||||||
| Investments | $ | $ | $ | $ | ||||||||||||
| Liabilities | ||||||||||||||||
| Derivative liability | ||||||||||||||||
| December 31, 2021 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Assets | ||||||||||||||||
| Investments | $ | $ | $ | $ | ||||||||||||
| Liabilities | ||||||||||||||||
| Derivative liability | ||||||||||||||||
Stock- Based Compensation
Stock-based compensation is computed in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 718. FASB ASC 718 requires all share-based payments to employees and non- employees be recognized as compensation expense in the consolidated financial statements based on their fair values. The expense is recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period). As of June 30, 2022, the Company has not adopted a Stock Option Plan and has not issued any options.
Property, Plant and Equipment
Fixed assets are carried at cost. Depreciation is computed using the straight-line method of depreciation over the assets’ estimated useful lives. Maintenance and repairs are charged to expense as incurred; major renewals and improvements are capitalized. When items of fixed assets are sold or retired, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is included in income.
Income Taxes
The provision for income taxes is the total of the current taxes payable and the net of the change in the deferred income taxes. Provision is made for the deferred income taxes where differences exist between the period in which transactions affect current taxable income and the period in which they enter into the determination of net income in the financial statements.
| 10 |
Revenue Recognition
Effective January 1, 2018, the Company recognizes revenue in accordance with Accounting Standards Codification 2014- 09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific revenue recognition guidance throughout the Industry Topics of the Accounting Standards Codification. The updated guidance states that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance also provides for additional disclosures with respect to revenues and cash f lows arising from contracts with customers. The standard will be effective f or the first interim period within annual reporting periods beginning after December 15, 2017, and the Company adopted the standard using the modified retrospective approach effective January 1, 2018.
Under the new revenue standards, the Company recognizes revenues when its customer obtains control of promised goods or services, in an amount that reflects the consideration which it expects to receive in exchange for those goods. The Company recognizes revenues following the five-step model prescribed under ASU No. 2014-09: (i) identify contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenues when (or as) we satisfy the performance obligation. The Company recognized revenue from the sale of services at the time in which the services are delivered pursuant to the contract.
The Company had $
Other Comprehensive Income (Loss)
Other comprehensive income (loss) includes foreign currency translation gains and losses. The cumulative amount of translation gains and losses are reflected as a separate component of stockholders’ equity (deficit) in the consolidated balance sheets, as accumulated other comprehensive income.
Reclassification
Certain reclassifications have been made to the prior year financial statements to conform to the current year presentation primarily the change to the Company’s par value being reflected retroactively and to reclassify related party convertible debt.
NOTE 2. GOING CONCERN AND MANAGEMENT’S LIQUIDITY PLANS
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 during the quarter ended June 30, 2022 and the year ended December 31, 2021 and an accumulated deficit at June 30, 2022. 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.
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NOTE 4. STOCKHOLDERS’ EQUITY (DEFICIT)
Preferred Stock
The Company has authorized shares of Preferred Stock, of which shares have been designated as Series A Convertible Preferred Stock, with shares issued and outstanding, and 1,000,000 million shares have been designated as Series C Convertible Preferred Stock, with shares issued and outstanding as of June 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 Series A Convertible Preferred Stock outstanding.
The Series C Convertible Preferred Stock, with shares authorized and 205,000 issued and outstanding at June 30, 2022, has no voting rights, has a Stated Value of $1.00 per share, and with a par value of $ 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 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
During the six months ended June 30, 2022,
the Company entered into purchase agreements for the sale of
Common Stock
The Company has 5,000,000,000 shares of $0.0001 par value per share common stock authorized.
On June 8, 2022, following approval by the Company’s Board of Directors and a majority of the outstanding voting stock of the Company, the Company filed Fourth Amended and Restated Articles of Incorporation with the State of Nevada reflecting an increase in the Company’s authorized common stock from shares at $ par value per share to shares at $ par value per share, effective June 9, 2022.
During the six months ended June 30, 2022,
During the quarter ended June 30, 2022, $221,250 of Series C Convertible Preferred Stock and accrued dividends of $11,063 were converted into shares of common stock.
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.
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Under the Asset Purchase Agreement, the Company agreed
to pay Boetzkes one million shares of the Company’s restricted common stock and approximately $
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 business reimbursement payments
in the amount of approximately $
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.
The aggregate preliminary fair value of consideration for the Spruce Construction acquisition was as follows:
| Amount | ||||
| Notes payable issued to seller | ||||
| 1,000,000 shares of common stock | ||||
| Noncontrolling interest | ||||
| Total preliminary consideration transferred | $ | |||
During the six months ended June 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:
| Accounts Receivable | $ | |||
| Trucks | ||||
| Goodwill | ||||
| Vehicle Note Payable | ( |
) | ||
| Net assets acquired | $ | |||
As a result of the acquisition, The Company recognized
goodwill of $
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NOTE 6. RELATED PARTY TRANSACTIONS
Accrued officer compensation as of
June 30, 2022 and December 31, 2021 was $
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 $
On June 4, 2021,
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
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 $
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.
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) 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 June 30, 2022, we were in compliance with all covenants and restrictions.
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In conjunction with the issuance of
the Blue Lake Note, the Company issued a five year warrant exercisable for
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
In conjunction with the issuance of
the Coventry Note, the Company issued shares of common stock. The shares are accounted for as deferred financing costs
with a value of $
Convertible notes payable are comprised of the following:
| June 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Convertible note payable – Claudia Magdalena Villalta | $ | $ | ||||||
| Convertible note payable – Labrys | $ | $ | ||||||
| Convertible notes payable- Blue Lake Holdings | $ | $ | ||||||
| Convertible note payable – Coventry | $ | $ | ||||||
| Total | $ | $ | ||||||
| Less debt discounts | $ | ( | ) | $ | ( | ) | ||
| Net | $ | $ | ||||||
| Less current portion | $ | ( | ) | $ | ( | ) | ||
| Long term portion | $ | $ | ||||||
As of June 30, 2022, there were
As of June 30, 2022 and December 31, 2021, unamortized debt discount
was $
Convertible Notes Payable – Related Parties
On March 1, 2016,
the Company executed two convertible notes of $
On December 9, 2019, the Company executed a
convertible note with Pinnacle Consulting Services Inc.(“Pinnacle”), which is owned by Robert Hymers, for $
On June 30,
2020, the Company executed a convertible note with Pinnacle for
$
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On October 19,
2021, the Company executed a convertible note with Pinnacle, for
$
On March 23,
2022, the Company executed a convertible note with Robert Hymers for
$
On March 25,
2022, the Company executed a convertible note with Alma Otey, a related party, for
$
Convertible notes payable – related parties are comprised of the following:
| June 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Convertible notes payable – Pinnacle Consulting Services | $ | $ | ||||||
| Convertible notes payable – Robert Hymers | $ | $ | ||||||
| Convertible notes payable- Alma Otey | $ | $ | ||||||
| Total | $ | $ | ||||||
| Less debt discounts | $ | ( | ) | $ | ( | ) | ||
| Net | $ | $ | ||||||
| Less current portion | $ | ( | ) | $ | ( | ) | ||
| Long term portion | $ | $ | ||||||
As of June 30, 2022, there were shares of common stock that may be issued under the convertible notes payable described above.
As of June 30, 2022 and December 31, 2021, unamortized debt discount
was $
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 June 30, 2022, the fair value
of new derivative liabilities on the new issuance of debt amounted to $
The table below presents the change in the fair value of the derivative liability:
| Fair Value as of January 1, 2022 | $ | |||
| Initial recognition of derivative added as debt discount | ||||
| Settlement of derivative liability as a result of payment on convertible notes | ( | ) | ||
| Settlement of derivative liability as a result of conversion of convertible notes | ( | ) | ||
| Settlement of derivative liability as a result of extinguishment of convertible notes | ( | ) | ||
| Loss on change in fair value | ||||
| Fair Value as of June 30, 2022 |
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NOTE 8. SUBSEQUENT EVENTS
On July 5, 2022, the Company issued shares of common stock
to an accredited investor in partial conversion of a promissory note issued June 30, 2020 in the principal amount of $
On July 15, 2022, the Company issued
shares of Series C Preferred Stock to Geneva Roth Remark Holdings pursuant to a stock purchase agreement for consideration of $
On July 28, 2022, the Company issued shares of common stock to an accredited investor in conversion of a promissory note issued June 30, 2020 in the principal amount
of $
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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 $2,548,148 for the six months ended June 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-Roades, 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.
Under the Asset Purchase Agreement, the Company agreed to pay Boetzkes one million shares of the Company’s restricted common stock 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 construction assets, named Spruce Engineering Construction Inc. The Company will own 85% of the voting interests of Spruce Engineering Construction Inc., with Boetzkes owning 10% and Patrick Laurie 5%.
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 business reimbursement payments in the amount of approximately $56,000 due to Boetzkes and Spruce Construction under the Asset Purchase Agreement. Under the Asset Purchase Agreement the $56,000 payment was due at 6 months after closing, and pursuant to the April 21, 2022 amendment, that payment is now due at 12 months after the closing date, or October 3, 2022. 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.
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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 June 30, 2022 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.
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”).
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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 June 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 June 30, 2022 compared to Three Months Ended June 30, 2021
Revenues were $311,156 for the three months ended June 30, 2022, and gross profit was $22,045, 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 $175,510 and $78,899 for the three months ended June 30, 2022 and 2021, respectively. For the three months ended June 30, 2022, we incurred $75,000 in executive compensation and $124,250 in consulting fees compared to $75,000 of executive compensation and $119,930 in consulting for the three months ended June 30, 2021, respectively, primarily from stock-based compensation.
The Company also recognized interest expense of $230,689, including amortization of debt discount of $98,627, a derivative gain of $2,898,359, warrant gain of $8,400, a gain on the forgiveness of debt of $14,072, and an impairment of its investment of $25,161 during the three months ended June 30, 2022. The Company also recognized a loss of $337,037 related to additional shares to be issued to MCOA under the Share Exchange Agreement. During the three months ended June 30, 2021, the Company recognized interest expense of $628,351, including amortization of debt discount of $48,646, a derivative gain of $217,497, and a loss of $292,500 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 $1,975,229 and a net loss of $977,289 for the three months ended June 30, 2022 and 2021, respectively.
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Results of Operations – Six Months Ended June 30, 2022 compared to Six Months Ended June 30, 2021
Revenues were $427,761 for the six months ended June 30, 2022, and gross profit was $(3,655), 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 $310,964 and $142,404 the six months ended June 30, 2022 and 2021, respectively. For the six months ended June 30, 2022, we incurred $150,000 in executive compensation and $171,750 in consulting fees compared to $350,000 of executive compensation and $546,597 in consulting fees for the six months ended June 30, 2021, respectively, primarily from stock-based compensation.
The Company also recognized interest expense of $603,625, including amortization of debt discount of $556,670, a derivative loss of $664,902, a warrant gain of $127,725, a gain on the forgiveness of debt of $14,072, a loss on the impairment of investment of $59,059 during the six months ended June 30, 2022. The Company also recognized a loss of $736,323 related to additional shares to be issued to MCOA under the Share Exchange Agreement. During the six months ended June 30, 2021, the Company recognized interest expense of $653,265, including amortization of debt discount of $63,717, a derivative gain of $224,875. The Company also recognized a loss of $292,500 related to additional shares to be issued to MCOA under the Share Exchange Agreement during the six months ended June 30, 2021.
As a result of the foregoing, we recorded a net loss of $2,558,481 and $1,760,056 for the six months ended June 30, 2022 and 2021, respectively.
Liquidity and Capital Resources
As of June 30, 2022 and December 31, 2021, the Company had cash of $22,458 and $28,534, respectively. Furthermore, the Company had a working capital deficit of $4,647,942 and $4,509,624 as of June 30, 2022 and December 31, 2021, respectively.
During the six months ended June 30, 2022, the Company used $498,123 of cash in operating activities due to its net loss of $2,558,481, partially offset by; amortization of debt discount of $556,670; expense from shares to be issued to MCOA under the share exchange agreement of $736,323, stock-based compensation expense of $75,000, derivative gain of $664,902 and an increase in accounts payable and accrued expenses of $311,012.
The Company had no cash used in investing activities during the six months ended June 30, 2022. The Company had cash used in investing activities of $61,740 for the purchase of intangible assets under license agreements during the six months ended June 30, 2021.
During the six months ended June 30, 2022, the Company had net cash provided by financing activities of $487,613, 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 $155,000, offset by repayments of convertible debentures of $8,500 and repayments of related party convertible debentures of $5,000 and repayments on notes payables of $2,587. The Company had cash net cash provided by financing activities of $296,350, primarily from $384,850 of proceeds on convertible debentures and proceeds from sale of common stock of $45,000, partially offset by repayments of convertible debentures of $133,500.
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.
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.
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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.
Item 3. Quantitative And Qualitative Disclosures About Market Risk.
As a smaller reporting company, we are not required to provide the information called for by this Item.
Item 4. Controls and Procedures.
Disclosure Controls and Procedures
As of the end of the period covered by this Quarterly Report on Form 10-Q, the Company carried out an evaluation, under the supervision and with the participation of its management, including the Company's Chief Executive Officer and its Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as such term is defined in rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, the Company's disclosure controls and procedures were not effective to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission's rules and forms, and (ii) accumulated and communicated to the Company's management, including the Chief Executive Officer and Chief Financial Officer, in a manner that allows timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There were no changes to the Company’s internal control over financial reporting as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) that occurred during the six months ended June 30, 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
The Company may be involved in certain legal proceedings that arise from time to time in the ordinary course of its business. Legal expenses associated with any contingency are expensed as incurred. The Company’s officers and directors are not aware of any threatened or pending litigation to which the Company is a party or which any of its property is the subject and which would have any material, adverse effect on the Company.
Item 1A. Risk Factors.
Reference is made to the risks and uncertainties disclosed in Item 1A (“Risk Factors”) of our Annual Report on Form 10-K for the period ended December 31, 2021, which sections are incorporated by reference into this report, as the same may be updated from time to time. Prospective investors are encouraged to consider the risks described in our 2020 Form 10-K, and our Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in this Report and other information publicly disclosed or contained in documents we file with the Securities and Exchange Commission before purchasing our securities.
As a smaller reporting company, the Company is not required to disclose material changes to the risk factors that were contained in the 2020 Form 10-K.
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Item 2. Unregistered Sales of Equity Securities and Use Of Proceeds.
During the six months ended June 30, 2022, the Company entered into purchase agreements for the sale of 166,250 shares of Series C Convertible Preferred Stock with Geneva Roth Remark Holdings. During the six months ended June 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 quarter ended June 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 six months ended June 30, 2022, 115,369,190 shares of common stock were issued by the Company for the conversion of $238,632 in principal and interest of a convertible note.
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Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
Item 6. Exhibits.
The exhibits listed on the Exhibit Index below are provided as part of this report.
| Exhibit No. | Description | |
| 31.1* | Certification of principal executive and financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, as amended. | |
| 32.1* | Certification of principal executive officer and principal financial officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as amended. | |
| 101.INS* | XBRL INSTANCE | |
| 101.SCH* | XBRL TAXONOMY EXTENSION SCHEMA | |
| 101.CAL* | XBRL TAXONOMY EXTENSION CALCULATION | |
| 101.DEF* | XBRL TAXONOMY EXTENSION DEFINITION | |
| 101.LAB* | XBRL TAXONOMY EXTENSION LABELS | |
| 101.PRE* | XBRL TAXONOMY EXTENSION PRESENTATION |
| * | Filed herewith. |
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| ECO INNOVATION GROUP, INC. | ||
| (Registrant) | ||
| Dated: August 22, 2022 | By: | /s/ Julia Otey-Raudes |
| Julia Otey-Raudes | ||
| President, Secretary, Treasurer and Director | ||
| (Principal Executive Officer) | ||
| Dated: August 22, 2022 | By: | /s/ Julia Otey-Raudes |
| Julia Otey-Raudes | ||
|
Chief Financial Officer (Principal Financial Officer and | ||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Dated: August 22, 2022 | By: | /s/ Julia Otey-Raudes |
| Julia Otey-Raudes | ||
| President, Secretary, Treasurer and Director | ||
| (Principal Executive Officer,) | ||
| Dated: August 22, 2022 | By: | /s/ Julia Otey-Raudes |
| Julia Otey-Raudes | ||
|
Chief Financial Officer (Principal Financial Officer and |