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 March 31, 2022 and the year ended December 31, 2021 and an accumulated
deficit at March 31, 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.
13
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 98,750 shares
issued and outstanding as of March 31, 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
98,750 issued and outstanding at March 31, 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. 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 quarter ended March 31, 2022, the Company entered into no purchase
agreements for Series C Convertible Preferred Stock with Geneva Roth Remark
Holdings. As of March 31, 2022, the Company owes $4,054 in accrued dividends,
reflected as interest expense, and the carrying value of the Series C Preferred
stock was $92,473, net of unamortized discount of $6,277. $122,500 of Series C
Convertible Preferred Stock and accrued dividends of $6,125were converted into
67,414,457 shares of common stock.
Common Stock
The Company has 2,000,000,000 shares of $0.0001 par value per share common stock
authorized.
During the quarter ended March 31, 2022, the Company issued 34,000,000 shares of
common stock in exchange for cash proceeds of $167,900 under the Company's
current Regulation A offering.
During the quarter ended March 31, 2022, 89,769,190shares of common stock were
issued by the Company for the conversion of $210,472 in principal and interest
of a convertible note.
During the quarter ended March 31, 2022, $122,500 of Series C Convertible
Preferred Stock and accrued dividends of $6,125 were converted into 67,414,457
shares of common stock.
14
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 approximately
$104,000 CAD in cash over the next 12 months 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%.
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 $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.
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.
15
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:
Schedule of preliminary Fair value Acquisition
Amount
Notes payable issued to seller 103,698
1,000,000 shares of common stock 23,000
Noncontrolling interest 22,000
Total preliminary consideration transferred $ 148,698
During the quarter ended March 31, 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 March 31, 2022 and December 31, 2021 was
$393,400 and $381,800 related to services rendered by the Company's Chief
Executive officer.
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.
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 quarter ended March 31, 2022 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
three months ended March 31, 2022, $139,500 of principal and $27,000 in 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.
16
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
three months ended March 31, 2022, $42,250 of principal was converted into
16,900,000 shares of common stock.
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 $7530.00 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.
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 March 31, 2022,
we were in compliance with all covenants and restrictions.
In conjunction with the issuance of the Blue Lake Note, the Company issued a 5
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.
During the quarter ended March 31, 2022, the fair value of new derivative
liabilities on the new issuance of debt amounted to $68,000 upon inception, with
debt discount of $68,000 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 $3,563,261 during the
quarter ended March 31, 2022. The Black Scholes valuation model included inputs
of volatility of between 209% and 625%, a dividend yield of 0%, risk free rate
of 0.28%-2.42% and a term of between 0.5 years and 4.5 years.
Convertible notes payable are comprised of the following:
Schedule of convertible notes payable
March 31, 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 $ 107,750 $ 150,000
Total $ 137,750 $ 328,000
Less debt discounts $ (59,589 ) $ (198,781 )
Net $ 78,161 $ 129,219
Less current portion $ (78,161 ) $ (129,219 )
Long term portion $ - $ -
17
As of March 31, 2022, there were 1,405,612,245 shares of common stock that may
be issued under the convertible notes payable described above.
As of March 31, 2022 and December 31, 2021, unamortized debt discount was
$59,589 and $198,781, respectively. During the quarter ended March 31, 2022, the
Company amortized debt discount of $139,192 to interest expense. Accrued
interest on convertible notes was $13,923 as of March 31, 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 December 9, 2019, the Company executed a convertible note with Pinnacle
Consulting Services Inc.("Pinnacle"), which is owned by Robert Hymers, 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.
On June 30, 2020, the Company executed a convertible note with Pinnacle for
$21,000 due on June 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.
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 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
$55,000Note 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 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.
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 $7,333.34 until the balance is paid in full.
18
Convertible notes payable - related parties are comprised of the following:
Schedule of convertible notes payable
March 31, December 31,
2022 2021
Convertible notes payable - Pinnacle Consulting Services $ 241,000 $ 241,000
Convertible notes payable - Robert Hymers
58,153 4,875
Convertible notes payable- Alma Otey $ 23,000 $ -
Total $ 322,153 $ 245,875
Less debt discounts $ (93,092 ) $ (107,802 )
Net $ 229,061 $ 138,073
Less current portion $ (229,061 ) $ (138,073 )
Long term portion $ - $ -
As of March 31, 2022, there were 849,610,676 shares of common stock that may be
issued under the convertible notes payable described above.
As of March 31, 2022 and December 31, 2021, unamortized debt discount was
$93,092 and $107,802, respectively. During the quarter ended March 31, 2022, the
Company amortized debt discount of $92,710 to interest expense. Accrued interest
on convertible notes was $10,648 as of March 31, 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 March 31, 2022, the fair value of new derivative
liabilities on the new issuance of debt amounted to $68,000 upon inception, with
debt discount of $68,000 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 $310,621 during the quarter
ended March 31, 2022. The Black Scholes valuation model included inputs of
volatility of between 209% and 625%, a dividend yield of 0%, risk free rate of
0.28%-2.42% 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 185,959
Settlement of derivative liability as a result of
payment on convertible notes (6,108 )
Settlement of derivative liability as a result of
conversion of convertible notes and Series C Preferred
Stock Liability
(310,621 )
Loss on change in fair value 3,569,369
Fair Value as of March 31, 2022 5,766,832
NOTE 8. SUBSEQUENT EVENTS
On April 1, 2022, the Company issued 68,750 shares of Series C Preferred Stock
to Geneva Roth Remark Holdings pursuant to a stock purchase agreement for
consideration of $65,000, which was paid on April 29, 2022. The 68,750 shares of
Series C Preferred Stock are convertible to shares of common stock at a discount
rate of 37% from the average of the two lowest closing bid prices for the
Company's common stock during the 15 trading days prior to the conversion. The
Company's shares of Series C Preferred Stock rank senior with respect to
dividends and right of liquidation to the Company's common stock and junior with
respect to dividends and right of liquidation to all existing and future
indebtedness of the Company and existing and outstanding preferred stock of the
Company. The Company's shares of Series C Preferred Stock have no right to vote
and carry an annual dividend of 10% which is cumulative and payable solely upon
redemption, liquidation or conversion. The Company has the right to redeem the
68,750 shares of Series C Preferred Stock up to 180 days following the issuance
date. As of the date of this quarterly report, the Company has 147,500 shares of
Series C Preferred Stock outstanding.
Subsequent to March 31, 2022, the Company issued 41,057,692 shares of common
stock to Geneva Roth Remark Holdings in conversion of 50,000 shares of Series C
Convertible Preferred Stock.
On April 1, 2022, following approval by the Company's Board of Directors and a
majority of the outstanding voting stock of the Company, the Company filed Third
Amended and Restated Articles of Incorporation with the State of Nevada
reflecting an increase in the Company's authorized common stock from
1,000,000,000 shares at $0.001 par value per share to 2,000,000,000 shares at
$0.0001 par value per share, effective April 1, 2022.
19
On April 21, 2022, the Company entered into an amendment number one to an 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, a $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.
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
$55,000Note 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.
On May 10, 2022, the Company entered into a Securities Purchase Agreement (the
"Coventry SPA") by and between the Company and Coventry Enterprises, LLC
("Coventry"). Pursuant to the terms of the Coventry SPA, the Company agreed to
issue and sell, and Coventry agreed to purchase (the "Purchase"), a promissory
note in the aggregate principal amount of $150,000 (the "Coventry Note"). The
Coventry Note has an original issue discount of $30,000, resulting in gross
proceeds to the Company of $120,000. Pursuant to the terms of the Coventry SPA,
the Company also agreed to issue 10,000,000 shares of restricted common stock to
Coventry as additional consideration for the purchase of the Coventry Note. The
Coventry Note bears interest at a rate of 10% per annum, with guaranteed
interest (the "Guaranteed Interest") of $15,000 is deemed earned as of May 10,
2022. The Coventry Note matures on May 9, 2023. The principal amount and the
Guaranteed Interest is due and payable in seven equal monthly payments of
$23,571.42, commencing on November 8, 2022 and continuing on the 22nd day of
each month thereafter until paid in full not later than May 9, 2023. Any or all
of the principal amount and the Guaranteed Interest may be prepaid at any time
and from time to time, in each case without penalty or premium. If an Event of
Default (as defined in the Note) occurs, consistent with the terms of the Note,
the Note will become convertible, in whole or in part, into shares of the
Company's common stock at Coventry's option, subject to a 4.99% equity blocker
(which may be increased up to 9.99% by Coventry). The conversion price is 90% of
the lowest per-share trading price during the 20-trading day period before
conversion. In addition to certain other remedies, if an Event of Default
occurs, consistent with the terms of the Note, the Note will bear interest on
the aggregate unpaid principal amount and Guaranteed Interest at the rate of the
lesser of 18% per annum or the maximum rate permitted by law.
On May 11, 2022, the Company issued 3,219,047 shares of common stock to Blue
Lake Holdings in partial conversion of a promissory note, where the remaining
principal balance due under the note after the conversion was $107,750.
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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.
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 $4,533,710 for the quarter ended March 31, 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 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 March 31, 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").
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.
22
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.
Results of Operations - Three Months Ended March 31, 2022 compared to Three
Months Ended March 31, 2021
The Company had revenues of $116,605 and $0 for the three months ended March 31,
2022 and 2021. The Company incurred cost of revenues of $142,305 and $0, for the
three months ended March 31, 2022 and 2021. The increase in revenues and cost of
revenues are exclusively from the commencement of the Company's construction
business through its new subsidiaries that began in the fourth quarter of 2021
and the first quarter of 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
$135,454 and $63,505 for the three months ended March 31, 2022 and 2021. For the
three months ended March 31, 2022, we incurred $75,000 in executive compensation
and $47,500 in consulting fees compared to $275,000 in executive compensation
and $426,667 in consulting fees for the three months ended March 31, 2021. The
decrease in consulting fees was primarily due to stock based compensation issued
in the prior period to advisors that ended in late 2021, and the decrease in
executive compensation was due to the commencement of the employment contract
with the Company's CEO in early 2021.
The Company also recognized interest expense of $372,936, including amortization
of debt discount of $354,402, a derivative loss of $3,563,261, a warrant gain of
$119,325, an impairment loss on its investments of $33,898 and $399,286 of
expense during the three months ended March 31, 2022. During the three months
ended March 31, 2021, the Company recognized interest expense of $24,914,
including amortization of debt discount of $15,071, a derivative gain of $7,378.
Interest expense increased due to higher levels of convertible debt throughout
2021, and the derivative loss increase significantly due to the decline in the
Company's stock price and increase levels of convertible debt containing
embedded derivative features.
As a result of the foregoing, we recorded a net loss of $4,533,710 and $782,767
for the three months ended March 31, 2022 and 2021, respectively.
Liquidity and Capital Resources
As of March 31, 2022 and December 31, 2021, the Company had cash of $32,514 and
$28,534, respectively. Furthermore, the Company had a working capital deficit of
$8,188,411 and $4,509,624 as of March 31, 2022 and December 31, 2021,
respectively.
During the three months ended March 31, 2022, the Company used $227,265 of cash
in operating activities due to its net loss of $4,533,710, partially offset by;
amortization of debt discount of $354,402, derivative loss of $3,563,261, share
payable expense of 399,286, warrant gain of 119,325 and an increase in accounts
payable and accrued expenses of $105,810 as well as changes in working capital
accounts of $70,740.
The Company had no cash flows from investing activities during the three months
ended March 31, 2022 and 2021.
During the three months ended March 31, 2022, the Company had net cash provided
by financing activities of $226,087, primarily from $68,000 of proceeds on
convertible debentures related parties and proceeds from sale of common stock of
$167,900.
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.
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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 April 27, 2022
effectiveness of our registration statement on Form 8-A/12G, as of April 27,
2022, 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.
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. 