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.
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 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.
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 30,000,000
shares 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 $6,125
were 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, 89,769,190
shares 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.
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.
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.
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 | |
$ | — | | |
$ | — | |
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 $55,000
Note convertible at a Conversion Price of $0.000098 per share for a $60,000 note convertible at $0.002 per share, all other note terms
remaining unchanged.
The Company
determined that 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.
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 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.
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 $55,000
Note convertible at a Conversion Price of $0.000098 per share for a $60,000 note convertible at $0.002 per share, all other note terms
remaining unchanged.
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.
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.
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.
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.
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.