Quarterly report [Sections 13 or 15(d)]



STYLE="font: 10pt Times New Roman, Times, Serif">



























UNITED
STATES






SECURITIES
AND EXCHANGE COMMISSION






Washington,
D.C. 20549










FORM
10-Q









(Mark
One)






































[X]





QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934














For
the quarterly period ended September 30, 2020











[  ]





TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934














For
the transition period from __________ to

__________









Commission
File No. 000-50331










CalEthos,
Inc




.







(Exact
name of registrant as specified in its charter)




















Nevada








98-0371433




(State
or other jurisdiction


of incorporation or organization)







(I.R.S.
Employer




Identification
No.)






















11753
Willard Avenue






Tustin,
California









92782




(Address
of Principal Executive Offices)






(Zip
Code)








(714)
352-5315




(Registrant’s
telephone number, including area code)












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








Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No

[  ]









Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit such files). Yes [X] No

[  ]









Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a
smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and
“smaller reporting company” in Rule 12b-2 of the Exchange Act.




























[  ]




Large
accelerated filer




[  ]




Accelerated
filer



[X]



Non-accelerated
filer



[X]



Smaller
reporting company










[  ]




Emerging
growth company








If
an emerging growth company, indicate by check mark if the registrant has elected not use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

[  ]









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








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








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

[  ]









As
of May 31, 2021, there were 12,960,621 outstanding shares of the registrant’s common stock, par value $0.001 per share.















































CalEthos,
Inc.










Quarterly
Report on Form 10-Q










Three
and Nine Months Ended September 30, 2020










TABLE
OF CONTENTS


























































































































































































































Page














Cautionary
Note Regarding Forward-Looking Statements




-ii-













PART
1-FINANCIAL INFORMATION
















Item
1.



Financial
Statements (unaudited)













Condensed Balance Sheets as of September 30, 2020 (unaudited) and December 31, 2019




F-2
















Condensed Statements of Operations for the three and nine months ended September 30, 2020 and 2019 (Unaudited)




F-3
















Condensed Statements of Stockholders’ deficit for the three and nine months ended September 30, 2020 and 2019 (Unaudited)




F-4
















Condensed Statements of Cash Flows for the nine months ended September 30, 2020 and 2019 (Unaudited)




F-5
















Condensed Notes to Financial Statements




F-6












Item
2.




Management’s
Discussion and Analysis of Financial Condition and Results of Operations




1












Item
3.




Quantitative
and Qualitative Disclosures about Market Risk




4












Item
4.




Control
and Procedures




4














PART
II-OTHER INFORMATION

















Item
1.




Legal
Proceedings




6












Item
1A.




Risk
Factors




6












Item
2.




Unregistered
Sales of Equity Securities and Use of Proceeds




6












Item
3.




Defaults
Upon Senior Securities




6












Item
4.




Mine
Safety Disclosures




6












Item
5.




Other
Information




6












Item
6.




Exhibits




6














SIGNATURES





7



































CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS













Certain
information set forth in this Quarterly Report on Form 10-Q, including in Item 2, “Management’s Discussion and Analysis
of Financial Condition and Results of Operations” and elsewhere herein, may address or relate to future events and expectations
and as such constitutes “forward-looking statements” within the meaning of the Private Securities Litigation Act of
1995. Statements which are not historical reflect our current expectations and projections about our future results, performance,
liquidity, financial condition, prospects and opportunities and are based upon information currently available to us and our management
and their interpretation of what is believed to be significant factors affecting our business, including many assumptions regarding
future events. Such forward-looking statements include statements regarding, among other things:





























































our
ability to implement our current stated business plans;



















our
ability to retain key members of our management team;



















our
future financing or acquisition plans and our ability to consummate any such transactions on favorable terms if at all

;




















our
anticipated needs for working capital; and



















our
ability to establish a market for our common stock and operate as a public company.












Forward-looking
statements, which involve assumptions and describe our future plans, strategies, and expectations, are generally identifiable
by use of the words “may,” “should,” “would,” “could,” “scheduled,”
“expect,” “anticipate,” “estimate,” “believe,” “intend,” “seek,”
or “project” or the negative of these words or other variations on these words or comparable terminology. Actual results,
performance, liquidity, financial condition and results of operations, prospects and opportunities could differ materially and
perhaps substantially from those expressed in, or implied by, these forward-looking statements as a result of various risks, uncertainties
and other factors.








Particularly
in light of our current status as a shell company, there can be no assurance that the forward-looking statements contained herein
will in fact occur. Readers should not place undue reliance on any forward-looking statements. Except as expressly required by
the federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as
a result of new information, future events, changed circumstances or any other reason.













-

ii

-



















CalEthos,
Inc.








Nine
Months Ended September 30, 2020








Index
to the Financial Statements
































































Contents






Page
(s)














Condensed
Balance Sheets at September 30, 2020 (Unaudited) and December 31, 2019








F-2














Condensed
Statements of Operations for the three and nine months ended September 30, 2020 and 2019 (Unaudited)








F-3














Condensed
Statements of Stockholders’ Deficit for the three and nine months ended September 30, 2020 and 2019 (Unaudited)








F-4














Condensed
Statements of Cash Flows for the nine months ended September 30, 2020 and 2019 (Unaudited)








F-5













Condensed
Notes to the Financial Statements (Unaudited)







F-6













F-

1




















CalEthos,
Inc.







Condensed
Balance Sheets












































































































































































































































































































































































September
30, 2020









December
31, 2019












(Unaudited)















ASSETS



























CURRENT ASSETS:



























Cash
and cash equivalents






$













$



123,000






Prepaid expenses









2,000












2,000

































Total
Current Assets









2,000












125,000

































Total
Assets






$



2,000









$



125,000

































LIABILITIES AND STOCKHOLDERS’
DEFICIT



























CURRENT LIABILITIES:



























Accounts payable
and accrued liabilities






$



532,000









$



363,000





Promissory note, net



11,000




-



Convertible
promissory notes, net









692,000












323,000

































Total
Current Liabilities









1,235,000












686,000

































Total
Liabilities









1,235,000












686,000

































STOCKHOLDERS’ DEFICIT



























Series A convertible
preferred stock, par value $0.001, 3,600,000 shares authorized, 85,975 issued and outstanding as of December 31, 2019 (liquidation
value of $119,000)





























Preferred stock,
par value $0.001: 100,000,000 shares authorized; no shares issued and outstanding





























Common stock par
value $0.001: 100,000,000 shares authorized; 16,634,951 shares issued and outstanding









17,000












17,000






Additional paid-in
capital









8,743,000












8,750,000






Stock subscription
receivable









(2,000



)









(2,000



)



Accumulated
deficit









(9,991,000



)









(9,326,000



)






























Total
Stockholders’ Deficit









(1,233,000



)









(561,000



)






























Total
Liabilities and Stockholders’ Deficit






$



2,000









$



125,000












See
accompanying notes to the unaudited condensed financial statements.














F-

2




















CalEthos,
Inc.







Condensed
Statements of Operations and Comprehensive Loss





(Unaudited)





































































































































































































































































































































































































































































For
the Three Months Ended


September 30,









For
the Nine Months Ended


September 30,












2020









2019









2020









2019













































Revenues






$













$













$













$










Operating Expenses



















































Professional fees









74,000












130,000












266,000












1,024,000






General and administrative
expenses









4,000

























49,000












16,000






Operating expenses









78,000












130,000












315,000












1,040,000






Loss from operations









(78,000



)









(130,000



)









(315,000



)









(1,040,000



)






















































Other expenses



















































Financing cost









(15,000



)









(88,000



)









(212,000



)









(176,000



)



Loss on extinguishment
of series A convertible preferred stock



































(138,000



)

























(15,000



)









(88,000



)









(350,000



)









(176,000



)






















































Loss before provision for income taxes









(93,000



)









(218,000



)









(665,000



)









(1,216,000



)



Provision for
income taxes























































Net loss









(93,000



)









(218,000



)









(665,000



)









(1,216,000



)



Other comprehensive
income (loss)























































Comprehensive
loss






$



(93,000



)






$



(218,000



)






$



(665,000



)






$



(1,216,000



)






















































Net loss per share






$



(0.01



)






$



(0.01



)






$



(0.04



)






$



(0.07



)



Weighted average common shares outstanding:



















































Basic and diluted









16,634,951












16,634,951












16,634,951












16,634,951












See
accompanying notes to the unaudited condensed financial statements.
















F-

3


















CalEthos,
Inc.







Condensed
Statements of Stockholders’ Deficit





(Unaudited)








For
the Three and Nine Months Ended September 30, 2020























































































































































































































































































































































































































































































































































































































































Series
A Convertible Preferred









Preferred
Stock









Common
Stock









Additional
Paid-In









Stock


Subscription









Accumulated









Total
Stockholders’












Shares









Amount









Shares









Amount









Shares









Amount









Capital









receivable









Deficit









Deficit






Balance January 1, 2020









85,975









$


























$
















16,634,951









$



17,000









$



8,750,000









$



(2,000



)






$



(9,326,000



)






$



(561,000



)






























































































































Conversion of series
A convertible preferred Stock to convertible promissory notes









(85,975



)










































































(119,000



)



































(119,000



)



Fair value of warrants
issued with the conversion of series A convertible preferred stock























































































52,000






































52,000






Debt premium on issuance
of convertible promissory notes for conversion of series A convertible preferred stock























































































58,000






































58,000






Net
loss

















































































































(476,000



)









(476,000



)



Balance March 31, 2020





























































16,634,951












17,000












8,741,000












(2,000



)









(9,802,000



)









(1,046,000



)



Relative fair value
of warrants issued with convertible promissory notes





















































































1,000






































1,000






Net
loss

















































































































(96,000



)









(96,000



)



Balance June 30, 2020





























































16,634,951












17,000












8,742,000












(2,000



)









(9,898,000



)









(1,141,000



)



Relative fair value
of warrants issued with convertible promissory notes























































































1,000





































1,000






Net
loss
















































































































(93,000



)









(93,000



)



Balance, September
30, 2020



















$


























$
















16,634,951









$



17,000









$



8,743,000









$



(2,000



)






$



(9,991,000



)






$



(1,233,000



)










For
the Three and Nine Months Ended September 30, 2019















































































































































































































































































































































































































































































































































































































































































































































Series
A Convertible Preferred









Preferred
Stock









Common
Stock









Additional
Paid-In









Stock


Subscription









Accumulated









Total
Stockholders’












Shares









Amount









Shares









Amount









Shares









Amount









Capital









receivable









Deficit









Deficit






Balance January 1, 2019









35,975









$


























$
















16,634,951









$



17,000









$



7,660,000









$













$



(7,827,000



)






$



(150,000



)






























































































































Proceeds for the sale of Series
A Convertible Preferred Stock









50,000













































































69,000






































69,000






Relative fair value of warrants
issued with convertible promissory notes























































































102,000






































102,000






Beneficial conversion feature
associated with convertible promissory notes























































































118,000






































118,000






Net
loss

















































































































(181,000



)









(181,000



)



Balance March 31, 2020









85,975



















































16,634,951












17,000












7,949,000

























(8,008,000



)









(42,000



)



Relative fair value of warrants
issued with convertible promissory notes























































































49,000






































49,000






Beneficial conversion feature
associated with convertible promissory notes























































































51,000






































51,000






Stock options issued for services























































































577,000






































577,000






Net
loss

















































































































(817,000



)









(817,000



)



Balance June 30, 2019









85,975



















































16,634,951












17,000












8,626,000

























(8,825,000


)










(182,000



)



Stock subscription




































































































(2,000



)






















(2,000



)



Net
loss

















































































































(218,000



)









(218,000



)



Balance September 30,
2019









85,975









$


























$
















16,634,951









$



17,000









$



8,626,000









$



(2,000



)






$



(9,043,000


)





$



(402,000



)









See
accompanying notes to the financial statements.














F-

4




















CalEthos,
Inc.






Condensed
Statements of Cash Flows




For
the Nine Months Ended September 30,




(Unaudited)













































































































































































































































































































































































































































2020









2019



























Cash flows from operating activities



























Net loss






$



(665,000



)






$



(1,216,000



)



Adjustments to reconcile net loss to net cash
used in operating activities



























Amortization of convertible
promissory notes discounts









186,000












176,000






Loss on extinguishment
of convertible preferred stock









86,000



















Fair value of warrants
issued for extinguishment of preferred stock









52,000



















Fair value of equity based
compensation






















577,000






Changes in operating assets and liabilities:



























Accounts
payable and accrued expenses









169,000












159,000






Net cash used in operating
activities









(172,000



)









(304,000



)






























Cash flows from investing activities



























Cash
held by officer






















12,000






Net cash provided by
investing activities






















12,000

































Cash flows from financing activities



























Proceeds from the issuance of convertible promissory
notes









39,000












320,000






Proceeds from the issuance of promissory
note





10,000




-



Proceeds from the issuance
of series A convertible preferred stock






















69,000






Net cash provided by
financing activities









49,000












389,000

































Net increase (decrease) in cash









(123,000



)









97,000






Cash, beginning of period









123,000



















Cash, end of period






$













$



97,000

































Supplemental disclosure of cash flow information:



























Cash paid for interest






$













$










Cash paid for income
taxes






$













$





































Non-Cash investing and financing activities



























Conversion of series
A preferred stock to convertible promissory notes






$



147,000









$










Fair value of warrants
issued with the conversion of series A convertible preferred stock






$



52,000









$










Debt premium on issuance
of convertible promissory notes for conversion of series A convertible preferred stock






$



58,000









$










Relative fair value
of warrants issued with convertible promissory notes






$













$



151,000






Beneficial conversion
feature associated with convertible promissory notes






$













$



169,000






Stock subscription receivable






$













$



(2,000



)









See
accompanying notes to the unaudited condensed financial statements.














F-

5




















CalEthos,
Inc.




September
30, 2020






Condensed
Notes to the Financial Statements





(Unaudited)









Note
1 – Organization and Accounting Policies








CalEthos,
Inc. (the “Company”) (fka RealSource Residential, Inc.) was incorporated on March 20, 2002 under the laws of the State
of Nevada. Since the second quarter of 2016, the Company has been a “shell” company, as defined in Rule 12b-2 under
the Securities Exchange Act of 1934, as amended.









Change
in Control









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








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








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








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








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













F-

6





















Business
Activity









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









Financial
Statement Presentation









The
accompanying unaudited condensed financial statements have been prepared in conformity with generally accepted accounting principles
in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 8-01
of Regulation S-X. Pursuant to these rules and regulations, certain information and note disclosures, normally included in financial
statements prepared in accordance with GAAP, have been condensed or omitted. GAAP requires management to make estimates and assumptions
that affect reported amounts and related disclosures. In the opinion of management, all adjustments (consisting of normal recurring
items) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended
September 30, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31,
2020. The balance sheet as of December 31, 2019 has been derived from the audited financial statements at that date but does not
include all the information and footnotes required by GAAP for complete financial statements. For further information, refer to
the financial statements and notes thereto contained in the Annual Report on Form 10-K for the year ended December 31, 2019. The
notes to the unaudited condensed financial statements are presented on a going concern basis unless otherwise noted.









Basis
of Presentation









The
accompanying condensed financial statements have been prepared assuming that the Company will continue as a going concern. The
Company has no established operations. The Company incurred a net loss of approximately $665,000 for the nine months ended
September 30, 2020 and had an accumulated deficit of approximately $9,991,000 as of September 30, 2020. The Company has
financed its activities principally through debt and equity financing and shareholder contributions. Management expects to incur
additional losses and cash outflows in the foreseeable future in connection with its operating activities.








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








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








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













F-

7



















Debt
Discounts









The
Company accounts for debt discounts originating in connection with conversion features that remain embedded in the related notes
in accordance with ASC 470-20,

Debt with Conversion and Other Options

. These costs are classified on the consolidated balance
sheet as a direct deduction from the debt liability. The Company amortizes these costs over the term of its debt agreements as
interest expense-debt discount in the consolidated statement of operations.









Earnings
Per Share









We
use ASC 260, “

Earnings Per Share

” for calculating the basic and diluted earnings (loss) per share. We compute
basic earnings (loss) per share by dividing net income (loss) by the weighted average number of common shares outstanding. Diluted
earnings (loss) per share is computed based on the weighted average number of shares of common stock plus the effect of dilutive
potential common shares outstanding during the period using the treasury stock method. Dilutive potential common shares include
outstanding stock options and warrants and stock awards. For periods with a net loss, basic and diluted loss per share are the
same, in that any potential common stock equivalents would have the effect of being anti-dilutive in the computation of net loss
per share.








There were 1,778,214 common share equivalents at September 30, 2020 and
1,089,000 common share equivalents at September 30, 2019. For the three months ended September 30, 2020 and 2019, these potential shares
were excluded from the shares used to calculate diluted. These securities were not included in the computation of diluted net earnings
per share as their effect would have been antidilutive.









Recent
Accounting Pronouncements









Changes
to accounting principles are established by the Financial Accounting Standards Board’s (“FASB”) in the form
of Accounting Standards Update (“ASU”) to the FASB’s Codification. We consider the applicability and impact
of all ASUs on our financial position, results of operations, cash flows, or presentation thereof. The Company reviewed all recently
issued pronouncements in 2021, but not yet effective, and does not believe the future adoption of any such pronouncements may be
expected to cause a material impact on the Company’s financial condition or the results of its operations.










Note
2 – Accounts Payable and Accrued Liabilities








The
following table summarizes the Company’s accounts payable and accrued expense balances as of the date indicated:




































































September 30, 2020









December
31, 2019






Trade
payables






$



224,000









$



187,000






Accrued
liabilities









281,000












176,000






Interest
payable









27,000



















Accounts
payable and accrued expenses






$



532,000









$



363,000















Note
3 – Promissory Note








During
the period ended September 30, 2020, the Company issued a promissory note for $11,000 (“Promissory Note”). The total proceeds
were $10,000, due to approximately $1,000 for an original issue discount. The Promissory Note is non-interest bearing with the principal
due and payable in August 2020. Any amount of unpaid principal on the date of maturity will accrue interest at rate of 10% per annum
(default interest). The original issue discount was amortized over the term of the Promissory Note, which was one month. As of September
30, 2020, the Promissory note was in default, so the Company accrued approximately $200 of default interest.












Note
4 – Convertible Promissory Notes








During
the period ended September 30, 2020, the Company issued convertible promissory notes for the total amount of $33,000 (the “Notes”).
The total proceeds were approximately $30,000, due to approximately $3,000 for an original issue discount. The Notes are non-interest
bearing with the principal due and payable starting in July 2021 and August 2021. Any amount of unpaid principal on the date of
maturity will accrue interest at rate of 10% per annum (default interest). The principal amount and all accrued interest are convertible
into shares of the Company’s common stock, as of the date of issuance, at a rate of $1.00 per share (“Conversion Rate”).
The conversion rate is adjustable if, at any time when any principal amount of the Notes remains unpaid or unconverted, the Company
issues or sells any shares of the Company’s common stock for no consideration or for a consideration per share (before deduction
of reasonable expenses or commissions or underwriting discounts or allowances in connection therewith), which is less than the
Conversion Rate in effect on the date of such issuance (or deemed issuance) of such shares of common stock (a “Dilutive
Issuance”). Immediately upon a Dilutive Issuance, the Conversion Rate will be reduced to the amount of the consideration
per share received by the Company in such Dilutive Issuance. Events of default include failure to issue conversion shares, the
occurrence of a breach or default under any other agreement, instrument or document involving any indebtedness for borrowed money
of more than $100,000 in the aggregate, bankruptcy filing, application for the appointment of a custodian, trustee or receiver,
insolvency, the Company’s common stock delisted, or dissolution, winding up, or termination of the business of the Company.








In
connection with the issuance of the Notes, the Company issued to the purchasers of the Notes stock purchase warrants (the “Warrants”)
to purchase an aggregate of 11,000 shares of the Company’s common stock for a purchase price of $1.50 per share,
subject to adjustments.








In
accordance with ASC 470 - Debt, the Company has allocated the cash proceeds amounts of the Notes among the Notes, the warrants
and the conversion feature. The relative fair value of the warrants issued totaled approximately $2,000 and of the beneficial
conversion totaled approximately $0, which amounts are being amortized and expensed over the term of the Notes. As of September
30, 2020, the amortization expense was approximately $185,000.








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

Derivatives and Hedging

.








As
of September 30, 2020 and December 31, 2019, the convertible promissory notes consisted of the following:















































































September 30, 2020









December 31, 2019






Principal
amount






$



697,000









$



506,000






Original
issue discount









(3,000



)









(19,000



)



Warrant
discount









(2,000



)









(85,000



)



Conversion
feature discount






















(79,000



)



Net
balance






$



692,000









$



323,000











Interest
expense on default convertible notes amounting to $27,000 and $0 for the nine months ended September 30, 2020 and 2019.








Note
5 – Subsequent Events








The
Company has evaluated all events that occurred after the balance sheet date through the date when the financial statements were
issued to determine if they must be reported. The management of the Company determined the following reportable non-adjusting
events:








Subsequent
to September 30, 2020, the Company issued one (1) additional Note for total cash proceeds of $10,000.








On
January 5, 2021, Piers Cooper (“Mr. Cooper”), our President and a member of our Board of Directors, resigned as an
officer and director of our company (“Termination Agreement”). As part of the Termination Agreement, Mr. Cooper’s
agreed to return 3,674,330 shares of the Company’s common stock (“Cancelled Shares”). The Cancelled shares
were to be returned within thirty days of Mr. Cooper’s execution of the Termination Agreement, which was January 5, 2021.
The Cancelled Shares were returned and cancelled on April 19, 2021.








In
January 2021, the Company issued a promissory note for cash amounting to $15,000 with 8% annual interest per year and a maturity
date of March 31, 2022. Interest will be computed starting January 11, 2021 and payable at maturity date together with the principal
amount. In the event of default, the interest rate of the note shall increase to 10% per annum and computed on the basis of the
actual number of days elapsed and a 365-day year.















F-

8




















In
February 2021, the Company issued a promissory note for cash amounting to $25,000 with 10% annual interest per year and a maturity
date of February 19, 2022. The principal and accrued interest is payable in a single installment on or before the maturity date.
In the event of default, the interest rate of the note shall increase to 15% per annum and computed on the basis of the actual
number of days elapsed and a 365-day or 366-day year.








In
March 2021, the Company issued a convertible promissory note in the amount of $55,000 (the “Note”). The total
proceeds were approximately $50,000, due to approximately $5,000 for an original issue discount. The Note is non-interest bearing
with the principal due and payable starting in March 2022. Any amount of unpaid principal on the date of maturity will
accrue interest at rate of 10% per annum (default interest). The principal amount and all accrued interest are convertible into
shares of the Company’s common stock, as of the date of issuance, at a rate of $1.00 per share (“Conversion Rate”).
The conversion rate is adjustable if, at any time when any principal amount of the Notes remains unpaid or unconverted, the Company
issues or sells any shares of the Company’s common stock for no consideration or for a consideration per share (before deduction
of reasonable expenses or commissions or underwriting discounts or allowances in connection therewith), which is less than the
Conversion Rate in effect on the date of such issuance (or deemed issuance) of such shares of common stock (a “Dilutive
Issuance”). Immediately upon a Dilutive Issuance, the Conversion Rate will be reduced to the amount of the consideration
per share received by the Company in such Dilutive Issuance. Events of default include failure to issue conversion shares, the
occurrence of a breach or default under any other agreement, any money judgment, writ or similar process entered or filed against
the Company or any of its property or other assets for more than $100,000, bankruptcy filing, application for the appointment
of a custodian, trustee or receiver, insolvency, the Company’s common stock delisted, or dissolution, winding up, or termination
of the business of the Company. In connection with the issuance of the Notes, the Company issued to the purchasers of the Notes
stock purchase warrants (the “Warrants”) to purchase an aggregate of 27,500 shares of the Company’s common stock
for a purchase price of $1.50 per share, subject to adjustments.








In
February 2021, the Company signed a new consulting agreement that granted one of its shareholders an option to purchase
750,000 shares of the Company’s common stock at $0.001 per share for the consultancy work provided from August 2020
to February 2021. The options were fully vested on the date of issuance.










In
March 2021, the CEO agreed to forgive approximately $68,000 due to him.








In
March 2021, the CFO agree to reduce amount due to him from approximately $127,000 to $30,000. For the reduction of $97,000, the
Company will issue 75,000 shares of common stock. The remaining liability of $30,000 will be paid in cash.










In
April 2021, the Company issued a promissory note for cash amounting to $8,550 with 0% annual interest per year if paid at a maturity
date of July 5, 2021. In the event of default, the interest rate of the note shall increase to 8% per annum and computed on the
basis of the actual number of days elapsed and a 365-day or 366-day year.








In April 2021, an option holder exercised two options for 385,000 and 750,000
shares of the Company's common stock at an exercise price of $0.001 for both options. The shares for the options have yet to be issued.








In
April 2021, the Company issued a promissory note for cash amounting to $50,000 with 10% annual interest per year and a maturity
date of April 22, 2022. The principal and accrued interest is payable in a single installment on or before the maturity date.
In the event of default, the interest rate of the note shall increase to 15% per annum and computed on the basis of the actual
number of days elapsed and a 365-day or 366-day year.













F-

9























Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations










The
following discussion should be read in conjunction with our financial statements and related notes thereto included elsewhere
in this Quarterly Report on Form 10-Q and the financial statements and related notes thereto in our Annual Report on Form 10-K
for the year ended December 31, 2019.










This
discussion contains certain forward-looking statements that involve risks and uncertainties. Our actual results and the timing
of certain events could differ materially from those discussed in these forward-looking statements as a result of certain factors,
including, but not limited to, those set forth herein and elsewhere in this Quarterly Report and in our other filings with the
Securities and Exchange Commission. See “Cautionary Note Regarding Forward Looking Statements.”










Plan
of Operations









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








We
will require substantial financing to commence meaningful business operations and to achieve our goals, and a failure to obtain
this necessary capital when needed on acceptable terms, or at all, could force us to delay, limit, reduce or terminate our product
development plans, any commercialization efforts or other operations. We may not be able to secure financing on favorable terms,
or at all, to meet our future capital needs. In addition, even if we are able to obtain sufficient funding to commence our business
operations, we may need to pursue additional financing in the future to make expenditures and/or investments to support the growth
of our business and may require additional capital to pursue our business objectives and respond to new competitive pressures,
pay extraordinary expenses or fund our growth, including through acquisitions. Additional funds, however, may not be available
when we need them on terms that are acceptable to us, or at all. If we are unable to obtain adequate financing or financing on
terms satisfactory to us when we require it, our ability to commence our proposed business operations, to continue to grow and
support our business and to respond to business challenges could be significantly limited.








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














1





















Critical
Accounting Policies









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








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








While
all the accounting policies impact the financial statements, certain policies may be viewed to be critical. Our significant accounting
policies are as follows:









Debt
Discounts









The
Company accounts for debt discounts originating in connection with conversion features that remain embedded in the related notes
in accordance with ASC 470-20,

Debt with Conversion and Other Options

. These costs are classified on the consolidated balance
sheet as a direct deduction from the debt liability. The Company amortizes these costs over the term of its debt agreements as
interest expense-debt discount in the consolidated statement of operations.














2





















Results
of Operations










Revenues









We
had no revenues for the three and nine months ended September 30, 2020 and 2019.









Expenses









Operating
expenses for the three and nine months ended September 30, 2020 were $78,000 and $315,000, respectively, compared to $130,000
and $1,040,000 for the three and nine months ended September 30, 2019, respectively. The expenses in 2020 primarily included audit, filing,
legal and transfer agent fees and consulting fees paid to outside third parties.









Net
loss









Net
loss for the nine months ended September 30, 2020 and 2019 was $665,000 and $1,216,000, respectively, consisting primarily of
filing fees, transfer agent costs, and legal and accounting expenses, financing costs and loss on extinguishment of series A preferred
stock.









Liquidity
and Capital Resources









Our
financial position as of September 30, 2020 and December 31, 2019 were as follows:









Working
Capital





































































As
of






September
30, 2020













As
of






December
31, 2019





























Current
Assets






$



2,000









$



125,000






Current
Liabilities









1,235,000












686,000






Working
Capital Deficit






$



(1,233,000



)






$



(561,000



)








At
September 30, 2020, we had cash of approximately $0 and prepaid expenses of approximately $2,000. Working capital deficit increased by
approximately $672,000 from December 31, 2019 to September 30, 2020. The change in our working capital deficit was primarily due
to an decrease in cash and cash equivalents of $173,000 used in operations, increase in accounts payable of $169,000 and
increase in convertible promissory notes from conversion of series A convertible preferred stock approximately $147,000 and issuance
of additional convertible promissory notes with principal amount of $55,000.
















3






















Cash
Flows











































































































For
the Nine Months Ended






September
30,














2020









2019



























Net
cash from Operating Activities






$



(173,000



)






$



(304,000



)



Net
cash from Investing Activities






















12,000






Net
cash from Financing Activities









50,000












389,000






Increase
(decrease) in Cash during the Period









(123,000



)









97,000






Cash,
Beginning of Period









123,000



















Cash,
End of Period






$













$



97,000











Our
net cash used in operating activities was $173,000 and $304,000 for nine-month period ended September 30, 2020 and 2019,
respectively, resulting from operating expenses.








The
increase in net cash from financing activity of $50,000 was due to the sale and issuance of our convertible promissory notes in
the principal amount of $55,000.








Plan
of Operations and Cash Requirements








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








We
will require substantial financing to commence meaningful business operations and to achieve our goals, and a failure to obtain
this necessary capital when needed on acceptable terms, or at all, could force us to delay, limit, reduce or terminate our product
development plans, any commercialization efforts or other operations. We may not be able to secure financing on favorable terms,
or at all, to meet our future capital needs. In addition, even if we are able to obtain sufficient funding to commence our business
operations, we may need to pursue additional financing in the future to make expenditures and/or investments to support the growth
of our business and may require additional capital to pursue our business objectives and respond to new competitive pressures,
pay extraordinary expenses or fund our growth, including through acquisitions. Additional funds, however, may not be available
when we need them on terms that are acceptable to us, or at all. If we are unable to obtain adequate financing or financing on
terms satisfactory to us when we require it, our ability to commence our proposed business operations, to continue to grow and
support our business and to respond to business challenges could be significantly limited.








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









Off-Balance
Sheet Arrangements









As
of September 30, 2020, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K.











Item
3. Quantitative and Qualitative Disclosures About Market Risk.









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











Item
4. Controls and Procedures.










Evaluation
of Disclosure Controls and Procedures









As
of the end of the period covered by this Report, our Chief Executive Officer and Chief Financial Officer (our “Certifying
Officers”), conducted evaluations of our disclosure controls and procedures. As defined under Sections 13a – 15(e)
and 15d – 15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the term “disclosure
controls and procedures” means controls and other procedures of an issuer that are designed to ensure that information required
to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized
and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (“SEC”).
Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required
to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to
the issuer’s management, including the Certifying Officers, to allow timely decisions regarding required disclosures.














4


















Based
on their evaluation, the Certifying Officers concluded that, as of September 30, 2020, our disclosure controls and procedures
were not effective.








The
material weakness related to internal control over financial reporting that was identified at September 30, 2020 was that we did
not have sufficient personnel staffing in our accounting and financial reporting department. As a result, we were not able to
achieve adequate segregation of duties and were not able to provide for adequate review of the financial statements.








This
control deficiency could result in a reasonable possibility that material misstatements of the financial statements will not be
prevented or detected on a timely basis. However, our management believes that the material weakness identified does not result
in the restatement of any previously reported financial statements or any other related financial disclosure, and management does
not believe that the material weakness had any effect on the accuracy of our financial statements included as part of this Quarterly
Report.








We
will continue to monitor and evaluate the effectiveness of our disclosure controls and procedures and our internal controls over
financial reporting on an ongoing basis and are committed to taking action and implementing additional enhancements or improvements,
as necessary and as funds allow.









Changes
in internal control over financial reporting.









There
were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2020 that
have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.









Limitations
on the Effectiveness of Internal Controls









Readers
are cautioned that our management does not expect that our disclosure controls and procedures or our internal control over financial
reporting will necessarily prevent all fraud and material error. An internal control system, no matter how well conceived and
operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the
inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within our control have been detected. The design of any system of controls also is based in part
upon certain assumptions about the likelihood of future events, and there can be no assurance that any control design will succeed
in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes
in conditions, or the degree of compliance with the policies or procedures may deteriorate.














5























PART
II- OTHER INFORMATION













Item
1. Legal Proceedings.










None.











Item
1A. Risk Factors.









We
are a small reporting company, as defined by Rule 12b-2 of the Exchange Act, and are not required to provide the information under
this item.












Item
2. Unregistered Sales of Equity Securities and Use of Proceeds.












OID
NOTES - $10,000 on July 7, 2020, $10,000 on July 15, 2020 and $10,000 on August 27, 2020.











LOAN
– PROMISSORY NOTE $10,000 ON 7/9/2020













On
July 7, 2020 we borrowed $10,000 and issued an OID Promissory Note with principal amount of $11,000 and payable on or before August
7, 2020. Such note bears interest of 10% per month from maturity date until the same is paid.








On
July 15, 2020 and August 27, 2020, we sold OID Convertible Promissory Notes in the principal amounts of $11,000 and $11,000, respectively,
for purchase prices of $10,000 and 10,000, respectively, such promissory notes bear interest at the rate of 10% per annum only
if not paid at maturity on July 15, 2021 and August 27, 2021, and convert into shares of our common stock, par value $0.001 per
share, at the option of the holders at a conversion price of $1.00 per share, subject to adjustment for issuances of common stock
below the conversion price and for stock splits, stock combinations and the like. In connection with the issuance of such promissory
notes, we issued to the purchasers on July 15, 2020 and August 31, 2020 for no additional consideration warrants to purchase 11,000,000
and 11,000 shares of our common stock for a purchase price of $1.50 per share, subject to adjustment for stock splits, stock combinations
and the like, that expire on July 15, 2023 and August 31, 2023. If such warrants are exercised for cash, the holders will receive
a new three-year warrant to purchase the number of shares of common stock purchased upon such exercise at a purchase price of
$1.50 per share, subject to adjustment for stock splits, stock combinations and the like.











Item
3. Defaults Upon Senior Securities.









None.












Item
4. Mine Safety Disclosures.










None.












Item
5. Other Information.










None.












Item
6. Exhibits.



































































No.








Description
of Exhibit




31.1







Certification
of Principal Executive Officer Pursuant to Securities Exchange Act Rules 13a-14(a) and 15(d)-14(a), as adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002




31.2







Certification
of Principal Financial Officer Pursuant to Securities Exchange Act Rules 13a-14(a) and 15(d)-14(a), as adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002




32.1







Certification
of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act 0f 2002




32.2







Certification
of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act 0f 2002




101.INS
*






XBRL
Instance Document



101.CAL
*






XBRL
Taxonomy Extension Calculation Linkbase Document



101.SCH
*






XBRL
Taxonomy Extension Schema Document



101.DEF
*






XBRL
Taxonomy Extension Definition Linkbase Document



101.LAB
*






XBRL
Taxonomy Extension Labels Linkbase Document



101.PRE
*






XBRL
Taxonomy Extension Presentation Linkbase Document













*



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
















6
























SIGNATURES










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





















































Date:
June 29, 2021




CalEthos,
Inc.
















By:




/s/
Michael Campbell







Name:



Michael
Campbell






Title:



Chief
Executive Officer















By:




/s/
Dean S Skupen







Name:



Dean
S Skupen






Title:



Principal
Accounting Officer
















7










The above information was disclosed in a filing to the SEC. To see the filing, click here.

To receive a free e-mail notification whenever RealSource Residential, Inc. makes a similar move, sign up!

Other recent filings from the company include the following:

Departure of Directors or Certain - Oct. 8, 2021
Other preliminary information statements - Oct. 5, 2021
Notice of Exempt Offering of Securities, item 06b - Sept. 23, 2021
Entry into a Material Definitive - Sept. 21, 2021

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