ITEM
1. FINANCIAL STATEMENTS
eWELLNESS
HEALTHCARE CORPORATION
CONDENSED BALANCE SHEETS
|
|
September
30, 2017
|
|
|
December
31, 2016
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
ASSETS
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
14,436
|
|
|
$
|
13,995
|
|
Prepaid
expenses
|
|
|
261,716
|
|
|
|
723,046
|
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
276,152
|
|
|
|
737,041
|
|
|
|
|
|
|
|
|
|
|
Property
& equipment, net
|
|
|
5,587
|
|
|
|
4,279
|
|
Intangible
assets, net
|
|
|
14,693
|
|
|
|
16,908
|
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$
|
296,432
|
|
|
$
|
758,228
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
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CURRENT
LIABILITIES
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$
|
348,903
|
|
|
$
|
340,793
|
|
Accounts
payable - related party
|
|
|
262,030
|
|
|
|
379,481
|
|
Accrued
expenses - related party
|
|
|
202,139
|
|
|
|
104,429
|
|
Accrued
compensation
|
|
|
1,010,666
|
|
|
|
940,000
|
|
Contingent
liability
|
|
|
90,000
|
|
|
|
90,000
|
|
Convertible
debt, net of discount
|
|
|
517,906
|
|
|
|
247,710
|
|
Derivative
liability
|
|
|
721,396
|
|
|
|
8,473,265
|
|
Short
term note and liabilities
|
|
|
180,051
|
|
|
|
180,051
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|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
3,333,091
|
|
|
|
10,755,729
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities
|
|
|
3,333,091
|
|
|
|
10,755,729
|
|
|
|
|
|
|
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Commitments
and contingencies
|
|
|
-
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|
|
-
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STOCKHOLDERS'
DEFICIT
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|
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|
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Preferred
stock, authorized, 20,000,000 shares, $.001 par value, 0 shares issued and outstanding
|
|
|
-
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|
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|
-
|
|
Common
stock, authorized 400,000,000 shares, $.001 par value, 136,477,700 and 51,435,307 issued and outstanding, respectively
|
|
|
136,478
|
|
|
|
51,435
|
|
Shares
to be issued
|
|
|
11,428
|
|
|
|
110,740
|
|
Additional
paid in capital
|
|
|
12,238,750
|
|
|
|
5,757,205
|
|
Accumulated
deficit
|
|
|
(15,423,315
|
)
|
|
|
(15,916,881
|
)
|
|
|
|
|
|
|
|
|
|
Total
Stockholders' Deficit
|
|
|
(3,036,659
|
)
|
|
|
(9,997,501
|
)
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
|
$
|
296,432
|
|
|
$
|
758,228
|
|
The
accompanying notes are an integral part of these condensed financial statements
eWELLNESS
HEALTHCARE CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
|
|
Three
Months Ended
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|
|
Nine
Months Ended
|
|
|
|
September
30, 2017
|
|
|
September
30, 2016
|
|
|
September
30, 2017
|
|
|
September
30, 2016
|
|
|
|
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|
|
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OPERATING
EXPENSES
|
|
|
|
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|
|
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|
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|
Executive
compensation
|
|
|
102,000
|
|
|
|
186,000
|
|
|
|
306,000
|
|
|
|
558,000
|
|
General
and administrative
|
|
|
163,527
|
|
|
|
38,324
|
|
|
|
581,705
|
|
|
|
153,493
|
|
Professional
fees
|
|
|
374,253
|
|
|
|
839,486
|
|
|
|
1,690,985
|
|
|
|
1,678,318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Total
Operating Expenses
|
|
|
639,780
|
|
|
|
1,063,810
|
|
|
|
2,578,690
|
|
|
|
2,389,811
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from Operations
|
|
|
(639,780
|
)
|
|
|
(1,063,810
|
)
|
|
|
(2,578,690
|
)
|
|
|
(2,389,811
|
)
|
|
|
|
|
|
|
|
|
|
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|
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|
|
OTHER
INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
on foreign exchange rate
|
|
|
11,523
|
|
|
|
-
|
|
|
|
48,927
|
|
|
|
-
|
|
Gain
on extinguishment of debt
|
|
|
-
|
|
|
|
68,264
|
|
|
|
-
|
|
|
|
68,264
|
|
Gain
(loss) on derivative liability
|
|
|
(973,207
|
)
|
|
|
705,861
|
|
|
|
3,426,389
|
|
|
|
200,719
|
|
Interest
expense, related parties
|
|
|
-
|
|
|
|
(1,069
|
)
|
|
|
-
|
|
|
|
(2,998
|
)
|
Interest
expense
|
|
|
(178,340
|
)
|
|
|
(479,255
|
)
|
|
|
(402,260
|
)
|
|
|
(999,215
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income (Loss) before Income Taxes
|
|
|
(1,779,804
|
)
|
|
|
(770,009
|
)
|
|
|
494,366
|
|
|
|
(3,123,041
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax expense
|
|
|
-
|
|
|
|
(800
|
)
|
|
|
(800
|
)
|
|
|
(800
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income (Loss)
|
|
$
|
(1,779,804
|
)
|
|
$
|
(770,809
|
)
|
|
$
|
493,566
|
|
|
$
|
(3,123,841
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
(loss) per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.01
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
0.01
|
|
|
$
|
(0.16
|
)
|
Diluted
|
|
$
|
(0.01
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
0.00
|
|
|
$
|
(0.16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
128,985,784
|
|
|
|
19,821,147
|
|
|
|
98,415,360
|
|
|
|
19,058,020
|
|
Diluted
|
|
|
128,985,784
|
|
|
|
19,821,147
|
|
|
|
101,707,186
|
|
|
|
19,058,020
|
|
The
accompanying notes are an integral part of these condensed financial statements
e
WELLNESS HEALTHCARE CORPORATION
CONDENSED
STATEMENTS OF CASH FLOWS
(unaudited)
|
|
For
Nine Months Ended
|
|
|
|
September
30, 2017
|
|
|
September
30, 2016
|
|
|
|
|
|
|
|
|
Cash flows from operating activies
|
|
|
|
|
|
|
|
|
Net income
(loss)
|
|
$
|
493,566
|
|
|
$
|
(3,123,841
|
)
|
Adjustments to reconcile net income (loss) to
net cash used in
operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
3,817
|
|
|
|
3,479
|
|
Contributed
services
|
|
|
163,500
|
|
|
|
292,500
|
|
Shares
issued for consulting services
|
|
|
201,130
|
|
|
|
42,500
|
|
Imputed
interest - related party
|
|
|
-
|
|
|
|
2,998
|
|
Options
expense
|
|
|
325,782
|
|
|
|
508,395
|
|
Interest
on debt extension
|
|
|
-
|
|
|
|
123,198
|
|
Amortization
of debt discount to interest expense
|
|
|
325,666
|
|
|
|
817,632
|
|
Amortization
of prepaids
|
|
|
873,582
|
|
|
|
-
|
|
Gain
on derivative liability
|
|
|
(3,426,389
|
)
|
|
|
(200,719
|
)
|
Gain
on extinguishment of debt
|
|
|
-
|
|
|
|
(68,264
|
)
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
|
|
Prepaid expense
|
|
|
(49,752
|
)
|
|
|
676,949
|
|
Accounts payable
and accrued expenses
|
|
|
35,099
|
|
|
|
408,443
|
|
Accounts
payable - related party
|
|
|
107,549
|
|
|
|
12,484
|
|
Accrued
expenses - related party
|
|
|
97,710
|
|
|
|
79,945
|
|
Accrued
compensation
|
|
|
70,666
|
|
|
|
263,408
|
|
|
|
|
|
|
|
|
|
|
Net cash used
in operating activities
|
|
|
(778,074
|
)
|
|
|
(160,893
|
)
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
|
Purchase
of equipment
|
|
|
(2,910
|
)
|
|
|
-
|
|
Net cash used
in investing activities
|
|
|
(2,910
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Proceeds from issuance
of common stock
|
|
|
-
|
|
|
|
120,000
|
|
Issuance of convertible
debt
|
|
|
915,000
|
|
|
|
-
|
|
Debt
issuance costs
|
|
|
(133,575
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net cash provided
by financing activities
|
|
|
781,425
|
|
|
|
120,000
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease)
in cash
|
|
|
441
|
|
|
|
(40,893
|
)
|
|
|
|
|
|
|
|
|
|
Cash, beginning
of period
|
|
|
13,995
|
|
|
|
41,951
|
|
|
|
|
|
|
|
|
|
|
Cash, end of period
|
|
$
|
14,436
|
|
|
$
|
1,058
|
|
|
|
|
|
|
|
|
|
|
Supplemental Information:
|
|
|
|
|
|
|
|
|
Cash paid for:
|
|
|
|
|
|
|
|
|
Taxes
|
|
$
|
800
|
|
|
$
|
-
|
|
Interest Expense
|
|
$
|
-
|
|
|
$
|
-
|
|
Non cash items:
|
|
|
|
|
|
|
|
|
Warrants issued with
debt
|
|
$
|
86,730
|
|
|
$
|
241,097
|
|
Derivative liability
and debt discount issued with new notes
|
|
$
|
260,818
|
|
|
$
|
-
|
|
Shares issued for
debt conversion
|
|
$
|
5,057,014
|
|
|
$
|
87,804
|
|
Exercise of warrants
|
|
$
|
109,978
|
|
|
$
|
173
|
|
Shares issued for
extinguishment of accounts payable
|
|
$
|
309,000
|
|
|
$
|
-
|
|
Shares issued for
prepaids
|
|
$
|
381,000
|
|
|
$
|
1,958,350
|
|
The
accompanying notes are an integral part of these condensed financial statements
eWellness
Healthcare Corporation
Notes
to Condensed Financial Statements
September
30, 2017
(unaudited)
Note
1. The Company
The
Company and Nature of Business
eWellness
Healthcare Corporation (f/k/a Dignyte, Inc.), (the “eWellness”, “Company”, “we”, “us”,
“our”) was incorporated in the State of Nevada on April 7, 2011. The Company has generated no revenues to date.
eWellness
is the first physical therapy telehealth company to offer insurance reimbursable real-time distance monitored treatments. Our
business model is to license our PHZIO (“PHZIO”) platform to any physical therapy (“PT”) clinic in the
U.S. and or have large-scale employers use our PHZIO platform as a fully PT monitored corporate wellness program. The Company’s
PHZIO home physical therapy exercise platform has been designed to disrupt the $30 billion physical therapy and the $8 billion
corporate wellness industries. PHZIO re-defines the way physical therapy can be delivered. PHZIO is the first real-time remote
monitored 1-to-many physical therapy platform for home use. Due to the real-time patient monitoring feature, the PHZIO platform
is insurance reimbursable by payers such as: Anthem Blue Cross and Blue Shield.
Concierge
PT Medical Services
: EWLL provides a new and highly unique patient treatment protocol, that includes “white glove”
concierge in-home or in-office physical therapy assessments and digital care treatments, in order to enhance medical treatments
and help improve patient treatment outcomes.
PreHabPT
:
Any patient can now receive a (non-emergency) orthopedic surgery consultation, in-home or in-office physical therapy evaluation
and may be prescribed a 4-8 week prehabpt.com exercise program prior to any surgery. Another in-home or in-office physical therapy
evaluation will be made following surgery and a treatment plan will be initiated. PreHabPT is up to an 8-week physician to patient
pre-surgical (Prehab) digital therapeutic exercise treatment system for patients that anticipate having total joint replacement
(knee, hip and or shoulder) or back surgeries. Patients may complete these digital therapeutic exercises either monitored or unmonitored.
PurePT
:
PurePT is a patient & independent PT digital treatment platform for connecting new patients to PT’s that are seeking
to be treated with our PHZIO treatment system. Patient program assessments can be made in the privacy of a patient home or office.
PurePT connects new patients to PT’s, particularly in states that have direct access rules where patient’s insurance
will reimburse for treatment without requiring a physician’s prescription.
Our
PHZIO Solution: A New Physical Therapy Delivery System:
|
●
|
SaaS
technology platform solution for providers bundling rehabilitation services and employer wellness programs
|
|
|
|
|
●
|
First
real-time remote monitored 1-to-many physical therapy treatment platform for home use
|
|
|
|
|
●
|
Ability
for physical therapists to observe multiple patients simultaneously in real-time
|
|
|
|
|
●
|
Solves
what has been a structural problem and limitation in post-acute care practice growth
|
|
|
|
|
●
|
Allows
PT practices to generate increased revenues due to higher adherence and compliance rates
|
For
more information on eWellness go to:
http://www.ewellnesshealth.com/
http://phzio.com/
http://prehabpt.com/
http://Purept.com/
eWellness
Healthcare Corporation
Notes
to Condensed Financial Statements
September
30, 2017
(unaudited)
Note
2. Summary of Significant Accounting Policies
Basis
of Presentation
The
accompanying condensed financial statements have been prepared in accordance with U.S. generally accepted accounting principles
for interim financial statements. Accordingly, they omit or condense notes and certain other information normally included in
financial statements prepared in accordance with U.S. generally accepted accounting principles. The accounting policies followed
for quarterly financial reporting conform with the accounting policies disclosed in Note 2 to the Notes to Financial Statements
included in our Annual Report on Form 10-K for the year ended December 31, 2016. In the opinion of management, all adjustments
necessary for a fair presentation of the financial information for the interim periods reported have been made. All such adjustments
are of a normal recurring nature. The results of operations for the nine months ended September 30, 2017 are not necessarily indicative
of the results that can be expected for the fiscal year ending December 31, 2017. The unaudited condensed financial statements
should be read in conjunction with the financial statements and the notes thereto included in our Annual Report on Form 10-K for
the year ended December 31, 2016.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of
the financial statements and reported amounts of revenue and expenses during the reporting period. Actual results could differ
materially from these good faith estimates and judgments.
Going
Concern
For
the nine months ended September 30, 2017, the Company had no revenues. The Company has an accumulated loss of $15,423,315. In
view of these matters, there is substantial doubt about the Company’s ability to continue as a going concern. The Company’s
ability to continue operations is dependent upon the Company’s ability to raise additional capital and to ultimately achieve
sustainable revenues and profitable operations, of which there can be no guarantee. The Company intends to finance its future
development activities and its working capital needs largely from the sale of public equity securities with some additional funding
from other traditional financing sources, including term notes, until such time that funds provided by operations are sufficient
to fund working capital requirements. The financial statements of the Company do not include any adjustments relating to the recoverability
and classification of recorded assets, or the amounts and classifications of liabilities that might be necessary should the Company
be unable to continue as a going concern.
Fair
Value of Financial Instruments
As
of September 30, 2017, the Company had the following assets and liabilities measured at fair value on a recurring basis.
|
|
Total
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
Derivative
Liability
|
|
$
|
721,396
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
721,396
|
|
Total
Liabilities measured at fair value
|
|
$
|
721,396
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
721,396
|
|
eWellness
Healthcare Corporation
Notes
to Condensed Financial Statements
September
30, 2017
(unaudited)
As
of December 31, 2016, the Company had the following assets and liabilities measured at fair value on a recurring basis.
|
|
Total
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
Derivative
Liability
|
|
$
|
8,473,265
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
8,473,265
|
|
Total
Liabilities measured at fair value
|
|
$
|
8,473,265
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
8,473,265
|
|
Earnings
per Common Share
The
Company follows ASC Topic 260 to account for the earnings per share (“EPS”). Basic EPS calculations are determined
by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. Diluted
EPS calculations are determined by dividing net income (loss) by the weighted average number of common shares and dilutive common
share equivalents outstanding. During periods when common stock equivalents, if any, are anti-dilutive they are not considered
in the computation. As the Company has net income for the nine months ended September 30, 2017, dilutive shares are added into
the per share calculation as noted below.
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
September
30, 2017
|
|
|
September
30, 2016
|
|
|
September
30, 2017
|
|
|
September
30, 2016
|
|
Earnings (loss)
per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.01
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
0.01
|
|
|
$
|
(0.16
|
)
|
Diluted
|
|
$
|
(0.01
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
0.00
|
|
|
$
|
(0.16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
128,985,784
|
|
|
|
19,821,147
|
|
|
|
98,415,360
|
|
|
|
19,058,020
|
|
Diluted
|
|
|
128,985,784
|
|
|
|
19,821,147
|
|
|
|
101,707,186
|
|
|
|
19,058,020
|
|
For
the nine months ended September 30, 2017, the diluted EPS calculation included common stock equivalents of 3,291,826 for warrants.
For the nine months ending September 30, 2016, common stock equivalents of 3,100,000 options, 5,577,914 warrants and 430,989 convertible
notes were not included due to the anti-dilutive effect. For the three months ended September 30, 2017, common stock equivalents
of 3,291,826 for warrants were not included due to the anti-dilutive effect. For the three months ended September 30, 2016, common
stock equivalents of 242,000 options, 844,296 warrants and 40,439 convertible notes were not included due to the anti-dilutive
effect.
Note
3. Related Party Transactions
During
the nine months ended September 30, 2017, a related party, a company for which the Company’s former Secretary-Treasurer
and CFO is also serving as CFO, invoiced the Company $19,300 for accounting services. The amount outstanding as of September 30,
2017 and December 31, 2016 was $1,220 and $10,481, respectively. The Company recorded $0 and $2,999 imputed interest on the amount
owed to the related party based on an interest rate of 8% for the nine months ended September 30, 2017 and September 30, 2016,
respectively. Because the amount due to the related party is now being paid on a regular basis, the Company is no longer accruing
imputed interest.
eWellness
Healthcare Corporation
Notes
to Condensed Financial Statements
September
30, 2017
(unaudited)
On
April 1, 2015, the Company entered into an operating agreement with a physical therapy company (“EPT”) which is owned
by the Company’s President and Chief Executive Officer. Through the agreement, the Company agrees to provide operating capital
advances for EPT to offer the Company’s PHIZIO platform to physical therapy patients. For accounting and tax purposes, the
net profits or losses generated by EPT shall be allocated on a monthly basis. The Company will receive 75% of the net patient
insurance reimbursements associated with the operation of the PHIZIO platform.
On
November 11, 2016, the Company signed an agreement with a programming company (“PC”) within which one of the Company’s
directors and Chief Technical Officer is the Chief Marketing Officer. The agreement is for additional features to be programmed
for the launch of the PHIZIO platform. The contract specifies that the Company’s CEO and CTO will retain their officer and
director positions and retain their past due accrued compensation through June 30, 2016. The Company is to pay a monthly base
fee of $100,000 for the development and compensation for the Company’s CEO and CTO. Following payment of the initial $100,000,
the Company is obligated to only pay $50,000 monthly until the PC has successfully signed and collected the first monthly service
fee for 100 physical therapy clinics to use the PHIZIO platform. The agreement establishes that the Company is indebted to the
PC for $225,000 for past programming services. For this amount, the Company issued 25,280,899 common shares at a value of $0.0089
per share on April 1, 2017. The PC will also have the right to appoint 40% of the directors. At the end of September 30,
2017, the Company had a payable of $260,810 due to this company.
For
the first quarter of 2017 the Company rented its Culver City, CA office space from a company owned by our CEO. The imputed rent
expense of $500 per month was recorded in the Statement of Operations and Additional Paid in Capital in the Balance Sheet. Since
the beginning of the second quarter of 2017, the Company is renting from a third party so no imputed rent was recorded.
Throughout
the period ended September 30, 2017, the officers and directors of the Company incurred business expenses on behalf of the Company.
The amounts payable to the officers as of September 30, 2017 and December 31, 2016 were $9,139 and $44,429, respectively. There
were no expenses due to the board members, but the Company has accrued directors’ fees of $193,000 and $60,000 at September
30, 2017 and December 31, 2016, respectively. Because the Company is not yet profitable the officers have agreed to defer compensation.
The Company had accrued executive compensation of $1,010,666 and $940,000 at September 30, 2017 and December 31, 2016 respectively.
Note
4. Non-Convertible Notes Payable
In
February 2017, the Company was served by a complaint filed by the holder of a note payable. The lawsuit alleges that the Company
is indebted to the note holder a promissory note stemming from four loans to the Company during the 20 months prior to February
2017 amounting to $75,500 in total original principal bearing interest at 12% per annum, of which $45,202 has been repaid.
Further, the note holder claims that, because of alleged defaults and extensions of the notes, the Company is now indebted in
the amount of $253,877 inclusive of interest and penalties at an effective rate exceeding 70% per annum, far more than the maximum
rate allowable in California or Louisiana. The Company and its counsel have determined that: (i) the note holder is not a licensed
lender in the State of California, where the loan was made and the $75,500 was deposited and therefore was not permitted under
California law to make loans in the State; and (ii) the interest rate the note holder is seeking to collect is usurious and therefore
interest claimed in the lawsuit is neither collectible nor enforceable. The Company and counsel believe the lawsuit is wholly
without merit and the rules of diversity of jurisdiction apply. Furthermore, the Company believes that the action should be removed
from Louisiana state court to the United States Federal District Court in Baton Rouge, LA, where California law should be applied.
eWellness
Healthcare Corporation
Notes
to Condensed Financial Statements
September
30, 2017
(unaudited)
At
September 30, 2017, the Company had indebtedness to this holder of the note payable of $180,051 plus $33,465 of accrued interest.
During the nine months ended September 30, 2017 and 2016, the Company accrued interest expense totaling $24,240 and $18,974, respectively.
During the three months ended September 30, 2017 and 2016, the Company accrued interest expense totaling $8,169 and $13,824 respectively.
Note
5. Convertible Notes Payable
On
January 11, January 23 and February 14, 2017, the Company authorized three convertible notes each $55,000 for a total of $165,000.
These notes mature six months from the grant date. The convertible notes convert into common stock of the Company at conversion
price into which any principal amount and interest (including any default interest) under the notes shall be convertible into
shares of common stock shall be equal to the lesser of: (i) $0.20 or (ii) 75% of the average of the volume-weighted average prices
for the five (5) Trading Days immediately following the 180th calendar day after the Original Issue Date, whichever is lower.
There is only one pricing lookback event. The notes have a 10% original issue discount and an interest rate of 8%. During the
nine months ended September 30, 2017, the Company accrued interest expense totaling $7,594. In April 2017, the Company and the
note holder authorized amendments to these three notes in which the maturity dates of the notes were extended to February 6, 2018,
February 22, 2018, and March 31, 2018, respectively. All three of these notes plus accrued interest were converted during the
quarter ended September 30, 2017 and 2,436,381 shares of common stock were issued.
On
February 9, 2017, the Company entered into a Securities Purchase Agreement with a third party which required the Company to issue
two 5.5% convertible notes in the aggregate principal amount of $165,000, each at $82,500. Each of the notes contain a 10% Original
Issue Discount and an interest rate of 8%. The due date of the notes is November 7, 2017. During the nine months ended
September 30, 2017, only one of the notes has been funded. During the nine months ended September 30, 2017, the Company accrued
interest expense of $4,213.
On
February 15, 2017, the Company and an institutional investor entered into an agreement in which: (a) the investor agreed to fund
up to $5,000,000 in reliance upon an exception provided under Rule 506 of Regulation D promulgated by the SEC under the Securities
act of 1933, as amended; (b) the Company will file a registration statement on Form S-1 with the SEC within 15 days after the
Company filed its annual 10K report for the year ended December 31, 2016 (The S-1 was filed on April 11, 2017); (c) the Company
issued a convertible note in the principal amount of $100,000, bearing interest at 8% (This note has not yet been funded); and
(d) the Company issued a second convertible note in the principal amount of $275,000 bearing interest at 8% of which $137,500
has been funded. With the $275,000 convertible note, the Company also issued 68,750 warrants exercisable at $.25 per share on
a cashless basis. During the nine months ended September 30, 2017, the Company accrued interest expense of $12,130.
On
April 11, 2017, the Company executed an 8% Fixed Convertible Promissory Note payable to an institutional investor in the principal
amount of $308,000. The note, which is due on November 6, 2018 was funded in the sum of $280,000 with $28,000 being retained by
the investor through an original issue discount for due diligence and legal expense related to this transaction. The note is convertible
into shares of common stock, par value $0.001, at a conversion price of $0.20 per Share. On April 11, 2017, the Company filed
a registration statement on Form S-1 to provide for the resale of up to 9,519,229 shares of common stock issuable to the investor,
as a selling stockholder, pursuant to a “put right” under an investment agreement dated February 10, 2017, that permits
the Company to “put” up to five million dollars ($5,000,000) in shares of common stock to the investor over a period
of up to thirty-six (36) months or until $5,000,000 of such shares have been “put.” With issuance of this note, the
Company also issued 1,232,000 warrants exercisable at $.25 per share. During the nine months ended September 30, 2017, the Company
accrued interest expense of $11,476.
On
April 24, 2017, the Company entered into a Securities Purchase Agreement with a third party which required the Company to issue
two 5.5% convertible notes in the aggregate principal amount of $167,000, each at $83,500. One of the notes was funded in May
2017 for $83,500. The other note was funded in July 2017 for $83,500. Each of the notes contain an Original Issue Discount of
$8,500 and an interest rate of 5.5%. The due date of the notes is January 24, 2018. During the nine months ended September 30,
2017, the company accrued interest expense of $2,768.
eWellness
Healthcare Corporation
Notes
to Condensed Financial Statements
September
30, 2017
(unaudited)
On
July 24, 2017, the Company agreed to amend the two convertible notes dated April 24, 2017 and the convertible note dated February
9, 2017 relative to the conversion provision in Section 4(a) by inserting the following provision: “In addition to all the
other Conversion Price formulas set forth in the Note, the Holder may choose to elect from the following two Conversion Price
formulas, if they result in a lower Conversion Price: (i) 75% of the average of the 5 daily VWAPS of the Common Stock as reported
on an Exchange for the 20 trading days immediately preceding the 180th daily anniversary of the Note or (ii) 75% of the average
of the 5 VWAPS of the Common Stock as reported on an Exchange for the 20 trading days immediately preceding the delivery day of
the first Notice of Conversion from the Holder”.
On
September 5, 2017, the Company executed an 8% Fixed Convertible Promissory Note payable to an institutional investor in the principal
amount of $55,000. The note, which is due on March 5, 2018 has an original issue discount of $5,000. The convertible notes convert
into common stock of the Company at conversion price into which any principal amount and interest (including any default interest)
under the notes shall be convertible into shares of common stock shall be equal to the lesser of: (i) $0.20 or (ii) 75% of the
average of the VWAPs for the ten (10) Trading Days immediately following the 180th calendar. During the nine months ended September
30, 2017, the Company accrued interest expense of $289.
Note
6. Equity Transactions
Preferred
Stock
The
total number of shares of preferred stock which the Company shall have authority to issue is 20,000,000 shares with a par value
of $0.001 per share. There have been no preferred shares issued as of September 30, 2017.
Common
Stock
The
total number of shares of common stock which the Company shall have authority to issue is 400,000,000 shares with a par value
of $0.001 per share.
During
the nine months ended September 30, 2017, the Company issued a total of 49,292,169 shares of common stock per debt conversion
of two convertible notes dated November 14, 2016 and three convertible notes dated January 11, January 23, and February 13, 2017.
The total of the debt conversion was $592,420 which includes $26,220 of accrued interest.
In
January 2017, 1,363,277 warrants were exercised under a cashless exercise and issued 1,336,075 shares of common stock.
During
the nine months ended September 30, 2017, the Company issued 6,558,250 shares of common stock for marketing and consulting services
valued at $549,630. At September 30, 2017, 132,327 shares remain to be issued to a consultant. These shares were issued on October
6, 2017.
In
January and March 2017, the Company issued 2,400,000 shares of common stock per the extinguishment of debt agreements dated December
1, 2016.
In
January 2017, the Company entered into an agreement with a consultant for a six-month period to provide services which will include:
(i) introductions to brokers; (ii) assist with research coverage; (iii) introductions to over 100 funds, investment banking firms
and market makers; and (iv) a presentation speaking slot with a Gold sponsorship at the 2017 Wall Street Conference. In consideration
for the services, the Company issued 75,000 shares of common stock for a value of $6,000.
eWellness
Healthcare Corporation
Notes
to Condensed Financial Statements
September
30, 2017
(unaudited)
On
April 1, 2017, the Company issued 25,280,899 shares of common stock per the contract with a related party per the Definitive Services
Agreement signed on January 24, 2017. This agreement is discussed in Note 3 above.
On
June 6, 2017, the Board of Directors approved the issuance of 100,000 shares of common stock to the Company’s attorneys
for legal services. These shares were issued in August 2017 for a value of $8,000.
Stock
Options
The
following is a summary of the status of all Company’s stock options as of September 30, 2017 and changes during the nine
months ended on that date:
|
|
Number
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
of
Stock
|
|
|
Average
|
|
|
Remaining
|
|
|
Intrinsic
|
|
|
|
Options
|
|
|
Exercise
Price
|
|
|
Life
(yrs)
|
|
|
Value
|
|
Outstanding
at December 31, 2016
|
|
|
20,250,000
|
|
|
$
|
0.27
|
|
|
|
2.3
|
|
|
$
|
0.011
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Outstanding
at September 30, 2017
|
|
|
20,250,000
|
|
|
|
0.27
|
|
|
|
2.2
|
|
|
$
|
0
|
|
Options
exercisable at September 30, 2017
|
|
|
10,245,833
|
|
|
$
|
0.37
|
|
|
|
2.8
|
|
|
$
|
0
|
|
The
Company recognized stock option expense of $325,782 and $4,633 for the nine months ended September 30, 2017 and 2016, respectively
and $108,594 and $4,633 for the three months ended September 30, 2017 and 2016, respectively.
Warrants
In
February 2017, the Company authorized the issuance of 68,750 warrants that were issued as part of a convertible note. At September
30, 2017 the fair value of the warrants is $6,507.
In
April 2017, the Company authorized the issuance of 1,232,000 warrants that were issued as part of a convertible note. At September
30, 2017 the fair value of the warrants is $116,680.
The
following is a summary of the status of the Company’s warrants as of September 30, 2017 and changes during the nine months
ended on that date:
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Number
of
|
|
|
Average
Exercise
|
|
|
Remaining
|
|
|
Intrinsic
|
|
|
|
Warrants
|
|
|
Price
|
|
|
Life
(yrs.)
|
|
|
Value
|
|
Outstanding
at December 31, 2016
|
|
|
9,116,190
|
|
|
$
|
0.21
|
|
|
|
2.9
|
|
|
$
|
0.103
|
|
Granted
|
|
|
1,300,750
|
|
|
|
0.25
|
|
|
|
5.0
|
|
|
|
0
|
|
Exercised
|
|
|
(1,363,277
|
)
|
|
|
0.01
|
|
|
|
|
|
|
|
0.178
|
|
Cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding
at September 30, 2017
|
|
|
9,053,663
|
|
|
$
|
0.20
|
|
|
|
2.4
|
|
|
$
|
0.038
|
|
Warrants
exercisable at September 30, 2017
|
|
|
9,053,663
|
|
|
$
|
0.20
|
|
|
|
2.4
|
|
|
$
|
0.038
|
|
eWellness
Healthcare Corporation
Notes
to Condensed Financial Statements
September
30, 2017
(unaudited)
For
purpose of determining the fair market value of the warrants and options issued during the nine months ended September 30, 2017,
we used the Black Scholes option valuation model. These valuations were done throughout the period at the date of issuance and
not necessarily as of the reporting date. The assumptions used in the Black Scholes valuation of the date of issuance are as follows:
Stock
price on the valuation date
|
|
$
|
.095
|
|
Exercise
price of warrants
|
|
$
|
.004
and .25
|
|
Dividend
yield
|
|
|
0.00
|
%
|
Years
to maturity
|
|
|
3-5
|
|
Risk
free rate
|
|
|
1.62%
- 1.77
|
%
|
Expected
volatility
|
|
|
288.82%-290.44
|
%
|
Note
7. Commitments, Contingencies
The
Company may be subject to lawsuits, administrative proceedings, regulatory reviews or investigations associated with its business
and other matters arising in the normal conduct of its business. The following is a description of an uncertainty that is considered
other than ordinary, routine and incidental to the business.
The
closing of the Initial Exchange Agreement with Private Co. was conditioned upon certain, limited customary representations and
warranties, as well as, among other things, our compliance with Rule 419 (“Rule 419”) of Regulation C under the Securities
Act of 1933, as amended (the “Securities Act”) and the consent of our shareholders as required under Rule 419. Accordingly,
we conducted a “Blank Check” offering subject to Rule 419 (the “Rule 419 Offering”) and filed a Registration
Statement on Form S-1 to register the shares of such offering; the Registration Statement was declared effective on September
14, 2012. We used 10% of the subscription proceeds as permitted under Rule 419 and the amount remaining in the escrow trust as
of the date of the closing of the Share Exchange was $90,000 (the “Trust Account Balance”).
Rule
419 required that the Share Exchange occur on or before March 18, 2014, but due to normal negotiations regarding the transactions
and the parties’ efforts to satisfy all of the closing conditions, the Share Exchange did not close on such date. Accordingly,
after numerous discussions with management of both parties, they entered into an Amended and Restated Share Exchange Agreement
(the “Share Exchange Agreement”) to reflect a revised business combination structure, pursuant to which we would:
(i) file a registration statement on Form 8-A (“Form 8A”) to register our common stock pursuant to Section 12(g) of
the Exchange Act, which we did on May 1, 2014 and (ii) seek to convert the participants of the Rule 419 Offering into participants
of a similarly termed private offering (the “Converted Offering”), to be conducted pursuant to Regulation D, as promulgated
under the Securities Act.
Fifty-two
persons participated in the Rule 419 Offering and each of them gave the Company his/her/its consent to use his/her/its escrowed
funds to purchase shares of the Company’s restricted common stock in the Converted Offering (the “Consent”)
rather than have their funds returned. To avoid further administrative work for the investors, we believe that we took reasonable
steps to inform investors of the situation and provided them with an appropriate opportunity to maintain their investment in the
Company, if they so choose, or have their funds physically returned. Management believed the steps it took constituted a constructive
return of the funds and therefore met the requirements of Rule 419.
However,
pursuant to Rule 419(e)(2)(iv), “
funds held in the escrow or trust account shall be
returned by first class mail or equally prompt means to the purchaser within five business days [
if the related acquisition
transaction does not occur by a date that is 18 months after the effective date of the related registration statement].”
As set forth above, rather than physically return the funds, we sought consent from the investors of the Rule 419 Offering to
direct their escrowed funds to the Company to instead purchase shares in the Converted Offering. The consent document (which was
essentially a form of rescission) was given to the investors along with a private placement memorandum describing the Converted
Offering and stated that any investor who elected not to participate in the Converted Offering would get 90% of their funds physically
returned. Pursuant to Rule 419(b)(2)(vi), a blank check company is entitled to use 10% of the proceed/escrowed funds; therefore,
if a return of funds is required, only 90% of the proceed/escrowed funds need be returned. The Company received $100,000 proceeds
and used $10,000 as per Rule 419(b)(2)(vi); therefore, only $90,000 was subject to possible return.
eWellness
Healthcare Corporation
Notes
to Condensed Financial Statements
September
30, 2017
(unaudited)
As
disclosed therein, we filed the amendments to the initial Form 8-K in response to comments from the SEC regarding the Form 8-K
and many of those comments pertain to an alleged violation of Rule 419. The Company continued to provide the SEC with information
and analysis as to why it believes it did not violate Rule 419, but was unable to satisfy the SEC’s concerns. Comments and
communications indicate that Rule 419 requires a physical return of funds if a 419 offering cannot be completed because a business
combination was not consummated within the required time frame; constructive return is not permitted.
As
a result of these communications and past comments, we are disclosing that we did not comply with the requirements of Rule 419,
which required us to physically return the funds previously submitted to escrow pursuant to the Rule 419 Offering. As a result
of our failure to comply with Rule 419, the SEC may bring an enforcement action or commence litigation against us for failure
to
strictly comply with Rule 419
.
If any claims or actions were to be brought against us relating to our lack of compliance with Rule 419, we could be subject to
penalties (including criminal penalties), required to pay fines, make damages payments or settlement payments. In addition, any
claims or actions could force us to expend significant financial resources to defend ourselves, could divert the attention of
our management from our core business and could harm our reputation.
Ultimately,
the SEC determined to terminate its review of the Initial Form 8-K and related amendments, rather than provide us with additional
opportunities to address their concerns and therefore, we did not clear their comments. It is not possible at this time to predict
whether or when the SEC may initiate any proceedings, when this issue may be resolved or what, if any, penalties or other remedies
may be imposed, and whether any such penalties or remedies would have a material adverse effect on our consolidated financial
position, results of operations, or cash flows. Litigation and enforcement actions are inherently unpredictable, the outcome of
any potential lawsuit or action is subject to significant uncertainties and, therefore, determining at this time the likelihood
of a loss, any SEC enforcement action and/or the measurement of the amount of any loss is complex. Consequently, we are unable
to estimate the range of reasonably possible loss. Our assessment is based on an estimate and assumption that has been deemed
reasonable by management, but the assessment process relies heavily on an estimate and assumption that may prove to be incomplete
or inaccurate, and unanticipated events and circumstances may occur that might cause us to change that estimate and assumption.
In light of the uncertainty of this issue and while Management evaluates the best and most
appropriate way to resolve same, management determined to create a reserve on the Company’s Balance Sheet for the $90,000
that was subject to the Consent.
On
January 24, 2017, the Registrant entered into a Definitive Service Agreement (“DSA”) with Bistromatics, a company
for which the Company’s officer serves as an officer, affirming that, at the time, the Company did not have enough authorized
shares of common stock, based upon the number of issued and outstanding shares together with shares reserved for issuance, to
issue Bistromatics 25,280,899 shares of common stock. In connection with the Company’s obligations under the DSA, the Company
filed a Certificate of Amendment to its Articles of Incorporation with the State of Nevada for the purposes of: (A) increasing
its authorized capital stock from 110,000,000 shares of capital stock, par value $0.001, consisting of: (i) 100,000,000 shares
of common stock, par value $0.001; and (ii) 10,000,000 shares of preferred stock, par value $0.001, to 420,000,000 shares of capital
stock, par value $0.001, consisting of: (iii) 400,000,000 shares of common stock, par value $0.001; and (iv) 20,000,000 shares
of preferred stock, par value $0.001. The Certificate of Amendment has been filed with the State of Nevada and the Company has
filed an Information Statement on Schedule 14C, based upon the Joint Written Consent of the Company’s Board of Directors
and the Majority Consenting Stockholders and implementing a reverse split of the issued and outstanding shares of common stock,
including shares of common stock reserved for issuance, in a ratio to be determined by the Company’s Board of Directors,
not to exceed a one-for-twenty (1:20) basis (the “Reverse Split”). After the Information Statement clears comments
with the Securities and Exchange Commission, the Company must submit an application to and receive approval from FINRA for these
corporate actions. On April 1, 2017, the Company issued 25,280,899 shares of common stock.
eWellness
Healthcare Corporation
Notes
to Condensed Financial Statements
September
30, 2017
(unaudited)
From
time to time the Company may become a party to litigation matters involving claims against the Company. Except as may be outlined
above, the Company believes that there are no current matters that would have a material effect on the Company’s financial
position or results of operations.
Note
8. Derivative Valuation
The
Company evaluated the convertible debentures and associated warrants in accordance with ASC Topic 815, “Derivatives and
Hedging,” and determined that the conversion feature of the convertible promissory notes was not afforded the exemption
for conventional convertible instruments due to their variable conversion rates. The notes have no explicit limit on the number
of shares issuable so they did not meet the conditions set forth in current accounting standards for equity classification. In
addition, the warrants have a Most Favored Nations clause resulting in the exercise price of the warrants also not being fixed.
Therefore, these have been characterized as derivative instruments. We elected to recognize the notes under ASU paragraph 815-15-25-4,
whereby there would be a separation into a host contract and derivative instrument. We elected to initially and subsequently measure
the notes and warrants in their entirety at fair value, with changes in fair value recognized in earnings.
The
debt discount is amortized over the life of the note and recognized as interest expense. For the nine months ended September 30,
2017 and 2016, the Company amortized the debt discount of $325,666 and $820,911, respectively, to interest expense. For the three
months ended September 30, 2017 and 2016, the Company amortized the debt discount of $149,370 and $394,981, respectively. The
derivative liability is adjusted periodically according to stock price fluctuations and other inputs and was $721,396 and $8,473,265
at September 30, 2017 and December 31, 2016, respectively.
During
the period ended September 30, 2017, the Company had the following activity in the derivative liability account:
|
|
Total
|
|
Derivative
liability at December 31, 2016
|
|
$
|
8,473,265
|
|
Addition of new
conversion option derivatives
|
|
|
136,857
|
|
Addition of new
warrant derivatives
|
|
|
123,961
|
|
Extinguishment due
to note conversions
|
|
|
(4,476,351
|
)
|
Extinguishment due
to warrant conversions
|
|
|
(109,985
|
)
|
Changes
in fair value
|
|
|
(3,426,351
|
)
|
Derivative
liability at September 30, 2017
|
|
$
|
721,396
|
|
For
purposes of determining the fair market value of the derivative liability, the Company used Black Scholes option valuation model.
The significant assumptions used in the Black Scholes valuation of the derivative are as follows:
eWellness
Healthcare Corporation
Notes
to Condensed Financial Statements
September
30, 2017
(unaudited)
Stock
price at valuation date
|
|
$
|
.06-.175
|
|
Exercise
price of warrants
|
|
$
|
.004
- 25
|
|
Conversion
rate of convertible debt
|
|
$
|
.0167
– 0.2000
|
|
Risk
free interest rate
|
|
|
.95%-1.77
|
%
|
Stock
volatility factor
|
|
|
124%-290.48
|
%
|
Years
to Maturity
|
|
|
.08
– 4.5
|
|
Expected
dividend yield
|
|
|
None
|
|
Note
9. Subsequent Events
On
November 10, 2017, the Company’s Board of Directors determined that it was in the best interests of the Company and its
stockholders not to proceed with the implementation of its previously authorized reverse stock split of the outstanding shares
of common stock on a one-for-twelve (1:12) basis (the “Reverse Split”).
On
March 1, 2017, the Company had filed a Definitive Information Statement with the SEC (the “Information Statement”)
pursuant to which the Company, based upon the Joint Written Consent of our Board of Directors and Majority Consenting Stockholders,
authorized the Reverse Split on a ratio not to exceed a one-for-twenty (1:20) basis, which Reverse Split was to be initiated within
180 days from March 1, 2017. On August 8, 2017, our Board of Directors approved the one-for-twelve (1:12) Reverse Split and filed
the requisite application with FINRA, which application is in the final approval stages.
The
initial reason for ratifying and approving the Reverse Split was based upon the Company’s determination that it would
best position the Company for possible up listing from the OTCQB to the NASDAQ. After due deliberation, the Company’s Board
of Directors determined on November 10, 2017, not to proceed with the Reverse Split. Based upon recent and anticipated business
developments, it is the Board of Directors belief that up listing to the NASDAQ may be achieved after the fiscal year ending December
31, 2017 without implementation of the Reverse Split. While there can be no assurance that up listing on the NASDAQ will be achieved,
the Company has informed FINRA that it was withdrawing the application and are canceling the pending 1:12 Reverse Split.
On
October 1, 2017, the Company entered into an agreement with a consulting firm for services related to business development; strategy
setting; fundraising/financial introductions; analysis, structure and organization of commercial offerings and related services.
The agreement is for six months and the Company issued 300,000 shares of common stock on October 1, 2017 for these services for
a value of $27,000.
On
October 6, 2017, the Company issued 132,327 shares of common stock for consulting services during the quarter ended September
30, 2017. As of September 30, 2017, the value of these shares of $11,428 was recorded in Shares to be Issued on the Balance
Sheet.
On
October 6 and November 6, 2017, the Company issued 125,000 shares of common stock representing the monthly issuance pursuant
to an agreement signed June 6, 2017. The total shares issued was 250,000 shares for a value of $27,500.
On
October 12, 2017, the Company executed an 8% Fixed Convertible Promissory Note payable to an institutional investor in the principal
amount of $110,000. The note, which is due on April 12, 2018 has an original issue discount of $10,000 and an 8% interest rate.
The convertible notes convert into common stock of the Company at conversion price into which any principal amount and interest
(including any default interest) under the notes shall be convertible into shares of common stock shall be equal to the lesser
of: (i) $0.20 or (ii) 65% of the lowest per share trading price for the fifteen (15) Trading Days immediately following the 180th
calendar.
On
October 20,2017, the Company issued 125,000 shares of common stock representing the monthly issuance pursuant to an agreement
signed on June 20, 2017 for a value of $22,500.
From
the quarter ended September 30, 2017 and the filing of this report, the Company has issued 2,205,379 shares of common stock for
conversion of debt and accrued interest totaling $169,885.
On
October 31, 2017, the Company issued 150,000 shares of common stock representing the monthly issuance for consulting services
for a value of $21,000.
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING
STATEMENTS
This
Quarterly Report on Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results
of Operations” in Item 2 of Part I of this report include forward-looking statements. These forward-looking statements are
based on our management’s current expectations and beliefs and involve numerous risks and uncertainties that could cause
actual results to differ materially from expectations. In some cases, you can identify forward-looking statements by terminology
such as “may,” “should,” “expects,” “plans,” “anticipates,” “believes,”
“estimates,” “predicts,” “potential,” “proposed,” “intended,” or “continue”
or the negative of these terms or other comparable terminology. You should read statements that contain these words carefully,
because they discuss our expectations about our future operating results or our future financial condition or state other “forward-looking”
information. Many factors could cause our actual results to differ materially from those projected in these forward-looking statements,
including but not limited to: variability of our future revenues and financial performance; risks associated with product development
and technological changes; the acceptance of our products in the marketplace by potential future customers; general economic conditions.
You should be aware that the occurrence of any of the events described in this Quarterly Report could substantially harm our business,
results of operations and financial condition, and that upon the occurrence of any of these events, the trading price of our securities
could decline. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot
guarantee future results, growth rates, levels of activity, performance or achievements. We are under no duty to update any of
the forward-looking statements after the date of this Quarterly Report to conform these statements to actual results.
The
following discussion and analysis of financial condition and results of operations relates to the operations and financial condition
reported in the financial statements of eWellness Healthcare Corporation for the three and nine months ended September 30, 2017
and 2016 and should be read in conjunction with such financial statements and related notes included in this report and the Company’s
Annual Report on Form 10-K for the year ended December 31, 2016.
THE
COMPANY
Overview
eWellness
is the first physical therapy telehealth company to offer insurance reimbursable real-time distance monitored treatments. Our
business model is to license our PHZIO (“PHZIO”) platform to any physical therapy (“PT”) clinic in the
U.S. and or have large-scale employers use our PHZIO platform as a fully PT monitored corporate wellness program. The Company’s
PHZIO home physical therapy exercise platform has been designed to disrupt the $30 billion physical therapy and the $8 billion
corporate wellness industries. PHZIO re-defines the way physical therapy can be delivered. PHZIO is the first real-time remote
monitored 1-to-many physical therapy platform for home use. Due to the real-time patient monitoring feature, the PHZIO platform
is insurance reimbursable by payers such as: Anthem Blue Cross and Blue Shield
The
PHIZIO Solution: A New Physical Therapy Delivery System
|
●
|
SaaS
technology platform solution for providers bundling rehabilitation services and employer wellness programs
|
|
|
|
|
●
|
First
real-time remote monitored 1-to-many physical therapy treatment platform for home use
|
|
|
|
|
●
|
Ability
for physical therapists to observe multiple patients simultaneously in real-time
|
|
|
|
|
●
|
Solves
what has been a structural problem and limitation in post-acute care practice growth
|
|
|
|
|
●
|
Allows
PT practices to generate increased revenues due to higher adherence and compliance rates
|
Marketing
& Sales Strategy Pivot
We
are planning to pivot away from our marketing to large scale PT clinics for now. Since we launched our Phzio platform to the Physical
Therapy (“PT”) industry last fall to significant industry appeal, clinical adoption for our digital platform has been
limited. We now believe that this slower than anticipated adoption is primarily due to the current lack of universal reimbursement
for our digital treatment platform by many insurers, including Medicare. We anticipate that new federal legislation may change
this situation by early 2018, eliminating this barrier. In light of this situation we have just launched our PreHabPT.com platform
that is a low-cost form of PT that is paid for by hospitals/clinics that are providing joint replacement and repairs under a bundled
payment method or is being paid for by patients directly. We believe that this pivot is key to gaining traction with patient utilization
of our digital therapy for both pre-and post-surgery injuries. Thus, our marketing & sales efforts are primarily focused on
the Los Angeles market, for the near term in order to maximize our digital platforms exposure. We will be marketing directly to
patients, doctors, insurance providers and hospital administrators.
Transformation
of PT Patient Care Model
Utilizing
Phzio.com, PreHabPT.com and PurePT.com (to be launched later this month), a patient can receive PT digitally or in their
home or office for in-person consultations, without ever going to a PT clinic. Our disruptive technology solution eliminates the
real estate and clinic location requirements where PT’s have historically practiced and it frees the patient from having
to commute to a PT clinic, which is the biggest reason for missed appointments. Our digital treatment system also allows a PT
to treat a much larger patient volumes with higher earnings on a daily basis.
We
are Leading the Workplace Revolution in the PT Industry
The
way we work is changing. Freelancing is on the rise, companies are expanding and technology is helping employees stay productive
wherever they are. And there’s been an increase in flexible working hours and telecommuting like we’ve never seen
before.
Digital
Advertising Campaign
The
Company will be rolling out geographically targeted, digital and social media advertising campaign initially within select Los
Angeles metro areas. This approach will have a strong focus on mobile users seeking relevant physical therapy services. Further,
the Company will seek to leverage existing in-house developed technologies, that allow patients to record video journals post
their traditional or digital treatment sessions. This technology will be used to solicit patient testimonials post any service
being provided and then post these testimonial to the patient’s own Facebook or Instagram account. We anticipate that this
approach should create a multiplier effect for the Company’s outreach efforts. The Company is also expecting to experiment
with this model using various patient incentives.
Our
new platforms, App’s and initiatives include:
PurePT.com
:
a digital patient & independent PT platform for connecting new patients to PT’s that are seeking to be treated with
our PHZIO treatment system. Patient program inductions can be made in the privacy of a patient’s home or office and can
also be done in a PT clinic. The goal is to make it easy for a patient to be treated, particularly in states that have direct
access rules where patient’s insurance will reimburse for approximately 12 visits before a physician’s prescription
is required. PurePT puts the patient first, which we believe will allow our business model to scale and build an Uber-style growth
curve.
PreHabPT.com:
an 8-week physician
to patient pre-surgical (Prehab) digital therapeutic exercise treatment system for patients that anticipate having total join
replacement (knee, hip and or shoulder) or back surgeries. Patients may complete these digital therapeutic exercises either monitored
or unmonitored. Prehab.pt.com’s backbone is built off of our PHZIO platform.
DigitalMD.com
:
a feature rich telehealth platform for physician practices to digitally communicate with their patients pre and post-surgery.
DigitalMD.com is anticipated to be very competitively priced when compared to other similar telehealth platforms such as: Chiron
Health, SnapMD, AdvancedMD, VirtualMedix, ReachHealth, Carena, HealthLynked and eVisit.
Telehealth
Educational Certification Program
:
Online Physical Therapy Telehealth Training and Certification Workshop. We plan to
launch a comprehensive curriculum for PT’s, Occupational Therapists (OT’s), PTA’s, PT students and athletic
trainers to gain a complete understanding of providing digital PT therapeutic exercise treatments to patients via our PHZIO telemedicine
platform, including the most current advances and research related to the core treatment principles, rationale and components
of our PHZIO treatment system.
Huge
Expansion of PHZIO Exercise Content
: We are in the process to significantly expanding our existing library of exercise
video content from approximately 250 3-4 minute videos to over 1,000 separate exercise video.
Los
Angeles Sales & Marketing Office:
The Company opened its first sales and marketing office in Playa Vista, California before
May 1, 2017 in order to accelerate the adoption of PHZIO and the other new digital telehealth tools to patients, physicians and
PT’s in California. The company will also be hiring new sales and marketing professionals to manage the new silos of business.
eWellness
will initially rollout these new telehealth solutions within California, New York and Virginia, with plans to expand nationally
over the next 6 months. With these new telehealth tools, eWellness will engage with the “At-Home” Physical Therapy
treatment market. This market involves physical therapy practitioners treating patients in their home instead of a clinic. The
“At-Home” market model when combined with PHZIO offers patients and practitioners a means to receive and deliver PT
services without having to leave work during normal business hours. Patients will be able to receive physical therapy services
at almost any hour of the day. A model that is not currently employed within traditional clinical settings.
Recent
Developments
On
November 12, 2016, the Company entered into a Services Agreement with Bistromatics, Inc. (the “Bistromatics Agreement”),
a Company incorporated under the laws of Canada (“Bistromatics”). Pursuant to the Bistromatics Agreement, Bistromatics
will provide operational oversight of the Company’s Phzio System including development, content editing, client on boarding,
clinic training, support & maintenance, billing, hosting and oversight and support of CRM and helpdesk system. The Company
has agreed to pay a monthly base fee of $50,000 monthly until Bistromatics has successfully signed and collected the first monthly
service fee for 100 Physical Therapy Clinics to start using our Platform. If and when Bistromatics provides the Company with evidence
of the 100 Physical Therapy Clinics, the monthly service fee will extend to $100,000. Bistromatics will have the ability to convert
any outstanding amounts that fall in arrears for 60 days into common stock at the same terms as the next round of financing or
the Company’s common stock market price, whichever is higher.
Investment
Agreement with Tangiers Global, LLC
On
February 10, 2017, the Company entered into an Investment Agreement with Tangiers. Pursuant to the terms of the Investment Agreement,
Tangiers committed to purchase up to $5,000,000 of the Company’s common stock over a period of up to 36 months. From time
to time during the 36-month period commencing from the effectiveness of the registration statement, we may deliver a put notice
to Tangiers which states the dollar amount that we intend to sell to Tangiers on a date specified in the put notice. The maximum
investment amount per notice must be no more than 200% of the average daily trading dollar volume of our Common stock for the
ten (10) consecutive trading days immediately prior to date of the applicable put notice and such amount must not exceed an accumulative
amount of $250,000. The minimum put amount is $5,000. The purchase price per share to be paid by Tangiers will be the 80% of the
of lowest trading prices of the Common stock during the 5 trading days including and immediately following the date on which put
notice is delivered to Tangiers. In connection with the Investment Agreement with Tangiers, we also entered into a registration
rights agreement with Tangiers.
Plan
of Operations
Our
business model is to license our PHZIO (“PHZIO”) platform to any physical therapy (“PT”) clinic in the
U.S. and or have large-scale employers use our PHZIO platform as a fully PT monitored corporate wellness program.
The
Company’s initial licensee is Evolution Physical Therapy (“EPT”), which is owned by our CEO, Darwin Fogt, MPT.
The Company is in the process of developing marketing channel partnerships with industry association members, existing software-based
telemedicine providers and physical therapy billing and practice management providers. These partnerships, if completed, are anticipated
to begin adding third party PT licensee revenue during the first quarter of 2018.
The
Company’s PHZIO home physical therapy exercise platform has been designed to disrupt the $30 billion physical therapy and
the $8 billion corporate wellness industries. PHZIO re-defines the way physical therapy can be delivered. PHZIO is the first real-time
remote monitored 1-to-many physical therapy platform for home use. Due to the real-time patient monitoring feature, the PHZIO
platform is insurance reimbursable by payers such as: Anthem Blue Cross, AETNA and Blue Shield.
The
PHZIO Solution: A New Physical Therapy Delivery System
●
|
SaaS
technology platform solution for providers bundling rehabilitation services and employer wellness programs;
|
|
|
●
|
First
real-time remote monitored 1-to-many physical therapy treatment platform for home use;
|
|
|
●
|
Ability
for physical therapists to observe multiple patients simultaneously in real-time;
|
|
|
●
|
Solves
what has been a structural problem and limitation in post-acute care practice growth.
|
|
|
●
|
PT
practices can experience 20% higher adherence & compliance rates versus industry standards; and
|
|
|
●
|
Tracking
to 30% increase in net income for a PT practice.
|
Patient
program adherence in 2015 and 2016 was nearly 85 percent due the real-time patient monitoring and the at-home use of the platform.
Now physical therapy practices have a way to scale profitably using a technology platform that can help them grow beyond the limits
of the typical brick and mortar PT clinic.
Additional
Treatment Protocols: Our current PHZIO platform includes a fully customizable treatment program for multiple physical therapy
treatment plans including patient rehabilitations for total knee, hip and shoulder surgeries, lower and upper back ailments and
other physical therapy treatments. We currently have a growing library of over 250 individual, 2-4 minute exercise videos within
our PHZIO platform, with additional exercise content generated as needed. The Company’s initial PHZIO application is a 6-month
exercise program for patients with back, knee or hip pain. Our hip and knee programs have been designed to be integrated into
any hospital or medical group’s Medicare CMS bundled payment model for post-acute care physical therapy. These programs
are anticipated to be followed by woman’s health and geriatric programs by the end of the first quarter of 2018.
Our
initial PHZIO platform enables employees or patients to engage with live or on-demand video based physical therapy telemedicine
treatments from their home or office. Following a physician’s exam and prescription for physical therapy to treat back,
knee or hip pain, a patient can be examined by a physical therapist and if found appropriate inducted in the Company’s PHZIO
program that includes a progressive 6-month telemedicine exercise program (including monthly in-clinic checkups). All PHZIO treatments
are monitored by a licensed therapist that sees everything the patient is doing while providing their professional guidance and
feedback in real-time. This ensures treatment compliance by the patient, maintains the safety and integrity of the prescribed
exercises, tracks patient metrics and captures pre-and post-treatment evaluation data. PHZIO unlocks a host of potential for revolutionizing
patient treatment models and directly links back to the established brick and mortar physical therapy clinic. This unique model
enables any physical therapy practice to be able to execute more patient care while utilizing their same resources, and creates
more value than was ever before possible.
On
April 1, 2015, the Company entered into an Operating Agreement with Evolution Physical Therapy (“EPT”), a company
owned by our CEO, pursuant to which EPT operate our Platform and offers it to selected physical therapy patients of EPT. The Company
will advance capital requested by EPT for costs specifically associated with operating the www.phzio,com platform and associated
physical therapy treatments. On May 7, 2015, EPT inducted the first patient using our platform. The total (insurance reimbursed)
monitored PHZIO visits in 2015 and 2016 was 1928 total patient visits that include: 2015: 699 patient visits (239 insurance reimbursed
patient visits generating approximately $13,500 in gross revenue) and in 2016: 1,229 patient visits generating $1,496 (approximately
26 insurance reimbursed visits). These gross revenue figures were not sufficient to generate any gross sales for the Company.
The average insurance reimbursement per PHZIO session in 2015 and 2016 was $56 (excluding co-payments). Respectively. The top
line wellness goals of our program are to graduate at least 80% of inducted patients through our 6-month program. Patients should
expect to experience an average of a 20% reduction in BMI, a 4-inch reduction in waist size, weight loss of at least 20 pounds,
significant overall improvement in balance, coordination, flexibility, strength, and lumbopelvic stability. Patients also should
score better on Functional Outcomes Scales (Oswestry and LEFS), which indicates improved functional activity levels due to reduced
low back, knee and hip pain.
Our
PHZIO platform, including: design, testing, exercise intervention, follow-up, and exercise demonstration, has been developed by
accomplished Los Angeles based physical therapist Darwin Fogt. Mr. Fogt has extensive experience and education working with diverse
populations from professional athletes to morbidly obese. He understands the most beneficial exercise prescription to achieve
optimal results and has had enormous success in motivating all patient types to stay consistent in working toward their goals.
Additionally, his methods have proven effective and safe as he demonstrates exercises with attention to proper form to avoid injury.
Mr. Fogt has established himself as a national leader in his field and has successfully implemented progressive solutions to delivering
physical therapy: he has consulted with and been published by numerous national publications including Runner’s World, Men’s
Health, Men’s Journal, and various Physical Therapy specific magazines; his 13 plus years of experience include rehabilitating
the general population, as well as professional athletes, Olympic gold medalists, and celebrities. He has bridged the gap between
physical therapy and fitness by opening Evolution Fitness, which uses licensed physical therapists to teach high intensity circuit
training fitness classes. He also founded one of the first exclusive prenatal and postnatal physical therapy clinic in the country.
Mr. Fogt is a leader in advancing the profession to incorporate research-based methods and focus on, not only rehabilitation but
also wellness, functional fitness, performance, and prevention. He can recognize that the national healthcare structure (federal
and private insurance) is moving toward a model of prevention and that the physical therapy profession will take a larger role
in providing wellness services to patients.
Innovators
in other industries have solved access, cost and quality inefficiencies through the implementation of technology platforms and
business models that deliver products and services on-demand and create new economies by connecting and empowering both consumers
and businesses. We have taken the same approach to solving the pervasive access, cost and quality challenges facing the current
access to physical therapy clinics.
Our
underlying technology platform is complex, deeply integrated and purpose-built over the three years for the evolving physical
therapy marketplace. Our PHZIO platform is highly scalable and can support substantial growth of third party licensees. Our PHZIO
platform provides for broad interconnectivity between PT practitioners and their patients and, we believe, uniquely positions
us as a focal point in the rapidly evolving PT industry to introduce innovative, technology-based solutions, such as remote patient
monitoring, post-discharge treatment plan adherence and in-home care.
We
plan to generate revenue from third-party PT and corporate wellness licensees on a contractually recurring per PHZIO session fee
basis. Our PHZIO platform is anticipated to transform the access, cost and quality dynamics of physical therapy delivery for all
of the market participants. We further believe any patient, employer, health plan or healthcare professional interested in a better
approach to physical therapy is a potential PHZIO platform user.
Before
even launching, we have received a high indication of interest in our service. We think the demand is warranted, but recognize
that in the preliminary stages of our services, we may experience bottlenecks in our ability to meet the demand for same. Under
this type of environment, it is critical to maintain awareness of the Company’s operational budget goals and how they are
being met in our attempts to address demand. Regardless of our growth pace, it is critical to shareholder value that we are mindful
of our operational spending.
Results
of Operations for the three and nine months ended September 30, 2017 and 2016
We
had no revenues from operations during the nine months ended September 30, 2017 and 2016. We expect to generate revenues during
the first quarter of 2018.
Our
operating expenses increased to $2,578,690 for the nine months ended September 30, 2017 from $2,389,811 for the nine months ended
September 30, 2016. The increase is a result of legal, accounting services and stock option expense offset by a reduction in accrued
executive compensation. Our operating expenses decreased to $639,780 for the three months ended September 30, 2017 from $1,063,810
for the three months ended September 30, 2016. This decrease was a result of decreases of executive compensation and professional
fees.
The
Company recognized net income of $493,566 for the nine months ended September 30, 2017, compared with a net loss of $3,123,841
for the nine months ended September 30, 2016. The significant increase from loss to income was the result of the revaluation of
the derivative liabilities for the convertible debt and warrants totaling $3,225,670 offset by increases in legal, accounting
services and stock option expense as noted above. The Company had a net loss of $1,779,804 for the three months ended September
30, 2017 compared with a net loss of $770,809 for the three months ended September 30, 2016. The increase of net loss was a result
of the Company recognizing a loss on derivatives for 2017 compared to a gain on derivatives for 2016 offset by decreases in
professional fees, executive compensation and interest expense.
Liquidity
and Capital Resources
As
of September 30, 2017, we had negative working capital of $3,056,939 compared to negative working capital of $10,018,688 as of
December 31, 2016. The majority of the decrease of negative working capital is because of the derivative liability. Cash used
in operations was $778,074 and $160,893 for the nine months ended September 30, 2017 and 2016, respectively. The increase in cash
used in operations was because of relative changes in the assets and liabilities including the payment of accounts payable-related
parties. Cash used in investing activities was $2,910 and $0 for the nine months ended September 30, 2017 and 2016, respectively.
Cash flows provided by financing activities were $781,425 and $120,000 for the nine months ended September 30, 2017 and September
30, 2016, respectively. The increase in cash flows from financing activities was the issuance of convertible debt for cash. The
cash balance as of September 30, 2017 was $14,436.
On
November 10, 2017, the Company’s Board of Directors determined that it was in the best interests of the Company and its
stockholders not to proceed with the implementation of its previously authorized reverse stock split of the outstanding shares
of common stock on a one-for-twelve (1:12) basis (the “Reverse Split”).
On
March 1, 2017, the Company had filed a Definitive Information Statement with the SEC (the “Information Statement”)
pursuant to which the Company, based upon the Joint Written Consent of our Board of Directors and Majority Consenting Stockholders,
authorized the Reverse Split on a ratio not to exceed a one-for-twenty (1:20) basis, which Reverse Split was to be initiated within
180 days from March 1, 2017. On August 8, 2017, our Board of Directors approved the one-for-twelve (1:12) Reverse Split and filed
the requisite application with FINRA, which application is in the final approval stages.
The
initial reason for ratifying and approving the Reverse Split was based upon the Company’s determination that it would
best position the Company for possible up listing from the OTCQB to the NASDAQ. After due deliberation, the Company’s Board
of Directors determined on November 10, 2017, not to proceed with the Reverse Split. Based upon recent and anticipated business
developments, it is the Board of Directors belief that up listing to the NASDAQ may be achieved after the fiscal year ending December
31, 2017 without implementation of the Reverse Split. While there can be no assurance that up listing on the NASDAQ will be achieved,
the Company has informed FINRA that it was withdrawing the application and are canceling the pending 1:12 Reverse Split.
We
believe that anticipated cash flows from operations will be insufficient to satisfy our ongoing capital requirements. We are seeking
financing in the form of equity capital to provide the necessary working capital. Our ability to meet our obligations and continue
to operate as a going concern is highly dependent on our ability to obtain additional financing. We cannot predict whether this
additional financing will be in the form of equity or debt, or be in another form. We may not be able to obtain the necessary
additional capital on a timely basis, on acceptable terms, or at all. In any of these events, we may be unable to implement our
current plans which circumstances would have a material adverse effect on our business, prospects, financial conditions and results
of operations.
Contingencies
The
Company may be subject to lawsuits, administrative proceedings, regulatory reviews or investigations associated with its business
and other matters arising in the normal conduct of its business. The following is a description of an uncertainty that is considered
other than ordinary, routine and incidental to the business.
The
closing of the Initial Exchange Agreement with Private Co. was conditioned upon certain, limited customary representations and
warranties, as well as, among other things, our compliance with Rule 419 (“Rule 419”) of Regulation C under the Securities
Act of 1933, as amended (the “Securities Act”) and the consent of our shareholders as required under Rule 419. Accordingly,
we conducted a “Blank Check” offering subject to Rule 419 (the “Rule 419 Offering”) and filed a Registration
Statement on Form S-1 to register the shares of such offering; the Registration Statement was declared effective on September
14, 2012. We used 10% of the subscription proceeds as permitted under Rule 419 and the amount remaining in the escrow trust as
of the date of the closing of the Share Exchange was $90,000 (the “Trust Account Balance”).
Rule
419 required that the Share Exchange occur on or before March 18, 2014, but due to normal negotiations regarding the transactions
and the parties’ efforts to satisfy all the closing conditions, the Share Exchange did not close on such date. Accordingly,
after numerous discussions with management of both parties, they entered into an Amended and Restated Share Exchange Agreement
(the “Share Exchange Agreement”) to reflect a revised business combination structure, pursuant to which we would:
(i) file a registration statement on Form 8-A (“Form 8A”) to register our common stock pursuant to Section 12(g) of
the Exchange Act, which we did on May 1, 2014 and (ii) seek to convert the participants of the Rule 419 Offering into participants
of a similarly termed private offering (the “Converted Offering”), to be conducted pursuant to Regulation D, as promulgated
under the Securities Act.
Fifty-two
persons participated in the Rule 419 Offering and each of them gave the Company his/her/its consent to use his/her/its escrowed
funds to purchase shares of the Company’s restricted common stock in the Converted Offering (the “Consent”)
rather than have their funds returned. To avoid further administrative work for the investors, we believe that we took reasonable
steps to inform investors of the situation and provided them with an appropriate opportunity to maintain their investment in the
Company, if they so choose, or have their funds physically returned. Management believed the steps it took constituted a constructive
return of the funds and therefore met the requirements of Rule 419.
However,
pursuant to Rule 419(e)(2)(iv), “funds held in the escrow or trust account shall be returned by first class mail or equally
prompt means to the purchaser within five business days [if the related acquisition transaction does not occur by a date that
is 18 months after the effective date of the related registration statement].” As set forth above, rather than physically
return the funds, we sought consent from the investors of the Rule 419 Offering to direct their escrowed funds to the Company
to instead purchase shares in the Converted Offering. The consent document was given to the investors along with a private placement
memorandum describing the Converted Offering and stated that any investor who elected not to participate in the Converted Offering
would get 90% of their funds physically returned. Pursuant to Rule 419(b)(2)(vi), a blank check company is entitled to use 10%
of the proceed/escrowed funds; therefore, if a return of funds is required, only 90% of the proceed/escrowed funds need be returned.
The Company received $100,000 proceeds and used $10,000 as per Rule 419(b)(2)(vi); therefore, only $90,000 was subject to possible
return.
As
disclosed in the prior amendments to the Initial Form 8-K, we have filed the prior amendments in response to comments from the
SEC regarding the Form 8-K and many of those comments pertain to the Company’s potential violation of Rule 419. Although
the Company has continued to provide the SEC with information and analysis as to why it believes it did not violate Rule 419,
based upon latest communications with the persons reviewing the Form 8-K, they do not agree with the assessments the Company presented
to them. Comments and communications indicate that Rule 419 requires a physical return of funds if a 419 offering cannot be completed
because a business combination was not consummated within the required time frame; constructive return is not permitted.
Because
of these communications and past comments, we are disclosing that we did not comply with the requirements of Rule 419, which required
us to physically return the funds previously submitted to escrow pursuant to the Rule 419 Offering. Because of our failure to
comply with Rule 419, the SEC may bring an enforcement action or commence litigation against us for failure to strictly comply
with Rule 419. If any claims or actions were to be brought against us relating to our lack of compliance with Rule 419, we could
be subject to penalties (including criminal penalties), required to pay fines, make damages payments or settlement payments. In
addition, any claims or actions could force us to expend significant financial resources to defend ourselves, could divert the
attention of our management from our core business and could harm our reputation.
Ultimately,
the SEC determined to terminate its review of the Initial Form 8-K and related amendments, rather than provide us with additional
opportunities to address their concerns and therefore, we did not clear their comments. It is not possible now to predict whether
or when the SEC may initiate any proceedings, when this issue may be resolved or what, if any, penalties or other remedies may
be imposed, and whether any such penalties or remedies would have a material adverse effect on our consolidated financial position,
results of operations, or cash flows. Litigation and enforcement actions are inherently unpredictable, the outcome of any potential
lawsuit or action is subject to significant uncertainties and, therefore, determining now the likelihood of a loss, any SEC enforcement
action and/or the measurement of the amount of any loss is complex. Consequently, we are unable to estimate the range of reasonably
possible loss. Our assessment is based on an estimate and assumption that has been deemed reasonable by management, but the assessment
process relies heavily on an estimate and assumption that may prove to be incomplete or inaccurate, and unanticipated events and
circumstances may occur that might cause us to change that estimate and assumption. Considering the uncertainty of this issue
and while Management evaluates the best and most appropriate way to resolve same, management determined to create a reserve on
the Company’s Balance Sheet for the $90,000 that was subject to the Consent.
Capital
Expenditure Plan
During
the nine months ended September 30, 2017, we raised $915,000, less $133,575 for debt issuance costs, in equity and debt capital
and we may be expected to require up to an additional $1.6 million in capital during the next 12 months to fully implement our
business plan and fund our operations. Our plan is to utilize the equity capital that we raise, together with anticipated cash
flow from operations, to fund a very significant investment in sales and marketing, concentration principally on advertising and
incentivizing existing customers for the introduction of new customers, among other strategies. However, there can be no assurance
that: (i) we will continue to be successful in raising equity capital in sufficient amounts and/or at terms and conditions satisfactory
to the Company; or (ii) we will generate sufficient revenues from operations, to fulfill our plan of operations. Our revenues
are expected to come from our PHZIO platform services. As a result, we will continue to incur operating losses unless and until
we are able to generate sufficient cash flow to meet our operating expenses and fund our planned sales and market efforts. There
can be no assurance that the market will adopt our portal or that we will generate sufficient cash flow to fund our enhanced sales
and marketing plan. In the event that we are not able to successfully: (i) raise equity capital and/or debt financing; or (ii)
market and significantly increase the number of portal users and revenues from such users, our financial condition and results
of operations will be materially and adversely affected and we will either have to delay or curtail our plan for funding our sales
and marketing efforts.”
Off-Balance
Sheet Arrangements
As
of September 30, 2017 and December 31, 2016, respectively, we did not have any off-balance sheet arrangements as defined in Item
303(a)(4)(ii) of Regulation S-K promulgated under the Securities Act of 1934.
Contractual
Obligations and Commitments
On
April 1, 2015, the Company entered into an operating agreement with a physical therapy company (“EPT”) which is owned
by the Company’s President and Chief Executive Officer. Through the agreement, the Company agrees to provide operating capital
advances for EPT to offer the Company’s PHIZIO platform to physical therapy patients. For accounting and tax purposes, the
net profits or losses generated by EPT shall be allocated on a monthly basis. The Company will receive 75% of the net patient
insurance reimbursements associated with the operation of the PHIZIO platform.
On
January 17, 2017, the Company entered into an agreement with a consultant for a six-month period to provide services which will
include: (i) introductions to brokers; (ii) assist with research coverage; (iii) introductions to over 100 funds, investment banking
firms and market makers; and (iv) a presentation speaking slot with a Gold sponsorship at the 2017 Wall Street Conference. In
consideration for the services, the Company agreed to issue 75,000 restricted shares of common stock. These shares were issued
on January 20, 2017.
On
January 24, 2017, the Registrant entered into a Definitive Service Agreement (“DSA”) with Bistromatics, a company
for which the Company’s officer serves as an officer, affirming that, at the time, the Company did not have enough authorized
shares of common stock, based upon the number of issued and outstanding shares together with shares reserved for issuance, to
issue Bistromatics 25,280,899 shares of common stock. In connection with the Company’s obligations under the DSA, the Company
filed a Certificate of Amendment to its Articles of Incorporation with the State of Nevada for the purposes of: (A) increasing
its authorized capital stock from 110,000,000 shares of capital stock, par value $0.001, consisting of: (i) 100,000,000 shares
of common stock, par value $0.001; and (ii) 10,000,000 shares of preferred stock, par value $0.001, to 420,000,000 shares of capital
stock, par value $0.001, consisting of: (iii) 400,000,000 shares of common stock, par value $0.001; and (iv) 20,000,000 shares
of preferred stock, par value $0.001. The Certificate of Amendment has been filed with the State of Nevada and the Company has
filed an Information Statement on Schedule 14C, based upon the Joint Written Consent of the Company’s Board of Directors
and the Majority Consenting Stockholders and implementing a reverse split of the issued and outstanding shares of common stock,
including shares of common stock reserved for issuance, in a ratio to be determined by the Company’s Board of Directors,
not to exceed a one-for-twenty (1:20) basis (the “Reverse Split”). After the Information Statement clears comments
with the Securities and Exchange Commission, the Company must submit an application to and receive approval from FINRA for these
corporate actions. The Company issued the 25,280,899 shares of common stock on April 1, 2017.
In
February 2017, the Company entered into a Securities Purchase Agreement with a third party which required the issuance of a convertible
note for $55,000 plus a 10% Original Issue Discount. The terms of this note are the same as the notes dated January 11 and January
31, 2017, which are that the convertible notes convert into common stock of the Company at conversion price into which any principal
amount and interest (including any default interest) under the notes shall be convertible into shares of common stock shall be
equal to the lesser of: (i) $0.20 or (ii) 75% of the average of the volume-weighted average prices for the five (5) trading
days immediately following the 180th calendar day after the Original Issue Date, whichever is lower. There is only one pricing
look back event. The notes have a 10% original issue discount and an interest rate of 8%. The due date of the notes is November
7, 2017.
In
February 2017, the Company and an institutional investor entered into an agreement in which: (a) the investor agreed to fund up
to $5,000,000 in reliance upon an exception provided under Rule 506 of Regulation D promulgated by the SEC under the Securities
act of 1933, as amended; (b) the Company will file a registration statement on Form S-1 with the SEC within 15 days after the
Company files its annual 10K report for the year ended December 31, 2016 (The S-1 was filed on April 11, 2017); (c) the Company
issued a convertible note in the principal amount of $100,000, bearing interest at 8% (This note has not yet been funded); and
(d) the Company issued a second convertible note in the principal amount of $275,000 bearing interest at 8% of which $105,000
was initially funded. With the $275,000 convertible note, the Company also issued 68,750 cashless warrants exercisable at $.25
per share.
In
February 2017, the Company entered into a Securities Purchase Agreement with an institutional investor pursuant to which the investor
was issued two 5.5% convertible notes in the aggregate principal amount of $165,000.00, each in the amount of $82,500. Each of
the two notes has a 10% OID such that the purchase price of each note shall be $75,000. The first note was funded and the second
note shall initially be paid for by the issuance of an offsetting $75,000 secured noted issued to the Company by the investor
provided that prior to conversion of the second note, the investor must have paid off the offsetting $75,000 note in cash such
that the second note may not be converted until it has been paid for by the investor.
In
February 2017, the Company was served by a complaint filed by the holder of a note payable. The lawsuit alleges that the Company
is indebted to the note holder a promissory note stemming from four loans to the Company during the last 20 months amounting to
$75,500 in total original principal bearing interest at 12% per annum, of which $45,202 has been repaid. Further, the note holder
claims that, because of alleged defaults and extensions of the notes, the Company is now indebted in the amount of $253,677 inclusive
of interest and penalties at an effective rate exceeding 70% per annum, far more than the maximum rate allowable in California
or Louisiana. The Company and its counsel have determined that: (i) the note holder is not a licensed lender in the State of California,
where the loan was made and the $75,500 was deposited and therefore was not permitted under California law to make loans in the
State; and (ii) the interest rate the note holder is seeking to collect is usurious and therefore interest claimed in the lawsuit
is neither collectible nor enforceable. The Company and counsel believe the lawsuit is wholly without merit and the rules of diversity
of jurisdiction apply. Furthermore, the Company believes that the action should be removed from Louisiana state court to the United
States Federal District Court in Baton Rouge, LA, where California law should be applied.
In
April 2017, the Company entered into a Securities Purchase Agreement with a third party which required the issuance of a convertible
note for $308,000 with an Original Issue Discount of $28,000 and an interest rate of 8%. The terms of this note are that the convertible
note convert into common stock of the Company at conversion price into which any principal amount and interest (including any
default interest) under the notes shall be convertible into shares of common stock shall be equal to the lesser of: (i) the conversion
price or (ii) 65% of the average of the volume-weighted average prices for the fifteen (15) trading days immediately preceding
the date of conversion. The due date of the note is November 6, 2018. With the issuance of this note, the Company also issued
1,232,000 warrants exercisable at $.25 per share.
In
May 2017, the Company entered into a Securities Purchase Agreement with a third party which required the issuance of a convertible
note for $83,500 plus a 10% Original Issue Discount and an interest rate of 8%. The terms of this note are that the convertible
note convert into common stock of the Company at conversion price into which any principal amount and interest (including any
default interest) under the notes shall be convertible into shares of common stock shall be equal to the lesser of: (i) $0.20
or (ii) 75% of the average of the volume-weighted average prices for the five (5) trading days immediately following the
180th calendar day of the note. The due date of the note is January 24, 2018.
On
July 24, 2017, the Company agreed to amend the two convertible notes dated April 24, 2017 and the convertible note dated February
9, 2017 relative to the conversion provision in Section 4(a) by inserting the following provision: “In addition to all the
other Conversion Price formulas set forth in the Note, the Holder may choose to elect from the following two Conversion Price
formulas, if they result in a lower Conversion Price: (i) 75% of the average of the 5 daily volume-weighted average prices
of the Common Stock as reported on an Exchange for the 20 trading days immediately preceding the 180th daily anniversary of
the Note or (ii) 75% of the average of the 5 volume-weighted average price of the Common Stock as reported on an Exchange for
the {trading days immediately preceding the delivery day of the first Notice of Conversion from the Holder”.
On
September 5, 2017, the Company executed an 8% Fixed Convertible Promissory Note payable to an institutional investor in the principal
amount of $55,000. The note, which is due on March 5, 2018 has an original issue discount of $5,000. The convertible notes convert
into common stock of the Company at conversion price into which any principal amount and interest (including any default interest)
under the notes shall be convertible into shares of common stock shall be equal to the lesser of: (i) $0.20 or (ii) 75% of the
average of the volume-weighted average prices for the ten (10) Trading Days immediately following the 180th calendar. During
the nine months ended September 30, 2017, the Company accrued interest expense of $289.
From
time to time the Company may become a party to litigation matters involving claims against the Company. Except as may be outlined
above, the Company believes that there are no current matters that would have a material effect on the Company’s financial
position or results of operations.
Critical
Accounting Policies
Please
refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual
Report on Form 10-K for the year ended December 31, 2016, for disclosures regarding the Company’s critical accounting policies
and estimates, as well as any updates further disclosed in our interim financial statements as described in this Form 10-Q.