ITEM
5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market
Information
On
March 1, 2016, our common stock became subject to quotation on the OTCQB Market under the symbol “EWLL”, an inter-dealer
automated quotation system for equity securities not included on The Nasdaq Stock Market. Quotation of the Company’s securities
on the OTCQB Market limits the liquidity and price of the Company’s common stock more than if the Company’s shares
of common stock were listed on The Nasdaq Stock Market or a national exchange. For the periods indicated, the following table
sets forth the high and low bid prices per share of common stock. The below prices represent inter-dealer quotations without retail
markup, markdown, or commission and may not necessarily represent actual transactions.
|
|
Price
Range
|
|
Period
|
|
High
|
|
|
Low
|
|
Year Ended December 31, 2017:
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
$
|
0.16
|
|
|
$
|
0.09
|
|
Second Quarter
|
|
$
|
0.12
|
|
|
$
|
0.06
|
|
Third Quarter
|
|
$
|
0.19
|
|
|
$
|
0.06
|
|
Fourth Quarter
|
|
$
|
0.18
|
|
|
$
|
0.09
|
|
Year Ending December 31, 2018:
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
0.14
|
|
|
$
|
0.08
|
|
The
transfer agent of our common stock is VStock Transfer LLC, 18 Lafayette Place, Woodmere, NY 11598, (212) 828-8436.
Record
Holders.
As of March 26, 2018, we had 148,297,813 shares of $0.001 par value common stock issued and outstanding
held by 114 shareholders of record.
As
of March 21, 2018, there are 28,753,179 outstanding options or warrants to purchase or other instruments convertible into common
equity of the Company.
Dividend
Policy
. We have neither declared nor paid any cash dividends on either preferred or common stock. For the foreseeable future,
we intend to retain any earnings to finance the development and expansion of our business and do not anticipate paying any cash
dividends on our preferred or common stock. Any future determination to pay dividends will be at the discretion of the Board of
Directors and will be dependent upon then existing conditions, including its financial condition, results of operations, capital
requirements, contractual restrictions, business prospects, and other factors that the Board of Directors considers relevant.
Securities
Authorized for Issuance under Equity Compensation Plans
. On July 31, 2015, the Board of Directors approved the 2015 Stock
Option Plan, pursuant to which certain directors, officers, employees and consultants will be eligible for certain stock options
and grants. The Plan is effective as of August 1, 2015 and the maximum number of shares reserved and available for granting awards
under the Plan shall be an aggregate of 3,000,000 shares of common stock, provided however that on each January 1, starting with
January 1, 2016, an additional number of shares equal to the lesser of (A) 2% of the outstanding number of shares (on a fully-diluted
basis) on the immediately preceding December 31 and (B) such lower number of shares as may be determined by the Board or committee
charged with administering the plan. This plan may be amended at any time by the Board or appointed plan Committee.
As
of the year ended December 31, 2017, the Company had granted a total of 20,000,000 stock options at an average exercise price
of $0.19.
The
2015 Stock Option Plan
On
July 31, 2015, our Board of Directors approved the 2015 Stock Option Plan. The following is a brief description of certain key
features of the 2015 Plan, the full text of which is attached as Exhibit 10.7. This summary is qualified in its entirety by reference
to Exhibit 10.7.
General
.
The 2015 Plan provides for any option, stock appreciation right, restricted stock, restricted stock unit, performance award, dividend
equivalent, or other stock-based award to employees, officers, directors and consultants of the Company and its affiliates.
Administration
.
The 2015 Plan shall be administered and interpreted by the Board of Directors or by a Committee appointed by the Board of Directors.
If the Board of Directors administers the 2015 Plan, references to the “Committee” shall be deemed to refer to the
Board of Directors. To the extent permitted by applicable law, the Committee may at any time delegate to one or more officers
or directors of the Company some or all of its authority over the administration of the 2015 plan. Such delegation may be revoked
at any time.
The
Committee has the authority to administer and interpret the 2015 Plan, to determine the employees to whom awards will be made
under the 2015 Plan and, subject to the terms of the 2015 Plan, the type and size of each award, the terms and conditions for
vesting, cancellation and forfeiture of awards and the other features applicable to each award or type of award. The Committee
may accelerate or defer the vesting or payment of awards, cancel or modify outstanding awards, waive any conditions or restrictions
imposed with respect to awards of the stock issued pursuant to awards and make any and all other determinations that it deems
appropriate with respect to the administration of the 2015 Plan, subject to the minimum vesting requirements of the 2015 Plan,
the provisions of Sections 162(m) of the Internal Revenue Code and any applicable laws or exchange rules.
Eligibility
.
All employees, officers, directors and consultants are eligible to receive awards under the 2015 Plan. The definition of “employee”
means any person including officers and directors of the Company or a parent or subsidiary of the Company. Neither service as
a Director nor payment of a director’s fee by the Company will be sufficient to constitute “employment” by the
Company. Participation is discretionary — awards are subject to approval by the Committee. Pursuant to the 2015 Plan, the
Company is permitted to grant non-statutory stock options, restricted stock, stock appreciation rights, performance shares, restricted
stock units and other stock-based awards to the employees, directors and consultants. Incentive stock options are not issuable
under the 2015 Plan.
Shares
Subject to the Plan
. On December 9, 2016, the Board of Directors agreed to increase the number of Shares available for granting
awards under the 2015 Plan to 20,000,000.
Types
of Awards
. The following types of awards may be made under the 2015 Plan. All of the awards described below are subject to
the conditions, limitations, restrictions, vesting and forfeiture provisions determined by the Committee, in its sole discretion,
subject to such limitations as are provided in the plan. The number of shares subject to any award is also determined by the Committee,
in its discretion.
Fair
Market Value
. Fair Market Value shall mean, with respect to any property (including, without limitation, any shares or other
securities), the fair market value of such property determined by such methods or procedures as shall be established from time
to time by the Board or the Committee.
Option
.
Option shall mean a non-qualified stock option.
Stock
Appreciation Rights
. A Stock Appreciation Right granted under the Plan shall confer on the holder thereof a right to receive,
upon exercise thereof, the excess of (1) the Fair Market Value of one Share on the date of exercise or, if the Board or the Committee
shall so determine in the case of any such right other than one related to any Incentive Stock Option, at any time during a specified
period before or after the date of exercise over (2) the grant price of the right as specified by the Board or the Committee.
Subject to the terms of the Plan, the grant price, term, methods of exercise, methods of settlement, and any other terms and conditions
of any Stock Appreciation Right shall be as determined by the Board or the Committee. The Board and the Committee may impose such
conditions or restrictions on the exercise of any Stock Appreciation Right as it may deem appropriate.
Restricted
Stock
. A restricted stock award is an award of outstanding shares of Company common stock that does not vest until after a
specified period of time, or satisfaction of other vesting conditions as determined by the Committee, and which may be forfeited
if conditions to vesting are not met. Participants generally receive dividend payments on the shares subject to their award during
the vesting period (unless the awards are subject to performance-vesting criteria) and are also generally entitled to indicate
a voting preference with respect to the shares underlying their awards. All shares underlying outstanding restricted stock awards
are voted proportionately to the restricted shares for which voting instructions are received.
Restricted
Stock Units
. Restricted Stock Units shall consist of a Restricted Stock, Performance Share or Performance Unit Award that
the Administrator in its sole discretion permits to be paid out in installments or on a deferred basis, in accordance with rules
and procedures established by the Administrator.
Performance
Awards
. Performance Awards may be granted to Employees, directors and consultants at any time and from time to time, as will
be determined by the Administrator. The Administrator may set performance objectives based upon the achievement of Company-wide,
divisional or individual goals, applicable federal or state laws, or any other basis determined by the Administrator in its discretion.
Dividend
Equivalents
. The Board and the Committee are hereby authorized to grant Awards under which the holders thereof shall be entitled
to receive payments equivalent to dividends or interest with respect to a number of Shares determined by the Board or the Committee,
and the Board and the Committee may provide that such amounts (if any) shall be deemed to have been reinvested in additional Shares
or otherwise reinvested. Subject to the terms of the 2015 Plan, such Awards may have such terms and conditions as the Board or
the Committee shall determine.
Other
Stock-based Awards
. The Board and the Committee are authorized to grant such other Awards that are denominated or payable
in, valued in whole or in part by reference to, or otherwise based on or related to, Shares (including, without limitation, securities
convertible into Shares), as are deemed by the Board or the Committee to be consistent with the purposes of the Plan, provided,
however, that such grants must comply with applicable law. Subject to the terms of the 2015 Plan, the Board or the Committee shall
determine the terms and conditions of such Awards.
Duration.
The Board may amend, alter, suspend, discontinue, or terminate the Plan, including, without limitation, any amendment, alteration,
suspension, discontinuation, or termination that would impair the rights of any Participant, or any other holder or beneficiary
of any Award theretofore granted, without the consent of any share owner, participant of the 2015 Plan, another holder or beneficiary
of an Award, or other Person. No Award shall be granted under the Plan more than 10 years after August 1, 2015. However, unless
otherwise expressly provided in an applicable Award Agreement, any Award theretofore granted may extend beyond such date, and
the authority of the Board and the Committee to amend, alter, adjust, suspend, discontinue, or terminate any such Award, or to
waive any conditions or rights under any such Award, and the authority of the Board to amend the Plan, shall extend beyond such
date.
Recent
Sales of Unregistered Securities
Information
regarding any equity securities we have sold during the period covered by this Report that were not registered under the Securities
Act of 1933, as amended, is set forth below. Each such transaction was exempt from the registration requirements of the Securities
Act by virtue of Section 4(a)(2) of the Securities Act or Rule 506 of Regulation D promulgated by the SEC, unless otherwise noted.
Unless stated otherwise: (i) the securities were offered and sold only to accredited investors; (ii) there was no general solicitation
or general advertising related to the offerings; (iii) each of the persons who received these unregistered securities had knowledge
and experience in financial and business matters which allowed them to evaluate the merits and risk of the receipt of these securities,
and that they were knowledgeable about our operations and financial condition; (iv) no underwriter participated in, nor did we
pay any commissions or fees to any underwriter in connection with the transactions; and, (v) each certificate issued for these
unregistered securities contained a legend stating that the securities have not been registered under the Securities Act and setting
forth the restrictions on the transferability and the sale of the securities.
Sales
of Unregistered Securities in 2016
:
On
June 2, 2016, the Company sold 120,000 shares of common stock upon receipt of $120,000 cash.
On
August 19, 2016, the Company issued 250,000 shares of common stock for consulting services for a value of $50,000.
During
the year ended December 31, 2016, the Company issued 263,322 shares of common stock because of warrants being exercised through
a cashless exercise.
During
the year ended December 31, 2016, the Company issued a total of 31,646,447 shares of common stock because of debt conversion.
The total debt conversion was $261,231.
During
the year ended December 31, 2016, the Company issued 985,000 shares of common stock for consulting services. The weighted average
price of these shares was $1.99. The value of the shares is being amortized over the life of the contracts ranging from six to
twelve months.
Sales
of Unregistered Securities in 2017
:
In
January 2017, 1,363,277 warrants were exercised under a cashless exercise and 1,336,075 shares of common stock were issued.
On
January 19, 2017, the Company issued 1,400,000 shares of common stock for extinguishment of accounts payable for a value of $49,000.
On
March 29, 2017, the Company issued 1,000,000 shares of common stock to a related party for extinguishment of accounts payable
for a value of $35,000.
On
April 1, 2017, the Company issued 25,280,899 shares of common stock to a related party for extinguishment of accounts payable
for a value of $225,000. These shares relate to a contract leasing the telemedicine platform from Bistromatics, a company owned
by our CTO.
During
the year ended December 31, 2017, the Company issued 3,340,577 shares of common stock for consulting services for a value of $355,880.
During
the year ended December 31, 2017, the Company issued 5,025,000 shares of common stock for consulting services. The weighted average
price of these shares was $.08. The value of these shares is being amortized over the life of the contracts ranging from six to
twelve months.
During
the year ended December 31,2017, the Company issued 53,534,548 shares of common stock for debt conversion. The total debt
conversion was $797,913 principal and $45,192 of accrued interest.
The
securities issued have not been registered under the Securities Act and may not be offered or sold in the United States absent
registration or an applicable exemption from registration requirements.
The
Registrant’s issuance of the above restricted securities was in reliance upon the exemption from registration pursuant to
Section 4(2) and Regulation S promulgated by the SEC under the Act. Unless stated otherwise: (i) the securities were offered and
sold only to accredited investors; (ii) there was no general solicitation or general advertising related to the offerings; (iii)
each of the persons who received these unregistered securities had knowledge and experience in financial and business matters
which allowed them to evaluate the merits and risk of the receipt of these securities, and that they were knowledgeable about
our operations and financial condition; (iv) no underwriter participated in, nor did we pay any commissions or fees to any underwriter
in connection with the transactions; and, (v) each certificate issued for these unregistered securities contained a legend stating
that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability
and the sale of the securities.
ITEM
8: CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See
Index to Financial Statements and Financial Statement Schedules appearing on pages F-1 through F-22 of this Form 10-K.
eWELLNESS
HEALTHCARE CORPORATION
INDEX
TO FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2017 AND DECEMBER 31, 2016
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and Stockholders of
eWellness
Healthcare Corporation
Opinion
on the Financial Statements
We
have audited the accompanying balance sheets of eWellness Healthcare Corporation (the Company) as of December 31, 2017 and 2016,
and the related statements of income, stockholders’ equity and cash flows for each of the years in the two-year period ended
December 31, 2017 and the related notes (collectively referred to as the financial statements). In our opinion, the financial
statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and
the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2017, in conformity
with accounting principles generally accepted in the United States of America.
Basis
for Opinion
These
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance
with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but
not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our
audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles
used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that our audits provide a reasonable basis for our opinion.
Consideration
of the Company’s Ability to Continue as a Going Concern
The
accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed
in Note 2 to the financial statements, the Company has yet to earn revenue, has a deficit in stockholders’ equity, and has
sustained recurring losses from operations. This raises substantial doubt about the Company’s ability to continue as a going
concern. Management’s plans with regard to these matters are also described in Note 2. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
Haynie
& Company
Salt
Lake City, Utah
March
28, 2018
We
have served as the Company’s auditor since 2016
eWELLNESS
HEALTHCARE CORPORATION
BALANCE
SHEETS
|
|
December
31, 2017
|
|
|
December
31, 2016
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
6,882
|
|
|
$
|
13,995
|
|
Prepaid
expenses
|
|
|
179,827
|
|
|
|
723,046
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
186,709
|
|
|
|
737,041
|
|
|
|
|
|
|
|
|
|
|
Property & equipment,
net
|
|
|
5,021
|
|
|
|
4,279
|
|
Intangible
assets, net
|
|
|
13,954
|
|
|
|
16,908
|
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$
|
205,684
|
|
|
$
|
758,228
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
Accounts payable
and accrued expenses
|
|
$
|
345,956
|
|
|
$
|
340,793
|
|
Accounts payable
- related party
|
|
|
351,511
|
|
|
|
379,481
|
|
Accrued expenses
- related party
|
|
|
210,828
|
|
|
|
104,429
|
|
Accrued compensation
|
|
|
1,071,369
|
|
|
|
940,000
|
|
Contingent liability
|
|
|
90,000
|
|
|
|
90,000
|
|
Convertible debt,
net of discount
|
|
|
444,680
|
|
|
|
247,710
|
|
Derivative liability
|
|
|
1,140,578
|
|
|
|
8,473,265
|
|
Short
term note and liabilities
|
|
|
180,051
|
|
|
|
180,051
|
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
3,834,973
|
|
|
|
10,755,729
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
3,834,973
|
|
|
|
10,755,729
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
Preferred stock,
authorized, 20,000,000 shares, $.001 par value, 0 shares issued and outstanding
|
|
|
-
|
|
|
|
-
|
|
Common stock, authorized
400,000,000 shares, $.001 par value, 142,352,406 and 51,435,307 issued and outstanding, respectively
|
|
|
142,352
|
|
|
|
51,435
|
|
Shares to be issued
|
|
|
-
|
|
|
|
110,740
|
|
Additional paid
in capital
|
|
|
13,178,131
|
|
|
|
5,757,205
|
|
Accumulated
deficit
|
|
|
(16,949,772
|
)
|
|
|
(15,916,881
|
)
|
|
|
|
|
|
|
|
|
|
Total
Stockholders’ Deficit
|
|
|
(3,629,289
|
)
|
|
|
(9,997,501
|
)
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
|
$
|
205,684
|
|
|
$
|
758,228
|
|
The
accompanying notes are an integral part of these financial statements
eWELLNESS
HEALTHCARE CORPORATION
STATEMENTS
OF OPERATIONS
|
|
Year
Ended
|
|
|
|
December
31, 2017
|
|
|
December
31 2016
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
Executive
compensation
|
|
$
|
408,000
|
|
|
$
|
576,000
|
|
General and administrative
|
|
|
801,308
|
|
|
|
309,805
|
|
Professional
fees
|
|
|
2,139,473
|
|
|
|
2,485,655
|
|
|
|
|
|
|
|
|
|
|
Total
Operating Expenses
|
|
|
3,348,781
|
|
|
|
3,371,460
|
|
|
|
|
|
|
|
|
|
|
Loss from Operations
|
|
|
(3,348,781
|
)
|
|
|
(3,371,460
|
)
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
Gain on extinguishmment
of debt
|
|
|
-
|
|
|
|
2,216,266
|
|
Gain (loss) on derivative
liability
|
|
|
2,771,778
|
|
|
|
(10,318,969
|
)
|
Foreign exchange
rate
|
|
|
60,972
|
|
|
|
-
|
|
Interest expense,
related parties
|
|
|
-
|
|
|
|
(4,156
|
)
|
Interest
expense
|
|
|
(516,060
|
)
|
|
|
(981,574
|
)
|
|
|
|
|
|
|
|
|
|
Net Loss before
Income Taxes
|
|
|
(1,032,091
|
)
|
|
|
(12,459,894
|
)
|
|
|
|
|
|
|
|
|
|
Income
tax expense
|
|
|
(800
|
)
|
|
|
(800
|
)
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
$
|
(1,032,891
|
)
|
|
$
|
(12,460,694
|
)
|
|
|
|
|
|
|
|
|
|
Basic (loss)
per share
|
|
$
|
(0.01
|
)
|
|
$
|
(0.51
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average
shares outstanding
|
|
|
108,864,680
|
|
|
|
24,267,074
|
|
The
accompanying notes are an integral part of these financial statements
eWELLNESS
HEALTHCARE CORPORATION
STATEMENT
OF STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Total
|
|
|
|
Preferred
Shares
|
|
|
Common
Shares
|
|
|
Shares to
|
|
|
Paid in
|
|
|
Accumulated
|
|
|
Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
be
issued
|
|
|
Capital
|
|
|
Deficit
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2015
|
|
|
-
|
|
|
$
|
-
|
|
|
|
18,170,538
|
|
|
$
|
18,171
|
|
|
$
|
-
|
|
|
$
|
2,033,383
|
|
|
$
|
(3,456,187
|
)
|
|
$
|
(1,404,633
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Imputed interest
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,156
|
|
|
|
-
|
|
|
|
4,156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributed services
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
306,000
|
|
|
|
-
|
|
|
|
306,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
544,591
|
|
|
|
-
|
|
|
|
544,591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants issued with
debt
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
510,967
|
|
|
|
-
|
|
|
|
510,967
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for cash
received
|
|
|
-
|
|
|
|
-
|
|
|
|
120,000
|
|
|
|
120
|
|
|
|
-
|
|
|
|
119,880
|
|
|
|
-
|
|
|
|
120,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for debt
conversion
|
|
|
-
|
|
|
|
-
|
|
|
|
31,646,447
|
|
|
|
31,646
|
|
|
|
92,240
|
|
|
|
231,376
|
|
|
|
-
|
|
|
|
355,262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for prepaid
services
|
|
|
-
|
|
|
|
-
|
|
|
|
985,000
|
|
|
|
985
|
|
|
|
18,500
|
|
|
|
1,957,365
|
|
|
|
-
|
|
|
|
1,976,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for services
|
|
|
-
|
|
|
|
-
|
|
|
|
250,000
|
|
|
|
250
|
|
|
|
-
|
|
|
|
49,750
|
|
|
|
-
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for warrants
exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
263,322
|
|
|
|
263
|
|
|
|
-
|
|
|
|
(263
|
)
|
|
|
-
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(12,460,694
|
)
|
|
|
(12,460,694
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2016
|
|
|
-
|
|
|
$
|
-
|
|
|
|
51,435,307
|
|
|
$
|
51,435
|
|
|
$
|
110,740
|
|
|
$
|
5,757,205
|
|
|
$
|
(15,916,881
|
)
|
|
$
|
(9,997,501
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributed services
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
222,000
|
|
|
|
-
|
|
|
|
222,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
434,376
|
|
|
|
-
|
|
|
|
434,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants issued with
debt
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
89,890
|
|
|
|
-
|
|
|
|
89,890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for AP
conversion
|
|
|
-
|
|
|
|
-
|
|
|
|
27,680,899
|
|
|
|
27,681
|
|
|
|
(84,000
|
)
|
|
|
281,319
|
|
|
|
-
|
|
|
|
225,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for debt
conversion
|
|
|
-
|
|
|
|
-
|
|
|
|
53,534,548
|
|
|
|
53,534
|
|
|
|
(8,240
|
)
|
|
|
5,529,185
|
|
|
|
-
|
|
|
|
5,574,479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for prepaid
services
|
|
|
-
|
|
|
|
-
|
|
|
|
5,025,000
|
|
|
|
5,025
|
|
|
|
(18,500
|
)
|
|
|
402,975
|
|
|
|
-
|
|
|
|
389,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for services
|
|
|
-
|
|
|
|
-
|
|
|
|
3,340,577
|
|
|
|
3,341
|
|
|
|
-
|
|
|
|
352,539
|
|
|
|
-
|
|
|
|
355,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for warrants
exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
1,336,075
|
|
|
|
1,336
|
|
|
|
-
|
|
|
|
108,642
|
|
|
|
-
|
|
|
|
109,978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,032,891
|
)
|
|
|
(1,032,891
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2017
|
|
|
-
|
|
|
$
|
-
|
|
|
|
142,352,406
|
|
|
$
|
142,352
|
|
|
$
|
-
|
|
|
$
|
13,178,131
|
|
|
$
|
(16,949,772
|
)
|
|
$
|
(3,629,289
|
)
|
The
accompanying notes are an integral part of these financial statements
eWELLNESS
HEALTHCARE CORPORATION
STATEMENT
OF CASH FLOWS
|
|
Year
Ended
|
|
|
|
December
31, 2017
|
|
|
December
31, 2016
|
|
|
|
|
|
|
|
|
Cash flows from operating activies
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(1,032,891
|
)
|
|
$
|
(12,460,694
|
)
|
Adjustments to reconcile net loss to
net cash used in
operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
5,123
|
|
|
|
4,639
|
|
Contributed
services
|
|
|
222,000
|
|
|
|
306,000
|
|
Shares
issued for consulting services
|
|
|
355,880
|
|
|
|
50,000
|
|
Imputed
interest - related party
|
|
|
-
|
|
|
|
4,156
|
|
Options
expense
|
|
|
434,376
|
|
|
|
544,591
|
|
Amortization
of debt discount and prepaids
|
|
|
1,400,782
|
|
|
|
2,068,243
|
|
Foreign
currency exchange
|
|
|
(60,972
|
)
|
|
|
-
|
|
Gain
on derivative liability
|
|
|
(2,771,778
|
)
|
|
|
10,318,969
|
|
Gain
on extinguishment of debt
|
|
|
-
|
|
|
|
(2,216,266
|
)
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
|
|
Prepaid expense
|
|
|
(49,752
|
)
|
|
|
(16,670
|
)
|
Accounts payable
and accrued expenses
|
|
|
111,332
|
|
|
|
242,177
|
|
Accounts
payable - related party
|
|
|
197,029
|
|
|
|
455,764
|
|
Accrued
expenses - related party
|
|
|
106,399
|
|
|
|
71,339
|
|
Accrued
compensation
|
|
|
131,369
|
|
|
|
263,000
|
|
|
|
|
|
|
|
|
|
|
Net cash used
in operating activities
|
|
|
(951,103
|
)
|
|
|
(364,752
|
)
|
|
|
|
|
|
|
|
|
|
Cahs flows from investing activitees
|
|
|
|
|
|
|
|
|
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
|
|
Proceeds from issuance
of convertible debt
|
|
|
1,107,500
|
|
|
|
250,000
|
|
Original issue discount
and debt issuance costs
|
|
|
(160,600
|
)
|
|
|
-
|
|
Payments
on debt
|
|
|
-
|
|
|
|
(33,204
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided
by financing activities
|
|
|
946,900
|
|
|
|
336,796
|
|
|
|
|
|
|
|
|
|
|
Net increase
(decrease) in cash
|
|
|
(7,113
|
)
|
|
|
(27,956
|
)
|
|
|
|
|
|
|
|
|
|
Cash, beginning of period
|
|
|
13,995
|
|
|
|
41,951
|
|
|
|
|
|
|
|
|
|
|
Cash, end of period
|
|
$
|
6,882
|
|
|
$
|
13,995
|
|
|
|
|
|
|
|
|
|
|
Supplemental Information:
|
|
|
|
|
|
|
|
|
Cash paid for:
|
|
|
|
|
|
|
|
|
Taxes
|
|
$
|
800
|
|
|
$
|
-
|
|
Interest Expense
|
|
$
|
-
|
|
|
$
|
25,000
|
|
Non cash items:
|
|
|
|
|
|
|
|
|
Warrants issued
with debt
|
|
$
|
89,890
|
|
|
$
|
358,932
|
|
Derivative liability
and debt discount issued with new notes
|
|
$
|
428,250
|
|
|
$
|
-
|
|
Shares issued for
debt conversion
|
|
$
|
5,528,421
|
|
|
$
|
263,022
|
|
Exercise of warrants
|
|
$
|
109,979
|
|
|
$
|
263
|
|
Shares issued for
extinguishment of accounts payable
|
|
$
|
225,000
|
|
|
$
|
-
|
|
Shares issued for
prepaids
|
|
$
|
389,500
|
|
|
$
|
1,958,350
|
|
The
accompanying notes are an integral part of these financial statements
eWELLNESS
HEALTHCARE CORPORATION
Notes
to Financial Statements
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:
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SaaS
technology platform solution for providers bundling rehabilitation services and employer wellness programs; PTs are able to
evaluation and screen patients and calculate joint angles using drawing tool
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First
real-time remote monitored 1-to-many physical therapy treatment platform for home use
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Ability
for PTs to observe multiple patients simultaneously in real-time
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Solves
what has been a structural problem and limitation in post-acute care practice growth
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Allows
PT practices to generate increased revenues due to higher adherence and compliance rates
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Note
2. Summary of Significant Accounting Policies
Basis
of Presentation
The
accompanying financial statements have been prepared to reflect the financial position, results of operations and cash flows of
the Company and have been prepared in accordance with accounting principles generally accepted in the United States of America
(“GAAP”).
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 year ended December 31, 2017, the Company had no revenues. The Company has an accumulated deficit of $16,949,772 and a working
capital deficit of $3,648,264. 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
The
Company complies with the accounting guidance under Financial Accounting Standards Board (“FASB”) Accounting Standards
Codification (“ASC”) 820-10,
Fair Value Measurements,
as well as certain related FASB staff positions. This
guidance defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities
required to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact
business and considers assumptions that marketplace participants would use when pricing the asset or liability, such as inherent
risk, transfer restrictions, and risk of nonperformance.
The
guidance also establishes a fair value hierarchy for measurements of fair value as follows:
Level
1 – quoted market prices in active markets for identical assets or liabilities.
Level
2 – inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets
for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active,
or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets
or liabilities.
Level
3 – unobservable inputs that are supported by little or no market activity and that are significant to the fair value of
the assets or liabilities.
As
of December 31, 2017, the Company had the following assets and liabilities measured at fair value on a recurring basis.
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Total
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
Derivative
Liability
|
|
$
|
1,140,578
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,140,578
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|
Total Liabilities
measured at fair value
|
|
$
|
1,140,578
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,140,578
|
|
As
of December 31, 2016, the Company had the following assets and liabilities measured at fair value on a recurring basis.
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|
Total
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|
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Level
1
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|
|
Level
2
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|
Level
3
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Derivative
Liability
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|
$
|
8,473,265
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
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8,473,265
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|
Total Liabilities
measured at fair value
|
|
$
|
8,473,265
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
8,473,265
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|
Property
and Equipment
Property
and equipment are recorded at historical cost. Minor additions and renewals are expensed in the year incurred. Major additions
and renewals are capitalized and depreciated over their estimated useful lives. Depreciation is recorded over the estimated useful
lives of the related assets using the straight-line method for financial statement purposes. The estimated useful lives for significant
property and equipment categories are as follows:
Furniture
and Fixtures
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5-7
Years
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Computer
Equipment
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5-7
Years
|
Software
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3
Years
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The
Company regularly evaluates whether events or circumstances have occurred that indicate the carrying value of long-lived assets
may not be recoverable. If factors indicate the asset may not be recoverable, we compare the related undiscounted future net cash
flows to the carrying value of the asset to determine if impairment exists. If the expected future net cash flows are less than
the carrying value, an impairment charge is recognized based on the fair value of the asset. For the years ended December 31,
2017 and 2016, there was no impairment recognized.
Intangible
Assets
The
Company accounts for assets that are not physical in nature as intangible assets. Intangible assets have either an identifiable
or indefinite useful life. Intangible assets with identifiable useful lives are amortized on a straight-line basis over their
economic or legal life, whichever is shorter. Intangible assets with indefinite useful lives are reassessed each year for impairment.
If an impairment has occurred, then a loss is recognized. An impairment loss is determined by subtracting the asset’s fair
value from the asset’s book/carrying value. For the years ended December 21, 2017 and 2016, there was no impairment recognized.
Income
Taxes
The
Company accounts for income taxes under FASB ASC 740-10-30. Deferred income tax assets and liabilities are determined based upon
differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates
and laws that will be in effect when the differences are expected to reverse. Accounting standards require the consideration of
a valuation allowance for deferred tax assets if it is “more likely than not” that some component or all the benefits
of deferred tax assets will not be realized.
Debt
Issuance Costs
The
Company accounts for debt issuance costs in accordance with ASU 2015-03. This guidance requires direct and incremental costs associated
with the issuance of debt instruments such as legal fees, printing costs and underwriters’ fees, among others, paid to parties
other than creditors, are reported and presented as a reduction of debt on the consolidated balance sheets.
Debt
issuance costs and premiums or discounts are amortized over the term of the respective financing arrangement using the effective
interest method. Amortization of these amounts is included as a component of interest expense net, in the consolidated statements
of operations.
Cash
and Cash Equivalents
Cash
and cash equivalents includes all cash deposits and highly liquid financial instruments with an original maturity to the Company
of three months or less.
Loss
per Common Share
The
Company follows ASC Topic 260 to account for the loss per share. Basic loss per common share calculations are determined by dividing
net loss by the weighted average number of shares of common stock outstanding during the period. Diluted loss per common share
calculations are determined by dividing net 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 incurred losses for the periods ended December 31, 2017 and 2016, no dilutive shares are added into the loss
per share calculations. While currently antidilutive, the following instruments could potentially dilute EPS in the future resulting
in the following common stock equivalents
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2017
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2016
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Options
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12,064,583
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15,586,494
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Warrants
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8,753,179
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7,401,556
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Convertible Notes
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14,579,595
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43,025,637
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35,397,357
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66,013,687
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Recent
Accounting Pronouncements
The
Company has reviewed all recently issued, but not yet adopted, accounting standards in order to determine their effects, if any,
on its results of operations, financial position or cash flows. Based on that review, the Company believes that none of these
pronouncements will have a significant effect on its financial statements.
Note
3. Property and Equipment
Property
and equipment consists of computer equipment that is stated at cost $11,331 and $8,421 less accumulated depreciation of $6,310
and $4,142 for the years ended December 31, 2017 and 2016, respectively. Depreciation expense was $2,169 and $1,685 for the years
ended December 31, 2017 and 2016, respectively.
Note
4. Intangible Assets
The
Company recognizes the cost of a software license and a license for use of a programming code as intangible assets. The stated
cost of these assets was $24,770 and $24,770 less accumulated amortization of $10,816 and $7,862 for the years ended December
31, 2017 and 2016, respectively. For the years ended December 31, 2017 and 2016, the amortization expense recorded was $2,954
and $2,954, respectively.
Note
5. Income Taxes
Deferred
taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating
loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences
are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced
by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all the deferred
tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates
on the date of enactment.
The
Tax Cuts and Jobs Act, enacted on December 22, 2017, reduced the U.S. corporate statutory tax rate from 35% to 21% beginning on
January 1, 2018. We used 26% as an effective tax rate.
Net
deferred tax liabilities consist of the following components as of December 31, 2017 and 2016:
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2017
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2016
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Deferred tax assets:
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|
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NOL
Carryover
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$
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1,058,800
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|
|
$
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1,490,500
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Accrued Payroll
|
|
|
278,600
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|
|
|
329,000
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Deferred Rent
|
|
|
300
|
|
|
|
-
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
|
Depreciation
|
|
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(300
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)
|
|
|
(1,100
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)
|
Valuation allowance
|
|
|
(1,337,400
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)
|
|
|
(1,818,400
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)
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Net deferred
tax asset
|
|
$
|
-
|
|
|
$
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-
|
|
The
income tax provision differs from the amount of income tax determined by applying the U.S. federal income tax rate to pretax income
from continuing operations for the years ended December 31, 2017 and 2016 due to the following:
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2017
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2016
|
|
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|
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Book Loss
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$
|
(268,600
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)
|
|
$
|
(4,361,200
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)
|
Depreciation
|
|
|
(100
|
)
|
|
|
300
|
|
Contributed Services
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|
57,700
|
|
|
|
107,100
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Meals & Entertainment
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3,600
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|
|
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6,100
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Stock for Expense Accounts
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|
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255,400
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|
|
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14,300
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Contributed Interest Expense
|
|
|
92,500
|
|
|
|
1,500
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Gain/Loss on settlement of debt through
equity
|
|
|
112,900
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|
|
|
(775,700
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)
|
Amortization of debt discount
|
|
|
108,800
|
|
|
|
277,800
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|
Accrued Payroll
|
|
|
34,200
|
|
|
|
92,100
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Loss on derivative
|
|
|
(720,700
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)
|
|
|
3,611,600
|
|
Related Party Interest
|
|
|
92,500
|
|
|
|
1,500
|
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Valuation
allowance
|
|
|
231,800
|
|
|
|
1,024,600,
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|
|
|
$
|
-
|
|
|
$
|
-
|
|
At
December 31, 2017, the Company had net operating loss carryforwards of approximately $4,072,000 that may be offset against future
taxable income from the year 2018 through 2037. No tax benefit has been reported in the December 31, 2017 financial statements
since the potential tax benefit is offset by a valuation allowance of the same amount.
Due
to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carryforwards for federal income tax reporting
purposes are subject to annual limitations. Should a change in ownership occur, net operating loss carryforwards may be limited
as to use in future years.
The
Company’s policy is to recognize potential interest and penalties accrued related to unrecognized tax benefits within income
tax expense. For the years ended December 31, 2017 and 2016, the Company did not recognize any interest or penalties, nor did
we have any interest or penalties accrued related to unrecognized benefits.
The
tax years ended December 31, 2016, 2015 and 2014 are open for examination for federal income tax purposes and by other major taxing
jurisdictions to which we are subject.
Note
6. Related Party Transactions
During
the year ended December 31, 2017, a related party, a company for which the Company’s former Secretary-Treasurer and CFO
is also serving as CFO, invoiced the Company $22,850 for accounting services. The amounts outstanding as of December 31, 2017
and December 31, 2016 was $700 and $10,481, respectively. During the years ended December 31, 2017 and December 31, 2016, the
Company recorded $0 and $4,156 imputed interest, respectively, on the amount owed to the related party based on an interest rate
of 8%. Because the amount due to the related party is now being paid on a regular basis, the Company is no longer accruing imputed
interest.
On
April 1, 2015, the Company entered into an operating agreement with a Evolution Physical Therapy(“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 December 31, 2017,
the Company had a payable of $350,810 due to this company.
The
Company rents its Culver City, CA office space from a company owned by our CEO. The imputed rent expense of $500 per month is
recorded in the Statement of Operations and Additional Paid in Capital in the Balance Sheet.
Throughout
the year ended December 31, 2017, the officers and directors of the Company incurred business expenses on behalf of the Company.
The amounts payable to the officers as of December 31, 2017 and December 31, 2016 were $5,828 and $44,429, respectively. There
were no expenses due to the board members, but the Company has accrued directors’ fees of $205,000 and $60,000 at December
31, 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 $1,071,369 and $940,000 at December 31, 2017 and December 31, 2016 respectively.
Note
7. Non-Convertible Notes Payable
In
February 2017, the Company was served by a complaint filed by the holder of a note payable. The action was removed from Louisiana
state court to the United States Federal District Court in Baton Rouge, LA. 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. On October 19, 2017 Schoemann and his counsel motioned to dismiss
the unlicensed lender assertion. On January 19, 2018 the U.S. District Court, Louisiana ruled that the unlicensed lender assertion
was to proceed. The Company and counsel are of the opinion that the Schoemann suit is wholly without merit and the company will
prevail.
At
December 31, 2017, the Company had indebtedness to this holder of the note payable of $180,051 plus $41,634 of accrued interest.
During the years ended December 31, 2017 and 2016, the Company recognized interest expense totaling $32,409 and $19,711, respectively.
Note
8. Convertible Notes Payable
On
November 14, 2016, the Company signed a convertible note in which the note holder agreed to pay for the cancellation of $125,000
of the remaining balance of the convertible note payable dated December 7, 2015. The Company recorded $125,000 in debt discount
for this note. The terms of the convertible note were the same as the original note which are that interest is payable at 8% per
annum. During the year ended December 31, 2017, the Company recorded $2,184 of interest expense. During the year ended of December
31, 2017, the holder of the note converted $106,000 of principal and $3,490 of accrued interest into 27,422,445 shares of common
stock. As of the year ended December 31, 2017, this convertible note and accrued interest is fully converted.
On
November 14, 2016, the Company entered into a securities purchase agreement with an accredited investor for a note in the principal
amount of $275,000 at a 10% original issue. The note had a provision for 8% interest to be accrued until paid or converted into
shares of common stock. During the year ended December 31, 2017, the Company recorded $12,263 of interest expense. During the
year ended of December 31, 2017, the holder of the note converted $275,000 of principal and $15,135 of accrued interest into 17,373,343
shares of common stock. As of the year ended December 31, 2017, this convertible note and accrued interest is fully converted.
On
January 11, January 23 and February 14, 2017, the Company authorized three convertible notes $55,000 each 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
year ended December 31, 2017, the Company recognized 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
year ended December 31, 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 5.5%. The due date of the notes is November 7, 2017 for the first and May 1, 2018
for the second. These notes were funded in two traches, one on February 9, 2017 and the other one on July 31, 2017. During
the year ended December 31, 2017, all but $2 principal of the note funded on February 9, 2017 was converted and 1,737,000 shares
of common stock were issued. After the conversions there was a principal balance of $2 and an accrued interest balance of $52.
These remaining balances of the principal and interest was paid directly to the investor in January 2018. During the year ended
December 31, 2017, the Company recognized interest expense of $5,435.
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 filed 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 year ended December 31, 2017, the principal of the amount funded plus accrued interest was converted and 1,805,379
shares of common stock was issued. During the year ended December 31, 2017, the Company recognized interest expense of $12,592.
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 year ended December 31, 2017, the Company recognized
interest expense of $17,687.
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 December 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 and September 12, 2018. During the year
ended December 31, 2017, the investor converted $34,640 of principal and accrued interest and 700,000 shares of common stock were
issued. During the year ended December 31, 2017, the Company recognized interest expense of $3,302. The note that was due January
24, 2018 was fully converted subsequent to year end.
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 year ended December 31,
2017, the Company recognized interest expense of $1,389. On March 3, 2018, the holder of the note converted $55,000 of principal
and $2,200 of accrued interest into 853,731 shares of common stock. As of March 3, 2018, the convertible note and accrued interest
is fully converted.
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. 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 average of the VWAPs for the fifteen (15) Trading Days immediately following the 180th calendar. During the year ended
December 31, 2017, the Company recognized interest expense of $1,977.
Note
9. Equity Transactions
In
February 2017, the Board of Directors of unanimously approved an amendment to the Company’s Articles of Incorporation to:
(A) increase 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; and (B) implement 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 Certificate of Amendment was authorized and approved by the Joint Written Consent
of the Board of Directors and Majority Consenting Stockholders of the Company.
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.
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.
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 December 31, 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.
Debt
Conversion Shares
During
the year ended December 31, 2017, the Company issued a total of 53,534,548 shares of common stock per debt conversion of various
convertible notes (See Note 8). The total of the debt conversion was $797,913 principal plus $45,192 accrued interest.
Warrant
Conversion Shares
In
January 2017, 1,363,277 warrants were exercised under a cashless exercise and 1,336,075 shares of common stock were issued.
Consultant
Issued Shares
During
the year ended December 31, 2017, the Company issued 8,190,577 shares of common stock for marketing and consulting services valued
at $731,380.
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.
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.
Accounts
Payable Reduction Issued Shares
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 totaling $120,000
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 6 above. This issuance resulted in a reduction of
accounts payable by $225,000.
Stock
Options
On
August 6, 2015, the Board of Directors approved the 2015 Stock Option Plan, pursuant to which certain directors, officers, employees
and consultants will be eligible for certain stock options and grants. The Plan is effective as of August 1, 2015 and the maximum
number of shares reserved and available for granting awards under the Plan shall be an aggregate of 3,000,000 shares of common
stock, provided however that on each January 1, starting with January 1, 2016, an additional number of shares equal to the lesser
of (A) 2% of the outstanding number of shares (on a fully-diluted basis) on the immediately preceding December 31 and (B) such
lower number of shares as may be determined by the Board or committee charged with administering the plan. This plan may be amended
at any time by the Board or appointed plan Committee.
During
the year ended December 31, 2017, the options authorized by the Board of Directors to be issued to a consultant on April 15, 2016
expired because of the one-year exercise date.
The
following is a summary of the status of all Company’s stock options as of December 31, 2017 and changes during the periods
ended on December 31, 2017 and 2016, respectively:
|
|
Number
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
of Stock
|
|
|
Average
|
|
|
Remaining
|
|
|
Intrinsic
|
|
|
|
Options
|
|
|
Exercise
Price
|
|
|
Life
(yrs)
|
|
|
Value
|
|
Outstanding at January 1, 2016
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
Granted
|
|
|
20,250,000
|
|
|
|
0.27
|
|
|
|
3.2
|
|
|
|
0.011
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Outstanding at December 31, 2016
|
|
|
20,250,000
|
|
|
$
|
0.27
|
|
|
|
2.3
|
|
|
$
|
0.011
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Cancelled
|
|
|
250,000
|
|
|
|
1.00
|
|
|
|
-
|
|
|
|
|
|
Outstanding at December 31, 2017
|
|
|
20,000,000
|
|
|
|
0.26
|
|
|
|
1.9
|
|
|
$
|
-
|
|
Options exercisable at December
31, 2017
|
|
|
12,139,583
|
|
|
$
|
0.32
|
|
|
|
1.9
|
|
|
$
|
-
|
|
The
Company recognized stock option expense of $434,376 and $40,829 for the years ended December 31, 2017 and 2016, respectively.
For
purpose of determining the fair market value of the and options issued during the year ended December 31, 2016, 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
|
|
$
|
.110
|
|
Exercise price of options
|
|
$
|
.80
– 1.00
|
|
Dividend yield
|
|
|
0.00
|
%
|
Years to maturity
|
|
|
1-5
|
|
Risk free rate
|
|
|
.53
- .84
|
%
|
Expected volatility
|
|
|
57.2
-61.4
|
%
|
Warrants
In
February 2017, the Company authorized the issuance of 68,750 warrants that were issued as part of a convertible note. At December
31, 2017 the fair value of the warrants is $8,486.
In
April 2017, the Company authorized the issuance of 1,232,000 warrants that were issued as part of a convertible note. At December
31, 2017 the fair value of the warrants is $151,771.
The
following is a summary of the status of the Company’s warrants as of December 31, 2017 and changes on during the periods
ended on December 31, 2017 and 2016, respectively:
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Average
Exercise
|
|
|
Remaining
|
|
|
Intrinsic
|
|
|
|
Warrants
|
|
|
Price
|
|
|
Life
(yrs.)
|
|
|
Value
|
|
Outstanding at January 1, 2016
|
|
|
5,631,191
|
|
|
$
|
0.11
|
|
|
|
2.1
|
|
|
$
|
0.103
|
|
Granted
|
|
|
3.835.000
|
|
|
|
0.40
|
|
|
|
5.0
|
|
|
|
-
|
|
Exercised
|
|
|
350,000
|
|
|
|
0.86
|
|
|
|
-
|
|
|
|
-
|
|
Cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
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
|
|
|
(316,189
|
)
|
|
|
0.059
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding at December 31, 2017
|
|
|
8,737,474
|
|
|
$
|
0.21
|
|
|
|
2.4
|
|
|
$
|
0.038
|
|
Warrants exercisable at December
31, 2017
|
|
|
8,737,474
|
|
|
$
|
0.21
|
|
|
|
2.4
|
|
|
$
|
0.038
|
|
For
purpose of determining the fair market value of the warrants and options issued during the year ended December 31, 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
|
|
$
|
.10
|
|
Exercise price of warrants
|
|
$
|
.25
|
|
Dividend yield
|
|
|
0.00
|
%
|
Years to maturity
|
|
|
5
|
|
Risk free rate
|
|
|
1.84-1.89
|
%
|
Expected volatility
|
|
|
80.249-242,111
|
%
|
Note
10. 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 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.
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.
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 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 currently 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.
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”). On April 1, 2017, the Company issued 25,280,899
shares of common stock.
In
February 2017, the Company was served by a complaint filed by the holder of a note payable. The action was removed from Louisiana
state court to the United States Federal District Court in Baton Rouge, LA. 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. On October 19, 2017 Schoemann and his counsel motioned to dismiss
the unlicensed lender assertion. On January 19, 2018 the U.S. District Court, Louisiana ruled that the unlicensed lender assertion
was to proceed. The Company and counsel are of the opinion that the Schoemann suit is wholly without merit and the company will
prevail.
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
11. 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 years ended December 31, 2017
and 2016, the Company amortized the debt discount of $417,546 and $8,473,265, respectively, to interest expense.
During
the years ended December 31, 2017 and 2016, the Company had the following activity in the derivative liability account:
|
|
Notes
|
|
|
Warrants
|
|
|
Total
|
|
Derivative liability at January
1, 2016
|
|
$
|
-
|
|
|
$
|
2,802
|
|
|
$
|
2,802
|
|
Addition of new conversion option derivatives
|
|
|
773,019
|
|
|
|
1,278,645
|
|
|
|
2,051,664
|
|
Change in fair value
|
|
|
8,693,964
|
|
|
|
(172,009
|
)
|
|
|
8,521,955
|
|
Reclassification
of derivative to gain on extinguishment of debt
|
|
|
(2,103,156
|
)
|
|
|
-
|
|
|
|
(2,103,156
|
)
|
Derivative liability at December 31, 2016
|
|
$
|
7,363,827
|
|
|
$
|
1,109,438
|
|
|
$
|
8,473,265
|
|
Addition of new conversion option derivatives
|
|
|
304,289
|
|
|
|
123,961
|
|
|
|
428,250
|
|
Conversion of note derivatives
|
|
|
(4,793,036
|
)
|
|
|
-
|
|
|
|
(4,793,036
|
)
|
Changes in warrant derivatives
|
|
|
-
|
|
|
|
(109,985
|
)
|
|
|
(109,985
|
)
|
Change in fair value
|
|
|
(2,509,489
|
)
|
|
|
(348,828
|
)
|
|
|
(2,857,917
|
)
|
Reclassification
of derivative to gain on extinguishment of debt
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Derivative liability
at December 31, 2017
|
|
$
|
365,591
|
|
|
$
|
774,986
|
|
|
$
|
1,140,577
|
|
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 follow:
Stock price at valuation
date
|
|
$
|
.066-.175
|
|
Exercise price of warrants
|
|
$
|
.004
-.25
|
|
Conversion rate of convertible debt
|
|
$
|
.003
– 0.2000
|
|
Risk free interest rate
|
|
|
.59%-2.09
|
%
|
Stock volatility factor
|
|
|
62%-289
|
%
|
Years to Maturity
|
|
|
.08
– 4.3
|
|
Expected dividend yield
|
|
|
None
|
|
Note
12. Supplemental Cash Flow Information
During
the year ended December 31, 2016 the Company had the following non-cash investing and financing activities:
|
●
|
Accrued
interest of $125,755 and $12,931 was rolled into short-term notes and convertible debt, respectively.
|
|
|
|
|
●
|
Increased
derivative liability by $346,812 for convertible debt
|
|
|
|
|
●
|
Issued
3,835,000 warrants valued at $510,167 as incentive for lenders to enter debt agreements.
|
|
|
|
|
●
|
Increased
derivative liability and debt discount by $152,035 for warrant issued debt.
|
|
|
|
|
●
|
Increased
debt discount by $35,000 for an Original Issue Discount on debt.
|
|
|
|
|
●
|
Authorized
2,400,000 shares of stock to be issued for payables conversion totaling $120,000
|
|
|
|
|
●
|
Authorized
issuance of 450,000 shares of stock to be issued for prepaid
|
|
|
|
|
●
|
Issued
31,646,447 shares of common stock for the extinguishment of $261,231 worth of debt and $10,031 worth of accrued interest.
There are to be an additional 2,060,000 shares to be issued for the debt conversion
|
|
|
|
|
●
|
Issued
985,000 shares of common stock valued at $1,958,350 which was recorded as a prepaid
|
During
the year ended December 31, 2017 the Company had the following non-cash investing and financing activities:
|
●
|
Issued
1,300,750 warrants valued at $160,257 as incentive for lenders to enter debt agreements.
|
|
|
|
|
●
|
Issued
27,680,899 shares of common stock for payables conversion totaling $345,000.
|
|
|
|
|
●
|
Issued
1,336,075 shares of common stock for cashless exercise of warrants.
|
|
|
|
|
●
|
Issued
5,025,000 shares of common stock valued at $389,500 which was recorded as a prepaid.
|
|
|
|
|
●
|
Issued
3,340,577 shares of common stock valued at $355,880 for services
|
|
|
|
|
●
|
Issued
53,534,548 shares of common stock for the extinguishment of $797,913 worth of debt and $45,192 worth of accrued interest.
|
Note
13. Subsequent Events
On
January 2, 2018, the Board of Directors approved the extension of an Advisory Agreement dated February 15, 2015 for one year.
The Company issued 800,000 shares of common stock as compensation for this agreement on January 2, 2018.
On
January 2, 2018, the Board of Directors approved, retroactively to October 1, 2017, to provide monthly reimbursements for medical
insurance up to $1,000 per month for the Company’s executive officers.
On
January 2, 2018, the Board of Directors agreed to form a new eWellness Healthcare Corporation 2018 Equity Incentive Plan (“Plan”).
The Plan shall be for 20,000,000 shares of common stock that will be placed in a 10b5-1 Sales Plan that will be registered under
an S-8 Registration Statement. Under the sales plan, each recipient will open an account with Garden State Securities (“GSS”)
for management of all sales of shares issued under the Plan. Quarterly limitations are placed on the number of shares that can
be sold. The Company initially allocated 17,400,000 shares to officers, directors and consultants.
On
January 11, 2018, 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 October 12, 2018 has an original issue discount of $10,000. 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)
65% of the lowest per share trading price for the fifteen (15) trading days immediately following the 180
th
calendar
day after the Original Issue Date.
On
January 12, 2018, the Company executed an 12% Fixed Convertible Promissory Note payable to an institutional investor in the principal
amount of $91,300. The note, which is due on October 30, 2018 has an original issue discount of $8,300. 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) the fixed conversion
price or (ii) 75% of the VWAP for the trading price for the ten (10) trading days immediately following the 180
th
calendar
day after the Original Issue Date.
On
January 19, 2018 the U.S. District Court, Louisiana ruled in favor of the Company that the unlicensed lender assertion made by
the Company and counsel was to proceed in a matter brought before the court by note holder Rodney Schoeman on January 24, 2017.
On
February 14, 2018, the Company executed an 12% Fixed Convertible Promissory Note payable to an institutional investor in the principal
amount of $63,800. The note, which is due on November 30, 2018 has an original issue discount of $5,800. 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) the fixed conversion
price or (ii) 75% of the VWAP for the trading price for the ten (10) trading days immediately following the 180
th
calendar
day after the Original Issue Date.
On
March 5, 2018, the Company executed an 8% Fixed Convertible Promissory Note payable to an institutional investor in the principal
amount of $77,000. The note, which is due on December 5, 2018 has an original issue discount of $7,000. 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) the fixed conversion
price or (ii) 75% of the VWAP for the trading price for the ten (10) trading days immediately following the 180
th
calendar
day after the Original Issue Date.
On March 19, 2018,
the Company executed an 12% Fixed Convertible Promissory Note payable to an institutional investor in the principal amount of
$72,450. The note, which is due on December 30, 2018 has an original issue discount of $9,450. 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) the fixed conversion price
or (ii) 75% of the VWAP for the trading price for the ten (10) trading days immediately following the 180
th
calendar
day after the Original Issue Date.
On
March 21, 2018, the Board of Directors, at the request and with the approval of the investors, determined that it was in the best
interests of the Company and the Investors, based upon market price and relatively limited liquidity of the shares of common stock
that the Company revised the expiration date and exercise price for 417,429 unexercised warrants granted on April 9, 2015. The
original expiration date of April 9, 2018 is extended to April 9, 2019. The original exercise price of $.35 is reduced to $.05.
During
the 1
st
Quarter of 2018, the Company issued 1,200,000 shares of common stock to consultants for services rendered in
accordance to consulting agreements.
During
the 1
st
Quarter of 2018, the Company issued 3,945,407 shares of common stock for debt conversion totaling $213,292
which includes $208,282 principal and $5,010 accrued interest.