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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2023.

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

For the transition period from ______ to ______.

Commission File Number 000-56192

Graphic

ELECTROMEDICAL TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

Delaware
(State or Other Jurisdiction of
Incorporation)

5047
(Primary Standard Industrial
Classification Code Number)

82-2619815
(I.R.S. Employer
Identification No.)

16561 N. 92nd Street, Ste. 101

 

Scottsdale, AZ

85260

(Address of principal executive offices)

(Zip Code)

888-880-7888

(Registrant’s telephone number, including area code)

Securities Registered pursuant to Section 12(g) of the Act

Title of Each Class

    

Trading Symbol(s)

    

Name of each Exchange on which Registered

Common Stock

EMED

None

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation ST (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No

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

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

 

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).

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

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

On August 17, 2023, 471,495,857 shares of common stock were outstanding.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

 

 

 

Item 1.

UNAUDITED FINANCIAL STATEMENTS:

3

 

 

 

BALANCE SHEETS AS OF JUNE 30, 2023 AND DECEMBER 31, 2022

3

 

 

 

STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2023 AND 2022

4

 

 

 

STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2023 AND 2022

6

 

 

 

STATEMENTS OF CASH FLOWS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2023 AND 2022

7

 

 

 

NOTES TO THE UNAUDITED FINANCIAL STATEMENTS

8

 

 

 

Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

19

 

 

 

Item 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

23

 

 

 

Item 4.

CONTROLS AND PROCEDURES

23

 

 

 

PART II. OTHER INFORMATION

25

 

 

 

Item 1.

LEGAL PROCEEDINGS

25

 

 

 

Item 1A.

RISK FACTORS

25

 

 

 

Item 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

25

 

 

 

Item 3.

DEFAULTS UPON SENIOR SECURITIES

40

 

 

 

Item 4.

MINE SAFETY DISCLOSURE

40

 

 

 

Item 5.

OTHER INFORMATION

40

 

 

 

Item 6.

EXHIBITS

40

 

 

 

SIGNATURES

43

2

ITEM 1. FINANCIAL STATEMENTS

ELECTROMEDICAL TECHNOLOGIES, INC.

BALANCE SHEETS

(UNAUDITED)

    

June 30, 2023

    

December 31, 2022

ASSETS

 

  

 

  

Current assets:

 

  

 

  

Cash and cash equivalents

$

416,256

$

368,425

Accounts receivable

 

25,788

 

9,444

Inventories

 

113,151

 

62,061

Prepaid expenses and other current assets

 

326,801

 

207,872

Total current assets

 

881,996

 

647,802

Property and equipment, net

 

149,705

 

705,469

Total assets

$

1,031,701

$

1,353,271

LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

  

 

  

Current liabilities:

 

  

 

  

Accounts payable

$

269,498

$

266,744

Credit cards payable

 

20,769

 

37,633

Accrued expenses and other current liabilities

 

663,604

 

1,065,483

Customer deposits

 

237,650

 

217,588

Convertible promissory notes, net of discount of $0 and $375,865, respectively

 

1,412,601

 

1,304,909

Long term debt, current portion

 

 

31,818

Derivative liabilities- convertible promissory notes

549,604

Total current liabilities

 

3,153,726

 

2,924,175

Long-term liabilities:

 

  

 

  

Bank debt, net of current portion

 

 

489,707

Government debt, net of current portion

 

150,000

 

150,000

Other liabilities

 

9,998

 

10,234

Total liabilities

 

3,313,724

 

3,574,116

Commitments and contingencies (Note 10)

 

 

Stockholders’ deficit

 

  

 

  

Series A Preferred Stock, $.00001 par value, 1,000,000 shares authorized and outstanding

 

365,000

 

365,000

Series B Preferred Stock, $.00001 par value, 1 share authorized and 1 and 0 shares outstanding at June 30, 2023 and December 31, 2022, respectively

400,000

Common stock, $.00001 par value, 1,999,000,000 and 999,000,000 shares authorized; 432,493,896 and 189,784,529 shares outstanding at June 30, 2023 and December 31, 2022, respectively

 

4,323

 

1,896

Additional paid-in-capital

 

23,693,025

 

22,237,300

Accumulated deficit

 

(26,744,371)

 

(24,825,041)

Total stockholders’ deficit

 

(2,282,023)

 

(2,220,845)

Total liabilities and stockholders’ deficit

$

1,031,701

$

1,353,271

The accompanying notes are an integral part of these financial statements

3

ELECTROMEDICAL TECHNOLOGIES, INC.

STATEMENTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30,

SIX MONTHS ENDED JUNE 30,

    

2023

    

2022

    

2023

    

2022

Net sales

$

294,954

$

225,251

$

673,600

$

447,145

Cost of sales

 

62,519

45,335

150,215

 

112,976

Gross profit

 

232,435

179,916

523,385

 

334,169

Selling, general and administrative expenses

 

573,838

463,179

2,126,326

 

1,342,989

Loss from operations

 

(341,403)

(283,263)

(1,602,941)

 

(1,008,820)

Other income (expense)

 

 

Interest expense

 

(284,487)

(136,468)

(672,688)

 

(349,847)

Gain on sale of fixed asset

1,193,676

Change in fair value of derivative liabilities

(126,958)

(126,958)

Loss on derivative liabilities

(366,958)

(366,958)

Other expense

(340,000)

(340,000)

Loss on extinguishment of debt

(116,200)

(321,800)

Total other expense

(1,118,403)

(252,668)

(312,928)

(671,647)

Net loss

$

(1,459,806)

$

(535,931)

$

(1,915,869)

$

(1,680,467)

Deemed dividend related to warrant resets

(3,461)

(3,461)

(63,381)

Net loss attributable to common stockholders

$

(1,463,267)

$

(535,931)

$

(1,919,330)

$

(1,743,848)

Weighted average shares outstanding - basic and diluted

335,001,567

114,596,514

288,045,553

 

105,976,603

Weighted average loss per share - basic and diluted

$

(0.00)

$

(0.00)

$

(0.01)

$

(0.02)

The accompanying notes are an integral part of these financial statements

4

ELECTROMEDICAL TECHNOLOGIES, INC.

STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT

FOR THE SIX MONTHS ENDED JUNE 30, 2023

(UNAUDITED)

Total

Series A Preferred Stock

Series B Preferred Stock

Common Stock

Paid in

Accumulated

Stockholders’

    

Amount

    

Shares

    

Amount

    

Shares

    

Amount

    

Shares

    

Capital

    

Deficit

    

Deficit

Balance, December 31, 2022

$

365,000

1,000,000

$

$

1,896

189,784,529

$

22,237,300

$

(24,825,041)

$

(2,220,845)

Shares issued for consulting services

 

 

 

 

 

350

 

35,000,000

 

314,650

 

 

315,000

Share issued as CEO compensation

400,000

1

400,000

Shares issued in conjunction with settlement reset

 

 

 

 

 

461

 

46,102,156

 

697,539

 

 

698,000

Cashless warrant exercises

 

 

 

 

 

180

 

18,000,000

 

(180)

 

 

Trigger warrants issued

 

 

 

 

 

 

 

160,000

 

 

160,000

Conversion of convertible promissory note

 

 

 

 

 

50

 

5,000,000

 

49,950

 

 

50,000

Settlement of stock -based compensation liabilities

30

3,000,000

20,970

21,000

Net loss

 

 

 

 

 

 

 

 

(456,063)

 

(456,063)

Balance, March 31, 2023

$

365,000

 

1,000,000

$

400,000

 

1

$

2,967

 

296,886,685

$

23,480,229

$

(25,281,104)

$

(1,032,908)

Conversion of convertible promissory notes

 

 

 

 

 

1,315

 

131,532,211

 

209,376

 

 

210,691

Conversion true-up

 

41

4,075,000

(41)

Warrant reset

 

3,461

(3,461)

Net loss

 

(1,459,806)

(1,459,806)

Balance, June 30, 2023

$

365,000

 

1,000,000

$

400,000

 

1

$

4,323

 

432,493,896

$

23,693,025

$

(26,744,371)

$

(2,282,023)

The accompanying notes are an integral part of these financial statements

5

ELECTROMEDICAL TECHNOLOGIES, INC.

STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT

FOR THE SIX MONTHS ENDED JUNE 30, 2022

(UNAUDITED)

Total

Series A Preferred

Series B Preferred

Common Stock

Paid in

Accumulated

Stockholders’

    

Amount

    

Shares

    

Amount

    

Shares

    

Amount

    

Shares

    

Capital

    

Deficit

    

Deficit

Balance, December 31, 2021

$

355,000

 

500,000

$

 

$

876

 

87,725,842

$

20,804,333

$

(21,882,712)

$

(722,503)

Shares issued for consulting services

 

 

106

10,600,000

356,794

 

 

356,900

 

 

Warrants issued in conjunction with convertible promissory notes

 

 

 

142,996

 

 

142,996

Warrants reset in conjunction with convertible promissory notes

63,381

(63,381)

Adoption of ASU 2020-06

(1,013,414)

634,059

(379,355)

Issuance of common stock for cash

15

1,500,000

42,751

42,766

Cashless warrant exercises

51

5,129,725

(51)

Stock-based compensation

 

 

 

4,703

 

 

4,703

Net loss

 

 

 

 

(1,144,536)

 

(1,144,536)

Balance, March 31, 2022

355,000

500,000

1,048

104,955,567

20,401,493

(22,456,570)

(1,699,029)

Shares issued for consulting services

30

3,000,000

44,970

45,000

Shares issued in conjunction with forbearance of convertible promissory notes

40

4,000,000

142,760

142,800

Conversion of convertible promissory notes and accrued interest

267

26,734,801

668,103

668,370

Warrants issued in conjunction with debt extinguishment

65,000

65,000

Cashless warrant exercises

35

3,550,162

(35)

Net loss

(535,931)

(535,931)

Balance, June 30, 2022

$

355,000

500,000

$

$

1,420

142,240,530

$

21,322,291

$

(22,992,501)

$

(1,313,790)

The accompanying notes are an integral part of these financial statements

6

ELECTROMEDICAL TECHNOLOGIES, INC.

STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30,

(UNAUDITED)

    

2023

    

2022

Cash flows from operating activities:

 

  

 

  

Net loss

$

(1,915,869)

$

(1,680,467)

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

 

 

Stock-based compensation expense

 

715,000

 

406,603

Depreciation and amortization

 

4,557

 

10,938

Loss on extinguishment of debt

321,800

Amortization of debt discount and warrant expense

 

535,865

 

254,585

Change in fair value of derivative liabilities

126,958

Loss on derivatives

366,958

Gain on sale of fixed assets

(1,193,676)

Other

11,875

Change in operating assets and liabilities:

Accounts receivable

(16,344)

7,797

Inventories

(51,090)

58,955

Prepaid expenses and other current assets

 

(118,929)

 

7,927

Accounts payable

2,754

66,348

Credit cards payable

 

(16,864)

 

29,784

Accrued expenses and other current liabilities

 

440,077

 

8,114

Customer deposits

 

20,062

 

90,850

Other liabilities

 

 

1,001

Net cash used in operating activities

 

(1,088,666)

 

(415,765)

 

 

Cash flows from investing activities:

 

 

Purchase of property and equipment

(149,705)

Sale of property and equipment

 

1,894,588

 

Net cash provided by investing activities

 

1,744,883

 

Cash flows from financing activities:

 

 

Repayments on bank debt

(522,401)

(13,787)

Related party notes payable-net

 

 

(57,875)

Issuance of convertible promissory notes

 

 

494,220

Repayments on convertible promissory notes

 

(85,985)

 

(367,500)

Issuance of common stock for cash -net

 

 

42,766

Net cash (used in) provided by financing activities

 

(608,386)

 

97,824

Net increase (decrease) in cash and cash equivalents

 

47,831

 

(317,941)

Cash and cash equivalents, beginning of period

 

368,425

 

383,170

Cash and cash equivalents, end of period

$

416,256

$

65,229

Supplemental disclosures of cash flow information:

 

 

Cash paid during the period for:

 

 

Interest

$

31,574

$

79,402

Income taxes

$

$

Non-cash investing and financing activities:

 

  

 

  

January 1,2022 adoption of ASU 2020-06

$

$

379,355

Warrants and common stock feature issued in conjunction with convertible promissory notes

$

$

350,796

Settlement of stock-based compensation liabilities

$

719,000

$

Conversion of convertible promissory notes, derivatives and accrued interest into shares of common stock

$

260,691

$

668,370

The accompanying notes are an integral part of these financial statements

7

ELECTROMEDICAL TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1.ORGANIZATION AND NATURE OF BUSINESS

ElectroMedical Technologies, LLC (“the Company”), was formed in November 2010 as an Arizona limited liability company. In August 2017, the Company converted to a Delaware C Corporation under Electromedical Technologies, Inc. The Company is a bioelectronic engineering company with medical device certifications in the United States (FDA) and Mexico (Cofepris). The Company engineers simple-to-use portable bioelectronics devices, which provide fast and long -lasting pain relief across a broad range of ailments.

NOTE 2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Accounting Method

The accompanying unaudited financial statements of Electromedical Technologies, Inc. have been prepared in accordance with Accounting Principles Generally Accepted in the United States of America (“GAAP”) for interim financial information and in accordance with Rule 8-03 of Regulation S-X. Certain information and disclosures normally included in the annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, all adjustments, consisting of normal recurring adjustments considered necessary for a fair presentation, have been included. These interim financial statements should be read in conjunction with the audited annual financial statements of the Company as of and for the year ended December 31, 2022. The results of operations for the six months ended June 30, 2023 are not necessarily indicative of the results that may be expected for the full year.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities, certain disclosures at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Significant estimates affecting the financial statements have been prepared on the basis of the most current and best available information. However, actual results from the resolution of such estimates and assumptions may vary from those used in the preparation of the financial statements.

Going Concern

Since inception, the Company has incurred approximately $23.0 million of accumulated net losses. In addition, during the six months ended June 30, 2023, the Company used $1,088,666 in operations and had a working capital deficit of $2,271,730. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. The Company expects to obtain funding through additional debt and equity placement offerings until it consistently achieves positive cash flows from operations. If the Company is unable to obtain additional funding, it may not be able to meet all of its obligations as they come due for the next twelve months. The continuing viability of the entity and its ability to continue as a going concern is dependent upon the entity being successful in its continuing efforts in growing its revenue base and/or accessing additional sources of capital, and/or selling assets.

As a result, there is significant uncertainty whether the entity will continue as a going concern and, therefore, whether it will realize its assets and settle its liabilities and commitments in the normal course of business and at the amounts stated in the financial statements.

Accordingly, no adjustments have been made to the financial statements relating to the recoverability and classification of the asset carrying amounts or the amount and classification of liabilities that might be necessary should the entity not continue as a going concern. At this time, management is of the opinion that no asset is likely to be realized for an amount less than the amount at which it is recorded in the financial statements as at June 30, 2023.

8

Revenue Recognition

Revenues are recognized in accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, when performance obligations are satisfied through the transfer of promised goods to the Company’s customers. Control transfers upon shipment of product and when the title has been passed to the customers. This includes the transfer of legal title, physical possession, the risks and rewards of ownership, and customer acceptance. Revenue is recorded net of sales taxes collected from customers on behalf of taxing authorities, allowance for estimated returns, chargebacks, and markdowns based upon management’s estimates and the Company’s historical experience. The Company’s liability for sales return refunds is recognized within other current liabilities, and an asset for the value of inventory which is expected to be returned is recognized within other current assets on the balance sheets. The Company generally allows a 30 day right of return to its customers. As of both June 30, 2023 and December 31, 2022 the sales returns allowance was $