Form 10-Q - Quarterly report [Sections 13 or 15(d)]

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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, 2024.

☐	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

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.)

16413 N. 91^st Street, Ste. C140
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 13, 2024, 623,851,276 shares of common stock were outstanding.

Table of Contents

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION

Item 1.	UNAUDITED FINANCIAL STATEMENTS:	3

	BALANCE SHEETS AS OF JUNE 30, 2024 AND DECEMBER 31, 2023	3

	STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024 AND 2023	4

	STATEMENTS OF STOCKHOLDERS’ DEFICIT FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024 AND 2023	6

	STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2024 AND 2023	7

	NOTES TO THE UNAUDITED FINANCIAL STATEMENTS	8

Item 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	18

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	43

Item 4.	MINE SAFETY DISCLOSURE	43

Item 5.	OTHER INFORMATION	43

Item 6.	EXHIBITS	43

SIGNATURES		46

Table of Contents

ITEM 1. FINANCIAL STATEMENTS

ELECTROMEDICAL TECHNOLOGIES, INC.

BALANCE SHEETS

(UNAUDITED)


	June 30, 2024		December 31, 2023
ASSETS
Current assets:
Cash and cash equivalents	$	116,931	$	87,704
Accounts receivable		4,338		4,399
Inventories		31,681		68,517
Prepaid expenses and other current assets		236,274		288,565
Total current assets		389,224		449,185
Right of use asset		126,030		149,493
Property and equipment, net		149,705		149,705
Total assets	$	664,959	$	748,383

LIABILITIES AND STOCKHOLDERS’ DEFICIT

Current liabilities:
Accounts payable	$	240,368	$	239,481
Credit cards payable		27,943		28,097
Accrued expenses and other current liabilities		559,573		916,971
Customer deposits		438,183		197,325
Convertible promissory notes, net of discount of $13,783 and $0, respectively		1,538,830		1,393,601
Lease liability, current portion		52,842		48,745
Derivative liabilities- convertible promissory notes		973,463		532,334
Total current liabilities		3,831,203		3,356,554

Long-term liabilities:
Government debt, net of current portion		150,000		150,000
Lease liability, net of current portion		78,719		106,200
Other liabilities		4,982		8,416
Total liabilities		4,064,904		3,621,170

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 outstanding at June 30, 2024 and December 31, 2023		400,000		400,000
Common stock, $.00001 par value, 5,000,000,000 shares authorized; 566,111,930 and 463,286,208 shares outstanding at June 30, 2024 and December 31, 2023, respectively		5,659		4,631
Additional paid-in-capital		23,904,182		23,827,330
Accumulated deficit		(28,074,786)		(27,469,748)
Total stockholders’ deficit		(3,399,945)		(2,872,787)
Total liabilities and stockholders’ deficit	$	664,959	$	748,383

The accompanying notes are an integral part of these financial statements

Table of Contents

ELECTROMEDICAL TECHNOLOGIES, INC.

STATEMENTS OF OPERATIONS


	THREE MONTHS ENDED JUNE 30,				SIX MONTHS ENDED JUNE 30,
	2024		2023		2024		2023
Net sales	$	237,645	$	294,954	$	527,889	$	673,600

Cost of sales		64,390		62,519		137,247		150,215

Gross profit		173,255		232,435		390,642		523,385

Selling, general and administrative expenses		425,100		573,838		797,363		2,126,326

Loss from operations		(251,845)		(341,403)		(406,721)		(1,602,941)

Other income (expense)
Interest expense		(58,301)		(284,487)		(117,621)		(672,688)
Gain on sale of fixed asset		—		—		—		1,193,676
Change in fair value of derivative liabilities		337,439		(126,958)		(338,935)		(126,958)
Gain (loss) on derivative liabilities		121,319		(366,958)		(75,191)		(366,958)
Other income (expense)		82,624		(340,000)		333,430		(340,000)
Total other income (expense)		483,081		(1,118,403)		(198,317)		(312,928)

Net income (loss)	$	231,236	$	(1,459,806)	$	(605,038)	$	(1,915,869)
Deemed dividend related to warrant resets		—		(3,461)		—		(3,461)
Net loss attributable to common stockholders	$	231,236	$	(1,463,267)	$	—	$	(1,919,330)

Weighted average shares outstanding - basic		566,665,842		335,001,567		515,740,748		288,045,553
Weighted average loss per share - basic	$	(0.00)	$	(.00)	$	(0.00)	$	(0.01)

Weighted average shares outstanding - diluted		1,943,580,744		335,501,567		515,740,748		288,045,553
Weighted average loss per share - diluted	$	(0.00)	$	(0.00)	$	(0.00)	$	(0.01)

The accompanying notes are an integral part of these financial statements

Table of Contents

ELECTROMEDICAL TECHNOLOGIES, INC.

STATEMENT OF STOCKHOLDERS’ DEFICIT

FOR THE SIX MONTHS ENDED JUNE 30, 2024

(UNAUDITED)


	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, 2023	$	365,000	1,000,000	$	400,000	1	$	4,631	463,286,208	$	23,827,330	$	(27,469,748)	$	(2,872,787)


Conversion of convertible promissory notes, accrued interest and derivative liabilities		—	—		—	—		232	23,196,579		20,645		—		20,877

Net loss		—	—		—	—		—	—		—		(836,274)		(836,274)

Balance, March 31, 2024	$	365,000	1,000,000	$	400,000	1	$	4,863	486,482,787	$	23,847,975	$	(28,306,022)	$	(3,688,184)

Conversion of convertible promissory notes, accrued interest and derivative liabilities		—	—		—	—		796	79,629,143		56,207		—		57,003

Net income		—	—		—	—		—	—		—		231,236		231,236

Balance, June 30, 2024	$	365,000	1,000,000	$	400,000	1	$	5,659	566,111,930	$	23,904,182	$	(28,074,786)	$	(3,399,945)

The accompanying notes are an integral part of these financial statements

Table of Contents

ELECTROMEDICAL TECHNOLOGIES, INC.

STATEMENT OF 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)

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ELECTROMEDICAL TECHNOLOGIES, INC.

STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30,

(UNAUDITED)


	2024		2023
Cash flows from operating activities:
Net loss	$	(605,038)	$	(1,915,869)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense		—		715,000
Depreciation and amortization		—		4,557
Amortization of right of use asset		23,463		—
Amortization of debt discount and warrant expense		5,716		535,865
Change in fair value of derivative liabilities		338,935		126,958
Loss on derivatives		75,191		366,958
Gain on sale of fixed assets		—		(1,193,676)
Other		1		11,875
Change in operating assets and liabilities:
Accounts receivable		61		(16,344)
Inventories		36,836		(51,090)
Prepaid expenses and other current assets		52,291		(118,929)
Accounts payable		887		2,754
Credit cards payable		(154)		(16,864)
Accrued expenses and other current liabilities		(195,098)		440,077
Customer deposits		240,858		20,062
Lease liability		(23,383)		—
Net cash used in operating activities		(49,434)		(1,088,666)

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)
Issuance of convertible promissory notes		130,000		—
Repayments on convertible promissory notes		(51,339)		(85,985)
Net cash provided by (used in) provided by financing activities		78,661		(608,386)

Net increase in cash and cash equivalents		29,227		47,831

Cash and cash equivalents, beginning of period		87,704		368,425

Cash and cash equivalents, end of period	$	116,931	$	416,256

Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	11,642	$	31,574
Income taxes	$	—	$	—

Non-cash investing and financing activities:

Settlement of stock-based compensation liabilities	$	—	$	719,000
Conversion of convertible promissory notes, derivatives and accrued interest into shares of common stock	$	77,880	$	260,691

The accompanying notes are an integral part of these financial statements

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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. We have reclassified certain amounts in prior-period financial statements to conform to the current period’s presentation. 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, 2023. The results of operations for the six months ended June 30, 2024, 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 $24.3 million of accumulated net losses. In addition, during the six months ended June 30, 2024, the Company used $49,434 in operations and had a working capital deficit of $3,441,979. These factors, among others, 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, 2024.

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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, 2024 and December 31, 2023 the sales returns allowance was $6,990.

Certain larger customers pay in advance for future shipments. These advance payments totaled $438,183 and $197,325 at June 30, 2024 and December 31, 2023, respectively, and are recorded as customer deposits in the accompanying balance sheets. Revenue related to these advance payments is recognized upon shipment to the distributor or the end-customer.

At the completion of the initial three-year warranty, the Company sells extended warranties for periods ranging from one to three years. Revenue is recognized on a straight-line basis over the term of the contract. At June 30, 2024 and December 31, 2023, deferred revenue of $15,028 and $20,787 is recorded, respectively, in current and long-term liabilities in the accompanying balance sheets, in connection with these extended warranties.

Financial Instruments and Concentrations of Business and Credit Risk

The Company maintains cash balances that can, at times, exceed amounts insured by the Federal Deposit Insurance Corporation. The Company has not experienced any losses in these accounts and believes it is not exposed to any significant credit risk.

The Company’s accounts receivable, which are unsecured, expose the Company to credit risks such as collectability and business risks such as customer concentrations. The Company mitigates credit risk by investigating the creditworthiness of all customers prior to establishing relationships with them, performing periodic review of the credit activities of those customers during the course of the business relationship, regularly analyzing the collectability of accounts receivables, and recording allowances for doubtful accounts when these receivables become uncollectible. The Company mitigates business risks by attempting to diversify its customer base.

Significant customer sales as a percentage of total sales are as follows:


	THREE MONTHS ENDED JUNE 30,				SIX MONTHS ENDED JUNE 30,
	2024		2023		2024		2023
Customer A	46.9	%	17.1	%	40.3	%	18.1	%
Customer B	—		10.9	%	—		10.5	%
Customer C	10.1	%	—		—		—

Amounts due these customers totaled $2,247 and $12,442 at June 30, 2024 and December 31, 2023, respectively for commissions and reimbursements. Amounts due from these customers, totaled $39 and $594 at June 30, 2024 and December 31, 2023, respectively. Customer deposits on hand from these customers totaled $135,100 and $70,950 at June 30 and December 31, 2023, respectively. The loss of these customers would have a significant impact on the operations and cash flows of the Company.

The Company’s supplier concentrations expose the Company to business risks, which the Company mitigates by attempting to diversify its supply chain. Significant supplier purchases as a percentage of total inventory purchases are as follows:


	THREE MONTHS ENDED JUNE 30,			SIX MONTHS ENDED JUNE 30,
	2024	2023		2024		2023
Supplier A	—	—		69.9	%	24.1	%
Supplier D	—	92.9	%	—		70.1	%
Supplier F	—	—		17.8	%	—

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There were no amounts outstanding due these suppliers at June 30, 2024 and December 31, 2023. The loss of key vendors may have a significant impact on the operations and cash flows of the Company.

The estimated fair value of financial instruments has been determined using available market information and appropriate valuation methodologies. However, considerable judgment is often required to interpret market data used to develop the estimates of fair value. Accordingly, the estimates presented may not be indicative of the amounts the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies could have a material effect on the estimated fair value amounts.

Disclosure of Fair Value

The disclosure requirements within Accounting Standards Codification (ASC) Topic 820-10, Fair Value Measurement, require disclosure of estimated fair values of certain financial instruments. For financial instruments recognized at fair value in the Company’s statements of operations, the disclosure requirements of ASC Topic 820-10 also apply. The methods and assumptions are set forth below:

●

Cash and cash equivalents are carried at cost, which approximates fair value.

●

The carrying amounts of receivables approximate fair value due to their short-term maturities.

●

The carrying amounts of payables approximate fair value due to their short-term maturities.

●

Derivative liabilities are adjusted to fair value utilizing the Lattice method

Asset and liabilities measured and reported at fair value are classified and disclosed in one of the following categories based on inputs:

Level 1 — Quoted prices in active markets for identical assets and liabilities that the reporting entity has the ability to access at the measurement date

Level 2 — Inputs other than quoted prices included within Level 1 that are observable for the asset and liability or can be corroborated with observable market data for substantially the entire contractual term of the asset or liability

Level 3 — Pricing inputs include significant unobservable inputs used in determining the fair value of investments. The types of investments, which would generally be included in this category include equity securities issued by private entities.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the determination of which category within the fair value hierarchy is appropriate for any given investment is based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the investment.

The Company’s convertible promissory notes contain variable conversion provisions upon default, Pursuant to ASC 815-15 Embedded Derivatives, the fair values of the variable conversion options and shares to be issued were recorded as derivative liabilities on the default dates.

The following table presents changes during the six months ended June 30, 2024 in Level 3 liabilities measured at fair value on a recurring basis:


Fair value- December 31, 2023	$	532,334
Derivative liabilities in conjunction with settlement of convertible promissory notes		165,917
Conversion of convertible promissory notes		(63,723)
Change in fair value of derivative liabilities		338,935
Fair value- June 30, 2024	$	973,463

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The levels of the fair value hierarchy into which the Company’s assets and liabilities fall as of June 30, 2024, are as follows:


	Level 1		Level 2		Level 3		Total
Liabilities

Derivative liabilities – convertible promissory notes	$	—	$	—	$	973,463	$	973,463

Total fair value	$	—	$	—	$	973,463	$	973,463

Inventories

Inventories are stated at the lower of cost or market. Cost is determined based on the first-in, first-out cost flow assumption (“FIFO”) while market is determined based upon the estimated net realizable value less an allowance for selling and distribution expenses and a normal gross profit. The Company evaluates the need for inventory reserves associated with obsolete, slow moving, and non-sellable inventory by reviewing estimated net realizable values on a periodic basis. As of June 30, 2024 and December 31, 2023, the Company believes there are no excess and obsolete inventories and accordingly, did not record an inventory reserve. Inventories consist of purchased finished goods.

Sales Taxes

Sales taxes for the three-month periods ended June 30, 2024 and 2023, were recorded on a net basis. Included in accrued expenses at both June 30, 2024 and December 31, 2023 is approximately $61,000 related to sales taxes.

Warranty

The Company warranties the sale of most of its products and records an accrual for estimated future claims. The standard warranty is typically for a period of three years. Such accruals are based upon historical experience and management’s estimate of the level of future claims. The Company recorded a liability as of June 30, 2024 and December 31,2023 of $14,908 and $16,642, respectively. The expense is included in cost of sales in the statements of operations and within accrued expenses on the accompanying balance sheets.

Lease Commitment

The Company determines if an arrangement is a lease at inception. This determination generally depends on whether the arrangement conveys to the Company the right to control the use of an explicitly or implicitly identified fixed asset for a period of time in exchange for consideration. Control of an underlying asset is conveyed to the Company if the Company obtains the rights to direct the use of and to obtain substantially all of the economic benefits from using the underlying asset. Lease expense for variable lease components are recognized when the obligation is probable. Operating lease right of use (“ROU”) assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Operating lease payments are recognized as lease expense on a straight-line basis over the lease term. ASC 842 requires a lessee to discount its unpaid lease payments using the interest rate implicit in the lease or, if that rate cannot be readily determined, its incremental borrowing rate. As an implicit interest rate is not readily determinable in the Company’s lease, the incremental borrowing rate is used based on the information available at commencement date in determining the present value of lease payments.

The lease term for the Company’s lease includes the non-cancellable period of the lease plus any additional periods covered by either a Company option to extend (or not to terminate) the lease that the Company is reasonably certain to exercise, or an option to extend (or not to terminate) the lease controlled by the lessor. The Option for the lease renewal has been excluded from the lease term (and lease liability) for the Company’s lease as the reasonably certain threshold is not met.

Lease payments included in the measurement of the lease liability are comprised of fixed payments, variable payments that depend on index or rate, and amounts probable to be payable under the exercise of the Company option to purchase the underlying asset if reasonably certain.

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Variable lease payments not dependent on a rate or index associated with the Company’s leases are recognized when the event, activity, or circumstance in the lease agreement on which those payments are assessed as probable. Variable lease payments are presented as operating expenses in the Company’s statement of operations in the same line as expense arising from fixed lease payments. As of June 30, 2024, management determined that there were no variable lease costs.

Net earnings (loss) per Share

Net earnings or loss per share is computed by dividing net income or loss by the weighted-average number of common shares outstanding during the period, excluding shares subject to redemption or forfeiture. The Company presents basic and diluted net earnings or loss per share. Diluted net earnings or loss per share reflect the actual weighted average of common shares issued and outstanding during the period, adjusted for potentially dilutive securities outstanding. Potentially dilutive securities are excluded from the computation of the diluted net loss per share if their inclusion would be anti-dilutive. Included in the calculation of dilutive net earnings per share for the three-month period ended June 30, 2024 are 1,376,914,902 shares from dilutive securities.

Conversion of outstanding warrants, certain accrued liabilities and convertible promissory notes at June 30, 2024 may result in an estimated 1,594,098,798 additional shares of common stock outstanding. At June 30, 2024, there are 1,999,000,000 common shares authorized and 566,111,930 outstanding. On August 6, 2024 the Company amended its shares outstanding to meet the future requirements resulting from any of the above conversions. See Note 11.

COVID-19

On January 30, 2020, the World Health Organization declared the COVID-19 outbreak a “Public Health Emergency of International Concern” and on March 11, 2020, declared it to be a pandemic. Actions taken around the world to help mitigate the spread of the COVID-19 include restrictions on travel, and quarantines in certain areas, and forced closures for certain types of public places and businesses. COVID-19, and actions taken to mitigate it, have had and are expected to continue to have an adverse impact on the economies and financial markets of many countries, including the geographical area in which the Company operates. While it is unknown how long these conditions will last and what the complete financial effect will be to the company, COVID-19 has had an adverse effect on our business, including our supply chains and distribution systems. While we are taking diligent steps to mitigate disruptions to our supply chain, we are unable to predict the extent or nature of these impacts at this time to our future financial condition and results of operations.

Recently Issued Accounting Pronouncements

Management does not believe that any other recently issued, but not yet effective, authoritative guidance, if currently adopted, would have a material impact on the Company’s financial statement presentation or disclosures.

NOTE 3.PROPERTY AND EQUIPMENT

Property and equipment consisted of the following as of:


	June 30,		December 31,
	2024		2023
Building	$	—	$	—
Tooling		149,705		149,705
Furniture and equipment		24,987		24,987
		174,692		174,692
Less: accumulated depreciation and amortization		(24,987)		(24,987)
	$	149,705	$	149,705

On March 15, 2023, the Company entered into an agreement to sell the building of its principal offices at a purchase price of $2 million and net proceeds of $1,363,818, upon repayment in full of the Company’s bank debt. The sale resulted in a realized gain of $1,193,676, which has been recorded as other income on the accompanying statement of operations.

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Depreciation and amortization expense related to property and equipment was $0 for the three-month periods ended June 30, 2024 and 2023. Depreciation and amortization expense related to property and equipment was $0 and $4,557 the six months ended June 30, 2024 and 2023, respectively. Depreciation and amortization are included in selling, general and administrative expenses on the accompanying statements of operations.

NOTE 4.NOTES PAYABLE

Convertible Promissory Notes

The aggregate of convertible promissory notes is as follows:


	June 30,		December 31,
Convertible promissory notes	2024		2023
Principal balance	$	1,552,613	$	1,393,601
Debt discount balance		(13,783)		—
Net Notes balance	$	1,538,830	$	1,393,601

The Net Notes balance at June 30, 2024 is comprised of the following:


	Principal		Debt Discount		Net
Pre 2020	$	50,000	$	—	$	50,000

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