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, 2018:
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
0.08
|
|
|
$
|
0.07
|
|
Second Quarter
|
|
$
|
0.10
|
|
|
$
|
0.09
|
|
Third Quarter
|
|
$
|
0.09
|
|
|
$
|
0.06
|
|
Fourth Quarter
|
|
$
|
0.21
|
|
|
$
|
0.18
|
|
Year Ending December 31, 2019:
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
0.26
|
|
|
$
|
0.11
|
|
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 25, 2019, we had 217,189,636 shares of $0.001 par value common stock issued and outstanding
held by 160 shareholders of record.
As
of March 20, 2019, there are 6,568,179 outstanding options and/or warrants to purchase common equity of the Company with exercise
prices.
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
.
The
2018 Equity Incentive Plan
On
January 2, 2018, the Board of Directors approved the 2018 Equity Incentive Plan pursuant to which officers, directors and certain
consultants will be eligible to be issued shares of common stock upon authorization by the Board. The maximum number of shares
reserved and available for issuance is 20,000,000 shares of common stock. On November 1, 2018, the Company issued 17,400,000 shares
to officers, directors and certain consultants under this plan. The value of the shares was $1,566,000 of which $1,215,912
was recorded as reduction to contributed capital. The full text of this plan is attached as Exhibit 10.25.
The
2015 Stock Option Plan
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. At the year ended December 31, 2018, there were 2,850,000 stock options
outstanding at an exercise price of $.80.
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 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.
Sales
of Unregistered Securities in 2018
:
In
June 2018, the Company executed an Equity Purchase Agreement with an institutional investor within which the investor agrees to
purchase up to $1,500,000 of the Company’s common stock, par value $0.001. As an inducement to the investor to enter into
the agreement, the Company issued 1,000,000 restricted shares of common stock to the investor valued at $70,000.
During
the year ended December 31, 2018, the Company issued 4,000,000 shares of common stock for settlement of a complaint filed in the
United States Federal District Count (see Footnote 7). The debt settled totaled $236,869 which includes $56,817 of accrued interest.
During
the year ended December 31, 2018, the Company issued 5,300,000 shares of common stock for consulting services for a value of $512,115.
During
the year ended December 31, 2018, the Company issued 2,600,000 shares of common stock for consulting services. The weighted average
price of these shares was $.10. The value of these shares is $239,300 and is being amortized over the life of the contracts ranging
from six to twelve months.
During
the year ended December 31, 2018, the Company issued 31,285,678 shares of common stock for debt conversion. The total debt conversion
was $1,284,582 principal and $172,200 of accrued interest.
During
the year ended December 31, 2018, the Company issued 2,468,867 shares of common stock for financing costs relating to convertible
debt. The value of the financing costs was $127,374.
During
the year ended December 31, 2018, the Company issued 17,400,000 shares of common stock to officers, directors and consultants
per the eWellness Healthcare Corporation 2018 Equity Incentive Plan adopted on January 2, 2018. The value of the shares issued
was $1,566,000, of which $1,215,912 was recorded as a reduction of contributed capital.
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-23 of this Form 10-K.
eWELLNESS
HEALTHCARE CORPORATION
INDEX
TO FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2018 AND DECEMBER 31, 2017
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, 2018 and
2017, and the related statements of operations, stockholders’ deficit, and cash flows for each of the years in the
two-year period ended December 31, 2018, 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, 2018 and 2017, and the results of its operations and its cash flows for each of the years in the two-year period
ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of
America.
Consideration
of the Company’s Ability to Continue as a Going Concern
The
accompanying financial statements have been prepared assuming that 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.
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.
Haynie
& Company
Salt
Lake City, Utah
March
27, 2019
We
have served as the Company’s auditor since 2016
eWELLNESS
HEALTHCARE CORPORATION
BALANCE
SHEETS
|
|
December 31, 2018
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
383,335
|
|
|
$
|
6,882
|
|
Prepaid expenses
|
|
|
95,508
|
|
|
|
179,827
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
478,843
|
|
|
|
186,709
|
|
|
|
|
|
|
|
|
|
|
Property & equipment, net
|
|
|
14,092
|
|
|
|
5,021
|
|
Intangible assets, net
|
|
|
11,000
|
|
|
|
13,954
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
503,935
|
|
|
$
|
205,684
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
236,741
|
|
|
$
|
345,956
|
|
Accounts payable - related party
|
|
|
684,173
|
|
|
|
351,511
|
|
Accrued expenses - related party
|
|
|
214,076
|
|
|
|
210,828
|
|
Accrued compensation
|
|
|
1,113,470
|
|
|
|
1,071,369
|
|
Contingent liability
|
|
|
90,000
|
|
|
|
90,000
|
|
Convertible debt, net of discount
|
|
|
562,362
|
|
|
|
444,680
|
|
Derivative liability
|
|
|
1,584,102
|
|
|
|
1,140,578
|
|
Short term notes and liabilities
|
|
|
-
|
|
|
|
180,051
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
4,484,924
|
|
|
|
3,834,973
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
4,484,924
|
|
|
|
3,834,973
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
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, 206,406,951 and 142,352,406 issued and outstanding, respectively
|
|
|
206,407
|
|
|
|
142,352
|
|
Additional paid in capital
|
|
|
17,213,838
|
|
|
|
13,178,131
|
|
Accumulated deficit
|
|
|
(21,401,234
|
)
|
|
|
(16,949,772
|
)
|
|
|
|
|
|
|
|
|
|
Total Stockholders’ Deficit
|
|
|
(3,980,989
|
)
|
|
|
(3,629,289
|
)
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
|
$
|
503,935
|
|
|
$
|
205,684
|
|
The
accompanying notes are an integral part of these financial statements
eWELLNESS
HEALTHCARE CORPORATION
STATEMENTS
OF OPERATIONS
|
|
Year Ended
|
|
|
|
December 31, 2018
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
Executive compensation
|
|
$
|
408,000
|
|
|
$
|
408,000
|
|
General and administrative
|
|
|
1,156,938
|
|
|
|
801,308
|
|
Professional fees
|
|
|
2,130,131
|
|
|
|
2,139,473
|
|
|
|
|
|
|
|
|
|
|
Total Operating Expenses
|
|
|
3,695,069
|
|
|
|
3,348,781
|
|
|
|
|
|
|
|
|
|
|
Loss from Operations
|
|
|
(3,695,069
|
)
|
|
|
(3,348,781
|
)
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
Gain on extinguishment of debt
|
|
|
159,479
|
|
|
|
-
|
|
Gain (loss) on derivative liability
|
|
|
(178,938
|
)
|
|
|
2,771,778
|
|
Foreign exchange rate
|
|
|
12,598
|
|
|
|
60,972
|
|
Loss on disposal of asset
|
|
|
(2,134
|
)
|
|
|
-
|
|
Interest expense
|
|
|
(745,542
|
)
|
|
|
(516,060
|
)
|
|
|
|
|
|
|
|
|
|
Net Loss before Income Taxes
|
|
|
(4,449,606
|
)
|
|
|
(1,032,091
|
)
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
(1,856
|
)
|
|
|
(800
|
)
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(4,451,462
|
)
|
|
$
|
(1,032,891
|
)
|
|
|
|
|
|
|
|
|
|
Basic and diluted (loss) per common share
|
|
$
|
(0.03
|
)
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
168,705,751
|
|
|
|
108,864,680
|
|
The
accompanying notes are an integral part of these financial statements
eWELLNESS
HEALTHCARE CORPORATION
STATEMENT
OF STOCKHOLDERS’ DEFICIT
|
|
Preferred Shares
|
|
|
Common Shares
|
|
|
Shares to
|
|
|
Additional Paid
in
|
|
|
Accumulated
|
|
|
Total Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
be issued
|
|
|
Capital
|
|
|
Deficit
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016
|
|
|
-
|
|
|
$
|
-
|
|
|
|
51,434,307
|
|
|
$
|
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 conversions
|
|
|
-
|
|
|
|
-
|
|
|
|
27,680,899
|
|
|
|
27,681
|
|
|
|
(84,000
|
)
|
|
|
281,319
|
|
|
|
-
|
|
|
|
225,000
|
|
Shares issued for debt conversion
|
|
|
-
|
|
|
|
-
|
|
|
|
55,534,548
|
|
|
|
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
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributed services
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
220,500
|
|
|
|
-
|
|
|
|
220,500
|
|
Option expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
467,938
|
|
|
|
-
|
|
|
|
467,938
|
|
Shares issued to officers, directors and consultants
|
|
|
-
|
|
|
|
-
|
|
|
|
17,400,000
|
|
|
|
17,400
|
|
|
|
-
|
|
|
|
332,688
|
|
|
|
-
|
|
|
|
350,088
|
|
Shares issued for contribution
|
|
|
-
|
|
|
|
-
|
|
|
|
1,000,000
|
|
|
|
1,000
|
|
|
|
-
|
|
|
|
69,000
|
|
|
|
-
|
|
|
|
70,000
|
|
Shares issued for debt conversion
|
|
|
-
|
|
|
|
-
|
|
|
|
35,285,678
|
|
|
|
35,286
|
|
|
|
-
|
|
|
|
2,077,161
|
|
|
|
-
|
|
|
|
2,112,447
|
|
Shares issued for prepaid services
|
|
|
-
|
|
|
|
-
|
|
|
|
2,600,000
|
|
|
|
2,600
|
|
|
|
-
|
|
|
|
236,700
|
|
|
|
-
|
|
|
|
239,300
|
|
Shares issued for services
|
|
|
-
|
|
|
|
-
|
|
|
|
5,300,000
|
|
|
|
5,300
|
|
|
|
-
|
|
|
|
506,815
|
|
|
|
-
|
|
|
|
512,115
|
|
Shares issued for financing costs
|
|
|
-
|
|
|
|
-
|
|
|
|
2,468,867
|
|
|
|
2,469
|
|
|
|
-
|
|
|
|
124,905
|
|
|
|
-
|
|
|
|
127,374
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,451,462
|
)
|
|
|
(4,451,462
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2018
|
|
|
-
|
|
|
$
|
-
|
|
|
|
206,406,951
|
|
|
$
|
206,407
|
|
|
$
|
-
|
|
|
$
|
17,213,838
|
|
|
$
|
(21,401,234
|
)
|
|
$
|
(3,980,989
|
)
|
The
accompanying notes are an integral part of these financial statements
eWELLNESS
HEALTHCARE CORPORATION
STATEMENT
OF CASH FLOWS
|
|
Year Ended
|
|
|
|
December 31, 2018
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(4,451,462
|
)
|
|
$
|
(1,032,891
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
5,982
|
|
|
|
5,123
|
|
Contributed services
|
|
|
220,500
|
|
|
|
222,000
|
|
Shares issued for consulting services
|
|
|
512,115
|
|
|
|
355,880
|
|
Shares issued for contribution
|
|
|
70,000
|
|
|
|
-
|
|
Shares issued for financing costs
|
|
|
127,374
|
|
|
|
-
|
|
Shares issued to directors and consultants
|
|
|
350,088
|
|
|
|
-
|
|
Options expense
|
|
|
467,938
|
|
|
|
434,376
|
|
Amortization of debt discount and prepaids
|
|
|
812,499
|
|
|
|
1,400,782
|
|
Loss on disposal of fixed assets
|
|
|
2,134
|
|
|
|
-
|
|
(Gain) on settlement of debt
|
|
|
(159,479
|
)
|
|
|
-
|
|
Foreign currency exchange
|
|
|
(12,598
|
)
|
|
|
(60,972
|
)
|
(Gain) loss on derivative liability
|
|
|
178,938
|
|
|
|
(2,771,778
|
)
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
|
|
Prepaid expense
|
|
|
22,479
|
|
|
|
(49,752
|
)
|
Accounts payable and accrued expenses
|
|
|
130,454
|
|
|
|
111,332
|
|
Accounts payable - related party
|
|
|
332,661
|
|
|
|
197,029
|
|
Accrued expenses - related party
|
|
|
60,067
|
|
|
|
106,399
|
|
Accrued compensation
|
|
|
42,101
|
|
|
|
131,369
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(1,288,209
|
)
|
|
|
(951,103
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Purchase of equipment
|
|
|
(14,233
|
)
|
|
|
(2,910
|
)
|
Net cash used in investing activities
|
|
|
(14,233
|
)
|
|
|
(2,910
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Proceeds from issuance of convertible debt
|
|
|
1,922,600
|
|
|
|
1,107,500
|
|
Original issue discount and debt issuance costs
|
|
|
(242,700
|
)
|
|
|
(160,600
|
)
|
Payments on debt
|
|
|
(1,005
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
1,678,895
|
|
|
|
946,900
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
376,453
|
|
|
|
(7,113
|
)
|
|
|
|
|
|
|
|
|
|
Cash, beginning of period
|
|
|
6,882
|
|
|
|
13,995
|
|
|
|
|
|
|
|
|
|
|
Cash, end of period
|
|
$
|
383,335
|
|
|
$
|
6,882
|
|
|
|
|
|
|
|
|
|
|
Supplemental Information:
|
|
|
|
|
|
|
|
|
Cash paid for:
|
|
|
|
|
|
|
|
|
Taxes
|
|
$
|
1,856
|
|
|
$
|
800
|
|
Interest Expense
|
|
$
|
-
|
|
|
$
|
-
|
|
Non-cash items:
|
|
|
|
|
|
|
|
|
Warrants issued with debt
|
|
$
|
-
|
|
|
$
|
89,890
|
|
Derivative liability and debt discount issued with new notes
|
|
$
|
1,099,732
|
|
|
$
|
428,250
|
|
Shares issued for debt conversion
|
|
$
|
1,456,782
|
|
|
$
|
5,528,421
|
|
Exercise of warrants
|
|
$
|
-
|
|
|
$
|
109,979
|
|
Shares issued for extinguishment of accounts payable
|
|
$
|
-
|
|
|
$
|
225,000
|
|
Shares issued to officers recorded as reduction of contributed capital
|
|
$
|
1,215,912
|
|
|
|
-
|
|
Shares issued for prepaids
|
|
$
|
239,300
|
|
|
$
|
389,500
|
|
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 (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.
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, 2018, the Company had no revenues. The Company has an accumulated deficit of $21,401,234 and a working
capital deficit of $4,006,081. 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, 2018, the Company had the following assets and liabilities measured at fair value on a recurring basis.
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Derivative Liability
|
|
$
|
1,584,102
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,584,102
|
|
Total Liabilities measured at fair value
|
|
$
|
1,584,102
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,584,102
|
|
As
of December 31, 2017, the Company had the following assets and liabilities measured at fair value on a recurring basis.
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Derivative Liability
|
|
$
|
1,140,578
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,140,578
|
|
Total Liabilities measured at fair value
|
|
$
|
1,140,578
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,140,578
|
|
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
|
|
5-7 Years
|
Computer Equipment
|
|
5-7 Years
|
Software
|
|
3 Years
|
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,
2018 and 2017, 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, 2018 and 2017, 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 include all cash deposits and highly liquid financial instruments with an original maturity to the Company
of three months or less. The Company maintains cash in bank deposit accounts which, at times, may exceed federally insured limits.
The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash
and cash equivalents.
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, 2018 and 2017, 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
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Options
|
|
|
2,850,000
|
|
|
|
12,064,583
|
|
Warrants
|
|
|
3,718,179
|
|
|
|
8,753,179
|
|
Convertible Notes
|
|
|
25,330,273
|
|
|
|
14,579,595
|
|
|
|
|
31,898,452
|
|
|
|
35,397,357
|
|
Recent
Accounting Pronouncements
In
July 2017, the FASB issued ASU No. 2017-11, “Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic
480), Derivative and Hedging (Topic 815). The amendments in Part I of this update change the classification analysis of certain
equity-linked financial instruments (or embedded features) with down round features. When determining whether certain financial
instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification
when assessing whether the instrument is indexed to an entity’s own stock. As a result, a freestanding equity-linked financial
instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value. For freestanding
equity classified financial instruments, the amendments require entities that present earnings per share (EPS) in accordance with
Topic 260 to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as
a reduction of income available to common shareholders in basic EPS. The amendments in Part I of this update are effective for
fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted including
adoption in an interim period. The Company is currently assessing the impact of this guidance on its financial statements.
In
June 2018, the FASB issued ASU 2018-07, “Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based
Payment Accounting”, which expands the scope of Topic 718 to include all share-based payment transactions for acquiring
goods and services from nonemployees. ASU 2018-07 specifies that Topic 718 applies to all share-based payment transactions in
which the grantor acquires goods and services to be used or consumed in its own operations by issuing share-based payment awards.
ASU 2018-07 also clarifies that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to
the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for
under ASC 606. The amendments in ASU 2018-07 are effective for fiscal years beginning after December 15, 2018, including interim
periods within those fiscal years. The Company is currently assessing the impact of this guidance on its financial statements.
The
Company has reviewed all other 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 consist of computer equipment that is stated at cost $22,654 and $11,331 less accumulated depreciation of $8,562
and $6,311 for the years ended December 31, 2018 and 2017, respectively. Depreciation expense was $3,028 and $2,169 for the years
ended December 31, 2018 and 2017, 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 $13,770 and $10,816 for the years ended December
31, 2018 and 2017, respectively. For the years ended December 31, 2018 and 2017, 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.
Net
deferred tax liabilities consist of the following components as of December 31, 2018 and 2017:
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
NOL carryover
|
|
$
|
1,204,500
|
|
|
$
|
1,058,800
|
|
Accrued payroll
|
|
|
233,800
|
|
|
|
278,600
|
|
Deferred rent
|
|
|
-
|
|
|
|
300
|
|
Related party accruals
|
|
|
143,700
|
|
|
|
-
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
300
|
|
|
|
(300
|
)
|
Valuation allowance
|
|
|
(1,582,300
|
)
|
|
|
(1,337,400
|
)
|
Net deferred tax asset
|
|
$
|
-
|
|
|
$
|
-
|
|
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, 2018 and 2017 due to the following:
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Book loss
|
|
$
|
(934,800
|
)
|
|
$
|
(268,600
|
)
|
Depreciation
|
|
|
-
|
|
|
|
(100
|
)
|
Contributed services
|
|
|
46,300
|
|
|
|
57,700
|
|
Meals & entertainment
|
|
|
4,200
|
|
|
|
3,600
|
|
Stock for prepaids
|
|
|
63,200
|
|
|
|
255,400
|
|
Stock for consulting
|
|
|
222,500
|
|
|
|
92,500
|
|
Option expense
|
|
|
98,300
|
|
|
|
112,900
|
|
Amortization of debt discount
|
|
|
107,400
|
|
|
|
108,800
|
|
Accrued payroll
|
|
|
8,800
|
|
|
|
34,200
|
|
Loss on conversion of debt
|
|
|
(159,500
|
)
|
|
|
-
|
|
Loss on derivative
|
|
|
37,600
|
|
|
|
(720,700
|
|
Valuation allowance
|
|
|
506,000
|
|
|
|
324,300
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
At
December 31, 2018, the Company had net operating loss carryforwards of approximately $5,736,000 that may be offset against future
taxable income from the year 2019 through 2038. No tax benefit has been reported in the December 31, 2018 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, 2018 and 2017, 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, 2017, 2016 and 2015 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
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 (“CTO”) 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. Following an initial
payment of $100,000 to cover development and compensation for the CTO, the Company is obligated to 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 established that the Company as 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, 2018, the Company had a payable of $682,832 due to this company.
For
the first nine months of the year ended December 31, 2018, the Company rented office space from a company formerly owned
by our CEO. The imputed rent expense of $500 per month for that nine months is recorded in the Statement of Operations
and Additional Paid in Capital in the Balance Sheet. At the end of September 2018, the Company rented other office space from
a third-party provider.
Throughout
the year ended December 31, 2018, 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, 2018 and December 31, 2017 were $3,076 and $5,828, respectively. There
were no expenses due to the board members, but the Company has accrued directors’ fees of $211,000 and $205,000 at December
31, 2018 and December 31, 2017, respectively. Because the Company is not yet profitable the officers have agreed to defer compensation.
The Company had accrued executive compensation of $1,113,470 and $1,071,369 at December 31, 2018 and December 31, 2017 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. In October 2017 the complainant and his counsel motioned to dismiss
the unlicensed lender assertion. In January 2018 the U.S. District Court, Louisiana ruled that the unlicensed lender assertion
was to proceed.
On
June 20, 2018, a settlement agreement was signed between the Company and holder of the note payable with the following terms for
the cancellation of the note payable, accrued interest and all warrants issued relating to the note:
|
1.
|
The Company will
issue 2,709,444 shares of commons stock that is immediately tradeable under Securities and Exchange Commission Rule 144, but
subject to a daily trading limit of 25,000 shares per day;
|
|
2.
|
The Company will
issue 1,290,556 shares of common stock that shall be subject to a 180-day holding period and are also subject to a daily trading
limit of 25,000 shares per day;
|
|
3.
|
The holder of the
note payable shall bear all fees and expenses, including attorneys’ fees, associated with the transfer and trading of
the Company’s shares;
|
|
4.
|
Beyond issuing the
shares noted above, the Company shall not take any additional action that would cause the note holder to incur tax consequence
from the transfer or would affect the note holder’s tax consequences in any way.
|
The
Company issued the 4,000,000 shares of common stock on June 20, 2018. At December 31, 2018, the Company had no indebtedness to
this holder of the note payable principal or accrued interest.
During
the years ended December 31, 2018 and 2017, the Company recognized interest expense totaling $15,183 and $32,409, respectively.
Note
8. Convertible Notes Payable
In
January 2018, the Company executed an 8% Convertible Promissory Note payable to an institutional investor in the principal amount
of $110,000. During the year ended December 31, 2018, the note, which was due on October 12, 2018, and accrued interest totaling
$4,489 was fully converted into 2,412,827 shares of common stock at a price of $.04745 per share.
In
January 2018, the Company executed an 12% Convertible Promissory Note payable to an institutional investor in the principal amount
of $91,300. During the year ended December 31, 2018, the note, which was due on October 30, 2018, and accrued interest totaling
$4,980 was fully converted into 1,630,799 shares of common stock at prices ranging from $.0583 to $.0603.
In
February 2018, the Company executed an 12% Convertible Promissory Note payable to an institutional investor in the principal amount
of $63,800. During year ended December 31, 2018, the note, which was due on November 30, 2018, and accrued interest totaling $3,480
was fully converted into 1,309,799 shares of common stock at prices ranging from $.0487 to $.0532.
In
March 2018, the Company executed an 8% Convertible Promissory Note payable to an institutional investor in the principal amount
of $77,000. As of June 30, 2018, the institutional investor exercised its MFN provision in Paragraph 4a increasing the OID from
the stated in the note from 10% to 15% thus increasing the amount owed to $80,500. During the year ended December 31, 2018, the
note, which was due on December 5, 2018, and accrued interest totaling $5,928 was fully converted into 2,402,436 shares of common
stock at a price of $.036.
In
March 2018, the Company executed an 12% Convertible Promissory Note payable to an institutional investor in the principal amount
of $72,450. During the year ended December 31, 2018, the note, which was due on December 30, 2018, and accrued interest totaling
$3,780 was fully converted into 1,877,796 shares of common stock at prices ranging from $.0393 to $.0437.
In
May 2018, the Company executed an 8% Convertible Promissory Note payable to an institutional investor in the principal amount
of $125,000. During the year ended December 31, 2018, the note, which is due on May 10, 2019, and accrued interest totaling $415
was fully converted into 1,626,268 shares of common stock at prices ranging from $.0628 to $.1032. At the year ended December
31, 2018, the Company is still liable for $5,288 of accrued interest that has not yet been converted.
In
May 2018, the Company executed an 12% Convertible Promissory Note payable to an institutional investor in the principal amount
of $51,750. During the year ended December 31, 2018, the note, which is due on March 1, 2019, and accrued interest of $2,700 was
fully converted into 658,722 shares of common stock at prices ranging from $.081 and $.085.
In
July 2018, the Company executed an 12% Convertible Promissory Note payable to an institutional investor in the principal amount
of $56,500. The note, which is due on April 17, 2019 has an original issue discount of $6,500. The convertible notes convert into
common stock of the Company at conversion price that shall be equal to the lesser of: (i) $0.21 or (ii) 75% of the lowest per
share trading price for the thirty (30) trading days before the issued date of this note. The Company issued 100,000 shares of
common stock valued at $8,000 upon the execution of this note. During the year ended December 31, 2018, the Company recognized
interest expense of $2,991.
In
July 2018, the Company executed an 3% Convertible Promissory Note payable to an institutional investor in the principal amount
of $180,000 for funding in three tranches. The note, which is due twelve months from the date of each individual tranche, has
an original issue discount of $10,000 per tranche. The convertible notes convert into common stock of the Company at conversion
price that shall be equal to 75% of the market price which is lowest trading price during the twenty (20) trading day period ending
on the last complete trading day prior to the conversion date. The trading price is the lesser of: (i) lowest traded price or
(ii) the lowest closing bid price on the OTCQB. The first tranche of $60,000 was received in the month of July and second tranche
of $30,000 was received in the month of August. During the year ended December 31, 2018, the Company recognized interest expense
of $1,102.
In
July 2018, the Company executed an 12% Convertible Promissory Note payable to an institutional investor in the principal amount
of $28,250. The note, which is due on April 17, 2019 has an original issue discount of $3,250. The convertible notes convert into
common stock of the Company at conversion price that shall be equal to the lesser of: (i) $0.21 or (ii) 75% of the lowest per
share trading price for the thirty (30) trading days before the issued date of this note. The Company issued 50,000 shares of
common stock valued at $4,000 upon the execution of this note. During the year ended December 31, 2018, the Company recognized
interest expense of $1,495.
In
July 2018, the Company executed an 12% Convertible Promissory Note payable to an institutional investor in the principal amount
of $77,000. As of September 30, 2018, the institutional investor exercised its MFN provision in Paragraph 4a increasing the OID
from the stated in the note from 10% to 15% thus increasing the amount owed to $80,500. The note, which is due on April 5, 2019,
has an original issue discount of $7,000. The convertible notes convert into common stock of the Company at conversion price that
shall be equal to the lesser of: (i) $0.06 or (ii) 75% of the lowest per share trading price for the ten (10) trading days before
the conversion date. During the year ended December 31, 2018, the Company recognized interest expense of $4,870.
In
July 2018, the Company executed an 12% Convertible Promissory Note payable to an institutional investor in the principal amount
of $60,950. The note, which is due on April 30, 2019 has an original issue discount of $7,950. The convertible notes convert into
common stock of the Company at conversion price that shall be equal to the lesser of: (i) $.20 or (ii) variable conversion price
which is 75% of the average of the lowest (2) VWAP for the ten (10) trading day period ending on the latest compete trading day
prior to the conversion date. During the year ended December 31, 2018, the Company recognized interest expense of $3,647.
In
August 2018, the Company executed an 12% Convertible Promissory Note payable to an institutional investor in the principal amount
of $58,300. The note, which is due on June 15, 2019 has an original issue discount of $5,300. The convertible notes convert into
common stock of the Company at conversion price that shall be equal to the lesser of: (i) $.20 or (ii) variable conversion price
which is 75% of the average of the two (2) lowest VWAP for the ten (10) trading day period ending on the latest compete trading
day prior to the conversion date. During the year ended December 31, 2018, the Company recognized interest expense of $2,338.
In
October 2018, the Company executed an 12% Convertible Promissory Note payable to an institutional investor in the principal amount
of $47,300. The note, which is due on July 15, 2019 has an original issue discount of $7,300. The convertible notes convert into
common stock of the Company at conversion price that shall be equal to the variable conversion price which is 70% of the average
of the two (2) lowest VWAP for the ten(10) trading day period ending on the latest compete trading day prior to the conversion
date. During the year ended December 31, 2018, the Company recognized interest expense of $1,291.
In
October 2018, the Company executed an 8% Convertible Promissory Note payable to an institutional investor in the principal amount
of $165,000. The note, which is due on October 12, 2019 has an original issue discount of $15,000. The convertible notes convert
into common stock of the Company at conversion price that shall be equal to 65% of the lowest per share closing price during the
fifteen (15) trading days immediately preceding the date of the notice of conversion. The first tranche of $110,000 was received
in the month of October and the second tranche of $55,000 was received in the month of November. During the year ended December
31, 2018, the Company recognized interest expense of $2,594.
In
October 2018, the Company executed an 8% Convertible Promissory Note payable to an institutional investor in the principal amount
of $308,000. The note, which is due on October 29, 2019 has an original issue discount of $33,000. The convertible notes convert
into common stock of the Company at conversion price that shall be equal to the 70% of the average of the two (2) lowest per share
trading prices for the twenty (20) trading days prior to the conversion date. During the year ended December 31, 2018, the Company
recognized interest expense of $4,118.
In
October 2018, the Company executed an 8% Convertible Promissory Note payable to an institutional investor in the principal amount
of $308,000. The note, which is due on October 29, 2019 has an original issue discount of $33,000. The convertible notes convert
into common stock of the Company at conversion price that shall be equal to the 70% of the average of the two (2) lowest per share
trading prices for the twenty (20) trading days prior to the conversion date. During the year ended December 31, 2018, the Company
recognized interest expense of $4,118.
In
November 2018, a Back-End note executed in May 2018 with an institutional investor was funded. The Back-End note is an 8% Convertible
Promissory Note payable in the principal amount of $125,000. The note, which is due on May 10, 2019 has an original issue discount
of $10,000. The convertible notes convert into common stock of the Company at conversion price that shall be equal to 72% of the
lowest VWAP for the ten (10) trading days prior to and including the conversion date. Conversion into shares of common stock can
commence following the 180
th
calendar day after the Original Issue Date. During the year ended December 31, 2018, the
Company recognized interest expense of $1,123.
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. Since there can be no assurance that up listing on the NASDAQ will be achieved, the Company
informed FINRA that it was withdrawing the application and 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, 2018.
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
Settlement Shares
During
the year ended December 31, 2018, the Company issued 4,000,000 shares of common stock for settlement of a complaint filed in the
United States Federal District Count (see Note 7). The debt settled totaled $236,869 which includes $56,817 of accrued interest.
Debt
Conversion Shares
During
the year ended December 31, 2018, the Company issued a total of 31,285,678 shares of common stock per debt conversion of various
convertible notes (See Note 7). The total of the debt conversion was $1,284,582 principal plus $172,200 accrued interest.
During
the year ended December 31, 2018, the Company issued 2,468,867 shares of common stock for financing costs relating to convertible
debt. The value of the financing costs was $127,374.
Consultant
Issued Shares
During
the year ended December 31, 2018, the Company issued 7,900,000 shares of common stock for marketing and consulting services valued
at $751,415.
Institutional
Investor Shares
During
the year ended December 31, 2018, the Company issued 1,000,000 shares of common stock as an inducement per an Equity Purchase
Agreement with an institutional investor within which the investor agrees to purchase up to $1,500,000 of the Company’s
common stock, par value $0.001. The value of these shares is $70,000.
Officers,
Directors, and Consultants Shares
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. These shares were issued on
November 1, 2018 valued at $1,566,000. Of that amount, $1,215,912 was recorded against previously contributed capital
from management and members of the Board of Directors.
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.
During
the year ended December 31, 2018, the options authorized by the Board of Directors in December 2016 to be issued to officers,
directors and certain consultants expired because of the two-year exercise date.
The
following is a summary of the status of all Company’s stock options as of December 31, 2018 and changes during the periods
ended on December 31, 2018 and 2017, respectively:
|
|
Number
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
of Stock
|
|
|
Average
|
|
|
Remaining
|
|
|
Intrinsic
|
|
|
|
Options
|
|
|
Exercise Price
|
|
|
Life (yrs)
|
|
|
Value
|
|
Outstanding at January 1, 2017
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
Granted
|
|
|
20,250,000
|
|
|
|
0.27
|
|
|
|
3.2
|
|
|
|
0.011
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
(250,000
|
)
|
|
|
1.00
|
|
|
|
-
|
|
|
|
|
|
Outstanding at December 31, 2017
|
|
|
20,000,000
|
|
|
$
|
0.26
|
|
|
|
1.9
|
|
|
$
|
-
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
(17,150,000
|
)
|
|
|
0.17
|
|
|
|
-
|
|
|
|
|
|
Outstanding at December 31, 2018
|
|
|
2,850,000
|
|
|
|
0.80
|
|
|
|
2.2
|
|
|
$
|
-
|
|
Options exercisable at December 31, 2018
|
|
|
2,850,000
|
|
|
$
|
0.80
|
|
|
|
2.2
|
|
|
$
|
-
|
|
The
Company recognized stock option expense of $467,938 and $434,376 for the years ended December 31, 2018 and 2017, respectively.
Warrants
During
the year ended December 31, 2017, the Company issued 1,300,750 warrants as part of a financing agreement at an exercise price
of $.25 and an expiration date of five years.
During
the year ended December 31, 2017, 1,363,277 warrants authorized by the Company as part of notes payable and financing agreements
were exercised.
During
the year ended December 31, 2017, 300,485 warrants authorized by the Company as part of notes payable were expired because of
the three-year expiration 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.
The Company recognized an incremental expense of $33,463 for the change.
During
the year ended December 31, 2018, 4,975,000 warrants authorized by the Company as part of a note payable were cancelled as part
of the settlement agreement with a holder of a note payable. (see Note 7)
The
following is a summary of the status of the Company’s warrants as of December 31, 2018 and changes during the periods ended
on December 31, 2018 and 2017, respectively:
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Average
Exercise
|
|
|
Remaining
|
|
|
Intrinsic
|
|
|
|
Warrants
|
|
|
Price
|
|
|
Life (yrs.)
|
|
|
Value
|
|
Outstanding at January 1, 2017
|
|
|
9,116,190
|
|
|
$
|
0.21
|
|
|
|
2.9
|
|
|
$
|
0.103
|
|
Granted
|
|
|
1,300,750
|
|
|
|
0.25
|
|
|
|
5.0
|
|
|
|
-
|
|
Exercised
|
|
|
(1,363,277
|
)
|
|
|
0.01
|
|
|
|
-
|
|
|
|
0.178
|
|
Cancelled
|
|
|
(300,484
|
)
|
|
|
0.35
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding at December 31, 2017
|
|
|
8,753,179
|
|
|
$
|
0.22
|
|
|
|
2.9
|
|
|
$
|
0.103
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Cancelled
|
|
|
(4,975,000
|
)
|
|
|
0.05
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding at December 31, 2018
|
|
|
3,778,179
|
|
|
$
|
0.48
|
|
|
|
1.4
|
|
|
$
|
0.037
|
|
Warrants exercisable at December 31, 2018
|
|
|
3,778,179
|
|
|
$
|
0.48
|
|
|
|
1.4
|
|
|
$
|
0.037
|
|
For
purpose of determining the fair market value of the warrants and options issued during the year ended December 31, 2018, 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
|
|
$
|
.20
|
|
Exercise price of warrants
|
|
$
|
.25
|
|
Dividend yield
|
|
|
0.00
|
%
|
Years to maturity
|
|
|
3
|
|
Risk free rate
|
|
|
2.46
|
%
|
Expected volatility
|
|
|
113.53-229.92
|
%
|
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. In October 2017 the complainant and his counsel motioned to dismiss
the unlicensed lender assertion. In January 2018 the U.S. District Court, Louisiana ruled that the unlicensed lender assertion
was to proceed.
On
June 20, 2018, a settlement agreement was signed between the Company and holder of the note payable with the following terms for
the cancellation of the note payable, accrued interest and warrants:
|
1.
|
The
Company will issue 2,709,444 shares of commons stock that is immediately tradeable under Securities and Exchange Commission
Rule 144, but subject to a daily trading limit of 25,000 shares per day;
|
|
2.
|
The
Company will issue 1,290,556 shares of common stock that shall be subject to a 180-day holding period and are also subject
to a daily trading limit of 25,000 shares per day;
|
|
3.
|
The
holder of the note payable shall bear all fees and expenses, including attorneys’ fees, associated with the transfer
and trading of the Company’s shares;
|
|
4.
|
Beyond
issuing the shares noted above, the Company shall not take any additional action that would cause the note holder to incur
tax consequence from the transfer or would affect the note holder’s tax consequences in any way.
|
The
Company issued the 4,000,000 shares of common stock on June 20, 2018. At December 31, 2018, the Company had no indebtedness to
this holder of the note payable principal or accrued interest or warrants.
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, 2018
and 2017, the Company amortized the debt discount of $511,359 and $417,546, respectively, to interest expense.
During
the years ended December 31, 2018 and 2017, the Company had the following activity in the derivative liability account:
|
|
Notes
|
|
|
Warrants
|
|
|
Total
|
|
Derivative liability at January 1, 2017
|
|
$
|
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
|
|
Addition of new conversion option derivatives
|
|
|
1,243,333
|
|
|
|
-
|
|
|
|
1,243,333
|
|
Conversion of note derivatives
|
|
|
(429,927
|
)
|
|
|
-
|
|
|
|
(429,927
|
)
|
Extinguishment due to note cancellations
|
|
|
-
|
|
|
|
(202,610
|
)
|
|
|
(202,610
|
)
|
Changes in warrant derivatives
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Change in fair value
|
|
|
245,568
|
|
|
|
(412,839
|
)
|
|
|
(167,271
|
)
|
Reclassification of derivative to gain on extinguishment of debt
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Derivative liability at December 31, 2018
|
|
$
|
1,424,565
|
|
|
$
|
159,537
|
|
|
$
|
1,584,102
|
|
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
|
|
$
|
.050-.202
|
|
Exercise price of warrants
|
|
$
|
.004 -.25
|
|
Conversion rate of convertible debt
|
|
$
|
.020 – 0.2000
|
|
Risk free interest rate
|
|
|
1.91%-2.63
|
%
|
Stock volatility factor
|
|
|
101.5%-229.9
|
%
|
Years to Maturity
|
|
|
.08 – 3
|
|
Expected dividend yield
|
|
|
None
|
|
Note
12. Supplemental Cash Flow Information
During
the year ended December 31, 2017 the Company had the following non-cash investing and financing activities:
|
●
|
Issued
1,300,850 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
|
During
the year ended December 31, 2018 the Company had the following non-cash investing and financing activities:
|
●
|
Issued
2,468,867 shares of common stock for financing costs valued at $127,374.
|
|
|
|
|
●
|
Issued
1,000,000 shares of common stock as an inducement for an Equity Purchase Agreement valued at $70,000.
|
|
|
|
|
●
|
Issued
17,400,000 shares of common stock to officers, directors and certain consultants per the 2018 Equity Incentive plan valued
at $1,566,000.
|
|
|
|
|
●
|
Issued
4,000,000 shares of common stock for settlement of debt of $180,051 and accrued interest of $56,817 (see Note 7).
|
|
|
|
|
●
|
Issued
2,600,000 shares of common stock valued at $239,300 which was recorded as a prepaid.
|
|
|
|
|
●
|
Issued
5,300,000 shares of common stock valued at $512,115 for services
|
|
|
|
|
●
|
Issued
31,285,678 shares of common stock for the extinguishment of $1,284,582 worth of debt and $172,200 worth of accrued interest.
|
Note
13. Subsequent Events
On
January 8, 2019, the Company executed an 8% Convertible Promissory Note payable to an institutional investor in the principal
amount of $308,000. The note, which is due on January 8, 2020, has an original issue discount of $28,000. The convertible
note converts into common stock of the Company at conversion price that shall be equal to the 70% of the average of the two lowest
per share trading prices for the twenty (20) trading days prior to the conversion date.
On
January 8, 2019, the Company executed an 8% Convertible Promissory Note payable to an institutional investor in the principal
amount of $308,000. The note, which is due on January 8, 2020, has an original issue discount of $28,000. The convertible
note converts into common stock of the Company at conversion price that shall be equal to the 70% of the average of the two lowest
per share trading prices for the twenty (20) trading days prior to the conversion date.
On
January 8, 2019, the Company executed a consulting services agreement for the development of physical therapy care delivery and
the recruitment, training and evaluation of PHZIO users. The Company is to issue 1,000,000 shares of common stock equally over
a two-year period. The Company will also pay the consultant a monthly fee of $5,000.
On
January 9, 2019, the Company executed a 12% Convertible Promissory Note payable to an institutional investor in the principal
amount of $114,000. The note, which is due on October 30, 2019, has an original issue discount of $11,000. The convertible
note converts into common stock of the Company at a conversion price that shall be equal to the 70% average of the two lowest
per share trading prices for the ten (10) trading days prior to the conversion date.
On
January 28, 2019, the Company executed a 12% Convertible Promissory Note payable to an institutional investor in the principal
amount of $58,300. The note, which is due on November 15, 2019, has an original issue discount of $5,300. The convertible
note converts into common stock of the Company at a conversion price that shall be equal to the 70% average of the two lowest
per share trading prices for the ten (10) trading days prior to the conversion date.
On
February 1, 2019, the Company executed a six-month advisory services agreement for $2,500 per month for investor relations.
On
February 7, 2019, the Company executed an amendment to a contract executed on April 8, 2018 for twelve months for consultant services.
The Company issued 250,000 shares of common stock at the signing of the contract valued at $30,500 that is being amortized over
the life of the contract. In addition, the Company is to issue an additional 1,000,000 shares of common stock equally over the
twelve months of the contract and pay the consultant a monthly fee of $5,000.
On
February 28, 2019, the Company executed advisory services agreement. The Company is to issue 50,000 shares of common stock on
the first of each month for six months. In addition, the Company will also pay the advisor a monthly fee of $3,000. The Company
will also pay the advisor 1.5% override on all gross revenue received by the company due to a direct introduction by the consultant
to the customer providing revenue or leading to the chain of revenue source.
On
February 28, 2019, the Company executed advisory services agreement. The Company is to issue 50,000 shares of common stock on
the first of each month for six months. In addition, the Company will also pay the advisor a monthly fee of $3,000. The Company
will also pay the advisor 1.5% override on all gross revenue received by the company due to a direct introduction by the consultant
to the customer providing revenue or leading to the chain of revenue source.
On
March 18, 2019, the Company executed a Securities Purchase Agreement for Convertible Debentures to an institutional investor in
the principal amount of $365,000 to be funded in three tranches: $65,000 at signing, $100,000 forty-five (45) days after the signing
date and $200,000 forty-five (45) days after the second closing date. The debentures, which are payable on March 18, 2022, have
a 10% original issue discount and a commitment fee of $5,000 payable with the signing debenture. The debentures convert into common
stock of the Company at a conversion price equal to the lesser of (i) $.12 or (ii) seventy percent (70%) of the lowest traded
price (as reported by Bloomberg LP) of the common stock for the ten (10) trading days prior to the conversion date.
On March 18, 2019,
the Company executed a 12% Convertible Promissory Note payable to an institutional investor in the principal amount of $47,300.
The note, which is payable on January 20, 2020, has an original issue discount of 10%. The convertible note converts into common
stock of the Company at a conversion price equal to 70% of the average of the lowest two (2) trading prices during the ten (10)
trading day period ending on the last complete trading day prior to the conversion date.
On March 21, 2019,
the Company executed a 3% Convertible Promissory Note payable to an institutional investor in the principal amount of $360,000.
The note, which is payable twelve (12) months after each tranche is funded, has an original issue discount of $60,000. The original
issue discount will be prorated with each tranche paid. The first tranche of $60,000 is due at signing date. The convertible note
converts into common stock of the Company at a conversion price that shall be equal to 65% of the lesser of (i) lowest trading
price or (ii) the lowest closing bid price on the OTCQB during the twenty-five (25) trading day period ending on the last complete
trading day prior to the conversion date.
On March 21, 2019, the Company executed a 12% Convertible Promissory Note to an institutional investor
in the principal amount of $1,500,000 to be funded over two tranches of $750,000 each; the first tranche to be funded on signing.
The note, which is due and payable six (6) months after the funding date of each tranche, has an original issue discount of 10%.
The Company will issue 3,260,970 shares of restricted common stock, deemed to be returnable, on the closing date. These shares
will be returned if the Company repays the note prior to the maturity date. The value of these shares is $375,012. In addition,
the Company will issue 1,000,000 shares of restricted common stock as a commitment fee valued at $115,000. The convertible note
converts into common stock of the Company at a conversion price that shall be equal to 75% of the lowest trading price during
the thirty (30) day trading period ending on the last complete trading day prior to the conversion date.
During
the 1
st
Quarter of 2019, the Company issued 1,174,560 shares of common stock to consultants for services rendered in
accordance to consulting agreements. The value of these shares is $164,533.
During
the 1
st
Quarter of 2019, the Company issued 250,000 shares of common stock to a consultant with a value of $30,750.
The value of these shares is being amortized over the life of the contract.
During
the 1
st
Quarter of 2019, the Company issued 5,097,254 shares of common stock for debt conversion totaling $347,487
which includes $329,290 principal and $17,197 accrued interest.