ITEM
8: CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See
Index to Financial Statements and Financial Statement Schedules appearing on pages F-1 through F-24 of this Form 10-K.
eWELLNESS
HEALTHCARE CORPORATION
INDEX
TO FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2019 AND DECEMBER 31, 2018
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, 2019 and 2018, and the related statements of
operations, stockholders’ deficit and cash flows for each of the years in the two-year period ended December
31, 2019 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, 2019 and 2018,
and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2019,
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 significant 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
24, 2020
We
have served as the Company’s auditor since 2016
eWELLNESS
HEALTHCARE CORPORATION
BALANCE
SHEETS
|
|
December
31, 2019
|
|
|
December
31, 2018
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
240,722
|
|
|
$
|
383,335
|
|
Accounts receivable
|
|
|
3,635
|
|
|
|
-
|
|
Prepaid
expenses
|
|
|
157,139
|
|
|
|
95,508
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
401,496
|
|
|
|
478,843
|
|
|
|
|
|
|
|
|
|
|
Property & equipment,
net
|
|
|
22,810
|
|
|
|
14,092
|
|
Intangible
assets, net
|
|
|
9,000
|
|
|
|
11,000
|
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$
|
433,306
|
|
|
$
|
503,935
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
Accounts payable
and accrued expenses
|
|
$
|
310,747
|
|
|
$
|
236,741
|
|
Accounts payable
- related party
|
|
|
586,372
|
|
|
|
684,173
|
|
Accrued expenses
- related party
|
|
|
138,868
|
|
|
|
214,076
|
|
Accrued compensation
|
|
|
532,974
|
|
|
|
1,113,470
|
|
Contingent liability
|
|
|
-
|
|
|
|
90,000
|
|
Convertible debt,
net of discount
|
|
|
2,240,408
|
|
|
|
562,362
|
|
Derivative
liability
|
|
|
3,529,974
|
|
|
|
1,584,102
|
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
7,339,343
|
|
|
|
4,484,924
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
7,339,343
|
|
|
|
4,484,924
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
Preferred stock,
authorized, 20,000,000 shares, $.001 par value, 250,000 and 0 issued and outstanding, respectively
|
|
|
250
|
|
|
|
-
|
|
Common stock, authorized
4,500,000,000 shares, $.001 par value, 12,752,084 and 4,128,139 issued and outstanding, respectively
|
|
|
12,752
|
|
|
|
4,128
|
|
Shares to be issued
|
|
|
150
|
|
|
|
-
|
|
Additional paid
in capital
|
|
|
23,942,830
|
|
|
|
17,416,117
|
|
Accumulated
deficit
|
|
|
(30,862,019
|
)
|
|
|
(21,401,234
|
)
|
|
|
|
|
|
|
|
|
|
Total
Stockholders’ Deficit
|
|
|
(6,906,037
|
)
|
|
|
(3,980,989
|
)
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
|
$
|
433,306
|
|
|
$
|
503,935
|
|
The
accompanying notes are an integral part of these financial statements
eWELLNESS
HEALTHCARE CORPORATION
STATEMENTS
OF OPERATIONS
|
|
Year
Ended
|
|
|
|
December
31,
2019
|
|
|
December
31
2018
|
|
|
|
|
|
|
|
|
REVENUE
|
|
$
|
3,635
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
Executive compensation
|
|
|
408,000
|
|
|
|
408,000
|
|
General and administrative
|
|
|
1,492,944
|
|
|
|
1,156,938
|
|
Professional
fees
|
|
|
2,403,898
|
|
|
|
2,130,131
|
|
|
|
|
|
|
|
|
|
|
Total
Operating Expenses
|
|
|
4,304,842
|
|
|
|
3,695,069
|
|
|
|
|
|
|
|
|
|
|
Loss from Operations
|
|
|
(4,301,207
|
)
|
|
|
(3,695,069
|
)
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
41
|
|
|
|
-
|
|
Gain (loss) on extinguishment
of debt
|
|
|
-
|
|
|
|
159,479
|
|
Gain (loss) on derivative
liability
|
|
|
(720,653
|
)
|
|
|
(178,938
|
)
|
Gain on contingent
liability
|
|
|
90,000
|
|
|
|
-
|
|
Foreign exchange
rate
|
|
|
-
|
|
|
|
12,598
|
|
Loss on disposal
of asset
|
|
|
-
|
|
|
|
(2,134
|
)
|
Interest
expense
|
|
|
(4,527,336
|
)
|
|
|
(745,542
|
)
|
|
|
|
|
|
|
|
|
|
Net Loss before
Income Taxes
|
|
|
(9,459,155
|
)
|
|
|
(4,449,606
|
)
|
|
|
|
|
|
|
|
|
|
Income
tax expense
|
|
|
(1,630
|
)
|
|
|
(1,856
|
)
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
$
|
(9,460,785
|
)
|
|
$
|
(4,451,462
|
)
|
|
|
|
|
|
|
|
|
|
Basic and
diluted (loss) per common share
|
|
$
|
(1.86
|
)
|
|
$
|
(1.32
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average
shares outstanding
|
|
|
5,083,148
|
|
|
|
3,374,115
|
|
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
|
|
|
Accumulated
|
|
|
Total
Stock holders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
50:1
split
|
|
|
Amount
|
|
|
be
issued
|
|
|
Paid
in Capital
|
|
|
Deficit
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2017
|
|
|
-
|
|
|
$
|
-
|
|
|
|
2,847,048
|
|
|
$
|
2,847
|
|
|
$
|
-
|
|
|
$
|
13,317,636
|
|
|
$
|
(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
|
|
|
-
|
|
|
|
-
|
|
|
|
348,000
|
|
|
|
348
|
|
|
|
-
|
|
|
|
349,740
|
|
|
|
-
|
|
|
|
350,088
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for contribution
|
|
|
-
|
|
|
|
-
|
|
|
|
20,000
|
|
|
|
20
|
|
|
|
-
|
|
|
|
69,980
|
|
|
|
-
|
|
|
|
70,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for debt
conversion
|
|
|
-
|
|
|
|
-
|
|
|
|
705,714
|
|
|
|
706
|
|
|
|
-
|
|
|
|
2,111,741
|
|
|
|
-
|
|
|
|
2,112,447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for financing
costs
|
|
|
-
|
|
|
|
-
|
|
|
|
49,377
|
|
|
|
49
|
|
|
|
-
|
|
|
|
127,325
|
|
|
|
-
|
|
|
|
127,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for prepaid
services
|
|
|
-
|
|
|
|
-
|
|
|
|
52,000
|
|
|
|
52
|
|
|
|
-
|
|
|
|
239,248
|
|
|
|
-
|
|
|
|
239,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for services
|
|
|
-
|
|
|
|
-
|
|
|
|
106,000
|
|
|
|
106
|
|
|
|
-
|
|
|
|
512,009
|
|
|
|
-
|
|
|
|
512,115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,451,462
|
)
|
|
|
(4,451,462
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2018
|
|
|
-
|
|
|
$
|
-
|
|
|
|
4,128,139
|
|
|
$
|
4,128
|
|
|
$
|
-
|
|
|
$
|
17,416,117
|
|
|
$
|
(21,401,234
|
)
|
|
$
|
(3,980,989
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributed services
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
216,000
|
|
|
|
-
|
|
|
|
216,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued to officers,
directors and consultants
|
|
|
250,000
|
|
|
|
250
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
749,750
|
|
|
|
-
|
|
|
|
750,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for cash
|
|
|
-
|
|
|
|
-
|
|
|
|
16,000
|
|
|
|
16
|
|
|
|
-
|
|
|
|
59,084
|
|
|
|
-
|
|
|
|
59,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for debt
conversion
|
|
|
-
|
|
|
|
-
|
|
|
|
8,225,381
|
|
|
|
8,225
|
|
|
|
-
|
|
|
|
3,929,566
|
|
|
|
-
|
|
|
|
3,937,791
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for financing
costs
|
|
|
-
|
|
|
|
-
|
|
|
|
20,000
|
|
|
|
20
|
|
|
|
-
|
|
|
|
114,980
|
|
|
|
-
|
|
|
|
115,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for prepaid
services
|
|
|
-
|
|
|
|
-
|
|
|
|
235,064
|
|
|
|
235
|
|
|
|
-
|
|
|
|
945,726
|
|
|
|
-
|
|
|
|
945,961
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for services
|
|
|
-
|
|
|
|
-
|
|
|
|
127,500
|
|
|
|
128
|
|
|
|
150
|
|
|
|
511,607
|
|
|
|
-
|
|
|
|
511,885
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(9,460,785
|
)
|
|
|
(9,460,785
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2019
|
|
|
250,000
|
|
|
$
|
250
|
|
|
|
12,752,084
|
|
|
$
|
12,752
|
|
|
$
|
150
|
|
|
$
|
23,942,830
|
|
|
$
|
(30,862,019
|
)
|
|
$
|
(6,906,037
|
)
|
The
accompanying notes are an integral part of these financial statements
eWELLNESS
HEALTHCARE CORPORATION
STATEMENT
OF CASH FLOWS
|
|
Year
Ended
|
|
|
|
December
31, 2019
|
|
|
December
31, 2018
|
|
|
|
|
|
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(9,460,785
|
)
|
|
$
|
(4,451,462
|
)
|
Adjustments to reconcile net loss to
net cash used in
operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
|
6,731
|
|
|
|
5,982
|
|
Contributed services
|
|
|
216,000
|
|
|
|
220,500
|
|
Shares issued for
consulting services
|
|
|
511,885
|
|
|
|
512,115
|
|
Shares issued for
contribution
|
|
|
-
|
|
|
|
70,000
|
|
Shares issued for
financing costs
|
|
|
135,900
|
|
|
|
127,374
|
|
Shares issued to
officers, directors and consultants
|
|
|
187,500
|
|
|
|
350,088
|
|
Options expense
|
|
|
-
|
|
|
|
467,938
|
|
Amortization of
debt discount and prepaids
|
|
|
4,805,376
|
|
|
|
812,499
|
|
Loss on disposal
of fixed asset
|
|
|
-
|
|
|
|
2,134
|
|
Gain on settlement
of debt
|
|
|
-
|
|
|
|
(159,479
|
)
|
Gain on contingent
liability
|
|
|
(90,000
|
)
|
|
|
-
|
|
Foreign currency
exchange gain
|
|
|
-
|
|
|
|
(12,598
|
)
|
Loss
on derivative liability
|
|
|
720,653
|
|
|
|
178,938
|
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
|
|
Prepaid expense
|
|
|
(49,197
|
)
|
|
|
22,479
|
|
Accounts receivable
|
|
|
(3,635
|
)
|
|
|
-
|
|
Accounts payable
and accrued expenses
|
|
|
231,762
|
|
|
|
130,454
|
|
Accounts payable
- related party
|
|
|
(97,800
|
)
|
|
|
332,661
|
|
Accrued expenses
- related party
|
|
|
(22,708
|
)
|
|
|
60,067
|
|
Accrued
compensation
|
|
|
(70,496
|
)
|
|
|
42,101
|
|
|
|
|
|
|
|
|
|
|
Net cash used
in operating activities
|
|
|
(2,978,814
|
)
|
|
|
(1,288,209
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Purchase of
equipment
|
|
|
(13,449
|
)
|
|
|
(14,233
|
)
|
Net cash used
in investing activities
|
|
|
(13,449
|
)
|
|
|
(14,233
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Shares issued for
cash
|
|
|
59,100
|
|
|
|
-
|
|
Proceeds from issuance
of convertible debt
|
|
|
4,458,450
|
|
|
|
1,922,600
|
|
Original issue discount
and debt issuance costs
|
|
|
(565,450
|
)
|
|
|
(242,700
|
)
|
Payments
on debt
|
|
|
(1,102,450
|
)
|
|
|
(1,005
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided
by financing activities
|
|
|
2,849,650
|
|
|
|
1,678,895
|
|
|
|
|
|
|
|
|
|
|
Net increase
(decrease) in cash
|
|
|
(142,613
|
)
|
|
|
376,453
|
|
|
|
|
|
|
|
|
|
|
Cash, beginning of period
|
|
|
383,335
|
|
|
|
6,882
|
|
|
|
|
|
|
|
|
|
|
Cash, end of period
|
|
$
|
240,722
|
|
|
$
|
383,335
|
|
|
|
|
|
|
|
|
|
|
Supplemental Information:
|
|
|
|
|
|
|
|
|
Cash paid for:
|
|
|
|
|
|
|
|
|
Taxes
|
|
$
|
1,600
|
|
|
$
|
1,856
|
|
Interest Expense
|
|
$
|
-
|
|
|
$
|
-
|
|
Non cash items:
|
|
|
|
|
|
|
|
|
Warrants issued
with debt
|
|
$
|
-
|
|
|
$
|
-
|
|
Derivative liability
and debt discount issued with new notes
|
|
$
|
4,385,384
|
|
|
$
|
1,099,732
|
|
Shares issued for
debt conversion
|
|
$
|
1,955,557
|
|
|
$
|
1,456,782
|
|
Exercise of warrants
|
|
$
|
-
|
|
|
$
|
-
|
|
Shares issued for
extinguishment of accounts payable
|
|
$
|
-
|
|
|
$
|
-
|
|
Shares issued to
directors and consultants as reduction of contributed capital
|
|
$
|
-
|
|
|
$
|
1,215,912
|
|
Shares issued for
prepaids
|
|
$
|
945,961
|
|
|
$
|
239,300
|
|
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 minimal revenues to date.
eWellness
Healthcare Corporation is the first physical therapy telehealth company to offer real-time distance monitored assessments and
treatments. Our business model is to have large-scale employers use our PHZIO platform as a fully PT monitored corporate musculoskeletal
treatment (“MSK”) wellness program. The Company’s PHZIO home physical therapy assessment and exercise platform
has been designed to disrupt the $30 billion physical therapy market, the $4 billion MSK market and the $8 billion corporate wellness
industry. PHZIO re-defines the way MSK physical therapy can be delivered. PHZIO is the first real-time remote monitored 1-to-many
MSK physical therapy platforms for home use.
We
have commenced treating patients on various commercial contracts and have generated minimal initial revenues during the 4th quarter
of 2019. Despite the lack of significant revenues, we continue to train physical therapist on using our PHZIO treatment platform,
with many of these therapists treating various patients on our system on a complimentary basis. Our PHZIO system has delivered
over 4,000 telerehab treatments to date.
Our
latest challenges in the Workers Compensation space has been patient adoption of PHZIO, related to a patients’ choice to
choose if they are treated in-clinic or digitally. They are nearly all choosing in-clinic care. Our pivot to address this issue
was to develop and sell MSK 360 a pre-injury fitness exam and custom exercise platform that is just rolling out now. Next, we
finally are getting traction for our Per-Hab product with several large TPA’s. Lastly, multiple clients are requesting a
Rheumatoid Arthritis Exercise product (RA 360) that is currently being developed with a launch date of mid-January. With the success
of MSK 360 we expect that more Workers Comp patients will choose digital care over in-clinic care.
We
have now developed four key products with large scale users that need to turn on utilization in 2020. We have a large list of
corporate self-insured, TPA and insurance company sales book that we are actively focused on selling to them our MSK-360 and Pre-Hab
platforms. We expect good traction from many of these firms in 2020. These products are:
+PHZIO:
Realtime PT monitored Digital PT Treatments (post-injury)
+MSK
360: Digital “PHZIOFIT” fitness exam and customer exercise plans for employees, (pre-injury)
+Pre-Hab:
Digital pre-surgery (non-monitored) for Total Knee, Hip and Shoulder surgery (post injury and pre-surgery)
+RA
360: (Available January 2020) Rheumatoid Arthritis Exercise Plan
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”).
The
information regarding common stock shares, options and warrants throughout this document have been adjusted to reflect the 1:50
reverse split authorized by the Board of Directors on December 16, 2019 and further approved by FINRA on February 12, 2020.
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, 2019, the Company had minimal revenues. The Company has an accumulated deficit of $30,862,019 and
a working capital deficit of $6,937,847. 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, 2019, 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
|
|
$
|
3,529,974
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
3,529,974
|
|
Total Liabilities
measured at fair value
|
|
$
|
3,529,974
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
3,529,974
|
|
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
|
|
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,
2019 and 2018, 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, 2019 and 2018, 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, 2019 and 2018, 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
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Options
|
|
|
57,000
|
|
|
|
57,000
|
|
Warrants
|
|
|
42,015
|
|
|
|
74,364
|
|
Convertible Notes
|
|
|
1,782,346
|
|
|
|
506,605
|
|
|
|
|
1,881,361
|
|
|
|
637,969
|
|
Recent
Accounting Pronouncements
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 complies with the provisions of this amendment in recording share-based payment
transactions at grant date per the equity valuation on that date.
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 $31,888 and $22,654 less accumulated depreciation of $9,078
and $8,562 for the years ended December 31, 2019 and 2018, respectively. Depreciation expense was $4,731 and $3,028
for the years ended December 31, 2019 and 2018, 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 $15,770 and $13,770 for the years ended December
31, 2019 and 2018, respectively. For the years ended December 31, 2019 and 2018, the amortization expense recorded was $2,000
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, 2019 and 2018:
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
NOL
carryover
|
|
$
|
2,402,900
|
|
|
$
|
1,204,500
|
|
Accrued payroll
|
|
|
111,900
|
|
|
|
233,800
|
|
Deferred rent
|
|
|
-
|
|
|
|
-
|
|
Related party accruals
|
|
|
123,100
|
|
|
|
143,700
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
800
|
|
|
|
300
|
|
Valuation allowance
|
|
|
(2,638,700
|
)
|
|
|
(1,582,300
|
)
|
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, 2019 and 2018 due to the following:
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Book loss
|
|
$
|
(1,986,800
|
)
|
|
$
|
(934,800
|
)
|
Depreciation
|
|
|
(500
|
)
|
|
|
-
|
|
Contributed services
|
|
|
45,400
|
|
|
|
46,300
|
|
Meals & entertainment
|
|
|
10,800
|
|
|
|
4,200
|
|
Stock for prepaids
|
|
|
196,000
|
|
|
|
63,200
|
|
Stock for consulting
|
|
|
157,900
|
|
|
|
222,500
|
|
Option expense
|
|
|
-
|
|
|
|
98,300
|
|
Amortization of debt discount
|
|
|
813,100
|
|
|
|
107,400
|
|
Accrued payroll
|
|
|
(121,900
|
)
|
|
|
8,800
|
|
Loss on conversion of debt
|
|
|
-
|
|
|
|
(159,500
|
)
|
Gain on contingent liability
|
|
|
(18,900
|
)
|
|
|
-
|
|
Related party accruals
|
|
|
(20,500
|
)
|
|
|
-
|
|
Loss on derivative
|
|
|
151,300
|
|
|
|
37,600
|
|
Valuation
allowance
|
|
|
774,100
|
|
|
|
506,000
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
At
December 31, 2019, the Company had net operating loss carryforwards of approximately $11,505,000 that may be offset against
future taxable income from the year 2020 through 2039. No tax benefit has been reported in the December 31, 2019 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, 2019 and 2018, 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, 2019, 2018 and 2017 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
In
November 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 PHZIO platform. The Company is to pay a monthly base fee of $100,000 for the development
and compensation for the Company’s CEO and CTO. Following payment of the initial $100,000, the Company is obligated to only
pay $50,000 monthly until the PC has successfully signed and collected the first monthly service fee for 100 physical therapy
clinics to use the PHZIO platform. The PC will
also have the right to appoint 40% of the directors. At the end of December 31, 2019, the Company had a payable of $582,832 due
to this company.
For
the first nine months of the year ended December 31, 2018, the Company rented office space from a company owned by our CEO. The
imputed rent expense of $500 per month for nine months is recorded in the Statement of Operations and Additional Paid in Capital
in the Balance Sheet. For the last three months of the year ended December 31, 2018 and the full year ended December 31, 2019
the Company rented office space from a third-party provider.
Throughout
the year ended December 31, 2019, 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, 2019 and December 31, 2018 were $1,368 and $3,076, respectively. There
were no expenses due to the board members, but the Company has accrued directors’ fees of $137,500 and $211,000 at December
31, 2019 and December 31, 2018, respectively. Because the Company is not yet profitable the officers have agreed to defer compensation.
The Company had accrued executive compensation of $532,974 and $1,113,470 at December 31, 2019 and December 31, 2018 respectively.
Note
7. Convertible Notes Payable
Year
Ended December 31, 2019
In
January 2019, the Company received the third tranche of $60,000 relating to a note executed on July 13, 2018. During the year
ending December 31, 2019, the Company accrued interest expense of $1,350. In July 2019, the Company prepaid this note of $60,000
plus accrued interest and a prepayment penalty of $30,000. At December 31, 2019, this note is fully paid.
In
January 2019, the Company executed an 8% Convertible Promissory Notes 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 and transaction costs of $10,000.
The convertible note converts into common stock of the Company at a 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. During the year ended
December 31, 2019, the Company accrued interest expense of $20,466. During the year ended December 31, 2019, the investor converted
$266,000 of principal and $17,672 of accrued interest for 1,409,860 shares of common stock prices ranging between $.05 and $1.75.
At December 31, 2019, there is $42,000 principal outstanding.
In
January 2019, the Company executed an 8% Convertible Promissory Notes payable to an institutional investor in the principal amount
of $308,000 each. The note, which is due on January 8, 2020, has an original issue discount of $28,000 and transaction costs of
$10,000. The convertible note converts into common stock of the Company at a 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. During the
year ended December 31, 2019, the Company accrued interest expense of $18,535. During the year ended December 31, 2019, the investor
converted $308,000 of principal and $18,535 of accrued interest for 839,210 shares of common stock for prices ranging from $.10
to $2.10. At December 31, 2019, this note is fully converted.
In
January 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 and transaction costs of $3,000.
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. During the year ended December
31, 2019, the Company accrued interest expense of $6,028. In July 2019, the Company prepaid this note of $114,000 plus accrued
interest and a prepayment penalty of $42,010. At December 31, 2019, this note is fully paid.
In
January 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 and transaction costs of $3,000.
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. During the nine months ended
December 31, 2019, the Company accrued interest of $2,753. In July 2019, the Company prepaid this note of $58,300 plus accrued
interest and a prepayment penalty of $21,369. At December 31, 2019, this note is fully paid.
In
February 2019, the Company received the fourth tranche of $30,000 relating to a note executed on July 13, 2018. During the year
ending December 31, 2019, the Company accrued interest of $700. During the year ended December 31, 2019, the investor converted
$29,504 of principal for 382,800 shares of common stock at prices ranging from $.05 and $1.50. At December 31, 2019, there is
$496 principal and $700 accrued interest outstanding.
In
March 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 six 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) $6.00 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. The first
tranche of $65,000 was received in March 2019. In September 2019, the Company prepaid this note of $65,000 and a prepayment penalty
of $19,500. At December 31, 2019, this note is fully paid.
In
March 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 30, 2020, has an original issue discount of $4,300 and transaction costs of
$3,000. 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. During the year ended December 31, 2019, the Company accrued interest expense of $3,226. In September 2019, the Company
prepaid this note of $47,300 plus accrued interest and a prepayment penalty of $16,555. At December 31, 2019, this note is fully
paid.
In
March 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. The first tranche was received on March 29, 2019. The second tranche
of $37,500 was received on July 19, 2019. During the year ended December 31, 2019, the Company accrued interest expense of $3.209.
In September 2019, the Company prepaid the first tranche of $60,000 plus accrued interest and a prepayment penalty of $30,000.
At December 31, 2019, only the second tranche of $37,500 is outstanding.
In
March 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 separate tranches; 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 issued 65,217 shares of restricted
common stock on the closing date. These are deemed returnable shares which the investor must return if the Company repays the
note prior to the maturity date. In addition, the Company issued 20,000 shares of restricted common stock as a commitment fee.
The convertible note converts into common stock of the Company at a conversion price that shall be equal to 65% of the lowest
trading price during the thirty (30) day trading period ending on the last complete trading day prior to the conversion date.
The first tranche of $750,000 was received on March 25, 2019. The second tranche of $350,000 was received on July 12, 2019 and
the Company issued 53,846 shares of restricted common stock. These shares are redeemable if the Company pays the note prior to
the maturity date of January 20, 2020. The third and final tranche was received on September 9, 2019 and the Company issued 80,000
shares of restricted common stock. These shares are redeemable if the Company pays the note prior to the maturity date of March
12, 2020. During the year ended December 31, 2019, the Company accrued interest expense of $112,372. During the year ended December
31, 2019, the investor converted $393,647 of principal and $77,017 of accrued interest for 3,705,340 shares of common stock at
prices ranging from $0.02 to $11.00. At the year ended December 31, 2019, there is $1,106,353 principal and $35,355 accrued
interest outstanding.
In
April 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 payable on February 15, 2020, has an original issue discount of $5,300 and transaction costs of
$3,000. 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. During the year ended December 31, 2019, the Company accrued interest of $3,811. In September 2019, the Company prepaid
this note of $58,300 plus accrued interest and a prepayment penalty of $20,405. At December 31, 2019, this note is fully paid.
In
May 2019, the Company executed a convertible note conversion period extension agreement on a note dated October 28,
2018, within which the period of conversion by note holder was extended to May 27, 2019. The Company paid $16,031 to note holder
for this extension agreement. On May 28, 2019, the Company executed a second extension agreement on this note within which the
period of conversion by note holder was extended to June 11, 2019. The Company paid $16,105 to note holder for this extension
agreement. During the year ended December 31, 2019, the note holder converted the $308,000 note and accrued interest of $19,539
into 166,440 shares of common shares at prices ranging from $1.75 to $2.26. At December 31, 2019, this note has been
fully converted.
In
May 2019, the Company executed a 12% Convertible Promissory Note payable to an institutional investor in the principal amount
of $110,000. The note, which is due on February 13, 2020, has an original issue discount of $10,000 and transactions costs of
$3,000. The convertible note converts into common stock of the Company at conversion price that shall be equal to the 65% of the
lowest closing price for the twenty (20) trading days prior to the conversion date. During the years ended December 31, 2019,
the Company accrued interest expense of $7,723. During the year ended December 31, 2019, the investor converted $91,500 of principal
and $6,000 of accrued interest into 1,596,158 shares of common stock at prices ranging from $0.04 to $0.20. At the year ended
December 31, 2019, there is $18,500 principal and $1,723 accrued interest outstanding.
In
July 2019, two Back-End notes executed in October 2018 with an institutional investor was funded for $154,000 each. Each note,
which is due on October 29, 2019, has an original issue discount of $14,000 and transaction costs of $2,500. 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 prior twenty (20) trading days including the conversion date. During the year ended December
31, 2019, the Company accrued interest expense of $6,143 for each note.
In
July 2019, the Company signed an amendment to a convertible
note issued on March 21, 2019 revising the conversion price from 75% to 65% of the lowest trading price during the thirty (30)
trading days prior to the conversion date.
In
July 2019 the Company executed a 12% Convertible Promissory Note payable to an institutional investor in the principal amount
of $140,800. The note, which is payable on April 30, 2020, has an original issue discount of $12,800 and transaction costs of
$3,000. 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. During the year ended December 31, 2019, the Company accrued interest of $7,192.
In
July 2019, the Company executed a convertible note conversion period extension agreement on a note dated January 8, 2019 within
which the period of conversion by note holder was extended to August 9, 2019. The Company paid $21,560 to note holder for this
extension agreement.
In
July 2019, the Company executed a 12% Convertible Promissory Note payable to an institutional investor in the principal amount
of $113,000. The note, which is due on July 9, 2020, has an original issue discount of $10,000 and transaction costs of $3,000.
The convertible note converts into common stock of the Company at a conversion price that shall be equal to the 65% average of
the lowest per share trading prices for the twenty (20) trading days prior to the conversion date. During the year ended December
31, 2019, the Company accrued interest expense of $6,130.
In
July 2019, the Company executed an 8% Convertible Promissory Note payable to an institutional investor in the principal amount
of $235,200. The note, which is due on July 11, 2020, has an original issue discount of $25,200 and transaction costs of
$10,000. The convertible note converts into common stock of the Company at a conversion price that shall be equal to the 65% average
of the lowest closing bid price for the prior twenty (20) trading days including the conversion date. During the year ended
December 31, 2019, the Company accrued interest expense of $8,351.
In
July 2019, the Company executed a convertible note conversion period extension agreement on a note dated January 8, 2019 within
which the period of conversion by note holder was extended to August 9, 2019. The Company paid $22,410 to note holder for this
extension agreement.
In
July 2019, the Company executed a 12% Convertible Promissory Note payable to an institutional investor in the principal amount
of $250,000. The note, which is due on April 19, 2020, has an original issue discount of $37,500 and transaction costs of $5,000.
The convertible note converts into common stock of the Company at a conversion price that shall be equal to 65% of the average
of the lowest per share trading prices for the twenty-five (25) trading days prior to the conversion date. During the year ended
December 31, 2019, the Company accrued interest expense of $12,986.
In
July 2019, the Company executed two 12% Convertible Promissory Notes payable to two institutional investors in the principal amount
of $38,500 each. Each note, which is due on April 30, 2020, has an original issue discount of $3,500 and transaction costs of
$1,500. The convertible notes convert into common stock of the Company at a conversion price that shall be equal to the 65% of
the lowest per share trading prices for the twenty (20) trading days prior to the conversion date. During the year ended December
31, 2019, the Company accrued interest expense of $3,746 for the two notes.
In
September 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 payable on July 15, 2020, has an original issue discount of $5,300 and transaction costs of $3,000.
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. During the year ended December 31, 2019, the Company accrued interest of $1,967.
In
September 2019, a Back-End note executed in January 2019 with an institutional investor was funded for $154,000. The note, which
is due on January 9, 2020, has an original issue discount of $14,000 and transaction costs of $5,000. 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 (2) lowest per share
trading prices for the twenty (20) trading days prior to the conversion date. During the year ended December 31, 2019, the Company
accrued interest expense of $3,747.
In
September 2019, two Back-End notes executed in January 2019 with an institutional investor was funded for $154,000 each. Each
note, which is due on January 8, 2020, has an original issue discount of $14,000 and transactions costs of $5,000. 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 prior twenty (20) trading days including the conversion date. During the year ended December
31, 2019, the Company accrued interest expense of $3,476 for each note.
In
October 2019, the Company executed a 10% Convertible Promissory Note payable to an institutional investor in the principal
amount of $57,750. The note, which is payable on October 2, 2020, has an original issue discount of $5,250 and transaction costs
of $2,500. The convertible note converts into common stock of the Company at a conversion price equal to 65% of the lowest trading
price during the twenty (20) trading days ending on the last complete trading day prior to the conversion date. During the year
ended December 31, 2019, the Company accrued interest of $1,424.
Year
Ended December 31, 2018
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 48,257 shares of common stock at a price of $2.37 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 32,616 shares of common stock at prices ranging from $2.915 to $3.015.
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 26,196 shares of common stock at prices ranging from $2.435 to $2.66.
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 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. 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 48,049 shares of common
stock at a price of $1.80.
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 37,556 shares of common stock at prices ranging from $1.965 to $2.185.
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 32,525 shares of common stock at prices ranging from $3.14 to $5.16. 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 13,174 shares of common stock at prices ranging from $4.05 and $4.25.
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) $10.50 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 2,000 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 six 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) $10.50 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 1,000 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) $3.00 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) $10.00 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) $10.00 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 two 8% Convertible Promissory Notes payable to two institutional investors, each in the principal
amount of $308,000. Each 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 for each note.
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 180thcalendar day after the Original Issue Date. During the year ended December 31, 2018, the
Company recognized interest expense of $1,123.
As of December
31, 2019, all 2018 notes have been fully converted or paid. (See Note 8)
Note
8. Equity Transactions
Preferred
Stock
The
total number of shares of preferred stock which the Company shall have authority to issue is 20,000,000 shares with a par value
of $0.001 per share. During the year ended December 31, 2019, the Company authorized the issuance of 1,000,000 shares
of preferred stock to officers, directors and consultants as deferred compensation and/or expense. The shares are eligible for
conversion after 24 months into 40 shares of common stock per each preferred share. The value of the issued shares was calculated
on the basis of 40 shares per preferred share at the common share value on the date of issuance. The deferred compensation value
of the shares will vest monthly at 1/24th of the calculated value of $3,000,000 and requisite expense or reduction
of accrued compensation and/or accrued directors fees will be recorded. At the recording of the requisite vested share value,
the corresponding number of preferred shares will be recorded as being issued. At the year ended December 31, 2019, there were
250,000 vested preferred shares and $510,000 was recorded to reduce accrued compensation; $52,500 was recorded to reduce accrued
directors’ fees, and $187,500 was recorded as expense for a total of $750,000.
Common
Stock
On
July 9, 2019, the Company filed a Definitive Information Statement on Schedule 14C for the purpose of authorizing the increase
in the number of authorized shares of Common Stock from four hundred million (400,000,000) shares of Common Stock to nine hundred
million (900,000,000) shares of Common Stock (the “Authorized Common Stock Share Increase”). On July 9, 2019, the
Company filed Articles of Amendment to the Company’s Articles of Incorporation to implement the Authorized Common Stock
Share Increase with the State of Nevada.
On
October 10, 2019, the Company filed a Definitive Information Statement on Schedule 14C for the purpose of authorizing the increase
in the number of authorized shares of Common Stock from nine hundred million (900,000,000) shares of Common Stock to one billion
nine hundred million (1,900,000,000) shares of Common Stock (the “Authorized Common Stock Share Increase”). On October
15, 2019, the Company filed Articles of Amendment to the Company’s Articles of Incorporation to implement the Authorized
Common Stock Share Increase with the State of Nevada.
On
December 6, 2019, the Corporation filed a Definitive Information Statement on Schedule 14C for the purpose of authorizing the
implementation of a corporate action for a reverse stock split of the issued and outstanding shares of Common Stock, including
shares of Common Stock reserved for issuance in a ratio and at a time and date to be determined by the Corporation’s Board
of Directors, not to exceed a one-for-fifty (1:50) basis. On December 12, 2019, the Company’s Board of Directors authorized
and approved the reverse stock on a one-for-fifty (1:50) basis. The Company subsequently filed with FINRA on December 20, 2019
for approval to implement this reverse stock split. FINRA approval was received on February 12, 2020. As of February 12, 2020,
the Company’s stock began trading under the symbol of EWLLD. Throughout these financial statements, footnotes and elsewhere
in the Form 10K for the years ended December 31, 2019 and 2018, the common shares outstanding and issued have been adjusted to
reflect this reverse split.
The
Definitive Information Statement on Schedule 14C, noted above, was also filed for the purpose of authorizing the increase in the
number of authorized shares of Common Stock one billion nine hundred million (1,900,000,000) shares of Common Stock to four billion
five hundred million (4,500,000,000) shares of Common Stock (the “Authorized Common Stock Share Increase”).
On December 9, 2019, the Company filed Articles of Amendment to the Company’s Articles of Incorporation to implement the
Authorized Common Stock Share Increase with the State of Nevada.
Debt
Conversion Shares
2019
During
the year ended December 31, 2019, the Company issued a total of 8,225,381 shares of common stock per debt conversion of various
convertible notes (See Note 7). The total of the debt conversion was for $1,776,901 of principal, $157,756 of accrued interest
and $20.900 financing costs.
During
the year ended December 31, 2019, the Company issued 219,064 shares of common stock for financing costs relating to convertible
debt. The value of the financing costs was $937,462.
2018
During
the year ended December 31, 2018, the Company issued a total of 625,714 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 49,377 shares of common stock for financing costs relating to convertible
debt. The value of the financing costs was $127,374
Consultant
Issued Shares
2019
During
the year ended December 31, 2019, the Company issued 163,500 shares of common stock for marketing and consulting services valued
at $635,385.
2018
During
the year ended December 31, 2018, the Company issued 158,000 shares of common stock for marketing and consulting services valued
at $751,415.
Institutional
Investor Shares
2019
In
April 2019, the Company issued 16,100 shares of common stock pursuant to a capital call notice in relation to an Equity Purchase
Agreement dated June 18, 2018. The capital call totaled $59,100.
2018
During
the year ended December 31, 2018, the Company issued 20,000 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.
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.
The
following is a summary of the status of all Company’s stock options as of December 31, 2019 and changes during the periods
ended on December 31, 2019 and 2018, respectively:
|
|
|
Number
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
of Stock
|
|
|
Average
|
|
|
Remaining
|
|
|
Intrinsic
|
|
|
|
|
Options
|
|
|
Exercise
Price
|
|
|
Life
(yrs)
|
|
|
Value
|
|
Outstanding
at January 1, 2018
|
|
|
|
400,000
|
|
|
$
|
13.00
|
|
|
|
1.9
|
|
|
$
|
-
|
|
Granted
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
|
(343,000
|
)
|
|
|
3.50
|
|
|
|
-
|
|
|
|
|
|
Outstanding at December
31, 2018
|
|
|
|
57,000
|
|
|
$
|
40.00
|
|
|
|
2.2
|
|
|
$
|
-
|
|
Granted
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding
at December 31, 2019
|
|
|
|
57,000
|
|
|
|
40.00
|
|
|
|
1.1
|
|
|
$
|
-
|
|
Options
exercisable at December 31, 2019
|
|
|
|
57,000
|
|
|
$
|
40.00
|
|
|
|
1.1
|
|
|
$
|
-
|
|
The
Company recognized stock option expense of $0 and $467,693 for the years ended December 31, 2019 and 2018, respectively.
Warrants
In
March 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 8,349 unexercised warrants granted on April 9, 2015. The original
expiration date of April 9, 2018 was extended to April 9, 2019 and the original exercise price of $17.50 was reduced to $2.50.
During the year ended December 31, 2019, these warrants expired.
Note
9. 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.
The
statute of limitations applicable to SEC enforcement proceedings is 28 U.S.C. § 2462. Section 2462 provides that “an
action, suit or proceeding for the enforcement of any civil fine, penalty, or forfeiture, pecuniary or otherwise,” must
be commenced within five (5) years from the date when the relevant claim accrued. Section 2462 has also been applied in enforcement
proceedings brought by other federal regulatory agencies, including the Commodities and Futures Trading Commission, the Office
of Foreign Assets Control, the Federal Communications Commission, and the Federal Energy Regulatory Commission. The SEC is now
barred from commencing an enforcement action against the Company because the deadline for the SEC to commence such action expired
on or before September 30, 2019. Because of this expiration date, the Company has removed the $90,000 from the balance and recorded
it as Gain on Contingent Liability.
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
10. 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, 2019
and 2018, the Company amortized the debt discount of $3,871,849 and $511,359, respectively, to interest expense.
During
the years ended December 31, 2019 and 2018, the Company had the following activity in the derivative liability account:
|
|
Notes
|
|
|
Warrants
|
|
|
Total
|
|
Derivative
liability at January 1, 2018
|
|
$
|
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
|
)
|
Changes
in warrant derivatives
|
|
|
-
|
|
|
|
(202,610
|
)
|
|
|
(202,610
|
)
|
Change
in fair value
|
|
|
223,724
|
|
|
|
(390,995
|
)
|
|
|
(167,271
|
)
|
Reclassification
of derivative to gain on extinguishment of debt
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Derivative
liability at December 31, 2018
|
|
$
|
1,402,721
|
|
|
$
|
181,381
|
|
|
$
|
1,584,102
|
|
Addition
of new conversion option derivatives
|
|
|
4,385,384
|
|
|
|
-
|
|
|
|
4,385,384
|
|
Conversion
of note derivatives
|
|
|
(2,165,898
|
)
|
|
|
-
|
|
|
|
(2,165,898
|
)
|
Extinguishment
due to note cancellations
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Changes
in warrant derivatives
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Change
in fair value
|
|
|
(92,240
|
)
|
|
|
(181,374
|
)
|
|
|
(273,614
|
)
|
Reclassification
of derivative to gain on extinguishment of debt
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Derivative
liability at December 31, 2019
|
|
$
|
3,529,967
|
|
|
$
|
7
|
|
|
$
|
3,529,974
|
|
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
|
|
$
|
.05-11.25
|
|
Exercise price of warrants
|
|
$
|
12.50
|
|
Conversion rate of convertible debt
|
|
$
|
.0325
– 35.00
|
|
Risk free interest rate
|
|
|
1.48%-2.60
|
%
|
Stock volatility factor
|
|
|
103%-1468
|
%
|
Years to Maturity
|
|
|
.02
– 1
|
|
Expected dividend yield
|
|
|
None
|
|
Note
11. Supplemental Cash Flow Information
During
the year ended December 31, 2018 the Company had the following non-cash investing and financing activities:
|
●
|
Issued
49,377 shares of common stock for financing costs valued at $127,374
|
|
|
|
|
●
|
Issued
20,000 shares of common stock as an inducement for an Equity Purchase Agreement valued at $70,000
|
|
|
|
|
●
|
Issued
348,000 shares of common stock to officers, directors and certain consultants per the 2018 Equity Incentive Plan valued at
$1,566,000
|
|
|
|
|
●
|
Issued
80,000 shares of common stock for settlement of debt of $180,051 and accrued interest of $56,817
|
|
|
|
|
●
|
Issued
52,000 shares of common stock valued at $239,300 which was recorded as a prepaid
|
|
|
|
|
●
|
Issued
106,000 shares of common stock valued at $512,115 for services.
|
|
|
|
|
●
|
Issued
625,714 shares of common stock for the extinguishment of $1,294,582 of debt and $172,00 of accrued interest
|
During
the year ended December 31, 2019 the Company had the following non-cash investing and financing activities:
|
●
|
Issued
219,064 shares of common stock for financing costs valued at $937,462.
|
|
|
|
|
●
|
Issued
8,225,381 shares of common stock for settlement of debt of $1,776,900, accrued interest of $157,756 and $20,900
of financing costs.
|
|
|
|
|
●
|
Issued
36,000 shares of common stock valued at $123,500 which was recorded as a prepaid.
|
|
|
|
|
●
|
Issued
127,500 shares of common stock valued at $511,885 for services
|
Note
12. Subsequent Events
On January 30, 2020, the
Company executed a 12-month advisory services agreement. The Company is to issue 20,000 shares of common stock monthly. The
Company issued 40,000 shares of common stock (for January and February) with a value of $118. In addition, the Company is
to also pay the advisor a monthly fee of $2,500.
On
February 12, 2020, FINRA approved a 1:50 reverse split of the Company’s common stock. As noted throughout this document,
all common shares are stated as if the 1:50 reverse split had been completed as of the beginning of the year ended December 31,
2018. Following the approval, the Company’s stock began trading under the symbol “EWLLD”. Due to rounding
issues for the reverse split, the Company issued 47,877 additional shares of common stock.
On
February 19, 2020, the Board of Directors approved the increase of authorized common stock shares from 4,500,000,000 to 20,000,000,000.
The number of authorized preferred shares remained at 20,000,000.
From
January 1 until the filing of this report, the Company issued
454,143,389 shares of common stock for debt conversion totaling $251,040 which includes $338,510 principal, $43,248
accrued interest and $63,000 financing costs.
From
January 1 until the filing of this report, the Company issued
55,000 shares of common stock to consultants for services rendered in accordance to consulting agreements. The value of
these shares is $995.