10-K 1 elcq-20231231x10k.htm 10-K
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

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

For the Fiscal Year Ended December 31, 2023

Or

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

For the Transition Period From                           to

Commission File Number 000-56192

Graphic

ELECTROMEDICAL TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

Delaware

(State or Other Jurisdiction of

Incorporation)

 

5047

(Primary Standard Industrial

Classification Code Number)

 

82-2619815

(I.R.S. Employer

Identification No.)

16413 N. 91st Street, Ste. C140

Scottsdale, AZ

85260

(Address of principal executive offices)

(Zip Code)

(888) 880-7888

(Registrant’s telephone number, including area code)

Title of each class

    

Trading symbol

    

Name of exchange on which registered

$0.00001 par value, common stock

EMED

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes   No 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes   No 

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

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K ((§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. 

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

Large accelerated filer 

 

Accelerated filer 

 

Non-accelerated filer 

(Do not check if a smaller reporting company)

 

Smaller reporting company 

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

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

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

The aggregate market value of common equity held by non-affiliates of the Registrant as of December 31, 2023 was approximately $313,166.

As at April 30, 2024, 507,288,394 shares of common stock, par value $0.00001, were issued and outstanding.

TABLE OF CONTENTS

ITEM 1.

    

BUSINESS

    

3

ITEM 1A.

RISK FACTORS

10

ITEM 1B.

UNRESOLVED STAFF COMMENTS

10

ITEM 2.

PROPERTIES

10

ITEM 3.

LEGAL PROCEEDINGS

10

ITEM 4.

MINE SAFETY DISCLOSURES

10

PART II

ITEM 5.

MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES MARKET INFORMATION AND HOLDERS

11

ITEM 6.

SELECTED FINANCIAL DATA

11

ITEM 7.

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

11

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

16

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

17

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

39

ITEM 9A.

CONTROLS AND PROCEDURES

39

ITEM 9B.

OTHER INFORMATION

40

PART III

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

41

ITEM 11.

EXECUTIVE COMPENSATION

44

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

45

46

ITEM 14.

PRINCIPAL ACCOUNTING FEES AND SERVICES

48

PART IV

ITEM 15.

EXHIBITS, FINANCIAL STATEMENT SCHEDULES

50

2

PART I.

ITEM 1. BUSINESS

This annual report on Form 10-K (including, but not limited to, the following disclosures regarding our Business) contains forward-looking statements regarding our business, financial condition, results of operations, and prospects. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates” and similar expressions or variations of such words are intended to identify forward-looking statements but are not the exclusive means of identifying forward-looking statements in this annual report on Form 10-K. Additionally, statements concerning future matters such as the development of new products, enhancements or technologies, sales levels, expense levels and other statements regarding matters that are not historical are forward-looking statements.

Forward-looking statements in this annual report on Form 10-K reflect our good faith judgment based on facts and factors currently known to us. Forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this annual report on Form 10-K. We undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this annual report on Form 10-K. Readers are urged to carefully review and consider the various disclosures made in this annual report on Form 10-K, which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.

Company Background

The Company was formed in Nevada in August 30, 2002 as IntelSource Group, Inc. and began operations in 2003. In 2007, IntelSource Group, Inc. merged with ElectroMedical Technologies, LLC. The Company began acting as Electro Medical Technologies, LLC, an Arizona limited liability company on November 9, 2010, after the merger with ElectroMedical Technologies, LLC, a Nevada Company. The Company converted to a corporation in the State of Delaware on August 23, 2017.

Electromedical Technologies is a bioelectronics manufacturing and marketing company. We offer U.S. Food and Drug Administration (FDA) cleared medical devices for pain management.

Bioelectronics is a developing field of “electronic” medicine that uses electrical impulses over the body’s neural circuitry to try to alleviate pain without drugs. The human body is controlled by electrical signals sent through the nervous system, which can become distorted after accidents or because of disease. The field of bioelectronic medicine aims to safely correct irregularities in the nervous system by modifying the electrical language of the body related to pain relief.

Our mission is to improve global wellness for people suffering from various painful conditions by relieving chronic and acute pain using energy, frequency, and vibration as an alternative to pharmaceuticals and that one day, read and modify electrical signals passing along nerves in the body, to restore long-term health.

Additionally, we have a corporate goal to offer the public effective alternatives to addictive pain-relieving drugs, such as opioids. According to the Society of Actuaries, opioid overdose deaths are now the single largest factor slowing the growth in U.S. life expectancy and has led to stagnation or decreases in life expectancy three years in a row for the first time since 1915–1918, when the country was facing World War I and the Spanish flu pandemic. The U.S. Centers of Disease Control and Prevention (CDC) has reported that, from 1999 through 2017, nearly 400,000 have died from overdoses from prescription or illicit opioids. It is our aim to offer effective alternatives to pain management.

We believe that we do this by delivering innovative solutions that provide fast and long-lasting pain relief across the broadest range of ailments. We engineer simple-to-use bioelectronics therapy devices, which send a proprietary sequence of electrical signals. We believe our devices have proven to be highly effective over the past decade and have the technological capability to be used in medical research.

The Company is publicly traded on the OTC Markets under the symbol EMED.

Business Overview

Bioelectronics

Electromedical Technologies is a bioelectronics manufacturing and marketing company. We offer U.S. Food and Drug Administration (FDA) cleared medical devices for pain management.

3

Bioelectronics is a developing field of “electronic” medicine, which uses electrical impulses over the body’s neural circuitry to try to alleviate pain, without drugs. The human body is controlled by electrical signals sent through the nervous system, which can become distorted after accidents or as a result of disease. The field of bioelectronic medicine aims to safely correct irregularities in the nervous system by modifying the electrical language of the body related to pain relief.

Our mission is to improve global wellness for people suffering from various painful conditions by relieving chronic and acute pain using energy, frequency, and vibration as an alternative to pharmaceuticals and that one day, read and modify electrical signals passing along nerves in the body, to restore long-term health. We believe that we do this by delivering innovative solutions providing fast and long-lasting pain relief across the broadest range of ailments. We engineer simple-to-use bioelectronics therapy devices, which send a proprietary sequence of electrical signals. We believe our devices have proven to be highly effective over the past decade and have the technological capability to be used in medical research.

We have a corporate goal to offer the public effective alternatives to addictive pain-relieving drugs, such as opioids. According to the Society of Actuaries, opioid overdose deaths are now the single largest factor slowing the growth in U.S. life expectancy and has led to stagnation or decreases in life expectancy three years in a row for the first time since 1915–1918, when the country was facing World War I and the Spanish flu pandemic The Centers for Disease Control (CDC) reports that overdose deaths involving prescription opioids have quadrupled since 1999 and that drug overdoses now kill more people every year than gun violence or car accidents. From 1999 to 2017, more than 702,000 people have died from a drug overdose. In 2017, more than 70,000 people died from drug overdoses, making it a leading cause of injury-related death in the United States. It is our aim to offer effective nontoxic, noninvasive alternatives to pain management.

We believe that we can provide an opioid-free solution to over 100 million people suffering from chronic and acute pain just in the US market alone. In recent years, we have also focused on the market for U.S. military service veterans, many of whom do not have many options other than powerful drugs that can cause side effects when it comes to treating chronic or acute pain. We intend to include a special program that will offer our new POD devices at no upfront cost for the veterans of the U.S. armed forces and their immediate families, which, according to the Census Bureau, as of 2014, consists of nearly 22 million individuals.

Industry and Regulatory Overview

Medical devices are regulated by the Food and Drug Administration (“FDA”) in the United States and can be regulated by foreign governments for devices sold internationally. The Company has medical device certifications in the USA (FDA),

The Federal Food, Drug and Cosmetic Act and regulations issued by the FDA regulate testing, manufacturing, packaging, and marketing of medical devices. Under the current regulations and standards, we believe that our devices are subject to general controls, including compliance with labeling and record-keeping rules. In addition, our medical devices require pre-market approval, which for TENS devices can be achieved through a 510(k) premarket notification submission.

Our manufacturing processes and facilities are also subject to regulations, including the FDA’s QSR requirements (formerly Good Manufacturing Practices). These regulations govern the way we manufacture our products and maintain documentation for our manufacturing, testing, and control activities. In addition, to the extent we manufacture and sell products abroad, those products are subject to the relevant laws and regulations of those countries.

The labeling of our devices, our promotional activities, and marketing materials are regulated by the FDA and various state agencies. Activities that are constrained by these regulations include the marketing of our products for “off-label” usage; that is, recommendations to use our products for purposes other than what is indicated in the labeling. Violations of this requirement may result in administrative, civil, or criminal actions against the manufacturer or seller by the FDA or governing state agencies.

4

An element of our strategy is to continue to upgrade our products, add new features and expand clearance or approval of our current products to new indications. In the United States, before we can market a new medical device, or a new use of, a new claim for or significant modification to an existing product, we must first receive either clearance under Section 510(k) of the Federal Food, Drug, and Cosmetic Act, or the FDCA, or approval of a premarket approval application, or PMA, from the FDA, unless an exemption applies. In the 510(k) clearance process, before a device may be marketed, the FDA must determine that a proposed device is “substantially equivalent” to a legally marketed “predicate” device, which includes a device that has been previously cleared through the 510(k) process, a device that was legally marketed prior to May 28, 1976 (pre-amendments device), a device that was originally on the U.S. market pursuant to an approved PMA and later down-classified, or a 510(k)-exempt device. To be “substantially equivalent,” the proposed device must have the same intended use as the predicate device and either have the same technological characteristics as the predicate device or have different technological characteristics and not raise different questions of safety or effectiveness than the predicate device. Clinical data are sometimes required to support substantial equivalence. In the PMA process, the FDA must determine that a proposed device is safe and effective for its intended use based, in part, on extensive data, including, but not limited to, technical, pre-clinical, clinical trial, manufacturing, and labeling data. Our ability to successfully obtain clearance for any new indications will be dependent on us submitting data as to the successful completion of clinical trials evidencing safety and efficacy. The PMA process is typically required for devices that are deemed to pose the greatest risk, such as life-sustaining, life-supporting or implantable devices. However, some devices are automatically subject to the PMA pathway regardless of the level of risk they pose because they have not previously been classified into a lower-risk class by the FDA. Manufacturers of these devices may request that the FDA review such devices in accordance with the de novo classification procedure, which allows a manufacturer whose novel device would otherwise require the submission and approval of a PMA prior to marketing to request down-classification of the device on the basis that the device presents low or moderate risk. If the FDA agrees with the down classification, the applicant will then receive authorization to market the device. This device type can then be used as a predicate device for future 510(k) submissions. We initially received marketing authorization for our device through the de novo classification process, and we have made changes to our system through subsequent 510(k) clearances. The process of obtaining regulatory clearances or approvals or completing the de novo classification process to market a medical device can be costly and time-consuming, and we may not be able to successfully obtain pre-market reviews on a timely basis if at all.

Modifications to products that are approved through a PMA application generally require FDA approval. Similarly, certain modifications made to products cleared through a 510(k) or authorized through the de novo classification process may require a new 510(k) clearance. Each of the PMA approval, de novo classification and the 510(k) clearance processes can be expensive, lengthy and uncertain. The FDA’s 510(k) clearance process usually takes from three to 12 months but can last longer. The process of obtaining a PMA is much more costly and uncertain than the 510(k) -clearance process and generally takes from one to three years, or even longer, from the time the application is filed with the FDA. In addition, a PMA generally requires the performance of one or more clinical trials.

Despite the time, effort, and cost, a device may not be approved or cleared by the FDA. Any delay or failure to obtain necessary regulatory approvals or clearances could harm our business. Furthermore, even if we are granted regulatory clearances or approvals, they may include significant limitations on the indicated uses for the device, which may limit the market for the device.

Any modifications to our existing products may require new 510(k) clearance; however, future modifications may be subject to the substantially more costly, time-consuming and uncertain PMA process. If the FDA requires us to go through a lengthier, more rigorous examination for future products or modifications to existing products than we had expected, product introductions or modifications could be delayed or canceled, which could cause our sales to decline.

The FDA can delay, limit, or deny clearance or approval of a device for many reasons, including: we may be unable to demonstrate to the FDA’s satisfaction that the product or modification is substantially equivalent to the proposed predicate device or safe and effective for its intended use; the data from our pre-clinical studies and clinical trials may be insufficient to support clearance or approval, where required; and the manufacturing process or facilities we use may not meet applicable requirements.

5

Even if granted, a 510(k) clearance, de novo classification, or PMA approval imposes substantial restrictions on how our devices may be marketed or sold, and the FDA continues to place considerable restrictions on our products and operations. For example, the manufacture of medical devices must comply with the FDA’s Quality System Regulation or QSR. In addition, manufacturers must register their manufacturing facilities, list the products with the FDA, and comply with requirements relating to labeling, marketing, complaint handling, adverse event, and medical device reporting, reporting of corrections and removals, and import and export. The FDA monitors compliance with the QSR and these other requirements through periodic inspections. If our facilities or those of our manufacturers or suppliers are found to be in violation of applicable laws and regulations, or if we or our manufacturers or suppliers fail to take satisfactory corrective action in response to an adverse inspection, the regulatory authority could take enforcement action, including any of the following sanctions: untitled letters, warning letters, fines, injunctions, consent decrees and civil penalties; customer notifications or repair, replacement, refunds, detention or seizure of our products; operating restrictions or partial suspension or total shutdown of production; refusing or delaying requests for 510(k) marketing clearance or PMA approvals of new products or modified products; withdrawing 510(k) marketing clearances or PMA approvals that have already been granted; refusing to provide Certificates for Foreign Government; refusing to grant export approval for our products; or pursuing criminal prosecution. Any of these sanctions could impair our ability to produce our products in a cost-effective and timely manner in order to meet our customers’ demands and could have a material adverse effect on our reputation, business, results of operations, and financial condition. We may also be required to bear other costs or take other actions that may have a negative impact on our sales and our ability to generate profits.

In addition, the FDA may change its clearance and approval policies, adopt additional regulations or revise existing regulations, or take other actions that may prevent or delay approval or clearance of our future products under development or impact our ability to modify our currently cleared products on a timely basis. Such policy or regulatory changes could impose additional requirements upon us that could delay our ability to obtain new 510(k) clearances, increase the costs of compliance or restrict our ability to maintain our current clearances. We also cannot predict the likelihood, nature, or extent of government regulation that may arise from future legislation or administrative or executive action, either in the United States or abroad. For example, certain policies of the Trump administration may impact our business and industry. Namely, the Trump administration has taken several executive actions, including the issuance of a number of Executive Orders, that could impose significant burdens on, or otherwise materially delay, the FDA’s ability to engage in routine regulatory and oversight activities such as implementing statutes through rulemaking, issuance of guidance, and review and approval of marketing applications. It is difficult to predict how these executive actions, including the Executive Orders, will be implemented and the extent to which they will impact the FDA’s ability to exercise its regulatory authority. If these executive actions impose constraints on FDA’s ability to engage in oversight and implementation activities in the normal course, our business may be negatively impacted.

In order to sell our products in member countries of the EEA our products must comply with the essential requirements of the EU Medical Devices Directive (Council Directive 93/42/EEC). Compliance with these requirements is a prerequisite to be able to affix the CE Mark to our products, without which they cannot be sold or marketed in the EEA. To demonstrate compliance with the essential requirements, we must undergo a conformity assessment procedure, which varies according to the type of medical device and its classification. Except for low-risk medical devices (Class I non-sterile, non-measuring devices), where the manufacturer can issue an EC Declaration of Conformity based on a self-assessment of the conformity of its products with the essential requirements of the EU Medical Devices Directive, a conformity assessment procedure requires the intervention of an organization accredited by a Member State of the EEA to conduct conformity assessments, or a Notified Body. Depending on the relevant conformity assessment procedure, the Notified Body would typically audit and examine the technical file and the quality system for the manufacture, design, and final inspection of our devices. The Notified Body issues a certificate of conformity following the successful completion of a conformity assessment procedure conducted in relation to the medical device and its manufacturer and their conformity with the essential requirements. This certificate entitles the manufacturer to affix the CE Mark to its medical devices after having prepared and signed a related EC Declaration of Conformity.

6

Sales and Marketing

Principal Products and Services

WellnessPro Plus

Our principal product, WellnessPro Plus, is an intelligent and effective bioelectronics therapy prescription deviceand is used by consumers and healthcare professionals to relieve chronic and acute pain. Research studies have shown the efficacy of bioelectronics therapy in the treatment of chronic pain from a variety of ailments, including arthritis, chronic low back pain, fibromyalgia, diabetic neuropathy, Lyme disease, osteoarthritis, and neuropathic pain. This medical device is classified by the FDA as a transcutaneous electrical nerve stimulation (“TENS”) device. We believe, based on consumer and professional testimonials from the past decade, that our device has been on the market, that the WellnessPro Plus treats pain conditions faster with longer-lasting relief, compared to lower-cost conventional TENS devices. We attribute this in part to our proprietary algorithm and technology that we call the “DeepPulse.” With the DeepPulse there are close to one million frequency ranges to choose from to help prevent accommodation. The device can also generate micro-current stimulation to mimic the body’s own electric signals.

The device sends a proprietary sequence of electrical signals that change at various times, preventing accommodation (where the body adapts to specific treatments, diminishing treatment effectiveness). Also, our proprietary DeepPulse pre-modulation technology allows signals to penetrate deeper into affected areas, which we believe produces faster, longer-lasting pain relief. Additionally, our micro-current mode delivers signals which naturally mimic the body’s signals, triggering the body’s own natural ability to relieve pain via “endorphin release” and accelerating the ION pump exchange. This allows for the reduction of pain, increased microcirculation, and oxygenation of red blood cells, which in turn helps the body de-stress from pain and trigger natural, healthy processes necessary for better health.

We are finalizing the development of an enhanced version of our Wellness Pro Plus that we intend to market under the name “Wellness Pro Plus Infinity.” This device will include expanded bioelectric modalities, safety, and efficacy. We expect that the Wellness Pro Plus Infinity will be ready for market in fiscal 2024.

WellnessPro POD and Wellness ION Pen

We are planning to bring two new products to market – extending the Wellness Product line: the WellnessPro POD, our first wearable product, and the Wellness ION Pen. We believe that the WellnessPro POD represents an exciting product line expansion as a “clinical-grade” wearable device that is intended to treat chronic pain, PTSD, anxiety, depression, and insomnia. We intend to sell this device over the counter; however, some modalities on this device may only be provided with a prescription. Our target market for the WellnessPro POD is chronic pain sufferers, which is estimated to be 100 million individuals in the United States alone. We intend to focus on various segments in this market, including veterans of the U.S. armed forces, which, according to the Census Bureau, as of 2014, consists of nearly 22 million individuals. Our goal is to educate the medical community of the benefits of “natural”, non-invasive, non-toxic pain relief and for the WellnessPro POD to be an initial choice for practitioners to prescribe separately or in conjunction with pain medication.

Both new products will integrate with the WellnessPro Plus to leverage the engineering breakthroughs and intellectual property found in the WellnessPro Plus, and yet will still function as standalone devices.

WellnessPro POD

The WellnessPro POD is a compact “clinical-grade” wearable intended to keep pace with the evolution in pain management across practice segments, which will expand the range of treated modalities from chronic and acute pain to include PTSD, anxiety, depression, and insomnia.

Wellness ION Pen

The Wellness ION Pen is a unique interferential cold laser used to deliver targeted frequency stimulation. This therapeutic laser, which we intend to sell over the counter, will deliver expanded wavelengths relative to comparable lasers combined with micro-stimulation. We believe this will improve circulation and tissue healing and reduce inflammation and pain. The Wellness ION Pen will also have cosmetic applications for skin issues.

7

Market

The Wellness line of products is intended for anyone living with pain caused by various medical conditions or trauma, or who is battling pharmaceutical (e.g., opioid) dependency or addiction. The products can be purchased directly by consumers or used by healthcare practitioners, including:

Chiropractors;
Physiotherapists;
Pain management doctors and clinicians;
Natural medicine doctors;
Sports medicine doctors; and
Athletic trainers.

According to information provided by the American Academy of Pain Medicine, at least 100 million Americans suffer from chronic pain, not including acute pain for children. We believe that Electromedical represents a tested, proven solution for different segments of the population.

We plan to address these individuals directly as well as through their healthcare providers. There are approximately 77,000 chiropractors and 123,000 physiotherapists in the United States. Combined, over 200,000 healthcare practitioners focused on rehabilitation and pain relief – not to mention practitioners involved in sports medicine, natural medicine and pain management.

In addition, we believe there are certain niche markets that our products are well suited to address. As discussed above, we expect that veterans will be the first market for the WellnessPro POD as it addresses the various needs our veteran population is suffering from.

Further, we believe that our products can help provide a solution to the opioid problem. Our current product, WellnessPro Plus, assists with the recovery from opioid addiction. We believe that the WellnessPro POD will also be highly effective for pain management and relief and could be used as an alternative or can be prescribed in conjunction with pain medication to reduce the amount of deaths and addictions due to Opioid abuse and misuse.

Strategy

Electromedical Technologies, for the first fifteen years of its existence, has been fortunate to have grown “organically” without formal sales and marketing programs. We believe this is fundamental because of the product’s ability to deliver uncommon levels of pain relief, better quality of life, and wellness for thousands of customers. Customers subsequently shared their miraculous stories of recovery – some of which can be found on our website. We believe that those testimonials influenced thousands of people living with ailments and pain to turn to WellnessPro Plus for relief. These changes in with the additional capital we are planning to raise. In 2023 and beyond, Electromedical will engage in a comprehensive and fully integrated marketing program to increase sales and build the Electromedical brand. The integrated marketing program will include the following elements:

Website marketing

o

Using sophisticated tools integrated with our website, such as marketing automation, we will automate the process of nurturing web visitors and increasing sales.

Digital marketing.

o

Using advanced approaches for improving the Company’s organic and paid search optimization results, we will increase traffic to and sales from our website.

Social marketing and advertising.

o

Using a comprehensive approach to marketing across the primary social channels (twitter, LinkedIn, Facebook, YouTube, Instagram), we will engage consumers and influencers (associations), elevate the brand and increase sales directly and indirectly.

8

o

Social marketing will also include the thoughtful use of Facebook ads and LinkedIn-sponsored posts to drive web traffic and increase sales.

Content marketing.

o

Using a thoughtful approach to newsletters and blog content, we will elevate the brand and increase sales directly and indirectly.

Partner and association marketing.

o

We will selectively identify associations and partners that can help elevate the brand and increase sales. Examples of associations that we intend to target include the American Chiropractic Association, which may provide an important opportunity to increase awareness, exercise thought leadership, and drive sales.

Trade show marketing

o

We will evaluate and participate in selective medical device and wellness trade shows, which elevate the brand and increase sales.

In addition to a comprehensive marketing program, Electromedical will make strategic investments in sales staff, training, and support, all intended to expand distribution and sales.

Sales Staff: Electromedical intends to hire a Director of Business and Sales Development to further develop its business opportunities in various geographic areas.
National Technical Training Manager: Electromedical intends to hire a National Technical Training Manager to develop and implement training programs.

Research and Development

The Company has several products in various stages of research and development. We are finalizing development of an enhanced version of our Wellness Pro Plus that we intend to market under the name “Wellness Pro Plus Infinity.” This device will include expanded bioelectric modalities, safety, and efficacy. We expect that the Wellness Pro Plus Infinity will be ready for market in fiscal 2024.

We are also planning to bring two new products to market – extending the Wellness Product line: the WellnessPro POD, our first wearable product, and the Wellness ION Pen. We believe that the WellnessPro POD represents an exciting product line expansion as a “clinical-grade” wearable device that is intended to treat chronic pain, PTSD, anxiety, depression, and insomnia. We intend to sell this device over the counter; however, some modalities on this device may only be provided with a prescription. Our target market for the WellnessPro POD is chronic pain sufferers, which is estimated to be 100 million individuals in the United States alone. We intend to focus on various segments in this market, including veterans of the U.S. armed forces, which, according to the Census Bureau, as of 2014, consists of nearly 22 million individuals. Our goal is to educate the medical community about the benefits of “natural”, non-invasive, non-toxic pain relief and for the WellnessPro POD to be an initial choice for practitioners to prescribe separately or in conjunction with pain medication.

Both of these new products will integrate with the WellnessPro Plus to leverage the engineering breakthroughs and intellectual property found in the WellnessPro Plus, and yet will still function as standalone devices.

WellnessPro POD

The WellnessPro POD is a compact “clinical-grade” wearable intended to keep pace with the evolution in pain management across practice segments, which will expand the range of treated modalities from chronic and acute pain to include PTSD, anxiety, depression and insomnia.

Wellness ION Pen

The Wellness ION Pen is a unique interferential cold laser used to deliver targeted frequency stimulation. This therapeutic laser, which we intend to sell over the counter, will deliver expanded wavelengths relative to comparable lasers combined with micro-stimulation. We believe this will improve circulation and tissue healing and reduce inflammation and pain. The Wellness ION Pen will also have cosmetic applications for skin issues.

9

Significant Customers

For both the years ended December 31, 2023 and 2022, the Company had two significant customers.

Intellectual Property

Electromedical Technologies has the rights to several trademarks concerning Wellness+Plus Pro®, WellnessPro POD™, IDNA Internative Dynamic Neuro Adaptation®Deep Pulse™, WellnessPro™, FaceSPA™ and Electromedical Technologies®. The Company has a provisional utility patent filed and a registered design patent for the Wellness Pro Infinity™.

Competition

We operate in the pain management, rehabilitation, and physical therapy market. We not only compete with other similar devices that treat pain and other medical ailments but also with traditional treatment approaches such as drug prescriptions and surgery and rehabilitation therapy and complementary medical practices such as acupuncture. Further, our competitors include several large, diversified companies that have more financial, marketing, and other resources, distribution networks, and greater name recognition than us. These competitors include Galvani Bioelectronics, Medtronic, and DJOGlobal-Chatanooga. Historically, Electromedical has competed in the “electromedical” and “bio-electrotherapy” device segment, including the crowded TENS market, which now includes inexpensive TENS devices such as the devices produced by “IcyHot.”

Employees

As of December 31, 2023, we have 6 full-time employees, 4 of whom are U.S based, primarily at our Scottsdale, Arizona headquarters. None of our U.S. employees are represented by a labor union.

ITEM 1A. RISK FACTORS

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

As of December 31, 2022, the Company owned the over 5,000 square foot office warehouse unit where its headquarters was located at, 16561 N. 92nd Street, Unit D101, Scottsdale, Arizona. On March 15, 2023, the Company entered into an agreement to sell the building of its principal offices at a purchase price of $2 million and net proceeds of $1,363,818 upon repayment in full of the Company’s bank debt. The Company simultaneously entered into a one-year lease agreement with the purchaser to lease the facilities for $9,000 a month. In September 2023, the Company entered into an operating lease for 3,300 square feet of office and warehouse space at 16413 N. 91st Street, Unit C140, Scottsdale, Arizona. The lease provides for a base rent of $5,280 per month through September 30, 2026. The lease may be renewed for a three-year period.

ITEM 3. LEGAL PROCEEDINGS

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable.

10

PART II.

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.MARKET INFORMATION AND HOLDERS

Our common stock trades on the OTC Markets under the ticker symbol “EMED.” As of December 31, 2023, there were 110 holders of record of our common stock. The following table sets forth, for the periods indicated, the high and low closing sales prices of our common stock:

For the Period Ending

    

High

    

Low

Fourth Quarter, 2022

$

0.025

$

0.006

First Quarter, 2023

$

0.011

$

0.005

Second Quarter, 2023

$

0.005

$

0.001

Third Quarter, 2023

$

0.001

$

0.001

Fourth Quarter, 2023

$

0.001

$

0.001

DIVIDEND POLICY

We have never declared or paid, and do not anticipate declaring or paying, any cash dividends on our common stock. Instead, we currently anticipate that we will retain all of our future earnings, if any, to fund the operation and expansion of our business and to use as working capital and for other general corporate purposes. Any future determination as to the declaration and payment of dividends, if any, will be at the discretion of our board of directors and will depend on then-existing law and conditions, including our financial condition, operating results, contractual restrictions, capital requirements, business prospects, and other factors our board of directors may deem relevant.

ITEM 6. SELECTED FINANCIAL DATA

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The statements contained in this report that are not statements of historical fact, including, without limitation, statements containing the words “believes,” “expects,” “anticipates,” and similar words, constitute forward-looking statements that are subject to a number of risks and uncertainties. From time to time, we may make other forward-looking statements. Investors are cautioned that such forward-looking statements are subject to an inherent risk that actual results may materially differ as a result of many factors, including the risks discussed from time to time in this report, including the risks described under “Risk Factors” in any filings we have made with the SEC.

Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis, we evaluate these estimates, including those related to useful lives of real estate assets, bad debts, impairment, contingencies, and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. There can be no assurance that actual results will not differ from those estimates.

Background

Electromedical Technologies is a bioelectronics manufacturing and marketing company. We offer U.S. Food and Drug Administration (FDA) cleared medical devices for pain management.

Bioelectronics is a developing field of “electronic” medicine that uses electrical impulses over the body’s neural circuitry to try to alleviate pain without drugs. The human body is controlled by electrical signals sent through the nervous system, which can become distorted after accidents or as a result of disease. The field of bioelectronic medicine aims to safely correct irregularities in the nervous system by modifying the electrical language of the body related to pain relief.

11

Our mission is to improve global wellness for people suffering from various painful conditions by relieving chronic and acute pain using energy, frequency, and vibration as an alternative to pharmaceuticals and, one day, read and modify electrical signals passing along nerves in the body to restore long-term health.

Additionally, we have a corporate goal to offer the public effective alternatives to addictive pain-relieving drugs, such as opioids. According to the Society of Actuaries, opioid overdose deaths are now the single largest factor slowing the growth in U.S. life expectancy and has led to stagnation or decreases in life expectancy three years in a row for the first time since 1915–1918, when the country was facing World War I and the Spanish flu pandemic. The U.S. Centers for Disease Control and Prevention (CDC) has reported that, from 1999 through 2017, nearly 400,000 have died from overdoses from prescription or illicit opioids. It is our aim to offer effective alternatives to pain management.

Critical Accounting Policies and Estimates

Revenue Recognition

The FASB issued Accounting Standards Update (“ASU”) No. 2014-09, codified as ASC 606: Revenue from Contracts with Customers, which provides a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers.

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

Equity Issued with Convertible Debt

The Company is required to issue warrants in conjunction with certain convertible debt. The warrants qualified for equity accounting as the warrants did not fall within the scope of ASC Topic 480, Distinguishing Liabilities from Equity. The warrants were measured at fair value at the time of issuance and classified as equity.

The Company values the warrants using Black Scholes Merton and Monte Carlo pricing models and records the warrants as a reduction of the notes included in the debt discount balance.

Derivative Liabilities

The Company’s convertible promissory notes contain variable conversion provisions upon default. Pursuant to ASC 815-15 Embedded Derivatives, the fair values of the variable conversion options are recorded as derivative liabilities on the default dates and at each reporting period.

Use of Estimates

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities, certain disclosures at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Significant estimates affecting the financial statements have been prepared based on the most current and best available information. However, actual results from the resolution of such estimates Critical accounting estimates and assumptions used that are significant to the financial statements, and areas involving a higher degree of judgement or complexity, include the valuation of equity instruments and derivative liabilities.

12

Results of Operations

The following table sets forth the audited results of our operations for the years ended December 31:

    

2023

    

2022

Net sales

$

1,348,808

$

1,149,844

Cost of sales:

 

303,303

 

261,203

Gross profit

 

1,045,505

 

888,641

Operating expenses

 

3,110,446

 

2,492,169

Loss from operations

 

(2,064,941)

 

(1,603,528)

Other expense

 

(576,305)

 

(1,864,972)

Net loss

$

(2,641,246)

$

(3,468,500)

January 1, 2023 through December 31,2023 Compared to January 1, 2022 through December 31, 2022

Our sales totaled $1,348,808 for the year ended December 31, 2023 and $1,149,844 for the year ended December 31, 2022. The increase is primarily related to an increase in average selling price as well as additional units sold.

Cost of sales and gross margins for the year ended December 31, 2023, and for the year ended December 31, 2022, were $303,303 and 78% and $261,203 and 77%, respectively. Our cost of sales consists of the cost of materials and distribution expenses. Cost of sales and gross margins are affected by product mix as well as the mix in the level of sales between commissioned agents and distributors.

The following table sets forth the operating expenses for the years ended December 31:

    

2023

    

2022

    

Change

Sales and marketing

$

33,291

$

30,566

$

2,725

Commissions

 

158,398

 

220,567

 

(62,169)

Payroll related

 

1,451,944

 

963,177

 

488,767

Consulting and professional fees

 

799,400

 

940,954

 

(141,554)

Research and development

 

231,434

 

92,299

 

139,135

Other operating expenses

 

435,979

 

244,606

 

191,373

$

3,110,446

$

2,492,169

$

618,277

The following table sets forth the stock- based compensation expense included in the above operating expenses for the years ended December 31:

    

2023

    

2022

    

Change

Sales and marketing

$

$

8,000

$

(8,000)

Payroll related

 

400,000

 

14,703

 

385,297

Consulting and professional fees

 

315,000

 

486,900

 

(171,900)

$

715,000

$

509,603

$

205,397

Selling, general, and administrative expenses consist primarily of payroll-related expenses, commissions, consulting and professional fees, sales and marketing, research and development, and other operating expenses. Selling, general and administrative expenses totaled $3,110,446 for the year ended December 31, 2023 and $2,492,169 for the year ended December 31, 2022, an increase of $618,277 or about 25%.

The change is primarily due to a $488,767 increase in payroll-related costs of which $385,297 is stock-based compensation, increased research and development costs of $139,135 and other operating costs of $191,373 partially offset by a decrease in consulting and professional fees of $141,554, primarily stock- based compensation-related and commissions of $62,169.

The non-stock-based compensation increase in payroll-related costs consist primarily of additional employee headcount and a $105,000 increase in the salary paid to the Company’s CEO in conjunction with the January 2023 employment agreement, partially offset by a decrease in bonuses paid to the Company’s CEO and other employees of approximately $45,000.

13

The increase in research and development costs relates to payments made under its product development agreement as new milestones were met. The increase in other operating expenses consists primarily of rent expense and moving costs after the sale of the building, an increase in insurance related to D&O insurance and travel and entertainment and trade show costs reflecting expanded sales and marketing efforts.

Stock-based compensation expense for the year ended December 31, 2023, includes $315,000 related to a consulting agreement with an advisor and director and $400,000 related to the issuance of a share of Series B Preferred stock to the Company’s CEO. Stock-based compensation expense for the year ended December 31, 2022, includes $461,900 related to third-party agreements for financial and strategic advisory services, $25,000 for director’s fees, and $10,000 for shares of Series A preferred stock issued to the Company’s CEO as compensation.

Other expense decreased by $1,288,667 primarily due to the 2023 gain on the sale of the Company’s building of $1,193,676 and 2022 loss on extinguishment of debt of $1,079,800, partially offset by an increase in interest expense of $102,083, accrued penalties of $409,000 for convertible notes payable in default and losses associated with derivative liabilities of $355,597. The increase in interest expense reflects $263,476 related to the valuation of certain trigger warrants for matured convertible notes payable.

As a result of the foregoing, we recorded a net loss of $2,641,246 for the year ended December 31, 2023, compared to a net loss of $3,468,500 for the year ended December 31, 2022. The decrease in net loss is primarily attributed to the decrease in other expense and increased gross profit, partially offset by an increase in selling, general and administrative expenses.

COVID-19 may impact our business.

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

Liquidity and Capital Resources

During the year ended December 31, 2023, our cash and cash equivalents decreased by $280,721, reflecting cash used in operations of $1,417,393, and cash used in financing activities of $608,211, partially offset by proceeds from financing activities of $1,744,883. At December 31, 2023, the Company had a working capital deficit of $2,907,369 and cash on hand of $87,704.

Operating Activities

Cash flows used in operating activities totaled $1,417,393 for the year ended December 31, 2023, as compared to cash flows used of $773,337 for the year ended December 31, 2022. The change in cash flows used in operating activities is primarily the result of an increase in inventory purchases and accrued liabilities, decreases in accounts payable and customer deposits, as well as an increase in the loss from operations.

Investing Activities

Cash provided by investing activities for the year ended December 31, 2023 totaled $1,744,883 related to $1,894,588 of gross proceeds from the sale of the Company’s building before payment of the outstanding long-term bank debt secured by the building. Investing activities for the year ended December 31,2023 also included capital expenditures totaling $149,705 for production tooling. There were no investing activities in the 2022 period.

Financing Activities

Cash flows used in financing activities totaled $608,211 for the year ended December 31, 2023, as compared to cash flows provided by financing activities of $758,592 for the year ended December 31, 2022. The cash flows used in the 2023 period are primarily the result of the $522,401 repayment of the long-term bank debt related to the building as part of the March 2023 sale and convertible notes payable payments totaling $85,985.

14

The cash flows provided in the 2022 period reflect $1,545,140 in net proceeds from convertible promissory notes and $42,766 from the sale of common stock, partially offset by repayment of convertible promissory notes and related party notes payable totaling $803,959.

As of December 31, 2023, the Company is currently in default with one its lenders for non-payment of three matured convertible promissory notes issued on October 13, 2021, February 11, 2022, and September 15, 2022, with a principal of $932,600 and interest of $93,700 due as of December 31, 2023. The convertible promissory notes issued to the lender all contain provisions for default amounts equal to the principal amounts, plus accrued interest and default interest, through the date of repayment, multiplied by 125% as well as terms that could impact the conversion price of the instruments. Default penalties totaling $257,000 have been accrued and recorded as other expense in the statement of operations for the year ended December 31, 2023. On March 25, 2024, the Company entered into a settlement agreement with this lender.

As of December 31, 2023, and separately, the Company is in default of two matured convertible promissory notes including defaults resulting from the Company’s sale of its real property on March 15, 2023, issued to two lenders on March 10, 2022, and August 8, 2022, with principal and interest due in the amounts of $329,887 and $139,567, respectively. The convertible notes included a cross-default and a cross-default, provision which required the Company to remit payment of principal, accrued interest, default interest and legal fees, multiplied by 125% and 150%, respectively. The amount of $152,000 in default penalties has been accrued and recorded as other expense in the statement of operations for the year ended December 31, 2023, for these lenders. On April 3, 2024, the Company entered into a settlement agreement with one of the lenders. The Company is in negotiations with the other lender to reform the note in default.

During the year - ended December 31, 2023, the note holders have applied default conversion rates to outstanding principal, interest, and default amounts under the notes.

As of April 30, 2024, the Company entered into settlement agreements with two of the above lenders for amounts in default under various convertible promissory notes. Principal of $1,238,101 and accrued interest of $165,734 are covered by the agreements and subject to the following settlement terms:

Any and all outstanding warrants are to be cancelled without consideration.
The maturity dates have been extended to September 25, 2025.
Interest rate is capped at 12% per annum.
Default penalties accrued up to the settlement date and from the effective date forward are amended to 115% from 125%.
All payments will be applied first to outstanding principal and will include the note holders’ pro-rata share of $600 per unit from futures sales of the Company’s Wellness ProPlus Infinity units.
Conversions of outstanding principal are limited to $30,000 per calendar month through December 31, 2024 and may be waived under certain conditions and after such date.

In March 2024, the Company borrowed $149,500 in conjunction with an unsecured promissory note with an investor. Proceeds of $130,000 include an original issue discount of $19,500. An up - front interest charge at twelve percent (12)% of the principal will be added to the principal balance for an outstanding balance of $167,440 to be paid in nine monthly payments of $18,604 beginning April 15, 2024. The note matures on December 15, 2024. At any time following an event of default, the investor shall have the right, to convert all or any part of the outstanding and unpaid amount of the note into fully paid and non - assessable shares of common stock. The note may be converted at a 35% discount to trading prices during the 10 days prior to conversion.

In March and April 2024, holders of convertible promissory notes converted $44,883 of principal into 44,002,186 shares of common stock at $0.00102 per share.

The Company requires additional capital to service its working capital deficit and fund future operations. The Company expects to obtain funding through additional debt and equity placement offerings until it consistently achieves positive cash flows from operations. If the Company is unable to obtain additional funding, it may not be able to meet all of its obligations as they come due for the next twelve months. The continuing viability of the entity and its ability to continue as a going concern is dependent upon the entity being successful in its continuing efforts in growing its revenue base and/or accessing additional sources of capital, and/or selling assets. Our Independent Registered Public Accounting Firm included an explanatory paragraph regarding substantial doubt about the Company’s ability to continue as a going concern.

15

Related Party Transactions

We follow FASB ASC subtopic 850-10, “Related Party Transactions,” for the identification of related parties and disclosure of related party transactions.

Pursuant to ASC 850-10-20, related parties include: a) affiliates of the Company; b) entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825–10–15, to be accounted for by the equity method by the investing entity; c) trusts for the benefit of employees, such as pension and profit sharing trusts that are managed by or under the trusteeship of management; d) principal owners of the Company; e) management of the Company; f) other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and g) other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.

Material related party transactions are required to be disclosed in the financial statements, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. The disclosures shall include: a) the nature of the relationship(s) involved; b) a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which statements of operation are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; c) the dollar amounts of transactions for each of the periods for which statements of operations are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and d) amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.

Off Balance Sheet Arrangements

As of December 31, 2023, and 2022, we did not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are a smaller reporting Company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.

16

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and

Stockholders of Electromedical Technologies, Inc.

Opinion on the Financial Statements

We have audited the accompanying balance sheets of Electromedical Technologies, Inc. (the “Company”) as of December 31, 2023 and 2022, and the related statements of operations, stockholders’ deficit, and cash flows, for the years then ended, 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, 2023 and 2022, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered recurring losses from operations and has a negative working capital balance, which raises substantial doubt about its ability to continue as a going concern. Management’s plans regarding 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 audits 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.

/s/ dbbmckennon

 

PCAOB #3501

We have served as the Company’s auditor since 2018.

 

San Diego, California

 

April 30, 2024

 

18

ELECTROMEDICAL TECHNOLOGIES, INC.

BALANCE SHEETS

DECEMBER 31,

    

2023

    

2022

ASSETS

Current assets:

 

  

 

  

Cash and cash equivalents

$

87,704

$

368,425

Accounts receivable

 

4,399

 

9,444

Inventories

 

68,517

 

62,061

Prepaid inventories and other current assets

 

288,565

 

207,872

Total current assets

 

449,185

 

647,802

Right of use asset

149,493

Property and equipment, net

 

149,705

 

705,469

Total assets

$

748,383

$

1,353,271

LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

  

 

  

Current liabilities:

 

  

 

  

Accounts payable

$

239,481

$

266,744

Credit cards payable

 

28,097

 

37,633

Accrued expenses and other current liabilities

 

916,971

 

1,065,483

Customer deposits

 

197,325

 

217,588

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

 

1,393,601

 

1,304,909

Long term debt, current portion

 

 

31,818

Lease liabilities, current portion

48,745

Derivative liabilities

 

532,334

 

Total current liabilities

 

3,356,554

 

2,924,175

Bank debt, net of current portion

 

 

489,707

Government debt, net of current portion

 

150,000

 

150,000

Lease liabilities, net of current portion

 

106,200

 

Other liabilities

 

8,416

 

10,234

Total liabilities

 

3,621,170

 

3,574,116

Commitments and contingencies (Note 10)

 

 

Stockholders’ deficit

 

  

 

  

Series A Preferred Stock, 1,000,000 shares authorized and outstanding

 

365,000

 

365,000

Series B Preferred Stock, 1 share authorized and 1 and 0 outstanding at December 31, 2023 and 2022, respectively

400,000

Common stock, $.00001 par value, 1,999,000,000 and 999,000,000 shares authorized; 463,286,208 and 189,784,529 shares outstanding at December 31, 2023 and 2022, respectively

 

4,631

 

1,896

Additional paid-in-capital

 

23,827,330

 

22,237,300

Accumulated deficit

 

(27,469,748)

 

(24,825,041)

Total stockholders’ deficit

 

(2,872,787)

 

(2,220,845)

Total liabilities and stockholders’ deficit

$

748,383

$

1,353,271

The accompanying notes are an integral part of these financial statements

19

ELECTROMEDICAL TECHNOLOGIES, INC.

STATEMENTS OF OPERATIONS

THE YEARS ENDED DECEMBER 31,

    

2023

    

2022

Net sales

 

$

1,348,808

$

1,149,844

Cost of sales

 

 

303,303

261,203

Gross profit

 

 

1,045,505

888,641

Selling, general and administrative expenses

 

 

3,110,446

2,492,169

Loss from operations

 

 

(2,064,941)

(1,603,528)

Other income (expense)

 

 

Interest expense

 

 

(893,155)

(791,072)

Gain on sale of fixed asset

1,193,676

Change in fair market value of derivative liabilities

 

 

(120,610)

Loss on derivative liabilities

(355,597)

Other expense

 

 

(409,000)

Forgiveness of debt

 

 

5,900

Gain (loss) on extinguishment of debt

8,381

(1,079,800)

Total other expense

 

 

(576,305)

(1,864,972)

Net loss

$

(2,641,246)

$

(3,468,500)

Deemed dividend related to warrant resets

(3,461)

(107,888)

Net loss attributable to common stockholders

(2,464,707)

(3,576,388)

Weighted average shares outstanding - basic and diluted

 

377,216,319

 

133,596,295

Weighted average loss per share - basic and diluted

$

(0.00)

$

(0.03)

The accompanying notes are an integral part of these financial statements

20

ELECTROMEDICAL TECHNOLOGIES, INC.

STATEMENTS OF STOCKHOLDERS’ DEFICIT

FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

Series A Preferred

Series B Preferred

Additional

Total

Stock

Stock

Common Stock

Paid in

Accumulated

Stockholders’

    

Amount

    

Shares

    

Amount

    

Shares

    

Amount

    

Shares

    

Capital

    

Deficit

    

Deficit

Balance, December 31, 2021

$

355,000

 

500,000

$

$

876

 

87,725,842

$

20,804,333

$

(21,882,712)

$

(722,503)

Adoption of ASU2020-06

 

 

-

 

 

 

(1,013,414)

 

634,059

 

(379,355)

Issuance of common stock for cash

 

 

-

 

15

 

1,500,000

 

42,751

 

 

42,766

Shares issued for consulting services and director’s fees

 

 

 

221

 

22,058,999

 

494,679

 

 

494,900

Shares issued in conjunction with forbearance of convertible promissory notes

 

 

 

40

 

4,000,000

 

142,760

 

 

142,800

Shares issued in conjunction with convertible promissory notes settlement

 

 

 

307

 

30,734,801

 

708,063

 

 

708,370

Warrants issued in conjunction with debt settlement

 

 

 

 

 

65,000

 

 

65,000

Warrants issued in conjunction with convertible promissory notes

 

 

 

 

 

445,974

 

 

445,974

Warrants reset in conjunction with convertible promissory notes

 

 

 

 

 

107,888

 

(107,888)

 

Conversion of convertible promissory notes

 

 

 

305

 

30,500,000

 

434,695

 

 

435,000

Stock-based compensation

 

10,000

 

500,000

 

 

 

4,703

 

 

14,703

Cashless warrant exercises

 

 

 

132

 

13,264,887

 

(132)

 

 

Net loss

 

 

 

 

 

 

(3,468,500)

 

(3,468,500)

Balance, December 31, 2022

$

365,000

 

1,000,000

$

$

1,896

 

189,784,529

$

22,237,300

$

(24,825,041)

$

(2,220,845)

Conversion of convertible promissory notes, accrued interest and derivative liabilities

 

 

1,755

 

175,534,171

298,279

300,034

Shares issued for consulting services

350

35,000,000

314,650

315,000

Share issued as CEO compensation

400,000

1

400,000

Shares issued in conjunction with settlement reset

461

46,102,156

697,539

698,000

Settlement of stock-based compensation liabilities

30

3,000,000

20,970

21,000

Conversion true-up

41

4,075,000

(41)

Exercise of warrants for cash

2

170,898

173

175

Cashless warrant exercises

180

18,000,000

(180)

Warrant reset