Electromedical Technologies, Inc [EMED] Filings

10-Q 1 elcq-20230630x10q.htm 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2023.

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

For the transition period from ______ to ______.

Commission File Number 000-56192

ELECTROMEDICAL TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

Delaware
(State or Other Jurisdiction of
Incorporation)

5047
(Primary Standard Industrial
Classification Code Number)

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

16561 N. 92^nd Street, Ste. 101
Scottsdale, AZ	85260
(Address of principal executive offices)	(Zip Code)

888-880-7888

(Registrant’s telephone number, including area code)

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

Title of Each Class		Trading Symbol(s)		Name of each Exchange on which Registered
Common Stock		EMED		None

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

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

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

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
Emerging growth company	☒

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

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

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

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

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TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION

Item 1.	UNAUDITED FINANCIAL STATEMENTS:	3

	BALANCE SHEETS AS OF JUNE 30, 2023 AND DECEMBER 31, 2022	3

	STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2023 AND 2022	4

	STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2023 AND 2022	6

	STATEMENTS OF CASH FLOWS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2023 AND 2022	7

	NOTES TO THE UNAUDITED FINANCIAL STATEMENTS	8

Item 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	19

Item 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	23

Item 4.	CONTROLS AND PROCEDURES	23

PART II. OTHER INFORMATION		25

Item 1.	LEGAL PROCEEDINGS	25

Item 1A.	RISK FACTORS	25

Item 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	25

Item 3.	DEFAULTS UPON SENIOR SECURITIES	40

Item 4.	MINE SAFETY DISCLOSURE	40

Item 5.	OTHER INFORMATION	40

Item 6.	EXHIBITS	40

SIGNATURES		43

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ITEM 1. FINANCIAL STATEMENTS

ELECTROMEDICAL TECHNOLOGIES, INC.

BALANCE SHEETS

(UNAUDITED)


	June 30, 2023		December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	416,256	$	368,425
Accounts receivable		25,788		9,444
Inventories		113,151		62,061
Prepaid expenses and other current assets		326,801		207,872
Total current assets		881,996		647,802

Property and equipment, net		149,705		705,469
Total assets	$	1,031,701	$	1,353,271

LIABILITIES AND STOCKHOLDERS’ DEFICIT

Current liabilities:
Accounts payable	$	269,498	$	266,744
Credit cards payable		20,769		37,633
Accrued expenses and other current liabilities		663,604		1,065,483
Customer deposits		237,650		217,588
Convertible promissory notes, net of discount of $0 and $375,865, respectively		1,412,601		1,304,909
Long term debt, current portion		—		31,818
Derivative liabilities- convertible promissory notes		549,604		—
Total current liabilities		3,153,726		2,924,175

Long-term liabilities:
Bank debt, net of current portion		—		489,707
Government debt, net of current portion		150,000		150,000
Other liabilities		9,998		10,234
Total liabilities		3,313,724		3,574,116

Commitments and contingencies (Note 10)		—		—

Stockholders’ deficit
Series A Preferred Stock, $.00001 par value, 1,000,000 shares authorized and outstanding		365,000		365,000
Series B Preferred Stock, $.00001 par value, 1 share authorized and 1 and 0 shares outstanding at June 30, 2023 and December 31, 2022, respectively		400,000		—
Common stock, $.00001 par value, 1,999,000,000 and 999,000,000 shares authorized; 432,493,896 and 189,784,529 shares outstanding at June 30, 2023 and December 31, 2022, respectively		4,323		1,896
Additional paid-in-capital		23,693,025		22,237,300
Accumulated deficit		(26,744,371)		(24,825,041)
Total stockholders’ deficit		(2,282,023)		(2,220,845)
Total liabilities and stockholders’ deficit	$	1,031,701	$	1,353,271

The accompanying notes are an integral part of these financial statements

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ELECTROMEDICAL TECHNOLOGIES, INC.

STATEMENTS OF OPERATIONS


	THREE MONTHS ENDED JUNE 30,				SIX MONTHS ENDED JUNE 30,
	2023		2022		2023		2022
Net sales	$	294,954	$	225,251	$	673,600	$	447,145

Cost of sales		62,519		45,335		150,215		112,976

Gross profit		232,435		179,916		523,385		334,169

Selling, general and administrative expenses		573,838		463,179		2,126,326		1,342,989

Loss from operations		(341,403)		(283,263)		(1,602,941)		(1,008,820)

Other income (expense)
Interest expense		(284,487)		(136,468)		(672,688)		(349,847)
Gain on sale of fixed asset		—		—		1,193,676		—
Change in fair value of derivative liabilities		(126,958)		—		(126,958)		—
Loss on derivative liabilities		(366,958)		—		(366,958)		—
Other expense		(340,000)		—		(340,000)		—
Loss on extinguishment of debt		—		(116,200)		—		(321,800)
Total other expense		(1,118,403)		(252,668)		(312,928)		(671,647)

Net loss	$	(1,459,806)	$	(535,931)	$	(1,915,869)	$	(1,680,467)
Deemed dividend related to warrant resets		(3,461)		—		(3,461)		(63,381)
Net loss attributable to common stockholders	$	(1,463,267)	$	(535,931)	$	(1,919,330)	$	(1,743,848)

Weighted average shares outstanding - basic and diluted		335,001,567		114,596,514		288,045,553		105,976,603
Weighted average loss per share - basic and diluted	$	(0.00)	$	(0.00)	$	(0.01)	$	(0.02)

The accompanying notes are an integral part of these financial statements

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ELECTROMEDICAL TECHNOLOGIES, INC.

STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT

FOR THE SIX MONTHS ENDED JUNE 30, 2023

(UNAUDITED)


														Total
	Series A Preferred Stock			Series B Preferred Stock			Common Stock			Paid in		Accumulated		Stockholders’
	Amount		Shares	Amount		Shares	Amount		Shares	Capital		Deficit		Deficit
Balance, December 31, 2022	$	365,000	1,000,000	$	—	—	$	1,896	189,784,529	$	22,237,300	$	(24,825,041)	$	(2,220,845)

Shares issued for consulting services		—	—		—	—		350	35,000,000		314,650		—		315,000

Share issued as CEO compensation		—	—		400,000	1		—	—		—		—		400,000

Shares issued in conjunction with settlement reset		—	—		—	—		461	46,102,156		697,539		—		698,000

Cashless warrant exercises		—	—		—	—		180	18,000,000		(180)		—		—

Trigger warrants issued		—	—		—	—		—	—		160,000		—		160,000

Conversion of convertible promissory note		—	—		—	—		50	5,000,000		49,950		—		50,000

Settlement of stock -based compensation liabilities		—	—		—	—		30	3,000,000		20,970		—		21,000

Net loss		—	—		—	—		—	—		—		(456,063)		(456,063)

Balance, March 31, 2023	$	365,000	1,000,000	$	400,000	1	$	2,967	296,886,685	$	23,480,229	$	(25,281,104)	$	(1,032,908)

Conversion of convertible promissory notes		—	—		—	—		1,315	131,532,211		209,376		—		210,691

Conversion true-up		—	—		—	—		41	4,075,000		(41)		—		—

Warrant reset		—	—		—	—		—	—		3,461		(3,461)		—

Net loss		—	—		—	—		—	—		—		(1,459,806)		(1,459,806)

Balance, June 30, 2023	$	365,000	1,000,000	$	400,000	1	$	4,323	432,493,896	$	23,693,025	$	(26,744,371)	$	(2,282,023)

The accompanying notes are an integral part of these financial statements

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ELECTROMEDICAL TECHNOLOGIES, INC.

STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT

FOR THE SIX MONTHS ENDED JUNE 30, 2022

(UNAUDITED)


														Total
	Series A Preferred			Series B Preferred			Common Stock			Paid in		Accumulated		Stockholders’
	Amount		Shares	Amount		Shares	Amount		Shares	Capital		Deficit		Deficit
Balance, December 31, 2021	$	355,000	500,000	$	—	—	$	876	87,725,842	$	20,804,333	$	(21,882,712)	$	(722,503)

Shares issued for consulting services		—	—		—	—		106	10,600,000		356,794		—		356,900

Warrants issued in conjunction with convertible promissory notes		—	—		—	—		—	—		142,996		—		142,996

Warrants reset in conjunction with convertible promissory notes		—	—		—	—		—	—		63,381		(63,381)		—

Adoption of ASU 2020-06		—	—		—	—		—	—		(1,013,414)		634,059		(379,355)

Issuance of common stock for cash		—	—		—	—		15	1,500,000		42,751		—		42,766

Cashless warrant exercises		—	—		—	—		51	5,129,725		(51)		—		—

Stock-based compensation		—	—		—	—		—	—		4,703		—		4,703

Net loss		—	—		—	—		—	—		—		(1,144,536)		(1,144,536)

Balance, March 31, 2022		355,000	500,000		—	—		1,048	104,955,567		20,401,493		(22,456,570)		(1,699,029)

Shares issued for consulting services		—	—		—	—		30	3,000,000		44,970		—		45,000

Shares issued in conjunction with forbearance of convertible promissory notes		—	—		—	—		40	4,000,000		142,760		—		142,800

Conversion of convertible promissory notes and accrued interest		—	—		—	—		267	26,734,801		668,103		—		668,370

Warrants issued in conjunction with debt extinguishment		—	—		—	—		—	—		65,000		—		65,000

Cashless warrant exercises		—	—		—	—		35	3,550,162		(35)		—		—

Net loss		—	—		—	—		—	—		—		(535,931)		(535,931)

Balance, June 30, 2022	$	355,000	500,000	$	—	—	$	1,420	142,240,530	$	21,322,291	$	(22,992,501)	$	(1,313,790)

The accompanying notes are an integral part of these financial statements

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ELECTROMEDICAL TECHNOLOGIES, INC.

STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30,

(UNAUDITED)


	2023		2022
Cash flows from operating activities:
Net loss	$	(1,915,869)	$	(1,680,467)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense		715,000		406,603
Depreciation and amortization		4,557		10,938
Loss on extinguishment of debt		—		321,800
Amortization of debt discount and warrant expense		535,865		254,585
Change in fair value of derivative liabilities		126,958		—
Loss on derivatives		366,958		—
Gain on sale of fixed assets		(1,193,676)		—
Other		11,875		—
Change in operating assets and liabilities:
Accounts receivable		(16,344)		7,797
Inventories		(51,090)		58,955
Prepaid expenses and other current assets		(118,929)		7,927
Accounts payable		2,754		66,348
Credit cards payable		(16,864)		29,784
Accrued expenses and other current liabilities		440,077		8,114
Customer deposits		20,062		90,850
Other liabilities		—		1,001
Net cash used in operating activities		(1,088,666)		(415,765)

Cash flows from investing activities:
Purchase of property and equipment		(149,705)		—
Sale of property and equipment		1,894,588		—
Net cash provided by investing activities		1,744,883		—
Cash flows from financing activities:
Repayments on bank debt		(522,401)		(13,787)
Related party notes payable-net		—		(57,875)
Issuance of convertible promissory notes		—		494,220
Repayments on convertible promissory notes		(85,985)		(367,500)
Issuance of common stock for cash -net		—		42,766
Net cash (used in) provided by financing activities		(608,386)		97,824
Net increase (decrease) in cash and cash equivalents		47,831		(317,941)

Cash and cash equivalents, beginning of period		368,425		383,170

Cash and cash equivalents, end of period	$	416,256	$	65,229

Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	31,574	$	79,402
Income taxes	$	—	$	—

Non-cash investing and financing activities:

January 1,2022 adoption of ASU 2020-06	$	—	$	379,355
Warrants and common stock feature issued in conjunction with convertible promissory notes	$	—	$	350,796
Settlement of stock-based compensation liabilities	$	719,000	$	—
Conversion of convertible promissory notes, derivatives and accrued interest into shares of common stock	$	260,691	$	668,370

The accompanying notes are an integral part of these financial statements

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ELECTROMEDICAL TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1.ORGANIZATION AND NATURE OF BUSINESS

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

NOTE 2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Accounting Method

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

Use of Estimates

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

Going Concern

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

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

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

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Revenue Recognition

Revenues are recognized in accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, when performance obligations are satisfied through the transfer of promised goods to the Company’s customers. Control transfers upon shipment of product and when the title has been passed to the customers. This includes the transfer of legal title, physical possession, the risks and rewards of ownership, and customer acceptance. Revenue is recorded net of sales taxes collected from customers on behalf of taxing authorities, allowance for estimated returns, chargebacks, and markdowns based upon management’s estimates and the Company’s historical experience. The Company’s liability for sales return refunds is recognized within other current liabilities, and an asset for the value of inventory which is expected to be returned is recognized within other current assets on the balance sheets. The Company generally allows a 30 day right of return to its customers. As of both June 30, 2023 and December 31, 2022 the sales returns allowance was $6,990.

Certain larger customers pay in advance for future shipments. These advance payments totaled $237,650 and $217,588 at June 30, 2023 and December 31, 2022, respectively, and are recorded as customer deposits in the accompanying balance sheets. Revenue related to these advance payments is recognized upon shipment to the distributor or the end-customer.

At the completion of the initial three-year warranty, the Company sells extended warranties for periods ranging from one to three years. Revenue is recognized on a straight-line basis over the term of the contract. At June 30, 2023 and December 31, 2022, deferred revenue of $22,468 and $23,313 is recorded, respectively, in current and long-term liabilities in the accompanying balance sheets, in connection with these extended warranties.

Financial Instruments and Concentrations of Business and Credit Risk

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

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

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


	THREE MONTHS ENDED JUNE 30,				SIX MONTHS ENDED JUNE 30,
	2023		2022		2023		2022
Customer A	17.1	%	21.0	%	18.1	%	19.4	%
Customer B	10.9	%	14.9	%	10.5	%	16.2	%
Customer D	—		11.4	%	—		—

Amounts due these customers totaled $19,442 and $13,342 at June 30, 2023 and December 31, 2022, respectively for commissions and reimbursements. Amounts due from these customers totaled $7,560 and $0 at June 30, 2023 and December 31, 2022, respectively. Customer deposits on hand from these customers totaled $132,950 and $77,025 at June 30, 2023 and December 31, 2022, respectively. The loss of these customers would have a significant impact on the operations and cash flows of the Company.

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


		THREE MONTHS ENDED JUNE 30,

Electromedical Technologies, Inc [EMED] Filings
10-Q	[2023-08-21]
10-Q	[2023-05-12]
10-K	[2023-03-31]
10-Q	[2022-11-14]
10-Q	[2022-08-15]
10-Q	[2022-05-16]
10-K	[2022-03-31]
S-1	[2021-12-21]
10-Q	[2021-11-15]
10-Q	[2021-08-13]
10-Q	[2021-05-14]
10-K	[2021-03-30]
S-1	[2021-02-26]
10-Q	[2020-11-16]
10-Q	[2020-08-14]
S-1	[2019-11-12]