As filed with the Securities and Exchange Commission on February 05, 2020.

 

Registration No. 333-__________

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

eWELLNESS HEALTHCARE CORPORATION

(Exact name of registrant as specified in its charter)

 

Nevada   9082   90-1073143

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

 

333 Las Olas Way, Suite 100

Ft. Lauderdale, FL 33301

Phone: (855) 470-1700

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

Darwin Fogt

Chief Executive Officer

333 Las Olas Way, Suite 100

Ft. Lauderdale, FL 33301

Phone: (855) 470-1700

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

Copies to:

The Lonergan Law Firm, LLC

Lawrence R. Lonergan, Esq.

96 Park Street

Montclair, NJ 07042

(973) 641-4012

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.

 

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. [  ]

 

If this Form is filed to register additional securities for an Offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same Offering. [  ]

 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same Offering. [  ]

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same Offering. [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the 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 [X]
  Emerging growth company [X]

 

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 7(a)(2)(B) of the Securities Act. [  ]

 

CALCULATION OF REGISTRATION FEE

 

Title of Each
Class of Securities
to be Registered
  Amount to be
Registered
   Proposed
Maximum
Offering
Price per Share
   Proposed
Maximum
Aggregate
Offering Price
   Amount of
Registration
Fee(1)
 
Units consisting of shares of Series B Preferred Stock, par value $0.001 per share, and Warrants to purchase shares of Common Stock, par value $0.001 per share   2,000,000   $25.00   $50,000,000                 
Shares of Series B Preferred Stock, included as part of the Units   2,000,000                
Common Stock Purchase Warrants to purchase common stock, included as part of the Units (2)   10,000,000                
Shares of Common Stock, par value $0.001 per share, issuable upon exercise of the Warrants (3)(4)   10,000,000   $3.00   $30,000,000      
Total   22,000,000        $80,000,000   $10,384 

 

 

(1) Calculated pursuant to Rule 457(a) based on an estimate of the proposed maximum aggregate Offering price.
(2) In accordance with Rule 457(i) promulgated under the Securities Act, because the shares of our common stock underlying the Warrants are registered hereby, no separate registration fee is required with respect to the Warrants registered hereby.
(3) We are issuing five (5) Common Stock Purchase Warrants (the “Warrants”) each exercisable to purchase one (1) share of our common stock as part of the units offered hereunder (the “Units”). Each Unit consists of: (i) one (1) share of 13% Series B Preferred Cumulative Redeemable Perpetual Preferred Stock (“Series B Preferred”); and (ii) five (5) Warrants. The Warrants are exercisable for a period of five (5) years from the date of issuance at a price of $3.00 per share.
(4) No additional registration fee is payable pursuant to Rule 457(g) promulgated under the Securities Act.

 

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended (the “Securities Act”), or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 

 
 

 

The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and we are not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

Subject to completion, dated February 05, 2020

 

PRELIMINARY PROSPECTUS

 

2,000,000 Units

Each Unit Consisting of

One Share of 13% Series B Cumulative Redeemable Perpetual Preferred Stock and

Five Warrants to Purchase One Share of Common Stock Each

 

 

Pursuant to this registration statement, of which this prospectus is a part, we are offering (the “Offering”) a total of 2,000,000 units (each a “Unit” and collectively, the “Units”), each Unit consisting of: (i) one share of our newly authorized 13% Series B Cumulative Redeemable Perpetual Preferred Stock (the “Series B Preferred”); and (ii) five (5) warrants (the “Warrants”) each exercisable to purchase one (1) share of common stock, par value $0.001 per share (“Common Stock” or “Warrant Shares”), at an exercise price of $3.00 on a post-Reverse Split basis (the “Exercise Price”) per Warrant Share . Each Warrant offered hereby as part of the Units is immediately exercisable on the date of issuance and will expire on [_________], the date that is five (5) years from the date of issuance (the “Warrant Expiration Date”). Reference is made to the pending Reverse Split of our Common Stock on a one-for-fifty (1:50) basis, that is pending before and subject to approval by FINRA.

 

Dividends on the Series B Preferred, having a stated value of $25 per share (“Stated Value”), which are offered hereby as part of the Units, are cumulative from the first day of the calendar month in which they are issued, and will be payable on the 15th day of each calendar month, when, as and if declared by our Board of Directors (“Board”). Dividends will be payable out of amounts legally available therefor at a rate equal to 13% per annum per $25, the Stated Value per share, or $3.25 per share of Series B Preferred per year. We will reserve the amount equal to the first three years of dividend payments, or $9.75 per share of Series B Preferred, from the proceeds from this Offering (the “Dividend Reserve”) in an escrow account (the “Escrow Account”) maintained by International Financial Enterprise Bank (“IFEB Bank”), with offices in Dallas, TX, also referred to hereinafter as the “Escrow Agent.”

 

Commencing on three years from the dates of issuance, we may redeem, at our option, the shares of Series B Preferred, in whole or in part, at a cash redemption price equal to: (i) of $25 per share, plus all accrued and unpaid dividends to, but not including, the redemption date. The Series B Preferred has no stated maturity, will not be subject to any sinking fund or other mandatory redemption, and will not be convertible into or exchangeable for any of our other securities.

 

Holders of the Series B Preferred will have no voting rights, except as set forth below in section “Voting Rights” under subheading “Description of Offered Securities”.

 

Prior to this Offering, there has been no public market for the Units, the Series B Preferred or the Warrants. We anticipate that upon the SEC declaring the registration statement effective, and FINRA approving the symbols we request for the Units, shares of Series B Preferred, and the Warrants, that these securities will initially be subject to quotation and trading on the OTC, possibly, the OTCQB of which there can be no assurance, under the symbols “EWLLU,” “EWLLB” and “EWLLW,” respectively. Our Common Stock is currently quoted on the OTCQB market under the symbol “EWLL.” In order to qualify for the OTCQB, we will need to generate net proceeds of $1.7 million from the sale of 68,000 Units, at which time we will have the initial closing, thereafter, we will continue the Offering of Units.

 

All share and per share data in this prospectus have been retroactively restated to reflect a one-for-50 reverse stock split which we anticipate will become effective upon the approval by FINRA by the end of January 2020 or shortly thereafter (the “Reverse Split Effective Date” or “Effective Date”).

 

We may use broker-dealers to use their best efforts to solicit offers to purchase the Units in this Offering. If any broker-dealers sell Units, they will be deemed “underwriters” as that term is defined by Section 2(a)(11) of the Securities Exchange Act of 1933 (the “Securities Act”). We will pay any underwriters commissions of 10% of the gross proceeds from any Units they sell.

 

This Offering may be closed without further notice to you. Other than as described above, we have not arranged to place any funds from investors in an escrow, trust or similar account.

 

Investing in our securities involves a high degree of risk. See “Risk Factors” beginning on page 14 of this prospectus. You should carefully consider these risk factors, as well as the information contained in this prospectus, before purchasing any of the securities offered by this prospectus.

 

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

 

   Per Unit   Total 
Public Offering price  $25.00   $50,000,000 
Placement agent fees (1)  $2.50   $5,000,000 
Proceeds, before expenses, to the Company  $22.50   $45,000,000 

 

(1) See “Plan of Distribution” for a description of commissions payable to the placement agent. We estimate our other expenses to be $100,000.

 

The date of this prospectus is February 05, 2020

 

 
 

 

TABLE OF CONTENTS

 

  Page
Cautionary Note Regarding Forward-Looking Statements 4
Prospectus Summary 5
The Offering 10
Risk Factors 14
Use of Proceeds 32
Dividend Policy 32
Capitalization 33
Financial Information F-1 - F-41
Business 34
Management’s Discussion and Analysis of Financial Condition and Results of Operations 43
Management 56
Executive and Director Compensation 60
Related Person Transactions 62
Principal Stockholders 62
Description of our Securities 64
Description of Offered Securities 67
Certain U.S. Federal Income Tax Considerations 74
Plan of Distribution 80
Legal Matters 80
Experts 80
Where You Can Find Additional Information 80
Disclosure of Commission Position on Indemnification for Securities Act Liabilities 81

 

You should rely only on the information contained in this prospectus. Neither we nor the placement agent have authorized anyone to provide any information or to make any representations other than those contained in this prospectus we have prepared. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the securities offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date. You should also read this prospectus together with the additional information described under “Additional Information.”

 

Unless the context otherwise requires, we use the terms “we,” “us,” “the Company” and “our” to refer to eWellness Healthcare Corporation and its consolidated subsidiaries.

 

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CAUTIONARY Note Regarding Forward-Looking Statements

 

This prospectus, including the sections entitled “Prospectus Summary,” “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements within the meaning of the federal securities laws. These statements relate to anticipated future events, future results of operations or future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,” “might,” “will,” “should,” “intends,” “expects,” “plans,” “goals,” “projects,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” or “continue” or the negative of these terms or other comparable terminology. These forward-looking statements include, but are not limited to:

 

our ability to manage our growth, including acquiring and effectively integrating other businesses into our infrastructure;
our ability to retain our customers, including effectively migrating and keeping new customers acquired through business acquisitions;
our ability to attract and retain key officers and employees, and personnel critical to the transitioning our business to generate revenues;
our ability to raise capital and obtain financing on acceptable terms;
our ability to compete with other companies developing products and selling products competitive with ours, and who may have greater resources and name recognition than we have;
our ability to maintain operations in a manner that continues to enable us to offer competitively priced products;
our ability to achieve, keep and increase market acceptance of our products;
our ability to keep pace with a changing industry and its rapidly evolving technology demands and regulatory environment;
our ability to protect and enforce intellectual property rights; and
our ability to maintain and protect the privacy of customer information.

 

These forward-looking statements are only predictions, are uncertain and involve substantial known and unknown risks, uncertainties and other factors which may cause our (or our industry’s) actual results, levels of activity or performance to be materially different from any future results, levels of activity or performance expressed or implied by these forward-looking statements. The “Risk Factors” section of this prospectus sets forth detailed risks, uncertainties and cautionary statements regarding our business and these forward-looking statements. Moreover, we operate in a very competitive and rapidly changing regulatory environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all of the risks and uncertainties that could have an impact on the forward-looking statements contained in this prospectus.

 

We cannot guarantee future results, levels of activity or performance. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this prospectus. These cautionary statements should be considered with any written or oral forward-looking statements that we may issue in the future. Except as required by applicable law, including the securities laws of the U.S., we do not intend to update any of the forward-looking statements to conform these statements to reflect actual results, later events or circumstances or to reflect the occurrence of unanticipated events. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or other investments or strategic transactions we may engage in.

 

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Prospectus Summary

 

This summary highlights selected information contained elsewhere in this Prospectus. It does not contain all the information that you should consider before investing in the securities of this Unit Offering. You should carefully read the entire Prospectus, including “Risk Factors”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Financial Statements, before making an investment decision. In this Prospectus, the terms “eWellness” “Company,” “Registrant,” “we,” “us” and “our” refer to eWellness Healthcare Corporation, a Nevada corporation.

 

Business Plan

 

The Company is a provider of the state of the art PHZIO platform for the physical therapy (“PT”) and telehealth markets and believes it is the first digital telehealth physical therapy company (“dtPT Company”) to offer real-time monitored physical therapy assessments and treatments to large-scale employers. The Company’s digital telehealth assessment and treatment platform (the “dtPT Platform” or “Platform”) has been designed to serve the $30 billion physical therapy market, the $4 billion musculoskeletal (“MSK”) market and the $8 billion corporate wellness market. Our dtPT Platform redefines the way physical therapy (“PT”) can be delivered. We believe that our Platform is able to transform the access, cost and quality dynamics of PT assessments and treatments.

 

We designed our Platform to enable its usage for all PT assessments and treatments by means of computer, smart phone and/or similar digital media devices (the “Access Devices”). This new approach will lower patient treatment costs, expand patient treatment access and improve patient compliance. Our dtPT Platform allows patients to avoid the time-consuming clinical experience to an immediate in-home PT experience. We believe that approximately 80% of all PT assessments and treatments can be performed using our Platform accessible via the Access Devices in the privacy of once home.

 

We believe that our innovative approach to solving the pervasive access, cost and quality challenges facing the current access to PT clinics, will lead to highly scalable and substantial growth in our revenues. The Company has signed 7 partnership and healthcare provider agreements to date and has begun to generate initial revenues during the fourth quarter of 2019. We believe that we are well positioned to participate in the rapidly evolving PT treatment market by introducing our innovative dtPT Platform enabling remote patient monitoring, post-discharge treatment plan adherence and in-home care. Our Platform incorporates research-based methods and focuses on, not only rehabilitation but also wellness, functional fitness, performance, and prevention.

 

Our Principal Products and Services

 

The principal features of our new digital telehealth physical therapy delivery system are as follows:

 

  SaaS technology platform solution for providers bundling rehabilitation services and employer wellness programs: PTs can evaluate and screen patients and calculate joint angles using drawing tool
  First real-time remote monitored one-to-many PT treatment platform for home use;
  Ability for PTs to observe multiple patients simultaneously in real-time;
  Solves what has been a structural problem and limitation in post-acute care practice growth.
  PT practices can experience 20% higher adherence and compliance rates versus industry standards; and
  Tracking to 30% increase in net income for a PT practice.

 

We have commenced treating patients on various commercial contracts and started to generate revenues during the three months ended December 31, 2019. We continue to train physical therapists on how to use our Platform, with many of these therapists treating various patients on our system on a complimentary basis. To date, our dtPT Platform has delivered over 4,000 PT assessments and treatments.

 

During the 2nd half of 2019, we intensified our focus on PT assessments and treatments covered under the Workers’ Compensation Insurance program which is a form of insurance providing wage replacement and medical benefits to employees injured in the course of employment. Changes in regulations related Workers’ Compensation Insurance have provided us with an opportunity to offer our MSK 360 Program as described below. Under the new regulation patients can choose to be treated in-clinic or through dtPT. Until recently, patients nearly all choose in-clinic treatment. In response to this change we developed our MSK360 Program.

 

We are in the final stage of developing a fourth program related to Rheumatoid Arthritis Exercises (“RA 360 Program”). We expect to make the RA 360 Program available during the first quarter of 2020 although there can be no assurance that we may not experience delays resulting from that availability of available capital resources, the timing of which may be uncertain.

 

5
 

 

To date, we have existing provider agreements with 16 entities, pursuant to which their employees can utilize our Platform. Additionally, we are actively pursuing as clients for our services numerus large, mid-sized and even smaller corporate self-insured companies, TPA’s and insurance companies to sign provider agreements with us. We have historically had to devote up to one year in sales and marketing and sales activities and efforts to sign new provider agreements and to date we have executed and existing provider agreements with the following companies that we expect to generate revenues during the first quarter of 2020: Pepsi, Corvel, Imperial, Rogers, Manulife, CanadaLife, Navy & Stage Benefits, Health and Dental Plan, Slingshot Health, BBD Benefits By Design, Morneau Shapell, Green Shield Canada, Bruce Power.

 

However, there can be no assurance that we will, in fact, begin to generate revenues in any significant amounts until mid- 2020.

 

Our dtPT Platform under the domain name PHZIO.com currently offers three treatment programs (i) PHIZO Program; (ii) MSK 360 Program and (iii) Pre-HabPT Program.

 

The PHZIO Program:

 

Our PHZIO treatment enables patients to engage with live or on-demand video based dtPT assessments and treatments from their home or office. Following a physician’s exam and prescription for physical therapy to treat back, knee or hip pain, a patient can be examined by a physical therapist and if found appropriate inducted in our PHZIO program that includes a progressive 6-month telemedicine exercise program (including monthly in-clinic checkups). All PHZIO treatments are monitored by a licensed therapist that sees everything the patient is doing while providing their professional guidance and feedback in real-time. This ensures treatment compliance by the patient, maintains the safety and integrity of the prescribed exercises, tracks patient metrics and captures pre-and post-treatment evaluation data. This innovative assessment and treatment program enable any PT practice to be able to treat more patients while utilizing the same resources.

 

A Monitored In-office & Telemedicine Exercise Program : Our initial 6-month PHZIO program has been designed to provide patients, who are accepted into the program, with traditional one-on-one PT evaluations, re-evaluations (one to four weeks throughout the PHZIO program depending on type of insurance), and after the conclusion of the program a Physical Performance Test. These PTs are known as Induction & Evaluation PTs (“IEPTs”). All patient medical data, information and records are retained. The IEPT will also evaluate the progress of the patient’s participation in our PHZIO program.

 

  Physician Diagnosis: Following a physician’s diagnosis of a patient with non-acute back pain, who is also likely overweight and pre-diabetic, a physician may prescribe the patient to participate in our PHZIO program.
     
  Enrollment Process: The accepted patients are assessed by a PT, located at a PT Licensee clinic and then enrolled in our PHZIO program by going online to our website phzio.com and creating a login name and password. The patient will then populate their calendar with planned times when they anticipate exercising. They will also be provided with a free exercise ball, resistance stretch bands, stretch strap and yoga mat at induction.
     
  Exercising Begins: The day after the patient receives the equipment, the patient will log on to our website least 3 times per week, to watch and follow the prescribed 40-minute on-line exercise program. Our Platform also allows two-way communication (videoconferencing) with one of our licensee’s On-line PTs (“OLPT’s”), who is responsible for monitoring on-line patients. The OLPT’s are also available to answer patient’s questions. When available the patients exercise sessions are recorded and stored in our system as proof that they completed the prescribed exercises. There are 250 various 40-minute exercise videos that are viewed by our patients in successive order.
     
  Driving Patients to work out between 6:00am-9:30am 5 days per week: Our Platform has a calendar function so that patients can schedule their exercise session. This calendar enables a PT Licensee to better spread the load of patients participating in any forty-minute on-line exercise program during our 15 hours of weekly operations, 6am through 9:30am Monday through Friday are to most optimal hours for patient engagement. Also, if the patient is not on-line at the planned exercise time, our system can send them an automated reminder, via text, voicemail and or e-mail messaging.

 

6
 

 

Trackable Physical Therapy. The exercise prescription and instruction will be delivered with a series of on-line videos easily accessed by each patient via the internet. Each video will be approximately 40 minutes in length with exercises, which will specifically address the common impairments associated with diabetes and/or obesity. Exercise programs will be able to be performed within each patient’s own home or work location. Each patient will be required to log in to the system which will monitor performance automatically to ensure their compliance. Each patient will be required to follow up with their referring physician and PT at designated intervals and metrics such as blood pressure, blood sugars, BMI, etc. will be recorded to ensure success of the program.

 

Patient Program Goals. Our PHZIO Program was designed so that the average patient is targeted to lose 2 pounds per week, totaling up to 48 pounds over the duration of the program to progress toward healthier defined BMI, reduction body fat percentage by at least 8%, reduced reliance on medication for blood glucose regulation and dosage or frequency and a goal of at least a 50% adherence to continuing the PHZIO program independently at conclusion of program.

 

Trackable Video Exercise Program. The PHZIO Program video includes all aspects of wellness preventative care to ensure the best results: cardiovascular training, resistance training, flexibility, and balance and stabilization; research studies on all such distinct impairments have shown to provide effective treatment results. Each video integrates each of the four components to guarantee a comprehensive approach to the wellness program, but each video will specifically highlight one of the four components. All PHZIO Program videos can be viewed on the Access Devices.

 

Specific Video Programs. Each patient will receive a prescription for six months (26 week) of physical therapy and exercise that is provided by viewing on-line programs produced by us where the patient can do these exercises and stretching on their own at least 3 days per week for at least 40 minutes. To view the videos, the patient would log onto the Platform and would be directed to watch the appropriate video in sequence. As the patient is logged-in, the monitoring PT will be able to monitor how often and if the entire video session was viewed. This data would be captured and sent weekly to the prescribing physician and the monitoring PT for review. At all times, a licensed OLPT/PTA will have access to each patient utilizing the videos and will be able to communicate with a patient via videoconferencing and/or instant messaging. This will help improve adherence to the program as well as the success and safety of the patients’ treatments. A patient will also be instructed to walk or ride a bike at least 30 minutes three days per week in addition to participating in our program.

 

If the patient is not viewing the videos, then the prescribing physician and/or the monitoring PT would reach out to the patient by telephone and/or e-mail to encourage the patient to commit to their physical fitness regime. After each series, the patient returns for an office visit to the prescribing physician for blood tests, blood pressure and a weight management check- up as well as a follow-up visit with the PT for assessment of the patient’s progress toward established goals.

 

Exercise Patient Kits. Most patients will receive a home exercise kit, which will include: an inflatable exercise ball, a hand pump, a yoga mat, a yoga strap, and varying levels of resistance bands. Each of the PHZIO Program exercise video will include exercises that incorporate the items in the tool kit. By using a bare minimum of equipment, patients should be able to participate more easily at home or at their workplace. Our estimated cost of the kit is $49, which we pay and factored into a PT licensees’ revenue stream and internal projections. The cost of the exercise kits may also be billed to the patients account.

 

MSK 360 Program

 

The musculoskeletal (MSK) system, which consists of our bones, muscles and joints, experience strain as we move. MSK related issues are a leading cause of absenteeism in the workplace and in many cases can lead to short- or long-term disability. These costs are a significant factor in any workplace and have cascading effects on employee productivity. We believe that to accelerate physical health, it is critical to prevent and address MSK timely to reduce future health costs.

 

7
 

 

Patients can receive virtual care through the MSK 360 Program with the guidance of a registered PT via our Platform through their Access Devices. As patients will not need to travel to their health appointments during the workday, telerehabilitation is a timesaver, and therefore a cost saver.

 

The employee will first be evaluated to determine the priority of patients’ treatments based on the severity of their condition if they are suitable for our MSK 360 Program. If a patient has experienced a major injury (e.g. fracture), he/she will be instructed to receive in-person PT care.

 

Any EPS and/or LW insureds may, after an in-home or in-office PT assessment, enroll in a 6-month comprehensive treatment program. The main treatment objective of our MSK360 Program is to graduate at least 60% of inducted patients through our 6-month program. Patients should expect to experience an average of a 20% reduction in BMI, a two-inch reduction in waist size, weight loss of at least 10 pounds, significant overall improvement in balance, coordination, flexibility, strength and lumbopelvic stability. Patients also should score better on Functional Outcomes Scales (Oswestry and LEFS) which indicates improved functional activity levels due to reduced low back, knee and hip pain.

 

PreHabPT Program

 

Any individuals covered by EPS and/or LW, who are seeking non-emergency orthopedic surgery shall first receive an online consultation, in-home or in-office PT therapy evaluation and will be prescribed a four to eight-week pre-habilitation physical therapy (“PreHabPT”) exercise program prior to any surgery. Another in-home or in-office PT evaluation will be made following surgery and a treatment plan will be initiated. A PreHabPT Program is an eight-week physician to patient pre-surgical (Prehab) digital therapeutic exercise treatment for patients that anticipate having total join replacement (knee, hip and or shoulder) or back surgeries.

 

PurePT

 

PurePT is a patient and independent PT Program for connecting new patients to PT’s that are seeking to be treated with our PHZIO treatment system. Patient program assessments can be made in the privacy of a patient’s home or office. PurePT connects new patients to PT’s, particularly in states that have direct access rules where patient’s insurance will reimburse for treatment without requiring a physician’s prescription. PurePT puts the patient first.

 

Summary of Risk Factors

 

This Offering, which provides for the registration of 2,000,000 Units, each Unit consisting of one share of our 13% Series B Preferred and five (5) Warrants each exercisable for a period of five years from the date of issuance (the “Warrant Expiration Date”) to purchase one (1) share of Common Stock at an exercise price of $3.00 per Warrant Share, on a post-Reverse Split basis. (the “Exercise Price”). Each Warrant offered hereby is immediately exercisable on the date of issuance and will expire on [_________], the date that is 5 years from the date of issuance, defined here as the Warrant Expiration Date. In addition, the Exercise Price of the Warrants is subject to adjustment in the event during the five year exercise period from the original issuance of the Warrants, if we sell any shares of our Common Stock or securities exchangeable or exercisable or convertible into our Common Stock, subject to certain exceptions, at a price per share less than the exercise price of the Warrants then in effect or without consideration.

 

The Unit Offering and the subsequent public resale of such Units and underlying Securities, including the Series B Preferred, Warrants and Warrant Shares, involves substantial risk. Our ability to execute our business strategy is also subject to certain risks, described under the heading “Risk Factors” below and included elsewhere in this Prospectus. These risks may cause us not to realize the full benefits of our business plan and strategy or may cause us to be unable to successfully execute all or part of our strategy. Some of the most significant challenges and risks include the following:

 

● Our Auditor has expressed substantial doubt as to our ability to continue as a going concern.

● Our limited operating history does not afford investors a sufficient history on which to base an investment decision.

● Our revenues will be dependent upon acceptance of our Platform by patients and insurances, specifically changes in insurances reimbursement policies, will cause us to curtail or cease operations.

● We may face new entrances and increasing competition in the Distance Monitored Physical Therapy market.

8
 

 

● We cannot be certain that we will obtain patents for our proprietary technology or that such patents will protect us.

● The availability of a large number of authorized but unissued shares of Common Stock may, upon their issuance, lead to dilution of existing stockholders.

● Our Units, Series B Preferred and Warrants are expected to be thinly traded, at least initially and there can be no assurance that there will ever be an active trading market for these securities;

● As a result, any sale of the securities subject to your investment in the Offering may take a considerable amount of time.

 

Before you invest in our Units, you should carefully consider all the information in this Prospectus, including matters set forth under the heading “Risk Factors.”

 

Where You Can Find Us

 

The Company’s principal executive office and mailing address is at 333 Las Olas Way, Suite 100, Ft. Lauderdale, FL 33301: Phone: (855) 470-1700.

 

Our Filing Status as a “Smaller Reporting Company”

 

We are a “smaller reporting company,” meaning that we are not an investment company, an asset-backed issuer, or a majority-owned subsidiary of a parent company that is not a smaller reporting company and have a public float of less than $75 million and annual revenues of less than $50 million during the most recently completed fiscal year. As a “smaller reporting company,” the disclosure we will be required to provide in our SEC filings are less than it would be if we were not considered a “smaller reporting company.” Specifically, “smaller reporting companies” are able to provide simplified executive compensation disclosures in their filings; are exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act of 2002 requiring that independent registered public accounting firms provide an attestation report on the effectiveness of internal control over financial reporting; are not required to conduct say-on-pay and frequency votes until annual meetings occurring on or after January 21, 2013; and have certain other decreased disclosure obligations in their SEC filings, including, among other things, being permitted to provide two years of audited financial statements in annual reports rather than three years. Decreased disclosures in our SEC filings due to our status as a “smaller reporting company” may make it harder for investors to analyze the Company’s results of operations and financial prospects.

 

Implications of Being an Emerging Growth Company

 

We qualify as an emerging growth company as that term is used in the JOBS Act. An emerging growth company may take advantage of specified reduced reporting and other burdens that are otherwise applicable generally to public companies. These provisions include:

 

● A requirement to have only two years of audited financial statements and only two years of related MD&A;

● Exemption from the auditor attestation requirement in the assessment of the emerging growth company’s internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002 (“SOX”);

● Reduced disclosure about the emerging growth company’s executive compensation arrangements; and

● No non-binding advisory votes on executive compensation or golden parachute arrangements.

 

We have already taken advantage of these reduced reporting burdens in this Prospectus, which are also available to us as a smaller reporting company as defined under Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

 

In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended (the “Act”) for complying with new or revised accounting standards. We have elected to take advantage of the extended transition period for complying with new or revised accounting standards, which allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. As a result of this election, our financial statements contained in this Form S-1 may not be comparable to companies that comply with public company effective dates. The existing scaled executive compensation disclosure requirements for smaller reporting companies will continue to apply to our filings for so long as our Company is an emerging growth company, regardless of whether the Company remains a smaller reporting company.

 

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We could remain an emerging growth company for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our annual gross revenues exceed $1 billion, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our Common Stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, or (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three year period.

 

For more details regarding this exemption, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies.”

 

The Offering

 

The following summary contains basic terms about this Unit Offering including the Series B Preferred and the Warrants and is not intended to be complete. It may not contain all of the information that is important to you. You should read the more detailed information contained in this prospectus, including but not limited to, the risk factors beginning on page 14. For a more complete description of the terms of the Units, see “Description of the Securities Offered.” Reference is also made to the “Certificate of Designations, Preferences and Rights of 13% Series B Cumulative Redeemable Perpetual Preferred Stock,” filed as Exhibit 10.30 to this Registration Statement (the Series B Certificate of Designation.” Reference is also made to the disclosure under the sub caption “Reverse Stock Split” in the section “Management’s Discussion And Analysis Of Financial Condition And Results Of Operations.”

 

 

Issuer  

eWellness HealthCare Corporation

 

Securities Offered   2,000,000 Units, each Unit consisting of: (i) one share of 13% Series B Preferred, having a Stated Value of $25; and (ii) five Warrants each exercisable to purchase one share of our Common Stock (the “Warrant Shares”) at an exercise price of $3,00 (the “Exercise Price”). The shares of Series B Preferred and the Warrants comprising the Units are immediately separable upon issuance and will be issued separately upon the closing of this Offering. In order to qualify for the OTCQB, we will need to generate net proceeds of $1.7 million from the sale of 68,000 Units, at which time we will have the initial closing, thereafter, we will continue the Offering of Units.
     
Shares of Series B Preferred Offered   2,000,000
     
Warrants Offered  

Warrants to purchase up to 10,000,000 shares of Common Stock (the “Warrant Shares”), which will be exercisable during the period commencing on the date of their issuance and ending five years from such date (the “Warrant Expiration Date”) at an exercise price of $3.00 per Warrant Share, on a post-Reverse Split basis (the “Exercise Price”). This Prospectus also relates to the Offering of the shares of Common Stock issuable upon exercise of the Warrants, referred to herein as the Warrant Shares. There is no established public trading market for the Warrants, and we cannot assure you an active trading market will develop or be sustained, if at all. In addition, the exercise price of the Warrants is subject to adjustment in the event during the five year exercise period from the original issuance of the Warrants, if we sell any shares of our Common Stock or securities exchangeable or exercisable or convertible into our Common Stock, subject to certain exceptions, at a price per share less than the exercise price of the Warrants then in effect or without consideration. 

 

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Series B Preferred to be Outstanding after this Offering   2,000,000 shares
     
Offering Price   $25 per Unit
     
Dividends  

Holders of the Series B Preferred will be entitled to receive cumulative cash dividends at a rate of 13% per annum on the stated value, $25 per share, of the Series B Preferred (equivalent to $3.25 per annum per share).

 

Dividends will be payable monthly in arrears on the 15th day of each month (each, a “Dividend Payment Date”), provided that if any Dividend Payment Date is not a business day, then the dividend that would otherwise have been payable on that Dividend Payment Date may be paid on the next succeeding business day without adjustment in the amount of the dividend. Dividends will be payable to holders of record as they appear on our stock records for the Series B Preferred at the close of business on the corresponding record date, which shall be the last day of the calendar month, whether or not a business day, immediately preceding the month in which the applicable Dividend Payment Date falls (each, a “Dividend Record Date”). As a result, holders of shares of Series B Preferred will not be entitled to receive dividends on a Dividend Payment Date if such shares were not issued and outstanding on the applicable dividend record date.

 

Any dividend payable on the Series B Preferred, including dividends payable for any partial dividend period, will be computed on the basis of a 360-day year consisting of twelve 30-day months; however, the shares of Series B Preferred offered hereby will be credited as having accrued dividends since the first day of the calendar month in which they are issued.

     
Dividend Escrow   We will pay to IFEB Bank (the “Escrow Agent”) an amount equal to the first three years of dividend payments, or $9.75 per share of Series B Preferred, from the proceeds from this Offering. The dividends on the Series B Preferred paid by the Company into the Escrow Account and held by the Escrow Agent will be the sole property and for the sole benefit of the investors and will not be deemed for any purposes whatsoever the property of the Company. For three years after issuance, without further authorization from our Board, the Escrow Agent will pay dividends to investors on a monthly basis as set forth above. Although, dividends will accrue separately for each investor, the Escrow Agent will not pay dividend payments to any investor unless it pays all investors who are listed as Series B Preferred stockholders on our transfer records as of a Dividend Record Date. See “Description of Offered Securities - Dividends.”
     
No Maturity, Sinking Fund or Mandatory Redemption   The Series B Preferred has no stated maturity and will not be subject to any sinking fund or mandatory redemption. Shares of the Series B Preferred will remain outstanding indefinitely unless we decide to redeem or otherwise repurchase them. We are not required to set aside funds to redeem the Series B Preferred.

 

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Optional Redemption  

The Series B Preferred is not redeemable by us prior to the three-year anniversary of each issuance of Series B Preferred. We may, at our option, redeem the Series B Preferred, in whole or in part, at any time or from time to time, for cash at a redemption price equal to the Stated Value of $25 per share of Series B Preferred, plus any accumulated and unpaid dividends to, but not including, the redemption date. See “Description of the Series B Preferred—Redemption—Optional Redemption” for further details. If we redeem any Series B Preferred, we will only do so by treating all investors equally. In order to do that, we will deposit all redemption proceeds in an escrow account, since we expect the three-year periods to vary. The only exception to escrowing funds will be if the redemption date is more than three years after issuance of all Series B Preferred in which case, we will simply pay all investors at the same time.

 

Special Optional Redemption  

Upon the occurrence of a Change of Control, we may, at our option, redeem the Series B Preferred, in whole or in part, within 120 days after notice of such Change of Control, for cash at a redemption price equal to the Stated Value of $25 per share of Series B Preferred, plus any accumulated and unpaid dividends to, but not including, the redemption date.

 

A “Change of Control” is deemed to occur when any person, including any syndicate or group deemed to be a “person” under Section 13(d)(3) of the Securities Exchange Act of 1934 (the “Exchange Act”) of beneficial ownership, directly or indirectly, through a purchase, merger or other acquisition transaction or series of purchases, mergers or other acquisition transactions shall have acquired our stock entitling that person to exercise more than 50% of the total voting power of all our stock entitled to vote generally in the election of our directors (except that such person will be deemed to have beneficial ownership of all securities that such person has the right to acquire, whether such right is currently exercisable or is exercisable only upon the occurrence of a subsequent condition).

     
Ranking   The Series B Preferred will rank, with respect to rights to the payment of dividends and the distribution of assets upon our liquidation, dissolution or winding up, senior to all classes or series of our Common Stock or our issued and outstanding Series A Preferred Stock and to all other equity securities issued by us other than equity securities on a parity with all equity securities issued by us with terms specifically providing that those equity securities rank on a parity with the Series B Preferred with respect to rights to the payment of dividends and the distribution of assets upon our liquidation, dissolution or winding up; (iii) junior to all equity securities issued by us with terms specifically providing that those equity securities rank senior to the Series B Preferred with respect to rights to the payment of dividends and the distribution of assets upon our liquidation, dissolution or winding up, including any other series of Preferred Stock; and (iv) effectively junior to all of our existing and future indebtedness (including indebtedness convertible into our Common Stock or Preferred Stock) and to the indebtedness and other liabilities of (as well as any preferred equity interests held by others in) our existing subsidiaries and any future subsidiaries. See “Description of the Series B Preferred–Ranking” for further information.

 

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Limited Voting Rights   Holders of Series B Preferred will have no voting rights except for the limited instance where the Series B Preferred may vote. See the section entitled “Description of the Series B Preferred—Voting Rights,” and the Series B Certificate of Designation, filed as Exhibit __ to this Registration Statement.
     
Use of Proceeds   After escrowing proceeds equal to $9.75 per share of Series B Preferred, for the payment of the initial three years of dividends, we plan to use the net proceeds from this Offering for working capital, general corporate purposes and growth initiatives, including potential future acquisitions, although the Company has no present plans, arrangements or agreements for any such acquisitions. Any additional proceeds will be used to repay our outstanding, which we estimate to be approximately $1.3 million as of the date of this prospectus.
     
Risk Factors   Please read the disclosure under the section entitled “Risk Factors” beginning on page 14 for a discussion of some of the factors you should carefully consider before deciding to invest in our Series B Preferred and Warrants.
     
Trading Market   Our Common Stock is quoted on the OTCQB under the EWLL symbol. We expect the Units, the Series B Preferred, and the Warrants will be quoted under the symbols “EWLLU,” “EWLLB” and “EWLLW,” respectively, pending assignment by FINRA of trading symbols, following the date the SEC declares the Registration Statement effective under the Act. We intend to initially apply to the OTCQB Market (“OTCQB”) to make these securities become subject to quotation although we may determine to apply to the OTC Markets for quotation on the OTCQX although there can be no assurance that we will qualify for the listing or quotation of these securities on the OTCQX. See “Description of Securities - Trading Market.”
     
Transfer Agent   VStock Transfer will act as the registrar, transfer agent and dividend and redemption price disbursing agent in respect of the Series B Preferred.
     
Certain U.S. Federal Income Tax Considerations  

For a discussion of the federal income tax consequences of purchasing, owning and disposing of the Series B Preferred, please see the section entitled “Certain U.S. Federal Income Tax Considerations.” You should consult your tax advisor with respect to the U.S. federal income tax consequences of owning the Series B Preferred in light of your own particular situation and with respect to any tax consequences arising under the laws of any state, local, foreign or other taxing jurisdiction.

 

Book Entry and Form   The Series B Preferred will be represented by one or more global certificates in definitive, fully registered form deposited with a custodian for, and registered in the name of, a nominee of The Depository Trust Company (“DTC”).

 

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Risk Factors

 

Investing in our securities involves a high degree of risk. You should carefully consider and evaluate all of the information contained in this prospectus before you decide to purchase the Units. The risks and uncertainties described in this prospectus are not the only ones we may face. Additional risks and uncertainties that we do not presently know about or that we currently believe are not material may also adversely affect our business, business prospects, results of operations or financial condition. Any of the risks and uncertainties set forth herein, could materially and adversely affect our business, results of operations and financial condition. This could cause the market price of the Units, the Series B Preferred and the Warrants to decline, perhaps significantly, and you may lose part or all of your investment.

 

Risks Related to our Financial Condition

 

Because this is a best efforts Offering, investors who invest initially will be subject to more risk than later investors.

 

We are seeking to raise up to $50,000,000 from the sale of the Units. We intend to escrow approximately 39% of the gross proceeds in order to provide investors a 13% return through dividend payments for three years from the date of issuance to each investor. The remaining proceeds will be first used to pay our indebtedness which is approximately $1.3 million as of the date of this prospectus and we intend to use the remaining proceeds for working capital, general corporate purposes and growth initiatives, including potential future acquisitions, although the Company has no present plans, arrangements or agreements for any such acquisitions. See “Description of Offered Securities – Series B Preferred.” Because this is a best effort Offering, the earlier investors invest in this Offering, the greater degree of risk they will incur. For example, if the Company raises an immaterial amount, investors will be subject to more risk than if all or substantially all of the $50,000,000 is raised. This is because there is no minimum amount of proceeds we must raise. If we do not raise a substantial amount of proceeds, we may not have sufficient working capital to be able to carry out our business since we are continuing to lose money. In that event, we will be required to seek other financing which, if available, may be very dilutive and expensive. In that event, your investment will be adversely affected. In order to qualify for the OTCQB, we will need to generate net proceeds of $1.7 million from the sale of 68,000 Units, at which time we will have the initial closing, following which we will continue the Offering of Units until all of the units are sold or we terminate the Offering. There can be no assurance that we will be successful in selling 68,000 Units and our Series B Preferred becoming subject to quotation of the OTCQB

 

Our Independent Registered Public Accounting Firm has expressed substantial doubt as to our ability to continue as a going concern.

 

The audited financial statements have been prepared assuming that we will continue as a going concern and do not include any adjustments that might result if we cease to continue as a going concern. We believe that to continue as a going concern we will need approximately $500,000 per year simply to cover the administrative, legal and accounting fees. We plan to fund these expenses primarily through cash flow from operations, if and when we generate positive cash flow, of which there can be no assurance, the sale of restricted shares of our Common Stock, and the issuance of convertible notes, as well as funds raised from this Offering, it is successfully, of which there can be no assurance

 

Based on our financial statements for the years ended December 31, 2018 and 2017, our independent registered public accounting firm has expressed substantial doubt as to our ability to continue as a going concern. To date we have not generated any revenue and there can be no assurance that we will, in fact generate revenue, notwithstanding our expectations disclosed elsewhere in the Prospectus.

 

Investing in our securities involves a great deal of risk. Careful consideration should be made of the following factors as well as other information included in this Prospectus before deciding to purchase the Units subject of this Offering or of our Common Stock in the open market or otherwise. Our business, financial condition or results of operations could be affected materially and adversely by any or all the risks set forth under “Risk Factors” and elsewhere in this Prospectus.

 

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We may need to raise additional capital to fund continuing operations and an inability to raise the necessary capital or to do so on acceptable terms could threaten the success of our business.

 

To date, our operations have been funded entirely from the proceeds from equity and debt financings or loans from our management. We currently anticipate that our available capital resources will be insufficient to meet our expected working capital and capital expenditure requirements for the near future. We anticipate that we will require an additional $1.5 million during the next twelve months to fulfill our business plan. However, such resources may not be sufficient to fund the long-term growth of our business. If we determine that it is necessary to raise additional funds, we may choose to do so through strategic collaborations, licensing arrangements through our “White Labeling” strategy, public or private equity or debt financing, a bank line of credit, or other arrangements.

 

We cannot be sure that any additional funding will be available on terms favorable to us or at all. Any additional equity financing may be dilutive to our shareholders, new equity securities may have rights, preferences or privileges senior to those of existing holders of our shares of Common stock. Debt or equity financing may subject us to restrictive covenants and significant interest costs. If we obtain funding through a strategic collaboration or licensing arrangement, we may be required to relinquish our rights to our product or marketing territories. If we are unable to obtain the financing necessary to support our operations, we may be required to defer, reduce or eliminate certain planned expenditures or significantly curtail our operations.

 

We have a history of net losses; we may never achieve or sustain profitability or positive cash flow from operations.

 

We have incurred net losses in each fiscal year since our inception, including net losses of $4,451,462 for the year ended December 31, 2018 and $1,032,891 for the year ended December 31, 2017, and a net loss of $4,624,131 for the nine months ended September 30, 2019. As of September 30, 2019, we had an accumulated deficit of approximately $26,025,365. We expect to continue to incur substantial expenditures to develop and market our services and could continue to incur losses and negative operating cash flow for the foreseeable future. We may never achieve profitability or positive cash flow in the future, and even if we do, we may not be able to continue being profitable.

 

We have a limited operating history under our current platform, it is difficult to evaluate our business and future prospects and increases the risks associated with investment in our securities.

 

We have operated our PHIZO platform since November 2014. As a result, our platform and business model have not been fully proven, and we have only a limited operating history on which to evaluate our business and future prospects. We have encountered, and will continue to encounter, risks and difficulties frequently experienced by growing companies in rapidly changing industries, including our ability to achieve market acceptance of our platform and attract, retain and incentivize clients to use our platform, as well as respond to competition and plan for and scale our operations to address future growth. We may not be successful in addressing these and other challenges we may face in the future, and our business and future prospects may be materially and adversely affected if we do not manage these and other risks successfully. Given our limited operating history, we may be unable to effectively implement our business plan which could materially harm our business or cause us to scale down or cease our operations.

 

Risks Related to our Platform and our Business

 

Our Platform may not be accepted in the marketplace.

 

Uncertainty exists as to whether our Platform will be accepted by the market without additional widespread PT or patient acceptance. Several factors may limit the market acceptance of our Platform, including the availability of alternative products and services as well as the price of our Platform services relative to alternative products. There is a risk that PT or patient acceptance will be encouraged to continue to use other products and/or methods instead of ours. We are assuming that, notwithstanding the fact that our Platform is new in the market, PT or patient acceptance will elect to use our Platform because it will permit to safe valuable PT’s time.

 

PT or patient needs to be persuaded that our Platform service is justified for the anticipated benefit, but there is no assurance that enough numbers of patients will be convinced to enable a successful market to develop for our Platform.

 

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Our revenues will be dependent upon acceptance of our Platform product by the market. The failure of such acceptance will cause us to curtail or cease operations.

 

Our revenues are expected to come from our Platform. As a result, we will continue to incur operating losses until such time as revenues reach a mature level and we are able to generate enough revenues from our Platform to meet our operating expenses. There can be no assurance that PTs or patients will adopt our Platform. If we are not able to market and significantly increase the number of PTs or patients that use our Platform, or if we are unable to charge the necessary prices, our financial condition and results of operations will be materially and adversely affected.

 

Defects or malfunctions in our Platform could hurt our reputation, sales and profitability.

 

The acceptance of our Platform depends upon its effectiveness and reliability. Our Platform is complex and is continually being modified and improved, and as such may contain undetected defects or errors when first introduced or as new versions are released. To the extent that defects or errors cause our Platform to malfunction and our customers’ use of our Platform is interrupted, our reputation could suffer, and our potential revenues could decline or be delayed while such defects are remedied. We may also be subject to liability for the defects and malfunctions.

 

There can be no assurance that, despite our testing, errors will not be found in our Platform or new releases, resulting in loss of future revenues or delay in market acceptance, diversion of development resources, damage to our reputation, adverse litigation, or increased service, any of which would have a material adverse effect upon our business, operating results and financial condition.

 

Software failures, breakdowns in the operations of our servers and communications systems or the failure to implement system enhancements could harm our business.

 

Our success depends on the efficient and uninterrupted operation of our servers and communications systems. A failure of our network or data gathering procedures could impede services and could result in the loss of PT and patients. While our operations will have disaster recovery plans in place, they might not adequately protect us. Despite any precautions we take, damage from fire, floods, hurricanes, power loss, telecommunications failures, computer viruses, break-ins and similar events at our computer facilities could result in interruptions in the flow of data to our servers and from our servers to our clients. In addition, any failure by our computer environment to provide our required data communications capacity could result in interruptions in our service. In the event of a server failure, we could be required to transfer our client data collection operations to an alternative provider of server hosting services. Such a transfer could result in delays in our ability to deliver our products and services to our clients.

 

Additionally, significant delays in the planned delivery of system enhancements, improvements and inadequate performance of the systems once they are completed could damage our reputation and harm our business. Long-term disruptions in the infrastructure caused by events such as natural disasters, the outbreak of war, the escalation of hostilities and acts of terrorism, particularly involving cities in which we have offices, could adversely affect our businesses. Although, we plan to carry property and business interruption insurance for our business operations, our coverage might not be adequate to compensate us for all losses that may occur.

 

We face risks related to the storage of customers’ and their end users’ confidential and proprietary information.

 

Our Platform is designed to maintain the confidentiality and security of our patients’ confidential and proprietary data that are stored on our server systems, which may include sensitive personal data. However, any accidental or willful security breaches or other unauthorized access to these data could expose us to liability for the loss of such information, time-consuming and expensive litigation and other possible liabilities as well as negative publicity. Techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are difficult to recognize and react to. We may be unable to anticipate these techniques or implement adequate preventative or reactionary measures.

 

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We might incur substantial expense to further develop our Platform which may never become sufficiently successful.

 

Our growth strategy requires the successful launch of our Platform. Although management will take every precaution to ensure that our Platform will, with a high degree of likelihood, achieve commercial success, there can be no assurance that this will be the case. The causes for failure of our Platform once commercialized can be numerous, including:

 

  market demand for our Platform proves to be smaller than we expect;
  further Platform development turns out to be costlier than anticipated or takes longer; our Platform requires significant adjustment post commercialization, rendering the Platform uneconomic or extending considerably the likely investment return period; additional regulatory requirements may increase the overall costs of the development; patent conflicts or unenforceable intellectual property rights; and PTs and clients may be unwilling to adopt and/or use our Platform.
  Compliance with changing regulations concerning corporate governance and public disclosure may result in additional expenses.

 

We are required to comply with certain provisions of Section 404 of the Sarbanes-Oxley Act of 2002 and if we fail to comply in a timely manner, our business could be harmed, and our stock price could decline.

 

Rules adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 require an annual assessment of internal controls over financial reporting, and for certain issuers an attestation of this assessment by the issuer’s independent registered public accounting firm. The standards that must be met for management to assess the internal controls over financial reporting as effective are evolving and complex, and require significant documentation, testing, and possible remediation to meet the detailed standards.

 

We expect to incur expenses and to devote resources to Section 404 compliance on an ongoing basis. It is difficult for us to predict how long it will take or costly it will be to complete the assessment of the effectiveness of our internal control over financial reporting for each year and to remediate any deficiencies in our internal control over financial reporting. As a result, we may not be able to complete the assessment and remediation process on a timely basis. In addition, although attestation requirements by our independent registered public accounting firm are not presently applicable to us, we could become subject to these requirements in the future and we may encounter problems or delays in completing the implementation of any resulting changes to internal controls over financial reporting. If our Chief Executive Officer or Chief Financial Officer determine that our internal control over financial reporting is not effective as defined under Section 404, we cannot predict how the market prices of our shares will be affected; however, we believe that there is a risk that investor confidence and share value may be negatively affected.

 

These and other new or changed laws, rules, regulations and standards are, or will be, subject to varying interpretations in many cases due to their lack of specificity. As a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies, which could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. Our efforts to comply with evolving laws, regulations and standards are likely to continue to result in increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities. Further, compliance with new and existing laws, rules, regulations and standards may make it more difficult and expensive for us to maintain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. Members of our board of directors and our principal executive officer and principal financial officer could face an increased risk of personal liability in connection with the performance of their duties. As a result, we may have difficulty attracting and retaining qualified directors and executive officers, which could harm our business. We continually evaluate and monitor regulatory developments and cannot estimate the timing or magnitude of additional costs we may incur as a result.

 

We cannot be certain that we will obtain patents for our Platform and technology or that such patents will protect us from competitors.

 

We believe that our success and competitive position will depend in part on our ability to obtain and maintain patents for our Platform, which is both costly and time consuming. We still are in the process to evaluate the patent potentials of our Platform. Patent Offices typically requires 12-24 months or more to process a patent application. There can be no assurance that any of our potential patent applications will be approved. However, we have decided to launch our Platform without patent protection. There can be no assurance that any potential patent issued or licensed to us will provide us with protection against competitive products, protect us against changes in industry trends which we have may not have anticipated or otherwise protect the commercial viability of our Platform, or that challenges will not be instituted against the validity or enforceability of any of our future patents or, if instituted, that such challenges will not be successful. The cost of litigation to uphold the validity of a patent and enforce it against infringement can be substantial. Even issued patents may later be modified or revoked by the Patent and Trademark Office or in legal proceedings. Patent applications in the United States are maintained in secrecy until the patent issues and, since publication of patents tends to lag behind actual discoveries, we cannot be certain that if we obtain patents for our product, we were the first creator of the inventions covered by a pending patent applications or the first to file patent applications on such inventions.

 

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Liability issues are inherent in the Healthcare industry and insurance is expensive and difficult to obtain, we may be exposed to large lawsuits.

 

Our business exposes us to potential liability risks, which are inherent in the healthcare industry. While we will take precautions, we deem to be appropriate to avoid liability suits against us, there can be no assurance that we will be able to avoid significant liability exposure. Liability insurance for the healthcare industry is generally expensive. We have obtained professional indemnity insurance coverage for our Platform. There can be no assurance that we will be able to maintain such coverage on acceptable terms, or that any insurance policy will provide adequate protection against potential claims. A successful liability claim brought against us may exceed any insurance coverage secured by us and could have a material adverse effect on our results or ability to continue our Platform.

 

We depend upon reimbursement by third-party payers.

 

Substantially all revenues are anticipated to be derived from private third-party PT clinics that gain their revenue to pay our licensing fees from insurance payers. Initiatives undertaken by industry and government to contain healthcare costs affect the profitability of our licensee clinics. These payers attempt to control healthcare costs by contracting with healthcare providers to obtain services on a discounted basis. We believe that this trend will continue and may limit reimbursement for healthcare services. If insurers or managed care companies from whom we receive substantial payments were to reduce the amounts paid for services, our profit margins may decline, or we may lose PT licensees if they choose not to renew our contracts with these insurers at lower rates. In addition, in certain geographical areas, our operations may be approved as providers by key health maintenance organizations and preferred provider plans; failure to obtain or maintain these approvals would adversely affect our financial results. Although we created a business plan that will enable us to achieve revenue based on current reimbursement policies, if our belief that the insurance industry is poised for change, to offer more reimbursement for the services we seek to provide is not realized, we may not achieve the success we predict and we may not be able to carry out all the plans we disclose herein related to telemedicine. Ultimately, a shift in thinking and a willingness to adapt to new physical therapy telemedicine services and reimbursement thereof by healthcare providers is needed for the successful integration of our PHZIO telemedicine platform in mainstream healthcare environments.

 

We will need to increase the size of our organization and may experience difficulties in managing growth.

 

At present, we are a small company. We expect to experience a period of expansion in headcount, infrastructure and overhead and anticipate that further expansion will be required to address potential growth and market opportunities. Future growth will impose significant added responsibilities on members of management, including the need to identify, recruit, maintain and integrate new managers. Our future financial performance and its ability to compete effectively will depend, in part, on its ability to manage any future growth effectively.

 

Dependence on Key Existing and Future Personnel

 

Our success will depend, to a large degree, upon the efforts and abilities of our officers and key management employees. The loss of the services of one or more of our key employees could have a material adverse effect on our operations. In addition, as our business model is implemented, we will need to recruit and retain additional management and key employees in virtually all phases of our operations. Key employees will require a strong background in our industry. We cannot assure that we will be able to successfully attract and retain key personnel.

 

Currently, our management’s participation in our business and operations is limited

 

To date, we have been unable to offer cash compensation to our officers due to our lack of revenue. Accordingly, each of the Company’s executive officers maintain jobs outside of their position at eWellness. Although each of our executive officers have prepared to devote their efforts, on a full-time basis, towards our objectives once we can afford executive compensation commensurate with that being paid in the marketplace, until such time, our officers will not devote their full time and attention to the operations of the Company. None of our officers have committed a specific portion of their time or an approximate number of hours per week in writing to the objectives of the company and no assurances can be given as to when we will be financially able to engage our officers on a full-time basis and therefore, until such time, it is possible that the inability of such persons to devote their full-time attention to the Company may result in delays in progress toward implementing our business plan.

 

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We operate in a highly competitive industry

 

Although we are not aware of any other Distance Monitored Physical Therapy Telemedicine Program precisely like ours, and targeting our specific population, we shall encounter competition from local, regional or national entities, some of which have superior resources or other competitive advantages in the larger physical therapy space. Intense competition may adversely affect our business, financial condition or results of operations. We may also experience competition from companies in the wellness space. These competitors may be larger and more highly capitalized, with greater name recognition. We will compete with such companies on brand name, quality of services, level of expertise, advertising, product and service innovation and differentiation of product and services. As a result, our ability to secure significant market share may be impeded. Although we believe our PHZIO services will enable us to service more patients than traditional physical therapy providers, if these more established offices or providers start Offering similar services to ours, their name recognition or experience may enable them to capture a greater market share.

 

Limited product testing and operations

 

We have built out the technology platform and video library necessary to execute our planned business strategy. Of course, there may be other factors that prevent us from successfully marketing a product including, but not limited to, our limited cash resources. Further, our proposed reimbursement plan and the eventual operating results could susceptible to varying interpretations by scientists, medical personnel, regulatory personnel, statisticians and others, which may delay, limit or prevent our executing our proposed business plan.

 

We face substantial competition, and others may discover, develop, acquire or commercialize products before or more successfully than we do

 

We operate in a highly competitive environment. Our products compete with other products or treatments for diseases for which our products may be indicated. Other healthcare companies have greater clinical, research, regulatory and marketing resources than us. In addition, some of our competitors may have technical or competitive advantages for the development of technologies and processes. These resources may make it difficult for us to compete with them to successfully discover, develop and market new products.

 

We depend upon the cultivation and maintenance of relationships with the physicians in our markets.

 

Our success is dependent upon referrals from physicians in the communities that our PT licensees will service and their ability to maintain good relations with these physicians and other referral sources. Physicians referring patients to their clinics are free to refer their patients to other therapy providers or to their own physician owned therapy practice. If our PT licensees are unable to successfully cultivate and maintain strong relationships with physicians and other referral sources, our business may decrease, and our net operating revenues may decline.

 

We also depend upon our ability to recruit and retain experienced PTs

 

Our future revenue generation is dependent upon referrals from physicians in the communities our clinics serve, and our ability to maintain good relations with these physicians. Our PT licensees are the front line for generating these referrals and we are dependent on their talents and skills to successfully cultivate and maintain strong relationships with these physicians. If they cannot recruit and retain our base of experienced and clinically skilled therapists, our business may decrease, and our net operating revenues may decline.

 

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Our revenues may fluctuate due to weather

 

If our expectations are met, of which there can be no assurance, we anticipate having a considerable number of PT licensees in locations and in states that normally experience snow and ice during the winter months. Also, a considerable number of our clinics may be in states along the Gulf Coast and Atlantic Coast, which are subject to periodic winter storms, hurricanes and other severe storm systems. Periods of severe weather may cause physical damage to our facilities or prevent our staff or patients from traveling to our clinics, which may cause a decrease in our future net operating revenues. Furthermore, to the extent that our PT sessions are conducted from remote locations via the internet, adverse weather conditions could disrupt internet transmission of our sessions to our users who are at remote locations, such as their homes or offices.

 

We may incur closure costs and losses

 

The competitive, economic or reimbursement conditions in the markets in which we operate may require us to reorganize or to close certain clinical locations. In the event a clinic is reorganized or closed, we may incur losses and closure costs. The closure costs and losses may include, but are not limited to, lease obligations, severance, and write-down or write-off of intangible assets.

 

Certain of our internal controls, particularly as they relate to billings and cash collections, are largely decentralized at our clinic locations

 

Our future PT licensees’ operations are largely decentralized and certain of our internal controls, particularly the processing of billings and cash collections, occur at the clinic level. Taken as a whole, we believe our future internal controls for these functions at our PT licensees’ clinical facilities will be adequate. Our controls for billing and collections largely depend on compliance with our written policies and procedures and separation of functions among clinic personnel. We also intend to maintain corporate level controls, including an audit compliance program, that are intended to mitigate and detect any potential deficiencies in internal controls at the clinic level. The effectiveness of these controls to future periods are subject to the risk that controls may become inadequate because of changes in conditions or the level of compliance with our policies and procedures deteriorates.

 

Risks Related to Regulation

 

Our products may be subject to product liability legal claims, which could have an adverse effect on our business, results of operations and financial condition.

 

Certain of our products provide applications that relate to patient clinical information. Any failure by our products to provide accurate and timely information concerning patients, their medication, treatment and health status, generally, could result in claims against us which could materially and adversely impact our financial performance, industry reputation and ability to market new system sales. In addition, a court or government agency may take the position that our delivery of health information directly, including through licensed practitioners, or delivery of information by a third-party site that a consumer accesses through our websites, exposes us to assertions of malpractice, other personal injury liability, or other liability for wrongful delivery/handling of healthcare services or erroneous health information. We anticipate that in the future we will maintain insurance to protect against claims associated with the use of our products as well as liability limitation language in our end-user license agreements, but there can be no assurance that our insurance coverage or contractual language would adequately cover any claim asserted against us. A successful claim brought against us in excess of or outside of our insurance coverage could have an adverse effect on our business, results of operations and financial condition. Even unsuccessful claims could result in our expenditure of funds for litigation and management time and resources.

 

Certain healthcare professionals who use our Cloud-based products will directly enter health information about their patients including information that constitutes a record under applicable law that we may store on our computer systems. Numerous federal and state laws and regulations, the common law and contractual obligations, govern collection, dissemination, use and confidentiality of patient-identifiable health information, including:

 

  state and federal privacy and confidentiality laws;
  contracts with clients and partners;
  state laws regulating healthcare professionals;
  Medicaid laws;
  the HIPAA and related rules proposed by the Health Care Financing Administration; and
  Health Care Financing Administration standards for Internet transmission of health data.

 

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HIPAA establishes elements including, but not limited to, federal privacy and security standards for the use and protection of Protected Health Information. Any failure by us or by our personnel or partners to comply with applicable requirements may result in a material liability to us.

 

Although we have systems and policies in place for safeguarding Protected Health Information from unauthorized disclosure, these systems and policies may not preclude claims against us for alleged violations of applicable requirements. Also, third party sites and/or links that consumers may access through our web sites may not maintain adequate systems to safeguard this information or may circumvent systems and policies we have put in place. In addition, future laws or changes in current laws may necessitate costly adaptations to our policies, procedures, or systems.

 

There can be no assurance that we will not be subject to product liability claims, that such claims will not result in liability in excess of our insurance coverage, that our insurance will cover such claims or that appropriate insurance will continue to be available to us in the future at commercially reasonable rates. Such product liability claims could adversely affect our business, results of operations and financial condition.

 

There is significant uncertainty in the healthcare industry in which we operate, and we are subject to the possibility of changing government regulation, which may adversely impact our business, financial condition and results of operations.

 

The healthcare industry is subject to changing political, economic and regulatory influences that may affect the procurement processes and operation of healthcare facilities. During the past several years, the healthcare industry has been subject to an increase in governmental regulation of, among other things, reimbursement rates and certain capital expenditures.

 

Recently enacted public laws reforming the U.S. healthcare system may have an impact on our business. The Patient Protection and Affordable Care Act (H.R. 3590; Public Law 111-148) (“PPACA”) and The Health Care and Education Reconciliation Act of 2010 (H.R. 4872) (the “Reconciliation Act”), which amends the PPACA (collectively the “Health Reform Laws”), were signed into law in March 2010. The Health Reform Laws contain various provisions which may impact us and our patients. Some of these provisions may have a positive impact, while others, such as reductions in reimbursement for certain types of providers, may have a negative impact due to fewer available resources. Increases in fraud and abuse penalties may also adversely affect participants in the health care sector, including us.

 

Various legislators have announced that they intend to examine further proposals to reform certain aspects of the U.S. healthcare system. Healthcare providers may react to these proposals, and the uncertainty surrounding such proposals, by curtailing or deferring investments, including those for our systems and related services. Cost-containment measures instituted by healthcare providers as a result of regulatory reform or otherwise could result in a reduction of the allocation of capital funds. Such a reduction could have an adverse effect on our ability to sell our systems and related services. On the other hand, changes in the regulatory environment have increased and may continue to increase the needs of healthcare organizations for cost-effective data management and thereby enhance the overall market for healthcare management information systems. We cannot predict what effect, if any, such proposals or healthcare reforms might have on our business, financial condition and results of operations.

 

As existing regulations mature and become better defined, we anticipate that these regulations will continue to directly affect certain of our products and services, but we cannot fully predict the effect now. We have taken steps to modify our products, services and internal practices as necessary to facilitate our compliance with the regulations, but there can be no assurance that we will be able to do so in a timely or complete manner. Achieving compliance with these regulations could be costly and distract management’s attention and divert other company resources, and any noncompliance by us could result in civil and criminal penalties.

 

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Developments of additional federal and state regulations and policies have the potential to positively or negatively affect our business. Our software is not anticipated to be considered a medical device by the FDA. Yet, if it were, it could be subject to regulation by the U.S. Food and Drug Administration (“FDA”) as a medical device. Such regulation could require the registration of the applicable manufacturing facility and software and hardware products, application of detailed record-keeping and manufacturing standards, and FDA approval or clearance prior to marketing. An approval or clearance requirement could create delays in marketing, and the FDA could require supplemental filings or object to certain of these applications, the result of which could adversely affect our business, financial condition and results of operations.

 

We may be subject to false or fraudulent claim laws

 

There are numerous federal and state laws that forbid submission of false information or the failure to disclose information in connection with submission and payment of physician claims for reimbursement. In some cases, these laws also forbid abuse of existing systems for such submission and payment. Any failure of our services to comply with these laws and regulations could result in substantial liability including, but not limited to, criminal liability, could adversely affect demand for our services and could force us to expend significant capital, research and development and other resources to address the failure. Errors by us or our systems with respect to entry, formatting, preparation or transmission of claim information may be determined or alleged to be in violation of these laws and regulations. Determination by a court or regulatory agency that our services violate these laws could subject us to civil or criminal penalties, invalidate all or portions of some of our client contracts, require us to change or terminate some portions of our business, require us to refund portions of our services fees, cause us to be disqualified from serving clients doing business with government payers and have an adverse effect on our business.

 

We are subject to the Stark Law, which may result in significant penalties

 

Provisions of the Omnibus Budget Reconciliation Act of 1993 (42 U.S.C. § 1395nn) (the “Stark Law”) prohibit referrals by a physician of “designated health services” which are payable, in whole or in part, by Medicare or Medicaid, to an entity in which the physician or the physician’s immediate family member has an investment interest or other financial relationship, subject to several exceptions. Unlike the Fraud and Abuse Law, the Stark Law is a strict liability statute. Proof of intent to violate the Stark Law is not required. Physical therapy services are among the “designated health services”. Further, the Stark Law has application to the Company’s management contracts with individual physicians and physician groups, as well as, any other financial relationship between us and referring physicians, including any financial transaction resulting from a clinic acquisition. The Stark Law also prohibits billing for services rendered pursuant to a prohibited referral. Several states have enacted laws similar to the Stark Law. These state laws may cover all (not just Medicare and Medicaid) patients. Many federal healthcare reform proposals in the past few years have attempted to expand the Stark Law to cover all patients as well. As with the Fraud and Abuse Law, we consider the Stark Law in planning our clinics, marketing and other activities and believe that our operations are in compliance with the Stark Law. If we violate the Stark Law, our financial results and operations could be adversely affected. Penalties for violations include denial of payment for the services, significant civil monetary penalties, and exclusion from the Medicare and Medicaid programs.

 

If our products fail to comply with evolving government and industry standards and regulations, we may have difficulty selling our products

 

We may be subject to additional federal and state statutes and regulations in connection with Offering services and products via the Internet. On an increasingly frequent basis, federal and state legislators are proposing laws and regulations that apply to Internet commerce and communications. Areas being affected by these regulations include user privacy, pricing, content, taxation, copyright protection, distribution, and quality of products and services. To the extent that our products and services are subject to these laws and regulations, the sale of our products and services could be harmed.

 

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We incur significant costs as a result of operating as a public company and our management will have to devote substantial time to public company compliance obligations

 

The Sarbanes-Oxley Act of 2002, as well as rules subsequently implemented by the Securities and Exchange Commission (“SEC”), and the stock exchange, has imposed various requirements on public companies, including requiring changes in corporate governance practices. Our management and other personnel will need to devote a substantial amount of time to these compliance requirements and any new requirements that the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 may impose on public companies. Moreover, these rules and regulations, along with compliance with accounting principles and regulatory interpretations of such principles, have increased and will continue to increase our legal, accounting and financial compliance costs and have made and will continue to make some activities more time consuming and costly. For example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantial costs to maintain the same or similar coverage. These rules and regulations could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors or our board committees, or as executive officers. We will evaluate the need to hire additional accounting and financial staff with appropriate public company experience and technical accounting and financial knowledge. We estimate the additional costs we expect to incur as a result of being a public company to be up to $500,000 annually.

 

Part of the requirements as a public company will be to document and test our internal control procedures in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, which requires annual management assessments of the effectiveness of our internal controls over financial reporting and a report by our independent registered public accounting firm addressing these assessments. The process of designing and implementing effective internal controls is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a system of internal controls that is adequate to satisfy our reporting obligations as a public company.

 

Effective internal controls are necessary for us to provide reliable financial reports and to effectively prevent fraud. We maintain a system of internal control over financial reporting, which is defined as a process designed by, or under the supervision of, our principal executive officer and principal financial officer, or persons performing similar functions, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

 

We cannot assure you that we will not, in the future, identify areas requiring improvement in our internal control over financial reporting. We cannot assure that the measures we will take to remediate any areas in need of improvement will be successful or that we will implement and maintain adequate controls over our financial processes and reporting in the future as we continue our growth. If we are unable to maintain appropriate internal financial reporting controls and procedures, it could cause us to fail to meet our reporting obligations, result in the restatement of our financial statements, harm our operating results, subject us to regulatory scrutiny and sanction, cause investors to lose confidence in our reported financial information and have a negative effect on the market price for shares of our Common Stock.

 

The regulatory framework for privacy and data protection is complex and evolving, and changes in laws or regulations relating to privacy or the protection or transfer of personal data, or any actual or perceived failure by us to comply with such laws and regulations, could adversely affect our business.

 

In the course of our day-to-day business operations we receive and use personal information and other user data. As the result, we are subject to numerous federal, state and local laws and regulations regarding privacy, data protection and protection of personal information. We are also subject to the terms of our privacy policies and obligations to third parties related to privacy, data protection, and information security. We strive to comply with applicable laws, regulations, policies, and other legal obligations relating to privacy, data protection, and information security to the extent possible. However, the regulatory framework for privacy and data protection in the United States is, and is likely to remain for the foreseeable future, uncertain and complex, is changing, and the interpretation and enforcement of the rules and regulations that form part of this regulatory framework may be inconsistent among jurisdictions, or conflict with other laws and regulations. Such laws and regulations as they apply to us may be interpreted and enforced in a manner that we do not currently anticipate. Any significant change in the applicable laws, regulations, or industry practices regarding the collection, use, retention, security, or disclosure of user data, or their interpretation, or any changes regarding the manner in which the express or implied consent of users for the collection, use, retention, or disclosure of such data must be obtained, could increase our costs and require us to modify our platform and our products and services, in a manner that could materially affect our business.

 

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The laws, regulations, and industry standards concerning privacy, data protection, and information security also continue to evolve. For example, in June 2018, California passed the California Consumer Privacy Act (the “CCPA”), effective January 1, 2020, which requires companies that process personal information of California residents to make new disclosures to consumers about such companies’ data collection, use, and sharing practices and inform consumers of their personal information rights such as deletion rights, allows consumers to opt out of certain data sharing with third parties, and provides a new cause of action for data breaches. The State of Nevada has also passed a law, effective October 1, 2019, that amends the state’s online privacy law to allow consumers to submit requests to prevent websites and online service providers from selling personally identifiable information that they collect through a website or online service. The costs of compliance with, and other burdens imposed by, the privacy and data protection laws and regulations may limit the use and adoption of our services and could have a material adverse impact on our business. As a result, we may need to modify the way we treat such information.

 

Any failure or perceived failure by us to comply with any privacy and data protection policies, laws, rules, and regulations could result in proceedings or actions against us by individuals, consumer rights groups, governmental entities or agencies, or others. We could incur significant costs investigating and defending such claims and, if found liable, significant damages. Further, public scrutiny of or complaints about technology companies or their data handling or data protection practices, even if unrelated to our business, industry, or operations, may lead to increased scrutiny of technology companies, including us, and may cause government agencies to enact additional regulatory requirements, or to modify their enforcement or investigation activities, which may increase our costs and risks.

 

If we fail to maintain an effective system of disclosure controls and internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable regulations could be impaired.

 

As a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and the Sarbanes-Oxley Act which requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting, we have expended, and anticipate that we will continue to expend, significant resources, including accounting-related costs and significant management oversight.

 

Our management concluded that our disclosure controls and procedures were not effective as of September 30, 2019. Any failure to develop or maintain effective controls or any difficulties encountered in their implementation or improvement could cause us to fail to meet our reporting obligations and may result in a restatement of our financial statements for prior periods. If we fail to maintain an effective system of disclosure controls and internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable regulations could be impaired, which could result in loss of investor confidence and could have an adverse effect on our stock price.

 

Risks Related to this Offering and Ownership of Series B Preferred, the Warrants and the Units

 

The Series B Preferred ranks junior to all of our indebtedness and other liabilities

 

In the event of our bankruptcy, liquidation, dissolution or winding-up of our affairs, our assets will be available to pay obligations on the Series B Preferred only after all of our indebtedness and other liabilities have been paid. The rights of holders of the Series B Preferred to participate in the distribution of our assets will rank junior to the prior claims of our current and future creditors, existing preferred stock and Common Stock, and any future series or class of preferred stock we may issue that ranks senior to the Series B Preferred. Also, the Series B Preferred effectively ranks junior to all our existing and future indebtedness and to the indebtedness and other liabilities of our existing subsidiaries and any future subsidiaries. Our existing subsidiaries are, and future subsidiaries would be, separate legal entities and have no legal obligation to pay any amounts to us in respect of dividends due on the Series B Preferred. If we are forced to liquidate our assets to pay our creditors, we may not have sufficient assets to pay amounts due on any or all of the Series B Preferred then outstanding. We may in the future incur debt and other obligations that will rank senior to the Series B Preferred. At September 30, 2019, we had total liabilities of $5,783,319. Nevertheless, the three years of dividends on the Series B Preferred, which total $9.75 per share of Series B Preferred, that will be paid by the Company from the proceeds of the Offering into the Escrow Account, will not be the property of the Company but rather will be for the sole benefit of the investors, payable to the investors on a monthly basis. As a result, these dividends will not, in the ordinary course, be accessible to third-party creditors of the Company.

 

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Additionally, any convertible or exchangeable securities that we issue in the future may have rights, preferences and privileges more favorable than those of the Series B Preferred and may result in dilution to owners of the Series B Preferred. We and, indirectly, our stockholders, will bear the cost of issuing and servicing such securities. Because our decision to issue debt or equity securities in any future Offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future Offerings. The holders of the Series B Preferred will bear the risk of our future Offerings, which may reduce the market price of the Series B Preferred and will dilute the value of their holdings in us.

 

We may not be able to declare and pay dividends on the Series B Preferred if we fail to comply with the conditions imposed by the applicable Nevada law requirements.

 

Section 78.288 “Distributions to stockholders” of the Nevada Revised Statute provide that we may only declare and pay cash dividends on the Series B Preferred if (a) the corporation would not be able to pay its debts as they become due in the usual course of business; or (b) except as otherwise specifically allowed by the articles of incorporation, the corporation’s total assets would be less than the sum of its total liabilities plus the amount that would be needed, if the corporation were to be dissolved at the time of distribution, to satisfy the preferential rights upon dissolution of stockholders whose preferential rights are superior to those receiving the distribution. There can be no assurance that we will satisfy such requirements in any given year.

 

There is no established market for the Units, the Series B Preferred or the Warrants, a market may never develop.

 

There is no established trading market for the Units, the Series B Preferred or the Warrants and we do not know if a market will develop on the OTCQB or, if it does, how active it will be or whether it will be sustained. Further, if in the future we believe we meet the quantitative requirements for listing our Common Stock on Nasdaq, we intend to apply to have the Common Stock, the Units, the Series B Preferred and the Warrants listed. We cannot assure you that we will meet the quantitative listing requirements or that any application will be approved. The liquidity of the market for the Units, the Series B Preferred, and the Warrants depends on a number of factors, including prevailing interest rates, our financial condition and operating results, the number of holders of these securities, the market for similar securities and the interest of securities dealers in making a market in these securities. The market for the Warrants will be linked to the price and the liquidity of our Common Stock. We cannot predict with certainty the extent of investor interest in the Units, the Series B Preferred, and the Warrants, or how liquid that market will be. Without an active trading market, the liquidity of these securities will be limited.

 

We may issue additional shares of Series B Preferred and additional series of preferred stock that rank on parity with or senior to the Series B Preferred as to dividend rights, rights upon liquidation or voting rights.

 

We are allowed to issue additional shares of Series B Preferred and additional series of preferred stock that would rank on parity with or junior to the Series B Preferred as to dividend payments and rights upon our liquidation, dissolution or winding up of our affairs pursuant to our Certificate of Incorporation, including the Certificate of Designations relating to the Series B Preferred without any vote of the holders of the Series B Preferred. Upon the affirmative vote of the holders of at least two-thirds of the outstanding shares of Series B Preferred (voting together as a class with all other series of parity preferred stock we may issue upon which like voting rights have been conferred and are exercisable), we are allowed to issue additional series of preferred stock that would rank senior to the Series B Preferred as to dividend payments and rights upon our liquidation, dissolution or the winding up pursuant to our Certificate of Incorporation and the Certificate of Designations relating to the Series B Preferred. The issuance of additional shares of Series B Preferred and additional series of preferred stock could have the effect of reducing the amounts available to the holders of Series B Preferred upon our liquidation or dissolution or the winding up of our affairs.

 

Also, although holders of Series B Preferred are entitled to limited voting rights, as described in this prospectus under “Description of the Series B Preferred—Voting Rights,” with respect to the circumstances under which the holders of Series B Preferred are entitled to vote, the Series B Preferred votes separately as a class along with all other series of our preferred stock that we may issue upon which like voting rights have been conferred and are exercisable. As a result, the voting rights of the holders of Series B Preferred may be significantly diluted, and the holders of such other series of preferred stock that we may issue may be able to control or significantly influence the outcome of any vote.

 

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Future issuances and sales of senior or parity preferred stock, or the perception that such issuances and sales could occur, may cause prevailing market prices for the Series B Preferred and our Common Stock to decline and may adversely affect our ability to raise additional capital in the financial markets at times and prices favorable to us.

 

Holders of the Units may be unable to use the dividends-received deduction and may not be eligible for the preferential tax rates applicable to “qualified dividend income.”

 

Dividends paid to corporate U.S. holders of the Series B Preferred, which is being offered in this Offering as part of the Units, may be eligible for the dividends-received deduction, and dividends paid to non-corporate U.S. holders of the Series B Preferred may be subject to tax at the preferential tax rates applicable to “qualified dividend income,” if we have current or accumulated earnings and profits, as determined for U.S. federal income tax purposes. We do not currently have accumulated earnings and profits. Additionally, we may not have sufficient current earnings and profits during future fiscal years for the distributions on the Series B Preferred to qualify as dividends for U.S. federal income tax purposes. If the distributions fail to qualify as dividends, U.S. holders would be unable to use the dividends-received deduction and may not be eligible for the preferential tax rates applicable to “qualified dividend income.” If any distributions on the Series B Preferred with respect to any fiscal year are not eligible for the dividends-received deduction or preferential tax rates applicable to “qualified dividend income” because of insufficient current or accumulated earnings and profits, the market value of the Units and the Series B Preferred could decline.

 

If we redeem the Series B Preferred, investors will no longer be entitled to dividends.

 

On or after three years after the first sale of Series B Preferred in or 2023, we may, at our option, redeem the Series B Preferred, in whole or in part, at any time or from time-to-time, based upon the payment of the Stated Value of $25 per share of Series B Preferred plus accrued dividends. Also, upon the occurrence of a Change of Control (as defined below under “Description of the Series B Preferred – Redemption”), we may, at our option, upon not less than 30 and nor more than 60 days’ written notice, redeem the Series B Preferred, in whole or in part, within 120 days after the date of such written notice. We may have an incentive to redeem the Series B Preferred voluntarily if market conditions allow us to issue other preferred stock or debt securities at a rate that is lower than the dividend on the Series B Preferred. If we redeem the Series B Preferred, then from and after the redemption date, dividends will cease to accrue on the shares of Series B Preferred, that have been redeemed, such shares of Series B Preferred shall no longer be deemed outstanding and all rights as a holder of those shares will terminate, except the right to receive the redemption price plus accumulated and unpaid dividends, if any, payable upon redemption.

 

The market price of the Units, the Series B Preferred and the Warrants could be substantially affected by various factors.

 

The market price of the Units, the Series B Preferred and the Warrants could be subject to wide fluctuations in response to numerous factors. The price of the Units and the Series B Preferred that will prevail in the market after this Offering may be higher or lower than the Offering price depending on many factors, some of which are beyond our control and may not be directly related to our operating performance.

 

These factors include, but are not limited to, the following:

 

prevailing interest rates, increases in which may have an adverse effect on the market price of the Series B Preferred;
trading prices of similar securities;
our history of timely dividend payments;
the annual yield from dividends on the Series B Preferred as compared to yields on other financial instruments;
general economic and financial market conditions;
government action or regulation;
the financial condition, performance and prospects of us and our competitors;
changes in financial estimates or recommendations by securities analysts with respect to us or our competitors in our industry;
our issuance of additional equity or debt securities; and
actual or anticipated variations in quarterly operating results of us and our competitors.

 

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The Warrants are likely to trade in the same manner as our Common Stock.

 

As a result of these and other factors, investors who purchase the Units in this Offering may experience a decrease, which could be substantial and rapid, in the market price of the Units, the Series B Preferred and the Warrants, including decreases unrelated to our operating performance or prospects.

 

If you purchase the Units, you will have no voting rights except for extremely limited voting rights for the Series B Preferred.

 

The voting rights of a holder of Series B Preferred are limited. Our shares of Common Stock and shares of Series A Voting Preferred Stock are the only classes of our securities that carry full voting rights. As of the date of this Prospectus, the holders of the Series A Voting Shares own 51% of our outstanding voting power. As a result, the holders of the Series A Voting Shares exercise a significant level of control over all matters requiring stockholder approval, including the election of directors, amendment of our Certificate of Incorporation, and approval of significant corporate transactions. This control could have the effect of delaying or preventing a change of control of our Company or changes in management and will make the approval of certain transactions difficult or impossible without his support, which in turn could reduce the price of the Units.

 

The holders of Series B Preferred have no voting rights except with respect to voting on amendments to our Series B Preferred Certificate of Designation that materially and adversely affect the rights of the holders of Series B Preferred or authorize, increase or create additional classes or series of our capital stock that are senior to the Series B Preferred. Other than the limited circumstances described in the Prospectus and except to the extent required by law, holders of Series B Preferred do not have any voting rights. See “Description of the Series B Preferred—Voting Rights.”

 

The Series B Preferred is not convertible into our common stock, investors will not benefit if the price of our common stock increases.

 

The Series B Preferred is not convertible into our Common Stock and earns dividends at a fixed rate. Accordingly, an increase in market price of our Common Stock will not necessarily result in an increase in the market price of our Series B Preferred. The market value of the Series B Preferred may depend more on dividend and interest rates for other preferred stock, commercial paper and other investment alternatives and our actual and perceived ability to pay dividends on, and in the event of dissolution satisfy the liquidation preference with respect to, the Series B Preferred.

 

Management will have broad discretion in using the proceeds of this Offering.

 

We intend to use the net proceeds of this Offering (after putting the dividends for the initial three years into an escrow account) to pay our indebtedness and thereafter for working capital and general corporate purposes to support our growth. We have not allocated any specific portion of the net proceeds to any particular purpose, and our management will have the discretion to allocate the proceeds as it determines. We will have significant flexibility and broad discretion in applying the net proceeds of this Offering. Our management might not be able to yield a significant return, if any, on any investment of these net proceeds, and you will not have the opportunity to influence our decisions on how to use our net proceeds from this Offering.

 

27
 

 

Risks Relating to Our Common Stock

 

There is a limited market for our common stock, and there may never be an active and sustained market for our common stock and we cannot assure you that the common stock will remain liquid or that it will continue to be listed on a securities exchange.

 

Our Common Stock is subject to quotation on the OTCQB under the trading symbol “EWLL”. An investor may find it difficult to obtain accurate quotations as to the market value of the Common Stock and trading of our Common Stock may be extremely sporadic. A more active market for the Common Stock may never develop. In addition, if we fail to meet the criteria set forth in SEC regulations, various requirements would be imposed by law on broker-dealers who sell our securities to persons other than established customers and accredited investors. Consequently, such regulations may deter broker-dealers from recommending or selling the Common Stock, which may further affect its liquidity. This would also make it more difficult for us to raise additional capital.

 

Until our Common Stock is listed on the NASDAQ or another stock exchange, we expect that our Common Stock will continue to be eligible to trade on the OTCQB market where our stockholders may find it more difficult to dispose of shares or obtain accurate quotations as to the market value of our Common Stock. Furthermore, in order to remain subject to quotation on the OTCQB, the trading price of our Common Stock must maintain certain trading levels, which, in not maintained, could result in our Common Stock being relegated to the PTC Pink. In such event, we will have to again qualify and make applications for quotation on the OTCQB, and there can be no assurance that our Common Stock will be accepted for the OTCQB.

 

Our Common stock is subject to the “Penny Stock” rules of the SEC and the trading market in our stock is limited, which makes transactions in our stock cumbersome and may reduce the value of an investment.

 

The Securities and Exchange Commission has adopted Rule 15g-9 which establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require:

 

That a broker or dealer approve a person’s account for transactions in penny stocks; and
The broker or dealer receives from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.

 

In order to approve a person’s account for transactions in penny stocks, the broker or dealer must:

 

Obtain financial information and investment experience objectives of the person; and
Make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.

 

The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the Commission relating to the penny stock market, which, in highlight form:

 

Sets forth the basis on which the broker or dealer made the suitability determination; and
That the broker or dealer received a signed, written agreement from the investor prior to the transaction.

 

Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of our Common stock and cause a decline in the market value of our stock.

 

Disclosure also must be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.

 

Financial Industry Regulatory Authority, Inc. (“FINRA”) sales practice requirements may limit a shareholder’s ability to buy and sell our common stock.

 

In addition to the “penny stock” rules described above, FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low-priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our Common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.

 

28
 

 

Our common stock may be thinly traded, sale of your holding may take a considerable amount of time.

 

The shares of our Common Stock, from time-to-time, may be thinly traded on the OTCQB Market, meaning that the number of persons interested in purchasing our Common Stock at or near bid prices at any given time may be relatively small or non-existent. Consequently, there may be periods of several days or more when trading activity in our shares is minimal or non-existent, as compared to a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on share price. We cannot give you any assurance that a broader or more active public trading market for our Common Stock will develop or be sustained, or that current trading levels will be sustained. Due to these conditions, we can give you no assurance that you will be able to sell your shares at or near bid prices or at all if you need money or otherwise desire to liquidate your shares.

 

Shares eligible for future sale may adversely affect the market.

 

From time to time, certain of our stockholders may be eligible to sell all or some of their shares of Common Stock by means of ordinary brokerage transactions in the open market pursuant to Rule 144 promulgated under the Securities Act, subject to certain limitations. In general, pursuant to amended Rule 144, non-affiliate stockholders may sell freely after six months subject only to the current public information requirement. Affiliates may sell after six months subject to the Rule 144 volume, manner of sale (for equity securities), current public information and notice requirements. In addition, at January 24, 2020, there were 3,765,995,074 shares reserved underlying outstanding convertible notes, which represent a significant multiple of from 4 to 10 times the number of shares actually subject to conversion under the terms of the outstanding convertible notes. Any substantial sales of our Common Stock pursuant to Rule 144 may have a material adverse effect on the market price of our Common Stock.

 

If we fail to maintain effective internal controls over financial reporting, the price of our common stock may be adversely affected.

 

Our internal control over financial reporting may have weaknesses and conditions that could require correction or remediation, the disclosure of which may have an adverse impact on the price of our Common Stock. We are required to establish and maintain appropriate internal controls over financial reporting. Failure to establish those controls, or any failure of those controls once established, could adversely affect our public disclosures regarding our business, prospects, financial condition or results of operations. In addition, management’s assessment of internal controls over financial reporting may identify weaknesses and conditions that need to be addressed in our internal controls over financial reporting or other matters that may raise concerns for investors. Any actual or perceived weaknesses and conditions that need to be addressed in our internal control over financial reporting or disclosure of management’s assessment of our internal controls over financial reporting may have an adverse impact on the price of our Common Stock.

 

Our share price could be volatile, and our trading volume may fluctuate substantially.

 

The price of our shares of Common Stock has been and may in the future continue to be extremely volatile, with the sale price fluctuating from a low of $0.0008 to a high of $4.00 since trading began in 2016. Many factors could have a significant impact on the future price of our Common Stock, including:

 

our inability to raise additional capital to fund our operations;
our failure to successfully implement our business objectives and strategic growth plans;
compliance with ongoing regulatory requirements;
market acceptance of our product;
changes in government regulations;
general economic conditions and other external factors; and
actual or anticipated fluctuations in our quarterly financial and operating results; and the degree of trading liquidity in our common shares.

 

29
 

 

Our annual and quarterly results may fluctuate, which may cause substantial fluctuations in our common stock price.

 

Our annual and quarterly operating results may in the future fluctuate significantly depending on factors including the timing of purchase orders, new product releases by us and other companies, gain or loss of significant customers, price discounting of our product, the timing of expenditures, product delivery requirements and economic conditions. Revenues related to our product are required to be recognized upon satisfaction of all applicable revenue recognition criteria. The recognition of revenues from our product is dependent on several factors, including, but not limited to, the terms of any license agreement and the timing of implementation of our products by our customers.

 

Any unfavorable change in these or other factors could have a material adverse effect on our operating results for a particular quarter or year, which may cause downward pressure on our Common stock price. We expect quarterly and annual fluctuations to continue for the foreseeable future.

 

We are subject to compliance with securities law, which exposes us to potential liabilities, including potential rescission rights.

 

We have offered and sold our Common Stock to investors pursuant to certain exemptions from the registration requirements of the Securities Act of 1933, as amended (the “Act”) as well as those of various state securities laws. The basis for relying on such exemptions is factual; that is, the applicability of such exemptions depends upon our conduct and that of those persons contacting prospective investors and making the Offering. We have not received a legal opinion to the effect that any of our prior Offerings were exempt from registration under any federal or state law. Instead, we have relied upon the operative facts as the basis for such exemptions, including information provided by investors themselves.

 

If any prior offering did not qualify for such exemption, an investor would have the right to rescind its purchase of the securities if it so desired. It is possible that if an investor should seek rescission, such investor would succeed. A comparable situation prevails under state law in those states where the securities may be offered without registration in reliance on the partial preemption from the registration or qualification provisions of such state statutes. If investors were successful in seeking rescission, we would face severe financial demands that could adversely affect our business and operations. Additionally, if we did not in fact qualify for the exemptions upon which it has relied, we may become subject to significant fines and penalties imposed by the SEC and state securities agencies.

 

The availability of a large number of authorized but unissued shares of common stock may, upon their issuance, lead to dilution of existing stockholders.

 

We are authorized to issue 4,500,000,000 shares of Common Stock, $0.001 par value per share. As of January 24, 2020, there were 14,680,099 shares of Common Stock outstanding. Additional shares may be issued upon the conversion of any outstanding convertible notes or convertible notes issued in the future, or otherwise authorized for issuance by our board of directors, from time-to-time, without further stockholder approval. The issuance of large numbers of shares of Common Stock, possibly at below market prices, is likely to result in substantial dilution to the interests of other stockholders. In addition, issuances of large numbers of shares may adversely affect the market price of our Common stock.

 

Our Articles of Incorporation, as amended, authorize 20,000,000 shares of preferred stock, $0.001 par value, of which 1,000,000 shares of Series A Voting Preferred Stock, having super majority voting rights, are outstanding, as described below. The Board of Directors is authorized to provide for the issuance of unissued shares of preferred stock in one or more series, and to fix the number of shares and to determine the rights, preferences and privileges thereof. Accordingly, the board of directors may issue preferred stock which may convert into large numbers of shares of Common Stock and consequently lead to further dilution of other shareholders.

 

On September 27, 2019, the Company amended its Articles of Incorporation by filing a Certificate of Designations, Preferences and Rights to authorize 1,000,000 shares of Series A Voting Preferred Stock, par value of $0.001. The Series A Voting Preferred Shares have the right to vote in the aggregate, on all shareholder matters votes equal to 51% of the total shareholder vote on any and all shareholder matters. The Series A Voting Preferred Stock will be entitled to this 51% voting right no matter how many shares of Common Stock or other voting capital stock of the Company is issued and outstanding in the future.

 

30
 

 

As of the date of this Prospectus there were issued and outstanding 1,000,000 shares of our Series A Voting Preferred, all of which are owned by our officers, directors, key employees, all members of our management team.

 

We have never paid cash dividends on our common stock and do not anticipate doing so in the foreseeable future.

 

We have never declared or paid cash dividends on our Common Stock. We currently plan to retain any earnings to finance the growth of our business rather than to pay cash dividends on our Common Stock. Nevertheless, we are required to pay cash dividends of 13% on our Series B Preferred, based upon the Stated Value of $25 per share. Payments of any cash dividends in the future, other than on our shares of Series B Preferred, will depend on our financial condition, results of operations and capital requirements, as well as other factors deemed relevant by our board of directors.

 

The Nevada Revised Statute contains provisions that could discourage, delay or prevent a change in control of our company, prevent attempts to replace or remove current management and reduce the market price of our stock.

 

Provisions in our articles of incorporation and bylaws may discourage, delay or prevent a merger or acquisition that our stockholders may consider favorable. For example, our certificate of incorporation authorizes our board of directors to issue up to ten million shares of “blank check” preferred stock. As a result, without further stockholder approval, the board of directors has the authority to attach special rights, including voting and dividend rights, to this preferred stock. With these rights, preferred stockholders could make it more difficult for a third party to acquire us.

 

We are also subject to the anti-takeover provisions of the NRS. Depending on the number of residents in the state of Nevada who own our shares, we could be subject to the provisions of Sections 78.378 et seq. of the Nevada Revised Statutes which, unless otherwise provided in the Company’s articles of incorporation or by-laws, restricts the ability of an acquiring person to obtain a controlling interest of 20% or more of our voting shares. Our articles of incorporation and by-laws do not contain any provision which would currently keep the change of control restrictions of Section 78.378 from applying to us.

 

We are subject to the provisions of Sections 78.411 et seq. of the Nevada Revised Statutes. In general, this statute prohibits a publicly held Nevada corporation from engaging in a “combination” with an “interested stockholder” for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the combination or the transaction by which the person became an interested stockholder is approved by the corporation’s board of directors before the person becomes an interested stockholder. After the expiration of the three-year period, the corporation may engage in a combination with an interested stockholder under certain circumstances, including if the combination is approved by the board of directors and/or stockholders in a prescribed manner, or if specified requirements are met regarding consideration. The term “combination” includes mergers, asset sales and other transactions resulting in a financial benefit to the interested stockholder. Subject to certain exceptions, an “interested stockholder” is a person who, together with affiliates and associates, owns, or within three years did own, 10% or more of the corporation’s voting stock. A Nevada corporation may “opt out” from the application of Section 78.411 et seq. through a provision in its articles of incorporation or by-laws. We have not “opted out” from the application of this section.

 

Our stock price and ability to finance may be adversely affected by our outstanding convertible securities and warrants.

 

Sales of the shares of our Common Stock issuable upon exercise of Warrants issued as part of the Units in this Offering and upon conversion of our convertible securities, would likely have a depressive effect on the market price of our Common Stock. Further, the existence of, and/or potential exercise or conversion of all or a portion of these securities, create a negative and potentially depressive effect on our stock price because investors recognize that they “over hang” the market currently. As a result, the terms on which we may obtain additional financing during the period any of these warrants or convertible securities remain outstanding may be adversely affected by the existence of such warrants and convertible securities.

 

Our publicly filed reports are subject to review by the SEC, and any significant changes or amendments required as a result of any such review may result in material liability to us and may have a material adverse impact on the trading price of the Company’s common stock.

 

The reports of publicly traded companies are subject to review by the SEC from time to time for the purpose of assisting companies in complying with applicable disclosure requirements, and the SEC is required to undertake a comprehensive review of a company’s reports at least once every three years under the Sarbanes-Oxley Act of 2002. SEC reviews may be initiated at any time. We could be required to modify, amend or reformulate information contained in prior filings as a result of an SEC review. Any modification, amendment or reformulation of information contained in such reports could be significant and result in material liability to us and have a material adverse impact on the trading price of the Company’s Common Stock.

 

31
 

 

Use of Proceeds

 

Assuming the sale of 2,000 Units in this Offering at an Offering Price of $25.00 per Unit, the total proceeds from the sale of the Units we are Offering will be $50,000,000. After fees for our placement agent commission, the net proceeds of the Units we sell will be approximately $45,500,000. We cannot predict when the Class A Warrants will be exercised, if at all. If all of the Class A Warrants sold in this Offering are exercised for cash, then we will receive an additional $30,000,000 of gross proceeds. It is possible that all or a portion of the Class A Warrants may expire prior to being exercised, in which case we will not receive any additional proceeds from such unexercised and expired Class A Warrants. If we receive proceeds from the exercise of Class A Warrants, we expect to use such proceeds for research and general corporate purposes.

 

We intend to use the proceeds from this Offering (after deducting placement agent commissions and estimated Offering expenses payable by us) to fund:

 

● the amount equal to the first three years of dividend payments, or $9.75 per share of Series B Preferred, from the proceeds from this Offering (the “Dividend Reserve”) in an escrow account (the “Escrow Account”) maintained by International Financial Enterprise Bank (“IFEB Bank”), with offices in Dallas, TX, also referred to hereinafter as the “Escrow Agent.”;

 

● the repayment of debt (related to our convertible notes) in the aggregate principal amount and interest therein of $3,002,353 plus prepayment penalties estimated at $500,000 for a total of $3,502,353 as of the date of this prospectus (see Note 4. Convertible Notes Payable).

 

● our working capital and general corporate requirements, which may include marketing and advertising, general and administrative matters. We may also use a portion of the net proceeds for the acquisition of, or investment in, technologies, solutions, or businesses that complement our business. As of the date of this prospectus, we do not have any understandings to acquire any businesses. Because this is a best effort Offering with no minimum, we cannot predict how much money we will ultimately raise.

 

We anticipate an approximate allocation of the use of net proceeds assuming we raise 25%, 50%, 75% or 100% of the maximum offering amount as follows:

 

    25%   50%   75%   100%   %(1)(2)
Dividend Reserves (3 Years)  $4,875,000   $9,750,000   $14,625,000   $19,500,000    39%
Repay existing indebtedness, including interest thereon  $3,500,000   $3,500,000   $3,500,000   $3,500,000    7%
Fund working capital and general corporate purposes  $2,775,000   $9,150,000   $15,525,000   $21,900,000    44%
Offering Expenses  $100,000   $100,000   $100,000   $100,000    0%
Subtotal – net proceeds  $11,150,000   $22,400,000   $33,650,000   $44,900,000    90%
Total – gross proceeds  $12,500,000   $25,000,000   $37,500,000   $50,000,000    100.00%

 

Other than as discussed above, we have not allocated any specific portion of the net proceeds to any particular purpose, and our management will have broad discretion in the allocation of the net proceeds. Furthermore, the amount and timing of our actual expenditures will depend on numerous factors, including the cash used in or generated by our operations, the level of our expected sales and marketing activities and the attractiveness of any additional acquisitions or investments. Pending these uses, we intend to invest the net proceeds that we receive from this Offering in short term, investment-grade interest-bearing securities, such as money market accounts, certificates of deposit, commercial paper, and guaranteed obligations of the U.S. government. 

 

If in the future we receive proceeds from the exercise of the Warrants, we expect such proceeds will be contributed to working capital and will be used for general corporate purposes.

 

DIVIDEND POLICY

 

We have never declared or paid any cash dividends on our Common Stock or any other shares of capital stock. Except for the 13% dividends payable to the holders of Series B Preferred from the Escrow Account on a monthly basis, equal to $3.25 per share on an annual basis, we currently intend to retain any future earnings and do not expect to pay any dividends on any other securities, including Common Stock for the foreseeable future. Any future determination to declare cash dividends (other than on the Series B Preferred) will be made at the discretion of our Board, subject to applicable laws, and will depend on a number of factors, including our financial condition, results of operations, capital requirements, contractual restrictions, general business conditions, and other factors that our Board may deem relevant. Further Nevada law limits when we can pay dividends on our securities. Further our continuing losses require us to use funds we receive in financings to meet our working capital needs. See “Description of Offered Securities – Dividends.”

 

32
 

 

Capitalization

 

Set forth below is our cash and capitalization as of September 30, 2019:

 

● on an actual basis;

 

● on a pro forma as adjusted basis, reflecting the issuance of 2,000,000 shares of Series B Preferred offered by this prospectus, at $25 per share, assuming net proceeds of approximately $45,000,000 million, after deducting Placement Agent fees of 10%, excluding our estimated Offering Expenses of $100,000 payable by us.

 

You should read the information in the below table together with our consolidated financial statements and related notes, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” each included elsewhere in this prospectus.

 

As of September 30, 2019

   Actual   Pro Forma as Adjusted 
Cash   781,060    26,281,060 
Restricted cash  $-    19,500,000 
           
Derivative liabilities  $1,358,964    1,360,964 
Stockholders’ Equity (Deficit):          
Preferred stock, Series A, par value $0.001 per share; 1,000,000 shares authorized; 125,000 issued and outstanding, actual and pro forma as adjusted;   125    125 
Preferred stock, Series B Preferred, par value $0.001 per share; no shares authorized, issued and outstanding, actual and 2,000,000 shares issued and outstanding, pro forma as adjusted;   -    2,000 
Common stock, par value $0.05 per share; 1,900,000,000 shares authorized; 4,888,611 shares issued and outstanding, actual; and 4,888,611 shares issued and outstanding, pro forma as adjusted;   244,431    244,431 
Additional paid-in capital   21,173,934    66,171,934 
Accumulated deficit   (26,025,365)   (31,025,365)
Total stockholders’ equity (deficit)   (4,587,725)   (35,393,125)
Total liabilities and stockholders’ equity (deficit)  $1,195,594    1,197,594 

 

33
 

 

Financial Information

 

INDEX TO FINANCIAL STATEMENTS

 

Condensed Balance Sheets as of September 30, 2019 (Unaudited) and December 31, 2018 F-2
Condensed Statements of Operations for the Three and Nine Months Ended September 30, 2019 and 2018 (Unaudited) F-3
Condensed Statement of Changes in Stockholders’ Equity for the Three and Nine Months Ended September 30, 2019 and 2018 (unaudited) F-4
Condensed Statements of Cash Flows for the Nine Months Ended September 30, 2019 and 2018 (Unaudited) F-5
Notes to Condensed Unaudited Financial Statements F-6
   
Report of Independent Registered Public Accounting Firm F-20
Balance Sheets as of December 31, 2018 and 2017 F-21
Statements of Operations for the Years Ended December 31, 2018 and 2017 F-22
Statement of Changes in Stockholders’ Equity for the Years Ended December 31, 2018 and 2017 F-23
Statements of Cash Flows for the Years Ended December 31, 2018 and 2017 F-24
Notes to Financial Statements F-25

 

F-1
 

 

eWELLNESS HEALTHCARE CORPORATION

CONSOLIDATED CONDENSED BALANCE SHEETS

(unaudited)

 

   September 30, 2019   December 31, 2018 
         
ASSETS        
         
CURRENT ASSETS          
Cash  $781,060   $383,335 
Prepaid Expenses   380,862    95,508 
           
Total current assets   1,161,922    478,843 
           
Property & equipment, net   24,172    14,092 
Intangible assets, net   9,500    11,000 
           
TOTAL ASSETS  $1,195,594   $503,935 
           
LIABILITIES AND STOCKHOLDERS’ DEFICIT          
           
CURRENT LIABILITIES          
Accounts payable and accrued expenses  $305,825   $236,741 
Accounts payable - related party   630,532    684,173 
Accrued expenses - related party   198,241    214,076 
Accrued compensation   776,464    1,113,470 
Contingent liability   90,000    90,000 
Convertible debt, net of discount   2,423,293    562,362 
Derivative liability   1,358,964    1,584,102 
           
Total current liabilities   5,783,319    4,484,924 
           
Total Liabilities   5,783,319    4,484,924 
           
COMMITMENTS AND CONTINGENCIES   -    - 
           
STOCKHOLDERS’ DEFICIT          
Preferred stock, authorized, 20,000,000 shares, $.001 par value, 125,000 and 0 shares issued and outstanding, respectively   125    - 
Common stock, authorized 1,900,000,000 shares, $.05 par value, 4,888,611 and 4,128,139 issued and outstanding, respectively outstanding, respectively   244,431    206,407 
Shares to be issued   19,150    - 
Additional paid in capital   21,173,934    17,213,838 
Accumulated deficit   (26,025,365)   (21,401,234)
           
Total Stockholders’ Deficit   (4,587,725)   (3,980,989)
           
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT  $1,195,594   $503,935 

 

The accompanying notes are an integral part of these consolidated condensed financial statements

 

F-2
 

 

eWELLNESS HEALTHCARE CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

For the Three and Nine Months ended September 30, 2019 and 2018

(unaudited)

 

   Three Months Ended   Nine Months Ended 
   September 30, 2019   September 30, 2018   September 30, 2019   September 30, 2018 
                 
OPERATING EXPENSES                    
Executive compensation   102,000    102,000    306,000    306,000 
General and administrative   709,205    322,266    1,284,556    809,704 
Professional fees   669,261    407,355    1,918,402    1,360,206 
                     
Total Operating Expenses   1,480,466    831,621    3,508,958    2,475,910 
                     
Loss from Operations   (1,480,466)   (831,621)   (3,508,958)   (2,475,910)
                     
OTHER INCOME (EXPENSE)                    
Interest income   13    -    29    - 
Foreign exchange rate   -    4,507    -    12,598 
Gain (loss) on derivative liability   1,331,213    (89,579)   1,949,180    303,898 
Gain (loss) on extinguishment of debt   -    -    -    (43,131)
Disposal of fixed asset   -    (2,134)   -    (2,134)
Interest expense   (1,369,150)   (173,306)   (3,062,782)   (493,106)
                     
Net Loss before Income Taxes   (1,518,750)   (1,092,133)   (4,622,531)   (2,697,785)
                     
Income tax expense   (1,600)   (29)   (1,600)   (1,656)
                     
Net Loss  $(1,520,350)  $(1,092,162)  $(4,624,131)  $(2,699,441)
                     
Loss per common share                    
Basic  $(0.33)  $(0.32)  $(1.05)  $(0.85)
Diluted  $(0.33)  $(032)  $(1.05)  $(0.85)
                     
Weighted average shares outstanding                    
Basic   4,629,093    3,487,397    4,418,337    3,178,543 
Diluted   4,629,093    3,487,397    4,418,337    3,178,543 

 

The accompanying notes are an integral part of these consolidated condensed financial statements

 

F-3
 

 

eWELLNESS HEALTHCARE CORPORATION

RECONCILIATION OF STOCKHOLDERS’ DEFICIT

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(unaudited)

 

   Preferred Shares   Common Shares   Shares
to be
   Additional
Paid in
   Accumulated   Stockholders’ 
   Shares   Amount   Shares   Amount   Issued   Capital   Deficit   Deficit 
                                 
Balance at January 1, 2019   -   $-    4,128,139   $206,407   $-   $17,213,838   $(21,401,234)  $(3,980,989)
                                         
Contributed services   -    -    -    -    -    54,000    -    54,000 
                                         
Shares issued for debt conversion   -    -    101,945    5,098    -    342,389    -    347,487 
                                         
Shares issued for financing costs   -    -    20,000    1,000    -    114,000    -    115,000 
                                         
Shares issued for prepaid services   -    -    70,217    3,511    -    402,239    -    405,750 
                                         
Shares issued for services   -    -    26,491    1,325    -    180,224    -    181,549 
                                         
Derivative liability   -    -    -    -    -    492,340    -    492,340 
                                         
Net loss                                 (1,338,471)   (1,338,471)
                                         
Balance at March 31, 2019   -   $-    4,346,792   $217,341   $-   $18,799,030   $(22,739,705)  $(3,723,334)
                                         
Contributed services   -    -    -    -    -    54,000    -    54,000 
                                         
Shares issued for debt conversion   -    -    23,629    1,181    -    52,574    -    53,755 
                                         
Shares issued for cash   -    -    16,000    800    -    58,300    -    59,100 
                                         
Shares issued for prepaid services   -    -    10,000    500    -    52,500    -    53,000 
                                         
Shares issued for services   -    -    33,009    1,650    -    156,434    -    158,084 
                                         
Derivative liability   -    -    -    -    -    70,987    -    70,987 
                                         
Net loss                                 (1,765,310)   (1,765,310)
                                         
Balance at June 30, 2019   -   $-    4,429,430   $221,472   $-   $19,243,825   $(24,505,015)  $(5,039,718)
                                         
Contributed services   -    -    -    -    -    54,000    -    54,000 
                                         
Shares issued to officers, directors and consultants   125,000    125    -    -    -    374,875    -    375,000 
                                         
Shares issued for debt conversion   -    -    279,835    13,992    -    517,433    -    531,425 
                                         
Shares issued for prepaid services   -    -    133,846    6,692    -    440,769    -    447,461 
                                         
Shares issued for services   -    -    45,500    2,275    -    150,297    -    152,572 
                                         
Shares to be issued for services   -    -    -    -    19,150    -    -    19,150 
                                         
Derivative liability   -    -    -    -    -    392,735    -    392,735 
                                         
Net loss                                 (1,520,350)   (1,520,350)
                                         
Balance at September 30, 2019   125,000   $125    4,888,611   $244,431   $19,150   $21,173,934   $(26,025,365)  $(4,587,725)

 

 

   Preferred Shares   Common Shares   Shares
to be
   Additional
Paid in
   Accumulated   Stockholders’ 
   Shares   Amount   Shares   Amount   Issued   Capital   Deficit   Deficit 
                                 
Balance at January 1, 2018   -   $-    2,847,048   $142,352   $-   $13,178,131   $(16,949,772)  $(3,629,289)
                                         
Contributed services   -    -    -    -    -    55,500    -    55,500 
                                         
Option expense   -    -    -    -    -    108,594    -    108,594 
                                         
Shares issued for debt conversion   -    -    78,908    3,945    -    209,347    -    213,292 
                                         
Shares issued for prepaid services   -    -    16,000    800    -    103,200    -    104,000 
                                         
Derivative liability                            219,525         219,525 
                                         
Shares issued for services   -    -    27,000    1,350    -    137,250    -    138,600 
                                         
Net loss   -    -    -    -    -    -    (473,973)   (473,973)
                                         
Balance at March 31, 2018   -   $-    2,968,956   $148,447   $-   $14,011,547   $(17,423,745)  $(3,263,751)
                                         
Contributed services   -    -    -    -         55,500    -    55,500 
                                         
Option expense   -    -    -    -         108,594    -    108,594 
                                         
Shares issued for debt conversion   -    -    274,179    13,710         622,996    -    636,706 
                                         
Shares issued for prepaid services   -    -    30,000    1,500         103,500    -    105,000 
                                         
Shares issued for contributions   -    -    20,000    1,000         69,000         70,000 
                                         
Derivative liability                            154,388         154,388 
                                         
Shares issued for services   -    -    24,000    1,200    14,800    96,100    -    112,100 
                                         
Net loss                                 (1,133,306)   (1,133,306)
                                         
Balance at June 30, 2018   -   $-    3,317,135   $165,857   $14,800   $15,221,625   $(18,557,051)  $(3,151,769)
                                         
Contributed services   -    -    -    -         55,500    -    55,500 
                                         
Option expense   -    -    -    -         142,057    -    142,057 
                                         
Shares issued for debt conversion   -    -    258,878    12,944         607,546    -    620,490 
                                         
Shares issued for financing costs   -    -    31,807    1,590         70,410    -    72,000 
                                         
Derivative liability                            (49,741)        (49,741)
                                         
Shares issued for services   -    -    26,500    1,325    (14,800)   92,340    -    78,865 
                                         
Net loss                                 (1,092,162)   (1,092,162)
                                         
Balance at September 30, 2018   -   $-    3,634,320   $181,716   $-   $16,139,737   $(19,649,213)  $(3,327,760)

 

 

The accompanying notes are an integral part of these consolidated condensed financial statements

 

F-4
 

 

eWELLNESS HEALTHCARE CORPORATION

CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS

For the Nine Months Ended September 30, 2019 and 2018

(unaudited)

 

   For Nine Months Ended 
   September 30, 2019   September 30, 2018 
         
Cash flows from operating activities          
Net loss  $(4,624,131)  $(2,699,441)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation and amortization   4,794    2,863 
Contributed services   162,000    166,500 
Shares issued for consulting services   511,355    329,565 
Shares issued for financing costs   115,000    72,000 
Shares issued to officers, directors and consultants   86,250    - 
Shares issued for contribution   -    70,000 
Options expense   -    359,245 
Amortization of debt discount to interest expense   2,690,435    284,392 
Amortization of prepaids   678,805    301,140 
Foreign currency exchange   -    12,598 
Loss on disposal of fixed asset   -    (2,134)
Gain on derivative liability   (1,949,180)   (303,898)
Loss on settlement of debt   -    43,131 
Changes in operating assets and liabilities          
Prepaid expense   (57,948)   (18,055)
Accounts payable and accrued expenses   111,801    194,332 
Accounts payable - related party   (19,891)   287,161 
Accrued expenses - related party   (15,835)   7,386 
Accrued compensation   (82,006)   72,901 
           
Net cash used in operating activities   (2,388,551)   (820,315)
           
Cash flows from investing activities          
Purchase of equipment   (13,374)   (2,037)
Net cash used in investing activities   (13,374)   (2,037)
           
Cash flows from financing activities          
Proceeds from issuance of common stock   59,100    - 
Issuance of convertible debt   4,400,500    969,300 
Payment on debt   (1,102,450)   (1,005)
Debt issuance costs   (577,500)   (125,150)
           
Net cash provided by financing activities   2,799,650    843,145 
           
Net increase in cash   397,725    20,793 
           
Cash, beginning of period   383,335    6,882 
           
Cash, end of period  $781,060   $27,675 
           
Supplemental Information:          
Cash paid for:          
Taxes  $1,856   $1,267 
Interest Expense  $475,519   $- 
Non cash items:          
Derivative liability and debt discount issued with new notes  $2,831,539   $359,732 
Shares issued for debt conversion  $932,667   $1,190,489 
Shares issued for prepaids  $906,211   $209,000 

 

The accompanying notes are an integral part of these consolidated condensed financial statements

 

F-5
 

 

eWellness Healthcare Corporation

Notes to Consolidated Condensed Financial Statements

September 30, 2019

(unaudited)

 

Note 1. The Company

 

The Company and Nature of Business

 

eWellness Healthcare Corporation (the “eWellness”, “Company”, “we”, “us”, “our”) was incorporated in the State of Nevada on April 7, 2011. The Company has generated no revenues to date.

 

eWellness Healthcare Corporation is the first physical therapy telehealth company to offer real-time distance monitored assessments and treatments. Our business model is to have large-scale employers use our PHZIO platform as a fully PT monitored corporate musculoskeletal treatment (“MSK”) wellness program. The Company’s PHZIO home physical therapy assessment and exercise platform has been designed to disrupt the $30 billion physical therapy market, the $4 billion MSK market and the $8 billion corporate wellness industry. PHZIO re-defines the way MSK physical therapy can be delivered. PHZIO is the first real-time remote monitored 1-to-many MSK physical therapy platforms for home use.

 

We have commenced treating patients on various commercial contracts and anticipate generating initial revenues during the 4th quarter of 2019. Despite the lack of revenues, we continue to train physical therapist on how to use our PHZIO treatment platform, with many of these therapists treating various patients on our system on a complimentary basis. Our PHZIO system has delivered over 4,000 telerehab treatments to date.

 

Our latest challenges in the Workers Compensation space has been patient adoption of PHZIO, related to a patients’ choice to choose if they are treated in-clinic or digitally. They are nearly all choosing in-clinic care. Our pivot to address this issue was to develop and sell MSK 360 a pre-injury fitness exam and custom exercise platform that is just rolling out now. Next, we finally are getting traction for our Per-Hab product with several large TPA’s. Lastly, multiple clients are requesting a Rheumatoid Arthritis Exercise product (RA 360) that is currently being developed with a launch date of mid-January. With the success of MSK 360 we expect that more Workers Comp patients will choose digital care over in-clinic care.

 

We have now developed four key products with large scale users that need to turn on utilization in 2020. We have a large list of corporate self-insured, TPA and insurance company sales book that we are actively focused on selling to them our MSK-360 and Pre-Hab platforms. We expect good traction from many of these firms in 2020. These products are:

 

+ PHZIO: Realtime PT monitored Digital PT Treatments (post-injury)

 

+ MSK 360: Digital “PHZIOFIT” fitness exam and customer exercise plans for employees, (pre-injury)

 

+ Pre-Hab: Digital pre-surgery (non-monitored) for Total Knee, Hip and Shoulder surgery (post injury and pre-surgery)

 

+ RA 360: (Available January 2020) Rheumatoid Arthritis Exercise Plan

 

Note 2. Summary of Significant Accounting Policies

 

Basis of Presentation

 

The accompanying unaudited condensed financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial statements. Accordingly, they omit or condense notes and certain other information normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles. The accounting policies followed for quarterly financial reporting conform with the accounting policies disclosed in Note 2 to the Notes to Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2018. In the opinion of management, all adjustments necessary for a fair presentation of the financial information for the interim periods reported have been made. All such adjustments are of a normal recurring nature. The results of operations for the nine months ended September 30, 2019 are not necessarily indicative of the results that can be expected for the fiscal year ending December 31, 2019. The unaudited condensed financial statements should be read in conjunction with the financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2018.

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of revenue and expenses during the reporting period. Actual results could differ materially from these good faith estimates and judgments.

 

Going Concern

 

For the nine months ended September 30, 2019, the Company had no revenues. The Company has an accumulated loss of $26,025,365. In view of these matters, there is substantial doubt about the Company’s ability to continue as a going concern. The Company’s ability to continue operations is dependent upon the Company’s ability to raise additional capital and to ultimately achieve sustainable revenues and profitable operations, of which there can be no guarantee. The Company intends to finance its future development activities and its working capital needs largely from the sale of public equity securities with some additional funding from other traditional financing sources, including term notes, until such time that funds provided by operations are sufficient to fund working capital requirements. The financial statements of the Company do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

F-6
 

 

Fair Value of Financial Instruments

 

As of September 30, 2019, the Company had the following assets and liabilities measured at fair value on a recurring basis.

 

   Total   Level 1   Level 2   Level 3 
Derivative Liability  $1,358,964   $-   $-   $1,358,964 
Total Liabilities measured at fair value  $1,358,964   $-   $-   $1,358,964 

 

As of December 31, 2018, the Company had the following assets and liabilities measured at fair value on a recurring basis.

 

   Total   Level 1   Level 2   Level 3 
Derivative Liability  $1,584,102   $-   $-   $1,584,102 
Total Liabilities measured at fair value  $1,584,102   $-   $-   $1,584,102 

 

Note 3. Related Party Transactions

 

In November 2016, the Company signed an agreement with a programming company (“PC”) within which one of the Company’s directors and Chief Technical Officer is the Chief Marketing Officer. The agreement is for additional features to be programmed for the launch of the PHZIO platform. The Company is to pay a monthly base fee of $100,000 for the development and compensation for the Company’s CEO and CTO. Following payment of the initial $100,000, the Company is obligated to only pay $50,000 monthly until the PC has successfully signed and collected the first monthly service fee for 100 physical therapy clinics to use the PHZIO platform. The agreement establishes that the Company is indebted to the PC for $225,000 for past programming services. For this amount, the Company issued 505,618 common shares at a value of $0.445 per share on April 1, 2017. The PC will also have the right to appoint 40% of the directors. At the end of September 30, 2019, the Company had a payable of $627,832 due to this company.

 

Throughout the nine months ended September 30, 2019, the officers and directors of the Company incurred business expenses on behalf of the Company. The amounts payable to the officers as of September 30, 2019 and December 31, 2018 were $44,991 and $3,076, respectively. There were no expenses due to the board members, but the Company has accrued directors’ fees of $153,250 and $211,000 at September 30, 2019 and December 31, 2018, respectively. Because the Company is not yet profitable the officers have agreed to defer compensation. The Company had accrued executive compensation of $776,464 and $1,113,470 at September 30, 2019 and December 31, 2018 respectively.

 

Note 4. Convertible Notes Payable

 

Nine Months Ended September 30, 2019

 

On January 29, 2019, the Company received the third tranche of $60,000 relating to a note executed on July 13, 2018. During the nine months ending September 30, 2019, the Company accrued interest expense of $1,350. On July 12, 2019, the Company prepaid this note of $60,000 plus accrued interest and a prepayment penalty of $30,000. At September 30, 2019, this note is fully paid.

 

F-7
 

 

On January 8, 2019, the Company executed an 8% Convertible Promissory Notes payable to an institutional investor in the principal amount of $308,000. The note, which is due on January 8, 2020, has an original issue discount of $28,000 and transaction costs of $10,000. The convertible note converts into common stock of the Company at a conversion price that shall be equal to the 70% of the average of the two lowest per share trading prices for the twenty (20) trading days prior to the conversion date. During the nine months ended September 30, 2019, the Company accrued interest expense of $17,547. During the nine months ended September 30, 2019, the investor converted $30,000 of principal and $1,687 of accrued interest for 18,107 shares of common stock at a price of $1.75. At September 30, 2019, there is $278,000 principal outstanding.

 

On January 8, 2019, the Company executed an 8% Convertible Promissory Notes payable to an institutional investor in the principal amount of $308,000 each. The note, which is due on January 8, 2020, has an original issue discount of $28,000 and transaction costs of $10,000. The convertible note converts into common stock of the Company at a conversion price that shall be equal to the 70% of the average of the two lowest per share trading prices for the twenty (20) trading days prior to the conversion date. During the nine months ended September 30, 2019, the Company accrued interest expense of $17,029. During the nine months ended September 30, 2019, the investor converted $162,000 of principal for 88,488 shares of common stock for prices ranging from $1.75 to $2.10. At September 30, 2019, there is $146,000 principal outstanding.

 

On January 9, 2019, the Company executed a 12% Convertible Promissory Note payable to an institutional investor in the principal amount of $114,000. The note, which is due on October 30, 2019, has an original issue discount of $11,000 and transaction costs of $3,000. The convertible note converts into common stock of the Company at a conversion price that shall be equal to the 70% average of the two lowest per share trading prices for the ten (10) trading days prior to the conversion date. During the nine months ended September 30, 2019, the Company accrued interest expense of $6,028. On July 12, 2019, the Company prepaid this note of $114,000 plus accrued interest and a prepayment penalty of $42,010. At September 30, 2019, this note is fully paid.

 

On January 29, 2019, the Company executed a 12% Convertible Promissory Note payable to an institutional investor in the principal amount of $58,300. The note, which is due on November 15, 2019, has an original issue discount of $5,300 and transaction costs of $3,000. The convertible note converts into common stock of the Company at a conversion price that shall be equal to the 70% average of the two lowest per share trading prices for the ten (10) trading days prior to the conversion date. During the nine months ended September 30, 2019, the Company accrued interest of $2,753. On July 12, 2019, the Company prepaid this note of $58,300 plus accrued interest and a prepayment penalty of $21,369. At September 30, 2019, this note is fully paid.

 

On February 22, 2019, the Company received the fourth tranche of $30,000 relating to a note executed on July 13, 2018. During the nine months ending September 30, 2019, the Company accrued interest of $534. On September 17, 2019, the convertible debt holder converted $9,700 of principal for 6,800 shares of common stock at a price of $1.50. At September 30, 2019, there is $20,300 principal outstanding.

 

On March 18, 2019, the Company executed a Securities Purchase Agreement for Convertible Debentures to an institutional investor in the principal amount of $365,000 to be funded in six tranches: $65,000 at signing, $100,000 forty-five (45) days after the signing date and $200,000 forty-five (45) days after the second closing date. The debentures, which are payable on March 18, 2022, have a 10% original issue discount and a commitment fee of $5,000 payable with the signing debenture. The debentures convert into common stock of the Company at a conversion price equal to the lesser of (i) $.12 or (ii) seventy percent (70%) of the lowest traded price (as reported by Bloomberg LP) of the common stock for the ten (10) trading days prior to the conversion date. The first tranche of $65,000 was received on March 21, 2019. On September 12, 2019, the Company prepaid this note of $65,000 and a prepayment penalty of $19,500. At September 30, 2019, this note is fully paid.

 

F-8
 

 

On March 18, 2019, the Company executed a 12% Convertible Promissory Note payable to an institutional investor in the principal amount of $47,300. The note, which is payable on January 30, 2020, has an original issue discount of $4,300 and transaction costs of $3,000. The convertible note converts into common stock of the Company at a conversion price equal to 70% of the average of the lowest two (2) trading prices during the ten (10) trading day period ending on the last complete trading day prior to the conversion date. During the nine months ended September 30, 2019, the Company accrued interest expense of $3,226. On September 12, 2019, the Company prepaid this note of $47,300 plus accrued interest and a prepayment penalty of $16,555. At September 30, 2019, this note is fully paid.

 

On March 21, 2019, the Company executed a 3% Convertible Promissory Note payable to an institutional investor in the principal amount of $360,000. The note, which is payable twelve (12) months after each tranche is funded, has an original issue discount of $60,000. The original issue discount will be prorated with each tranche paid. The first tranche of $60,000 is due at signing date. The convertible note converts into common stock of the Company at a conversion price that shall be equal to 65% of the lesser of (i) lowest trading price or (ii) the lowest closing bid price on the OTCQB during the twenty-five (25) trading day period ending on the last complete trading day prior to the conversion date. The first tranche was received on March 29, 2019. The second tranche of $37,500 was received on July 19, 2019. During the nine months ended September 30, 2019, the Company accrued interest expense of $2,925. On September 30, 2019, the Company prepaid the first tranche of $60,000 plus accrued interest and a prepayment penalty of $30,000. At September 30, 2019, only the second tranche of $37,500 is outstanding.

 

On March 21, 2019, the Company executed a 12% Convertible Promissory Note to an institutional investor in the principal amount of $1,500,000 to be funded over separate tranches; the first tranche to be funded on signing. The note, which is due and payable six (6) months after the funding date of each tranche, has an original issue discount of 10%. The Company issued 65,217 shares of restricted common stock on the closing date. These are deemed returnable shares which the investor must return if the Company repays the note prior to the maturity date. In addition, the Company issued 20,000 shares of restricted common stock as a commitment fee. The convertible note converts into common stock of the Company at a conversion price that shall be equal to 65% of the lowest trading price during the thirty (30) day trading period ending on the last complete trading day prior to the conversion date. The first tranche of $750,000 was received on March 25, 2019. The second tranche of $350,000 was received on July 12, 2019 and the Company issued 53,846 shares of restricted common stock. These shares are redeemable if the Company pays the note prior to the maturity date of January 20, 2020. The third and final tranche was received on September 9, 2019 and the Company issued 80,000 shares of restricted common stock. These shares are redeemable if the Company pays the note prior to the maturity date of March 12, 2020. During the nine months ended September 30, 2019, the Company accrued interest expense of $57,337.

 

On April 1, 2019, the Company executed a 12% Convertible Promissory Note payable to an institutional investor in the principal amount of $58,300. The note, which is payable on February 15, 2020, has an original issue discount of $5,300 and transaction costs of $3,000. The convertible note converts into common stock of the Company at a conversion price equal to 70% of the average of the lowest two (2) trading prices during the ten (10) trading day period ending on the last complete trading day prior to the conversion date. During the nine months ended September 30, 2019, the Company accrued interest of $3,811. On September 12, 2019, the Company prepaid this note of $58,300 plus accrued interest and a prepayment penalty of $20,405. At September 30, 2019, this note is fully paid.

 

On May 6, 2019, the Company executed a convertible note conversion period extension agreement on a note dated October 28, 2018, within which the period of conversion by note holder was extended to May 27, 2019. The Company paid $16,031 to note holder for this extension agreement. On May 28, 2019, the Company executed a second extension agreement on this note within which the period of conversion by note holder was extended to June 11, 2019. The Company paid $16,105 to note holder for this extension agreement. During the nine months ended September 30, 2019, the note holder converted the $308,000 note and accrued interest of $16,337 into 179,745 shares of common shares at prices ranging from $1.75 to $2.25. At September 30, 2019, this note has been fully converted.

 

F-9
 

 

On May 13, 2019, the Company executed a 12% Convertible Promissory Note payable to an institutional investor in the principal amount of $110,000. The note, which is due on February 13, 2020, has an original issue discount of $10,000 and transactions costs of $3,000. The convertible note converts into common stock of the Company at conversion price that shall be equal to the 65% of the lowest closing price for the twenty (20) trading days prior to the conversion date. During the nine months ended September 30, 2019, the Company accrued interest expense of $5,063.

 

On July 2, 2019, two Back-End notes executed in October 2018 with an institutional investor was funded for $154,000 each. Each note, which is due on October 29, 2019, has an original issue discount of $16,500. The convertible notes convert into common stock of the Company at conversion price that shall be equal to the 70% of the average of the two (2) lowest per share trading prices for the prior twenty (20) trading days including the conversion date. During the nine months ended September 30, 2019, the Company accrued interest expense of $3,038 for each note.

 

On July 5, 2019, the Company signed an amendment to a convertible note issued on March 21, 2019 revising the conversion price from 75% to 65% of the lowest trading price during the thirty (30) trading days prior to the conversion date.

 

On July 8, 2019, the Company executed a 12% Convertible Promissory Note payable to an institutional investor in the principal amount of $140,800. The note, which is payable on April 30, 2020, has an original issue discount of $12,800 and transaction costs of $3,000. The convertible note converts into common stock of the Company at a conversion price equal to 70% of the average of the lowest two (2) trading prices during the ten (10) trading day period ending on the last complete trading day prior to the conversion date. During the nine months ended September 30, 2019, the Company accrued interest of $3,379.

 

On July 8, 2019, the Company executed a convertible note conversion period extension agreement on a note dated January 8, 2019 within which the period of conversion by note holder was extended to August 9, 2019. The Company paid $21,560 to note holder for this extension agreement.

 

On July 9, 2019, the Company executed a 12% Convertible Promissory Note payable to an institutional investor in the principal amount of $113,000. The note, which is due on July 9, 2020, has an original issue discount of $10,000 and transaction costs of $3,000. The convertible note converts into common stock of the Company at a conversion price that shall be equal to the 65% average of the lowest per share trading prices for the twenty (20) trading days prior to the conversion date. During the nine months ended September 30, 2019, the Company accrued interest expense of $2,712.

 

On July 9, 2019, the Company executed an 8% Convertible Promissory Note payable to an institutional investor in the principal amount of $235,000. The note, which is due on July 11, 2020, has an original issue discount of $25,200 and transaction costs of $10,000. The convertible note converts into common stock of the Company at a conversion price that shall be equal to the 65% average of the lowest per share trading prices for the prior twenty (20) trading days including the conversion date. During the nine months ended September 30, 2019, the Company accrued interest expense of $3,605.

 

On July 10, 2019, the Company executed a convertible note conversion period extension agreement on a note dated January 8, 2019 within which the period of conversion by note holder was extended to August 9, 2019. The Company paid $22,410 to note holder for this extension agreement.

 

F-10
 

 

On July 11, 2019, the Company executed a 12% Convertible Promissory Note payable to an institutional investor in the principal amount of $250,000. The note, which is due on April 19, 2020, has an original issue discount of $37,500 and transaction costs of $5,000. The convertible note converts into common stock of the Company at a conversion price that shall be equal to 65% of the average of the lowest per share trading prices for the twenty-five (25) trading days prior to the conversion date. During the nine months ended September 30, 2019, the Company accrued interest expense of $5,425.

 

On July 30, 2019, the Company executed two 12% Convertible Promissory Notes payable to two institutional investors in the principal amount of $38,500 each. Each note, which is due on April 30, 2020, has an original issue discount of $3,500 and transaction costs of $1,500. The convertible notes convert into common stock of the Company at a conversion price that shall be equal to the 65% of the lowest per share trading prices for the twenty (20) trading days prior to the conversion date. During the nine months ended September 30, 2019, the Company accrued interest expense of $1,380 for the two notes.

 

On September 4, 2019, the Company executed a 12% Convertible Promissory Note payable to an institutional investor in the principal amount of $58,300. The note, which is payable on July 15, 2020, has an original issue discount of $5,300 and transaction costs of $3,000. The convertible note converts into common stock of the Company at a conversion price equal to 70% of the average of the lowest two (2) trading prices during the ten (10) trading day period ending on the last complete trading day prior to the conversion date. During the nine months ended September 30, 2019, the Company accrued interest of $364.

 

On September 9, 2019, a Back-End note executed in January 2019 with an institutional investor was funded for $154,000. The note, which is due on January 9, 2020, has an original issue discount of $14,000 and transaction costs of $5,000. The convertible note converts into common stock of the Company at conversion price that shall be equal to the 70% of the average of the two (2) lowest per share trading prices for the twenty (20) trading days prior to the conversion date. During the nine months ended September 30, 2019, the Company accrued interest expense of $641.

 

On September 19, 2019, two Back-End notes executed in January 2019 with an institutional investor was funded for $154,000 each. Each note, which is due on January 8, 2020, has an original issue discount of $14,000 and transactions costs of $5,000. The convertible notes convert into common stock of the Company at conversion price that shall be equal to the 70% of the average of the two (2) lowest per share trading prices for the prior twenty (20) trading days including the conversion date. During the nine months ended September 30, 2019, the Company accrued interest expense of $371 for each note.

 

Year Ended December 31, 2018

 

In January 2018, the Company executed an 8% Convertible Promissory Note payable to an institutional investor in the principal amount of $110,000. During the year ended December 31, 2018, the note, which was due on October 12, 2018, and accrued interest totaling $4,489 was fully converted into 48,257 shares of common stock at a price of $2.3725 per share.

 

In January 2018, the Company executed an 12% Convertible Promissory Note payable to an institutional investor in the principal amount of $91,300. During the year ended December 31, 2018, the note, which was due on October 30, 2018, and accrued interest totaling $4,980 was fully converted into 32,616 shares of common stock at prices ranging from $2.915 to $3.015.

 

In February 2018, the Company executed an 12% Convertible Promissory Note payable to an institutional investor in the principal amount of $63,800. During year ended December 31, 2018, the note, which was due on November 30, 2018, and accrued interest totaling $3,480 was fully converted into 26,196 shares of common stock at prices ranging from $2.435 to $2.66.

 

F-11
 

 

In March 2018, the Company executed an 8% Convertible Promissory Note payable to an institutional investor in the principal amount of $77,000. As of September 30, 2018, the institutional investor exercised its MFN provision in Paragraph 4a increasing the OID from the stated in the note from 10% to 15% thus increasing the amount owed to $80,500. During the year ended December 31, 2018, the note, which was due on December 5, 2018, and accrued interest totaling $5,928 was fully converted into 48,049 shares of common stock at a price of $1.80.

 

In March 2018, the Company executed an 12% Convertible Promissory Note payable to an institutional investor in the principal amount of $72,450. During the year ended December 31, 2018, the note, which was due on December 30, 2018, and accrued interest totaling $3,780 was fully converted into 37,556 shares of common stock at prices ranging from $1.965 to $2.185.

 

In May 2018, the Company executed an 8% Convertible Promissory Note payable to an institutional investor in the principal amount of $125,000. During the year ended December 31, 2018, the note, which is due on May 10, 2019, and accrued interest totaling $415 was fully converted into 32,525 shares of common stock at prices ranging from $3.14 to $5.16. At the year ended December 31, 2018, the Company is still liable for $5,288 of accrued interest that has not yet been converted.

 

In May 2018, the Company executed an 12% Convertible Promissory Note payable to an institutional investor in the principal amount of $51,750. During the year ended December 31, 2018, the note, which is due on March 1, 2019, and accrued interest of $2,700 was fully converted into 13,174 shares of common stock at prices ranging from $4.05 and $4.25.

 

In July 2018, the Company executed an 12% Convertible Promissory Note payable to an institutional investor in the principal amount of $56,500. The note, which is due on April 17, 2019, has an original issue discount of $6,500. The convertible notes convert into common stock of the Company at conversion price that shall be equal to the lesser of: (i) $10.50 or (ii) 75% of the lowest per share trading price for the thirty (30) trading days before the issued date of this note. The Company issued 2,000 shares of common stock valued at $8,000 upon the execution of this note. During the year ended December 31, 2018, the Company recognized interest expense of $2,991.

 

In July 2018, the Company executed an 3% Convertible Promissory Note payable to an institutional investor in the principal amount of $180,000 for funding in six tranches. The note, which is due twelve months from the date of each individual tranche, has an original issue discount of $10,000 per tranche. The convertible notes convert into common stock of the Company at conversion price that shall be equal to 75% of the market price which is lowest trading price during the twenty (20) trading day period ending on the last complete trading day prior to the conversion date. The trading price is the lesser of: (i) lowest traded price or (ii) the lowest closing bid price on the OTCQB. The first tranche of $60,000 was received in the month of July and second tranche of $30,000 was received in the month of August. During the year ended December 31, 2018, the Company recognized interest expense of $1,102.

 

In July 2018, the Company executed an 12% Convertible Promissory Note payable to an institutional investor in the principal amount of $28,250. The note, which is due on April 17, 2019, has an original issue discount of $3,250. The convertible notes convert into common stock of the Company at conversion price that shall be equal to the lesser of: (i) $10.50 or (ii) 75% of the lowest per share trading price for the thirty (30) trading days before the issued date of this note. The Company issued 1,000 shares of common stock valued at $4,000 upon the execution of this note. During the year ended December 31, 2018, the Company recognized interest expense of $1,495.

 

F-12
 

 

In July 2018, the Company executed an 12% Convertible Promissory Note payable to an institutional investor in the principal amount of $77,000. As of September 30, 2018, the institutional investor exercised its MFN provision in Paragraph 4a increasing the OID from the stated in the note from 10% to 15% thus increasing the amount owed to $80,500. The note, which is due on April 5, 2019, has an original issue discount of $7,000. The convertible notes convert into common stock of the Company at conversion price that shall be equal to the lesser of: (i) $3.00 or (ii) 75% of the lowest per share trading price for the ten (10) trading days before the conversion date. During the year ended December 31, 2018, the Company recognized interest expense of $4,870.

 

In July 2018, the Company executed an 12% Convertible Promissory Note payable to an institutional investor in the principal amount of $60,950. The note, which is due on April 30, 2019, has an original issue discount of $7,950. The convertible notes convert into common stock of the Company at conversion price that shall be equal to the lesser of: (i) $10.00 or (ii) variable conversion price which is 75% of the average of the lowest (2) VWAP for the ten (10) trading day period ending on the latest compete trading day prior to the conversion date. During the year ended December 31, 2018, the Company recognized interest expense of $3,647.

 

In August 2018, the Company executed an 12% Convertible Promissory Note payable to an institutional investor in the principal amount of $58,300. The note, which is due on June 15, 2019, has an original issue discount of $5,300. The convertible notes convert into common stock of the Company at conversion price that shall be equal to the lesser of: (i) $10.00 or (ii) variable conversion price which is 75% of the average of the two (2) lowest VWAP for the ten (10) trading day period ending on the latest compete trading day prior to the conversion date. During the year ended December 31, 2018, the Company recognized interest expense of $2,338.

 

In October 2018, the Company executed an 12% Convertible Promissory Note payable to an institutional investor in the principal amount of $47,300. The note, which is due on July 15, 2019, has an original issue discount of $7,300. The convertible notes convert into common stock of the Company at conversion price that shall be equal to the variable conversion price which is 70% of the average of the two (2) lowest VWAP for the ten(10) trading day period ending on the latest compete trading day prior to the conversion date. During the year ended December 31, 2018, the Company recognized interest expense of $1,291.

 

In October 2018, the Company executed an 8% Convertible Promissory Note payable to an institutional investor in the principal amount of $165,000. The note, which is due on October 12, 2019, has an original issue discount of $15,000. The convertible notes convert into common stock of the Company at conversion price that shall be equal to 65% of the lowest per share closing price during the fifteen (15) trading days immediately preceding the date of the notice of conversion. The first tranche of $110,000 was received in the month of October and the second tranche of $55,000 was received in the month of November. During the year ended December 31, 2018, the Company recognized interest expense of $2,594.

 

In October 2018, the Company executed two 8% Convertible Promissory Notes payable to two institutional investors, each in the principal amount of $308,000. Each note, which is due on October 29, 2019, has an original issue discount of $33,000. The convertible notes convert into common stock of the Company at conversion price that shall be equal to the 70% of the average of the two (2) lowest per share trading prices for the twenty (20) trading days prior to the conversion date. During the year ended December 31, 2018, the Company recognized interest expense of $4,118 for each note.

 

In November 2018, a Back-End note executed in May 2018 with an institutional investor was funded. The Back-End note is an 8% Convertible Promissory Note payable in the principal amount of $125,000. The note, which is due on May 10, 2019, has an original issue discount of $10,000. The convertible notes convert into common stock of the Company at conversion price that shall be equal to 72% of the lowest VWAP for the ten (10) trading days prior to and including the conversion date. Conversion into shares of common stock can commence following the 180thcalendar day after the Original Issue Date. During the year ended December 31, 2018, the Company recognized interest expense of $1,123.

 

F-13
 

 

Note 5. Equity Transactions

 

Preferred Stock

 

The total number of shares of preferred stock which the Company shall have authority to issue is 20,000,000 shares with a par value of $0.001 per share. During the nine months ended September 30, 2019, the Company authorized the issuance of 1,000,000 shares of preferred stock to officers, directors and consultants as deferred compensation and/or expense. The shares are eligible for conversion after 24 months into 40 shares of common stock per each preferred share. The value of the issued shares was calculated on the basis of 40 shares per preferred share at the common share value on the date of issuance. The deferred compensation value of the shares will vest monthly at 1/24th of the calculated value of $3,000,000 and requisite expense or reduction of accrued compensation and/or accrued directors fees will be recorded. At the recording of the requisite vested share value, the corresponding number of preferred shares will be recorded as being issued. At the end of September 30, 2019, there were 125,000 vested preferred shares and $255,000 was recorded to reduce accrued compensation; $33,750 was recorded to reduce accrued directors’ fees, and $86,250 was recorded as expense for a total of $375,000.

 

Common Stock

 

On July 9, 2019, the Company filed a Definitive Information Statement on Schedule 14C for the purpose of authorizing the increase in the number of authorized shares of Common Stock from four hundred million (400,000,000) shares of Common Stock to nine hundred million (900,000,000) shares of Common Stock (the “Authorized Common Stock Share Increase”). On July 9, 2019, the Company filed Articles of Amendment to the Company’s Articles of Incorporation to implement the Authorized Common Stock Share Increase with the State of Nevada.

 

On October 10, 2019, the Company filed a Definitive Information Statement on Schedule 14C for the purpose of authorizing the increase in the number of authorized shares of Common Stock from nine hundred million (900,000,000) shares of Common Stock to one billion nine hundred million (1,900,000,000) shares of Common Stock (the “Authorized Common Stock Share Increase”). On October 15, 2019, the Company filed Articles of Amendment to the Company’s Articles of Incorporation to implement the Authorized Common Stock Share Increase with the State of Nevada.

 

Nine Months Ended September 30, 2019

 

On February 7, 2019, the Company executed an amendment to a contract executed on April 8, 2018 for twelve months for consulting services. The Company issued 5,000 shares of common stock at the signing of the contract valued at $30,500 that is being amortized over the life of the contract.

 

On March 22, 2019, the Company issued 65,217 shares of common stock to an institutional investor as part of a promissory note for the first tranche payment. These shares are returnable if the Company repays the promissory note before the maturity date. The value of these shares is $375,000 which was recorded as prepaid until the six-month maturity has passed. The Company also issued 20,000 shares of common stock to the institutional investor as a commitment fee. The value of these shares is $115,000.

 

On April 2, 2019, the Company issued 16,000 shares of common stock pursuant to a capital call notice in relation to an Equity Purchase Agreement dated June 18, 2018. The capital call totaled $59,100.

 

On May 17, 2019, the Company executed a contract for three months for consulting services. The Company issued 10,000 shares of common stock at the signing of the contract valued at $53,000 that is being amortized over the life of the contract. The contract further indicated that another 10,000 shares were to be issued at the end of three months. The Company issued the second 10,000 shares of common stock on August 20, 2019. The value of the shares is $31,200 and was expensed.

 

On July 10, 2019, the Company issued 53,846 shares of common stock to an institutional investor as part of a promissory note for the second tranche payment. These shares are returnable if the Company repays the promissory note before the maturity date. The value of these shares is $167,462 which was recorded as prepaid until the six-month maturity has passed.

 

F-14
 

 

On September 30, 2019, the Company issued 80,000 shares of common stock to an institutional investor as part of a promissory note for the third and final tranche payment. These shares are returnable if the Company repays the promissory note before the maturity date. The value of these shares is $280,000 which was recorded as prepaid until the six-month maturity has passed.

 

On September 25, 2019, the Company executed a contract for six months for consulting services. The contract included the issuance of 5,000 shares of common stock. The value of these shares is $13,750. The shares had not yet been issued at the nine months ended September 30,2019, so the value was recorded as Shares to be Issued.

 

During the nine months ended September 30, 2019, the Company issued 95,000 shares of common stock to consultants for services rendered in accordance to consulting agreements. The value of these shares is $466,403

 

During the nine months ended September 30, 2019, the Company issued 405,409 shares of common stock for debt conversion totaling $932,667 which includes $889,950 principal, $40,217 accrued interest and $2,500 due diligence fee.

 

Nine Months Ended September 30, 2018

 

In January 2018, the Board of Directors approved the extension of an Advisory Agreement dated February 15, 2015 for one year. The Company issued 16,000 shares of common stock as compensation with a value of $104,000. This value is being amortized over the life of the contract.

 

During the nine months ended September 30, 2018, the Company issued a total of 531,965 shares of common stock per debt conversion of convertible notes. The total of the debt conversion was $1,190,189 which includes $163,157 of accrued interest.

 

During the nine months ended September 30, 2018, the Company issued 77,500 shares of common stock for marketing and consulting services valued at $329,565.

 

During the nine months ended September 30, 2018, the Company issued 80,000 shares of common stock for settlement of a complaint filed in the United States Federal District Count (see Footnote 4). The debt settled totaled $236,868 which includes $56,817 of accrued interest.

 

During the nine months ended September 30, 2018, the Company issued 31,807 shares of common stock for financing fees for convertible debt issued. These shares were valued at $72,000.

 

In June 2018, the Company entered into a consulting agreement within which the Company agreed to issue 2,500 shares of common stock per month beginning in July 2018 and 30,000 shares of common stock upon signing of the agreement. The 30,000 shares of common stock were issued with a value of $105,000 which is being amortized over the life of the contract.

 

In June 2018, the Company executed an Equity Purchase Agreement with an institutional investor within which the investor agrees to purchase up to $1,500,000 of the Company’s common stock, par value $0.05. As an inducement to the investor to enter into the agreement, the Company issued 20,000 restricted shares of common stock to the investor valued at $70,000.

 

F-15
 

 

In January 2018, the Board of Directors agreed to form a new eWellness Healthcare Corporation 2018 Equity Incentive Plan (“Plan”). The Plan shall be for 20,000,000 shares of common stock that will be placed in a 10b5-1 Sales Plan that will be registered under an S-8 Registration Statement. Under the sales plan, each recipient will open an account with Garden State Securities (“GSS”) for management of all sales of shares issued under the Plan. Quarterly limitations are placed on the number of shares that can be sold. The Company initially allocated 348,000 shares to officers, directors and consultants. As of September 30, 2018, no shares were issued.

 

Stock Options

 

The following is a summary of the status of all Company’s stock options as of September 30, 2019 and changes during the nine months ended on that date:

 

       Weighted         
   Number
of Stock
   Average
Exercise
   Remaining   Intrinsic 
   Options   Price   Life (yrs)   Value 
Outstanding at December 31, 2018   57,000   $40.00    2.2   $      - 
Granted   -    -           
Exercised   -    -           
Cancelled   -    -           
Outstanding at September 30, 2019   57,000    40.00    1.4   $- 
Options exercisable at September 30, 2019   57,000   $40.00    1.4   $- 

 

The Company recognized stock option expense of $0 and $217,188 for the nine months ended September 30, 2019 and 2018, respectively.

 

Warrants

 

In March 2018, the Board of Directors, at the request and with the approval of the investors, determined that it was in the best interests of the Company and the Investors, based upon market price and relatively limited liquidity of the shares of common stock that the Company revised the expiration date and exercise price for 8,349 unexercised warrants granted on April 9, 2015. The original expiration date of April 9, 2018 was extended to April 9, 2019. During the nine months ended September 30, 2019, these warrants expired.

 

The following is a summary of the status of the Company’s warrants as of September 30, 2019 and changes during the nine months ended on that date:

 

       Weighted         
   Number of   Average
Exercise
   Remaining   Intrinsic 
   Warrants   Price   Life (yrs.)   Value 
Outstanding at December 31, 2018   75,564   $24.00    1.4   $- 
Granted   -    -    -    - 
Exercised   -    -    -    - 
Cancelled   (9,549)   -    -    - 
Outstanding at September 30, 2019   66,015   $26.00    1.1   $22.240 
Warrants exercisable at September 30, 2019   

66,015

   $

26.00

    1.1   $22,240 

 

F-16
 

 

Note 6. Commitments, Contingencies

 

The Company may be subject to lawsuits, administrative proceedings, regulatory reviews or investigations associated with its business and other matters arising in the normal conduct of its business. The following is a description of an uncertainty that is considered other than ordinary, routine and incidental to the business.

 

The closing of the Initial Exchange Agreement with Private Co. was conditioned upon certain, limited customary representations and warranties, as well as, among other things, our compliance with Rule 419 (“Rule 419”) of Regulation C under the Securities Act of 1933, as amended (the “Securities Act”) and the consent of our shareholders as required under Rule 419. Accordingly, we conducted a “Blank Check” offering subject to Rule 419 (the “Rule 419 Offering”) and filed a Registration Statement on Form S-1 to register the shares of such offering; the Registration Statement was declared effective on September 14, 2012. We used 10% of the subscription proceeds as permitted under Rule 419 and the amount remaining in the escrow trust as of the date of the closing of the Share Exchange was $90,000 (the “Trust Account Balance”).

 

Rule 419 required that the Share Exchange occur on or before March 18, 2014, but due to normal negotiations regarding the transactions and the parties’ efforts to satisfy all the closing conditions, the Share Exchange did not close on such date. Accordingly, after numerous discussions with management of both parties, they entered into an Amended and Restated Share Exchange Agreement (the “Share Exchange Agreement”) to reflect a revised business combination structure, pursuant to which we would: (i) file a registration statement on Form 8-A (“Form 8A”) to register our common stock pursuant to Section 12(g) of the Exchange Act, which we did on May 1, 2014 and (ii) seek to convert the participants of the Rule 419 Offering into participants of a similarly termed private offering (the “Converted Offering”), to be conducted pursuant to Regulation D, as promulgated under the Securities Act.

 

Fifty-two persons participated in the Rule 419 Offering and each of them gave the Company his/her/its consent to use his/her/its escrowed funds to purchase shares of the Company’s restricted common stock in the Converted Offering (the “Consent”) rather than have their funds returned. To avoid further administrative work for the investors, we believe that we took reasonable steps to inform investors of the situation and provided them with an appropriate opportunity to maintain their investment in the Company, if they so choose, or have their funds physically returned. Management believed the steps it took constituted a constructive return of the funds and therefore met the requirements of Rule 419.

 

However, pursuant to Rule 419(e)(2)(iv), “funds held in the escrow or trust account shall be returned by first class mail or equally prompt means to the purchaser within five business days [if the related acquisition transaction does not occur by a date that is 18 months after the effective date of the related registration statement].” As set forth above, rather than physically return the funds, we sought consent from the investors of the Rule 419 Offering to direct their escrowed funds to the Company to instead purchase shares in the Converted Offering. The consent document (which was essentially a form of rescission) was given to the investors along with a private placement memorandum describing the Converted Offering and stated that any investor who elected not to participate in the Converted Offering would get 90% of their funds physically returned. Pursuant to Rule 419(b)(2)(vi), a blank check company is entitled to use 10% of the proceed/escrowed funds; therefore, if a return of funds is required, only 90% of the proceed/escrowed funds need be returned. The Company received $100,000 proceeds and used $10,000 as per Rule 419(b)(2)(vi); therefore, only $90,000 was subject to possible return.

 

As disclosed therein, we filed the amendments to the initial Form 8-K in response to comments from the SEC regarding the Form 8-K and many of those comments pertain to an alleged violation of Rule 419. The Company continued to provide the SEC with information and analysis as to why it believes it did not violate Rule 419 but was unable to satisfy the SEC’s concerns. Comments and communications indicate that Rule 419 requires a physical return of funds if a 419 offering cannot be completed because a business combination was not consummated within the required time frame; constructive return is not permitted.

 

F-17
 

 

Because of these communications and past comments, we are disclosing that we did not comply with the requirements of Rule 419, which required us to physically return the funds previously submitted to escrow pursuant to the Rule 419 Offering. Because of our failure to comply with Rule 419, the SEC may bring an enforcement action or commence litigation against us for failure to strictly comply with Rule 419. If any claims or actions were to be brought against us relating to our lack of compliance with Rule 419, we could be subject to penalties (including criminal penalties), required to pay fines, make damages payments or settlement payments. In addition, any claims or actions could force us to expend significant financial resources to defend ourselves, could divert the attention of our management from our core business and could harm our reputation.

 

Ultimately, the SEC determined to terminate its review of the Initial Form 8-K and related amendments, rather than provide us with additional opportunities to address their concerns and therefore, we did not clear their comments. It is not possible at this time to predict whether or when the SEC may initiate any proceedings, when this issue may be resolved or what, if any, penalties or other remedies may be imposed, and whether any such penalties or remedies would have a material adverse effect on our consolidated financial position, results of operations, or cash flows. Litigation and enforcement actions are inherently unpredictable, the outcome of any potential lawsuit or action is subject to significant uncertainties and, therefore, determining currently the likelihood of a loss, any SEC enforcement action and/or the measurement of the amount of any loss is complex. Consequently, we are unable to estimate the range of reasonably possible loss. Our assessment is based on an estimate and assumption that has been deemed reasonable by management, but the assessment process relies heavily on an estimate and assumption that may prove to be incomplete or inaccurate, and unanticipated events and circumstances may occur that might cause us to change that estimate and assumption. Considering the uncertainty of this issue and while Management evaluates the best and most appropriate way to resolve same, management determined to create a reserve on the Company’s Balance Sheet for the $90,000 that was subject to the Consent.

 

From time to time the Company may become a party to litigation matters involving claims against the Company. Except as may be outlined above, the Company believes that there are no current matters that would have a material effect on the Company’s financial position or results of operations.

 

Note 7. Derivative Valuation

 

The Company evaluated the convertible debentures and associated warrants in accordance with ASC Topic 815, “Derivatives and Hedging,” and determined that the conversion feature of the convertible promissory notes was not afforded the exemption for conventional convertible instruments due to their variable conversion rates. The notes have no explicit limit on the number of shares issuable, so they did not meet the conditions set forth in current accounting standards for equity classification. Therefore, these have been characterized as derivative instruments. We elected to recognize the notes under ASU paragraph 815-15-25-4, whereby there would be a separation into a host contract and derivative instrument. We elected to initially and subsequently measure the notes and warrants in their entirety at fair value, with changes in fair value recognized in earnings.

 

The debt discount is amortized over the life of the note and recognized as interest expense. For the nine months ended September 30, 2019 and 2018, the Company amortized the debt discount of $2,690,435 and $284,390, respectively.

 

F-18
 

 

During the nine months ended September 30, 2019, the Company had the following activity in the derivative liability account:

 

   Notes   Warrants   Total 
Derivative liability at December 31, 2018  $1,402,721   $181,381   $1,584,102 
Addition of new conversion option derivatives   3,631,177    -    3,631,177 
Conversion of note derivatives   (1,107,498)   -    (1,107,498)
Change in fair value   (2,582,681)   (166,137)   (2,748,818)
Derivative liability at September 30, 2019  $1,343,719   $15,244   $1,358,963 

 

For purposes of determining the fair market value of the derivative liability, the Company used Black Scholes option valuation model. The significant assumptions used in the Black Scholes valuation of the derivative are as follows:

 

Stock price at valuation date  $

1.50-500.00

 
Exercise price of warrants  $

12.50

 
Conversion rate of convertible debt  $

22.25

 
Risk free interest rate   1.6%-2.42%
Stock volatility factor   102.5%-190 %
Years to Maturity   .06 – 2.72 
Expected dividend yield   None 

 

Note 8. Subsequent Events

 

On October 2, 2019, the Company executed a 10% Convertible Promissory Note payable to an institutional investor in the principal amount of $57,750. The note, which is payable on October 2, 2020, has an original issue discount of $5,250 and transaction costs of $2,500. The convertible note converts into common stock of the Company at a conversion price equal to 65% of the lowest trading prices during the twenty (20) trading day period ending on the last complete trading day prior to the conversion date.

 

On October 10, 2019, the Company filed a Definitive Information Statement on Schedule 14C for the purpose of authorizing the increase in the number of authorized shares of Common Stock from nine hundred million (900,000,000) shares of Common Stock to one billion nine hundred million (1,900,000,000) shares of Common Stock (the “Authorized Common Stock Share Increase”). On October 15, 2019, the Company filed Articles of Amendment to the Company’s Articles of Incorporation to implement the Authorized Common Stock Share Increase with the State of Nevada.

 

From October 1 until the filing of this report, the Company issued 7,500 shares of common stock per consulting agreements valued at $12,150.

 

From October 1 until the filing of this report, the Company issued 910,042 shares of common stock for convertible debt conversion totaling $508,655 which includes $436,906 principal, $69,199 accrued interest and $2,550 financing costs

 

From October 1 until the filing of this report, the Company issued 21,000 shares of common stock for prepaid services valued at $39,750 which is being amortized over the life of the contracts.

 

F-19
 

 

FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and

Stockholders of eWellness Healthcare Corporation

 

Opinion on the Financial Statements

We have audited the accompanying balance sheets of eWellness Healthcare Corporation (the Company) as of December 31, 2018 and 2017, and the related statements of operations, stockholders’ deficit, and cash flows for each of the years in the two-year period ended December 31, 2018, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.

 

Consideration of the Company’s Ability to Continue as a Going Concern

The accompanying financial statements have been prepared assuming that Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has yet to earn revenue, has a deficit in stockholders’ equity, and has sustained recurring losses from operations. This raises substantial doubt about the Company’s ability to continue as a going concern. Management’s plans with regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

  

Haynie & Company

Salt Lake City, Utah

March 27, 2019

 

We have served as the Company’s auditor since 2016

 

F-20
 

 

eWELLNESS HEALTHCARE CORPORATION

BALANCE SHEETS

 

   December 31, 2018   December 31, 2017 
         
ASSETS          
           
CURRENT ASSETS          
Cash  $383,335   $6,882 
Prepaid expenses   95,508    179,827 
           
Total current assets   478,843    186,709 
           
Property & equipment, net   14,092    5,021 
Intangible assets, net   11,000    13,954 
           
TOTAL ASSETS  $503,935   $205,684 
           
LIABILITIES AND STOCKHOLDERS’ DEFICIT          
           
CURRENT LIABILITIES          
Accounts payable and accrued expenses  $236,741   $345,956 
Accounts payable - related party   684,173    351,511 
Accrued expenses - related party   214,076    210,828 
Accrued compensation   1,113,470    1,071,369 
Contingent liability   90,000    90,000 
Convertible debt, net of discount   562,362    444,680 
Derivative liability   1,584,102    1,140,578 
Short term notes and liabilities   -    180,051 
           
Total current liabilities   4,484,924    3,834,973 
           
Total Liabilities   4,484,924    3,834,973 
           
Commitments and contingencies   -    - 
           
STOCKHOLDERS’ DEFICIT          
Preferred stock, authorized, 20,000,000 shares, $.001 par value, 0 shares issued and outstanding   -    - 
Common stock, authorized 400,000,000 shares, $.001 par value, 4,128,139 and 2,847,048 issued and outstanding, respectively   206,407    142,352 
Additional paid in capital   17,213,838    13,178,131 
Accumulated deficit   (21,401,234)   (16,949,772)
           
Total Stockholders’ Deficit   (3,980,989)   (3,629,289)
           
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT  $503,935   $205,684 

 

The accompanying notes are an integral part of these financial statements

 

F-21
 

 

eWELLNESS HEALTHCARE CORPORATION

STATEMENTS OF OPERATIONS

 

   Year Ended 
   December 31, 2018   December 31, 2017 
         
OPERATING EXPENSES          
Executive compensation  $408,000   $408,000 
General and administrative   1,156,938    801,308 
Professional fees   2,130,131    2,139,473 
           
Total Operating Expenses   3,695,069    3,348,781 
           
Loss from Operations   (3,695,069)   (3,348,781)
           
OTHER INCOME (EXPENSE)          
Gain on extinguishment of debt   159,479    - 
Gain (loss) on derivative liability   (178,938)   2,771,778 
Foreign exchange rate   12,598    60,972 
Loss on disposal of asset   (2,134)   - 
Interest expense   (745,542)   (516,060)
           
Net Loss before Income Taxes   (4,449,606)   (1,032,091)
           
Income tax expense   (1,856)   (800)
           
Net Loss  $(4,451,462)  $(1,032,891)
           
Basic and diluted (loss) per common share  $(1.32)  $(0.47)
           
Weighted average shares outstanding   3,374,115    2,177,294 

 

The accompanying notes are an integral part of these financial statements

 

F-22
 

 

eWELLNESS HEALTHCARE CORPORATION

STATEMENT OF STOCKHOLDERS’ DEFICIT

 

   Preferred Shares   Common Shares   Shares to   Additional  Paid in   Accumulated   Total  Stockholders’ 
   Shares   Amount   Shares   Amount   be issued   Capital   Deficit   Deficit 
                                 
Balance at December 31, 2016     -   $       -    1,028,706   $51,435   $110,740   $5,757,205   $(15,916,881)  $(9,997,501)
                                         
Contributed services   -    -    -    -    -    222,000    -    222,000 
Option expense   -    -    -    -    -    434,376    -    434,376 
Warrants issued with debt   -    -    -    -    -    89,890    -    89,890 
Shares issued for AP conversions   -    -    553,618    27,681    (84,000)   281,319    -    225,000 
Shares issued for debt conversion   -    -    1,070,690    53,534    (8,240)   5,529,185    -    5,574,479 
Shares issued for prepaid services   -    -    100,500    5,025    (18,500)   402,975    -    389,500 
Shares issued for services   -    -    66,812    3,341    -    352,539    -    355,880 
Shares issued for warrants exercised   -    -    26,722    1,336    -    108,642    -    109,978 
Net loss   -    -    -    -    -    -    (1,032,891)   (1,032,891)
                                         
Balance at December 31, 2017   -   $-    2,847,048   $142,352   $-   $13,178,131   $(16,949,772)  $(3,629,289)
                                         
Contributed services   -    -    -    -    -    220,500    -    220,500 
Option expense   -    -    -    -    -    467,938    -    467,938 
Shares issued to officers, directors and consultants   -    -    348,000    17,400    -    332,688    -    350,088 
Shares issued for contribution   -    -    20,000    1,000    -    69,000    -    70,000 
Shares issued for debt conversion   -    -    705,714    35,286    -    2,077,161    -    2,112,447 
Shares issued for prepaid services   -    -    52,000    2,600    -    236,700    -    239,300 
Shares issued for services   -    -    106,000    5,300    -    506,815    -    512,115 
Shares issued for financing costs   -    -    49,377    2,469    -    124,905    -    127,374 
Net loss   -    -    -    -    -    -    (4,451,462)   (4,451,462)
                                         
Balance at December 31, 2018   -   $-    4,128,139   $206,407   $-   $17,213,838   $(21,401,234)  $(3,980,989)

 

The accompanying notes are an integral part of these financial statements

 

F-23
 

 

eWELLNESS HEALTHCARE CORPORATION

STATEMENT OF CASH FLOWS

 

   Year Ended 
   December 31, 2018   December 31, 2017 
         
Cash flows from operating activities          
Net loss  $(4,451,462)  $(1,032,891)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation and amortization   5,982    5,123 
Contributed services   220,500    222,000 
Shares issued for consulting services   512,115    355,880 
Shares issued for contribution   70,000    - 
Shares issued for financing costs   127,374    - 
Shares issued to directors and consultants   350,088    - 
Options expense   467,938    434,376 
Amortization of debt discount and prepaids   812,499    1,400,782 
Loss on disposal of fixed assets   2,134    - 
(Gain) on settlement of debt   (159,479)   - 
Foreign currency exchange   (12,598)   (60,972)
(Gain) loss on derivative liability   178,938    (2,771,778)
Changes in operating assets and liabilities          
Prepaid expense   22,479    (49,752)
Accounts payable and accrued expenses   130,454    111,332 
Accounts payable - related party   332,661    197,029 
Accrued expenses - related party   60,067    106,399 
Accrued compensation   42,101    131,369 
           
Net cash used in operating activities   (1,288,209)   (951,103)
           
Cash flows from investing activities          
Purchase of equipment   (14,233)   (2,910)
Net cash used in investing activities   (14,233)   (2,910)
           
Cash flows from financing activities          
Proceeds from issuance of convertible debt   1,922,600    1,107,500 
Original issue discount and debt issuance costs   (242,700)   (160,600)
Payments on debt   (1,005)   - 
           
Net cash provided by financing activities   1,678,895    946,900 
           
Net increase (decrease) in cash   376,453    (7,113)
           
Cash, beginning of period   6,882    13,995 
           
Cash, end of period  $383,335   $6,882 
           
Supplemental Information:          
Cash paid for:          
Taxes  $1,856   $800 
Interest Expense  $-   $- 
Non-cash items:          
Warrants issued with debt  $-   $89,890 
Derivative liability and debt discount issued with new notes  $1,099,732   $428,250 
Shares issued for debt conversion  $1,456,782   $5,528,421 
Exercise of warrants  $-   $109,979 
Shares issued for extinguishment of accounts payable  $-   $225,000 
Shares issued to officers recorded as reduction of contributed capital  $1,215,912    - 
Shares issued for prepaids  $239,300   $389,500 

 

The accompanying notes are an integral part of these financial statements

 

F-24
 

 

eWELLNESS HEALTHCARE CORPORATION

Notes to Financial Statements

 

Note 1. The Company

 

The Company and Nature of Business

 

eWellness Healthcare Corporation (the “eWellness”, “Company”, “we”, “us”, “our”) was incorporated in the State of Nevada on April 7, 2011. The Company has generated no revenues to date.

 

eWellness is the first physical therapy telehealth company to offer insurance reimbursable real-time distance monitored treatments. Our business model is to license our PHZIO (“PHZIO”) platform to any physical therapy (“PT”) clinic in the U.S. and or have large-scale employers use our PHZIO platform as a fully PT monitored corporate wellness program. The Company’s PHZIO home physical therapy exercise platform has been designed to disrupt the $30 billion physical therapy and the $8 billion corporate wellness industries. PHZIO re-defines the way physical therapy can be delivered. PHZIO is the first real-time remote monitored 1-to-many physical therapy platform for home use. Due to the real-time patient monitoring feature, the PHZIO platform is insurance reimbursable by payers such as: Anthem Blue Cross and Blue Shield.

 

Note 2. Summary of Significant Accounting Policies

 

Basis of Presentation

 

The accompanying financial statements have been prepared to reflect the financial position, results of operations and cash flows of the Company and have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of revenue and expenses during the reporting period. Actual results could differ materially from these good faith estimates and judgments.

 

Going Concern

 

For the year ended December 31, 2018, the Company had no revenues. The Company has an accumulated deficit of $21,401,234 and a working capital deficit of $4,006,081. In view of these matters, there is substantial doubt about the Company’s ability to continue as a going concern. The Company’s ability to continue operations is dependent upon the Company’s ability to raise additional capital and to ultimately achieve sustainable revenues and profitable operations, of which there can be no guarantee. The Company intends to finance its future development activities and its working capital needs largely from the sale of public equity securities with some additional funding from other traditional financing sources, including term notes, until such time that funds provided by operations are sufficient to fund working capital requirements. The financial statements of the Company do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

Fair Value of Financial Instruments

 

The Company complies with the accounting guidance under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 820-10, Fair Value Measurements, as well as certain related FASB staff positions. This guidance defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact business and considers assumptions that marketplace participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance.

 

F-25
 

 

The guidance also establishes a fair value hierarchy for measurements of fair value as follows:

 

Level 1 – quoted market prices in active markets for identical assets or liabilities.

 

Level 2 – inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

 

Level 3 – unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

 

As of December 31, 2018, the Company had the following assets and liabilities measured at fair value on a recurring basis.

 

   Total   Level 1   Level 2   Level 3 
Derivative Liability  $