The statements contained in this report that are not statements of historical
fact, including without limitation, statements containing the words "believes,"
"expects," "anticipates" and similar words, constitute forward-looking
statements that are subject to a number of risks and uncertainties. From time to
time we may make other forward-looking statements. Investors are cautioned that
such forward-looking statements are subject to an inherent risk that actual
results may materially differ as a result of many factors, including the risks
discussed from time to time in this report, including the risks described under
"Risk Factors" in any filings we have made with the SEC.
Our discussion and analysis of our financial condition and results of operations
are based upon our financial statements, which have been prepared in accordance
with accounting principles generally accepted in the United States. The
preparation of financial statements in conformity with US GAAP requires
management to make estimates and assumptions that affect the reported amounts of
certain assets and liabilities, certain disclosures at the date of the financial
statements, as well as the reported amounts of revenues and expenses during the
reporting period. Significant estimates affecting the financial statements have
been prepared on the basis of the most current and best available information.
However, actual results from the resolution of such estimates and assumptions
may vary from those used in the preparation of the financial statements.
Background
The Company was formed in Nevada in August 30, 2002 as IntelSource Group, Inc.
and began operations in 2003. In 2007, IntelSource Group, Inc. merged with
ElectroMedical Technologies, LLC. The Company began acting as Electro Medical
Technologies, LLC, an Arizona limited liability company on November 9, 2010
after the merger with ElectroMedical Technologies, LLC, a Nevada Company. The
Company converted to a corporation in the State of Delaware on August 23, 2017.
Electromedical Technologies is a bioelectronics manufacturing and marketing
company. We offer U.S. Food and Drug Administration (FDA) cleared medical
devices for pain management.
Bioelectronics is a developing field of "electronic" medicine, which uses
electrical impulses over the body's neural circuitry to try to alleviate pain,
without drugs. The human body is controlled by electrical signals sent through
the nervous system, which can become distorted after accidents or as a result of
disease. The field of bioelectronic medicine aims to safely correct
irregularities in the nervous system by modifying the electrical language of the
body related to pain relief.
Our mission is to improve global wellness for people suffering from various
painful conditions by relieving chronic and acute pain using energy, frequency
and vibration as an alternative to pharmaceuticals; and one day, read and
modifies electrical signals passing along nerves in the body, to restore
long-term health.
Additionally, we have a corporate goal to offer the public effective
alternatives to addictive pain -relieving drugs, such as opioids. According to
the Society of Actuaries, opioid overdose deaths are now the single largest
factor slowing the growth in U.S. life expectancy and has led to stagnation or
decreases in life expectancy three years in a row for the first time since
1915-1918, when the country was facing World War I and the Spanish flu pandemic.
The U.S. Centers of Disease Control and Prevention (CDC) has reported that, from
1999 through 2017, nearly 400,000 have died from overdoses from prescription or
illicit opioids. It is our aim to offer effective alternatives to pain
management.
Results of Operations
Overview and Financial Condition
Going Concern
Since inception, the Company has incurred approximately $19.3 million of
accumulated net losses. In addition, during the six months ended June 30, 2022,
the Company used $415,765 in operations and had a working capital deficit of
$1,361,177. These factors raise substantial doubt regarding the Company's
ability to continue as a going concern. The Company expects to obtain funding
through additional debt and equity placement offerings until it consistently
achieves positive cash flows from operations. If the Company is unable to obtain
additional funding, it may not be able to meet all of its obligations as they
come due for the next twelve months. The
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continuing viability of the entity and its ability to continue as a going
concern is dependent upon the entity being successful in its continuing efforts
in growing its revenue base and/or accessing additional sources of capital,
and/or selling assets.
As a result, there is significant uncertainty whether the entity will continue
as a going concern and, therefore, whether it will realize its assets and settle
its liabilities and commitments in the normal course of business and at the
amounts stated in the financial statements.
Accordingly, no adjustments have been made to the financial statements relating
to the recoverability and classification of the asset carrying amounts or the
amount and classification of liabilities that might be necessary should the
entity not continue as a going concern. At this time, management is of the
opinion that no asset is likely to be realized for an amount less than the
amount at which it is recorded in the financial statements at June 30, 2022.
While priority is on generating cash from operations through the sale of the
Company's products, management is also seeking to raise additional working
capital through various financing sources, including the sale of the Company's
equity and/or debt securities, which may not be available on commercially
reasonable terms, if at all. If such financing is not available on satisfactory
terms, we may be unable to continue our business as desired and our operating
results will be adversely affected. In addition, any financing arrangement may
have potentially adverse effects on us and/or our shareholders. Debt financing
(if available and undertaken) will increase expenses, must be repaid regardless
of operating results and may involve restrictions limiting our operating
flexibility. If we issue equity securities to raise additional funds, the
percentage ownership of our existing shareholders will be reduced and the new
equity securities may have rights, preferences or privileges senior to those of
the current holders of our shares of Common Stock.
The following table sets forth the unaudited results of our operations for the
three months ended June 30,
2022 2021
Net Sales $ 225,251 $ 202,954Cost of goods sold: 45,335 49,741
Gross profit
179,916 153,213
Operating Expenses 463,179 677,871
Loss from operations (283,263) (524,658)
Other expense (252,668) (249,874)
Net Loss $ (535,931) $ (774,532)
Operating Results
April 1, 2022 through June 30, 2022 Compared to April 1, 2021 through June 30,
2021
Our sales totaled $225,251 for the three months ended June 30, 2022 and $202,954
for the three months ended June 30, 2021, an increase of $22,297 or 11%. The
increase is primarily related to an increase in units sold. In the 2021 period,
the COVID -19 pandemic had an impact on worldwide manufacturing and supply and
affected our ability to replenish inventory. In addition, we were not able to
attend trade shows.
Cost of sales and gross margins for the three months ended June 30, 2022 and for
the three months ended June 30, 2021 were $45,335 and 80% and $49,741 and 75%,
respectively. Our cost of sales consists of the cost of materials and
distribution expenses. Cost of sales and gross margins are affected by product
mix as well as the mix in the level of sales between commissioned agents and
distributors. Higher shipping and distribution costs in 2021 period contributed
to the increase in gross margin.
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The following table sets forth the operating expenses for the three months ended
June 30:
2022 2021 Change
Marketing $ 2,860 $ 56,756 $ (53,896)
Commissions 45,514 47,666 (2,152)
Payroll related 207,164 205,909 1,255
Consulting and professional fees 139,766 196,091 (56,325)
Research and development 15,000 133,921 (118,921)
Other operating expenses 52,875 37,528 15,347
$ 463,179 $ 677,871 $ (214,692)
The following table sets forth the stock- based compensation expense included in
the above operating expenses for the three months ended June 30:
2022 2021 Change
Marketing $ - - -
Commissions - - -
Payroll related - - -
Consulting and professional fees 45,000 110,400 (65,400)
Research and development - - -
Other operating expenses - - -
$ 45,000 $ 110,400 $ (65,400)Selling, general and administrative expenses consist primarily of payroll
related expenses, commissions, consulting and professional fees, sales and
marketing, research and development and other operating expenses. Selling,
general and administrative expenses totaled $463,179 for the three months ended
June 30, 2022 and $677,871 for the three months ended June 30,2021 a decrease of
$214,692 or about 32%. The change is primarily due to decreases in research and
development costs, professional fees and marketing.
The decrease in research and development costs reflects the initial development
payment of approximately $122,000 made under contract in the 2021 period.
Ongoing payments are made upon achievement of certain contractual milestones.
The decrease in consulting and professional fees is the result of stock-based
compensation recorded in conjunction with shares issued for investor relations
and financial advisory services. The decrease in marketing expenses is due to
the termination of various third- party arrangements.
Other expense increased by $2,794 primarily due to a decrease in gain in the
change in fair market value of derivative liabilities and the loss on debt
extinguishment of $116,200, partially offset by a decrease in interest expense
of $636,012. The decrease in interest expense reflects a decrease in the
amortization of debt discount related to debt conversions and maturities that
occurred since June 2021 as well as no day 1 derivative loss for newly incurred
debt in the 2022 period, as compared to the 2021 period. All derivative
liabilities were settled as of December 31, 2021.
As a result of the foregoing, we recorded a net loss of $535,931 for the three
months ended June 30, 2022, compared to a net loss of $774,532 for the three
months ended June 30, 2021. The decrease in net loss is primarily attributed to
the decrease in interest expense, the decrease in selling, general and
administrative expenses and increased gross profit.
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The following table sets forth the unaudited results of our operations for the
six months ended June 30:
2022 2021
Net Sales $ 447,145 $ 369,394
Cost of goods sold: 112,976 91,332
Gross profit 334,169 278,062
Operating Expenses 1,342,989 2,367,254
Loss from operations (1,008,820) (2,089,192)
Other expense
(671,647) (1,245,724)
Net Loss $ (1,680,467) $ (3,334,916)January 1, 2022 through June 30, 2022 Compared to January 1, 2021 through June
30, 2021
Our sales totaled $447,145 for the six months ended June 30, 2022 and $369,394
for the six months ended June 30, 2021. The increase is primarily related to an
increase in units sold.
Cost of sales and gross margins for the six months ended June 30, 2022 and for
the six months ended June 30, 2021 were $112,976 and 75% and $91,332 and 75%,
respectively. Our cost of sales consists of the cost of materials and
distribution expenses. Cost of sales and gross margins are affected by product
mix as well as the mix in the level of sales between commissioned agents and
distributors.
The following table sets forth the operating expenses for the six months ended
June 30:
2022 2021 Change
Marketing $ 6,098 $ 74,367 $ (68,269)
Commissions 87,247 88,640 (1,393)
Payroll related 461,753 957,917 (496,164)
Consulting and professional fees 669,225 1,024,739 (355,514)
Research and development 30,000 142,221 (112,221)
Other operating expenses 88,666 79,370 9,296
$ 1,342,989 $ 2,367,254 $ (1,024,265)
The following table sets forth the stock- based compensation expense included in
the above operating expenses for six months ended June 30:
2022 2021 Change
Marketing $ - $ - $ -
Commissions - - -
Payroll related 4,703 604,890 (600,187)
Consulting and professional fees 401,900 804,237 (402,337)
Research and development - - -
Other operating expenses - - -
$ 406,603 $ 1,409,127 $ (1,002,524)Selling, general and administrative expenses consist primarily of payroll
related expenses, commissions, consulting and professional fees, sales and
marketing, research and development and other operating expenses. Selling,
general and administrative expenses totaled $1,342,989 for the six months ended
June 30, 2022 and $2,367,254 for the six months ended June 30, 2021, a decrease
of $1,024,265 or about 43%. The change is primarily due to decreases in
stock-based compensation expense of $1,002,524, research and development costs
of $112,221 and marketing costs of $68,269, partially offset by non -stock-based
compensation related increases in payroll related costs of $104,023 and
consulting and professional fees of $46,823. Stock-based compensation expense
for the six months ended June 30, 2021, includes $804,237 related to third party
agreements for financial and strategic advisory services and $604,890 related to
shares of common stock issued to the Company's CEO as compensation. Stock-based
compensation expense for the six months ended June 30, 2022, includes $401,900
related to third party agreements for financial and strategic advisory services.
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The decrease in research and development costs reflects the initial development
payment of approximately $122,000 made under contract in the 2021 period.
Ongoing payments are made upon achievement of certain contractual milestones.
The decrease in consulting and professional fees is the result of stock-based
compensation recorded in conjunction with shares issued for investor relations
and financial advisory services. The decrease in marketing expenses is due to
the termination of various third- party arrangements.
The non -stock-based compensation increase in payroll related costs consists
primarily of additional employee headcount and an increase in bonus paid to the
Company's CEO of approximately $42,000. The non-stock-based compensation
increase in consulting and professional fees relates primarily to costs
associated with operating as a public company.
Other expense decreased by $574,077 primarily due to a decrease in interest
expense of $1,482,935, partially offset by a decrease in gain in the change in
fair market value of derivative liabilities and a loss on extinguishment of debt
of $371,882. The decrease in interest expense reflects a decrease in the
amortization of debt discount related to debt conversions and maturities that
occurred since June 2021 as well as no day 1 derivative loss for newly incurred
debt in the 2022 period, as compared to the 2021 period. All derivative
liabilities were settled as of December 31, 2021.
As a result of the foregoing, we recorded a net loss of $1,680,467 for the six
months ended June 30, 2022, compared to a net loss of $3,334,916 for the six
months ended June 30, 2021. The decrease in net loss is primarily attributed to
the decrease in interest expense, the decrease in selling, general and
administrative expenses and increased gross profit.
COVID-19 may impact our business.
On January 30, 2020, the World Health Organization declared the COVID-19
outbreak a "Public Health Emergency of International Concern" and on March 11,
2020, declared it to be a pandemic. Actions taken around the world to help
mitigate the spread of the COVID-19 include restrictions on travel, and
quarantines in certain areas, and forced closures for certain types of public
places and businesses. COVID-19, and actions taken to mitigate it, have had and
are expected to continue to have an adverse impact on the economies and
financial markets of many countries, including the geographical areas in which
we operate. While it is unknown how long these conditions will last and what the
complete financial effect will be to the Company, COVID-19 may have an adverse
effect on our business. While we are taking diligent steps to mitigate any
possible disruptions to our business, we are unable to predict the extent or
nature of these impacts, at this time, to our future financial condition and
results of operations.
Liquidity and Capital Resources
During the six months ended June 30, 2022 our cash and cash equivalents
decreased by $317,941 reflecting cash used in operations of $415,765, partially
offset by net proceeds from financing activities of $97,824. At June 30, 2022,
the Company had a working capital deficit of $1,361,177 and cash on hand of
$65,229. During the six months ended June 30, 2021, our cash and cash
equivalents increased by $115,530, reflecting cash provided by financing
activities of $844,037, partially offset by cash used in operations of $728,507.
Operating Activities
Cash flows used in operating activities totaled $415,765 for the six months
ended June 30,2022 as compared to cash flows used of $728,507 for the six months
ended June 30, 2021. The change in cash flows used in operating activities is
primarily the result of a decrease in inventory purchases, increases in accounts
payable and accrued liabilities as well as a decrease in the loss from
operations.
Financing Activities
Cash flows provided by financing activities totaled $97,824 for the six months
ended June 30, 2022 as compared to $844,037 for the six months ended June 30,
2021. The cash flows provided in the 2022 period reflect $494,220 in net
proceeds from convertible promissory notes and $42,766 from the sale of common
stock, partially offset by repayment of convertible promissory notes and related
party notes payable totaling $425,375. The cash flows provided in the 2021
period are primarily the result of $950,000 in net proceeds from convertible
promissory notes partially offset by related party notes payable repayments
totaling $80,000.
On September 3, 2021, the Company entered into a forbearance agreement with one
of its lenders. As additional consideration for entering into the forbearance
agreement, the Company has agreed to issue the lender the number of shares equal
to $100,000 on January 15,2022 at a 25% discount based upon the previous 15-day
average closing price. Effective after January 15, 2022, if the Company enters
into an agreement with a third-party investor for consideration per share less
than the $0.50 fixed price per share of the notes, the
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Company agrees to amend and restate the notes to reduce the conversion price. On
January 20, 2022, the conversion price was reset to $0.025 for the remaining
outstanding notes.
On March 25, 2022, the Company amended its forbearance agreement with one of its
lenders. Under the amendment, the maturity dates of the outstanding notes were
changed to October 1, 2022. In addition, the Company will issue 8,000,000 shares
of its common stock at a share price of $0.025, 4,000,000 which is in lieu of
the discounted shares equal to $100,000 stated in the original agreement. The
Company will also make six monthly payments of $30,000. The Company made a good
faith payment of $30,000 in February 2022 and its first payment under the
amendment in March 2022. On May 9, 2022, the Company issued 8,000,000 shares of
its common stock as per the terms of the forbearance agreement. In June 2022,
the Company entered into a settlement agreement with the lender to convert the
outstanding convertible notes payable of $617,353 and accrued interest of
$51,017 into 26,734,801 restricted shares of the Company's common stock at a
price of $0.025 per share. Under the terms of the settlement agreement, the
number of shares of common stock to be issued under the earlier forbearance
agreement was reduced to 4,000,000 and was recorded as a reduction of $142,800
in the extinguishment of debt resulting in a total loss for the six months ended
June 30, 2022 of $62,800.
On July 6, 2022, the Company borrowed $172,540 in conjunction with an unsecured
promissory note with an investor. Proceeds of $154,000 include an original issue
discount of $18,480. An up-front interest charge at twelve percent (12%) of the
principal will be added to the principal balance for an outstanding balance of
$193,178 to be paid in ten monthly payments of $19,318 beginning August 30,
2022. The note matures on July 6, 2023.
As of August 10, 2022, 2022, one of the Company's lenders, converted $60,953 in
principal and $44,047 in accrued interest and fees into 4,200,000 of restricted
common shares at a conversion price of $0.025. The same lender exercised
3,507,998 cashless warrants at $0.025 per share issuing 2,710,000 shares of
restricted common stock.
On August 8, 2022, the Company entered into an agreement to borrow $176,000 in
conjunction with an unsecured convertible promissory note from an investor.
Proceeds of $160,000 include an original issue discount of $16,000 The note
matures on May 9, 2023. The lender has the right at any time prior to maturity
to convert the debt into fully paid and non- assessable shares of common stock
at a price of $0.025 per share. Conversions are subject to adjustments due to
stock dividends, stock splits, rights offerings or combinations,
recapitalizations and reorganizations. Interest accrues at the rate of twelve
percent (12%) per annum. As additional consideration for the financing, the
Company issued the investor a 3-year warrant to purchase 3,000,000 shares of
common stock at $0.025 per share, subject to price adjustments for certain
actions, including dilutive issuances. The warrant does not provide for
registration rights. Funding has not occurred as of the date of this filing.
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ELECTROMEDICAL TECHNOLOGIES, INC. 
