Electromedical Technologies, Inc S-1/A, filed Jul 7, 2020
Electromedical Technologies, Inc (EMED)
As filed with the U.S. Securities and Exchange Commission July 7, 2020
Registration No. 333-234623
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM S-1/A-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ELECTROMEDICAL TECHNOLOGIES, INC.
(Exact Name of Registrant as Specified in its Charter)
|
Delaware (State or Other Jurisdiction of Incorporation) |
5047 (Primary Standard Industrial Classification Code Number) |
82-2619815 (I.R.S. Employer Identification No.) |
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Matthew Wolfson
16561 N. 92nd Street, Suite 101
Scottsdale, AZ 85260
(888) 880-7888
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
Mailander Law Office, Inc.
Tad Mailander
945 4th Avenue, Ste. 311
San Diego, CA 92101
(619) 239-9034
Approximate dates of commencement of proposed sale to the public: From time to time 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: x
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please 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 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 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, a 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 | ||
CALCULATION OF REGISTRATION FEE CHART
| Title of Class of Securities to be Registered | Amount to be Registered | Proposed Maximum Aggregate Price Per Share(4) | Proposed Maximum Aggregate Offering Price(4) | Amount of Registration Fee(4) | ||||||||||||
| Newly Issued Common Stock Issued and Outstanding to be registered as part of a Primary Direct Offering (as hereinafter defined) | 10,000,000 | $ | 1.33 | $ | 13,300,000 | $ | 1,726.34 | |||||||||
| Common Stock to be registered as part of a Secondary Offering by certain Selling Security Holders (hereinafter defined) (1) | 4,585,344 | $ | 1.33 | $ | 6,098,507.52 | $ | 791.58 | |||||||||
| Common Stock issuable upon exercise of outstanding warrants (2) | 200,000 | $ | 1.33 | $ | 266,000 | $ | 34.52 | |||||||||
| Common Stock issuable upon exercise of Outstanding options (3) | 275,000 | $ | 1.33 | $ | 365,750 | $ | 47.47 | |||||||||
| Total | 15,060,344 | $ | 1.33 | $ | 20,030,257.52 | $ | 2,599.91 | |||||||||
| (1) | The shares of our common stock being registered hereunder are being registered for sale by the selling security holders named in the prospectus. |
| (2) | The shares of our common stock issuable upon exercise of outstanding warrants being registered hereunder are being registered for sale by the selling security holder named in the prospectus. |
| (3) | The shares of our common stock issuable upon exercise of outstanding options being registered hereunder are being registered for sale by the selling security holders named in the prospectus. |
| (4) | The proposed maximum offering price per share and the proposed maximum aggregate offering price have been estimated solely for the purpose of calculating the amount of the registration fee in accordance with Rule 457(c) under the Securities Act of 1933, as amended using the average of the high and low prices as reported on OTC Markets on July 3, 2020. |
THE REGISTRANT HEREBY RESERVES THE RIGHT TO AMEND 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, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY DETERMINE.
THIS REGISTRATION STATEMENT AND THE PROSPECTUS THEREIN COVER THE REGISTRATION OF 15,060,344 SHARES OF COMMON STOCK.
The information in this Prospectus is not complete and may be changed. We may not sell these securities until the Registration Statement filed with the Securities and Exchange Commission is effective. This Prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
Subject to completion, dated July 7, 2020
PRELIMINARY PROSPECTUS
ELECTROMEDICAL TECHNOLOGIES, INC.
16561 N. 92ND Street, Suite 101
Scottsdale, AZ 85260
(888) 880-7888
15,060,344 SHARES OF COMMON STOCK
10,000,000 Shares of Common Stock being sold at $1.33 per share pursuant to the Primary Direct Offering
5,060,344 shares of Common Stock being offered at $1.33 per share by the Selling Security Holders
| Sale
Total Depending on Percentage of Primary Offering Securities Sold | ||||||||||||||||||||
| Per Share | 100% | 75% | 50% | 25% | ||||||||||||||||
| Public Offering Price | $ | 1.33 | $ | 13,300,000 | $ | 9,975,000 | $ | 6,650,000 | $ | 3,325,000 | ||||||||||
| Underwriting Discounts and Commissions | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||
| Proceeds to Electromedical Technologies, Inc. | $ | 1.33 | $ | 13,300,000 | $ | 9,975,000 | $ | 6,650,000 | $ | 3,325,000 | ||||||||||
This preliminary prospectus relates to the registration of 15,060,344 shares of common stock in Electromedical Technologies, Inc., a Delaware corporation (referred to herein as the “Company,” “ELCQ,” “we,” “our,” “us,” or other similar pronouns). The Company is registering 10,000,000 shares of common stock at $1.33 per share in a direct public offering (“Primary Direct Offering”). In addition, the Company is registering 5,060,344 shares of common stock currently held by our “Selling Shareholders,” or individually, “Selling Shareholder.” The Selling Security Holders will sell the shares of common stock at the fixed price of $1.33 per share until such time, if ever, that the common stock is quoted on the OTCQX, OCTQB or listed on a national securities exchange. See “Plan of Distribution” beginning on page 25 of this prospectus for more information.
The 15,060,344 shares of our common stock registered herein are referred to herein collectively as our “Shares.” We estimate our total offering registration costs to be approximately $2,599.91 and our legal, auditor and related fees will be $220,000 equaling a total expense to the Company of $222,599.91 relating to the registration.
There is no minimum number of shares that must be sold by us for the Primary Direct Offering to proceed. The Company will retain any proceeds from the Primary Direct Offering, while the Selling Shareholders will retain the proceeds from any Resale (s).
The Company will be registering all common stock under the Exchange Act in connection with this Offering. Discounts, concessions, commissions and similar selling expenses attributable to the sale of common stock covered by this prospectus will be borne by the selling stockholders. We will pay all expenses (other than discounts, concessions, commissions and similar selling expenses) relating to the registration of the common stock with the Securities and Exchange Commission.
We will pay all expenses relating to the registration of the common stock with the Securities and Exchange Commission.
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Our Common Stock is currently quoted on the OTC Markets Pink trading tier under the symbol “ELCQ”. On July 2, 2020, the closing price was $1.40 per share.
INVESTING IN OUR SECURITIES INVOLVES RISKS. YOU SHOULD REVIEW CAREFULLY THE RISKS AND UNCERTAINTIES DESCRIBED UNDER THE HEADING “RISK FACTORS” CONTAINED ON PAGE 9 BEFORE YOU MAKE YOUR INVESTMENT DECISION.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is July 9, 2020
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TABLE OF CONTENTS
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You should rely only on the information contained or incorporated by reference into this Prospectus in deciding whether to purchase the Shares. We have not authorized anyone to provide you with information different from that contained in this Prospectus. Under no circumstances should the delivery to you of this Prospectus, or any sale made pursuant to this Prospectus, create any implication that the information contained in this Prospectus is correct as of any time after the date of this Prospectus. Our business, financial condition, operating results and prospects may have changed since that date. To the extent that any facts or events arising after the date of this Prospectus, individually or in the aggregate, represent a fundamental change in the information presented in this Prospectus, this Prospectus will be updated to the extent required by law.
Electromedical Technologies, Inc., ELCQ, the ELCQ logo, and other trademarks or service marks of Electromedical Technologies, Inc. appearing in this Prospectus are the property of Electromedical Technologies, Inc. This Prospectus also includes trademarks, tradenames and service marks that are the property of other organizations. Solely for convenience, trademarks and tradenames referred to in this Prospectus appear without the ® and ™ symbols, but those references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights, or that the applicable owner will not assert its rights, to these trademarks and tradenames.
GENERAL MATTERS
Unless otherwise noted or the context indicates otherwise “we,” “us,” “our,” “Company” or “ELCQ” refers to Electromedical Technologies, Inc.
References to “Management” in this Prospectus mean the senior officers of the Company. See “Directors and Executive Officers.” Any statements in this Prospectus made by or on behalf of Management are made in such persons’ capacities as officers of the Company and not in their personal capacities.
Prospective purchasers should rely only on the information contained in this Prospectus. We have not authorized any other person to provide prospective purchasers with additional or different information. If anyone provides prospective purchasers with additional or different or inconsistent information, including information or statements in media articles about us, prospective purchasers should not rely on it. Prospective purchasers should assume that the information appearing in this Prospectus is accurate only as at its date, regardless of its time of delivery or of any distribution of the Offered Shares. Our business, financial conditions, results of operations and prospects may have changed since that date.
We present our Financial Statements (as defined below) in United States dollars. Unless otherwise indicated, all references to dollar amounts in this Prospectus are to United States dollars. Reference to “United States” or “U.S.” are references to the United States of America.
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CAUTIONARY NOTE TO INVESTORS
Investment in our Company in our Common Shares involves significant risks. We refer you to our Risk Factors and other sections of this Prospectus relative to outlining such risks.
The following summary highlights material information contained in this Prospectus. This summary does not contain all of the information you should consider before investing in the securities. Before making an investment decision, you should read the entire Prospectus carefully, including the risk factors section, the financial statements and the notes to the financial statements. You should also review the other available information referred to in the section entitled “Where You Can Find More Information” in this Prospectus and any amendment or supplement hereto.
Our Business and Corporate History
The Company was formed in Nevada in August 30, 2002 as IntelSource Group, Inc. and began operations in 2003. Through a series of mergers, the Company began operating as ElectroMedical Technologies, LLC, an Arizona limited liability company on November 9, 2010. The Company converted to a corporation in the State of Delaware on August 23, 2017. On September 20, 2017, the Company filed Form 1-A Regulation “A” Offering (the “Reg A Offer”) Statement under the Securities Act of 1933 issuing up to 15,000,000 common shares. The offering consisted of 7,042,254 shares of common stock at a price of $0.71 per share. The Company’s Reg A Offer was closed on August 27, 2018. Pursuant to the Reg A Offer, the Company sold and issued a total of 724,674 common shares to 46 shareholders with net proceeds of $441,662 which includes costs totaling $72,856. The Company incurred additional costs totaling $194,146, which have been recorded as a reduction in stockholders’ deficit as of December 31, 2018.
Electromedical Technologies is a bioelectronics manufacturing and marketing company. We offer U.S. Food and Drug Administration (FDA) cleared medical devices for pain management. Our Wellness Pro product received FDA clearance on July 6, 2007 (FDA K062616) as a Class II Medical Device, under the 510(K) clearance process. Our other unreleased products in research and development have not received FDA clearance. As is more fully discussed in this Prospectus, in the future we plan to apply for FDA clearance for our Wellness Pro Pod product, which is a compact version of our core product technology. Other products we sell do not require FDA Clearance and do not have FDA Clearance.
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 the 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 to restore long-term health. We believe that we do this by delivering innovative solutions providing fast and long- lasting pain relief across a broad range of ailments. We engineer simple-to-use bioelectronics therapy devices, which send a proprietary sequence of electrical signals. We believe our devices to be highly effective, and have the technological capability to be used in medical research.
We have a corporate mission to offer the public effective alternatives to addictive pain-relieving drugs, including opioids. According to the Society of Actuaries, opioid overdose deaths are now the single largest factor slowing the growth in U.S. life expectancy, and has led to stagnation or decreases in life expectancy three years in a row for the first time since 1915–1918, when the country was facing World War I and the Spanish flu pandemic. The Centers for Disease Control (CDC) reports that overdose deaths involving prescription opioids have quadrupled since 1999, and that drug overdoses now kill more people every year than gun violence or car accidents. From 1999 to 2017, more than 702,000 people died from a drug overdose. In 2017, more than 70,000 people died from drug overdoses, making it a leading cause of injury-related death in the United States. It is our aim to offer effective nontoxic, noninvasive alternatives to pain management.
We believe that we can provide an opioid-free solution to over 100 million people suffering from chronic and acute pain in the US market alone.
The Company is publicly traded on the OTC Markets Pink Sheet tier under the symbol ELCQ.
The Company will be registering all common stock under the Exchange Act in connection with this Offering.
For more information about current business operations, please see the section of this Prospectus entitled “Description of Business” beginning on page 31.
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The following tables summarize our financial data for the periods presented and should be read together with the sections of this Prospectus entitled “Risk Factors,” “Selected Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as our financial statements and related notes appearing elsewhere in this Prospectus. We derived the summary financial information for the periods ended December 31, 2019 and December 31, 2018 from our audited financial statements and related notes appearing elsewhere in this Prospectus. The audited historical results are not necessarily indicative of the results we expect in the future.
The Company sustained continued operating losses during the years ended December 31, 2019 and 2018. The Company’s continuation as a going concern is dependent on its ability to generate sufficient cash flows from operations to meet its obligations, which have not been successful, and/or obtaining additional financing from its shareholders or other sources, on terms that are unknown and could be unfavorable.
The Company’s financial statements have been prepared assuming that the Company will continue as a going concern; however, the above conditions raise substantial doubts about the Company’s ability to do so. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets, or the amounts and classifications of liabilities that may result should the Company be unable to continue as a going concern.
Audited Balance Sheet
Summary Data
For Years Ending December
| 2019 | 2018 | |||||||
| Cash | $ | - | - | |||||
| Total Current Assets | 106,192 | 171,931 | ||||||
| TOTAL ASSETS | 902,866 | 978,786 | ||||||
| Total Liabilities | 3,087,303 | 3,039,026 | ||||||
| Stockholders’ Deficit | (2,184,437 | ) | (2,060,240 | ) | ||||
| Total Liabilities and Total Deficit | 902,866 | 978,786 | ||||||
Audited Statement of Operations
Summary Data
For Years Ending December
| 2019 | 2018 | |||||||
| Revenues | $ | 829,737 | 675,383 | |||||
| Total Operating Expenses | 2,259,848 | 787,370 | ||||||
| Operating Loss | (1,668,627 | ) | (280,703 | ) | ||||
| Net Loss | (1,744,339 | ) | (1,950,417 | ) | ||||
| Average Shares Outstanding | 16,809,947 | 15,198,564 | ||||||
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| Securities being registered by the Selling Security Holders pursuant to the Secondary Offering: | 5,060,344 shares of common stock | |
| Secondary Offering price: | $1.33 | |
| Secondary Offering period: | From the date of this prospectus until July 7, 2021 | |
| Newly issued common stock being registered pursuant to the Direct Primary Offering: | 10,000,000 shares of common stock | |
| Primary Offering price: | $1.33 per share | |
| Primary Offering period: | From the date of this prospectus until July 7, 2021 | |
| Number of Shares Outstanding After the Offering: | 30,753,851 shares of common stock | |
| Market for the Common Stock: | Our shares of Common Stock are currently listed on the OTC Markets Pink under the symbol “ELCQ”. | |
| Use of proceeds: | We will receive approximately $13,300,000 in gross proceeds if we sell all of the shares in the Primary Offering. We will receive estimated net proceeds of approximately $13,080,000 after incurring an estimated $220,000 in expenses related to the Primary Offering, if we sell all of those shares.
We will receive none of the proceeds from the sale of shares by the Selling Security Holders. See “Use of Proceeds” for a more detailed explanation of how the proceeds from the Primary Offering will be used. | |
| Risk Factors: | See “Risk Factors” and the other information in this prospectus for a discussion of material factors you should consider before deciding to invest in shares of our common stock. | |
| Subscriptions: | Subscriptions are to be made payable to: | |
|
Electromedical Technologies, Inc. 16561 N. 92nd Street, Suite 101 Scottsdale, AZ 85260 Attention: Matthew Wolfson |
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Investing in our Common Stock involves a high degree of risk. You should carefully consider the risks described below, as well as the other information in this Prospectus, including our financial statements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” before deciding whether to invest in our shares of Common Stock. The occurrence of any of the events or developments described below could harm our business, financial condition, operating results, and growth prospects. In such an event, the market price of our shares of Common Stock could decline, and you may lose all or part of your investment. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations.
The novel coronavirus (COVID-19) pandemic may have an expected effect on our business, financial condition and results of operations.
In March 2020, the World Health Organization declared COVID-19 a global pandemic, and governmental authorities around the world have implemented measures to reduce the spread of COVID-19. These measures have adversely affected workforces, customers, supply chains, consumer sentiment, economies, and financial markets, and, along with decreased consumer spending, have led to an economic downturn across many global economies.
The COVID-19 pandemic has rapidly escalated in the United States, creating significant uncertainty and economic disruption, and leading to record levels of unemployment nationally. Numerous state and local jurisdictions have imposed, and others in the future may impose, shelter-in-place orders, quarantines, shut-downs of non-essential businesses, and similar government orders and restrictions on their residents to control the spread of COVID-19. Such orders or restrictions have resulted in temporary facility closures (including certain of our third-party VRCs), work stoppages, slowdowns and travel restrictions, among other effects, thereby adversely impacting our operations. In addition, we expect to be impacted by a downturn in the United States economy, which could have an adverse impact on discretionary consumer spending and may have a significant impact on our business operations and/or our ability to generate revenues and profits.
In response to the COVID-19 disruptions, we have implemented a number of measures designed to protect the health and safety of our staff and contractors. These measures include restrictions on non-essential business travel, the institution of work-from-home policies wherever feasible and the implementation of strategies for workplace safety at our facilities that remain open. We are following the guidance from public health officials and government agencies, including implementation of enhanced cleaning measures, social distancing guidelines and wearing of masks.
The extent to which COVID-19 ultimately impacts our business, financial condition and results of operations will depend on future developments, which are highly uncertain and unpredictable, including new information which may emerge concerning the severity and duration of the COVID-19 outbreak and the effectiveness of actions taken to contain the COVID-19 outbreak or treat its impact, among others. Additionally, while the extent to which COVID-19 ultimately impacts our operations will depend on a number of factors, many of which will be outside of our control. The COVID-19 outbreak is evolving and new information emerges daily; accordingly, the ultimate consequences of the COVID-19 outbreak cannot be predicted with certainty.
In addition to the COVID-19 disruptions possibility adversely impacting our business and financial results, they may also have the effect of heightening many of the other risks described in “Risk Factors,” including risks relating to changes due to our limited operating history; our ability to generate sufficient revenue, to generate positive cash flow; our relationships with third parties, and many other factors. We will endeavour to minimize these impacts, but there can be no assurance relative to the potential impacts that may be incurred.
There could be unidentified risks involved with an investment in our securities
The foregoing risk factors are not a complete list or explanation of the risks involved with an investment in the securities. Additional risks will likely be experienced that are not presently foreseen by the Company. Prospective investors must not construe the information provided herein as constituting investment, legal, tax or other professional advice. Before making any decision to invest in our securities, you should read this entire prospectus and consult with your own investment, legal, tax and other professional advisors. An investment in our securities is suitable only for investors who can assume the financial risks of an investment in the Company for an indefinite period of time and who can afford to lose their entire investment. The Company makes no representations or warranties of any kind with respect to the likelihood of the success or the business of the Company, the value of our securities, any financial returns that may be generated or any tax benefits or consequences that may result from an investment in the Company.
RISKS RELATED TO OUR BUSINESS
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We are reliant on one main type of product.
We currently rely, and in the future will rely, on sales of our WellnessPro products for our revenues, which may or may not receive the market acceptance needed to achieve our revenue goals. The current version of our product, the WellnessPro Plus, may face resistance in the market and we may not be able to expand the market acceptance of this product. Achieving and maintaining market acceptance of our WellnessPro products could be negatively impacted by many other factors, including, but not limited to:
| · | lack of sufficient evidence supporting the benefits of our WellnessPro products over competitive products or other available treatment or lifestyle management; | |
| · | patient resistance to using our WellnessPro products or making required payments; | |
| · | results of clinical studies relating to our WellnessPro products or similar products; | |
| · | claims that our WellnessPro products, or any component thereof, infringes on patent or other intellectual property rights of third parties; | |
| · | perceived risks associated with the use of our WellnessPro products or similar products or technologies; |
| · | the introduction of new competitive products or greater acceptance of competitive products; |
| · | adverse regulatory or legal actions relating to our WellnessPro products or similar products or technologies; and |
| · | problems arising from the outsourcing of our manufacturing capabilities, or our existing manufacturing and supply relationships. |
Any factors that negatively impact sales of our WellnessPro products would adversely affect our business, financial condition and operating results.
We are a comparatively early stage company and have not generated profits as of our last reporting period, or during the last two years.
Electromedical Technologies began operations in 2003 and has a limited history upon which an evaluation of its performance and future prospects can be made. Our current and proposed operations are subject to all the business risks associated with comparatively new enterprises. These include likely fluctuations in operating results as the Company reacts to developments in its market, managing its growth and the entry of competitors into the market. We will only be able to pay dividends on any shares if our board of directors determines that we are financially able to do so. Electromedical Technologies has incurred a net loss in the last two fiscal years and as of March 31, 2020, has incurred $5,703,942 of accumulated net losses. There is no assurance that we will be profitable in the near future or generate sufficient revenues to pay dividends to the holders of the shares.
We will need to raise substantial capital in order to continue operations and our financial condition raises substantial doubts about our ability to continue as a going concern.
The Company expects to incur additional losses as it executes its business strategy. The Company will be subject to the risks, uncertainties, and difficulties frequently encountered by early-stage companies. The Company may not be able to successfully address any or all of these risks and uncertainties. Failure to adequately do so could cause the Company’s business, results of operations, and financial condition to suffer. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is an issue due to its net losses and negative cash flows from operations, and its need for additional financing to fund future operations. Management plans to obtain necessary funding from outside sources and through the sales of Company shares. There can be no assurance that such funds, if available, can be obtained on terms reasonable to the Company.
Our revenues and profits are subject to fluctuations.
It is difficult to accurately forecast our revenues and operating results, and these could fluctuate in the future due to a number of factors. These factors may include adverse changes in: general industry trends in the pain management and rehabilitation and physical therapy markets; the perception of the efficacy of our WellnessPro products; our ability to market our WellnessPro products to consumers and medical practitioners; other operating costs; and, general industry and regulatory conditions and requirements. The Company’s operating results may fluctuate from year to year due to the factors listed above. At times, these fluctuations may be significant and could impact our ability to operate our business.
We face significant market competition.
We operate in the pain management, rehabilitation and physical therapy markets. We not only compete with other similar devices that treat pain and other medical ailments, but also with traditional treatment approaches such as drug prescriptions and surgery and rehabilitation therapies. Further, our competitors include several large, diversified companies who have more financial, marketing and other resources, distribution networks and greater name recognition than us. Our ability to be successful will depend on our ability to compete with both device competitors as well as other treatment approaches.
We operate in an industry that is competitive and subject to technological change.
The bioelectronics and electro medicine industries are characterized by competition and technological change, where we compete on a variety of factors, including price, clinical outcomes, product features and services. Potential competitors include large medical device manufacturers and other companies, some of which have significantly greater financial and marketing resources than we do, and firms that are more specialized than we are with respect to particular markets. Our competitors may be able spend more money on marketing campaigns, respond quicker to new technological changes, or be better adept at attracting customers, employees and partners. If our competition is better able to develop and market products or services that are cheaper, safer, more effective or otherwise more appealing to consumers, we may be unable to effectively compete.
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We may receive a significant number of warranty claims or our products that may require significant amounts of service after sale.
Sales of our WellnessPro products will include a three-year warranty to cover issues other than for normal wear and tear. As the possible number and complexity of the features and functionalities of our products increase, we may experience a higher level of warranty claims. If product returns or warranty claims are significant or exceed our expectations, we could incur unanticipated expenditures for parts and services, which could have a material adverse effect on our operating results.
Product and software defects could harm our business.
Manufacturing or design defects, unanticipated use of our products, or inadequate disclosure of risks relating to the use of our products, can lead to injury or other adverse events, including recalls or safety alerts relating to our WellnessPro products (either voluntary or required by the FDA or similar governmental authorities in other countries). These recalls could lead to significant costs or the removal of our WellnessPro products from the market. Further, even though we rely on third-party manufacturers, their liability is limited contractually; therefore, we could bear the burden of the costs for manufacturing defects. In addition, any defects could subject us to product liability claims, reputational damage and negative publicity, all of which would negatively impact our business.
We manufacture a medical device and, therefore, could be subject to litigation.
Product liability claims are common in the medical device industry. Even though we have not been subject to such claims in the past, we could be a named defendant in a lawsuit alleging product liability claims including, but not limited to, defects in the design, manufacture or labeling of our WellnessPro products. Any litigation, regardless of its merit or eventual outcome, could result in significant legal costs and high damage awards or settlements. Although we currently maintain product liability insurance, the coverage is subject to deductibles and limitations, and may not be adequate to cover future claims. Additionally, we may be unable to maintain our existing product liability insurance in the future at satisfactory rates or at adequate amounts.
We rely on sales representatives and distributors to sell our products.
We currently sell our WellnessPro products to consumers through a network of independent sales representatives and distributors, domestically and internationally, as well as through the Company’s website. We are dependent upon these sales representatives and distributors to both sell our products and assist in the promotion and marketing of our products; however, they are under no contractual obligation to continue to promote our WellnessPro products to their customers. Further, our sales representatives and distributors can sell products of our competitors and are not required to promote our WellnessPro products over those of our competitors. Many of our sales representatives and distributors may terminate their relationship with us at any time. Moreover, one of our distributors represents approximately 17% of our annual sales. If we are no longer able to rely on one of more of our distributors, we may experience a decrease in sales, which will negatively impact our business.
Our business may suffer if we are unable to attract or retain talented personnel.
Our success will depend in large measure on the abilities, expertise, judgment, discretion, integrity and good faith of management, as well as other personnel. We have a small management team, and the loss of a key individual or our inability to attract suitably qualified replacements or additional staff could adversely affect our business. Our success also depends on the ability of management to form and maintain key commercial relationships within the marketplace. No assurance can be given that key personnel will continue their association or employment with us or that replacement personnel with comparable skills will be found. If we are unable to attract and retain key personnel and additional employees, our business may be adversely affected. We do not maintain key-man life insurance on any of our executive employees.
The lack of available and cost-effective directors and officer’s insurance coverage in our industry may cause us to be unable to attract and retain qualified executives, and this may result in our inability to further develop our business
Our business depends on attracting independent directors, executives and senior management to advance our business plans. We currently do not have directors and officer’s insurance to protect our sole director or any new directors that may be appointed in the future and the Company against the possible third-party claims. This is due to the significant lack of availability of such policies at reasonably competitive prices. As a result, the Company and our executive director and officers are susceptible to liability claims arising by third parties, and as a result, we may be unable to attract and retain qualified independent directors and executive management causing the development of our business plans to be impeded as a result.
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If we fail to maintain satisfactory relationships with future customers, our business may be harmed.
Due to competition or other factors, we could lose business from our future customers, either partially or completely. The future loss of one or more of our significant customers or a substantial future reduction of orders by any of our significant customers could harm our business and results of operations. Moreover, our customers may vary their order levels significantly from period to period and customers may not continue to place orders with us in the future at the same levels as in prior periods. In the event that in the future we lose any of our larger customers, we may not be able to replace that revenue source. This could harm our financial results.
Management of growth will be necessary for us to be competitive
Successful expansion of our business will depend on our ability to effectively attract and manage staff, strategic business relationships, and shareholders. Specifically, we will need to hire skilled management and technical personnel as well as manage partnerships to navigate shifts in the general economic environment. Expansion has the potential to place significant strains on financial, management, and operational resources, yet failure to expand will inhibit our profitability goals.
We currently rely on third party manufacturers located in Asia.
Currently, our products are primarily produced by, and purchased or procured from, independent manufacturing contractors located in Asia, mainly in China. A manufacturing contractor’s failure to ship our products to us in a timely manner or meet the required quality standards could cause us to miss the delivery date requirements of our customers for those items. Due to our overseas production, which is more than 80% of total production, our business is subject to the following risks:
| · | political and economic instability, including heightened terrorism and other security concerns, which could subject imported or exported goods to additional or more frequent inspections, leading to delays in deliveries or impoundment of goods; | |
| · | imposition of regulations and quotas relating to imports; | |
| · | imposition of increased duties, taxes and other charges on imports; | |
| · | labor shortages in China; | |
| · | a significant decrease in availability or an increase in the cost of raw materials; | |
| · | restrictions on the transfer of funds to or from China; |
| · | disease pandemics, epidemics and health-related concerns, which could result in closed factories, reduced workforces, scarcity of raw materials and scrutiny or embargoing of goods produced in infected areas; |
| · | increases in the costs of tariffs, fuel, travel and transportation; | |
| · | increases in manufacturing costs in the event of a decline in the value of the United States dollar against major world currencies, particularly the Chinese Yuan, and higher labor costs being experienced by our manufacturers in China; and | |
| · | violations by foreign contractors of labor and wage standards and resulting adverse publicity. |
On January 30, 2020, the World Health Organization declared the COVID-19 outbreak a “Public Health Emergency of International Concern” and on March 10, 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 area in which the Company operates. While it is unknown how long these conditions will last and what the complete financial effect will be to the company, COVID-19 has had an adverse effect on our business, including our supply chains and distribution systems. While we are taking diligent steps to mitigate disruptions to our supply chain, we are unable to predict the extent or nature of these impacts, at this time, to our future financial condition and results of operations.
If these risks limit or prevent us from selling or manufacturing our WellnessPro products in any significant international market, prevent us from acquiring products from foreign suppliers, or significantly increase the cost of our WellnessPro products, our operations could be seriously disrupted until alternative suppliers are found or alternative markets are developed, which could negatively impact our business.
We depend on key personnel and have a difficult time recruiting needed personnel.
Our future success depends on the efforts of a small number of key personnel, including our founder and Chief Executive Officer, Matthew Wolfson, and our computer and engineering teams. In addition, due to our financial resources and specialized expertise required, we may not be able to recruit the individuals needed for our business needs. There can be no assurance that we will be successful in attracting and retaining the personnel we require to operate and be innovative.
Our strategies to grow our business may not be successful.
We are pursuing a variety of strategies to grow our business, including:
| · | collaborations, licensing arrangements, joint ventures, strategic alliances or partnerships; | |
| · | pursuing sales in international markets; and | |
| · | acquisitions of complementary products or technologies. |
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In addition to stretching our financial and management resources, each of these strategies has its own inherent risks. For instance, arranging collaborations, licensing arrangements, joint ventures, strategic alliances, partnerships and acquisitions can be a lengthy and complex process and we may not enter into such arrangements in a timely manner, on a cost-effective basis, on acceptable terms or at all. Even if we do enter into such arrangements, they may not result in achieving and developing new models and revenue streams. Expansion internationally could result in additional costs and risks, including those related to development of new distribution channels, increased shipping and distribution costs, compliance with foreign laws and regulations as well as U.S. law controlling international business practices of U.S. companies (such as regulations under the Foreign Corrupt Practices Act and the requirements of the Office of Foreign Assets Control), currency fluctuations as well as subjecting us to geopolitical and trade risks. Failure to implement growth strategies could severely impair our business.
We are subject to substantial regulation and industry standard guidelines related to the manufacturing, labeling and marketing of our products.
The FDA, other applicable U.S. and foreign government agencies, and industry associations regulate or provide guidance on the types of products that we can produce and how we manufacture, label and market those products. These regulations relate to product quality, safety and effectiveness. Further, our facilities are subject to periodic and unannounced inspection by U.S. and foreign regulatory agencies to audit compliance with the FDA’s Quality System Regulation (“QSR”) and comparable foreign and ISO regulations. As part of our business plan, we have previously partnered and plan in the future to partner with third parties in the development and manufacturing of these products. We may have limited ability to control any partners’ process and quality control. Further, we do not have regulatory counsel and rely on our partners’ specifications for compliance with their regulations and guidelines. Failure by us or our partners to comply with current or future government regulations and quality assurance guidelines or concerns related to safety and manufacturing issues could lead to product recalls, fines, temporary manufacturing shutdowns, product shortages, declines in sales, loss of approvals and certifications, and delays in manufacturing. Any or all of these actions could result in our failure to continue operations or become profitable. Our Wellness Pro product received FDA clearance on July 6, 2007 (FDA K062616) as a Class II Medical Device, under the 510(K) clearance process. We have not applied for FDA clearance on our other products in research and development, including the Wellness Pro Pod. There is no guarantee that we will successfully complete research and development, apply for and receive FDA clearance under the 510(k) clearing process for any of our products currently in development.
We operate in a market that is subject to changing statutory provisions and regulations and interpretations of those statutory provisions and regulations.
Regulatory authorities and legislative bodies pass inconsistent and constantly changing laws and regulations, including in the areas related to medical devices, labor and employment laws, and import-export regulations. In particular, we are subject to various domestic and international laws and regulations which determine how we develop, test, manufacture, label, store, install, service, advertise, promote, market, distribute, import, export and market our WellnessPro products. Currently, the WellnessPro device is considered a Class II device by the FDA. See “The Company’s Business – Regulation.” Changes in laws and regulations, or different interpretations of those laws and regulations, could make it difficult or impossible to comply or increase our regulatory compliance burdens and therefore hinder our ability to operate profitably. In addition, various laws govern healthcare and the payment for medical devices. Some of our clients are able to purchase our WellnessPro products because of reimbursements from third parties, including independent and government sponsored insurance schemes. Changes in reimbursements or how our WellnessPro products are classified could negatively impact our business.
We may be subject to patient data protection requirements.
There are a number of federal, state and foreign laws protecting the confidentiality of certain patient health information, including patient records, and restricting the use and disclosure of that protected information. In particular, the U.S. Department of Health and Human Services, or HHS, promulgated patient privacy rules under the Health Insurance Portability and Accountability Act of 1996, or HIPAA. If we or any of our service providers are found to be in violation of the promulgated patient privacy rules under HIPAA, we could be subject to civil or criminal penalties, which could increase our liabilities, harm our reputation, and have a material adverse effect on our business, financial condition and operating results.
We may not be able to protect all of our intellectual property.
Our profitability may depend in part on our ability to effectively protect our proprietary rights, including obtaining patent protection for our designs, utilities and methods of manufacturing our WellnessPro products, maintaining the secrecy of our internal workings and preserving our trade secrets, as well as our ability to operate without inadvertently infringing on the proprietary rights of others. There can be no assurance that we will be able to obtain future patents or defend our current and future patents. Further, policing and protecting our intellectual property against unauthorized use by third parties is time-consuming and expensive, and certain countries may not even recognize our intellectual property rights. There can also be no assurance that a third party will not assert patent infringement claims with respect to our products or technologies. Any litigation relating to either protecting our intellectually property or defending our use of certain technologies could have material adverse effect on our business, operating results and financial condition, regardless of the outcome of such litigation.
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As a growing company, we have to develop reliable accounting resources and internal controls. Failure to achieve and maintain effective controls could prevent us from producing reliable financial reports.
Effective internal controls and accounting resources are necessary for us to provide reliable financial reports. We have not implemented a system of internal controls. Failure to implement and maintain an effective internal accounting and control environment could cause us to face regulatory action, and also cause investors to lose confidence in our reported financial information, either of which could have an adverse effect on our business and financial results.
If product liability lawsuits are brought against us, our business may be harmed, and we may be required to pay damages.
Our business exposes us to potential product liability claims that are inherent in the testing, manufacture and sale of medical devices. We could become the subject of product liability lawsuits alleging that component failures, malfunctions, manufacturing flaws, design defects or inadequate disclosure of product-related risks or product-related information resulted in an unsafe condition or injury to patients.
Regardless of the merit or eventual outcome, product liability claims may result in:
| · | decreased demand for our WellnessPro products; |
| · | injury to our reputation; |
| · | significant litigation costs; |
| · | substantial monetary awards to or costly settlements with patients; |
| · | product recalls; |
| · | material defense costs; |
| · | loss of revenues; |
| · | the inability to commercialize new products or product candidates; and diversion of management attention from pursuing our business strategy |
Our WellnessPro products and operations are subject to extensive government regulation and oversight both in the United States and abroad, and our failure to comply with applicable requirements could harm our business.
We and our WellnessPro products are subject to extensive regulation in the United States and elsewhere, including by the FDA and its foreign counterparts. The FDA and foreign regulatory agencies regulate, among other things, with respect to medical devices: design, development and manufacturing; testing, labeling, content and language of instructions for use and storage; clinical trials; product safety; marketing, sales and distribution; premarket clearance and approval; record keeping procedures; advertising and promotion; recalls and field safety corrective actions; post-market surveillance, including reporting of deaths or serious injuries and malfunctions that, if they were to recur, could lead to death or serious injury; post-market approval studies; and product import and export.
The regulations to which we are subject are complex and have tended to become more stringent over time. Regulatory changes could result in restrictions on our ability to carry on or expand our operations, higher than anticipated costs or lower than anticipated sales. The FDA enforces these regulatory requirements through periodic unannounced inspections. We do not know whether we will pass any future FDA inspections. Failure to comply with applicable regulations could jeopardize our ability to sell our products and result in enforcement actions such as: warning letters; fines; injunctions; civil penalties; termination of distribution; recalls or seizures of products; delays in the introduction of products into the market; total or partial suspension of production; refusal to grant future clearances or approvals; withdrawals or suspensions of current clearances or approvals, resulting in prohibitions on sales of our products; and in the most serious cases, criminal penalties.
Our Wellness Pro product received FDA clearance on July 6, 2007 (FDA K062616) as a Class II Medical Device, under the 510(K) clearance process. We have not applied for FDA clearance on our other products in research and development, including the Wellness Pro Pod. There is no guarantee that we will successfully complete research and development, apply for and receive FDA clearance under the 510(k) clearing process for any of our products currently in development.
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We may not receive the necessary clearances or approvals for our future products, and failure to timely obtain necessary clearances or approvals for our future products would adversely affect our ability to grow our business.
An element of our strategy is to continue to upgrade our products, add new features and expand clearance or approval of our current products to new indications. In the United States, before we can market a new medical device, for a new use of, or new claim for or significant modification to an existing product, we must first receive either clearance under Section 510(k) of the Federal Food, Drug, and Cosmetic Act, or the FDCA, or approval of a premarket approval application, or PMA, unless an exemption applies. Our Wellness Pro product received FDA clearance on July 6, 2007 (FDA K062616) as a Class II Medical Device, under the 510(K) clearance process. We have not applied for FDA clearance on our other products in research and development, including the Wellness Pro Pod. There is no guarantee that we will successfully complete research and development, apply for and receive FDA clearance under the 510(k) clearing process for any of our products currently in development.
In the 510(k) clearance process, before a device may be marketed, the FDA must determine that a proposed device is “substantially equivalent” to a legally-marketed “predicate” device, which includes a device that has been previously cleared through the 510(k) process, a device that was legally marketed prior to May 28, 1976 (pre-amendments device), a device that was originally on the U.S. market pursuant to an approved PMA and later down-classified, or a 510(k)-exempt device. To be “substantially equivalent,” the proposed device must have the same intended use as the predicate device, and either have the same technological characteristics as the predicate device or have different technological characteristics and not raise different questions of safety or effectiveness than the predicate device. Clinical data is sometimes required to support substantial equivalence. In the PMA process, the FDA must determine that a proposed device is safe and effective for its intended use based, in part, on extensive data, including, but not limited to, technical, pre-clinical, clinical trial, manufacturing and labeling data. Our ability to successfully obtain clearance for any new indications will be dependent on us submitting data as to the successful completion of clinical trials evidencing safety and efficacy. The PMA process is typically required for devices that are deemed to pose the greatest risk, such as life-sustaining, life-supporting or implantable devices. However, some devices are automatically subject to the PMA pathway regardless of the level of risk they pose because they have not previously been classified into a lower risk class by the FDA. Manufacturers of these devices may request that FDA review such devices in accordance with the de novo classification procedure, which allows a manufacturer whose novel device would otherwise require the submission and approval of a PMA prior to marketing to request down-classification of the device on the basis that the device presents low or moderate risk. If the FDA agrees with the down classification, the applicant will then receive authorization to market the device. This device type can then be used as a predicate device for future 510(k) submissions. We initially received marketing authorization of our device through the de novo classification process, and we have made changes to our system through subsequent 510(k) clearances. The process of obtaining regulatory clearances or approvals, or completing the de novo classification process, to market a medical device can be costly and time consuming, and we may not be able to successfully obtain pre-market reviews on a timely basis, if at all.
Modifications to our WellnessPro products that are approved through a PMA application generally require FDA approval. Similarly, certain modifications made to our WellnessPro products cleared through a 510(k) or authorized through the de novo classification process may require a new 510(k) clearance. Each of the PMA approval, de novo classification and the 510(k) clearance processes can be expensive, lengthy and uncertain. The FDA’s 510(k) clearance process usually takes from three to twelve months, but can last longer. The process of obtaining a PMA is much more costly and uncertain than the 510(k) clearance process and generally takes from one to three years, or even longer, from the time the application is filed with the FDA. In addition, a PMA generally requires the performance of one or more clinical trials.
Despite the time, effort and cost, a device may not be approved or cleared by the FDA. Any delay or failure to obtain necessary regulatory approvals or clearances could harm our business. Furthermore, even if we are granted regulatory clearances or approvals, they may include significant limitations on the indicated uses for the device, which may limit the market for the device.
Any modifications to our WellnessPro products may require new 510(k) clearance; however, future modifications may be subject to the substantially more costly, time-consuming and uncertain PMA process. If the FDA requires us to go through a lengthier, more rigorous examination for future products or modifications to existing products than we had expected, product introductions or modifications could be delayed or canceled, which could cause our sales to decline.
The FDA can delay, limit or deny clearance or approval of a device for many reasons, including: we may be unable to demonstrate to the FDA’s satisfaction that the product or modification is substantially equivalent to the proposed predicate device or safe and effective for its intended use; the data from our pre-clinical studies and clinical trials may be insufficient to support clearance or approval, where required; and the manufacturing process or facilities we use may not meet applicable requirements.
Even if granted, a 510(k) clearance, de novo classification, or PMA approval imposes substantial restrictions on how our devices may be marketed or sold, and the FDA continues to place considerable restrictions on our products and operations. For example, the manufacture of medical devices must comply with the FDA’s Quality System Regulation, or QSR. In addition, manufacturers must register their manufacturing facilities, list the products with the FDA, and comply with requirements relating to labeling, marketing, complaint handling, adverse event and medical device reporting, reporting of corrections and removals, and import and export. The FDA monitors compliance with the QSR and these other requirements through periodic inspections. If our facilities or those of our manufacturers or suppliers are found to be in violation of applicable laws and regulations, or if we or our manufacturers or suppliers fail to take satisfactory corrective action in response to an adverse inspection, the regulatory authority could take enforcement action, including any of the following sanctions: untitled letters, warning letters, fines, injunctions, consent decrees and civil penalties; customer notifications or repair, replacement, refunds, detention or seizure of our products; operating restrictions or partial suspension or total shutdown of production; refusing or delaying requests for 510(k) marketing clearance or PMA approvals of new products or modified products; withdrawing 510(k) marketing clearances or PMA approvals that have already been granted; refusing to provide Certificates for Foreign Government; refusing to grant export approval for our products; or pursuing criminal prosecution. Any of these sanctions could impair our ability to produce our products in a cost-effective and timely manner in order to meet our customers’ demands, and could have a material adverse effect on our reputation, business, results of operations and financial condition. We may also be required to bear other costs or take other actions that may have a negative impact on our sales and our ability to generate profits.
Our Wellness Pro product received FDA clearance on July 6, 2007 (FDA K062616) as a Class II Medical Device, under the 510(K) clearance process. We have not applied for FDA clearance on our other products in research and development, including the Wellness Pro Pod. There is no guarantee that we will successfully complete research and development, apply for and receive FDA clearance under the 510(k) clearing process for any of our products currently in development.
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In addition, the FDA may change its clearance and approval policies, adopt additional regulations or revise existing regulations, or take other actions, which may prevent or delay approval or clearance of our future products under development or impact our ability to modify our currently cleared products on a timely basis. Such policy or regulatory changes could impose additional requirements upon us that could delay our ability to obtain new 510(k) clearances, increase the costs of compliance or restrict our ability to maintain our current clearances. We also cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative or executive action, either in the United States or abroad. For example, certain policies of the Trump administration may impact our business and industry. Namely, the Trump administration has taken several executive actions, including the issuance of a number of Executive Orders, that could impose significant burdens on, or otherwise materially delay, the FDA’s ability to engage in routine regulatory and oversight activities such as implementing statutes through rulemaking, issuance of guidance, and review and approval of marketing applications. It is difficult to predict how these executive actions, including the Executive Orders, will be implemented, and the extent to which they will impact the FDA’s ability to exercise its regulatory authority. If these executive actions impose constraints on FDA’s ability to engage in oversight and implementation activities in the normal course, our business may be negatively impacted.
In order to sell our products in member countries of the EEA our WellnessPro products must comply with the essential requirements of the EU Medical Devices Directive (Council Directive 93/42/EEC). Compliance with these requirements is a prerequisite to be able to affix the CE Mark to our WellnessPro products, without which they cannot be sold or marketed in the EEA. To demonstrate compliance with the essential requirements we must undergo a conformity assessment procedure, which varies according to the type of medical device and its classification. Except for low-risk medical devices (Class I non-sterile, non-measuring devices), where the manufacturer can issue an EC Declaration of Conformity based on a self-assessment of the conformity of its products with the essential requirements of the EU Medical Devices Directive, a conformity assessment procedure requires the intervention of an organization accredited by a Member State of the EEA to conduct conformity assessments, or a Notified Body. Depending on the relevant conformity assessment procedure, the Notified Body would typically audit and examine the technical file and the quality system for the manufacture, design and final inspection of our devices. The Notified Body issues a certificate of conformity following successful completion of a conformity assessment procedure conducted in relation to the medical device and its manufacturer and their conformity with the essential requirements. This certificate entitles the manufacturer to affix the CE Mark to its medical devices after having prepared and signed a related EC Declaration of Conformity.
We or our distributors will may also need to obtain regulatory approval in other foreign jurisdictions in which we plan to market and sell our WellnessPro products, and we or they may not obtain such approvals as necessary to commercialize our products in those territories.
Our products must be manufactured in accordance with federal and state regulations, and we could be forced to recall our installed systems or terminate production if we fail to comply with these regulations.
The methods used in, and the facilities used for, the manufacture of our products must comply with the FDA’s Quality System Regulation, or QSR, which is a complex regulatory scheme that covers the procedures and documentation of the design, testing, production, process controls, quality assurance, labeling, packaging, handling, storage, distribution, installation, servicing and shipping of medical devices. Furthermore, we are required to verify that our suppliers maintain facilities, procedures and operations that comply with our quality standards and applicable regulatory requirements. The FDA enforces the QSR through periodic announced or unannounced inspections of medical device manufacturing facilities, which may include the facilities of subcontractors. Our products are also subject to similar state regulations and various laws and regulations of foreign countries governing manufacturing.
We or our third-party manufacturers may not take the necessary steps to comply with applicable regulations, which could cause delays in the delivery of our products. In addition, failure to comply with applicable FDA requirements or later discovery of previously unknown problems with our products or manufacturing processes could result in, among other things: warning letters or untitled letters; fines, injunctions or civil penalties; suspension or withdrawal of approvals or clearances; seizures or recalls of our products; total or partial suspension of production or distribution; administrative or judicially imposed sanctions; the FDA’s refusal to grant pending or future clearances or approvals for our products; clinical holds; refusal to permit the import or export of our products; and criminal prosecution of us or our employees.
Any of these actions could significantly and negatively impact supply of our products. If any of these events occurs, our reputation could be harmed, we could be exposed to product liability claims and we could lose customers and suffer reduced revenues and increased costs.
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RISKS RELATED TO OUR COMMON STOCK AND THIS OFFERING
We may need additional capital that will dilute the ownership interest of investors.
We may require additional capital to fund our future business operations. If we raise additional funds through the issuance of equity, equity-related or convertible debt securities, these securities may have rights, preferences or privileges senior to those of the rights of holders of our shares of common stock, who may experience dilution of their ownership interest of our shares of Common Stock. The issuance of additional shares of Common Stock by our board of directors may have the effect of further diluting the proportionate equity interest and voting power of holders of our shares of Common Stock. We cannot predict whether additional financing will be available to us on favorable terms when required, or at all. During recent financial periods, we have experienced negative cash flow from operations and continued operating losses during the years ended December 31, 2019 and 2018, and we expect to experience significant negative cash flow from operations in the future. The Company’s continuation as a going concern is dependent on our ability to generate financing and/or sufficient cash flows from operations to meet our obligations, in which, to date, we have not been successful, and/or obtaining additional financing from its shareholders or other sources, as may be required.
The accompanying financial statements submitted with this filing have been prepared assuming that we will continue as a going concern; however, the above conditions raise substantial doubt about our ability to do so.
We will be controlled by Matthew Wolfson, our sole director, officer and majority shareholder after this offering.
Upon the completion of this Offering, our sole director and officer and majority shareholder currently in place will continue to oversee the Company’s operations.
As a result, our sole director and officer and majority shareholder will have a significant influence on the affairs and management of the Company, as well as on all matters requiring stockholder approval, including electing and removing members of our board of directors, causing the Company to engage in transactions with affiliated entities, causing or restricting the sale or merger of the Company and changing the Company’s dividend policy. Such concentration of ownership and control could have the effect of delaying, deferring or preventing a change in control of the Company, even when such a change of control would be in the best interests of the Company’s other stockholders.
The Offering does not require a minimum number of shares to be sold. As such, we may not receive sufficient funds from this Offering. Thus, investors could be at risk.
This offering does not require a minimum number of shares to be sold. We may raise less than the amount required to execute our stated minimum business plan, which calls for funding of $3.5 million. If we are unable to raise sufficient funding to achieve the $3.5 million in gross proceeds need to implement this minimum business plan, we may not be able to execute our business plan as currently designed. Investors could be at risk if we are unable to raise this minimum business plan amount because funds will be reserved for fees and expenses related to this offering and for administrative expense. As is outlined elsewhere in this filing, we estimate our total offering registration costs to be approximately $2,599.91 and our legal, auditor and related fees will be $220,000 equaling a total expense to the Company of $222,599.91 relating to the registration. A significant portion of these fees will be incurred by the Company regardless of the amount of gross proceeds raised via this Offering.
Our shares of Common Stock qualify as a penny stock. As such, we are subject to the risks associated with “penny stocks”. Regulations relating to “penny stocks” limit the ability of our shareholders to sell their shares and, as a result, our shareholders may have to hold their shares indefinitely.
Our shares of Common Stock are deemed to be “penny stock” as that term is defined in Regulation Section 240.3a51-1 of the Securities and Exchange Commission. Penny stocks are stocks: (a) with a price of less than $5.00 per share; (b) that are not traded on a “recognized” national exchange; (c) whose prices are not quoted on the NASDAQ automated quotation system (NASDAQ - where listed stocks must still meet requirement (a) above); or (d) in issuers with net tangible assets of less than $2,000,000 (if the issuer has been in continuous operation for at least three years) or $5,000,000 (if in continuous operation for less than three years), or with average revenues of less than $6,000,000 for the last three years.
Section 15(g) of the Securities Exchange Act of 1934 and Regulation 240.15g(c)2 of the Securities and Exchange Commission require broker dealers dealing in penny stocks to provide potential investors with a document disclosing the risks of penny stocks and to obtain a manually signed and dated written receipt of the document before effecting any transaction in a penny stock for the investor’s account. Potential investors in our shares of Common Stock are urged to obtain and read such disclosure carefully before purchasing any shares of Common Stock that are deemed to be “penny stock”.
Moreover, Regulation 240.15g-9 of the SEC requires broker dealers in penny stocks to approve the account of any investor for transactions in such stocks before selling any penny stock to that investor. This procedure requires the broker dealer to: (a) obtain from the investor information concerning his or her financial situation, investment experience and investment objectives; (b) reasonably determine, based on that information, that transactions in penny stocks are suitable for the investor and that the investor has sufficient knowledge and experience as to be reasonably capable of evaluating the risks of penny stock transactions; (c) provide the investor with a written statement setting forth the basis on which the broker dealer made the determination in (ii) above; and (d) receive a signed and dated copy of such statement from the investor confirming that it accurately reflects the investor’s financial situation, investment experience and investment objectives. Compliance with these requirements may make it more difficult for investors in our shares of Common Stock to resell their shares to third parties or to otherwise dispose of them. Holders should be aware that, according to SEC Release No. 34-29093, dated April 17, 1991, the market for penny stocks suffers from patterns of fraud and abuse.
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Our Management is aware of the abuses that have occurred historically in the penny stock market. Although we do not expect to be in a position to dictate the behavior of the market or of broker-dealers who participate in the market, Management will strive within the confines of practical limitations to prevent the described patterns from being established with respect to our securities.
FINRA sales practice requirements may also limit a stockholder’s ability to buy and sell our stock and to deposit certificates in paper form or to clear shares for trading under Safe Harbor exemptions and regulations for unregistered shares.
In addition to the “penny stock” rules described above, the Financial Industry Regulatory Authority (known as “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 shares of Common Stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares. FINRA requirements make it more difficult for our investors to deposit paper stock certificates or to clear our shares of Common Stock that are transferred electronically to brokerage accounts. There can be no assurances that our investors will be able to clear our shares for eventual resale.
Costs and expenses of being a reporting company under the 1934 Securities Exchange Act may be burdensome and prevent us from achieving profitability
As a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, and parts of the Sarbanes-Oxley Act. We expect that the requirements of these rules and regulations will continue to increase our legal, accounting and financial compliance costs, make some activities more difficult, time-consuming and costly, and place significant strain on our personnel, systems and resources.
RISKS RELATED TO THE OFFERING
Since our shares of Common Stock are thinly traded it is more susceptible to extreme rises or declines in price, and you may not be able to sell your shares at or above the price paid.
Since our shares of Common Stock are thinly traded, the trading price is likely to be highly volatile and could be subject to extreme fluctuations in response to various factors, many of which are beyond our control, including, but not limited to: the trading volume of our shares, the number of analysts, market-makers and brokers following our shares of Common Stock, new products or services introduced or announced by us or our competitors, actual or anticipated variations in quarterly operating results, conditions or trends in our business industries, additions or departures of key personnel, sales of our shares of Common Stock and general stock market price and volume fluctuations of publicly traded, and particularly microcap, companies.
Investors may have difficulty reselling shares of our Common Stock, either at or above the price they paid for our stock, or even at fair market value. The stock markets often experience significant price and volume changes that are not related to the operating performance of individual companies, and because our shares of Common Stock are thinly traded it is particularly susceptible to such changes. These broad market changes may cause the market price of our shares of Common Stock to decline regardless of how well we perform as a company. In addition, there is a history of securities class action litigation following periods of volatility in the market price of a company’s securities. Although there is no such litigation currently pending or threatened against us, such a suit against us could result in the incursion of substantial legal fees, potential liabilities and the diversion of management’s attention and resources from our business. Moreover, and as noted below, our shares are currently traded on the OTC Markets Pink and, further, are subject to the penny stock regulations. Price fluctuations in such shares are particularly volatile and subject to potential manipulation by market-makers, short-sellers and option traders.
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Matthew Wolfson, our chief executive officer and principal stockholder, will continue to have substantial control over us after this offering, which could limit your ability to influence the outcome of key transactions, including a change of control.
After this offering our sole director, executive officer and principal stockholder will beneficially own or control a majority of our shares. As a result, Mr. Wolfson has significant influence over the outcome of matters submitted to our stockholders for approval, including the election or removal of directors, any amendments to our certificate of incorporation or bylaws and any merger, consolidation or sale of all or substantially all of our assets, and over the management and affairs of our company. This concentration of ownership may also have the effect of delaying or preventing a change in control of our company or discouraging others from making tender offers for our shares and might affect the market price of our common stock.
Matthew Wolfson, our chief executive officer and principal stockholder, is considered the underwriter of this Offer and is a Selling Shareholder.
The Direct Primary Offering shares will be sold in a “direct public offering” through our sole director, and Chief Executive Officer, Matthew Wolfson, who may be considered an underwriter as that term is defined in Section 2(a) (11). Mr. Wolfson is also registering 2,000,000 shares for resale subject to a 10b-5-1 selling plan attached hereto. This could create a conflict of interest. Mr. Wolfson will refrain from offering for resale his 2,000,000 million shares beneficially owned during any time while the Primary Offering is outstanding.
Because we do not expect to pay any dividends on our common stock for the foreseeable future, investors in this offering may never receive a return on their investment.
We do not anticipate that we will pay any cash dividends to holders of our common stock in the foreseeable future. Instead, we plan to retain any earnings to maintain and expand our existing operations. Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any return on their investment.
There could be unidentified risks involved with an investment in our securities
The foregoing risk factors are not a complete list or explanation of the risks involved with an investment in the securities. Additional risks will likely be experienced that are not presently foreseen by the Company. Prospective investors must not construe this and the information provided herein as constituting investment, legal, tax or other professional advice. Before making any decision to invest in our securities, you should read this entire prospectus and consult with your own investment, legal, tax and other professional advisors. An investment in our securities is suitable only for investors who can assume the financial risks of an investment in the Company for an indefinite period of time and who can afford to lose their entire investment. The Company makes no representations or warranties of any kind with respect to the likelihood of the success or the business of the Company, the value of our securities, any financial returns that may be generated or any tax benefits or consequences that may result from an investment in the Company.
CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS
This Prospectus may contain certain “forward-looking” statements as such term is defined by the SEC in its rules, regulations and releases, which represent the registrant’s expectations or beliefs, including but not limited to, statements concerning the registrant’s operations, economic performance, financial condition, growth and acquisition strategies, investments, and future operational plans. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the generality of the foregoing, words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intent,” “could,” “estimate,” “might,” “plan,” “predict” or “continue” or the negative or other variations thereof or comparable terminology are intended to identify forward-looking statements. These statements by their nature involve substantial risks and uncertainties, certain of which are beyond the registrant’s control, and actual results may differ materially depending on a variety of important factors, including uncertainty related to acquisitions, governmental regulation, managing and maintaining growth, the operations of the Company and its subsidiary, volatility of stock price, federal enforcement and state enforcement, and any other factors discussed in this and other registrant filings with the Securities and Exchange Commission.
The risks and uncertainties and other factors include but are not limited to those set forth under "Risk Factors" of this Prospectus. Given these risks and uncertainties, readers are cautioned not to place undue reliance on our forward-looking statements. All subsequent written and oral forward-looking statements attributable to us or to persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. Except as otherwise required by applicable law, we undertake no obligation to publicly update or revise any forward-looking statements or the risk factors described in this Prospectus or in the documents we incorporate by reference, whether as a result of new information, future events, changed circumstances or any other reason after the date of this Prospectus.
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Actual events or results may differ materially from those discussed in forward-looking statements as a result of various factors, including, without limitation, the risks outlined under “Risk Factors” and matters described in Prospectus generally. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this Prospectus will in fact occur. We caution you not to place undue reliance on these forward-looking statements. In addition to the information expressly required to be included in this Prospectus, we will provide such further material information, if any, as may be necessary to make the required statements, in light of the circumstances under which they are made, not misleading.
Except as required by federal securities laws, we do not intend to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
The Selling Stockholders are selling all of the shares of our Common Stock covered by this Prospectus for their own accounts. Accordingly, we will not receive any proceeds from the resale of our Common Stock by the Selling Stockholders.
However, we will receive proceeds from any sale of the shares of Common Stock under the Direct Public Offering. We estimate that the net proceeds to us from the sale of our common stock in the Public Offering will be approximately $13,300,000, based on an assumed initial public offering price of $1.33 per share.
We estimate our total offering registration costs to be approximately $2,599.91, which will be paid from corporate funds. We estimate our legal and auditor related fees will be $220,000, which will reduce the funds received by the Company via the Primary Offering by $220,000.
Proceeds from the Direct Public Offering will be used for general working capital, research and development, enhancement of our marketing programs, and for other general corporate purposes, as set forth below.
| Percentage of Direct Public Offering Shares Sold | 100% | 75% | 50% | 25% | ||||||||||||
| Offering Expenses | $ | 220,000 | $ | 220,000 | $ | 220,000 | $ | 220,000 | ||||||||
| Accounting, Audit, Public Company Expenses | $ | 350,000 | $ | 350,000 | $ | 350,000 | $ | 350,000 | ||||||||
| Hiring Personnel | $ | 1,000,000 | $ | 800,000 | $ | 500,000 | $ | 500,000 | ||||||||
| Inventories | $ | 800,000 | $ | 600,000 | $ | 600,000 | $ | 600,000 | ||||||||
| Research and Development | $ | 3,000,000 | $ | 3,000,000 | $ | 2,500,000 | $ | 400,000 | ||||||||
| Sales and Marketing Expansion | $ | 2,000,000 | $ | 1,000,000 | $ | 500,000 | $ | 430,000 | ||||||||
| Debt Extinguishment | $ | 500,000 | $ | 500,000 | $ | 500,000 | $ | 500,000 | ||||||||
| Operating Capital | $ | 5,430,000 | $ | 3,505,000 | $ | 1,480,000 | $ | 325,000 | ||||||||
| Total Use of Proceeds | $ | 13,300,000 | $ | 9,975,000 | $ | 6,650,000 | $ | 3,325,000 |
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The Company anticipates the estimated $13,300,000 gross proceeds from the Maximum Offering will enable it to execute its maximum business plan, expand marketing efforts, fund inventory build ups and to fund the working capital account.
In the event that the Maximum Offering is not completed, the Company may be required to seek additional financing to implement its business plan and support its operations over the next twelve months. There can be no assurance additional financing will be available when needed, and, if available, that it will be on terms acceptable to the Company.
DETERMINATION OF OFFERING PRICE
Our shares of Common Stock are currently listed on the OTC Markets Pink under the symbol “ELCQ”. The proposed offering price of the Shares is $1.33 and has been estimated solely for the purpose of computing the amount of the registration fee in accordance with Rule 457(c) of the Securities Act of 1933, on the basis of the average of the high and low prices of the shares of our Common Stock as reported on the OTC Markets Group, Inc. on July 3, 2020.
The Company will be registering all common stock under the Exchange Act in connection with this Offering.
This prospectus relates to:
| 1) | The offer and sale from time to time of up to 5,060,344 of the Company’s common shares by the Selling Shareholders. The 5,060,344 shares being offered by the Selling Shareholders will represent approximately 24.38% of the 20,753,851 shares of Common Stock issued and outstanding as of the date of this Prospectus. |
| 2) | The offer and sale from time to time of up to 10,000,000 of the Company’s common shares by the Company. We intend to offer and sell these shares through our officer and director who will receive no compensation or fees with the offers and/or sales. The 10,000,000 shares being offered by the Company will represent approximately 48.18% of our 20,753,851 Common Stock issued and as of the date of this Prospectus. |
| 3) | The total of 15,060,344 shares included in this Offering, including the 5,060,344 shares being offered by the Selling Shareholders and the 10,000,000 common shares offered by the Company will represent approximately 72.56% the 20,753,851 shares of Common Stock issued and outstanding as of the date of this Prospectus. |
| 4) | Common Shares Outstanding Prior to the Offering: 20,753,851 |
| Common Shares to be Outstanding After the Offering: 30,753,851 |
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We have not declared or paid dividends on our common stock since our formation, and we do not anticipate paying dividends in the foreseeable future. Declaration or payment of dividends, if any, in the future, will be at the discretion of our Board of Directors and will depend on our then current financial condition, results of operations, capital requirements and other factors deemed relevant by the Board of Directors. There are no contractual restrictions on our ability to declare or pay dividends. Consequently, you will only realize an economic gain on your investment in our common stock if the price appreciates. You should not purchase our common stock expecting to receive cash dividends. Since we do not anticipate paying dividends, and if we are not successful in establishing an orderly public trading market for our shares, then you may not have any manner to liquidate or receive any payment on your investment. Therefore, our failure to pay dividends may cause you to not see any return on your investment even if we are successful in our business operations. In addition, because we may not pay dividends in the foreseeable future, we may have trouble raising additional funds which could affect our ability to expand our business operations.
Market Information
Our common stock is currently listed on the OTC Markets Pink quotation system under the symbol ELCQ. We have 20,753,851 issued and outstanding common shares as of July 3, 2020. Of these common shares, 20,029,177 are restricted as of the filing.
There are 450,000 warrants outstanding. See “Outstanding Warrants” on page 31.
There are 445,000 options outstanding. See “Outstanding Options” on page 30 for further information.
There 500,000 shares of Series A Stock outstanding and 1,000,000 Authorized Series A Stock.
Holders
We had 86 shareholders of record of our common stock as of July 3, 2020.
Securities Authorized for Issuance under Equity Compensation Plans
In 2017, the Company’s Board of Directors approved the 2017 Employee and Consultant Stock Ownership Plan, (the “Plan”). The Plan provides that the Board of Directors may grant restricted stock units, incentive stock options and non-statutory stock options to officers, key employees and certain consultants and advisors to the Company up to a maximum of 2,500,000 shares. Stock options granted under the Plan have ten-year terms with vesting terms to be determined by the administrator of the Plan. Restricted stock unit grant terms will be set by the administrator and at the discretion of the administrator, be settled in cash, shares, or a combination of both. As of April 15, 2020, 445,000 options have been issued and remain outstanding under the plan. Please see the Section “Stock Options” for further information.
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Dividends
Please see “Dividend Policy” above.
Just prior to The Offering there are 20,753,851 common shares outstanding. The 10,000,000 of the Company’s common shares being offered by the Company represent dilution to common shareholders will result in a new total for outstanding and issued common shares of 30,753,851.
The following table illustrates dilution to investors on an approximate dollar per share basis, depending upon whether we sell 100%, 75%, 50%, or 25% of the shares being offered in the Primary Offering:
| Percentage of Offering Shares Sold | 100% | 75% | 50% | 25% | ||||||||||||
| Offering price per share | $ | 1.33 | $ | 1.33 | $ | 1.33 | $ | 1.33 | ||||||||
| Net tangible book value per share before offering | (0.11 | ) | (0.11 | ) | (0.11 | ) | (0.11 | ) | ||||||||
| Increase per share attributable to investors | 0.47 | 0.38 | 0.28 | 0.16 | ||||||||||||
| Pro forma net tangible book value per share after offering | 0.36 | 0.27 | 0.17 | 0.05 |
The following table sets forth the shares beneficially owned, as of July 3, 2020, by the Selling Security Holders prior to the offering contemplated by this prospectus, the number of shares each Selling Security Holder is offering by this prospectus and the number of shares which each would own beneficially if all such offered shares are sold.
Beneficial ownership is determined in accordance with Securities and Exchange Commission rules. Under these rules, a person is deemed to be a beneficial owner of a security if that person or his/her spouse has or shares voting power, which includes the power to vote or direct the voting of the security, or investment power, which includes the power to vote or direct the voting of the security. The person is also deemed to be a beneficial owner of any security of which that person has a right to acquire beneficial ownership within 60 days. Under the Securities and Exchange Commission rules, more than one person may be deemed to be a beneficial owner of the same securities, and a person may be deemed to be a beneficial owner of securities as to which he or she may not have any pecuniary beneficial interest. Except as noted below, each person has sole voting and investment power.
In total 5,060,344 shares are being registered by the Selling Shareholders. The Company will not receive any proceeds from the sale of the Selling Shareholder shares. The Selling Shareholders have no agreement with any underwriters with respect to the sale of the Selling Shareholder Shares.
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The percentages below are calculated based on 20,753,851 shares of our common stock issued and outstanding as of July 3, 2020 and an additional 10,000,000 shares of common stock being issued as part of the Primary Offering, representing a total share count used below of 30,753,851.
| Name of Selling Holder | Number of Shares Owned by Selling Security Holder | Share Offered by Selling Shareholder | Number of Shares Held After the Offering | Percentage of Total Issued and Outstanding After the Offering | ||||||||||||
| Mathew Wolfson (1) | 14,306,250 | 2,000,000 | 12,306,250 | 40.0 | % | |||||||||||
| Blue Ridge Enterprises, LLC (2) | 1,170,654 | 1,000,000 | 170,654 | 0.5 | % | |||||||||||
| Petar Gajic | 2,500,000 | 500,000 | - | 0.0 | % | |||||||||||
| Robert L. Hymers III | 485,009 | 485,009 | - | 0.0 | % | |||||||||||
| Gene Taubman | 100,000 | 100,000 | - | 0.0 | % | |||||||||||
| Agility Financial Partners, LLC (3) | 200,000 | 200,000 | - | 0.0 | % | |||||||||||
| Kostiantyn Kishkovskyi (4) | 100,000 | 100,000 | - | 0.0 | % | |||||||||||
| Alexander Pedenko (4) | 100,000 | 50,000 | 50,000 | 0.2 | % | |||||||||||
| Dos Sarbassov (4) | 100,000 | 50,000 | 50,000 | 0.2 | % | |||||||||||
| Angelina Gajic | 100,000 | 100,000 | - | 0.0 | % | |||||||||||
| Iakovos Tsakalidis | 87,849 | 87,849 | - | 0.0 | % | |||||||||||
| Nicholas Rosin (5) | 100,000 | 100,000 | - | 0.0 | % | |||||||||||
| Nikolai Ogorodnikov (6) | 64,215 | 64,215 | - | 0.0 | % | |||||||||||
| Stephanie Campbell | 50,000 | 50,000 | - | 0.0 | % | |||||||||||
| Carol Howden | 40,786 | 40,786 | - | 0.0 | % | |||||||||||
| James Hancock | 35,211 | 35,211 | - | 0.0 | % | |||||||||||
| Eyelyn Easson | 28,169 | 28,169 | - | 0.0 | % | |||||||||||
| Chester W Hedderman | 20,000 | 20,000 | - | 0.0 | % | |||||||||||
| Kelly Lauren Myers | 18,750 | 18,750 | - | 0.0 | % | |||||||||||
| Timothy Manning | 10,355 | 10,355 | - | 0.0 | % | |||||||||||
| PYP Enterprises | 10,000 | 10,000 | - | 0.0 | % | |||||||||||
| Brenda Andrews | 10,000 | 10,000 | - | 0.0 | % | |||||||||||
| Total | 1,964,247 | 5,060,344 | 12,576,904 | |||||||||||||
Notes on Selling Shareholders:
| (1) | Matthew Wolfson is Chief Executive Officer, Chief Financial Officer and Chairman who, pursuant to a 10b5-1 selling plan included with this filing, shall refrain from selling any of these 2,000,000 shares while the Primary Offering is outstanding. |
| (2) | Blue Ridge Enterprises, LLC is controlled by Donald Steinberg, who is the sole member and manager and a related party - Reference “Related Parties” for disclosures. Blue Ridge, and by extension Mr. Steinberg, directly own 1,170,654 common shares. |
| (3) | Shares being offered are represented by shares of our common stock issuable upon exercise of outstanding warrants being registered hereunder are being registered for sale by the selling security holders named in the prospectus. |
| (4) | Shares being offered are represented by shares of our common stock issuable upon exercise of outstanding options being registered hereunder are being registered for sale by the selling security holders named in the prospectus. |
| (5) | 75,000 shares being offered are represented by shares of our common stock issuable upon exercise of outstanding options and an additional 25,000 directly held are being registered hereunder for sale by the selling security holder named in the prospectus. |
| (6) | Nikolai Ogorodnikov is the father of Chief Executive Officer, Chief Financial Officer and Chairman, Matthew Wolfson. Each disavows ownership of the other’s holdings. |
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The Direct Primary Offering will be sold through our sole director, and Chief Executive Officer, Matthew Wolfson, who may be considered an underwriter as that term is defined in Section 2(a) (11). Mr. Wolfson will not receive any commission in connection with the sale of shares in the Direct Primary Offering, although we may reimburse him for direct expenses incurred in connection with the offer and sale of the shares. Mr. Wolfson intends to sell the shares being registered according to the following plan of distribution:
Shares will be offered to friends, family, business associates and other associates of Mr. Wolfson.
Mr. Wolfson will be relying on, and complying with, Rule 3a4-1(a)(4)(ii) of the Exchange Act as a “safe harbor” from registration as a broker-dealer in connection with the offer and sale of the shares. In order to rely on such “safe harbor” provisions provided by Rule 3a4-1(a) (4) (ii), he must be in compliance with all of the following:
| · | he must not be subject to a statutory disqualification; | |
| · | he must not be compensated in connection with such selling participation by payment of commissions or other payments based either directly or indirectly on such transactions; | |
| · | he must not be an associated person of a broker-dealer; | |
| · | he must primarily perform, or is intended primarily to perform at the end of the offering, substantial duties for or on behalf of the Company otherwise than in connection with transactions in securities; and | |
| · | he must perform substantial duties for the issuer after the close of the offering not connected with transactions in securities, and not have been associated with a broker or dealer for the preceding 12 months, and not participate in selling an offering of securities for any issuer more than once every 12 months. |
Mr. Wolfson will comply with the guidelines enumerated in Rule 3a4-1(a) (4) (ii).
You may purchase shares by completing and manually executing a simple subscription agreement and delivering it with your payment in full for all shares, which you wish to purchase, to our offices. A copy of the form of that subscription agreement is attached as an exhibit to our registration statement of which this Prospectus is a part. Your subscription shall not become effective until accepted by us and approved by our counsel. Acceptance will be based upon confirmation that you have purchased the shares in a state providing for an exemption from registration. Our subscription process is as follows:
| · | prospectus, with subscription agreement, is delivered by the Company to each offeree; | |
| · | the subscription is completed by the offeree, and submitted with check back to the Company where the subscription and a copy of the check is faxed to counsel for review; | |
| · | each subscription is reviewed by counsel for the Company to confirm the subscribing party completed the form, and to confirm the state of acceptance; | |
| · | once approved by counsel, the subscription is accepted by Mr. Wolfson, and the funds shall be deposited within four (4) days of acceptance; | |
| · | subscriptions not accepted are returned with all funds sent with the subscription within three business days of the Company’s receipt of the subscription, without interest or deduction of any kind. |
Subject to the fixed price limitation of this offering, the Selling Security Holders and any of their pledgees, donees, transferees, assignees and successors-in-interest may, from time to time, sell any or all of their shares of our common stock on any stock exchange, market or trading facility on which the shares are traded or quoted or in private transactions. The Selling Security Holders may use any one or more of the following methods when selling shares:
| · | ordinary brokerage transactions and transactions in which the broker-dealer solicits Investors; | |
| · | block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction; | |
| · | purchases by a broker-dealer as principal and resale by the broker-dealer for its account; | |
| · | an exchange distribution in accordance with the rules of the applicable exchange; | |
| · | privately negotiated transactions; | |
| · | to cover short sales made after the date that this prospectus is declared effective by the Commission; | |
| · | broker-dealers may agree with the Selling Security Holders to sell a specified number of such shares at a stipulated price per share; | |
| · | a combination of any such methods of sale; and | |
| · | any other method permitted pursuant to applicable law. |
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Broker-dealers engaged by the Selling Security Holders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the Selling Security Holders, or, if any broker-dealer acts as an agent for the purchaser of shares, from the purchaser, in amounts to be negotiated. The Selling Security Holders do not expect these commissions and discounts to exceed what is customary in the types of transactions involved.
The Selling Security Holders may from time to time pledge or grant a security interest in some or all of the shares owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell shares of our common stock from time to time under this prospectus, or under an amendment to this prospectus under Rule 462(c) or other applicable provision of the Securities Act of 1933 amending the list of selling security holders to include the pledgee, transferee or other successors in interest as selling security holders under this prospectus.
The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in “penny stocks.” Penny stocks generally are equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver to the prospective purchaser a standardized risk disclosure document prepared by the Securities and Exchange Commission that provides information about penny stocks and the nature and level of risks in the penny stock market. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from such rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the prospective purchaser and receive the purchaser’s written agreement to the transaction. Furthermore, subsequent to a transaction in a penny stock, the broker-dealer will be required to deliver monthly or quarterly statements containing specific information about the penny stock. It is anticipated that our common stock will be traded on the OTC Pink at a price of less than $5.00. In this event, broker-dealers would be required to comply with the disclosure requirements mandated by the penny stock rules. These disclosure requirements will likely make it more difficult for investors in this offering to sell their common stock in the secondary market.
Upon our being notified in writing by a Selling Security Holder that any material arrangement has been entered into with a broker-dealer for the sale of our common stock through a block trade, special offering, exchange distribution or secondary distribution or a purchase by a broker or dealer, a post-effective amendment to this prospectus will be filed, if required, pursuant to Rule 462(c) under the Securities Act, disclosing (i) the name of each such Selling Security Holder and of the participating broker-dealer(s), (ii) the number of shares involved, (iii) the price at which such shares of our common stock were sold, (iv)the commissions paid or discounts or concessions allowed to such broker-dealer(s). In addition, upon our being notified in writing by a Selling Security Holder that a donee or pledgee intends to sell more than 500 shares of our common stock, a post-effective amendment to this prospectus will be filed if then required in accordance with applicable securities law.
Prior to any involvement of any broker-dealer in the offering, such broker-dealer must seek and obtain clearance of the underwriting compensation and arrangements from FINRA.
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The Selling Security Holders also may transfer the shares of our common stock in other circumstances, in which case the transferees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus.
The Selling Security Holders and any broker-dealers or agents that are involved in selling the shares may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Discounts, concessions, commissions and similar selling expenses, if any, that can be attributed to the sale of Securities will be paid by the Selling Security Holder and/or the purchasers. Each Selling Security Holder has represented and warranted to us that it acquired the securities subject to this prospectus in the ordinary course of such Selling Security Holders business and, at the time of its purchase of such securities such Selling Security Holder had no agreements or understandings, directly or indirectly, with any person to distribute any such securities.
We have advised each Selling Security Holder that it may not use shares registered on this prospectus to cover short sales of our common stock made prior to the date on which this prospectus shall have been declared effective by the Commission. If a Selling Security Holder uses this prospectus for any sale of our common stock, it will be subject to the prospectus delivery requirements of the Securities Act. The Selling Security Holders will be responsible to comply with the applicable provisions of the Securities Act and Exchange Act, and the rules and regulations there under promulgated, including, without limitation, Regulation M, as applicable to such Selling Security Holders in connection with resales of their respective shares under this prospectus.
We are required to pay all fees and expenses incident to the registration of the shares.
All sales by the Company to the public through direct Primary Offering will be issued directly from the Company to the subscriber as a proceeds-generating offering for the Company.
Certain Relationships and Related Transactions
As of December 31, 2019, the Company entered into various promissory notes totaling $318,000 with a related party, Donald Steinberg the sole member and manager of Blue Ridge Enterprises, LLC (“Blue Ridge”), a California limited liability company. As of the date of this filing, the Company entered into additional promissory notes with Blue Ridge totaling $84,500 for a total of $402,500. All notes mature in 2020 and 2021. Interest will accrue at 10% from the due date thereon until all principal is paid in full. Proceeds from the loans were used for operations. On November 1, 2018, the Company entered into a KISS agreement with Blue Ridge in consideration for Blue Ridge rendering services under a consulting agreement in which Blue Ridge agreed to review the Company’s business plans, marketing and market development strategy, distribution network expansion, mergers and acquisitions, and analyzing corporate structure. Mr. Steinberg and Blue Ridge are thus associates of the Company and related parties. Consideration for the Company’s issuance of the KISS agreement included a $35,000 purchase price from Blue Ridge, and is non-interest bearing, matures twelve months from the issuance date on November 1, 2019, and has been recorded as KISS liability-related party in the current liabilities section of the Company’s balance sheet. Upon (a) the maturity date of November 1, 2019; (b) in the event of a “Next Equity Financing” where the Company sells its preferred shares from which the Company receives not less than $1 million dollars; or, (c) a corporate transaction in which all or substantially all of the Company’s assets are sold, merged or consolidated into another entity, Blue Ridge may, at its option, convert the principal of the KISS into common shares of Company. The Company’s obligation under the KISS agreement is to solely convert the KISS note upon election of Blue Ridge. As of March 31, 2020, Blue Ridge converted 1,000,000 of the conversion shares and the Company issued those shares, and is not in default under the KISS agreement. The Company calculated the estimated number of conversion shares to be 7,530,407 at March 31, 2020. The fair market value of the KISS liability- related party at both March 31, 2020 and December 31, 2019 is $1,444,761.
In July 2017, the Company entered into a $250,000 promissory note with its CEO, Matthew Wolfson. Mr. Wolfson is considered a Related Party since he is the Company’s Principal Executive Officer. The proceeds were used for operations and Regulation A+ offering costs. The promissory note began accruing interest on the interest commencement date of October 1, 2018 at 2% per annum, compounded monthly. The note payable and accrued interest of $3,775 are deemed paid in full as of December 31, 2019.
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In October 2013, the Company entered in to a $45,000 note payable with an individual related to the Company’s CEO. The proceeds were used for operations. Interest began accruing on the interest commencement date of January 1, 2018, at 2% per annum, compounded monthly. The unpaid principal balance and accrued interest is due within ten days of the maturity date on December 31, 2020. In October 2019, the related party lender of the $44,000 note-payable, converted the principal amount of $44,000 plus unpaid accrued interest into 64,215 shares of restricted common stock.
In August 2019, the Company’s CEO personally paid $100,000 to the holder of a Company note payable, reducing the amount due from the Company’s CEO.
During the year ended December 31, 2019, the Company’s CEO personally sold 693,750 shares of his common stock to several employees at par value.
The Company’s CEO personally guarantees certain amounts due under its long-term debt agreements.
In October 2019, the Company entered into an employment agreement with the Company’s CEO. The terms of the agreement include an annual base salary of $240,000 and a signing bonus of $500,000, as well as discretionary annual bonuses and participation in long-term incentive plans. The signing bonus may be paid in shares of the Company’s common stock. The agreement remains in effect until the earlier of the discharge or resignation of the CEO. In conjunction with the agreement, the $500,000 signing bonus has been accrued and included in selling, general and administrative expenses in the accompanying statement of operations during the year ended December 31, 2019.
On November 1, 2019, the Company’s board of directors and the majority of shareholders awarded CEO, Matthew Wolfson, 500,000 shares of Series A Preferred stock., which was valued at $355,000 or $.71 per share. The shares were issued as partial payment for the $500,000 signing bonus. During the three months ended March 31, 2020, the Company paid $71,540 towards the outstanding balance of the signing bonus. As of March 31, 2020, $73,460 remains due and payable.
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General
Common Shares in the Company
Our Board of Directors has created a class of shares of Common Stock designated as the shares of Common Stock. Each share of Common Stock entitles the holder to one vote on all matters on which holders are permitted to vote, including the election of directors. The Company’s shares of Common Stock do not have cumulative voting rights. The Company is authorized to issue 50,000,000 shares of $0.00001 par value shares of Common Stock. As of July 2,2020, the Company had 20,753,851 shares of Common Stock, immediately prior to this offering.
Preferred Shares in the Company
The Company has one class of Preferred Stock, which has been designated Preferred Series A. The Company has designated 1,000,000 shares of Series A Preferred, of which 500,000 shares have been issued and are outstanding. Holders of Series A Preferred hold rights to vote on all matter requiring a shareholder vote at 100 common shares vote equivalents for each share of Series A Preferred held.
Subject to the preferences that may be applicable to any outstanding classes of stock, the holders of the shares of Common Stock will share equally on a per share basis any dividends, when and if declared by the Board of Directors out of funds legally available for that purpose. If the Company is liquidated, dissolved, or wound up, the holders of the shares of Common Stock will be entitled to a ratable share of any distribution to shareholders, after satisfaction of all the Company’s liabilities and of the prior rights of any outstanding classes of the Company’s stock. Shares of Common Stock carry no preemptive or other subscription rights to purchase shares of the Company’s stock and are not convertible, redeemable, or assess-able.
The Series A Preferred Stock shall hold senior liquidation rights to all other classes of shares, including, but not limited to Common Shares.
Options to Purchase Common Shares in the Company
In 2017, the Company’s Board of Directors approved the 2017 Employee and Consultant Stock Ownership Plan, (the “Plan”). The Plan provides that the Board of Directors may grant restricted stock units, incentive stock options and non-statutory stock options to officers, key employees and certain consultants and advisors to the Company up to a maximum of 2,500,000 shares. Stock options granted under the Plan have vesting terms determined by the administrator of the Plan. Restricted stock unit grant terms will be set by the administrator and at the discretion of the administrator, be settled in cash, shares, or a combination of both.
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Options pertaining to the Equity Option Plan as of March 31, 2020 are as follows:
| Number
of shares |
Weighted Average Exercise Price |
Weighted Average Contractual term (years) |
||||||||||
| Options outstanding at December 31, 2019 | - | |||||||||||
| Granted | 651,250 | $ | 0.71 | |||||||||
| Exercised | - | - | ||||||||||
| Forfeited | (206,250 | ) | $ | 0.71 | ||||||||
| Expired | - | - | ||||||||||
| Options outstanding at March 31, 2020 | 445,000 | $ | 0.71 | 2.25 | ||||||||
| Exercisable at March 31, 2020 | 360,000 | $ | 0.71 | 2.25 | ||||||||
| Options exercisable and expected to vest at March 31, 2020 | 445,000 | $ | 0.71 | 2.25 | ||||||||
As of March 31, 2020, there are 445,000 options outstanding as follows:
| Grant date | Granted | Strike Price |
Life | Vested | Outstanding and Expected to Vest |
|||||||||||||||
| 11-Mar-19 | 100,000 | 0.71 | 10 yrs | 100,000 | 100,000 | |||||||||||||||
| 11-Mar-19 | 100,000 | 0.71 | 10 yrs | 100,000 | 100,000 | |||||||||||||||
| 11-Mar-19 | 100,000 | 0.71 | 10 yrs | 100,000 | 100,000 | |||||||||||||||
| 10-Mar-19 | 75,000 | 0.71 | 10 yrs | 25,000 | 75,000 | |||||||||||||||
| 30-Oct-19 | 70,000 | 0.71 | 10 yrs | 35,000 | 70,000 | |||||||||||||||
| 445,000 | 360,000 | 445,000 | ||||||||||||||||||
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Outstanding Warrants
There are 450,000 warrants outstanding.
100,000 of the warrants relate to a consulting agreement signed by the Company and Agility Financial Partners, LLC on September 7, 2016. The agreement grants the holder the right to acquire 100,000 Company common shares at an exercise price of $0.71. The warrants terminate on December 1, 2023.
100,000 warrants were granted May 1, 2020 pursuant to a consulting agreement signed by the Company and Agility Financial Partners, LLC on May 1, 2020. The agreement grants the holder the right to acquire 100,000 Company common shares at an exercise price of $0.52. The warrants terminate on May 1, 2025.
250,000 warrants were granted on June 4, 2020 in conjunction with a borrowing with an investor under a convertible note. The agreement grants the holder the right to acquire 250,000 Company common shares at an exercise price of $1.00. The warrant terminates June 30, 2023.
Transfer Agent
Our transfer agent is
Pacific Stock Transfer Company
6725 Via Austi Parkway
Suite 300
Las Vegas, NV 89119
The financial statements of the Company as of and for the years ended December 31, 2019 and 2018 appearing in this Prospectus and the Registration Statement of which it is a part, have been audited by an independent registered public accounting firm, as set forth in their report dated April 29, 2020, which contains an explanatory paragraph regarding the Company’s ability to continue as a going concern) appearing elsewhere herein.
INFORMATION WITH RESPECT TO THE REGISTRANT
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ TOGETHER WITH THE FINANCIAL STATEMENTS OF ElectroMedical TECHNOLOGIES, INC. AND THE NOTES TO FINANCIAL STATEMENTS INCLUDED IN THIS REGISTRATION STATEMENT. THIS DISCUSSION SUMMARIZES THE SIGNIFICANT FACTORS AFFECTING OUR OPERATING RESULTS, FINANCIAL CONDITIONS AND LIQUIDITY AND CASH-FLOW SINCE INCEPTION.
Company History and Overview
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 ElectroMedical 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, Inc. is a bioelectronics manufacturing and marketing company. We offer U.S. Food and Drug Administration (FDA) cleared medical devices for pain management.
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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.
We believe that we do this by delivering innovative solutions providing fast and long- lasting pain relief across the broadest range of ailments. We engineer simple-to-use bioelectronics therapy devices, which send a proprietary sequence of electrical signals. We believe our devices have proven to be highly effective over the past decade and have the technological capability to be used in medical research.
The Company is publicly traded on the OTC Markets Pink tier under the symbol ELCQ.
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Principal Products and Services
Our principal product, WellnessPro Plus, is an intelligent and effective bioelectronics therapy prescription device; and is used by consumers and health care professionals to relieve chronic and acute pain. Research studies have shown the efficacy of bioelectronics therapy in the treatment of chronic pain from a variety of ailments. The WellnessPro Plus is classified in the FDA as a transcutaneous electrical nerve stimulation (“TENS”) device. We believe, based on consumer and professional testimonials from the past decade that our device has been on the market, that the WellnessPro Plus treats pain conditions faster with longer-lasting relief, compared to lower cost conventional TENS devises. We attribute this in part to our proprietary algorithm and technology that we call the “DeepPulse.” With the DeepPulse there are close to one million frequency ranges to choose from to help prevent accommodation. The device can also generate micro-current stimulation.
The device sends a proprietary sequence of electrical signals that change at various times, preventing accommodation (where the body adapts to specific treatments, diminishing treatment effectiveness). Also, our proprietary DeepPulse pre-modulation technology allows signals to penetrate deeper into affected areas, which we believe produces faster, longer-lasting pain relief.
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WellnessPro POD and Wellness IONLOGIC Pen
We are planning to bring two new products to market – extending the Wellness Product line: the WellnessPro POD, our first wearable product, and the Wellness IONLOGIC Pen. We believe that the WellnessPro POD represents an exciting product line expansion as a wearable device that will be intended to treat chronic pain, PTSD, anxiety, depression and insomnia conditioned upon FDA clearance, which as of the date of this filing has neither been applied for or granted. Currently the devices are in research and development and we have no estimate as to when they may be suitable for submission to the FDA. We intend to sell these devices over-the-counter; however, some modalities on this device may only be provided with a prescription. Our target market for the WellnessPro POD is chronic pain sufferers, which is estimated to be 100 million individuals in the United States alone. We intend to focus on various segments in this market, including, but not limited to, veterans of U.S. armed forces. Our goal is to educate the medical community of the benefits of “natural”, non-invasive, non-toxic pain relief and for the WellnessPro POD to be an initial choice for practitioners to prescribe separately or in conjunction with pain medication.
Both of these new products, each in the development stage, will be designed to integrate with the WellnessPro Plus to leverage the engineering breakthroughs and intellectual property found in the WellnessPro Plus, and yet will still function as standalone devices.
WellnessPro POD
| · | The WellnessPro POD is a compact wearable device intended to keep pace with the evolution in pain management across practice segments, which will expand the possible range of treatable modalities to include PTSD, anxiety, depression and insomnia upon FDA clearance. |
WellnessIONLOGICPen
| · | The Wellness IONLOGIC Pen is a unique interferential cold laser used to deliver targeted frequency stimulation. This therapeutic laser, which we intend to sell over-the-counter, will deliver expanded wavelengths relative to comparable lasers combined with micro-stimulation. We believe this will improve circulation and tissue healing and reduce inflammation and pain. The Wellness IONLOGIC Pen will also have cosmetic applications for skin issues. |
Market
Our WellnessPro product is intended for anyone living with pain caused by various medical conditions or trauma, or who is battling pharmaceutical (e.g. opioid) dependency or addiction. The product can be purchased directly by consumers or used by healthcare practitioners, including:
| · | Chiropractors; | |
| · | Physiotherapists; | |
| · | Pain management doctors and clinicians; | |
| · | Natural medicine doctors; | |
| · | Sports medicine doctors; and | |
| · | Athletic trainers. |
According to information provided by the American Academy of Pain Medicine, at least 100 million Americans suffer from chronic pain, not including acute pain for children. We believe that Electromedical represents a tested, proven solution for different segments of the population.
We plan to address these individuals directly as well as through their healthcare providers. There are approximately 77,000 chiropractors and 123,000 physiotherapists in the United States. Combined, over 200,000 healthcare practitioners focused on rehabilitation and pain relief, including practitioners involved in sports medicine, natural medicine and pain management.
Further, we believe that our current products and products under development may help provide a solution to the opioid problem. We believe that the WellnessPro will also be highly effective for pain management and relief and could be used as an alternative, or can be prescribed in conjunction with pain medication, to reduce the amount of deaths and addictions due to Opioid abuse and misuse.
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Competition
We operate in the pain management, rehabilitation and physical therapy market. We not only compete with other similar devices that treat pain and other medical ailments, but also with traditional treatment approaches such as drug prescriptions and surgery and rehabilitation therapy and complementary medical practices such as acupuncture. Further, our competitors include several large, diversified companies who have more financial, marketing and other resources, distribution networks and greater name recognition than us. These competitors include: Galvani Bioelectronics, Medtronic and DJOGlobal-Chatanooga. Historically, Electromedical has competed in the “electromedical” and “bio-electrotherapy” device segment, including the crowded TENS market, which now includes inexpensive TENS devices such as the devices produced by “IcyHot.”
Strategy
Electromedical Technologies, for the first fifteen years of its existence, has been fortunate to have grown “organically” without formal sales and marketing programs and investments. We believe this is because of our product’s ability to deliver pain relief and a resulting better quality of life and wellness for thousands of customers, many who shared their stories of recovery, which can be found on our website. We believe that those testimonials influenced thousands of people living with ailments and pain to turn to the WellnessPro for relief. In 2019 and beyond, Electromedical will engage in a comprehensive and fully integrated marketing program to increase sales and build the Electromedical brand. The integrated marketing program will include the following elements:
Website marketing. |
| o | Using sophisticated tools integrated with our website, such as marketing automation, we will automate the process of nurturing web visitors and increasing sales. |
| · | Digital marketing. |
| o | Using advanced approaches for improving Electromedical’s organic and paid search optimization results, we will increase traffic to and sales from our website. |
| · | Social marketing and advertising. |
| o | Using a comprehensive approach to marketing across the primary social channels (twitter, LinkedIn, Facebook, YouTube, Instagram), we will engage consumers and influencers (associations), elevate the brand and increase sales directly and indirectly. |
| o | Social marketing will also include the thoughtful use of Facebook ads and LinkedIn sponsored posts to drive web traffic and increase sales. |
| · | Content marketing. |
| o | Using a thoughtful approach to newsletters and blog content, we will elevate the brand and increase sales directly and indirectly. |
| · | Partner and association marketing. |
| o | We will selectively identify associations and partners that can help elevate the brand and increase sales. Examples of associations that we intend to target include the American Chiropractic Association, which may provide an important opportunity to increase awareness, exercise thought leadership and drive sales. |
| · | Trade show marketing |
| o | We will evaluate and participate in selective medical device and wellness trade shows, which elevate the brand and increase sales. |
In addition to a comprehensive marketing program, Electromedical will make strategic investments in sales staff, training and support, all intended to expand distribution and sales.
| · | Sales Staff: Electromedical intends to hire a Sales Director to further develop its business opportunities on various geographic areas. |
| · | National Technical Training Manager: Electromedical intends to hire a National Technical Training Manager to develop and implement training programs. |
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Our Advantages
Why Bioelectronics?
We believe Bioelectronic medicine represents an evolution in electrotherapy, which brings together electronics and biology for the treatment of pain. This evolution corresponds with Electromedical’s bioelectrical engineering focus for more than 15 years.
The bioelectronics field has recently seen more interest with announcements such as British pharmaceutical giant GlaxoSmithKline and Google’s parent company Alphabet forming a new company, Galvani Bioelectronics. Also, industry leaders such as General Electric are also making investments in bioelectronics. Electromedical believes bioelectronics will change medical science forever and how people are treated for their conditions; with non-invasive products that will be able to read and modify electrical signals passing along nerves and cells in the body, to restore health.
As reported in the Wall Street Journal, July 2016, Kevin Tracey, president and chief executive officer of the Feinstein Institute for Medical Research, commented “we live in a pharmacocentric culture today, where the world revolves around a drug for everything in a trillion-dollar pharmaceutical industry,” he says. “But when I talk to patients…people don’t want to take drugs.” According to the Feinstein Institute, “bioelectronics medicine is a scientific discipline that brings together molecular biology, neurophysiology, neurotechnology and analytics to develop nerve-stimulating technologies to regulate the molecular targets underlying disease. This approach promises to deliver therapies superior to pharmaceuticals in terms of efficacy, safety, and cost, without significant side effects.”
The field of bioelectronic medicine is focused on fighting diseases by delivering targeted electrical signals into the body and utilizing existing nervous-system connections linking the brain to every part of the body. Our WellnessPro product stimulates the peripheral nerves that send information about touch and vibration. The signals from the stimulated nerves interfere with pain signals traveling to the brain, which reduces the brain’s perception of pain, and stimulate naturally occurring pain relievers (e.g. dopamine).
Electromedical – a possible answer to the Growing Opioid Problem?
It is our goal and passion to significantly help reduce people’s dependency on pharmaceutical drugs and subsequently drug abuse – specifically from dangerous and highly addictive opioid narcotics. We think it is time to be bold and aggressive with our technology and commitment to help people who suffer from chronic and often crippling pain. We believe that the amount of data around opioid abuse due to chronic pain is staggering. According to a report published by the National Institute on Drug Abuse, “between 26.4 million and 36 million people abuse opioids worldwide, with an estimated 2.1 million people in the United States suffering from substance use disorders related to prescription opioid pain relievers in 2012.”
We support the effort and awareness for the opioid epidemic. People are dying, families are suffering, and the addictions are real. We believe that our WellnessPro product will bring a drug-free solution to those suffering with chronic pain and offers real relief.
Groundbreaking research at the Minneapolis VA has found no long-term benefits for patients taking opioid medications for chronic pain — a finding that we believe is likely to strengthen the case for reducing use of the addictive medications that have been responsible for a sharp rise in drug overdoses and deaths.
Distribution
Currently, we sell our WellnessPro product to consumers through a network of independent sales representatives and distributors, domestically and internationally, as well as through the Company website. These channels for Electromedical include:
| · | Private citizens that elect to start a business reselling Electromedical products; | |
| · | Professional distributors and independent sales representatives which currently sell medical devices into our target markets (chiropractic, physiotherapy, sports medicine, etc.); and | |
| · | Healthcare professionals who not only administer treatments using the WellnessPro product to patients. Healthcare professionals in this channel include, chiropractors, physiotherapists, pain management doctors and clinicians, natural medicine doctors, sports medicine doctors and athletic trainers. |
We recently signed independent sales representative and licensing agreement to open Electromedical de Mexico and develop a network of local sales representatives. This sales representative has a network of 200 representatives in Mexico.
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Manufacturing
We outsource our inventory production to a number of manufacturers in the United States and in Asia, ship these components to the United States where final assembly, testing and quality assurance takes place. We then ship completed products from U.S. locations to our customers. Our primary manufacturer is located in the Shenzhen province of The People’s Republic of China, which is one of the major manufacturing hubs in the southern part of the country. Products manufactured at this site are packaged locally for transit and then shipped out of the port of Shenzhen to our headquarters location in Arizona or to other sites in the U.S. for final assembly. We believe our relationship with all of our manufacturing partners is excellent. The final WellnessPro package assembly is completed in the United States. In addition, to sourcing our own factories, the Company uses a U.S. based global sourcing provider to source and manage, including performing quality assurances, our manufacturers based in Asia, primarily in China. We are currently looking to source additional vendors to help expand the geographic diversity of our manufacturing facilities and are considering moving our manufacturing to the United States and negotiating directly with more of our manufacturers.
Research and Development
We maintain an active research and development program. Research and development costs are expensed as incurred. Research and development costs amounted to $0 and $21,081 during the three months ended March 31, 2020 and 2019, respectively and are included in selling, general and administrative expenses on the accompanying statement of operations.
Employees
We currently have five full-time employees working out of Scottsdale, Arizona.
Regulation
Medical devices are regulated by the Food and Drug Administration (the “FDA”) in the United States and can be regulated by foreign governments for devices sold internationally. The Company has medical device certifications in the USA (FDA) and Mexico (COFEPRIS) and is ISO 13485:2016 certified.
The Federal Food, Drug and Cosmetic Act and regulations issued by the FDA regulate testing, manufacturing, packaging, and marketing of medical devices. Under the current regulations and standards, we believe that our devices are subject to general controls, including compliance with labeling and record-keeping rules. In addition, our medical devices require pre-market approval, which for TENS devices can be achieved through a 510(k) premarket notification submission.
Further, our manufacturing processes and facilities are also subject to regulations, including the FDA’s QSR requirements (formerly Good Manufacturing Practices). These regulations govern the way we manufacture our products and maintain documentation for our manufacturing, testing and control activities. In addition, to the extent we manufacture and sell products abroad, those products are subject to the relevant laws and regulations of those countries.
The FDA requires us to retain records for variable periods of time. We are compliant will all FDA record keeping requirements, including this outline in Title 21, Volume 8, Part 820 – Quality System Regulations, revised April 1, 2019, which states:
| · | All records required by this part shall be maintained at the manufacturing establishment or other location that is reasonably accessible to responsible officials of the manufacturer and to employees of FDA designated to perform inspections. Such records, including those not stored at the inspected establishment, shall be made readily available for review and copying by FDA employee(s). Such records shall be legible and shall be stored to minimize deterioration and to prevent loss. Those records stored in automated data processing systems shall be backed up. |
| · | Confidentiality. Records deemed confidential by the manufacturer may be marked to aid FDA in determining whether information may be disclosed under the public information regulation in part 20 of this chapter. |
(b) Record retention period. All records required by this part shall be retained for a period of time equivalent to the design and expected life of the device, but in no case less than 2 years from the date of release for commercial distribution by the manufacturer.
(c) Exceptions. This section does not apply to the reports required by 820.20(c) Management review, 820.22 Quality audits, and supplier audit reports used to meet the requirements of 820.50(a) Evaluation of suppliers, contractors, and consultants, but does apply to procedures established under these provisions. Upon request of a designated employee of FDA, an employee in management with executive responsibility shall certify in writing that the management reviews and quality audits required under this part, and supplier audits where applicable, have been performed and documented, the dates on which they were performed, and that any required corrective action has been undertaken.
The Title also outlines requirements for non-compliance and complaints from customers in additional sections. We maintain full compliance with such sections:
(a) Each manufacturer shall maintain complaint files. Each manufacturer shall establish and maintain procedures for receiving, reviewing, and evaluating complaints by a formally designated unit. Such procedures shall ensure that:
(1) All complaints are processed in a uniform and timely manner;
(2) Oral complaints are documented upon receipt; and
(3) Complaints are evaluated to determine whether the complaint represents an event which is required to be reported to FDA under part 803 of this chapter, Medical Device Reporting.
(b) Each manufacturer shall review and evaluate all complaints to determine whether an investigation is necessary. When no investigation is made, the manufacturer shall maintain a record that includes the reason no investigation was made and the name of the individual responsible for the decision not to investigate.
(c) Any complaint involving the possible failure of a device, labeling, or packaging to meet any of its specifications shall be reviewed, evaluated, and investigated, unless such investigation has already been performed for a similar complaint and another investigation is not necessary.
(d) Any complaint that represents an event which must be reported to FDA under part 803 of this chapter shall be promptly reviewed, evaluated, and investigated by a designated individual(s) and shall be maintained in a separate portion of the complaint files or otherwise clearly identified. In addition to the information required by 820.198(e), records of investigation under this paragraph shall include a determination of:
(1) Whether the device failed to meet specifications;
(2) Whether the device was being used for treatment or diagnosis; and
(3) The relationship, if any, of the device to the reported incident or adverse event.
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(e) When an investigation is made under this section, a record of the investigation shall be maintained by the formally designated unit identified in paragraph (a) of this section. The record of investigation shall include:
(1) The name of the device;
(2) The date the complaint was received;
(3) Any unique device identifier (UDI) or universal product code (UPC), and any other device identification(s) and control number(s) used;
(4) The name, address, and phone number of the complainant;
(5) The nature and details of the complaint;
(6) The dates and results of the investigation;
(7) Any corrective action taken; and
(8) Any reply to the complainant.
The FDA provides the follow chart concerning its commitment to provide comments to company that submit for 501(K) clearance. There can be no assurance our process will be similar to what is outlined in the chart provided as there are many variable and exceptions to the overall clearance process. Additional information can be obtain at the following link: https://www.fda.gov/about-fda/510k-submission-process
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Source: U.S. Food and Drug Administration
Finally, the labeling of our devices, our promotional activities and marketing materials are regulated by the FDA and various state agencies. Activities that are constrained by these regulations include the marketing of our products for “off-label” usage; that is, recommendations to use our products for purposes other than what is indicated in the labeling. Violations of this requirement may result in administrative, civil or criminal actions against the manufacturer or seller by the FDA or governing state agencies.
Intellectual Property
We have the following registered trademarks in the United States: IONLOGIC®, Wellness+Plus Pro®, Wellness Pro POD®, IDNA Interactive Dynamic Neuro Adaptation®, Deep Pulse®, WellnessPro® and Electromedical Technologies®. The U.S. Patent and Trademark Office issued us a design patent for our “Combination Transcutaneous Electrical Nerve Stimulation Devise and Microcurrent Electrical Neuromuscular Stimulator.” This patent expires on August 28, 2022. In addition, our Wellness POD utility patent is pending.
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Litigation
From time to time, we may be involved in various claims and legal actions arising in the ordinary course of business. The company is not involved in any litigation, and its management is not aware of any pending or threatened legal actions relating to its intellectual property, conduct of its business activities, or otherwise.
The Company owns the over 5,000 square foot office warehouse unit where its headquarters is located at 16561 N. 92nd Street, Unit D101, Scottsdale, Arizona.
From time to time and in the course of business, we may become involved in various legal proceedings seeking monetary damages and other relief. The amount of the ultimate liability, if any, from such claims cannot be determined. As of the date of this filing, there were no legal claims currently pending or threatened against us that in the opinion of Management would be likely to have a material adverse effect on our financial position, results of operations or cash flows.
There are no legal proceedings against the Company.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
Shares of Common Stock trades under the symbol “ELCQ” on the OTC Markets Quotation System.
The OTC Markets Quotation System is quotation service that display real-time quotes, last-sale prices and volume information in over-the-counter equity securities. The market is limited for our stock and any prices quoted may not be a reliable indication of the value of our shares of Common Stock. The following Table 1sets forth the high and low bid prices per share of our shares of Common Stock by both the OTC Bulletin Board and OTC Markets for the periods indicated.
| For the Period Ending | High | Low | ||||||
| Third Quarter, 2019(1) | $ | 2.78 | $ | 1.00 | ||||
| Fourth Quarter, 2019 | $ | 1.94 | $ | 1.94 | ||||
| First Quarter, 2020 | $ | 2.05 | $ | 0.30 | ||||
| Second Quarter, 2020 | $ | 1.14 | $ | 0.30 | ||||
(1)The Company’s common stock began trading on August 14, 2019.
Holders of Record
As of July 3, we have 20,753,851 of our Common Stock issued and outstanding immediately prior to this offering held by approximately 86 shareholders of record.
Dividends
We have not paid, nor declared any cash dividends since our inception and do not intend to declare or pay any such dividends in the foreseeable future. Our ability to pay cash dividends is subject to limitations imposed by state law.
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MANAGEMENT’S DISCUSSION AND ANALYSIS
This discussion and analysis may include statements regarding our expectations with respect to our future performance, liquidity, and capital resources. Such statements, along with any other non-historical statements in the discussion, are forward-looking. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, factors listed in other documents we file with the Securities and Exchange Commission (the “SEC’’). We do not assume an obligation to update any forward-looking statements. Our actual results may differ materially from those contained in or implied by any of the forward-looking statements contained herein.
Overview and Financial Condition
Going Concern
The Company sustained continued operating losses during the years ended December 31, 2019 and 2018. The Company’s continuation as a going concern is dependent on its ability to generate sufficient cash flows from operations to meet its obligations, in which it has not been successful, and/or obtaining additional financing from its shareholders or other sources, as may be required.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern; however, the above conditions raise substantial doubt about the Company’s ability to do so. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets, or the amounts and classifications of liabilities that may result, should the Company be unable to continue as a going concern.
Management is endeavoring to commence revenue-generating operations. 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.
Results of Operations
The following table sets forth the results of our operations for the years ended December 31, 2019 and 2018.
| For the years ended December 31 | ||||||||
| 2019 | 2018 | |||||||
| Net Sales | $ | 829,737 | $ | 675,383 | ||||
| Cost of goods sold: | 238,516 | 168,716 | ||||||
| Gross profit | 591,221 | 506,667 | ||||||
| Operating Expenses | 2,259,848 | 787,370 | ||||||
| Loss from operations | (1,668,627 | ) | (280,703 | ) | ||||
| Other expense | (75,712 | ) | (1,669,714 | ) | ||||
| Net Loss | $ | (1,744,339 | ) | $ | (1,950,417 | ) | ||
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The following table sets forth the results of our unaudited operational results for the three months ended March 31, 2020 and 2019.
| For the three months ended | ||||||||
| March 31, | ||||||||
| 2020 | 2019 | |||||||
| Net Sales | $ | 214,870 | $ | 175,002 | ||||
| Cost of Goods Sold | 64,513 | 60,081 | ||||||
| Gross profit | 150,357 | 114,921 | ||||||
| Operating Expenses | 588,150 | 894,851 | ||||||
| Loss from operations | (437,793 | ) | (779,930 | ) | ||||
| Other expense | (13,448 | ) | (39,039 | ) | ||||
| Net Loss | $ | (451,241 | ) | $ | (818,969) | |||
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Operating Results
January 1, 2020 through March 31, 2020 Compared to January 1, 2019 through March 31, 2019
Our sales totaled $214,870 for the three-month period ended March 31, 2020 and $175,002 for the three- month period ended March 31, 2019. The increase is primarily related to an increase in the average selling price of the units sold.
Cost of sales and gross margins for the three-month period ended March 31, 2020 and for the three-month period ended March 31, 2019 were $64,513 and 70% and $60,081 and 66%, respectively. Our cost of sales consists of the cost of materials and distribution expenses. The increase in gross margin is primarily attributed to an increase in average selling price including pricing to certain distributors and the release and sale of previously written off inventory. 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.
Selling, general and administrative expenses consist primarily of payroll, commissions, professional fees, sales and marketing, research and development and other operating expenses. Selling, general and administrative expenses totaled $588,150 for the three-month period ended March 31, 2020 and $894,851 for the three-month period ended March 31, 2019, a decrease of $306,701 or about 34%. The change is primarily due to decreases in stock-based compensation expense of $324,879, and put-option financing costs of $75,387, partially offset by increases in payroll related expenses of $51,627, commission expense of $13,907, professional fees of $12,285 and consulting fees of $14,619. Stock-based compensation expense in the three-month period ended March 31, 2019 includes $492,563 related to the sale by the Company’s CEO of 693,750 shares of common stock to certain employees at par value. The increase in payroll related expenses in the three-month period ended March 31, 2020 is primarily related to the Company CEO’s employment agreement entered into in October 2019, partially offset by a decrease in medical insurance premiums.
As a result of the foregoing, we recorded a net loss of $451,241 for the three-month period ended March 31, 2020, compared to a net loss of $818,969 for the three-month period ended March 31, 2019. The decrease in net loss is primarily attributed to the decrease in selling, general and administrative expenses, the change in fair value of the Kiss Liability-related party and increased gross profit. The change in the fair market value of the KISS liability- related party was insignificant during the three-month period ended March 31, 2020 as compared to a decrease in value in the three-month period ended March 31, 2019 of $25,877.
January 1, 2019 through December 31, 2019 Compared to January 1, 2018 through December 31, 2018
Our sales totaled $829,737 for the year ended December 31, 2019 and $675,383 for the year ended December 31, 2018. Refocused sales and marketing efforts after the 2018 Reg A+ offering contributed to the increase, also resulting in an increase in units sold. In addition, the Company experienced a shortage of inventory in the last two months of 2018. The Company is continuing in its efforts to increase its sales but there is no guarantee that it will be able to do so.
Cost of sales and gross margins for the year ended December 31, 2019 and for the year ended December 31, 2018 were $238,516 and 71% and $168,716 and 75%, respectively. Our cost of sales consists of the cost of materials and distribution expenses. The decrease in gross margin is primarily attributed to a decrease in average selling price including pricing to certain distributors. 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.
Selling, general and administrative expenses consist primarily of payroll, commissions, professional fees, sales and marketing, research and development and other operating expenses. Selling, general and administrative expenses totaled $2,259,848 for the year ended December 31, 2019 and $787,370 for the year ended December 31, 2018, an increase of $1,472,478 or about 187%. The change is primarily due to stock-based compensation expense of $801,287, $112,000 in CEO salary and a $500,000 signing bonus in conjunction with the newly signed employment agreement with the Company’s CEO.
As a result of the foregoing, we recorded a net loss of $1,744,339 for the year ended December 31, 2019, compared to a net loss of $1,950,417 for the year ended December 31, 2018. The decrease in net loss is primarily attributed to the increase in selling, general and administrative expenses, offset by the change in fair value of the related party Kiss Liability and increased gross profit.
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Other expense consisted primarily of interest expense and change in fair value of the related party convertible note. The Company had net other expense of $1,669,714 for the year ended December 31, 2018, which includes $86,463 of interest expense and $1,586,805 of expense related to the fair market value adjustment to the Company’s KISS liability-related party. Interest expense increased by approximately $33,000 in 2018 from $53,707 to $86,463. In November 2018, the Company entered into an agreement with a key supplier, whereby the Company exchanged 247,565 shares of restricted common stock at a price of $0.71 per share as payment in full for the outstanding amount due the supplier of $175,771. The amount due the supplier included finance fees of approximately $29,000.
As a result of the foregoing, we recorded a net loss of $1,950,417 for the year ended December 31, 2018, compared to a net loss of $510,412 for the year ended December 31, 2017.
Liquidity and Capital Resources
The Company had three long-term promissory notes entered into prior to 2018. As of December 31, 2018, the first note had an outstanding balance of $157,000 (the “First Note”) and the second note had an outstanding balance of $44,000 to a related party (the “Second Note”). For both the First Note and the Second Note, interest began accruing on the interest commencement date of January 1, 2018, at 2% per annum, compounded monthly. The unpaid principal balance and accrued interest is due within ten days of the maturity date on December 31, 2020.
In August 2019, the Company’s CEO personally repaid $100,000 to the holder of the $157,000 long-term note payable which was recorded as a reduction of the CEO’s amount due the Company. In October 2019, the lender converted the remaining balance of $57,000 and unpaid accrued interest of $5,373 into 87,849 shares of common stock.
In October 2019, the related party lender converted the principal amount of $44,000 plus unpaid accrued interest of $1,592 into 64,215 shares of common stock
In July 2017, the company entered into a third promissory note to the Company’s CEO (the “Third Note”), for $250,000. The promissory note began accruing interest on the interest commencement date of October 1, 2018 at 2% per annum, compounded monthly. The unpaid principal balance and accrued interest is due within ten days of the maturity date on September 30, 2020. During 2019 and 2018, the amount was offset against amounts receivable form the Company’s CEO. The note payable and accrued interest are deemed paid in full as of December 31, 2019.
In May 2018, the Company borrowed $25,000 in conjunction with a convertible promissory note. The note matures in June 2020 and accrues interest at a rate of 8% per annum. The lender has the right at any time to convert the debt into fully paid and non- assessable shares of common stock at a price of $0.71 per share. The proceeds were used for operations. In October 2019, the lender of the $25,000 convertible note-payable converted the principal amount of $25,000 plus unpaid accrued interest of $2,948 into 39,363 shares of common stock.
As of December 31, 2019, the Company entered into various promissory notes totaling $318,000 with a related party. As of the date of this filing, the Company entered into additional promissory notes totaling $84,500 for a total of $402,500. All notes mature in 2020 and 2021. Interest will accrue at 10% from the due date thereon until all principal is paid in full. Proceeds from the loans were used for operations. On November 1, 2018, The Company entered into KISS agreement with this related party for a purchase price of $35,000. The purchase price of the KISS agreement is non-interest bearing, matures twelve months from the issuance date on November 1, 2019 and has been recorded as KISS liability- related party in the current liabilities section of the Company’s balance sheet. Upon (a) after the maturity date of November 1, 2019; (b) in the event of a “Next Equity Financing” where the Company sells its preferred shares from which the Company receives not less than $1 million dollars; or, © a corporate transaction in which all or substantially all of the Company’s assets are sold, merged or consolidated into another entity, the investor may, at his discretion, convert the principal of the KISS into common shares of Company. The Company’s obligation is to convert the KISS note upon election of the investor. To date, the investor elected to convert one million shares and the Company fulfilled its obligation and is not in default.
Under the terms of the agreement, the KISS agreement may be converted into a certain amount of “Conversion Shares” at the earlier of the Company’s “Next Equity Financing” or “Corporate Transaction” as defined in the agreement, or at maturity. In October 2019, the related party converted 1,000,000 of the conversion shares. The Company has calculated the estimated number of conversion shares to be 7,530,407 at March 31, 2020. The fair market value of the convertible note at March 31, 2020 is $1,444,761.
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In September 2015, the company entered into a credit agreement for a $700,000 term loan with Bank of America, N.A. The monthly payments are currently $4,574 until September 30, 2025, in which the remaining unpaid principal balance and accrued interest is due. The interest rate is 4.95% per annum for the remaining life of the term loan. The term loan is collateralized by a deed of trust in the company’s property located at 16561 N. 92nd Street, Unit D101, Scottsdale, Arizona. The loan is also personally guaranteed by Matthew Wolfson. The net principal balance outstanding on the term loan at March 31, 2020 was $590,339.
In March 2020, the Company entered into an agreement with the financial institution to defer its monthly payments for three months through May 2020. Such payments and additional accrued interest have been deferred to the maturity date of the loan.
In October 2019, the Company entered into a future revenue sale agreement. Under the terms of the agreement, the Company agrees to sell $73,336 of its future revenues for a purchase price of $50,500 less transaction fees of $3,115 for a net advance of $47,385. Payments of $375 per day are to be made for principal and interest until the $73,336 is paid in full. The note payable is estimated to be paid in full in 2020.
In December 2019, the Company borrowed $50,000 in conjunction with a convertible promissory note. The note matures in May 2020 and is interest free. The lender has the right at any time to convert the debt into fully paid and non- assessable shares of common stock at a price of $0.71 per share. There is no beneficial conversion feature as the conversion price is at fair market value. The proceeds were used for operations.
In October 2019, the Company’s board of directors and a majority of shareholders eligible to vote, adopted a resolution increasing the number of authorized common shares from Twenty-Five Million (25,000,000) to Fifty Million (50,000,000).
On November 1, 2019, the Company’s board of directors and a majority of shareholders eligible to vote adopted a resolution designating a new Series A Preferred Stock. One Million (1,000,000) shares were authorized.
On November 1, 2019, the Company’s board of directors and the majority of shareholders awarded CEO, Matthew Wolfson, Five Hundred Thousand (500,000) shares of the new Series A Preferred stock.
In January 2020, the Company issued 10,355 shares of common stock to a vendor as settlement for a liability totaling $7,532.
In February 2020, the Company issued 200,000 shares of common stock in conjunction with a twelve-month agreement for consulting services at a value of $102,000 or $0.51 per share. The value of the consulting services has been recorded as selling, general and administrative expenses in the Company’s statement of operations. The fair market value of the shares was determined based the on the Company’s closing price on the date of issuance.
In February 2020, the Company entered into a six- month consulting agreement with a third party. In conjunction with the agreement, the Company issued the third party 400,000 shares of common stock at a value of $188,000 or $0.47 per share, with the option to issue an additional 900,000 shares at the Company’s discretion. The value of the consulting services has been recorded as selling, general and administrative expenses in the Company’s statement of operations. The fair market value of the shares was determined based the on the Company’s closing price on the date of issuance.
In April 2020, the Company issued 2,000,000 shares of common stock to one of its employees as compensation.
In April 2020, the Company received $39,500 in payroll protection program loans (“PPP”). These loans provide for certain funding based on previous employment which in part may be forgivable under certain conditions. The remaining portion needs to be repaid over 2 years with a 6-month moratorium on payments and carry a 1% annual interest rate. These loans require no collateral nor personal guarantees.
On May 1, 2020, the Company issued a warrant to a third party to purchase 100,000 shares of the Company’s common stock at an exercise price of $01.33 per share. The warrant is fully vested upon issuance and expires May 1, 2025.
In June 4, 2020 (“Issuance Date”), the Company borrowed $110,000 in conjunction with an unsecured convertible promissory note from an investor (“Investor”). Proceeds of $100,000 include an original issue discount of $10,000. A one-time charge of 8% will be applied to the principal amount of $110,000 on the Issuance Date to be paid upon maturity. The note matures on December 15, 2020. The lender has the right at any time to convert the debt into fully paid and non- assessable shares of common stock at a price of $0.35 per share. The number of shares of common stock issuable upon conversion of any conversion amount shall be equal to the quotient of dividing the conversion amount by the conversion price of $0.35.
The Company shall at all times reserve and keep available out of its authorized common stock a number of shares equal to at least 5 times the full number of shares of common stock issuable upon conversion of all outstanding amounts under this note. The Company will at all times reserve at least 5,000,000 shares of common stock for conversion.
At any time within the 90 day period immediately following the Issuance Date, the Company shall have the option, upon 10 business days’ notice to pre-pay the entire remaining outstanding principal amount of this note in cash, provided that (i) the Company shall pay 130% of the outstanding balance, (ii) such amount must be paid in cash on the next business day following such 10 business day notice period, and (iii) the holder of the note may still convert this note pursuant to the terms hereof at all times until such prepayment amount has been received in full.
For a period of 90 days following the Issuance Date, the Company shall not at any time make any Variable Security Issuances (as defined below) to anyone other than Investor without Investor’s prior written consent, which consent may be granted or withheld in Investor’s sole and absolute discretion. “Variable Security Issuance” shall mean any issuance of any security that (i) has or may have conversion rights of any kind, contingent, conditional or otherwise, in which the number of shares that may be issued pursuant to such conversion right varies with the market price of the common Stock, or (ii) is or may become convertible into common Stock (including without limitation convertible debt, debentures, warrants or convertible preferred stock), with a conversion price that varies with the market price of the common stock, even if such security only becomes convertible following an event of default, the passage of time, or another trigger event or condition
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Upon the occurrence of any Event of Default (without the need for any party to give any notice or take any other action), the outstanding balance shall immediately and automatically increase to 120% of the outstanding balance immediately prior to the occurrence of the Event of Default (the “Default Sum”). Upon the occurrence of any Event of Default, the note shall become immediately due and payable.
The proceeds were used for operations.
In conjunction with the above note, the Company issued 100,000 shares of common stock to the Investor as well as a warrant to purchase 250,000 shares of the Company’s common stock at an exercise price of $1.00 per share. The warrant matures on June 30, 2023.
On June 15, 2020, the Company received a total of $50,000 from an investor in exchange for 142,857 shares of common stock of the Company at a price of $0.35 per share.
In June 2020, the Company received a $150,000 economic injury disaster loan (“EIDL”). The loan accrues interest at a rate of 3.75% annually and is collateralized by all personal property and intangible assets of the Company. The loan has a 12-month moratorium on payments, after which monthly principal and interest payments of $731 will be made through the maturity date of June 2050.
On July 2, 2020, the holder of the Company’s convertible promissory note communicated its intent to convert the $50,000 into 70,422 shares of common stock. As of the date of this filing, the Company has not issued the shares.
As of March 31, 2020, the Company’s cash on hand was $38,881. Since inception, the Company has incurred approximately $5.7 million of accumulated net losses, which includes approximately $1.6 million related to the adjustment to fair market value of the Company’s related party KISS liability. In addition, during the three months ended March 31, 2020, the Company provided $699 of cash from operations and had a working capital deficit of $2,362,407. These factors raise substantial doubt regarding the Company's ability to continue as a going concern. The Company expects to obtain funding through additional debt and equity placement offerings until it consistently achieves positive cash flows from operations. If the Company is unable to obtain additional funding, it may not be able to meet all of its obligations as they come due for the next twelve months. The continuing viability of the entity and its ability to continue as a going concern is dependent upon the entity being successful in its continuing efforts in growing its revenue base and/or accessing additional sources of capital, and/or selling assets.
On January 30, 2020, the World Health Organization declared the COVID-19 outbreak a “Public Health Emergency of International Concern” and on March 10, 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 area in which the Company operates. While it is unknown how long these conditions will last and what the complete financial effect will be to the company, COVID-19 has had an adverse effect on our business, including our supply chains and distribution systems. While we are taking diligent steps to mitigate disruptions to our supply chain, we are unable to predict the extent or nature of these impacts at this time to our future financial condition and results of operations.
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None.
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names and ages of our current directors and executive officers, the principal offices and positions held by each person, and the date such person became a director or executive officer. Our executive officers are appointed by the Board of Directors. The directors serve one-year terms until their successors are elected. The executive officers serve terms of one year or until their death, resignation or removal by the Board of Directors. Unless described below, there are no family relationships among any of the directors and officers.
The following table presents information with respect to our officers, directors and significant employees as of July 3, 2020:
| Name | Age | Position | ||
| Matthew Wolfson | 48 | Chief Executive Officer, President, Chief Financial Officer, Sole Director |
Biographical Information Regarding Officers and Directors
Mr. Wolfson has been our sole officer and director since inception. Matthew Wolfson is a Phoenix based entrepreneur with a keen interest in technology and design. He is the founder of Electromedical Technologies, Inc. and has been the CEO and has worked full-time for the Company since he began researching and developing the WellnessPro in 2003.
As an entrepreneur he has been involved in several successful companies, in the early 90’s, Matthew Wolfson co-founded Globalcom 2000 and entered into the prepaid phone card business, which at that time was an almost unknown market. Globalcom 2000 became one of the largest phone card companies in the United States.
In 1994, he developed an interest in the telecom “International Callback” business and co-founded One World Communications. He subsequently travelled the world, opening up over 150 training centers and helped create the world’s largest International global sales force selling telecom services.
Term of Office
All of our directors are appointed for a one-year term to hold office until the next annual meeting of stockholders and until their successors are elected and qualified, or until their earlier death, retirement, resignation or removal. Executive officers serve at the discretion of the Board of Directors, and are elected or appointed to serve until the next Board of Directors meeting following the annual meeting of stockholders. Our executive officers are appointed by our Board of Directors and hold office until removed by the Board.
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Involvement in Certain Legal Proceedings
To the best of our knowledge, during the past five years, none of the following occurred with respect to a present director (or person nominated to become director), executive officer, founder, promoter or control person: (1) any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; (2) any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); (3) being subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his or her involvement in any type of business, securities or banking activities; and (4) being found by a court of competent jurisdiction (in a civil action), the SEC or the Commodities Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated.
Code of Ethics
We have adopted a corporate code of ethics. We believe our code of ethics is reasonably designed to deter wrongdoing and promote honest and ethical conduct; provide full, fair, accurate, timely and understandable disclosure in public reports; comply with applicable laws; ensure prompt internal reporting of code violations; and provide accountability for adherence to the code. To the knowledge of the Company, there have been no reported violations of the Code of Ethics.
Whistleblower Procedures Policy
In accordance with the requirements of Section 301 of the Sarbanes-Oxley Act of 2002, the Board of Directors of the Company has adopted a Whistleblower Procedures Policy, stating that all employees of the Company are strongly encouraged to report any evidence of financial irregularities which they may become aware of, including those with respect to internal controls, accounting or auditing matters. Under the Whistleblower Procedures Policy, the management of the Company shall promptly and periodically communicate to all employees with access to accounting, payroll and financial information the means by which they may report any such irregularities. In the event an employee is uncomfortable for any reason reporting irregularities to his or her supervisor or other management of the Company, employees may report directly to any member of the Board of Directors of the Company. The identity of any employee reporting under these procedures will be maintained as confidential at the request of the employee, or may be made on an anonymous basis. Notice must be provided to all of the Company’s employees with access to accounting, payroll and financial information in respect of these procedures.
The Company does not have any Committees of the Board
CORPORATE GOVERNANCE
Director Independence
We are not listed on a major U.S. securities exchange and, therefore, are not subject to the corporate governance requirements of any such exchange, including those related to the independence of directors. Upon our listing on any national securities exchange or any inter-dealer quotation system, we will elect such independent directors as is necessary under the rules of any such securities exchange.
Board Leadership Structure
We currently have one executive officer who is also a Director. Our Board has reviewed the Company’s current Board leadership structure. In light of the Company’s size, nature of the Company’s business, regulatory framework under which the Company operates, stockholder base, the Company’s peer group and other relevant factors, the Company has determined that this structure is currently the most appropriate Board leadership structure for our company. Nevertheless, the Board intends to carefully evaluate from time to time whether our current structure should be modified based on what the Board believes is best for the Company and our stockholders.
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Board Role in Risk Oversight
Risk is inherent in every business, and how well a business manages risk can ultimately determine its success. We face a number of risks, including strategic risks, enterprise risks, financial risks, and regulatory risks. While our management is responsible for day to day management of various risks we face, the Board, as a whole, is responsible for evaluating our exposure to risk and to satisfy itself that the risk management processes designed and implemented by management are adequate and functioning as designed. The Board reviews and discusses policies with respect to risk assessment and risk management. The Board also has oversight responsibility with respect to the integrity of the Company’s financial reporting process and systems of internal control regarding finance and accounting, as well as its financial statements.
Audit Committee
The Board does not currently have a standing Audit Committee. The full Board performs the principal functions of the Audit Committee. The full Board monitors our financial reporting process and internal control system and reviews and appraises the audit efforts of our independent accountants.
Compensation Committee
The Board does not currently have a standing Compensation Committee. The full Board establishes our overall compensation policies and reviews recommendations submitted by our management.
Nominating Committee
The Board does not currently have a standing Nominating Committee. We do not maintain a policy for considering nominees. Our Bylaws provides that the number of Directors shall be fixed from time to time by the Board, but in no event shall be less than the minimum required by law. The Board of Directors shall be large enough to maintain our required expertise but not too large to function efficiently. Director nominees are recommended, reviewed and approved by the entire Board. The Board believes that this process is appropriate due to the relatively small number of directors on the Board and the opportunity to benefit from a variety of opinions and perspectives in determining director nominees by involving the full Board.
While the Board is solely responsible for the selection and nomination of directors, the Board may consider nominees recommended by stockholders as it deems appropriate. The Board evaluates each potential nominee in the same manner regardless of the source of the potential nominee’s recommendation. Although we do not have a policy regarding diversity, the Board does take into consideration the value of diversity among Board members in background, experience, education and perspective in considering potential nominees for recommendation to the Board for selection. Stockholders who wish to recommend a nominee should send nominations to our President, Matthew Wolfson, 16561 North 92nd Street, Suite 101, Scottsdale, AZ 85260, that includes all information relating to such person that is required to be disclosed in solicitations of proxies for the election of directors. The recommendation must be accompanied by a written consent of the individual to stand for election if nominated by the Board and to serve if elected.
Compensation Consultants
We have not historically relied upon the advice of compensation consultants in determining Named Executive Officer compensation. Instead, the full Board reviews compensation levels and makes adjustments based on their personal knowledge of competition in the market place, publicly available information and informal surveys of human resource professionals.
Stockholder Communications
Stockholders who wish to communicate with the Board may do so by addressing their correspondence to the Board at Electromedical Technologies, Inc., Attention: Mathew Wolfson, 16561 North 92nd Street, Suite 101, Scottsdale, AZ 85260. The Board shall review and respond to all correspondence received, as appropriate.
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Director Independence
There are no independent directors at this time.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires our Company’s directors and officers, and persons who own more than ten-percent (10%) of our Company’s shares of Common Stock, to file with the SEC reports of ownership on Form 3 and reports of changes in ownership on Forms 4 and 5. Such officers, directors and ten-percent shareholders are also required to furnish our Company with copies of all Section 16(a) reports they file. As of July 7, 2020, we believed such reports were timely filed.
EXECUTIVE AND DIRECTOR COMPENSATION
Our sole director, Matthew Wolfson, who is also our chief executive officer, chief financial officer, receives a base salary of $20,000 per month in compensation, as part of an Executive Compensation Agreement signed with the Company, attached hereto. In addition, Mr. Wolfson is due $500,000 to be paid at a later date on determination of the board of directors, as an initial payment for this Executive Compensation Agreement. Mr. Wolfson’s Employment Contract is attached hereto.
Mr. Wolfson receives no compensation for serving as the Chairman and sole director of the Company. During the Director’s term, the Company reimburses the Director for all reasonable out-of-pocket expenses incurred by the Director in attending any in-person meetings, provided that the Director complies with the generally applicable policies, practices and procedures of the Company for submission of expense reports, receipts or similar documentation of such expenses. Any reimbursements for allocated expenses (as compared to out-of-pocket expenses of the Director in excess of $500.00) must be approved in advance by the Company
Executive Compensation Table
| Name
and principal position |
Year | Salary ($) |
Bonus ($) |
Stock
awards ($) |
Option
awards ($) |
Nonequity incentive plan compensation ($) |
Nonqualified deferred compensation earnings ($) |
All
other compensation ($) |
Total ($) |
|||||||||||||||||||||||||||
| Matthew Wolfson | 2019 | $ | 111,992.43 | $ | 500,000.00 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 611,992.43 | |||||||||||||||||||
| Matthew Wolfson | 2018 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | (1) | ||||||||||||||||||
| Matthew Wolfson | 2017 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | (1) | ||||||||||||||||||
| (1) | Woflson received no compensation during 2017 and 2018. In July 2017, the Company entered into a $250,000 promissory note with Mr. Wolfson, whereby he loaned the Company $250,000. The proceeds were used for operations and Regulation A+ offering costs. The promissory note began accruing interest on October 1, 2018 at 2% per annum, compounded monthly. The unpaid principal balance and accrued interest are due within ten days of the maturity date on September 30, 2020. Included in the accompanying balance sheets is $261,304 and $160,355 due from the Company’s CEO as of December 31, 2018 and 2017, respectively. In 2018, $250,000 of the amount due from the Company’s CEO has been net against the note payable due the CEO, leaving a receivable of $11,304. In 2017, the total amount due from the Company’s CEO has been net against the note payable due the CEO for a total net due of $89,645. As of December 31, 2019, the note payable and accrued interest are deemed paid in full. Mr. Wolfson has no outstanding equity awards at December 31, 2019. |
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| Directors | Title | Monthly Compensation |
|||||
| Matthew Wolfson(1) | Chief Executive Officer, Chief Financial Officer and Chairman | $ | 20,000 | (1)(2) | |||
| (1) | Mr. Wolfson owns 14,306,250 common shares and 500,000 Series A Preferred Shares. Please see “SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT for additional information. |
| (2) | In addition to Mr. Wolfson’s monthly compensation, which is outlined here, he receives additional compensation as part of this Executive Compensation Agreement. This Agreement is attached hereto. |
Director Compensation Table
| Directors | Title | Monthly Compensation |
|||||
| Matthew Wolfson(1) | Chief Executive Officer, Chief Financial Officer and Chairman | $ | 0 | ||||
| (1) | This table represents Mr. Wolfson’s zero compensation as a director of the corporation. Please see section marked “Executive Compensation” for other information about Mr. Wolfson’s compensation as an executive of the corporation. |
| (2) | In addition, Mr. Wolfson receives additional compensation as part of this Executive Compensation Agreement. This Agreement is attached hereto. |
51
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of the date hereof, here is information with respect to the securities holdings of (i) our officers and directors, and (ii) all persons (currently none) which, pursuant to filings with the SEC and our stock transfer records, we have reason to believe may be deemed the beneficial owner of more than five percent (5%) of the shares of Common Stock.
The securities “beneficially owned” by an individual are determined in accordance with the definition of “beneficial ownership” set forth in the regulations promulgated under the Exchange Act and, accordingly, may include securities owned by or for, among others, the spouse and/or minor children of an individual and any other relative who resides in the same home as such individual, as well as other securities as to which the individual has or shares voting or investment power or which each person has the right to acquire within 60 days through the exercise of options or otherwise. Beneficial ownership may be disclaimed as to certain of the securities.
The following table is based on the number of shares outstanding totaling 20,753,851 as of July 3, 2020.
The following table sets forth certain information as of July 3, 2020 by (i) all persons who are known by us to beneficially own more than 5% of our outstanding shares of common stock; and (ii) each director, director nominee, and Named Executive Officer. The footnotes below pertain to total shares, voting rights and conversion shares, and provide other explanations.
| Name of Beneficial Owner | Common Shares Owned |
Percent
of Common(1) |
Series
A Owned |
Series
A Votes(2) |
Voting
Shares(3) |
Voting Power(3) |
||||||||||||||||||
| Matthew Wolfson | 14,306,250 | 68.9 | % | 500,000 | 50,000,000 | 64,306,250 | (4) | 90.9 | %(4) | |||||||||||||||
| 7460 E Tuckey Ln Scottsdale, AZ 85250 | ||||||||||||||||||||||||
| Blue Ridge Enterprises LLC(5) | 1,170,654 | (5) | 5.6 | % | 1,170,654 | (5) | 1.6 | % | ||||||||||||||||
| 5256 S Mission Rd | ||||||||||||||||||||||||
| Bonsall, CA 92003 | ||||||||||||||||||||||||
| 1) | Based on 20,753,851 common shares outstanding immediately prior to the Primary Offering to the public |
| 2) | Based on 100 votes of common share equivalents for each Series A Preferred held |
| 3) | Based on combined voting power of Mr. Wolfson’s common shares and common share equivalent rights as a holder of Series A Preferred Shares. |
| 4) | Based on 70,753,851 total possible votes assuming voting of Mr. Wolfson’s Series A Preferred Shares. |
| 5) | Blue Ridge Enterprises LLC, common share holdings are combined with Mr. Don Steinberg's personal holdings, since Mr. Steinberg is the sole member and manager of Blue Ridge and each are Related Parties (See Certain Relationships on page 27). The disclosed common shares owned by Blue Ridge do not include 7,530,407 common shares, constituting the estimated number of outstanding conversion shares pursuant to the KISS agreement at March 31, 2020. As of the date of this filing, Blue Ridge has not elected its right to convert the remaining KISS liability into common shares. There is no provision in the KISS agreement that would limit the number of conversion shares to be issued to Blue Ridge upon its election to convert. If Blue Ridge elected to convert, its total common shares owned would be 8,701,061, representing, as of the date of this filing, 41.9%, of common shares outstanding and 12.3% voting power. |
Beneficial Ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Each of the beneficial owners listed above has direct ownership, voting power and investment power with respect to the shares of Company preferred stock and common stock.
52
| Item 5. | Interest of Management and Others in Certain Transactions |
As of December 31, 2019, the Company entered into various promissory notes totaling $318,000 with a related party, Donald Steinberg the sole member and manager of Blue Ridge Enterprises, LLC (“Blue Ridge”), a California limited liability company. As of the date of this filing, the Company entered into additional promissory notes with Blue Ridge totaling $84,500 for a total of $402,500. All notes mature in 2020 and 2021. Interest will accrue at 10% from the due date thereon until all principal is paid in full. Proceeds from the loans were used for operations. On November 1, 2018, the Company entered into a KISS agreement with Blue Ridge in consideration for Blue Ridge rendering services under a consulting agreement in which Blue Ridge agreed to review the Company’s business plans, marketing and market development strategy, distribution network expansion, mergers and acquisitions, and analyzing corporate structure. Mr. Steinberg and Blue Ridge are thus associates of the Company and related parties. Consideration for the Company’s issuance of the KISS agreement included a $35,000 purchase price from Blue Ridge, and is non-interest bearing, matures twelve months from the issuance date on November 1, 2019, and has been recorded as KISS liability-related party in the current liabilities section of the Company’s balance sheet. Upon (a) the maturity date of November 1, 2019; (b) in the event of a “Next Equity Financing” where the Company sells its preferred shares from which the Company receives not less than $1 million dollars; or, (c) a corporate transaction in which all or substantially all of the Company’s assets are sold, merged or consolidated into another entity, Blue Ridge may, at its option, convert the principal of the KISS into common shares of Company. The Company’s obligation under the KISS agreement is to solely convert the KISS note upon election of Blue Ridge. As of March 31, 2020, Blue Ridge converted 1,000,000 of the conversion shares and the Company issued those shares, and is not in default under the KISS agreement. The Company calculated the estimated number of conversion shares to be 7,530,407 at March 31, 2020. The fair market value of the KISS liability- related party at both March 31, 2020 and December 31, 2019 is $1,444,761.
In July 2017, the Company entered into a $250,000 promissory note with its CEO, Matthew Wolfson. Mr. Wolfson is considered a Related Party since he is the Company’s Principal Executive Officer. The proceeds were used for operations and Regulation A+ offering costs. The promissory note began accruing interest on the interest commencement date of October 1, 2018 at 2% per annum, compounded monthly. The note payable and accrued interest of $3,775 are deemed paid in full as of December 31, 2019.
53
In October 2013, the Company entered in to a $45,000 note payable with an individual related to the Company’s CEO. The proceeds were used for operations. Interest began accruing on the interest commencement date of January 1, 2018, at 2% per annum, compounded monthly. The unpaid principal balance and accrued interest is due within ten days of the maturity date on December 31, 2020. In October 2019, the related party lender of the $44,000 note-payable, converted the principal amount of $44,000 plus unpaid accrued interest into 64,215 shares of restricted common stock.
In August 2019, the Company’s CEO personally paid $100,000 to the holder of a Company note payable, reducing the amount due from the Company’s CEO.
During the year ended December 31, 2019, the Company’s CEO personally sold 693,750 shares of his common stock to several employees at par value.
The Company’s CEO personally guarantees certain amounts due under its long-term debt agreements.
In October 2019, the Company entered into an employment agreement with the Company’s CEO. The terms of the agreement include an annual base salary of $240,000 and a signing bonus of $500,000, as well as discretionary annual bonuses and participation in long-term incentive plans. The signing bonus may be paid in shares of the Company’s common stock. The agreement remains in effect until the earlier of the discharge or resignation of the CEO. In conjunction with the agreement, the $500,000 signing bonus has been accrued and included in selling, general and administrative expenses in the accompanying statement of operations during the year ended December 31, 2019.
On November 1, 2019, the Company’s board of directors and the majority of shareholders awarded CEO, Matthew Wolfson, 500,000 shares of Series A Preferred stock., which was valued at $355,000 or $.71 per share. The shares were issued as partial payment for the $500,000 signing bonus, for which $145,000 remained payable at December 31, 2019. During the three months ended March 31, 2020, the Company paid $71,540 towards the outstanding balance of the signing bonus. As of March 31, 2020, $73,460 remains due and payable.
Changes in Control
As of the date of this Prospectus, we are not aware of any arrangement that may result in a change in control of our company.
LEGAL MATTERS
The validity of the shares sold by us under this Prospectus, including the shares to be sold by the selling stockholders, will be passed upon for us by Mailander Law Office, Inc., 945 4th Avenue, Suite 311, San Diego, CA 92101.
EXPERTS
Dbbmckennon, our independent registered public accountant, has audited our financial statements included in this Prospectus and Registration Statement to the extent and for the periods set forth in their audit report. Dbbmckennon has presented its report with respect to our audited financial statements.
54
COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Our Articles of Incorporation provide that we shall indemnify our directors and officers to the fullest extent permitted by Delaware law and that none of our directors will be personally liable to the Company or its shareholders for monetary damages for breach of fiduciary duty as a director, except for liability:
| · | for any breach of the director’s duty of loyalty to the Company or its shareholders; |
| · | for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of the law; |
| · | under Delaware General Corporation Law for the unlawful payment of dividends; or |
| · | for any transaction from which the director derives an improper personal benefit. |
These provisions require us to indemnify our directors and officers unless restricted by Delaware law and eliminate our rights and those of our shareholders to recover monetary damages from a director for breach of his or her fiduciary duty of care as a director except in the situations described above. The limitations summarized above, however, do not affect our ability or that of our shareholders to seek non-monetary remedies, such as an injunction or rescission, against a director for breach of his or her fiduciary duty.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions, we have been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
55
ELECTROMEDICAL TECHNOLOGIES, INC.
For the Years Ended
December 31, 2019 and December 31, 2018
56
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and
Stockholders of Electromedical Technologies, Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Electromedical Technologies, Inc. (the “Company”) as of December 31, 2019 and 2018, the related statements of operations, stockholders’ deficit, and cash flows, for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered recurring losses from operations and has a negative working capital balance, which raises substantial doubt about its ability to continue as a going concern. Management’s plans in 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 audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
| /s/ dbbmckennon | |
| We have served as the Company’s auditor since 2018. | |
| San Diego, California | |
| April 29, 2020 |
57
ELECTROMEDICAL TECHNOLOGIES, INC.
DECEMBER 31, 2019 AND 2018
| ASSETS |
| December 31, 2019 | December 31, 2018 | |||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | - | $ | - | ||||
| Accounts receivable | 15,667 | 13,774 | ||||||
| Inventories | 24,694 | 29,604 | ||||||
| Prepaid expenses and other current assets | 65,831 | 128,553 | ||||||
| Total current assets | 106,192 | 171,931 | ||||||
| Other assets | 25,580 | - | ||||||
| Property and equipment, net | 771,094 | 795,551 | ||||||
| Due from Chief Executive Officer | - | 11,304 | ||||||
| Total assets | $ | 902,866 | $ | 978,786 | ||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 251,162 | $ | 166,979 | ||||
| Credit cards payable | 31,009 | 42,515 | ||||||
| Accrued expenses and other current liabilities | 289,791 | 104,394 | ||||||
| Customer deposits | 40,120 | 112,300 | ||||||
| KISS liability - related party | 1,444,761 | 1,621,805 | ||||||
| Convertible promissory note | 50,000 | - | ||||||
| Related party notes payable | 105,000 | - | ||||||
| Notes payable | 59,153 | 27,307 | ||||||
| Bank debt, current portion | 25,595 | 24,425 | ||||||
| Total current liabilities | 2,296,591 | 2,099,725 | ||||||
| Long-term liabilities: | ||||||||
| Bank debt, net of current portion | 566,406 | 591,650 | ||||||
| Note Payable | - | 157,000 | ||||||
| Convertible promissory note | - | 25,000 | ||||||
| Related party notes payable, net of amount due from Chief Executive Officer | 213,000 | 149,000 | ||||||
| Other liabilities | 11,306 | 16,651 | ||||||
| Total liabilities | 3,087,303 | 3,039,026 | ||||||
| Commitments and contingencies | ||||||||
| Stockholders’ deficit | ||||||||
| Series A Preferred Stock, 1,000,000 shares authorized and 500,000 outstanding | 355,000 | - | ||||||
| Common stock, $.00001 par value, 50,000,000 and 25,000,000 shares authorized; | ||||||||
| 17,900,639 and 16,320,823 shares outstanding at December 31, 2019 and 2018, respectively | 177 | 162 | ||||||
| Additional paid-in-capital | 2,713,087 | 1,447,960 | ||||||
| Accumulated deficit | (5,252,701 | ) | (3,508,362 | ) | ||||
| Total stockholders’ deficit | (2,184,437 | ) | (2,060,240 | ) | ||||
| $ | 902,866 | $ | 978,786 | |||||
The accompanying notes are an integral part of these financial statements
58
ELECTROMEDICAL TECHNOLOGIES, INC.
THE YEARS ENDED DECEMBER 31, 2019 AND 2018
| 2019 | 2018 | |||||||
| Net sales | $ | 829,737 | 675,383 | |||||
| Cost of sales | 238,516 | 168,716 | ||||||
| Gross profit | 591,221 | 506,667 | ||||||
| Selling, general and administrative expenses | 2,259,848 | 787,370 | ||||||
| Loss from operations | (1,668,627 | ) | (280,703 | ) | ||||
| Other income (expense) | ||||||||
| Interest expense | (54,814 | ) | (86,463 | ) | ||||
| Change in fair value of related party KISS liability | (20,898 | ) | (1,586,805 | ) | ||||
| Other income | - | 3,554 | ||||||
| Total other expense | (75,712 | ) | (1,669,714 | ) | ||||
| Net loss | $ | (1,744,339 | ) | (1,950,417 | ) | |||
| Weighted average shares outstanding | 16,809,947 | 15,198,564 | ||||||
| Weighted average loss per share | $ | (0.10 | ) | (0.13 | ) | |||
The accompanying notes are an integral part of these financial statements
59
ELECTROMEDICAL TECHNOLOGIES, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018
| Total | ||||||||||||||||||||||||||||
| Series A Preferred Stock | Common Stock | Paid in | Accumulated | Stockholders’ | ||||||||||||||||||||||||
| Amount | Shares | Amount | Shares | Capital | Deficit | Deficit | ||||||||||||||||||||||
| Balance, December 31, 2017 | $ | - | - | $ | 150 | $ | 15,000,000 | $ | 697,834 | $ | (1,557,945 | ) | $ | (859,961 | ) | |||||||||||||
| Shares issued in conjunction with 2017 marketing promotion | - | - | 2 | 243,584 | 172,943 | - | 172,945 | |||||||||||||||||||||
| Shares issued in conjunction with Reg A+ filing, | ||||||||||||||||||||||||||||
| net of offering costs | - | - | 7 | 724,674 | 247,510 | - | 247,517 | |||||||||||||||||||||
| Issuance of common stock for cash | - | - | 1 | 105,000 | 104,999 | - | 105,000 | |||||||||||||||||||||
| Shares issued in conjunction with vendor settlement | - | - | 2 | 247,565 | 175,769 | - | 175,771 | |||||||||||||||||||||
| Warrant issued for services | - | - | - | - | 48,905 | - | 48,905 | |||||||||||||||||||||
| Net loss | - | - | - | - | - | (1,950,417 | ) | (1,950,417 | ) | |||||||||||||||||||
| Balance, December 31, 2018 | - | - | 162 | 16,320,823 | 1,447,960 | (3,508,362 | ) | (2,060,240 | ) | |||||||||||||||||||
| Issuance of preferred stock for CEO bonus | 355,000 | 500,000 | - | - | - | - | 355,000 | |||||||||||||||||||||
| Issuance of common stock for cash | - | - | 1 | 146,759 | 109,999 | - | 110,000 | |||||||||||||||||||||
| Shares issued for consulting services | - | - | 2 | 213,461 | 151,555 | - | 151,557 | |||||||||||||||||||||
| Conversion of KISS liability- related party shares | - | - | 10 | 1,000,000 | 197,932 | - | 197,942 | |||||||||||||||||||||
| Conversion on convertible note and note payable | - | - | 2 | 219,596 | 155,910 | - | 155,912 | |||||||||||||||||||||
| Stock -based compensation | - | - | - | - | 157,168 | - | 157,168 | |||||||||||||||||||||
| Sale of Chief Executive Officer’s shares to employees at par value | - | - | - | - | 492,563 | - | 492,563 | |||||||||||||||||||||
| Net loss | - | - | - | - | - | (1,744,339 | ) | (1,744,339 | ) | |||||||||||||||||||
| Balance, December 31, 2019 | $ | 355,000 | 500,000 | $ | 177 | 17,900,639 | $ | 2,713,087 | $ | (5,252,701 | ) | $ | (2,184,437 | ) | ||||||||||||||
The accompanying notes are an integral part of these financial statements
60
ELECTROMEDICAL TECHNOLOGIES, INC.
YEARS ENDED DECEMBER 31, 2019 AND 2018
| 2019 | 2018 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (1,744,339 | ) | $ | (1,950,417 | ) | ||
| Adjustments to reconcile net loss to | ||||||||
| net cash used in operating activities: | ||||||||
| Stock-based compensation expense | 801,287 | 48,905 | ||||||
| Depreciation and amortization | 24,457 | 22,339 | ||||||
| Change in excess fair value of KISS liability- related party | 20,898 | 1,586,805 | ||||||
| Change in operating assets and liabilities: | ||||||||
| Accounts receivable | (1,893 | ) | 14,284 | |||||
| Inventories | 4,910 | 67,085 | ||||||
| Prepaid expenses and other current assets | 37,142 | (115,401 | ) | |||||
| Due from Chief Executive Officer | 11,304 | (11,304 | ) | |||||
| Accounts payable | 84,183 | (8,464 | ) | |||||
| Credit cards payable | (11,506 | ) | (27,862 | ) | ||||
| Accrued expenses and other current liabilities | 564,965 | 14,655 | ||||||
| Customer deposits | (72,180 | ) | (161,639 | ) | ||||
| Net cash used in operating activities | (280,772 | ) | (521,014 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from short-term financing | 40,307 | |||||||
| Repayments on line of credit | - | (87,747 | ) | |||||
| Repayments on bank debt | (24,074 | ) | (24,732 | ) | ||||
| Related party notes payable-net | 213,000 | 15,355 | ||||||
| Proceeds from KISS liability-related party | 35,000 | |||||||
| Issuance of convertible promissory note | 50,000 | 25,000 | ||||||
| Repayments on notes payable | (108,461 | ) | (16,385 | ) | ||||
| Issuance of common stock for cash- net | 110,000 | 546,663 | ||||||
| - | ||||||||
| Net cash provided by financing activities | 280,772 | 493,154 | ||||||
| Net decrease in cash and cash equivalents | - | (27,860 | ) | |||||
| Cash and cash equivalents, beginning of year | - | 27,860 | ||||||
| Cash and cash equivalents, end of year | $ | - | $ | - | ||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid during the year for: | ||||||||
| Interest | $ | 56,008 | $ | 81,912 | ||||
| Income taxes | $ | - | $ | - | ||||
Non-cash investing and financing activities:
In 2018, the Company reclassified deferred offering costs of $194,146 to paid in capital in conjunction with completion of its Reg A+ offering
In 2018, the Company issued 247,565 shares of restricted stock in exchange for an outstanding liability totaling $175,771
In 2018, the Company issued 243,584 shares of restricted stock in conjunction with the 2017 marketing promotion liability totaling $172,945
In 2018, the Company issued a note payable in exchange for an outstanding liability totaling $43,692
In 2019, the Company issued 28,169 shares of restricted stock in exchange for an outstanding liability totaling $20,000
In 2019, the Company issued 64,215 shares of restricted stock in exchange for an outstanding related party note payable and accrued interest totaling $45,592
In 2019, the Company issued 127,212 shares of restricted stock in exchange for outstanding notes payable and accrued interest totaling $90,321
In 2019, the Company converted 1,000,000 shares of the KISS liability-related party valued at $197,942
In 2019, the Company issued 500,000 shares of its Series A Preferred stock to the Company’s CEO in exchange for an outstanding bonus liability totaling $355,000.
The accompanying notes are an integral part of these financial statements
61
ELECTROMEDICAL TECHNOLOGIES, INC.
DECEMBER 31, 2019 AND 2018
| NOTE 1. | ORGANIZATION AND NATURE OF BUSINESS |
Electro Medical Technologies, LLC (“the Company”), was formed in November 2010 as an Arizona limited liability company. In August 2017, the Company converted to a Delaware C Corporation under Electromedical Technologies, Inc. The Company is a bioelectronic engineering company with medical device certifications in the United States (FDA) and Mexico (Cofepris). The Company engineers simple-to-use portable bioelectronics devices, which provide fast and long -lasting pain relief across a broad range of ailments.
| NOTE 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Accounting Method
The Company maintains its accounting records on an accrual method in conformity with accounting principles generally accepted in the United States of America (“US GAAP”).
Use of Estimates
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities, certain disclosures at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Significant estimates affecting the financial statements have been prepared on the basis of he most current and best available information. However, actual results from the resolution of such estimates and assumptions may vary from those used in the preparation of the financial statements.
Going Concern
Since inception, the Company has incurred approximately $5.3 million of accumulated net losses, which includes approximately $1.6 million related to the adjustment to fair market value of the Company’s related party KISS liability. In addition, during the year ended December 31, 2019, the Company used $280,772 in operations and had a working capital deficit of $705,518. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. The Company expects to obtain funding through additional debt and equity placement offerings until it consistently achieves positive cash flows from operations. If the Company is unable to obtain additional funding, it may not be able to meet all of its obligations as they come due for the next twelve months. The continuing viability of the entity and its ability to continue as a going concern is dependent upon the entity being successful in its continuing efforts in growing its revenue base and/or accessing additional sources of capital, and/or selling assets.
As a result, there is significant uncertainty whether the entity will continue as a going concern and, therefore, whether it will realize its assets and settle its liabilities and commitments in the normal course of business and at the amounts stated in the financial statements.
Accordingly, no adjustments have been made to the financial statements relating to the recoverability and classification of the asset carrying amounts or the amount and classification of liabilities that might be necessary should the entity not continue as a going concern. At this time, management is of the opinion that no asset is likely to be realized for an amount less than the amount at which it is recorded in the financial statements as at December 31, 2019.
Revenue Recognition
The FASB issued Accounting Standards Update (“ASU”) No. 2014-09, codified as ASC 606: Revenue from Contracts with Customers, which provides a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The Company adopted ASC 606 effective January 1, 2019 using modified retrospective basis and the cumulative effect was immaterial to the financial statements.
Revenues are recognized when performance obligations are satisfied through the transfer of promised goods to the Company’s customers. Control transfers upon shipment of product and when the title has been passed to the customers. This includes the transfer of legal title, physical possession, the risks and rewards of ownership, and customer acceptance. Revenue is recorded net of sales taxes collected from customers on behalf of taxing authorities, allowance for estimated returns, chargebacks, and markdowns based upon management’s estimates and the Company’s historical experience. The Company’s liability for sales return refunds is recognized within other current liabilities, and an asset for the value of inventory which is expected to be returned is recognized within other current assets on the balance sheets. The Company generally allows a 30 day right of return to its customers. As of December 31, 2019 and 2018, the sales returns allowance was insignificant to the financial statements.
62
Certain larger customers pay in advance for future shipments. These advance payments totaled $40,120 and $112,300 at December 31, 2019 and 2018, respectively, and are recorded as customer deposits in the accompanying balance sheets. Revenue related to these advance payments is recognized upon shipment to the distributor or the end-customer.
At the completion of the initial three-year warranty, the Company sells extended warranties for periods ranging from one to three years. Revenue is recognized on a straight-line basis over the term of the contract. At December 31, 2019 and 2018, deferred revenue of $24,177 and $16,651 is recorded, respectively, in connection with these extended warranties.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents.
Accounts Receivable
Accounts receivable are stated at amounts due from customers, net of an allowance for doubtful accounts, and the Company generally does not require collateral. As a general policy, the Company determines an allowance for doubtful accounts by considering a number of factors, including the length of time trade accounts receivable are past due, the Company’s previous loss history, the customer’s current ability to pay its obligation to the Company, and the condition of the general economy and industry as a whole. The Company writes off accounts receivable when they become uncollectible, and payments subsequently received on such receivables are credited to the allowance for doubtful accounts.
The Company recorded an allowance for doubtful accounts of $4,225 and $1,000 as of December 31, 2019 and 2018, respectively.
Financial Instruments and Concentrations of Business and Credit Risk
The Company elected early adoption of the Accounting Standards Update (“ASU”) 2016-01, Recognition and Measurement of Financial Assets and Liabilities, which eliminates the requirement of the Company to disclose the fair value of its financial instruments as of the balance sheet date. Financial instruments that potentially subject the Company to concentrations of business and credit risks consist of cash and cash equivalents, accounts receivable, and accounts payable.
The Company maintains cash balances that can, at times, exceed amounts insured by the Federal Deposit Insurance Corporation. The Company has not experienced any losses in these accounts and believes it is not exposed to any significant credit risk.
The Company’s accounts receivable, which are unsecured, expose the Company to credit risks such as collectability and business risks such as customer concentrations. The Company mitigates credit risk by investigating the creditworthiness of all customers prior to establishing relationships with them, performing periodic review of the credit activities of those customers during the course of the business relationship, regularly analyzing the collectability of accounts receivables, and recording allowances for doubtful accounts when these receivables become uncollectible. The Company mitigates business risks by attempting to diversify its customer base.
The Company had one significant customer for the years ended December 31, 2019 and 2018 that in total accounted for approximately 17% and 24%, respectively, of net sales. There were no amounts outstanding from this customer as of December 31, 2019 and 2018. Customer deposits on hand from this customer totaled approximately $40,000 and $112,000 at December 31, 2019 and 2018, respectively. The loss of this customer would have a significant impact on the operations and cash flows of the Company.
The Company’s supplier concentrations expose the Company to business risks, which the Company mitigates by attempting to diversify its supply chain. Supplier concentrations consisted of one significant supplier in China that accounted for approximately 74% and 60% of total net purchases for the years ended December 31, 2019 and 2018. There were no amounts outstanding due this supplier at December 31, 2019 and 2018. In November 2018, the Company entered into an agreement with this supplier, whereby the Company exchanged 247,565 shares of common stock as payment in full for the outstanding amount due the supplier of $175,771. The loss of key vendors may have a significant impact on the operations and cash flows of the Company.
The estimated fair value of financial instruments has been determined using available market information and appropriate valuation methodologies. However, considerable judgment is often required to interpret market data used to develop the estimates of fair value. Accordingly, the estimates presented may not be indicative of the amounts the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies could have a material effect on the estimated fair value amounts.
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Disclosure of Fair Value
The disclosure requirements within Accounting Standards Codification (ASC) Topic 820-10, Fair Value Measurement, require disclosure of estimated fair values of certain financial instruments. For financial instruments recognized at fair value in the Company’s statements of operations, the disclosure requirements of ASC Topic 820-10 also apply. The methods and assumptions are set forth below:
| · | Cash and cash equivalents are carried at cost, which approximates fair value. |
| · | The carrying amounts of receivables approximate fair value due to their short-term maturities. |
| · | The carrying amounts of payables approximate fair value due to their short-term maturities. |
| · | KISS liability-related party is adjusted to fair value based on the value of the Company as a whole using the discounted cash flow method. |
Asset and liabilities measured and reported at fair value are classified and disclosed in one of the following categories based on inputs:
Level 1 — Quoted prices in active markets for identical assets and liabilities that the reporting entity has the ability to access at the measurement date
Level 2 — Inputs other than quoted prices included within Level 1 that are observable for the asset and liability or can be corroborated with observable market data for substantially the entire contractual term of the asset or liability
Level 3 — Pricing inputs include significant unobservable inputs used in determining the fair value of investments. The types of investments, which would generally be included in this category include equity securities issued by private entities.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the determination of which category within the fair value hierarchy is appropriate for any given investment is based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the investment.
The levels of the fair value hierarchy into which the Company’s assets and liabilities fall as of December 31, 2019, are as follows:
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Liabilities | ||||||||||||||||
| KISS liability- related party | $ | - | $ | - | $ | 1,444,761 | $ | 1,444,761 | ||||||||
| Total fair value | $ | - | $ | - | $ | 1,444,761 | $ | 1,444,761 | ||||||||
The levels of the fair value hierarchy into which the Company’s assets and liabilities fall as of December 31, 2018, are as follows:
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Liabilities | ||||||||||||||||
| KISS liability- related party | $ | - | $ | - | $ | 1,621,805 | $ | 1,621,805 | ||||||||
| Total fair value | $ | - | $ | - | $ | 1,621,805 | $ | 1,621,805 | ||||||||
The following table presents changes during the year ended December 31, 2019 in Level 3 liabilities measured at fair value on a recurring basis:
| Fair value- December 31, 2018 | $ | 1,621,805 | ||
| Net unrealized gain | 20,898 | |||
| Conversion to restricted common shares | (197,942 | ) | ||
| Fair value- December 31, 2019 | $ | 1,444,761 |
See Note 6 for discussion of the Company’s valuation of the KISS liability- related party.
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Inventories
Inventories are stated at the lower of cost or market. Cost is determined based on the first-in, first-out cost flow assumption (“FIFO”) while market is determined based upon the estimated net realizable value less an allowance for selling and distribution expenses and a normal gross profit. The Company evaluates the need for inventory reserves associated with obsolete, slow moving, and non-sellable inventory by reviewing estimated net realizable values on a periodic basis. As of, December 31, 2019, and 2018, the Company believes there are no excess and obsolete inventories and accordingly, did not record an inventory reserve. Inventories consist of purchased finished goods.
Deferred Offering Costs
The Company accounts for offering costs in accordance with FASB ASC 340, Other Assets and Deferred Costs. Prior to the completion of an offering, offering costs will be included in prepaid expenses and other current assets on the accompanying balance sheet. The Company’s Reg A+ filing became effective in January 2018 at which time deferred offering costs totaling $194,146 were reclassified to stockholders’ deficit in the accompanying balance sheet (see Note 9). Costs associated with the Company’s pending S-1 filing totaled $25,580 and are included in other assets on the accompanying balance sheet at December 31, 2019.
Property and Equipment
Property and equipment is recorded at cost and is comprised of a building and office furniture and equipment. The building is depreciated using the straight-line method over the estimated useful life of 40 years. Office furniture and equipment is depreciated using the double-declining method or the straight-line method over the estimated useful lives of 3 to 7 years.
Betterments, renewals, and extraordinary repairs that materially extend the useful life of the asset are capitalized; other repairs and maintenance charges are expensed as incurred. The cost and related accumulated depreciation applicable to assets retired are removed from the accounts, and the gain or loss on disposition, if any, is recognized in the accompanying statements of operations.
Impairment of Long-Lived Assets
In accordance with FASB ASC Topic 360, Property, Plant and Equipment, long-lived assets such as property and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss is recognized on long-lived assets when indicators of impairment are present and the undiscounted future cash flows estimated to be generated by those assets are less than the carrying amount of the assets. In such cases, the carrying value of these assets are adjusted to their estimated fair values and assets held for sale are adjusted to their estimated fair values less selling expenses.
No impairment losses of long-lived assets were recognized for the years ended December 31, 2019 and 2018.
Income Taxes
The Company, which was formed as a Limited liability Company in Arizona, previously filed an Entity Classification Election, commonly known as a check-the-box-election, to be classified as a corporation for tax purposes. The Company also made an election to be treated for income tax purposes as an S corporation. Under U.S. and Arizona law, the taxable income or loss of an S corporation is included in the shareholder’s income tax returns. In August 2017, the Company converted to a Delaware Corporation. The conversion was tax-free under Internal Revenue Code Section 368(a)(1)(F) and is referred to as an F-reorganization, which is typically defined as a mere change in identity, form or place of organization. Management elected to terminate the S corporation election effective January 1, 2018 and the Company will operate for tax purposes as a C corporation from that date forward.
The Company follows the provisions of uncertain tax positions as addressed in FASB ASC Subtopic 740-10-65-1, Income Taxes. The Company has no such tax positions as of both December 31, 2019 and 2018, for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in selling, general and administrative expenses. No such interest or penalties were recognized during the periods presented. The Company had no accruals for interest and penalties as of December 31, 2019 and 2018.
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The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. With few exceptions, the Company is no longer subject to examination by U.S. federal tax authorities for returns filed for the prior three years and by state and local income tax authorities for returns filed for the prior four years. There are no examinations currently pending.
The Company’s tax provision for 2019 related to deferred tax charges consisting of a minor amount of accruals for which the Company will receive the benefit from when paid and the net operating loss incurred during 2019. During the year ended December 31, 2019, the Company evaluated its deferred tax assets of $167,444 and determined a full valuation allowance was appropriate.
The Company’s tax provision for 2018 related to deferred tax charges consisting of a minor amount of accruals for which the Company will receive the benefit from when paid and the net operating loss incurred during 2018. During the year ended December 31, 2018, the Company evaluated its deferred tax assets of $199,188 and determined a full valuation allowance was appropriate.
At December 31, 2018, the Company’s net operating loss carry forward was $800,884 which originated in 2018. NOLs originating in 2018 can be carried forward indefinitely. The difference between the statutory rate of 21% and the effective tax rate is due to permanent differences and a full valuation allowance
At December 31, 2019, the Company’s net operating loss carry forward was increased by $ 673,251. NOLs originating in 2019 can be carried forward indefinitely until the loss is fully recovered, but they are limited to 80% of the taxable income in any one tax period. However, this 80% limitation was removed for the 2018, 2019, and 2020 tax years by the CARES Act, which also allows for a 5-year carryback of the NOLs generated in 2018 and 2019. The difference between the statutory rate of 21% and the effective tax rate is due to permanent differences and a full valuation allowance. Total net loss operating carry forward at December 31, 2019 totaled $1,474,135.
Deferred tax assets as of December 31, 2018 consist of a minor amount of accruals for which the Company will receive the benefit from when paid. The amount is insignificant to the financial statements as of December 31, 2018, for which a full valuation allowance would have been present.
Sales Taxes
FASB ASC Subtopic 605-45, Revenue Recognition – Principal Agent Considerations, provides that the presentation of taxes assessed by a governmental authority that are directly imposed on revenue-producing transactions (e.g. sales, use, and excise taxes) between a seller and a customer on either a gross basis (included in revenues and costs) or on a net basis (excluded from revenues) is an accounting policy decision that should be disclosed. In addition, for any such taxes that are reported on a gross basis, the amounts of those taxes should be disclosed in the financial statements for each period for which a statement of operations is presented if those amounts are significant. Sales taxes for the years ended December 31, 2019 and 2018 were recorded on a net basis. Included in accrued expenses at, December 31, 2019 and 2018 is approximately $62,000 and $51,000 respectively, related to sales taxes.
Shipping and Handling Costs
The Company included shipping and handling costs in cost of sales on the accompanying statements of operations for the years ended December 31, 2019 and 2018.
Warranty
The Company warranties the sale of most of its products and records an accrual for estimated future claims. The standard warranty is typically for a period of three years. Such accruals are based upon historical experience and management’s estimate of the level of future claims. The Company recorded a liability as of, December 31, 2019 and 2018 of $16,183 and $13,067, respectively and is included in cost of sales in the statements of operations and within accrued expenses on the accompanying balance sheets.
Advertising
Advertising costs are expensed as incurred. Total advertising expenses amounted to $0 and $15,181 for the years ended December 31, 2019 and 2018, respectively Total advertising are included in selling, general and administrative expenses on the accompanying statements of operations.
Research and Development Costs
Research and development costs are expensed as incurred. Total research and development costs amounted to $82,849 and $0 for the years ended December 31, 2019 and 2018, respectively. Total research and development costs are included in selling, general and administrative expenses on the accompanying statements of operations.
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Net Loss per Share
Net earnings or loss per share is computed by dividing net income or loss by the weighted-average number of common shares outstanding during the period, excluding shares subject to redemption or forfeiture. The Company presents basic and diluted net earnings or loss per share. Diluted net earnings or loss per share reflect the actual weighted average of common shares issued and outstanding during the period, adjusted for potentially dilutive securities outstanding. Potentially dilutive securities are excluded from the computation of the diluted net loss per share if their inclusion would be anti-dilutive. As all potentially dilutive securities are anti-dilutive as of December 31, 2019 and 2018, diluted net loss per share is the same as basic net loss per share for each year.
Recently Issued Accounting Pronouncements
In February 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842). The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability, measured on a discounted basis, on the balance sheet for all leases with terms greater than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the statements of operations and comprehensive loss. A modified retrospective transition approach is required for capital and operating leases existing at the date of adoption, with certain practical expedients available. The Company is currently in the process of evaluating the potential impact of this new accounting guidance, which is effective for the Company beginning on January 1, 2021. The impact is not expected to be significant.
Management does not believe that any other recently issued, but not yet effective, authoritative guidance, if currently adopted, would have a material impact on the Company’s financial statement presentation or disclosures.
| NOTE 3. | PROPERTY AND EQUIPMENT |
Property and equipment consisted of the following as of December 31:
| 2019 | 2018 | |||||||
| Building | $ | 875,000 | $ | 875,000 | ||||
| Furniture and equipment | 24,987 | 24,987 | ||||||
| 899,987 | 899,987 | |||||||
| Less: accumulated depreciation and amortization | (128,893 | ) | (104,436 | ) | ||||
| $ | 771,094 | $ | 795,551 | |||||
Depreciation and amortization expense related to property and equipment was $24,457 and $22,339 for the years ended December 31, 2019 and 2018, respectively. Depreciation and amortization are included in selling, general and administrative expenses on the accompanying statements of operations.
| NOTE 4. | REVOLVING LINE OF CREDIT |
In November 2010, the Company obtained a revolving line of credit (the “Revolver”) with a financial institution that expired in November 2017 at which time all outstanding interest and principal became due. The Revolver was collateralized by substantially all of the Company’s assets; was personally guaranteed by the Company’s member and did not contain any financial covenants. The interest rate is based on the prime rate plus 4%, or 8.5% as of December 31, 2017. Interest on the Revolver is payable monthly in arrears in an amount equal to the actual accrued interest or $100, whichever is greater. The outstanding balance on the Revolver was $87,747 as of December 31, 2017. In November 2018, the revolver and all accrued interest were paid in full and the revolver was cancelled.
| NOTE 5. | NOTES PAYABLE |
In May 2018, the Company entered into a note payable with a third- party vendor as payment for an outstanding balance in the amount of $43,692. The note is interest free and requires monthly payments of $5,461 beginning June 15, 2018 with the remaining balance due and payable on December 15, 2018. The Company did not make timely payments as of December 15, 2018 which resulted in interest being accrued on the unpaid balance at a rate of ten percent beginning July 31, 2017. The outstanding balance as of December 31, 2019 and 2018 is $18,846 and $27,307, respectively.
Interest expense of $6,645 and $4,138 has been accrued in the Company’s balance sheets as of December 31, 2019 and 2018, respectively, of which $2,507 and $4,139 have been recorded in the Company’s statements of operations for the years then ended.
In October 2019, the Company entered into a future revenue sale agreement. Under the terms of the agreement, the Company agrees to sell $73,336 of its future revenues for a purchase price of $50,500 less transaction fees of $3,115 for a net advance of $47,385. Payments of $375 per day are to be made for principal and interest until the $73,336 is paid in full. The note payable is estimated to be paid in full in 2020. The outstanding balance as of December 31, 2019 is $40,307.
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Convertible Promissory Note
In May 2018, the Company borrowed $25,000 in conjunction with a convertible promissory note. The note matures in June 2020 and accrues interest at a rate of 8% per annum. The lender has the right at any time to convert the debt into fully paid and non- assessable shares of common stock at a price of $0.71 per share. In October 2019, the lender converted the $25,000 note and unpaid accrued interest of $2,948 into 39,363 shares of common stock. There is no beneficial conversion feature as the conversion price is at fair market value. The proceeds were used for operations (See Note 9).
In December 2019, the Company borrowed $50,000 in conjunction with a convertible promissory note. The note matures in May 2020 and is interest free. The lender has the right at any time to convert the debt into fully paid and non- assessable shares of common stock at a price of $0.71 per share. There is no beneficial conversion feature as the conversion price is at fair market value. The proceeds were used for operations.
| NOTE 6. | KISS LIABILITY- RELATED PARTY |
In November 2018, the Company entered into KISS agreement with a related party for a purchase price of $35,000. The purchase price of the KISS agreement is non-interest bearing, matures twelve months from the issuance date in November 2019 and has been recorded as KISS liability- related party in the current liabilities section of the Company’s balance sheet. The liability is currently in default.
Under the terms of the agreement, the KISS agreement may be converted into a certain amount of “Conversion Shares” at the earlier of the Company’s “Next Equity Financing” or “Corporate Transaction” as defined in the agreement, or at maturity. The Company has calculated the estimated number of conversion shares to be 7,298,905 and 8,042,246 at December 31, 2019 and 2018, respectively. KISS conversion shares are equal to the quotient obtained by dividing the Conversion Amount by the Conversion Price as defined in the agreement. At both December 31, 2019 and 2018, the Conversion Amount is the purchase price of $35,000. The conversion price is the quotient resulting from dividing (A) the Valuation Cap by (B) the Fully-Diluted Capitalization immediately prior to the conversion. “Valuation Cap” shall mean (i) US $82,497 for shares converted prior to July 1, 2020 (the "2020 Valuation Cap”).
In October 2019, the related party converted 1,000,000 of the conversion shares at a value of $197,942, which was reclassed to additional paid-in-capital.
The fair market value of the KISS liability- related party at December 31, 2019 and 2018 is $1,444,761 and $1,621,805, respectively. Changes in fair market value are recorded as other income in the Company’s statements of operations. The change in fair market value for the year ended December 31, 2019, totaled $(20,898). The excess in value over the proceeds received totaled $1,586,805 in 2018.
The Company determined the fair value of the KISS liability using the estimated enterprise value of the Company, allocating the percentage of fully diluted pro-rata shares to the value of the KISS liability. The Company will mark to market the liability at each reporting period.
| NOTE 7. | LONG-TERM DEBT |
Note Payable
In March 2015, the Company entered into an $850,000 note payable (the “Original Note Payable”) with a third-party to finance the purchase of its office building (see note 8). The Original Note Payable consisted of interest-only payments at 4.5% per annum, payable monthly in arrears. The Original Note Payable was collateralized by a deed of trust in the office building. During 2015, the Company refinanced the Original Note Payable with bank debt and a new note payable (“Note Payable”) for the unpaid principal balance.
The Note Payable, effective December 31, 2015, was issued for a principal amount of $157,000 and personally guaranteed by the Company’s CEO. Interest began accruing on the interest commencement date of January 1, 2018, at 2% per annum, compounded monthly. The unpaid principal balance and accrued interest is due within ten days of the maturity date on December 31, 2020. The outstanding balance on the Note Payable at December 31, 2018 was $157,000. In August 2019, the Company’s CEO personally repaid $100,000 of the note payable to the third-party and was recorded as a reduction of the CEO’s amount due the Company. In October 2019, the lender converted the remaining balance of $57,000 and unpaid accrued interest of $5,373 into 87,849 shares of common stock (See Note 9).
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Bank Debt
In September 2015, the Company entered into a credit agreement for a $700,000 term loan with a financial institution. Payment terms consist of monthly payments in arrears of $3,547 for the first year outstanding. The monthly payment then increases to $4,574 until the term loan matures on September 30, 2025, in which the remaining unpaid principal balance and accrued interest is due. The interest rate for the first year was 1.99% per annum and increased to 4.95% per annum for the remaining life of the term loan. The term loan is collateralized by a deed of trust in the office building. The proceeds were used to purchase a building for which the Company’s operations are located. The net principal balance outstanding on the term loan at December 31, 2019 and 2018 was $592,001 and $616,075, respectively. The term loan is personally guaranteed by the Company’s CEO.
Related Party Notes Payable
In October 2013, the Company entered in to a $45,000 note payable with an individual related to the Company’s CEO. The proceeds were used for operations. Interest began accruing on the interest commencement date of January 1, 2018, at 2% per annum, compounded monthly. The unpaid principal balance and accrued interest is due within ten days of the maturity date on December 31, 2020. In October 2019, the related party lender converted the principal amount of $44,000 and unpaid accrued interest of $1,592 into 64,215 shares of common stock (See Notes 8 and 9). The outstanding principal balance on the related party note payable at December 31, 2018 was $44,000.
In July 2017, the Company entered into a $250,000 promissory note with its CEO. The proceeds were used for operations and Regulation A+ offering costs. The promissory note began accruing interest on the interest commencement date of October 1, 2018 at 2% per annum, compounded monthly. The unpaid principal balance and accrued interest are due within ten days of the maturity date on September 30, 2020. Included in the accompanying balance sheets is $0 and $261,304 due from the Company’s CEO as of December 31, 2019 and 2018, respectively. At December 31, 2018, $250,000 of the promissory note and unpaid accrued interest, have been offset against the amount due from the Company’s CEO, leaving a receivable of $11,304. The note payable and accrued interest are deemed paid in full as of December 31, 2019.
In 2018, the Company entered into promissory notes totaling $105,000 with a related party, who is a significant stockholder. The Company entered into additional promissory notes with the related party for $213,000 during the year ended December 31, 2019, for a total of $318,000 outstanding. All notes mature at various times in 2020 and 2021. Interest will accrue at 10% per annum from the due date thereon until all principal is paid in full. Proceeds from the loans were used for operations. See Notes6, 8 and 12 for additional transactions with this related party.
Future aggregate maturities of long-term debt, excluding the short-term notes payable and the KISS liability-related party are as follows:
| For the Years Ending December 31: | ||||
| 2020 | $ | 140,595 | ||
| 2021 | 229,994 | |||
| 2022 | 28,381 | |||
| 2023 | 29,838 | |||
| 2024 | 31,302 | |||
| Thereafter | 449,891 | |||
| $ | 910,001 | |||
The long-term debt agreements do not contain any financial covenants.
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| NOTE 8. | RELATED PARTY TRANSACTIONS |
The Company has a promissory note with a related party for $44,000 that was converted into shares of common stock in 2019 (see Note 7).
Included in the accompanying balance sheet is $261,305 of amounts due from the Company’s CEO as of December 31, 2018. The amount due is non-interest bearing, payable upon demand and has been net against the note payable due the Company’s CEO (see Note 7). In August 2019, the Company’s CEO personally repaid $100,000 of a note payable due to a third-party and was recorded as a reduction of the CEO’s amount due the Company.
During the year ended December 31, 2019, the Company’s CEO personally sold 693,750 shares of his common stock to several employees at par value (see Note 9).
The Company’s CEO personally guarantees certain amounts due under its long-term debt agreements.
In October 2019, the Company entered into an employment agreement with the Company’s CEO. The terms of the agreement include an annual base salary of $240,000 and a signing bonus of $500,000, as well as discretionary annual bonuses and participation in long-term incentive plans. The signing bonus may be paid in shares of the Company’s common stock. The agreement remains in effect until the earlier of the discharge or resignation of the CEO. In conjunction with the agreement, the $500,000 signing bonus has been accrued and included in selling, general and administrative expenses in the accompanying statement of operations during the year ended December 31, 2019.
On November 1, 2019, the Company’s board of directors and the majority of shareholders awarded CEO, Matthew Wolfson, 500,000 shares of Series A Preferred stock., which was valued at $355,000 or $.71 per share. The shares were issued as partial payment for the $500,000 signing bonus, for which $145,000 remained payable at December 31, 2019. See Note 9 regarding rights and preferences related to the Series A Preferred stock.
As of December 31, 2019, the Company entered into promissory notes totaling $318,000 with a related party (see Note 7).
In October 2019, the related party converted 1,000,000 of the conversion shares in conjunction with the outstanding KISS liability (see Note 6).
The Company sold the related party 452,114 shares of common stock in conjunction with its Reg A+ offering in 2018 (see Note 9).
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| NOTE 9. | STOCKHOLDERS’ DEFICIT |
In August 2017, the Company converted to a Delaware C Corporation. In conjunction with the conversion, the Company authorized 25 million shares of common stock with a par value of $0.00001 of which 15 million shares were issued to the Company’s sole member. The sole member’s percentage in the converted entity remained equal to the sole member’s interest in the LLC. In October 2019, the Company’s board of directors and a majority of shareholders eligible to vote, adopted a resolution increasing the number of authorized common shares from Twenty- Five Million (25,000,000) to Fifty Million (50,000,000).
On November 1, 2019, the Company’s board of directors and a majority of shareholders eligible to vote adopted a resolution designating a new Series A Preferred Stock. One Million (1,000,000) shares were authorized. The Company has one class of Preferred Stock, which has been designated Series A Preferred. The Company has designated 1,000,000 shares of Series A Preferred, of which 500,000 shares have been issued and are outstanding. Holders of Series A Preferred hold rights to vote on all matters requiring a shareholder vote at 100 common shares vote equivalents for each share of Series A Preferred held. The Series A Preferred Stock shall hold senior liquidation rights to all other classes of shares, including, but not limited to Common Shares.
The Company’s Reg A+ filing with the Securities and Exchange Commission became effective in January 2018. The offering consisted of 7,042,254 shares of common stock at a price of $0.71 per share. The Company’s Reg A+ offering was closed on August 27, 2018. Pursuant to that offering, the Company sold and issued a total of 724,674 common shares to 46 shareholders with net proceeds of $441,662 which includes costs totaling $72,856. The Company incurred additional costs totaling $194,146, which have been recorded as a reduction in stockholders’ deficit as of December 31, 2018.
In 2018, the Company issued 243,584 common shares to 25 unaffiliated shareholders earned in its 2017 promotional program.
In October and November 2018, the Company received a total of $105,000 from two investors in exchange for 105,000 common shares of the Company at a price of $1.00 per share.
In November 2018, the Company entered into an agreement with a key supplier, whereby the Company exchanged 247,565 shares of common stock at a price of $0.71 per share as payment in full for the outstanding amount due the supplier of $175,771. The Company also entered into a development stock issuance agreement with the supplier under which the Company will compensate the supplier for future development services not to exceed $100,000 with shares of the Company’s stock at a per share price of $0.71. If at the time of delivery of a working prototype, the value of the 247,565 shares are worth less than the amount originally owed plus the amount owed under the development agreement, then additional shares will be issued to make the supplier whole at the then current stock price. (see Note 2). A working prototype has not yet been delivered.
In December 2018, the Company issued a warrant to a third party to purchase 100,000 shares of the Company’s common stock at an exercise price of $0.71 per share. The warrant is fully vested upon issuance and expires December 1, 2023. Compensation expense of $48,905 has been recorded in selling, general and administrative expenses in the accompanying statement of operations for the year ended December 31, 2018. The Company utilizes the Black Scholes valuation model which relies on certain assumptions to estimate the warrant’s fair value. The assumptions used in the determination of the fair value of the warrant awarded in 2018, are provided in the table below.
| Assumptions | ||||
| Expected volatility rate | 88 | % | ||
| Expected dividend yield | 0 | % | ||
| Average risk-free interest rate | 2.51 | % | ||
| Expected term years | 5.0 | |||
During the year ended December 31, 2019, the Company received a total of $110,000 from several investors in exchange for 146,759 common shares of the Company at a price of $0.71 per share.
During the year ended December 31, 2019, the Company’s CEO personally sold 693,750 shares of his common shares to several employees at par value. Compensation expense has been recorded at the fair market value of $492,563 and is included in selling, general and administrative expenses for the year then ended.
During the year ended December 31, 2019, the Company issued 213,461 common shares in conjunction with agreements for financial and marketing consulting services at a value of $151,557 or $0.71 per share. The value of the consulting services has been recorded as selling , general and administrative expenses in the Company’s statement of operations.
During the year ended December 31, 2019, the Company issued 219,596 common shares in conjunction with the conversion of various notes payable and unpaid accrued interest totaling $155,912.
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| NOTE 10. | STOCK OPTIONS |
In 2017, the Company’s Board of Directors approved the 2017 Employee and Consultant Stock Ownership Plan, (the “Plan”). The Plan provides that the Board of Directors may grant stock units, incentive stock options and non-statutory stock options to officers, key employees and certain consultants and advisors to the Company up to a maximum of 2,500,000 shares. Stock options granted under the Plan have ten-year terms with vesting terms to be determined by the administrator of the Plan. Stock unit grant terms will be set by the administrator and at the discretion of the administrator, be settled in cash, shares, or a combination of both.
The Black-Scholes valuation model was utilized to estimate the fair value of the time-based options. The weighted average assumptions utilized in the valuation of the time-based option awards granted during the year ended December 31, 2019 are summarized as follows:
(1) Expected volatility is based on the historical volatilities of comparable public companies.
(2) Risk-free interest rate is based on the yields from US State Treasury zero-coupon issues for a term consistent with the expected life of the awards in effect at the date of grant.
(3) Expected life of the option
(4) The Company currently has no expectation of paying cash dividends on its common stock.
| Assumptions | ||||
| Expected volatility rate | 88 | % | ||
| Expected dividend yield | 0 | % | ||
| Average risk-free interest rate | 2.51 | % | ||
| Expected term years | 3 | ,0 | ||
The Company recorded pretax stock compensation expense of $157,168 during the year ended December 31, 2019, respectively. Stock-based compensation is included in selling, general, and administrative expense in the accompanying statements of operations. Stock-based compensation expense is based on awards ultimately expected to vest. Total unrecognized stock-based compensation cost related to unvested time-based stock options was $24,953 as of December 31, 2019 and is expected to be recognized over a weighted-average period of 15 months.
| Number of shares | Weighted Average Exercise Price | Weighted Average Contractual term (years) | ||||||||||
| Options outstanding at December 31, 2018 | - | |||||||||||
| Granted | 651,250 | $ | 0.71 | |||||||||
| Exercised | - | - | ||||||||||
| Forfeited | (206,250 | ) | $ | 0.71 | ||||||||
| Expired | - | - | ||||||||||
| Options outstanding at December 31, 2019 | 445,000 | $ | 0.71 | 2.5 | ||||||||
| Exercisable at December 31, 2019 | 150,000 | $ | 0.71 | 2.5 | ||||||||
| Options exercisable and expected to vest at December 31, 2019 | 445,000 | $ | 0.71 | 2.5 | ||||||||
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| NOTE 11. | COMMITMENTS AND CONTINGENCIES |
Contingencies
The Company is subject to various loss contingencies and assessments arising in the normal course of the business, some of which relate to litigation, claims, property taxes and sales and use tax or goods and services tax assessments. The Company considers the likelihood of the loss or the incurrence of a liability, as well as its ability to reasonably estimate the amount of loss in determining loss contingencies and assessments. An estimated loss contingency or assessment is accrued when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. Management regularly evaluates current information available to them to determine whether such accruals should be adjusted. Based on the information presently available, including discussion with counsel and other consultants, management believes that resolution of these matters will not have a material adverse effect on its business, results of operations, financial condition or cash flows.
Operating Leases
The Company is obligated under certain non-cancellable operating leases for its corporate vehicles, which expired on various dates through February 2018. Total rental expense amounted to $5,123 for the year ended December 31, 2018, and is included in selling, general and administrative expenses in the accompanying statements of operations.
| NOTE 12. | SUBSEQUENT EVENTS |
The Company has evaluated subsequent events that have occurred through the date of this filing and determined that there were no subsequent events or transactions that required recognition or disclosure in the financial statements, except as disclosed below.
In January 2020, the Company issued 10,355 shares of common stock to a vendor as settlement for a liability totaling $14,585.
In February 2020, the Company issued 200,000 shares of common stock in conjunction with a twelve-month agreement for consulting services.
In February 2020, the Company entered into a six- month consulting agreement with a third party. In conjunction with the agreement, the Company issued the third party 400,000 shares of common stock, with the option to issue an additional 900,000 shares at the Company’s discretion.
In April 2020, the Company issued 2,000,000 shares of stock to one of its employees as compensation.
In April 2020, the Company entered additional promissory notes totaling $58,000 due in 2021 with a related party for a total of $376,000.
On January 30, 2020, the World Health Organization declared the COVID-19 outbreak a “Public Health Emergency of International Concern” and on March 10, 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 area in which the Company operates. While it is unknown how long these conditions will last and what the complete financial effect will be to the company, COVID-19 has had an adverse effect on our business, including our supply chains and distribution systems. While we are taking diligent steps to mitigate disruptions to our supply chain, we are unable to predict the extent or nature of these impacts at this time to our future financial condition and results of operations.
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The following tables set forth our most recent interim financial statements. Our unaudited quarterly results of operations data have been prepared on the same basis as our audited financial statements included elsewhere in this prospectus. In the opinion of management, the financial information set forth in the table below reflects all normal recurring adjustments necessary for the fair statement of results of operations for these periods in accordance with generally accepted accounting principles in the United States. Our historical results are not necessarily indicative of the results that may be expected in the future and the results of a particular quarter or other interim period are not necessarily indicative of the results for a full year. This data should be read in conjunction with the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes included elsewhere in this prospectus.
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ELECTROMEDICAL TECHNOLOGIES, INC.
BALANCE SHEETS
(UNAUDITED)
| ASSETS |
| March
31, 2020 | December
31, 2019 | |||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 38,881 | $ | - | ||||
| Accounts receivable | 17,316 | 15,667 | ||||||
| Inventories | 27,294 | 24,694 | ||||||
| Prepaid expenses and other current assets | 52,361 | 65,831 | ||||||
| Total current assets | 135,852 | 106,192 | ||||||
| Other assets | 29,375 | 25,580 | ||||||
| Property and equipment, net | 765,625 | 771,094 | ||||||
| Total assets | $ | 930,852 | $ | 902,866 | ||||
| LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 274,773 | $ | 251,162 | ||||
| Credit cards payable | 29,537 | 31,009 | ||||||
| Accrued expenses and other current liabilities | 297,240 | 289,791 | ||||||
| Customer deposits | 135,260 | 40,120 | ||||||
| KISS liability - related party | 1,444,761 | 1,444,761 | ||||||
| Convertible promissory note | 50,000 | 50,000 | ||||||
| Related party notes payable | 202,000 | 105,000 | ||||||
| Notes payable | 43,510 | 59,153 | ||||||
| Bank debt, current portion | 21,178 | 25,595 | ||||||
| Total current liabilities | 2,498,259 | 2,296,591 | ||||||
| Long-term liabilities: | ||||||||
| Bank debt, net of current portion | 569,161 | 566,406 | ||||||
| Related party notes payable | 174,000 | 213,000 | ||||||
| Other liabilities | 22,493 | 11,306 | ||||||
| Total liabilities | 3,263,913 | 3,087,303 | ||||||
| Commitments and contingencies | ||||||||
| Stockholders' deficit | ||||||||
| Series A Preferred Stock, 1,000,000 shares authorized and 500,000 outstanding | 355,000 | 355,000 | ||||||
| Common stock, $.00001 par value, 50,000,000 shares authorized; | ||||||||
| 18,510,994 and 17,900,639 shares outstanding at March 31, 2020 and December 31, 2019, respectively | 183 | 177 | ||||||
| Additional paid-in-capital | 3,015,698 | 2,713,087 | ||||||
| Accumulated deficit | (5,703,942 | ) | (5,252,701 | ) | ||||
| Total stockholders' deficit | (2,333,061 | ) | (2,184,437 | ) | ||||
| $ | 930,852 | $ | 902,866 | |||||
The accompanying notes are an integral part of these financial statements
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ELECTROMEDICAL TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31,
(UNAUDITED)
| 2020 | 2019 | |||||||
| Net sales | $ | 214,870 | 175,002 | |||||
| Cost of sales | 64,513 | 60,081 | ||||||
| Gross profit | 150,357 | 114,921 | ||||||
| Selling, general and administrative expenses | 588,150 | 894,851 | ||||||
| Loss from operations | (437,793 | ) | (779,930 | ) | ||||
| Other income (expense) | ||||||||
| Interest expense | (14,948 | ) | (13,162 | ) | ||||
| Change in fair value of KISS liability - related party | - | (25,877 | ) | |||||
| Other income | 1,500 | - | ||||||
| Total other expense | (13,448) | (39,039 | ) | |||||
| Net loss | $ | (451,241) | ) | (818,969 | ) | |||
| Weighted average shares outstanding- basic and diluted | 18,161,124 | 16,438,899 | ||||||
| Weighted average loss per share- basic and diluted | $ | (0.02 | ) | (0.05 | ) | |||
The accompanying notes are an integral part of these financial statements
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ELECTROMEDICAL TECHNOLOGIES, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE THREE MONTHS ENDED MARCH 31, 2020
(UNAUDITED)
| Total | ||||||||||||||||||||||||||||
| Series A Preferred Stock | Common Stock | Paid in | Accumulated | Stockholders' | ||||||||||||||||||||||||
| Amount | Shares | Amount | Shares | Capital | Deficit | Deficit | ||||||||||||||||||||||
| Balance, December 31, 2019 | $ | 355,000 | 500,000 | $ | 177 | 17,900,639 | $ | 2,713,087 | $ | (5,252,701 | ) | $ | (2,184,437 | ) | ||||||||||||||
| Shares issued in conjunction with vendor settlement | - | 10,355 | 7,352 | - | 7,352 | |||||||||||||||||||||||
| Shares issued for consulting services | - | - | 6 | 600,000 | 289,994 | - | 290,000 | |||||||||||||||||||||
| Stock -based compensation | - | - | - | - | 5,265 | 5,265 | ||||||||||||||||||||||
| Net loss | - | - | - | - | (451,241 | ) | (451,241 | ) | ||||||||||||||||||||
| Balance, March 31, 2020 | $ | 355,000 | 500,000 | $ | 183 | 18,510,994 | $ | 3,015,698 | $ | (5,703,942 | ) | $ | (2,333,061 | ) | ||||||||||||||
The accompanying notes are an integral part of these financial statements
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ELECTROMEDICAL TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31,
(UNAUDITED)
| 2020 | 2019 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (451,241 | ) | $ | (818,969 | ) | ||
| Adjustments to reconcile net loss to | ||||||||
| net cash used in operating activities: | ||||||||
| Financing costs on put option liability | - | 76,425 | ||||||
| Stock-based compensation expense | 295,265 | 620,144 | ||||||
| Depreciation and amortization | 5,469 | 8,051 | ||||||
| Change in excess fair value of KISS liability- related party | - | 25,877 | ||||||
| Change in operating assets and liabilities: | ||||||||
| Accounts receivable | (1,649 | ) | (181 | ) | ||||
| Inventories | (2,600 | ) | (81,834 | ) | ||||
| Prepaid expenses and other current assets | 13,470 | 99,992 | ||||||
| Due from CEO | - | (76,476 | ) | |||||
| Other assets | (3,795 | ) | - | |||||
| Accounts payable | 23,611 | 24,690 | ||||||
| Credit cards payable | (1,472 | ) | (3,730 | ) | ||||
| Accrued expenses and other current liabilities | 17,315 | 18,452 | ||||||
| Customer deposits | 95,140 | (31,550 | ) | |||||
| Other liabilities | 11,186 | - | ||||||
| Net cash provided by (used in) operating activities | 699 | (139,109 | ) | |||||
| Cash flows from financing activities: | ||||||||
| Repayments on short-term financing | (15,643 | ) | - | |||||
| Repayments on bank debt | (4,175 | ) | (6,015 | ) | ||||
| Related party notes payable-net | 58,000 | 92,000 | ||||||
| Repayments on notes payable | - | (5,461 | ) | |||||
| Issuance of common stock for cash- net | - | 80,000 | ||||||
| Net cash provided by financing activities | 38,182 | 160,524 | ||||||
| Net increase in cash and cash equivalents | 38,881 | 21,415 | ||||||
| Cash and cash equivalents, beginning of period | - | - | ||||||
| Cash and cash equivalents, end of period | $ | 38,881 | $ | 21,415 | ||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid during the year for: | ||||||||
| Interest | $ | 14,396 | $ | 9,310 | ||||
| Income taxes | $ | - | $ | - | ||||
Non-cash investing and financing activities:
| Stock and put option liability for software | $ | - | $ | 71,200 | ||||
| Shares issued in conjunction with vendor settlement | $ | 7,352 | $ | - |
The accompanying notes are an integral part of these financial statements
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ELECTROMEDICAL TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
| NOTE 1. | ORGANIZATION AND NATURE OF BUSINESS |
Electro Medical Technologies, LLC (“the Company”), was formed in November 2010 as an Arizona limited liability company. In August 2017, the Company converted to a Delaware C Corporation under Electromedical Technologies, Inc. The Company is a bioelectronic engineering company with medical device certifications in the United States (FDA) and Mexico (Cofepris). The Company engineers simple-to-use portable bioelectronics devices, which provide fast and long -lasting pain relief across a broad range of ailments.
| NOTE 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Accounting Method
The accompanying unaudited financial statements of Electromedical Technologies, Inc. have been prepared in accordance with Accounting Principles Generally Accepted in the United States of America ("GAAP") for interim financial information and in accordance with Rule 8-03 of Regulation S-X per Regulation A requirements. Certain information and disclosures normally included in the annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, all adjustments, consisting of normal recurring adjustments considered necessary for a fair presentation, have been included. These interim financial statements should be read in conjunction with the audited annual financial statements of the Company as of and for the years ended December 31, 2018 and 2019. The results of operations for the three months ended March 31, 2020 and 2019 are not necessarily indicative of the results that may be expected for the full year.
Use of Estimates
The preparation of financial statements in conformity with 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 he most current and best available information. However, actual results from the resolution of such estimates and assumptions may vary from those used in the preparation of the financial statements.
Going Concern
Since inception, the Company has incurred approximately $5.7 million of accumulated net losses, which includes approximately $1.6 million related to the adjustment to fair market value of the Company’s related party KISS liability. In addition, during the three months ended March 31, 2020, the Company provided $699 of cash from operations and had a working capital deficit of $2,362,407. These factors raise substantial doubt regarding the Company's ability to continue as a going concern. The Company expects to obtain funding through additional debt and equity placement offerings until it consistently achieves positive cash flows from operations. If the Company is unable to obtain additional funding, it may not be able to meet all of its obligations as they come due for the next twelve months. The continuing viability of the entity and its ability to continue as a going concern is dependent upon the entity being successful in its continuing efforts in growing its revenue base and/or accessing additional sources of capital, and/or selling assets.
As a result, there is significant uncertainty whether the entity will continue as a going concern and, therefore, whether it will realize its assets and settle its liabilities and commitments in the normal course of business and at the amounts stated in the financial statements.
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Accordingly, no adjustments have been made to the financial statements relating to the recoverability and classification of the asset carrying amounts or the amount and classification of liabilities that might be necessary should the entity not continue as a going concern. At this time, management is of the opinion that no asset is likely to be realized for an amount less than the amount at which it is recorded in the financial statements as at March 31, 2020.
Revenue Recognition
The FASB issued Accounting Standards Update (“ASU”) No. 2014-09, codified as ASC 606: Revenue from Contracts with Customers, which provides a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The Company adopted ASC 606 effective January 1, 2019 using modified retrospective basis and the cumulative effect was immaterial to the financial statements. In addition, the comparative prior period has not been restated.
Revenues are recognized when performance obligations are satisfied through the transfer of promised goods to the Company’s customers. Control transfers upon shipment of product and when the title has been passed to the customers. This includes the transfer of legal title, physical possession, the risks and rewards of ownership, and customer acceptance. Revenue is recorded net of sales taxes collected from customers on behalf of taxing authorities, allowance for estimated returns, chargebacks, and markdowns based upon management’s estimates and the Company’s historical experience. The Company’s liability for sales return refunds is recognized within other current liabilities, and an asset for the value of inventory which is expected to be returned is recognized within other current assets on the balance sheets. The Company generally allows a 30 day right of return to its customers. As of March 31, 2020, and December 31, 2019, the sales returns allowance was $3,495 and $3,225, respectively.
Certain larger customers pay in advance for future shipments. These advance payments totaled $135,260 and $40,120 at March 31, 2020 and December 31, 2019, respectively, and are recorded as customer deposits in the accompanying balance sheets. Revenue related to these advance payments is recognized upon shipment to the distributor or the end-customer.
At the completion of the initial three-year warranty, the Company sells extended warranties for periods ranging from one to three years. Revenue is recognized on a straight-line basis over the term of the contract. As of March 31, 2020, deferred revenue of $42,143 is recorded in connection with these extended warranties.
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Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents.
Accounts Receivable
Accounts receivable are stated at amounts due from customers, net of an allowance for doubtful accounts, and the Company generally does not require collateral. As a general policy, the Company determines an allowance for doubtful accounts by considering a number of factors, including the length of time trade accounts receivable are past due, the Company’s previous loss history, the customer’s current ability to pay its obligation to the Company, and the condition of the general economy and industry as a whole. The Company writes off accounts receivable when they become uncollectible, and payments subsequently received on such receivables are credited to the allowance for doubtful accounts.
The Company recorded an allowance for doubtful accounts of $1,000 at both March 31, 2020 and December 31,2019.
Financial Instruments and Concentrations of Business and Credit Risk
The Company elected early adoption of the Accounting Standards Update (“ASU”) 2016-01, Recognition and Measurement of Financial Assets and Liabilities, which eliminates the requirement of the Company to disclose the fair value of its financial instruments as of the balance sheet date. Financial instruments that potentially subject the Company to concentrations of business and credit risks consist of cash and cash equivalents, accounts receivable, and accounts payable.
The Company maintains cash balances that can, at times, exceed amounts insured by the Federal Deposit Insurance Corporation. The Company has not experienced any losses in these accounts and believes it is not exposed to any significant credit risk.
The Company’s accounts receivable, which are unsecured, expose the Company to credit risks such as collectability and business risks such as customer concentrations. The Company mitigates credit risk by investigating the creditworthiness of all customers prior to establishing relationships with them, performing periodic review of the credit activities of those customers during the course of the business relationship, regularly analyzing the collectability of accounts receivables, and recording allowances for doubtful accounts when these receivables become uncollectible. The Company mitigates business risks by attempting to diversify its customer base.
The Company had one significant customer (“Customer A”) for the three-months ended March 31, 2020 and 2019 that in total accounted for approximately 22.1% and 18.5%, respectively, of net sales. During the three months ended March 31, 2019, there was an additional customer (“Customer B”) that also made up 18.5% of net sales for a total of 37% for both customers. There were no amounts outstanding from these customers as of March 31, 2020 and December 31, 2019. Amounts due these customers totaled $22,911 and $3,100 as of March 31, 2020 and December 31, 2019, respectively for commissions and reimbursements. Customer deposits on hand from Customer A totaled approximately $110,280 and $40,120 at March 31, 2020 and December 31, 2019, respectively. The loss of these customers would have a significant impact on the operations and cash flows of the Company.
The Company’s supplier concentrations expose the Company to business risks, which the Company mitigates by attempting to diversify its supply chain. Supplier concentrations consisted of one significant supplier in China that accounted for approximately 94% and 98% of total net purchases for the three-months ended March 31, 2020 and 2019. There were no amounts due this supplier at both March 31, 2020 and December 31, 2019. The loss of key vendors may have a significant impact on the operations and cash flows of the Company.
The estimated fair value of financial instruments has been determined using available market information and appropriate valuation methodologies. However, considerable judgment is often required to interpret market data used to develop the estimates of fair value. Accordingly, the estimates presented may not be indicative of the amounts the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies could have a material effect on the estimated fair value amounts.
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Disclosure of Fair Value
The disclosure requirements within Accounting Standards Codification (ASC) Topic 820-10, Fair Value Measurement, require disclosure of estimated fair values of certain financial instruments. For financial instruments recognized at fair value in the Company’s statements of operations, the disclosure requirements of ASC Topic 820-10 also apply. The methods and assumptions are set forth below:
| · | Cash and cash equivalents are carried at cost, which approximates fair value. |
| · | The carrying amounts of receivables approximate fair value due to their short-term maturities. |
| · | The carrying amounts of payables approximate fair value due to their short-term maturities. |
| · | KISS liability-related party is adjusted to fair value based on the value of the Company as a whole using the discounted cash flow method. |
Asset and liabilities measured and reported at fair value are classified and disclosed in one of the following categories based on inputs:
Level 1 — Quoted prices in active markets for identical assets and liabilities that the reporting entity has the ability to access at the measurement date
Level 2 — Inputs other than quoted prices included within Level 1 that are observable for the asset and liability or can be corroborated with observable market data for substantially the entire contractual term of the asset or liability
Level 3 — Pricing inputs include significant unobservable inputs used in determining the fair value of investments. The types of investments, which would generally be included in this category include equity securities issued by private entities.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the determination of which category within the fair value hierarchy is appropriate for any given investment is based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the investment.
The levels of the fair value hierarchy into which the Company’s assets and liabilities fall as of both March 31, 2020 and December 31, 2019 are as follows:
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Liabilities | ||||||||||||||||
| KISS liability- related party | $ | - | $ | - | $ | 1,444,761 | $ | 1,444,761 | ||||||||
| Total fair value | $ | - | $ | - | $ | 1,444,761 | $ | 1,444,761 | ||||||||
There were no changes in fair value during the three months ended March 31, 2020 in Level 3 liabilities.
See Note 5 for discussion of the Company’s valuation of the KISS liability- related party.
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Inventories
Inventories are stated at the lower of cost or market. Cost is determined based on the first-in, first-out cost flow assumption (“FIFO”) while market is determined based upon the estimated net realizable value less an allowance for selling and distribution expenses and a normal gross profit. The Company evaluates the need for inventory reserves associated with obsolete, slow moving, and non-sellable inventory by reviewing estimated net realizable values on a periodic basis. As of, March 31, 2020 and December 31, 2019, the Company believes there are no excess and obsolete inventories and accordingly, did not record an inventory reserve. Inventories consist of purchased finished goods.
Deferred Offering Costs
Costs associated with the Company’s pending S-1 filing totaled $29,375 and $25,580 as of March 31, 2020 and December 31, 2019, respectively, and are included in other assets on the accompanying balance sheets.
Property and Equipment
Property and equipment is recorded at cost and is comprised of a building and office furniture and equipment. The building is depreciated using the straight-line method over the estimated useful life of 40 years. Office furniture and equipment is depreciated using the double-declining method or the straight-line method over the estimated useful lives of 3 to 7 years.
Betterments, renewals, and extraordinary repairs that materially extend the useful life of the asset are capitalized; other repairs and maintenance charges are expensed as incurred. The cost and related accumulated depreciation applicable to assets retired are removed from the accounts, and the gain or loss on disposition, if any, is recognized in the accompanying statements of operations.
Impairment of Long-Lived Assets
In accordance with FASB ASC Topic 360, Property, Plant and Equipment, long-lived assets such as property and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss is recognized on long-lived assets when indicators of impairment are present and the undiscounted future cash flows estimated to be generated by those assets are less than the carrying amount of the assets. In such cases, the carrying value of these assets are adjusted to their estimated fair values and assets held for sale are adjusted to their estimated fair values less selling expenses.
No impairment losses of long-lived assets were recognized for the three months ended March 31, 2020 and 2019.
Income Taxes
Deferred tax assets as of March 31, 2020 consist of a minor amount of accruals for which the Company will receive the benefit from when paid. The amount is insignificant to the financial statements as of March 31, 2020, for which a full valuation allowance would have been present.
Sales Taxes
FASB ASC Subtopic 605-45, Revenue Recognition – Principal Agent Considerations, provides that the presentation of taxes assessed by a governmental authority that are directly imposed on revenue-producing transactions (e.g. sales, use, and excise taxes) between a seller and a customer on either a gross basis (included in revenues and costs) or on a net basis (excluded from revenues) is an accounting policy decision that should be disclosed. In addition, for any such taxes that are reported on a gross basis, the amounts of those taxes should be disclosed in the financial statements for each period for which a statement of operations is presented if those amounts are significant. Sales taxes for the three months ended March 31, 2020 and 2019 were recorded on a net basis. Included in accrued expenses at March 31, 2020 and December 31, 2019 is approximately $65,000 and $62,000 respectively, related to sales taxes.
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Shipping and Handling Costs
The Company included shipping and handling costs in cost of sales on the accompanying statements of operations for the three months ended March 31, 2020 and 2019.
Warranty
The Company warranties the sale of most of its products and records an accrual for estimated future claims. The standard warranty is typically for a period of three years. Such accruals are based upon historical experience and management's estimate of the level of future claims. The Company recorded a liability as of, March 31, 2020 and December 31, 2019 of $17,848 and $16,183, respectively and is included in cost of sales in the statements of operations and within accrued expenses and other current liabilities on the accompanying balance sheets.
Advertising
Advertising costs are expensed as incurred. Total advertising expenses amounted to $0 for both the three-month periods ended March 31, 2020 and 2019. Total advertising costs are included in selling, general and administrative expenses on the accompanying statements of operations.
Research and Development Costs
Research and development costs are expensed as incurred. Total research and development costs amounted to $0 and $21,081 for the three-months ended March 31, 2020 and 2019, respectively. Total research and development costs are included in selling, general and administrative expenses on the accompanying statements of operations.
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Net Loss per Share
Net earnings or loss per share is computed by dividing net income or loss by the weighted-average number of common shares outstanding during the period, excluding shares subject to redemption or forfeiture. The Company presents basic and diluted net earnings or loss per share. Diluted net earnings or loss per share reflect the actual weighted average of common shares issued and outstanding during the period, adjusted for potentially dilutive securities outstanding. Potentially dilutive securities are excluded from the computation of the diluted net loss per share if their inclusion would be anti-dilutive. Potentially dilutive securities include convertible notes payable, warrants, stock options and the KISS liability-related party. As all potentially dilutive securities are anti-dilutive as of March 31, 2020 and 2019, diluted net loss per share is the same as basic net loss per share for each period.
COVID-19
On January 30, 2020, the World Health Organization declared the COVID-19 outbreak a “Public Health Emergency of International Concern” and on March 10, 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 area in which the Company operates. While it is unknown how long these conditions will last and what the complete financial effect will be to the company, COVID-19 has had an adverse effect on our business, including our supply chains and distribution systems. While we are taking diligent steps to mitigate disruptions to our supply chain, we are unable to predict the extent or nature of these impacts at this time to our future financial condition and results of operations.
Recently Issued Accounting Pronouncements
In February 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842). The new standard establishes a right-of-use ("ROU") model that requires a lessee to record a ROU asset and a lease liability, measured on a discounted basis, on the balance sheet for all leases with terms greater than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the statements of operations and comprehensive loss. A modified retrospective transition approach is required for capital and operating leases existing at the date of adoption, with certain practical expedients available. The Company is currently in the process of evaluating the potential impact of this new accounting guidance, which is effective for the Company beginning on January 1, 2021. The impact is not expected to be significant.
Management does not believe that any other recently issued, but not yet effective, authoritative guidance, if currently adopted, would have a material impact on the Company’s financial statement presentation or disclosures.
| NOTE 3. | PROPERTY AND EQUIPMENT |
Property and equipment consisted of the following:
| March 31,2020 |
December 31, 2019 |
|||||||
| Building | $ | 875,000 | $ | 875,000 | ||||
| Furniture and equipment | 24,987 | 24,987 | ||||||
| 899,987 | 899,987 | |||||||
| Less: accumulated depreciation and amortization | (134,362 | ) | (128,893 | ) | ||||
| $ | 765,625 | $ | 771,094 | |||||
Depreciation and amortization expense related to property and equipment was $5,469 and $8,051 for the three months ended March 31, 2020 and 2019, respectively. Depreciation and amortization are included in selling, general and administrative expenses on the accompanying statements of operations.
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| NOTE 4. | NOTES PAYABLE |
In May 2018, the Company entered into a note payable with a third- party vendor as payment for an outstanding balance in the amount of $43,692. The note is interest free and requires monthly payments of $5,461 beginning June 15, 2018 with the remaining balance due and payable on December 15, 2018. The Company did not make timely payments as of December 15, 2018 which resulted in interest being accrued on the unpaid balance at a rate of ten percent beginning July 31, 2017. The outstanding balance as of both March 31, 2020 and December 31, 2019 is $18,846.
Interest expense of $7,115 has been accrued in the Company’s balance sheet as of March 31, 2020, of which $469 has been recorded in the Company’s statement of operations for the three months then ended. Interest expense of $1,025 has been recorded for the three months ended March 31, 2019.
In October 2019, the Company entered into a future revenue sale agreement. Under the terms of the agreement, the Company agrees to sell $73,336 of its future revenues for a purchase price of $50,500 less transaction fees of $3,115 for a net advance of $47,385. Payments of $375 per day are to be made for principal and interest until the $73,336 is paid in full. The note payable is estimated to be paid in full in 2020. The outstanding balance as of March 31, 2020 and December 31, 2019 is $24,664 and $40,307, respectively.
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Convertible Promissory Note
In May 2018, the Company borrowed $25,000 in conjunction with a convertible promissory note. The note matures in June 2020 and accrues interest at a rate of 8% per annum. The lender has the right at any time to convert the debt into fully paid and non- assessable shares of common stock at a price of $0.71 per share. In October 2019, the lender converted the $25,000 note and unpaid accrued interest of $2,948 into 39,363 shares of common stock. There is no beneficial conversion feature as the conversion price is at fair market value. The proceeds were used for operations.
In December 2019, the Company borrowed $50,000 in conjunction with a convertible promissory note. The note matures in May 2020 and is interest free. The lender has the right at any time to convert the debt into fully paid and non- assessable shares of common stock at a price of $0.71 per share. There is no beneficial conversion feature as the conversion price is at fair market value. The proceeds were used for operations.
| NOTE 5. | KISS LIABILITY- RELATED PARTY |
In November 2018, the Company entered into KISS agreement with a related party for a purchase price of $35,000. The purchase price of the KISS agreement is non-interest bearing, matures twelve months from the issuance date in November 2019 and has been recorded as KISS liability- related party in the current liabilities section of the Company’s balance sheet. Upon (a) after the maturity date of November 1, 2019; (b) in the event of a “Next Equity Financing” where the Company sells its preferred shares from which the Company receives not less than $1 million dollars; or, (c) a corporate transaction in which all or substantially all of the Company’s assets are sold, merged or consolidated into another entity, the investor may, at his discretion, convert the principal of the KISS into common shares of Company. The Company’s obligation is to convert the KISS note upon election of the investor. To date, the investor elected to convert one million shares and the Company fulfilled its obligation and is not in default.
(k) Under the terms of the agreement, the KISS agreement may be converted into a certain amount of “Conversion Shares” at the earlier of the Company’s “Next Equity Financing” or “Corporate Transaction” as defined in the agreement, or at maturity. The Company has calculated the estimated number of conversion shares to be 7,530,407 and 7,298,905 at March 31, 2020 and December 31, 2019, respectively. KISS conversion shares are equal to the quotient obtained by dividing the Conversion Amount by the Conversion Price as defined in the agreement. At March 31, 2020 and December 31, 2019, the Conversion Amount is the purchase price of $30,783 and $35,000, respectively. The conversion price is the quotient resulting from dividing (A) the Valuation Cap by (B) the Fully-Diluted Capitalization immediately prior to the conversion. "Valuation Cap" shall mean (i) US $82,497 for shares converted prior to July 1, 2020 (the "2020 Valuation Cap")"); (ii) US $106,376 for shares converted prior to July 1, 2022 (the "2022 Valuation Cap") and (iii) US $142,458 for shares converted on or after July I, 2022.
In October 2019, the related party converted 1,000,000 of the conversion shares at a value of $197,942, which was reclassed to additional paid-in-capital.
The fair market value of the KISS liability- related party at both March 31, 2020 and December 31, 2019 is $1,444,761. Changes in fair market value are recorded as other income in the Company’s statements of operations. The change in fair market value for the three months ended March 31, 2020 and 2019, totaled $0 and $(25,877), respectively.
The Company determined the fair value of the KISS liability using the estimated enterprise value of the Company, allocating the percentage of fully diluted pro-rata shares to the value of the KISS liability. The Company will mark to market the liability at each reporting period. No changes were recorded during the three-months ended March 31, 2020, as the amounts were insignificant.
| NOTE 6. | LONG-TERM DEBT |
Note Payable
In March 2015, the Company entered into an $850,000 note payable (the “Original Note Payable”) with a third-party to finance the purchase of its office building. The Original Note Payable consisted of interest-only payments at 4.5% per annum, payable monthly in arrears. The Original Note Payable was collateralized by a deed of trust in the office building. During 2015, the Company refinanced the Original Note Payable with bank debt and a new note payable (“Note Payable”) for the unpaid principal balance.
The Note Payable, effective December 31, 2015 was issued for a principal amount of $157,000 and personally guaranteed by the Company’s CEO. Interest began accruing on the interest commencement date of January 1, 2018, at 2% per annum, compounded monthly. The unpaid principal balance and accrued interest is due within ten days of the maturity date on December 31, 2020. The outstanding balance on the Note Payable at December 31, 2018 was $157,000. In August 2019, the Company’s CEO personally repaid $100,000 of the note payable to the third-party and was recorded as a reduction of the CEO’s amount due the Company. In October 2019, the lender converted the remaining balance of $57,000 and unpaid accrued interest of $5,373 into 87,849 shares of common stock.
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Bank Debt
In September 2015, the Company entered into a credit agreement for a $700,000 term loan with a financial institution. Payment terms consist of monthly payments in arrears of $3,547 for the first year outstanding. The monthly payment then increases to $4,574 until the term loan matures on September 30, 2025, in which the remaining unpaid principal balance and accrued interest is due. The interest rate for the first year was 1.99% per annum and increased to 4.95% per annum for the remaining life of the term loan. The term loan is collateralized by a deed of trust in the office building. The proceeds were used to purchase a building for which the Company's operations are located. The net principal balance outstanding on the term loan at March 31, 2020 and December 31, 2019 was $590,339 and $592,001, respectively. The term loan is personally guaranteed by the Company’s CEO.
In March 2020, the Company entered into an agreement with the financial institution to defer its monthly payments for three months through May 2020. Such payments and additional accrued interest have been deferred to the maturity date of the loan.
Related Party Notes Payable
In October 2013, the Company entered in to a $45,000 note payable with an individual related to the Company's CEO. The proceeds were used for operations. Interest began accruing on the interest commencement date of January 1, 2018, at 2% per annum, compounded monthly. The unpaid principal balance and accrued interest is due within ten days of the maturity date on December 31, 2020. In October 2019, the related party lender converted the principal amount of $44,000 and unpaid accrued interest of $1,592 into 64,215 shares of common stock .
In July 2017, the Company entered a $250,000 promissory note with its CEO. The proceeds were used for operations and Regulation A+ offering costs. The promissory note began accruing interest on the interest commencement date of October 1, 2018 at 2% per annum, compounded monthly. The unpaid principal balance and accrued interest are due within ten days of the maturity date on September 30, 2020. The note payable and accrued interest are deemed paid in full as of December 31, 2019.
The Company entered into additional promissory notes with a related party for $58,000 in the three-months ended March 31, 2020, for a total of $376,000 outstanding. All notes mature at various times in 2020 and 2021. Interest will accrue at 10% per annum from the due date thereon until all principal is paid in full. Proceeds from the loans were used for operations.
The long-term debt agreements do not contain any financial covenants.
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| NOTE 7. | RELATED PARTY TRANSACTIONS |
The Company has a promissory note with a related party for $44,000 that was converted into shares of common stock in 2019.
In October 2019, the Company entered into an employment agreement with the Company’s CEO. The terms of the agreement include an annual base salary of $240,000 and a signing bonus of $500,000, as well as discretionary annual bonuses and participation in long-term incentive plans. The signing bonus may be paid in shares of the Company’s common stock. The agreement remains in effect until the earlier of the discharge or resignation of the CEO. In conjunction with the agreement, the $500,000 signing bonus has been accrued and included in selling, general and administrative expenses in the accompanying statement of operations during the year ended December 31, 2019.
On November 1, 2019, the Company’s board of directors and the majority of shareholders awarded CEO, Matthew Wolfson, 500,000 shares of Series A Preferred stock, which was valued at $355,000 or $.71 per share. The shares were issued as partial payment for the $500,000 signing bonus, for which $145,000 remained payable at December 31, 2019. During the three months ended March 31, 2020, the Company paid the Company’s CEO $71,540 towards the balance of the 2019 signing bonus. Total amount outstanding at March 31, 2020 is $73,460.
As of March 31, 2020, the related party paid the Company $15,000 towards future inventory shipments which are recorded as customer deposits in the accompanying balance sheet at March 31, 2020.
See Notes 5, 6 and 11 for additional related party disclosure.
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| NOTE 8. | STOCKHOLDERS’ DEFICIT |
In January 2020, the Company issued 10,355 shares of common stock to a vendor as settlement for a liability totaling $7,532.
In February 2020, the Company issued 200,000 shares of common stock in conjunction with a twelve-month agreement for consulting services at a value of $102,000 or $0.51 per share. The value of the consulting services has been recorded as selling, general and administrative expenses in the Company’s statement of operations. The fair market value of the shares was determined based the on the Company’s closing price on the date of issuance.
In February 2020, the Company entered into a six- month consulting agreement with a third party. In conjunction with the agreement, the Company issued the third party 400,000 shares of common stock at a value of $188,000 or $0.47 per share, with the option to issue an additional 900,000 shares at the Company’s discretion. Additional shares have not been issued. The value of the consulting services has been recorded as selling, general and administrative expenses in the Company’s statement of operations. The fair market value of the shares was determined based the on the Company’s closing price on the date of issuance.
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| NOTE 9. | STOCK OPTIONS |
The Company recorded stock compensation expense of $5,265 and $21,081 during the three- months ended March 31, 2020 and 2019, respectively. Stock-based compensation is included in selling, general, and administrative expense in the accompanying statements of operations. Stock-based compensation expense is based on awards ultimately expected to vest. Total unrecognized stock-based compensation cost related to unvested time-based stock options was $19,702 as of March 31, 2020 and is expected to be recognized over a weighted-average period of 12 months.
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| NOTE 10. | COMMITMENTS AND CONTINGENCIES |
Contingencies
The Company is subject to various loss contingencies and assessments arising in the normal course of the business, some of which relate to litigation, claims, property taxes and sales and use tax or goods and services tax assessments. The Company considers the likelihood of the loss or the incurrence of a liability, as well as its ability to reasonably estimate the amount of loss in determining loss contingencies and assessments. An estimated loss contingency or assessment is accrued when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. Management regularly evaluates current information available to them to determine whether such accruals should be adjusted. Based on the information presently available, including discussion with counsel and other consultants, management believes that resolution of these matters will not have a material adverse effect on its business, results of operations, financial condition or cash flows.
| NOTE 11. | SUBSEQUENT EVENTS |
The Company has evaluated subsequent events that have occurred through the filing date, which is the date that the financial statements were available to be issued and determined that there were no subsequent events or transactions that required recognition or disclosure in the financial statements, except as disclosed below.
In April 2020, the Company issued 2,000,000 shares of common stock to one of its employees as compensation.
In April 2020, the Company received $39,500 in payroll protection program loans (“PPP”). These loans provide for certain funding based on previous employment which in part may be forgivable under certain conditions. The remaining portion needs to be repaid over 2 years with a 6-month moratorium on payments and carry a 1% annual interest rate. These loans require no collateral nor personal guarantees.
On May 1, 2020, the Company issued a warrant to a third party to purchase 100,000 shares of the Company’s common stock at an exercise price of $0.52 per share. The warrant is fully vested upon issuance and expires May 1, 2025.
On May 5, 2020, the Company entered into a promissory note with a related party for $11,500. On July 1, 2020, the related party converted $15,000 in inventory deposits to a promissory note. Total outstanding with the related party is $402,500.
In June 2020 (“Issuance Date”), the Company borrowed $110,000 in conjunction with an unsecured convertible promissory note from an investor (“Investor”). Proceeds of $100,000 include an original issue discount of $10,000. A one-time charge of 8% will be applied to the principal amount of $110,000 on the Issuance Date to be paid upon maturity. The note matures on December 15, 2020. The lender has the right at any time to convert the debt into fully paid and non- assessable shares of common stock at a price of $0.35 per share. The number of shares of common stock issuable upon conversion of any conversion amount shall be equal to the quotient of dividing the conversion amount by the conversion price of $0.35.
The Company shall at all times reserve and keep available out of its authorized common stock a number of shares equal to at least 5 times the full number of shares of common stock issuable upon conversion of all outstanding amounts under this note. The Company will at all times reserve at least 5,000,000 shares of common stock for conversion.
At any time within the 90 day period immediately following the Issuance Date, the Company shall have the option, upon 10 business days’ notice to pre-pay the entire remaining outstanding principal amount of this note in cash, provided that (i) the Company shall pay 130% of the outstanding balance, (ii) such amount must be paid in cash on the next business day following such 10 business day notice period, and (iii) the holder of the note may still convert this note pursuant to the terms hereof at all times until such prepayment amount has been received in full.
For a period of 90 days following the Issuance Date, the Company shall not at any time make any Variable Security Issuances (as defined below) to anyone other than Investor without Investor’s prior written consent, which consent may be granted or withheld in Investor’s sole and absolute discretion. “Variable Security Issuance” shall mean any issuance of any security that (i) has or may have conversion rights of any kind, contingent, conditional or otherwise, in which the number of shares that may be issued pursuant to such conversion right varies with the market price of the common Stock, or (ii) is or may become convertible into common Stock (including without limitation convertible debt, debentures, warrants or convertible preferred stock), with a conversion price that varies with the market price of the common stock, even if such security only becomes convertible following an event of default, the passage of time, or another trigger event or condition
Upon the occurrence of any Event of Default (without the need for any party to give any notice or take any other action), the outstanding balance shall immediately and automatically increase to 120% of the outstanding balance immediately prior to the occurrence of the Event of Default (the “Default Sum”). Upon the occurrence of any Event of Default, the note shall become immediately due and payable.
The proceeds were used for operations.
In conjunction with the above note, the Company issued 100,000 shares of common stock to the Investor as well as a warrant to purchase 250,000 shares of the Company’s common stock at an exercise price of $1.00 per share. The warrant matures on June 30, 2023.
In June 2020, the Company received a total of $50,000 from an investor in exchange for 142,857 shares of common stock of the Company at a price of $0.35 per share.
In June 2020, the Company received a $150,000 economic injury disaster loan (“EIDL”). The loan accrues interest at a rate of 3.75% annually and is collateralized by all personal property and intangible assets of the Company. The loan has a 12-month moratorium on payments, after which monthly principal and interest payments of $731 will be made through the maturity date of June 2050.
On July 2, 2020, the holder of the Company’s convertible promissory note communicated its intent to convert the $50,000 into 70,422 shares of common stock. As of the date of this filing, the Company has not issued the shares.
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WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a Registration Statement on Form S-1 under the Securities Act, and the rules and regulations promulgated thereunder, with respect to the common stock offered hereby. This Prospectus, which constitutes a part of the Registration Statement, does not contain all of the information set forth in the Registration Statement and the exhibits thereto. While we have summarized the material terms of all agreements and exhibits included in the scope of this Registration Statement, for further information regarding the terms and conditions of any exhibit, reference is made to such exhibits. Upon effectiveness of this Prospectus, we will be subject to the reporting and other requirements of Section 15(d) of the Securities Exchange Act of 1934 and will file periodic reports with the Securities and Exchange Commission, including a Form 10-K for the year ended December 31, 2020 and periodic reports on Form 10-Q during that period. We will make available to our shareholders annual reports containing financial statements audited by our independent auditors and our quarterly reports containing unaudited financial statements for each of the first three quarters of each year; however, we will not send the annual report to our shareholders unless requested by an individual shareholder.
For further information with respect to us and the common stock, reference is hereby made to the Registration Statement and the exhibits thereto, which may be inspected and copied at the principal office of the SEC, 100 F Street NE, Washington, D.C. 20549, and copies of all or any part thereof may be obtained at prescribed rates from the Commission’s Public Reference Section at such addresses. Also, the SEC maintains a website at http://www.sec.gov that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. To request such materials, please contact Matthew Wolfson our Chief Executive Officer.
PROSPECTUS
Electromedical Technologies, Inc.
16561 N. 92nd Street, Suite 101
Scottsdale, AZ 85260
(888) 880-7888
15,060,344 SHARES OF COMMON STOCK
DEALER PROSPECTUS DELIVERY OBLIGATION
Until July 7, 2021, all dealers that effect transactions in these securities, whether or not participating in this Offering, may be required to deliver a Prospectus. This is in addition to the dealers’ obligation to deliver a Prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
July 7, 2020
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses payable by us in connection with the issuance and distribution of the securities being registered hereunder. The Selling Security Holder will bear no expenses associated with this offering except for any broker discounts and commissions or equivalent expenses and expenses of the Selling Security Holder’s legal counsel applicable to the sale of its shares. All of the amounts shown are estimates, except for the SEC registration fees.
| Item | Amount to be paid | |||
| SEC registration fee | $ | 2,599.91 | ||
| Legal fees and expenses | $ | 100,000.00 | ||
| Accounting fees and expenses | $ | 100,000.00 | ||
| Miscellaneous fees and expenses | $ | 20,000.00 | ||
| Total | $ | 222,599.91 | ||
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ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Our Articles of Incorporation provide that we shall indemnify our directors and officers to the fullest extent permitted by Delaware law and that none of our directors will be personally liable to the Company or its shareholders for monetary damages for breach of fiduciary duty as a director, except for liability:
| · | for any breach of the director’s duty of loyalty to the Company or its shareholders; |
| · | for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of the law; |
| · | under Delaware General Corporation Law for the unlawful payment of dividends; or |
| · | for any transaction from which the director derives an improper personal benefit. |
These provisions require us to indemnify our directors and officers unless restricted by Delaware law and eliminate our rights and those of our shareholders to recover monetary damages from a director for breach of his or her fiduciary duty of care as a director except in the situations described above. The limitations summarized above, however, do not affect our ability or that of our shareholders to seek non-monetary remedies, such as an injunction or rescission, against a director for breach of his or her fiduciary duty.
To the extent that our directors and officers are indemnified under the provisions contained in our bylaws, Delaware law or contractual arrangements against liabilities arising under the Securities Act, we have been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
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Shares of Common Stock
Except as otherwise noted, the securities in these transactions were sold in reliance on the exemption from registration provided in Section 4(a)(2) of the Securities Act for transactions not involving any public offering. Each of the persons acquiring the foregoing securities was an accredited investor (as defined in Rule 501(a) of Regulation D) and confirmed the foregoing and acknowledged, in writing, that the securities must be acquired and held for investment. All certificates evidencing the shares sold bore a restrictive legend. The Company took reasonable steps to verify that the investors were accredited investors. No underwriter participated in the offer and sale of these securities, and no commission or other remuneration was paid or given directly or indirectly in connection therewith.
The proceeds from these sales were used for general corporate purposes.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
The Registrant has filed the exhibits listed on the accompanying Exhibit Index of this Registration Statement.
(b) Financial Statement Schedules.
All financial statement schedules are omitted because the information called for is not required or is shown either in the financial statements or in the notes thereto.
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1.) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(i.) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933;
(ii.) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and
(iii.) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;
(2.) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof;
(3.) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering; and
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(5.) That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.
(6.) That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser in the initial distribution of the securities, the undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
(i.) Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;
(ii.) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;
(iii.) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and
(iv.) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue.
EXHIBIT INDEX
| * | Filed herewith. |
| ** | In accordance with Rule 406T of Regulation S-T, this information is deemed not “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. |
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Scottsdale, State of Arizona, on July 7, 2020.
| By: | /s/ MatthewWolfson | |
| Matthew Wolfson | ||
| Chief Executive Officer and Chief Financial Officer | ||
| (Principal Executive and Financial Officer) |
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POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Matthew Wolfson, as his or her true and lawful attorney-in-fact and agent with full power of substitution, for him or her in any and all capacities, to sign any and all amendments to this registration statement (including post-effective amendments or any abbreviated registration statement and any amendments thereto filed pursuant to Rule 462(b) under the Securities Act of 1933 increasing the number of securities for which registration is sought), and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact, proxy, and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully for all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney-in-fact, proxy and agent, or his substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
| Signature | Title | Date | ||
| /s/ Matthew Wolfson | Chief Executive Officer, Chief Financial Officer and Chairman | July 7, 2020 | ||
| (Principal Executive and Financial Officer) |
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Exhibits
99
Exhibit 3.1(i)
|
State of Delaware Secretary of State Division of Corporations Delivered 09:10 PM 08/23/2017 FILED 09:10 PM 08/23/2017 SR 20175863573 - File Number 6521026 |
CERTIFICATE OF INCORPORATION
OF
ELECTROMEDICAL TECHNOLOGIES, INC.
ARTICLE I
The name of the corporation is ElectroMedical Technologies, Inc. (the "Corporation").
ARTICLE II
The address of the Corporation's registered office in the State of Delaware is 1209 Orange Street - Corporation Trust Center, New Castle County, Wilmington, Delaware 19801. The name of its registered agent at such address is The Corporation Trust Company.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the Delaware General Corporation Law.
ARTICLE IV
The aggregate number of shares which the Corporation shall have authority to issue is 25,000,000 shares of capital stock all of which shall be designated "Common Stock" and have a par value of $0.00001 per share.
ARTICLE V
The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. Elections of directors need not be by written ballot unless otherwise provided in the Bylaws of the Corporation. In furtherance of and not in limitation of the powers conferred by the laws of the state of Delaware, the Board of Directors of the Corporation is expressly authorized to make, amend or repeal Bylaws of the Corporation.
ARTICLE VI
(A) To the fullest extent permitted by the Delaware General Corporation Law, as the same exists or as may hereafter be amended, a director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director.
(B) The Corporation shall indemnify to the fullest extent permitted by law any person made or threatened to be made a party to an action or proceeding, whether criminal, civil, administrative or investigative, by reason of the fact that he, his testator or intestate is or was a director or officer of the Corporation or any predecessor of the Corporation, or serves or served at any other enterprise as a director or officer at the request of the Corporation or any predecessor to the Corporation.
(C) Neither any amendment nor repeal of this Article VI, nor the adoption of any provision of the Corporation's Certificate of Incorporation inconsistent with this Article VI, shall eliminate or reduce the effect of this Article VI in respect of any matter occurring, or any action or proceeding accruing or arising or that, but for this Article VI, would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provision.
ARTICLE VII
Unless the Corporation consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for (A) any derivative action or proceeding brought on behalf of the Corporation, (B) any action or proceeding asserting a claim of breach of a fiduciary duty owed by any director, officer, employee or agent of the Corporation to the Corporation or the Corporation's stockholders, (C) any action or proceeding asserting a claim against the Corporation arising pursuant to any provision of the Delaware General Corporation Law or the Corporation's Certificate of Incorporation or Bylaws, or (D) any action or proceeding asserting a claim governed by the internal affairs doctrine, in each case subject to said Court of Chancery having personal jurisdiction over the indispensable parties named as defendants therein.
ARTICLE VIII
The name and mailing address of the incorporator are as follows;
Matthew N. Wolfson
16561 N 92nd Street
Suite 101
Scottsdale, Arizona 85260
Executed on August 23, 2017.
| /s/ Matthew N. Wolfson | |
| Matthew N. Wolfson, Incorporator |
Exhibit 3.1(i)(a)
CERTIFICATE OF INCORPORATION OF ELECTROMEDICAL TECHNOLOGIES, INC. AS AMENDED JANUARY 9, 2020ARTICLE IThe name of the corporation is ElectroMedical Technologies, Inc. (the "Corporation").ARTICLE IIThe address of the Corporation's registered office in the State of Delaware is 1209 Orange Street - Corporation Trust Center, New Castle County, Wilmington, Delaware 19801. The name of its registered agent at such address is The Corporation Trust Company.ARTICLE IIIThe purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the Delaware General Corporation Law.ARTICLE IVThe aggregate number of shares which the Corporation shall have authority to issue is 25,000,000 shares of capital stock all of which shall be designated "Common Stock" and have a par value of $0.00001 per share.ARTICLE VThe business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. Elections of directors need not be by written ballot unless otherwise provided in the Bylaws of the Corporation. In furtherance of and not in limitation of the powers conferred by the laws of the state of Delaware, the Board of Directors of the Corporation is expressly authorized to make, amend or repeal Bylaws of the Corporation.ARTICLE VI(A) To the fullest extent permitted by the Delaware General Corporation Law, as the same exists or as may hereafter be amended, a director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director.
(B) The Corporation shall indemnify to the fullest extent permitted by law any person made or threatened to be made a party to an action or proceeding, whether criminal, civil, administrative or investigative, by reason of the fact that he, his testator or intestate is or was a director or officer of the Corporation or any predecessor of the Corporation, or serves or served at any other enterprise as a director or officer at the request of the Corporation or any predecessor to the Corporation.(C) Neither any amendment nor repeal of this Article VI, nor the adoption of any provision of the Corporation's Certificate of Incorporation inconsistent with this Article VI, shall eliminate or reduce the effect of this Article VI in respect of any matter occurring, or any action or proceeding accruing or arising or that, but for this Article VI, would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provision.ARTICLE VIIUnless the Corporation consents in writing to the selection of an alternative forum and except for actions arising under the Securities Act or Exchange Act where Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder, and Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for (A) any derivative action or proceeding brought on behalf of the Corporation, (B) any action or proceeding asserting a claim of breach of a fiduciary duty owed by any director, officer, employee or agent of the Corporation to the Corporation or the Corporation's stockholders, (C) any action or proceeding asserting a claim against the Corporation arising pursuant to any provision of the Delaware General Corporation Law or the Corporation's Certificate of Incorporation or Bylaws, or (D) any action or proceeding asserting a claim governed by the internal affairs doctrine, in each case subject to said Court of Chancery having personal jurisdiction over the indispensable parties named as defendants therein.ARTICLE VIII The name and mailing address of the incorporator are as follows; Matthew N. Wolfson 16561 N 92nd Street Suite 101 Scottsdale, Arizona 85260Executed on January 9, 2020./s/ Matthew N. Wolfson Matthew N. Wolfson, Incorporator
Exhibit 3.1(i)(b)
STATE OF DELAWARE CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION The corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware does hereby certify: FIRST: That at a meeting of the Board of Directors of resolutions were duly adopted setting forth a proposed amendment of the Certificate of Incorporation of said corporation, declaring said amendment to be advisable and calling a meeting of the stockholders of said corporation for consideration thereof. The resolution setting forth the proposed amendment is as follows: RESOLVED, that the Certificate of Incorporation of this corporation be amended by changing the Article thereof numbered "______________________" so that, as amended, said Article shall be and read as follows: SECOND: That thereafter, pursuant to resolution of its Board of Directors, a special meeting of the stockholders of said corporation was duly called and held upon notice in accordance with Section 222 of the General Corporation Law of the State of Delaware at which meeting the necessary number of shares as required by statute were voted in favor of the amendment. THIRD: That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, said corporation has caused this certificate to be signed this ________________ day of ________________, 20_____. By:____________________________________ Authorized Office r Title:____________________________________ Name: ____________________________________ Print or Type ElectroMedical Technologies, Inc. FOURTH The aggregate number of shares which the Corporation shall have the authority to issue is Fifty One million (51,000,000), including Fifty Million (50,000,000) shares of capital stock designated "Common Stock" with a par value of $0.00001 per share and One Million (1,000,000) designated as “Series A Preferred” Shares, no par value. 9th June 20 Chief Executive Officer Matthew Wolfson
Exhibit 3.1(i)(c)
ELECTROMEDICAL TECHNOLOGIES, INC.CERTIFICATE OF DESIGNATION OF SERIES A PREFERRED STOCK, SETTING FORTH THE POWERS, PREFERENCES, RIGHTS, QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS OF SUCH SERIES OF PREFERRED STOCKAND BOARD RESOLUTION SO AUTHORIZINGPursuant to Section 151 of the Delaware General Corporation Law, Electromedical Technologies, Inc., a Delaware corporation (the “Corporation”), DOES HEREBY CERTIFY:The Amended and Restated Certificate of Incorporation of the Corporation (the “Charter”) confers upon the Board of Directors of the Corporation (the “Board of Directors”) the authority to provide for the issuance of shares of preferred stock in series and to establish the number of shares to be included in each such series and to fix the powers, designations, preferences and rights of the shares of each such series and any qualifications, limitations or restrictions thereof.On November 1, 2019, the Board of Directors duly adopted the following resolution creating a series of preferred stock designated as the Series a Preferred Stock, comprised initially of One Million (1,000,000) shares and such resolution has not been modified and is in full force and effect on the date hereof:RESOLVED that, pursuant to the authority vested in the Board of Directors in accordance with the provisions of the Charter, a series of the class of authorized SERIES A PREFERRED STOCK is hereby created and that the designation and number of shares thereof and the powers, preferences and rights of the shares of such series, and the qualifications, limitations and restrictions thereof are as follows:Section 1. Designation and Number.The shares of such series shall be designated as the Series A Preferred Stock (the “Series A Preferred Stock”). The number of shares initially constituting the Series A Preferred Stock shall be One Million (1,000,000).Section 2. Dividends and Distributions.The Series A Preferred Stock will NOT participate in dividends and distributions.Section 3. Interest Payable on Series A Preferred Stock.There will be no interest paid to the holders of the Series A Preferred Stock.Section 4. Voting.a. Each holder of shares of the Series A Preferred shall be entitled to the One Hundred (100) votes for each Preferred A share held on all matters of the Corporation put forth for a valid vote of shareholders.Section 5. Conversion Rights.There are no conversion rights for the Series Each Series A Preferred Shares.Section 7. Liquidation Event.The Series A Preferred Stock shall hold senior liquidation rights to all other classes of shares, including, but not limited to Common Shares.Section 8. Modification; Amendment or Waiver.The terms of this Certificate of Designation shall not, by merger, consolidation or otherwise, be amended, waived, altered or repealed without the affirmative vote of the holders of a majority all shareholders of the Corporation.Section 9. Severability.If any term of this Certificate of Designation is invalid, unlawful, or incapable of being enforced by reason of any rule of law or public policy, all other terms of this Certificate of Designation as set forth herein which can be given effect without the invalid, unlawful or unenforceable term will, nevertheless, remain in full force and effect, and no term of this Certificate of Designation will be deemed dependent upon any other such term unless so expressed in this Certificate of Designation.
IN WITNESS WHEREOF, the board of directors of the Corporation has caused this Certificate of Designation to be duly executed in its corporate name on this 1st day of November 2019.ELECTROMEDICAL TECHNOLOGIES, INC.By: /s/ Matthew WolfsonName: Matthew WolfsonTitle: Chairman of the Board
Exhibit 3.1(i)(d)
Exhibit 3.1(ii)(e)
BYLAWS
OF
ELECTROMEDICAL
TECHNOLOGIES, INC.
ARTICLE I
CORPORATE OFFICES
| 1.1 | Offices |
In addition to the corporation’s registered office set forth in the certificate of incorporation, the Board of Directors may at any time establish other offices at any place or places where the corporation is qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
| 2.1 | Place Of Meetings |
Meetings of stockholders shall be held at any place, within or outside the state of Delaware, designated by the Board of Directors. The Board of Directors may, in its sole discretion, determine that a meeting of stockholders shall not be held at any place, but may instead be held solely by means of remote communication as authorized by Section 211(a)(2) of the Delaware General Corporation Law. In the absence of any such designation or determination, stockholders’ meetings shall be held at the registered office of the corporation.
| 2.2 | Annual Meeting |
The annual meeting of stockholders shall be held on such date, time and place, either within or without the state of Delaware, as may be designated by resolution of the Board of Directors each year. At the meeting, directors shall be elected and any other proper business may be transacted.
| 2.3 | Special Meeting |
A special meeting of the stockholders may be called at any time by the Board of Directors, the chairperson of the board, the chief executive officer, the president or by one or more stockholders holding shares in the aggregate entitled to cast not less than 10% of the votes at that meeting.
If a special meeting is called by any person or persons other than the Board of Directors, the chairperson of the board, the chief executive officer or the president, the request shall be in writing, specifying the time of such meeting and the general nature of the business proposed to be transacted, and shall be delivered personally or sent by registered mail or by email, fax, telegraphic or other facsimile or electronic transmission to the chairperson of the board, the chief executive officer, the president or the secretary of the corporation. No business may be transacted at such special meeting otherwise than specified in such notice. The officer receiving the request shall cause notice to be promptly given to the stockholders entitled to vote, in accordance with the provisions of Sections 2.4 and 2.5 of this Article II, that a meeting will be held at the time requested by the person or persons calling the meeting, not less than 35 nor more than 60 days after the receipt of the request. If the notice is not given within 20 days after the receipt of the request, the person or persons requesting the meeting may give the notice. Nothing contained in this paragraph of this Section 2.3 shall be construed as limiting, fixing, or affecting the time when a meeting of stockholders called by action of the Board of Directors may be held.
| 2.4 | Notice Of Stockholders’ Meetings |
All notices of meetings with stockholders shall be in writing and shall be sent or otherwise given in accordance with Section 2.5 of these bylaws not less than 10 nor more than 60 days before the date of the meeting to each stockholder entitled to vote at such meeting. The notice shall specify the place (if any), date and hour of the meeting, and in the case of a special meeting, the purpose or purposes for which the meeting is called.
| 2.5 | Manner Of Giving Notice; Affidavit Of Notice |
Written notice of any meeting of stockholders, if mailed, is given when deposited in the United States mail, postage prepaid, directed to the stockholder at his address as it appears on the records of the corporation. Without limiting the manner by which notice otherwise may be given effectively to stockholders, any notice to stockholders may be given by electronic mail or other electronic transmission, in the manner provided in Section 232 of the Delaware General Corporation Law. An affidavit of the secretary or an assistant secretary or of the transfer agent of the corporation that the notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein.
| 2.6 | Quorum |
The holders of a majority of the shares of stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the certificate of incorporation. If, however, such quorum is not present or represented at any meeting of the stockholders, then either (a) the chairperson of the meeting or (b) holders of a majority of the shares of stock entitled to vote who are present, in person or by proxy, shall have power to adjourn the meeting to another place (if any), date or time.
| 2.7 | Adjourned Meeting; Notice |
When a meeting is adjourned to another place (if any), date or time, unless these bylaws otherwise require, notice need not be given of the adjourned meeting if the time and place (if any), thereof and the means of remote communications (if any) by which stockholders and proxyholders may be deemed to be present and vote at such adjourned meeting, are announced at the meeting at which the adjournment is taken. At the adjourned meeting the corporation may transact any business that might have been transacted at the original meeting. If the adjournment is for more than 30 days, or if after the adjournment a new record date is fixed for the adjourned meeting, notice of the place (if any), date and time of the adjourned meeting and the means of remote communications (if any) by which stockholders and proxy holders may be deemed to be present in person and vote at such adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.
| 2.8 | Organization; Conduct Of Business |
Such person as the Board of Directors may have designated or, in the absence of such a person, the chief executive officer, or in his or her absence, the president or, in his or her absence, such person as may be chosen by the holders of a majority of the shares entitled to vote who are present, in person or by proxy, shall call to order any meeting of the stockholders and act as chairperson of the meeting. In the absence of the secretary of the corporation, the secretary of the meeting shall be such person as the chairperson of the meeting appoints.
The chairperson of any meeting of stockholders shall determine the order of business and the procedure at the meeting, including the manner of voting and the conduct of business. The date and time of opening and closing of the polls for each matter upon which the stockholders will vote at the meeting shall be announced at the meeting.
| 2.9 | Voting |
The stockholders entitled to vote at any meeting of stockholders shall be determined in accordance with the provisions of Section 2.12 of these bylaws, subject to the provisions of Sections 217 and 218 of the Delaware General Corporation Law (relating to voting rights of fiduciaries, pledgors and joint owners of stock and to voting trusts and other voting agreements).
Except as may be otherwise provided in the certificate of incorporation, each stockholder shall be entitled to one vote for each share of capital stock held by such stockholder. All elections shall be determined by a plurality of the votes cast, and except as otherwise required by law, all other matters shall be determined by a majority of the votes cast affirmatively or negatively.
| 2.10 | Waiver Of Notice |
Whenever notice is required to be given under any provision of the Delaware General Corporation Law or of the certificate of incorporation or these bylaws, a written waiver thereof, signed by the person entitled to notice, or waiver by electronic mail or other electronic transmission by such person, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of notice, or any waiver of notice by electronic transmission, unless so required by the certificate of incorporation or these bylaws.
| 2.11 | Stockholder Action By Written Consent Without A Meeting |
Unless otherwise provided in the certificate of incorporation, any action required to be taken at any annual or special meeting of stockholders of the corporation, or any action that may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice, and without a vote if a consent in writing, setting forth the action so taken, is (a) signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted, and (b) delivered to the corporation in accordance with Section 228(a) of the Delaware General Corporation Law.
Every written consent shall bear the date of signature of each stockholder who signs the consent and no written consent shall be effective to take the corporate action referred to therein unless, within 60 days of the date the earliest dated consent is delivered to the corporation, a written consent or consents signed by a sufficient number of holders to take action are delivered to the corporation in the manner prescribed in this Section. A telegram, cablegram, electronic mail or other electronic transmission consenting to an action to be taken and transmitted by a stockholder or proxyholder, or by a person or persons authorized to act for a stockholder or proxyholder, shall be deemed to be written, signed and dated for purposes of this Section to the extent permitted by law. Any such consent shall be delivered in accordance with Section 228(d)(1) of the Delaware General Corporation Law.
Any copy, facsimile or other reliable reproduction of a consent in writing may be substituted or used in lieu of the original writing for any and all purposes for which the original writing could be used, provided that such copy, facsimile or other reproduction shall be a complete reproduction of the entire original writing.
Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing (including by electronic mail or other electronic transmission as permitted by law). If the action which is consented to is such as would have required the filing of a certificate under any section of the Delaware General Corporation Law if such action had been voted on by stockholders at a meeting thereof, then the certificate filed under such section shall state, in lieu of any statement required by such section concerning any vote of stockholders, that written notice and written consent have been given as provided in Section 228 of the Delaware General Corporation Law.
| 2.12 | Record Date For Stockholder Notice; Voting; Giving Consents |
In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than 60 nor less than 10 days before the date of such meeting, nor more than 60 days prior to any other action.
If the Board of Directors does not so fix a record date:
(a) The record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held.
(b) The record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is necessary, shall be the day on which the first written consent (including consent by electronic mail or other electronic transmission as permitted by law) is delivered to the corporation.
(c) The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.
A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting, if such adjournment is for 30 days or less; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.
| 2.13 | Proxies |
Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for such stockholder by an instrument in writing or by an electronic transmission permitted by law filed with the secretary of the corporation, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. A proxy shall be deemed signed if the stockholder’s name is placed on the proxy (whether by manual signature, typewriting, facsimile, electronic or telegraphic transmission or otherwise) by the stockholder or the stockholder’s attorney-in-fact. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Section 212(e) of the Delaware General Corporation Law.
ARTICLE III
DIRECTORS
| 3.1 | Powers |
Subject to the provisions of the Delaware General Corporation Law and any limitations in the certificate of incorporation or these bylaws relating to action required to be approved by the stockholders or by the outstanding shares, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the Board of Directors.
| 3.2 | Number Of Directors |
(a) The total number of directors constituting the entire Board of Directors (the “Number of Authorized Directors”) shall be fixed or changed in the manner provided in these bylaws, unless the certificate of incorporation fixes the Number of Authorized Directors, in which case the Number of Authorized Directors shall be changed only by amendment of the certificate of incorporation.
(b) Subject to Section 3.4 of these bylaws, the Number of Authorized Directors may be fixed or changed: (i) by a resolution of the Board of Directors or of the stockholders, or (ii) if applicable, by action of the incorporator(s) (which includes any person(s) acting, in accordance with the Delaware General Corporation Law, on behalf of any incorporator(s) not available to act) before the election of the initial Board of Directors. No reduction of the Number of Authorized Directors shall have the effect of removing any director before such director’s term of office expires.
(c) If the Number of Authorized Directors is already fixed (whether by the certificate of incorporation, resolution of the Board of Directors or of the stockholders, action of the incorporators(s) before the election of the initial Board of Directors, or otherwise in accordance with the Delaware General Corporation Law) at the time the adoption of these bylaws is effective (the “Effective Time”), then the Number of Authorized Directors, until changed in accordance with this Section 3.2, is such already fixed Number of Authorized Directors.
(d) If the Number of Authorized Directors is not already fixed at the Effective Time, then: (i) if there are directors in office at the Effective Time, the Number of Authorized Directors, until changed in accordance with this Section 3.2, is the total number of directors in office at the Effective Time, or (ii) if there are no directors in office at the Effective Time, the Number of Authorized Directors, until fixed or changed in accordance with this Section 3.2, is the total number of directors on the Board of Directors as first constituted following the Effective Time (whether such directors are elected by resolution of the stockholders, action of the incorporators(s) before the election of the initial Board of Directors, or otherwise in accordance with the Delaware General Corporation Law).
| 3.3 | Election, Qualification And Term Of Office Of Directors |
Except as provided in Section 3.4 of these bylaws, and unless otherwise provided in the certificate of incorporation, directors shall be elected at each annual meeting of stockholders to hold office until the next annual meeting. Directors need not be stockholders unless so required by the certificate of incorporation or these bylaws, wherein other qualifications for directors may be prescribed. Each director, including a director elected to fill a vacancy, shall hold office until his or her successor is elected and qualified or until his or her earlier resignation or removal.
Unless otherwise specified in the certificate of incorporation, elections of directors need not be by written ballot.
| 3.4 | Resignation And Vacancies |
Any director may resign at any time upon written notice to the attention of the Secretary of the corporation. Notwithstanding the provisions of Section 223(a)(1) and 223(a)(2) of the Delaware General Corporation Law, any vacancy or newly created directorship may be filled by a majority of the directors then in office (including any directors that have tendered a resignation effective at a future date), though less than a quorum, or by a sole remaining director, and the directors so chosen shall hold office until the next annual election and until their successors are duly elected and shall qualify, unless sooner displaced; provided, however, that where such vacancy or newly created directorship occurs among the directors elected by the holders of a class or series of stock, the holders of shares of such class or series may override the Board of Directors’ action to fill such vacancy or newly created directorship by (i) voting for their own designee to fill such vacancy or newly created directorship at a meeting of the corporation’s stockholders or (ii) written consent, if the consenting stockholders hold a sufficient number of shares to elect their designee at a meeting of the stockholders.
If at any time, by reason of death or resignation or other cause, the corporation should have no directors in office, then any officer or any stockholder or an executor, administrator, trustee or guardian of a stockholder, or other fiduciary entrusted with like responsibility for the person or estate of a stockholder, may call a special meeting of stockholders in accordance with the provisions of the certificate of incorporation or these bylaws, or may apply to the Court of Chancery for a decree summarily ordering an election as provided in Section 211 of the Delaware General Corporation Law.
If, at the time of filling any vacancy or any newly created directorship, the directors then in office constitute less than a majority of the whole board (as constituted immediately prior to any such increase), then the Court of Chancery may, upon application of any stockholder or stockholders holding at least 10% of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office as aforesaid, which election shall be governed by the provisions of Section 211 of the Delaware General Corporation Law as far as applicable.
| 3.5 | Place Of Meetings; Meetings By Telephone |
The Board of Directors of the corporation may hold meetings, both regular and special, either within or outside the state of Delaware.
Unless otherwise restricted by the certificate of incorporation or these bylaws, members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors, or any committee, by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting.
| 3.6 | Regular Meetings |
Regular meetings of the Board of Directors may be held without notice at such time and at such place as shall from time to time be determined by the board.
| 3.7 | Special Meetings; Notice |
Special meetings of the Board of Directors for any purpose or purposes may be called at any time by the chairperson of the board, the chief executive officer, the president, the secretary or any two directors.
Notice of the time and place of special meetings shall be delivered personally or by telephone to each director or sent by first-class mail, facsimile, electronic transmission, or telegram, charges prepaid, addressed to each director at that director’s address as it is shown on the records of the corporation. If the notice is mailed, it shall be deposited in the United States mail at least 4 days before the time of the holding of the meeting. If the notice is delivered personally or by facsimile, electronic transmission, telephone or telegram, it shall be delivered at least 24 hours before the time of the holding of the meeting. Any oral notice given personally or by telephone may be communicated either to the director or to a person at the office of the director who the person giving the notice has reason to believe will promptly communicate it to the director. The notice need not specify the purpose of the meeting. The notice need not specify the place of the meeting, if the meeting is to be held at the principal executive office of the corporation. Unless otherwise indicated in the notice thereof, any and all business may be transacted at a special meeting.
| 3.8 | Quorum |
At all meetings of the Board of Directors, a majority of the total number of directors then in office (but in no case less than 1/3 of the Number of Authorized Directors (as defined in Section 3.2 of these bylaws)) shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute or by the certificate of incorporation. If a quorum is not present at any meeting of the Board of Directors, then the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present.
A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for that meeting.
| 3.9 | Waiver Of Notice |
Whenever notice is required to be given under any provision of the Delaware General Corporation Law or of the certificate of incorporation or these bylaws, a written waiver thereof, signed by the person entitled to notice, or waiver by electronic mail or other electronic transmission by such person, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the directors, or members of a committee of directors, need be specified in any written waiver of notice unless so required by the certificate of incorporation or these bylaws.
| 3.10 | Board Action By Written Consent Without A Meeting |
Unless otherwise restricted by the certificate of incorporation or these bylaws, any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the board or committee, as the case may be, consent thereto in writing or by electronic transmission, and the writing or writings or electronic transmission or transmissions are filed with the minutes of proceedings of the board or committee. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.
Any copy, facsimile or other reliable reproduction of a consent in writing may be substituted or used in lieu of the original writing for any and all purposes for which the original writing could be used, provided that such copy, facsimile or other reproduction shall be a complete reproduction of the entire original writing.
| 3.11 | Fees And Compensation Of Directors |
Unless otherwise restricted by the certificate of incorporation or these bylaws, the Board of Directors shall have the authority to fix the compensation of directors. No such compensation shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor.
| 3.12 | Approval Of Loans To Officers |
The corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the corporation or of its subsidiary, including any officer or employee who is a director of the corporation or its subsidiary, whenever, in the judgment of the directors, such loan, guaranty or assistance may reasonably be expected to benefit the corporation. The loan, guaranty or other assistance may be with or without interest and may be unsecured, or secured in such manner as the Board of Directors shall approve, including, without limitation, a pledge of shares of stock of the corporation. Nothing in this section shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the corporation at common law or under any statute.
| 3.13 | Removal Of Directors |
Unless otherwise restricted by statute, by the certificate of incorporation or by these bylaws, any director or the entire Board of Directors may be removed, with or without cause, by, and only by, the affirmative vote of the holders of the shares of the class or series of stock entitled to elect such director or directors, given either at a special meeting of such stockholders duly called for that purpose or pursuant to a written consent of stockholders, and any vacancy thereby created may be filled by the holders of that class or series of stock represented at the meeting or pursuant to written consent; provided, however, that if the stockholders of the corporation are entitled to cumulative voting, if less than the entire Board of Directors is to be removed, no director may be removed without cause if the votes cast against his removal would be sufficient to elect him if then cumulatively voted at an election of the entire Board of Directors.
No reduction of the Number of Authorized Directors (as defined in Section 3.2 of these bylaws) shall have the effect of removing any director before such director’s term of office expires.
| 3.14 | Chairperson Of The Board Of Directors |
The corporation may also have, at the discretion of the Board of Directors, a chairperson of the Board of Directors who shall not be considered an officer of the corporation.
ARTICLE IV
COMMITTEES
| 4.1 | Committees Of Directors |
The Board of Directors may designate one or more committees, each committee to consist of one or more of the directors of the corporation. The Board may designate 1 or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board of Directors, or in these bylaws, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to the following matters: (i) approving or adopting, or recommending to the stockholders, any action or matter expressly required by the General Corporate Law of Delaware to be submitted to stockholders for approval or (ii) adopting, amending or repealing any Bylaw of the corporation.
| 4.2 | Committee Minutes |
Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required.
| 4.3 | Meetings And Actions Of Committees |
Meetings and actions of committees shall be governed by, and held and taken in accordance with, the provisions of Section 3.5 (place of meetings and meetings by telephone), Section 3.6 (regular meetings), Section 3.7 (special meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice), and Section 3.10 (action without a meeting) of these bylaws, with such changes in the context of such provisions as are necessary to substitute the committee and its members for the Board of Directors and its members; provided, however, that the time of regular meetings of committees may be determined either by resolution of the Board of Directors or by resolution of the committee, that special meetings of committees may also be called by resolution of the Board of Directors and that notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. The Board of Directors may adopt rules for the government of any committee not inconsistent with the provisions of these bylaws.
ARTICLE V
OFFICERS
| 5.1 | Officers |
The officers of the corporation shall be a president and a secretary. The corporation may also have, at the discretion of the Board of Directors, a chief executive officer, a chief financial officer, a treasurer, one or more vice presidents, one or more assistant secretaries, one or more assistant treasurers, and any such other officers as may be appointed in accordance with the provisions of Section 5.3 of these bylaws. Any number of offices may be held by the same person.
| 5.2 | Appointment Of Officers |
The officers of the corporation, except such officers as may be appointed in accordance with the provisions of Sections 5.3 or 5.5 of these bylaws, shall be appointed by the Board of Directors, subject to the rights (if any) of an officer under any contract of employment.
| 5.3 | Subordinate Officers |
The Board of Directors may appoint, or empower the chief executive officer or the president to appoint, such other officers and agents as the business of the corporation may require, each of whom shall hold office for such period, have such authority, and perform such duties as are provided in these bylaws or as the Board of Directors may from time to time determine.
| 5.4 | Removal And Resignation Of Officers |
Subject to the rights (if any) of an officer under any contract of employment, any officer may be removed, either with or without cause, by an affirmative vote of the majority of the Board of Directors at any regular or special meeting of the board or, except in the case of an officer chosen by the Board of Directors, by any officer upon whom the power of removal is conferred by the Board of Directors.
Any officer may resign at any time by giving written notice to the corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice; and, unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights (if any) of the corporation under any contract to which the officer is a party.
| 5.5 | Vacancies In Offices |
Any vacancy occurring in any office of the corporation shall be filled by the Board of Directors.
| 5.6 | Chief Executive Officer |
Subject to such supervisory powers (if any) as may be given by the Board of Directors to the chairperson of the board (if any), the chief executive officer of the corporation (if such an officer is appointed) shall, subject to the control of the Board of Directors, have general supervision, direction, and control of the business and the officers of the corporation and shall have the general powers and duties of management usually vested in the office of chief executive officer of a corporation and shall have such other powers and duties as may be prescribed by the Board of Directors or these bylaws.
The person serving as chief executive officer shall also be the acting president of the corporation whenever no other person is then serving in such capacity.
| 5.7 | President |
Subject to such supervisory powers (if any) as may be given by the Board of Directors to the chairperson of the board (if any) or the chief executive officer, the president shall have general supervision, direction, and control of the business and other officers of the corporation. He or she shall have the general powers and duties of management usually vested in the office of president of a corporation and such other powers and duties as may be prescribed by the Board of Directors or these bylaws.
The person serving as president shall also be the acting chief executive officer, secretary or treasurer of the corporation, as applicable, whenever no other person is then serving in such capacity.
| 5.8 | Vice Presidents |
In the absence or disability of the chief executive officer and president, the vice presidents (if any) in order of their rank as fixed by the Board of Directors or, if not ranked, a vice president designated by the Board of Directors, shall perform all the duties of the president and when so acting shall have all the powers of, and be subject to all the restrictions upon, the president. The vice presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board of Directors, these bylaws, the president or the chairperson of the board.
| 5.9 | Secretary |
The secretary shall keep or cause to be kept, at the principal executive office of the corporation or such other place as the Board of Directors may direct, a book of minutes of all meetings and actions of directors, committees of directors, and stockholders. The minutes shall show the time and place of each meeting, the names of those present at directors’ meetings or committee meetings, the number of shares present or represented at stockholders’ meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal executive office of the corporation or at the office of the corporation’s transfer agent or registrar, as determined by resolution of the Board of Directors, a share register, or a duplicate share register, showing the names of all stockholders and their addresses, the number and classes of shares held by each, the number and date of certificates (if any) evidencing such shares, and the number and date of cancellation of every certificate (if any) surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings of the stockholders and of the Board of Directors required to be given by law or by these bylaws. He or she shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or by these bylaws.
| 5.10 | Chief Financial Officer |
The chief financial officer (if such an officer is appointed) shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings and shares. The books of account shall at all reasonable times be open to inspection by any member of the Board of Directors.
The chief financial officer shall render to the chief executive officer, the president, or the Board of Directors, upon request, an account of all his or her transactions as chief financial officer and of the financial condition of the corporation. He or she shall have the general powers and duties usually vested in the office of chief financial officer of a corporation and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or these bylaws.
The person serving as the chief financial officer shall also be the acting treasurer of the corporation whenever no other person is then serving in such capacity. Subject to such supervisory powers (if any) as may be given by the Board of Directors to another officer of the corporation, the chief financial officer shall supervise and direct the responsibilities of the treasurer whenever someone other than the chief financial officer is serving as treasurer of the corporation.
| 5.11 | Treasurer |
The treasurer (if such an officer is appointed) shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records with respect to all bank accounts, deposit accounts, cash management accounts and other investment accounts of the corporation. The books of account shall at all reasonable times be open to inspection by any member of the Board of Directors.
The treasurer shall deposit, or cause to be deposited, all moneys and other valuables in the name and to the credit of the corporation with such depositories as may be designated by the Board of Directors. He or she shall disburse the funds of the corporation as may be ordered by the Board of Directors and shall render to the chief financial officer, the chief executive officer, the president or the Board of Directors, upon request, an account of all his or her transactions as treasurer. He or she shall have the general powers and duties usually vested in the office of treasurer of a corporation and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or these bylaws.
The person serving as the treasurer shall also be the acting chief financial officer of the corporation whenever no other person is then serving in such capacity.
| 5.12 | Representation Of Shares Of Other Corporations |
The chairperson of the board, the chief executive officer, the president, any vice president, the chief financial officer, the secretary or assistant secretary of this corporation, or any other person authorized by the Board of Directors or the chief executive officer or the president or a vice president, is authorized to vote, represent, and exercise on behalf of this corporation all rights incident to any and all shares of any other corporation or corporations standing in the name of this corporation. The authority granted herein may be exercised either by such person directly or by any other person authorized to do so by proxy or power of attorney duly executed by the person having such authority.
| 5.13 | Authority And Duties Of Officers |
In addition to the foregoing authority and duties, all officers of the corporation shall respectively have such authority and perform such duties in the management of the business of the corporation as may be designated from time to time by the Board of Directors or the stockholders.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS
| 6.1 | Indemnification Of Directors And Officers |
The corporation shall, to the maximum extent and in the manner permitted by the Delaware General Corporation Law, indemnify each of its directors and officers against expenses (including attorneys’ fees), judgments, fines, settlements and other amounts actually and reasonably incurred in connection with any proceeding, arising by reason of the fact that such person is or was an agent of the corporation. For purposes of this Section 6.1, a “director” or “officer” of the corporation includes any person (a) who is or was a director or officer of the corporation, (b) who is or was serving at the request of the corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, or (c) who was a director or officer of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation.
| 6.2 | Indemnification Of Others |
The corporation shall have the power, to the maximum extent and in the manner permitted by the Delaware General Corporation Law, to indemnify each of its employees and agents (other than directors and officers) against expenses (including attorneys’ fees), judgments, fines, settlements and other amounts actually and reasonably incurred in connection with any proceeding, arising by reason of the fact that such person is or was an agent of the corporation. For purposes of this Section 6.2, an “employee” or “agent” of the corporation (other than a director or officer) includes any person (a) who is or was an employee or agent of the corporation, (b) who is or was serving at the request of the corporation as an employee or agent of another corporation, partnership, joint venture, trust or other enterprise, or (c) who was an employee or agent of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation.
| 6.3 | Payment Of Expenses In Advance |
Expenses incurred in defending any action or proceeding for which indemnification is required pursuant to Section 6.1 or for which indemnification is permitted pursuant to Section 6.2 following authorization thereof by the Board of Directors shall be paid by the corporation in advance of the final disposition of such action or proceeding upon receipt of an undertaking by or on behalf of the indemnified party to repay such amount if it shall ultimately be determined by final judicial decision from which there is no further right to appeal that the indemnified party is not entitled to be indemnified as authorized in this Article VI.
| 6.4 | Indemnity Not Exclusive |
The indemnification provided by this Article VI shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any Bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office, to the extent that such additional rights to indemnification are authorized in the certificate of incorporation.
| 6.5 | Insurance |
The corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the corporation would have the power to indemnify him or her against such liability under the provisions of the Delaware General Corporation Law.
| 6.6 | Conflicts |
No indemnification or advance shall be made under this Article VI, except where such indemnification or advance is mandated by law or the order, judgment or decree of any court of competent jurisdiction, in any circumstance where it appears:
(a) That it would be inconsistent with a provision of the certificate of incorporation, these bylaws, a resolution of the stockholders or an agreement in effect at the time of the accrual of the alleged cause of the action asserted in the proceeding in which the expenses were incurred or other amounts were paid, which prohibits or otherwise limits indemnification; or
(b) That it would be inconsistent with any condition expressly imposed by a court in approving a settlement.
| 7.1 | Maintenance And Inspection Of Records |
The corporation shall, either at its principal executive offices or at such place or places as designated by the Board of Directors, keep a record of its stockholders listing their names and addresses and the number and class of shares held by each stockholder, a copy of these bylaws as amended to date, accounting books, and other records.
Any stockholder of record, in person or by attorney or other agent, shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose the corporation’s stock ledger, a list of its stockholders, and its other books and records and to make copies or extracts therefrom. A proper purpose shall mean a purpose reasonably related to such person’s interest as a stockholder. In every instance where an attorney or other agent is the person who seeks the right to inspection, the demand under oath shall be accompanied by a power of attorney or such other writing that authorizes the attorney or other agent to so act on behalf of the stockholder. The demand under oath shall be directed to the corporation at its registered office in Delaware or at its principal place of business.
A complete list of stockholders entitled to vote at any meeting of stockholders, arranged in alphabetical order for each class of stock and showing the address of each such stockholder and the number of shares registered in each such stockholder’s name, shall be open to the examination of any such stockholder for a period of at least 10 days prior to the meeting in the manner provided by law. The stock list shall also be open to the examination of any stockholder during the whole time of the meeting as provided by law. This list shall presumptively determine the identity of the stockholders entitled to vote at the meeting and the number of shares held by each of them.
| 7.2 | Inspection By Directors |
Any director shall have the right to examine the corporation’s stock ledger, a list of its stockholders, and its other books and records for a purpose reasonably related to his or her position as a director. The Court of Chancery is hereby vested with the exclusive jurisdiction to determine whether a director is entitled to the inspection sought. The Court may summarily order the corporation to permit the director to inspect any and all books and records, the stock ledger, and the stock list and to make copies or extracts therefrom. The Court may, in its discretion, prescribe any limitations or conditions with reference to the inspection, or award such other and further relief as the Court may deem just and proper.
ARTICLE VIII
GENERAL MATTERS
| 8.1 | Checks |
From time to time, the Board of Directors shall determine by resolution which person or persons may sign or endorse all checks, drafts, other orders for payment of money, notes or other evidences of indebtedness that are issued in the name of or payable to the corporation, and only the persons so authorized shall sign or endorse those instruments.
| 8.2 | Execution Of Corporate Contracts And Instruments |
The Board of Directors, except as otherwise provided in these bylaws, may authorize any officer or officers, or agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation; such authority may be general or confined to specific instances. Unless so authorized or ratified by the Board of Directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount.
| 8.3 | Stock Certificates and Notices; Uncertificated Stock; Partly Paid Shares |
The shares of the corporation may be certificated or uncertificated, as provided under Delaware law, and shall be entered in the books of the corporation and recorded as they are issued. Any or all of the signatures on any certificate may be a facsimile or electronic signature. In case any officer, transfer agent or registrar who has signed or whose facsimile or electronic signature has been placed upon a certificate has ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he or she were such officer, transfer agent or registrar at the date of issue.
Within a reasonable time after the issuance or transfer of uncertificated stock and upon the request of a stockholder, the corporation shall send to the record owner thereof a written notice that shall set forth the name of the corporation, that the corporation is organized under the laws of Delaware, the name of the stockholder, the number and class (and the designation of the series, if any) of the shares, and any restrictions on the transfer or registration of such shares of stock imposed by the corporation’s certificate of incorporation, these bylaws, any agreement among stockholders or any agreement between stockholders and the corporation.
The corporation may issue the whole or any part of its shares as partly paid and subject to call for the remainder of the consideration to be paid therefor. Upon the face or back of each stock certificate (if any) issued to represent any such partly paid shares, or upon the books and records of the corporation in the case of uncertificated partly paid shares, the total amount of the consideration to be paid therefor and the amount paid thereon shall be stated. Upon the declaration of any dividend on fully paid shares, the corporation shall declare a dividend upon partly paid shares of the same class, but only upon the basis of the percentage of the consideration actually paid thereon.
| 8.4 | Special Designation On Certificates and Notices of Issuance |
If the corporation is authorized to issue more than one class of stock or more than one series of any class, then the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate that the corporation shall issue to represent such class or series of stock or the notice of issuance to the record owner of uncertificated stock; provided, however, that, except as otherwise provided in Section 202 of the Delaware General Corporation Law, in lieu of the foregoing requirements there may be set forth on the face or back of the certificate that the corporation shall issue to represent such class or series of stock or the notice of issuance to the record owner of uncertificated stock, or the purchase agreement for such stock a statement that the corporation will furnish without charge to each stockholder who so requests the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights.
| 8.5 | Lost Certificates |
Except as provided in this Section 8.5, no new certificates for shares shall be issued to replace a previously issued certificate unless the latter is surrendered to the corporation and cancelled at the same time. The corporation may issue a new certificate of stock or notice of uncertificated stock in the place of any certificate previously issued by it, alleged to have been lost, stolen or destroyed, and the corporation may require the owner of the lost, stolen or destroyed certificate, or the owner’s legal representative, to give the corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate or uncertificated shares.
| 8.6 | Construction; Definitions |
Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the Delaware General Corporation Law shall govern the construction of these bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term “person” includes both a corporation and a natural person.
| 8.7 | Dividends |
The directors of the corporation, subject to any restrictions contained in (a) the Delaware General Corporation Law or (b) the certificate of incorporation, may declare and pay dividends upon the shares of its capital stock. Dividends may be paid in cash, in property, or in shares of the corporation’s capital stock.
The directors of the corporation may set apart out of any of the funds of the corporation available for dividends a reserve or reserves for any proper purpose and may abolish any such reserve. Such purposes shall include but not be limited to equalizing dividends, repairing or maintaining any property of the corporation, and meeting contingencies.
| 8.8 | Fiscal Year |
The fiscal year of the corporation shall be fixed by resolution of the Board of Directors and may be changed by the Board of Directors.
| 8.9 | Transfer Of Stock |
Upon receipt by the corporation or the transfer agent of the corporation of proper transfer instructions from the record holder of uncertificated shares or upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer, it shall be the duty of the corporation to issue a new certificate or, in the case of uncertificated securities and upon request, a notice of issuance of shares, to the person entitled thereto, cancel the old certificate (if any) and record the transaction in its books.
| 8.10 | Stock Transfer Agreements |
The corporation shall have power to enter into and perform any agreement with any number of stockholders of any one or more classes of stock of the corporation to restrict the transfer of shares of stock of the corporation of any one or more classes owned by such stockholders in any manner not prohibited by the Delaware General Corporation Law.
| 8.11 | Stockholders Of Record |
The corporation shall be entitled to recognize the exclusive right of a person recorded on its books as the owner of shares to receive dividends and to vote as such owner, shall be entitled to hold liable for calls and assessments the person recorded on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of another person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware.
| 8.12 | Facsimile Or Electronic Signatures |
In addition to the provisions for use of facsimile or electronic signatures elsewhere specifically authorized in these bylaws, facsimile or electronic signatures of any stockholder, director or officer of the corporation may be used whenever and as authorized by the Board of Directors or a committee thereof.
ARTICLE IX
AMENDMENTS
The Bylaws of the corporation may be adopted, amended or repealed by the stockholders entitled to vote; provided, however, that the corporation may, in its certificate of incorporation, confer the power to adopt, amend or repeal Bylaws upon the directors. The fact that such power has been so conferred upon the directors shall not divest the stockholders of the power, nor limit their power to adopt, amend or repeal Bylaws.
CERTIFICATE OF ADOPTION OF BYLAWS
OF
ELECTROMEDICAL TECHNOLOGIES, INC.
ADOPTION BY INCORPORATOR
The undersigned person appointed in the certificate of incorporation to act as the Incorporator of ElectroMedical Technologies, Inc., a Delaware corporation, hereby adopts the foregoing Bylaws as the Bylaws of the corporation.
Executed on August 28, 2017.
| INCORPORATOR: | |
| /s/ Matthew N. Wolfson |
CERTIFICATE BY SECRETARY OF ADOPTION BY INCORPORATOR
The undersigned hereby certifies that the undersigned is the duly elected, qualified, and acting Secretary of ElectroMedical Technologies, Inc., a Delaware corporation, and that the foregoing Bylaws were adopted as the Bylaws of the corporation on August 28, 2017, by the person appointed in the certificate of incorporation to act as the Incorporator of the corporation.
Executed on August 28, 2017.
| SECRETARY: | |
| /s/ Matthew N. Wolfson |
Exhibit 5.1
Mailander Law Office, Inc.
945 4th Avenue, Suite 311
San Diego, CA 92101
(619) 239-9034
tmailander@gmail.com
July 7, 2020
ElectroMedical Technologies, Inc.
Mr. Matthew Wolfson
16561 N. 92nd
Scottsdale, AZ 85260
Dear Mr. Wolfson:
You have requested our opinion as counsel to ElectroMedical Technologies, Inc., a Delaware corporation, (the “Company”) in connection with the Company’s registration statement on Form S-1/A-3 filed with the U.S. Securities and Exchange Commission (the Commission”) under the Securities Act of 1933, as amended (the “Securities Act”) (the “Registration Statement”) with respect to the registration of 15,060,344 shares of the Company’s common stock, par value $0.0001 per share (the “Shares”). This opinion is being furnished in accordance with the requirements of Item 601(b)(5) of Regulation S-K under the Securities Act.
In connection with this opinion, we have examined and relied upon the originals or copies of such documents, corporate records, and other instruments as we have deemed necessary or appropriate for the purpose of this opinion, including, without limitation, the following: (a) the articles of incorporation of the Company; (b) the bylaws of the Company; and (c) the Registration Statement, including all exhibits thereto.
In our examination, we have assumed the genuineness of all signatures, the legal capacity of all natural persons, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as certified or photostatic copies and the authenticity of the originals of such documents, and the accuracy and completeness of the corporate records made available to us by the Company. As to any facts material to the opinions expressed below, with your permission we have relied solely upon, without independent verification or investigation of the accuracy or completeness thereof, any certificates and oral or written statements and other information of or from public officials, officers or other representatives of the Company and others.
Based upon the foregoing, and in reliance thereon, we are of the opinion that the Shares to be sold by the Company in the Direct Public Offering, when issued, will be duly authorized, validly issued, fully paid and non-assessable. Additionally, we are of the opinion that the Shares to be offered for sale by the Selling Shareholders are validly issued, fully paid and non-assessable.
1
The opinion expressed herein is limited to the laws of the State of Delaware, all applicable provisions of the statutory provisions thereof, reported judicial decisions interpreting those laws, and federal securities laws. This opinion is limited to the laws in effect as of the date hereof and is provided exclusively in connection with the registration of the Shares contemplated by the Registration Statement.
We assume no obligation to update or supplement this opinion letter if any applicable laws change after the date of this opinion letter, or if we become aware after the date of this opinion letter of any facts, whether existing before or arising after the date hereof, that might change the opinions expressed above.
This opinion letter is furnished in connection with the filing of the Registration Statement and may not be relied upon for any other purpose without our prior written consent in each instance. Further, no portion of this letter may be quoted, circulated or referred to in any other document for any other purpose without our prior written consent.
We hereby consent to the filing of this opinion with the Commission as an exhibit to the Registration Statement and to the use of our name as it appears in the Prospectus included in the Registration Statement. In giving such consent, we do not thereby admit that we come within the category of persons whose consent is required under Section 7 of the Securities Act or the rules and regulations of the Commission promulgated thereunder. This opinion is expressed as of the date hereof unless otherwise expressly stated, and we disclaim any undertaking to advise you of any subsequent changes in the facts stated or assumed herein or of any subsequent changes in applicable laws.
Very Truly Yours,
/s/ Mailander Law Office, Inc.
Mailander Law Office, Inc.
2
Exhibit 10.1
PRESIDENT
- CHIEF EXECUTIVE OFFICER
EMPLOYMENT CONTRACT
This agreement is made and effective as of October 1st 2019 by and between Electromedical Technologies, Inc., a Delaware corporation (the “Employer”) and Matthew Wolfson (“Executive”) and supersedes any prior employment-related agreement or agreements between the Employer and Executive. Unless the context otherwise requires, all references to a designated section refers to the designated provision of this Agreement.
Statement of Agreement:
FOR AND IN CONSIDERATION of the mutual promises and covenants set forth herein, each of the Employer, directly or through its subsidiaries, and Executive hereby agrees to the employment of Executive on the following terms and conditions and, except to the extent specifically superseded by this Agreement, subject to all of the Employer’s policies and procedures regarding its employees:
1. Position.
Commencing as of a mutually agreed date or such date as Executive can work a transition out of Executive’s current responsibilities (the “Effective Date”), Executive shall serve as the chief executive officer (CEO) of the Employer with all authority and corresponding responsibility of a chief executive officer of a corporation under Arizona law, subject to the overall authority of the Employer’s Board of Directors (the “Board” and each member thereof being a “Director”) and the Employer’s articles of incorporation, regulations, and other governing documents.
2. Specific Authority and Responsibility.
Not in limitation of the authority and responsibility of the position as described in section 1, Executive shall have overall authority and responsibility to hire, discharge, and determine the compensation and duties of employment of all personnel of the Employer (other than members of the Board in their capacity as Directors). In addition, as chief executive officer, Executive shall perform any special duties assigned or delegated to Executive by the Board and, unless otherwise directed by the Board, shall:
(a) Receive notice of and attend meetings of the Board and its Executive Committee, and report to the Board and its duly authorized committees as they shall require on all phases of operation of the Employer, including all services rendered in connection with the operation of the Employer, employment of personnel, and acquisition and disposition of assets.
(b) Be responsible for supervising and implementing the Employer’s policies and operating programs, budgets, procedures, and directions established or changed from time to time (collectively, the “Policies and Programs”) adopted by the Board.
(c) Direct the management and conduct of the operations of the Employer in the ordinary course of its business pursuant to the Policies and Programs of the Employer, provided that Executive shall not take any of the following actions without the prior approval of the Chairman of the Employer:
(1) Employ or enter into any employment agreement not terminable at the will of the Employer; or
(2) Enter into any transaction, agreement, or take any other action that is outside the ordinary course of the Employer’s business or contrary to the Policies and Programs.
3. Term.
The term of employment shall continue until terminated by death of Executive or as follows by discharge or resignation:
(a) Discharge. By the Employer’s giving written notice of discharge which is received by Executive at least 30 days before the effective date of termination, provided that such discharge is approved by a majority vote of the Board; and provided further that if such discharge is claimed by the Employer to be for Cause (as defined herein), the notice of such discharge shall state such Cause, and in such event the effective date of termination may, if stated in the notice, be immediate upon giving of the notice; and
(b) Resignation. By Executive’s giving written notice of resignation which is received by the Chairman or other person serving as chair of the Board of the Employer at least 120 days before the effective date of termination; provided that if the resignation is claimed by Executive to be for Good Reason (as defined herein), the notice of such resignation shall state such Good Reason, and in such event the effective date of termination may, if stated in the notice, be immediate upon giving of the notice.
4. Base Salary.
The Employer agrees to pay or cause to be paid to Executive for Executive’s services during the term of this Agreement an annual base salary at the gross rate prior to all taxes and other withholdings of two hundred and forty thousand dollars ($240,000.00). This base salary will be subject to annual review and may be adjusted from time to time under direction of the Board considering factors such as Executive’s performance, compensation of similar executives of similarly sized and located companies in Arizona, and other pertinent factors (“Base Salary”). The Base Salary shall be payable in accordance with the Employer’s customary payroll practices applicable to its executives. If the Employer does not have the appropriate funds to pay the base salary to the Executive within each month, then; any remaining balance will be converted into Company shares equal to the balance owed and issued to the Executive.
5. Relocation Expenses.
The Employer shall pay or reimburse Executive for ordinary and necessary moving expenses, including travel and lodging expense of Executive and Executive’s family for up to three house-hunting trips in Arizona and, in order to encourage early relocation, a monthly housing stipend equal to the monthly mortgage or rental payments for Executive’s current residence for up to nine months after the Effective Date or, if sooner, until such residence is sold or leased.
6. Signing Bonus.
Upon execution of this Agreement by both parties, Executive shall be entitled to a signing bonus in the gross mount prior to all taxes and withholdings of $_500,000__, which shall be payable in two equal installments, the first of which as soon as possible following execution of this Agreement and the second of which at the Effective Date. Notwithstanding the forgoing, Executive's right to the Signing Bonus shall be subject to forfeiture and repayment as provided in agreement. If the Employer does not have the appropriate funds to pay the signing bonus to the Executive any remaining balance will be converted into Company shares equal to the balance owed and issued to the Executive.
7. Annual Bonus.
The Employer under direction of its Board may pay or cause to be paid to Executive such bonus from time to time that it determines appropriate. Any such bonus shall be paid at such time or times and in such manner as the Employer under direction of its Board and Executive jointly agree; provided, however, that Executive shall not be entitled to any such bonus if Executive is not employed by the Employer on the date such bonus is payable; and provided that the bonus for any year shall be paid by a date no later than that allowing Executive to defer the payment into a nonqualified deferred compensation arrangement if Executive so elects.
8. Long-Term Performance-Based Incentive Pay.
Executive shall be entitled to an annual performance-based cash and/or stock incentive bonus (the “Long-Term Incentive Pay”). The Bonus shall be paid in accordance with the Employer’s performance-based incentive compensation plan (the “Incentive Plan”). Under the Incentive Plan, for each consecutive three-year-calendar period beginning with the 2018 calendar as the initial year and continuing for each calendar year beginning after the initial (each a “Performance Period”), the Board or, if the Board so directs, its Compensation Committee shall establish in writing objective performance criteria or goals to be achieved by Executive for that Performance Period (the “Performance Goals”) and "circuit breakers" which if they occur will result in stop in crediting or payment for that Performance Period (the "Circuit Breakers"). The Performance Goals and Circuit Breakers shall be based upon the performance measures set forth in the Incentive Plan. A copy of the Performance Goals and Circuit Breakers as so established shall be provided to Executive. After the completion of each Performance Year, the Board or, if so directed, the Compensation Committee shall review the achievement of the Performance Goals by Executive or occurrence of any Circuit Breaker and make a determination as to the amount of the Long-Term Incentive Pay earned by Executive based upon Executive’s achievement of such Performance Goals subject to occurrence of any Circuit Break. The Long-Term Incentive Pay shall be payable as provided in the Incentive Plan, provided that the Long-Term Incentive Pay shall be paid by a date no later than that allowing Executive to defer the payment into a non-qualified deferred compensation arrangement if Executive so elects.
9. Benefits.
Executive shall be entitled to participate in all employee benefit plans, practices, and programs maintained by the Employer and made available to senior executives generally and as may be in effect from time to time. Not in limitation of the foregoing, Executive shall also be entitled to the following:
| (a) | Vacation. Executive shall be entitled to accrue and be paid for vacation (which may be taken at such times and in such increments as Executive may choose) on the same basis as other senior executives of the Employer. There shall be no carryover of unused vacation from any period to another period. |
| (b) | Continuing Education. The Employer shall pay for all continuing education expenses, subject to an overall annual limit of $20,000. Attendance of such continuing education shall not constitute vacation time if the attendance is approved by the Chairman of the Board. |
| (c) | Social, travel and/or health club membership. The Employer shall pay the entire cost of monthly membership charges at any clubs and all expenses incurred in the use of said membership at said club excepting only personal charges unrelated to the Employer business which are incurred by Executive at such Club. |
| (d) | Civic Organizations. The Employer shall pay the full cost of membership in two civic organization located in Arizona, and two professional organizations wherever located. |
| (e) | Health Insurance. The Employer shall pay the full costs of health insurance covering Executive and Executive’s family in accordance with whatever plan that the Employer maintains for its other employees during the term of this Agreement. |
| (f) | Equity Awards. During the Employment Term, the Executive shall be eligible to participate in the Electromedical Technologies, Inc equity Incentive Plan or any successor plan (the “Plan”) , subject to the terms of the Plan, as determined by the Board or the Compensation Committee, in its discretion from time to time. |
| (g) | Business Expenses. The Executive shall be entitled to reimbursement for all reasonable and necessary out-of-pocket business, entertainment, and travel expenses incurred by the Executive in connection with the performance of the Executive’s duties hereunder in accordance with the Company’s expense reimbursement policies and procedures. |
| (h) | Executive vehicle policy |
Executive shall be entitled to a car allowance of $1500 per month which shall be paid periodically together with his salary. Also, the Company agrees to pay a car insurance for Executive’s primary business vehicle, and to provide a gasoline credit card for business use. The Executive’s vehicle should be, above all, highly reliable, safe and secure for the user, while meeting some of the user’s personal preferences and needs.
| (i) | Indemnification. |
| i. | In the event that the Executive is made a party or threatened to be made a party to any action, suit, or proceeding, whether civil, criminal, administrative, or investigative (a “Proceeding”), other than any Proceeding initiated by the Executive or the Company related to any contest or dispute between the Executive and the Company or any of its affiliates with respect to this Agreement or the Executive’s employment hereunder, by reason of the fact that the Executive is or was a director or officer of the Company, or any affiliate of the Company, or is or was serving at the request of the Company as a director, officer, member, employee, or agent of another corporation or a partnership, joint venture, trust, or other enterprise, the Executive shall be indemnified and held harmless by the Company to the fullest extent applicable to any other officer or director of the Company to the maximum extent permitted under applicable law and the Company’s bylaws from and against any liabilities, costs, claims, and expenses, including all costs and expenses incurred in defense of any Proceeding (including attorneys’ fees). Costs and expenses incurred by the Executive in defense of such Proceeding (including attorneys’ fees) shall be paid by the Company in advance of the final disposition of such litigation upon receipt by the Company of: (i) a written request for payment; (ii) appropriate documentation evidencing the incurrence, amount, and nature of the costs and expenses for which payment is being sought; and (iii) an undertaking adequate under applicable law made by or on behalf of the Executive to repay the amounts so paid if it shall ultimately be determined that the Executive is not entitled to be indemnified by the Company under this Agreement. |
| ii. | During the Employment Term and for a period of six (6) years thereafter, the Company or any successor to the Company shall purchase and maintain, at its own expense, directors’ and officers’ liability insurance providing coverage to the Executive on terms that are no less favorable than the coverage provided to other directors and similarly situated executives of the Company. |
| (j) | Clawback Provisions. Notwithstanding any other provisions in this Agreement to the contrary, any incentive-based compensation, or any other compensation, paid to the Executive pursuant to this Agreement or any other agreement or arrangement with the Company which is subject to recovery under any law, government regulation. or stock exchange listing requirement, will be subject to such deductions and clawback as may be required to be made pursuant to such law, government regulation, or stock exchange listing requirement (or any policy adopted by the Company pursuant to any such law, government regulation or stock exchange listing requirement). |
10. Supplemental Retirement Benefit for Completing the Initial Term.
If Executive’s employment is terminated by reason of retirement, disability or death on or after completing the Initial Term (including during or upon conclusion of any extension thereof), the Employer shall pay to the order of Executive or, in the case of his death, to his designated beneficiary, a supplemental retirement benefit (the “Supplemental Retirement Benefit”) in a gross annual amount prior to all taxes and other withholdings of $ 250,000. The Supplemental Retirement Benefit shall be payable in accordance with the Employer's customary practices applicable to its executives for each such year. Notwithstanding the forgoing, Executive's right to the Supplemental Retirement Benefit shall be subject to forfeiture and repayment as provided in Section 14.
11. Severance Payments and Benefits and Liquidated Damages.
(a) General. If Executive’s employment is terminated for any reason, including death, disability, discharge by the Employer, or resignation by Executive, Executive shall be entitled to receive and the Employer shall cause to be paid any earned but unpaid periodic payments of Executive’s then Base Salary plus payment for any accrued but unused vacation for the periods of Executive’s service through the effective date of termination.
(b) Death; Discharge without Cause; or Resignation for Good Reason. If (i) Executive’s employment is terminated by death, or (ii) the Employer discharges Executive pursuant to section 3(a) other than for Cause, or (iii) Executive resigns pursuant to section 3(b) for Good Reason, Executive shall be entitled to, and the Employer shall cause, the following in addition to the payment provided by Section 11(a):
(1) Severance Pay. The Employer shall pay Executive severance pay equal to continuation of Executive's then Base Salary for a period of an additional __24_____ months after the effective date of termination of employment or, if longer, for the remainder of the then Current Term of this Agreement (the “Continuation Period”) , provided, however, that the gross rate of any continuation of Base Salary payable on or after the beginning of the 12th calendar month following the effective date of Executive’s termination shall be reduced by the gross rate of all other compensation for services, if any, earned and received by Executive from any source other than the Employer during the same period (provided, however, that in order to be entitled to continuation of Base Salary during the forgoing period, Executive shall promptly disclose the rate of all such other compensation payable to Executive and any changes therein during the forgoing period and, upon request, furnish the Employer with copies of (i) any Forms W-2 or 1099 received by him, or (ii) copies of Executive's Federal income tax returns, for any period including any part of the forgoing period. Notwithstanding the forgoing, the continued payments during the Continuation Period shall be subject to Executive’s being available upon advance reasonable request by the Employer to advise the Employer or its agents during regular business hours regarding matters believed to be within Executive’s knowledge because of his positions with the Employer. Notwithstanding the forgoing, Executive's right to Severance Pay shall be subject to forfeiture and repayment as provided in Section 14.
(2) Outplacement Services. If Executive becomes entitled to receive a Termination Payment under this Agreement, Employer agrees to reimburse Executive for any documented outplacement or job-search consulting fees and expenses as well as documented travel expenses incurred by Executive during the period ending on the first day of the 12th calendar month beginning after Executive's date of termination of employment and not reimbursed from any other source; provided that the aggregate amount reimbursed by Employer shall not exceed a maximum amount equal to $50k. All amounts under this section shall be paid by Employer within 15 days after Executive’s presentation to Employer of any statements of such amounts. In addition, Executive shall be entitled from available resources of the Employer to secretarial service and use of an office, phone, office supplies and office services comparable to the level of such services available to Executive prior to the date of the termination of employment.
(3) Medical Benefits. During the Continuation Period, or, if shorter, the period of time that Executive would be entitled to continuation coverage under a group health plan of the Employer under section 4980B of the Code (COBRA) if Executive elected such coverage and paid the applicable premiums, the Employer will pay to Executive as supplemental compensation an amount equal to 1.30 times each payment of the expenses substantiated as actually paid by Executive for coverage in any program providing for welfare benefits in which Executive was a participant on the date of termination that are not otherwise reimbursed by any other person and that are otherwise allowable as a deduction under section 213 of the Code (without regard to any limitations on deductibility). Premiums paid for welfare benefits that may be reimbursed under this section include, but are not limited to, health, medical, dental, vision, and disability.
(c) Dispute as to Existence of Cause or Good Reason. Any discharge claimed for Cause or resignation claimed for Good Reason shall be so stated in the notice thereof, and any dispute between the Employer and Executive as to the existence of Cause or Good Reason shall be resolved as provided in section 16.
(d) Cause shall exist if Executive:
(1) Is convicted of, or pleads guilty or nolo contendere to, a felony or any act amounting to embezzlement, fraud, or theft or involving moral turpitude (whether or not against Employer or another employee);
(2) Is convicted of, or pleads guilty or nolo contendere to, in a court of competent jurisdiction, a felony resulting in death or substantial bodily or psychological harm to, or other act of moral turpitude harming, any person;
(3) Willfully engages in conduct demonstrably and materially injurious to the goodwill and reputation of the Employer;
(4) Willfully causes the Employer other than pursuant to the advice of Employer legal counsel to violate a law which, in the opinion of Employer legal counsel, is reasonable grounds for civil or criminal penalties against the Employer or its Board;
(5) Willfully engages in conduct which constitutes a violation of the established written policies or procedures of the Employer regarding the conduct of its employees, including policies regarding sexual harassment of employees and use of illegal drugs or substances;
(6) Without due cause fails within 45 days after receipt of notice to follow any lawful order given by or under direction of the Board;
(e) Good Reason shall exist in the absence of Cause if:
(1) Executive ceases to hold position and title of chief executive officer as contemplated by section 3(b) of this Agreement, or a position and title of a more senior position which Executive accepts;
(2) Executive is assigned, without Executive’s consent, authority or responsibility materially inconsistent with authority and responsibility contemplated by section 3(a) of this Agreement, including without limitation any material diminution of Executive’s authority and responsibility for supervision and compensation of all Employer personnel or change in reporting requirements to anyone other than the Board or its duly authorized committees;
(3) There is any reduction in or a material delay in payment of Base Salary or material reduction in benefits from those required to be provided in accordance with sections 4 or 9 of this Agreement;
(4) Any requirement is imposed by the Employer or under direction of its Board or any person controlling the Employer for Executive to reside or travel outside of the Scottsdale, Arizona area, other than on travel reasonably required to carry out Executive’s obligations under this Agreement;
(5) Executive becomes disabled (to the extent that Executive cannot, with reasonable accommodation, effectively perform the requirements of Executive’s position) and is unable to effectively exercise Executive’s authority and perform Executive’s responsibility under this Agreement;
(6) The Employer fails to obtain an agreement from any successor or assign of the Employer to assume and agree to perform the obligations of the Employer under this Agreement; and
(7) The Employer does not correct within 30 days after receipt of notice any act or omission that gives rise to a cause of action by Executive personally against the Employer to specifically enforce or restrain some action for purpose of avoiding some loss or damage, or to recover losses or damages, for an amount in excess of $10,000.
12. General Release.
Notwithstanding any other provision of this Agreement, no amount shall be payable under those sections in excess of any earned but unpaid periodic payments of Executive’s then Base Salary plus payment for any accrued but unused vacation for the periods of Executive’s service through the effective date of termination unless Executive executes a general release (in form and containing provisions reasonably required by the Employer) (a) releasing all known and unknown claims Executive may have against the Employer or any persons affiliated with the Employer and (b) agreeing not to prosecute any legal actions or other proceeding based upon any such claims. Any payment or benefit provided pursuant this Agreement or any other arrangement that is conditioned upon receipt of such a release of claims by Executive shall be delayed until the release shall become effective, and if the release shall become effective, the first such payment or benefit shall be made or commenced upon the first scheduled payment or benefit date immediately following the effective date, and the first payment shall include all amounts that otherwise would have been due prior to such effective date such that all payments and benefits shall be completed when such payments or benefits would have otherwise been completed pursuant to this Agreement or other arrangement.
13. Executive Covenants.
Without the prior written consent of the Employer, Executive shall not, directly or indirectly:
(a) No Unauthorized Competing Concern. (1) During the term of Executive’s employment and during any Continuation Period, either alone or as a member of a partnership or association, or as an officer, director, advisor, consultant, agent, or employee of any other organization, be engaged in or concerned with any other duties or pursuits requiring Executive’s active personal services that will conflict with Executive’s ability or objectivity in performing Executive’s obligations under this Agreement; and (2) for a period of one year thereafter, either alone or in any such capacity be engaged in, or concerned with duties or pursuits requiring Executive’s active personal services in the operation of any insurance company having agents located in the State of Arizona in competition with the business of the Employer or any of its active business segments. For this purpose, Competition with the business of the Employer includes supplying products or providing services to any customer or client with which the Employer has done any business during the period commencing one year prior to the date hereof and ending on the termination of Executive’s employment with the Employer;
(b) No Disloyal Act. During the term of Executive’s employment, take any action regarding the Employer, its operations or property, that in good faith Executive knows or should reasonably know is opposed to the best interests of the Employer;
(c) No Unauthorized Usurpation of Employer Opportunity. During the term of Executive’s employment, take advantage of any Employer opportunity without first offering the opportunity with full disclosure of material facts to the Employer and receiving notice that the Employer has declined such opportunity. For this purpose, “Employer opportunity” means any opportunity to engage in a business activity: (1) Of which Executive becomes aware (A) by virtue of Executive’s relationship with, or in connection with performing functions in the business of, or in using facilities or other resources of the Employer, and (B) under circumstances that should reasonably lead Executive to believe that the person offering the opportunity expects it to be offered to the Employer; or (2) which Executive knows is closely related to a business in which the Employer is engaged or expected to engage;
(d) No Unauthorized Disclosure. During the term of Executive’s employment and thereafter, make or cause to be made any unauthorized disclosure or other use of any confidential information regarding the Employer or any of its activities and operations, except to the extent reasonably necessary or appropriate in connection with the performance by Executive of Executive’s authority and responsibility under this Agreement or as may be legally required; provided, however, that nothing herein contained shall preclude the use or disclosure of any information known generally to the public (other than as a result of disclosure by Executive in violation of this section 13(d));
(e) No Unauthorized Solicitation. During the term of Executive’s employment and for a period of one year thereafter or, if longer, during any Continuation Period, either alone or in conjunction with or assistance of another person, interfere with or harm, or attempt to interfere with or harm, the relationship of the Employer (or any of its subsidiaries or affiliates) with, including offering employment by any person to, any person who is, or with whom the Employer during such period is negotiating to become, an employee, customer, or supplier of the Employer (or any of its subsidiaries or affiliates);
(f) No Disparagement. During the term of Executive’s employment and during any Continuation Period, criticize, ridicule or make any statement which disparages or is derogatory of the Employer or any person affiliated with the Employer in any communications with any customer or client, vendor or supplier of the Employer or in any public statement; or
(g) No Failure to Return Property. Fail upon termination of employment to immediately surrender to the Employer possession of all Employer property in Executive’s possession or control, tangible or intangible, including without limitation trade secrets, confidential and proprietary information and intellectual property in whatever embodiment or form, and all copies and other reproductions and extracts thereof, including those prepared by Executive
14. Forfeiture.
Notwithstanding any other provision to the contrary contained herein, the right of Executive or his estate or other beneficiaries shall forfeit all rights to receive or retain all payments and benefits provided, and shall reimburse the Employer for all such payments and benefits received, pursuant to Sections 5 (Signing Bonus), 8 (Long-Term Incentive Pay), 10 (Supplemental Retirement Benefit), and/or 11(b)(1) (Severance Pay):
(a) Executive breaches any of his agreements contained in Section 13;
(b) Executive makes, except as required by law, any disparaging remark, orally or in writing, about any of the Employers or about their management, organization and operations except to those persons who have a need to know and a corresponding fiduciary or contractual obligation to keep such conversations confidential, provided that this obligation shall not prohibit Executive from enforcing or defending any legal right he may have at law or in equity in appropriate legal proceedings against any other person if;
(c) Cause is found to exist within the meaning of Section 11(e) for termination of Executive or, if Executive resigns pursuant to section 3(b) claiming Good Reason, Good Reason is found not to exist, even if such finding is after Executive’s termination;
(d) Executive (or his personal representative or trustee of his estate, in the case of his disability or death) does not execute a general release pursuant to Section 12;
(e) Any financial statement filed with the insurance commissioner of the State of Arizona is materially misleading as to the Employer’s results of operation for a fiscal year or the Employer’s financial condition at the end of a fiscal year during which Executive was the chief executive officer because of (1) any overstatement of the amount of one or more items of income or understatement of the amount of one or more items of expense or other charges against income for such fiscal year, or (2) any material overstatement in value of any one or more items of assets or understatement in value of any one or more items of liabilities at the end of such fiscal year;
(f) The Employer materially failed to maintain (1) books, records, and accounts in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Employer, and (2) a system of internal accounting controls sufficient to provide reasonable assurances that transactions (i) are executed in accordance with management's general or specific authorization, and (ii) are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles or any other criteria applicable to such statements; or
(g) Executive, directly or indirectly, falsified or cause to be falsified, any book, record, or account referred to in Section 14(f)(1) or made or caused to be made a materially false or misleading statement, or omitted to state, or caused another person to omit to state, any material fact necessary in order to make statements made, in light of the circumstances under which such statements were made, not misleading to an accountant in connection with any audit or examination of the Employer’s financial statements.
15. Remedies; Specific Enforcement and Liquidated Damages.
Executive acknowledges that any breach of the covenants of section 13 may result in irreparable injury and damage to the Employer for which the Employer may have no adequate remedy at law. Accordingly, Executive agrees that in the event of any such breach or any threat of breach:
(a) The Employer shall, in addition to any other remedies or damages available to it at law or in equity, including liquidated damages pursuant to section 15(b), be entitled to immediate and permanent specific performance injunctive relief restraining such breach or threatened breach, without having to prove damages. In addition, the Employer shall be entitled to all costs and expenses, including reasonable attorneys’ fees and costs in enforcing the covenants of section 13.
(b) Not in limitation of the Employer’s right to specific performance or injunctive relief to enforce Executive’s covenants of section 13 and notwithstanding any failure by any court to grant such specific performance or injunctive relief, Executive shall pay to the Employer as liquidated damages an amount equal to two and one-half times Executive’s then current gross annual amount of salary, or if Executive is not employed by the Employer at the time of such breach, an amount equal to two and one-half times the most recent gross annual amount of salary paid to Executive by the Employer. The Employer shall be entitled to offset any amounts owed by Executive to the Employer under this section 15(b) against any amounts owed by the Employer to Executive under any provision of this Agreement or otherwise, including without limitation, amounts payable to Executive under any other provision of this Agreement or any other obligation of the Employer. The Employer and Executive agree that it is impossible to determine with any reasonable accuracy the amount of prospective damages to the Employer upon a breach of Executive’s covenants of section 13 and further agree that the damages set forth in this section 15(b) are reasonable, and not a penalty, based upon the facts and circumstances of the parties and with due regard to future expectations.
The covenants of section 13 and the remedies of the Employer under this section 15 shall survive any termination of this Agreement. Further, the existence of any claim or cause of action by Executive against the Employer, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Employer of the covenants of section 13.
16. Resolution of Disputes.
Any disputes arising under or related to this Agreement or regarding the legal rights or obligations of any of the parties to this Agreement, including any dispute between the Employer and Executive as to the existence of Cause or Good Reason, shall be resolved as follows:
(a) Negotiation. The Employer and Executive shall attempt in good faith to resolve any such dispute promptly by negotiation. Either may give the other written notice of any dispute not resolved in the normal course of business, stating that party’s position and designating a representative of that party to proceed with negotiations. Within 10 days after delivery of the notice, the receiving party shall submit to the other a written response, stating the responding party's position and designating a representative of the responding party to proceed with negotiations. Within 20 days after delivery of the disputing party's notice, the designated representative of each party to the dispute shall meet at a mutually acceptable time and place, and thereafter as often as they reasonably deem necessary, to attempt to resolve the dispute. All reasonable requests for information made by one party to the other will be honored.
(b) Arbitration. If any issues in dispute are not resolved by such negotiation (or if any party fails to participate in such negotiation), any party may, by written notice to the other, demand that the dispute be resolved by binding arbitration in Scottsdale, Arizona, before a single arbitrator pursuant to the national rules for the resolution of employment disputes of the American Arbitration Association (“AAA”). The arbitrator shall be instructed, and the parties shall cooperate, with completing the arbitration with a ruling, if possible, in writing on each issue in dispute within 120 days of the arbitrator’s appointment by the AAA. The arbitrator shall have the power to award damages, equitable relief, reasonable attorney's fees and expenses, and the fees and expenses of the arbitrator and of the AAA, to any party consistent with Federal Rule of Civil Procedure 54(d) or successor Rule. The arbitrator’s rulings and awards shall be final and binding upon the parties and judgment thereon may be entered in any court having competent jurisdiction. Unless the Executive is otherwise awarded by the arbitrator, the Employer shall pay the fees and expenses of the arbitrator and of the AAA.
17. Representation as to Limitations.
Executive represents and warrants that Executive is not under any contractual or legal restraint that prevents or prohibits Executive from entering into this Agreement or performing the duties and obligations described in this Agreement.
18. Successors and Assigns.
This agreement shall be binding upon and inure to the benefit of the Employer, its successors and assigns and shall be binding upon Executive, Executive’s administrators, executors, legatees, heirs, and other legal representatives. The Employer shall require any successor or assign to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Employer would be required to perform it if no such succession or assignment had taken place. Except to the extent the context otherwise requires, the term the “Employer” as used herein shall include any such successors and assigns to the Employer’s operations or assets. Neither this Agreement nor any right or interest hereunder shall be assignable or transferable by Executive, Executive’s administrators, executors, legatees, heirs, and other legal representatives, except by will or by the laws of descent and distribution.
19. Notices.
Any notice to be given to a person hereunder shall be given by United States certified mail or by personal delivery or by fax transmission or by email (provided that within 24 hours a written copy of such transmission is deposited in United States certified mail or personally delivered), with return receipt by the addressee requested, and addressed, to the Employer, at its principal place of business to the attention of the Chairman of the Board and, to Executive at Executive’s address on the employment records of the Employer, or at such other address most recently designated by that person for this purpose. Any notice shall be deemed given upon the date of receipt stated in the returned receipt or, if the address most recently specified by the addressee as provided above is not a valid address, the date of a returned receipt or other certification of the United States post office for such address certifying that the same is not a valid mailing address and that no forwarding address is known to such post office.
If to the Executive:
Matthew Wolfson
7460 E Tuckey Ln
Scottsdale, AZ 85250
If to the Company:
16561 N 92nd Street, Suite 101
Scottsdale, AZ 85260
Any party hereto may change its address for purposes of this paragraph by written notice given in the manner provided above.
20. Amendment/Waiver.
No amendment or waiver of any provision of this Agreement shall be implied by any failure of any party to enforce any remedy upon the violation of such provision, even if such violation is continued or repeated subsequently, and in no event shall any amendment or waiver of any provision of this Agreement be effective against any party hereto unless expressed in writing signed by that party. No express waiver shall affect any provision other than the one specified in such waiver, and that only for the time and in the manner specifically stated.
21. Construction.
As used in this Agreement, the singular shall include the plural and any gender shall include all genders as the context requires. Unless the context otherwise requires, use of any form of the term “include” shall mean including without limitation; and use of the term “or” is not intended to be exclusive unless the context otherwise clearly requires.
22. Headings.
The headings and captions are for convenience only and shall not be deemed to limit, construe, affect, or alter the meaning of the underlying provisions.
23. Severability.
If any provision of this Agreement is or becomes invalid, illegal, or unenforceable in any jurisdiction for any reason, such invalidity, illegality, or unenforceability shall not affect the remainder of this Agreement, and the remainder of this Agreement shall be construed and enforced as if such invalid, illegal, or unenforceable portion were not contained herein.
24. Governing Law.
This Agreement shall be construed and enforced under and in accordance with the laws of the State of Arizona without giving effect to the conflict of law principles thereof.
25. Representations of the Executive.
The Executive represents and warrants to the Company that:
The Executive's acceptance of employment with the Company and the performance of his duties hereunder will not conflict with or result in a violation of, a breach of, or a default under any contract, agreement, or understanding to which he is a party or is otherwise bound.
The Executive's acceptance of employment with the Company and the performance of his duties hereunder will not violate any non-solicitation, non-competition, or other similar covenant or agreement of a prior employer.
27. Withholding.
The Company shall have the right to withhold from any amount payable hereunder any Federal, state, and local taxes in order for the Company to satisfy any withholding tax obligation it may have under any applicable law or regulation.
28. Survival.
Upon the expiration or other termination of this Agreement, the respective rights and obligations of the parties hereto shall survive such expiration or other termination to the extent necessary to carry out the intentions of the parties under this Agreement.
29. Acknowledgement of Full Understanding.
THE EXECUTIVE ACKNOWLEDGES AND AGREES THAT HE HAS FULLY READ, UNDERSTANDS AND VOLUNTARILY ENTERS INTO THIS AGREEMENT. THE EXECUTIVE ACKNOWLEDGES AND AGREES THAT HE HAS HAD AN OPPORTUNITY TO ASK QUESTIONS AND CONSULT WITH AN ATTORNEY OF HIS CHOICE BEFORE SIGNING THIS AGREEMENT.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective as of the date first set forth above.
| MATTHEW WOLFSON | ||
| By: | ||
| Matthew Wolfson, CEO | ||
| ELECTROMEDICAL TECHNOLOGIES, INC. | ||
| By: | ||
| Matthew Wolfson, CEO | ||
Exhibit 10.2
ELECTROMEDICAL TECHNOLOGIES, INC.
Rule 10b5-1 Sales Plan
(Stock Only)
NOTE: This Sales Plan contains conditional
limitations on the Seller’s ability to sell stock registered on Form
S-1 and receive dollar values from the sales of stock.
Sales Plan dated January 9, 2020 (together with all Exhibits hereto, this “Sales Plan”) between Matthew Wolfson (“Seller”), Glendale Securities (“Glendale”), Wilson Davis, Pacific Stock Transfer Company and ElectroMedical Technologies, Inc. (“ELCQ” or “Issuer”), and Plan Administrator Mailander Law Office, Inc.
| A. | Recitals |
| 1. | This Sales Plan is entered into between Seller, Seller’s brokerage firm Glendale, Glendale’s clearing firm Wilson Davis, ELCQ’s transfer agent Pacific Stock Transfer Company and ELCQ and its Plan Monitor and Administrator Mailander Law Office, Inc. for the purpose of establishing a trading plan that complies with the requirements of Rule 10b5-1(c)(1) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). |
| 2. | Seller is establishing this Sales Plan in order to permit the orderly disposition of a portion of Seller’s holdings of ELCQ common stock, $0.001 par value (the “Stock”), which is currently trading on the OTC Markets Pink tier (“Principal Market”). This Sales Plan relates to a total of 2,000,000 shares of the Issuer’s common stock registered in an S-1 registration statement filed with the Securities and Exchange Commission on November 12, 2019. As of the date of this Sales Plan, the S-1 registration statement is not effective. Seller and Issuer intend that this Sales Plan apply to and be considered an exhibit to Issuer’s S-1/A. |
| B. | Seller’ Representations, Warranties and Covenants |
| 1. | As of the date hereof, Seller is not subject to any legal, regulatory, or contractual restriction or undertaking that would prevent him from entering into this Sales Plan or from conducting restricted trading in accordance with the Sales Plan. Seller is entering into this Sales Plan in good faith and not as part of a plan or scheme to evade compliance with the federal securities laws. |
| 2. | The securities to be sold under this Sales Plan are beneficially owned by Seller and are not subject to any liens, security interests or other encumbrances or limitations on disposition other than those that may be imposed by the Securities Act. |
| 3. | While this Sales Plan is in effect, Seller agrees to not enter into or alter any corresponding or hedging transaction or position with respect to the securities covered by this Sales Plan, unless this Sales Plan is modified or terminated in accordance with the terms hereof, and agrees not to alter or deviate from the terms of this Sales Plan. |
| 4. | Seller agrees to: |
| a. | Provide ELCQ, Pacific Stock Transfer, Glendale and Wilson Davis with a certificate or certificates dated as of the date of this Sales Plan and signed by the Seller to this Sales Plan prior to commencement of the Plan Sales Period (as defined below). |
| b. | Notify Glendale’s Legal and Trading Departments as soon as practicable if Seller becomes aware of (i) the occurrence of any event contemplated by paragraph 3 of the certificate set forth as Exhibit A to this Sales Plan; (ii) a change in ELCQ’s insider trading policies, so that the sales to be made by Seller pursuant to the Sales Plan would violate these policies; or (iii) a determination by ELCQ’s board of directors or chief financial officer that purchases or sales pursuant to the Sales Plan would have a material adverse effect on the Issuer’s financial condition. In the case of a notice relating to clause (i) above, such notice shall indicate the anticipated duration of the restriction, but shall not include any other information about the nature of the restriction or its applicability to Seller and shall not in any way communicate any material nonpublic information about ELCQ or its securities to Glendale. |
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| 5. | The execution and delivery of this Sales Plan by Seller and the transactions contemplated by this Sales Plan will not contravene any provision of applicable law or any agreement or other instrument binding on Seller or any judgment, order or decree of any governmental body, agency or court having jurisdiction over Seller. |
| 6. | Seller agrees with respect to the Stock subject to trading pursuant to this Sales Plan (“Stock”), that until this Sales Plan has been terminated, Seller shall not (i) enter into a binding contract with respect to the purchase or sale of Stock with another broker, dealer or financial institution (each, a “Financial Institution”), (ii) instruct another Financial Institution to purchase or sell Stock or (iii) adopt a plan for trading with respect to Stock other than this Sales Plan. Notwithstanding the foregoing, Seller shall notify ELCQ in connection with any sales of Stock of the Issuer prior to such sale. |
| 7. | Seller agrees that he shall not, directly or indirectly, communicate any material, nonpublic information relating to the Stock or the Issuer to any employee of Glendale or its affiliates who are involved, directly or indirectly, in executing this Sales Plan at any time while this Sales Plan is in effect. |
| 8. | Seller agrees: |
| a. | to make all filings, if any, required under the Exchange Act in a timely manner, to the extent any such filings are applicable to Seller. In order to promote compliance with such filing requirements, Glendale agrees to use reasonable efforts to transmit transaction information for open market transactions under this Sales Plan via email to ELCQ by the close of business on the day of any sale, and shall in any event transmit such information no later than the close of the business on the second business day after any sale. Emails with transaction information shall be sent to: |
- Tad Mailander: tmailander@gmail.com, Plan Monitor and Administrator
| b. | that Seller shall at all times during the Plan Sales Period (as defined below), in connection with the performance of this Sales Plan, comply with all applicable laws, including, without limitation, Section 16 of the Exchange Act and the rules and regulations promulgated thereunder. |
| C. | Implementation of the Plan |
| 1. | Seller hereby appoints Glendale to sell shares of Stock pursuant to the terms and conditions set forth below. Subject to such terms and conditions, Glendale hereby accepts such appointment. |
| 2. | Seller and Glendale are authorized to begin selling Stock under this Sales Plan only after the following events occur: (a) Issuer’s S-1 registration statement is deemed effective by the Securities and Exchange Commission; and, (b) Forty-five days after the completion by the Issuer of the Direct Offering of 10,000,000 Shares of Common Stock being sold at $1.94 per share pursuant to the Primary Direct Offering disclosed in the S-1 registration statement. Glendale shall cease selling Stock on the earliest to occur of: (i) the date on which ELCQ is required to terminate sales under this Sales Plan pursuant to paragraph D.1.a below; (ii) the date on which ELCQ receives notice of the death of Seller; (iii) the date that ELCQ or any other person publicly announces a tender or exchange offer with respect to the Stock; (iv) the date of public announcement of a merger, acquisition, reorganization, recapitalization or comparable transaction affecting the securities of the Issuer as a result of which the Stock will be exchanged or converted into shares of another company; (v) the date on which ELCQ receives notice of the commencement of any proceedings in respect of or triggered by Seller’s bankruptcy or insolvency; (vi) the date on which ELCQ or Seller reasonably determines that the Sales Plan does not comply with Rule 10b5-1 or applicable securities laws; and (vii): |
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| ¨ | (Date) at the close of the Principal Market. |
| x | the date that the aggregate number of shares of Stock sold under this Sales Plan is 2,000,000 shares; |
| ¨ | The date every month that the aggregate proceeds of sales pursuant to this Sales Plan (after deducting commissions and other expenses of sale) reaches ______________. |
(the period during which Seller are authorized to sell stock under this
paragraph C.2 is referred to in this Sales Plan as the “Plan Sales
Period”).
| 3. | Glendale and the Seller shall not sell Stock under this Sales Plan at any time when: |
| a. | ELCQ, in its sole discretion, has determined that a market disruption, banking moratorium, outbreak or escalation of hostilities or other crisis or calamity has occurred, or |
| b. | ELCQ, in its sole discretion, has determined that it is prohibited from doing so by a legal, contractual or regulatory restriction applicable to it or its affiliates or to Seller (other than any such restriction relating to Seller’s possession or alleged possession of material nonpublic information about the Issuer or the Stock), or |
| c. | ELCQ has received notice from the Issuer or Seller of the occurrence of any event contemplated by paragraph 3 of the certificate set forth as Exhibit A to this Sales Plan, or |
| d. | a sale effected under the Sales Plan fails to comply (or in the reasonable opinion of ELCQ and/or Glendale is not likely to comply) with Rule 144 of the Securities Act), or |
| e. | ELCQ has received notice from Seller to terminate this Sales Plan in accordance with paragraph D.1 below. |
| f. | Seller and Glendale shall withdraw Stock from the Plan Account in order to effect sales of Stock under this Sales Plan. Glendale agrees to notify Seller promptly if at any time during the Plan Sales Period the number of shares of Stock in the Plan Account is less than the number of Plan Shares remaining to be sold under this Sales Plan. Upon such notification, Seller agrees to deliver promptly to the Plan Account the number of shares of Stock necessary to eliminate this shortfall. |
| g. | To the extent that any Stock remains in the Plan Account after the end of the Plan Sales Period or upon termination of this Sales Plan, Glendale agrees to return such Stock promptly to the Issuer’s transfer agent for re-legending to the extent that such Stock would then be subject to transfer restrictions in the hands of the Seller. |
| 4. | Glendale shall in no event effect any sale under this Sales Plan if the Stock to be sold is not in the Plan Account. |
| 5. | Seller and Glendale may sell Stock on the OTC Markets Pink trading tier or otherwise, but only once registered in the Issuer’s S-1 registration statement, and after forty five days after the Issuer has completed its direct offering under the S-1. |
| 6. | Seller may instruct Glendale to sell or purchase other non-ELCQ shares of Stock other than pursuant to this Sales Plan. The parties hereto agree that any such sale or purchase transaction (i) will not be deemed to modify this Sales Plan unless Seller so requests in writing in accordance with paragraph D.1.d below and (ii) will be given by Seller to Glendale only if such transaction does not contravene any of the representations, warranties or covenants set forth in Section B of this Sales Plan. |
| D. | Amendment and Termination |
| 1. | This Sales Plan may not be terminated prior to the end of the Plan Sales Period, except that: |
| a. | it may be terminated due to the death of the Seller. |
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| b. | it may be terminated pursuant to Paragraph C.3.a of this Sales Plan |
| c. | it may be, at Glendale’s option, terminated if Glendale has received notice from the Issuer of the occurrence of any event contemplated by paragraph 3 of the certificate set forth as Exhibit A to this Sales Plan. |
| d. | Notwithstanding the provisions of paragraph D.1. herein, this Sales Plan may only be amended pursuant to the Issuer’s insider trading policy, as enacted. |
| e. | This Plan may be amended by Seller only upon the written consent of ELCQ and receipt by ELCQ of the following documents, each dated as of the date of such amendment: |
| (i) | a representation signed by the Issuer substantially in the form of Exhibit A to this Sales Plan, |
| (ii) | a certificate signed by Seller certifying that the representations and warranties of Seller contained in this Sales Plan are true at and as of the date of such certificate as if made at and as of such date and |
| (iii) | a Seller’s Representation Letter completed and executed by Seller. |
| E. | Indemnification; Limitation of Liability |
| 1. | a. Seller agree to indemnify and hold harmless ELCQ and its directors, officers, employees and affiliates from and against all claims, losses, damages and liabilities (including, without limitation, any legal or other expenses reasonably incurred in connection with defending or investigating any such action or claim) arising out of or attributable to ELCQ’s actions taken or not taken in compliance with this Sales Plan or arising out of or attributable to any breach by Seller of this Sales Plan (including Seller’s representations and warranties in this Sales Plan) or any violation by Seller of applicable laws or regulations; provided, however, that the indemnification provisions of this paragraph E.1.a shall not apply in the case of any claims, losses, damages or liabilities finally judicially determined to have resulted from ELCQ’s gross negligence or willful misconduct. This indemnification shall survive termination of this Sales Plan. |
| b. | Notwithstanding any other provision of this Sales Plan, neither party shall be liable to the other party for: |
| (i) | special, indirect, punitive, exemplary or consequential damages, or incidental losses or damages of any kind, even if advised of the possibility of such losses or damages or if such losses or damages could have been reasonably foreseen, or |
| (ii) | any failure to perform or to cease performance or any delay in performance that results from a cause or circumstance that is beyond its reasonable control, including but not limited to failure of electronic or mechanical equipment, strikes, failure of common carrier or utility systems, severe weather, market disruptions or other causes commonly known as “acts of God.” |
| 2. | Seller consulted with Seller’s own advisors as to the legal, tax, business, financial and related aspects of, and has not relied upon ELCQ or any person affiliated with ELCQ in connection with Seller’s adoption and implementation of this Sales Plan. |
| 3. | Seller acknowledge and agree that in performing Seller’s obligations under this Sales Plan, neither ELCQ nor any of its affiliates nor any of their respective officers, employees or other representatives is exercising any discretionary authority or discretionary control respecting management of Seller’s assets, or exercising any authority or control respecting management or disposition of Seller’s assets, or otherwise acting as a fiduciary (within the meaning of Section 3(21) of the Employee Retirement Income Security Act of 1974, as amended, or Section 2510.3-21 of the Regulations promulgated by the United States Department of Labor) with respect to Seller’s assets. Without limiting the foregoing, Seller further acknowledges and agrees that neither ELCQ nor any of its affiliates nor any of their respective officers, employees or other representatives has provided any “investment advice” within the meaning of such provisions, and that no views expressed by any such person will serve as a primary basis for investment decisions with respect to Seller’s assets. |
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| F. | Agreement to Arbitrate Certain Disputes |
The following disclosure is required by various regulatory bodies but should not limit the applicability of the following arbitration provision to or in any claim or controversy which may arise between Seller and ELCQ.
This Agreement contains a pre-dispute arbitration clause. By signing this Sales Plan, which includes the following arbitration agreement, the parties agree as follows:
| • | Arbitration is final and binding on the parties. All parties to this Agreement are giving up the right to sue each other in court, including the right to a trial by jury, except as provided by the rules of the arbitration forum in which a claim is filed. |
| • | The parties are waiving their right to seek remedies in court, including the right to a jury trial. Arbitration awards are generally final and binding; a party’s ability to have a court reverse or modify an arbitration award is very limited. |
| • | Pre-arbitration discovery is generally more limited than and different from court proceedings. The ability of the parties to obtain documents, witness statements, and other discovery is generally more limited in arbitration than in court proceedings. |
| • | The arbitrators’ award is not required to include factual findings or legal reasoning, and any party’s right to appeal or seek modifications of rulings of the arbitrators is strictly limited. The arbitrators do not have to explain the reason(s) for their award. |
| • | The panel of arbitrators will typically include a minority of arbitrators who were or are affiliated with the securities industry. |
| • | The rules of some arbitration forums may impose time limits for bringing a claim in arbitration. In some cases, a claim that is ineligible for arbitration may be brought in court. |
| • | The rules of the arbitration forum in which the claim is filed, and any amendments thereto, are hereby incorporated into this Agreement. |
| • | The award of the arbitrators or of the majority of them shall be final, and judgment upon the award rendered may be entered in any court, state or federal, having jurisdiction. |
| • | No person shall bring a putative or certified class action to arbitration, nor seek to enforce any pre-dispute arbitration agreement against any person who has initiated in court a putative class action, or who is a member of a putative class action who has not opted out of the class with respect to any claims encompassed by the putative class action until: (i) the class certification is denied; or (ii) the class is decertified; or (iii) the Seller is excluded from the class by the court. Such forbearance to enforce an agreement to arbitrate shall not constitute a waiver of any rights under this agreement except to the extent stated herein. |
| • | Seller agrees, and in consideration of ELCQ carrying an account for Seller, ELCQ agrees, that all controversies which may arise between us, including any dispute involving ELCQ’s present or former agents, employees, officers, and directors and including, but not limited to those involving transactions in this or any other account you have individually or jointly with or on behalf of another party at ELCQ, including those in which you have a beneficial interest, or the construction, performance, or breach of this or any other agreement between us, whether entered into prior, on, or subsequent to the date hereof, shall be fully and finally determined by binding arbitration. Any arbitration under this Agreement shall be determined pursuant to the arbitration laws of the State of Missouri and Federal Arbitration Act, where applicable, before the Financial Industry Regulatory Authority (FINRA). |
| • | If Seller files a complaint in court against ELCQ or its present or former employees, officers, or directors, ELCQ may seek to compel arbitration of any such claims. If ELCQ seeks to compel arbitration of such claims, ELCQ must agree to arbitrate all of the claims contained in the complaint if the Seller so requests. |
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Seller acknowledges that the preferred forum for any dispute resolution involving controversies which may arise between Seller and ELCQ is through arbitration pursuant to the terms of the arbitration provision found in this Agreement. In the unlikely event any controversy or dispute arising under this Agreement with ELCQ is determined to be ineligible for arbitration, Seller agrees as follows: THE PARTIES TO THIS AGREEMENT SHALL NOT EXERCISE ANY RIGHTS THEY MAY HAVE TO ELECT OR DEMAND A TRIAL BY JURY. The Seller and ELCQ hereby expressly waive any right to a trial by jury. The Seller acknowledges and agrees that this provision is a specific and material aspect of the agreement between the parties and that ELCQ would not enter into this Agreement with Seller if this provision were not part of the agreement.
Dispute Resolution Locale: Any suit, arbitration proceeding, reparation proceeding, claim, or action against ELCQ or its present or past officers, agents, or employees shall be brought and heard in the city where the branch sales office of ELCQ is or was located with which Seller dealt. If the court, arbitration forum, or reparations tribunal does not conduct hearings in that city, then any such action must be brought and heard in the locale closest to that city in which the court, arbitration forum, or reparations tribunal conducts hearings. This paragraph shall apply even if Seller has related disputes with other parties which cannot be resolved in the same locale.
| G. | General |
| 1. | Seller and ELCQ acknowledge and agree that this Sales Plan is a “securities contract,” as such term is defined in Section 741(7) of Title 11 of the United States Code (the “Bankruptcy Code”), entitled to all of the protections given such contracts under the Bankruptcy Code. |
| 2. | This Sales Plan constitutes the entire agreement between the parties with respect to this Sales Plan and supersedes any prior agreements or understandings with regard to the Sales Plan. |
| 3. | All notices to Glendale under this Sales Plan shall be given to Glendale’s Legal and Trading Services Department in the manner specified by this Sales Plan by telephone at 818-907-1505 or by certified mail to the address below: |
| 4. |
Glendale Securities
15233 Ventura Blvd Suite 712
Sherman Oaks, CA 91403
(818) 907-1505
Notices to the Issuer shall be given to:
ElectroMedical Technologies, Inc.
c/o Mailander Law Office, Inc. [Sales Plan Administrator and Monitor]
945 4th Avenue, Ste. 311
San Diego, CA 92101
Tmailander@gmail.com
Telephone: (619) 239-9034saf
Notices to Pacific Stock Transfer shall be given to:
Pacific Stock Transfer Company
6725 Via Austi Pkwy, Suite 300
Las Vegas NV 89119
Attention: Ms. Joslyn Claiborne
(Joslyn@pacificstocktransfer.com)
Telephone: (702) 361-3033
| 5. | Each Party’s rights and obligations under this Sales Plan may not be assigned or delegated without the written permission of the other party, which may be withheld in such party’s sole discretion. |
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| 6. | This Sales Plan may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures on all counterparts were upon the same instrument. |
| 7. | If any provision of this Sales Plan is or becomes inconsistent with any applicable present or future law, rule or regulation, that provision will be deemed modified or, if necessary, rescinded in order to comply with the relevant law, rule or regulation. All other provisions of this Sales Plan will continue and remain in full force and effect. |
| 8. | This Sales Plan shall be governed by and construed in accordance with the internal laws of the State of Missouri, applicable to agreements made and to be fully performed therein and may be modified or amended only by a writing signed by the parties to this Sales Plan. |
NOTICE: THIS AGREEMENT CONTAINS A PRE-DISPUTE ARBITRATION CLAUSE IN
PARAGRAPH F.
IN WITNESS WHEREOF, the undersigned have signed this Sales Plan as of the date first written above.
Date: January 9, 2020
| Signature: |
/s/ Matthew Wolfson |
|
| Print Name: |
MATTHEW WOLFSON |
ELECTROMEDICAL TECHNOLOGIES, INC.
| By: |
/s/ Tad Mailander |
|
| Print Name: |
TAD MAILANDER |
|
|
LEGAL COUNSEL, SALES PLAN MONITOR/ADMINISTRATOR |
GLENDALE SECURITIES
| By: | ||
| Print Name: | ||
| Title: |
PACIFIC STOCK TRANSFER COMPANY
| By: | ||
| Print Name: | ||
| Title: |
7
EXHIBIT A
SELLER REPRESENTATION
| 1. | Matthew Wolfson (“Seller”) represents that he approved the Sales Plan dated January 9, 2020, (the “Sales Plan”) with ELCQ relating to the common stock, $0.001, par value of the Issuer (the “Stock”). |
| 2. | The Seller confirms the following: |
| 1. Position/Affiliation with Issuer |
Stockholder, affiliate |
| 2. Is Seller a Form 4 filer? | YES x NO ¨ |
| 3. Is Seller a Form 144 Filer? | YES x NO ¨ |
| 3. | The sales to be made by Seller under the Sales Plan will not violate the ELCQ’s insider trading policies, as enacted, and to the best of the Seller’ knowledge there are no legal, contractual or regulatory restrictions applicable to Seller or Seller’ affiliates as of the date of this representation that would prohibit the Seller from entering into the Sales Plan or prohibit any sale under the Sales Plan. |
| 4. | If at any time during the Sales Plan Period (as defined in the Sales Plan), (i) Seller become aware of a legal, contractual or regulatory restriction that is applicable to Seller and that would prohibit any sale under the Sales Plan (other than any such restriction relating to Seller’s possession or alleged possession of material nonpublic information about the Issuer or its securities), (ii) there is a change in the ELCQ’s insider trading policies, so that the sales to be made by Seller pursuant to the Sales Plan would violate these policies, or (iii) ELCQ’s board of directors or chief financial officer determines that purchases or sales pursuant to the Sales Plan would have a material adverse effect on the Issuer’s financial condition, Seller agree to give Glendale notice of such restriction by telephone as soon as practicable, and shall indicate the anticipated duration of the restriction, but shall not include any other information about the nature of the restriction or its applicability to Seller. In any event, the Issuer shall not communicate any material nonpublic information about the Issuer or its securities to Glendale. |
Moreover, if the sales to be made by the Seller under the Sales Plan require that ELCQ meet the Current Public Information provisions contained in paragraph (c) of Rule 144 under the Securities Act of 1933, as amended, Seller agrees to give Glendale notice in the manner provided above in the event that ELCQ fails to continue to satisfy the Current Public Information provisions.
Date: January 9, 2020
| Signature: |
/s/ Matthew Wolfson |
|
| Print Name: |
MATTHEW WOLFSON |
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Exhibit 10.3
THIS WARRANT AND THE UNDERLYING SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO SUCH SECURITIES UNDER THE ACT OR AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
ELECTROMEDICAL TECHNOLOGIES, INC.
WARRANT TO PURCHASE COMMON STOCK
No. W-1 December 1, 2018
VOID AFTER DECEMBER 1, 2023
THIS CERTIFIES THAT, for value received, AGILITY FINANCIAL PARTNERS, LLC or assigns (the "Holder"), is entitled to subscribe for and purchase from Electromedical Technologies, Inc., a Delaware corporation (the "Company"), the Exercise Shares (as defined below) of the Company's Common Stock on the terms and subject to the conditions set forth below. This Warrant is being issued in connection with that certain Consulting Agreement among the Company and the consultants party thereto dated as of
September 7, 2016 (the "Consulting Agreement").
DEFINITIONS. As_ used herein, the following terms shall have the following respective meanings:
(a) "Acquisition" shall mean either (A) a merger, consolidation, equity sale or similar transaction involving (directly or indirectly) the Company upon which, immediately after the consummation of the transaction, the shareholders of the Company immediately prior thereto do not own, directly or indirectly, either (i) voting securities representing more than 50% of the combined voting power of the surviving entity in such transaction, or (ii) securities representing more than 50% of the combined voting power of the parent of the surviving entity in such transaction; or (B) a sale, lease, transfer, exclusive license or other disposition, in a single transaction or series of related transactions, of all or substantially all of the assets of the Company.
(b) "Exercise Period" shall mean the period commencing with the date hereof and ending on December 1, 2023, unless sooner terminated as provided below.
(c) "Exercise Price” shall mean $0.71 per Exercise Share subject to adjustment pursuant to Section 5 below.
(d) “Exercise Shares” shall mean up to 100,000 shares of the Company's Common Stock issuable upon exercise of this Warrant, subject to adjustment pursuant to the terms herein.
(e) "IPO" shall mean the Company's first firm commitment underwritten offering and sale of the Company's Common Stock (the "Common Stock") to the public pursuant to an effective registration statement under the Securities Act of 1933, as amended
(the "Act").
2. EXERCISE OF WARRANT
(a) The rights represented by this Warrant may be exercised in whole or in part at any time during the Exercise Period, by delivery of the following to the Company at its address set forth on the signature page hereto (or at such other address as it may designate by notice in writing to the Holder):
(b) An executed Notice of Exercise in the form attached hereto;
(ii) Payment of the Exercise Price either in cash or by check; and
(iii) This Warrant.
Upon the exercise of the rights represented by this Warrant, a certificate or certificates for the Exercise Shares so purchased, registered in the name of the Holder or persons affiliated with the Holder, if the Holder so designates, shall be issued and delivered to the Holder within a reasonable time after the rights represented by this Warrant shall have been so exercised. In the event that this Warrant is being exercised for less than all of the then- current number of Exercise Shares purchasable hereunder, the Company shall, concurrently with the issuance by the Company of the number of Exercise Shares for which this Warrant is then being exercised, issue a new Warrant exercisable for the remaining number of Exercise Shares purchasable hereunder.
The person in whose name any certificate or certificates for Exercise Shares are to be issued upon exercise of this Warrant shall be deemed to have become the holder of record of such shares on the date on which this Warrant was surrendered and payment of the Exercise Price was made, irrespective of the date of delivery of such certificate or certificates, except that, if the date of such surrender and payment is a date when the stock transfer books of the Company are closed, such person shall be deemed to have become the holder of such shares at the close of business on the next succeeding date on which the stock transfer books are open.
(b) Net Exercise. In lieu of cash exercising this Warrant, the Holder of this Warrant may elect to receive shares equal to the value of this Warrant (or the portion thereof being canceled) by surrender of this Warrant at the principal office of the Company together with notice of such election, in which event the Company shall issue to the holder hereof a number of Shares computed using the following formula: X = Y (A-B) A Where X = the number of shares of Common Stock to be issued to Holder. Y = the number of shares of Common Stock purchasable under the Warrants being exchanged (as adjusted to the date of such calculation). A = the Market Price on the date of receipt by the Company of the exercise documents. B = the Exercise Price of the Warrants being exchanged (as adjusted in accordance with the terms hereof). The "Market Price" on any trading day shall be deemed to be the average of the ask and bid price of the Common Stock over the five (5) trading days immediately preceding receipt by the Company of the exercise documents as officially reported by the principal securities exchange or quotation medium on which the shares of Common Stock are listed or eligible for trading. If the Market Price cannot be determined pursuant to the sentence above, the Market Price shall be determined in good faith (using customary valuation methods) by the Board of Directors of the Company based on the
information best available to it, including recent arms-length sales of Common Stock to unaffiliated persons.
use reasonable efforts to sell the Exercise Shares to satisfy the debt.
s COVENANTS OF THE COMPANY.
3.1 Covenants as to Exercise Shares. The Company covenants and agrees that all Exercise Shares that may be issued upon the exercise of the rights represented by this Warrant and the shares of the Company's Common Stock that may be issued upon conversion of the Exercise Shares will, upon issuance, be validly issued and outstanding, fully paid and nonassessable, and free from all taxes, liens and charges with
be sufficient to permit exercise of this Warrant or the conversion of the Exercise Shares, the Company will take such Corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of such series of the Company's equity securities to such number of shares as shall be sufficient for such purposes.
3.2 Notices of Record Date. In the event of any taking by the Company of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution, the Company Shall mail to the Holder, at least 10 days prior to the date specified herein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend or distribution.
4. REPRESENTATIONS OF HOLDER.
4.1 Acquisition of Warrant for Personal Account. The Holder represents and warrants that it is acquiring the Warrant and the Exercise Shares solely for its account for investment and not with a view to or for sale or distribution of said Warrant or Exercise Shares or any part thereof. The Holder also represents that the entire legal and beneficial interests of the Warrant and Exercise Shares the Holder is acquiring is being acquired for, and will be held for, its account only.
4.2 Securities Are Not Registered.
(a) The Holder understands that the Warrant and the Exercise Shares have not been registered under the Act on the basis that no distribution or public
offering of the stock of the Company is to be effected. The Holder realizes that the basis for the exemption may not be present if, notwithstanding its representations, the Holder has a present intention of acquiring the securities for a fixed or determinable period in the future, selling (in connection with a distribution or otherwise), granting any participation in, or otherwise distributing the securities. The Holder has no such present intention.
(b) The Holder recognizes that the Warrant and the Exercise Shares must be held indefinitely unless they are subsequently registered under the Act or an exemption from such registration is available. The Holder recognizes that the Company has no obligation to register the Warrant or the Exercise Shares of the Company, or to comply with any exemption from such registration.
(c) The Holder is aware that neither the Warrant nor the Exercise Shares may be sold pursuant to Rule 144 adopted under the Act unless certain conditions are met, including, among other things, the existence of a public market for the shares, the availability of certain current public information about the Company, the resale following the required holding period under Rule 144 and the number of shares being sold during any three month period not exceeding specified limitations. Holder is aware that the conditions for resale set forth in Rule 144 have not been satisfied and that the Company presently has no plans to satisfy these conditions in the foreseeable future.
4.3 Disposition of Warrant and Exercise Shares.
(a) The Holder further agrees not to make any disposition of all or any part of the Warrant or Exercise Shares in any event unless and until:
(b) The Company shall have received a letter secured by the Holder from the Securities and Exchange Commission stating that no action will be recommended to the Commission with respect to the proposed disposition;
(ii) There is then in effect a registration statement under the Act covering such proposed disposition and such disposition is made in accordance with said registration statement; or
(iii) The Holder shall have notified the Company of the proposed disposition and shall have furnished the Company with a detailed statement of the Circumstances surrounding the proposed disposition, and if reasonably requested by the Company, the Holder shall have furnished the Company with an opinion of counsel, reasonably satisfactory to the Company, for the Holder to the effect that such disposition will not require registration of such Warrant or Exercise Shares under the Act or any applicable state securities laws. The Company agrees that it will not require an opinion of counsel with respect to transactions under Rule 144 of the Securities Act of 1933, as amended, except in unusual circumstances.
(b) The Holder understands and agrees that all certificates evidencing the shares to be issued to the Holder may bear the following legend:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER THE ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
4.4 Accredited Investor Status. The Holder is an “accredited investor" as defined in Regulation D promulgated under the Act.
5: ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF EXERCISE SHARES.
5.1 Changes in Securities. In the event of changes in the series of equity securities of the Company comprising the Exercise Shares by reason of stock dividends, splits, recapitalizations, reclassifications, combinations or exchanges of shares, separations, reorganizations, liquidations, or the like, the number and class of Exercise Shares available under the Warrant in the aggregate and the Exercise Price shall be correspondingly adjusted to give the Holder of the Warrant, on exercise for the same aggregate Exercise Price, the total number, class, and kind of shares as the Holder would have owned had the Warrant been exercised prior to the event and had the Holder continued to hold such shares until after the event requiring adjustment. For purposes of this Section 5, the “aggregate Exercise Price" shall mean the aggregate Exercise Price payable in connection with the exercise in full of this Warrant. The form of this Warrant need not be changed because of any adjustment in the number of Exercise Shares subject to this Warrant. Whenever the Exercise Price or the number of shares of Exercise Shares purchasable hereunder shall be adjusted pursuant to this Section 5.1, the Company at its expense shall issue a certificate signed by an authorized officer setting forth, in reasonable detail, the event requiring the adjustment or readjustment, the amount of the adjustment or readjustment and the Exercise Price and number of shares purchasable hereunder after giving effect to such adjustment or readjustment, and shall cause a copy of such certificate to be mailed (by first-class mail, postage prepaid, or overnight delivery service) to the Holder of the Warrant. The Company shall, upon the written request of the Holder of the Warrant at any time, furnish or cause to be furnished to such Holder a like certificate setting forth: (i) all such adjustments and readjustments that have been effected under the Warrant; (ii) the Exercise Price at the time in effect and (iii) the number of shares of Exercise Shares, the type of Exercise Shares and the amount, if any, of other property that at the time would be received upon the exercise of the Warrant.
5.2 Automatic Conversion. Upon the automatic conversion of all outstanding shares of the series of equity securities comprising the Exercise Shares, this Warrant shall become exercisable for that number of shares of Common Stock of the Company into which the Exercise Shares would then be convertible, so long as such shares, if this Warrant had been exercised prior to such offering, would have been converted into shares of the Company's Common Stock pursuant to the Company's Certificate of Incorporation. In such case, all references to "Exercise Shares" shall mean shares of the Company's Common Stock issuable upon exercise of this Warrant, as appropriate.
a3 Anti-Dilution Rights. The Holder shall be protected from dilution in the
event that the Company subsequent to issue date of this Warrant issues additional equity securities at a price below the Exercise Price (as adjusted per Section 5.1), other than options, shares and warrants issued pursuant to employee incentive plans approved by the Board of the Company.
If the Company issues securities as stated above at a price lower than the Exercise Price (a "Dilutive Issuance"), then the Exercise Price shall be immediately adjusted downward to the same price as the price per share of the Dilutive Issuance.
In addition, immediately following the Dilutive Issuance, the number of Exercise Shares shall be increased as follows:
N = nl(pl — p2)
N = the additional number of Exercise Shares
nl = the original number of Exercise Shares (i.e., 100,000, subject to adjustment under Section 5.1)
pl = the Exercise Price (i.e., $0.71 , Subject to adjustment under Section 5. 1)
p2 = the subscription price of the Dilutive Issuance
6. FRACTIONAL SHARES. No fractional shares shall be issued upon the exercise of this Warrant as a consequence of any adjustment pursuant hereto. All Exercise Shares (including fractions) to be issued upon exercise of this Warrant shall be aggregated for purposes of determining whether the exercise would result in the issuance of any fractional share. If, after aggregation, the exercise would result in the issuance of a fractional share, the Company shall, in lieu of issuance of any fractional share, pay the Holder otherwise entitled to such fraction a sum in cash equal to the product resulting from multiplying the then current fair market value of one Exercise Share by such fraction.
fe NOTICE OF ACQUISITION. In the event of, at any time during the Exercise Period, an IPO or an Acquisition, the Company shall provide to the Holder 30 days' advance written notice of such IPO or Acquisition.
8. MARKET STAND-OFF AGREEMENT. Holder hereby agrees that Holder Shall not sell, dispose of, transfer, make any short sale of, grant any option for the purchase of, or enter into any hedging or similar transaction with the same economic effect as a sale, any shares of Common Stock (or other securities) of the Company held by Holder (other than those included in the registration) (i) during the 180-day period following the effective date of the IPO (or such longer period as the underwriters or the Company shall request in order to facilitate compliance with FINRA Rule 2711 or NYSE Member Rule 472 or any successor or similar rule or regulation), and (ii) the 90-day period following the effective date of a registration statement of the Company filed under the Securities Act (or such longer period as the underwriters or the Company shall request in order to facilitate compliance with FINRA Rule 2711 or NYSE Member Rule 472 or any successor or similar tule or regulation); provided, that, with respect to (i) and (ii) above, all officers and directors of the Company and holders of at least one percent of the Company's voting securities are bound by and have entered into similar agreements. Holder agrees that any transferee of the
Warrant (or other securities) of the Company held by Holder shall be bound by this Section 8. The underwriters of the Company's stock are intended third party beneficiaries of
.. NO STOCKHOLDER RIGHTS. This Warrant in and of itself shall not entitle the Holder to any voting rights or other rights as a stockholder of the Company.
10. TRANSFER OF WARRANT. This Warrant and all rights hereunder are not transferable by the Holder other than, for a Holder that is a partnership, limited liability company, corporation, or venture capital fund, to (i) a partner of such partnership, a member of such limited liability company, or stockholder of such corporation, (ii) an affiliate of such partnership, limited liability company or corporation (including, any affiliated investment fund of such Holder), (ii) a retired partner of such partnership or a retired member of such limited liability company, or (iii) the estate of any such partner, member, or stockholder (such transfer, an "Affiliate Transfer” and such transferees an "Affiliate Transferee"),
Affiliate Transfers may be made upon delivery of this Warrant and the form of assignment attached hereto to any Affiliate Transferee designated by Holder. The Company represents that it has taken all action necessary to exempt an Affiliate Transfer from any such applicable transfer restrictions. The Affiliate Transferee shall sign an investment letter in form and substance satisfactory to the Company.
11. LOST, STOLEN, MUTILATED OR DESTROYED WARRANT. If this Warrant is lost, stolen, mutilated or destroyed, the Company may, on such terms as to indemnity or otherwise as it may reasonably impose (which shall, in the case of a mutilated
as the Warrant so lost, stolen, mutilated or destroyed. Any such new Warrant shall constitute an original contractual obligation of the Company, whether or not the allegedly lost, stolen, mutilated or destroyed Warrant shall be at any time enforceable by anyone.
12. AMENDMENT. Any term of this Warrant may be amended or waived with the written consent of the Company and Holder.
13. NOTICES, ETC. All notices required or permitted hereunder shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the party to be notified, (b) when sent by confirmed facsimile or email if sent during normal business hours of the recipient, if not, then on the next business day, (c) five days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one day after deposit with a nationally recognized Overnight courier, specifying next day delivery, with
14. ACCEPTANCE. Receipt of this Warrant by the Holder shall constitute acceptance of and agreement to all of the terms and conditions contained herein.
15. GOVERNING LAW. This Warrant and all rights, obligations and_ liabilities
16. REGISTRATION RIGHTS. If the Company grants, or has granted, any other person or entity registration rights with respect to the Common Stock of the Company, then the Company shall enter into a substantially similar registration rights agreement with Holder with respect to the Exercise Shares, granting such Exercise Shares pari passu registration rights.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its duly authorized officer as of the date first set forth above.
HOLDER: COMPANY:
Agility Financial Partners, LLC
Electromedical Technologies, Inc.
By Matthew Wolfson, CEO
[SIGNATURE PAGE]
NOTICE OF EXERCISE TO: ELECTROMEDICAL TECHNOLOGIES, INC.
(1) The undersigned hereby elects to purchase shares of (the "Exercise Shares") of ELECTROMEDICAL TECHNOLOGIES, INC. (the "Company") pursuant to the terms of the attached Warrant, and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.
If this is a Net Exercise pursuant to Section 2(b), check here:
(2) Please issue a certificate or certificates representing said Exercise Shares in the name of the undersigned or in such other name as is specified below:
(Name)
(Address)
(3) The undersigned represents that (i) the aforesaid Exercise Shares are being acquired for the account of the undersigned for investment and not with a view to, or for resale in connection with, the distribution thereof and that the undersigned has no present intention of distributing or reselling such shares; (ii) the undersigned is aware of the Company's business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision regarding its investment in the Company; (iii) the undersigned is experienced in making investments of this type and has such knowledge and background in financial and business matters that the undersigned is capable of evaluating the merits and risks of this investment and protecting the undersigned's own interests; (iv) the undersigned understands that Exercise Shares issuable upon exercise of this Warrant have not been registered under the Securities Act of 1933, as amended (the "Securities Act"), by reason of a specific exemption from the registration provisions of the Securities Act, which exemption depends upon, among other things, the bona fide nature of the investment intent as expressed herein, and, because such securities have not been registered under the Securities Act, they must be held indefinitely unless subsequently registered under the Securities Act or an exemption from such registration is available; (v) the undersigned is aware that the aforesaid Exercise Shares may not be sold pursuant to Rule 144 adopted under the Securities Act unless certain conditions are met and until the undersigned has held the shares for the number of years prescribed by Rule 144, that among the conditions for use of the Rule is the availability of current information to the public about the Company and the Company has not made such information available and has no present plans to do so; and (vi) the undersigned agrees not to make any disposition of all or any part of the aforesaid shares of Exercise Shares unless and until there is then in effect a registration statement under the Securities Act covering such proposed disposition and such disposition is made in accordance with said registration statement, or, if reasonably requested by the Company, the undersigned has provided the Company with an opinion of counsel, if requested, satisfactory to the Company, stating that such registration is not required.
144697711 vi
(Date) (Signature)
(Print name)
14469771} vi
ASSIGNMENT FORM
(To assign the foregoing Warrant, execute this form and supply required information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to
Name: (Please Address: Print) (Please Print)
Dated: 5 20
Holder's Sigmature: _________~~-__
Holder's Address:
NOTE: The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatever. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant.
144697711 vi
Exhibit 10.4
THIS WARRANT AND THE UNDERLYING SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”). THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO SUCH SECURITIES UNDER THE ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
ELECTROMEDICAL TECHNOLOGIES, INC.
WARRANT TO PURCHASE COMMON STOCK
| No. W-2 | May 1, 2020 |
VOID AFTER MAY 1, 2025
THIS CERTIFIES THAT, for value received, AGILITY FINANCIAL PARTNERS, LLC or assigns (the “Holder”), is entitled to subscribe for and purchase from Electromedical Technologies, Inc., a Delaware corporation (the “Company”), the Exercise Shares (as defined below) of the Company’s Common Stock on the terms and subject to the conditions set forth below. This Warrant is being issued in connection with that certain Consulting Agreement among the Company and the consultants party thereto dated as of September 7, 2016 (the “Consulting Agreement”).
DEFINITIONS. As used herein, the following terms shall have the following respective meanings:
(a) “Acquisition” shall mean either (A) a merger, consolidation, equity sale or similar transaction involving (directly or indirectly) the Company upon which, immediately after the consummation of the transaction, the shareholders of the Company immediately prior thereto do not own, directly or indirectly, either (i) voting securities representing more than 50% of the combined voting power of the surviving entity in such transaction, or (ii) securities representing more than 50% of the combined voting power of the parent of the surviving entity in such transaction; or (B) a sale, lease, transfer, exclusive license or other disposition, in a single transaction or series of related transactions, of all or substantially all of the assets of the Company.
(b) “Exercise Period” shall mean the period commencing with the date hereof and ending on May 1, 2025, unless sooner terminated as provided below.
(c) “Exercise Price” shall mean $0.52 per Exercise Share subject to adjustment pursuant to Section 5 below.
(d) “Exercise Shares” shall mean up to 100,000 shares of the Company’s Common Stock issuable upon exercise of this Warrant, subject to adjustment pursuant to the terms herein.
(e) “IPO” shall mean the Company’s first firm commitment underwritten offering and sale of the Company’s Common Stock (the “Common Stock”) to the public pursuant to an effective registration statement under the Securities Act of 1933, as amended (the “Act”).
| 2. | EXERCISE OF WARRANT |
(a) The rights represented by this Warrant may be exercised in whole or in part at any time during the Exercise Period, by delivery of the following to the Company at its address set forth on the signature page hereto (or at such other address as it may designate by notice in writing to the Holder):
(i) An executed Notice of Exercise in the form attached hereto;
(ii) Payment of the Exercise Price either in cash or by check; and
(iii) This Warrant.
Upon the exercise of the rights represented by this Warrant, a certificate or certificates for the Exercise Shares so purchased, registered in the name of the Holder or persons affiliated with the Holder, if the Holder so designates, shall be issued and delivered to the Holder within a reasonable time after the rights represented by this Warrant shall have been so exercised. In the event that this Warrant is being exercised for less than all of the then-current number of Exercise Shares purchasable hereunder, the Company shall, concurrently with the issuance by the Company of the number of Exercise Shares for which this Warrant is then being exercised, issue a new Warrant exercisable for the remaining number of Exercise Shares purchasable hereunder.
The person in whose name any certificate or certificates for Exercise Shares are to be issued upon exercise of this Warrant shall be deemed to have become the holder of record of such shares on the date on which this Warrant was surrendered and payment of the Exercise Price was made, irrespective of the date of delivery of such certificate or certificates, except that, if the date of such surrender and payment is a date when the stock transfer books of the Company are closed, such person shall be deemed to have become the holder of such shares at the close of business on the next succeeding date on which the stock transfer books are open.
(b) Net Exercise. In lieu of cash exercising this Warrant, the Holder of this Warrant may elect to receive shares equal to the value of this Warrant (or the portion thereof being canceled) by surrender of this Warrant at the principal office of the Company together with notice of such election, in which event the Company shall issue to the holder hereof a number of Shares computed using the following formula: X = Y (A-B) A Where X = the number of shares of Common Stock to be issued to Holder. Y = the number of shares of Common Stock purchasable under the Warrants being exchanged (as adjusted to the date of such calculation). A = the Market Price on the date of receipt by the Company of the exercise documents. B = the Exercise Price of the Warrants being exchanged (as adjusted in accordance with the terms hereof). The “Market Price” on any trading day shall be deemed to be the average of the ask and bid price of the Common Stock over the five (5) trading days immediately preceding receipt by the Company of the exercise documents as officially reported by the principal securities exchange or quotation medium on which the shares of Common Stock are listed or eligible for trading. If the Market Price cannot be determined pursuant to the sentence above, the Market Price shall be determined in good faith (using customary valuation methods) by the Board of Directors of the Company based on the information best available to it, including recent arms-length sales of Common Stock to unaffiliated persons.
If, within six (6) months from the date of this Warrant, the Holder sells the Exercise Shares and receives, net of commissions, amounts outstanding due from Company, up to a maximum of $100,000, the Holder shall forgive the Debt owed to it by the Company and which shall be deemed paid in full up to the maximum. If that does not occur within six months of the date of this Warrant, the Debt shall remain in full force and effect, regardless of when the Holder is able to sell the Exercise Shares.
| 3. | COVENANTS OF THE COMPANY. |
3.1 Covenants as to Exercise Shares. The Company covenants and agrees that all Exercise Shares that may be issued upon the exercise of the rights represented by this Warrant and the shares of the Company’s Common Stock that may be issued upon conversion of the Exercise Shares will, upon issuance, be validly issued and outstanding, fully paid and nonassessable, and free from all taxes, liens and charges with respect to the issuance thereof. The Company further covenants and agrees that the Company will at all times during the Exercise Period, have authorized and reserved, free from preemptive rights, a sufficient number of shares of the series of equity securities comprising the Exercise Shares to provide for the exercise of the rights represented by this Warrant and a sufficient number of shares of the Company’s Common Stock to provide for the conversion of the Exercise Shares. If at any time during the Exercise Period the number of authorized but unissued shares of such series of the Company’s equity securities shall not be sufficient to permit exercise of this Warrant or the conversion of the Exercise Shares, the Company will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of such series of the Company’s equity securities to such number of shares as shall be sufficient for such purposes.
3.2 Notices of Record Date. In the event of any taking by the Company of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution, the Company shall mail to the Holder, at least 10 days prior to the date specified herein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend or distribution.
| 4. | REPRESENTATIONS OF HOLDER. |
4.1 Acquisition of Warrant for Personal Account. The Holder represents and warrants that it is acquiring the Warrant and the Exercise Shares solely for its account for investment and not with a view to or for sale or distribution of said Warrant or Exercise Shares or any part thereof. The Holder also represents that the entire legal and beneficial interests of the Warrant and Exercise Shares the Holder is acquiring is being acquired for, and will be held for, its account only.
4.2 Securities Are Not Registered.
(a) The Holder understands that the Warrant and the Exercise Shares have not been registered under the Act on the basis that no distribution or public offering of the stock of the Company is to be effected. The Holder realizes that the basis for the exemption may not be present if, notwithstanding its representations, the Holder has a present intention of acquiring the securities for a fixed or determinable period in the future, selling (in connection with a distribution or otherwise), granting any participation in, or otherwise distributing the securities. The Holder has no such present intention.
(b) The Holder recognizes that the Warrant and the Exercise Shares must be held indefinitely unless they are subsequently registered under the Act or an exemption from such registration is available. The Holder recognizes that the Company has no obligation to register the Warrant or the Exercise Shares of the Company, or to comply with any exemption from such registration.
(c) The Holder is aware that neither the Warrant nor the Exercise Shares may be sold pursuant to Rule 144 adopted under the Act unless certain conditions are met, including, among other things, the existence of a public market for the shares, the availability of certain current public information about the Company, the resale following the required holding period under Rule 144 and the number of shares being sold during any three month period not exceeding specified limitations. Holder is aware that the conditions for resale set forth in Rule 144 have not been satisfied and that the Company presently has no plans to satisfy these conditions in the foreseeable future.
4.3 Disposition of Warrant and Exercise Shares.
(a) The Holder further agrees not to make any disposition of all or any part of the Warrant or Exercise Shares in any event unless and until:
(i) The Company shall have received a letter secured by the Holder from the Securities and Exchange Commission stating that no action will be recommended to the Commission with respect to the proposed disposition;
(ii) There is then in effect a registration statement under the Act covering such proposed disposition and such disposition is made in accordance with said registration statement; or
(iii) The Holder shall have notified the Company of the proposed disposition and shall have furnished the Company with a detailed statement of the circumstances surrounding the proposed disposition, and if reasonably requested by the Company, the Holder shall have furnished the Company with an opinion of counsel, reasonably satisfactory to the Company, for the Holder to the effect that such disposition will not require registration of such Warrant or Exercise Shares under the Act or any applicable state securities laws. The Company agrees that it will not require an opinion of counsel with respect to transactions under Rule 144 of the Securities Act of 1933, as amended, except in unusual circumstances.
(b) The Holder understands and agrees that all certificates evidencing the shares to be issued to the Holder may bear the following legend:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”). THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER THE ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
4.4 Accredited Investor Status. The Holder is an “accredited investor” as defined in Regulation D promulgated under the Act.
| 5. | ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF EXERCISE SHARES. |
5.1 Changes in Securities. In the event of changes in the series of equity securities of the Company comprising the Exercise Shares by reason of stock dividends, splits, recapitalizations, reclassifications, combinations or exchanges of shares, separations, reorganizations, liquidations, or the like, the number and class of Exercise Shares available under the Warrant in the aggregate and the Exercise Price shall be correspondingly adjusted to give the Holder of the Warrant, on exercise for the same aggregate Exercise Price, the total number, class, and kind of shares as the Holder would have owned had the Warrant been exercised prior to the event and had the Holder continued to hold such shares until after the event requiring adjustment. For purposes of this Section 5, the “aggregate Exercise Price” shall mean the aggregate Exercise Price payable in connection with the exercise in full of this Warrant. The form of this Warrant need not be changed because of any adjustment in the number of Exercise Shares subject to this Warrant. Whenever the Exercise Price or the number of shares of Exercise Shares purchasable hereunder shall be adjusted pursuant to this Section 5.1, the Company at its expense shall issue a certificate signed by an authorized officer setting forth, in reasonable detail, the event requiring the adjustment or readjustment, the amount of the adjustment or readjustment and the Exercise Price and number of shares purchasable hereunder after giving effect to such adjustment or readjustment, and shall cause a copy of such certificate to be mailed (by first-class mail, postage prepaid, or overnight delivery service) to the Holder of the Warrant. The Company shall, upon the written request of the Holder of the Warrant at any time, furnish or cause to be furnished to such Holder a like certificate setting forth: (i) all such adjustments and readjustments that have been effected under the Warrant; (ii) the Exercise Price at the time in effect and (iii) the number of shares of Exercise Shares, the type of Exercise Shares and the amount, if any, of other property that at the time would be received upon the exercise of the Warrant.
5.2 Automatic Conversion. Upon the automatic conversion of all outstanding shares of the series of equity securities comprising the Exercise Shares, this Warrant shall become exercisable for that number of shares of Common Stock of the Company into which the Exercise Shares would then be convertible, so long as such shares, if this Warrant had been exercised prior to such offering, would have been converted into shares of the Company’s Common Stock pursuant to the Company’s Certificate of Incorporation. In such case, all references to “Exercise Shares” shall mean shares of the Company’s Common Stock issuable upon exercise of this Warrant, as appropriate.
6. FRACTIONAL SHARES. No fractional shares shall be issued upon the exercise of this Warrant as a consequence of any adjustment pursuant hereto. All Exercise Shares (including fractions) to be issued upon exercise of this Warrant shall be aggregated for purposes of determining whether the exercise would result in the issuance of any fractional share. If, after aggregation, the exercise would result in the issuance of a fractional share, the Company shall, in lieu of issuance of any fractional share, pay the Holder otherwise entitled to such fraction a sum in cash equal to the product resulting from multiplying the then current fair market value of one Exercise Share by such fraction.
7. NOTICE OF ACQUISITION. In the event of, at any time during the Exercise Period, an IPO or an Acquisition, the Company shall provide to the Holder 30 days’ advance written notice of such IPO or Acquisition.
8. MARKET STAND-OFF AGREEMENT. Holder hereby agrees that Holder shall not sell, dispose of, transfer, make any short sale of, grant any option for the purchase of, or enter into any hedging or similar transaction with the same economic effect as a sale, any shares of Common Stock (or other securities) of the Company held by Holder (other than those included in the registration) (i) during the 180-day period following the effective date of the IPO (or such longer period as the underwriters or the Company shall request in order to facilitate compliance with FINRA Rule 2711 or NYSE Member Rule 472 or any successor or similar rule or regulation), and (ii) the 90-day period following the effective date of a registration statement of the Company filed under the Securities Act (or such longer period as the underwriters or the Company shall request in order to facilitate compliance with FINRA Rule 2711 or NYSE Member Rule 472 or any successor or similar rule or regulation); provided, that, with respect to (i) and (ii) above, all officers and directors of the Company and holders of at least one percent of the Company’s voting securities are bound by and have entered into similar agreements. Holder agrees that any transferee of the Warrant (or other securities) of the Company held by Holder shall be bound by this Section 8. The underwriters of the Company’s stock are intended third party beneficiaries of this Section 8 and shall have the right, power and authority to enforce the provisions hereof as though they were a party hereto.
9. NO STOCKHOLDER RIGHTS. This Warrant in and of itself shall not entitle the Holder to any voting rights or other rights as a stockholder of the Company.
10. TRANSFER OF WARRANT. This Warrant and all rights hereunder are not transferable by the Holder other than, for a Holder that is a partnership, limited liability company, corporation, or venture capital fund, to (i) a partner of such partnership, a member of such limited liability company, or stockholder of such corporation, (ii) an affiliate of such partnership, limited liability company or corporation (including, any affiliated investment fund of such Holder), (ii) a retired partner of such partnership or a retired member of such limited liability company, or (iii) the estate of any such partner, member, or stockholder (such transfer, an “Affiliate Transfer” and such transferees an “Affiliate Transferee”).
Affiliate Transfers may be made upon delivery of this Warrant and the form of assignment attached hereto to any Affiliate Transferee designated by Holder. The Company represents that it has taken all action necessary to exempt an Affiliate Transfer from any such applicable transfer restrictions. The Affiliate Transferee shall sign an investment letter in form and substance satisfactory to the Company.
11. LOST, STOLEN, MUTILATED OR DESTROYED WARRANT. If this Warrant is lost, stolen, mutilated or destroyed, the Company may, on such terms as to indemnity or otherwise as it may reasonably impose (which shall, in the case of a mutilated Warrant, include the surrender thereof), issue a new Warrant of like denomination and tenor as the Warrant so lost, stolen, mutilated or destroyed. Any such new Warrant shall constitute an original contractual obligation of the Company, whether or not the allegedly lost, stolen, mutilated or destroyed Warrant shall be at any time enforceable by anyone.
12. AMENDMENT. Any term of this Warrant may be amended or waived with the written consent of the Company and Holder.
13. NOTICES, ETC. All notices required or permitted hereunder shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the party to be notified, (b) when sent by confirmed facsimile or email if sent during normal business hours of the recipient, if not, then on the next business day, (c) five days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the Company at the address listed in the Consulting Agreement or at such other address as the Company or Holder may designate by 10 days’ advance written notice to the other parties hereto.
14. ACCEPTANCE. Receipt of this Warrant by the Holder shall constitute acceptance of and agreement to all of the terms and conditions contained herein.
15. GOVERNING LAW. This Warrant and all rights, obligations and liabilities hereunder shall be governed by and construed under the laws of the State of Delaware as applied to agreements among Delaware residents, made and to be performed entirely within the State of Delaware without giving effect to conflicts of laws principles.
16. REGISTRATION RIGHTS. If the Company grants, or has granted, any other person or entity registration rights with respect to the Common Stock of the Company, then the Company shall enter into a substantially similar registration rights agreement with Holder with respect to the Exercise Shares, granting such Exercise Shares pari passu registration rights.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its duly authorized officer as of the date first set forth above.
| HOLDER: | COMPANY: |
| Agility Financial Partners, LLC | Electromedical Technologies, Inc. |
| By: Cindy Solovei | By: Matthew Wolfson |
| Cindy Solovei, Partner | Matthew Wolfson, CEO |
[SIGNATURE PAGE]
NOTICE OF EXERCISE
TO: ELECTROMEDICAL TECHNOLOGIES, INC.
(1) The undersigned hereby elects to purchase shares of (the “Exercise Shares”) of ELECTROMEDICAL TECHNOLOGIES, INC. (the “Company”) pursuant to the terms of the attached Warrant, and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any. If this is a Net Exercise pursuant to Section 2(b), check here: ______
(2) Please issue a certificate or certificates representing said Exercise Shares in the name of the undersigned or in such other name as is specified below:
(Name)
(Address)
(3) The undersigned represents that (i) the aforesaid Exercise Shares are being acquired for the account of the undersigned for investment and not with a view to, or for resale in connection with, the distribution thereof and that the undersigned has no present intention of distributing or reselling such shares; (ii) the undersigned is aware of the Company’s business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision regarding its investment in the Company; (iii) the undersigned is experienced in making investments of this type and has such knowledge and background in financial and business matters that the undersigned is capable of evaluating the merits and risks of this investment and protecting the undersigned’s own interests; (iv) the undersigned understands that Exercise Shares issuable upon exercise of this Warrant have not been registered under the Securities Act of 1933, as amended (the “Securities Act”), by reason of a specific exemption from the registration provisions of the Securities Act, which exemption depends upon, among other things, the bona fide nature of the investment intent as expressed herein, and, because such securities have not been registered under the Securities Act, they must be held indefinitely unless subsequently registered under the Securities Act or an exemption from such registration is available; (v) the undersigned is aware that the aforesaid Exercise Shares may not be sold pursuant to Rule 144 adopted under the Securities Act unless certain conditions are met and until the undersigned has held the shares for the number of years prescribed by Rule 144, that among the conditions for use of the Rule is the availability of current information to the public about the Company and the Company has not made such information available and has no present plans to do so; and (vi) the undersigned agrees not to make any disposition of all or any part of the aforesaid shares of Exercise Shares unless and until there is then in effect a registration statement under the Securities Act covering such proposed disposition and such disposition is made in accordance with said registration statement, or, if reasonably requested by the Company, the undersigned has provided the Company with an opinion of counsel, if requested, satisfactory to the Company, stating that such registration is not required.
| (Date) | (Signature) | |
| (Print name) |
ASSIGNMENT
FORM
| (To assign the foregoing Warrant, execute this form and supply required information. Do not use this form to purchase shares.) |
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to
| Name: | |
| (Please | |
| Address | |
| Print) | |
| (Please | |
| Print) |
Dated: , 20__
Holder’s
Signature:
Holder’s
Address:
NOTE: The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatever. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant.
Exhibit 10.5
STOCK ISSUANCE AGREEMENT
This Stock Issuance Agreement (“Agreement”) is entered into as of the 29th day of November 2018 by and between Electromedical Technologies, Inc., a Delaware corporation (the “Company”), and E-Business International, Inc., an Oregon company, (“EBI”).
WHEREAS, on or about 2005, EBI began rendering services to the Company; and
WHEREAS, EBI has performed services to the Company and is currently owed $175,770.88 for said services as evidenced by EBI’s Statement to the Company dated November 5, 2018; and
WHEREAS the Company and EBI have agreed that in lieu of a cash payment to EBI that the Company will issue shares of its restricted common stock at an initial price of $0.71 per share in full satisfaction of the current debt owed by the Company to EBI.
NOW THEREFORE, in consideration of the mutual covenants and agreements set forth herein, and for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties hereby agree as follows:
| 1. | ISSUANCE OF SHARES. In consideration of the cancellation by EBI of the $175,770.88 owed to it by the Company and for a full release of that amount owed by the Company to EBI, and for EBI’s development of the Company’s new Wellness Pro Pod device in accordance with Addendum A attached hereto, the Company hereby agrees to issue 247,565 shares (the “Shares”) of its restricted common stock in full and complete release of any and all claims which EBI may have against the Company for the $175,780.88. |
| 2. | CERTAIN ADJUSTMENTS. If prior to the issuance of the Shares, the Company, (i) pays a stock dividend or otherwise makes a distribution or distributions payable in shares of Common Stock on shares of Common Stock or any Common Stock Equivalents (which, for the avoidance of doubt, shall not include any shares of Common Stock issued by the Company pursuant to this Agreement, (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares or (iv) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of the Company, then the purchase price of $0.71 per share shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of the Company) outstanding immediately before such event, and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to this section) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification. Furthermore, if at the time EBI elects to have the restrictive legend removed from the Shares, the average trading price of the Company’s common stock over the last twenty (20) days is less than $0.71 per share, the number of shares issued shall be adjusted such that the Shares shall be worth $175,780.88. |
Page 1 of 5
| 3. | DISCLOSURE. In accepting the Shares in full payment in the amount owed to it, EBI acknowledges the following: |
| 3.1 | The Company has made available to EBI, or to EBI’s attorney, accountant or representative, all documents that EBI has requested and EBI has requested all documents and other information that EBI has deemed necessary or appropriate for purposes of evaluating the Shares in full payment for the amount owed to it by the Company. |
| 3.2 | The Company has provided satisfactory answers to all questions concerning the Shares. |
| 3.3 | EBI has carefully considered and has, to the extent EBI believes such discussion necessary, discussed with EBI’s professional legal, tax and financial advisers the suitability of accepting the Shares in full satisfaction of the amount owed for EBI’s services. |
| 3.4 | EBI has read all of the Company’s filings on the SEC’s Edgar website and EBI acknowledges that it fully understands all the disclosures including the Company’s business plan in those filings. |
| 4. | OTHER SECURITIES ISSUES. EBI represents and warrants to the Company that: |
| 4.1 | Risk of Loss. EBI recognizes that the Company is not a reporting Company with the SEC, and its stock is not yet listed for trading on any medium. |
| 4.2 | Investment Intent. EBI certifies that it is acquiring the Shares for investment and for its own account and not on behalf of any other person. |
| 4.3 | No Registration. EBI acknowledges and understands that the Shares (a) have not been registered under either federal or state securities laws, and (b) are being issued EBI pursuant to exemptions from registration under the Securities Act of 1933 and comparable state securities exemptions. |
| 4.4 | Limited Reliance. EBI has relied solely on the information contained in this Agreement and its own investigation of the Company in making a decision to acquire the Shares. EBI has not relied on any representations or warranties made by anyone apart from those set forth in this Agreement. |
| 4.5 | Legend. EBI consents to the placement of a legend on the certificates, if any, that represent the Securities in substantially the following form: |
“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 NOR REGISTERED NOR QUALIFIED UNDER ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, DELIVERED AFTER SALE, TRANSFERRED, PLEDGED, OR HYPOTHECATED UNLESS QUALIFIED AND REGISTERED UNDER APPLICABLE STATE AND FEDERAL SECURITIES LAWS OR UNLESS, IN THE OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION, SUCH QUALIFICATION AND REGISTRATION IS NOT REQUIRED.”
and any other legend the Company determines is authorized or required pursuant to this Agreement. This restrictive legend shall remain of the certificate for a period of one year, after which the shares may be available for legend removal and only after the legend is removed, may be traded without restriction.
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| 5. | GOVERNING LAW/JURISDICTION. This Agreement shall be exclusively governed by and construed in accordance with the laws of the State of Arizona. If any action is brought between the parties with respect to this Agreement or otherwise, by way of a claim or counterclaim, the parties agree that in any such action, and on all issues related to this Agreement or otherwise, the parties irrevocably waive their right to a trial by jury. Exclusive jurisdiction and venue for any such action shall be the State Courts of Arizona. In the event suit or action is brought by any party under this Agreement to enforce any of its terms, or in any appeal therefrom, it is agreed that the prevailing party shall be entitled to reasonable attorney’s fees at trial and all appellate levels. The Parties further acknowledge that they will accept service of process by registered or certified mail or the equivalent directed to their last known address as determined by the other Party in accordance with this agreement or by whatever other means are permitted by such courts. The Parties further acknowledge that said court has exclusive jurisdiction over any such dispute or controversy, and that they hereby waive any objection to personal jurisdiction or venue in this court or that such court is an inconvenient forum. |
| 6. | GENERAL PROVISIONS. This Agreement is binding upon EBI, and its successors and assigns. If any portion of this Agreement is held to be invalid, the remaining terms of this Agreement shall remain in full force and effect to the extent possible. This Agreement constitutes the entire agreement of the parties, and supersedes all previous agreements, written or oral, with regard to the amount owed to EBI and the Shares. Any agreement to waive or modify any term of this Agreement must be in writing signed by both parties. This Agreement may be executed in two or more counterparts, all of which shall constitute but one and the same instrument. |
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| 7. | COMPETION OF THE PROJECT. As further consideration for the Shares, EBI agrees to provide additional design and development for the Company’s new Wellness Pro Pod Bioelectronics device and accessories in accordance with Addendum A attached hereto, and to complete the project in accordance with and pursuant to the attached Design and Manufacturing Scope of Project. All intellectual property, including and electronic and written files, software, firm ware and technical files shall be the sole and exclusive property of the Company and delivered to the Company upon request. |
| 8. | NOTICES. Any and all notices and other communications required or permitted to be given pursuant to this Agreement shall be in writing and shall be deemed to have been duly given (a) when delivered by hand; (b) when emailed; (c) two days after having been delivered to Federal Express, DHL, UPS, Airborne or another recognized overnight courier or delivery service, 8 when delivered by facsimile transmission, provided that an original copy of such transmission shall be sent by first class mail, postage prepaid; or (d) five days after having been deposited into the United States mail, by registered or certified mail, return receipt requested, postage prepaid, to the respective parties at their respective addresses or to their respective facsimile telephone numbers, as follow: |
| If to the Company: | Electromedical Technologies, Inc. |
| Atten: Matthew N. Wolfson, CEO | |
| 16561 N 92nd Street | |
| Suite 101 | |
| Scottsdale, AZ 85260 | |
| ceo@electromedtech.com | |
| With a copy to: | Eric P. Littman, Esquire |
| Eric P. Littman, P.A. | |
| 7695 SW 104th Street | |
| Suite 201 | |
| Miami, FL 33156 | |
| Email: littmanlaw@gmail.com | |
| If to EBI: | E-Business International, Inc. |
| Atten: Dr. George Want | |
| 15244 N.W. Greenbrier Parkway | |
| Beaverton, OR 97006 | |
| Email: George.wang@e-bi.com |
AGREED to the date written above.
| ELECTROMEDICAL TECHNOLOGIES, INC. | ||
| By: | ||
| Matthew N. Wolfson, CEO | ||
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| E-BUSINESS INTERNATIONAL, INC., | ||
| By: | ||
| Dr. George Want, CEO | ||
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Exhibit 10.6
DEVELOPMENT STOCK ISSUANCE AGREEMENT
This Development Stock Issuance Agreement (“Agreement”) is entered into as of the 29th day of November, 2018 by and between Electromedical Technologies, Inc., a Delaware corporation (the “Company”), and E-Business International, Inc., a Oregon company, (“EBI”).
NOW THEREFORE, in consideration of the mutual covenants and agreements set forth herein, and for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties hereby agree as follows:
| 1. | ISSUANCE OF SHARES. In consideration of the services to be provided pursuant to Addendum A attached hereto, the Company hereby agrees to issue EBI a to be determined amount of restricted shares of the Company’s common stock (the “Shares”) which Shares will be valued at $0.71 per share. |
| 2. | COMPETION OF THE PROJECT. As consideration for the Shares, EBI agrees to provide design and development for the Company’s new Wellness Pro Pod Bioelectronics device and accessories in accordance with Addendum A “Design and Manufacturing Electromedical Technologies WellnessPro POD™ and Accessories and Product Development” attached hereto and incorporated herein by reference, and to complete the project in accordance with Addendum A. All intellectual property, including and electronic and written files, software, firm ware and technical files shall be the sole and exclusive property of the Company and delivered to the Company upon request. |
| 3. | DELIVERY AND CONSIDERATION FOR THE SHARES. EBI will invoice the Company for the services at a rate which is mutually agreed to by EBI and the Company and which is equivalent to reasonable compensation pursuant to industry standards. Unless agreed to in writing by the Company and EBI, the total of the invoices shall not exceed US$100,000. The Shares to be delivered will be determined when EBI delivers a completed and working prototype as provided for in Attachment A. If the 247,565 shares previously issued to EBI are worth less than the amount previously owed plus the amount owed under this Agreement, the Company will issue an additional amount of shares to make them whole at the then present stock price. |
| 4. | CERTAIN ADJUSTMENTS. If prior to the issuance of the Shares, the Company, (i) pays a stock dividend or otherwise makes a distribution or distributions payable in shares of Common Stock on shares of Common Stock or any Common Stock Equivalents (which, for the avoidance of doubt, shall not include any shares of Common Stock issued by the Company pursuant to this Agreement, (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares or (iv) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of the Company, then the purchase price of $0.71 per share shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of the Company) outstanding immediately before such event, and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to this section) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification. Furthermore, if at the time EBI elects to have the restrictive legend removed from the shares, the average trading price of the Company’s common stock over the last twenty (20) days is less than $0.71 per share, the number of shares issued shall be adjusted such that the Shares shall be worth the amount invoiced and agreed to for the services. |
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| 5. | DISCLOSURE. In accepting the Shares in full payment in the amount owed to it, EBI acknowledges the following: |
| 3.1 | The Company has made available to EBI, or to EBI’s attorney, accountant or representative, all documents that EBI has requested and EBI has requested all documents and other information that EBI has deemed necessary or appropriate for purposes of evaluating the Shares in full payment for the amount owed to it by the Company. |
| 3.2 | The Company has provided satisfactory answers to all questions concerning the Shares. |
| 3.3 | EBI has carefully considered and has, to the extent EBI believes such discussion necessary, discussed with EBI’s professional legal, tax and financial advisers the suitability of accepting the Shares in full satisfaction of the amount owed for EBI’s services. |
| 3.4 | EBI has read all of the Company’s filings on the SEC’s Edgar website and EBI acknowledges that it fully understands all the disclosures including the Company’s business plan in those filings. |
| 6. | OTHER SECURITIES ISSUES. EBI represents and warrants to the Company that: |
| 6.1 | Risk of Loss. EBI recognizes that the Company is not a reporting Company with the SEC, and its stock is not yet listed for trading on any medium. |
| 6.2 | Investment Intent. EBI certifies that it is acquiring the Shares for investment and for its own account and not on behalf of any other person. |
| 6.3 | No Registration. EBI acknowledges and understands that the Shares (a) have not been registered under either federal or state securities laws, and (b) are being issued EBI pursuant to exemptions from registration under the Securities Act of 1933 and comparable state securities exemptions. |
| 6.4 | Limited Reliance. EBI has relied solely on the information contained in this Agreement and its own investigation of the Company in making a decision to acquire the Shares. EBI has not relied on any representations or warranties made by anyone apart from those set forth in this Agreement. |
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| 6.5 | Legend. EBI consents to the placement of a legend on the certificates, if any, that represent the Securities in substantially the following form: |
“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 NOR REGISTERED NOR QUALIFIED UNDER ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, DELIVERED AFTER SALE, TRANSFERRED, PLEDGED, OR HYPOTHECATED UNLESS QUALIFIED AND REGISTERED UNDER APPLICABLE STATE AND FEDERAL SECURITIES LAWS OR UNLESS, IN THE OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION, SUCH QUALIFICATION AND REGISTRATION IS NOT REQUIRED.”
and any other legend the Company determines is authorized or required pursuant to this Agreement. This restrictive legend shall remain of the certificate for a period of one year, after which the shares may be available for legend removal and only after the legend is removed, may be traded without restriction.
| 7. | GOVERNING LAW/JURISDICTION. This Agreement shall be exclusively governed by and construed in accordance with the laws of the State of Arizona. If any action is brought between the parties with respect to this Agreement or otherwise, by way of a claim or counterclaim, the parties agree that in any such action, and on all issues related to this Agreement or otherwise, the parties irrevocably waive their right to a trial by jury. Exclusive jurisdiction and venue for any such action shall be the State Courts of Arizona. In the event suit or action is brought by any party under this Agreement to enforce any of its terms, or in any appeal therefrom, it is agreed that the prevailing party shall be entitled to reasonable attorney’s fees at trial and all appellate levels. The Parties further acknowledge that they will accept service of process by registered or certified mail or the equivalent directed to their last known address as determined by the other Party in accordance with this agreement or by whatever other means are permitted by such courts. The Parties further acknowledge that said court has exclusive jurisdiction over any such dispute or controversy, and that they hereby waive any objection to personal jurisdiction or venue in this court or that such court is an inconvenient forum. |
| 8. | GENERAL PROVISIONS. This Agreement is binding upon EBI, and its successors and assigns. If any portion of this Agreement is held to be invalid, the remaining terms of this Agreement shall remain in full force and effect to the extent possible. This Agreement constitutes the entire agreement of the parties, and supersedes all previous agreements, written or oral, with regard to the amount owed to EBI and the Shares. Any agreement to waive or modify any term of this Agreement must be in writing signed by both parties. This Agreement may be executed in two or more counterparts, all of which shall constitute but one and the same instrument. |
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| 9. | NOTICES. Any and all notices and other communications required or permitted to be given pursuant to this Agreement shall be in writing and shall be deemed to have been duly given (a) when delivered by hand; (b) when emailed; (c) two days after having been delivered to Federal Express, DHL, UPS, Airborne or another recognized overnight courier or delivery service, 8 when delivered by facsimile transmission, provided that an original copy of such transmission shall be sent by first class mail, postage prepaid; or (d) five days after having been deposited into the United States mail, by registered or certified mail, return receipt requested, postage prepaid, to the respective parties at their respective addresses or to their respective facsimile telephone numbers, as follow: |
| If to the Company: | Electromedical Technologies, Inc. |
| Atten: Matthew N. Wolfson, CEO | |
| 16561 N 92nd Street | |
| Suite 101 | |
| Scottsdale, AZ 85260 | |
| ceo@electromedtech.com | |
| With a copy to: | Eric P. Littman, Esquire |
| Eric P. Littman, P.A. | |
| 7695 SW 104th Street | |
| Suite 201 | |
| Miami, FL 33156 | |
| Email: littmanlaw@gmail.com | |
| If to EBI: | E-Business International, Inc. |
| Atten: Dr. George Want | |
| 15244 N.W. Greenbrier Parkway | |
| Beaverton, OR 97006 | |
| Email: George.wang@e-bi.com |
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| AGREED to the date written above. | ||
| ELECTROMEDICAL TECHNOLOGIES, INC. | ||
| By: | ||
| Matthew N. Wolfson, CEO | ||
| E-BUSINESS INTERNATIONAL, INC., | ||
| By: | ||
| Dr. George Want, CEO | ||
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Exhibit 10.7
Consulting Agreement
This consulting agreement (the “Agreement”) is made and entered on this day 1“ day of July, 2019 (the “Effective Date”) by and between Brenda Andrews (hereinafter referred to as the “Consultant”) and Electromedical Technologies, Inc. (hereinafter referred to as the “Client”).
| 1. | Services |
The Consultant will provide strategic business services to the Client, which may include: Assisted on the MLM Program and Provided Content, Website design
| 2. | Compensation and Reimbursement of Expenses |
The Client agrees to pay the Consultant a fixed fee of ten thousand (10,000) restricted common shares for the services provided. This fee shall cover services pursuant to Section 1 of this Agreement. The total amount owed per this agreement shall be deemed earned in full on September 30, 2019. For purposes of this agreement, the shares are valued at $0.71 per share.
The Consultant will maintain adequate documentation and records to support all costs invoiced to the Client including receipts for travel related expenses however, such expenses must be approved by the Client prior to being incurred by Consultant.
Payments made by the Client to the Consultant will not deduct any taxes and the Client will provide the Consultant with IRS Form 1099 at the end of each calendar year. For purposes of issuing IRS Form 1099, the Consultant will provide a social security number upon execution of his agreement.
The shares of Common Stock provided for a compensation to Consultant may not be sold or transferred unless:
| (i) | such shares are sold pursuant to an effective registration statement under the Act or (ii) the Consultant or its transfer agent shall have been furnished with an opinion of counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that the shares to be sold or transferred may be sold or transferred pursuant to an exemption from such registration (iii) such shares are sold or transferred pursuant to Rule 144 under the Act (or a successor rule) (“Rule 144”). |
The certificate for shares of Common Stock has not been so included in an effective registration statement or that has not been sold pursuant to an effective registration statement or an exemption that permits removal of the legend, shall bear a legend substantially in the following form, as appropriate:
“NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HA VE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.”
| 3. | Term and Termination |
This agreement will commence on the effective date set forth and continue for a period of three months from the effective date unless terminated earlier. Either party may terminate this agreement at any time upon thirty-day (30) notification. The Client may at its option agree to renew, extend and revise this agreement prior to its expiration.
| 4. | Confidential Information |
Both parties acknowledge that there is an exchange of confidential and proprietary information associated with this agreement. Confidential and proprietary information may include documents, communications, plans, processes, formulations, data, know-how, financial information, techniques, methods, customers, suppliers, partners, patents, trademarks, designs, and other forms of tangible or intangible artifacts owned by the Client. Confidential and proprietary information does not include information within the public domain, information that has been publicly known prior to the execution of this agreement, or information that the Consultant developed independent of any confidential information.
The Consultant will not divulge, disseminate, publish or otherwise disclose any information without the prior consent of the Client. The Consultant will not use any information for purposes other than the performance of services described in this agreement. The Client agrees to not disclose confidential information to the Consultant except to the extent that the Consultant requires this information to fulfill the obligations within this agreement.
If the Client has any concerns over the sharing of sensitive information and requires additional control measures, the Consultant will establish secured means of information sharing that are mutually agreeable to both parties. These control measures may include restricting who can copy, print, or change documents during the course of the engagement.
| 5. | Indemnification |
Notwithstanding other provisions of this agreement, the Client shall indemnify, defend and hold harmless the Consultant against claims, liabilities, damages, losses or other obligations which may arise from this agreement.
2
| 6. | Relationship of Parties |
The parties agree that this agreement creates an independent contractor relationship, not an employment relationship. Neither party is, nor shall claim to be, a legal agent, representative, partner, or employee of the other, and neither shall have the right or authority to contract in the name of the other, nor shall it assume or create any obligations, debts, accounts or liabilities for the other.
| 7. | Role of the Consultant |
The Consultant will not make management decisions on behalf of the Client. The role of the Consultant shall be advisory in nature with no perceived conflicts of interest prior to, during or after the engagement with the Client. This role will also extend to any third parties that the Consultant may use during the course of the engagement.
| 8. | Reliance on Client Provide Information |
Regarding any information or material that the Company furnishes to Consultant or any other entity in connection with this Agreement, the Company acknowledges and confirms that (1) Consultant will use and rely on such information and material without independently verifying the same, (ii) Consultant does not assume responsibility for the accuracy or completeness of any of the information or material, (iii) Consultant will not make any appraisal, evaluation or independent determination regarding such information or material or the Company and (iv) Consultants shall not have any liability in connection with such information or material. The Company represents to Consultant that the information and material to be furnished by the Company, when delivered, will be true, complete and correct in all material respects and will not contain any material misstatement of fact or omit to state any material fact necessary to make the statements contained therein not misleading. The Company shall promptly notify Consultants if it learns of any material inaccuracy or misstatement in, or material omission from, any information or material delivered to Consultant.
| 9. | Quality Assurance and Control |
In an effort to ensure that the Consultant provides high quality work, the Client will assign the CEO of the Client company to review and approve the work of the Consultant. In the event that the Consultant uses a third party, the Consultant is responsible for the quality of the work delivered by the third party.
| 10. | Non-Agent of Client |
It is understood that Consultant is not acting as agent or fiduciary of, and have no liabilities to, the equity holders of the Company or any other third party in connection with this Agreement or any introductions, services or transactions hereunder, all of which liabilities are expressly waived.
| 11. | Clawback |
The compensation granted under this agreement are subject to the terms of the client’s recoupment, clawback or similar policy as it may be in effect from time to time, as well as any similar provisions of applicable law, any of which could in certain circumstances (e.g. failure to perform throughout the term, gross negligence, violation of State laws, violation of SEC regulations) require repayment or forfeiture of compensation or any shares of Common Stock or other cash or property received.
| 12. | Governing Law |
This Agreement shall be governed by and interpreted in accordance with the laws of the state of Arizona applicable to agreements negotiated, executed and to be performed in the state, without regard to the choice or conflicts of law rules or principles of that state. The parties hereto hereby consent to the jurisdiction of the state courts located in Scottdale, Arizona, over the parties and any disputes, claims, actions, suits and proceeding relating to this agreement or the transactions contemplated herein.
| 13. | NOTICES. All notices to be furnished pursuant to this Agreement shall be by email as follows: |
If to the Client:
Matthew Wolfson Email: CEO@electromed.com
With a copy to:
Eric P. Littman, Esquire
Email: littmanlaw@gmail.com
If to Consultant:
Brenda Andrews Email: iconology.studios.com
14. Entire Agreement This agreement represents the entire understanding of the parties superseding all prior agreements, understandings and discussions whether conveyed orally or in writing, and there are no other warranties, commitments, understandings or representations with respect to this agreement.
I represent that I have the authority to enter into this agreement:
BRENDA ANDREWS ELECTROMEDICAL TECHNOLOGIES, INC.
Matthew Wolfson, CEO
Exhibit 10.8
Exhibit 10.9
SPECIAL MEETING & RESOLUTION OF THE DIRECTORS
ELECTROMEDICAL TECHNOLOGIES, INC.
A Delaware Corporation
The undersigned, being all the Directors of Electromedical Technologies, Inc., a Delaware Corporation (the “Company”), hereby adopt the following recitals and resolutions after the holding of a Special Meeting of the Board of Directors pursuant to Section 3.7 of the Company’s By Laws, effective as of October 21, 2019, the Directors hereby waiving all notice of, and the holding of, a meeting of the directors to act upon such matters and resolutions, pursuant to the General Delaware Corporation Law and the Company’s By-Laws. Notice of the Special Meeting having been waived verbally by all the Directors present at the Special Meeting, a quorum was found to be present sufficient to conduct business.
RECITALS
WHEREAS, on July 9, 2018, the Company entered into a (i) Independent Contractor Services Agreement; (ii) Side Letter; and, (iii) KISS Note with Blue Ridge Enterprises, LLC, a California Limited Liability Company (“Blue Ridge”) (the “Transaction Documents”). Copies of the Transaction Documents are appended hereto and incorporated herein by reference.
WHEREAS, as consideration for securing Blue Ridge’s consulting services, the Company executed the KISS Note (Section 4(a) on page 2 of the Consulting Agreement).
WHEREAS, the KISS Note was executed on July 6, 2018 when Blue Ridge paid the purchase price of $35,000 to the Company.
WHEREAS, pursuant to Section 2.3 of the KISS Note, Blue Ridge may at any time after the Company’s common stock is quoted on the OTC Markets Listing Service, convert any or all the KISS Note into shares of the Company’s common stock calculated by dividing the conversion amount by the conversion price.
WHEREAS, the Company was listed on the OTC Markets Listing Service on June 17, 2019 under the symbol “ELCQ,” having successfully completed its 15c-2-11 filing with its sponsor Glendale Securities, and by operation of Section 2.3, Blue Ridge could exercise its conversion rights.
WHEREAS, Blue Ridge communicated to the Company its desire to convert a portion of the KISS note equal to one million (1,000,000) common shares. The Company calculated the number of available conversion shares, based upon the quotient obtained by dividing the conversion amount by the conversion price. As disclosed in the Company’s Form 1-SA filed with the Securities and Exchange Commission on September 19, 2019, the Company calculated the number of conversion shares available to Blue Ridge to be 8,189,874 shares.
WHEREAS, pursuant to Section 2 of the Side Letter, Blue Ridge communicated its intent to sell a portion of all of the conversion shares issuable hereunder to third parties. The Company confirms that it refused its rights of first refusal to purchase the conversion shares from Blue Ridge.
1
WHEREFORE, for good cause appearing, the Company:
HEREBY RESOLVES: to issue one million (1,000,000) common shares to Blue Ridge Enterprises, LLC; address: 5256 South Mission Road, Ste. 104, Bonsall, CA 92003; Federal EIN: 83-0860649, said shares to be issued in book entry form; and,
FURTHER RESOLVES: that pursuant to Section 4(b) of the Consulting Agreement, the one million (1,000,000) common shares issued to Blue Ridge pursuant to this Resolution, shall be deemed earned and beneficially owned as of the effective date of the consulting agreement, July 9, 2018.
RESOLVED FURTHER, the appropriate Officers of the Company be, and they hereby are, authorized and empowered to execute such documents, take such steps and perform such acts as, in their judgment, may be necessary or convenient in carrying out the foregoing resolutions consistent with the Company’s By Laws, including placing this Resolution in the appropriate Books and Records of the Company, and that any such documents executed or acts taken by them shall be conclusive evidence of authority in so doing.
IN WITNESS WHEREOF, the undersigned have executed this Resolution as of date first written above.
| ALL DIRECTORS OF ELECTROMEDICAL TECHNOLOGIES, INC. | |
 | |
| MATTHEW N. WOLFSON | |
| DIRECTOR, CHAIRMAN | |
2
Exhibit 10.10
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement is dated as of this 25th day of March, 2019 by and between Matthew Wolfson (the “Seller’) and Stephanie Kay Campbell (the “Buyer’).
WHEREAS, the Buyer is an employee of Electromedical Technologies, Inc., a Delaware company (the “Company”); and
WHEREAS, Previously, the Seller has orally agreed to sell 50,000 shares of his shares of the Company (the “Shares”) to the Buyer for the par price per share Seller paid for his shares of the Company; and
WHEREAS, the Seller and Buyer agree that it is in their best interest to memorialize in writing the sale of the Shares.
NOW THEREFORE, in consideration of the mutual promises, covenants, representations and warranties contained herein, and other good and valuable consideration, and with the intent that, upon consummation of the transactions contemplated herein, and upon the terms set forth herein the parties hereby agree to as follows:
| 1. | The Seller agrees to sell, and Buyer agrees to purchase, the Shares for $5.00. |
| 2. | Seller represents that he has good and marketable title to the Shares. |
| 3. | The Shares will bear a restricted legend unless registered by the Company is a S-1 Registration Statement. |
| 4. | The Company will use its best efforts to register the Shares on Form S-1 or such other form that is legally permissible. |
IN WITNESS WHEREOF., the parties have executed this Agreement as of the date first written above.
SELLER: MATTHEW WOLFSON BUYER: STEPHANIE KAY CAMPBELL
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Stephanie Campbell
ELECTROMEDICAL TECHNOLOGIES, INC. AWARD AGREEMENT - 2017 EMPLOYEE AND CONSULTANT STOCK OWNERSHIP PLAN - OPTIONS
Participant Name: Stephanie Kay Campbell Participant ID: N/A
Type of Option: Nonstatutory Stock Option Grant Date: March 10, 2019
Exercise Price: $0.71
Shares Granted: 150,000
Term and Vesting Date(s): Only if the participant is still a consultant or employee of Electromedical Technologies, Inc. as follows: (1) 50,000 shares on January 1, 2020; (2) 50,000 shares on January 1, 2021; and (3) 50,000 shares on January 1, 2022. If the participant is not an employee or consultant of Electromedical Technologies on the Vesting Date, the Grant shall automatically lapse and be terminated.
Expiration Date: June 30, 2022 Acceptance Date: March 11, 2019
This Award Agreement (referred to below as this “Agreement”) spells out the terms and conditions of the stock option (the “Option’”’) granted to you by ElectroMedical Technologies, Inc., a Delaware corporation (the “Company’), pursuant to the 2017 Employee and Consultant Stock Option Plan (the “Plan”) on and as of the Grant Date designated above. Except as otherwise defined herein, capitalized terms used in this Agreement have the respective meanings set forth in the Plan. The Plan, as in effect on the date of this Agreement and as it may be amended from time to time, is incorporated into this Agreement by this reference.
You and the Company agree as follows:
| 1. | Grant of Stock Option. |
Pursuant to the approval and direction of the Administrator, the Company hereby grants you an Option to purchase all or any part of the number of Shares Granted set forth above of common stock of the Company, par value $0.00001 (“Common Stock”), at the per-share Exercise Price set forth above, which is 100% of the Fair Market Value of a share of Common Stock on the Grant Date, subject to the terms and conditions of the Plan and this Agreement. For the avoidance of doubt, only Incentive Stock Options, and not Nonstatutory Stock Options, will be treated as incentive stock
Page 1 of 6 options within the meaning of Code Section 422 and the Treasury Regulations promulgated thereunder. If you are not a resident or citizen of the United States, the Company is not liable to you for any loss, damage or liability you may incur in your country of residence by participating in the Plan and receiving this Award.
| 2. | Vesting/Exercise/Expiration. |
The Employee or Consultant may not exercise the Option prior to each Vesting Date set forth above absent action by the Administrator to waive or alter such restrictions or as may be permitted under paragraphs 3, 4 or 5 below. Thereafter, except as hereinafter provided, the Employee or Consultant may exercise the Option, to the extent it is vested, at any time and from time to time until the close of business on the Expiration Date set forth above, subject, in the event of a Change in Control, to the Administrator’s exercise of its discretion under Section 9 of the Plan. The Option may be exercised to purchase any number of whole shares of Common Stock, except that no purchase shall be for less than ten (10) full shares, or the remaining unexercised shares, if less. Any Option is deemed to be “outstanding” until it has been exercised in full or expired pursuant to the terms of this Agreement.
| 3. | Forfeiture of Outstanding Options Following Termination of Service. |
Without limiting Sections 3(f)(ii)-(iv) of the Plan and notwithstanding any provision of this Agreement to the contrary, your remaining rights to any Options pursuant to this Agreement, if any, shall immediately terminate if and when:
| (a) | if you are an employee receiving Incentive Stock Options, during your employment with the Company, you voluntary quit or resign, or if you are terminated for Cause as determined by the Administrator, then your right to exercise your Incentive Stock Options shall terminate as of the date of you cease to be employed by the Company, subject to the right of the Administrator to extend the exercise period of this Incentive Stock Options. For purposes of this Section 3, “Cause” means any one or more of the following, as determined by the Administrator in its sole discretion: |
| (1) | commission of a felony or any crime of moral turpitude; |
| (ii) | dishonesty or material violation of standards of integrity in the course of fulfilling your employment duties to the Company or any Parent or Subsidiary; |
| (ii1) | material violation of a material written policy of the Company or any Parent or Subsidiary violation of which is grounds for immediate termination; |
| (iv) | willful and deliberate failure to perform your employment duties to the Company or any Parent |
or Subsidiary in any material respect, after reasonable notice of such failure and an opportunity to correct it; or
Page 2 of 6 (v) your failure to comply in any material respect with the Foreign Corrupt Practices Act, the Securities Act, the Exchange Act, the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, and the Truth in Negotiations Act, or any rules or regulations thereunder.
| (b) | if you receive either Incentive Stock Options or Nonstatutory Stock Options, you violate any obligation that you may have to the Company during or after your employment or consultancy with the Company, including but not limited to any non-competition, non-solicitation, confidentiality, non-disparagement or other restrictive covenant, to which you have agreed either orally or in writing. |
| 4. | Exercise Process. |
An Option may be exercised by giving written notice to ElectroMedical Technologies, Inc., Attention: Plan Administrator, 16561 N 92" Street, Suite 101, Scottsdale, AZ 85260 (or such other address as the Company may specify). Alternatively, the Company may designate one or more third parties to administer the Option exercise process and direct you accordingly. The exercise notice (a) shall be signed by you or (in the event of your death) your legal representative, (b) shall specify the number of full shares then elected to be purchased, and (c) shall be accompanied by payment in full of the Exercise Price of the shares to be purchased. Payment may be made in cash or by check payable to the order of the Company, and such payment shall include any tax withholding obligation, as set forth in Section 8 below. Alternatively, the Administrator may allow for one or more of the following methods of exercising an Option:
| (a) | Payment for shares as to which an Option is being exercised and/or payment of any federal, state, local or other tax withholding obligations may be made by transfer to the Company of shares of Common Stock you already own, or any combination of such shares and cash, having a fair market value determined at the time of exercise of the Option equal to, but not exceeding, the Exercise Price and/or the tax withholding obligation, as the case may be. |
| (b) | A “same day sale” transaction pursuant to which a third party (engaged by your or the Company) loans funds to you to enable you to purchase the shares and pay any tax withholding obligations, and then sells a sufficient number of the exercised shares on your behalf to enable you to repay the loan and any fees. The remaining shares and/or cash are then delivered by the third party to you. |
| (c) | A “net exercise” transaction, pursuant to which the Company delivers to you the net number of whole shares remaining from the portion of the Option being exercised after deduction of a number of shares of Common Stock with a Fair Market Value equal to the exercise price and a number of shares of Common Stock with a Fair Market Value equal to the amount of any tax withholding obligations. |
As promptly as practicable after receipt of such notice and payment (including payment with respect to any tax withholding obligations), subject to Section 8 below, the Company shall cause to
Page 3 of 6 be issued and delivered to you (or in the event of your death to your legal representative, as the case may be), certificates for the shares of Common Stock so purchased. Alternatively, such shares may be issued and held in book entry form.
| 5. | Tax Withholding. |
The Company may make such provisions and take such actions as it may deem necessary or appropriate for the withholding of any Federal, state, local income and employment taxes and other taxes required by law to be withheld with respect to this Agreement, including, but not limited to, deducting the amount of any such withholding taxes from the amount to be paid hereunder, whether in Common Stock or in cash, or from any other amount then or thereafter payable to you, or requiring you or your beneficiary or legal representative to pay to the Company the amount required to be withheld or to execute such documents as the Administrator or its designee deems necessary or desirable to enable the Company to satisfy its withholding obligations. The Company may refuse to deliver Common Stock if you, your beneficiary or legal representative fail to comply with your or its obligations under this Section. Regardless of any action the Company takes with respect to any or all income tax, social security, payroll tax, payment on account or other tax-related withholding (“Taxes”) that you are required to bear pursuant to all applicable laws, any and all Taxes are your responsibility.
| 6. | Limited Transferability. |
You may not sell, transfer, pledge, assign or otherwise alienate or hypothecate this Agreement (any rights thereunder), whether voluntarily or involuntarily or by operation of law, other than by beneficiary designation effective upon your death, by will or by the laws of intestacy. During your lifetime this Agreement and all rights granted hereunder shall be exercisable only by you. Notwithstanding the foregoing, you may transfer this Agreement, in whole or in part, in accordance with Section 3(f)(iv) of the Plan and subject to any conditions specified by the Administrator under the Plan.
| 7. | Rights as Shareholder. |
You shall have no rights as a shareholder of the Company with respect to the shares of Common Stock subject to this Agreement until such time as the purchase price has been paid and a certificate of stock for such shares has been issued to you or such shares of Common Stock have been recorded in your name in book entry form. Except as provided in Section 9 below, no adjustment shall be made for dividends or distributions or other rights with respect to such shares for which the record date is prior to the date on which you become the holder of record thereof. Anything herein to the contrary notwithstanding, if a law or any regulation of the Securities and Exchange Commission or of any other body having jurisdiction shall require the Company or you to take any action before shares of Common Stock can be delivered to you hereunder, then the date of delivery of such shares may be delayed accordingly.
Page 4 of 6 8. Securities Laws.
Provided the Company is not subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, you hereby represent that you are acquiring the shares of Common Stock for investment and with no present intention of selling or transferring them and that you will not sell or otherwise transfer the shares except in compliance with all applicable securities laws and requirements of any stock exchange on which the shares of Common Stock may then be listed. The Company will use its best efforts to register the Option Shares on Form S-1 or such other form that is legally permissible.
| 9. | Change in Common Stock. |
In the event of any change in Common Stock by reason of any stock dividend, recapitalization, reorganization, split-up, merger, consolidation, exchange of shares, or of any similar change affecting Common Stock, the number of shares of Common Stock subject to this Agreement and the Exercise Price shall be equitably adjusted by the Administrator.
| 10. | No Guarantee of Employment or Retainer. |
Nothing in this Award Agreement shall interfere with or limit in any way the right of the Company or any of its subsidiaries to terminate your employment or consultancy at any time, nor confer upon you or any Employee or Consultant any right to continue in the employ of the Company or any of its Subsidiaries. No Employee or Consultant shall have a right to be selected to be granted an Option or any other Award under the Plan.
| 11. | Administrator Authority; Recoupment. |
It is expressly understood that the Administrator is authorized to administer, construe, and make all determinations necessary or appropriate for the administration of the Plan and this Agreement, including the enforcement of any recoupment policy, all of which shall be binding upon you and any claimant. Any inconsistency between this Agreement and the Plan shall be resolved in favor of the Plan.
| 12. | Amendment or Modification, Waiver. |
Except as set forth in the Plan, no provision of this Agreement may be amended or waived unless the amendment or waiver is agreed to in writing, signed by you and by a duly authorized officer of the Company. No waiver of any condition or provision of this Agreement shall be deemed a waiver of a similar or dissimilar condition or provision at the same time, any prior time or any subsequent time.
Page 5 of 6 13. Governing Law and Jurisdiction. This Agreement is governed by the substantive and procedural laws of the state of Delaware. You and the Company shall submit to the exclusive jurisdiction of, and venue in, the courts in Arizona in any dispute relating to this Agreement.
| 14. | Conformity with Applicable Law. |
If any provision of this Agreement is determined to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect the validity, legality or enforceability of any other provision of this Agreement or the validity, legality or enforceability of such provision in any other jurisdiction, but this Agreement shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein.
| 15. | Successors. |
This Agreement shall be binding upon and inure to the benefit of any successor or successors of the Company and any person or persons who shall, upon your death, acquire any rights hereunder.
This Agreement contains highly sensitive and confidential information. Please handle it accordingly. Once you have read and understood this Agreement, please sign and date the document below to certify and confirm your agreement to be bound by the terms and conditions of this Agreement and to acknowledge your receipt of the disclosure documentation required by the Securities Act and Exchange Act (as applicable), the Plan and this Agreement and your acceptance of the terms and conditions of the Stock Option Award granted hereunder.
Subject to 409A
ELECTROMEDICAL PARTICIPANT
TECHNOLOGIES, JAC. By: Wp d UW aS Y
Name: ntatd dy Wolfson Name: Stephanie Kay Campbell
By:
Title: CEO Employee/Censuttant (strike out as applicable)
For and on behalf of the Administrator
Date: March 11, 2019 Date: March 11, 2019
Page 6 of 6 4 i
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| 4. | The Company will use its best efforts to register the Shares on Form S-1 or such other form that is legally permissible. |
IN WITNESS WHEREOF., the parties have executed this Agreement as of the date first written above.
SELLER: MATTHEW WOLFSON BUYER: STEPHANIE KAY CAMPBELL
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Matthew/flolfson Stephanie Campbell
EXHIBIT 10.11
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement is dated as of this 25" day of March, 2019 by and between Matthew Wolfson (the ASeller”) and Petar Gajic (the “Buyer’).
WHEREAS, the Buyer is an employee of Electromedical Technologies, Inc., a Delaware company (the “Company”); and
WHEREAS, previously, the Seller had orally agreed to sell 500,000 of his shares of the Company (the “Shares”) to the Buyer for the par price per share which Seller paid for his shares of the Company; and
WHEREAS, the Seller and Buyer agree that it is in their best interest to memorialize in writing the sale of the Shares.
NOW THEREFORE, in consideration of the mutual promises, covenants, representations and warranties contained herein, and other good and valuable consideration, and with the intent that, upon consummation of the transactions contemplated herein, and upon the terms set forth herein the parties hereby agree to as follows:
| 1. | The Seller agrees to sell, and Buyer agrees to purchase, the Shares for $50.00. |
| 2. | Seller represents that he has good and marketable title to the Shares. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date |
first written above.
SELLER: MATTHEW WOLSON BUYER: PETAR GAJIC.
Mathew fson Petar Gajic
11-ZU1U
Yur I-JIU45
Notice to Purchaser - In the event that this check is lost, misplaced or Cashier's Check - Customer Copy
stolen, a sworn statement and 90-day waiting period will be required prior to replacement This check should be negotiated within 90 days
Void After 90 Days
Fifty and 00/100 Dollars ToThe MATTHEW WOLFSON
Order Of 500,000 SHARES PURCHASE Remitter (Purchased By): PETAR GAJIC
Bank of America, N.A. PHOENIX, AZ
Exhibit 10.12
CONSENT ACTION OF THE BOARD OF DIRECTORS OF ELECTROMEDICAL TECHNOLOGIES, INC.
The undersigned, Matthew N. Wolfson, being the sole director of Electromedical Technologies, Inc., a Delaware corporation, (the “Company”), hereby unanimously consent to the following actions taken on Company on October 11, 2019.
RESOLVED: To issue Iakovos Tsakalidis (“Tsakalidis”) a total of 80,282 shares of the Company’s restricted common stock in full and complete satisfaction of any and all claims which Tsakalidis may have against the Company pursuant to that certain Promissory Note by and between Tsakalidis and the Company dated December 31, 2015. The total amount owed to Tsakalidis was $57,000.00 and the shares are valued at $0.71 per share.
RESOLVED: That the Company’s transfer agent, Pacific Stock Transfer, is hereby authorized to issue the foregoing shares to Tsakalidis at the following address: 6940 E. DoubleTree Ranch Rd., Paradise Valley, AZ 85253.
There being no further business requiring board action or consideration, on motion duly made, and carried, the meeting was adjourned.
Matthew N. Wolfson
Sole Director
Exhibit 10.13
ELECTROMEDICAL TECHNOLOGIES, INC. AWARD AGREEMENT - 2017 EMPLOYEE AND CONSULTANT STOCK OWNERSHIP PLAN - OPTIONS
Participant Name: Kostiantyn Kishkovskiy Participant ID: N/A
Type of Option: Nonstatutory Stock Option Grant Date: March 11, 2019
Exercise Price: $0.71
Shares Granted: 100,000
Term and Vesting Date(s): Only if the participant is still a consultant or employee of Electromedical Technologies, Inc. as follows: (1) 50,000 shares on March 11, 2019; (2) 50,000 shares on January 1, 2020. If the participant is not an employee or consultant of Electromedical Technologies on the Vesting Date, or if the participant is not employed or a consultant of Electromedical Technologies prior to exercising the Grant, the Grant shall automatically lapse and be terminated.
Expiration Date: June 30, 2022 Acceptance Date: March 11, 2019
This Award Agreement (referred to below as this “Agreement”) spells out the terms and conditions of the stock option (the “Option”) granted to you by ElectroMedical Technologies, Inc., a Delaware corporation (the “Company”), pursuant to the 2017 Employee and Consultant Stock Option Plan (the “Plan”) on and as of the Grant Date designated above. Except as otherwise defined herein, capitalized terms used in this Agreement have the respective meanings set forth in the Plan. The Plan, as in effect on the date of this Agreement and as it may be amended from time to time, is incorporated into this Agreement by this reference.
You and the Company agree as follows:
| 1. | Grant of Stock Option. |
Pursuant to the approval and direction of the Administrator, the Company hereby grants you an Option to purchase all or any part of the number of Shares Granted set forth above of common stock of the Company, par value $0.00001 (“Common Stock”), at the per-share Exercise Price set forth above, which is 100% of the Fair Market Value of a share of Common Stock on the Grant Date, subject to the terms and conditions of the Plan and this Agreement. For the avoidance of doubt, only Incentive Stock Options, and not Nonstatutory Stock Options, will be treated as incentive stock options within the meaning of Code Section 422 and the Treasury Regulations promulgated thereunder. If you are not a resident or citizen of the United States, the Company is not liable to you for any loss, damage or liability you may incur in your country of residence by participating in the Plan and receiving this Award.
Page 1 of 6
| 2. | Vesting/Exercise/Expiration. |
The Employee or Consultant may not exercise the Option prior to each Vesting Date set forth above absent action by the Administrator to waive or alter such restrictions or as may be permitted under paragraphs 3, 4 or 5 below. Thereafter, except as hereinafter provided, the Employee or Consultant may exercise the Option, to the extent it is vested, at any time and from time to time until the close of business on the Expiration Date set forth above, subject, in the event of a Change in Control, to the Administrator’s exercise of its discretion under Section 9 of the Plan. The Option may be exercised to purchase any number of whole shares of Common Stock, except that no purchase shall be for less than ten (10) full shares, or the remaining unexercised shares, if less. Any Option is deemed to be “outstanding” until it has been exercised in full or expired pursuant to the terms of this Agreement.
| 3. | Forfeiture of Outstanding Options Following Termination of Service. |
Without limiting Sections 3(f)(ii)-(iv) of the Plan and notwithstanding any provision of this Agreement to the contrary, your remaining rights to any Options pursuant to this Agreement, if any, shall immediately terminate if and when:
| (a) | if you are an employee receiving Incentive Stock Options, during your employment with the Company, you voluntary quit or resign, or if you are terminated for Cause as determined by the Administrator, then your right to exercise your Incentive Stock Options shall terminate as of the date of you cease to be employed by the Company, subject to the right of the Administrator to extend the exercise period of this Incentive Stock Options. For purposes of this Section 3, “Cause” means any one or more of the following, as determined by the Administrator in its sole discretion: |
| (b) | commission of a felony or any crime of moral turpitude; |
| (ii) | dishonesty or material violation of standards of integrity in the course of fulfilling your employment duties to the Company or any Parent or Subsidiary; |
| (iii) | material violation of a material written policy of the Company or any Parent or Subsidiary violation of which is grounds for immediate termination; |
| (iv) | willful and deliberate failure to perform your employment duties to the Company or any Parent or Subsidiary in any material respect, after reasonable notice of such failure and an opportunity to correct it; or |
| (v) | your failure to comply in any material respect with the Foreign Corrupt Practices Act, the Securities Act, the Exchange Act, the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, and the Truth in Negotiations Act, or any rules or regulations thereunder. |
| (b) | if you receive either Incentive Stock Options or Nonstatutory Stock Options, you violate any obligation that you may have to the Company during or after your employment or consultancy with the Company, including but not limited to any non-competition, non-solicitation, confidentiality, non-disparagement or other restrictive covenant, to which you have agreed either orally or in writing. |
Page 2 of 6
| 4. | Exercise Process. |
An Option may be exercised by giving written notice to ElectroMedical Technologies, Inc., Attention: Plan Administrator, 16561 N 92" Street, Suite 101, Scottsdale, AZ 85260 (or such other address as the Company may specify). Alternatively, the Company may designate one or more third parties to administer the Option exercise process and direct you accordingly. The exercise notice (a) shall be signed by you or (in the event of your death) your legal representative, (b) shall specify the number of full shares then elected to be purchased, and (c) shall be accompanied by payment in full of the Exercise Price of the shares to be purchased. Payment may be made in cash or by check payable to the order of the Company, and such payment shall include any tax withholding obligation, as set forth in Section 8 below. Alternatively, the Administrator may allow for one or more of the following methods of exercising an Option:
| (a) | Payment for shares as to which an Option is being exercised and/or payment of any federal, state, local or other tax withholding obligations may be made by transfer to the Company of shares of Common Stock you already own, or any combination of such shares and cash, having a fair market value determined at the time of exercise of the Option equal to, but not exceeding, the Exercise Price and/or the tax withholding obligation, as the case may be. |
| (b) | A “same day sale” transaction pursuant to which a third party (engaged by your or the Company) loans funds to you to enable you to purchase the shares and pay any tax withholding obligations, and then sells a sufficient number of the exercised shares on your behalf to enable you to repay the loan and any fees. The remaining shares and/or cash are then delivered by the third party to you. |
| (c) | A “net exercise” transaction, pursuant to which the Company delivers to you the net number of whole shares remaining from the portion of the Option being exercised after deduction of a number of shares of Common Stock with a Fair Market Value equal to the exercise price and a number of shares of Common Stock with a Fair Market Value equal to the amount of any tax withholding obligations. |
As promptly as practicable after receipt of such notice and payment (including payment with respect to any tax withholding obligations), subject to Section 8 below, the Company shall cause to be issued and delivered to you (or in the event of your death to your legal representative, as the case may be), certificates for the shares of Common Stock so purchased. Alternatively, such shares may be issued and held in book entry form.
Page 3 of 6
| 5. | Tax Withholding. |
The Company may make such provisions and take such actions as it may deem necessary or appropriate for the withholding of any Federal, state, local income and employment taxes and other taxes required by law to be withheld with respect to this Agreement, including, but not limited to, deducting the amount of any such withholding taxes from the amount to be paid hereunder, whether in Common Stock or in cash, or from any other amount then or thereafter payable to you, or requiring you or your beneficiary or legal representative to pay to the Company the amount required to be withheld or to execute such documents as the Administrator or its designee deems necessary or desirable to enable the Company to satisfy its withholding obligations. The Company may refuse to deliver Common Stock if you, your beneficiary or legal representative fail to comply with your or its obligations under this Section. Regardless of any action the Company takes with respect to any or all income tax, social security, payroll tax, payment on account or other tax-related withholding (“Taxes”) that you are required to bear pursuant to all applicable laws, any and all Taxes are your responsibility.
| 6. | Limited Transferability. |
You may not sell, transfer, pledge, assign or otherwise alienate or hypothecate this Agreement (any rights thereunder), whether voluntarily or involuntarily or by operation of law, other than by beneficiary designation effective upon your death, by will or by the laws of intestacy. During your lifetime this Agreement and all rights granted hereunder shall be exercisable only by you. Notwithstanding the foregoing, you may transfer this Agreement, in whole or in part, in accordance with Section 3(f)(iv) of the Plan and subject to any conditions specified by the Administrator under the Plan.
| 7. | Rights as Shareholder. |
You shall have no rights as a shareholder of the Company with respect to the shares of Common Stock subject to this Agreement until such time as the purchase price has been paid and a certificate of stock for such shares has been issued to you or such shares of Common Stock have been recorded in your name in book entry form. Except as provided in Section 9 below, no adjustment shall be made for dividends or distributions or other rights with respect to such shares for which the record date is prior to the date on which you become the holder of record thereof. Anything herein to the contrary notwithstanding, if a law or any regulation of the Securities and Exchange Commission or of any other body having jurisdiction shall require the Company or you to take any action before shares of Common Stock can be delivered to you hereunder, then the date of delivery of such shares may be delayed accordingly.
| 8. | Securities Laws. |
Provided the Company is not subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, you hereby represent that you are acquiring the shares of Common Stock for investment and with no present intention of selling or transferring them and that you will not sell or otherwise transfer the shares except in compliance with all applicable securities laws and requirements of any stock exchange on which the shares of Common Stock may then be listed. The Company will use its best efforts to register the Option Shares on Form S-1 or such other form that is legally permissible.
Page 4 of 6
| 9. | Change in Common Stock. |
In the event of any change in Common Stock by reason of any stock dividend, recapitalization, reorganization, split-up, merger, consolidation, exchange of shares, or of any similar change affecting Common Stock, the number of shares of Common Stock subject to this Agreement and the Exercise Price shall be equitably adjusted by the Administrator.
| 10. | No Guarantee of Employment or Retainer. |
Nothing in this Award Agreement shall interfere with or limit in any way the right of the Company or any of its subsidiaries to terminate your employment or consultancy at any time, nor confer upon you or any Employee or Consultant any right to continue in the employ of the Company or any of its Subsidiaries. No Employee or Consultant shall have a right to be selected to be granted an Option or any other Award under the Plan.
| 11. | Administrator Authority; Recoupment. |
It is expressly understood that the Administrator is authorized to administer, construe, and make all determinations necessary or appropriate for the administration of the Plan and this Agreement, including the enforcement of any recoupment policy, all of which shall be binding upon you and any claimant. Any inconsistency between this Agreement and the Plan shall be resolved in favor of the Plan.
| 12. | Amendment or Modification, Waiver. |
Except as set forth in the Plan, no provision of this Agreement may be amended or waived unless the amendment or waiver is agreed to in writing, signed by you and by a duly authorized officer of the Company. No waiver of any condition or provision of this Agreement shall be deemed a waiver of a similar or dissimilar condition or provision at the same time, any prior time or any subsequent time.
| 13. | Governing Law and Jurisdiction. |
This Agreement is governed by the substantive and procedural laws of the state of Delaware. You and the Company shall submit to the exclusive jurisdiction of, and venue in, the courts in Arizona in any dispute relating to this Agreement.
| 14. | Conformity with Applicable Law. |
If any provision of this Agreement is determined to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect the validity, legality or enforceability of any other provision of this Agreement or the validity, legality or enforceability of such provision in any other jurisdiction, but this Agreement shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein.
Page 5 of 6
| 15. | Successors. |
This Agreement shall be binding upon and inure to the benefit of any successor or successors of the Company and any person or persons who shall, upon your death, acquire any rights hereunder.
This Agreement contains highly sensitive and confidential information. Please handle it accordingly. Once you have read and understood this Agreement, please sign and date the document below to certify and confirm your agreement to be bound by the terms and conditions of this Agreement and to acknowledge your receipt of the disclosure documentation required by the Securities Act and Exchange Act (as applicable), the Plan and this Agreement and your acceptance of the terms and conditions of the Stock Option Award granted hereunder.
Subject to 409A
ELECTROMEDICAL TECHNOLOGIES ANC.
BY,
Name: viathlen Wolfson Name: Kostiantyn Kishkovskiy
Title: CEO Consultant
For and on behalf of the Administrator
Date: March 11, 2019 Date: March 11, 2019
Page 6 of 6
Exhibit 10.14
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement is dated as of this 25th day of March, 2019 by and between Matthew Wolfson (the “Seller’) and Kelly Lauren Myers (the “Buyer’).
WHEREAS, the Buyer is an employee of Electromedical Technologies, Inc., a Delaware company (the “Company’”); and
WHEREAS, Previously, the Seller has orally agreed to sell 18,750 shares of his shares of the Company (the “Shares”) to the Buyer for the par price per share Seller paid for his shares of the Company; and
WHEREAS, the Seller and Buyer agree that it is in their best interest to memorialize in writing the sale of the Shares.
NOW THEREFORE, in consideration of the mutual promises, covenants, representations and warranties contained herein, and other good and valuable consideration, and with the intent that, upon consummation of the transactions contemplated herein, and upon the terms set forth herein the parties hereby agree to as follows:
| 1. | The Seller agrees to sell, and Buyer agrees to purchase, the Shares for $1.88. |
| 2. | Seller represents that he has good and marketable title to the Shares. |
| 3. | The Shares will bear a restricted legend unless registered by the Company is a S-1 Registration Statement. |
| 4. | The Company will use its best efforts to register the Shares on Form S-1 or such other form that is legally permissible. |
IN WITNESS WHEREOF., the parties have executed this Agreement as of the date first written above.
SELLER: MATTHEW WOLFSON BUYER: KELLY LAUREN MYERS
Matthew /Volfson Kelly oll ¥ 6
ELECTROMEDICAL TECHNOLOGIES, INC. AWARD AGREEMENT - 2017 EMPLOYEE AND CONSULTANT STOCK OWNERSHIP PLAN - OPTIONS
Participant Name: Kelly Lauren Myers Participant ID: N/A
Type of Option: Nonstatutory Stock Option Grant Date: March 10, 2019
Exercise Price: $0.71
Shares Granted: 56,250
Term and Vesting Date(s): Only if the participant is still a consultant or employee of Electromedical Technologies, Inc. as follows: (1) 18,750 shares on January 1, 2020; (2) 18,750 shares on January 1, 2021; and (3) 18,750 shares on January 1, 2022. If the participant is not an employee or consultant of Electromedical Technologies on the Vesting Date, the Grant shall automatically lapse and be terminated.
Expiration Date: June 30, 2022 Acceptance Date: March 11, 2019
This Award Agreement (referred to below as this “Agreement”) spells out the terms and conditions of the stock option (the “Option”) granted to you by ElectroMedical Technologies, Inc., a Delaware corporation (the “Company”), pursuant to the 2017 Employee and Consultant Stock Option Plan (the “Plan”) on and as of the Grant Date designated above. Except as otherwise defined herein, capitalized terms used in this Agreement have the respective meanings set forth in the Plan. The Plan, as in effect on the date of this Agreement and as it may be amended from time to time, is incorporated into this Agreement by this reference.
You and the Company agree as follows:
| 1. | Grant of Stock Option. |
Pursuant to the approval and direction of the Administrator, the Company hereby grants you an Option to purchase all or any part of the number of Shares Granted set forth above of common stock of the Company, par value $0.00001 (“Common Stock”), at the per-share Exercise Price set forth above, which is 100% of the Fair Market Value of a share of Common Stock on the Grant Date, subject to the terms and conditions of the Plan and this Agreement. For the avoidance of doubt, only Incentive Stock Options, and not Nonstatutory Stock Options, will be treated as incentive stock
Page 1 of 6 options within the meaning of Code Section 422 and the Treasury Regulations promulgated thereunder. If you are not a resident or citizen of the United States, the Company is not liable to you for any loss, damage or liability you may incur in your country of residence by participating in the Plan and receiving this Award.
| 2. | Vesting/Exercise/Expiration. |
The Employee or Consultant may not exercise the Option prior to each Vesting Date set forth above absent action by the Administrator to waive or alter such restrictions or as may be permitted under paragraphs 3, 4 or 5 below. Thereafter, except as hereinafter provided, the Employee or Consultant may exercise the Option, to the extent it is vested, at any time and from time to time until the close of business on the Expiration Date set forth above, subject, in the event of a Change in Control, to the Administrator’s exercise of its discretion under Section 9 of the Plan. The Option may be exercised to purchase any number of whole shares of Common Stock, except that no purchase shall be for less than ten (10) full shares, or the remaining unexercised shares, if less. Any Option is deemed to be “outstanding” until it has been exercised in full or expired pursuant to the terms of this Agreement.
| 3. | Forfeiture of Outstanding Options Following Termination of Service. |
Without limiting Sections 3(f)(ii)-(iv) of the Plan and notwithstanding any provision of this Agreement to the contrary, your remaining rights to any Options pursuant to this Agreement, if any, shall immediately terminate if and when:
| (a) | if you are an employee receiving Incentive Stock Options, during your employment with the Company, you voluntary quit or resign, or if you are terminated for Cause as determined by the Administrator, then your right to exercise your Incentive Stock Options shall terminate as of the date of you cease to be employed by the Company, subject to the right of the Administrator to extend the exercise period of this Incentive Stock Options. For purposes of this Section 3, “Cause” means any one or more of the following, as determined by the Administrator in its sole discretion: |
| (b) | commission of a felony or any crime of moral turpitude; |
| (ii) | dishonesty or material violation of standards of integrity in the course of fulfilling your employment duties to the Company or any Parent or Subsidiary; |
| (iii) | material violation of a material written policy of the Company or any Parent or Subsidiary violation of which is grounds for immediate termination; |
| (iv) | willful and deliberate failure to perform your employment duties to the Company or any Parent |
or Subsidiary in any material respect, after reasonable notice of such failure and an opportunity to correct it; or
Page 2 of 6 (v) your failure to comply in any material respect with the Foreign Corrupt Practices Act, the Securities Act, the Exchange Act, the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, and the Truth in Negotiations Act, or any rules or regulations thereunder.
| (b) | if you receive either Incentive Stock Options or Nonstatutory Stock Options, you violate any obligation that you may have to the Company during or after your employment or consultancy with the Company, including but not limited to any non-competition, non-solicitation, confidentiality, non-disparagement or other restrictive covenant, to which you have agreed either orally or in writing. |
| 4. | Exercise Process. |
An Option may be exercised by giving written notice to ElectroMedical Technologies, Inc., Attention: Plan Administrator, 16561 N gond Street, Suite 101, Scottsdale, AZ 85260 (or such other address as the Company may specify). Alternatively, the Company may designate one or more third parties to administer the Option exercise process and direct you accordingly. The exercise notice (a) shall be signed by you or (in the event of your death) your legal representative, (b) shall specify the number of full shares then elected to be purchased, and (c) shall be accompanied by payment in full of the Exercise Price of the shares to be purchased. Payment may be made in cash or by check payable to the order of the Company, and such payment shall include any tax withholding obligation, as set forth in Section 8 below. Alternatively, the Administrator may allow for one or more of the following methods of exercising an Option:
| (a) | Payment for shares as to which an Option is being exercised and/or payment of any federal, state, local or other tax withholding obligations may be made by transfer to the Company of shares of Common Stock you already own, or any combination of such shares and cash, having a fair market value determined at the time of exercise of the Option equal to, but not exceeding, the Exercise Price and/or the tax withholding obligation, as the case may be. |
| (b) | A “same day sale” transaction pursuant to which a third party (engaged by your or the Company) loans funds to you to enable you to purchase the shares and pay any tax withholding obligations, and then sells a sufficient number of the exercised shares on your behalf to enable you to repay the loan and any fees. The remaining shares and/or cash are then delivered by the third party to you. |
| (c) | A “net exercise” transaction, pursuant to which the Company delivers to you the net number of whole shares remaining from the portion of the Option being exercised after deduction of a number of shares of Common Stock with a Fair Market Value equal to the exercise price and a number of shares of Common Stock with a Fair Market Value equal to the amount of any tax withholding obligations. |
As promptly as practicable after receipt of such notice and payment (including payment with respect to any tax withholding obligations), subject to Section 8 below, the Company shall cause to Page 3 of 6 be issued and delivered to you (or in the event of your death to your legal representative, as the case may be), certificates for the shares of Common Stock so purchased. Alternatively, such shares may be issued and held in book entry form.
| 5. | Tax Withholding. |
The Company may make such provisions and take such actions as it may deem necessary or appropriate for the withholding of any Federal, state, local income and employment taxes and other taxes required by law to be withheld with respect to this Agreement, including, but not limited to, deducting the amount of any such withholding taxes from the amount to be paid hereunder, whether in Common Stock or in cash, or from any other amount then or thereafter payable to you, or requiring you or your beneficiary or legal representative to pay to the Company the amount required to be withheld or to execute such documents as the Administrator or its designee deems necessary or desirable to enable the Company to satisfy its withholding obligations. The Company may refuse to deliver Common Stock if you, your beneficiary or legal representative fail to comply with your or its obligations under this Section. Regardless of any action the Company takes with respect to any or all income tax, social security, payroll tax, payment on account or other tax-related withholding (“Taxes”) that you are required to bear pursuant to all applicable laws, any and all Taxes are your responsibility.
| 6. | Limited Transferability. |
You may not sell, transfer, pledge, assign or otherwise alienate or hypothecate this Agreement (any rights thereunder), whether voluntarily or involuntarily or by operation of law, other than by beneficiary designation effective upon your death, by will or by the laws of intestacy. During your lifetime this Agreement and all rights granted hereunder shall be exercisable only by you. Notwithstanding the foregoing, you may transfer this Agreement, in whole or in part, in accordance with Section 3(f)(iv) of the Plan and subject to any conditions specified by the Administrator under the Plan.
| 7. | Rights as Shareholder. |
You shall have no rights as a shareholder of the Company with respect to the shares of Common Stock subject to this Agreement until such time as the purchase price has been paid and a certificate of stock for such shares has been issued to you or such shares of Common Stock have been recorded in your name in book entry form. Except as provided in Section 9 below, no adjustment shall be made for dividends or distributions or other rights with respect to such shares for which the record date is prior to the date on which you become the holder of record thereof. Anything herein to the contrary notwithstanding, if a law or any regulation of the Securities and Exchange Commission or of any other body having jurisdiction shall require the Company or you to take any action before shares of Common Stock can be delivered to you hereunder, then the date of delivery of such shares may be delayed accordingly.
Page 4 of 6
| 8. | Securities Laws. |
Provided the Company is not subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, you hereby represent that you are acquiring the shares of Common Stock for investment and with no present intention of selling or transferring them and that you will not sell or otherwise transfer the shares except in compliance with all applicable securities laws and requirements of any stock exchange on which the shares of Common Stock may then be listed. The Company will use its best efforts to register the Option Shares on Form S-1 or such other form that is legally permissible.
| 9, | Change in Common Stock. |
In the event of any change in Common Stock by reason of any stock dividend, recapitalization, reorganization, split-up, merger, consolidation, exchange of shares, or of any similar change affecting Common Stock, the number of shares of Common Stock subject to this Agreement and the Exercise Price shall be equitably adjusted by the Administrator.
| 10. | No Guarantee of Employment or Retainer. |
Nothing in this Award Agreement shall interfere with or limit in any way the right of the Company or any of its subsidiaries to terminate your employment or consultancy at any time, nor confer upon you or any Employee or Consultant any right to continue in the employ of the Company or any of its Subsidiaries. No Employee or Consultant shall have a right to be selected to be granted an Option or any other Award under the Plan.
| 11. | Administrator Authority; Recoupment. |
It is expressly understood that the Administrator is authorized to administer, construe, and make all determinations necessary or appropriate for the administration of the Plan and this Agreement, including the enforcement of any recoupment policy, all of which shal! be binding upon you and any claimant. Any inconsistency between this Agreement and the Plan shall be resolved in favor of the Plan.
| 12. | Amendment or Modification, Waiver. |
Except as set forth in the Plan, no provision of this Agreement may be amended or waived unless the amendment or waiver is agreed to in writing, signed by you and by a duly authorized officer of the Company. No waiver of any condition or provision of this Agreement shall be deemed a waiver of a similar or dissimilar condition or provision at the same time, any prior time or any subsequent time.
Page 5 of 6 13. Governing Law and Jurisdiction. This Agreement is governed by the substantive and procedural laws of the state of Delaware. You and the Company shall submit to the exclusive jurisdiction of, and venue in, the courts in Arizona in any dispute relating to this Agreement.
| 14. | Conformity with Applicable Law. |
If any provision of this Agreement is determined to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect the validity, legality or enforceability of any other provision of this Agreement or the validity, legality or enforceability of such provision in any other jurisdiction, but this Agreement shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein.
| 15. | Successors. |
This Agreement shall be binding upon and inure to the benefit of any successor or successors of the Company and any person or persons who shall, upon your death, acquire any rights hereunder.
This Agreement contains highly sensitive and confidential information. Please handle it accordingly. Once you have read and understood this Agreement, please sign and date the document below to certify and confirm your agreement to be bound by the terms and conditions of this Agreement and to acknowledge your receipt of the disclosure documentation required by the Securities Act and Exchange Act (as applicable), the Plan and this Agreement and your acceptance of the terms and conditions of the Stock Option Award granted hereunder.
Subject to 409A
ELECTROMEDICAL PARTICIPANT TECHNOLOGIES, INC.
By: c By: oll W/ rN
Name: Matthew Wolfson Name: Kelly Lauren Myers
Title: CEO Employee/Gensuttant (strike out as applicable)
For and on behalf of the Administrator
Date: March 11, 2019 Date: March 11, 2019
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SELLER: MATTHEW WOLFSON
BUYER: KELLY LAUREN MYERS
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Exhibit 10.15
CONSENT ACTION OF THE BOARD OF DIRECTORS OF
ELECTROMEDICAL TECHNOLOGIES, INC.
The undersigned, Matthew N. Wolfson, being the sole director of Electromedical Technologies, Inc., a Delaware corporation, (the “Company”), hereby unanimously consent to the following actions taken on Company on October 11, 2019.
RESOLVED: To issue Nikolai Ogorodnikov (“Ogorodnikov”) a total of 63,380 shares of the Company’s restricted common stock in full and complete satisfaction of any and all claims which Ogorodnikov may have against the Company the pursuant to that certain Promissory Note by and between Ogorodnikov and the Company dated October 31, 2013. The total amount owed to Ogorodnikov was $45,000 and the shares are valued at $0.71 per share.
RESOLVED: That the Company’s transfer agent, Pacific Stock Transfer, is hereby authorized to issue the foregoing shares to Ogorodnikov at the following address: 228 S. Doheny Dr., Apt. #4, Beverly Hills, CA 90211.
There being no further business requiring board action or consideration, on motion duly made, and carried, the meeting was adjourned.
Matthew N. Wolfson
Sole Director
Exhibit 10.16
ELECTROMEDICAL TECHNOLOGIES, INC. AWARD AGREEMENT - 2017 EMPLOYEE AND CONSULTANT STOCK OWNERSHIP PLAN - OPTIONS
Participant Name: Alexander Pedenko Participant ID: N/A
Type of Option: Nonstatutory Stock Option Grant Date: 6/20/2019
Exercise Price: $0.71
Shares Granted: 100,000
Term and Vesting Date(s): Only if the participant is still a consultant or employee of Electromedical Technologies, Inc. as follows: (1) 50,000 shares on June 20, 2019 and (2) 50,000 shares on January 1, 2020. If the participant is not an employee or consultant of Electromedical Technologies on the Vesting Date, or if the participant is not employed or a consultant of Electromedical Technologies prior to exercising the Grant, the Grant shall automatically lapse and be terminated.
Expiration Date: June 30, 2022 Acceptance Date: June 20, 2019
This Award Agreement (referred to below as this “Agreement”) spells out the terms and conditions of the stock option (the “Option’”) granted to you by ElectroMedical Technologies, Inc., a Delaware corporation (the “Company”), pursuant to the 2017 Employee and Consultant Stock Option Plan (the “Plan”) on and as of the Grant Date designated above. Except as otherwise defined herein, capitalized terms used in this Agreement have the respective meanings set forth in the Plan. The Plan, as in effect on the date of this Agreement and as it may be amended from time to time, is incorporated into this Agreement by this reference.
You and the Company agree as follows:
| 1. | Grant of Stock Option. |
Pursuant to the approval and direction of the Administrator, the Company hereby grants you an Option to purchase all or any part of the number of Shares Granted set forth above of common stock of the Company, par value $0.00001 (“Common Stock”), at the per-share Exercise Price set forth above, which is 100% of the Fair Market Value of a share of Common Stock on the Grant Date, subject to the terms and conditions of the Plan and this Agreement. For the avoidance of doubt, only Incentive Stock Options, and not Nonstatutory Stock Options, will be treated as incentive stock options within the meaning of Code Section 422 and the Treasury Regulations promulgated thereunder. If you are not a resident or citizen of the United States, the Company is not liable to you for any loss, damage or liability you may incur in your country of residence by participating in the Plan and receiving this Award.
Page 1 of 6
| 2. | Vesting/Exercise/Expiration. |
The Employee or Consultant may not exercise the Option prior to each Vesting Date set forth above absent action by the Administrator to waive or alter such restrictions or as may be permitted under paragraphs 3, 4 or 5 below. Thereafter, except as hereinafter provided, the Employee or Consultant may exercise the Option, to the extent it is vested, at any time and from time to time until the close of business on the Expiration Date set forth above, subject, in the event of a Change in Control, to the Administrator’s exercise of its discretion under Section 9 of the Plan. The Option may be exercised to purchase any number of whole shares of Common Stock, except that no purchase shall be for less than ten (10) full shares, or the remaining unexercised shares, if less. Any Option is deemed to be “outstanding” until it has been exercised in full or expired pursuant to the terms of this Agreement.
| 3. | Forfeiture of Outstanding Options Following Termination of Service. |
Without limiting Sections 3(f)(11)-(iv) of the Plan and notwithstanding any provision of this Agreement to the contrary, your remaining rights to any Options pursuant to this Agreement, if any, shall immediately terminate if and when:
| (a) | if you are an employee receiving Incentive Stock Options, during your employment with the Company, you voluntary quit or resign, or if you are terminated for Cause as determined by the Administrator, then your right to exercise your Incentive Stock Options shall terminate as of the date of you cease to be employed by the Company, subject to the right of the Administrator to extend the exercise period of this Incentive Stock Options. For purposes of this Section 3, “Cause” means any one or more of the following, as determined by the Administrator in its sole discretion: |
| (b) | commission of a felony or any crime of moral turpitude; |
| (ii) | dishonesty or material violation of standards of integrity in the course of fulfilling your employment duties to the Company or any Parent or Subsidiary; |
| (iii) | material violation of a material written policy of the Company or any Parent or Subsidiary violation of which is grounds for immediate termination; |
| (iv) | willful and deliberate failure to perform your employment duties to the Company or any Parent or Subsidiary in any material respect, after reasonable notice of such failure and an opportunity to correct it; or |
| (v) | your failure to comply in any material respect with the Foreign Corrupt Practices Act, the Securities Act, the Exchange Act, the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, and the Truth in Negotiations Act, or any rules or regulations thereunder. |
| (b) | if you receive either Incentive Stock Options or Nonstatutory Stock Options, you violate any obligation that you may have to the Company during or after your employment or consultancy with the Company, including but not limited to any non-competition, non-solicitation, confidentiality, non-disparagement or other restrictive covenant, to which you have agreed either orally or in writing. |
Page 2 of 6
| 4. | Exercise Process. |
An Option may be exercised by giving written notice to ElectroMedical Technologies, Inc., Attention: Plan Administrator, 16561 N 92™ Street, Suite 101, Scottsdale, AZ 85260 (or such other address as the Company may specify). Alternatively, the Company may designate one or more third parties to administer the Option exercise process and direct you accordingly. The exercise notice (a) shall be signed by you or (in the event of your death) your legal representative, (b) shall specify the number of full shares then elected to be purchased, and (c) shall be accompanied by payment in full of the Exercise Price of the shares to be purchased. Payment may be made in cash or by check payable to the order of the Company, and such payment shall include any tax withholding obligation, as set forth in Section 8 below. Alternatively, the Administrator may allow for one or more of the following methods of exercising an Option:
| (a) | Payment for shares as to which an Option is being exercised and/or payment of any federal, state, local or other tax withholding obligations may be made by transfer to the Company of shares of Common Stock you already own, or any combination of such shares and cash, having a fair market value determined at the time of exercise of the Option equal to, but not exceeding, the Exercise Price and/or the tax withholding obligation, as the case may be. |
| (b) | A “same day sale” transaction pursuant to which a third party (engaged by your or the Company) loans funds to you to enable you to purchase the shares and pay any tax withholding obligations, and then sells a sufficient number of the exercised shares on your behalf to enable you to repay the loan and any fees. The remaining shares and/or cash are then delivered by the third party to you. |
| (c) | A “net exercise” transaction, pursuant to which the Company delivers to you the net number of whole shares remaining from the portion of the Option being exercised after deduction of a number of shares of Common Stock with a Fair Market Value equal to the exercise price and a number of shares of Common Stock with a Fair Market Value equal to the amount of any tax withholding obligations. |
As promptly as practicable after receipt of such notice and payment (including payment with respect to any tax withholding obligations), subject to Section 8 below, the Company shall cause to be issued and delivered to you (or in the event of your death to your legal representative, as the case may be), certificates for the shares of Common Stock so purchased. Alternatively, such shares may be issued and held in book entry form.
| 5. | Tax Withholding. |
The Company may make such provisions and take such actions as it may deem necessary or appropriate for the withholding of any Federal, state, local income and employment taxes and other taxes required by law to be withheld with respect to this Agreement, including, but not limited to, deducting the amount of any such withholding taxes from the amount to be paid hereunder, whether in Common Stock or in cash, or from any other amount then or thereafter payable to you, or requiring you or your beneficiary or legal representative to pay to the Company the amount required to be withheld or to execute such documents as the Administrator or its designee deems necessary or desirable to enable the Company to satisfy its withholding obligations. The Company may refuse to deliver Common Stock if you, your beneficiary or legal representative fail to comply with your or its obligations under this Section. Regardless of any action the Company takes with respect to any or all income tax, social security, payroll tax, payment on account or other tax-related withholding (“Taxes”) that you are required to bear pursuant to all applicable laws, any and all Taxes are your responsibility.
Page 3 of 6
| 6. | Limited Transferability. |
You may not sell, transfer, pledge, assign or otherwise alienate or hypothecate this Agreement (any rights thereunder), whether voluntarily or involuntarily or by operation of law, other than by beneficiary designation effective upon your death, by will or by the laws of intestacy. During your lifetime this Agreement and all rights granted hereunder shall be exercisable only by you. Notwithstanding the foregoing, you may transfer this Agreement, in whole or in part, in accordance with Section 3(f)(iv) of the Plan and subject to any conditions specified by the Administrator under the Plan.
| 7. | Rights as Shareholder. |
You shall have no rights as a shareholder of the Company with respect to the shares of Common Stock subject to this Agreement until such time as the purchase price has been paid and a certificate of stock for such shares has been issued to you or such shares of Common Stock have been recorded in your name in book entry form. Except as provided in Section 9 below, no adjustment shall be made for dividends or distributions or other rights with respect to such shares for which the record date is prior to the date on which you become the holder of record thereof. Anything herein to the contrary notwithstanding, if a law or any regulation of the Securities and Exchange Commission or of any other body having jurisdiction shall require the Company or you to take any action before shares of Common Stock can be delivered to you hereunder, then the date of delivery of such shares may be delayed accordingly.
8. Securities Laws.
Provided the Company is not subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, you hereby represent that you are acquiring the shares of Common Stock for investment and with no present intention of selling or transferring them and that you will not sell or otherwise transfer the shares except in compliance with all applicable securities laws and requirements of any stock exchange on which the shares of Common Stock may then be listed.
Page 4 of 6
The Company will use its best efforts to register the Option Shares on Form S-1 or such other form that is legally permissible.
| 9. | Change in Common Stock. |
In the event of any change in Common Stock by reason of any stock dividend, recapitalization, reorganization, split-up, merger, consolidation, exchange of shares, or of any similar change affecting Common Stock, the number of shares of Common Stock subject to this Agreement and the Exercise Price shall be equitably adjusted by the Administrator.
| 10. | No Guarantee of Employment or Retainer. |
Nothing in this Award Agreement shall interfere with or limit in any way the right of the Company or any of its subsidiaries to terminate your employment or consultancy at any time, nor confer upon you or any Employee or Consultant any right to continue in the employ of the Company or any of its Subsidiaries. No Employee or Consultant shall have a right to be selected to be granted an Option or any other Award under the Plan.
| 11. | Administrator Authority; Recoupment. |
It is expressly understood that the Administrator is authorized to administer, construe, and make all determinations necessary or appropriate for the administration of the Plan and this Agreement, including the enforcement of any recoupment policy, all of which shall be binding upon you and any claimant. Any inconsistency between this Agreement and the Plan shall be resolved in favor of the Plan.
| 12. | Amendment or Modification, Waiver. |
Except as set forth in the Plan, no provision of this Agreement may be amended or waived unless the amendment or waiver is agreed to in writing, signed by you and by a duly authorized officer of the Company. No waiver of any condition or provision of this Agreement shall be deemed a waiver of a similar or dissimilar condition or provision at the same time, any prior time or any subsequent time.
| 13. | Governing Law and Jurisdiction. |
This Agreement is governed by the substantive and procedural laws of the state of Delaware. You and the Company shall submit to the exclusive jurisdiction of, and venue in, the courts in Arizona in any dispute relating to this Agreement.
Page 5 of 6
| 14. | Conformity with Applicable Law. |
If any provision of this Agreement is determined to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect the validity, legality or enforceability of any other provision of this Agreement or the validity, legality or enforceability of such provision in any other jurisdiction, but this Agreement shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein.
| 15. | Successors. |
This Agreement shall be binding upon and inure to the benefit of any successor or successors of the Company and any person or persons who shall, upon your death, acquire any rights hereunder.
This Agreement contains highly sensitive and confidential information. Please handle it accordingly. Once you have read and understood this Agreement, please sign and date the document below to certify and confirm your agreement to be bound by the terms and conditions of this Agreement and to acknowledge your receipt of the disclosure documentation required by the Securities Act and Exchange Act (as applicable), the Plan and this Agreement and your acceptance of the terms and conditions of the Stock Option Award granted hereunder.
Subject to 409A ELECTROMEDICAL PARTICIPANT TECHNOLOGIES, IN¢ LLL a By: | By: Name: Matthew/Wolfson Name: Alexander Pedenko Title: CEO Employee/Consultant (strike out as applicable) For and on behalf of the Administrator Date: June 20, 2019 Date: June 20, 2019
Page 6 of 6
Exhibit 10.17
CONSENT ACTION OF THE BOARD OF DIRECTORS OF ELECTROMEDICAL TECHNOLOGIES, INC.
The undersigned, Matthew N. Wolfson, being the sole director of Electromedical Technologies, Inc., a Delaware corporation, (the “Company”), hereby unanimously consents to the following actions taken by the Company on October 11, 2019.
RESOLVED: To confirm the Consulting Agreement with PYP Enterprises dated July 1, 2019 by and between the Company and PYP Enterprises and to issue PYP Enterprises 10,000 shares of the Company restricted common stock valued at $0.71 per share.
RESOLVED: That Pacific Stock Transfer is hereby instructed to issue 10,000 shares of the Company’s restricted common stock to PYP Enterprises, 370 Melbourne Glen, Escondido, CA, 92026.
There being no further business requiring board action or consideration, on motion duly made, and carried, the meeting was adjourned.
 |
Matthew N. Wolfson
Sole Director
Exhibit 10.18
Consulting Agreement
This consulting agreement (the “Agreement”) is made and entered on this day 1st day of July, 2019 (the “Effective Date”) by and between PYP Enterprises (hereinafter referred to as the “Consultant”) and Electromedical Technologies, Inc. (hereinafter referred to as the “Client”).
| 1. | Services |
The Consultant will provide strategic business services to the Client, which may include: Assisting with the Compensation Plan, Consulting on MLM program, Website design and SEO consulting.
| 2. | Compensation and Reimbursement of Expenses |
The Client agrees to pay the Consultant a fixed fee of ten thousand (10,000) r e st r ic t e d common shares for the services provided. This fee shall cover services pursuant to Section 1 of this Agreement. The total amount owed per this agreement shall be deemed earned in full on September 30, 2019. For purposes of this agreement, the shares are va1ued at $0.71 per share.
The Consultant will maintain adequate documentation and records to support all costs invoiced to the Client including receipts for travel related expenses however, such expenses must be approved by the Client prior to being incurred by Consultant.
Payments made by the Client to the Consultant will not deduct any taxes and the Client will provide the Consultant with IRS Form 1099 at the end of each calendar year. For purposes of issuing IRS Form 1099, the Consultant will provide a social security number upon execution of his agreement.
The shares of Common Stock provided for a compensation to Consultant may not be sold or transferred unless:
(i) such shares are sold pursuant to an effective registration statement under the Act or (ii) the Consultant or its transfer agent shall have been furnished with an opinion of counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that the shares to be sold or transferred may be sold or transferred pursuant to an exemption from such registration (iii) such shares are sold or transferred pursuant to Rule 144 under the Act (or a successor rule) (“Rule 144”).
The certificate for shares of Common Stock has not been so included in an effective registration statement or that has not been sold pursuant to an effective registration statement or an exemption that permits removal of the legend, shall bear a legend substantially in the following form, as appropriate:
“NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HA VE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.”
| 3. | Term and Termination |
This agreement will commence on the effective date set forth and continue for a period of t h r e e months from the effective date unless terminated earlier. Either party may terminate this agreement at any time upon thirty-day (30) notification. The Client may at its option agree to renew, extend and revise this agreement prior to its expiration.
| 4. | Confidential Information |
Both parties acknowledge that there is an exchange of confidential and proprietary information associated with this agreement. Confidential and proprietary information may include documents, communications, plans, processes, formulations, data, know-how, financial information, techniques, methods, customers, suppliers, partners, patents, trademarks, designs, and other forms of tangible or intangible artifacts owned by the Client. Confidential and proprietary information does not include information within the public domain, information that has been publicly known prior to the execution of this agreement, or information that the Consultant developed independent of any confidential information.
The Consultant will not divulge, disseminate, publish or otherwise disclose any information without the prior consent of the Client. The Consultant will not use any information for purposes other than the performance of services described in this agreement. The Client agrees to not disclose confidential information to the Consultant except to the extent that the Consultant requires this information to fulfill the obligations within this agreement.
If the Client has any concerns over the sharing of sensitive information and requires additional control measures, the Consultant will establish secured means of information sharing that are mutually agreeable to both parties. These control measures may include restricting who can copy, print, or change documents during the course of the engagement.
| 5. | Indemnification |
Notwithstanding other provisions of this agreement, the Client shall indemnify, defend and hold harmless the Consultant against claims, liabilities, damages, losses or other obligations, which may arise from this agreement.
| 6. | Relationship of Parties |
The parties agree that this agreement creates an independent contractor relationship, not an employment relationship. Neither party is, nor shall claim to be, a legal agent, representative, partner, or employee of the other, and neither shall have the right or authority to contract in the name of the other, nor shall it assume or create any obligations, debts, accounts or liabilities for the other.
| 7. | Role of the Consultant |
The Consultant will not make management decisions on behalf of the Client. The role of the Consultant shall be advisory in nature with no perceived conflicts of interest prior to, during or after the engagement with the Client. This role will also extend to any third parties that the Consultant may use during the course of the engagement.
| 8. | Reliance on Client Provide Information |
Regarding any information or material that the Company furnishes to Consultant or any other entity in connection with this Agreement, the Company acknowledges and confirms that (i) Consultant will use and rely on such information and material without independently verifying the same, (ii) Consultant does not assume responsibility for the accuracy or completeness of any of the information or material, (iii) Consultant will not make any appraisal, evaluation or independent determination regarding such information or material or the Company and (iv) Consultants shall not have any liability in connection with such information or material. The Company represents to Consultant that the information and material to be furnished by the Company, when delivered, will be true, complete and correct in all material respects and will not contain any material misstatement of fact or omit to state any material fact necessary to make the statements contained therein not misleading. The Company shall promptly notify Consultants if it learns of any material inaccuracy or misstatement in, or material omission from, any information or material delivered to Consultant.
| 9. | Quality Assurance and Control |
In an effort to ensure that the Consultant provides high quality work, the Client will assign the CEO of the Client company to review and approve the work of the Consultant. In the event that the Consultant uses a third party, the Consultant is responsible for the quality of the work delivered by the third party.
| 10. | Non-Agent of Client |
It is understood that Consultant is not acting as agent or fiduciary of, and have no liabilities to, the equity holders of the Company or any other third party in connection with this Agreement or any introductions, services or transactions hereunder, all of which liabilities are expressly waived.
| 11. | Clawback |
The compensation granted under this agreement are subject to the terms of the client’s recoupment, clawback or similar policy as it may be in effect from time to time, as well as any similar provisions of applicable law, any of which could in certain circumstances (e.g. failure to perform throughout the term, gross negligence, violation of State laws, violation of SEC regulations) require repayment or forfeiture of compensation or any shares of Common Stock or other cash or property received.
| 12. | Governing Law |
This Agreement shall be governed by and interpreted in accordance with the laws of the state of A r i z o n a applicable to agreements negotiated, executed and to be performed in the state, without regard to the choice or conflicts of law rules or principles of that state. The parties hereto hereby consent to the jurisdiction of the state courts located in Scottdale, Arizona, over the parties and any disputes, claims, actions, suits and proceeding relating to this agreement or the transactions contemplated herein.
| 13. | NOTICES. All notices to be furnished pursuant to this Agreement shall be by email as follows: |
If to the Client: Matthew Wolfson
Email: CEO@electromed.com
With a copy to:
Eric P. Littman, Esquire
Email: littmanlaw@gmail.com
If to Consultant:
PYP Enterprises
Email: cgmusc@gmail.com
Exhibit 10.19
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement is dated as of this 25th day of March, 2019 by and between Matthew Wolfson (the “Seller”) and Nicholas Rosin (the “Buyer’).
WHEREAS, the Buyer is an employee of Electromedical Technologies, Inc., a Delaware company (the “Company’”); and
WHEREAS, Previously, the Seller has orally agreed to sell 25,000 shares of his shares of the Company (the “Shares”) to the Buyer for the par price per share Seller paid for his shares of the Company; and
WHEREAS, the Seller and Buyer agree that it is in their best interest to memorialize in writing the sale of the Shares.
NOW THEREFORE, in consideration of the mutual promises, covenants, representations and warranties contained herein, and other good and valuable consideration, and with the intent that, upon consummation of the transactions contemplated herein, and upon the terms set forth herein the parties hereby agree to as follows:
| 1. | The Seller agrees to sell, and Buyer agrees to purchase, the Shares for $2.50. |
| 2. | Seller represents that he has good and marketable title to the Shares. |
| 3. | The Shares will bear a restricted legend unless registered by the Company is a S-1 Registration Statement. |
| 4. | The Company will use its best efforts to register the Shares on Form S-1 or such other form that is legally permissible. |
IN WITNESS WHEREOF., the parties have executed this Agreement as of the date first written above.
SELLER: MATTHEW WOLFSON BUYER: NICHOLAS ROSIN
Weekes
Matinew/ffotison Nicholas Rosir’ a
ELECTROMEDICAL TECHNOLOGIES, INC. AWARD AGREEMENT - 2017 EMPLOYEE AND CONSULTANT STOCK OWNERSHIP PLAN - OPTIONS
Participant Name: Nicholas Rosin Participant ID: N/A
Type of Option: Nonstatutory Stock Option Grant Date: March 10, 2019
Exercise Price: $0.71
Shares Granted: 75,000
Term and Vesting Date(s): Only if the participant is still a consultant or employee of Electromedical Technologies, Inc. as follows: (1) 25,000 shares on January 1, 2020; (2) 25,000 shares on January 1, 2021; and (3) 25,000 shares on January 1, 2022. If the participant is not an employee or consultant of Electromedical Technologies on the Vesting Date, the Grant shall automatically lapse and be terminated.
Expiration Date: June 30, 2022 Acceptance Date: March 11, 2019
This Award Agreement (referred to below as this “Agreement”) spells out the terms and conditions of the stock option (the “Option”) granted to you by ElectroMedical Technologies, Inc., a Delaware corporation (the “Company”), pursuant to the 2017 Employee and Consultant Stock Option Plan (the “Plan”) on and as of the Grant Date designated above. Except as otherwise defined herein, capitalized terms used in this Agreement have the respective meanings set forth in the Plan. The Plan, as in effect on the date of this Agreement and as it may be amended from time to time, is incorporated into this Agreement by this reference.
You and the Company agree as follows:
| 1. | Grant of Stock Option. |
Pursuant to the approval and direction of the Administrator, the Company hereby grants you an Option to purchase all or any part of the number of Shares Granted set forth above of common stock of the Company, par value $0.00001 (“Common Stock”), at the per-share Exercise Price set forth above, which is 100% of the Fair Market Value of a share of Common Stock on the Grant Date, subject to the terms and conditions of the Plan and this Agreement. For the avoidance of doubt, only Incentive Stock Options, and not Nonstatutory Stock Options, will be treated as incentive stock
Page 1 of 6 options within the meaning of Code Section 422 and the Treasury Regulations promulgated thereunder. If you are not a resident or citizen of the United States, the Company is not liable to you for any loss, damage or liability you may incur in your country of residence by participating in the Plan and receiving this Award.
| 2. | Vesting/Exercise/Expiration. |
The Employee or Consultant may not exercise the Option prior to each Vesting Date set forth above absent action by the Administrator to waive or alter such restrictions or as may be permitted under paragraphs 3, 4 or 5 below. Thereafter, except as hereinafter provided, the Employee or Consultant may exercise the Option, to the extent it is vested, at any time and from time to time until the close of business on the Expiration Date set forth above, subject, in the event of a Change in Control, to the Administrator’s exercise of its discretion under Section 9 of the Plan. The Option may be exercised to purchase any number of whole shares of Common Stock, except that no purchase shall be for less than ten (10) full shares, or the remaining unexercised shares, if less. Any Option is deemed to be “outstanding” until it has been exercised in full or expired pursuant to the terms of this Agreement.
| 3. | Forfeiture of Outstanding Options Following Termination of Service. |
Without limiting Sections 3(f)(ii)-(iv) of the Plan and notwithstanding any provision of this Agreement to the contrary, your remaining rights to any Options pursuant to this Agreement, if any, shall immediately terminate if and when:
| (a) | if you are an employee receiving Incentive Stock Options, during your employment with the Company, you voluntary quit or resign, or if you are terminated for Cause as determined by the Administrator, then your right to exercise your Incentive Stock Options shall terminate as of the date of you cease to be employed by the Company, subject to the right of the Administrator to extend the exercise period of this Incentive Stock Options. For purposes of this Section 3, “Cause” means any one or more of the following, as determined by the Administrator in its sole discretion: |
| (b) | commission of a felony or any crime of moral turpitude; |
| (ii) | dishonesty or material violation of standards of integrity in the course of fulfilling your employment duties to the Company or any Parent or Subsidiary; |
| (iii) | material violation of a material written policy of the Company or any Parent or Subsidiary violation of which is grounds for immediate termination; |
| (iv) | willful and deliberate failure to perform your employment duties to the Company or any Parent |
or Subsidiary in any material respect, after reasonable notice of such failure and an opportunity to correct it; or
Page 2 of 6 (v) your failure to comply in any material respect with the Foreign Corrupt Practices Act, the Securities Act, the Exchange Act, the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, and the Truth in Negotiations Act, or any rules or regulations thereunder.
| (b) | if you receive either Incentive Stock Options or Nonstatutory Stock Options, you violate any obligation that you may have to the Company during or after your employment or consultancy with the Company, including but not limited to any non-competition, non-solicitation, confidentiality, non-disparagement or other restrictive covenant, to which you have agreed either orally or in writing. |
| 4. | Exercise Process. |
An Option may be exercised by giving written notice to ElectroMedical Technologies, Inc., Attention: Plan Administrator, 16561 N g2™4 Street, Suite 101, Scottsdale, AZ 85260 (or such other address as the Company may specify). Alternatively, the Company may designate one or more third parties to administer the Option exercise process and direct you accordingly. The exercise notice (a) shall be signed by you or (in the event of your death) your legal representative, (b) shall specify the number of full shares then elected to be purchased, and (c) shall be accompanied by payment in full of the Exercise Price of the shares to be purchased. Payment may be made in cash or by check payable to the order of the Company, and such payment shall include any tax withholding obligation, as set forth in Section 8 below. Alternatively, the Administrator may allow for one or more of the following methods of exercising an Option:
| (a) | Payment for shares as to which an Option is being exercised and/or payment of any federal, state, local or other tax withholding obligations may be made by transfer to the Company of shares of Common Stock you already own, or any combination of such shares and cash, having a fair market value determined at the time of exercise of the Option equal to, but not exceeding, the Exercise Price and/or the tax withholding obligation, as the case may be. |
| (b) | A “same day sale” transaction pursuant to which a third party (engaged by your or the Company) loans funds to you to enable you to purchase the shares and pay any tax withholding obligations, and then sells a sufficient number of the exercised shares on your behalf to enable you to repay the loan and any fees. The remaining shares and/or cash are then delivered by the third party to you. |
| (c) | A “net exercise” transaction, pursuant to which the Company delivers to you the net number of whole shares remaining from the portion of the Option being exercised after deduction of a number of shares of Common Stock with a Fair Market Value equal to the exercise price and a number of shares of Common Stock with a Fair Market Value equal to the amount of any tax withholding obligations. |
As promptly as practicable after receipt of such notice and payment (including payment with respect to any tax withholding obligations), subject to Section 8 below, the Company shall cause to
Page 3 of 6 be issued and delivered to you (or in the event of your death to your legal representative, as the case may be), certificates for the shares of Common Stock so purchased. Alternatively, such shares may be issued and held in book entry form.
| 5. | Tax Withholding. |
The Company may make such provisions and take such actions as it may deem necessary or appropriate for the withholding of any Federal, state, local income and employment taxes and other taxes required by law to be withheld with respect to this Agreement, including, but not limited to, deducting the amount of any such withholding taxes from the amount to be paid hereunder, whether in Common Stock or in cash, or from any other amount then or thereafter payable to you, or requiring you or your beneficiary or legal representative to pay to the Company the amount required to be withheld or to execute such documents as the Administrator or its designee deems necessary or desirable to enable the Company to satisfy its withholding obligations. The Company may refuse to deliver Common Stock if you, your beneficiary or legal representative fail to comply with your or its obligations under this Section. Regardless of any action the Company takes with respect to any or all income tax, social security, payroll tax, payment on account or other tax-related withholding (“Taxes”) that you are required to bear pursuant to all applicable laws, any and all Taxes are your responsibility.
| 6. | Limited Transferability. |
You may not sell, transfer, pledge, assign or otherwise alienate or hypothecate this Agreement (any rights thereunder), whether voluntarily or involuntarily or by operation of law, other than by beneficiary designation effective upon your death, by will or by the laws of intestacy. During your lifetime this Agreement and all rights granted hereunder shall be exercisable only by you. Notwithstanding the foregoing, you may transfer this Agreement, in whole or in part, in accordance with Section 3(f)(iv) of the Plan and subject to any conditions specified by the Administrator under the Plan.
| 7. | Rights as Shareholder. |
You shall have no rights as a shareholder of the Company with respect to the shares of Common Stock subject to this Agreement until such time as the purchase price has been paid and a certificate of stock for such shares has been issued to you or such shares of Common Stock have been recorded in your name in book entry form. Except as provided in Section 9 below, no adjustment shall be made for dividends or distributions or other rights with respect to such shares for which the record date is prior to the date on which you become the holder of record thereof. Anything herein to the contrary notwithstanding, if a law or any regulation of the Securities and Exchange Commission or of any other body having jurisdiction shall require the Company or you to take any action before shares of Common Stock can be delivered to you hereunder, then the date of delivery of such shares may be delayed accordingly.
Page 4 of 6 8. Securities Laws.
Provided the Company is not subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, you hereby represent that you are acquiring the shares of Common Stock for investment and with no present intention of selling or transferring them and that you will not sell or otherwise transfer the shares except in compliance with all applicable securities laws and requirements of any stock exchange on which the shares of Common Stock may then be listed. The Company will use its best efforts to register the Option Shares on Form S-1 or such other form that is legally permissible.
9, Change in Common Stock.
In the event of any change in Common Stock by reason of any stock dividend, recapitalization, reorganization, split-up, merger, consolidation, exchange of shares, or of any similar change affecting Common Stock, the number of shares of Common Stock subject to this Agreement and the Exercise Price shall be equitably adjusted by the Administrator.
| 10. | No Guarantee of Employment or Retainer. |
Nothing in this Award Agreement shall interfere with or limit in any way the right of the Company or any of its subsidiaries to terminate your employment or consultancy at any time, nor confer upon you or any Employee or Consultant any right to continue in the employ of the Company or any of its Subsidiaries. No Employee or Consultant shall have a right to be selected to be granted an Option or any other Award under the Plan.
| 11. | Administrator Authority; Recoupment. |
It is expressly understood that the Administrator is authorized to administer, construe, and make all determinations necessary or appropriate for the administration of the Plan and this Agreement, including the enforcement of any recoupment policy, all of which shall be binding upon you and any claimant. Any inconsistency between this Agreement and the Plan shall be resolved in favor of the Plan.
| 12. | Amendment or Modification, Waiver. |
Except as set forth in the Plan, no provision of this Agreement may be amended or waived unless the amendment or waiver is agreed to in writing, signed by you and by a duly authorized officer of the Company. No waiver of any condition or provision of this Agreement shall be deemed a waiver of a similar or dissimilar condition or provision at the same time, any prior time or any subsequent time.
Page 5 of 6 13. Governing Law and Jurisdiction. This Agreement is governed by the substantive and procedural laws of the state of Delaware. You and the Company shall submit to the exclusive jurisdiction of, and venue in, the courts in Arizona in any dispute relating to this Agreement.
| 14. | Conformity with Applicable Law. |
If any provision of this Agreement is determined to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect the validity, legality or enforceability of any other provision of this Agreement or the validity, legality or enforceability of such provision in any other jurisdiction, but this Agreement shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein.
| 15. | Successors. |
This Agreement shall be binding upon and inure to the benefit of any successor or successors of the Company and any person or persons who shall, upon your death, acquire any rights hereunder.
This Agreement contains highly sensitive and confidential information. Please handle it accordingly. Once you have read and understood this Agreement, please sign and date the document below to certify and confirm your agreement to be bound by the terms and conditions of this Agreement and to acknowledge your receipt of the disclosure documentation required by the Securities Act and Exchange Act (as applicable), the Plan and this Agreement and your acceptance of the terms and conditions of the Stock Option Award granted hereunder.
Subject to 409A
ELECTROMEDICAL PARTICIPANT TECHNOLOGIES, INC.
By: | By: Wy eee
Name: samnells Wolfson Name: Nicholas Rosin
Title: CEO Employee/Gensuttant (strike out as applicable)
For and on behalf of the Administrator
Date: March 11, 2019 Date: March 11, 2019
Page 6 of 6
Exhibit 10.20
Exhibit 10.21
CONVERTIBLE PROMISSORY NOTE
NEITHER THIS NOTE, NOR THE COMMON STOCK THIS NOTE IS CONVERTIBLE INTO, HAS, AS OF THE ISSUANCE DATE, BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR RECEIPT BY THE COMPANY OF AN OPINION OF COUNSEL IN THE FORM, SUBSTANCE AND SCOPE REASONABLY SATISFACTORY TO THE COMPANY, THAT THIS NOTE MAY BE SOLD, TRANSFERRED, OR OTHERWISE DISPOSED OF, UNDER AN EXEMPTION FROM REGISTRATION UNDER THE ACT AND SUCH STATE SECURITIES LAWS.
ELECTROMEDICAL TECHNOLOGIES, INC.
A Delaware Corporation
Convertible Promissory Note
Dated: December 11, 2019 (“Issuance Date”)
For value received, Electromedical Technologies, Inc., a Delaware corporation, (the “Company”), hereby promises to pay to Luis Michael Lu (together with his respective successors, representatives, transferees and permitted assigns, (collectively, the “Holder”), fifty thousand dollars ($50,000.00) (the “Principal Amount”). No interest accrues on the Principal Amount. Unless earlier converted into Conversion Shares (as defined below), the principal of this Note will be due and payable by the Company at any time on or after May 31, 2020 (“Maturity Date”) at the Company's election or upon demand by the Holder.
All payments under or pursuant to this Convertible Promissory Note refer to and shall be made in United States Dollars in immediately available funds to the Holder at the address of the Holder first set forth above or at such other place as the Holder may designate from time to time in writing to the Company or by wire transfer of funds to the Holder’s account, instructions for which are attached hereto as Exhibit A.
_____________________________________
RECITALS
Company is a corporation formed and operating in good standing under the laws of the State of Delaware. Company’s common stock is listed on the OTC Markets listing service under the trading symbol “ELCQ.” On November 12, 2019, Company filed a Form S-1 registration (the “registration”) with the U.S. Securities and Exchange Commission (“SEC”). As part of the registration, Company will make a direct offering of ten million (10,000,000) shares of registered common stock. As of the issuance date, the registration statement is not effective, and is subject to review, approval and the issuance of a notice of effectiveness from the SEC. After filing the registration statement, Company received communication from the SEC that it would review and issue comments to Company regarding the registration statement. As of the issuance date of this convertible promissory note, Company’s registration statement is not effective.
ARTICLE I
PAYMENT
Section 1.1 Payment. All payments will be made in lawful money of the United States of America at the principal office of the Company, or at such other place as the Holder may from time to time designate in writing to the Company. Prepayment of the principal amount may not be made without the written consent of the Holder, except in the event of a Corporate Transaction (as set forth in Section 3.2(d).
ARTICLE II
SECURITY
Section 2.1 Security. This Convertible Note is a general unsecured obligation of the Company.
ARTICLE III
CONVERSION
Section 3.1 Conversion. This Convertible Promissory Note will be convertible into Equity Securities pursuant to the following terms.
Section 3.2 Definitions.
(a) "Common Stock" means the Company's common stock, par value US $0.0001 per share.
(b) "Conversion Shares," for purposes of determining the type of Equity Securities issuable upon conversion of this Convertible Promissory Note, means:
(i) with respect to a conversion pursuant to Section 3.2, (a) shares of the Equity Securities eligible to be sold in the direct offering of Company pursuant to its pending registration statement with the SEC; or (B) in the event that Company’s registration statement is not made effective by the SEC, shares of unregistered restricted common stock;
(c) "Conversion Price," means seventy-one cents ($0.71) per share.
2
(d) "Corporate Transaction" means:
(i) the closing of the sale, transfer or other disposition, in a single transaction or series of related transactions, of all or substantially all of the Company's assets;
(ii) the consummation of a merger or consolidation of the Company with or into another entity (except a merger or consolidation in which the holders of capital stock of the Company immediately prior to such merger or consolidation continue to hold a majority of the outstanding voting securities of the capital stock of the Company or the surviving or acquiring entity immediately following the consummation of such transaction); or
(iii) the closing of the transfer (whether by merger, consolidation or otherwise), in a single transaction or series of related transactions, to a "person" or "group" (within the meaning of Section 13(d) and Section 14(d) of the Exchange Act), of the Company's capital stock if, after such closing, such person or group would become the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of more than 50% of the outstanding voting securities of the Company (or the surviving or acquiring entity).
For the avoidance of doubt, a transaction will not constitute a "Corporate Transaction" if its sole purpose is to change the state of the Company's incorporation or to create a holding company that will be owned in substantially the same proportions by the persons who held the Company's securities immediately prior to such transaction. Notwithstanding the foregoing, the sale of Equity Securities in a bona fide financing transaction will not be deemed a "Corporate Transaction."
(e) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
Section 3.3 Corporate Transaction Conversion. In the event of a Corporate Transaction prior to the conversion of this Note pursuant to Section 3.2 or the repayment of this Note, at the closing of such Corporate Transaction, the Holder may elect that either: (a) the Company will pay the Holder an amount equal to the sum of the outstanding principal balance of this Note; or (b) this Note will convert into that number of Conversion Shares equal to the quotient (rounded down to the nearest whole share) obtained by dividing (x) the outstanding principal balance by (y) the applicable Conversion Price.
Section 3.4 Maturity Conversion. At any time on or after the Maturity Date, at the election of the Holder, this Note will convert into that number of Conversion Shares equal to the quotient (rounded down to the nearest whole share) obtained by dividing (x) the outstanding principal balance of this Note on the date of such conversion by (y) the Conversion Price.
Section 3.5 Pre-Maturity Conversion. At any time after the issuance date, at the election of the Holder, this Convertible Promissory Note will convert into that number of Conversion Shares equal to the quotient (rounded down to the nearest whole share) obtained by dividing (x) the outstanding principal balance of this Note on the date of such conversion by (y) the Conversion Price.
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(a) In the event Holder elects a Pre-Maturity Conversion, and Company’s registration statement has not been made effective by the SEC, Holder shall receive Company’s restricted common stock in an amount equal to that number of Conversion Shares equal to the quotient (rounded down to the nearest whole share) obtained by dividing (x) the outstanding principal balance of this Note on the date of such conversion by (y) the Conversion Price.
Section 3.6 Mechanics of Conversion. Holder shall deliver to Company a copy of this Note and a Notice of Election to Convert in the form attached hereto as Exhibit B.
(a) Certificates. As promptly as practicable after the conversion of this Note and the issuance of the Conversion Shares, the Company (at its expense) will issue and deliver a certificate or certificates evidencing the Conversion Shares (if certificated) to the Holder, or if the Conversion Shares are not certificated, will deliver a true and correct copy of the Company's share register reflecting the Conversion Shares held by the Holder. The Company will not be required to issue or deliver the Conversion Shares until the Holder has surrendered this Note to the Company (or provided an instrument of cancellation or affidavit of loss).
(b) Fractional Shares. No fractional shares of Common Stock shall be issued upon conversion of this Note.
(c) No Impairment. The Company shall not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company under this Note, but will at all times in good faith, assist in the carrying out of all the provisions of this Note, and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the Holder against impairment.
(d) Replacement. Upon receipt of a duly executed, notarized and unsecured written statement from the Holder with respect to the loss, theft or destruction of this Note (or any replacement hereof), and without requiring an indemnity bond or other security, or, in the case of a mutilation of this Note, upon surrender and cancellation of such Note, the Company shall issue a new Note, of like tenor and amount, in lieu of such lost, stolen, destroyed or mutilated Note.
(e) Reservation of Common Stock. The Company shall at all times when this Note shall be outstanding, reserve and keep available out of its authorized but unissued Common Stock, such number of shares of Common Stock as shall from time to time be sufficient to effect the conversion of this Note.
(f) The Company shall, from time to time in accordance with Delaware corporate law, increase the authorized number of shares of Common Stock if at any time the unissued number of authorized shares shall not be sufficient to satisfy the Company’s obligations under this Note.
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(g) No Rights as Shareholder. Nothing contained in this Note shall be construed as conferring upon the Holder, prior to the conversion of this Note, the right to vote or to receive dividends or to consent or to receive notice as a shareholder in respect of any meeting of shareholders for the election of directors of the Company or of any other matter, or any other rights as a shareholder of the Company.
ARTICLE IV
REPRESENTATIONS OF THE COMPANY
Representations and Warranties of the Company. In connection with the transactions contemplated by this Note, the Company hereby represents and warrants to the Holder as follows:
Section 4.1 Due Organization; Qualification and Good Standing. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to carry on its business as now conducted. The Company is duly qualified to transact business and is in good standing in each jurisdiction in which the failure to so qualify or to be in good standing would have a material adverse effect on the Company.
Section 4.2 Authorization and Enforceability. Except for the authorization and issuance of the Conversion Shares, all corporate action has been taken on the part of the Company and its officers, directors and stockholders necessary for the authorization, execution and delivery of this Note. Except as may be limited by applicable bankruptcy, insolvency, reorganization or similar laws relating to or affecting the enforcement of creditors' rights, the Company has taken all corporate action required to make all of the obligations of the Company reflected in the provisions of this Note valid and enforceable in accordance with its terms.
Section 4.3 Company provided Holder with full access to all information about Company Holder requested and considered necessary or appropriate to make an informed investment decision with respect to the Convertible Promissory Note, and the Conversion Shares which may be acquired by Holder as a result of this Convertible Promissory Note, including reference to all SEC filings made by Company and its audited financial statements and risk factors in its registration statement. Company further answered all questions of Holder, and provided additional information necessary to verify any information furnished to Holder or to which Holder had access.
ARTICLE V
REPRESENTATIONS OF THE HOLDER
Representations and Warranties of the Holder. In connection with the transactions contemplated by this Note, the Holder hereby represents and warrants to the Company as follows:
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Section 5.1 Authorization. The Holder has full power and authority (and, if an individual, the capacity) to enter into this Note and to perform all obligations required to be performed by it hereunder. This Note, when executed and delivered by the Holder, will constitute the Holder's valid and legally binding obligation, enforceable in accordance with its terms, except (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and any other laws of general application affecting enforcement of creditors' rights generally, and (b) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies.
Section 5.2 Purchase Entirely for Own Account. The Holder acknowledges that this Note is made with the Holder in reliance upon the Holder's representation to the Company, which the Holder hereby confirms by executing this Note, that this Note, the Conversion Shares, and any Common Stock issuable upon conversion of the Conversion Shares (collectively, the "Securities") will be acquired for investment for the Holder's own account, not as a nominee or agent (unless otherwise specified on the Holder's signature page hereto), and not with a view to the resale or distribution of any part thereof, and that the Holder has no present intention of selling, granting any participation in, or otherwise distributing the same. By executing this Note, the Holder further represents that the Holder does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participations to such person or to any third person, with respect to the Securities. If other than an individual, the Holder also represents it has not been organized solely for the purpose of acquiring the Securities.
Section 5.3 Disclosure of Information; Non-Reliance. The Holder acknowledges that he has received all the information he considers necessary or appropriate to enable him to make an informed decision concerning an investment in the Securities. The Holder further represents that he has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of the Securities. The Holder confirms that the Company has not given any guarantee or representation as to the potential success, return, effect or benefit (either legal, regulatory, tax, financial, accounting or otherwise) of an investment in the Securities. In deciding to purchase the Securities, the Holder is not relying on the advice or recommendations of the Company and has made his own independent decision that the investment in the Securities is suitable and appropriate for the Holder. The Holder understands that no federal or state agency has passed upon the merits or risks of an investment in the Securities or made any finding or determination concerning the fairness or advisability of this investment.
Section 5.4 Investment Experience. The Holder is an investor in securities of companies in the development stage and acknowledges that he is able to fend for himself, can bear the economic risk of his investment and has such knowledge and experience in financial or business matters that he is capable of evaluating the merits and risks of the investment in the Securities.
Section 5.5 Accredited Investor. The Holder is an "accredited investor" within the meaning of Rule 501 of Regulation D promulgated under the Securities Act. The Holder agrees to furnish any additional information requested by the Company or any of its affiliates to assure compliance with applicable U.S. federal and state securities laws in connection with the purchase and sale of the Securities.
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Section 5.6 Restricted Securities. The Holder understands that the SEC has not made Company’s registration effective as of the Issuance Date. As a result, there is material uncertainty concerning if and when the SEC may deem the Company’s registration effective, and this may materially impact the Company’s ability to sell registered freely tradable shares to Holder in the event Holder elects to convert prior to SEC effectiveness. In the event that the SEC does not make Company’s registration effective, or there is a delay in obtaining SEC effectiveness, and Holder elects to convert the principal amount due in this Note into common stock, Holder understands that he will receive "restricted securities" under U.S. federal and applicable state securities laws and that, pursuant to these laws, the Holder must hold the Securities indefinitely unless and until they are registered with the SEC and registered or qualified by state authorities, or an exemption from such registration and qualification requirements is available. The Holder acknowledges that whether an exemption from registration or qualification is available, may be conditioned on various requirements including, but not limited to, the time and manner of sale, the holding period for the Securities, and on requirements relating to the Company which are outside of the Holder's control, and which the Company is under no obligation, and may not be able, to satisfy.
(a) No Public Market. The Holder understands that no public market now exists for the Securities and that the Company has made no assurances that a public market will ever exist for the Securities.
(b) No General Solicitation. The Holder has not either directly or indirectly, including through a broker or finder, solicited offers for or offered or sold the Securities by means of any form of general solicitation or general advertising within the meaning of Rule 502 of Regulation D under the Securities Act or in any manner involving a public offering within the meaning of Section 4(a)(2) of the Securities Act. The Holder acknowledges that neither the Company nor any other person offered to sell the Securities to it by means of any form of general solicitation or advertising within the meaning of Rule 502 of Regulation D under the Securities Act or in any manner involving a public offering within the meaning of Section 4(a)(2) of the Securities Act.
(c) Investment Experience. Holder understands that his acquisition of the Securities involves substantial risk. Holder has experience as an investor in securities of private companies and companies in the development stage and acknowledges that Holder is able to fend for himself, can bear the economic risk of his investment in the Securities and has such knowledge and experience in financial or business matters that Holder is capable of evaluating the merits and risks of this investment in the Securities and protecting his own interests in connection with this investment.
(d) Compliance with Laws. Without in any way limiting the representations set forth above, Holder further agrees not to make any disposition of all or any portion of the Securities, except in compliance with applicable securities laws.
(e) Legend. It is understood that the certificates evidencing the shares of restricted securities will bear a legend substantially in the form set forth below.
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THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR UNDER THE SECURITIES LAWS OF ANY OTHER JURISDICTION. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. PURCHASERS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
(f) Disclosure of Information. Holder has received or has had full access to all the information Holder considers necessary or appropriate to make an informed investment decision with respect to the Securities to be acquired by Holder as a result of this Note. Holder further has had an opportunity to ask questions of and receive answers from the management of Company regarding the Securities, and to obtain additional information necessary to verify any information furnished to Holder or to which Holder had access. Further, Holder has undertaken its own review of the business of Company and the wisdom of an investment in the Company Securities. Holder has had the opportunity to review all of the books, records and all SEC filings of Company, including all Company audited financial statements, financial disclosures and risk factors that Company has published concerning its operations. Holder acknowledges being knowledgeable about companies in the development stage, and the risk factors associated with such companies.
ARTICLE VI
MISCELLANEOUS
Section 6.1 Successors and Assigns. Except as otherwise provided herein, the terms and conditions of this Note will inure to the benefit of, and be binding upon, the respective successors and assigns of the parties; provided, however, that the Company may not assign its obligations under this Note without the written consent of the Holder. This Note is for the sole benefit of the parties hereto and their respective successors and permitted assigns, and nothing herein, express or implied, is intended to or will confer upon any other person or entity any legal or equitable right, benefit or remedy of any nature whatsoever under or by reason of this Note.
Section 6.2 Choice of Law. This Note, and all matters arising out of or relating to this Note, whether sounding in contract, tort, or statute will be governed by and construed in accordance with the internal laws of the State of Delaware, without giving effect to the conflict of laws provisions thereof to the extent such principles or rules would require or permit the application of the laws of any jurisdiction other than those of the State of Delaware.
Section 6.3 Counterparts. This Note may be executed in counterparts, each of which will be deemed an original, but all of which together will be deemed to be one and the same agreement. Counterparts may be delivered via facsimile, electronic mail (including PDF or any electronic signature complying with the U.S. federal ESIGN Act of 2000, e.g., www.docusign.com) or other transmission method, and any counterpart so delivered will be deemed to have been duly and validly delivered and be valid and effective for all purposes.
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Section 6.4 Titles and Subtitles. The titles and subtitles used in this Note are included for convenience only and are not to be considered in construing or interpreting this Note.
Section 6.5 Notices. All notices and other communications given or made pursuant hereto will be in writing and will be deemed effectively given: (a) upon personal delivery to the party to be notified; (b) when sent by email or confirmed facsimile; (c) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid; or (d) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications will be sent to the respective parties at the addresses shown on the signature pages hereto (or to such email address, facsimile number or other address as subsequently modified by written notice given in accordance with this Section 6.5).
Section 6.6 No Finder's Fee. Each party represents that it neither is nor will be obligated to pay any finder's fee, broker's fee or commission in connection with the transactions contemplated by this Note. The Holder agrees to indemnify and to hold the Company harmless from any liability for any commission or compensation in the nature of a finder's or broker's fee arising out of the transactions contemplated by this Note (and the costs and expenses of defending against such liability or asserted liability) for which the Holder or any of its officers, employees or representatives is responsible. The Company agrees to indemnify and hold the Holder harmless from any liability for any commission or compensation in the nature of a finder's or broker's fee arising out of the transactions contemplated by this Note (and the costs and expenses of defending against such liability or asserted liability) for which the Company or any of its officers, employees or representatives is responsible.
Section 6.7 Attorneys' Fees. If any action at law or in equity is necessary to enforce or interpret the terms of this Note, the prevailing party will be entitled to reasonable attorneys' fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled.
Section 6.8 Entire Agreement; Amendments and Waivers. This Note constitutes the full and entire understanding and agreement between the parties with regard to the subject hereof. Any term of this Note may be amended and the observance of any term may be waived (either generally or in a particular instance and either retroactively or prospectively) with the written consent of the Company and the Holder. Any waiver or amendment effected in accordance with this Section 6.8 will be binding upon each future holder of this Note and the Company.
Section 6.9 Severability. If one or more provisions of this Note are held to be unenforceable under applicable law, such provisions will be excluded from this Note and the balance of the Note will be interpreted as if such provisions were so excluded and this Note will be enforceable in accordance with its terms.
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Section 6.10 Acknowledgment. For the avoidance of doubt, it is acknowledged that the Holder will be entitled to the benefit of all adjustments in the number of shares of the Company's capital stock as a result of any splits, recapitalizations, combinations or other similar transactions affecting the Company's capital stock underlying the Conversion Shares that occur prior to the conversion of this Note.
Section 6.11 Further Assurances. From time to time, the parties will execute and deliver such additional documents and will provide such additional information as may reasonably be required to carry out the terms of this Note and any agreements executed in connection herewith.
Section 6.12 Officers and Directors not Liable. In no event will any officer or director of the Company be liable for any amounts due and payable pursuant to this Note.
Section 6.13 Approval. The Company hereby represents that its board of directors, in the exercise of its fiduciary duty, has approved the Company's execution of this Note based upon a reasonable belief that the principal provided hereunder is appropriate for the Company after reasonable inquiry concerning the Company's financing objectives and financial situation. In addition, the Company hereby represents that it intends to use the principal of this Note primarily for the operations of its business, and not for any personal, family or household purpose.
Section 6.14 Waiver of Jury Trial. EACH PARTY HEREBY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS NOTE, THE SECURITIES OR THE SUBJECT MATTER HEREOF OR THEREOF. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION, INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS (INCLUDING NEGLIGENCE), BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. THIS SECTION HAS BEEN FULLY DISCUSSED BY EACH OF THE PARTIES HERETO AND THESE PROVISIONS WILL NOT BE SUBJECT TO ANY EXCEPTIONS. EACH PARTY HERETO HEREBY FURTHER REPRESENTS AND WARRANTS THAT SUCH PARTY HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT SUCH PARTY KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
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| Dated: December 11, 2019 | ||||
| Luis Lu [HOLDER] | ||||
| By: | /s/ Luis Michael Lu | |||
| Luis Michael Lu | ||||
| 4480 S Rosemary Place | ||||
| Chandler, AZ 85248 | ||||
| 814-335-5274 | ||||
| mdeyes203@hotmail.com | ||||
| ELECTROMEDICAL TECHNOLOGIES, INC. | |||
| By: | |||
| Matthew N. Wolfson | |||
| President, Chief Executive Officer | |||
| Electromedical Technologies, Inc. | |||
| 16561 N 92ND Street, Suite 101 | |||
| Scottsdale, AZ 85260 | |||
| Email: ceo@electromedtech.com | |||
| Attention: Mr. Matthew Wolfson | |||
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Exhibit 10.22
Consulting AgreementThis consulting agreement (the "Agreement") is made and entered on this day 2/11/20 (the "Effective Date") by and between Robert L. Hymers III (hereinafter referred to as the "Consultant") and Electromedical Technologies, Inc. (hereinafter referred to as the "Client" or "ELCQ").1. ServicesThe Consultant will provide strategic business and business services to the Client, which may include:• Financial Consulting assistance with review of quarterly and annual filings with OTC Markets • Corporate Governance and Compliance • Communication and coordination of document transfers to auditors and review • Assistance with negotiation deals and review and drafting of corresponding agreements • Communication with SEC attorney to complete resolutions and regulatory filingsThe scope of services will be subject to change from time to time as agreed to between the Consultant and the Client. The Consultant will also provide briefings, updates and other forms of communication to keep the Client informed regarding the progress of the work.The services will be rendered from the Consultant's location and/or the Client's location subject to change as necessary to properly service the Client. The Consultant will perform the services in a competent and professional manner. The Consultant will comply with applicable laws. The Consultant shall be responsible for all taxes on any compensation.2. Compensation and Reimbursement of ExpensesThe Client agrees to pay the Consultant a fixed fee of two hundred thousand (200,000) common shares for the services provided. This fee shall cover 12 months of services pursuant to Section 3 of this Agreement. The total amount owed per this agreement shall be deemed earned in full upon the execution of this agreement (i.e., February 11, 2020) and shall not vest over time. For purposes of this agreement, the shares are valued at $.30 per share. The Company shall register these shares on a best efforts basis on its next registration statement (Form S1) to be filed with the Commission.The Consultant will maintain adequate documentation and records to support all costs1
invoiced to the Client including receipts for travel related expenses however, such expenses must be approved by the Client prior to being incurred by Consultant.Payments made by the Client to the Consultant will not deduct any taxes and the Client will provide the Consultant with IRS Form 1099 at the end of each calendar year. For purposes of issuing IRS Form 1099, the Consultant will provide a social security number upon execution of his agreement.The shares of Common Stock provided for a compensation to Consultant may not be sold or transferred unless:(i) such shares are sold pursuant to an effective registration statement under the Act or (ii) the Consultant or its transfer agent shall have been furnished with an opinion of counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that the shares to be sold or transferred may be sold or transferred pursuant to an exemption from such registration (iii) such shares are sold or transferred pursuant to Rule 144 under the Act (or a successor rule) ("Rule 144").The certificate for shares of Common Stock has not been so included in an effective registration statement or that has not been sold pursuant to an effective registration statement or an exemption that permits removal of the legend, shall bear a legend substantially in the following form, as appropriate:"NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HA VE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES."3. Term and TerminationThis agreement will commence on the effective date set forth and continue for a period of twelve months from the effective date unless terminated earlier. Either party may terminate this agreement at any time upon thirty-day (30) notification. The2
Client may at its option agree to renew, extend and revise this agreement prior to its expiration.4. Confidential InformationBoth parties acknowledge that there is an exchange of confidential and proprietary information associated with this agreement. Confidential and proprietary information may include documents, communications, plans, processes, formulations, data, know how, financial information, techniques, methods, customers, suppliers, partners, patents, trademarks, designs, and other forms of tangible or intangible artifacts owned by the Client. Confidential and proprietary information does not include information within the public domain, information that has been publicly known prior to the execution of this agreement, or information that the Consultant developed independent of any confidential information.The Consultant will not divulge, disseminate, publish or otherwise disclose any information without the prior consent of the Client. The Consultant will not use any information for purposes other than the performance of services described in this agreement. The Client agrees to not disclose confidential information to the Consultant except to the extent that the Consultant requires this information to fulfill the obligations within this agreement.If the Client has any concerns over the sharing of sensitive information and requires additional control measures, the Consultant will establish secured means of information sharing that are mutually agreeable to both parties. These control measures may include restricting who can copy, print, or change documents during the course ofthe engagement.5. IndemnificationNot withstanding other provisions of this agreement, the Client shall indemnify, defend and hold harmless the Consultant against claims, liabilities, damages, losses or other obligations, which may arise from this agreement.6. Relationship of PartiesThe parties agree that this agreement creates an independent contractor relationship, not an employment relationship. Neither party is, nor shall claim to be, a legal agent, representative, partner, or employee of the other, and neither shall have the right or authority to contract in the name of the other, nor shall it assume or create any obligations, debts, accounts or liabilities for the other.7. Role of the ConsultantThe Consultant will not make management decisions on behalf of the Client. The role of 3
the Consultant shall be advisory in nature with no perceived conflicts of interest prior to, during or after the engagement with the Client. This role will also extend to any third parties that the Consultant may use during the course of the engagement.8. Reliance on Client Provide InformationRegarding any information or material that the Company furnishes to Consultant or any other entity in connection with this Agreement, the Company acknowledges and confirms that (i) Consultant will use and rely on such information and material without independently verifying the same, (ii) Consultant does not assume responsibility for the accuracy or completeness of any of the information or material, (iii) Consultant will not make any appraisal, evaluation or independent determination regarding such information or material or the Company and (iv) Consultants shall not have any liability in connection with such information or material. The Company represents to Consultant that the information and material to be furnished by the Company, when delivered, will be true, complete and correct in all material respects and will not contain any material misstatement of fact or omit to state any material fact necessary to make the statements contained therein not misleading. The Company shall promptly notify Consultants if it learns of any material inaccuracy or misstatement in, or material omission from, any information or material delivered to Consultant.9. Quality Assurance and ControlIn an effort to ensure that the Consultant provides high quality work, the Client will assign the CEO of the Client company to review and approve the work of the Consultant. In the event that the Consultant uses a third party, the Consultant is responsible for the quality of the work delivered by the third party.10. Non-Agent of ClientIt is understood that Consultant is not acting as agent or fiduciary of, and have no liabilities to, the equity holders of the Company or any other third party in connection with this Agreement or any introductions, services or transactions hereunder, all of which liabilities are expressly waived.11. Governing LawThis Agreement shall be governed by and interpreted in accordance with the laws of the state of California applicable to agreements negotiated, executed and to be performed in the state, without regard to the choice or conflicts of law rules or principles of that state. The parties hereto hereby consent to the jurisdiction of the state courts located in Los Angeles, California over the parties and any disputes, claims, actions, suits and4
proceeding relating to this agreement or the transactions contemplated herein.12. Entire AgreementThis agreement represents the entire understanding of the parties superseding all prior agreements, understandings and discussions whether conveyed orally or in writing, and there are no other warranties, commitments, understandings or representations with respect to this agreement. I represent that I have the authority to enter into this agreement:Consultant ClientXName: Robert L Hymers III Name: Matthew Wolfson Title: President and CEO Electromedical Technologies, Inc.5
SPECIAL MEETING & RESOLUTION OF THE DIRECTORS ELECTROMEDICAL TECHNOLOGIES, INC. A Delaware CorporationThe undersigned, being all the Directors of Electromedical Technologies, Inc., a Delaware Corporation (the "Company"), hereby adopt the following recitals and resolutions after the holding of a Special Meeting of the Board of Directors pursuant to the Company's By Laws, effective as of February 11,2020, the Directors hereby waiving all notice of, and the holding of, a meeting of the directors to act upon such matters and resolutions, pursuant to the Delaware Corporate Law and the Company's By-Laws. Notice of the Special Meeting having been waived verbally by the Directors present at the Special Meeting, a quorum was found to be present sufficient to conduct business.RECITALSWHEREAS, on February 11, 2020, the Company entered into a consulting agreement with Robert L.Hymers III.WHEREAS, as consideration for the services rendered by Mr. Hymers, the Company agreed to issue him 200,000 shares of its common stock at the price of$.30 per share (total value of$60,000). WHEREAS, for good cause appearing, the Company HEREBY RESOLVES: to issue Robert L. Hymers III 200,000 shares of the Company's fully paid and non- assessable common stock, as follows:Robert L. Hymers III; address: 520 S. Grand Ave, Suite 320, Los Angeles, CA 90071; SSN ###-##-####,RESOLVED FURTHER, that the appropriate Officers of the Company be, and they hereby are, authorized and empowered to execute such documents, take such steps and perform such acts as, in their judgment, may be necessary or convenient in carrying out the foregoing resolutions consistent with the Company's By Laws, including placing this Resolution in the appropriate Books and Records of the Company, and that any such documents executed or acts taken by them shall be conclusive evidence of authority in so doing.IN WITNESS WHEREOF, the undersigned have executed this Resolution as of date first written above.ALL DIRECTORS OF ELECTROMEDICAL TECHNOLOGIES, INC.President, CE , irector Electromedical Technologies, Inc.Page 1 of 1
Exhibit 10.23
Exhibit 10.24
Exhibit 10.25
CONSENT ACTION OF THE BOARD OF DIRECTORS OF ELECTROMEDICAL TECHNOLOGIES, INC. The undersigned, Matthew N. Wolfson, being the sole director of Electromedical Technologies, Inc., a Delaware corporation, (the "Company"), hereby unanimously consent to the following actions taken on Company on October 25, 2019. RESOLVED: Due to a mathematical error on the part of the Company, to issue lakovos Tsakalidis ("Tsakalidis") an additional 7,567 shares of the Company's restricted common stock in full and complete satisfaction of any and all claims which Tsakalidis may have against the Company pursuant to that certain Promissory Note by and between Tsakalidis and the Company dated December 31, 2015. The shares are valued at $0.71 per share. RESOLVED: That the Company's transfer agent, Pacific Stock Transfer, is hereby authorized to issue the foregoing shares to Tsakalidis at the following address: 6940 E. Double Tree Ranch Rd., Paradise Valley, AZ 85253. There being no further business requiring board action or consideration, on motion duly made, and carried, the meeting was adjourned. Matthew N Wolfson Sole Director
Exhibit 10.26
CONSENT ACTION OF THE BOARD OF DIRECTORS OF ELECTROMEDICAL TECHNOLOGIES, INC. The undersigned, Matthew N. Wolfson, being the sole director of Electromedical Technologies, Inc., a Delaware corporation, (the "Company"), hereby unanimously consent to the following actions taken on Company on October 25, 2019. RESOLVED: Due to a mathematical error on the part of the Company, to issue Nikolai Ogorodnikov ("Ogorodnikov") an additional 835 shares of the Company's restricted common stock in full and complete satisfaction of any and all claims which Ogorodnikov may have against the Company the pursuant to that certain Promissory Note by and between Ogorodnikov and the Company dated October 31, 2013. The shares are valued at $0.71 per share. RESOLVED: That the Company's transfer agent, Pacific Stock Transfer, is hereby authorized to issue the foregoing shares to Ogorodnikov at the following address: 228 S. Doheny Dr., Apt. #4, Beverly Hills, CA 90211. There being no further business requiring board action or consideration, on motion duly made, and carried, the meeting was adjourned. Matthew N. Wolfson Sole Director
Exhibit 10.27
ADDENDUM TO SERIES 1 KISS AGREEMENT This Addendum to Series 1 Kiss Agreement ("Agreement") is entered into as of the 22nd day of March, 2019 by and between Electromedical Technologies, Inc., a Delaware corporation (the "Company"), and Blue Ridge Enterprises, LLC, a California Limited Liability Corporation ("BRE"). WHEREAS, on July 9, 2018 the Company and BRE entered into a Series 1 Kiss Agreement in the amount of $35,000; and WHEREAS, the funding for the Kiss Agreement was not fulfilled until November 1, 2018. NOW THEREFORE, in consideration of the mutual covenants and agreements set forth herein, and for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties hereby agree as follows: 1. The date of issuance for the Kiss Agreement is amended 2018 from July 9, 2018 to November 1. The contributions by Donald Steinberg, individually, to the Company in the amounts of(A) $10,000 on May 30, 2018; (B) $10,000 on June 18, 2018; and (C) $15,000 on November 1, 2018 are hereby credited to the Agreement. 2. All other terms and conditions of the Agreement shall remain in full force and effect. AGREED to the date written above. ELECTROMEDIC L TECHNOLOGIES, INC. By: Matthew N. Wolfson, CEO BLUE RIDGE ENTERPRISES, LLC By: Donald Steinberg, Managing Member Page 1 of 11
Exhibit 10.28
NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES. Principal Amount: US$25,000 Date: May__, 2018 CONVERTIBLE PROMISSORY NOTE ELECTROMEDICAL TECHNOLOGIES, INC., a Delaware corporation (hereinafter called the "Issuer"), and the Issuer hereby promises to pay to the order of BEN AND CAROL HOWDEN, or their registered assigns (the "Holder") the sum of US$25,000 together with any interest as set forth herein, on June 1, 2020 (the "Maturity Date"), and to pay interest on the unpaid principal balance hereof at the rate of eight percent (8%) (the "Interest Rate") per annum from the date hereof (the "Issue Date") until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. Any amount of principal or interest on this Note which is not paid when due shall bear interest at the rate of eighteen percent (18%) per annum from the due date thereof until the same is paid (the "Default Interest"). Interest shall commence accruing on the date that the Note is fully paid and shall be computed on the basis of a 360-day year and the actual number of days elapsed. All payments due hereunder (to the extent not converted into common stock (the "Common Stock") in accordance with the terms hereof) shall be made in lawful money of the United States of America. All payments shall be made at such address as the Holder shall hereafter give to the Issuer by written notice made in accordance with the provisions of this Note. Whenever any amount expressed to be due by the terms of this Note is due on any day which is not a business day, the same shall instead be due on the next succeeding day which is a business day and, in the case of any interest payment date which is not the date on which this Note is paid in full, the extension of the due date thereof shall not be taken into account for purposes of determining the amount of interest due on such date. As used in this Note, the term "business day" shall mean any day other than a Saturday, Sunday or a day on which commercial banks in the city of New York, New York are authorized or required by law or executive order to remain closed. This Note is free from all taxes, liens, claims and encumbrances with respect to the issue thereof and shall not be subject to preemptive rights or other similar rights of shareholders of the Issuer and will not impose personal liability upon the holder thereof. ARTICLE I. CONVERSION RIGHTS 1.1 Conversion Right. The Holder shall have the right from time to time, and at any time following the date of this Agreement to convert the Debt into fully paid and nonassessable shares of Common Stock of the Issuer at the rate of $0.71 per share. 1.2 Authorized Shares. The Issuer covenants that during the period the conversion
right exists, the Issuer will reserve from its authorized and unissued Common Stock a sufficient number of shares, free from preemptive rights, to provide for the issuance of Common Stock upon the full conversion of this Agreement. 1.3 Method of Conversion. (a) Mechanics of Conversion. Subject to Section 1.1, this Debt may be converted by the Holder in whole or in part at any time from time to time after the Issue Date, by (A) submitting to the Issuer a Notice of Conversion (by facsimile, e-mail or other reasonable means of communication dispatched on or before June 1, 2020 the Conversion Date prior to 5:00 p.m., New York, New York time) and (B) subject to Section 1.4(b), surrendering this Agreement at the principal office of the Issuer. (b) Payment of Taxes. The Issuer shall not be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of shares of Common Stock or other securities or property on conversion of this Agreement in a name other than that of the Holder (or in street name), and the Issuer shall not be required to issue or deliver any such shares or other securities or property unless and until the person or persons (other than the Holder or the custodian in whose street name such shares are to be held for the Holder's account) requesting the issuance thereof shall have paid to the Issuer the amount of any such tax or shall have established to the satisfaction of the Issuer that such tax has been paid. (c) Delivery. of Common Stock UP-on Conversion. Upon receipt by the Issuer from the Holder of a facsimile transmission or e-mail (or other reasonable means of communication) of a Notice of Conversion meeting the requirements for conversion as provided for herein, the Issuer shall issue and deliver or cause to be issued and delivered to or upon the order of the Holder certificates for the Common Stock issuable upon such conversion within three (3) business days after such receipt (the "Deadline") (and, solely in the case of conversion of the entire unpaid principal amount hereof, surrender of this Agreement) in accordance with the terms hereof and the Purchase Agreement. (d) Obligation of Issuer to Deliver Common Stock. Upon receipt by the Issuer of a Notice of Conversion, the Holder shall be deemed to be the holder of record of the Common Stock issuable upon such conversion, the outstanding principal amount and the amount of accrued and unpaid interest on this Agreement shall be reduced to reflect such conversion. If the Holder shall have given a Notice of Conversion as provided herein, the Issuer's obligation to issue and deliver the certificates for Common Stock shall be absolute and unconditional, irrespective of the absence of any action by the Holder to enforce the same, any waiver or consent with respect to any provision thereof, the recovery of any judgment against any person or any action to enforce the same, any failure or delay in the enforcement of any other obligation of the Issuer to the holder of record, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder of any obligation to the Issuer, and irrespective of any other circumstance which might otherwise limit such obligation of the Issuer to the Holder in connection with such conversion. The Conversion Date specified in the Notice of Conversion shall be the Conversion Date so long as the Notice of Conversion is received by the Issuer before 5:00p.m., New York, New York time, on such date. I.4 Concerning the Shares. The shares of Common Stock issuable upon conversion of this Agreement may not be sold or transferred unless (i) such shares are sold pursuant to an effective registration statement under the Act or (ii) the Issuer or its transfer agent shall have been furnished with an opinion of counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that the shares to be sold or transferred may be sold or transferred pursuant to an exemption from such registration or (iii) such shares are sold or transferred pursuant to Rule 144 under the Act (or a successor rule) ("Rule 144") or (iv) such shares are transferred to an "affiliate" (as defined in Rule 144) of the Issuer who agrees to sell or otherwise transfer the shares only in accordance with this Section 1.5 and who is an Accredited Investor.) Until such time as the shares of Common Stock issuable upon conversion of this Agreement have been registered under the Act or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that can then be immediately sold, each certificate for shares of Common Stock issuable upon conversion of this Agreement that has not been so included in an effective registration statement or that has not been sold pursuant to an effective registration statement or an exemption that permits removal of the legend, shall bear a legend substantially in
the following form, as appropriate: "NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY This CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES." The legend set forth above shall be removed and the Issuer shall issue to the Holder a new certificate therefore free of any transfer legend if (i) the Issuer or its transfer agent shall have received an opinion of counsel, in form, substance and scope customary for opinions of counsel in comparable transactions, to the effect that a public sale or transfer of such Common Stock may be made without registration under the Act, which opinion shall be reasonably accepted by the Issuer so that the sale or transfer is effected or (ii) in the case of the Common Stock issuable upon conversion of this Agreement, such security is registered for sale by the Holder under an effective registration statement filed under the Act or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that can then be immediately sold. In the event that the Issuer does not accept the opinion of counsel provided by the Buyer with respect to the transfer of Securities pursuant to an exemption from registration, such as Rule 144 or Regulation S, at the Deadline, it will be considered an Event of Default hereunder. ARTICLE II. EVENTS OF DEFAULT If any of the following events of default (each, an "Event of Default") shall occur: II.1 Failure to Pay Principal or Interest. The Issuer fails to pay the principal hereof or interest thereon when due on this Agreement, whether at maturity, upon acceleration or otherwise. II.2 Conversion and the Shares. The Issuer fails to issue shares of Common Stock to the Holder (or announces or threatens in writing that it will not honor its obligation to do so) upon exercise by the Holder of the conversion rights of the Holder in accordance with the terms of this Agreement II.3 Breach of Covenants. The Issuer breaches any material covenant or other material term or condition contained in this Agreement and any collateral documents including but not limited to the Purchase Agreement and such breach continues for a period of ten (10) days after written notice thereof to the Issuer from the Holder. II.4 Breach of Representations and Warranties. Any representation or warranty of the Issuer made herein or in any agreement, statement or certificate given in writing pursuant hereto or in connection herewith (including, without limitation, the Purchase Agreement), shall be false or misleading in any material respect when made and the breach of which has (or with the passage of time will have) a material adverse effect on the rights of the Holder with respect to this Agreement or the Purchase Agreement. II.5 Receiver or Trustee. The Issuer or any subsidiary of the Issuer shall make an assignment for the benefit of creditors or commence proceedings for its dissolution, or apply for or consent to the appointment of a receiver or trustee for it or for a substantial part of its property or business, or such a receiver or trustee shall otherwise be appointed for the Issuer or for a substantial part of its property or business without its consent and shall not be discharged within sixty (60) days after such appointment. II.6 Judgments. Any money judgment, writ or similar process shall be entered or filed against the Issuer or any subsidiary of the Issuer or any of its property or other assets for more than $250,000, and shall remain unvacated, unbonded or unstayed for a period of twenty
(20) days unless otherwise consented to by the Holder, which consent will not be unreasonably withheld. II.7 Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings, voluntary or involuntary, for relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against the Issuer or any subsidiary of the Issuer, or the Issuer admits in writing its inability to pay its debts generally as they mature, or have filed against it an involuntary petition for bankruptcy relief, all under federal or state laws as applicable or the Issuer admits in writing its inability to pay its debts generally as they mature, or have filed against it an involuntary petition for bankruptcy relief, all under international, federal or state laws as applicable. II.8 Liquidation. Any dissolution, liquidation, or winding up of Issuer or any substantial portion of its business. II.9 Cessation of Operations. Any cessation of operations by Issuer or Issuer admits it is otherwise generally unable to pay its debts as such debts become due, provided, however, that any disclosure of the Issuer's ability to continue as a "going concern" shall not be an admission that the Issuer cannot pay its debts as they become due. II.10 Maintenance of Assets. The failure by Issuer to maintain any material intellectual property rights, personal, real property or other assets which are necessary to conduct its business (whether now or in the future). ARTICLE III. MISCELLANEOUS III.1 Failure or Indulgence Not Waiver. No failure or delay on the part of the Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privileges. All rights and remedies existing hereunder are cumulative to, and not exclusive of, any rights or remedies otherwise available. III.2 Notices. All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice. Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery or delivery by facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for such communications shall be: If to the Issuer, to: Electromedical Technologies, Inc. Atten: Matthew N. Wolfson, CEO 16561 N 92nd Street Suite 101 Scottsdale, AZ 85260 ceo@electromedtech.com With a copy to: Eric P. Littman, Esquire 7695 S.W. 104th Street
Suite 210 Miami, FL 33156 Email: littmanlaw@gmail.com If to the Holder: Ben and Carol Howden 8133 Musgrave St. Crofton BC VOR1RO Canada Email: intuneconsulting@gmail.com III.3 and any provision hereof may only be amended by an instrument in writing signed by the Issuer and the Holder. The term "Agreement" and all reference thereto, as used throughout this instrument, shall mean this instrument (and the other Agreements issued pursuant to the Purchase Agreement) as originally executed, or if later amended or supplemented, then as so amended or supplemented. III.4 Assignability. This Agreement shall be binding upon the Issuer and its successors and assigns, and shall inure to be the benefit of the Holder and its successors and assigns. Each transferee of this Agreement must be an "accredited investor" (as defined in Rule 501(a) of the 1933 Act). Notwithstanding anything in this Agreement to the contrary, this Agreement may be pledged as collateral in connection with a bona fide margin account or other lending arrangement. III.5 Cost of Collection. If default is made in the payment of this Agreement, the Issuer shall pay the Holder hereof reasonable costs of collection, including reasonable attorneys' fees. III.6 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Arizona without regard to principles of conflicts of laws. THE ISSUER HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY. The prevailing party shall be entitled to recover from the other party its reasonable attorney's fees and costs. In the event that any provision of this Agreement or any other agreement delivered in connection herewith is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of any agreement. Each party hereby irrevocably waives personal service of process and consents to process being served in any suit, action or proceeding in connection with this Agreement or any other Transaction Document by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law. III.7 Certain Amounts. Whenever pursuant to this Agreement the Issuer is required to pay an amount in excess of the outstanding principal amount (or the portion thereof required to be paid at that time) plus accrued and unpaid interest plus Default Interest on such interest, the Issuer and the Holder agree that the actual damages to the Holder from the receipt of cash payment on this Agreement may be difficult to determine and the amount to be so paid by the Issuer represents stipulated damages and not a penalty and is intended to compensate the Holder in part for loss of the opportunity to convert this Agreement and to earn a return from the sale of shares of Common Stock acquired upon conversion of this Agreement at a price in excess of the price paid for such shares pursuant to this Agreement. The Issuer and the Holder hereby agree that such amount of stipulated damages is not plainly disproportionate to the possible loss to the Holder from the receipt of a cash payment without the opportunity to convert this Agreement into shares of Common Stock. III.8 Purchase Agreement. By its acceptance of this Agreement, each party agrees to be bound by the applicable terms of the LOI.
III.9 Notice of Corporate Events. Except as otherwise provided below, the Holder of this Agreement shall have no rights as a Holder of Common Stock unless and only to the extent that it converts this Agreement into Common Stock. The Issuer shall provide the Holder with prior notification of any meeting of the Issuer's shareholders (and copies of proxy materials and other information sent to shareholders). In the event of any taking by the Issuer of a record of its shareholders for the purpose of determining shareholders who are entitled to receive payment of any dividend or other distribution, any right to subscribe for, purchase or otherwise acquire (including by way of merger, consolidation, reclassification or recapitalization) any share of any class or any other securities or property, or to receive any other right, or for the purpose of determining shareholders who are entitled to vote in connection with any proposed sale, lease or conveyance of all or substantially all of the assets of the Issuer or any proposed liquidation, dissolution or winding up of the Issuer, the Issuer shall mail a notice to the Holder, at least twenty (20) days prior to the record date specified therein (or thirty (30) days prior to the consummation of the transaction or event, whichever is earlier), of the date on which any such record is to be taken for the purpose of such dividend, distribution, right or other event, and a brief statement regarding the amount and character of such dividend, distribution, right or other event to the extent known at such time. The Issuer shall make a public announcement of any event requiring notification to the Holder hereunder substantially simultaneously with the notification to the Holder in accordance with the terms of this Section 4.9 including, but not limited to, name changes, recapitalizations, etc. as soon as possible under law. III.10 Usury. If it shall be found that any interest or other amount deemed interest due hereunder violates the applicable law governing usury, the applicable provision shall automatically be revised to equal the maximum rate of interest or other amount deemed interest permitted under applicable law. The Issuer covenants (to the extent that it may lawfully do so) that it will not seek to claim or take advantage of any law that would prohibit or forgive the Issuer from paying all or a portion of the principal or interest on this Agreement. III.11 Remedies. The Issuer acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder, by vitiating the intent and purpose of the transaction contemplated hereby. Accordingly, the Issuer acknowledges that the remedy at law for a breach of its obligations under this Agreement will be inadequate and agrees, in the event of a breach or threatened breach by the Issuer of the provisions of this Agreement, that the Holder shall be entitled, in addition to all other available remedies at law or in equity, and in addition to the penalties assessable herein, to an injunction or injunctions restraining, preventing or curing any breach of this Agreement and to enforce specifically the terms and provisions thereof, without the necessity of showing economic Joss and without any bond or other security being required._ No provision of this Agreement shall alter or impair the obligation of the Issuer, which is absolute and unconditional, to pay the principal of, and interest on, this Agreement at the time, place, and rate, and in the form, herein prescribed. III.12 Severability. In the event that any provision of this Agreement is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of Jaw. Any provision hereof which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision hereof. IN WITNESS WHEREOF, the Parties have caused this Agreement to be signed in its name by its duly authorized officer as of the date first above written.
ELECTROMEDICAL TECHNOLOGIES, INC. By: Matthew N. Wolfson Title: CEO Ben Howden Carol Howden 9 EXHIBIT A NOTICE OF CONVERSION The undersigned hereby elects to convert $ principal amount of the Agreement (defined below) together with $ of accrued and unpaid interest thereto, totaling $ into that number of shares of Common Stock to be issued pursuant to the conversion of the Convertible Promissory Note of Electromedical Technologies, Inc., a Delaware corporation (the "Issuer"), according to the conditions of the Note of the Issuer dated as of May_, 2018 (the "Agreement"), as of the date written below. No fee will be charged to the Holder for any conversion, except for transfer taxes, if any. Dated: 9
Exhibit 10.29
NOTICE OF CONVERSION The undersigned hereby elects to convert their May 3, 2018 Convertible Promissory Note entered into with Electromedical Technologies, Inc., a Delaware corporation (the "Issuer"), in the principal amount of $25 ,000 of principal plus accrued interest of $2,947.75 totaling $27,947.75 into 39,363 shares of the Issuer's restricted Common Stock at the rate of$0. 71 per share according to the terms of the Note. No fee will be charged to the Holder for any conversion, except for transfer taxes, if any. BEN HOWDEN Date: October 24, 2019 CAROL HOWDEN Date: October 24, 2019 AGREED TO BY: ELECTROMEDICAL TECHNOLOGIES, INC. By: Matthew Wolfson, CEO
Exhibit 10.30
ACCREDITED SUBSCRIPTION AGREEMENT This Accredited Subscription Agreement ("Agreement”) is entered into as of the 31 day of October 2018 by and between Electromedical Technologies, Inc., a Delaware corporation (the "Company"), and the undersigned investor, Gene Taubman, (the "Investor"). If more than one person signs this Agreement as an investor, then all references to Investor in this Agreement include the co-investor(s), jointly and severally. 1. Subscription. Investor hereby irrevocably subscribes for 100,000 shares of the Company's common stock (the "Shares") at a price of$1.00 per share for a total purchase price of $100,000.00, subject to acceptance by the Company. 2. Approval and Acceptance. The effectiveness of this Agreement is subject to acceptance by the Company by signing below where indicated. If this Agreement is not approved and accepted, then the Company will notify Investor and return any funds Investor may have delivered to the Company promptly after non-acceptance. 3. Disclosure. Investor acknowledges the following: The Company has made available to Investor, or to Investor's attorney, accountant or representative, all documents that Investor has requested; Investor has requested all documents and other information that Investor has deemed necessary or appropriate for purposes of evaluating a potential investment in the Company and purchasing the Shares; The Company has provided satisfactory answers to all questions concerning the potential investment in the Company; Investor has carefully considered and has, to the extent Investor believes such discussion necessary, discussed with Investor's professional legal, tax and financial advisers the suitability of an investment in the Company for Investor's particular tax and financial situation. 4. Investor has read all of the Company's filings on the SEC's Edgar web cite and the Investor acknowledges that he fully understands all the disclosures including the Company's business plan in those filings. RISK FACTORS An investment in the securities offered hereby involves a high degree of risk and is highly speculative in nature. You should consider, amongst others, the following risk factors prior to making your Investment. The discussion below highlights some of the more important risks regarding the Company and the Investment. The risks highlighted below should not be assumed to be the only factors that could affect future performance. In addition, other written or oral statements, which constitute forward-looking statements, may be made by or on behalf of the Company. Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," or variations of such words and similar expressions are intended to identify such Page 1 of 10
SIGNATURE PAGE TO ELECTROMEDICAL TECHNOLOGIES, INC. SUBSCRIPTION AGREEMENT PRINT OR TYPE NAME OF INVESTOR And title if not an individual Signature Date: Oct. 31, 2018 Address: SS or EIN# ACCEPTANCE OF SUBSCRIPTION This Subscription Agreement has been approved by the Company and is accepted as Of October __, 2018. By: Name: Matthew Wolfson Title: CEO Page 8 of 10
ACCREDITATION The undersigned represents and warrants that the he/she/it is an Accredited Investor pursuant to one or more of the following categories (initial applicable categories and sign below): a. A natural person (i.e., not an entity) whose individual net worth or joint net worth with spouse at the time of purchase, excluding homes, home furnishings and automobiles, and reflecting a deduction of all current debts and obligations to pay money, including but not limited to home mortgage debt, exceeds $1,000,000. b. A natural person (i.e., not an entity) who had an individual income in excess of $200,000 in each of the two most recent years or joint income with spouse in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same level of income in the current year. ___ c. Any organization described in Section 501(c)(3) of the Internal Revenue Code, or any corporation, limited liability the Company, Massachusetts or similar business trust or partnership, not formed for the specific purpose of acquiring the securities offered, with total assets in excess of $5,000,000. ___ d. A private business development company (as defined in Section 202(a)(22) of the Investment Advisers Act of 1940). ___ e. Any bank as defined in Section 3(a)(2) of the Securities Act of 1933, as amended (the "Act"), or any savings and loan association or other institution as defined in Section 3(a)(5)(A) of the Act whether acting in its individual or fiduciary capacity; any broker or dealer registered pursuant to Section 15 of the Securities Exchange Act of 1934; any insurance the Company as defined in Section 2(13) of the Act; any investment the Company registered under the Investment Company Act of 1940 (the "1 940 Act") or a business development the Company as defined in Section 2(a)( 48) of the 1940 Act~ any Small Business Investment The Company licensed by the U.S. Small Business Administration under Section 30l(c) or (d) of the Small Business Investment Act of 1958; any plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions for the benefit of its employees, if such plan has total assets in excess of $5,000,000; or any employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974, if the investment decision is made by a plan fiduciary, as defined in Section 3(21) of such act which is either a bank, savings and loan association, insurance the Company, or registered investment advisor, or if the employee benefit plan has total assets in excess of $5,000,000 or, if a self directed plan, with investment decisions made solely by persons that are accredited Investors. f. Any trust with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a Page 9 of 10
sophisticated person. For purposes of this exemption, a sophisticated person is one who has such knowledge and experience in financial and business matters that such person is capable of evaluating the merits and risks of the prospective investment. ____ g. Any entity in which all the equity owners are accredited investors under the above subsections. Date: 10/31/18 Print Name Gene Taubman Signature (if not individual, add title) Page 10 of 10
Exhibit 10.31
CONSENT ACTION OF THE BOARD OF DIRECTORS OF ELECTROMEDICAL TECHNOLOGIES, INC. The undersigned, Matthew N. Wolfson, being the sole director of Electromedical Technologies, Inc., a Delaware corporation, (the "Company"), hereby unanimously consents to the following actions taken by the Company on October 31, 2018. RESOLVED: To accept the Accredited Subscription Agreement from Gene Taubman. RESOLVED: Pursuant to the Accredited Subscription Agreement, to issue 100,000 shares of the Company's restricted common stock to Gene Taubman Therapies, Inc. at the price of $1.00 per share for a total consideration of $100,000. RESOLVED: That Pacific Stock Transfer is hereby instructed to issue 100,000 shares of the Company's restricted common stock to Gene Taubman. There being no further business requiring board action or consideration, on motion duly made, and carried, the meeting was adjourned.
Exhibit 10.32
Consulting Agreement This consulting agreement (the "Agreement") is made and entered on this day 11th day of February (the "Effective Date") by and between Robert L. Hymers III (hereinafter referred to as the "Consultant") and Electromedical Technologies, Inc. (hereinafter referred to as the "Client"). 1. Services The Consultant will provide strategic business and business services to the Client, which may include: • Financial Consulting assistance with review of quarterly and annual filings with OTC Markets and/or the SEC. • Corporate Governance and Compliance • Communication, review and coordination of document transfers to auditors and attorneys. • Assistance with negotiation with contracts, financings, contracts and review and drafting of corresponding agreements, all of which must be pre-approved by the Client's legal counsel. • Communication with SEC attorney, auditors and outside accountants to complete resolutions and regulatory filings The scope of services will be subject to change from time to time as agreed to between the Consultant and the Client. The Consultant will also provide briefings, updates and other forms of communication to keep the Client informed regarding the progress of the work. The services will be rendered from the Consultant's location and/or the Client's location subject to change as necessary to properly service the Client. The Consultant will perform the services in a competent and professional manner. The Consultant will comply with applicable laws. The Consultant shall be responsible for all taxes on any compensation. 2. Compensation and Reimbursement of Expenses The Client agrees to pay the Consultant a fixed fee of one hundred fifty thousand (150,000) restricted common shares for the services provided. This fee shall cover 12 months of services pursuant to Section 3 of this Agreement. The total amount owed per this agreement shall be deemed earned in full upon the execution of this agreement (i.e., February I 2, 20 19) and shall not vest over time. For purposes of this agreement, the shares are valued at $1.00 per share. The Consultant will maintain adequate documentation and records to support all costs invoiced to the Client including receipts for travel related expenses however, such expenses
must be approved by the Client prior to being incurred by Consultant. Payments made by the Client to the Consultant will not deduct any taxes and the Client will provide the Consultant with IRS Form I 099 at the end of each calendar year. For purposes of issuing IRS Form I 099, the Consultant will provide a social security number upon execution of his agreement. The shares of Common Stock provided for a compensation to Consultant may not be sold or transferred unless: (i) such shares are sold pursuant to an effective registration statement under the Act or (ii) the Consultant or its transfer agent shall have been furnished with an opinion of counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that the shares to be sold or transferred may be sold or transferred pursuant to an exemption from such registration (iii) such shares are sold or transferred pursuant to Rule I44 under the Act (or a successor rule) ("Rule I44"). The certificate for shares of Common Stock has not been so included in an effective registration statement or that has not been sold pursuant to an effective registration statement or an exemption that permits removal of the legend, shall bear a legend substantially in the following form, as appropriate: "NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF I933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES." 3. Term and Termination This agreement will commence on the effective date set forth and continue for a period of twelve months from the effective date unless terminated earlier. Either party may terminate this agreement at any time upon thirty-day (30) notification. The Client may at its option agree to renew, extend and revise this agreement prior to its expiration.
4. Confidential Information Both parties acknowledge that there is an exchange of confidential and proprietary information associated with this agreement. Confidential and proprietary information may include documents, communications, plans, processes, formulations, data, know-how, financial information, techniques, methods, customers, suppliers, partners, patents, trademarks, designs, and other forms of tangible or intangible artifacts owned by the Client. Confidential and proprietary information does not include information within the public domain, information that has been publicly known prior to the execution of this agreement, or information that the Consultant developed independent of any confidential information. The Consultant will not divulge, disseminate, publish or otherwise disclose any information without the prior consent of the Client. The Consultant will not use any information for purposes other than the performance of services described in this agreement. The Client agrees to not disclose confidential information to the Consultant except to the extent that the Consultant requires this information to fulfill the obligations within this agreement. If the Client has any concerns over the sharing of sensitive information and requires additional control measures, the Consultant will establish secured means of information sharing that are mutually agreeable to both parties. These control measures may include restricting who can copy, print, or change documents during the course of the engagement. 5. Indemnification Not withstanding other provisions of this agreement, the Client shall indemnify, defend and hold harmless the Consultant against claims, liabilities, damages, losses or other obligations, which may arise from this agreement. 6. Relationship of Parties The parties agree that this agreement creates an independent contractor relationship, not an employment relationship. Neither party is, nor shall claim to be, a legal agent, representative, partner, or employee of the other, and neither shall have the right or authority to contract in the name of the other, nor shall it assume or create any obligations, debts, accounts or liabilities for the other. 7. Role of the Consultant The Consultant will not make management decisions on behalf of the Client. The role of the Consultant shall be advisory in nature with no perceived conflicts of interest prior to, during or after the engagement with the Client. This role will also extend to any third parties that the Consultant may use during the course of the engagement.
8. Reliance on Client Provide Information Regarding any information or material that the Company furnishes to Consultant or any other entity in connection with this Agreement, the Company acknowledges and confirms that (i) Consultant will use and rely on such information and material without independently verifying the same, (ii) Consultant does not assume responsibility for the accuracy or completeness of any of the information or material, (iii) Consultant will not make any appraisal, evaluation or independent determination regarding such information or material or the Company and (iv) Consultants shall not have any liability in connection with such information or material. The Company represents to Consultant that the information and material to be furnished by the Company, when delivered, will be true, complete and correct in all material respects and will not contain any material misstatement of fact or omit to state any material fact necessary to make the statements contained therein not misleading. The Company shall promptly notify Consultants if it learns of any material inaccuracy or misstatement in, or material omission from, any information or material delivered to Consultant. 9. Quality Assurance and Control In an effort to ensure that the Consultant provides high quality work, the Client will assign the CEO of the Client company to review and approve the work of the Consultant. In the event that the Consultant uses a third party, the Consultant is responsible for the quality of the work delivered by the third party. 10. Non-Agent of Client It is understood that Consultant is not acting as agent or fiduciary of, and have no liabilities to, the equity holders of the Company or any other third party in connection with this Agreement or any introductions, services or transactions hereunder, all of which liabilities are expressly waived. 11. Clawback The compensation granted under this agreement are subject to the terms of the client's recoupment, clawback or similar policy as it may be in effect from time to time, as well as any similar provisions of applicable law, any of which could in certain circumstances (e.g. failure to perform throughout the term, gross negligence, violation of State laws, violation of SEC regulations) require repayment or forfeiture of compensation or any shares of Common Stock or other cash or property received. 12. Governing Law This Agreement shall be governed by and interpreted in accordance with the laws of the state of Arizona applicable to agreements negotiated, executed and to be performed in the
state, without regard to the choice or conflicts of law rules or principles of that state. The parties hereto hereby consent to the jurisdiction of the state courts located in Scottdale, Arizona, over the parties and any disputes, claims, actions, suits and proceeding relating to this agreement or the transactions contemplated herein. 13. NOTICES. All notices to be furnished pursuant to this Agreement shall be by email as follows: If to the Client: Matthew Wolfson Email: CEO@electromed.com With a copy to: Eric P. Littman, Esquire Email: littmanlaw@gmail.com If to Consultant: Robert Hymers Email: roberthymers@yahoo.com 14. Entire Agreement This agreement represents the entire understanding of the parties superseding all prior agreements, understandings and discussions whether conveyed orally or in writing, and there are no other warranties, commitments, understandings or representations with respect to this agreement. I represent that I have the authority to enter into this agreement: Consultant x Name: Robert L Hymers Ill Client Name: Matthew Wolfson Title: President and CEO
Exhibit 10.33
CONSENT ACTION OF THE BOARD OF DIRECTORS OF ELECTROMEDICAL TECHNOLOGIES, INC. The undersigned, Matthew N. Wolfson, being the sole director of Electromedical Technologies, Inc., a Delaware corporation, ("the Company"), hereby unanimously consents to the following actions taken by the Company on June 28, 2019. RESOLVED: To amend the Company's Consulting Agreement dated February 11, 2019 by and between the Company and Robert L. Hymers, III to provide for the issuance of an additional 43,461 shares of the Company restricted common stock valued at $0.71 per share. RESOLVED: That Pacific Stock Transfer is hereby instructed to issue 43,461 shares of the Company's restricted common stock to Robert L. Hymers, III. There being no further business requiring board action or consideration, on motion duly made, and carried, the meeting was adjourned. Matthew N. Wolfson Sole Director
Exhibit 10.34
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (“Agreement”) is made and entered into this 12th day of June, 2020, by and between ElectroMedical Technologies, Inc., a Delaware corporation, with a business address of 16561 N 92nd Street Ste. 101, Scottsdale AZ 85260 (“Seller”), and ProActive Capital Partners, LP, a Delaware limited partnership, with a business address of 150 E. 58th St. 20th Floor, New York, NY 10155 (“Purchaser”). Both Seller and Purchaser are referred to individually as a “Party” and jointly as the “Parties.”
RECITALS
WHEREAS, Seller is a clinical stage a bioelectronics manufacturing and marketing company selling medical devices for pain management. Its Wellness Pro product received FDA clearance on July 6, 2007 (FDA K062616) as a Class II Medical Device, under the 510(K) clearance process.
WHEREAS, Seller filed Regulation “A” offering on September 20, 2017 on Form 1-A. Seller has filed all required Regulation “A” reports to maintain its offering to date. Seller filed a Form S-1 registration statement on November 12, 2019, as amended. All of Seller’s disclosures filed with the Securities and Exchange Commission (“SEC”) are available on Seller’s SEC Edgar web site (https://www.sec.gov/cgi-bin/browse-edgar?company=Electromedical&owner=exclude&action=getcompany). The SEC has not made the Form S-1 effective as of the date hereof. As of the date of this Agreement, Seller is not subject to the periodic reporting requirements of the 1934 Securities and Exchange Act and the regulations implementing the Exchange Act SEC. Seller’s common stock is quoted on the OTC Markets, Inc. Pink tier electronic listing service trading under the symbol “ELCQ”; and,
WHEREAS, Seller desires to sell and Purchaser desires to purchase one hundred and forty two thousand, eight hundred and fifty-seven (142,857) restricted shares of Seller’s common stock (“Purchased Shares”) at a price of thirty five cents ($0.35) per share on the terms and subject to the conditions set forth in this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and agreements contained in this Agreement, the sufficiency and adequacy of which are acknowledged by the Parties, and in order to consummate the purchase and the sale of the Purchased Shares, it is hereby agreed as follows:
1. Purchase and Sale. Subject to the terms and conditions hereinafter set forth, at the Closing (defined below), Seller shall sell, convey, transfer, and deliver to Purchaser a certificate or book entry confirmation of the issuance representing the Purchased Shares, in consideration of the Purchase Price. The certificates representing the Purchased Shares shall be duly issued in the name of the Purchaser. The Purchaser’s address is 150 E. 58th Street 20th Floor, New York, NY 10155. The Purchaser’s tax identification number is 82-3535071.
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2. Amount of Purchase Price. As total consideration for the purchase of the Purchased Shares, Purchaser shall pay to Seller at the Closing the purchase price (“Purchase Price”) of fifty thousand dollars ($50,000.00). Seller’s wire transfer instructions are: Electromedical Technologies, Bank of America, Routing number: 122101706, Account number: 457023402995.
3. Representations and Warranties of Seller. Seller hereby warrants and represents:
(a) Seller has all requisite power and authority to execute, deliver, and perform its obligations under this Agreement, and, when executed and delivered by Seller, shall constitute the valid and binding obligation of Seller, enforceable against Seller in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws affecting creditors’ rights and remedies generally, and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity);
(b) The Purchased Shares have been duly authorized and, when conveyed by Seller to Purchaser at the Closing, all in accordance with the terms of this Agreement, will be duly and validly issued, fully paid and non-assessable;
(c) Neither the execution or delivery of this Agreement, nor any other documents required to be executed and delivered by Seller hereunder, nor the consummation of the transaction contemplated hereby: (i) conflicts with or constitutes any violation or breach, or gives any other person any rights (including, but not limited to, any legal rights to acceleration, termination, cancellation or recession) under any document or agreement to which Seller is a party. Neither Seller’s entry into this Agreement, nor Seller’s representations made in this Agreement, constitute a violation of any order or applicable law that Seller or to which Seller’s assets are bound by or subject; and
(d) Seller is a corporation validly existing and in good standing under the laws of the State of Delaware.
4. Representations and Warranties of Purchaser. Purchaser hereby warrants and represents:
(a) Purchaser has all requisite corporate power and authority to execute, deliver and perform its obligations under the Agreement, and the execution, delivery, and performance by Purchaser of its obligations under the Agreement has been duly authorized by all requisite action on the part of Purchaser and the Agreement, when executed and delivered by Purchaser, shall constitute the valid and binding obligation of Purchaser, enforceable against Purchaser in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws affecting creditors’ rights and remedies generally, and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity);
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(b) With respect to the Purchased Shares acquired by Purchaser, Purchaser acknowledges that the Purchased Shares have not been registered under the Securities Act of 1933, as amended (“Securities Act”) and are “Restricted Securities” within the meaning of Rule 144 under the Securities Act. As such, the Purchased Shares may not be resold or transferred unless Seller registers them in an SEC effective registration under Section 5 of the Securities Act, or has received an opinion of counsel to Seller or any successor in interest thereto reasonably satisfactory to Seller that such resale or transfer is exempt from the registration requirements of the Securities Act. Purchaser acknowledges that a no public market exists for the Purchased Shares. Purchaser understands that no assurance can be given that such a trading market will further develop at any time, or, if so developed, that it will continue;
(c) Purchaser further acknowledges and agrees that its purchase of the Purchased Shares involves substantial risks. Purchaser: (i) either alone or together with its representatives has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of this investment, and make an informed decision to so invest, and has so evaluated the risks and merits of such investment; (ii) has the ability to bear the economic risks of this investment for an indefinite period and can afford a complete loss of such investment; (iii) understands the terms of, and the risks associated with the acquisition of the Purchased Shares, including, without limitation, a lack of liquidity, price transparency or pricing availability and risks associated with the industry in which Seller operates; (iv) has had the opportunity to review such disclosures regarding Sellers’s business, financial condition and prospects as Purchaser has determined to be necessary in connection with the acquisition of the Purchased Shares, including Seller’s public filings with the SEC, and the risk factors set forth therein, (v) is an “accredited investor" as that term is defined in Regulation D promulgated under Securities Act; (vi) acknowledges and agrees that the Purchased Shares are being offered and sold to it in reliance on specific exemptions from the registration requirements of United States federal and state securities laws and that the Seller is relying upon the truth and accuracy of, and such Purchaser’s compliance with, the representations, warranties, agreements, acknowledgments and understandings of such Purchaser set forth herein in order to determine the availability of such exemptions and the eligibility of such Purchaser to acquire the Purchased Shares; and (viii) understands and acknowledges that no United States federal or state agency or any other government or governmental agency has passed on or made any recommendation or endorsement of the Securities or the fairness or suitability of the investment in the Securities nor have such authorities passed upon or endorsed the merits of the offering of the Securities.
(d) Purchaser has received or has had full access to all the information Purchaser considers necessary or appropriate to make an informed investment decision with respect to the Purchased Shares. Purchaser further has had an opportunity to ask questions of and receive answers from the management of Seller regarding the Purchased Shares and to obtain additional information necessary to verify any information furnished to Purchaser or to which Purchaser had access. Further, Purchaser has undertaken its own review of the business of Seller and the wisdom of an investment in the Purchased Shares. Purchaser has had the opportunity to review all of the books, records and all SEC filings of Seller, including all of Seller’s audited financial statements and disclosures that Seller has published concerning its operations as a company reporting to the SEC;
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(e) Purchaser is acquiring the Purchased Shares for its own account, and not with a view towards a public distribution of those Purchased Shares as an underwriter for Seller, as that term is defined in the Securities Act. Purchaser acknowledges that it is not acquiring the Purchased Shares as the result of any advertisement or solicitation, including any publicly issued or circulated newspaper, mail, radio, television or other form of general advertising or solicitation in connection with the offer, sale and purchase from Seller regarding Purchaser’s investment pursuant to this Agreement; and
(f) Purchaser represents that Purchaser is familiar with the requirements of Rule 144 of the Securities Act, as presently in effect, and understands the resale limitations imposed thereby. Purchaser understands that Seller is under no obligation to register any of the Purchased Shares. Purchaser acknowledges that the certificates or book entry registry for the Purchased Shares, will be noted as “Restricted” on the transfer agent’s ledger, or, if a certificate it issued, it will bear a legend substantially in the form set forth below:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (“ACT”), OR UNDER THE SECURITIES LAWS OF ANY OTHER JURISDICTION. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. PURCHASERS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
(g) Purchaser is a corporation validly existing and in good standing under the laws of the State of Delaware.
5. Representations, Warranties and Covenants of Seller and Purchaser.
(a) Seller and Purchaser hereby represent and warrant that there has been no act or omission by Seller or Purchaser which would give rise to any valid claim against any of the Parties for a brokerage commission, finder's fee or other like payment in connection with the transaction contemplated hereby, except for such claims as shall have been waived on or before the Closing Date;
(b) The representations and warranties of Seller and Purchaser contained herein or in any document furnished pursuant hereto shall survive the Closing of this transaction. Each Party acknowledges and agrees that, except as expressly set forth in this Agreement or any closing document, no Party has made (and no Party is relying on) any representation or warranties of any nature, express or implied, regarding anything relating to the transaction contemplated by this Agreement that are not contained herein; and
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(c) Purchaser and Seller agree that each will, at any time and from time to time after the Closing, upon the request of the other Party, do, execute, acknowledge and deliver, or will cause to be done, executed, acknowledged and delivered, all such further acts, assignments, transfers, conveyances, powers of attorney and assurances as may be reasonably required from time to time in order to effectuate the provisions and purposes of this Agreement.
6. Conditions to Purchaser’s Obligations at Closing.
(a) Representations and Warranties. Each of the representations and warranties of Seller shall be true and complete on and as of the Closing; and
(b) Performance. Seller shall have performed and complied with all agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by him on or before the Closing.
7. Conditions to Seller’s Obligations at Closing.
(a) Representations and Warranties. Each of the representations and warranties of Purchaser shall be true and complete on and as of the Closing; and
(b) Payment of Purchase Price. Purchaser shall have delivered to Seller the Purchase Price for the Purchased Shares to be acquired by Purchaser pursuant to this Agreement.
8. The Closing. Subject to the satisfaction or waiver of the conditions in this Agreement, the closing of the sale to the Purchaser (“Closing”) shall take place on or before June 12, 2020 (or on such other date as is mutually agreed upon by the Parties) (“Closing Date”). On the Closing Date, Purchaser shall pay the Purchase Price to Seller by wire transfer of immediately available funds to Seller’s account at Bank of America, with wire instructions provided in Section 2 above. Seller’s wire transfer instructions are: Electromedical Technologies, Bank of America, Routing number: 122101706, Account number: 457023402995.
9. General Provisions.
(a) Entire Agreement. This Agreement constitutes the entire agreement between the parties and supersedes all prior agreements and understandings, oral and written, between the Parties with respect to the subject matter hereof. This Agreement may not be amended except by a written agreement signed by Purchaser and Seller.
(b) Sections and Other Headings; Interpretation. The section and other headings contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement. Whenever the context requires, words used in the singular shall be construed to mean or include the plural and vice versa, and pronouns of any gender shall be deemed to include and designate the masculine, feminine or neuter gender.
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(c) Governing Law; Jurisdiction. This Agreement shall be deemed to be a contract made under the laws of the State of New York. This Agreement and the construction, validity, enforcement, performance and interpretation of, or any dispute or claim arising out of or in relation to, this Agreement (whether in contract, tort or otherwise) shall be construed in accordance with the laws of the State of New York without giving effect to the rules of the State of New York governing the conflicts of laws (other than Section 5-1401 of the General Obligations Law of the State of New York). Each Party agrees that all legal proceedings concerning the interpretations, enforcement and defense of this Agreement and the transactions herein contemplated (“Proceedings”) (whether brought against a Party or its respective Affiliates, employees or agents) shall be commenced exclusively in the New York Courts. Each Party hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any Proceeding, any claim that it is not personally subject to the jurisdiction of any New York Court, or that such Proceeding has been commenced in an improper or inconvenient forum. Each Party hereby irrevocably waives personal service of process and consents to process being served in any such Proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such Party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Each Party hereby irrevocably, knowingly and voluntarily waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any Proceeding arising out of or relating to this Agreement or the transactions contemplated hereby. For purposes of this Agreement, “New York Courts” means the state and federal courts sitting in the State of New York, City of New York, Borough of Manhattan.
(d) Severability. If any provision of this Agreement is determined by any court of competent jurisdiction to be invalid, illegal or unenforceable in any respect, such provision will be enforced to the maximum extent possible given the intent of the Parties hereto. If such clause or provision cannot be so enforced, such provision shall be stricken from this Agreement and the remainder of this Agreement shall be enforced as if such invalid, illegal or unenforceable clause or provision had (to the extent not enforceable) never been contained in this Agreement.
(e) Counterparts. This Agreement may be executed in one or more counterparts, each of which will be deemed to be an original copy of this Agreement and all of which, when taken together, will be deemed to constitute one and the same agreement. In the event that any signature is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the Party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature page were an original thereof.
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(f) Waiver. The rights and remedies of the Parties are cumulative and not alternative. Neither the failure nor any delay by any Party in exercising any right, power, or privilege under this Agreement, or the documents referred to in this Agreement, will operate as a waiver of such right, power, or privilege, and no single or partial exercise of any such right, power, or privilege will preclude any other or further exercise of such right, power, or privilege or the exercise of any other right, power, or privilege.
(g) Successors and Assigns. Except as otherwise provided in this Agreement, this Agreement, and the rights and obligations of the Parties hereunder, will be binding upon and inure to the benefit of the Parties’ respective successors, assigns, heirs, executors, administrators and legal representatives.
(h) Survival of Warranties. The representations, warranties and covenants of Seller and Purchaser contained in or made pursuant to this Agreement shall survive the execution and delivery of this Agreement and the Closing.
(i) Notices. All notices, requests and demands (“Notice”) to or upon a Party, to be effective, shall be in writing and shall be sent: (i) certified or registered mail, return receipt requested; (ii) by personal delivery against receipt; (iii) by overnight courier; or (iv) by email and, unless otherwise expressly provided herein, and shall be deemed to have been validly served, given, delivered and received: (x) on the date indicated on the receipt, when delivered by personal delivery against receipt or by certified or registered mail; (y) one business day after deposit with an overnight courier; or (z) in the case of email notice, when sent. Notices shall be addressed as follows:
To Seller:
ElectroMedical Technologies, Inc.
Attention: Matthew Wolfson, CEO
16561 N 92nd Street Ste. 101
Scottsdale AZ 85260
Email: ceo@electromedtech.com
With a copy to:
Mailander Law Office, Inc.
4811 49th Street
San Diego, CA 92101
tmailander@gmail.com
To Purchaser:
ProActive Capital Partners, LP
150 E. 58th Street 20th Floor
New York, NY 10155
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Either Party may change the address to which Notices shall be addressed by providing Notice of such change to the other Party in the manner set forth in this subsection 9(i).
(j) Third Parties. Nothing in this Agreement, express or implied, is intended to confer upon any person, other than the Parties hereto and their successors and assigns, any rights or remedies under or by reason of this Agreement.
(k) Preparation of Agreement. Seller prepared this Agreement solely on its behalf. Each Party to this Agreement acknowledges that: (i) the Party had the advice of, or sufficient opportunity to obtain the advice of, legal counsel separate and independent of legal counsel for any other Party hereto; (ii) the terms of the transactions contemplated by this Agreement are fair and reasonable to such Party; and (iii) such Party has voluntarily entered into the transactions contemplated by this Agreement without duress or coercion. Each Party further acknowledges that such Party was not represented by the legal counsel of the other Party in connection with the transactions contemplated by this Agreement, nor was he or it under any belief or understanding that such legal counsel was representing his or its interests. Each Party agrees that no conflict, omission or ambiguity in this Agreement, or the interpretation thereof, shall be presumed, implied, or otherwise construed against the other Party on the basis that such Party was responsible for drafting this Agreement.
IN WITNESS WHEREOF, each of the undersigned has duly executed this Stock Purchase Agreement as of the date first written above.
| SELLER | ||
| ElectroMedical Technologies, Inc. | ||
| a Delaware corporation | ||
| By: | ||
| Printed Name: Matthew Wolfson | ||
| Title: Chief Executive Officer | ||
PURCHASER
ProActive Capital Partners, LP
a Delware Limited Partnership
| By: | ||
| Printed Name: Jeff Ramson | ||
| Title: Authorized Signatory |
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Exhibit 10.35
SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT (this “Agreement”), dated as of June 4, 2020, is entered into by and between ELECTROMEDICAL TECHNOLOGIES, INC., a Delaware corporation, (the “Company”), and VISTA CAPITAL INVESTMENTS, LLC (the “Buyer”).
A. The Company and the Buyer are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by the rules and regulations as promulgated by the United States Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933, as amended (the “1933 Act”).
B. Upon the terms and conditions stated in this Agreement, the Buyer desires to purchase and the Company desires to issue and sell, upon the terms and conditions set forth in this Agreement (i) a Promissory Note of the Company, in the form attached hereto as Exhibit A, in the original principal amount of $110,000.00 (together with any note(s) issued in replacement thereof or as a dividend thereon or otherwise with respect thereto in accordance with the terms thereof, the “Note”), (ii) one hundred thousand (100,000) restricted common shares in the Company (“Commitment Shares”) to be delivered to Holder, via overnight courier , within 5 busine ss days following the Closing Date, and (iii) a three -year share purchas e warrant entitling the Buyer to acquire 250,000 com mon shares (“Common Stock” ), in the form attached her eto as Exhibit B (the “Warrant”) (together, the “Securities”).
NOW THEREFORE, the Company and the Buyer hereby agree as follows:
1. Purchase and Sale. On the Closing Date (as defined below), the Company shall issue and sell to the Buyer and the Buyer agrees to purchase from the Company (i) the Note in the original principal amount of $110,000, and (ii) the Commitment Shares.
1.1. Form of Payment. On the Closing Date, (i) the Buyer shall pay the purchase price of $100,000 (the “Purchase Price”) for the Securities to be issued and sold to it at the Closing (as defined below) by wire transfer of immediately available funds to a company account designated by the Company, in accordance with the Company’s written wiring instructions, against delivery of the Securities, and (ii) the Company shall deliver such duly executed Securities on behalf of the Company, to the Buyer, against delivery of such Purchase Price.
1.2. Closing Date. The date and time of the issuance and sale of the Securities pursuant to this Agreement (the “Closing Date”) shall be on or about June 4, 2020, or such other mutually agreed upon time. The closing of the transactions contemplated by this Agreement (the “Closing”) shall occur on the Closing Date at such location as may be agreed to by the parties.
1.3. Commitment Share True-Up. If, during the period beginning on the Closing Date and ending on the later of (i) the Maturity Date, or (ii) the date on which the Note is fully satisfied and cancelled (the “True-Up Period”), the then the greater of (i) $0.25 and (ii) the lowest traded price (as reported by Quotestream ™, a service of Quotemedia, Inc.) of the Company’s common stock (the “Common Stock”) for any Trading Day within the True-Up Period (the “Subsequent Share Price”), as reported on the Company’s Principal Market, is less than the closing price of the Company’s common stock on the Issuance Date, then the Company shall, within three (3) trading days of Holder’s provision of written notice in the form attached hereto as Exhibit C (the “True-Up Notice”), issue and deliver to the Holder an additional number of duly and validly issued, fully paid and non-assessable shares of Common Stock equal to (X) the quotient of the Commitment Value (as defined below) divided by the Subsequent Share Price, multiplied by 1.5, less (Y) the Commitment Shares, less (Z) any True-Up Shares (as defined below) previously issued. The “Commitment Value” shall mean the product of the Commitment Shares multiplied by the closing price of the Company’s common stock on the Closing Date. Any additional shares of Common Stock issuable pursuant to Section 1.d are referred to herein as “True-up Shares.” The Holder shall not submit more than one True-Up Notice. The True-up Shares, if required to be issued pursuant to this Note, shall be issued as provided in this Note, provided, however, that in no event shall the Holder be entitled to receive shares of common stock in excess of the amount that would result in beneficial ownership by the Holder and its affiliates of 9.99% of the outstanding shares of Common Stock at that time. For purposes of the proviso to the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Regulations 13D-G thereunder. Accordingly, the True-up Shares, if required to be issued pursuant to this Note, shall be issued in accordance with the beneficial ownership limitations contained herein, and in successive tranches (each an “Additional Tranche”) if the issuance of one tranche would result in the Holder’s beneficial ownership of more than 9.99% of the outstanding shares of Common Stock at that time. The Company shall issue each respective Additional Tranche of the True-up Shares, if required under this Note, within two (2) Trading Days of the request by Holder, subject to the beneficial ownership limitations contained herein. If the Company fails to issue the True-up Shares or any Additional Tranche within the timeframe specified in this Note, then the amount of Additional Shares in which Holder is entitled shall automatically be multiplied by two. The Company shall at all times reserve shares of its Common Stock for Holder in an amount equal to 300% multiplied by (X) the quotient of the Commitment Value divided by the lowest traded price of the Common Stock during the five Trading Days immediately preceding the respective date of calculation, multiplied by 1.5, less (Y) the Original Shares.
1.4. Registration Rights: The Company shall, within ten (10) calendar days of the effectiveness of the S-1 Registration statement initially filed with the SEC on November 12, 2019, file a registration statement form S-1MEF with the SEC to register 500,000 (five hundred thousand) shares in the name of the Buyer. Failure to do so will result in an Event of Default under the Note.
2. Governing Law; Miscellaneous.
2.1. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Nevada without regard to principles of conflicts of laws. Any action brought by either party against the other concerning the transactions contemplated by this Agreement shall be brought only in the state courts of San Diego County, California or in the federal courts located in San Diego County, California. The parties to this Agreement hereby irrevocably waive any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens. In the event that any provision of this Agreement or any other agreement delivered in connection herewith is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of any agreement. Each party hereby irrevocably waives personal service of process and consents to process being served in any suit, action or proceeding in connection with this Agreement or any other Transaction Document by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law. THE COMPANY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
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2.2. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which shall constitute one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party.
2.3. Headings. The headings of this Agreement are for convenience of reference only and shall not form part of, or affect the interpretation of, this Agreement.
2.4. Severability. In the event that any provision of this Agreement is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any provision hereof which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision hereof.
2.5. Entire Agreement; Amendments. This Agreement and the instruments referenced herein contain the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither the Company nor the Buyer makes any representation, warranty, covenant or undertaking with respect to such matters. No provision of this Agreement may be waived or amended other than by an instrument in writing signed by the Buyer.
2.6. Notices. Any notice required or permitted hereunder shall be given in writing (unless otherwise specified herein) and shall be deemed effectively given on the earliest of:
(a) the date delivered, if delivered by personal delivery as against written receipt therefor or by e-mail to an executive officer, or by confirmed facsimile,
(b) the fifth Trading Day after deposit, postage prepaid, in the United States Postal Service by registered or certified mail, or
(c) the third Trading Day after mailing by domestic or international express courier, with delivery costs and fees prepaid, in each case, addressed to each of the other parties thereunto entitled at the following addresses (or at such other addresses as such party may designate by ten (10) calendar days’ advance written notice similarly given to each of the other parties hereto):
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If to the Company, to:
Electromedical Technologies, Inc.
16561 N 92nd St., Suite 101
Scottsdale AZ 85260
Attn: Matthew Wolfson
Email: ceo@electromedtech.com
If to the Buyer:
VISTA CAPITAL INVESTMENTS, LLC
120 Birmingham Drive, Suite 230
Cardiff CA 92007
Attn: David Clark
Email: dclark@vci.us.com
2.7. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and assigns. Notwithstanding anything to the contrary herein, the rights, interests or obligations of the Company hereunder may not be assigned, by operation of law or otherwise, in whole or in part, by the Company without the prior written consent of the Buyer, which consent may be withheld at the sole discretion of the Buyer; provided, however, that in the case of a merger, sale of substantially all of the Company’s assets or other corporate reorganization, the Buyer shall not unreasonably withhold, condition or delay such consent. This Agreement or any of the severable rights and obligations inuring to the benefit of or to be performed by Buyer hereunder may be assigned by Buyer to a third party, including its financing sources, in whole or in part, without the need to obtain the Company’s consent thereto.
2.8. Third Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other person.
2.9. Survival. The representations and warranties of the Company and the agreements and covenants set forth in this Agreement shall survive the Closing hereunder notwithstanding any due diligence investigation conducted by or on behalf of the Buyer. The Company agrees to indemnify and hold harmless the Buyer and all its officers, directors, employees, attorneys, and agents for loss or damage arising as a result of or related to any breach or alleged breach by the Company of any of its representations, warranties and covenants set forth in this Agreement or any of its covenants and obligations under this Agreement, including advancement of expenses as they are incurred.
2.10. No Strict Construction. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party.
2.11. Remedies. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Buyer by vitiating the intent and purpose of the transaction contemplated hereby. Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Agreement will be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Agreement, that the Buyer shall be entitled, in addition to all other available remedies at law or in equity, and in addition to the penalties assessable herein, to an injunction or injunctions restraining, preventing or curing any breach of this Agreement and to enforce specifically the terms and provisions hereof, without the necessity of showing economic loss and without any bond or other security being required.
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2.12. Buyer’s Rights and Remedies Cumulative. All rights, remedies, and powers conferred in this Agreement and the Transaction Documents on the Buyer are cumulative and not exclusive of any other rights or remedies, and shall be in addition to every other right, power, and remedy that the Buyer may have, whether specifically granted in this Agreement or any other Transaction Document, or existing at law, in equity, or by statute; and any and all such rights and remedies may be exercised from time to time and as often and in such order as the Buyer may deem expedient.
2.13. Ownership Limitation. If at any time after the Closing, the Buyer shall or would receive shares of Common Stock in payment of interest or principal under Note, upon conversion of Note, under the Warrant, or upon exercise of the Warrant, so that the Buyer would, together with other shares of Common Stock held by it or its Affiliates, own or beneficially own by virtue of such action or receipt of additional shares of Common Stock a number of shares exceeding 4.99% of the number of shares of Common Stock outstanding on such date (the “Maximum Percentage”), the Company shall not be obligated and shall not issue to the Buyer shares of Common Stock which would exceed the Maximum Percentage, but only until such time as the Maximum Percentage would no longer be exceeded by any such receipt of shares of Common Stock by the Buyer. The foregoing limitations are enforceable, unconditional and non-waivable and shall apply to all Affiliates and assigns of the Buyer. Additionally, for so long as the Buyer or any of its Affiliate own Securities, upon written request from the Buyer, the Company shall post (or cause to be posted), the then-current number of issued and outstanding shares of its capital stock to the Company’s web page located at OTCmarkets.com (or such other web page approved by the Buyer).
2.14. Attorneys’ Fees and Cost of Collection. In the event of any action at law or in equity to enforce or interpret the terms of this Agreement or any of the other Transaction Documents, the parties agree that the party who is awarded the most money shall be deemed the prevailing party for all purposes and shall therefore be entitled to an additional award of the full amount of the attorneys’ fees and expenses paid by such prevailing party in connection with the litigation and/or dispute without reduction or apportionment based upon the individual claims or defenses giving rise to the fees and expenses. Nothing herein shall restrict or impair a court’s power to award fees and expenses for frivolous or bad faith pleading.
[Remainder of page intentionally left blank; signature page to follow]
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SUBSCRIPTION AMOUNT:
| Original Principal Amount of Note: | $110,000.00 |
| Purchase Price: | $100,000.00 |
IN WITNESS WHEREOF, the undersigned Buyer and the Company have caused this Agreement to be duly executed as of the date first above written.
THE COMPANY:
Electromedical Technologies, Inc.
| By: |  |
|
| Matthew Wolfson | ||
| Chief Executive Officer |
| THE BUYER: | ||
| VISTA CAPITAL INVESTMENTS, LLC | ||
| By: |  |
|
| David J. Clark | ||
| Managing Member | ||
EXHIBIT A
NOTE
EXHIBIT B
WARRANT
EXHIBIT C
TRUE-UP NOTICE
VISTA CAPITAL INVESTORS, LLC
Date:
| [Company] |
| [Address] |
TRUE-UP NOTICE
The above-captioned Holder hereby gives notice to [Company], a Nevada corporation (the “Company”), pursuant to that certain Securities Purchase Agreement dated _______ by and between the Company and the Holder (the “Purchase Agreement”), that the Holder elects to receive fully paid and nonassessable True-Up Shares pursuant to Section 1.3 of the Purchase Agreement. Such True-Up Shares shall be calculated as set forth below. In the event of a conflict between this True-Up Notice and the Purchase Agreement, the Purchase Agreement shall govern, or, in the alternative, at the election of the Holder in its sole discretion, the Holder may provide a new form of True-Up Notice to conform to the Purchase Agreement.
| A. | Subsequent Share Price: ______ |
| B. | Commitment Value: $_______ |
| C. | Commitment Shares: ______ * |
| D. | Commitment Shares ______ |
| E. | Previously Issued True-Up Shares _______ |
The number of True-Up Shares Holder is entitled to receive is calculated as follows:
((Commitment Value / Subsequent Share Price) x 1.5) – (Commitment Shares) – (Previously Issued True-Up Shares) = True-Up Shares Deliverable
* Subject to adjustments permitted by the Transaction Documents.
Please transfer the Additional Origination Shares electronically (via DWAC) to the following account:
| Broker: | |||
| Address: | |||
| DTC#: |
Account #:
Account Name:
| To the extent the Additional Origination Shares are not able to be delivered to the Holder electronically via the DWAC system, please deliver a certificate representing all such shares to the Holder via reputable overnight courier after receipt of this True-Up Notice (by facsimile transmission or otherwise) to: |
_____________________________________
_____________________________________
_____________________________________
| Sincerely, | ||
| VISTA CAPITAL INVESTMENTS, LLC | ||
| By: | ||
| David J. Clark, President | ||
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Exhibit 10.36
NEITHER THIS NOTE NOR THE SECURITIES INTO WHICH THIS NOTE IS CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE. THESE SECURITIES HAVE BEEN SOLD IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.
Electromedical Technologies, Inc.
Convertible Note
| Issuance Date: June 4, 2020 | Original Principal Amount: $110,000 |
| Note No. ELCQ-1 | Consideration Paid at Close: $100,000 |
FOR VALUE RECEIVED, Electromedical Technologies, Inc., a Delaware corporation with a par value of $0.001 per common share (“Par Value”) (the "Company"), hereby promises to pay to the order of Vista Capital Investments, LLC or registered assigns (the "Holder") the amount set out above as the Original Principal Amount (as reduced pursuant to the terms hereof pursuant to redemption, conversion or otherwise, the "Principal") when due, whether upon the Maturity Date (as defined below), acceleration, redemption or otherwise (in each case in accordance with the terms hereof) and to pay interest ("Interest") on any outstanding Principal at the applicable Interest Rate from the date set out above as the Issuance Date (the "Issuance Date") until the same becomes due and payable, upon the Maturity Date or acceleration, conversion, redemption or otherwise (in each case in accordance with the terms hereof).
The Original Principal Amount is $110,000 (one hundred ten thousand) plus accrued and unpaid interest and any other fees. The Consideration is $100,000 (one hundred thousand) payable by wire transfer (there exists a $10,000 original issue discount (the “OID”)). The Holder shall pay $100,000 of Consideration upon closing of this Note. For purposes hereof, the term “Outstanding Balance” means the Original Principal Amount, as reduced or increased, as the case may be, pursuant to the terms hereof for conversion, breach hereof or otherwise, plus any accrued but unpaid interest, collection and enforcements costs, and any other fees, penalties, damages or charges incurred under this Note.
| (1) | GENERAL TERMS |
(a) Payment of Principal. The "Maturity Date" shall be December 15, 2020, and may be extended at the option of the Holder in the event that, and for so long as, an Event of Default (as defined below) shall not have occurred and be continuing on the Maturity Date (as may be extended pursuant to this Section 1) or any event shall not have occurred and be continuing on the Maturity Date (as may be extended pursuant to this Section 1) that with the passage of time and the failure to cure would result in an Event of Default.
(b) Interest. A one-time interest charge of eight percent (8%) (“Interest Rate”) shall be applied on the Issuance Date to the Outstanding Balance. Interest hereunder shall be paid on the Maturity Date (or sooner as provided herein) to the Holder or its assignee in whose name this Note is registered on the records of the Company regarding registration and transfers of Notes in cash or converted into share of common stock of the Company (“Common Stock”) at the Conversion Price provided the Equity Conditions are satisfied.
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(c) Security. This Note shall not be secured by any collateral or any assets pledged to the Holder
(d) Moratorium on Variable Securities. For a period of 90 (ninety) days following the issuance date, the Company shall not at any time make any Variable Security Issuances (as defined below) to anyone other than Investor without Investor’s prior written consent, which consent may be granted or withheld in Investor’s sole and absolute discretion. “Variable Security Issuance” shall mean any issuance of any security that (i) has or may have conversion rights of any kind, contingent, conditional or otherwise, in which the number of shares that may be issued pursuant to such conversion right varies with the market price of the Common Stock, or (ii) is or may become convertible into Common Stock (including without limitation convertible debt, debentures, warrants or convertible preferred stock), with a conversion price that varies with the market price of the Common Stock, even if such security only becomes convertible following an event of default, the passage of time, or another trigger event or condition. For avoidance of doubt, the issuance of shares of Common Stock under, pursuant to, in exchange for or in connection with any contract or instrument, whether convertible or not, is deemed a Variable Security Issuance for purposes hereof if the number of shares of Common Stock to be issued is based upon or related in any way to the market price of the Common Stock, including, but not limited to, Common Stock issued in connection with a Section 3(a)(9) exchange, a Section 3(a)(10) settlement, or any other similar settlement or exchange.
| (2) | EVENTS OF DEFAULT. |
(a) An “Event of Default”, wherever used herein, means any one of the following events (whatever the reason and whether it shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of any administrative or governmental body):
(i) The Company's failure to pay to the Holder any amount of Principal, Interest, or other amounts when and as due under this Note (including, without limitation, the Company's failure to pay any redemption payments or amounts hereunder);
(ii) A Conversion Failure as defined in section 3(b)(ii)
(iii) The Company or any subsidiary of the Company shall commence,
or there shall be commenced against the Company or any subsidiary of the Company under any applicable bankruptcy or insolvency laws as now or hereafter in effect or any successor thereto, or the Company or any subsidiary of the Company commences any other proceeding under any reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction whether now or hereafter in effect relating to the Company or any subsidiary of the Company or there is commenced against the Company or any subsidiary of the Company any such bankruptcy, insolvency or other proceeding which remains undismissed for a period of 61 days; or the Company or any subsidiary of the Company is adjudicated insolvent or bankrupt; or any order of relief or other order approving any such case or proceeding is entered; or the Company or any subsidiary of the Company suffers any appointment of any custodian, private or court appointed receiver or the like for it or any substantial part of its property which continues undischarged or unstayed for a period of sixty one (61) days; or the Company or any subsidiary of the Company makes a general assignment for the benefit of creditors; or the Company or any subsidiary of the Company shall fail to pay, or shall state that it is unable to pay, or shall be unable to pay, its debts generally as they become due; or the Company or any subsidiary of the Company shall call a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts; or the Company or any subsidiary of the Company shall by any act or failure to act expressly indicate its consent to, approval of or acquiescence in any of the foregoing; or any corporate or other action is taken by the Company or any subsidiary of the Company for the purpose of effecting any of the foregoing;
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(iv) The Company or any subsidiary of the Company shall default in any of its obligations under any other Note or any mortgage, credit agreement or other facility, indenture agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced any indebtedness for borrowed money or money due under any long term leasing or factoring arrangement of the Company or any subsidiary of the Company in an amount exceeding $100,000, whether such indebtedness now exists or shall hereafter be created; and
(v) The Common Stock is suspended or delisted for trading on the Over the Counter OTCQB Venture Marketplace or OTCPink Open Marketplace (the “Primary Market”).
(vi) The Company loses its ability to deliver shares via “DWAC/FAST” electronic transfer.
(vii) The Company loses its status as “DTC Eligible.”
(viii) The Company shall become late or delinquent in its filing requirements as a fully-reporting issuer registered with the Securities & Exchange Commission.
(ix) The Company shall fail to reserve and keep available out of its authorized Common Stock a number of shares equal to at least 5 (five) times the full number of shares of Common Stock issuable upon conversion of all outstanding amounts under this Note.
(x) The Company shall fail to meet all requirements to satisfy the availability of Rule 144 to the Holder or its assigns including but not limited to timely fulfillment of its filing requirements as a fully-reporting issuer registered with the SEC, requirements for XBRL filings, and requirements for disclosure of financial statements on its website.
(xi) Failure to comply with Section 1(d) of this Note.
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(xii) Failure to register shares as per section 1.4 of the Securities Purchase Agreement, attached hereto as Exhibit C.
| (b) | Upon the occurrence of any Event of Default (without the need for any party to give any notice or take any other action), the Outstanding Balance shall immediately and automatically increase to 120% of the Outstanding Balance immediately prior to the occurrence of the Event of Default (the “Default Sum”). Upon the occurrence of any Event of Default, the Note shall become immediately due and payable and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the Outstanding Balance, all without demand, presentment or notice, all of which hereby are expressly waived, together with all costs, including, without limitation, legal fees and expenses, of collection, and the Holder shall be entitled to exercise all other rights and remedies available at law or in equity. |
(3) CONVERSION OF NOTE. This Note shall be convertible into shares of the Company's Common Stock, on the terms and conditions set forth in this Section 3.
(a) Conversion Right. Subject to the provisions of Section 3(c), at any time or times on or after the Issuance Date, the Holder shall be entitled to convert any portion of the outstanding and unpaid Conversion Amount (as defined below) into fully paid and nonassessable shares of Common Stock in accordance with Section 3(b), at the Conversion Price (as defined below). The number of shares of Common Stock issuable upon conversion of any Conversion Amount pursuant to this Section 3(a) shall be equal to the quotient of dividing the Conversion Amount by the Conversion Price. The Company shall not issue any fraction of a share of Common Stock upon any conversion. If the issuance would result in the issuance of a fraction of a share of Common Stock, the Company shall round such fraction of a share of Common Stock up to the nearest whole share. The Company shall pay any and all transfer agent fees, legal fees, costs and any other fees or costs that may be incurred or charged in connection with the issuance of shares of the Company’s Common Stock to the Holder arising out of or relating to the conversion of this Note.
(i) "Conversion Amount" means the portion of the Original Principal Amount and Interest to be converted, plus any penalties, redeemed or otherwise with respect to which this determination is being made.
(ii) "Conversion Price" shall equal $0.35 per share.
| (b) | Mechanics of Conversion. |
(i) Optional Conversion. To convert any Conversion Amount into
shares of Common Stock on any date (a "Conversion Date"), the Holder shall (A) transmit by email, facsimile (or otherwise deliver), for receipt on or prior to 11:59 p.m., New York, NY Time, on such date, a copy of an executed notice of conversion in the form attached hereto as Exhibit A (the "Conversion Notice") to the Company. On or before the third Business Day following the date of receipt of a Conversion Notice (the "Share Delivery Date"), the Company shall (A) if legends are not required to be placed on certificates of Common Stock pursuant to the then existing provisions of Rule 144 of the Securities Act of 1933 (“Rule 144”) and provided that the Transfer Agent is participating in the Depository Trust Company's ("DTC") Fast Automated Securities Transfer Program, credit such aggregate number of shares of Common Stock to which the Holder shall be entitled to the Holder's or its designee's balance account with DTC through its Deposit Withdrawal Agent Commission system or (B) if the Transfer Agent is not participating in the DTC Fast Automated Securities Transfer Program, issue and deliver to the address as specified in the Conversion Notice, a certificate, registered in the name of the Holder or its designee, for the number of shares of Common Stock to which the Holder shall be entitled which certificates shall not bear any restrictive legends unless required pursuant the Rule 144. If this Note is physically surrendered for conversion and the outstanding Principal of this Note is greater than the Principal portion of the Conversion Amount being converted, then the Company shall, upon request of the Holder, as soon as practicable and in no event later than three (3) Business Days after receipt of this Note and at its own expense, issue and deliver to the holder a new Note representing the outstanding Principal not converted. The Person or Persons entitled to receive the shares of Common Stock issuable upon a conversion of this Note shall be treated for all purposes as the record holder or holders of such shares of Common Stock upon the transmission of a Conversion Notice.
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(ii) Company's Failure to Timely Convert. If within two (2) Trading Days after the Company's receipt of the facsimile or email copy of a Conversion Notice the Company shall fail to issue and deliver to Holder via “DWAC/FAST” electronic transfer the number of shares of Common Stock to which the Holder is entitled upon such holder's conversion of any Conversion Amount (a "Conversion Failure"), the Original Principal Amount of the Note shall increase by $2,000 per day until the Company issues and delivers a certificate to the Holder or credit the Holder's balance account with DTC for the number of shares of Common Stock to which the Holder is entitled upon such holder's conversion of any Conversion Amount (under Holder’s and Company’s expectation that any damages will tack back to the Issuance Date). Company will not be subject to any penalties once its transfer agent processes the shares to the DWAC system. If the Company fails to deliver shares in accordance with the timeframe stated in this Section, resulting in a Conversion Failure, the Holder, at any time prior to selling all of those shares, may rescind any portion, in whole or in part, of that particular conversion attributable to the unsold shares and have the rescinded conversion amount returned to the Outstanding Balance with the rescinded conversion shares returned to the Company (under Holder’s and Company’s expectations that any returned conversion amounts will tack back to the original date of the Note).
(iii) DWAC/FAST Eligibility. If the Company fails for any reason to deliver to the Holder the Shares by DWAC/FAST electronic transfer (such as by delivering a physical stock certificate), or if there is a Conversion Failure as defined in Section 3(b)(ii), and if the Holder incurs a Market Price Loss, then at any time subsequent to incurring the loss the Holder may provide the Company written notice indicating the amounts payable to the Holder in respect of the Market Price Loss and the Company must make the Holder whole by either of the following options at Holder’s election: Market Price Loss = [(High trade price for the period between the day of conversion and the day the shares clear in the Holder’s brokerage account) x (Number of shares receivable from the conversion)] – [(Net Sales price realized by Holder) x (Number of shares receivable from the conversion)].
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Option A – Pay Market Price Loss in Cash. The Company must pay the Market Price Loss by cash payment, and any such cash payment must be made by the third business day from the time of the Holder’s written notice to the Company.
Option B – Add Market Price Loss to Outstanding Balance. The Company must pay the Market Price Loss by adding the Market Price Loss to the Outstanding Balance (under Holder’s and the Company’s expectation that any Market Price Loss amounts will tack back to the Issuance Date).
In the case that conversion shares are not deliverable by DWAC/FAST electronic transfer an additional 10% discount to the Conversion Price will apply.
(iv) DTC Eligibility & Sub-Penny. If the Company fails to maintain its status as “DTC Eligible” for any reason, or, if the effective Conversion Price as calculated in Section 3(a)(ii) is less than $0.01 at any time (regardless of whether or not a Conversion Notice has been submitted to the Company), the Principal Amount of the Note shall increase by ten thousand dollars ($10,000) (under Holder’s and Company’s expectation that any Principal Amount increase will tack back to the Issuance Date). In addition, the Conversion Price shall be permanently redefined to equal the lesser of (a) $0.01 or (b) 50% of the lowest trade occurring during the twenty five (25) consecutive Trading Days immediately preceding the applicable Conversion Date on which the Holder elects to convert all or part of this Note, subject to adjustment as provided in this Note.
(v) Default Conversion Price. Upon the occurrence of any Event of Default (without the need for any party to give any notice or take any other action), the Conversion Price shall be redefined to equal the Default Conversion Price. The Default conversion price shall be defined as 60% of the lowest trade occurring during the twenty five (25) consecutive Trading Days immediately preceding the applicable Conversion Date on which the Holder elects to convert all or part of this Note, subject to adjustment as provided in this Note.
(vi) Par Value True-Up. In the event that the Conversion Price is less than Par Value on the Conversion Date, the Holder may elect to submit a Conversion Notice (attached hereto as Exhibit A) with a conversion price equal to the Company’s Par Value. In addition, upon written notice from the Holder in the form attached hereto as Exhibit B (the “True-Up Notice”), the Holder may require the Company, at the Holder’s election, to either (A) issue and deliver to the Holder a number of shares of Common Stock as equals (X) the Conversion Amount divided by 60% of the lowest trade occurring during the twenty five (25) consecutive Trading Days immediately preceding the applicable Conversion Date, less (Y) the Conversion Amount divided by the Par Value (Any additional shares of Common Stock issuable pursuant to this Section 3(b)(v) shall be referred to herein as “True-Up Shares”), or (B) add to the Outstanding Balance a dollar amount equal to the number of True-Up Shares (as calculated above) multiplied by the high trade price on the Conversion Date (Any dollar amount added to the Outstanding Balance pursuant to this Section 3(b)(v) shall be referred to herein as the “True-Up Balance”) (under Holder’s and the Company’s expectation that any True-Up Balance amounts will tack back to the Issuance Date).
(vii) Book-Entry. Notwithstanding anything to the contrary set forth herein, upon conversion of any portion of this Note in accordance with the terms hereof, the Holder shall not be required to physically surrender this Note to the Company unless (A) the full Conversion Amount represented by this Note is being converted or (B) the Holder has provided the Company with prior written notice (which notice may be included in a Conversion Notice) requesting reissuance of this Note upon physical surrender of this Note. The Holder and the Company shall maintain records showing the Principal and Interest converted and the dates of such conversions or shall use such other method, reasonably satisfactory to the Holder and the Company, so as not to require physical surrender of this Note upon conversion.
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| (c) | Limitations on Conversions or Trading. |
(i) Beneficial Ownership. The Company shall not effect any conversions of this Note and the Holder shall not have the right to convert any portion of this Note or receive shares of Common Stock as payment of interest hereunder to the extent that after giving effect to such conversion or receipt of such interest payment, the Holder, together with any affiliate thereof, would beneficially own (as determined in accordance with Section 13(d) of the Exchange Act and the rules promulgated thereunder) in excess of 4.99% of the number of shares of Common Stock outstanding immediately after giving effect to such conversion or receipt of shares as payment of interest. Since the Holder will not be obligated to report to the Company the number of shares of Common Stock it may hold at the time of a conversion hereunder, unless the conversion at issue would result in the issuance of shares of Common Stock in excess of 4.99% of the then outstanding shares of Common Stock without regard to any other shares which may be beneficially owned by the Holder or an affiliate thereof, the Holder shall have the authority and obligation to determine whether the restriction contained in this Section will limit any particular conversion hereunder and to the extent that the Holder determines that the limitation contained in this Section applies, the determination of which portion of the principal amount of this Note is convertible shall be the responsibility and obligation of the Holder. If the Holder has delivered a Conversion Notice for a principal amount of this Note that, without regard to any other shares that the Holder or its affiliates may beneficially own, would result in the issuance in excess of the permitted amount hereunder, the Company shall notify the Holder of this fact and shall honor the conversion for the maximum principal amount permitted to be converted on such Conversion Date in accordance with Section 3(a) and, any principal amount tendered for conversion in excess of the permitted amount hereunder shall remain outstanding under this Note. In the event that the Market Capitalization of the Company falls below $2,500,000, the term “4.99%” above shall be permanently replaced with “9.99%”. “Market Capitalization” shall be defined as the product of (a) the closing price of the Common Stock of the Common stock multiplied by (b) the number of shares of Common Stock outstanding as reported on the Company’s most recently filed Form 10-K or Form 10-Q. The provisions of this Section may be waived by Holder upon not less than 65 days prior written notification to the Company.
(ii) Capitalization. So long as this as this Note is outstanding, upon written request of the Holder, the Company shall furnish to the Holder the then-current number of common shares issued and outstanding, the then-current number of common shares authorized, and the then-current number of shares reserved for third parties.
| (d) | Other Provisions. |
(i) Share Reservation. The Company shall at all times reserve and keep available out of its authorized Common Stock a number of shares equal to at least 5 (five) times the full number of shares of Common Stock issuable upon conversion of all outstanding amounts under this Note; and within 3 (three) Business Days following the receipt by the Company of a Holder's notice that such minimum number of shares of Common Stock is not so reserved, the Company shall promptly reserve a sufficient number of shares of Common Stock to comply with such requirement. The Company will at all times reserve at least 5,000,000 shares of Common Stock for conversion.
(ii) Prepayment. At any time within the 90 day period immediately following the Issuance Date, the Company shall have the option, upon 10 business days’ notice to Holder, to pre-pay the entire remaining outstanding principal amount of this Note in cash, provided that (i) the Company shall pay the Holder 130% of the Outstanding Balance, (ii) such amount must be paid in cash on the next business day following such 10 business day notice period, and (iii) the Holder may still convert this Note pursuant to the terms hereof at all times until such prepayment amount has been received in full. Except as set forth in this Section the Company may not prepay this Note in whole or in part.
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(iii) Terms of Future Issuances. So long as this Note is outstanding, upon any issuance by the Company or any of its subsidiaries of any promissory note, debenture or security (each referred to as a “Security”) (or upon any amendment to or conversion of any existing Security) with any term more favorable to the holder of such Security or with a term in favor of the holder of such Security that was not similarly provided to the Holder in this Note, then the Company shall notify the Holder of such additional or more favorable term and such term, at Holder’s option, shall become a part of the Note. The types of terms contained in another Security that may be more favorable to the holder of such Security include, but are not limited to, terms addressing conversion discounts, conversion lookback periods, conversions or exchanges of existing notes or debentures, interest rates, original issue discounts, stock sale price, private placement price per share, and warrant coverage.
(iv) Dilutive Issuances. If the Company or any Subsidiary thereof, as applicable, at any time while this Note is outstanding, shall sell or grant any option to purchase, or sell or grant any right to re-price, or otherwise dispose of or issue (or announce any offer, sale, grant or any option to purchase or other disposition) any Common Stock or Common Stock Equivalents entitling any Person to acquire shares of Common Stock, at an effective price per share less than the then Conversion Price (such lower price, the “Base Share Price” and such issuances collectively, a “Dilutive Issuance”) (if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share which is less than the Conversion Price, such issuance shall be deemed to have occurred for less than the Conversion Price on such date of the Dilutive Issuance), then the Conversion Price shall be reduced and only reduced to equal the Base Share Price. Such adjustment shall be made whenever such Common Stock or Common Stock Equivalents are issued. The Company shall notify the Holder in writing, no later than the Trading Day following the issuance of any Common Stock or Common Stock Equivalents subject to this Section 3(d)(iv), indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price and other pricing terms (such notice the “Dilutive Issuance Notice”). For purposes of clarification, whether or not the Company provides a Dilutive Issuance Notice pursuant to this Section 3(d)(iv), upon the occurrence of any Dilutive Issuance, after the date of such Dilutive Issuance the Holder is entitled to receive a number of shares based upon the Base Share Price regardless of whether the Holder accurately refers to the Base Share Price in the Conversion Notice.
(v) All calculations under this Section 3 shall be rounded up to the nearest $0.00001 or whole share.
(vi) Nothing herein shall limit a Holder's right to pursue actual damages or declare an Event of Default pursuant to Section 2 herein for the Company's failure to deliver certificates representing shares of Common Stock upon conversion within the period specified herein and such Holder shall have the right to pursue all remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief, in each case without the need to post a bond or provide other security. The exercise of any such rights shall not prohibit the Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law.
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(4) SECTION 3(A)(9) OR 3(A)(10) TRANSACTION. So long as this Note is outstanding, the Company shall not enter into any transaction or arrangement structured in accordance with, based upon, or related or pursuant to, in whole or in part, either Section 3(a)(9) of the Securities Act (a “3(a)(9) Transaction”) or Section 3(a)(10) of the Securities Act (a “3(a)(10) Transaction”). In the event that the Company does enter into, or makes any issuance of Common Stock related to a 3(a)(9) Transaction or a 3(a)(10) Transaction while this note is outstanding, a liquidated damages charge of 25% of the outstanding principal balance of this Note, but not less than $25,000, will be assessed and will become immediately due and payable to the Holder at its election in the form of cash payment or addition to the balance of this Note.
(5) PIGGYBACK REGISTRATION RIGHTS. The Company shall include on the next registration statement the Company files with SEC (or on the subsequent registration statement if such registration statement is withdrawn) all shares issuable upon conversion of this Note. Failure to do so will result in liquidated damages of 25% of the outstanding principal balance of this Note, but not less than $25,000, being immediately due and payable to the Holder at its election in the form of cash payment or addition to the balance of this Note.
| (6) | REISSUANCE OF THIS NOTE. |
| (a) | Assignability. The Company may not assign this Note. This Note will be binding upon the Company and its successors and will inure to the benefit of the Holder and its successors and assigns and may be assigned by the Holder to anyone of its choosing without Company’s approval. |
| (b) | Lost, Stolen or Mutilated Note. Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Note, and, in the case of loss, theft or destruction, of any indemnification undertaking by the Holder to the Company in customary form and, in the case of mutilation, upon surrender and cancellation of this Note, the Company shall execute and deliver to the Holder a new Note representing the outstanding Principal. |
(7) NOTICES. Any notices, consents, waivers or other communications required or permitted to be given under the terms hereof must be in writing and will be deemed to have been delivered: (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party) (iii) upon receipt, when sent by email; or (iv) one (1) Trading Day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. The addresses and facsimile numbers for such communications shall be those set forth in the communications and documents that each party has provided the other immediately preceding the issuance of this Note or at such other address and/or facsimile number and/or to the attention of such other person as the recipient party has specified by written notice given to each other party three (3) Business Days prior to the effectiveness of such change. Written confirmation of receipt (i) given by the recipient of such notice, consent, waiver or other communication, (ii) mechanically or electronically generated by the sender's facsimile machine containing the time, date, recipient facsimile number and an image of the first page of such transmission or (iii) provided by a nationally recognized overnight delivery service, shall be rebuttable evidence of personal service, receipt by facsimile or receipt from a nationally recognized overnight delivery service in accordance with clause (i), (ii) or (iii) above, respectively.
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The addresses for such communications shall be:
If to the Company, to:
Electromedical Technologies, Inc.
16561 N 92nd St., Suite 101
Scottsdale AZ 85260
Attn: Matthew Wolfson
Email: ceo@electromedtech.com
If to the Holder:
VISTA CAPITAL INVESTMENTS, LLC
120 Birmingham Drive, Suite 230
Cardiff by the Sea CA 92007
Attn: David Clark, Managing Member
Email: dclark@vci.us.com
(8) APPLICABLE LAW AND VENUE. This Note shall be governed by and construed in accordance with the laws of the State of Nevada, without giving effect to conflicts of laws thereof. Any action brought by either party against the other concerning the transactions contemplated by this Agreement shall be brought only in the state courts of California or in the federal courts located in the city and county of San Diego, in the State of California. Both parties and the individuals signing this Agreement agree to submit to the jurisdiction of such courts.
(9) WAIVER. Any waiver by the Holder of a breach of any provision of this Note shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Note. The failure of the Holder to insist upon strict adherence to any term of this Note on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Note. Any waiver must be in writing.
(10) LIQUIDATED DAMAGES. Holder and Company agree that in the event Company fails to comply with any of the terms or provisions of this Note, Holder's damages would be uncertain and difficult (if not impossible) to accurately estimate because of the parties' inability to predict future interest rates, future share prices, future trading volumes and other relevant factors. Accordingly, Holder and Company agree that any fees, balance adjustments, default interest or other charges assessed under this Note are not penalties but instead are intended by the parties to be, and shall be deemed, liquidated damages (under Holder's and Company's expectations that any such liquidated damages will tack back to the Closing Date for purposes of determining the holding period under Rule 144).
(11) ADJUSTMENTS. Notwithstanding anything to the contrary, any references herein to share numbers or share prices shall be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during such period.
[Signature Page Follows]
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IN WITNESS WHEREOF, the Company has caused this Convertible Note to be duly executed by a duly authorized officer as of the date set forth above.
| COMPANY: | ||
| Electromedical Technologies, Inc. | ||
| By: |  | |
| Name: Matthew Wolfson | ||
| Title: Chief Executive Officer | ||
| HOLDER: | ||
| VISTA CAPITAL INVESTMENTS, LLC. | ||
| By: |  | |
| Name: David Clark | ||
| Title: Managing Member | ||
[Signature Page to Convertible Note No. ELCQ-1]
EXHIBIT A CONVERSION NOTICE
| [Company Contact, Position] | Electromedical Technologies, Inc. |
[Company Address]
[Contact Email Address}
The undersigned hereby elects to convert a portion of the $________ Convertible Note _______ issued to Vista Capital Investments, LLC on ____________ into Shares of Common Stock of ____________ according to the conditions set forth in such Note as of the date written below.
By accepting this notice of conversion, you are acknowledging that the number of shares to be delivered represents less than 10% (ten percent) of the common stock outstanding. If the number of shares to be delivered represents more than 9.99% of the common stock outstanding, this conversion notice shall immediately automatically extinguish and debenture Holder must be immediately notified.
| Date of Conversion: | ||
Conversion Amount:
Conversion Price:
Shares to be Delivered:
Shares delivered in name of:
VISTA CAPITAL INVESTMENTS, LLC
| Signature: | |
| By: | |
| Title: | |
| Vista Capital Investments, LLC |
EXHIBIT B TRUE-UP NOTICE
[Company Contact, Position]
Electromedical Technologies, Inc.
[Company Address]
[Contact Email Address}
The undersigned hereby gives notice to Electromedical Technologies, Inc., a ______ corporation (the “Company”), pursuant to that certain Note dated _______ ___, 20__ by and between the Company and the Holder (the “Note”), that the Holder elects to:
___ Receive fully paid and non-assessable True-Up Shares pursuant to Section 3(b)(v) of the Note (such Additional Origination Shares shall be calculated as set forth below), or
___ Add to the Outstanding Balance a dollar amount equal to the True-Up Amount (such True-Up Amount shall be calculated as set forth below).
The number of True-Up Shares Holder is entitled to receive is calculated as follows:
Conversion Amount ($___) / ___% of the lowest trade occurring during the _________ (__) consecutive Trading Days immediately preceding the applicable Conversion Date ($_.__) - Conversion Amount ($___) divided by the Par Value ($_.__) =
____________ True-Up Shares
The amount of True-Up Balance to be added to the Outstanding Balance is calculated as follows:
Number of True-Up Shares (_____) * high trade price on the Conversion Date ($_.__)=
____________ True-Up Balance
Shares delivered in name of:
VISTA CAPITAL INVESTMENTS, LLC
| Signature: | |
| By: | |
| Title: | |
| Vista Capital Investments, LLC |
EXHIBIT C
SECURITIES PURCHASE AGREEMENT
Exhibit 10.37
THIS WARRANT AND THE COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS WARRANT AND THE COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SUCH ACT AND ANY APPLICABLE STATE SECURITIES LAW OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO ELECTROMEDICAL TECHNOLOGIES, INC. THAT SUCH REGISTRATION IS NOT REQUIRED.
ELECTROMEDICAL TECHNOLOGIES, INC.
WARRANT TO PURCHASE SHARES OF COMMON STOCK
1. Issuance. In consideration of good and valuable consideration as set forth in the Purchase Agreement (defined below), including without limitation the Purchase Price (as defined in the Purchase Agreement), the receipt and sufficiency of which are hereby acknowledged by ELECTROMEDICAL TECHNOLOGIES, INC., a Colorado corporation (the “Company”); VISTA CAPITAL INVESTMENTS, LLC, its successors and/or registered assigns (the “Holder”), is hereby granted the right to purchase at any time on or after the Issue Date (as defined below) until the date which is the last calendar day of the month in which the third anniversary of the Issue Date occurs (the “Expiration Date”), 250,000 fully paid and nonassessable shares (the “Warrant Shares”) of the Company’s common stock, par value $0.001 per share (the “Common Stock”), as such number of Warrant Shares may be adjusted from time to time pursuant to the terms and conditions of this Warrant to Purchase Shares of Common Stock (this “Warrant”). This Warrant is being issued pursuant to the terms of that certain Securities Purchase Agreement dated June 4, 2020, to which the Company and the Holder are parties (as the same may be amended from time to time, the “Purchase Agreement”).
Unless otherwise indicated herein, capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Purchase Agreement.
This Warrant was originally issued to the Holder on June 4, 2020 (the “Issue Date”).
| 2. | Exercise of Warrant. |
2.1. General.
(a) This Warrant is exercisable in whole or in part at any time and from time to time commencing on the Issue Date and ending on the Expiration Date. Such exercise shall be effectuated by submitting to the Company (either by delivery to the Company or by email or facsimile transmission) a completed and duly executed Notice of Exercise substantially in the form attached to this Warrant as Exhibit A (the “Notice of Exercise”). The date such Notice of Exercise is either faxed, emailed or delivered to the Company shall be the “Exercise Date,” provided that, if such exercise represents the full exercise of the outstanding balance of the Warrant, the Holder shall tender this Warrant to the Company within five (5) Trading Days thereafter, but only if the Warrant Shares to be delivered pursuant to the Notice of Exercise have been delivered to the Holder as of such date. The Notice of Exercise shall be executed by the Holder and shall indicate (i) the number of Warrant Shares (as defined below) to be issued pursuant to such exercise, and (ii) if applicable (as provided below), whether the exercise is a cashless exercise.
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For purposes of this Warrant, the term “Trading Day” means any day during which the principal market on which the Common Stock is traded (the “Principal Market”) shall be open for business. (b) To the extent this Warrant is not previously exercised, and if the Market Price of one Warrant Share is greater than the Exercise Price, the Holder may elect to receive Warrant Shares, in lieu of a cash exercise, equal to the value of this Warrant determined in the manner described below (or of any portion thereof remaining unexercised) by surrender of this Warrant and a Notice of Exercise, in which event the Company shall issue to Holder a number of Shares computed using the following formula:
| X | = Y (A-B) |
A
| Where X | = | the number of Warrant Shares to be issued to Holder. |
| Y | = | the number of Warrant Shares that the Holder elects to purchase under this Warrant (at the date of such calculation). |
| A | = | the Market Price (at the date of such calculation). |
| B | = | Exercise Price (as adjusted to the date of such calculation). |
For the purposes of this Warrant, the following terms shall have the following meanings:
“Affiliate” shall mean an affiliate as such term is defined in Rule 144 under the Securities Act of 1933, as amended (or a successor rule).
“Aggregate Exercise Price Payable” shall mean the product of multiplying the number of Warrant Shares exercisable by the Exercise Price.
“Closing Price” shall mean the 4:00 P.M. last sale price of the Common Stock on the Principal Market on the relevant Trading Day(s), as reported by Bloomberg LP (or if that service is not then reporting the relevant information regarding the Common Stock, a comparable reporting service of national reputation selected by the Holder and reasonably acceptable to the Company) (“Bloomberg”) for the relevant date.
“Deemed Issuance” means a requested conversion under the Note that is not honored by the Company.
“Exercise Price” shall mean $1.00 per share of Common Stock, subject to adjustments herein.
“Market Price” shall mean the Closing Price for the Common Stock on the Trading Day that is two Trading Days prior to the Exercise Date.
“Note” shall mean that certain Convertible Promissory Note issued by the Company to the Holder pursuant to the Purchase Agreement, as the same may be amended from time to time, and including any promissory note(s) that replace or are exchanged for such referenced promissory note.
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(c) If the Notice of Exercise form elects a “cash” exercise (or if the cashless exercise referred to in the immediately preceding subsection (b) is not available in accordance with the terms hereof), the Exercise Price per share of Common Stock for the Warrant Shares shall be payable, at the election of the Holder, in cash or by certified or official bank check or by wire transfer in accordance with instructions provided by the Company at the request of the Holder.
(d) Upon the appropriate payment to the Company, if any, of the Exercise Price for the Warrant Shares, together with the surrender of this Warrant (if required), the Company shall promptly, but in no case later than the date that is three (3) Trading Days following the date the Exercise Price is paid to the Company (or with respect to a “cashless exercise,” the date that is three (3) Trading Days following the Exercise Date) (the “Delivery Date”), provided that all DWAC Eligible Conditions (as defined in the Note) are then satisfied, deliver or cause the Company’s Transfer Agent to deliver the applicable Warrant Shares electronically via the Deposit/Withdrawal at Custodian (“DWAC”) system to the account designated by the Holder on the Notice of Exercise. If all DWAC Eligible Conditions are not then satisfied, the Company shall instead issue and deliver or cause to be issued and delivered (via reputable overnight courier) to the address as specified in the Notice of Exercise, a certificate, registered in the name of the Holder or its designee, for the number of Warrant Shares to which the Holder shall be entitled. For the avoidance of doubt, the Company has not met its obligation to deliver Warrant Shares by the Delivery Date unless the Transfer Agent has posted the shares for DWAC pickup and the Holder or its broker, as applicable, has been notified of this availability, or if the DWAC Eligible Conditions are not then satisfied, has actually received the certificate representing the applicable Warrant Shares no later than the close of business on the relevant Delivery Date pursuant to the terms set forth above.
(e) If Warrant Shares are delivered later than as required under subsection (d) immediately above, the Company agrees to pay, in addition to all other remedies available to the Holder in the Transaction Documents, a late charge equal to the greater of (i) $2,000.00 and (ii) 2% of the product of (1) the sum of the number of shares of Common Stock not issued to the Holder on a timely basis and to which the Holder is entitled multiplied by (2) the Closing Price of the Common Stock on the Trading Day immediately preceding the last possible date which the Company could have issued such shares of Common Stock to the Holder without violating this Warrant, per Trading Day until such Warrant Shares are delivered. The Company shall pay any late charges incurred under this subsection in immediately available funds upon demand; provided, however, that, at the option of the Holder (without notice to the Company), such amount owed may be added to the principal amount of the Note. Furthermore, in addition to any other remedies which may be available to the Holder, in the event that the Company fails for any reason to effect delivery of the Warrant Shares as required under subsection (d) immediately above, the Holder may revoke all or part of the relevant Warrant exercise by delivery of a notice to such effect to the Company, whereupon the Company and the Holder shall each be restored to their respective positions immediately prior to the exercise of the relevant portion of this Warrant, except that the late charge described above shall be payable through the date notice of revocation or rescission is given to the Company.
(f) The Holder shall be deemed to be the holder of the Warrant Shares issuable to it in accordance with the provisions of this Section 2.1 on the Exercise Date.
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2.2. Ownership Limitation. If at any time after the Closing, the Buyer shall or would receive shares of Common Stock in payment of interest or principal under Note, upon conversion of Note, under the Warrant, or upon exercise of the Warrant, so that the Buyer would, together with other shares of Common Stock held by it or its Affiliates, own or beneficially own by virtue of such action or receipt of additional shares of Common Stock a number of shares exceeding 9.99% of the number of shares of Common Stock outstanding on such date (the “Maximum Percentage”), the Company shall not be obligated and shall not issue to the Buyer shares of Common Stock which would exceed the Maximum Percentage, but only until such time as the Maximum Percentage would no longer be exceeded by any such receipt of shares of Common Stock by the Buyer. The foregoing limitations are enforceable, unconditional and non-waivable and shall apply to all Affiliates and assigns of the Buyer. Additionally, for so long as the Buyer or any of its Affiliate own Securities, upon written request from the Buyer, the Company shall post (or cause to be posted), the then-current number of issued and outstanding shares of its capital stock to the Company’s web page located at OTCmarkets.com (or such other web page approved by the Buyer).
3. Mutilation or Loss of Warrant. Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and (in the case of loss, theft or destruction) receipt of reasonably satisfactory indemnification, and (in the case of mutilation) upon surrender and cancellation of this Warrant, the Company will execute and deliver to the Holder a new Warrant of like tenor and date and any such lost, stolen, destroyed or mutilated Warrant shall thereupon become void.
4. Rights of the Holder. The Holder shall not, by virtue of this Warrant alone, be entitled to any rights of a stockholder in the Company, either at law or in equity, and the rights of the Holder with respect to or arising under this Warrant are limited to those expressed in this Warrant and are not enforceable against the Company except to the extent set forth herein.
5. Certain Adjustments.
5.1. Capital Adjustments. If the Company shall at any time prior to the expiration of this Warrant subdivide the Common Stock, by split-up or stock split, or otherwise, or combine its Common Stock, or issue additional shares of its Common Stock as a dividend, the number of Warrant Shares issuable upon the exercise of this Warrant shall forthwith be automatically increased proportionately in the case of a subdivision, split or stock dividend, or proportionately decreased in the case of a combination. Appropriate adjustments shall also be made to the Exercise Price, Market Price (in the event of a cashless exercise), and other applicable amounts, but the aggregate purchase price payable for the total number of Warrant Shares purchasable under this Warrant (as adjusted) shall remain the same. Any adjustment under this Section 5.1 shall become effective automatically at the close of business on the date the subdivision or combination becomes effective, or as of the record date of such dividend, or in the event that no record date is fixed, upon the making of such dividend.
5.2. Reclassification, Reorganization and Consolidation. In case of any reclassification, capital reorganization, or change in the capital stock of the Company (other than as a result of a subdivision, combination, or stock dividend provided for in Section 5.1 above), then the Company shall make appropriate provision so that the Holder shall have the right at any time prior to the expiration of this Warrant to purchase, at a total price equal to that payable upon the exercise of this Warrant, the kind and amount of shares of stock and other securities and property receivable in connection with such reclassification, reorganization, or change by a holder of the same number of shares of Common Stock as were purchasable by the Holder immediately prior to such reclassification, reorganization, or change. In any such case appropriate provisions shall be made with respect to the rights and interest of the Holder so that the provisions hereof shall thereafter be applicable with respect to any shares of stock or other securities and property deliverable upon exercise hereof, and appropriate adjustments shall be made to the purchase price per Warrant Share payable hereunder, provided the aggregate purchase price shall remain the same.
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5.3. Dilutive Issuances. If the Company or any Subsidiary thereof, as applicable, at any time while this Warrant is outstanding, shall sell or grant any option to purchase, or sell or grant any right to re-price, or otherwise dispose of or issue (or announce any offer, sale, grant or any option to purchase or other disposition) any Common Stock or Common Stock Equivalents entitling any Person to acquire shares of Common Stock, at an effective price per share less than the then Exercise Price (such lower price, the “Base Share Price” and such issuances collectively, a “Dilutive Issuance”) (if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share which is less than the Exercise Price, such issuance shall be deemed to have occurred for less than the Exercise Price on such date of the Dilutive Issuance), then the Exercise Price shall be reduced and only reduced to equal the Base Share Price and the number of Warrant Shares issuable hereunder shall be increased such that the Aggregate Exercise Price Payable hereunder, after taking into account the decrease in the Exercise Price, shall be equal to the Aggregate Exercise Price Prior to such adjustment. Such adjustment shall be made whenever such Common Stock or Common Stock Equivalents are issued. The Company shall notify the Holder in writing, no later than the Trading Day following the issuance of any Common Stock or Common Stock Equivalents subject to this Section 5.3, indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price and other pricing terms (such notice the “Dilutive Issuance Notice”). For purposes of clarification, whether or not the Company provides a Dilutive Issuance Notice pursuant to this Section 5.3, upon the occurrence of any Dilutive Issuance, after the date of such Dilutive Issuance the Holder is entitled to receive a number of Warrant Shares based upon the Base Share Price regardless of whether the Holder accurately refers to the Base Share Price in the Notice of Exercise. Notice of Adjustment. Without limiting any other provision contained herein, when any adjustment is required to be made in the number or kind of shares purchasable upon exercise of this Warrant, or in the Exercise Price, pursuant to the terms hereof, the Company shall promptly notify the Holder of such event and of the number of Warrant Shares or other securities or property thereafter purchasable upon exercise of this Warrant.
5.4. [Reserved]
6. Certificate as to Adjustments. In each case of any adjustment or readjustment in the shares of Common Stock issuable on the exercise of this Warrant, the Company at its expense will promptly cause its Chief Financial Officer or other appropriate designee to compute such adjustment or readjustment in accordance with the terms of this Warrant and prepare a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based, including a statement of (a) the consideration received or receivable by the Company for any additional shares of Common Stock issued or sold or deemed to have been issued or sold, (b) the number of shares of Common Stock outstanding or deemed to be outstanding, and (c) the Exercise Price and the number of shares of Common Stock to be received upon exercise of this Warrant, in effect immediately prior to such adjustment or readjustment and as adjusted or readjusted as provided in this Warrant. The Company will forthwith mail a copy of each such certificate to the Holder and any Warrant Agent (as defined below) appointed pursuant to Section 8 hereof. Nothing in this Section 6 shall be deemed to limit any other provision contained herein.
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7. Transfer to Comply with the Securities Act. This Warrant, and the Warrant Shares, have not been registered under the 1933 Act. This Warrant, the Warrant Shares and any other security issued or issuable upon exercise of this Warrant may only be sold, transferred, pledged or hypothecated (other than to an Affiliate) if (a) there exists an effective registration statement under the 1933 Act relating to such security or (b) the Company has received an opinion of counsel reasonably satisfactory to the Company that registration is not required under the 1933 Act. Until such time as registration has occurred under the 1933 Act, each certificate for this Warrant, the Warrant Shares and any other security issued or issuable upon exercise of this Warrant shall contain a legend, in form and substance satisfactory to counsel for the Company, setting forth the restrictions on transfer contained in this Section 7. Any such transfer shall be accompanied by a transferor assignment substantially in the form attached to this Warrant as Exhibit B (the “Transferor Assignment”), executed by the transferor and the transferee and submitted to the Company. Upon receipt of the duly executed Transferor Assignment, the Company shall register the transferee thereon as the new Holder on the books and records of the Company and such transferee shall be deemed a “registered holder” or “registered assign” for all purposes hereunder, and shall have all the rights of the Holder.
8. Warrant Agent. The Company may, by written notice to the Holder, appoint an agent (a “Warrant Agent”) for the purpose of issuing shares of Common Stock on the exercise of this Warrant pursuant hereto, exchanging this Warrant pursuant hereto, and replacing this Warrant pursuant hereto, or any of the foregoing, and thereafter any such issuance, exchange or replacement, as the case may be, shall be made at such office by such Warrant Agent.
9. Transfer on the Company’s Books. Until this Warrant is transferred on the books of the Company, the Company may treat the Holder as the absolute owner hereof for all purposes, notwithstanding any notice to the contrary.
10. Notices. Any notice required or permitted hereunder shall be given in the manner provided in the subsection titled “Notices” in the Purchase Agreement, the terms of which are incorporated herein by reference.
11. Supplements and Amendments; Whole Agreement. This Warrant may be amended or supplemented only by an instrument in writing signed by the parties hereto. This Warrant, together with the Purchase Agreement and all the other Transaction Documents, taken together, contain the full understanding of the parties hereto with respect to the subject matter hereof and thereof and there are no representations, warranties, agreements or understandings with respect to the subject matter hereof and thereof other than as expressly contained herein and therein.
12. Governing Law. This Warrant shall be governed by and interpreted in accordance with the laws of the State of Nevada, without giving effect to the principles thereof regarding the conflict of laws. The Company and, by accepting this Warrant, the Holder, each irrevocably (a) consent to and expressly submit to the exclusive personal jurisdiction of any state or federal court sitting in San Diego County, California in connection with any dispute or proceeding arising out of or relating to this Warrant, (b) agree that all claims in respect of any such dispute or proceeding may only be heard and determined in any such court, (c) expressly submit to the venue of any such court for the purposes hereof, and (d) waive any claim of improper venue and any claim or objection that such courts are an inconvenient forum or any other claim or objection to the bringing of any such proceeding in such jurisdictions or to any claim that such venue of the suit, action or proceeding is improper. The Company and, by accepting this Warrant, the Holder, each hereby irrevocably consent to the service of process of any of the aforementioned courts in any such proceeding by the mailing of copies thereof by reputable overnight courier (e.g., FedEx) or certified mail, postage prepaid, to such party’s address as provided for herein, such service to become effective ten (10) calendar days after such mailing. THE COMPANY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS WARRANT OR ANY TRANSACTION CONTEMPLATED HEREBY.
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13. Remedies. The remedies at law of the Holder of this Warrant in the event of any default or threatened default by the Company in the performance of or compliance with any of the terms of this Warrant are not and will not be adequate and, without limiting any other remedies available to the Holder in the Transaction Documents, law or equity, to the fullest extent permitted by law, such terms may be specifically enforced by a decree for the specific performance of any agreement contained herein or by an injunction against a violation of any of the terms hereof or otherwise.
14. Counterparts. This Warrant may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. Signature delivered via facsimile or email shall be considered original signatures for purposes hereof.
15. Descriptive Headings. Descriptive headings of the sections of this Warrant are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof.
16. Attorney’s Fees. In the event of any litigation or dispute arising from this Warrant, the parties agree that the party who is awarded the most money shall be deemed the prevailing party for all purposes and shall therefore be entitled to an additional award of the full amount of the attorneys’ fees and expenses paid by said prevailing party in connection with the litigation and/or dispute without reduction or apportionment based upon the individual claims or defenses giving rise to the fees and expenses. Nothing herein shall restrict or impair a court’s power to award fees and expenses for frivolous or bad faith pleading.
17. Severability. Whenever possible, each provision of this Warrant shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be invalid or unenforceable in any jurisdiction, such provision shall be modified to achieve the objective of the parties to the fullest extent permitted and such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Warrant or the validity or enforceability of this Warrant in any other jurisdiction.
[Remainder of page intentionally left blank]
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IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by an officer thereunto duly authorized.
Dated: June 4, 2020
| THE COMPANY: | ||
| ELECTROMEDICAL TECHNOLOGIES, INC. | ||
| By: |  | |
| Name: Matthew Wolfson | ||
| Title:Chief Executive Officer | ||
[Signature page to Warrant]
EXHIBIT A
NOTICE OF EXERCISE OF WARRANT
TO: ELECTROMEDICAL TECHNOLOGIES, INC.
ATTN: _______________
VIA FAX TO: ( )______________
VIA EMAIL TO: ( )______________
The undersigned hereby irrevocably elects to exercise the right, represented by the Warrant to Purchase Shares of Common Stock dated as of ________ (the “Warrant”), to purchase shares of the common stock, $0.001 par value (“Common Stock”), of ELECTROMEDICAL TECHNOLOGIES, INC., and tenders herewith payment in accordance with Section 2 of the Warrant, as follows:
| CASH: $__________________________ = (Exercise Price x Warrant Shares) | ||
| Payment is being made by: | ||
| _____ enclosed check | ||
| _____ wire transfer | ||
| _____ other | ||
| CASHLESS EXERCISE: | ||
Net number of Warrant Shares to be issued to Holder: ______*
* X = Y (A-B)
A
Where X = the number of Warrant Shares to be issued to Holder.
Y = the number of Warrant Shares that the Holder elects to purchase under this Warrant (at the date of such calculation).
| A | = the Market Price (at the date of such calculation). |
| B | = Exercise Price (as adjusted to the date of such calculation). |
Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in the Warrant.
It is the intention of the Holder to comply with the provisions of Section 2.2 of the Warrant regarding certain limits on the Holder’s right to exercise thereunder. The Holder believes this exercise complies with the provisions of such Section 2.2. Nonetheless, to the extent that, pursuant to the exercise effected hereby, the Holder would have more shares of Common Stock than permitted under Section 2.2, this notice should be amended and revised, ab initio, to refer to the exercise which would result in the issuance of the maximum number of such shares permitted under such provision. Any exercise above such amount is hereby deemed void and revoked.
As contemplated by the Warrant, this Notice of Exercise is being sent by facsimile or email to the fax number and officer indicated above.
If this Notice of Exercise represents the full exercise of the outstanding balance of the Warrant, the Holder either (1) has previously surrendered the Warrant to the Company or (2) will surrender (or cause to be surrendered) the Warrant to the Company at the address indicated above by express courier within five (5) Trading Days after delivery or email or facsimile transmission of this Notice of Exercise; provided that the Warrant Shares to be delivered pursuant to this Notice of Exercise have been delivered to the Holder as of such date.
To the extent the Warrant Shares are not able to be delivered to the Holder via the DWAC system, please deliver certificates representing the Warrant Shares to the Holder via reputable overnight courier after receipt of this Notice of Exercise (by facsimile transmission or otherwise) to:
| Dated: |
[Name of Holder]
| By: |
EXHIBIT B
FORM OF TRANSFEROR ENDORSEMENT
(To be signed only on transfer of the Warrant)
For value received, the undersigned hereby sells, assigns, and transfers unto the person(s) named below under the heading “Transferees” the right represented by the Warrant to Purchase Shares of Common Stock dated as of _________ (the “Warrant”) to purchase the percentage and number of shares of common stock, $0.001 par value (“Common Stock”), of ELECTROMEDICAL TECHNOLOGIES, INC. specified under the headings “Percentage Transferred” and “Number Transferred,” respectively, opposite the name(s) of such person(s), and appoints each such person attorney to transfer the undersigned’s respective right on the books of ELECTROMEDICAL TECHNOLOGIES, INC. with full power of substitution in the premises.
| Transferees | Percentage Transferred | Number Transferred |
Dated:___________, ______
| [Transferor Name must conform to the name of Holder as specified on the face of the Warrant] | ||
| By: | ||
| Name: |
Signed in the presence of:
| (Name) |
ACCEPTED AND AGREED:
| [TRANSFEREE] |
| By: |
| Name: |
Exhibit 20.1
EXHIBIT 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the use, in this Registration Statement on Form S-1/A, of our report dated April 29, 2020 related to the financial statements of Electromedical Technologies, Inc. as of December 31, 2019 and 2018 and for the years then ended, which includes an explanatory paragraph as to Electromedical Technologies, Inc.’s ability to continue as a going concern. We also consent to the reference to us in the “Experts” section of the Registration Statement.
/s/ dbbmckennon
San Diego, California
July 7, 2020