UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
Amendment #1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
e
W
ellness
H
ealthcare
C
orporation
(Exact Name of
Registrant as Specified in its Charter)
Nevada | 8082 | 45-1560906 |
(State or other Jurisdiction of Incorporation) | (Primary Standard Industrial Classification Code) | (IRS Employer Identification No.) |
11825 Major Street, Culver City,
CA 90230,
Ph
one: (310) 915-9700
(Address and Telephone Number of Registrant's Principal
Executive Offices and Principal Place of Business)
Approximate date of commencement of proposed sale to the public: As soon as practicable
after this Registration Statement becomes effective. 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 of 1933, 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 of 1933, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same Offering.
¨
If delivery of the Prospectus is expected to be made pursuant to Rule 434, please check
the following box.
¨
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ¨ | Accelerated filer | ¨ |
Non-accelerated filer | ¨ | Smaller reporting company | x |
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
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 becomes effective. This Prospectus is not an offer to
sell these securities and we are not soliciting offers to buy these securities in any
state where the offer or sale is not permitted.
PRELIMINARY PROSPECTUS
SUBJECT TO COMPLETION ON MAY__, 2017
eWELLNESS HEALTHCARE CORPORATION
9,519,229 SHARES OF Common Stock
This Prospectus relates to the resale of 9,519,229 shares of our Common Stock, par value $0.001 per share (the "Common Stock"), issuable to Tangiers Global, LLC (defined below).
This Prospectus relates to the resale of up to 9,519,229 shares of the Common Shares, issuable to Tangiers Global, LLC ("Tangiers"), a selling stockholder pursuant to a "put right" under an Investment Agreement (the "Investment Agreement"), dated February 10, 2017, that we entered into with Tangiers. The Investment Agreement permits us to "put" up to five million dollars ($5,000,000) in shares of our Common Stock to Tangiers over a period of up to thirty-six (36) months or until $5,000,000 of such shares have been "put."
The selling stockholders may sell all or a portion of the shares being offered pursuant to this Prospectus at fixed prices, at prevailing market prices at the time of sale, at varying prices or at negotiated prices.
The total amount of shares of Common Stock which may be sold pursuant to this Prospectus would constitute 9.99% of the Company's issued and outstanding Common Stock as of April 7, 2017, assuming that the selling security holders will sell all of the shares offered for sale.
Tangiers Global, LLC is an underwriter within the meaning of the Securities Act of 1933 (the "Act") and any broker-dealers or agents that are involved in selling the shares may be deemed to be "underwriters" within the meaning of the 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 Act.
Our Common Stock is subject to quotation on OTCQB Market under the symbol EWLL. On April 7, 2017, the last reported sales price for our Common Stock was $0.09 per share. We urge prospective purchasers of our Common Stock to obtain current information about the market prices of our Common Stock. We will not receive any proceeds from the sale of shares of our Common Stock by the selling stockholder. However, we will receive proceeds from the sale of shares of our Common Stock pursuant to our exercise of the put right offered by Tangiers. We will pay for expenses of this offering, except that the selling stockholder will pay any broker discounts or commissions or equivalent expenses and expenses of its legal counsel applicable to the sale of its shares.
The prices at which the Selling Security Holders may sell the shares of Common Stock in this Offering will be determined by the prevailing market price for the shares of Common Stock or in negotiated transactions.
Our independent registered public accounting firm has expressed substantial doubt as to our ability to continue as a going concern.
Investing in our Common Stock involves a high degree of risk. See "Risk Factors" to read about factors you should consider before buying shares of our Common Stock.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF 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: May __, 2017
Please read this Prospectus carefully and in its entirety. This Prospectus contains disclosure regarding our business, our financial condition and results of operations and risk factors related to our business and our Common Stock, among other material disclosure items. We have prepared this Prospectus so that you will have the information necessary to make an informed investment decision.
You should rely only on information contained in this Prospectus. We have not authorized any other person to provide you with different information. This Prospectus is not an offer to sell, nor is it seeking an offer to buy, these securities in any state where the offer or sale is not permitted. The information in this Prospectus is complete and accurate as of the date on the front cover, but the information may have changed since that date.
The Registration Statement containing this Prospectus, including the exhibits to the Registration Statement, provides additional information about our Company and the Common Stock offered under this Prospectus. The Registration Statement, including the exhibits and the documents incorporated herein by reference, can be read on the Securities and Exchange Commission website or at the Securities and Exchange Commission offices mentioned under the heading "Where You Can Find More Information."
This summary highlights selected information contained
elsewhere in this Prospectus. It does not contain all the information
that you should consider before investing in the Common Stock. You should
carefully read the entire Prospectus, including "Risk Factors", "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Financial Statements, before making an investment decision. In this
Prospectus, the terms "eWellness" "Company," "Registrant," "we,"
"us" and "our" refer to eWellness Healthcare Corporation, a Nevada corporation.
Business Plan
The Company
was incorporated in the State of Nevada on April 7, 2011 as Dignyte, Inc.,
to engage in any lawful corporate undertaking, including, but not limited
to, selected mergers and acquisitions.
On April 11, 2014,
the Company entered into a share exchange agreement (the "Share Exchange
Agreement") pursuant to which the Company agreed to purchased
all of the issued and outstanding shares of eWellness in exchange for 9,200,000 shares of
Common Stock. As a result, eWellness became a wholly-owned subsidiary and its shareholders owned approximately
77% of our then issued and outstanding Common Stock. On
July 22, 2015, our wholly-owned subsidiary, eWellness Corporation, was merged into the Company and, therefore, no longer exists
as a separate entity.
The Company
is an early-stage corporation that plans to provide a unique telemedicine
platform that offers Distance Monitored Physical Therapy (DMpt) Programs to
pre-diabetic, cardiac and health challenged patients, through contracted
physician practices and healthcare systems, in addition to in-office
sessions. Based on current insurance reimbursement policies, we expect to
generate our main revenues from in-office visits.
In November 2014, we were advised by the
California State Board of Physical Therapy ("CSBPT") that we
could operate our PHZIO.COM platform (the "Platform") and bill patients insurance within the
Association's rules in the state of California. During an 8-week research study we successfully
billed Blue Shield insurance for telemedicine-based therapies based on our
Platform.
Our
Platform offers a telemedicine exercise program, prescribed by a physician
which is reimbursable by an insurance. It is a physical therapy exercise program designed around a specific exercises kit that includes: an inflatable exercise ball, latex
resistance bands, a yoga mat and stretch strap (the "Exercise Kit") that provides a comprehensive exercise regimen.
When
patients are referred to us, a physical therapist and assistant will evaluate patients for the program. The goal is to
ensure compliance with the regimen, reduce BMI to a healthy number, help patients lose weight and boost their activity level for
the six-month program.
In
April 2015, we entered into an Operating Agreement with Evolution Physical Therapy
("EPT"), a company owned by our CEO, pursuant to which EPT operate our
Platform and offers it to selected physical therapy patients
of EPT. In
November 2016, we entered into a Services Agreement with Bistromatics, Inc. (the
"Bistromatics
Agreement"), pursuant to which Bistromatics will provide operational oversight of
our Platform.
Page 4
Notwithstanding
our belief that our Platform represents a new way to offers Distance
Monitored Physical Therapy Programs, there are a number of potential difficulties that we might face,
including the following:
We may not obtain and maintain sufficient protection of
our intellectual property;
Summary of Risk Factors
This offering involves substantial risk. Our ability to
execute our business strategy is also subject to certain risks. The risks described
under the heading "Risk Factors" included elsewhere in this
Prospectus may
cause us not to realize the full benefits of our business plan and strategy
or may cause us to be unable to successfully execute all or part of our
strategy. Some of the most significant challenges and risks include the
following:
Our
Auditor has expressed substantial
doubt as to our ability to continue as a going concern.
Before you invest in our Common Stock, you should
carefully consider all the information in this Prospectus, including matters
set forth under the heading "Risk Factors."
Where You Can Find Us
The Company's principal executive office and mailing
address is at 11825 Major Street, Culver City, CA 90230, Phone: (310) 915-9700
Our Filing Status as a "Smaller Reporting Company"
We are a "smaller reporting company," meaning that we are
not an investment company, an asset-backed issuer, or a majority-owned
subsidiary of a parent company that is not a smaller reporting company and
have a public float of less than $75 million and annual revenues of less
than $50 million during the most recently completed fiscal year. As a
"smaller reporting company," the disclosure we will be required to provide
in our SEC filings are less than it would be if we were not considered a
"smaller reporting company." Specifically, "smaller reporting companies" are
able to provide simplified executive compensation disclosures in their
filings; are exempt from the provisions of Section 404(b) of the
Sarbanes-Oxley Act of 2002 requiring that independent registered public
accounting firms provide an attestation report on the effectiveness of
internal control over financial reporting; are not required to conduct
say-on-pay and frequency votes until annual meetings occurring on or after
January 21, 2013; and have certain other decreased disclosure obligations in
their SEC filings, including, among other things, being permitted to provide
two years of audited financial statements in annual reports rather than
three years. Decreased disclosures in our SEC filings due to our status as
a "smaller reporting company" may make it harder for investors to analyze
the Company's results of operations and financial prospects.
Page 5
Implications of Being an Emerging Growth Company
We qualify as an emerging growth company as that term is used in the
JOBS Act. An emerging growth company may take advantage of specified reduced reporting and
other burdens that are otherwise applicable generally to public companies. These
provisions include:
A requirement to have only two years of audited financial statements
and only two years of related MD&A;
We have already taken advantage of these reduced reporting burdens in
this Prospectus, which are also available to us as a smaller reporting company as defined
under Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act").
In addition, Section 107 of the JOBS Act also provides that an emerging
growth company can take advantage of the extended transition period provided in Section
7(a)(2)(B) of the Securities Act of 1933, as amended (the "Act") for complying
with new or revised accounting standards. We have elected to take advantage of the
extended transition period for complying with new or revised accounting standards, which
allows us to delay the adoption of new or revised accounting standards that have different
effective dates for public and private companies until those standards apply to private
companies. As a result of this election, our financial statements contained in this Form
S-1 may not be comparable to companies that comply with public company effective dates.
The existing scaled executive compensation disclosure requirements for smaller reporting
companies will continue to apply to our filings for so long as our Company is an emerging
growth company, regardless of whether the Company remains a smaller reporting company.
We could remain an emerging growth company for up to five years, or
until the earliest of (i) the last day of the first fiscal year in which our annual gross
revenues exceed $1 billion, (ii) the date that we become a "large accelerated
filer" as defined in Rule 12b-2 under the Exchange Act, which would occur if the
market value of our Common Stock that is held by non-affiliates exceeds $700 million as of
the last business day of our most recently completed second fiscal quarter, or (iii) the
date on which we have issued more than $1 billion in non-convertible debt during the
preceding three year period.
For more details regarding this exemption, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies."
Page 6
●
Our
Platform is an on-line based, monitored telemedicine exercise program for a 6-month
period, wherein seventy-eight
(78) individual 40 minute progressive exercise sessions are watched & interacted with by a patient on their laptop computer.
●
The
patients are inducted to our program through a physician prescription and physical therapist evaluation. The
physical therapy program is designed around an Exercise Kit.
●
The
patient follows the instructions and performs the specific exercises while being remotely monitored by a physical
therapist through the camera located on the laptop computer. The program provides a comprehensive exercise regiment
that minimizes stress on the joints while allowing for hundreds of progressive exercises that focuses on strength, balance,
coordination, and flexibility.
●
The
program is designed to be operated in a patient's home or office in order to increase compliance and eliminate
transportation to a fitness center or gym.
●
Our
physical therapists monitor up to 30 patients at a time while these patients are on-line and following along with our
exercise program. Each patient and physical therapist has real-time text and video conferencing capability when interaction
is needed between the patient and our physical therapist.
Our
Platform program
may be shown to have characteristics that may render
it ineffective for
Distance Monitored
Physical Therapy
;
Our
Platform may not become widely accepted by patients and insurances;
Strict and/or new government regulations may hinder the growth
of our business; and
We may not be able to raise sufficient additional funds
to fully implement our business plan and grow our business.
Our limited operating history does not afford investors a sufficient history
on which to base an investment decision.
Our revenues will be dependent upon acceptance of our Platform by patients
and insurances, specifically changes in insurances reimbursement policies, will cause us to curtail or cease operations.
We may face new entrances and increasing competition in the
Distance Monitored
Physical Therapy mar
ket.
We cannot be certain that we
will obtain patents for our proprietary technology or that such patents will
protect us.
The availability of a large number of authorized but unissued shares of
Common Stock may, upon their issuance, lead to dilution of existing
stockholders.
Our stock is
thinly traded, sale of your holding may take a considerable amount of time.
Exemption from the auditor attestation requirement in the assessment
of the emerging growth company's internal control over financial reporting under
Section 404 of the Sarbanes-Oxley Act of 2002 ("SOX");
Reduced disclosure about the emerging growth company's executive
compensation arrangements; and
No non-binding advisory votes on executive compensation or golden
parachute arrangements.
The Offering
This Prospectus relates to the
resale of 9,519,229 shares of our Common Stock, issuable to Tangiers (defined below).
This Prospectus relates to the
resale of up to 9,519,229 shares of the Common Shares, issuable to Tangiers,
a selling stockholder pursuant to a "put right" under the Investment
Agreement, dated February 10, 2017, that we entered into with Tangiers. The
Investment Agreement permits us to "put" up to five million dollars
($5,000,000) in shares of our Common Stock to Tangiers over a period of up
to thirty-six (36) months or until $5,000,000 of such shares have been
"put."
Common Stock offered by Selling Shareholders
This Prospectus relates to the resale of
9,519,229 shares of our Common Stock,
issuable to Tangiers
Risk
Factors
The
Common Stock offered hereby involves a high degree of risk and should not be purchased by
investors who cannot afford the loss of his/her/its entire investment. See "Risk
Factors".
(1) This total shows how many shares of Common Stock will be outstanding
assuming 9,519,229 shares of Common Stock to be put to Tangiers.
Page 7
Common Stock outstanding before the Offering
95,287,581 shares of Common Stock as of April 7, 2017.
Common Stock outstanding after the Offering
104,806,810 shares of Common Stock (1)
Terms of
the Offering
The Selling Security Holders will determine
when and how they will sell the Common Stock offered in this Prospectus. The
prices at which the Selling Security Holders may sell the shares of Common
Stock in this Offering will be determined by the prevailing market price for
the shares of Common Stock or in negotiated transactions.
Termination
of the Offering
The Offering
will conclude upon such time as all of the Common Stock has been sold pursuant to the
Registration Statement.
Trading
Market
Our Common
Stock is subject to quotation on the OTCQB Market under the symbol "EWLL".
Use of
proceeds
The Company
is not selling any shares of the Common Stock covered by this Prospectus. As such, we will
not receive any of the Offering proceeds from the registration of the shares of
Common Stock covered by this Prospectus.
See "Use of Proceeds."
SUMMARY OF
FINANCIAL INFORMATION
The following summary financial data should be
read in conjunction with "Management's Discussion and Analysis," "Plan of
Operation" and the Financial Statements and Notes thereto, included
elsewhere in this Prospectus. The balance sheet and the statement of operations data are derived from our
audited financial statements for the year ended
December 31, 2016 and 2015.
Statement of Operations Data:
Balance Sheet Data:
Special Note Regarding Forward-Looking Statements
The information contained in this Prospectus, including in the
documents incorporated by reference into this Prospectus, includes some statements that
are not purely historical and that are "forward-looking statements." Such
forward-looking statements include, but are not limited to, statements regarding our
management's expectations, hopes, beliefs, intentions and/or strategies regarding the
future, including our financial condition and results of operations. In addition, any
statements that refer to projections, forecasts or other characterizations of future
events or circumstances, including any underlying assumptions, are forward-looking
statements. The words "anticipates," "believes," "continue," "could,"
"estimates," "expects," "intends," "may," "might," "plans," "possible,"
"potential," "predicts," "projects," "seeks," "should," "would" and similar expressions, or the negatives of such
terms, may identify forward-looking statements, but the absence of these words does not
mean that a statement is not forward-looking.
The forward-looking statements contained in this Prospectus are based
on current expectations and beliefs concerning future developments and the potential
effects on the parties and the transaction. There can be no assurance that future
developments actually affecting us will be those anticipated. These that may cause actual
results or performance to be materially different from those expressed or implied by
these forward-looking statements, including the following forward-looking statements
involve a number of risks, uncertainties (some of which are beyond the parties'
control) or other assumptions.
Page 8
For
the Year
For
the Year
December 31, 2016
December 31, 2015
(Audited)
(Audited)
Revenues
$
-
$
-
Total general and administrative
expenses
(309,805)
(196,354)
Total operating expenses
(
3,371,460
)
(1,400,240)
Interest expense
(981,575)
(129,406)
Gain on extinguishment of debt
2,216,460
11,323
Net loss
$
(12,460,694)
$
(1,554,908)
Net Loss Per Share Basic
and Diluted
$
(0.51)
$
(0.09)
Weighted Average Number of
Shares Outstanding - Basic and Diluted
24,267,074
17,214,861
December 31, 2016
December 31, 2015
(Audited)
(Audited)
Cash and restricted cash
$
13,995
$
41,951
Total current assets
737,041
46,004
Total assets
758,228
71,830
Total current liabilities
(10,755,729)
(1,476,463)
Total liabilities
(10,755,729)
(1,476,463)
Total stockholders' deficit
$
(9,997,501)
$
(1,404,633)
Total liabilities and
shareholders' equity
$
758,228
$
71,830
The shares of our Common Stock being offered for resale by the Selling Shareholders are highly speculative in nature, involve a high degree of risk and should be purchased only by persons who can afford to lose their entire amount invested in the Common Stock. Accordingly, prospective investors should carefully consider, along with other matters referred to herein, the following risk factors in evaluating our business before purchasing any shares of Common Stocks. If any of the following risks actually occurs, our business, financial condition or operating results could be materially adversely affected. In such case, you may lose all or part of your investment. You should carefully consider the risks described below and the other information in this Prospectus before investing in our Common Stock.
Risks Related to our Financial Condition
Our Independent Registered Public Accounting Firm has expressed substantial doubt as to our ability to continue as a going concern.
The audited financial statements have been prepared assuming that we will continue as a going concern and do not include any adjustments that might result if we cease to continue as a going concern. We believe that in order to continue as a going concern, including the costs of being a public company, we will need approximately $100,000 per year simply to cover the administrative, legal and accounting fees. We plan to fund these expenses primarily through cash flow, the sale of restricted shares of our common stock and the issuance of convertible notes.
Based on our financial statements for the years ended December 31, 2016 and 2015, our independent registered public accounting firm has expressed substantial doubt as to our ability to continue as a going concern. To date we have not generated any revenue.
Investing in our securities involves a great deal of risk. Careful consideration should be made of the following factors as well as other information included in this Prospectus before deciding to purchase our common stock. Our business, financial condition or results of operations could be affected materially and adversely by any or all of these risks.
We may need to raise additional capital to fund continuing operations and an inability to raise the necessary capital or to do so on acceptable terms could threaten the success of our business.
To date, our operations have been funded entirely from the proceeds from equity and debt financings or loans from our management. While we have sufficient funds to launch our Platform in Los Angeles, we will likely require substantial additional capital in the near future.
We currently anticipate that our available capital resources will be sufficient to meet our expected working capital and capital expenditure requirements for the near future. We anticipate that we will require an additional $1.5 million during the next twelve months to fulfill our business plan. However, such resources may not be sufficient to fund the long-term growth of our business. If we determine that it is necessary to raise additional funds, we may choose to do so through strategic collaborations, licensing arrangements through our "White Labeling" strategy, public or private equity or debt financing, a bank line of credit, or other arrangements.
We cannot be sure that any additional funding will be available on terms favorable to us or at all. Any additional equity financing may be dilutive to our shareholders, new equity securities may have rights, preferences or privileges senior to those of existing holders of our shares of Common stock. Debt or equity financing may subject us to restrictive covenants and significant interest costs. If we obtain funding through a strategic collaboration or licensing arrangement, we may be required to relinquish our rights to our product or marketing territories. If we are unable to obtain the financing necessary to support our operations, we may be required to defer, reduce or eliminate certain planned expenditures or significantly curtail our operations.
Page 9
We are an early stage company with a going concern qualification to our financial statements and pursue a relatively new business model in an emerging and rapidly evolving market, which makes it difficult to evaluate our future prospects.
We are an early stage company with a short operating history and pursue a relatively new business model in an emerging and rapidly evolving market, which makes it difficult to evaluate its future prospects; as a pre-revenue, early stage entity, it is subject to all of the risks inherent in a young business enterprise, such as, among other things, lack of market recognition and limited banking and financial relationships. As a result, we have little operating history to aid in assessing future prospects. We will encounter risks and difficulties as an early stage company in a new and rapidly evolving market. We may not be able to successfully address these risks and difficulties, which could materially harm our business and operating results.
Our financial statements as of December 31, 2016 were prepared under the assumption that we will continue as a going concern. The independent registered public accounting firm that audited our 2016 financial statements, in their report, included an explanatory paragraph referring to our recurring losses since inception and expressing substantial doubt in our ability to continue as a going concern. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our ability to continue as a going concern depends on our ability to obtain additional equity or debt financing, attain further operating efficiencies, reduce expenditures, and, ultimately, to generate revenue.
We may be subject to liability for failure to comply with Rule 419 under the Securities Act.
We may be subject to liability for failure to comply with Rule 419 under the Securities Act. Prior to our acquisition of eWellness Corporation, we did not technically comply with the requirements of Rule 419 under the Securities Act. We previously offered for sale in a direct public offering 1,000,000 shares of our Common stock, pursuant to Rule 419 of the Securities Act (the "419 Transaction") and filed a Registration Statement on Form S-1 (File No. 333-181440) that was declared effective by the SEC on September 14, 2012 (the "419 Registration Statement"). We sold 1,000,000 shares of our Common stock (the "Shares") to investors at a price of $0.10 per share, for total subscription proceeds of $100,000 pursuant to the 419 Registration Statement. We used 10% of the subscription proceeds as permitted under Rule 419 and the amount remaining in trust as of the date of the closing of the Share Exchange was $90,000 (the "Trust Account Balance"). Prior to the Share Exchange, we were considered a "blank check" company and a "shell" company and therefore, needed to fully comply with Rule 419. Among other things, Rule 419 requires that we deposit the securities being offered and proceeds of the offering contemplated by the 419 Registration Statement into an escrow or trust account pending the execution of an agreement for an acquisition or merger. If a consummated acquisition meeting the requirements of Rule 419 did not occur by a date 18 months after the September 14, 2012 effective date of the 419 Registration Statement, Rule 419(e)(2)(iv) requires a blank check company to return the funds held in the escrow account to all investors who participated in the offering within five (5) business days 2 . When we did not complete the Share Exchange by March 18, 2014, rather than physically return the funds, we gave the investors who participated in the financing that was initially conducted pursuant to Rule 419, the right to have their funds returned or use their funds to purchase the same shares in a private offering to be conducted pursuant to Rule 506(b) of the Securities Act; all of the investors directed us to use their respective funds for the private placement. Regardless, after various comments and discussions with the SEC's staff within the division of corporate finance, it seems that such constructive compliance with Rule 419 is not permissible and we should have physically returned the investors' funds when the Share Exchange was not completed by March 18, 2014. Ultimately, although we responded to all of the comments, the SEC continued to have concerns about the issues it raised and terminated its review of the relevant Form 8-K without clearing all of the comments and stated it would take further steps its deems necessary. Consequently, the SEC may bring an enforcement action or commence litigation against us for failure to strictly comply with Rule 419. If any claims or actions were to be brought against us relating to our lack of compliance with Rule 419, we could be subject to penalties (including criminal penalties), required to pay fines, make damages payments or settlement payments. In addition, any claims or actions could force us to expend significant financial resources to defend ourselves, could divert the attention of our management from our core business and could harm our reputation.
Page 10
Risks Related to our Platform and our Business
Our telemedicine platform is new and has only limited operation experience .
The Company has developed and tested its unique telemedicine platform www.PHZIO that is a Distance Monitored Physical Therapy Program ("PHZIO program") to pre-diabetic, cardiac and health challenged patients, through contracted physician practices and healthcare systems specifically designed to help prevent patients that are pre-diabetic from becoming diabetic.
Our success is currently dependent upon our ability to maintain and develop relationship with physicians.
Now that we are using our PHZIO platform to generate our success, we are dependent upon our CEO's ability to maintain his current relationship with other physicians and our collective ability to establish relationships with other physicians. If we cannot generate new relationships or current relationships do not translate into service contracts or license agreements for our PHZIO platform, we may not have alternative streams of revenue and therefore we may need to cease operations until such time as we find an alternative provider or forever.
Our Platform may not be accepted in the marketplace .
Uncertainty exists as to whether our Platform will be accepted by the market without additional widespread PT or patient acceptance. A number of factors may limit the market acceptance of our Platform, including the availability of alternative products and services as well as the price of our Platform services relative to alternative products. There is a risk that PT or patient acceptance will be encouraged to continue to use other products and/or methods instead of ours. We are assuming that, notwithstanding the fact that our Platform is new in the market, PT or patient acceptance will elect to use our Platform because it will permit to safe valuable PT's time.
PT or patient needs to be persuaded that our Platform service is justified for the anticipated benefit, but there is no assurance that sufficient numbers of patients will be convinced to enable a successful market to develop for our Platform.
Our revenues will be dependent upon acceptance of our Platform product by the market. The failure of such acceptance will cause us to curtail or cease operations.
Our revenues are expected to come from our Platform. As a result, we will continue to incur operating losses until such time as revenues reach a mature level and we are able to generate sufficient revenues from our Platform to meet our operating expenses. There can be no assurance that PTs or patients will adopt our Platform. In the event that we are not able to market and significantly increase the number of PTs or patients that use our Platform, or if we are unable to charge the necessary prices, our financial condition and results of operations will be materially and adversely affected.
Defects or malfunctions in our Platform could hurt our reputation, sales and profitability.
The acceptance of our Platform depends upon its effectiveness and reliability. Our Platform is complex and is continually being modified and improved, and as such may contain undetected defects or errors when first introduced or as new versions are released. To the extent that defects or errors cause our Platform to malfunction and our customers' use of our Platform is interrupted, our reputation could suffer and our potential revenues could decline or be delayed while such defects are remedied. We may also be subject to liability for the defects and malfunctions.
There can be no assurance that, despite our testing, errors will not be found in our Platform or new releases, resulting in loss of future revenues or delay in market acceptance, diversion of development resources, damage to our reputation, adverse litigation, or increased service, any of which would have a material adverse effect upon our business, operating results and financial condition.
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Software failures, breakdowns in the operations of our servers and communications systems or the failure to implement system enhancements could harm our business.
Our success depends on the efficient and uninterrupted operation of our servers and communications systems. A failure of our network or data gathering procedures could impede services, and could result in the loss of PT and patients. While all of our operations will have disaster recovery plans in place, they might not adequately protect us. Despite any precautions we take, damage from fire, floods, hurricanes, power loss, telecommunications failures, computer viruses, break-ins and similar events at our computer facilities could result in interruptions in the flow of data to our servers and from our servers to our clients. In addition, any failure by our computer environment to provide our required data communications capacity could result in interruptions in our service. In the event of a server failure, we could be required to transfer our client data collection operations to an alternative provider of server hosting services. Such a transfer could result in delays in our ability to deliver our products and services to our clients.
Additionally, significant delays in the planned delivery of system enhancements, improvements and inadequate performance of the systems once they are completed could damage our reputation and harm our business. Long-term disruptions in the infrastructure caused by events such as natural disasters, the outbreak of war, the escalation of hostilities and acts of terrorism, particularly involving cities in which we have offices, could adversely affect our businesses. Although, we plan to carry property and business interruption insurance for our business operations, our coverage might not be adequate to compensate us for all losses that may occur.
We face risks related to the storage of customers' and their end users' confidential and proprietary information.
Our Platform is designed to maintain the confidentiality and security of our patients' confidential and proprietary data that are stored on our server systems, which may include sensitive personal data. However, any accidental or willful security breaches or other unauthorized access to these data could expose us to liability for the loss of such information, time-consuming and expensive litigation and other possible liabilities as well as negative publicity. Techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are difficult to recognize and react to. We may be unable to anticipate these techniques or implement adequate preventative or reactionary measures.
We might incur substantial expense to further develop our Platform which may never become sufficiently successful.
Our growth strategy requires the successful launch of our Platform. Although management will take every precaution to ensure that our Platform will, with a high degree of likelihood, achieve commercial success, there can be no assurance that this will be the case. The causes for failure of our Platform once commercialized can be numerous, including:
● | market demand for our Platform proves to be smaller than we expect; |
● | further Platform development turns out to be more costly than anticipated or takes longer; our Platform requires significant adjustment post commercialization, rendering the Platform uneconomic or extending considerably the likely investment return period;·additional regulatory requirements may increase the overall costs of the development;·patent conflicts or unenforceable intellectual property rights; and PTs and clients may be unwilling to adopt and/or use our Platform. |
● | Compliance with changing regulations concerning corporate governance and public disclosure may result in additional expenses. |
We are required to comply with certain provisions of Section 404 of the Sarbanes-Oxley Act of 2002 and if we fail to comply in a timely manner, our business could be harmed and our stock price could decline.
Rules adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 require an annual assessment of internal controls over financial reporting, and for certain issuers an attestation of this assessment by the issuer's independent registered public accounting firm. The standards that must be met for management to assess the internal controls over financial reporting as effective are evolving and complex, and require significant documentation, testing, and possible remediation to meet the detailed standards.
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We expect to incur expenses and to devote resources to Section 404 compliance on an ongoing basis. It is difficult for us to predict how long it will take or costly it will be to complete the assessment of the effectiveness of our internal control over financial reporting for each year and to remediate any deficiencies in our internal control over financial reporting. As a result, we may not be able to complete the assessment and remediation process on a timely basis. In addition, although attestation requirements by our independent registered public accounting firm are not presently applicable to us, we could become subject to these requirements in the future and we may encounter problems or delays in completing the implementation of any resulting changes to internal controls over financial reporting. In the event that our Chief Executive Officer or Chief Financial Officer determine that our internal control over financial reporting is not effective as defined under Section 404, we cannot predict how the market prices of our shares will be affected; however, we believe that there is a risk that investor confidence and share value may be negatively affected.
These and other new or changed laws, rules, regulations and standards are, or will be, subject to varying interpretations in many cases due to their lack of specificity. As a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies, which could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. Our efforts to comply with evolving laws, regulations and standards are likely to continue to result in increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities. Further, compliance with new and existing laws, rules, regulations and standards may make it more difficult and expensive for us to maintain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. Members of our board of directors and our principal executive officer and principal financial officer could face an increased risk of personal liability in connection with the performance of their duties. As a result, we may have difficulty attracting and retaining qualified directors and executive officers, which could harm our business. We continually evaluate and monitor regulatory developments and cannot estimate the timing or magnitude of additional costs we may incur as a result.
We cannot be certain that we will obtain patents for our Platform and technology or that such patents will protect us from competitors.
We believe that our success and competitive position will depend in part on our ability to obtain and maintain patents for our Platform, which is both costly and time consuming. We still are in the process to evaluate the patent potentials of our Platform. Patent Offices typically requires 12-24 months or more to process a patent application. There can be no assurance that any of our potential patent applications will be approved. However, we have decided to launch our Platform without patent protection. There can be no assurance that any potential patent issued or licensed to us will provide us with protection against competitive products, protect us against changes in industry trends which we have may not have anticipated or otherwise protect the commercial viability of our Platform, or that challenges will not be instituted against the validity or enforceability of any of our future patents or, if instituted, that such challenges will not be successful. The cost of litigation to uphold the validity of a patent and enforce it against infringement can be substantial. Even issued patents may later be modified or revoked by the Patent and Trademark Office or in legal proceedings. Patent applications in the United States are maintained in secrecy until the patent issues and, since publication of patents tends to lag behind actual discoveries, we cannot be certain that if we obtain patents for our product, we were the first creator of the inventions covered by a pending patent applications or the first to file patent applications on such inventions.
Liability issues are inherent in the Healthcare industry and insurance is expensive and difficult to obtain, we may be exposed to large lawsuits.
Our business exposes us to potential liability risks, which are inherent in the Healthcare industry. While we will take precautions, we deem to be appropriate to avoid liability suits against us, there can be no assurance that we will be able to avoid significant liability exposure. Liability insurance for the Healthcare industry is generally expensive. We have obtained professional indemnity insurance coverage for our Platform. There can be no assurance that we will be able to maintain such coverage on acceptable terms, or that any insurance policy will provide adequate protection against potential claims. A successful liability claim brought against us may exceed any insurance coverage secured by us and could have a material adverse effect on our results or ability to continue our Platform.
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We depend upon reimbursement by third-party payers.
Substantially all of our revenues are anticipated to be derived from private third-party PT clinics that gain their revenue to pay our licensing fees from insurance payers. Initiatives undertaken by industry and government to contain healthcare costs affect the profitability of our licensee clinics. These payers attempt to control healthcare costs by contracting with healthcare providers to obtain services on a discounted basis. We believe that this trend will continue and may limit reimbursement for healthcare services. If insurers or managed care companies from whom we receive substantial payments were to reduce the amounts paid for services, our profit margins may decline, or we may lose PT licensees if they choose not to renew our contracts with these insurers at lower rates. In addition, in certain geographical areas, our operations may be approved as providers by key health maintenance organizations and preferred provider plans; failure to obtain or maintain these approvals would adversely affect our financial results. Although we created a business plan that will enable us to achieve revenue based on current reimbursement policies, if our belief that the insurance industry is poised for change, to offer more reimbursement for the services we seek to provide is not realized, we may not be able to carry out all the plans we disclose herein related to telemedicine. Ultimately, a shift in thinking and a willingness to adapt to new physical therapy telemedicine services and reimbursement thereof by healthcare providers is needed for the successful integration of our PHZIO telemedicine platform in mainstream healthcare environments.
We will need to increase the size of our organization, and may experience difficulties in managing growth.
At present, we are a small company. We expect to experience a period of expansion in headcount, infrastructure and overhead and anticipate that further expansion will be required to address potential growth and market opportunities. Future growth will impose significant added responsibilities on members of management, including the need to identify, recruit, maintain and integrate new managers. Our future financial performance and its ability to compete effectively will depend, in part, on its ability to manage any future growth effectively.
Dependence on Key Existing and Future Personnel
Our success will depend, to a large degree, upon the efforts and abilities of our officers and key management employees. The loss of the services of one or more of our key employees could have a material adverse effect on our operations. In addition, as our business model is implemented, we will need to recruit and retain additional management and key employees in virtually all phases of our operations. Key employees will require a strong background in our industry. We cannot assure that we will be able to successfully attract and retain key personnel.
Currently, our management's participation in our business and operations is limited
To date, we have been unable to offer cash compensation to our officers due to our lack of revenue. Accordingly, each of the Company's executive officers maintain jobs outside of their position at eWellness. Although each of our executive officers have made preparations to devote their efforts, on a full-time basis, towards our objectives once we can afford executive compensation commensurate with that being paid in the marketplace, until such time, our officers will not devote their full time and attention to the operations of the Company. None of our officers have committed a specific portion of their time or an approximate number of hours per week in writing to the objectives of the company and no assurances can be given as to when we will be financially able to engage our officers on a full-time basis and therefore, until such time, it is possible that the inability of such persons to devote their full-time attention to the Company may result in delays in progress toward implementing our business plan.
We operate in a highly competitive industry
Although we are not aware of any other Distance Monitored Physical Therapy Telemedicine Program precisely like ours, and targeting our specific population, we shall encounter competition from local, regional or national entities, some of which have superior resources or other competitive advantages in the larger physical therapy space. Intense competition may adversely affect our business, financial condition or results of operations. We may also experience competition from companies in the wellness space. These competitors may be larger and more highly capitalized, with greater name recognition. We will compete with such companies on brand name, quality of services, level of expertise, advertising, product and service innovation and differentiation of product and services. As a result, our ability to secure significant market share may be impeded. Although we believe our PHZIO services will enable us to service more patients than traditional physical therapy providers, if these more established offices or providers start offering similar services to ours, their name recognition or experience may enable them to capture a greater market share.
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Limited product testing and operations
We have built out the technology platform and video library necessary to execute our planned business strategy. Of course, there may be other factors that prevent us from successfully marketing a product including, but not limited to, our limited cash resources. Further, our proposed reimbursement plan and the eventual operating results could susceptible to varying interpretations by scientists, medical personnel, regulatory personnel, statisticians and others, which may delay, limit or prevent our executing our proposed business plan.
We face substantial competition, and others may discover, develop, acquire or commercialize products before or more successfully than we do
We operate in a highly competitive environment. Our products compete with other products or treatments for diseases for which our products may be indicated. Other healthcare companies have greater clinical, research, regulatory and marketing resources than us. In addition, some of our competitors may have technical or competitive advantages for the development of technologies and processes. These resources may make it difficult for us to compete with them to successfully discover, develop and market new products.
We depend upon the cultivation and maintenance of relationships with the physicians in our markets.
Our success is dependent upon referrals from physicians in the communities that our PT licensees will service and their ability to maintain good relations with these physicians and other referral sources. Physicians referring patients to their clinics are free to refer their patients to other therapy providers or to their own physician owned therapy practice. If our PT licensees are unable to successfully cultivate and maintain strong relationships with physicians and other referral sources, our business may decrease and our net operating revenues may decline.
We also depend upon our ability to recruit and retain experienced physical therapists
Our future revenue generation is dependent upon referrals from physicians in the communities our clinics serve, and our ability to maintain good relations with these physicians. Our PT licensees are the front line for generating these referrals and we are dependent on their talents and skills to successfully cultivate and maintain strong relationships with these physicians. If they cannot recruit and retain our base of experienced and clinically skilled therapists, our business may decrease and our net operating revenues may decline.
Our revenues may fluctuate due to weather
We anticipate having a considerable number of PT licensees in locations in states that normally experience snow and ice during the winter months. Also, a considerable number of our clinics may be located in states along the Gulf Coast and Atlantic Coast, which are subject to periodic winter storms, hurricanes and other severe storm systems. Periods of severe weather may cause physical damage to our facilities or prevent our staff or patients from traveling to our clinics, which may cause a decrease in our future net operating revenues.
We may incur closure costs and losses
The competitive, economic or reimbursement conditions in the markets in which we operate may require us to reorganize or to close certain clinical locations. In the event a clinic is reorganized or closed, we may incur losses. The costs may include, but are not limited to, lease obligations, severance, and write-down or write-off of intangible assets.
Certain of our internal controls, particularly as they relate to billings and cash collections, are largely decentralized at our clinic locations
Our future PT licensees' operations are largely decentralized and certain of our internal controls, particularly the processing of billings and cash collections, occur at the clinic level. Taken as a whole, we believe our future internal controls for these functions at our PT licensees clinical facilities will be adequate. Our controls for billing and collections largely depend on compliance with our written policies and procedures and separation of functions among clinic personnel. We also intend to maintain corporate level controls, including an audit compliance program, that are intended to mitigate and detect any potential deficiencies in internal controls at the clinic level. The effectiveness of these controls to future periods are subject to the risk that controls may become inadequate because of changes in conditions or the level of compliance with our policies and procedures deteriorates.
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Risks Related to Regulation
Our products may be subject to product liability legal claims, which could have an adverse effect on our business, results of operations and financial condition.
Certain of our products provide applications that relate to patient clinical information. Any failure by our products to provide accurate and timely information concerning patients, their medication, treatment and health status, generally, could result in claims against us which could materially and adversely impact our financial performance, industry reputation and ability to market new system sales. In addition, a court or government agency may take the position that our delivery of health information directly, including through licensed practitioners, or delivery of information by a third-party site that a consumer accesses through our websites, exposes us to assertions of malpractice, other personal injury liability, or other liability for wrongful delivery/handling of healthcare services or erroneous health information. We anticipate that in the future we will maintain insurance to protect against claims associated with the use of our products as well as liability limitation language in our end-user license agreements, but there can be no assurance that our insurance coverage or contractual language would adequately cover any claim asserted against us. A successful claim brought against us in excess of or outside of our insurance coverage could have an adverse effect on our business, results of operations and financial condition. Even unsuccessful claims could result in our expenditure of funds for litigation and management time and resources.
Certain healthcare professionals who use our Cloud-based products will directly enter health information about their patients including information that constitutes a record under applicable law that we may store on our computer systems. Numerous federal and state laws and regulations, the common law and contractual obligations, govern collection, dissemination, use and confidentiality of patient-identifiable health information, including:
● | state and federal privacy and confidentiality laws; |
● | contracts with clients and partners; |
● | state laws regulating healthcare professionals; |
● | Medicaid laws; |
● | the HIPAA and related rules proposed by the Health Care Financing Administration; and |
● | Health Care Financing Administration standards for Internet transmission of health data. |
HIPAA establishes elements including, but not limited to, federal privacy and security standards for the use and protection of Protected Health Information. Any failure by us or by our personnel or partners to comply with applicable requirements may result in a material liability to us.
Although we have systems and policies in place for safeguarding Protected Health Information from unauthorized disclosure, these systems and policies may not preclude claims against us for alleged violations of applicable requirements. Also, third party sites and/or links that consumers may access through our web sites may not maintain adequate systems to safeguard this information, or may circumvent systems and policies we have put in place. In addition, future laws or changes in current laws may necessitate costly adaptations to our policies, procedures, or systems.
There can be no assurance that we will not be subject to product liability claims, that such claims will not result in liability in excess of our insurance coverage, that our insurance will cover such claims or that appropriate insurance will continue to be available to us in the future at commercially reasonable rates. Such product liability claims could adversely affect our business, results of operations and financial condition.
There is significant uncertainty in the healthcare industry in which we operate, and we are subject to the possibility of changing government regulation, which may adversely impact our business, financial condition and results of operations .
The healthcare industry is subject to changing political, economic and regulatory influences that may affect the procurement processes and operation of healthcare facilities. During the past several years, the healthcare industry has been subject to an increase in governmental regulation of, among other things, reimbursement rates and certain capital expenditures.
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Recently enacted public laws reforming the U.S. healthcare system may have an impact on our business. The Patient Protection and Affordable Care Act (H.R. 3590; Public Law 111-148) ("PPACA") and The Health Care and Education Reconciliation Act of 2010 (H.R. 4872) (the "Reconciliation Act"), which amends the PPACA (collectively the "Health Reform Laws"), were signed into law in March 2010. The Health Reform Laws contain various provisions which may impact us and our patients. Some of these provisions may have a positive impact, while others, such as reductions in reimbursement for certain types of providers, may have a negative impact due to fewer available resources. Increases in fraud and abuse penalties may also adversely affect participants in the health care sector, including us.
Various legislators have announced that they intend to examine further proposals to reform certain aspects of the U.S. healthcare system. Healthcare providers may react to these proposals, and the uncertainty surrounding such proposals, by curtailing or deferring investments, including those for our systems and related services. Cost-containment measures instituted by healthcare providers as a result of regulatory reform or otherwise could result in a reduction of the allocation of capital funds. Such a reduction could have an adverse effect on our ability to sell our systems and related services. On the other hand, changes in the regulatory environment have increased and may continue to increase the needs of healthcare organizations for cost-effective data management and thereby enhance the overall market for healthcare management information systems. We cannot predict what effect, if any, such proposals or healthcare reforms might have on our business, financial condition and results of operations.
As existing regulations mature and become better defined, we anticipate that these regulations will continue to directly affect certain of our products and services, but we cannot fully predict the effect now. We have taken steps to modify our products, services and internal practices as necessary to facilitate our compliance with the regulations, but there can be no assurance that we will be able to do so in a timely or complete manner. Achieving compliance with these regulations could be costly and distract management's attention and divert other company resources, and any noncompliance by us could result in civil and criminal penalties.
Developments of additional federal and state regulations and policies have the potential to positively or negatively affect our business. Our software is not anticipated to be considered a medical device by the FDA. Yet, if it were, it could be subject to regulation by the U.S. Food and Drug Administration ("FDA") as a medical device. Such regulation could require the registration of the applicable manufacturing facility and software and hardware products, application of detailed record-keeping and manufacturing standards, and FDA approval or clearance prior to marketing. An approval or clearance requirement could create delays in marketing, and the FDA could require supplemental filings or object to certain of these applications, the result of which could adversely affect our business, financial condition and results of operations.
We may be subject to false or fraudulent claim laws
There are numerous federal and state laws that forbid submission of false information or the failure to disclose information in connection with submission and payment of physician claims for reimbursement. In some cases, these laws also forbid abuse of existing systems for such submission and payment. Any failure of our services to comply with these laws and regulations could result in substantial liability including, but not limited to, criminal liability, could adversely affect demand for our services and could force us to expend significant capital, research and development and other resources to address the failure. Errors by us or our systems with respect to entry, formatting, preparation or transmission of claim information may be determined or alleged to be in violation of these laws and regulations. Determination by a court or regulatory agency that our services violate these laws could subject us to civil or criminal penalties, invalidate all or portions of some of our client contracts, require us to change or terminate some portions of our business, require us to refund portions of our services fees, cause us to be disqualified from serving clients doing business with government payers and have an adverse effect on our business.
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We are subject to the Stark Law, which may result in significant penalties
Provisions of the Omnibus Budget Reconciliation Act of 1993 (42 U.S.C. § 1395nn) (the "Stark Law") prohibit referrals by a physician of "designated health services" which are payable, in whole or in part, by Medicare or Medicaid, to an entity in which the physician or the physician's immediate family member has an investment interest or other financial relationship, subject to several exceptions. Unlike the Fraud and Abuse Law, the Stark Law is a strict liability statute. Proof of intent to violate the Stark Law is not required. Physical therapy services are among the "designated health services". Further, the Stark Law has application to the Company's management contracts with individual physicians and physician groups, as well as, any other financial relationship between us and referring physicians, including any financial transaction resulting from a clinic acquisition. The Stark Law also prohibits billing for services rendered pursuant to a prohibited referral. Several states have enacted laws similar to the Stark Law. These state laws may cover all (not just Medicare and Medicaid) patients. Many federal healthcare reform proposals in the past few years have attempted to expand the Stark Law to cover all patients as well. As with the Fraud and Abuse Law, we consider the Stark Law in planning our clinics, marketing and other activities, and believe that our operations are in compliance with the Stark Law. If we violate the Stark Law, our financial results and operations could be adversely affected. Penalties for violations include denial of payment for the services, significant civil monetary penalties, and exclusion from the Medicare and Medicaid programs.
If our products fail to comply with evolving government and industry standards and regulations, we may have difficulty selling our products
We may be subject to additional federal and state statutes and regulations in connection with offering services and products via the Internet. On an increasingly frequent basis, federal and state legislators are proposing laws and regulations that apply to Internet commerce and communications. Areas being affected by these regulations include user privacy, pricing, content, taxation, copyright protection, distribution, and quality of products and services. To the extent that our products and services are subject to these laws and regulations, the sale of our products and services could be harmed.
We incur significant costs as a result of operating as a public company and our management will have to devote substantial time to public company compliance obligations
The Sarbanes-Oxley Act of 2002, as well as rules subsequently implemented by the Securities and Exchange Commission ("SEC"), and the stock exchange, has imposed various requirements on public companies, including requiring changes in corporate governance practices. Our management and other personnel will need to devote a substantial amount of time to these compliance requirements and any new requirements that the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 may impose on public companies. Moreover, these rules and regulations, along with compliance with accounting principles and regulatory interpretations of such principles, have increased and will continue to increase our legal, accounting and financial compliance costs and have made and will continue to make some activities more time-consuming and costly. For example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantial costs to maintain the same or similar coverage. These rules and regulations could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors or our board committees, or as executive officers. We will evaluate the need to hire additional accounting and financial staff with appropriate public company experience and technical accounting and financial knowledge. We estimate the additional costs we expect to be incurred as a result of being a public company to be up to $500,000 annually.
Part of the requirements as a public company will be to document and test our internal control procedures in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, which requires annual management assessments of the effectiveness of our internal controls over financial reporting and a report by our independent registered public accounting firm addressing these assessments. The process of designing and implementing effective internal controls is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a system of internal controls that is adequate to satisfy our reporting obligations as a public company.
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Effective internal controls are necessary for us to provide reliable financial reports and to effectively prevent fraud. We maintain a system of internal control over financial reporting, which is defined as a process designed by, or under the supervision of, our principal executive officer and principal financial officer, or persons performing similar functions, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
We cannot assure you that we will not, in the future, identify areas requiring improvement in our internal control over financial reporting. We cannot assure that the measures we will take to remediate any areas in need of improvement will be successful or that we will implement and maintain adequate controls over our financial processes and reporting in the future as we continue our growth. If we are unable to maintain appropriate internal financial reporting controls and procedures, it could cause us to fail to meet our reporting obligations, result in the restatement of our financial statements, harm our operating results, subject us to regulatory scrutiny and sanction, cause investors to lose confidence in our reported financial information and have a negative effect on the market price for shares of our common stock.
Risks Relating to Our Securities
There is a limited market for our common stock, and there may never be, an active market for our common stock and we cannot assure you that the common stock will remain liquid or that it will continue to be listed on a securities exchange.
Our common stock is listed on the OTCQB exchange and trades under the symbol "EWLL". An investor may find it difficult to obtain accurate quotations as to the market value of the common stock and trading of our common stock may be extremely sporadic. For example, several days may pass before any shares may be traded. A more active market for the common stock may never develop. In addition, if we fail to meet the criteria set forth in SEC regulations, various requirements would be imposed by law on broker-dealers who sell our securities to persons other than established customers and accredited investors. Consequently, such regulations may deter broker-dealers from recommending or selling the common stock, which may further affect its liquidity. This would also make it more difficult for us to raise additional capital.
Until our common stock is listed on the NASDAQ or another stock exchange, we expect that our common stock will continue to be eligible to trade on the OTC Bulletin Board, another over-the-counter quotation system, or on the "pink sheets," where our stockholders may find it more difficult to dispose of shares or obtain accurate quotations as to the market value of our common stock.
Our Common stock is subject to the "Penny Stock" rules of the SEC and the trading market in our stock is limited, which makes transactions in our stock cumbersome and may reduce the value of an investment.
The Securities and Exchange Commission has adopted Rule 15g-9 which establishes the definition of a "penny stock," for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require:
● | That a broker or dealer approve a person's account for transactions in penny stocks; and |
● | The broker or dealer receives from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased. |
In order to approve a person's account for transactions in penny stocks, the broker or dealer must:
● | Obtain financial information and investment experience objectives of the person; and |
● | Make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks. |
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The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the Commission relating to the penny stock market, which, in highlight form:
● | Sets forth the basis on which the broker or dealer made the suitability determination; and |
● | That the broker or dealer received a signed, written agreement from the investor prior to the transaction. |
Generally, brokers may be less willing to execute transactions in securities subject to the "penny stock" rules. This may make it more difficult for investors to dispose of our Common stock and cause a decline in the market value of our stock.
Disclosure also must be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.
Financial Industry Regulatory Authority, Inc. ("FINRA") sales practice requirements may limit a shareholder's ability to buy and sell our common stock.
In addition to the "penny stock" rules described above, FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer's financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our Common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.
Our stock is thinly traded, sale of your holding may take a considerable amount of time.
The shares of our common stock are thinly-traded on the OTCQB Market, meaning that the number of persons interested in purchasing our common stock at or near bid prices at any given time may be relatively small or non-existent. Consequently, there may be periods of several days or more when trading activity in our shares is minimal or non-existent, as compared to a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on share price. We cannot give you any assurance that a broader or more active public trading market for our common stock will develop or be sustained, or that current trading levels will be sustained. Due to these conditions, we can give you no assurance that you will be able to sell your shares at or near bid prices or at all if you need money or otherwise desire to liquidate your shares.
Shares eligible for future sale may adversely affect the market.
From time to time, certain of our stockholders may be eligible to sell all or some of their shares of common stock by means of ordinary brokerage transactions in the open market pursuant to Rule 144 promulgated under the Securities Act, subject to certain limitations. In general, pursuant to amended Rule 144, non-affiliate stockholders may sell freely after six months subject only to the current public information requirement. Affiliates may sell after six months subject to the Rule 144 volume, manner of sale (for equity securities), current public information and notice requirements. Any substantial sales of our common stock pursuant to Rule 144 may have a material adverse effect on the market price of our common stock.
If we fail to maintain effective internal controls over financial reporting, the price of our common stock may be adversely affected.
Our internal control over financial reporting may have weaknesses and conditions that could require correction or remediation, the disclosure of which may have an adverse impact on the price of our common stock. We are required to establish and maintain appropriate internal controls over financial reporting. Failure to establish those controls, or any failure of those controls once established, could adversely affect our public disclosures regarding our business, prospects, financial condition or results of operations.
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In addition, management's assessment of internal controls over financial reporting may identify weaknesses and conditions that need to be addressed in our internal controls over financial reporting or other matters that may raise concerns for investors. Any actual or perceived weaknesses and conditions that need to be addressed in our internal control over financial reporting or disclosure of management's assessment of our internal controls over financial reporting may have an adverse impact on the price of our common stock.
Our share price could be volatile and our trading volume may fluctuate substantially.
The price of our common shares has been and may in the future continue to be extremely volatile, with the sale price fluctuating from a low of $0.01 to a high of $4.00 since trading began in 2016. Many factors could have a significant impact on the future price of our common shares, including:
● | our inability to raise additional capital to fund our operations; |
● | our failure to successfully implement our business objectives and strategic growth plans; |
● | compliance with ongoing regulatory requirements; |
● | market acceptance of our product; |
● | changes in government regulations; and |
● | actual or anticipated fluctuations in our quarterly financial and operating results; and the degree of trading liquidity in our common shares. |
Our annual and quarterly results may fluctuate, which may cause substantial fluctuations in our common stock price.
Our annual and quarterly operating results may in the future fluctuate significantly depending on factors including the timing of purchase orders, new product releases by us and other companies, gain or loss of significant customers, price discounting of our product, the timing of expenditures, product delivery requirements and economic conditions. Revenues related to our product are required to be recognized upon satisfaction of all applicable revenue recognition criteria. The recognition of revenues from our product is dependent on several factors, including, but not limited to, the terms of any license agreement and the timing of implementation of our products by our customers.
Any unfavorable change in these or other factors could have a material adverse effect on our operating results for a particular quarter or year, which may cause downward pressure on our Common stock price. We expect quarterly and annual fluctuations to continue for the foreseeable future.
We are subject to compliance with securities law, which exposes us to potential liabilities, including potential rescission rights.
We have offered and sold our common stock to investors pursuant to certain exemptions from the registration requirements of the Securities Act of 1933, as well as those of various state securities laws. The basis for relying on such exemptions is factual; that is, the applicability of such exemptions depends upon our conduct and that of those persons contacting prospective investors and making the offering. We have not received a legal opinion to the effect that any of our prior offerings were exempt from registration under any federal or state law. Instead, we have relied upon the operative facts as the basis for such exemptions, including information provided by investors themselves.
If any prior offering did not qualify for such exemption, an investor would have the right to rescind its purchase of the securities if it so desired. It is possible that if an investor should seek rescission, such investor would succeed. A similar situation prevails under state law in those states where the securities may be offered without registration in reliance on the partial preemption from the registration or qualification provisions of such state statutes. If investors were successful in seeking rescission, we would face severe financial demands that could adversely affect our business and operations. Additionally, if we did not in fact qualify for the exemptions upon which it has relied, we may become subject to significant fines and penalties imposed by the SEC and state securities agencies.
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The availability of a large number of authorized but unissued shares of common stock may, upon their issuance, lead to dilution of existing stockholders
We are authorized to issue 400,000,000 shares of common stock, $0.001 par value per share, of which, as of April 7, 2017, 95,287,581 shares of Common stock were issued and outstanding. Additional shares may be issued by our board of directors without further stockholder approval. The issuance of large numbers of shares, possibly at below market prices, is likely to result in substantial dilution to the interests of other stockholders. In addition, issuances of large numbers of shares may adversely affect the market price of our Common stock.
Our Articles of Incorporation authorizes 20,000,000 shares of preferred stock, $0.001 par value per share of none are issued. The board of directors is authorized to provide for the issuance of unissued shares of preferred stock in one or more series, and to fix the number of shares and to determine the rights, preferences and privileges thereof. Accordingly, the board of directors may issue preferred stock which may convert into large numbers of shares of common stock and consequently lead to further dilution of other shareholders.
We have never paid cash dividends and do not anticipate doing so in the foreseeable future.
We have never declared or paid cash dividends on our common shares. We currently plan to retain any earnings to finance the growth of our business rather than to pay cash dividends. Payments of any cash dividends in the future will depend on our financial condition, results of operations and capital requirements, as well as other factors deemed relevant by our board of directors.
The Nevada Revised Statute contains provisions that could discourage, delay or prevent a change in control of our company, prevent attempts to replace or remove current management and reduce the market price of our stock.
Provisions in our articles of incorporation and bylaws may discourage, delay or prevent a merger or acquisition involving us that our stockholders may consider favorable. For example, our certificate of incorporation authorizes our board of directors to issue up to ten million shares of "blank check" preferred stock. As a result, without further stockholder approval, the board of directors has the authority to attach special rights, including voting and dividend rights, to this preferred stock. With these rights, preferred stockholders could make it more difficult for a third party to acquire us.
We are also subject to the anti-takeover provisions of the NRS. Depending on the number of residents in the state of Nevada who own our shares, we could be subject to the provisions of Sections 78.378 et seq. of the Nevada Revised Statutes which, unless otherwise provided in the Company's articles of incorporation or by-laws, restricts the ability of an acquiring person to obtain a controlling interest of 20% or more of our voting shares. Our articles of incorporation and by-laws do not contain any provision which would currently keep the change of control restrictions of Section 78.378 from applying to us.
We are subject to the provisions of Sections 78.411 et seq. of the Nevada Revised Statutes. In general, this statute prohibits a publicly held Nevada corporation from engaging in a "combination" with an "interested stockholder" for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the combination or the transaction by which the person became an interested stockholder is approved by the corporation's board of directors before the person becomes an interested stockholder. After the expiration of the three-year period, the corporation may engage in a combination with an interested stockholder under certain circumstances, including if the combination is approved by the board of directors and/or stockholders in a prescribed manner, or if specified requirements are met regarding consideration. The term "combination" includes mergers, asset sales and other transactions resulting in a financial benefit to the interested stockholder. Subject to certain exceptions, an "interested stockholder" is a person who, together with affiliates and associates, owns, or within three years did own, 10% or more of the corporation's voting stock. A Nevada corporation may "opt out" from the application of Section 78.411 et seq. through a provision in its articles of incorporation or by-laws. We have not "opted out" from the application of this section.
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Our stock price and ability to finance may be adversely affected by our outstanding convertible securities and warrants.
Sales of the shares of our common stock issuable upon exercise of warrants and upon conversion of our convertible securities, would likely have a depressive effect on the market price of our common stock. Further, the existence of, and/or potential exercise or conversion of all or a portion of these securities, create a negative and potentially depressive effect on our stock price because investors recognize that they "over hang" the market at this time. As a result, the terms on which we may obtain additional financing during the period any of these warrants or convertible securities remain outstanding may be adversely affected by the existence of such warrants and convertible securities.
Our publicly filed reports are subject to review by the SEC, and any significant changes or amendments required as a result of any such review may result in material liability to us and may have a material adverse impact on the trading price of the Company's common stock.
The reports of publicly traded companies are subject to review by the SEC from time to time for the purpose of assisting companies in complying with applicable disclosure requirements, and the SEC is required to undertake a comprehensive review of a company's reports at least once every three years under the Sarbanes-Oxley Act of 2002. SEC reviews may be initiated at any time. We could be required to modify, amend or reformulate information contained in prior filings as a result of an SEC review. Any modification, amendment or reformulation of information contained in such reports could be significant and result in material liability to us and have a material adverse impact on the trading price of the Company's common stock.
We will not receive any proceeds from the sale of shares of our Common Stock by the selling stockholders. However, we will receive proceeds from the sale of shares of our Common Stock pursuant to our exercise of the put right offered by Tangiers Global, LLC. We will use these proceeds for general corporate and working capital purposes and acquisitions or assets, businesses or operations or for other purposes that our board of directors, in its good faith, deems to be in the best interest of the Company.
We will pay for expenses of this offering, except that the selling stockholder will pay any broker discounts or commissions or equivalent expenses and expenses of its legal counsel applicable to the sale of its shares.
DETERMINATION OF OFFERING PRICE
The Selling Shareholders may sell their shares in the over-the-counter market or otherwise, at market prices prevailing at the time of sale, at prices related to the prevailing market price, or at negotiated prices. We will not receive any proceeds from the sale of Common Stock by the Selling Shareholders.
The sale of our Common Stock to Tangiers in accordance with the Investment Agreement dated February 10, 2017 will have a dilutive impact on our stockholders. As a result, our net loss per share could increase in future periods and the market price of our Common Stock could decline. In addition, the lower our stock price is at the time we exercise our put option, the more shares of our Common Stock we will have to issue to Tangiers in order to drawdown pursuant to the Investment Agreement. If our stock price decreases during the pricing period, then our existing stockholders would experience greater dilution.
Investment Agreement with Tangiers Global, LLC
On February 10, 2017, we entered into an Investment Agreement with Tangiers. Pursuant to the terms of the Investment Agreement, Tangiers committed to purchase up to $5,000,000 of our Common Stock over a period of up to 36 months. From time to time during the 36 month period commencing from the effectiveness of the registration statement, we may deliver a put notice to Tangiers which states the number of shares of Common Stock that we intend to sell to Tangiers on a date specified in the put notice. The maximum share number per notice must be no more than 200% of the average daily trading volume of our Common Stock for the ten (10) consecutive trading days immediately prior to date of the applicable put notice and such amount must not exceed an accumulative amount of $250,000. The minimum put amount is $5,000. The purchase price per share to be paid by Tangiers will be the 80% of the of lowest trading prices of the Common Stock during the 5 trading days including and immediately following the date on which put notice is delivered to Tangiers.
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In connection with the Investment Agreement with Tangiers, we also entered into a registration rights agreement with Tangiers, pursuant to which we agreed to use our best efforts to, within 15 days of filing the Company's Annual Report for the year ended December 31, 2016, file with the Securities and Exchange Commission a registration statement, covering the resale of 9,519,229 shares of our Common Stock underlying the Investment Agreement with Tangiers.
The Company also issued fixed convertible promissory notes to Tangiers as follows: (i) a fixed convertible promissory note for the principal sum of $100,000 convertible at $0.20 per share bearing an interest rate of 8% per annum maturing on September 10, 2017, (ii) a fixed convertible promissory note for the principal sum of $275,000 convertible at $0.20 per share bearing an interest rate of 8% per annum maturing on September 10, 2017; (iii) a fixed convertible promissory note for the principal sum of $308,000 convertible at $0.20 per share bearing an interest rate of 8% per annum maturing on November 11, 2017 and 68,750 warrants exercisable at $0.25 and expiring in 2022.
At present, the Company does not have the ability to repay the convertible promissory notes issued to Tangiers without funds received under its Investment Agreement with Tangiers. The Company intends to satisfy its indebtedness to Tangiers as follows: (i) from proceeds generated by the issuance of shares under the Investment Agreement; and/or (ii) from proceeds raised through the issuance and sale by the Company of unregistered securities to parties other than Tangiers.
The Company would have to
issue a number of shares to Tangiers underlying the convertible notes issued
to Tangiers as follows:
1. A fixed convertible promissory note issued to
Tangiers on February 10, 2017 having a maturity date of September 10, 2017
in the principal amount of $100,000 which is convertible at $0.20 bearing
a onetime interest charge of 8% and would result into the issuance of 540,000
shares on the date of maturity including the conversion of $8,000 in
interest.
2. A fixed convertible promissory note issued to Tangiers on
February 10, 2017 having a maturity date of September 10, 2017, for the face
value of $275,000, $137,500 of which was funded, which is convertible at
$0.20 bearing a onetime interest rate of 8% and would result into the
issuance of 742,500 shares on the date of maturity including the conversion
of $11,000 in interest.
3. A fixed convertible promissory note issued to
Tangiers on April 11, 2017 having a maturity date of November 11, 2018 for
the face value of $308,000 convertible at $0.20 bearing a onetime interest
rate of 8% and would result into the issuance of 1,663,200 shares on the
date of maturity including the conversion of $24,640 in interest.
The 9,519,229 shares being offered pursuant to this Prospectus represent 9.99% of the shares issued and outstanding, assuming that the selling stockholders will sell all of the shares offered for sale. Tangiers has agreed to refrain from holding an amount of shares which would result in Tangiers owning more than 9.99% of the then-outstanding shares of our Common Stock at any one time.
The Investment Agreement with Tangiers is not transferable and any benefits attached thereto may not be assigned.
At an assumed purchase price of $0.072, we will be able to receive up to $685,384 in gross proceeds, assuming the sale of all of the 9,519,229 shares of our Common Stock pursuant to the Investment Agreement with Tangiers, being the number of shares being offered pursuant to this Prospectus. We may be required to further increase our authorized shares in order to receive the entire purchase price.
There are substantial risks to investors as a result of the issuance of shares of our Common Stock under the Investment Agreement with Tangiers. These risks include dilution of stockholders' percentage ownership, significant decline in our stock price and our inability to draw sufficient funds when needed.
We intend to sell Tangiers periodically our Common Stock under the Investment Agreement and Tangiers will, in turn, sell such shares to investors in the market at the market price. This may cause our stock price to decline, which will require us to issue increasing numbers of Common Shares to Tangiers to raise the same amount of funds, as our stock price declines.
The proceeds received from any "puts" tendered to Tangiers under the Investment Agreement will be used for general corporate and working capital purposes and acquisitions or assets, businesses or operations or for other purposes that our board of directors, in its good faith deem to be in the best interest of the Company.
We may have to increase the number of our authorized shares in order to issue the shares to Tangiers if we reach our current amount of authorized shares of Common Stock. Increasing the number of our authorized shares will require board and stockholder approval. Accordingly, because our ability to draw down any amounts under the Investment Agreement with Tangiers is subject to a number of conditions, there is no guarantee that we will be able to draw down any portion or all of the proceeds of $5,000,000 under the Investment Agreement with Tangiers.
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This Prospectus relates to the resale of 9,519,229 shares of our Common Stock, issuable to Tangiers (defined below).
This Prospectus relates to the resale of up to 9,519,229 shares of the Common Shares, issuable to Tangiers, a selling stockholder pursuant to a "put right" under an Investment Agreement, dated February 10, 2017, that we entered into with Tangiers. The Investment Agreement permits us to "put" up to five million dollars ($5,000,000) in shares of our Common Stock to Tangiers over a period of up to thirty-six (36) months or until $5,000,000 of such shares have been "put."
The selling stockholder may offer and sell, from time to time, any or all of shares of our Common Stock to be sold to Tangiers under the Investment Agreement dated February 10, 2017.
The following table sets forth certain information regarding the beneficial ownership of shares of Common Stock by the selling stockholder as of April 7, 2017 and the number of shares of our Common Stock being offered pursuant to this Prospectus. We believe that the selling stockholder has sole voting and investment powers over its shares.
Because the selling stockholder may offer and sell all or only some portion of the 9,519,229 shares of our Common Stock being offered pursuant to this Prospectus, the numbers in the table below representing the amount and percentage of these shares of our Common Stock that will be held by the selling stockholder upon termination of the offering are only estimates based on the assumption that the selling stockholder will sell all of its shares of our Common Stock being offered in the offering.
The selling stockholder has not had any position or office, or other material relationship with us or any of our affiliates over the past three years.
To our knowledge, the selling stockholder is not a broker-dealer or an affiliate of a broker-dealer. We may require the selling stockholder to suspend the sales of the shares of our Common Stock being offered pursuant to this Prospectus upon the occurrence of any event that makes any statement in this Prospectus or the related registration statement untrue in any material respect or that requires the changing of statements in those documents in order to make statements in those documents not misleading.
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This Prospectus relates to the
resale of 9,152,965 shares of our Common Stock issuable to Tangiers Global,
LLC (defined below).
This Prospectus relates to the
resale of up to 9,152,965 shares of the Common Shares, issuable to Tangiers,
the selling stockholder pursuant to a "put right" under an Investment
Agreement, dated February 10, 2017, that we entered into with Tangiers. The
Investment Agreement permits us to "put" up to five million dollars
($5,000,000) in shares of our Common Stock to Tangiers over a period of up
to thirty-six (36) months or until $5,000,000 of such shares have been
"put."
The Investment Agreement with
Tangiers is not transferable.
At an assumed purchase price under
the Investment Agreement of $0.072 (equal to 80% of the closing price of our
Common Stock of $0.09 on April 7, 2017), we will be able to receive up to
$685,384 in gross proceeds, assuming the sale of the entire 9,519,229 Put
Shares being registered hereunder pursuant to the Investment Agreement. At
an assumed purchase price of $0.072 under the Investment Agreement, we would
be required to register 59,925,222 additional shares to obtain the balance
of $4,314,616 under the Investment Agreement. Due to the floating offering
price, we are not able to determine the exact number of shares that we will
issue under the Investment Agreement.
The Selling Shareholders may, from time to time sell any or all of their shares of
Common Stock on any market or trading facility on which the shares are traded or in
private transactions. These sales may be at fixed or negotiated prices. The Selling
Shareholders may use any one or more of the following methods when selling shares:
The selling stockholder may also
sell securities under Rule 144 under the Securities Act of 1933, if
available, rather than under this Prospectus.
Broker-dealers engaged by the
selling stockholder may arrange for other brokers-dealers to participate in
sales. Broker-dealers may receive commissions or discounts from the selling
stockholder (or, if any broker-dealer acts as agent for the purchaser of
securities, from the purchaser) in amounts to be negotiated, but, except as
set forth in a supplement to this Prospectus, in the case of an agency
transaction not in excess of a customary brokerage commission in compliance
with FINRA Rule 2440; and in the case of a principal transaction a markup or
markdown in compliance with FINRA IM-2440.
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Tangiers Global, LLC is an
underwriter within the meaning of the Securities Act of 1933 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 of 1933
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 of 1933. We are required to pay certain fees and
expenses incurred by us incident to the registration of the securities.
The selling stockholder will be
subject to the Prospectus delivery requirements of the Securities Act of
1933 including Rule 172 thereunder.
The resale securities will be sold
only through registered or licensed brokers or dealers if required under
applicable state securities laws. In addition, in certain states, the resale
securities covered hereby may not be sold unless they have been registered
or qualified for sale in the applicable state or an exemption from the
registration or qualification requirement is available and is complied with.
Under applicable rules and
regulations under the Securities Exchange Act of 1934, any person engaged in
the distribution of the resale securities may not simultaneously engage in
market making activities with respect to the Common Stock for the applicable
restricted period, as defined in Regulation M, prior to the commencement of
the distribution. In addition, the selling stockholder will be subject to
applicable provisions of the Securities Exchange Act of 1934 and the rules
and regulations thereunder, including Regulation M, which may limit the
timing of purchases and sales of securities of the Common Stock by the
selling stockholder or any other person. We will make copies of this
Prospectus available to the selling stockholder and will inform it of the
need to deliver a copy of this Prospectus to each purchaser at or prior to
the time of the sale (including by compliance with Rule 172 under the
Securities Act of 1933).
Page 27
ordinary
brokerage transactions and transactions in which the broker-dealer solicits the purchaser;
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;
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;
broker-dealers
may agree with the Selling Shareholders 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.
General
We are authorized to issue an aggregate number of 420,000,000 shares of capital stock, $0.001 par value per share, consisting of 20,000,000 shares of Preferred Stock and 400,000,000 shares of Common Stock.
Preferred Stock
We are authorized to issue 20,000,000 shares of Preferred Stock, $0.001 par value per share. As of April 7, 2017, none are issued and outstanding.
Common Stock
We are authorized to issue 400,000,000 shares of Common Stock, $0.001 par value per share. As of April 7, 2017, we had 95,287,581 shares of Common Stock issued and outstanding.
Each share of Common Stock shall have one (1) vote per share for all purpose. Our Common Stock does not provide a preemptive, subscription or conversion rights and there are no redemption or sinking fund provisions or rights. Our Common Stock holders are not entitled to cumulative voting for election of Board of Directors.
Dividends
We have not paid any cash dividends to our shareholders. The declaration of any future cash dividends is at the discretion of our board of directors and depends upon our earnings, if any, our capital requirements and financial position, our general economic conditions, and other pertinent conditions. It is our present intention not to pay any cash dividends in the foreseeable future, but rather to reinvest earnings, if any, in our business operations.
Warrants
As of December 31, 2016, the Company had 9,116,190 warrants outstanding with an weighted average exercise price of $0.21.
Options
As of December 31, 2016, the Company had 20,250,000 options outstanding with an weighted average exercise price of $0.27.
Transfer Agent and Registrar
The transfer agent of our Common Stock is VStock Transfer LLC, 18 Lafayette Place, Woodmere, NY 11598, (212) 828-8436.
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INTEREST OF NAMED EXPERTS AND COUNSEL
No expert or counsel named in this Prospectus as having prepared or
certified any part of this Prospectus or having given an opinion upon the validity of the
securities being registered or upon other legal matters in connection with the
registration or Offering of the Common Stock was employed on a contingency basis, or had,
or is to receive, in connection with the Offering, a substantial interest, direct or
indirect, in the registrant. Nor was any such person
connected with the registrant as a promoter,
managing or principal underwriter, voting trustee, director, officer, or employee.
Thomas J. Craft, Jr., Esq., P.O. Box 4143, Tequesta FL 33469, will pass on the validity of the
Common Stock being offered pursuant to
this Registration Statement.
The audited financial statements for the years ended December 31, 2016 and 2015 included in
this Prospectus and the Registration Statement have been audited by Haynie &
Company, an
independent registered public accounting firm, to the extent and for the periods set forth
in their report appearing elsewhere herein and in the Registration Statement, and are
included in reliance upon such report given upon the authority of said firm as experts in
auditing and accounting.
We filed this Registration Statement on Form S-1 with the SEC under the Act with respect to the Common Stock offered by Selling Shareholders in this Prospectus. This Prospectus, which constitutes a part of the Registration Statement, does not contain all of the information set forth in the Registration Statement or the exhibits and schedules filed therewith. For further information with respect to us and our Common Stock, please see the Registration Statement and the exhibits and schedules filed with the Registration Statement. Statements contained in this Prospectus regarding the contents of any contract or any other document that is filed as an exhibit to the Registration Statement are not necessarily complete, and each such statement is qualified in all respects by reference to the full text of such contract or other document filed as an exhibit to the Registration Statement. The Registration Statement, including its exhibits and schedules, may be inspected without charge at the public reference room maintained by the SEC, located at 100 F Street, N.E., Room 1580, Washington, D.C. 20549, and copies of all or any part of the Registration Statement may be obtained from such offices upon the payment of the fees prescribed by the SEC. Please call the SEC at 1-800-SEC-0330 for further information about the public reference room. The SEC also maintains an Internet website that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. The address of the site is www.sec.gov .
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This Prospectus contains "forward-looking statements". All statements other than statements of historical fact are "forward-looking statements" for purposes of federal and state securities laws, including, but not limited to, any projections of earnings, revenue or other financial items; any statements of the plans, strategies and objections of management for future operations; any statements concerning proposed new services or developments; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing.
Forward-looking statements may include the words "may," "could," "estimate," "intend," "continue," "believe," "expect" or "anticipate" or other similar words. These forward-looking statements present our estimates and assumptions only as of the date of this report. Accordingly, readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the dates on which they are made.
Throughout this Prospectus references to "we", "our", "us", "eWellness", "the Company", and similar terms refer to eWellness Healthcare Corporation and its wholly owned subsidiary.
Corporate Background
The C ompany was incorporated in the State of Nevada on April 7, 2011 as Dignyte, Inc., to engage in any lawful corporate undertaking, including, but not limited to, selected mergers and acquisitions.
Following a share exchange we completed in April 2014, pursuant to which eWellness Corporation, incorporated in Nevada in May 2013, became our wholly owned subsidiary, we abandoned our prior business plan and we are now pursuing eWellness Corporation's historical businesses and proposed businesses.
On April 11, 2014, the Company entered into a share exchange agreement (the "Share Exchange Agreement") pursuant to which the Company agreed to issue 9,200,000 shares of restricted Common Stock to the shareholders of eWellness Corporation, a Nevada corporation ("eWellness"). In addition, the Company's former chief executive officer agreed to tender 5,000,000 shares of Common Stock back to the Company for cancellation and also to assign from his holdings an additional 2,500,000 shares to the shareholders of eWellness Corporation resulting in a total of 11,700,000 shares owned by those shareholders. There were no warrants, options or other equity instruments granted and/or issued in connection with the Share Exchange Agreement.
The closing of the Initial Exchange Agreement was conditioned upon certain, limited customary representations and warranties, as well as, among other things, our compliance with Rule 419 ("Rule 419") of Regulation C under the Securities Act of 1933, as amended and the consent of our shareholders as required under Rule 419. However, Rule 419 required that the share exchange transaction (the "Share Exchange") contemplated by the Initial Exchange Agreement occur on or before March 18, 2014. Accordingly, after numerous discussions with management and eWellness, the parties entered into an Amended and Restated Share Exchange Agreement (the "Share Exchange Agreement") to reflect a revised business combination structure, pursuant to which we would: (i) file a registration statement on Form 8-A ("Form 8A") to register our Common Stock pursuant to Section 12(g) of the Exchange Act, which we did on May 1, 2014 and (ii) seek to convert the participants of the 419 transaction into participants of a similarly termed private offering (the "Converted Offering").
We also agreed to change our name to eWellness Healthcare Corporation to more accurately reflect our new business and operations after the Share Exchange, which became effective as of April 25, 2014.
As the parties satisfied all of the closing conditions, on April 30, 2014, pursuant to the terms of the Share Exchange Agreement, we purchased 100% of eWellness' Common Stock in exchange for 9,200,000 shares of our then outstanding shares of Common Stock and the share exchange closed. As a result, eWellness became a wholly-owned subsidiary and its shareholders owned approximately 77% of our then issued and outstanding Common Stock, after giving effect to the cancellation of 5,000,000 shares of our Common Stock held by the Company's former chief executive officer and the further assignment of his shares of Common Stock as described therein.
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On July 22, 2015, our wholly-owned subsidiary, eWellness Corporation, was merged into the Company and, therefore, no longer exists as a separate entity.
The Company is an early-stage Los Angeles based corporation that seeks to provide a unique telemedicine platform that offers Distance Monitored Physical Therapy (DMpt) Programs to pre-diabetic, cardiac and health challenged patients, through contracted physician practices and healthcare systems, in addition to in-office sessions. Based on current insurance reimbursement policies, we expect to generate our main revenues from in-office visits.
Recent Developments
In November 2014, we were advised by the California State Board of Physical Therapy ("CSBPT") that we could operate our Platform and bill patients insurance within the Association's rules in the state of California. That led us to induct sample patients into our Platform at our Culver City offices and complete an 8-week research study where we successfully billed for telemedicine visits for one of our patients who has Blue Shield insurance.
On April 1, 2015, we entered into an Operating Agreement with Evolution Physical Therapy ("EPT"), a company owned by our CEO, pursuant to which EPT operate our Platform and offers it to selected physical therapy patients of EPT. We will advance capital requested by EPT for costs specifically associated with operating the Platform and associated physical therapy treatments. On May 7, 2015, EPT inducted the first patient using our platform. The total (insurance reimbursed) monitored PHZIO visits in 2015 and 2016 was 1,928 visits that include: 2015: 699 patient visits (239 insurance reimbursed patient visits generating approximately $13,500 in gross revenue) and in 2016: 1,229 patient visits generating $1,496 (approximately 26 insurance reimbursed visits). These gross revenue figures were not sufficient to generate any gross sales for us. The average insurance reimbursement per PHZIO session in 2015 and 2016 was $56 (excluding co-payments). The wellness goals of our program are to graduate at least 80% of inducted patients through our 6-month program. Patients should expect to experience an average of a 20% reduction in BMI, a 4-inch reduction in waist size, weight loss of at least 20 pounds, significant overall improvement in balance, coordination, flexibility, strength, and lumbopelvic stability. Patients also should score better on Functional Outcomes Scales (Oswestry and LEFS), which indicates improved functional activity levels due to reduced low back, knee and hip pain.
On April 17, 2015, we entered into an agreement with Akash Bajaj, M.D., M.P.H pursuant to which Dr. Bajaj serve as a consultant and as the Chairman of the Company's Clinical Advisory Board.
On November 12, 2016, the Company entered into a Services Agreement with Bistromatics, Inc. (the "Bistromatics Agreement"), a Company incorporated under the laws of Canada ("Bistromatics"). Pursuant to the Bistromatics Agreement, Bistromatics will provide operational oversight of the Company's Phzio System including development, content editing, client on boarding, clinic training, support & maintenance, billing, hosting and oversight and support of CRM and helpdesk system. The Company has agreed to pay a monthly base fee of $50,000 monthly until Bistromatics has successfully signed and collected the first monthly service fee for 100 Physical Therapy Clinics to start using our Platform. If and when Bistromatics provides the Company with evidence of the 100 Physical Therapy Clinics, the monthly service fee will extend to $100,000. Bistromatics will have the ability to convert any outstanding amounts that fall in arrears for 60 days into common stock at the same terms as the next round of financing or the Company's common stock market price, whichever is higher.
Investment Agreement with Tangiers Global, LLC
On February 10, 2017, we entered into an Investment Agreement with Tangiers. Pursuant to the terms of the Investment Agreement, Tangiers committed to purchase up to $5,000,000 of our Common Stock over a period of up to 36 months. From time to time during the 36 month period commencing from the effectiveness of the registration statement, we may deliver a put notice to Tangiers which states the number of shares of Common Stock that we intend to sell to Tangiers on a date specified in the put notice. The maximum share number amount per notice must be no more than 200% of the average daily trading volume of our Common Stock for the ten (10) consecutive trading days immediately prior to date of the applicable put notice and such amount must not exceed an accumulative amount of $250,000. The minimum put amount is $5,000. The purchase price per share to be paid by Tangiers will be the 80% of the of lowest trading prices of the Common Stock during the 5 trading days including and immediately following the date on which put notice is delivered to Tangiers.
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In connection with the Investment Agreement with Tangiers, we also entered into a registration rights agreement with Tangiers, pursuant to which we agreed to use our best efforts to, within 15 days of filing the Company's Annual Report for the year ended December 31, 2016, file with the Securities and Exchange Commission a registration statement, covering the resale of 9,519,229 shares of our Common Stock.
The Company also issued fixed convertible promissory notes to Tangiers as follows: (i) a fixed convertible promissory note for the principal sum of $100,000 convertible at $0.20 per share bearing an interest rate of 8% per annum maturing on September 10, 2017, (ii) a fixed convertible promissory note for the principal sum of $275,000 convertible at $0.20 per share bearing an interest rate of 8% per annum maturing on September 10, 2017; (iii) a fixed convertible promissory note for the principal sum of $308,000 convertible at $0.20 per share bearing an interest rate of 8% per annum maturing on November 11, 2017 and 68,750 warrants exercisable at $0.25 and expiring in 2022.
At present, the Company does not have the ability to repay the convertible promissory notes issued to Tangiers without funds received under its Investment Agreement with Tangiers. The Company intends to satisfy its indebtedness to Tangiers as follows: (i) from proceeds generated by the issuance of shares under the Investment Agreement; and/or (ii) from proceeds raised through the issuance and sale by the Company of unregistered securities to parties other than Tangiers.
The Company would have to
issue a number of shares to Tangiers underlying the convertible notes issued
to Tangiers as follows:
1. A fixed convertible promissory note issued to
Tangiers on February 10, 2017 having a maturity date of September 10, 2017
in the principal amount of $100,000 which is convertible at $0.20 bearing
a onetime interest charge of 8% and would result into the issuance of 540,000
shares on the date of maturity including the conversion of $8,000 in
interest.
2. A fixed convertible promissory note issued to Tangiers on
February 10, 2017 having a maturity date of September 10, 2017, for the face
value of $275,000, $137,500 of which was funded, which is convertible at
$0.20 bearing a onetime interest rate of 8% and would result into the
issuance of 742,500 shares on the date of maturity including the conversion
of $11,000 in interest.
3. A fixed convertible promissory note issued to
Tangiers on April 11, 2017 having a maturity date of November 11, 2018 for
the face value of $308,000 convertible at $0.20 bearing a onetime interest
rate of 8% and would result into the issuance of 1,663,200 shares on the
date of maturity including the conversion of $24,640 in interest.
The 9,519,229 shares being offered pursuant to this Prospectus represents 9.99% of the shares issued and outstanding, assuming that the selling stockholders will sell all of the shares offered for sale. Tangiers has agreed to refrain from holding an amount of shares which would result in Tangiers owning more than 9.99% of the then-outstanding shares of our Common Stock at any one time.
The Investment Agreement with Tangiers is not transferable and any benefits attached thereto may not be assigned.
At an assumed purchase price under the Investment Agreement of $0.072 (equal to 80% of the closing price of our Common Stock of $0.09 on April 7, 2017), we will be able to receive up to $685,384 in gross proceeds, assuming the sale of the entire 9,519,229 Put Shares being registered hereunder pursuant to the Investment Agreement. At an assumed purchase price of $0.072 under the Investment Agreement, we would be required to register 59,925,222 additional shares to obtain the balance of $4,314,616 under the Investment Agreement. Due to the floating offering price, we are not able to determine the exact number of shares that we will issue under the Investment Agreement.
There are substantial risks to investors as a result of the issuance of shares of our Common Stock under the Investment Agreement with Tangiers. These risks include dilution of stockholders' percentage ownership, significant decline in our stock price and our inability to draw sufficient funds when needed.
We intend to sell Tangiers periodically our Common Stock under the Investment Agreement and Tangiers will, in turn, sell such shares to investors in the market at the market price. This may cause our stock price to decline, which will require us to issue increasing numbers of common shares to Tangiers to raise the same amount of funds, as our stock price declines.
The aggregate investment amount of $5,000,000 was determined based on numerous factors, including the following: The proceeds received from any "puts" tendered to Tangiers under the Investment Agreement will be used for general corporate and working capital purposes or for other purposes that our board of directors, in its good faith deem to be in the best interest of our Company.
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We may have to increase the number of our authorized shares in order to issue the shares to Tangiers if we reach our current amount of authorized shares of Common Stock. Increasing the number of our authorized shares will require board and stockholder approval. Accordingly, because our ability to draw down any amounts under the Investment Agreement with Tangiers is subject to a number of conditions, there is no guarantee that we will be able to draw down any portion or all of the proceeds of $5,000,000 under the Investment Agreement with Tangiers.
In order for us to sell any remaining shares issuable under the Investment Agreement for the remaining $4,314,616, we would be required to file one or more additional registration statements registering the resale of these shares. These subsequent registration statements may be subject to review and comment by the staff of the SEC, and will require the consent of our independent registered public accounting firm. We cannot guarantee that we will be successful in preparing and filing one or more additional registration statements registering the resale of the shares. Due to the floating offering price, we are not able to determine the exact number of shares that we will issue under the Investment Agreement.
There are no broker fees or commissions with respect to the Investment Agreement and Registration Rights Agreement payable for any Put. Other than as discussed below, we have not entered into any prior transactions with Tangiers or its affiliates.
The Company's Business
Our business model is to license our PHZIO physical therapy treatment platform to any physical therapy ("PT") clinic in the U.S. and or have large-scale employers use our PHZIO platform as a fully PT monitored corporate wellness program.
The Company's initial licensee is Evolution Physical Therapy ("EPT"), which is owned by our CEO, Darwin Fogt, MPT. All treatment revenue for 2016 was reimbursed to EPT, but was not sufficient to generate sales for the Company. Our 2016 goals were to commercially launch on September 6th, 2016, the licensing of our PHZIO platform to 3rd party physical therapy practices throughout the U.S. The American Physical Therapy Association (APTA), Private Practice Section (PPS) members are our initial universe of PT practices to target.
Our sale launch began with full-page print advertising in the PT industry's premier magazine Impact in early September 2016. It is then followed up with a full-page ad in the APTA PPS Conference Buyers Guide in early October. Following these two print ads, we were a tier 1 sponsor at the PPS Las Vegas conference from October 19-22, 2016 (October 20th Lunch Sponsor and 4-6pm Cocktail Reception Sponsor & Exclusive PHZIO Demo Session for all attendees). PHZIO also had a full-page ad included in November and January 2017 Impact magazine issues.
Our sales launch included industry advertising, lead generation and qualification program, which may be implemented through a strategic partnership with a US-based sales support organization through a revenue share agreement. Our customer acquisition and sales strategy includes: Lead Generation and Qualification through a call center that utilizes well-designed program stimuli and tactics, as well as strong agent lead qualification and closing skills. Next, based upon advertising to the PPS membership, we also included an inbound sales team members to handle virtually any type of inbound hard-or soft-sell sales calls that embodies a sales performance-based culture.
We also implemented a Customer Relationship Management system ("CRM") that provides practices, strategies and technologies that we will use to manage and analyze customer interactions and data throughout the customer lifecycle, with the goal of improving business relationships with customers, assisting in customer retention and driving sales growth. CRM systems are designed to compile information on customers across different channels - or points of contact between the customer and the company - which could include the company's website, telephone, live chat, direct mail, marketing materials and social media. CRM systems can also give customer-facing staff detailed information on customers' personal information, purchase history, buying preferences and concerns.
On December 2, 2016, the Company successfully signed its initial 3rd party PT clinic for the use of its PHZIO Tele- Rehabilitation Platform. The agreement is with Back to Motion PT located in Denver Colorado. On December 9, 2016, the Company successfully signed two additional PT Clinics including a multi-clinic practice in Placerville, California and a stand- alone practice located in Mississippi for the use of its PHZIO telehealth platform. On December 14, 2016, the Company signed another 3rd party PT clinic for the use of its PHZIO Tele-Health Platform. The agreement was with a prominent Brooklyn based PT clinic, owned by Motion PT Group. The Brooklyn based clinic is one of over 45 clinics currently owned by Motion PT Group.
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Although this license is just for their Brooklyn location, the Company anticipates that all of Motion PT clinics may eventually treat patients using our PHZIO platform. The Company believes that there is a significant backlog of PT clinics which have a high interest in using our PHZIO platform and participating in our beta program, although there can be no guarantee that we will be able to reach agreements with such clinics.
During the first quarter of 2017 the Company began training various PT clinical operators on the use of our PHZIO system. We anticipate that initial revenue generation from these clinics will begin to generate revenue for the Company in the second quarter of 2017.
The Company is also in the process of developing marketing channel partnerships with industry association members, existing software-based telemedicine providers and physical therapy billing and practice management providers. These partnerships, if completed, are anticipated to begin adding third party PT licensee revenue during the third quarter of 2017.
The Company's PHZIO home physical therapy exercise platform has been designed to disrupt the $30 billion physical therapy and the $8 billion corporate wellness industries. PHZIO re-defines the way physical therapy can be delivered. PHZIO is the first real-time remote monitored 1-to-many physical therapy platform for home use. Due to the real-time patient monitoring feature, the PHZIO platform is insurance reimbursable by payers such as Anthem Blue Cross and Blue Shield.
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A New Physical Therapy Delivery System
● | SaaS technology platform solution for providers bundling rehabilitation services and employer wellness programs; |
● | First real-time remote monitored 1-to-many physical therapy treatment platform for home use; |
● | Ability for physical therapists to observe multiple patients simultaneously in real-time; |
● | Solves what has been a structural problem and limitation in post-acute care practice growth. |
● | PT practices can experience 20% higher adherence & compliance rates versus industry standards; and |
● | Tracking to 30% increase in net income for a PT practice. |
PHZIO Treatment Session
The image below illustrates a typical PHZIO treatment session from a patient's point of view. There is communication between patients and PT conducted via audio, text and or video messaging. The patient is also able to examine form during the exercise sessions. The monitoring PT is remotely monitoring the patient real-time from PT office.
Patient program adherence in 2015 and 2016 was nearly 85 percent due the real-time patient monitoring and the at-home use of the platform. Now physical therapy practices have a way to scale profitably using a technology platform that can help them grow beyond the limits of the typical brick and mortar PT clinic.
The Company's initial PHZIO application is a 6-month exercise program for patients with back, knee or hip pain. The next two platforms, released in the third quarter of 2016, include a total knee and hip replacement exercise program. These hip and knee programs have been designed to be integrated into any hospital or medical group's Medicare CMS bundled payment model for post-acute care physical therapy. These two programs are anticipated to be followed by woman's health and geriatric programs by the end of the third quarter of 2017.
Our PHZIO platform enables employees or patients to engage with live or on-demand video based physical therapy telemedicine treatments from their home or office. Following a physician's exam and prescription for physical therapy to treat back, knee or hip pain, a patient can be examined by a physical therapist and, if found appropriate, inducted into the Company's PHZIO program that includes a progressive 6-month telemedicine exercise program (including monthly in-clinic check-ups). All PHZIO treatments are monitored by a licensed therapist that sees everything the patient is doing while providing professional guidance and feedback in real-time. This ensures treatment compliance by the patient, maintains the safety and integrity of the prescribed exercises, tracks patient metrics and captures pre-and post treatment evaluation data. PHZIO unlocks a host of potential for revolutionizing patient treatment models and directly links back to the established brick and mortar physical therapy clinic. This unique model enables any physical therapy practice to be able to execute more patient care while utilizing their same resources, and creates more value than was ever before possible.
During 2015 and 2016, our PHZIO platform achieved the following metrics:
● | The total (insurance reimbursed) monitored PHZIO visits in 2015 and 2016 was 1928 total patient visits that include: 2015: 699 patient visits (239 insurance reimbursed patient visits generating approximately $13,500.00 in gross revenue) and in 2016: 1,229 patient visits generating $1,496 (approximately 26 insurance reimbursed visits). These gross revenue figures were not sufficient to generate any gross sales for the Company. |
● | The average insurance reimbursement per PHZIO session in 2015 and 2016 was $56 (excluding co-payments). |
● | The top line wellness goals of our PHZIO program are to graduate at least 80% of inducted patients through our initial 6-month program. Patients should expect to experience an average of a 20% reduction in BMI, a 4-inch reduction in waist size, weight loss of at least 20 pounds, significant overall improvement in balance, coordination, flexibility, strength, and lumbopelvic stability. Patients also should score better on Functional Outcomes Scales (Oswestry and LEFS), which indicates improved functional activity levels due to reduced low back, knee and hip pain. |
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Our PHZIO platform, including design, testing, exercise intervention, follow-up, and exercise demonstration, has been developed by accomplished Los Angeles based physical therapist Darwin Fogt, who currently serves as the Company's CEO. Mr. Fogt has extensive experience and education working with diverse populations from professional athletes to morbidly obese. He understands the most beneficial exercise prescription to achieve optimal results and has had enormous success in motivating all patient types to stay consistent in working toward their goals. Additionally, his methods have proven effective and safe as he demonstrates exercises with attention to proper form to avoid injury. Mr. Fogt has established himself as a national leader in his field and has successfully implemented progressive solutions to delivering physical therapy. He has consulted with and been published by numerous national publications including Runner's World, Men's Health, Men's Journal, and various physical therapy specific magazines. His has 13 plus years of experience rehabilitating the general population, as well as professional athletes, Olympic gold medalists, and celebrities. He has bridged the gap between physical therapy and fitness by opening Evolution Fitness, which uses licensed physical therapists to teach high intensity circuit training fitness classes. He also founded one of the first exclusive prenatal and postnatal physical therapy clinic in the country. Mr. Fogt is a leader in advancing the profession to incorporate research-based methods and focus on not only rehabilitation but also wellness, functional fitness, performance, and prevention. He can recognize that the national healthcare structure (federal and private insurance) is moving toward a model of prevention and that the physical therapy profession will take a larger role in providing wellness services to patients.
Innovators in other industries have solved access, cost and quality inefficiencies through the implementation of technology platforms and business models that deliver products and services on-demand and create new economies by connecting and empowering both consumers and businesses. We have taken the same approach to solving the pervasive access, cost and quality challenges facing the current access to physical therapy clinics.
Our underlying technology platform is complex, deeply integrated and purpose-built over the past four years for the evolving physical therapy marketplace. Our PHZIO platform is highly scalable and can support substantial growth of third party licensees. Our PHZIO platform provides for broad interconnectivity between PT practitioners and their patients and, we believe, uniquely positions us as a focal point in the rapidly evolving PT industry to introduce innovative, technology-based solutions, such as remote patient monitoring, post-discharge treatment plan adherence and in-home care.
We plan to generate revenue from third-party PT and corporate wellness licensees on a contractually recurring per PHZIO session fee basis. Our PHZIO platform is anticipated to transform the access, cost and quality dynamics of physical therapy delivery for all of the market participants. We further believe any patient, employer, health plan or healthcare professional interested in a better approach to physical therapy is a potential PHZIO platform user.
Background on our PHZIO Technology
The Company's Chief Technology Officer ("CTO"), Curtis Hollister, one program developer, and one content manager support our PHZIO system and are in Ottawa Canada. The below noted chart contains information on our PHZIO System.
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IP and Licensing
We have licensed our telemedicine platform from Bistromatics Inc., a company owned by our CTO, for perpetuity for any telemedicine application in any market worldwide. The below noted chart highlights what we have built to date.
Our History
We entered into a share exchange agreement (the "Initial Exchange Agreement") pursuant to which we agreed to issue, 9,200,000 shares of our unregistered common stock, $.001 par value (the "common stock") to the shareholders of eWellness Corporation, a Nevada corporation ("eWellness" or "Private Co."). In addition, our former chief executive officer agreed to tender 5,000,000 shares of common stock back to the Company for cancellation and to assign from his holdings an additional 2,500,000 shares to the shareholders of eWellness Corporation resulting in a total of 11,700,000 shares owned by those shareholders, as well as a further assignment of an additional 2,100,000 shares to other parties as stated therein. There were no warrants, options or other equity instruments issued in connection with the share exchange agreement.
The closing of the Initial Exchange Agreement was conditioned upon certain, limited customary representations and warranties, as well as, among other things, our compliance with Rule 419 ("Rule 419") of Regulation C under the Securities Act of 1933, as amended and the consent of our shareholders as required under Rule 419. However, Rule 419 required that the share exchange transaction (the "Share Exchange") contemplated by the Initial Exchange Agreement occur on or before March 18, 2014. Accordingly, after numerous discussions with management and eWellness, the parties entered into an Amended and Restated Share Exchange Agreement (the "Share Exchange Agreement") to reflect a revised business combination structure, pursuant to which we would: (i) file a registration statement on Form 8-A ("Form 8A") to register our common stock pursuant to Section 12(g) of the Exchange Act, which we did on May 1, 2014 and (ii) seek to convert the participants of the 419 transaction into participants of a similarly termed private offering (the "Converted Offering"). We also agreed to change our name to eWellness Healthcare Corporation to more accurately reflect our new business and operations after the Share Exchange, which occurred and was effective as of April 25, 2014.
As the parties satisfied all of the closing conditions, on April 30, 2014, pursuant to the terms of the Share Exchange Agreement, we purchased 100% of eWellness' common stock in exchange for 9,200,000 shares of our then outstanding shares of common stock and the share exchange closed. As a result, eWellness became our wholly owned subsidiary and its shareholders owned approximately 76.97% of our then issued and outstanding common stock, after giving effect to the cancellation of 5,000,000 shares of our common stock held by Andreas A. McRobbie-Johnson, our former chief executive officer and the further assignment of his shares of common stock as described therein.
On July 22, 2015, our wholly owned subsidiary, eWellness Corporation, was merged into the Company and, therefore, no longer exists as a separate entity.
The Physical Therapy Telemedicine Space
One of the most promising and rapidly developing areas of healthcare and rehabilitation is telemedicine – the use of telecommunication technologies to provide health information, assessment, monitoring, and treatment to individuals with chronic conditions from a distance. Increasingly, insurers, healthcare providers, and technology vendors are using telemedicine solutions and services to make medical intervention both more convenient and accessible to patients to raise the quality of care while reducing costs. (Herrick 2007).
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Low back pain is second only to upper respiratory problems as a symptom-related reason for visits to a physician. (Andersson 1999 Hart 1995). By 2023, the estimated cost of chronic conditions including low back pain and diabetes including treatment and lost productivity will swell to $4.2 trillion annually. (Deyo 2001). Home-based telemedicine holds promise as an effective method for providing physical therapy exercise programs to these segments of our populations including people with back, hip and knee pain and for those individuals who may be pre-diabetic and/or are obese.
Physical therapy intervention including core muscle strengthening exercise along with lumbar flexibility and gluteus maximus strengthening is an effective rehabilitation technique for all chronic low back pain patients irrespective of different duration (less than one year and more than one year) of their pain. (Kumar 2014). It has also been widely proven that strengthening and aerobic exercises are effective at reducing symptoms and preventing knee pain among patients with osteoarthritis and other painful knee conditions. (Senanik 2012).
Physical therapy intervention is becoming an increasingly accepted mode of intervention delivery and policy recommendations have been made to State Boards of Physical Therapy. (Julian 2014). The PHZIO platform complies and exceeds the recommendations for physical therapy intervention delivered via telemedicine.
The PHZIO platform eliminates the barrier of transportation, offers participants the flexibility of exercising at their preferred time of day, and does not involve as much energy or time necessary to get to an exercise or fitness facility.
Traditionally, physical therapy exercise programs are based upon exercise and education provisioned by physical therapist to patients at a brick and mortar facility using a face-to-face model of care. Over the past three years, we have conceptualized, designed, engineered, tested and deployed our PHZIO platform.
Our PHZIO Platform
Our current PHZIO platform includes a fully customizable treatment program for multiple physical therapy treatment plans including patient rehabilitations for total knee, hip and shoulder surgeries, lower and upper back ailments and other physical therapy treatments. We currently have a growing library of over 250 individual 2-4 minute exercise videos within our PHZIO platform, with additional exercise content generated as needed. Our initial PHZIO program included a 6-month 78 session 40-minute on-line distance monitored telemedicine exercise program that is a physician prescribed (insurance reimbursable) physical therapy exercise program designed around an exercise kit that includes: an inflatable exercise ball, latex resistance bands, a yoga mat and stretch strap that provides a comprehensive exercise regimen that minimizes stress on the joints while allowing for hundreds of progressive exercises that focus on strength, balance, cardiovascular conditioning, coordination and flexibility.
● | Our initial PHZIO platform is an on-line distance monitored telemedicine exercise program with a 6-month duration, wherein seventy-eight (78) individual 40-minute progressive exercise sessions are watched & interacted with by a patient on their laptop computer. |
● | The patients are inducted into the PHZIO program through a physician prescription and physical therapist evaluation. The PHZIO program is designed around an exercise kit that includes: an inflatable exercise ball, latex resistance bands, a yoga mat and stretch strap. |
● | The patient follows the PHZIO instructions and performs the specific exercises while being remotely monitored by a physical therapist through the camera located on the laptop computer. The PHZIO program provides a comprehensive exercise regimen that minimizes stress on the joints while allowing for hundreds of progressive exercises that focuses on strength, balance, coordination, and flexibility. |
● | The PHZIO program is designed to be operated in a patient's home or office in order to increase compliance and eliminate transportation to a fitness center or gym. |
● | Our PHZIO system allows licensed physical therapists to monitor multiple patients (system designed for up to 30 patients at a time) while these patients are on-line and following along with our PHZIO exercise program. Each patient and physical therapist has real-time, voice, text and video conferencing capability when interaction is needed between the patient and our physical therapist. |
When patients are referred to an eWellness PT licensee, a physical therapist will perform an in-clinic evaluation to determine if the patient is appropriate to be treated using the PHZIO program. The goal is to ensure compliance with the therapeutic exercise regimen, that may lead to reduce BMI to a healthy number, help patients lose weight and boost their activity level for during a multi-month program.
Patients can access a series of progressively difficult workouts in 40 to 45-minute videos from home. They use a unique log-in from an application, which will securely store all their data over a multi-month period. When patients log on, it triggers a camera in the physical therapists' remote office.
Physical therapists will monitor patients to ensure compliance. A remote physical therapist watches in real time while the patient is performing the exercises and guides him through his exercise sessions. The therapist provides constant feedback, instruction and motivation and ensures patients are doing the exercises properly and safely. The supervising therapist can speak to the user or communicate through text message.
Competition
We have identified multiple privately-held telemedicine and exercise platform companies that utilize Avatar/Kinect-based telerehb platforms including: Reflexion Health, RespondWell, Physmodo, Jintronx, MotionCare 360 and Five Plus. Additionally, we have identified other video-based physical therapy solutions such as: Bluejay, PT Pal, VitalRock, Physiotech, SimplyTherapy and YouTube. Yet, none of these companies have real-time PT monitoring, one-to-many platform, reimbursable treatments and strong program compliance and adherence by patients.
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The PZHIO.COM Exercise Program
A Monitored In-office & Telemedicine Exercise Program : Our initial 6-month PHZIO exercise program has been designed to provide patients, who are accepted into the program, with traditional one-on-one PT evaluations, re-evaluations (every one to four weeks throughout the PHZIO program depending on type of insurance), and after the conclusion of the program a Physical Performance Test. These PTs are known as Induction & Evaluation Physical Therapists ("IEPTs"). All patient medical data, information and records are retained in the files of the IEPT. The IEPT will also evaluate the progress of the patient's participation in our PHZIO program.
● | Physician Diagnosis: Following a physician's diagnosis of a patient with non-acute back pain, who is also likely overweight and pre-diabetic, a physician may prescribe the patient to participate in the eWellness PHZIO exercise program. |
● | Enrollment Process: The accepted patients are assessed by a PT, located at a PT Licensee clinic and then enrolled in our PHZIO program by going online to our PHZIO program virtual private network ("VPN") and creating a login name and password. The patient will then populate their calendar with planned times when they anticipate exercising. They will also be provided with a free exercise ball, resistance stretch bands, stretch strap and yoga mat at induction. |
● | Exercising Begins: The day after the patient receives the equipment, the patient will log on to our VPN at least 3 times per week, to watch and follow the prescribed 40-minute on-line exercise program. The PHZIO platform also allows two-way communication (videoconferencing) with one of our licensee's On-line Physical Therapists ("OLPT's"), who is responsible for monitoring on-line patients. The OLPT's are also available to answer patient's questions. When availa.ble the patients exercise sessions are recorded and stored in our system as proof that they completed the prescribed exercises. There are 78 various 40-minute exercise videos that are viewed by our patients in successive order. |
● | Driving Patients to work out between 6:00am-9:30am 5 days per week: Our PHZIO system has a calendar function so that patients can schedule when they will login to our PHZIO system. This calendar enables a PT Licensee to better spread the load of patients participating in any forty-minute on-line exercise program during our 15 hours of weekly operations, 6am through 9:30am Monday through Friday are to most optimal hours for patient engagement. Also, if the patient is not on-line at the planned exercise time, our system can send them an automated reminder, via text, voicemail and or e-mail messaging. |
Trackable Physical Therapy . The exercise PHZIO prescription and instruction will be delivered with a series of on-line videos easily accessed by each patient on the internet. Each video will be approximately 40 minutes in length with exercises, which will specifically address the common impairments associated with diabetes and/or obesity. Exercise programs will be able to be performed within each patient's own home or work location without requiring standard gym equipment. Each patient will be required to log in to the system which will monitor performance automatically in order to ensure their compliance. Each patient will be required to follow up with their referring physician and PT at designated intervals and metrics such as blood pressure, blood sugars, BMI, etc. will be recorded to ensure success of the program.
Patient Program Goals . Our initial PHZIO program was designed so that the average patient is targeted to lose 2 pounds per week, totaling up to 48 pounds over the duration of the program to progress toward healthier defined BMI, reduction body fat percentage by at least 8%, reduced reliance on medication for blood glucose regulation and dosage or frequency and a goal of at least a 50% adherence to continuing the PHZIO program independently at conclusion of program.
Trackable Video Exercise Program . The On-Line PHZIO video content includes all aspects of wellness preventative care to ensure the best results: cardiovascular training, resistance training, flexibility, and balance and stabilization; research studies on all such distinct impairments have shown to provide effective treatment results. Each video integrates each of the four components to guarantee a comprehensive approach to the wellness program, but each video will specifically highlight one of the four components. All of our PHZIO video content can be viewed on all desktops, tablets, PC's and MAC computers.
Specific Video Programs . Each patient will receive a prescription for six months (26 week) of physical therapy and exercise that is provided by viewing on-line programs produced by eWellness where the patient can do these exercises and stretching on their own at least 3 days per week for at least 40 minutes. The PHZIO videos can be watched on a laptop or desktop computer (and on IOS and Android smart phones by the second quarter of 2017). In order to view the videos the patient would log onto the PHZIO web-site and would be directed to watch the appropriate video in sequence. As the patient is logged-in, the monitoring PT will be able to monitor how often and if the entire video session was viewed. This data would be captured and sent weekly to the prescribing physician and the monitoring PT for review. At all times, a licensed OLPT/PTA will have access to each patient utilizing the videos and will be able to communicate with a patient via video-conferencing and/or instant messaging. This will help improve adherence to the program as well as the success and safety of the patients' treatments. A patient will also be instructed to walk or ride a bike at least 30 minutes three days per week in addition to participating in our program.
If the patient is not viewing the videos, then the prescribing physician and/or the monitoring PT would reach out to the patient by telephone and/or e-mail to encourage the patient to keep up their physical fitness regime. After each series, the patient returns for an office visit to the prescribing physician for blood tests, blood pressure and a weight management check- up as well as a follow-up visit with the PT for assessment of the patient's progress toward established goals.
Exercise Patient Kits. Most patients will receive a home exercise tool kit, which will include: an inflatable exercise ball, a hand pump, a yoga mat, a yoga strap, and varying levels of resistance bands. Each of the PHZIO exercise videos will include exercises that incorporate the items in the tool kit. By using a bare minimum of equipment, patients should be able to participate more easily at home or at their workplace. Our estimated cost of the kit is $49, which we pay and factored in to aPT licensees revenue stream and internal projections. The cost of the exercise kits may also be billed to the patients account.
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Our Cloud-based PHZIO System Design . Our CTO is currently a principal shareholder and operator of two video content platform based businesses in Ottawa Canada that have built and own the intellectual property for various global corporate and governmental projects having similar requirements as ours. Not only will his experience stand to significantly shorten our path to service activation of our own program, but his industry contacts will provide immediate access to valuable resources. Because of this access, initially all system maintenance, updates and upgrades of our PHZIO platform will be made by him and a readily available team of independent freelance consultants in Ottawa. Additionally, through his ownership in these video content platform businesses, the Company did enter into an agreement with one of them to secure the rights to intellectual property completing approximately 100% of the Company's systems requirements at a total cost of $20,000. Our platform was built based on the Zendesk® highly-scalable customer service application platform. Currently, all system maintenance, updates and upgrades will be made by our CTO's team in Ottawa.
Insurance/Reimbursement
Thus far in the state of California our initial licensee has successfully gained reimbursement from Blue Cross, Blue Shield and CIGNA insurance companies. The licensee receiver reimbursements that are equivalent to in-clinic patient reimbursements. For PT licensee patients, whose insurance companies provide little or no reimbursement for Physical Therapy Telemedicine Reimbursement, they may have higher co-payments for participating in the PHZIO program or be responsible to pay the full cost of such services.
Expansion into other markets where telemedicine has high support. On December 20, 2013, we executed a 25-year licensing agreement with a London, Ontario based telemedicine company Physical Relief Telemedicine Health Care Services ("PRTHCS"), pursuant to which we granted PRTHCS a limited, transferable right to use and promote our PHZIO Program within the province of Ontario; additional Canadian territories may be added at the parties' mutual discretion. PRTHCS has a known track-record in the telemedicine industry in Canada. To date PRTHCS has been unsuccessful in licensing our PHZIO platform to any Canadian based PT clinics.
Our Planned Expansion into other States where Telemedicine has high support . The most common path being taken by states is to cover telemedicine services in their Medicaid program. 42 states now provide some form of Medicaid reimbursement for telemedicine services (mostly physician to physician consultations). More importantly 16 states have now expanded their definition of telemedicine to include physical therapy and have also required that state and private insurance plans cover telemedicine services. Those 16 states with the broadest telemedicine policies include: Alaska, Georgia, Hawaii, Louisiana, Maine, Maryland, Michigan, Mississippi, Missouri, Montana, New Mexico, Oklahoma, Oregon, Texas, Virginia and Vermont.
Company Development Costs As of the date of this Report, we have spent approximately 28 months developing our unique business model and our design for the Company's automated website and systems for our PHZIO program. Over the course of the 28-month development phase we expended approximately $2,057,611 in travel expenses, legal, consulting services and miscellaneous expenses.
Intellectual Property
With adequate funding, we anticipate the development of various Application and Pioneering Methods patent protect and Trademark protection associated with our technology platform and unique physical therapy treatments.
REGULATIONS AND HEALTHCARE REFORM
Numerous federal, state and local regulations regulate healthcare services and those who provide them. Some states into which we may expand have laws requiring facilities employing health professionals and providing health-related services to be licensed and, in some cases, to obtain a certificate of need (that is, demonstrating to a state regulatory authority the need for, and financial feasibility of, new facilities or the commencement of new healthcare services). Only one of the states in which we intend to roll out our services requires a certificate of need for the operation of our physical therapy business functions. Our therapists however, are required to be licensed, as determined by the state in which they provide services. Failure to obtain or maintain any required certificates, approvals or licenses could have a material adverse effect on our business, financial condition and results of operations.
State Legislation
Insurance reimbursement for our PHZIO services is likely to improve in 2017 and beyond based upon current draft legislation in Congress that seeks to significantly expand Medicare's reimbursement for telemedicine services including for physical therapy. If passed, this legislation would drive private healthcare insurers to also reimburse for physical therapy associated with telemedicine. Also, in early November 2014, we were advised by the California State Board of Physical Therapy ("CSBPT") that we could operate our PHZIO platform and bill patients' insurance within the Association's rules in the state of California.
Stark Law
Provisions of the Omnibus Budget Reconciliation Act of 1993 (42 U.S.C. Section 1395nn) (the "Stark Law") prohibit referrals by a physician of "designated health services" which are payable, in whole or in part, by Medicare or Medicaid, to an entity in which the physician or the physician's immediate family member has an investment interest or other financial relationship, subject to several exceptions. Unlike the Fraud and Abuse Law, the Stark Law is a strict liability statute. Proof of intent to violate the Stark Law is not required. Physical therapy services are among the "designated health services". Further, the Stark Law has application to the Company's management contracts with individual physicians and physician groups, as well as, any other financial relationship between us and referring physicians, including any financial transaction resulting from a clinic acquisition. The Stark Law also prohibits billing for services rendered pursuant to a prohibited referral. Several states have enacted laws similar to the Stark Law. These state laws may cover all (not just Medicare and Medicaid) patients.
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Many federal healthcare reform proposals in the past few years have attempted to expand the Stark Law to cover all patients as well. As with the Fraud and Abuse Law, we consider the Stark Law in planning our clinics, marketing and other activities, and believe that our operations are in compliance with the Stark Law. If we violate the Stark Law, our financial results and operations could be adversely affected. Penalties for violations include denial of payment for the services, significant civil monetary penalties, and exclusion from the Medicare and Medicaid programs.
HIPAA
In an effort to further combat healthcare fraud and protect patient confidentially, Congress included several anti-fraud measures in the Health Insurance Portability and Accountability Act of 1996 ("HIPAA"). HIPAA created a source of funding for fraud control to coordinate federal, state and local healthcare law enforcement programs, conduct investigations, provide guidance to the healthcare industry concerning fraudulent healthcare practices, and establish a national data bank to receive and report final adverse actions. HIPAA also criminalized certain forms of health fraud against all public and private insurers. Additionally, HIPAA mandates the adoption of standards regarding the exchange of healthcare information in an effort to ensure the privacy and electronic security of patient information and standards relating to the privacy of health information. Sanctions for failing to comply with HIPAA include criminal penalties and civil sanctions. In February of 2009, the American Recovery and Reinvestment Act of 2009 ("ARRA") was signed into law. Title XIII of ARRA, the Health Information Technology for Economic and Clinical Health Act ("HITECH"), provided for substantial Medicare and Medicaid incentives for providers to adopt electronic health records ("EHRs") and grants for the development of health information exchange ("HIE"). Recognizing that HIE and EHR systems will not be implemented unless the public can be assured that the privacy and security of patient information in such systems is protected, HITECH also significantly expanded the scope of the privacy and security requirements under HIPAA. Most notable are the new mandatory breach notification requirements and a heightened enforcement scheme that includes increased penalties, and which now apply to business associates as well as to covered entities. In addition to HIPAA, a number of states have adopted laws and/or regulations applicable in the use and disclosure of individually identifiable health information that can be more stringent than comparable provisions under HIPAA.
We believe that our current business operations are fully compliant with applicable standards for privacy and security of protected healthcare information. We cannot predict what negative effect, if any, HIPAA/HITECH or any applicable state law or regulation will have on our business.
Other Regulatory Factors
Political, economic and regulatory influences are fundamentally changing the healthcare industry in the United States. Congress, state legislatures and the private sector continue to review and assess alternative healthcare delivery and payment systems. Based upon newly finalized FDA rules, we believe that our PHZIO platform is exempt from Federal Drug Administration ("FDA") regulation. Yet, in the unlikely event that these rules change in the future, the FDA could then require us to seek 510K approvals for our on-line services that could create delays in provisioning our PHZIO services. (See FDA ruling noted below) Also, potential alternative approaches could include mandated basic healthcare benefits, controls on healthcare spending through limitations on the growth of private health insurance premiums, the creation of large insurance purchasing groups, and price controls. Legislative debate is expected to continue in the future and market forces are expected to demand only modest increases or reduced costs. For instance, managed care entities are demanding lower reimbursement rates from healthcare providers and, in some cases, are requiring or encouraging providers to accept capitated payments that may not allow providers to cover their full costs or realize traditional levels of profitability. We cannot reasonably predict what impact the adoption of any federal or state healthcare reform measures or future private sector reform may have on our business.
FDA Ruling: Examples of Mobile App's which it Intends to Exclude from Regulation
On September 25, 2013, the FDA issued Finalized Guidance of medical mobile applications ("Apps"). The FDA has issued a ruling on Apps that may meet the definition of a medical device, but they have determined that they will not exercise enforcement on these Apps. The Guidance contains an appendix that provides examples of mobile apps that MAY meet the definition of medical device but for which FDA intends to exercise enforcement discretion. These mobile apps may be intended for use in the diagnosis of disease or other conditions, or in the cure, mitigation, treatment, or prevention of disease. Even though these mobile apps may meet the definition of medical device, the FDA intends to exercise enforcement discretion for these mobile apps because they pose lower risk to the public. The FDA understands that there may be other unique and innovative mobile apps that may not be covered in this list that may also constitute healthcare related mobile apps. This list is not exhaustive; it is only intended to provide clarity and assistance in identifying the mobile apps that will not be subject to regulatory requirements at this time. Based on our understanding of the Guidance, although there can be no guarantee, we believe our PHZIO platform will not be subject to regulatory requirements because such services seem to fall within the statutory examples.
Employees
As of December 31, 2016, we had 4 employees and various consultants. We utilize the services of consultants for safety testing, regulatory and legal compliance, and other services.
Transfer Agent
The transfer agent of the Company's stock is VStock Transfer LLC, 18 Lafayette Place, Woodmere, NY 11598, (212) 828-8436.
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Our corporate office is located in Culver City, California. We lease 150 square feet for $500 per month from Evolution Physical Therapy, a company owned by our CEO and we believe that these facilities will be sufficient for the next twelve months. (See "Related Party Transactions" below).
On February 14, 2017, the Registrant was served by a complaint filed by Rodney Schoemann ("Schoemann") in the State of Louisiana. The lawsuit alleges that the Registrant is indebted to Schoemann under a promissory note (the "Schoemann Note") stemming from four loans to the Registrant in the last 20 months amounting to $75,500 in total original principal bearing interest at 12% per annum, of which $45,202 has been repaid. Nevertheless, Schoemann claims in his lawsuit that, as a result of alleged defaults and extensions of the Schoemann Note, the Registrant is now indebted in the amount of $253,677 inclusive of interest and penalties at an effective rate exceeding 70% per annum, far in excess of the maximum rate allowable in California or Louisiana. The Registrant and its counsel have determined that: (i) Schoemann is not a licensed lender in the State of California, where the loan was made and the $75,500 was deposited and therefore was not permitted under California law to make loans in the State; (ii) the interest rate Schoemann is seeking to collect is usurious and therefore interest claimed in the lawsuit is neither collectible nor enforceable. The Registrant and counsel are of the opinion that the Schoemann suit is wholly without merit and the rules of diversity of jurisdiction apply. Furthermore, we believe that the action should be removed from Louisiana state court to the United States Federal District Court in Baton Rouge, LA, where California law should be applied.
Additionally, from time to time, we may become a party to litigation matters involving claims against us. Although we have not received any other notice that any proceeding or enforcement action has been instituted as of the date of this filing, as further explained elsewhere in this filing, the final comment received from the SEC regarding the Form 8-K that we initially filed on May 6, 2014, was that they were terminating their review of that filing because they continued to have concerns about certain of the issues raised, specifically a Rule 419 violation, that they could not resolve and were going to take further steps they deem appropriate. Please refer to the related discussion in Risk Factors "We may be subject to liability for failure to comply with Rule 419 under the Securities Act" and Management's Discussion and Analysis of Financial Condition and Results of Operations, "Contingencies."
Market Information
O ur Common Stock became subject to quotation on the OTCQB Market under the symbol EWLL in 2016, an inter-dealer automated quotation system for equity securities not included on The Nasdaq Stock Market. Quotation of the Company's securities on the OTCQB Market limits the liquidity and price of the Company's Common Stock more than if the Company's shares of Common Stock were listed on The Nasdaq Stock Market or a national exchange. For the periods indicated, the following table sets forth the high and low bid prices per share of Common Stock. The below prices represent inter-dealer quotations without retail markup, markdown, or commission and may not necessarily represent actual transactions.
Price Range | ||||||||
Period | High | Low | ||||||
Year Ended December 31, 2016: | First Quarter | $ | 3.00 | $ | 2.75 | |||
Second Quarter | $ | 4.00 | $ | 1.75 | Third Quarter | $ | 1.75 | $ | 0.03 |
Fourth Quarter | $ | 0.44 | $ | 0.01 | Year Ending December 31, 2017: | |||
First Quarter |
$ | 0.16 | $ | 0.09 |
Second Quarter (through April 7, 2017) |
$ | 0.10 | $ | 0.09 |
The transfer agent of our Common Stock is VStock Transfer LLC, 18 Lafayette Place, Woodmere, NY 11598, (212) 828-8436.
Record Holders. As of April 7, 2017, there were approximately 105 record holders of our Common Stock.
As of March 31, 2017, there are 29,800,645 outstanding options or warrants to purchase, or other instruments convertible into, common equity of the Company.
Dividend Policy. We have neither declared nor paid any cash dividends on either preferred or common stock. For the foreseeable future, we intend to retain any earnings to finance the development and expansion of our business and do not anticipate paying any cash dividends on our preferred or common stock. Any future determination to pay dividends will be at the discretion of the Board of Directors and will be dependent upon then existing conditions, including its financial condition, results of operations, capital requirements, contractual restrictions, business prospects, and other factors that the Board of Directors considers relevant.
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Securities Authorized for Issuance under Equity Compensation Plans. On July 31, 2015, the Board of Directors approved the 2015 Stock Option Plan, pursuant to which certain directors, officers, employees and consultants will be eligible for certain stock options and grants. The Plan is effective as of August 1, 2015 and the maximum number of shares reserved and available for granting awards under the Plan shall be an aggregate of 3,000,000 shares of common stock, provided however that on each January 1, starting with January 1, 2016, an additional number of shares equal to the lesser of (A) 2% of the outstanding number of shares (on a fully-diluted basis) on the immediately preceding December 31 and (B) such lower number of shares as may be determined by the Board or committee charged with administering the plan. This plan may be amended at any time by the Board or appointed plan Committee.
As of the year ended December 31, 2016, the Company granted a total of 20,250,000 stock options at an average exercise price of $0.27.
Issuance of Unregistered Securities During the Last Three Fiscal Years
Sales of Unregistered Securities in 2014:
On April 30, 2014, we issued 9,200,000 shares pursuant to the Share Exchange Agreement.
On May 9, 2014, we issued 400,000 shares pursuant to a consulting agreement valued at $40,000 and 3,000 pursuant to a verbal agreement related to compensation for website services provided to the Company valued at $1,500.
On October 16, 2014, we issued 618,000 shares to two consultants pursuant to consulting agreements valued at $61,800.
On October 16, 2014, we issued 200,000 shares to one of our directors for services valued at $2,000.
On December 23, 2014, we issued $213,337 Series A Senior Convertible Redeemable Notes that are convertible into 609,532 shares of Common Stock and warrants to purchase up to an aggregate of 609,532 shares of our Common Stock.
Sales of Unregistered Securities in 2015:
On January 24, 2015, we extended the term of an outstanding consulting and service agreement, pursuant to which we issued 400,000 shares valued at $40,000 and 400,000 callable Common Stock purchase warrants at a strike price of $0.35 per share.
On February 23, 2015, we entered into a one-year agreement with a consultant in connection with certain corporate finance, investor relations and related business matters and issued 60,000 shares valued at $6,000.
On April 9, 2015, we issued $270,080 Notes (including an aggregate of $123,980 that was converted from certain other outstanding notes, including accrued interest, and future contractual cash consulting fees) that are initially convertible into 771,657 shares of our Common Stock, pursuant to a private financing; we sold that same amount of Series A Senior Convertible Redeemable Notes convertible into shares of the Company's Common Stock, at $0.35 per share and Series A Warrants, all pursuant to separate Securities Purchase Agreements entered into with each investor. The Warrants are exercisable to purchase up to 771,657 shares of Common Stock.
On May 30, 2015, the Company received $25,000 in exchange for a 90-day promissory note at an interest rate of 5% per annum. As an inducement for this promissory note, the Company issued 150,000 warrants to purchase Company Common Stock at $.35 per share.
On May 20, 2015, the Company issued 250,000 warrants to purchase Common Stock at $.35 per share in connection with a financial advisory services agreement.
On May 20, 2015, the Company signed an strategic advisory services agreement pursuant to which the Company issued 250,000 warrants to purchase Common Stock at $.35 per share.
On July 14, 2015, the Company issued 250,000 shares of Common Stock valued at $.35 per share for conversion of $87,500 of convertible debt.
On July 15, 2015, the Company received $18,000 in exchange for a 90-day promissory note at an interest rate of 5% per annum. As an inducement for this promissory note, the Company issued 150,000 warrants to purchase Company Common Stock at $.80 per share.
On August 19, 2015, the Company issuance 96,000 shares valued at $.35 per share for the conversion of $33,600 of convertible debt.
On August 26, 2015, the Company extended the term of the $25,000 promissory note issued on May 30, 2015 that was originally due on August 28 2015 to October 23, 2015. As consideration for the extension the Company agreed to an annual interest rate of 12% retroactive to the original date of the note and issued 150,000 warrants to purchase Company Common Stock at $.80 per share.
On September 10, 2015, the Company authorized the issuance of 663,277 shares valued at $.35 per share for the conversion of $232,147 of convertible debt.
On September 16, 2015, the Company received $2,500 in exchange for a 90-day promissory note at an interest rate of 12% per annum and a risky loan fee of $625. As an inducement for this promissory note, the Company issued 50,000 warrants to purchase Company Common Stock at $.80 per share.
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On September 16, 2015, the Company received $12,500 in exchange for a 90-day promissory note at an interest rate of 12% per annum and a risky loan fee of $3,125. As an inducement for this promissory note, the Company issued 250,000 warrants to purchase Company Common Stock at $.80 per share.
On September 16, 2015, the Company received $22,500 in exchange for a 90-day promissory note at an interest rate of 12% per annum and a risky loan fee of $5,625. As an inducement for this promissory note, the Company issued 450,000 warrants to purchase Company Common Stock at $.80 per share.
On October 1, 2015, the Company authorized the issuance of 50,273 shares of Common Stock for the accrued interest on the debt conversions on July 14, 2015, August 19, 2015, and September 10, 2015. The shares were issued at $.35 per share.
On October 5, 2015, the Company extended the term of an $18,000 promissory note originally issued on May 15, 2015 that was originally due on October 13, 2015 to December 14, 2015; however, as consideration for the extension, the Company agreed to repay the note, plus interest and the Loan Fee (as hereinafter defined), upon receipt of additional financing. Interest on the note accrues at the rate of 12% per annum. Unless paid sooner as previously explained, the Company shall pay $4,500 on the maturity date of the note. As additional inducement for the extension, the Company also agreed to issue the lender five-year warrants to purchase up to 150,000 shares of the Company's Common Stock at $0.80 per share.
On October 11, 2015, the Company extended the term of an $25,000 promissory note issued on July 15, 2015 that was due on October 23, 2015 to December 14, 2015; however, as a consideration for the extension, the Company agreed to repay the note, plus interest and a risk loan fee of $6,250. As additional inducement for the extension, the Company also agreed to issue the lender five-year warrants to purchase up to 150,000 shares of Common Stock at $0.80 per share.
On October 11, 2015, the Company received $10,000 in exchange for a 60-day promissory note at an interest rate of 12% per annum and a risky loan fee of $2,500. As an inducement for the promissory note, the Company issued 200,000 warrants to purchase Company Common Stock at $.80 per share. The note, accrued interest and risky loan fee is due on December 14, 2015.
On November 11, 2015, the Company authorized the issuance of 179,988 shares of Common Stock for the conversion of $57,670 of principal and $5,326 of accrued interest. These shares were issued at $.35 per share.
On December 6, 2015, the Company entered into a 90-day Promissory Note for $70,000 at an interest rate of 12% per annum plus a risky loan fee of $17,500 which is being amortized over the term of the loan. As an inducement the Company issued 1,400,000 warrants to purchase Company Common Stock at $.80 per share. The Company further agreed to repay the loan within three days of the Company receiving $500,000 or more in the current private placement of up to $2,500,000 convertible note with warrants. This Promissory Note resulted from the principal payment to the note holder of $28,222 and the holder cancelling the notes originally signed on May 27, 2015 plus extensions, July 15, 2015 plus extensions, September 16, 2015 and October 11, 2015.
On December 11, 2015, the Company entered into a securities purchase agreement with an accredited investor for (i) a note in the principal amount of $275,000 at a 10% original issue discount , (ii) a warrant to purchase 250,000 shares of the Company's Common Stock with an exercise price of $0.80 per share and (iii) 50,000 shares as an additional fee for a value of $5,000.
Sales of Unregistered Securities in 2016:
On January 20, 2016, the Company authorized the issuance of 50,000 shares for consulting services for a value of $5,000 that is being amortized over twelve months.
On February 29, 2016, the Company authorized the issuance of 227,232 shares for conversion of convertible debt of $69,500 and accrued interest of $10,031.
On March 3, 2016, the Company authorized the issuance of 100,000 shares for consulting services for a value of $10,100 that is being amortized over six months.
On March 11, 2016, the Company authorized the issuance of 150,000 shares for consulting services for a value of $15,000 that is being amortized over twelve months.
On June 2, 2016, the Company sold 120,000 shares of common stock upon receipt of $120,000 cash.
On July 13, 2016, the Company issued 172,958 shares of common stock because of warrants being exercised through a cashless exercise.
On December 14, 2016, the Company issued 90,364 shares of common stock because of warrants being exercised through a cashless exercise.
During the year ended December 31, 2016, the Company issued a total of 31,419,215 shares of common stock because of debt conversion. The total debt conversion was $191,731.
During the year ended December 31, 2016, the Company issued 935,000 shares of common stock for consulting services. The weighted average price of these shares was $1.44. The value of the shares is being amortized over the life of the contracts ranging from six to twelve months.
The securities issued have not been registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.
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The Registrant's issuance of the above restricted securities was in reliance upon the exemption from registration pursuant to Section 4(2) and Regulation S promulgated by the SEC under the Act. Unless stated otherwise: (i) the securities were offered and sold only to accredited investors; (ii) there was no general solicitation or general advertising related to the offerings; (iii) each of the persons who received these unregistered securities had knowledge and experience in financial and business matters which allowed them to evaluate the merits and risk of the receipt of these securities, and that they were knowledgeable about our operations and financial condition; (iv) no underwriter participated in, nor did we pay any commissions or fees to any underwriter in connection with the transactions; and, (v) each certificate issued for these unregistered securities contained a legend stating that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability and the sale of the securities.
Penny Stock Considerations
Our Common Stock will be deemed to be "penny stock" as that term is generally defined in the Securities Exchange Act of 1934 to mean equity securities with a price of less than $5.00. Our shares thus will be subject to rules that impose sales practice and disclosure requirements on broker-dealers who engage in certain transactions involving a penny stock.
Under the penny stock regulations, a broker-dealer selling a penny stock to anyone other than an established customer or accredited investor must make a special suitability determination regarding the purchaser and must receive the purchaser's written consent to the transaction prior to the sale, unless the broker-dealer is otherwise exempt. Generally, an individual with a net worth in excess of $1,000,000 or annual income exceeding $200,000 individually or $300,000 together with his or her spouse is considered an accredited investor. In addition, the broker-dealer is required to:
Deliver, prior to any transaction involving a penny
stock, a disclosure schedule prepared by the SEC relating to the penny stock market,
unless the broker-dealer or the transaction is otherwise exempt;
Disclose commissions payable to the broker-dealer and our registered representatives and
current bid and offer quotations for the securities;
Send monthly statements disclosing recent price information pertaining to the penny
stock held in a customer's account, the account's value and information regarding the
limited market in penny stocks; and
Make a special written determination that the penny stock is a suitable investment for
the purchaser and receive the purchaser's written agreement to the transaction, prior to
conducting any penny stock transaction in the customer's account.
Because of these regulations, broker-dealers may encounter difficulties in their attempt to buy or sell shares of our Common Stock, which may affect the ability of Selling Shareholders or other holders to sell their shares in the secondary market and have the effect of reducing the level of trading activity in the secondary market. These additional sales practice and disclosure requirements could impede the sale of our Common Stock even if our Common Stock becomes publicly traded. In addition, the liquidity for our Common Stock may be decreased, with a corresponding decrease in the price of our Common Stock. Our shares are likely to be subject to such penny stock rules for the foreseeable future.
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Page 46
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors
We
have audited the accompanying balance sheets of eWellness Healthcare Corporation as of December 31, 2016 and 2015, and the related
statements of operations, stockholders' deficit, and cash flows for the years then ended. eWellness Healthcare Corporation's
management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements
based on our audits.
We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control
over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing
audit procedures that are appropriate in the circumstances, 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. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In
our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of eWellness
Healthcare Corporation as of December 31, 2016 and 2015, 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.
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 a working capital deficit, a deficit in stockholders' equity and
has sustained recurring losses from operations. This raises substantial doubt about the Company's ability to continue as
a going concern. Management's plans with regard to these matters are also described in Note 2. The financial statements
do not include any adjustments that might result from the outcome of this uncertainty.
Haynie
& Company
Salt
Lake City, Utah
March
31, 2017
eWELLNESS
HEALTHCARE CORPORATION
The
accompanying notes are an integral part of these financial statements
eWELLNESS
HEALTHCARE CORPORATION
The
accompanying notes are an integral part of these financial statements
eWELLNESS
HEALTHCARE CORPORATION
STATEMENT
OF STOCKHOLDERS' DEFICIT
The
accompanying notes are an integral part of these financial statements
eWELLNESS
HEALTHCARE CORPORATION
The
accompanying notes are an integral part of these financial statements
eWELLNESS
HEALTHCARE CORPORATION
Note
1. The Company
The
Company and Nature of Business
eWellness
Healthcare Corporation (f/k/a Dignyte, Inc.), (the "Company", "we", "us", "our")
was incorporated in the State of Nevada on April 7, 2011, to engage in any lawful corporate undertaking, including, but not limited
to, selected mergers and acquisitions. The Company has generated no revenues to date. Prior to the Share Exchange Agreement discussed
below, other than issuing shares to its original shareholder, the Company never commenced any operational activities.
The
eWellness strategy as a first-to-market enterprise in the Physical Therapy based telemedicine industry is to deliver a telemedicine
physical therapy service augmenting corporate wellness programs and expand nationally through a Software as a Service (SaaS) business
model that enables existing physical therapy practices to extend their offerings via our telemedicine solution. Our objective
is to provide Distance Monitored Physical Therapy (PHZIO) Programs to pre-diabetic, cardiac and health challenged patients and
knee and hip surgery rehabilitation. For corporate wellness program our services are designed to deliver significant healthcare
savings to the company while charging a very small relative incremental cost.
Note
2. Summary of Significant Accounting Policies
Basis
of Presentation
The
accompanying financial statements have been prepared to reflect the financial position, results of operations and cash flows of
the Company and have been prepared in accordance with accounting principles generally accepted in the United States of America
("GAAP").
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of
the financial statements and reported amounts of revenue and expenses during the reporting period. Actual results could differ
materially from these good faith estimates and judgments.
Going
Concern
For
the year ended December 31, 2016, the Company had no revenues. The Company has an accumulated loss of $15,916,881. In view of
these matters, there is substantial doubt about the Company's ability to continue as a going concern. The Company's
ability to continue operations is dependent upon the Company's ability to raise additional capital and to ultimately achieve
sustainable revenues and profitable operations, of which there can be no guarantee. The Company intends to finance its future
development activities and its working capital needs largely from the sale of public equity securities with some additional funding
from other traditional financing sources, including term notes, until such time that funds provided by operations are sufficient
to fund working capital requirements. The financial statements of the Company do not include any adjustments relating to the recoverability
and classification of recorded assets, or the amounts and classifications of liabilities that might be necessary should the Company
be unable to continue as a going concern.
Fair
Value of Financial Instruments
The
Company complies with the accounting guidance under Financial Accounting Standards Board ("FASB") Accounting Standards
Codification ("ASC") 820-10,
Fair Value Measurements,
as well as certain related FASB staff positions. This
guidance defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities
required to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact
business and considers assumptions that marketplace participants would use when pricing the asset or liability, such as inherent
risk, transfer restrictions, and risk of nonperformance.
The
guidance also establishes a fair value hierarchy for measurements of fair value as follows:
Level
1 – quoted market prices in active markets for identical assets or liabilities.
Level
2 – inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets
for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active,
or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets
or liabilities.
Level
3 – unobservable inputs that are supported by little or no market activity and that are significant to the fair value of
the assets or liabilities.
As
of December 31, 2016, the Company had the following assets and liabilities measured at fair value on a recurring basis.
Property
and Equipment
Property
and equipment are recorded at historical cost. Minor additions and renewals are expensed in the year incurred. Major additions
and renewals are capitalized and depreciated over their estimated useful lives. Depreciation is recorded over the estimated useful
lives of the related assets using the straight-line method for financial statement purposes. The estimated useful lives for significant
property and equipment categories are as follows:
The
Company regularly evaluates whether events or circumstances have occurred that indicate the carrying value of long-lived assets
may not be recoverable. If factors indicate the asset may not be recoverable, we compare the related undiscounted future net cash
flows to the carrying value of the asset to determine if impairment exists. If the expected future net cash flows are less than
the carrying value, an impairment charge is recognized based on the fair value of the asset. For the years ended December 31,
2016 and 2015, there was no impairment recognized.
Intangible
Assets
The
Company accounts for assets that are not physical in nature as intangible assets. Intangible assets have either an identifiable
or indefinite useful life. Intangible assets with identifiable useful lives are amortized on a straight-line basis over their
economic or legal life, whichever is shorter. Intangible assets with indefinite useful lives are reassessed each year for impairment.
If an impairment has occurred, then a loss is recognized. An impairment loss is determined by subtracting the asset's fair
value from the asset's book/carrying value.
Income
Taxes
The
Company accounts for income taxes under FASB ASC 740-10-30. Deferred income tax assets and liabilities are determined based upon
differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates
and laws that will be in effect when the differences are expected to reverse. Accounting standards require the consideration of
a valuation allowance for deferred tax assets if it is "more likely than not" that some component or all the benefits
of deferred tax assets will not be realized.
Debt
Issuance Costs
In
April 2015, the Financial Accounting Standards Board (the "FASB)") issued Accounting Standards Update ("ASU")
No. 2015-03,
Interest – Imputation of Interest (Subtopic 835-30)
("ASU 2015-03"). ASU-2015-03 requires
that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability,
consistent with debt discounts. As a result of this new guidance, beginning in 2015 (early adoption), direct and incremental costs
associated with the issuance of debt instruments such as legal fees, printing costs, and underwriters' fees, among others,
paid to parties other than creditors, are reported and presented as a reduction of debt on the consolidated balance sheets.
Debt
issuance costs and premiums or discounts are amortized over the term of the respective financing arrangement using the effective
interest method. Amortization of these amounts is included as a component of interest expense net, in the consolidated statements
of operations.
Cash
and Cash Equivalents
Cash
and cash equivalents includes all cash deposits and highly liquid financial instruments with an original maturity to the Company
of three months or less.
Revenue
Recognition
The
Company has yet to realize revenues from operations. Once the Company has commenced operations, it will recognize revenues when
delivery of goods or completion of services has occurred provided there is persuasive evidence of an agreement, acceptance has
been approved by its customers, the fee is fixed or determinable based on the completion of stated terms and conditions, and collection
of any related receivable is probable.
Loss
per Common Share
The
Company follows ASC Topic 260 to account for the loss per share. Basic loss per common share calculations are determined by dividing
net loss by the weighted average number of shares of common stock outstanding during the period. Diluted loss per common share
calculations are determined by dividing net loss by the weighted average number of common shares and dilutive common share equivalents
outstanding. During periods when common stock equivalents, if any, are anti-dilutive they are not considered in the computation.
As the Company has incurred losses for the period ended December 31, 2016, no dilutive shares are added into the loss per share
calculations. While currently antidilutive, the following instruments could potentially dilute EPS in the future resulting
in the following common stock equivalents.
Recent
Accounting Pronouncements
The
Company has reviewed all recently issued, but not yet adopted, accounting standards in order to determine their effects, if any,
on its results of operations, financial position or cash flows. Based on that review, the Company believes that none of these
pronouncements will have a significant effect on its financial statements.
Note
3. Property and Equipment
Property
and equipment consists of computer equipment that is stated at cost $8,421 and $4,214 less accumulated depreciation of $4,142
and $2,457 for the years ended December 31, 2016 and 2015, respectively. Depreciation expense was $1,685 and $1,474
for the years ended December 31, 2016 and 2015, respectively.
Note
4. Intangible Assets
The
Company recognizes the cost of a software license and a license for use of a programming code as intangible assets. The stated
cost of these assets was $24,770 and $24,770 less accumulated amortization of $7,862 and $4,908 for the years ended December 31,
2016 and 2015, respectively. For the years ended December 31, 2016 and 2015, the amortization expense recorded was $2,954 and
$2,954, respectively.
Note
5. Income Taxes
Deferred
taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating
loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences
are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced
by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all the deferred
tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates
on the date of enactment.
Net
deferred tax liabilities consist of the following components as of December 31, 2016 and 2015:
The
income tax provision differs from the amount of income tax determined by applying the U.S. federal income tax rate to pretax income
from continuing operations for the years ended December 31, 2016 and 2015 due to the following:
At
December 31, 2016, the Company had net operating loss carryforwards of approximately $4,259,000 that may be offset against
future taxable income from the year 2017 through 2036. No tax benefit has been reported in the December 31, 2016 financial statements
since the potential tax benefit is offset by a valuation allowance of the same amount.
Due
to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carryforwards for federal income tax reporting
purposes are subject to annual limitations. Should a change in ownership occur, net operating loss carryforwards may be limited
as to use in future years.
The
Company's policy is to recognize potential interest and penalties accrued related to unrecognized tax benefits within income
tax expense. For the years ended December 31, 2016 and 2015, the Company did not recognize any interest or penalties, nor did
we have any interest or penalties accrued as of December 31, 2016 and 2015 related to unrecognized benefits.
The
tax years ended December 31, 2015, 2014, and 2013 are open for examination for federal income tax purposes
and by other major taxing jurisdictions to which we are subject.
Note
6. Related Party Transactions
Through
the year ended December 31, 2016, a related party, a company for which the Company's former Secretary-Treasurer and CFO
is also serving as CFO, has paid $91,271 on the Company's behalf for various operating expenses. The amounts outstanding
as of December 31, 2016 and December 31, 2015 were $10,481 and $43,717, respectively. During the year ended December 31, 2016,
the Company recorded $4,156 imputed interest on the amount owed to the related party based on an interest rate of 8%.
On
April 1, 2015, the Company entered into an operating agreement with a physical therapy company ("EPT") which is owned
by the Company's President and Chief Executive Officer. Through the agreement, the Company agrees to provide operating capital
advances for EPT to offer the Company's PHIZIO platform to physical therapy patients. For accounting and tax purposes, the
net profits or losses generated by EPT shall be allocated on a monthly basis. The Company will receive 75% of the net patient
insurance reimbursements associated with the operation of the PHIZIO platform.
On
November 11, 2016, the Company signed an agreement with a programming company ("PC") within which the one of the Company's
directors and Chief Technical Officer is the Chief Marketing Officer. The agreement is for additional features to be programmed
for the launch of the PHIZIO platform. The contract specifies that the Company's CEO and CTO will retain their officer and
director positions and retain their past due accrued compensation through June 30, 2016. The Company is to pay a monthly base
fee of $100,000 for the development and compensation for the Company's CEO and CTO. Following payment of the initial $100,000,
the Company is obligated to only pay $50,000 monthly until the PC has successfully signed and collected the first monthly service
fee for 100 physical therapy clinics to use the PHIZIO platform. The agreement establishes that the Company is indebted to the
PC for $225,000 for past programming services. For this amount, the PC will be issued 25,280,899 common shares at a cost value
of $0.0089. These shares will be issued in 2017 when the increase of authorized shares is completed. The PC will also have the
right to appoint 40% of the directors. At the end of December 31, 2016, the Company had a payable of $285,000 due to this company.
The
Company rents its Culver City, CA office space from a company owned by our CEO. The imputed rent expense of $500 per month is
recorded in the Statement of Operations and Additional Paid in Capital in the Balance Sheet.
Throughout
the year ended December 31, 2016, the officers and directors of the Company incur business expenses on behalf of the Company.
The amounts payable to the officers as of the years ended December 31, 2016 and 2015 were $44,429 and $33,089, respectively.
There were no expenses due to the board members but the Company has accrued directors' fees of $60,000 and $0 at the
years ended December 31, 2016 and 2015, respectively. Because the Company is not yet profitable the officers have agreed to defer
compensation. The Company had accrued executive compensation of $940,000 and $677,000 for the years ended December 31, 2016 and
2015, respectively.
Note
7. Non-Convertible Notes Payable
On
March 14, 2016, the Company issued a 45-day promissory note to a shareholder of $112,550 as an extension for notes with a shareholder
dated May 30, 2015, July 15, 2015, September 16, 2015, October 11, 2015, and December 6, 2015. The amount of the note includes
interest accrued on the previous notes, risky loan fee and a default fee. The note has an annual interest rate of 12% due and
payable on May 1, 2016. As an inducement for this promissory note, the Company issued 400,000 warrants to purchase Company common
stock at $.80 per share. The fair value of the warrants is $794. For the period ended December 31, 2016, the Company recorded
$1,801 of interest expense for this note.
On
May 2, 2016, the Company issued a 40-day promissory note to a shareholder of $131,399 as an extension for notes with a shareholder
dated May 30, 2015, July 15, 2015, September 16, 2015, October 11, 2015, December 6, 2015 and March 14, 2016. The amount of the
note includes interest accrued on the previous notes, risky loan fee and a default fee. The note has an annual interest rate of
12% due and payable on June 10, 2016. As an inducement for this promissory note, the Company issued 400,000 warrants to purchase
Company common stock at $.80 per share. The fair value of the warrants is $1,251,078. For the period ended December 31,
2016, the Company recorded $1,708 of interest expense for this note.
On
June 11, 2016, the Company issued a 30-day promissory note to a shareholder of $152,989 as an extension for notes with a shareholder
dated May 30, 2015, July 15, 2015, September 16, 2015, October 11, 2015, December 6, 2015, March 14, 2016 and May 2, 2016. The
amount of the note includes interest accrued on the previous notes, risky loan fee and a default fee. The note has an annual interest
rate of 12% due and payable on July 13, 2016. As an inducement for this promissory note, the Company issued 400,000 warrants to
purchase Company common stock at $.80 per share. The fair value of the warrants is $587,780. For the period ended December
31, 2016, the Company recorded $1,632 of interest expense for this note.
On
July 14, 2016, the Company issued a 30-day promissory note to a shareholder of $177,762 as an extension for notes with a shareholder
dated May 30, 2015, July 15, 2015, September 16, 2015, October 11, 2015, December 6, 2015, March 14, 2016, May 2, 2016, and June
11, 2016. The amount of the note includes interest accrued on the previous notes, risky loan fee and a default fee. The note has
an annual interest rate of 12% due and payable on August 15, 2016. As an inducement for this promissory note, the Company issued
300,000 warrants to purchase Company common stock at $.50 per share. The fair value of the warrants is $153,776. For the period
ended December 31, 2016, the Company recorded $2,844 of interest expense for this note.
On
August 16, 2016, the Company issued a 30-day promissory note to a shareholder of $213,255 as an extension for notes with a shareholder
dated May 30, 2015, July 15, 2015, September 16, 2015, October 11, 2015, December 6, 2015, March 14, 2016, May 2, 2016, June 11,
2016 and July 14, 2016. The amount of the note includes interest accrued on the previous notes, risky loan fee and a default fee.
The note has an annual interest rate of 18% due and payable on November 14, 2016. As an inducement for this promissory note, the
Company issued 675,000 warrants to purchase Company common stock at $.50 per share. The fair value of the warrants is $42,427.
During the period ended December 31, 2016, the Company recorded $9,596 of interest expense for this note. During the year
ended December 31, 2016, the Company paid $33,204 as a principal payment on this promissory note.
On
November 14, 2016, the Company made a partial principal payment of $33,204 on the promissory note dated August 16, 2016 that expired
on November 14, 2016. As of November 15, 2016, the Company is in default for the remaining balance of $180,051. On February
14, 2017, the Company was served by a complaint filed by Rodney Schoemann ("Schoemann") in the State of Louisiana.
The lawsuit alleges that the Company is indebted to Schoemann under a promissory note (the
"Schoemann Note") stemming
from four loans to the Company in the last 20 months amounting to $75,500 in total original principal bearing interest at 12%
per annum, of which $45,202 has been repaid. Nevertheless, Schoemann claims in his lawsuit that, as a result of alleged defaults
and extensions of the Schoemann Note, the Company is now indebted in the amount of $253,677 inclusive of interest and penalties
at an effective rate exceeding 70% per annum, far in excess of the maximum rate allowable in California or Louisiana. The Company
and its counsel have determined that: (i) Schoemann is not a licensed lender in the State of California, where the loan was made
and the $75,500 was deposited and therefore was not permitted under California law to make loans in the State; (ii) the interest
rate Schoemann is seeking to collect is usurious and therefore interest claimed in the lawsuit is neither collectible nor enforceable.
The Company and counsel are of the opinion that the Schoemann suit is wholly without merit and the rules of diversity of jurisdiction
apply. Furthermore, we believe that the action should be removed from Louisiana state court to the United States Federal District
Court in Baton Rouge, LA, where California law should be applied.
Note
8. Convertible Notes Payable
During
the year ended December 31, 2016, a holder of a note dated December 7, 2015, converted $172,931 of principal into, and
the Company issued, 28,779,215 shares of common stock. Following these conversions, the remaining amount of the note of $112,069
and accrued interest of $12,931 was purchased by an accredited investor for $125,000. (Described below as the note issued on November
14, 2016). At the year ended December 31, 2016, this note was cancelled.
On
February 29, 2016, a holder of a note dated December 23, 2014, converted into, and the Company issued, 227,232 shares of common
stock. The Company has accrued $10,031 in interest expense during the year ended December 31, 2016.
On
November 14, 2016, the Company signed a convertible note in which the note holder agreed to pay for the cancellation of $125,000
of the remaining balance of the convertible note payable dated December 7, 2015. The Company recorded $125,000 in debt
discount for this note. The terms of the convertible note will be the same as the original note which are that interest is payable
at 8% per annum. During the year ended December 31, 2016, the Company recorded $1,306 of interest expense. During the month of
December 2016, the holder of the note converted $18,800 to 4,700,000 shares of common stock. The number of shares issued
before the end of the year was 2,640,000. The value of the remaining unissued shares was recorded in the account Shares to be
Issued.
On
November 14, 2016, the Company entered into a securities purchase agreement with an accredited investor for a note in the principal
amount of $275,000 at a 10% original issue. The note has a provision for 8% interest to be accrued until paid or converted into
shares of common stock. During the year ended December 31, 2016, the Company recorded $2,872 of interest expense.
Note
9. Equity Transactions
The
Company filed a Certificate of Amendment to its Articles of Incorporation with the State of Nevada for the purposes of: (A) increasing
its authorized capital stock from 110,000,000 shares of capital stock, par value $0.001, consisting of: (i) 100,000,000 shares
of common stock, par value $0.001; and (ii) 10,000,000 shares of preferred stock, par value $0.001, to 420,000,000 shares of capital
stock, par value $0.001, consisting of: (iii) 400,000,000 shares of common stock, par value $0.001; and (iv) 20,000,000 shares
of preferred stock, par value $0.001.
Preferred
Stock
With
the Certificate of Amendment filed, noted above, the total
number of shares of preferred stock which the Company shall have authority to issue is 20,000,000 shares with a par value
of $0.001 per share. There have been no preferred shares issued as of December 31, 2016.
Common
Stock
With
the Certificate of Amendment filed, noted above, the total
number of shares of common stock which the Company shall have authority to issue is 400,000,000 shares with a par value
of $0.001 per share.
Holders
of shares of common stock are entitled to cast one vote for each share held at all stockholders' meetings for all purposes
including the election of directors. The common stock does not have cumulative voting rights.
No
holder of shares of stock of any class is entitled as a matter of right to subscribe for or purchase or receive any part of any
new or additional issue of shares of stock of any class or of securities convertible into shares of stock of any class, whether
now hereafter authorized or whether issued for money, for consideration other than money, or by way of dividend.
On
June 2, 2016, the Company sold 120,000 shares of common stock upon receipt of $120,000 cash. With this stock purchase agreement,
the Company authorized the issuance of 60,000 warrants at an exercise price of $1.50 per share.
On
various dates from August 31, 2016 to November 14, 2016, the Company issued a total of 28,779,215 shares of common stock per debt
conversion of the convertible note dated December 7, 2015. The total value of the debt conversion was $172,931. The shares were
issued at an average price of $.006 per share.
On
December 1, 2016, the Company agreed to convert $120,000 of accounts payable for two vendors into common stock at $.50 per share
for a total of 2,400,000 shares. With this agreement, the Company also issued 1,200,000 warrants with an exercise price of $1.00
per share. The fair value of these warrants is $576. The 1,400,000 shares of common stock were issued in the first quarter of
2017. The remaining 1,000,000 will be issued in the second quarter of 2017.
During
the month of December 2016, the Company issued a total of 2,640,000 shares of common stock per debt conversion of the convertible
note dated November 14, 2016. The total of the debt conversion was $18,400. At the year ended December 31, 2016, there are 2,060,000
of additional shares of common stock yet to be issued per the debt conversion documents.
During
the year ended December 31, 2016, the Company authorized the issuance of 29,006,447 shares of common stock for the conversion
of convertible debt of $242,431 and accrued interest of $10,031.
During
the year ended December 31, 2016, the Company issued 985,000 shares of common stock for consulting services. The weighted average
price of these shares was $1.44 The value of the shares is being amortized over the life of the contracts ranging from six to
twelve months.
During
the year ended December 31, 2016, the Company issued 263,322 shares of common stock for the cashless exercise of warrants issued
with convertible notes dated December 7, 2015.
As
of the period ended December 31, 2016, the Company has 51,435,307 shares of common stock issued and outstanding.
On
February 22, 2016, the Company received the common stock trading symbol of EWLL.
Warrants
On
June 10, 2016, the Company authorized the issuance of 100,000 warrants that were issued as part of the extension of a convertible
note dated December 7, 2015. These warrants were exercised as a cashless exercise on December 31, 2016 and 90,364 shares
of common stock.
On
July 12, 2016, the Company authorized the issuance of 300,000 warrants to be issued as part of the extension of a convertible
note dated December 7, 2015. The fair value of the warrants is $79,677.
On
July 13, 2016, the 250,000 warrants issued as part of the convertible note dated December 7, 2015 were exercised as a cashless
exercise for the issuance of 172,958 shares of common stock.
During
the year ended December 31, 2016, the Company issued a total of 2,175,000 warrants to induce the extension of non-convertible
notes payable. These warrants had various exercise prices and issue dates. These warrants along with previously issued warrants
to this debt holder were amended and the exercise prices were reduced to $.004 per share. As a result of these amendments the
Company recognized a derivative liability of $1,064,620 at December 31, 2016.
The
following is a summary of the status of the Company's warrants as of December 31, 2016 and changes on that end date:
For
purpose of determining the fair market value of the warrants and options issued during the year ended December 31, 2016, we used
the Black Scholes option valuation model. These valuations were done throughout the period at the date of issuance and not necessarily
as of the reporting date. The significant assumptions used in the Black Scholes valuation of the date of issuance are as follows:
Stock
Option Plan
On
August 6, 2015, the Board of Directors approved the 2015 Stock Option Plan, pursuant to which certain directors, officers, employees
and consultants will be eligible for certain stock options and grants. The Plan is effective as of August 1, 2015 and the maximum
number of shares reserved and available for granting awards under the Plan shall be an aggregate of 3,000,000 shares of common
stock, provided however that on each January 1, starting with January 1, 2016, an additional number of shares equal to the lesser
of (A) 2% of the outstanding number of shares (on a fully-diluted basis) on the immediately preceding December 31 and (B) such
lower number of shares as may be determined by the Board or committee charged with administering the plan. This plan may be amended
at any time by the Board or appointed plan Committee.
On
February 19, 2016, the Board of Directors authorized the issuance of 2,850,000 stock options under this plan to selected employees,
directors and consultants. The stock options vest immediately upon the grant date and authorize the recipient to purchase shares
of common stock at $.80 per share within five years of the grant date. The Company valued the issuance of these options using
the Black Scholes valuation model assuming a .84% risk free rate and 61.4% volatility. At the year ended December 31, 2016, the
vested value of the options was $4,633. This was recorded as stock option compensation expense.
On
April 15, 2016, the Board of Directors authorized the issuance of stock options under this plan to a consultant. The 250,000 stock
options vested immediately upon the grant date and authorized the recipient to purchase shares of common stock at $1.00 per share
within five years of the grant date. The Company valued the issuance of these options using the Black Scholes valuation model
assuming a .53% risk free rate and 57.2% volatility. At the year ended December 31, 2016, the vested value of $503,762 was expensed
as stock option expense.
On
December 9, 2016, the Board of Directors authorized the issuance of stock options under this plan to selected employees, directors
and consultants. The 19,150,000 stock options vested immediately upon the grant date and authorized the recipient to purchase
shares of common stock at $.17 per share within five years of the grant date. The Company valued the issuance of these options
using the Black Scholes valuation model assuming a .53% risk free rate and 57.2% volatility. At the year ended December 31, 2016,
the vested value of $40,829 was expensed as stock option compensation expense.
The
following is a summary of the status of all Company's stock options as of December 31, 2016 and changes during the period
end date:
Note
10. Commitments, Contingencies
The
Company may be subject to lawsuits, administrative proceedings, regulatory reviews or investigations associated with its business
and other matters arising in the normal conduct of its business. The following is a description of an uncertainty that is considered
other than ordinary, routine and incidental to the business.
The
closing of the Initial Exchange Agreement dated May 2014 was conditioned upon certain, limited customary representations
and warranties, as well as, among other things, our compliance with Rule 419 ("Rule 419") of Regulation C under the
Securities Act of 1933, as amended (the "Securities Act") and the consent of our shareholders as required under Rule
419. Accordingly, we conducted a "Blank Check" offering subject to Rule 419 (the
"Rule 419 Offering")
and filed a Registration Statement on Form S-1 to register the shares of such offering; the Registration Statement was declared
effective on September 14, 2012. We used 10% of the subscription proceeds as permitted under Rule 419 and the amount remaining
in the escrow trust as of the date of the closing of the Share Exchange was $90,000 (the
"Trust Account Balance").
Rule
419 required that the Share Exchange occur on or before March 18, 2014, but due to normal negotiations regarding the transactions
and the parties' efforts to satisfy all of the closing conditions, the Share Exchange did not close on such date. Accordingly,
after numerous discussions with management of both parties, they entered into an Amended and Restated Share Exchange Agreement
(the "Share Exchange Agreement") to reflect a revised business combination structure, pursuant to which we would:
(i) file a registration statement on Form 8-A ("Form 8A") to register our common stock pursuant to Section 12(g) of
the Exchange Act, which we did on May 1, 2014 and (ii) seek to convert the participants of the Rule 419 Offering into participants
of a similarly termed private offering (the "Converted Offering"), to be conducted pursuant to Regulation D, as promulgated
under the Securities Act.
Fifty-two
persons participated in the Rule 419 Offering and each of them gave the Company his/her/its consent to use his/her/its escrowed
funds to purchase shares of the Company's restricted common stock in the Converted Offering (the
"Consent")
rather than have their funds returned. To avoid further administrative work for the investors, we believe that we took reasonable
steps to inform investors of the situation and provided them with an appropriate opportunity to maintain their investment in the
Company, if they so choose, or have their funds physically returned. Management believed the steps it took constituted a constructive
return of the funds and therefore met the requirements of Rule 419.
However,
pursuant to Rule 419(e)(2)(iv), "funds held in the escrow or trust account shall be returned by first class mail or equally
prompt means to the purchaser within five business days [if the related acquisition transaction does not occur by a date that
is 18 months after the effective date of the related registration statement]." As set forth above, rather than physically
return the funds, we sought consent from the investors of the Rule 419 Offering to direct their escrowed funds to the Company
to instead purchase shares in the Converted Offering. The consent document (which was essentially a form of rescission) was given
to the investors along with a private placement memorandum describing the Converted Offering and stated that any investor who
elected not to participate in the Converted Offering would get 90% of their funds physically returned. Pursuant to Rule 419(b)(2)(vi),
a blank check company is entitled to use 10% of the proceed/escrowed funds; therefore, if a return of funds is required, only
90% of the proceed/escrowed funds need be returned. The Company received $100,000 proceeds and used $10,000 as per Rule 419(b)(2)(vi);
therefore, only $90,000 was subject to possible return.
As
disclosed therein, we filed the amendments to the initial Form 8-K in response to comments from the SEC regarding the Form 8-K
and many of those comments pertain to an alleged violation of Rule 419. The Company continued to provide the SEC with information
and analysis as to why it believes it did not violate Rule 419, but was unable to satisfy the SEC's concerns. Comments and
communications indicate that Rule 419 requires a physical return of funds if a 419 offering cannot be completed because a business
combination was not consummated within the required time frame; constructive return is not permitted.
Because
of these communications and past comments, we are disclosing that we did not comply with the requirements of Rule 419, which required
us to physically return the funds previously submitted to escrow pursuant to the Rule 419 Offering. Because of our failure to
comply with Rule 419, the SEC may bring an enforcement action or commence litigation against us for failure to strictly comply
with Rule 419. If any claims or actions were to be brought against us relating to our lack of compliance with Rule 419, we could
be subject to penalties (including criminal penalties), required to pay fines, make damages payments or settlement payments. In
addition, any claims or actions could force us to expend significant financial resources to defend ourselves, could divert the
attention of our management from our core business and could harm our reputation.
Ultimately,
the SEC determined to terminate its review of the Initial Form 8-K and related amendments, rather than provide us with additional
opportunities to address their concerns and therefore, we did not clear their comments. It is not possible now to predict whether
or when the SEC may initiate any proceedings, when this issue may be resolved or what, if any, penalties or other remedies may
be imposed, and whether any such penalties or remedies would have a material adverse effect on our financial position, results
of operations, or cash flows. Litigation and enforcement actions are inherently unpredictable, the outcome of any potential lawsuit
or action is subject to significant uncertainties and, therefore, determining now the likelihood of a loss, any SEC enforcement
action and/or the measurement of the amount of any loss is complex. Consequently, we are unable to estimate the range of reasonably
possible loss. Our assessment is based on an estimate and assumption that has been deemed reasonable by management, but the assessment
process relies heavily on an estimate and assumption that may prove to be incomplete or inaccurate, and unanticipated events and
circumstances may occur that might cause us to change that estimate and assumption. Considering the uncertainty of this issue
and while Management evaluates the best and most appropriate way to resolve same, management determined to create a reserve on
the Company's Balance Sheet for the $90,000 that was subject to the Consent.
The
Company rents its Culver City, CA office space from a company owned by our CEO. The rental agreement provides for the value of
the rent of $500 per month be recorded as contributed towards the founding eWellness and its operations. During the year ended
December 31, 2016, we have recorded this rent payment in the Statements of Operations and Additional Paid in Capital on the Balance
Sheet.
On
April 1, 2015, the Company entered into an Operating Agreement with Evolution Physical Therapy ("EPT"), a company
owned by one of the Company's officers, wherein it is agreed that EPT would be able to operate the Company's telemedicine
platform
www.phzio.com
and offer it to selected physical therapy patients of EPT. The Company is to receive 75% of the
net insurance reimbursements from the patient for use of the platform. The Company will advance capital requested by EPT for costs
specifically associated with operating the
www.phzio,com
platform and associated physical therapy treatments – computer
equipment, office or facilities rental payments, physical therapist or physical therapy assistant, administrative staff, patient
induction equipment, office supplies, utilities and other associated operating costs. It is anticipated that the operation of
the platform by EPT will generate positive cash flow within 90 days from the start of patient induction.
On
May 20, 2015, the Company entered into an agreement with Mavericks Capital Securities LLC ("Mavericks"). The term
of the contract begins on the effective date and can be terminated within 30 days upon written notice by either party. The Company
is to pay Mavericks a monthly retainer fee of $10,000 that is deferred until the Company raises $250,000 in new investor funds
from the effective date. In addition, the Company granted Mavericks 250,000 warrants to purchase Company common stock at $.35
per share. On September 28, 2015, the Company and Mavericks entered into an amendment to the consultant agreement pursuant to
which Mavericks will also assist the Company in the acquisition of new customers, for which the Company shall pay Mavericks 10%
of the revenue received by the Company, net of any pass-through costs, from any such customers introduced to the Company by Mavericks;
payment shall be made upon the Company's receipt of such revenues. In the amendment, the parties also further clarified
the definition of Customer Acquisition.
On
January 20, 2016, the Company entered into a one year agreement with a consulting firm to provide marketing and financial media
awareness services. Compensation for this agreement is the issuance of 100,000 shares of common stock – 50,000 were issued
at the signing of the agreement and the other 50,000 are to be issued in July 2016. The agreement was terminated and the additional
shares were not issued. The value of these shares is $5,000 for each issuance which is being amortized over the term of the
contract.
On
March 14, 2016, the Company authorized a 45-day Promissory Note Extension at an interest rate of 12% per annum. As an inducement
for this extension of previous promissory notes, the Company issued 400,000 warrants to purchase Company common stock at $.80
per share. The fair value of the warrants is $794. For the year ended December 31, 2016, the Company recorded $1,801 of
accrued interest for this note.
On
April 13, 2016, we entered into a one-year renewable advisory agreement with Dan Mills, MPT to become the Company's chairman
of the to-be-formed committee known as the eWellness Physical Therapy Clinical Advisory Board and to act as the Company's
national spokesperson at the American Physical Therapy Association ("APTA").
As
inducement for Mr. Mills to enter the Agreement, we agreed to issue 250,000 immediately vesting common stock purchase warrants
at a price of $1.00 per share. The fair value of the warrants is $503,762. The common stock underlying the warrants has piggy-back
registration rights. In addition, 10,000 shares of common stock were issued with a value of $30,000. Per the agreement, Mr. Mills
will receive $0.50 cents per PHZIO session that an APTA member uses and $500 per month in consulting fees.
On
May 2, 2016, the Company issued a 40-day promissory note to a shareholder of $131,399 as an extension for notes with a shareholder
dated May 30, 2015, July 15, 2015, September 16, 2015, October 11, 2015, December 6, 2015 and March 14, 2016. The amount of the
note includes interest accrued on the previous notes, risky loan fee and a default fee. The note has an annual interest rate of
12% due and payable on June 10, 2016. As an inducement for this promissory note, the Company issued 400,000 warrants to purchase
Company common stock at $.80 per share. The fair value of the warrants is $1,251,078. For the year ended December 31, 2016, the
Company recorded $1,708 of interest expense for this note.
On
May 23, 2016, the Company entered into a one-year agreement with a financial advisory consultant. Compensation for this agreement
is the issuance of 450,000 shares of common stock that vest on January 2, 2017. The value of these shares is $1,669,500 and is
being amortized over the term of the contact.
On
June 11, 2016, the Company issued a 30-day promissory note to a shareholder of $152,989 as an extension for notes with a shareholder
dated May 30, 2015, July 15, 2015, September 16, 2015, October 11, 2015, December 6, 2015, March 14, 2016 and May 2, 2016. The
amount of the note includes interest accrued on the previous notes, risky loan fee and a default fee. The note has an annual interest
rate of 12% due and payable on July13, 2016. As an inducement for this promissory note, the Company issued 400,000 warrants to
purchase Company common stock at $.80 per share. The fair value of the warrants is $578,780. For the year ended December 31, 2016,
the Company recorded $1,632 of interest expense for this note.
On
July 5, 2016, the Company entered into a six-month agreement with an investment and business consultant for certain investment
and business matters. Compensation for this agreement was the issuance of 125,000 shares of common stock which have been issued
at the value of $218,750. This was amortized over the life of the contract.
On
July 8, 2016, the Company entered into a five-year business development agreement with a consultant for marketing the Company's
telemedicine platform to its customers. Upon the completion of a partnership for the Company with a large-scale California employer
and/or one of its affiliate institutions that includes at least a 100-patient pilot study, the Company agrees to issue 50,000
$1.00 common stock 5-year purchase warrants. For each additional licensing of 20 physical therapy professionals through the consultant,
the Company will issue an additional 50,000 common stock 5-year purchase warrants priced at market at the time of issuance. For
any direct investor introduced by the consultant, the Company will pay a 5% cash fee on the gross amount invested.
On
November 8, 2016, the Company signed an assumption agreement wherein the holder of the agreement would fund the payment of the
remaining balance of a convertible note dated December 7, 2015 in the amount of $125,000. The note has an interest rate of 8%
and the Company recorded $1,306 of accrued interest during the year ended December 31, 2016.
On
November 11, 2016, the Company signed an agreement with a programming company ("PC") within which the one of the Company's
directors and Chief Technical Officer is the Chief Marketing Officer. The agreement is for additional features to be programmed
for the launch of the PHIZIO platform. The contract specifies that the Company's CEO and CTO will retain their officer and
director positions and retain their past due accrued compensation through June 30, 2016. The Company is to pay a monthly base
fee of $100,000 for the development and compensation for the Company's CEO and CTO. Following payment of the initial $100,000,
the Company is obligated to only pay $50,000 monthly until the PC has successfully signed and collected the first monthly service
fee for 100 physical therapy clinics to use the PHIZIO platform. The agreement establishes that the Company is indebted to the
PC for $225,000 for past programming services. For this amount, the PC will be issued 25,280,899 common shares at a cost value
of $0.0089. These shares will be issued in 2017 when the increase of authorized shares is completed. The PC will also have
the right to appoint 40% of the directors.
On
November 14, 2016, the Company signed a senior convertible note for the principal sum of $275,000 with an actual amount
of $250,000 and a 10% original issue discount. The note expires on May 14, 2017 and has an interest rate of 8%. For the year ended
December 31, 2016, the Company recorded $2,872 of accrued interest.
On
December 2, 2016, the Company signed agreements for the conversion of debt to equity conversion of $120,000 debt for units. Each
unit is comprised of (1) 200,000 shares of common stock at $.05 per share and (2) a warrant to purchase 100,000 shares of common
stock at $1.00 for a period of three years. None of the shares were issued by the year ended December 31, 2016. The value of the
shares was recorded in Shares to be Issued.
From
time to time the Company may become a party to litigation matters involving claims against the Company. Except as may be outlined
above, the Company believes that there are no current matters that would have a material effect on the Company's financial
position or results of operations.
Note
11. Derivative Valuation
The
Company evaluated the convertible debentures and associated warrants in
accordance with ASC Topic815, "Derivatives and
Hedging," and determined that the conversion feature of the convertible promissory notes were not afforded the exemption
for conventional convertible instruments due to their variable conversion rates. The notes have no explicit limit on the number
of shares issuable so they did not meet the conditions set forth in current accounting standards for equity classification. In
addition, the warrants have a Most Favored Nations clause resulting in the exercise price of the warrants also not being fixed.
Therefore, these have been characterized as derivative instruments. We elected to recognize the notes under paragraph 815-15-25-4,
whereby there would be a separation into a host contract and derivative instrument. We elected to initially and subsequently measure
the notes and warrants in their entirety at fair value, with changes in fair value recognized in earnings.
The
debt discount is amortized over the life of the note and recognized as interest expense. For the years ended December 31,2016
and 2015, we amortized the debt discount of $793,716 and $30,765, respectively, to interest expense. The derivative liability
is adjusted periodically according to stock price fluctuations and other inputs and was $8,473,265 and $2,802 at December 31,
2016 and 2015, respectively.
During
the years ended December 31, 2016 and 2015, the Company had the following activity in the derivative liability account.
For
purposes of determining the fair market value of the derivative liability , the Company used Black Scholes option valuation model.
The significant assumptions used in the Black Scholes valuation of the derivative are as follows:
Note
12. Supplemental Cash Flow Information
During
the year ended December 31, 2015, the Company had the following non-cash investing and financing activities:
During
the year ended December 31, 2016 the Company had the following non-cash investing and financing activities:
Note
13. Subsequent Events
In
January 2017, the Company authorized a convertible note financing
of $110,000. The convertible notes convert into common stock of the Company at conversion price into which any principal
amount and interest (including any default interest) under the notes shall be convertible into shares of common stock shall be
equal to the lesser of: (i) $0.20 or (ii) 75% of the average of the VWAPs for the five (5) Trading Days immediately following
the 180th calendar day after the Original Issue Date, whichever is lower. There is only one pricing look-back event. The notes
have a 10% original issue discount and an interest rate of 8%.
In
January 2017, 1,363,347 warrants were exercised as a cashless exercise for the issuance of 1,336,075 shares of common stock.
On
January 17, 2017, the Company entered into an agreement with a consultant for a six-month period to provide services which will
include: (i) introductions to brokers; (ii) assist with research coverage; (iii) introductions to over 100 funds, investment banking
firms and market makers; and (iv) a presentation speaking slot with a Gold sponsorship at the 2017 Wall Street Conference. In
consideration for the services, the Company agreed to 75,000 restricted shares of common stock. These shares have not
yet been issued.
On
January 19, 2017, the Company issued 700,000 shares of common stock per two separate agreements with consultants signed in December
2016.
On
January 19, 2017, the Company issued 1,400,000 shares of common stock per one of the extinguishment of debt agreements dated December
1, 2016.
On
January 24, 2017, the Registrant entered into a Definitive Service Agreement ("DSA") with Bistromatics, a company
for which the Company's officer serves as an officer, affirming that the Company does not currently have enough authorized
shares of common stock, based upon the number of issued and outstanding shares together with shares reserved for issuance, to
issue Bistromatics 25,280,899 shares of common stock. As a result, the Company and Bistromatics agreed that the Company shall
issue 2,528,089 shares of a newly authorized Series A Preferred Stock to Bistromatics; each share of which shall: (i) have 20
votes per share on all matters submitted to the vote of the holders of the Company's voting capital stock (i.e.: 50,577,980
share voting rights); and (ii) be convertible into 10 shares of the Company's existing shares of common stock. Notwithstanding
the foregoing, the Series A Preferred Stock are convertible into shares of common stock inasmuch as the Company has filed a Certificate
of Amendment to its Articles of Incorporation to increase its authorized shares of common stock from 100 million shares, par value
$0.001 per share to 400 million shares, par value $0.001per share. At the date of filing the Articles of Amendment, the outstanding
shares of Series A Preferred Stock must be converted into 25,280,899 shares of the Company's common stock. This transaction
has not yet been completed. In connection with the Company's obligations under the DSA, the Company filed a Certificate
of Amendment to its Articles of Incorporation with the State of Nevada for the purposes of: (A) increasing its authorized capital
stock from 110,000,000 shares of capital stock, par value $0.001, consisting of: (i) 100,000,000 shares of common stock, par value
$0.001; and (ii) 10,000,000 shares of preferred stock, par value $0.001, to 420,000,000 shares of capital stock, par value $0.001,
consisting of: (iii) 400,000,000 shares of common stock, par value $0.001; and (iv) 20,000,000 shares of preferred stock, par
value $0.001. The Certificate of Amendment has been filed with the State of Nevada and the Company has filed an Information Statement
on Schedule 14C, based upon the Joint Written Consent of the Company's Board of Directors and the Majority Consenting Stockholders
and implementing a reverse split of the issued and outstanding shares of common stock, including shares of common stock reserved
for issuance, in a ratio to be determined by the Company's Board of Directors, not to exceed a one-for-twenty (1:20) basis
(the "Reverse Split"). After the Information Statement clears comments with the Securities and Exchange Commission,
the Company must submit an application to and receive approval from FINRA for these corporate actions.
During
the first quarter of 2017, the Company issued a total of 11,460,000 shares of common stock per debt conversion of the convertible
note dated November 14, 2016. The total of the debt conversion was $47,000. There is 2,350,000 of additional shares of common
stock yet to be issued per the debt conversion documents.
In
February 2017, the Board of Directors of unanimously approved
an amendment to the Company's Articles of Incorporation to: (A) increase its authorized capital stock from 110,000,000 shares
of capital stock, par value $0.001, consisting of: (i) 100,000,000 shares of common stock, par value $0.001; and (ii) 10,000,000
shares of preferred stock, par value $0.001, to 420,000,000 shares of capital stock, par value $0.001, consisting of: (iii) 400,000,000
shares of common stock, par value $0.001; and (iv) 20,000,000 shares of preferred stock, par value $0.001; and (B) implement a
reverse split of the issued and outstanding shares of common stock, including shares of common stock reserved for issuance, in
a ratio to be determined by the Company's Board of Directors, not to exceed a one-for-twenty (1:20) basis. The Certificate
of Amendment was authorized and approved by the Joint Written Consent of the Board of Directors and Majority Consenting Stockholders
of the Company.
In
February 2017, the Company entered into a Securities Purchase
Agreement with a third party which required the Company to issue two 5.5% convertible notes in the aggregate principal amount
of $165,000, each at $82,500. Each of the notes contain a 10% Original Issue Discount and an interest rate of 8%. The due date
of the notes is August 9, 2017.
In
February 2017, the Company entered into a Securities Purchase
Agreement with a third party which required the issuance of a convertible note for $55,000 plus a 10% Original Issue Discount.
The terms of this note are the same as the notes dated January 11 and January 31, 2017, which are that the convertible notes
convert into common stock of the Company at conversion price into which any principal amount and interest (including any default
interest) under the notes shall be convertible into shares of common stock shall be equal to the lesser of: (i) $0.20 or (ii)
75% of the average of the VWAPs for the five (5) trading days immediately following the 180th calendar day after the Original
Issue Date, whichever is lower. There is only one pricing look back event. The notes have a 10% original issue discount and an
interest rate of 8%. The due date of the notes is August 14, 2017.
In
February 2017, the Company and an institutional investor entered
into an agreement in which: (a) the investor agreed to fund up to $5,000,000 in reliance upon an exception provided under Rule
506 of Regulation D promulgated by the SEC under the Securities act of 1933, as amended; (b) the Company will file a registration
statement on Form S-1 with the SEC within 15 days after the Company files its annual 10K report for the year ended December 31,
2016; (c) the Company issued a convertible note in the principal amount of $100,000, bearing interest at 8%; and (d) the Company
issued a second convertible note in the principal amount of $275,000 bearing interest at 8% of which $105,000 was initially funded.
With the $275,000 convertible note, the Company also issued 68,750 cashless warrants exercisable at $.25 per share.
In
February 2017, the Company was served by a complaint filed
by the holder of a note payable. The lawsuit alleges that the Company is indebted to the note holder a promissory note stemming
from four loans to the Company during the last 20 months amounting to $75,500 in total original principal bearing interest at
12% per annum, of which $45,202 has been repaid. Further, the note holder claims that, because of alleged defaults and extensions
of the notes, the Company is now indebted in the amount of $253,677 inclusive of interest and penalties at an effective rate exceeding
70% per annum, far more than the maximum rate allowable in California or Louisiana. The Company and its counsel have determined
that: (i) the note holder is not a licensed lender in the State of California, where the loan was made and the $75,500 was deposited
and therefore was not permitted under California law to make loans in the State; and (ii) the interest rate the note holder is
seeking to collect is usurious and therefore interest claimed in the lawsuit is neither collectible nor enforceable. The Company
and counsel believe the lawsuit is wholly without merit and the rules of diversity of jurisdiction apply. Furthermore, the Company
believes that the action should be removed from Louisiana state court to the United States Federal District Court in Baton Rouge,
LA, where California law should be applied.
In April 2017, the
Company issued 2,350,300 shares of Common Stock to EWLL Acquisition Partners
in connection with the conversion of debt into equity. In addition, the
Company agreed to convert the Series A Preferred Shares held by Bistromatics
into 25,280,899 shares of Common Stock. In January 2017, the Company issued
75,000 restricted shares of Common Stock to Lyons Capital LLC; 250,000
restricted shares of Common Stock to Richard E. Barsom and 1,000,000 restricted shares of
Common Stock to Summit Capital for consulting services.
Page 66
eWellness Healthcare Corporation
F-
47
December
31, 2016
December
31, 2015
ASSETS
CURRENT
ASSETS
Cash
$
13,995
$
41,951
Prepaid
expenses
723,046
4,053
Total
current assets
737,041
46,004
Property
& equipment, net
4,279
5,964
Intangible
assets, net
16,908
19,862
TOTAL
ASSETS
$
758,228
$
71,830
LIABILITIES
AND STOCKHOLDERS' DEFICIT
CURRENT
LIABILITIES
Accounts
payable and accrued expenses
$
340,793
$
248,304
Accounts
payable - related party
379,481
43,717
Accrued
expenses - related party
104,429
33,090
Accrued
compensation
940,000
677,000
Contingent
liability
90,000
90,000
Convertible
debt, net of discount
247,710
309,945
Derivative
liability
8,473,265
2,802
Short
term note and liabilities
180,051
71,605
Total
current liabilities
10,755,729
1,476,463
Total
Liabilities
10,755,729
1,476,463
COMMITMENTS
AND CONTINGENCIES
-
-
STOCKHOLDERS'
DEFICIT
Preferred
stock, authorized, 20,000,000 shares, $.001 par value, 0 shares issued and outstanding
-
-
Common
stock, authorized 400,000,000 shares, $.001 par value, 51,435,307 and 18,170,538 issued and outstanding, respectively
51,435
18,171
Shares
to be issued
110,740
-
Additional
paid in capital
5,757,205
2,033,383
Accumulated
deficit
(15,916,881
)
(3,456,187
)
Total
Stockholders' Deficit
(9,997,501
)
(1,404,633
)
TOTAL
LIABILITIES AND STOCKHOLDERS' DEFICIT
$
758,228
$
71,830
F-
48
Year
Ended
December
31, 2016
December
31, 2015
OPERATING
EXPENSES
Executive
compensation
$
576,000
$
744,000
General
and administrative
309,805
196,354
Professional
fees
2,485,655
459,886
Total
Operating Expenses
3,371,460
1,400,240
Loss
from Operations
(3,371,460
)
(1,400,240
)
OTHER
INCOME (EXPENSE)
Gain
on extinguishment of debt
2,216,266
11,323
Gain
(loss) on derivative liability
(10,318,969
)
-
Loss
on conversion of debt
-
(31,774
)
Interest
expense, related parties
(4,156
)
(3,921
)
Interest
expense
(981,575
)
(129,406
)
Net
Loss before Income Taxes
(12,459,894
)
(1,554,018
)
Income
tax expense
(800
)
(890
)
Net
Loss
$
(12,460,694
)
$
(1,554,908
)
Basic
(loss) per share
$
(0.51
)
$
(0.09
)
Weighted
average shares outstanding
24,267,074
17,214,861
F-
49
Additional
Total
Preferred
Shares
Common
Shares
Shares
Paid
in
Accumulated
Stockholders'
Shares
Amount
Shares
Amount
to be issued
Capital
Deficit
Deficit
Balance
at December 31, 2014
-
$
-
16,421,000
$
16,421
$
-
$
1,087,320
$
(1,901,279
)
$
(797,538
)
Imputed
interest
-
-
-
-
-
3,920
-
3,920
Contributed
services
-
-
-
-
-
390,000
-
390,000
Shares
issued for services @ $.10/share
-
-
460,000
460
-
45,540
-
46,000
Shares
issued for debt conversion @ $.35
-
-
1,239,538
1,240
-
432,599
-
433,839
Shares
issued for contract @ $.10
-
-
50,000
50
-
4,950
-
5,000
Convertible
debt discount
-
-
-
-
-
44,189
-
44,189
Warrants
issued for debt
-
-
-
-
-
7,666
-
7,666
Warrants
issued for services rendered
-
-
-
-
-
17,199
-
17,199
Warrants
issued with convertible debt
-
-
-
-
-
-
-
0
Net
loss
-
-
-
-
-
-
(1,554,908
)
(1,554,908
)
Balance
at December 31, 2015
-
$
-
18,170,538
$
18,171
$
-
$
2,033,383
$
(3,456,187
)
$
(1,404,633
)
Imputed
interest
-
-
-
-
-
4,156
-
4,156
Contributed
services
-
-
-
-
-
306,000
-
306,000
Option
expense
-
-
-
-
-
544,591
-
544,591
Warrants
issued with debt
-
-
-
-
-
510,967
-
510,967
Shares
issued for cash received
-
-
120,000
120
-
119,880
-
120,000
Shares
issued for debt conversion
-
-
31,646,447
31,646
92,240
231,376
-
355,262
Shares
issued for prepaid services
-
-
985,000
985
18,500
1,957,365
-
1,976,850
Shares
issued for services
-
-
250,000
250
-
49,750
-
50,000
Shares
issued for warrants exercised
-
-
263,322
263
-
(263
)
-
0
Net
loss
-
-
-
-
-
-
(12,460,694
)
(12,460,694
)
Balance
at December 31, 2016
-
$
-
51,435,307
$
51,435
$
110,740
$
5,757,205
$
(15,916,881
)
$
(9,997,501
)
F-
50
Year
Ended
December
31, 2016
December
31, 2015
Cash
flows from operating activities
Net
loss
$
(12,460,694
)
$
(1,554,908
)
Adjustments
to reconcile net loss to net cash used in operating activities:
Depreciation
and amortization
4,639
4,428.
Contributed
services
306,000
390,000
Shares
issued for consulting services
50,000
45,000
Imputed
interest - related party
4,156
3,920
Options
expense
544,591
-
Amortization
of debt discount and prepaids
2,068,243
84,462
Warrants
issued for services
-
16,640
Debt
issued for consulting fees
-
100,000
Loss
on debt conversion
-
31,774
Loss
on derivative liability
10,318,969
-
Gain
on extinguishment of debt
(2,216,266
)
-
Changes
in operating assets and liabilities
Advances
- related parties
-
7,054
Prepaid
expense
(16,670
)
23,780
Accounts
payable and accrued expenses
242,177
111,512
Accounts
payable - related party
455,764
(12,439
)
Accrued
expenses - related party
71,339
2,908
Accrued
compensation
263,000
348,000
Net
cash used in operating activities
(364,752
)
(397,869
)
Cash
flows from investing activities
Purchase
of equipment
-
(4,207
)
Net
cash used in investing activities
-
(4,207
)
Cash
flows from financing activities
Proceeds
from issuance of common stock
120,000
-
Proceeds
from issuance of debt
-
104,000
Proceeds
from issuance of convertible debt
250,000
386,100
Payments
on debt
(33,204
)
(43,223
)
Payments
on risky loan fees
-
(3,750
)
Net
cash provided by financing activities
336,796
443,127
Net
increase (decrease) in cash
(27,956
)
41,051
Cash,
beginning of period
41,951
900
Cash,
end of period
$
13,995
$
41,951
Supplemental
Information:
Cash
paid for:
Taxes
$
-
$
-
Interest
Expense
$
25,000
$
-
F-
51
Total
Level
1
Level
2
Level
3
Derivative
liability
$
8,473,265
$
-
$
-
$
8,473,265
Total
liabilities measure at fair value
$
8,473,265
$
-
$
-
$
8,473,265
F-
52
Furniture
and Fixtures
5-7
Years
Computer
Equipment
5-7
Years
Software
3
Years
F-
53
2016
2015
Options
15,586,494
-
Warrants
7,401,556
2,287,764
Convertible
Notes
43,025,637
28,779,215
66,013,687
31,066,979
2016
2015
Deferred
tax assets:
NOL
Carryover
$
1,490,500
$
436,300
Accrued
Payroll
329,000
237,000
Deferred
tax liabilities
Depreciation
(1,100
)
(200
)
Valuation
allowance
(1.818,400
)
(673,100
)
Net
deferred tax asset
$
-
$
-
F-
54
2016
2015
Book
Loss
$
(4,361,200
)
$
(554,200
)
Depreciation
300
(300
)
Contributed
Services
107,100
136,500
Meals
& Entertainment
6,100
1,300
Stock
for Expense Accounts
14,300
21,600
Contributed
Interest Expense
1,500
1,400
Gain/Loss
on settlement of debt through equity
(775,700
)
11,100
Amortization
of debt discount
277,800
19,800
Accrued
Payroll
92,100
121,800
Loss
on derivative
3,611,600
-
Related
Party Interest
1,500
1,400
Valuation
allowance
1,024,600
229,600
$
-
$
-
F-
55
F-
56
F-
57
F-
58
Weighted
Number
of
Average
Warrants
Exercise
Price
Outstanding
at January 1, 2015
609,533
$
0.18
Granted
5,021,658
$
0.11
Exercised
-
$
-
Cancelled
-
$
-
Outstanding
at December 31, 2015
5,631,191
$
0.11
Granted
3,835,000
$
0.40
Exercised
350,000
$
0.86
Cancelled
-
$
-
Outstanding
at December 31, 2016
9,116,190
$
0.21
Stock
price on the valuation date
$.0345
- $.18
Exercise price
of warrants
$.004
and $1.00
Dividend
yield
0.00
%
Years
to maturity
1-
5
Risk
free rate
.53%
- 1.32
%
Expected
volatility
57.18%
- 63.40
%
F-
59
Number
Weighted
of
Stock
Average
Options
Exercise
Price
Outstanding
at January 1, 2016
-
$
-
Granted
20,250,000
$
0.27
Exercised
-
$
-
Cancelled
-
$
-
Outstanding
at December 31, 2016
20,250,000
$
0.27
Options
exercisable at December 31, 2016
20,250,000
$
0.27
F-
60
F-
61
F-
62
F-63
Notes
Warrants
Total
Derivative
liability at December 31, 2014
$
-
$
-
$
-
Derivative
liability at issuance of warrants
-
2,802
2,802
Loss
on derivative liability
-
-
-
Derivative
liability at December 31, 2015
-
2,802
2,802
Addition
of new conversion option derivatives
773,019
1,278,645
2,051,664
Change
in fair value
8,693,964
(172,009
)
8,521,955
Reclassification
of derivative to gain on extinguishment of debt
(2,103,156
)
-
(2,103,156
)
Derivative
liability at December 31, 2016
$
7,363,827
$
1,109,438
$
8,473,265
Stock
price at valuation date
$
.0260
Exercise
price of warrants
$
.01658
Risk
free interest rate
.245
%
Stock
volatility factor
34.054
%
Years
to Maturity
.12329
Expected
dividend yield
None
●
Accrued
interest of $3,848 and $3,980 was rolled into short-term notes and convertible debt, respectively.
●
$20,000
of short-term notes was transferred to convertible debt.
●
Issued
4,121,658 warrants valued at $7,666 as incentive for lenders to enter debt agreements.
●
Increased
derivative liability and debt discount by $2,802 for warrant issued debt.
●
Increased
debt discount by $44,189 for the value of the cash conversion feature on debt.
●
Increased
debt discount by $25,000 for an Original Issue Discount on debt.
●
Increased
debt discount by $10,000 for debt issuance costs.
●
Issued
$5,000 of stock as incentive for a lender to enter a debt agreement.
●
Agreed
to pay $40,125 and $5,000 in risky loan fees on short-term notes and convertible debt, respectively.
●
Transferred
$6,500 from account payable to short term notes.
●
Issued
1,239,538 shares of common stock valued at $433,839 for the extinguishment of $410,917 worth of debt and $22,922 worth of
accrued interest.
●
Issued
540,000 warrants for services valued at $17,199, of which $599 was recorded as a prepaid and $61,640 was recorded as warrants
for services.
●
Issued
460,000 shares of common stock valued at $45,540, of which $1,000 was recorded as a prepaid and $45,000 was recorded as stock
for services.
●
Accrued
interest of $125,755 and $12,931 was rolled into short-term notes and convertible debt, respectively.
●
Increased
derivative liability by $346,812 for convertible debt
●
Issued
3,835,000 warrants valued at $510,167 as incentive for lenders to enter debt agreements.
●
Increased
derivative liability and debt discount by $152,035 for warrant issued debt.
●
Increased
debt discount by $35,000 for an Original Issue Discount on debt.
●
Authorized
2,400,000 shares of stock to be issued for payables conversion totaling $120,000
●
Authorized
issuance of 450,000 shares of stock to be issued for prepaid
●
Issued
31,646,447 shares of common stock for the extinguishment of $261,231 worth of debt and $10,031 worth of accrued interest. There
are to be an additional 2,060,000 shares to be issued for the debt conversion
●
Issued
985,000 shares of common stock valued at $1,958,350 which was recorded as a prepaid
F-
65
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
PLAN OF OPERATIONS
The following plan of operation provides information which management
believes is relevant to an assessment and understanding of our results of operations and
financial condition. The discussion should be read along with our financial statements and
notes thereto. This section includes a number of forward-looking statements that reflect
our current views with respect to future events and financial performance. Forward-looking
statements are often identified by words like believe, expect, estimate, anticipate,
intend, project and similar expressions, or words which refer to future
events. These
forward-looking statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from our predictions.
Overview
eWellness
is in the initial phase of developing a unique telemedicine platform that offers Distance Monitored Physical Therapy Program ("PHZIO
program") to pre-diabetic, cardiac and health challenged patients, through contracted physician practices and healthcare
systems specifically designed to help prevent patients that are pre-diabetic from becoming diabetic.
Initially,
our focus was on patients with pre-diabetes conditions. However, we have broadened our focus to include overweight patients saddled
with lower back pain and knee pain caused by tissue strain and inactivity. We also decided to launch our platform in Los Angeles
instead of New York after Blue Shield of California reimbursed our physical therapy telemedicine. We were poised to launch our
business in New York through a partnership with Millennium Healthcare, Inc. ("MHI"), but the partnership did not provide
the results we were expecting. Additionally, management determined that relocating the Company's operations closer to where
the CEO and Chairman lived made the business more manageable and avoided time and monies lost due to travel. Management believes
that by broadening the Company's focus to include lower back pain and knee pain caused from excess weight, provides additional
opportunities for success. The Company remains committed to servicing patients diagnosed as pre-diabetes as well.
Recent
Developments
On
November 12, 2016, the Company entered into a Services Agreement with Bistromatics, Inc. (the
"Bistromatics Agreement"),
a Company incorporated under the laws of Canada ("Bistromatics"). Pursuant to the Bistromatics Agreement, Bistromatics
will provide operational oversight of the Company's Phzio System including development, content editing, client on boarding,
clinic training, support & maintenance, billing, hosting and oversight and support of CRM and helpdesk system. The Company
has agreed to pay a monthly base fee of $50,000 monthly until Bistromatics has successfully signed and collected the first monthly
service fee for 100 Physical Therapy Clinics to start using our Platform. If and when Bistromatics provides the Company with evidence
of the 100 Physical Therapy Clinics, the monthly service fee will extend to $100,000. Bistromatics
will have the ability to convert any outstanding amounts that fall in arrears for 60 days into common stock at the same terms
as the next round of financing or the Company's common stock market price, whichever is higher.
Investment
Agreement with Tangiers Global, LLC
On
February 10, 2017, the Company entered into an Investment Agreement with Tangiers. Pursuant to the terms of the Investment Agreement,
Tangiers committed to purchase up to $5,000,000 of the Company's common stock over a period of up to 36 months. From time
to time during the 36-month period commencing from the effectiveness of the registration statement, we may deliver a put notice
to Tangiers which states the dollar amount that we intend to sell to Tangiers on a date specified in the put notice. The maximum
investment amount per notice must be no more than 200% of the average daily trading dollar volume of our Common stock for the
ten (10) consecutive trading days immediately prior to date of the applicable put notice and such amount must not exceed an accumulative
amount of $250,000. The minimum put amount is $5,000. The purchase price per share to be paid by Tangiers will be the 80% of the
of lowest trading prices of the Common stock during the 5 trading days including and immediately following the date on which put
notice is delivered to Tangiers.
In
connection with the Investment Agreement with Tangiers, we also entered into a registration rights agreement with Tangiers.
Plan
of Operations
Our
business model is to license our PHZIO ("PHZIO") platform to any physical therapy ("PT") clinic in the
U.S. and or have large-scale employers use our PHZIO platform as a fully PT monitored corporate wellness program.
The
Company's initial licensee is Evolution Physical Therapy ("EPT"), which is owned by our CEO, Darwin Fogt, MPT.
All treatment revenue for 2015 and 2016 was reimbursed to EPT, but was not sufficient to generate sales for the Company. The Company
is in the process of developing marketing channel partnerships with industry association members, existing software-based telemedicine
providers and physical therapy billing and practice management providers. These partnerships, if completed, are anticipated to
begin adding third party PT licensee revenue during the second quarter of 2017.
The
Company's PHZIO home physical therapy exercise platform has been designed to disrupt the $30 billion physical therapy and
the $8 billion corporate wellness industries. PHZIO re-defines the way physical therapy can be delivered. PHZIO is the first real-time
remote monitored 1-to-many physical therapy platform for home use. Due to the real-time patient monitoring feature, the PHZIO
platform is insurance reimbursable by payers such as: Anthem Blue Cross, AETNA and Blue Shield.
Page 67
The
PHZIO Solution: A New Physical Therapy Delivery System
Patient
program adherence in 2015 and 2016 was nearly 85 percent due the real-time patient monitoring and the at-home use of the platform.
Now physical therapy practices have a way to scale profitably using a technology platform that can help them grow beyond the limits
of the typical brick and mortar PT clinic.
Additional
Treatment Protocols: Our current PHZIO platform includes a fully customizable treatment program for multiple physical therapy
treatment plans including patient rehabilitations for total knee, hip and shoulder surgeries, lower and upper back ailments and
other physical therapy treatments. We currently have a growing library of over 250 individual 2-4 minute exercise videos within
our PHZIO platform, with additional exercise content generated as needed. The Company's initial PHZIO application is a 6-month
exercise program for patients with back, knee or hip pain. Our hip and knee programs have been designed to be integrated into
any hospital or medical group's Medicare CMS bundled payment model for post-acute care physical therapy. These programs
are anticipated to be followed by woman's health and geriatric programs by the end of the third quarter of 2017.
Our
initial PHZIO platform enables employees or patients to engage with live or on-demand video based physical therapy telemedicine
treatments from their home or office. Following a physician's exam and prescription for physical therapy to treat back,
knee or hip pain, a patient can be examined by a physical therapist and if found appropriate inducted in the Company's PHZIO
program that includes a progressive 6-month telemedicine exercise program (including monthly in-clinic checkups). All PHZIO treatments
are monitored by a licensed therapist that sees everything the patient is doing while providing their professional guidance and
feedback in real-time. This ensures treatment compliance by the patient, maintains the safety and integrity of the prescribed
exercises, tracks patient metrics and captures pre-and post-treatment evaluation data. PHZIO unlocks a host of potential for revolutionizing
patient treatment models and directly links back to the established brick and mortar physical therapy clinic. This unique model
enables any physical therapy practice to be able to execute more patient care while utilizing their same resources, and creates
more value than was ever before possible.
On
April 1, 2015, the Company entered into an Operating Agreement with Evolution Physical Therapy ("EPT"), a company
owned by our CEO, pursuant to which EPT operate our Platform and offers it to selected physical therapy patients of EPT. The Company
will advance capital requested by EPT for costs specifically associated with operating the www.phzio,com platform and associated
physical therapy treatments. On May 7, 2015, EPT inducted the first patient using our platform. The total (insurance reimbursed)
monitored PHZIO visits in 2015 and 2016 was 1928 total patient visits that include: 2015: 699 patient visits (239 insurance reimbursed
patient visits generating approximately $13,500 in gross revenue) and in 2016: 1,229 patient visits generating $1,496 (approximately
26 insurance reimbursed visits). These gross revenue figures were not sufficient to generate any gross sales for the Company.
The average insurance reimbursement per PHZIO session in 2015 and 2016 was $56 (excluding co-payments). Respectively. The top
line wellness goals of our program are to graduate at least 80% of inducted patients through our 6-month program. Patients should
expect to experience an average of a 20% reduction in BMI, a 4-inch reduction in waist size, weight loss of at least 20 pounds,
significant overall improvement in balance, coordination, flexibility, strength, and lumbopelvic stability. Patients also should
score better on Functional Outcomes Scales (Oswestry and LEFS), which indicates improved functional activity levels due to reduced
low back, knee and hip pain.
Our
PHZIO platform, including: design, testing, exercise intervention, follow-up, and exercise demonstration, has been developed by
accomplished Los Angeles based physical therapist Darwin Fogt. Mr. Fogt has extensive experience and education working with diverse
populations from professional athletes to morbidly obese. He understands the most beneficial exercise prescription to achieve
optimal results and has had enormous success in motivating all patient types to stay consistent in working toward their goals.
Additionally, his methods have proven effective and safe as he demonstrates exercises with attention to proper form to avoid injury.
Mr. Fogt has established himself as a national leader in his field and has successfully implemented progressive solutions to delivering
physical therapy: he has consulted with and been published by numerous national publications including Runner's World, Men's
Health, Men's Journal, and various Physical Therapy specific magazines; his 13 plus years of experience include rehabilitating
the general population, as well as professional athletes, Olympic gold medalists, and celebrities. He has bridged the gap between
physical therapy and fitness by opening Evolution Fitness, which uses licensed physical therapists to teach high intensity circuit
training fitness classes. He also founded one of the first exclusive prenatal and postnatal physical therapy clinic in the country.
Mr. Fogt is a leader in advancing the profession to incorporate research-based methods and focus on, not only rehabilitation but
also wellness, functional fitness, performance, and prevention. He can recognize that the national healthcare structure (federal
and private insurance) is moving toward a model of prevention and that the physical therapy profession will take a larger role
in providing wellness services to patients.
Innovators
in other industries have solved access, cost and quality inefficiencies through the implementation of technology platforms and
business models that deliver products and services on-demand and create new economies by connecting and empowering both consumers
and businesses. We have taken the same approach to solving the pervasive access, cost and quality challenges facing the current
access to physical therapy clinics.
Page 68
Our
underlying technology platform is complex, deeply integrated and purpose-built over the three years for the evolving physical
therapy marketplace. Our PHZIO platform is highly scalable and can support substantial growth of third party licensees. Our PHZIO
platform provides for broad interconnectivity between PT practitioners and their patients and, we believe, uniquely positions
us as a focal point in the rapidly evolving PT industry to introduce innovative, technology-based solutions, such as remote patient
monitoring, post-discharge treatment plan adherence and in-home care.
We
plan to generate revenue from third-party PT and corporate wellness licensees on a contractually recurring per PHZIO session fee
basis. Our PHZIO platform is anticipated to transform the access, cost and quality dynamics of physical therapy delivery for all
of the market participants. We further believe any patient, employer, health plan or healthcare professional interested in a better
approach to physical therapy is a potential PHZIO platform user.
Selling
General and Administrative Expenses (SGA)
. Before even launching, we have received a high indication of interest in our service.
We think the demand is warranted, but recognize that in the preliminary stages of our services, we may experience bottlenecks
in our ability to meet the demand for same. Under this type of environment, it is critical to maintain awareness of the Company's
operational budget goals and how they are being met in our attempts to address demand. Regardless of our growth pace, it is critical
to shareholder value that we are mindful of our operational spending.
Results of Operations during the year ended December 31, 2016 as compared to the year
ended December 31, 2015
We had no revenues from operations during the years ended December 31, 2016 and December 31, 2015.
We expect to generate revenues during the second quarter of 2017.
Our operating expenses increased to $3,371,460 for the year ended December 31, 2016 from $1,400,240 for
the year ended December 31, 2015. The increase is a result of legal, accounting services, and consulting fees ($2,048,355).
We had total operating expenses of $3,371,460 related to general and
administrative expenses during the year ended December 31, 2016 compared to
total operating expenses of $1,400,240 related to general and administrative
expenses during the year ended June 30, 2015.
The Company incurred a net loss of $12,460,694 for the year ended December
31, 2016, compared with a net loss of $1,554,908 for the year ended December
31, 2015, an increase of $10,905,786. The significant increase was the result of increased legal, accounting
services and consulting fees of $2,048,355, a loss of $10,318,969 of
derivative expense from the issuance of derivative instruments and the
amortization of $793,716 of debt discount on debt instruments issued.
Liquidity and Capital Resources
As
of December 31, 2016, we had negative working capital of $10,018,688 compared to negative working capital of $1,430,459 as of
December 31, 2015. The majority of the increase of negative working capital is because of the derivative liability. Cash flows
provided by financing activities were $336,796 and $443,127 for the years ended December 31, 2016 and December 31, 2015, respectively.
The decrease in cash flows from financing activities was the reduction in promissory notes issued for cash. The cash balance
as of December 31, 2016 was $13,995.
We
believe that anticipated cash flows from operations will be insufficient to satisfy our ongoing capital requirements. For the
year ended December 31, 2016, there was a negative cash flows from operations of $364,752 compared to a negative cash flows from
operations of $397,869 for the year ended December 31, 2015. This is primarily due to the net loss for each of the years ending
December 31, 2016 and 2015. We are seeking financing in the form of equity capital to provide the necessary working capital.
Our ability to meet our obligations and continue to operate as a going concern is highly dependent on our ability to obtain additional
financing. We cannot predict whether this additional financing will be in the form of equity or debt, or be in another form. We
may not be able to obtain the necessary additional capital on a timely basis, on acceptable terms, or at all. In any of these
events, we may be unable to implement our current plans which circumstances would have a material adverse effect on our business,
prospects, financial conditions and results of operations.
Contingencies
The
Company may be subject to lawsuits, administrative proceedings, regulatory reviews or investigations associated with its business
and other matters arising in the normal conduct of its business. The following is a description of an uncertainty that is considered
other than ordinary, routine and incidental to the business.
The
closing of the Initial Exchange Agreement with Private Co. was conditioned upon certain, limited customary representations and
warranties, as well as, among other things, our compliance with Rule 419 ("Rule 419") of Regulation C under the Securities
Act of 1933, as amended (the "Securities Act") and the consent of our shareholders as required under Rule 419. Accordingly,
we conducted a "Blank Check" offering subject to Rule 419 (the "Rule 419 Offering") and filed a Registration
Statement on Form S-1 to register the shares of such offering; the Registration Statement was declared effective on September
14, 2012. We used 10% of the subscription proceeds as permitted under Rule 419 and the amount remaining in the escrow trust as
of the date of the closing of the Share Exchange was $90,000 (the "Trust Account Balance").
Rule
419 required that the Share Exchange occur on or before March 18, 2014, but due to normal negotiations regarding the transactions
and the parties' efforts to satisfy all the closing conditions, the Share Exchange did not close on such date. Accordingly,
after numerous discussions with management of both parties, they entered into an Amended and Restated Share Exchange Agreement
(the "Share Exchange Agreement") to reflect a revised business combination structure, pursuant to which we would:
(i) file a registration statement on Form 8-A ("Form 8A") to register our common stock pursuant to Section 12(g) of
the Exchange Act, which we did on May 1, 2014 and (ii) seek to convert the participants of the Rule 419 Offering into participants
of a similarly termed private offering (the "Converted Offering"), to be conducted pursuant to Regulation D, as promulgated
under the Securities Act.
Page 69
Fifty-two
persons participated in the Rule 419 Offering and each of them gave the Company his/her/its consent to use his/her/its escrowed
funds to purchase shares of the Company's restricted common stock in the Converted Offering (the
"Consent")
rather than have their funds returned. To avoid further administrative work for the investors, we believe that we took reasonable
steps to inform investors of the situation and provided them with an appropriate opportunity to maintain their investment in the
Company, if they so choose, or have their funds physically returned. Management believed the steps it took constituted a constructive
return of the funds and therefore met the requirements of Rule 419.
However,
pursuant to Rule 419(e)(2)(iv), "funds held in the escrow or trust account shall be returned by first class mail or equally
prompt means to the purchaser within five business days [if the related acquisition transaction does not occur by a date that
is 18 months after the effective date of the related registration statement]." As set forth above, rather than physically
return the funds, we sought consent from the investors of the Rule 419 Offering to direct their escrowed funds to the Company
to instead purchase shares in the Converted Offering. The consent document was given to the investors along with a private placement
memorandum describing the Converted Offering and stated that any investor who elected not to participate in the Converted Offering
would get 90% of their funds physically returned. Pursuant to Rule 419(b)(2)(vi), a blank check company is entitled to use 10%
of the proceed/escrowed funds; therefore, if a return of funds is required, only 90% of the proceed/escrowed funds need be returned.
The Company received $100,000 proceeds and used $10,000 as per Rule 419(b)(2)(vi); therefore, only $90,000 was subject to possible
return.
As
disclosed in the prior amendments to the Initial Form 8-K, we have filed the prior amendments in response to comments from the
SEC regarding the Form 8-K and many of those comments pertain to the Company's potential violation of Rule 419. Although
the Company has continued to provide the SEC with information and analysis as to why it believes it did not violate Rule 419,
based upon latest communications with the persons reviewing the Form 8-K, they do not agree with the assessments the Company presented
to them. Comments and communications indicate that Rule 419 requires a physical return of funds if a 419 offering cannot be completed
because a business combination was not consummated within the required time frame; constructive return is not permitted.
Because
of these communications and past comments, we are disclosing that we did not comply with the requirements of Rule 419, which required
us to physically return the funds previously submitted to escrow pursuant to the Rule 419 Offering. Because of our failure to
comply with Rule 419, the SEC may bring an enforcement action or commence litigation against us for failure to strictly comply
with Rule 419. If any claims or actions were to be brought against us relating to our lack of compliance with Rule 419, we could
be subject to penalties (including criminal penalties), required to pay fines, make damages payments or settlement payments. In
addition, any claims or actions could force us to expend significant financial resources to defend ourselves, could divert the
attention of our management from our core business and could harm our reputation.
Ultimately,
the SEC determined to terminate its review of the Initial Form 8-K and related amendments, rather than provide us with additional
opportunities to address their concerns and therefore, we did not clear their comments. It is not possible now to predict whether
or when the SEC may initiate any proceedings, when this issue may be resolved or what, if any, penalties or other remedies may
be imposed, and whether any such penalties or remedies would have a material adverse effect on our consolidated financial position,
results of operations, or cash flows. Litigation and enforcement actions are inherently unpredictable, the outcome of any potential
lawsuit or action is subject to significant uncertainties and, therefore, determining now the likelihood of a loss, any SEC enforcement
action and/or the measurement of the amount of any loss is complex. Consequently, we are unable to estimate the range of reasonably
possible loss. Our assessment is based on an estimate and assumption that has been deemed reasonable by management, but the assessment
process relies heavily on an estimate and assumption that may prove to be incomplete or inaccurate, and unanticipated events and
circumstances may occur that might cause us to change that estimate and assumption. Considering the uncertainty of this issue
and while Management evaluates the best and most appropriate way to resolve same, management determined to create a reserve on
the Company's Balance Sheet for the $90,000 that was subject to the Consent.
Capital Expenditure Plan During the Next
Twelve Months
During the year ended December 31, 2016, we raised $336,796 in equity
and debt capital
and we may be expected to require up to an additional $1.6 million in
capital during the next 12 months to fully implement our business plan and
fund our operations. Our plan is to utilize the equity capital that we
raise, together with anticipated cash flow from operations, to fund a very
significant investment in sales and marketing, concentration principally on
advertising and incentivizing existing customers for the introduction
of new customers, among other strategies. However, there can be no assurance
that: (i) we will continue to be successful in raising equity capital in
sufficient amounts and/or at terms and conditions satisfactory to the
Company; or (ii) we will generate sufficient revenues from operations, to
fulfill our plan of operations. Our revenues are expected to come from our PHZIO platform services. As a result, we will continue to incur
operating losses unless and until we are able to generate sufficient cash
flow to meet our operating expenses and fund our planned sales and market
efforts. There can be no assurance that the market will adopt our portal or
that we will generate sufficient cash flow to fund our enhanced sales and
marketing plan. In the event that we are not able to successfully: (i) raise
equity capital and/or debt financing; or (ii) market and significantly
increase the number of portal users and revenues from such users, our
financial condition and results of operations will be materially and
adversely affected and we will either have to delay or curtail our plan for
funding our sales and marketing efforts."
Going Concern Consideration
Our registered independent auditors have issued an opinion on our financial statements which includes a statement describing our going concern status. This means that there is substantial doubt that we can continue as an on-going business for the next
twelve months unless we obtain additional capital to pay our bills and meet our other financial obligations. This is because we have not generated any revenues and no revenues are anticipated until we begin marketing the product. Accordingly, we must raise capital from sources other than the actual sale of the product. We must raise capital to implement our project and stay in business.
Page 70
Off-Balance
Sheet Arrangements
As
of December 31, 2016 and 2015, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of
Regulation S-K promulgated under the Securities Act of 1934.
Contractual
Obligations and Commitments
As
of December 31, 2016 and 2015, we did not have any contractual obligations.
Critical
Accounting Policies
Our
significant accounting policies are disclosed in Note 2 of our Financial Statements included elsewhere in this
Prospectus.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no changes in or disagreements with accountants on
accounting or financial disclosure matters.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Our
directors were elected to serve until the next annual meeting of shareholders and until his respective successors will have been
elected and will have qualified. The following table sets forth the name, age and position held with respect to our present executive
officers and directors:
Darwin Fogt, President, CEO & Director.
Mr. Fogt has been CEO of
eWellness Corporation since May 2013. Since 2001, he has been founder,
President and practicing therapist of Evolution Physical Therapy, Inc., a
privately held company in Los Angeles, CA providing sports and orthopedic
physical therapy services. From 2008 to present, Mr. Fogt has also been
founder and President of Bebe PT, a physical therapy practice specializing
in perinatal rehabilitation and wellness. Additionally, from 2012 to present
Mr. Fogt has been founder and President of Evolution Fitness, a primarily
cash-based fitness and rehabilitation center serving high level athletes and
clients in Culver City, CA. Mr. Fogt has consulted with and been published
by numerous national publications including Runner's World, Men's Health,
Men's Journal, and various Physical Therapy specific magazines; his 13 plus
years of experience include rehabilitating the general population, as well
as professional athletes, Olympic gold medalists, and celebrities. Mr. Fogt
earned his B.S. in Exercise Science from the University of Southern
California in 1996 and his MPT (Master's of Physical Therapy) from
California State University: Long Beach in 2001. He is currently working
toward earning his DPT (Doctorate of Physical Therapy) degree.
David Markowski, Chief Financial Officer & Director.
Mr. Markowski
has been CFO of eWellness Corporation since May 2013. From October 1997 to
October 2002 he was CEO and Co-Founder of GFNN, Inc. From 2002 to 2013 Mr.
Markowski has maintained various active roles within GFNN's subsidiaries
including Founder, Director and CEO positions. From October 2009 to December
2011, he was the Director of Corporate Development for Visualant, Inc. From
June 2003 to 2010 he was President of Angel Systems, Inc. an independent
consulting firm with competencies in strategic marketing and business
development. From January 1998 to October 1998, Mr. Markowski served as the
Vice President of Finance for Medcom USA, a NASDAQ listed company. Prior to
that, he had a decade of investment banking experience on Wall Street
involved in financing start-ups and public offerings. He is a business
development specialist with accolades in INC Magazine and others. Mr.
Markowski obtained a BA degree in Marketing from Florida State University in
1982.
Curtis Hollister, Chief Technology Officer & Director.
Mr.
Hollister has been a founder and CTO of eWellness since May 2013. From
November 2008 to present he has been the founder and President of Social
Pixels, a privately held Canadian company focused on helping companies apply
online media and digital campaigning. From November 2008 to present he has
been the founder and President of Ripplefire, a privately held Canadian
company also specializing in the digital campaigning space. He is a global
entrepreneur and innovator known for his ability to identify and capitalize
on industry trends. His high profile projects include such clients as
Government of Canada, AT&T, Bell Canada, Microsoft, Nokia, Conversant IP and
TD Bank. From 1998 to 2002 Mr. Hollister founded and operated TeamCast.com,
a technology spin-off focusing on peer-to-peer networking. From 1997 to 2002
Mr. Hollister founded and operated Intrasoft Technologies, a technology
start-up to capitalize on the emerging Intranet application market. From
1995 to 1997 Mr. Hollister founded and operated Intranet Technologies, the
first successful Internet service provider in Ottawa, Canada's capital city.
Mr. Hollister graduated from Center Hastings Secondary in 1991 and from 1991
to 1995 attended Carleton University with a special focus on Economics.
Page 71
Douglas MacLellan, Chairman of the Board.
Mr. MacLellan currently
serves as Chairman of the Board of eWellness Corporation since May 2013.
From November 2009 to present Mr. MacLellan has been an independent director
of ChinaNet Online Holdings, Inc. (NASDAQ: CNET) a media development,
advertising and communications company. From June 2011 to present Mr.
MacLellan has been Chairman of Innovare Products, Inc., a privately held
company that develops innovative consumer products. In May 2014, Mr.
MacLellan join the Board as an independent director of Jameson Stanford
Resources Corporation (OTCBB: JMSN) an early stage mining company. Until
April 2014, Mr. MacLellan was Chairman and chief executive officer at
Radient Pharmaceuticals Corporation. (OTCQB: RXPC.PK), a vertically
integrated specialty pharmaceutical company. He also continues to serve as
president and chief executive officer for the MacLellan Group, an
international financial advisory firm since 1992. From August 2005 to May
2009, Mr. MacLellan was co-founder and vice chairman at Ocean Smart, Inc., a
Canadian based aquaculture company. From February 2002 to September 2006,
Mr. MacLellan served as chairman and cofounder at Broadband Access
MarketSpace, Ltd., a China based IT advisory firm, and was also co-founder
at Datalex Corp., a software and IT company specializing in mainframe
applications, from February 1997 to May 2002. Mr. MacLellan was educated at
the University of Southern California in economics and international
relations.
Douglas Cole, Director.
Mr. Cole has been a Director of the
company since May 2014. From 2005 to the present Mr. Cole has been a Partner
overseeing all ongoing deal activities with Objective Equity LLC, a boutique
investment bank focused on the clean tech, mining and mineral sectors. From
2002 to 2005 Mr. Cole has played various executive roles as Executive Vice
Chairman, Chief Executive Officer and President of TWL Corporation (TWLP.OB).
From May 2000 to September 2005, he was also the Director of Lair of the
Bear, The University of California Family Camp located in Pinecrest,
California. During the period between 1991 and 1998 he was the CEO of
HealthSoft and he also founded and operated Great Bear Technology, which
acquired Sony Image Soft and Starpress, then went public and eventually sold
to Graphix Zone. In 1995 Mr. Cole was honored by NEA, a leading venture
capital firm, as CEO of the year for his work in the Starpress integration.
Since 1982 he has been very active with the University of California,
Berkeley mentoring early-stage technology companies. Mr. Cole obtained his
BA in Social Sciences from UC Berkeley in 1978.
Brandon Rowberry, Director.
Mr Rowberry has been a Director since
June 2014. He is a well-known healthcare innovation executive. From 2010 to
2014 he drove enterprise-wide Innovation/Venturing for United Health Group
where in 2012 they were awarded the prestigious PDMA Outstanding Corporate
Innovation Award. From 2012 to present he has also been Managing Director of
7R Ventures an investment and advisory firm. From 2005 to 2009, he was
Director of Strategy & Innovation at Circuit City. From 2001 to 2005, he was
a Sr. Corporate Consultant focusing on Organizational Development and
Innovation at Hallmark. From 2000 to 2001, he was a Manager of
Organizational Development & Innovation at Honeywell. Mr. Rowberry has also
been a frequent corporate innovation guest speaker on NBC, FOX, ABC. Mr.
Rowberry obtained his Masters of Organizational Behavior from Marriott
School of Business, BYU in 2000.
Rochelle Pleskow, Director.
From 2010 through 2014, Ms. Pleskow
served as the Chief Healthcare Information Officer for Hewlett Packard. She
developed the framework of healthcare analytics platform, which encompasses
quality improvement, outcomes analysis, patient safety, operational
analytics, clinical informatics, physician performance, and regulatory
compliance monitoring for health plans, hospitals and physicians. From 2008
through 2010, she acted as a senior consultant to various companies on
healthcare policy and procedures including acting as an advisor for ASP
model start-up, whose business included a HIPAA/HL7 and PCI compliant
processing tool, which verifies a patient's insurance coverage, accurately
calculates out-of-pocket costs, and processes payments in one system and at
the time of service. This model improves revenue cycle management as it
accelerates the collection of patient payments. From 2007 through 2008, she
was Director of business Architecture for Blue Shield of California, where
she developed the business framework and core elements of a large scale IT
systems implementation to increase competitive advantage for Blue Shield of
California. Re-engineered core business processes in Health Services
Division in order to modernize the technology.
Director Qualifications
●
SaaS
technology platform solution for providers bundling rehabilitation services and employer wellness programs;
●
First
real-time remote monitored 1-to-many physical therapy treatment platform for home use;
●
Ability
for physical therapists to observe multiple patients simultaneously in real-time;
●
Solves
what has been a structural problem and limitation in post-acute care practice growth.
●
PT
practices can experience 20% higher adherence & compliance rates versus industry standards; and
●
Tracking
to 30% increase in net income for a PT practice.
Name
Age
Position
Darwin Fogt
42
CEO, President and Director
David Markowski
56
Chief Financial Officer and Director
Curtis Hollister
43
Chief Technology Officer and Director
Douglas MacLellan
61
Chairman and Secretary
Douglas Cole
60
Director
Brandon Rowberry
43
Director
Rochelle Pleskow
56
Director
We seek directors with established strong professional reputations and experience in areas relevant to the strategy and operations of our businesses. We also seek directors who possess the qualities of integrity and candor, who have strong analytical skills and who are willing to engage management and each other in a constructive and collaborative fashion, in addition to the ability and commitment to devote time and energy to service on the Board and its committees, as necessary. We believe that all of our directors meet the foregoing qualifications.
The Board believes that the leadership skills and other experience of the Board members described below, in addition to each person's experience set forth above in their respective biographies, provide the Company with a range of perspectives and judgment necessary to guide our strategies and monitor our executives business execution.
Darwin Fogt. Mr. Fogt is a co-founder of the Company and has been serving as a physical therapist for over 12 years and has built three successful physical therapy practices. Mr. Fogt has contributed to the Board's strong leadership and vision for the development of the Company's innovative business model.
David Markowski. Mr. Markowski is a co-founder of the Company and has been serving in senior management positions in various companies over the past 20 years, with an emphasis on corporate finance, accounting, audit, financial modeling and marketing. He holds a wealth of experience in company management skills.
Curtis Hollister. Mr. Hollister is a co-founder of the Company and has been serving in senior management positions in various advance technology, software and video content business over the past 20 years. He holds a wealth of experience in software development, video content management and network technology.
Page 72
Douglas MacLellan. Mr. MacLellan is a co-founder of the Company and has been serving as an officer and/or director of various advance technology and high growth companies over the past 20 years. Mr. MacLellan has contributed to the Board's strong leadership and vision for the development of the Company's innovative business model.
Doug Cole. Mr. Cole is an international business executive with over 20 years of active management and board roles in various software, educational and technology public and private companies.
Brandon Rowberry. Mr. Rowberry has held over 15 years in senior management positions as an innovation expert in various advance technology and healthcare industries. He is anticipated to greatly expand our industry relationships within healthcare insurers and the telemedicine industry.
Rochelle Pleskow. Ms. Pleskow holds a vast knowledge base on healthcare informatics and the scaling of various technology implementations at selected large scale technology and healthcare companies and is anticipated to be a good addition to its board of directors as the Company implements its anticipated white label program to physical therapy clinics through the U.S. marketplace.
Involvement in Certain Legal Proceedings
None of our directors, officers or affiliates has, within the past five years, filed any bankruptcy petition, been convicted in or been the subject of any pending criminal proceedings, or is any such person the subject or any order, judgment or decree involving the violation of any state or federal securities laws.
Corporate Governance and Director Independence
Presently, we are not currently listed on a national securities exchange or in an inter-dealer quotation system and therefore are not required to comply with the director independence requirements of any securities exchange. In determining whether our directors are independent, however, we intend to comply with the rules of NASDAQ. The board of directors will also consult with counsel to ensure that the boards of director's determinations are consistent with those rules and all relevant securities and other laws and regulations regarding the independence of directors, including those adopted under the Sarbanes-Oxley Act of 2002 with respect to the independence of audit committee members. Nasdaq Listing Rule 5605(a)(2) defines an "independent director" generally as a person other than an Executive Officer or employee of the Company or any other individual having a relationship which, in the opinion of the Company's board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. Our Board of Directors has determined that Douglas Cole, Mr. Rowberry and Ms. Pleskow would qualify as "independent" as that term is defined by Nasdaq Listing Rule 5605(a)(2). Further, Mr. Cole qualifies as "independent" under Nasdaq Listing Rules applicable to board committees.
Due to our lack of operations and size prior to the Share Exchange, we did not have an Audit Committee. For these same reasons, we did not have any other separate committees prior to the Share Exchange; all functions of a nominating committee, audit committee and compensation committee were performed by our sole director. Although, as stated above, we are not the subject of any listing requirements, in connection with the Share Exchange, our Board of Directors established several committees to assist it in carrying out its duties. In particular, committees shall work on key issues in greater detail than would be practical at a meeting of all the members of the Board of Directors; each committee reviews the results of its deliberations with the full Board of Directors.
The standing committees of the Board of Directors currently consist of the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee. Current copies of the charters for the Audit Committee, the Compensation Committee, and the Nominating and Corporate Governance Committee, as well as our Corporate Governance Guidelines, Code of Ethics and Business Conduct, may be found on our website at www.ewellnesshealth.com , under the heading "Corporate Information - Governance Documents." Printed versions also are available to any stockholder who requests them by writing to our corporate Secretary at our corporate address. Our Board of Directors may, from time to time, establish certain other committees to facilitate our management.
The Board will consider appointing members to each of the Committees at such time as a sufficient number of independent directors are appointed to the Board or as otherwise determined by the Board. Until such time, the full board of directors will undertake the duties of the audit committee, compensation committee and nominating committee.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Exchange Act, as amended, requires that our directors, executive officers and persons who own more than 10% of a class of our equity securities that are registered under the Exchange Act to file with the SEC initial reports of ownership and reports of changes of ownership of such registered securities.
Based solely upon a review of information furnished to the Company, to the Company's knowledge, during the fiscal year ended December 31, 2016, none of our officers and directors have filed their reports of ownership and reports of changes of ownership.
Page 73
Any compensation received by our officers, directors, and management personnel will be determined from time to time by our Board of Directors. Our officers, directors, and management personnel will be reimbursed for any out-of-pocket expenses incurred on our behalf.
For the three fiscal years ended December 31, 2016, 2015 and 2014, we did not pay any compensation to our executive officers, nor did any other person receive a total annual salary and bonus exceeding $100,000.
Following the Share Exchange, we do not currently have any formal employment salary arrangement with any of or new officers. All of our current officers have agreed to defer their compensation until such time as we are cash flow positive; therefore, none of our officers have received any compensation as of the date of this Annual Report. No retirement, pension, profit sharing, stock option or insurance programs or other similar programs have been adopted by the Company for the benefit of the Company's employees.
Director's Compensation
Our directors are not entitled to receive compensation for service rendered to us or for meeting(s) attended except for reimbursement of out-of-pocket expenses. There is no formal or informal arrangements or agreements to compensate employee directors for service provided as a director; however, compensation for new non-employee directors is determined on an ad hoc basis by the existing members of the board of directors at the time a director is elected.
Upon the appointment of Ms. Pleskow (a non-employee director) in August 2015, we agreed to pay her $2,000 per month, which shall accrue as of July 1, 2015 subject to the closing of our next financing. She shall also be eligible to receive any other benefits that are offered to other directors.
Compensation Policies and Practices as They Relate to the Company's Risk Management
We believe that our compensation policies and practices for all employees, including executive officers, do not create risks that are reasonably likely to have a material adverse effect on us.
Employment Contracts
We do not have any formal employment agreement with any of our officers. Any future compensation will be determined by the Board of Directors, and, as appropriate, an employment agreement will be executed. We do not currently have plans to pay any compensation until such time as the Company maintains a positive cash flow.
Outstanding Equity Awards
There were no equity awards outstanding as of the end the year ended December 31, 2016.
Option Grants
During the year ended December 31, 2016, the Board of Directors authorized the issuance of 20,250,000 of stock options to executive officers and directors to purchase shares of common stock at an average exercise price of $.27 per share.
Aggregated Option Exercises and Fiscal Year-End Option Value
There were no stock options exercised during the year ending December 31, 2016 and 2015 by our executive officers.
Long-Term Incentive Plan ("LTIP") Awards
There were no awards made to a named executive officers in the last completed fiscal year under any LTIP.
Page 74
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table lists the number of shares of Common
Stock of our Company as of
March 31, 2017 that are beneficially owned by (i) each person or entity known to our
Company to be the beneficial owner of more than 5% of the outstanding Common
Stock; (ii)
each officer and director of our Company; and (iii) all officers and directors as a group.
Information relating to beneficial ownership of Common Stock by our principal stockholders
and management is based upon information furnished by each person using "beneficial
ownership" concepts under the rules of the Securities and Exchange Commission. Under
these rules, a person is deemed to be a beneficial owner of a security if that person 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 sixty (60) days. Under the
rules of the SEC, 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/she may not have any pecuniary beneficial interest. Except as noted below, each person
has sole voting and investment power.
(1) Applicable percentage ownership as of
April 7, 2017 is based on 95,287,581 shares of Common Stock outstanding.
Name
of Beneficial Owner
Number of Stock Beneficially Owned
Percentage of Stock Owned (1)
Darwin Fogt, CEO, President and Director
3,750,000
(2)
3.94%
11825 Major Street
Culver City, CA 90230
Douglas MacLellan, Chairman
3,750,000
3.94%
11825 Major Street
Culver City, CA 90230
David Markowski, CFO and Director
1,100,000
1.15%
11825 Major Street
Culver City, CA 90230
Curtis Hollister, CTO and Director
1,950,000
2.05%
11825 Major Street
Culver City, CA 90230
Douglas Cole, Director
200,000
0.21%
11825 Major Street
Culver City, CA 90230
Brandon Rowberry, Director
200,000
0.21%
11825 Major Street
Culver City, CA 90230
Rochelle Pleskow, Director
0
0.00%
11825 Major Street
Culver City, CA 90230
Bistromatics, Inc. (3)
25,280,890
26.53%
57 Fireside Cresent
Ottawa ON K1T
1Z3, Canada
Director
and Officer (7 people)
10,950,000
11.49%
(2) This includes 1,000,000 shares held by Evolution
Physical Therapy, Inc., which is owned by Mr. Fogt.
(3) Bistromatics, Inc. is
controlled by Curtis Hollister, our CTO and directors.
Page 75
TRANSACTIONS WITH RELATED PERSONS, PROMOTERS AND CERTAIN CONTROL PERSONS
Certain
Related Party Transactions
Other than the relationships and transactions discussed
below, we are not a party to, nor are we proposed to be a party, to any
transaction during the last fiscal year involving an amount exceeding
$120,000 and in which a related person, as such term is defined by Item 404
of Regulation S-K, had or will have a direct or indirect material interest.
Related Party Debt: Prior to the closing of the Share
Exchange through the year ended December 31, 2016, a related party, a
company in which our former Secretary-Treasurer and CFO also served as CFO,
paid $91,271 on behalf of the Company. The amount outstanding as of December
31, 2016 and December 31, 2015 were $10,481 and $43,717, respectively.
During the year ended December 31, 2016, the Company recorded $4,156 imputed
interest on the amount owed to the related party at an interest rate of 8%.
The debt remains a Company liability, which is to be repaid when the Company
has sufficient capital to do so and there is no specific time frame within
which such repayment must be made.
Programming Agreement
On November 11, 2016, the Company signed an agreement
with a programming company ("PC") within which the one of the Company's
directors and Chief Technical Officer is the Chief Marketing Officer. The
agreement is for additional features to be programmed for the launch of the PHIZIO platform. The contract specifies that the Company's CEO and CTO will
retain their officer and director positions and retain their past due
accrued compensation through June 30, 2016. The Company is to pay a monthly
base fee of $100,000 for the development and compensation for the Company's
CEO and CTO. Following payment of the initial $100,000, the Company is
obligated to only pay $50,000 monthly until the PC has successfully signed
and collected the first monthly service fee for 100 physical therapy clinics
to use the PHIZIO platform. The agreement establishes that the Company is
indebted to the PC for $225,000 for past programming services. For this
amount, the PC will be issued 25,280,899 common shares at a cost value of
$0.0089. These shares were issued in April 2017. The PC will also have the right to appoint 40% of the
directors. At the end of December 31, 2016, the Company had a payable of
$285,000 due to this company.
Operating Agreement: On April 1, 2015, the
Company entered into an Operating Agreement with Evolution Physical Therapy
("EPT"),
a company owned by our CEO, pursuant to which EPT operate our Platform and
offers it to selected physical therapy patients of EPT. The Company will
advance capital requested by EPT for costs specifically associated with
operating the www.phzio,com platform and associated physical therapy
treatments. On May 7, 2015, EPT inducted the first patient using our
platform. The total (insurance reimbursed) monitored PHZIO visits in 2015
and 2016 was 1,928 total patient visits that include: 2015: 699 patient
visits (239 insurance reimbursed patient visits generating approximately
$13,500.00 in gross revenue) and in 2016: 1,229 patient visits generating
$1,496.55 (approximately 26 insurance reimbursed visits). These gross
revenue figures were not sufficient to generate any gross sales for the
Company. The average insurance reimbursement per PHZIO session in 2015 and
2016 was $56.87 (excluding co-payments). Respectively. The top line wellness
goals of our program are to graduate at least 80% of inducted patients
through our 6-month program. Patients should expect to experience an average
of a 20% reduction in BMI, a 4-inch reduction in waist size, weight loss of
at least 20 pounds, significant overall improvement in balance,
coordination, flexibility, strength, and lumbopelvic stability. Patients
also should score better on Functional Outcomes Scales (Oswestry and LEFS),
which indicates improved functional activity levels due to reduced low back,
knee and hip pain.
Office Space: The Company rents its Culver City, CA
office space from Evolution Physical Therapy ("Evolution"), a company owned
by our CEO. Evolution has agreed contribute the annual rent for the year
ended December 31, 2016 towards founding eWellness and its operations; the
market value of such rent is $500 per month. During the year ended December
31, 2016, the Company recorded rent expense in the Consolidated Statement of
Operations and Additional Paid in Capital in the Balance Sheet.
Indebtedness of Management
No officer, director or security holder known to us to
own of record or beneficially more than 5% of our Common stock or any member
of the immediate family or sharing the household (other than a tenant or
employee) of any of the foregoing persons is indebted to us in the years
2016 and 2015.
Review, Approval and Ratification of Related Party
Transactions
Our Board of Directors conducts an appropriate review of
and oversees all related-party transactions. We have not yet adopted formal
standards in respect of the review and approval or ratification of
related-party transactions; however, our board has conformed to the
following standards: (i) all related-party transactions must be fair and
reasonable to us and on terms comparable to those reasonably expected to be
agreed to with independent third parties for the same goods and/or services
at the time authorized by the board; and (ii) all related-party transactions
must be authorized, approved or ratified by the affirmative vote of a
majority of the directors who have no interest, either directly or
indirectly, in any such related party transaction.
Page 76
eWELLNESS HEALTHCARE CORPORATION
9,519,229 SHARES OF Common Stock
PROSPECTUS
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR THAT WE HAVE
REFERRED YOU TO. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS
DIFFERENT. THIS PROSPECTUS IS NOT AN OFFER TO SELL Common Stock AND IS NOT SOLICITING AN
OFFER TO BUY Common Stock IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
Until _____________, 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 dealer's obligation to deliver a Prospectus when acting as
underwriters.
The Date of This Prospectus is May __, 2017
Page 77
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
All amounts are estimates other than the Commission's registration
fee. We are paying all expenses of the Offering listed above. No portion of these expenses
will be borne by the Selling Shareholders. The Selling Shareholders, however, will pay any
other expenses incurred in selling their Common Stock, including any brokerage commissions
or costs of sale.
Item 14. Indemnification of Directors and Officers
Our articles of incorporation, by-laws and director
indemnification agreements provide that each person who was or is made a party
or is threatened to be made a party to or is otherwise involved (including,
without limitation, as a witness) in any action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that he
or she is or was a director or an officer of Brenham or, in the case of a
director, is or was serving at our request as a director, officer, or trustee of
another corporation, or of a partnership, joint venture, trust or other
enterprise, including service with respect to an employee benefit plan, whether
the basis of such proceeding is alleged action in an official capacity as a
director, officer or trustee or in any other capacity while serving as a
director, officer or trustee, shall be indemnified and held harmless by us to
the fullest extent authorized by the Nevada General Corporation Law against all
expense, liability and loss reasonably incurred or suffered by such.
Section 145 of the Nevada General Corporation Law permits
a corporation to indemnify any director or officer of the corporation
against expenses (including attorney's fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred in connection with any
action, suit or proceeding brought by reason of the fact that such person is
or was a director or officer of the corporation, if such person acted in
good faith and in a manner that he or she reasonably believed to be in, or
not opposed to, the best interests of the corporation, and, with respect to
any criminal action or proceeding, if he or she had no reason to believe his
or her conduct was unlawful. In a derivative action, ( i.e ., one brought by
or on behalf of the corporation), indemnification may be provided only for
expenses actually and reasonably incurred by any director or officer in
connection with the defense or settlement of such an action or suit if such
person acted in good faith and in a manner that he or she reasonably
believed to be in, or not opposed to, the best interests of the corporation,
except that no indemnification shall be provided if such person shall have
been adjudged to be liable to the corporation, unless and only to the extent
that the court in which the action or suit was brought shall determine that
the defendant is fairly and reasonably entitled to indemnity for such
expenses despite such adjudication of liability.
Pursuant to Section 102(b)(7) of the Nevada General
Corporation Law, Article Seven of our articles of incorporation eliminates
the liability of a director to us for monetary damages for such a breach of
fiduciary duty as a director, except for liabilities arising:
from any breach of the director's duty of loyalty to us;
Page 78
Item 15. Recent Sales of Unregistered Securities
Sales of Unregistered Securities in
2014:
On April 30, 2014, we issued 9,200,000 shares pursuant to the Share Exchange
Agreement.
On May 9, 2014, we issued 400,000 shares pursuant to a consulting agreement valued
at $40,000 and 3,000 pursuant to a verbal
agreement related to compensation for website services provided to the
Company valued at $1,500.
On October 16, 2014, we issued 618,000 shares to two consultants pursuant
to consulting agreements valued at
$61,800.
On October 16, 2014, we issued 200,000 shares to one of our directors for services valued at $2,000.
On December 23,
2014, we issued $213,337 Series A Senior Convertible Redeemable Notes that are convertible into 609,532 shares of
Common Stock
and warrants to purchase up to an aggregate of 609,532 shares of our Common
Stock.
Sales of Unregistered Securities in 2015:
On January 24, 2015, we extended the term of an outstanding consulting and
service agreement, pursuant to which we issued 400,000 shares
valued at $40,000 and 400,000 callable Common Stock purchase
warrants at a strike price of $0.35 per share.
On February 23, 2015, we entered into a one-year agreement with a consultant
in connection with certain corporate finance, investor relations and related
business matters and issued 60,000 shares valued at $6,000.
On April 9, 2015, we issued $270,080 Notes (including an aggregate of
$123,980 that was converted from certain other outstanding notes, including
accrued interest, and future contractual cash consulting fees) that are
initially convertible into 771,657 shares of our Common Stock, pursuant to a
private financing; we sold that same amount of Series A Senior Convertible
Redeemable Notes convertible into shares of the Company's Common Stock, at
$0.35 per share and Series A Warrants, all pursuant to separate Securities
Purchase Agreements entered into with each investor. The Warrants are
exercisable to purchase up to 771,657 shares of Common Stock.
On May 30,
2015, the Company received $25,000 in exchange for a 90-day promissory note
at an interest rate of 5% per annum. As an inducement for this promissory
note, the Company issued 150,000 warrants to purchase Company Common Stock
at $.35 per share.
On May 20, 2015, the Company issued 250,000
warrants to purchase Common Stock at $.35 per share in connection with a
financial advisory services agreement.
On May 20, 2015, the Company signed an
strategic advisory services agreement pursuant to which the Company
issued 250,000 warrants to
purchase Common Stock at $.35 per share.
On July 14, 2015, the
Company issued 250,000 shares of Common Stock valued at $.35 per share for
conversion of $87,500 of convertible debt.
On July 15, 2015, the Company received $18,000 in
exchange for a 90-day promissory note at an interest rate of 5% per annum.
As an inducement for this promissory note, the Company issued 150,000
warrants to purchase Company Common Stock at $.80 per share.
On August 19, 2015, the Company issuance 96,000
shares valued at $.35 per share for the conversion of $33,600 of convertible
debt.
On August 26, 2015, the Company extended the
term of the $25,000 promissory note issued on May 30, 2015 that was
originally due on August 28 2015 to October 23, 2015. As consideration for
the extension the Company agreed to an annual interest rate of 12%
retroactive to the original date of the note and issued 150,000 warrants to
purchase Company Common Stock at $.80 per share.
On September 10, 2015,
the Company authorized the issuance of 663,277 shares valued at $.35 per
share for the conversion of $232,147 of convertible debt.
On September 16, 2015, the Company received $2,500 in
exchange for a 90-day promissory note at an interest rate of 12% per annum
and a risky loan fee of $625. As an inducement for this promissory note, the
Company issued 50,000 warrants to purchase Company Common Stock at $.80 per
share.
On September 16, 2015, the Company received $12,500 in
exchange for a 90-day promissory note at an interest rate of 12% per annum
and a risky loan fee of $3,125. As an inducement for this promissory note,
the Company issued 250,000 warrants to purchase Company Common Stock at $.80
per share.
On September 16, 2015, the Company received $22,500 in
exchange for a 90-day promissory note at an interest rate of 12% per annum
and a risky loan fee of $5,625. As an inducement for this promissory note,
the Company issued 450,000 warrants to purchase Company Common Stock at $.80
per share.
On October 1, 2015, the Company authorized the issuance of
50,273 shares of Common Stock for the accrued interest on the debt
conversions on July 14, 2015, August 19, 2015, and September 10, 2015. The
shares were issued at $.35 per share.
On October 5, 2015, the Company
extended the term of an $18,000 promissory note originally issued on May 15,
2015 that was originally due on October 13, 2015 to December 14, 2015;
however, as consideration for the extension, the Company agreed to repay the
note, plus interest and the Loan Fee (as hereinafter defined), upon receipt
of additional financing. Interest on the note accrues at the
rate of 12% per annum. Unless paid sooner as previously explained, the
Company shall pay $4,500 on the maturity date of the note. As additional
inducement for the extension, the Company also agreed to issue the lender
five-year warrants to purchase up to 150,000 shares of the Company's Common
Stock at $0.80 per share.
On October 11, 2015, the Company extended the
term of an $25,000 promissory note issued on July 15, 2015 that was due on
October 23, 2015 to December 14, 2015; however, as a consideration for the
extension, the Company agreed to repay the note, plus interest and a risk
loan fee of $6,250. As additional inducement for the extension, the Company
also agreed to issue the lender five-year warrants to purchase up to 150,000
shares of Common Stock at $0.80 per share.
On October 11, 2015, the
Company received $10,000 in exchange for a 60-day promissory note at an
interest rate of 12% per annum and a risky loan fee of $2,500. As an
inducement for the promissory note, the Company issued 200,000 warrants to
purchase Company Common Stock at $.80 per share. The note, accrued interest
and risky loan fee is due on December 14, 2015.
On November 11, 2015, the
Company authorized the issuance of 179,988 shares of Common Stock for the
conversion of $57,670 of principal and $5,326 of accrued interest. These
shares were issued at $.35 per share.
On December 6, 2015, the Company
entered into a 90-day Promissory Note for $70,000 at an interest rate of 12%
per annum plus a risky loan fee of $17,500 which is being amortized over the
term of the loan. As an inducement the Company issued 1,400,000 warrants to
purchase Company Common Stock at $.80 per share. The Company further agreed
to repay the loan within three days of the Company receiving $500,000 or
more in the current private placement of up to $2,500,000 convertible note
with warrants. This Promissory Note resulted from the principal payment to
the note holder of $28,222 and the holder cancelling the notes originally
signed on May 27, 2015 plus extensions, July 15, 2015 plus extensions,
September 16, 2015 and October 11, 2015.
On December 11, 2015, the
Company entered into a securities purchase agreement with an accredited
investor for (i) a note in the principal amount of $275,000 at a 10%
original issue discount , (ii) a warrant to purchase 250,000 shares of the
Company's Common Stock with an exercise price of $0.80 per share and (iii)
50,000 shares as an additional fee for a value of $5,000.
Sales of Unregistered Securities in 2016:
On January 20, 2016, the Company authorized the issuance
of 50,000 shares for consulting services for a value of $5,000 that is being
amortized over twelve months.
On February 29, 2016, the Company authorized the issuance
of 227,232 shares for conversion of convertible debt of $69,500 and accrued
interest of $10,031.
On March 3, 2016, the Company authorized the issuance of
100,000 shares for consulting services for a value of $10,100 that is being
amortized over six months.
On March 11, 2016, the Company authorized the issuance of
150,000 shares for consulting services for a value of $15,000 that is being
amortized over twelve months.
On June 2, 2016, the Company sold 120,000 shares of
common stock upon receipt of $120,000 cash.
On July 13, 2016, the Company issued 172,958 shares of
common stock because of warrants being exercised through a cashless
exercise.
On December 14, 2016, the Company issued 90,364 shares of
common stock because of warrants being exercised through a cashless
exercise.
During the year ended December 31, 2016, the Company
issued a total of 31,419,215 shares of common stock because of debt
conversion. The total debt conversion was $191,731.
During the year ended December 31, 2016, the Company
issued 935,000 shares of common stock for consulting services. The weighted
average price of these shares was $1.44. The value of the shares is being
amortized over the life of the contracts ranging from six to twelve months.
The securities issued have not been registered under the
Securities Act and may not be offered or sold in the United States absent
registration or an applicable exemption from registration requirements.
The Registrant's issuance of the above restricted
securities was in reliance upon the exemption from registration pursuant to
Section 4(2) and Regulation S promulgated by the SEC under the Act. Unless
stated otherwise: (i) the securities were offered and sold only to
accredited investors; (ii) there was no general solicitation or general
advertising related to the offerings; (iii) each of the persons who received
these unregistered securities had knowledge and experience in financial and
business matters which allowed them to evaluate the merits and risk of the
receipt of these securities, and that they were knowledgeable about our
operations and financial condition; (iv) no underwriter participated in, nor
did we pay any commissions or fees to any underwriter in connection with the
transactions; and, (v) each certificate issued for these unregistered
securities contained a legend stating that the securities have not been
registered under the Securities Act and setting forth the restrictions on
the transferability and the sale of the securities.
Page 80
Item 16. Exhibits and Financial Statement Schedules
(a) The
following documents are filed as exhibits to this report on Form 8-K or incorporated
by reference herein. Any document incorporated by reference is identified by a parenthetical
reference to the SEC filing that included such document.
Medical Advisory Agreement with Akash Bajaj M.D., M.P.H. (I
ncorporated
by reference to Exhibit 10.7 of the Company's Quarterly Report on Form
10-Q filed on May 12, 2015)
Advisory Agreement (I
ncorporated
by reference to the Company's Quarterly Report on Form 10-Q filed on May
12, 2016)
Page 81
Item 17. Undertakings
(a) The undersigned registrant hereby undertakes:
(5) That, for the purpose of determining liability of
the registrant under the Securities Act of 1933 to any purchaser in the
initial distribution of the securities:
Page 82
Securities
and Exchange Commission registration fee
$
106
Accounting
fees and expenses
$
1,000
Legal fees
and expense
$
30,000
Total
$
31,106
from acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
under Section 174 of the Nevada General Corporation Law; and
from any transaction from which the director derived an improper
personal benefit.
Exhibit No.
Description
3.1
Amended & Restated Certificate of Incorporation of Registrant.
(Incorporated by reference to Exhibit 4.1 to the Form 8-K/A filed on
August 6, 2014)
3.2
Bylaws of the Company. (Incorporated by reference to Exhibit 3(b) to the
Registration Statement on Form S-1 filed on May 15, 2012)
5.1
Opinion of Thomas J. Craft,
Jr., Esq.,
(Incorporated by reference to Exhibit 5.1 to the Registration Statement
on Form S-1 filed on April 11, 2017)
10.1
Securities Purchase Agreement dated December 23, 2014 (I
ncorporated
by reference to the Company's Current Report on Form 8-K filed on
January 6, 2015)
10.2
Form of 12% Senior Convertible Promissory Note (I
ncorporated
by reference to the Company's Current Report on Form 8-K filed on
January 6, 2015)
10.3
Form of Series A Warrant Agreement (I
ncorporated
by reference to the Company's Current Report on Form 8-K filed on
January 6, 2015)
10.4
Form of Registration Rights Agreement (I
ncorporated
by reference to the Company's Current Report on Form 8-K filed on
January 6, 2015)
10.5
Form of Security Agreement (I
ncorporated
by reference to the Company's Current Report on Form 8-K filed on
January 6, 2015)
10.6
Operating Agreement with Evolution Physical Therapy (I
ncorporated
by reference to Exhibit 10.6 of the Company's Quarterly Report on Form
10-Q filed on May 12, 2015)
10.7
10.8
10.9
Securities Settlement Agreement with EWLL Acquisition Partners, LLC (I
ncorporated
by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K
filed on November 18, 2016)
10.10
New Note Form with JEB Partners, L.P. (I
ncorporated
by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K
filed on November 18, 2016)
10.11
Services Agreement with Bistromatics, Inc. (I
ncorporated
by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K
filed on November 21, 2016)
10.12
Rodney Schoemann Non-Convertible Note Agreement (I
ncorporated
by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K
filed on November 21, 2016)
10.13
JEB Partners L.P. Convertible Note Agreement (I
ncorporated
by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K
filed on January 11, 2017)
10.14
Debt Conversion and Subscription Agreement (I
ncorporated
by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K
filed on January 11, 2017)
10.15
Letter Engagement Agreement with Lyons Capital, LLC (I
ncorporated
by reference to Exhibit 10.20 to the Company's Current Report on Form
8-K filed on January 31, 2017)
10.16
Definitive Service Agreement dated January 24, 2017with Bistromatics,
Inc., (I
ncorporated by reference
to Exhibit 10.21 to the Company's Current Report on Form 8-K filed on
January 31, 2017)
.
10.17
Securities Purchase Agreement with JEB Partners L.P. dated January 7,
2017, filed herewith.
10.18
Securities Purchase Agreement with Crossover Capital Fund II, LLC dated
April 24, 2017,
filed herewith.
10.19
Investment Agreement with Tangiers Global LLC dated February 10, 2017,
filed herewith.
10.20
8% Fixed Convertible Promissory Note with Tangiers Global LLC dated
February 10, 2017, filed herewith.
10.21
8% Fixed Convertible Promissory Note with Tangiers Global LLC dated
February 10, 2017, filed herewith.
10.22
8% Fixed Convertible Promissory Note with Tangiers Global LLC dated
April 11, 2017, filed herewith.
10.23
Form of Warrant Agreement with
Tangiers Global LLC dated February 10, 2017, filed herewith.
14.1
Code
of Ethics Conduct (Incorporated by reference to Exhibit 14.1 to the Form 8-K filed on May 6, 2014)
23
Consent of Independent
Registered Public Accounting Firm, filed herewith.
(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% change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement.
(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.
(4) 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 Rule 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.
(b) Insofar as indemnification for
liabilities arising under the Securities Act 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 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 and will be governed by the final adjudication of such issue.
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 (Section 230.424 of this chapter);
(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.
Pursuant to the requirement of the Securities Act of 1933, as amended, the registrant has duly caused this registration statement on Form S-1 to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Culver City, California, on May 8, 2017.
eWELLNESS HEALTH CORPORATION
By:
/s/
Darwin Fogt
Darwin Fogt
Chief Executive Officer
(Principal Executive Officer)
By:
/s/ David Markowski
David Markowski
Chief Financial Officer
(Principal Financial and Accounting Officer)
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/ Douglas MacLellan | Chairman of the Board | May 8, 2017 |
Douglas MacLellan | ||
/s/ Darwin Fogt | Chief Executive Officer (Principal Executive Officer) and Director | May 8, 2017 |
Darwin Fogt | ||
/s/ David Markowski | Chief Financial Officer (Principal Financial and Principal Accounting Officer) and Director | May 8, 2017 |
David Markowski | ||
/s/ Curtis Hollister | Chief Technology Officer and Director | May 8, 2017 |
Curtis Hollister | ||
SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT (the "Agreement"), dated as of January 7,
2017, by and betweeneWELLNESS HEALTHCARE CORPORATION , a Nevada corporation,
with headquarters located at 11825 Major Street, Culver City, California 90230
(the "Company"), and JEB Partners L.P., a Delaware limited partnership, with
its address at 3 West Hill Place, Boston MA 02114 (the "Buyer").
WHEREAS:
A. The Company and the Buyer are executing and delivering this Agreement in
reliance upon the exemption from securities registration afforded by Section
4(a)(2) of the Securities Act of 1933, as amended (the "1933 Act") and Rule
506(b) promulgated by the United States Securities and Exchange Commission (the
"SEC") under the 1933 Act;
B. Buyer desires to purchase from the Company, and the Company desires to issue
and sell to the Buyer, upon the terms and conditions set forth in this
Agreement, a Senior Convertible Promissory Note of the Company, in the aggregate
principal amount of $55,000.00 (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, in the form attached hereto as Exhibit A , the "Note"),
convertible into shares of common stock, $0.001 par value per share, of the
Company (the "Common Stock"), upon the terms and subject to the limitations and
conditions set forth in such Note;
C. The Buyer wishes to purchase, upon the terms and conditions stated in this
Agreement, such principal amount of the Note as is set forth immediately below
its name on the signature pages hereto;
NOW THEREFORE, in consideration of the foregoing and of the agreements and
covenants herein contained, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the Company and the
Buyer hereby agree as follows:
1. 1. Purchase and Sale of Note.
a. a. Purchase of Note. 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, the Note in the principal amount as is set forth immediately below the
Buyer’s name on the signature pages hereto.
a. b. Form of Payment. On the Closing Date: (i) the Buyer shall pay the purchase
price for the Note to be issued and sold to it at the Closing (as defined below)
(the "Purchase Price") by wire transfer of immediately available funds to the
Company, in accordance with the Company’s written wiring instructions, against
delivery of the Note in an amount equal to the Actual Amount of Purchase Price
of Note as is set forth below the Buyer’s name on the signature pages hereto,
and (ii) the Company shall deliver such duly executed Note on behalf of the
Company, to the Buyer, against delivery of such Purchase Price.
a. c. Closing Date. Subject to the satisfaction (or written waiver) of the
conditions thereto set forth in Section 6 and Section 7 below, the date and time
of the issuance and sale of the Note pursuant to this Agreement (the "Closing
Date") shall be 4:00 PM, Eastern Time on the date first written above, or such
other mutually agreed upon time.
a. d. Closing. 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 (including via exchange of electronic signatures).
1. 2. Buyer’s Representations and Warranties. The Buyer represents and warrants
to the Company as of the Closing Date that:
a. a. Investment Purpose. As of the Closing Date, the Buyer is purchasing the
Note and the Conversion Shares (the "Securities") for its own account and not
with a present view towards the public sale or distribution thereof, except
pursuant to sales registered or exempted from registration under the 1933 Act;
provided , however , that by making the representations herein, the Buyer does
not agree to hold any of the Securities for any minimum or other specific term
and reserves the right to dispose of the Securities at any time in accordance
with or pursuant to a registration statement or an exemption under the 1933 Act.
a. b. Accredited Investor Status. The Buyer is an "accredited investor" as that
term is defined in Rule 501(a) of Regulation D (an "Accredited Investor").
a. c. Reliance on Exemptions. The Buyer understands that the Securities are
being offered and sold to it in reliance upon specific exemptions from the
registration requirements of United States federal and state securities laws and
that the Company is relying upon the truth and accuracy of, and the Buyer’s
compliance with, the representations, warranties, agreements, acknowledgments
and understandings of the Buyer set forth herein in order to determine the
availability of such exemptions and the eligibility of the Buyer to acquire the
Securities.
a. d. Information. The Buyer and its advisors, if any, have been, and for so
long as the Note remains outstanding will continue to be, furnished with all
materials relating to the business, finances and operations of the Company and
materials relating to the offer and sale of the Securities which have been
requested by the Buyer or its advisors. The Buyer and its advisors, if any, have
been, and for so long as the Note remains outstanding will continue to be,
afforded the opportunity to ask questions of the Company regarding its business
and affairs. Notwithstanding the foregoing, the Company has not disclosed to the
Buyer any material nonpublic information regarding the Company or otherwise and
will not disclose such information unless such information is disclosed to the
public prior to or promptly following such disclosure to the Buyer. Neither such
inquiries nor any other due diligence investigation conducted by Buyer or any of
its advisors or representatives shall modify, amend or affect Buyer’s right to
rely on the Company’s representations and warranties contained in Section 3
below.
a. e. Governmental Review. The Buyer understands that no United States federal
or state agency or any other government or governmental agency has passed upon
or made any recommendation or endorsement of the Securities.
a. f. Transfer or Re-sale. The Buyer understands that (i) the sale or resale of
the Securities has not been and is not being registered under the 1933 Act or
any applicable state securities laws, and the Securities may not be transferred
unless (a) the Securities are sold pursuant to an effective registration
statement under the 1933 Act, (b) the Buyer shall have delivered to the Company,
at the cost of the Company, an opinion of counsel (which may be the Legal
Counsel Opinion (as defined below)) that shall be in form, substance and scope
customary for opinions of counsel in comparable transactions to the effect that
the Securities to be sold or transferred may be sold or transferred pursuant to
an exemption from such registration, which opinion shall be accepted by the
Company, (c) the Securities are sold or transferred to an "affiliate" (as
defined in Rule 144 promulgated under the 1933 Act (or a successor rule) ("Rule
144")) of the Buyer who agrees to sell or otherwise transfer the Securities only
in accordance with this Section 2(f) and who is an Accredited Investor, (d) the
Securities are sold pursuant to Rule 144, or (e) the Securities are sold
pursuant to Regulation S under the 1933 Act (or a successor rule) ("Regulation
S"), and the Buyer shall have delivered to the Company, at the cost of the
Company, an opinion of counsel that shall be in form, substance and scope
customary for opinions of counsel in corporate transactions, which opinion shall
be accepted by the Company; (ii) any sale of such Securities made in reliance on
Rule 144 may be made only in accordance with the terms of said Rule and further,
if said Rule is not applicable, any re-sale of such Securities under
circumstances in which the seller (or the person through whom the sale is made)
may be deemed to be an underwriter (as that term is defined in the 1933 Act) may
require compliance with some other exemption under the 1933 Act or the rules and
regulations of the SEC thereunder; and (iii) neither the Company nor any other
person is under any obligation to register such Securities under the 1933 Act or
any state securities laws or to comply with the terms and conditions of any
exemption thereunder (in each case). Notwithstanding the foregoing or anything
else contained herein to the contrary, the Securities may be pledged in
connection with a bona fide margin account or other lending arrangement
secured by the Securities, and such pledge of Securities shall not be deemed to
be a transfer, sale or assignment of the Securities hereunder, and the Buyer in
effecting such pledge of Securities shall be not required to provide the Company
with any notice thereof or otherwise make any delivery to the Company pursuant
to this Agreement or otherwise.
a. g. Legends. The Buyer understands that until such time as the Issuance
Shares, the Note and, upon conversion of the Note in accordance with its
respective terms, the Conversion Shares, have been registered under the 1933 Act
or may be sold pursuant to Rule 144, Rule 144A under the 1933 Act or Regulation
S without any restriction as to the number of securities as of a particular date
that can then be immediately sold, the Securities may bear a restrictive legend
in substantially the following form (and a stop-transfer order may be placed
against transfer of the certificates for such Securities):
"NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE [CONVERTIBLE/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, RULE 144A OR REGULATION S 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 Company shall issue a
certificate for the applicable shares of Common Stock without such legend to the
holder of any Security upon which it is stamped or (as requested by such holder)
issue the applicable shares of Common Stock to such holder by electronic
delivery by crediting the account of such holder's broker with The Depository
Trust Company (" DTC "), if, unless otherwise required by applicable state
securities laws, (a) such Security is registered for sale under an effective
registration statement filed under the 1933 Act or otherwise may be sold
pursuant to Rule 144, Rule 144A or Regulation S without any restriction as to
the number of securities as of a particular date that can then be immediately
sold, or (b) the Company or the Holder provides the Legal Counsel Opinion (as
contemplated by and in accordance with Section 4(m) hereof) to the effect that a
public sale or transfer of such Security may be made without registration under
the 1933 Act, which opinion shall be accepted by the Company so that the sale or
transfer is effected. The Company shall be responsible for the fees of its
transfer agent and all DTC fees associated with any such issuance. The Buyer
agrees to sell all Securities, including those represented by a certificate(s)
from which the legend has been removed, in compliance with applicable
prospectus delivery requirements, if any. In the event that the Company 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, Rule
144A or Regulation S, at the Deadline (as defined in the Note), it will be
considered an Event of Default pursuant to Section 3.2 of the Note.
a. h. Authorization; Enforcement. This Agreement has been duly and validly
authorized by the Buyer and has been duly executed and delivered on behalf of
the Buyer, and this Agreement constitutes a valid and binding agreement of the
Buyer enforceable in accordance with its terms, except as enforcement may be
limited by bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting creditors’ rights generally and except as may be limited by the
exercise of judicial discretion in applying principles of equity.
a. i. Residency. The Buyer is a resident of the jurisdiction set forth
immediately below the Buyer’s name on the signature pages hereto.
1. 3. Representations and Warranties of the Company. The Company represents and
warrants to the Buyer as of the Closing Date that:
a. a. Organization and Qualification. The Company and each of its Subsidiaries
(as defined below), if any, is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction in which it is
incorporated, with full power and authority (corporate and other) to own, lease,
use and operate its properties and to carry on its business as and where now
owned, leased, used, operated and conducted. Schedule 3(a), if attached hereto,
sets forth a list of all of the Subsidiaries of the Company and the jurisdiction
in which each is incorporated. The Company and each of its Subsidiaries is duly
qualified as a foreign corporation to do business and is in good standing in
every jurisdiction in which its ownership or use of property or the nature of
the business conducted by it makes such qualification necessary except where the
failure to be so qualified or in good standing would not have a Material Adverse
Effect. "Material Adverse Effect" means any material adverse effect on the
business, operations, assets, financial condition or prospects of the Company or
its Subsidiaries, if any, taken as a whole, or on the transactions contemplated
hereby or by the agreements or instruments to be entered into in connection
herewith. "Subsidiaries" means any corporation or other organization, whether
incorporated or unincorporated, in which the Company owns, directly or
indirectly, any equity or other ownership interest.
a. b. Authorization; Enforcement. (i) The Company has all requisite corporate
power and authority to enter into and perform this Agreement, the Note and the
Warrant and to consummate the transactions contemplated hereby and thereby and
to issue the Securities, in accordance with the terms hereof and thereof, (ii)
the execution and delivery of this Agreement, the Issuance Shares, the Note, the
Warrant and (if applicable) the Conversion Shares and the Warrant Shares by the
Company and the consummation by it of the transactions contemplated hereby and
thereby (including without limitation, the issuance of the Note, the Warrant,
the Issuance Shares, and the issuance and reservation for issuance of the
Conversion Shares and the Warrant Shares issuable upon conversion or exercise of
the Note and the Warrant) have been duly authorized by the Company’s Board of
Directors and no further consent or authorization of the Company, its Board of
Directors, or its shareholders is required, (iii) this Agreement, the Note and
the Warrant (together with any other instruments executed in connection herewith
or therewith) have been duly executed and delivered by the Company by its
authorized representative, and such authorized representative is the true and
official representative with authority to sign this Agreement, the Note and the
Warrant and the other instruments documents executed in connection herewith or
therewith and bind the Company accordingly, and (iv) this Agreement and the Note
each constitute, and upon execution and delivery by the Company of the Note and
the Warrant, each of such instruments will constitute, a legal, valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms.
a. c. Capitalization; Governing Documents. As of December 31, 2016 the
authorized capital stock of the Company consists of 100,000,000 authorized
shares of Common Stock. Company represents that it will increase its authorized
common stock to at least 250,000,000 no later than February 28, 2017. As of the
effective date of this Agreement, other than as publicly announced prior to such
date and reflected in the SEC filings of the Company (i) there are no
outstanding options, warrants, scrip, rights to subscribe for, puts, calls,
rights of first refusal, agreements, understandings, claims or other commitments
or rights of any character whatsoever relating to, or securities or rights
convertible into or exchangeable for any shares of capital stock of the Company
or any of its Subsidiaries, or arrangements by which the Company or any of its
Subsidiaries is or may become bound to issue additional shares of capital stock
of the Company or any of its Subsidiaries, (ii) there are no agreements or
arrangements under which the Company or any of its Subsidiaries is obligated to
register the sale of any of its or their securities under the 1933 Act and (iii)
there are no anti-dilution or price adjustment provisions contained in any
security issued by the Company (or in any agreement providing rights to security
holders) that will be triggered by the issuance of any of the Securities. The
Company has furnished to the Buyer true and correct copies of the Company’s
Certificate of Incorporation as in effect on the date hereof ("Certificate of
Incorporation"), the Company’s By-laws, as in effect on the date hereof (the
"By-laws"), and the terms of all securities convertible into or exercisable for
Common Stock of the Company and the material rights of the holders thereof in
respect thereto.
a. d. Issuance of Conversion Shares. The Conversion Shares are duly authorized
and reserved for issuance and, upon conversion of the Note in accordance with
their respective terms, will be validly issued, fully paid and non-assessable,
and 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 Company and will not impose personal liability
upon the holder thereof.
a. e. Acknowledgment of Dilution. The Company understands and acknowledges the
potentially dilutive effect to the Common Stock upon the conversion of the Note
and the Conversion Shares.
a. f. Ranking; No Conflicts. The Note is and shall be a senior debt obligation
of the Company, with priority in payment and performance over all existing
indebtedness of the Company with the exception of other Notes issued to JEB
Partners, JOJ Holdings, or JLS Ventures. The execution, delivery and performance
of this Agreement and the Note by the Company and the consummation by the
Company of the transactions contemplated hereby and thereby (including the
issuance and reservation for issuance of the Conversion Shares) will not (i)
conflict with or result in a violation of any provision of the Certificate of
Incorporation or By-laws, or (ii) violate or conflict with, or result in a
breach of any provision of, or constitute a default (or an event which with
notice or lapse of time or both could become a default) under, or give to others
any rights of termination, amendment, acceleration or cancellation of, any
agreement, note, evidence of indebtedness, indenture, patent, patent license or
instrument to which the Company or any of its Subsidiaries is a party, or (iii)
result in a violation of any law, rule, regulation, order, judgment or decree
(including federal and state securities laws and regulations and regulations of
any self-regulatory organizations to which the Company or its securities are
subject) applicable to the Company or any of its Subsidiaries or by which any
property or asset of the Company or any of its Subsidiaries is bound or affected
(except for such conflicts, defaults, terminations, amendments, accelerations,
cancellations and violations as would not, individually or in the aggregate,
have a Material Adverse Effect). Neither the Company nor any of its Subsidiaries
is in violation of its Certificate of Incorporation, By-laws or other
organizational documents and neither the Company nor any of its Subsidiaries is
in default (and no event has occurred which with notice or lapse of time or both
could put the Company or any of its Subsidiaries in default) under, and neither
the Company nor any of its Subsidiaries has taken any action or failed to take
any action that would give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
the Company or any of its Subsidiaries is a party or by which any property or
assets of the Company or any of its Subsidiaries is bound or affected, except
for possible defaults as would not, individually or in the aggregate, have a
Material Adverse Effect. The businesses of the Company and its Subsidiaries, if
any, are not being conducted, and shall not be conducted so long as the Buyer
owns any of the Securities, in violation of any law, ordinance or regulation of
any governmental entity. Except as specifically contemplated by this Agreement
and as required under the 1933 Act and any applicable state securities laws, the
Company is not required to obtain any consent, authorization or order of, or
make any filing or registration with, any court, governmental agency, regulatory
agency, self-regulatory organization or stock market or any third party in order
for it to execute, deliver or perform any of its obligations under this
Agreement and the Note in accordance with the terms hereof or thereof or to
issue and sell the Note in accordance with the terms hereof and, upon conversion
of the Note, Conversion Shares and. All consents, authorizations, orders,
filings and registrations which the Company is required to obtain pursuant to
the preceding sentence have been obtained or effected on or prior to the date
hereof. If the Company is listed on the Over-the-Counter Bulletin Board, the
OTCQB Market operated by OTC Markets Group, Inc. or any successor to such
markets (collectively, the "OTCBB"), the Company is not in violation of the
listing requirements of the OTCBB and does not reasonably anticipate that the
Common Stock will be delisted by the OTCBB in the foreseeable future. The
Company and its Subsidiaries are unaware of any facts or circumstances which
might give rise to any of the foregoing.
b. g. SEC Documents; Financial Statements. The Company has timely filed all
reports, schedules, forms, statements and other documents required to be filed
by it with the SEC pursuant to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "1934 Act") (all of the foregoing filed
prior to the date hereof and all exhibits included therein and financial
statements and schedules thereto and documents (other than exhibits to such
documents) incorporated by reference therein, being hereinafter referred to
herein as the "SEC Documents"). As of their respective dates, the SEC Documents
complied in all material respects with the requirements of the 1934 Act and the
rules and regulations of the SEC promulgated thereunder applicable to the SEC
Documents, and none of the SEC Documents, at the time they were filed with the
SEC, contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. None of the statements made in any such SEC Documents is, or has
been, required to be amended or updated under applicable law (except for such
statements as have been amended or updated in subsequent filings prior the date
hereof). As of their respective dates, the financial statements of the Company
included in the SEC Documents complied as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto. Such financial statements have been prepared in
accordance with United States generally accepted accounting principles,
consistently applied, during the periods involved and fairly present in all
material respects the consolidated financial position of the Company and its
consolidated Subsidiaries as of the dates thereof and the consolidated results
of their operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal year-end audit adjustments). Except as
set forth in the financial statements of the Company included in the SEC
Documents, the Company has no liabilities, contingent or otherwise, other than
(i) liabilities incurred in the ordinary course of business subsequent to
December 31, 2016, and (ii) obligations under contracts and commitments incurred
in the ordinary course of business and not required under generally accepted
accounting principles to be reflected in such financial statements, which,
individually or in the aggregate, are not material to the financial condition or
operating results of the Company. The Company is subject to the reporting
requirements of the 1934 Act.
a. h. Absence of Certain Changes. Since December 31, 2016, there has been no
material adverse change and no material adverse development in the assets,
liabilities, business, properties, operations, financial condition, results of
operations, prospects or 1934 Act reporting status of the Company or any of its
Subsidiaries.
a. i. Absence of Litigation. There is no action, suit, claim, proceeding,
inquiry or investigation before or by any court, public board, government
agency, self-regulatory organization or body pending or, to the knowledge of the
Company or any of its Subsidiaries, threatened against or affecting the Company
or any of its Subsidiaries, or their officers or directors in their capacity as
such, that could have a Material Adverse Effect. The SEC Documents contain a
complete list and summary description of any pending or, to the knowledge of the
Company, threatened proceeding against or affecting the Company or any of its
Subsidiaries, without regard to whether it would have a Material Adverse Effect.
The Company and its Subsidiaries are unaware of any facts or circumstances which
might give rise to any of the foregoing.
a. j. Intellectual Property. The Company and each of its Subsidiaries owns or
possesses the requisite licenses or rights to use all patents, patent
applications, patent rights, inventions, know-how, trade secrets, trademarks,
trademark applications, service marks, service names, trade names and copyrights
("Intellectual Property") necessary to enable it to conduct its business as now
operated (and, as presently contemplated to be operated in the future); there is
no claim or action by any person pertaining to, or proceeding pending, or to the
Company’s knowledge threatened, which challenges the right of the Company or of
a Subsidiary with respect to any Intellectual Property necessary to enable it to
conduct its business as now operated (and, as presently contemplated to be
operated in the future); to the best of the Company’s knowledge, the Company’s
or its Subsidiaries’ current and intended products, services and processes do
not infringe on any Intellectual Property or other rights held by any person;
and the Company is unaware of any facts or circumstances which might give rise
to any of the foregoing. The Company and each of its Subsidiaries have taken
reasonable security measures to protect the secrecy, confidentiality and value
of their Intellectual Property.
a. k. No Materially Adverse Contracts, Etc. Neither the Company nor any of its
Subsidiaries is subject to any charter, corporate or other legal restriction, or
any judgment, decree, order, rule or regulation which in the judgment of the
Company’s officers has or is expected in the future to have a Material Adverse
Effect. Neither the Company nor any of its Subsidiaries is a party to any
contract or agreement which in the judgment of the Company’s officers has or is
expected to have a Material Adverse Effect.
a. l. Tax Status. The Company and each of its Subsidiaries has made or filed all
federal, state and foreign income and all other tax returns, reports and
declarations required by any jurisdiction to which it is subject (unless and
only to the extent that the Company and each of its Subsidiaries has set aside
on its books provisions reasonably adequate for the payment of all unpaid and
unreported taxes) and has paid all taxes and other governmental assessments and
charges that are material in amount, shown or determined to be due on
such returns, reports and declarations, except those being contested in good
faith and has set aside on its books provisions reasonably adequate for the
payment of all taxes for periods subsequent to the periods to which such
returns, reports or declarations apply. There are no unpaid taxes in any
material amount claimed to be due by the taxing authority of any jurisdiction,
and the officers of the Company know of no basis for any such claim. The Company
has not executed a waiver with respect to the statute of limitations relating to
the assessment or collection of any foreign, federal, state or local tax. None
of the Company’s tax returns is presently being audited by any taxing authority.
a. m. Transactions with Affiliates. Except for arm’s length transactions
pursuant to which the Company or any of its Subsidiaries makes payments in the
ordinary course of business upon terms no less favorable than the Company or any
of its Subsidiaries could obtain from third parties and other than the grant of
stock options described in the SEC Documents, none of the officers, directors,
or employees of the Company is presently a party to any transaction with the
Company or any of its Subsidiaries (other than for services as employees,
officers and directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental of real
or personal property to or from, or otherwise requiring payments to or from any
officer, director or such employee or, to the knowledge of the Company, any
corporation, partnership, trust or other entity in which any officer, director,
or any such employee has a substantial interest or is an officer, director,
trustee or partner.
a. n. Disclosure. All information relating to or concerning the Company or any
of its Subsidiaries set forth in this Agreement and provided to the Buyer
pursuant to Section 2(d) hereof and otherwise in connection with the
transactions contemplated hereby is true and correct in all material respects
and the Company has not omitted to state any material fact necessary in order to
make the statements made herein or therein, in light of the circumstances under
which they were made, not misleading. No event or circumstance has occurred or
exists with respect to the Company or any of its Subsidiaries or its or their
business, properties, prospects, operations or financial conditions, which,
under applicable law, rule or regulation, requires public disclosure or
announcement by the Company but which has not been so publicly announced or
disclosed (assuming for this purpose that the Company’s reports filed under the
1934 Act are being incorporated into an effective registration statement filed
by the Company under the 1933 Act).
a. o. Acknowledgment Regarding Buyer’s Purchase of Securities. The Company
acknowledges and agrees that the Buyer is acting solely in the capacity of arm’s
length purchaser with respect to this Agreement and the transactions
contemplated hereby. The Company further acknowledges that the Buyer is not
acting as a financial advisor or fiduciary of the Company (or in any similar
capacity) with respect to this Agreement and the transactions contemplated
hereby and any statement made by the Buyer or any of its respective
representatives or agents in connection with this Agreement and the transactions
contemplated hereby is not advice or a recommendation and is merely incidental
to the Buyer’s purchase of the Securities. The Company further represents to the
Buyer that the Company’s decision to enter into this Agreement has been based
solely on the independent evaluation of the Company and its representatives.
a. p. No Integrated Offering. Neither the Company, nor any of its affiliates,
nor any person acting on its or their behalf, has directly or indirectly made
any offers or sales in any security or solicited any offers to buy any security
under circumstances that would require registration under the 1933 Act of the
issuance of the Securities to the Buyer. The issuance of the Securities to the
Buyer will not be integrated with any other issuance of the Company’s securities
(past, current or future) for purposes of any shareholder approval provisions
applicable to the Company or its securities.
a. q. No Brokers. The Company has taken no action which would give rise to any
claim by any person for brokerage commissions, transaction fees or similar
payments relating to this Agreement or the transactions contemplated hereby.
a. r. Permits; Compliance. The Company and each of its Subsidiaries is in
possession of all franchises, grants, authorizations, licenses, permits,
easements, variances, exemptions, consents, certificates, approvals and orders
necessary to own, lease and operate its properties and to carry on its business
as it is now being conducted (collectively, the "Company Permits"), and there is
no action pending or, to the knowledge of the Company, threatened regarding
suspension or cancellation of any of the Company Permits. Neither the Company
nor any of its Subsidiaries is in conflict with, or in default or violation of,
any of the Company Permits, except for any such conflicts, defaults or
violations which, individually or in the aggregate, would not reasonably be
expected to have a Material Adverse Effect. Since June 30, 2015, neither the
Company nor any of its Subsidiaries has received any notification with respect
to possible conflicts, defaults or violations of applicable laws, except for
notices relating to possible conflicts, defaults or violations, which conflicts,
defaults or violations would not have a Material Adverse Effect.
a. s. Environmental Matters.
i. (i) There are, to the Company’s knowledge, with respect to the Company or any
of its Subsidiaries or any predecessor of the Company, no past or present
violations of Environmental Laws (as defined below), releases of any material
into the environment, actions, activities, circumstances, conditions, events,
incidents, or contractual obligations which may give rise to any common law
environmental liability or any liability under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 or similar federal, state,
local or foreign laws and neither the Company nor any of its Subsidiaries has
received any notice with respect to any of the foregoing, nor is any action
pending or, to the Company’s knowledge, threatened in connection with any of the
foregoing. The term "Environmental Laws" means all federal, state, local or
foreign laws relating to pollution or protection of human health or the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata), including, without limitation,
laws relating to emissions, discharges, releases or threatened releases of
chemicals, pollutants contaminants, or toxic or hazardous substances or wastes
(collectively, "Hazardous Materials") into the environment, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials, as well as all
authorizations, codes, decrees, demands or demand letters, injunctions,
judgments, licenses, notices or notice letters, orders, permits, plans or
regulations issued, entered, promulgated or approved thereunder.
i. (ii) Other than those that are or were stored, used or disposed of in
compliance with applicable law, no Hazardous Materials are contained on or about
any real property currently owned, leased or used by the Company or any of its
Subsidiaries, and no Hazardous Materials were released on or about any real
property previously owned, leased or used by the Company or any of its
Subsidiaries during the period the property was owned, leased or used by the
Company or any of its Subsidiaries, except in the normal course of the Company’s
or any of its Subsidiaries’ business.
i. (iii) There are no underground storage tanks on or under any real property
owned, leased or used by the Company or any of its Subsidiaries that are not in
compliance with applicable law.
a. t. Title to Property. The Company and its Subsidiaries have good and
marketable title in fee simple to all real property and good and marketable
title to all personal property owned by them which is material to the business
of the Company and its Subsidiaries, in each case free and clear of all liens,
encumbrances and defects except such as are described in Schedule 3(u), if
attached hereto, or such as would not have a Material Adverse Effect. Any real
property and facilities held under lease by the Company and its Subsidiaries are
held by them under valid, subsisting and enforceable leases with such exceptions
as would not have a Material Adverse Effect.
a. u. Insurance. The Company and each of its Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be prudent and
customary in the businesses in which the Company and its Subsidiaries are
engaged. Neither the Company nor any such Subsidiary has any reason to believe
that it will not be able to renew its existing insurance coverage as and when
such coverage expires or to obtain similar coverage from similar insurers as may
be necessary to continue its business at a cost that would not have a Material
Adverse Effect. Upon written request the Company will provide to the Buyer true
and correct copies of all policies relating to directors’ and officers’
liability coverage, errors and omissions coverage, and commercial general
liability coverage.
a. v. Internal Accounting Controls. The Company and each of its Subsidiaries
maintain a system of internal accounting controls sufficient, in the judgment of
the Company’s board of directors, to provide reasonable assurance that (i)
transactions are executed in accordance with management’s general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management’s general or specific
authorization and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
a. w. Foreign Corrupt Practices. Neither the Company, nor any of its
Subsidiaries, nor any director, officer, agent, employee or other person acting
on behalf of the Company or any Subsidiary has, in the course of his actions
for, or on behalf of, the Company, used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; made any direct or indirect unlawful payment to any foreign
or domestic government official or employee from corporate funds; violated or is
in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977,
as amended, or made any bribe, rebate, payoff, influence payment, kickback or
other unlawful payment to any foreign or domestic government official or
employee.
a. x. No Investment Company. The Company is not, and upon the issuance and sale
of the Securities as contemplated by this Agreement will not be an "investment
company" required to be registered under the Investment Company Act of 1940 (an
"Investment Company"). The Company is not controlled by an Investment Company.
a. y. No Off Balance Sheet Arrangements. There is no transaction, arrangement,
or other relationship between the Company or any of its Subsidiaries and an
unconsolidated or other off balance sheet entity that is required to be
disclosed by the Company in its 1934 Act filings and is not so disclosed or that
otherwise could be reasonably likely to have a Material Adverse Effect.
a. z. No Disqualification Events. None of the Company, any of its predecessors,
any affiliated issuer, any director, executive officer, other officer of the
Company participating in the offering hereunder, any beneficial owner of 20% or
more of the Company’s outstanding voting equity securities, calculated on the
basis of voting power, nor any promoter (as that term is defined in Rule 405
under the 1933 Act) connected with the Company in any capacity at the time of
sale (each, an "Issuer Covered Person") is subject to any of the "Bad Actor"
disqualifications described in Rule 506(d)(1)(i) to (viii) under the 1933 Act (a
"Disqualification Event"), except for a Disqualification Event covered by Rule
506(d)(2) or (d)(3). The Company has exercised reasonable care to determine
whether any Issuer Covered Person is subject to a Disqualification Event.
a. aa. Manipulation of Price. The Company has not, and to its knowledge no one
acting on its behalf has: (i) taken, directly or indirectly, any action designed
to cause or to result, or that could reasonably be expected to cause or result,
in the stabilization or manipulation of the price of any security of the Company
to facilitate the sale or resale of any of the Securities, (ii) sold, bid for,
purchased, or paid any compensation for soliciting purchases of, any of the
Securities, or (iii) paid or agreed to pay to any person any compensation for
soliciting another to purchase any other securities of the Company.
a. bb. Breach of Representations and Warranties by the Company. The Company
agrees that if the Company breaches any of the representations or warranties set
forth in this Section 3 and in addition to any other remedies available to the
Buyer pursuant to this Agreement, it will be considered an Event of Default
under Section 3.4 of the Note.
1. 4. ADDITIONAL COVENANTS, AGREEMENTS AND ACKNOWLEDGEMENTS.
a. a. Best Efforts. The parties shall use their best efforts to satisfy timely
each of the conditions described in Section 6 and 7 of this Agreement.
a. b. Form D; Blue Sky Laws. The Company agrees to file a Form D with respect to
the Securities as required under Regulation D and to provide a copy thereof to
the Buyer promptly after such filing. The Company shall, on or before the
Closing Date, take such action as the Company shall reasonably determine is
necessary to qualify the Securities for sale to the Buyer at the applicable
closing pursuant to this Agreement under applicable securities or "blue sky"
laws of the states of the United States (or to obtain an exemption from such
qualification), and shall provide evidence of any such action so taken to the
Buyer on or prior to the Closing Date.
a. c. Use of Proceeds. The Company shall use the proceeds for general working
capital purposes and not for the repayment of any indebtedness owed to officers,
directors or employees of the Company or their affiliates or in violation or
contravention of any applicable law, rule or regulation.
a. d. Right of Participation in Subsequent Offerings.
i. i. From the date first written above until the earlier to occur of (A)
Maturity Date and (B) that date that the Note (including all principal,
interest, fees and expenses related thereto) is earlier fully repaid or
converted, the Company will not, (i) directly or indirectly, offer, sell, grant
any option to purchase, or otherwise dispose of (or announce any offer, sale,
grant or any option to purchase or other disposition of) any of its or its
Subsidiaries’ debt, equity or equity equivalent securities, including without
limitation any debt, preferred shares or other instrument or security that is,
at any time during its life and under any circumstances, convertible into or
exchangeable or exercisable for Common Stock (any such offer, sale, grant,
disposition or announcement being referred to as a "Subsequent Placement") or
(ii) enter into any definitive agreement with regard to the foregoing, in each
case unless the Company shall have first complied with this Section 4(d). It is
agreed that in order for a Subsequent Placement to qualify as such for purposes
of this Section 4(d), the gross proceeds received or to be received by the
Company must be $1.0 million or greater.
i. ii. The Company shall deliver to the Buyer an irrevocable written notice (the
"Offer Notice") of any proposed or intended issuance or sale or exchange (the "Offer") of the securities being offered (the
"Offered Securities") in a
Subsequent Placement, which Offer Notice shall (w) identify and describe the
Offered Securities, (x) describe the price and other terms upon which they are
to be issued, sold or exchanged, and the number or amount of the Offered
Securities to be issued, sold or exchanged, (y) identify the persons or entities
(if known) to which or with which the Offered Securities are to be offered,
issued, sold or exchanged and (z) offer to issue and sell to or exchange with
the Buyer at least fifty percent (50%) of the Offered Securities (the "Subscription Amount").
i. iii. To accept an Offer, in whole or in part, the Buyer must deliver a
written notice to the Company prior to the end of the tenth (10th ) Business Day
after the Buyer’s receipt of the Offer Notice (the "Offer Period"), setting
forth the portion of the Subscription Amount that the Buyer elects to purchase
(the "Notice of Acceptance"). The Company shall have ten (10) business days from
the expiration of the Offer Period to complete the Subsequent Placement and in
connection therewith to issue and sell the Subscription Amount to the Buyer but
only upon terms and conditions (including, without limitation, unit prices and
interest rates) that are not more favorable to the Buyer or less favorable to
the Company than those set forth in the Offer Notice. Following such ten (10)
business day period, the Company shall publicly announce either (A) the
consummation of the Subsequent Placement or (B) the termination of the
Subsequent Placement.
i. iv. Notwithstanding anything to the contrary contained herein, if the Company
desires to modify or amend the terms and conditions of the Offer prior to the
expiration of the Offer Period, the Company shall deliver to the Buyer a new
Offer Notice and the Offer Period shall expire on the tenth (10th) Business Day
after the Buyer’s receipt of such new Offer Notice.
i. v. If by the fifteenth (15th) Business Day following delivery of the Offer
Notice no public disclosure regarding a transaction with respect to the Offered
Securities has been made, and no notice regarding the abandonment of such
transaction has been received by the Buyer, such transaction shall be deemed to
have been abandoned and the Buyer shall not be deemed to be in possession of any
material, non-public information with respect to the Company.
a. e. Usury. To the extent it may lawfully do so, the Company hereby agrees not
to insist upon or plead or in any manner whatsoever claim, and will resist any
and all efforts to be compelled to take the benefit or advantage of, usury laws
wherever enacted, now or at any time hereafter in force, in connection with any
action or proceeding that may be brought by the Buyer in order to enforce any
right or remedy under this Agreement, the Note and any document, agreement or
instrument contemplated thereby. Notwithstanding any provision to the contrary
contained in this Agreement, the Note and any document, agreement or instrument
contemplated thereby, it is expressly agreed and provided that the total
liability of the Company under this Agreement, the Note or any document,
agreement or instrument contemplated thereby for payments which under Puerto
Rico law are in the nature of interest shall not exceed the maximum lawful rate
authorized under applicable law (the "Maximum Rate"), and, without limiting the
foregoing, in no event shall any rate of interest or default interest, or both
of them, when aggregated with any other sums which under Puerto Rico law in the
nature of interest that the Company may be obligated to pay under this
Agreement, the Note and any document, agreement or instrument contemplated
thereby exceed such Maximum Rate. It is agreed that if the maximum contract rate
of interest allowed by Puerto Rico law and applicable to this Agreement, the
Note and any document, agreement or instrument contemplated thereby is increased
or decreased by statute or any official governmental action subsequent to the
date hereof, the new maximum contract rate of interest allowed by law will be
the Maximum Rate applicable to this Agreement, the Note and any document,
agreement or instrument contemplated thereby from the effective date thereof
forward, unless such application is precluded by applicable law. If under any
circumstances whatsoever, interest in excess of the Maximum Rate is paid by the
Company to the Buyer with respect to indebtedness evidenced by this Agreement,
the Note and any document, agreement or instrument contemplated thereby, such
excess shall be applied by the Buyer to the unpaid principal balance of any such
indebtedness or be refunded to the Company, the manner of handling such excess
to be at the Buyer’s election.
a. f. Restriction on Activities. Commencing as of the date first above written,
and until the sooner of the six month anniversary of the date first written
above or payment of the Note in full, or full conversion of the Note, the
Company shall not, directly or indirectly, without the Buyer’s prior written
consent, which consent shall not be unreasonably withheld: (a) change the nature
of its business; (b) sell, divest, acquire, change the structure of any material
assets other than in the ordinary course of business; or (c) solicit any offers
for, respond to any unsolicited offers for, or conduct any negotiations with any
other person or entity in respect of any "floorless" variable rate debt
transactions (i.e., transactions were the conversion or exercise price of the
security issued by the Company varies based on the market price of the Common
Stock), whether a transaction similar to the one contemplated hereby or any
other investment.
a. g. Listing. The Company will, so long as the Buyer owns any of the
Securities, maintain the listing and trading of its Common Stock on the OTCBB or
any equivalent replacement exchange or electronic quotation system (including
but not limited to the Pink Sheets electronic quotation system) and will comply
in all respects with the Company's reporting, filing and other obligations under
the bylaws or rules of the Financial Industry Regulatory Authority ("FINRA") and
such exchanges, as applicable. The Company shall promptly provide to the Buyer
copies of any notices it receives from the OTCBB and any other exchanges or
electronic quotation systems on which the Common Stock is then traded regarding
the continued eligibility of the Common Stock for listing on such exchanges and
quotation systems.
a. h. Corporate Existence. The Company will, so long as the Buyer beneficially
owns any of the Securities, maintain its corporate existence and shall not sell
all or substantially all of the Company’s assets, except in the event of a
merger or consolidation or sale of all or substantially all of the Company’s
assets, where the surviving or successor entity in such transaction (i) assumes
the Company’s obligations hereunder and under the agreements and instruments
entered into in connection herewith and (ii) is a publicly traded corporation
whose Common Stock is listed for trading or quotation on the OTCBB, any tier of
the NASDAQ Stock Market, the Puerto Rico Stock Exchange or the NYSE MKT.
a. i. No Integration. The Company shall not make any offers or sales of any
security (other than the Securities) under circumstances that would require
registration of the Securities being offered or sold hereunder under the 1933
Act or cause the offering of the Securities to be integrated with any other
offering of securities by the Company for the purpose of any stockholder
approval provision applicable to the Company or its securities.
a. j. Breach of Covenants. The Company acknowledges and agrees that if the
Company breaches any of the covenants set forth in this Section 4, in addition
to any other remedies available to the Buyer pursuant to this Agreement, it will
be considered an Event of Default under Section 3.4 of the Note.
a. k. Compliance with 1934 Act; Public Information Failures. For so long as the
Buyer beneficially owns the Note, the Company shall comply with the reporting
requirements of the 1934 Act; and the Company shall continue to be subject to
the reporting requirements of the 1934 Act. During the period that the Buyer
beneficially owns the Note or the Warrant, if the Company shall (i) fail for any
reason to satisfy the requirements of Rule 144(c)(1), including, without
limitation, the failure to satisfy the current public information requirements
under Rule 144(c) or (ii) if the Company has ever been an issuer described in
Rule 144(i)(1)(i) or becomes such an issuer in the future, and the Company shall
fail to satisfy any condition set forth in Rule 144(i)(2) (each, a "Public
Information Failure") then, as partial relief for the damages to the Buyer by
reason of any such delay in or reduction of its ability to sell the Securities
(which remedy shall not be exclusive of any other remedies available pursuant to
this Agreement, the Note, the Warrant, or at law or in equity), the Company
shall pay to the Buyer an amount in cash equal to two percent (2%) of the
Purchase Price on each of the day of a Public Information Failure and on every
thirtieth day (pro rated for periods totaling less than thirty days) thereafter
until the date such Public Information Failure is cured. The payments to which a
holder shall be entitled pursuant to this Section 4(k) are referred to herein as
"Public Information Failure Payments." Public Information Failure Payments shall
be paid on the earlier of (i) the last day of the calendar month during which
such Public Information Failure Payments are incurred and (iii) the third
business day after the event or failure giving rise to the Public Information
Failure Payments is cured. In the event the Company fails to make Public
Information Failure Payments in a timely manner, such Public Information Failure
Payments shall bear interest at the rate of 1% per month (prorated for partial
months) until paid in full.
a. l. No Shorting. The Buyer agrees that so long as this Note remains
outstanding, the Buyer will not enter into or effect "short sales" of the Common
Stock or hedging transactions which establish a net short position with respect
to the Common Stock. The Company acknowledges and agrees that upon delivery of a
conversion notice by the Buyer, the Buyer immediately owns the shares of Common
Stock set forth in such notice and any sale of the shares of Common Stock
issuable thereunder shall not be prohibited hereunder.
a. m. Disclosure of Transactions and Other Material Information. By 9:00 a.m.,
Puerto Rico time, following the date this Agreement has been fully executed, the
Company shall file a Current Report on Form 8-K describing the terms of the
transactions contemplated by this Agreement in the form required by the 1934 Act
and attaching this Agreement and the form of Note (the "8-K Filing"). From and
after the filing of the 8-K Filing with the SEC, the Buyer shall not be in
possession of any material, nonpublic information received from the Company, any
of its Subsidiaries or any of their respective officers, directors, employees or
agents that is not disclosed in the 8-K Filing. In addition, effective upon the
filing of the 8-K Filing, the Company acknowledges and agrees that any and all
confidentiality or similar obligations under any agreement, whether written or
oral, between the Company, any of its Subsidiaries or any of their respective
officers, directors, affiliates, employees or agents, on the one hand, and the
Buyer or any of its affiliates, on the other hand, shall terminate.
a. n. Legal Counsel Opinions. Upon the request of the Buyer from to time to
time, the Company shall be responsible (at its cost) for promptly supplying to
the Company’s transfer agent and the Buyer a customary legal opinion letter of
its counsel (the "Legal Counsel Opinion") to the effect that the resale of the
Issuance Shares, the Warrant Shares and the Conversion Shares by the Buyer or
its affiliates, successors and assigns is exempt from the registration
requirements of the 1933 Act pursuant to Rule 144 (provided the requirements of
Rule 144 are satisfied and provided the Issuance Shares, the Warrant Shares and
the Conversion Shares are not then registered under the 1933 Act for resale
pursuant to an effective registration statement). Should the Company’s legal
counsel fail for any reason to issue the Legal Counsel Opinion, the Buyer may
(at the Company’s cost) secure another legal counsel to issue the Legal Counsel
Opinion, and the Company will instruct its transfer agent to accept such
opinion.
a. o. Piggyback Registration Rights. The Company hereby grants to the Buyer the
registration rights set forth on Exhibit A hereto.
a. p. Most Favored Nation. While the Note or any principal amount, interest or
fees or expenses due thereunder remain outstanding and unpaid, the Company shall
not enter into any public or private offering of its securities (including
securities convertible into shares of Common Stock) with any individual or
entity (an "Other Investor") that has the effect of establishing rights or
otherwise benefiting such Other Investor in a manner more favorable in any
material respect to such Other Investor than the rights and benefits established
in favor of the Buyer by this Agreement, the Note or the Warrant unless, in any
such case, the Buyer has been provided with such rights and benefits pursuant to
a definitive written agreement or agreements between the Company and the Buyer.
a. q. Change in Transfer Agent. The Company agrees that it will continue to use
VStock Transfer LLC as the transfer agent for the Common Stock and shall
maintain such appointment for so long as all or any portion of the Note remain
outstanding. The Company shall provide VStock Transfer LLC with Irrevocable
Transfer Agent Instructions (as defined below) in a form agreed to by the Buyer.
Failure to adhere to this covenant shall automatically be deemed a material
breach of this agreement and an Event of Default under the Note.
1. 5. Transfer Agent Instructions. The Company shall issue
irrevocable instructions to its transfer agent to issue certificates, registered
in the name of the Buyer or its nominee upon conversion of the Note, the
Conversion Shares in such amounts as specified from time to time by the Buyer to
the Company in accordance with the terms thereof (the "Irrevocable Transfer
Agent Instructions"). In the event that the Company proposes to replace its
transfer agent, the Company shall provide, prior to the effective date of such
replacement, a fully executed Irrevocable Transfer Agent Instructions in a form
as initially delivered pursuant to this Agreement (including but not limited to
the provision to irrevocably reserved shares of Common Stock in the Reserved
Amount (as defined in the Note)) signed by the successor transfer agent to the
Company and the Company. The Company warrants that: (i) no instruction other
than the Irrevocable Transfer Agent Instructions referred to in this Section 5
will be given by the Company to its transfer agent and that the Securities shall
otherwise be freely transferable on the books and records of the Company as and
to the extent provided in this Agreement and the Note; (ii) it will not direct
its transfer agent not to transfer or delay, impair, and/or hinder its transfer
agent in transferring (or issuing)(electronically or in certificated form) any
certificate for Securities to be issued to the Buyer upon conversion of or
otherwise pursuant to the Note and when required by the Note and this Agreement;
(iii) it will not fail to remove (or directs its transfer agent not to remove or
impairs, delays, and/or hinders its transfer agent from removing) any
restrictive legend (or to withdraw any stop transfer instructions in respect
thereof) on any certificate for any Securities issued to the Buyer upon
conversion of or otherwise pursuant to the Note as and when required by the Note
and (iv) it will provide any required corporate resolutions and issuance
approvals to its transfer agent within 6 hours of each conversion of the Note.
Nothing in this Section shall affect in any way the Buyer’s obligations and
agreement set forth in Section 2(g) hereof to comply with all applicable
prospectus delivery requirements, if any, upon re-sale of the Securities. If the
Buyer provides the Company, at the cost of the Company, with (i) an opinion of
counsel in form, substance and scope customary for opinions in comparable
transactions, to the effect that a public sale or transfer of such Securities
may be made without registration under the 1933 Act and such sale or transfer is
effected or (ii) the Buyer provides reasonable assurances that the Securities
can be sold pursuant to Rule 144, the Company shall permit the transfer, and, in
the case of the Securities, promptly instruct its transfer agent to issue one or
more certificates, free from restrictive legend, in such name and in such
denominations as specified by the Buyer. 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 transactions contemplated hereby.
Accordingly, the Company acknowledges that the remedy at law for a breach of its
obligations under this Section 5 may be inadequate and agrees, in the event of a
breach or threatened breach by the Company of the provisions of this Section,
that the Buyer shall be entitled, in addition to all other available remedies,
to an injunction restraining any breach and requiring immediate transfer,
without the necessity of showing economic loss and without any bond or other
security being required.
1. 6. Conditions to the Company’s Obligation to Sell. The obligation of the
Company hereunder to issue and sell the Note to the Buyer at the Closing is
subject to the satisfaction, at or before the Closing Date, of each of the
following conditions thereto, provided that these conditions are for the
Company’s sole benefit and may be waived by the Company at any time in its sole
discretion:
a. a. The Buyer shall have executed this Agreement and delivered the same to the
Company.
a. b. The Buyer shall have delivered the Purchase Price in accordance with
Section 1(b) above.
a. c. The representations and warranties of the Buyer shall be true and correct
in all material respects as of the date when made and as of the Closing Date, as
though made at that time (except for representations and warranties that speak
as of a specific date), and the Buyer shall have performed, satisfied and
complied in all material respects with the covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by the
Buyer at or prior to the Closing Date.
a. d. No litigation, statute, rule, regulation, executive order, decree, ruling
or injunction shall have been enacted, entered, promulgated or endorsed by or in
any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters contemplated
hereby which prohibits the consummation of any of the transactions contemplated
by this Agreement.
1. 7. Conditions to The Buyer’s Obligation to Purchase. The obligation of the
Buyer hereunder to purchase the Note, on the Closing Date, is subject to the
satisfaction, at or before the Closing Date, of each of the following
conditions, provided that these conditions are for the Buyer’s sole benefit and
may be waived by the Buyer at any time in its sole discretion:
a. a. The Company shall have executed this Agreement and delivered the same to
the Buyer.
a. b. The Company shall have delivered to the Buyer the duly executed Note in
such denominations as the Buyer shall request and in accordance with Section
1(b) above.
a. c. The Irrevocable Transfer Agent Instructions, in form and substance
satisfactory to the Buyer, shall have been delivered to and acknowledged in
writing by the Company’s Transfer Agent.
a. d. The representations and warranties of the Company shall be true and
correct in all material respects as of the date when made and as of Closing
Date, as though made at such time (except for representations and warranties
that speak as of a specific date) and the Company shall have performed,
satisfied and complied in all material respects with the covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to the Closing Date.
a. e. No litigation, statute, rule, regulation, executive order, decree, ruling
or injunction shall have been enacted, entered, promulgated or endorsed by or in
any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters contemplated
hereby which prohibits the consummation of any of the transactions contemplated
by this Agreement.
a. f. No event shall have occurred which could reasonably be expected to have a
Material Adverse Effect on the Company including but not limited to a change in
the 1934 Act reporting status of the Company or the failure of the Company to be
timely in its 1934 Act reporting obligations.
a. g. Trading in the Common Stock on the OTCBB shall not have been suspended by
the SEC, FINRA or the OTCBB.
a. h. The Company shall have delivered to the Buyer a certificate evidencing the
formation and good standing of the Company and each of its Subsidiaries in such
entity’s jurisdiction of formation issued by the Secretary of State (or
comparable office) of such jurisdiction, as of a date within ten (10) days of
the Closing Date.
1. 8. Governing Law; Miscellaneous.
a. a. Governing Law; Venue. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Puerto Rico without regard to
principles of conflicts of laws. Any action brought by either party against the
other concerning the transactions contemplated by this Agreement or the Note or
any other agreement, certificate, instrument or document contemplated hereby
shall be brought only in the courts of Puerto Rico or in the federal courts
located in the commonwealth of Puerto Rico. 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. EACH PARTY HEREBY
IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, 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 TRANSACTIONS 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 this Agreement,
the Note, or any other agreement, certificate, instrument or document
contemplated hereby or thereby. 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, the Note or any other agreement,
certificate, instrument or document contemplated hereby or thereby 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.
a. b. 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. A facsimile or .pdf
signature shall be considered due execution and shall be binding upon the
signatory thereto with the same force and effect as if the signature were an
original, not a facsimile or .pdf signature. Delivery of a counterpart signature
hereto by facsimile or email/.pdf transmission shall be deemed validly delivery
thereof.
a. c. Construction; Headings. This Agreement shall be deemed to be jointly
drafted by the Company and the Buyer and shall not be construed against any
person as the drafter hereof. The headings of this Agreement are for convenience
of reference only and shall not form part of, or affect the interpretation of,
this Agreement.
a. d. 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.
a. e. Entire Agreement; Amendments. This Agreement, the Note 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 or any agreement or instrument contemplated hereby may be waived
or amended other than by an instrument in writing signed by the Buyer.
a. f. 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, e-mail 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 e-mail or 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 Company, to:
EWELLNESS HEALTHCARE CORPORATION
11825 Major Street
Culver City, California 90230
Attention: Darwin Fogt
e-mail: darwin@evolution-pt.com
With a copy by e-mail only to (which copy shall not constitute notice):
HUNTER TAUBMAN FISHER, LLC
1450 Broadway, 26th Floor
Puerto Rico, NY 10018
Attn: Louis E. Taubman
E-Mail: ltaubman@htflawyers.com
If to the Buyer:
JEB Partners, L.P.
3 West Hill Place
Boston, MA 02114
Attn: James Besser
e-mail: jbesser@mgfund.com
a. g. Successors and Assigns. This Agreement shall be binding upon and inure to
the benefit of the parties and their successors and assigns. Neither the Company
nor the Buyer shall assign this Agreement or any rights or obligations hereunder
without the prior written consent of the other. Notwithstanding the foregoing,
subject to Section 2(f), the Buyer may assign its rights hereunder to any person
that purchases Securities in a private transaction from the Buyer or to any of
its "affiliates," as that term is defined under the 1934 Act, without the
consent of the Company.
a. h. 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.
a. i. 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 their officers, directors, employees 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.
a. j. Publicity. The Company, and the Buyer shall have the right to review a
reasonable period of time before issuance of any press releases, SEC, OTCBB or
FINRA filings, or any other public statements with respect to the transactions
contemplated hereby; provided , however , that the Company shall be entitled,
without the prior approval of the Buyer, to make any press release or SEC, OTCBB
(or other applicable trading market) or FINRA filings with respect to such
transactions as is required by applicable law and regulations (although the
Buyer shall be consulted by the Company in connection with any such press
release prior to its release and shall be provided with a copy thereof and be
given an opportunity to comment thereon).
a. k. 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.
a. l. Indemnification. In consideration of the Buyer's execution and delivery of
this Agreement and acquiring the Securities hereunder, and in addition to all of
the Company's other obligations under this Agreement and the Note, the Company
shall defend, protect, indemnify and hold harmless the Buyer and its
stockholders, partners, members, officers, directors, employees and direct or
indirect investors and any of the foregoing persons' agents or other
representatives (including, without limitation, those retained in connection
with the transactions contemplated by this Agreement) (collectively, the "Indemnitees")
from and against any and all actions, causes of action, suits, claims, losses,
costs, penalties, fees, liabilities and damages, and expenses in connection
therewith (irrespective of whether any such Indemnitee is a party to the action
for which indemnification hereunder is sought), and including reasonable
attorneys’ fees and disbursements (the "Indemnified Liabilities"), incurred by
any Indemnitee as a result of, or arising out of, or relating to (a) any
misrepresentation or breach of any representation or warranty made by the
Company in this Agreement, the Note or the Warrant or any other agreement,
certificate, instrument or document contemplated hereby or thereby, (b) any
breach of any covenant, agreement or obligation of the Company contained in this
Agreement, the Note or the Warrant or any other agreement, certificate,
instrument or document contemplated hereby or thereby or (c) any cause of
action, suit or claim brought or made against such Indemnitee by a third party
(including for these purposes a derivative action brought on behalf of the
Company) and arising out of or resulting from (i) the execution, delivery,
performance or enforcement of this Agreement, the Note, or any other agreement,
certificate, instrument or document contemplated hereby or thereby, (ii) any
transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Securities, or (iii) the
status of the Buyer or holder of the Securities as an investor in the Company
pursuant to the transactions contemplated by this Agreement. To the extent that
the foregoing undertaking by the Company may be unenforceable for any reason,
the Company shall make the maximum contribution to the payment and satisfaction
of each of the Indemnified Liabilities that is permissible under applicable law.
a. m. 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 and the Note will be inadequate and agrees, in the event of a breach
or threatened breach by the Company of the provisions of this Agreement or the
Note, 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, or the Note 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.
a. n. Payment Set Aside. To the extent that the Company makes a payment or
payments to the Buyer hereunder or pursuant to the Note, or the Buyer enforces
or exercises its rights hereunder or thereunder, and such payment or payments or
the proceeds of such enforcement or exercise or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside,
recovered from, disgorged by or are required to be refunded, repaid or otherwise
restored to the Company, a trustee, receiver or any other person or entity under
any law (including, without limitation, any bankruptcy law, foreign, state or
federal law, common law or equitable cause of action), then to the extent of any
such restoration the obligation or part thereof originally intended to be
satisfied shall be revived and continued in full force and effect as if such
payment had not been made or such enforcement or setoff had not occurred.
a. o. Failure or Indulgence Not Waiver. No failure or delay on the part of the
Buyer 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 of the Buyer existing
hereunder are cumulative to, and not exclusive of, any rights or remedies
otherwise available.
[Signature Page Follows]
IN WITNESS WHEREOF, the undersigned Buyer and the Company have caused this
Agreement to be duly executed as of the date first above written.
eWELLNESS HEALTHCARE CORPORATION
By:
Name: DARWIN FOGT
Title: CHIEF EXECUTIVE OFFICER
JEB Partners, L.P.
By:
Name: JAMES BESSER
Title: MANAGING PARTNER
SUBSCRIPTION AMOUNT:
Principal Amount of Note: $55,000.00
Actual Amount of Purchase Price of Note: $50,000.00
EXHIBIT A
REGISTRATION RIGHTS
All of the Conversion Shares will be deemed "Registrable Securities" subject to
the provisions of this Exhibit A. All capitalized terms used but not defined in
this Exhibit A shall have the meanings ascribed to such terms in the Securities
Purchase Agreement to which this Exhibit is attached.
1. Piggy-Back Registration.
1.1 Piggy-Back Rights. If at any time on or after the date of the Closing the
Company proposes to file any Registration Statement under the 1933 Act (a
"Registration Statement") with respect to any offering of equity securities, or
securities or other obligations exercisable or exchangeable for, or convertible
into, equity securities, by the Company for its own account or for shareholders
of the Company for their account (or by the Company and by shareholders of the
Company), other than a Registration Statement (i) filed in connection with any
employee stock option or other benefit plan on Form S-8, (ii) for a dividend
reinvestment plan or (iii) in connection with a merger or acquisition, then the
Company shall (x) give written notice of such proposed filing to the holders of Registrable Securities appearing on the books and records of the Company as such
a holder as soon as practicable but in no event less than ten (10) days before
the anticipated filing date of the Registration Statement, which notice shall
describe the amount and type of securities to be included in such Registration
Statement, the intended method(s) of distribution, and the name of the proposed
managing underwriter or underwriters, if any, of the offering, and (y) offer to
the holders of Registrable Securities in such notice the opportunity to register
the sale of such number of Registrable Securities as such holders may request in
writing within five (5) days following receipt of such notice (a "Piggy-Back
Registration"). The Company shall cause such Registrable Securities to be
included in such registration and shall cause the managing underwriter or
underwriters of a proposed underwritten offering to permit the Registrable
Securities requested to be included in a Piggy-Back Registration on the same
terms and conditions as any similar securities of the Company and to permit the
sale or other disposition of such Registrable Securities in accordance with the
intended method(s) of distribution thereof. All holders of Registrable
Securities proposing to distribute their securities through a Piggy-Back
Registration that involves an underwriter or underwriters shall enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such Piggy-Back Registration.
1.2 Withdrawal. Any holder of Registrable Securities may elect to withdraw such
holder’s request for inclusion of Registrable Securities in any Piggy-Back
Registration by giving written notice to the Company of such request to withdraw
prior to the effectiveness of the Registration Statement. The Company (whether
on its own determination or as the result of a withdrawal by persons making a
demand pursuant to written contractual obligations) may withdraw a Registration
Statement at any time prior to the effectiveness of such Registration Statement.
Notwithstanding any such withdrawal, the Company shall pay all expenses incurred
by the holders of Registrable Securities in connection with such Piggy-Back
Registration as provided in Section 1.5 below.
1.3 The Company shall notify the holders of Registrable Securities at any time
when a prospectus relating to such holder’s Registrable Securities is required
to be delivered under the 1933 Act, upon discovery that, or upon the happening
of any event as a result of which, the prospectus included in such Registration
Statement, as then in effect, includes an untrue statement of a material fact or
omits to state any material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the circumstances then
existing. At the request of such holder, the Company shall also prepare, file
and furnish to such holder a reasonable number of copies of a supplement to or
an amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of the Registrable Securities, such prospectus shall
not include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances then existing. The holders of
Registrable Securities shall not to offer or sell any Registrable Securities
covered by the Registration Statement after receipt of such notification until
the receipt of such supplement or amendment.
1.4 The Company may request a holder of Registrable Securities to furnish the
Company such information with respect to such holder and such holder’s proposed
distribution of the Registrable Securities pursuant to the Registration
Statement as the Company may from time to time reasonably request in writing or
as shall be required by law or by the SEC in connection therewith, and such
holders shall furnish the Company with such information.
1.5 All fees and expenses incident to the performance of or compliance with this
Exhibit A by the Company shall be borne by the Company whether or not any
Registrable Securities are sold pursuant to a Registration Statement. The fees
and expenses referred to in the foregoing sentence shall include, without
limitation, (i) all registration and filing fees (including, without limitation,
fees and expenses of the Company’s counsel and independent registered public
accountants) (A) with respect to filings made with the SEC, (B) with respect to
filings required to be made with any trading market on which the Common Stock is
then listed for trading, (C) in compliance with applicable state securities or
Blue Sky laws reasonably agreed to by the Company in writing (including, without
limitation, fees and disbursements of counsel for the Company in connection with
Blue Sky qualifications or exemptions of the Registrable Securities) and (D)
with respect to any filing that may be required to be made by any broker through
which a holder of Registrable Securities intends to make sales of Registrable
Securities with the FINRA, (ii) printing expenses, (iii) messenger, telephone
and delivery expenses, (iv) fees and disbursements of counsel for the Company,
(v) 1933 Act liability insurance, if the Company so desires such insurance, (vi)
fees and expenses of all other persons or entities retained by the Company in
connection with the consummation of the transactions contemplated by this
Exhibit A and (vii) reasonable fees and disbursements of a single special
counsel for the holders of Registrable Securities (selected by holders of the
majority of the Registrable Securities requesting such registration), up to
$10,000 for each registration. In addition, the Company shall be responsible for
all of its internal expenses incurred in connection with the consummation of the
transactions contemplated by this Agreement (including, without limitation, all
salaries and expenses of its officers and employees performing legal or
accounting duties), the expense of any annual audit and the fees and expenses
incurred in connection with the listing of the Registrable Securities on any
securities exchange as required hereunder. In no event shall the Company be
responsible for any broker or similar commissions of any holder of Registrable
Securities.
1.6 The Company and its successors and assigns shall indemnify and hold harmless
the Buyer, each holder of Registrable Securities, the officers, directors,
members, partners, agents and employees (and any other individuals or entities
with a functionally equivalent role of a person holding such titles,
notwithstanding a lack of such title or any other title) of each of them, each
individual or entity who controls the Buyer or any such holder of Registrable
Securities (within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act) and the officers, directors, members, stockholders, partners,
agents and employees (and any other individuals or entities with a functionally
equivalent role of a person holding such titles, notwithstanding a lack of such
title or any other title) of each such controlling individual or entity (each,
an "Indemnified Party"), to the fullest extent permitted by applicable law, from
and against any and all losses, claims, damages, liabilities, costs (including,
without limitation, reasonable attorneys’ fees) and expenses (collectively,
"
Losses "), as incurred, arising out of or relating to (1) any untrue or alleged
untrue statement of a material fact contained in a Registration Statement, any
related prospectus or any form of prospectus or in any amendment or supplement
thereto or in any preliminary prospectus, or arising out of or relating to any
omission or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein (in the case of any such prospectus or
supplement thereto, in light of the circumstances under which they were made)
not misleading or (2) any violation or alleged violation by the Company of the
1933 Act, the 1934 Act or any state securities law, or any rule or regulation
thereunder, in connection with the performance of its obligations under this
Exhibit A, except to the extent, but only to the extent, that (i) such untrue
statements or omissions are based upon information regarding the Buyer or such
holder of Registrable Securities furnished to the Company by such party for use
therein. The Company shall notify the Buyer and each holder of Registrable
Securities promptly of the institution, threat or assertion of any proceeding
arising from or in connection with the transactions contemplated by this Exhibit
A of which the Company is aware.
1.7 If the indemnification under Section 1.6 is unavailable to an Indemnified
Party or insufficient to hold an Indemnified Party harmless for any Losses, then
the Company shall contribute to the amount paid or payable by such Indemnified
Party, in such proportion as is appropriate to reflect the relative fault of the
Company and Indemnified Party in connection with the actions, statements or
omissions that resulted in such Losses as well as any other relevant equitable
considerations. The relative fault of the Company and Indemnified Party shall be
determined by reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission of a material fact, has been taken or made by, or relates to
information supplied by, the Company or the Indemnified Party, and the parties’
relative intent, knowledge, access to information and opportunity to correct or
prevent such action, statement or omission. The amount paid or payable by a
party as a result of any Losses shall be deemed to include any reasonable
attorneys’ or other fees or expenses incurred by such party in connection with
any proceeding to the extent such party would have been indemnified for such
fees or expenses if the indemnification provided for in Section 1.6 was
available to such party in accordance with its terms. It is agreed that it would
not be just and equitable if contribution pursuant to this Section 1.7 were
determined by pro rata allocation or by any other method of allocation that does
not take into account the equitable considerations referred to in the
immediately preceding sentence. Notwithstanding the provisions of this Section
1.7, neither the Buyer nor any holder of Registrable Securities shall be
required to contribute, in the aggregate, any amount in excess of the amount by
which the net proceeds actually received by such party from the sale of all of
their Registrable Securities pursuant to such Registration Statement or related
prospectus exceeds the amount of any damages that such party has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission.
[End of Exhibit A]
SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT (the "Agreement"), dated as of April 24,
2017, by and between EWellness Healthcare Corp, a Nevada corporation, with
headquarters located at11825 Major Street, Culver City, CA 90230, (the
"Company"), and CROSSOVER CAPITAL FUND I, LLC, with its address at 365 Ericksen
Ave. NE #315, Bainbridge Island, WA 98110(the "Buyer").
WHEREAS:
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. Buyer desires to purchase and the Company desires to issue and sell, upon the
terms and conditions set forth in this Agreement two 5.5% convertible notes of
the Company, in the forms attached hereto as Exhibit A and B in the aggregate
principal amount of $167,000.00 (with the first note being in the amount of
$83,500.00 and the second note being in the amount of $83,500.00)(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"),
convertible into shares of common stock, of the Company (the "Common Stock"),
upon the terms and subject to the limitations and conditions set forth in such
Note. Each of the two notes shall contain a$8,500 OID such that the purchase
price of each note shall be $75,000.00. The first of the two notes (the "First
Note") shall be paid for by the Buyer as set forth herein. The second note (the
"Second Note") shall initially be paid for by the issuance of an offsetting
$75,000.00 secured note issued to the Company by the Buyer ("Buyer Note"),
provided that prior to conversion of the Second Note, the Buyer must have paid
off the Buyer Note in cash such that the Second Note may not be converted until
it has been paid for in cash by Buyer.
C. The Buyer wishes to purchase, upon the terms and conditions stated in this
Agreement, such principal amount of Note as is set forth immediately below its
name on the signature pages hereto; and
NOW THEREFORE, the Company and the Buyer severally (and not jointly) hereby
agree as follows:
1. Purchase and Sale of Note.
a. Purchase of Note. On each Closing Date (as defined below), the Company shall
issue and sell to the Buyer and the Buyer agrees to purchase from the Company
such principal amount of Note as is set forth immediately below the Buyer's name
on the signature pages hereto.
b. Form of Payment. On the Closing Date (as defined below), (i) the Buyer shall
pay the purchase price for the Note to be issued and sold to it at the Closing
(as defined below) (the "Purchase Price") by wire transfer of immediately
available funds to the Company, in accordance with the Company's written wiring
instructions, against delivery of the Note in the principal amount equal to the
Purchase Price as is set forth immediately below the Buyer's name on the
signature pages hereto, and (ii) the Company shall deliver such duly executed
Note on behalf of the Company, to the Buyer, against delivery of such Purchase
Price.
c. Closing Date. The date and time of the first issuance and sale of the Note
pursuant to this Agreement (the "Closing Date") shall be on or about April 24,
2017, 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. Subsequent Closings shall
occur when the Buyer Note is repaid. The Closing of the Second Note shall be on
or before the dates specified in the Buyer Note.
2. Buyer's Representations and Warranties. The Buyer represents and warrants to
the Company that:
a. Investment Purpose. As of the date hereof, the Buyer is purchasing the Note
and the shares of Common Stock issuable upon conversion of or otherwise pursuant
to the Note, such shares of Common Stock being collectively referred to herein
as the "Conversion Shares" and, collectively with the Note, the "Securities")
for its own account and not with a present view towards the public sale or
distribution thereof, except pursuant to sales registered or exempted from
registration under the 1933 Act; provided, however, that by making the
representations herein, the Buyer does not agree to hold any of the Securities
for any minimum or other specific term and reserves the right to dispose of the
Securities at any time in accordance with or pursuant to a registration
statement or an exemption under the 1933 Act.
b. Accredited Investor Status. The Buyer is an "accredited investor" as that
term is defined in Rule 501(a) of Regulation D (an "Accredited Investor"). Any
of Buyer's transferees, assignees, or purchasers must be "accredited investors"
in order to qualify as prospective transferees, permitted assignees in the case
of Buyer's or Holder's transfer, assignment or sale of the Note.
c. Reliance on Exemptions. The Buyer understands that the Securities are being
offered and sold to it in reliance upon specific exemptions from the
registration requirements of United States federal and state securities laws and
that the Company is relying upon the truth and accuracy of, and the Buyer's
compliance with, the representations, warranties, agreements, acknowledgments
and understandings of the Buyer set forth herein in order to determine the
availability of such exemptions and the eligibility of the Buyer to acquire the
Securities.
d. Information. The Buyer and its advisors, if any, have been, and for so long
as the Note remain outstanding will continue to be, furnished with all materials
relating to the business, finances and operations of the Company and materials
relating to the offer and sale of the Securities which have been requested by
the Buyer or its advisors. The Buyer and its advisors, if any, have been, and
for so long as the Note remain outstanding will continue to be, afforded the
opportunity to ask questions of the Company. Notwithstanding the foregoing, the
Company has not disclosed to the Buyer any material nonpublic information and
will not disclose such information unless such information is disclosed to the
public prior to or promptly following such disclosure to the Buyer. Neither such
inquiries nor any other due diligence investigation conducted by Buyer or any of
its advisors or representatives shall modify, amend or affect Buyer's right to
rely on the Company's representations and warranties contained in Section 3
below. The Buyer understands that its investment in the Securities involves a
significant degree of risk. The Buyer is not aware of any facts that may
constitute a breach of any of the Company's representations and warranties made
herein.
e. Governmental Review. The Buyer understands that no United States federal or
state agency or any other government or governmental agency has passed upon or
made any recommendation or endorsement of the Securities.
f. Transfer or Re-sale. The Buyer understands that (i) the sale or re-sale of
the Securities has not been and is not being registered under the 1933 Act or
any applicable state securities laws, and the Securities may not be transferred
unless (a) the Securities are sold pursuant to an effective registration
statement under the 1933 Act, (b) in the case of subparagraphs (c), (d) and (e)
below, the Buyer shall have delivered to the Company, at the cost of the Buyer,
an opinion of counsel that shall be in form, substance and scope customary for
opinions of counsel in comparable transactions to the effect that the Securities
to be sold or transferred may be sold, or transferred pursuant to an exemption
from such registration, including the removal of any restrictive legend which
opinion shall be accepted by the Company, (c) the Securities are sold or
transferred to an "affiliate" (as defined in Rule 144 promulgated under the 1933
Act (or a successor rule) ("Rule 144") of the Buyer who agrees to sell or
otherwise transfer the Securities only in accordance with this Section 2(f) and
who is an Accredited Investor, (d) the Securities are sold pursuant to Rule 144,
or (e) the Securities are sold pursuant to Regulation S under the 1933 Act (or a
successor rule) ("Regulation S"); (ii) any sale of such Securities made in
reliance on Rule 144 may be made only in accordance with the terms of said Rule
and further, if said Rule is not applicable, any re-sale of such Securities
under circumstances in which the seller (or the person through whom the sale is
made) may be deemed to be an underwriter (as that term is defined in the 1933
Act) may require compliance with some other exemption under the 1933 Act or the
rules and regulations of the SEC thereunder; and (iii) neither the Company nor
any other person is under any obligation to register such Securities under the
1933 Act or any state securities laws or to comply with the terms and conditions
of any exemption thereunder (in each case). Notwithstanding the foregoing or
anything else contained herein to the contrary, the Securities may be pledged as
collateral in connection with a bonafide margin account or other lending
arrangement.
g. Legends. The Buyer understands that the Note and, until such time as the
Conversion Shares have been registered under the 1933 Act will be sold pursuant
to Rule 144 or Regulation S without any restriction as to the number of
securities as of a particular date that can then be immediately sold, the
Conversion Shares may bear a restrictive legend in substantially the following
form (and a stop-transfer order may be placed against transfer of the
certificates for such Securities):
"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 Company shall issue a
certificate without such legend to the holder of any Security upon which it is
stamped, if, unless otherwise required by applicable state securities laws, (a)
such Security is registered for sale under an effective registration statement
filed under the 1933 Act or otherwise may be sold pursuant to Rule 144 or
Regulation S without any restriction as to the number of securities as of a
particular date that can then be immediately sold, and (b) such holder provides
the Company with 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 Security may be made without registration under the
1933 Act, and that legend removal is appropriate, which opinion shall be
accepted by the Company so that the sale or transfer is effected. The Buyer
agrees to sell all Securities, including those represented by a certificate(s)
from which the legend has been removed, in compliance with applicable prospectus
delivery requirements, if any.In the event that the Company 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, within 2 business days, it will be considered an Event of Default
under the Note.
h. Authorization; Enforcement. This Agreement has been duly and validly
authorized. This Agreement has been duly executed and delivered on behalf of the
Buyer, and this Agreement constitutes a valid and binding agreement of the Buyer
enforceable in accordance with its terms.
i. Residency. The Buyer is a resident of the jurisdiction set forth immediately
below the Buyer's name on the signature pages hereto.
j.No Short Sales. Buyer/Holder, its successors and assigns, agree that so long
as the Note remains outstanding, the Buyer/Holder shall not enter into or effect
"short sales" of the Common Stock or hedging transaction which establishes a
short position with respect to the Common Stock of the Company. The Company
acknowledges and agrees that upon delivery of a Conversion Notice by the
Buyer/Holder, the Buyer/Holder immediately owns the shares of Common Stock
described in the Conversion Notice and any sale of those shares issuable under
such Conversion Notice would not be considered short sales.
3. Representations and Warranties of the Company. The Company represents and
warrants to the Buyer that:
a. Organization and Qualification. The Company and each of its subsidiaries, if
any, is a corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction in which it is incorporated, with full power
and authority (corporate and other) to own, lease, use and operate its
properties and to carry on its business as and where now owned, leased, used,
operated and conducted.
b. Authorization; Enforcement. (i) The Company has all requisite corporate power
and authority to enter into and perform this Agreement, the Note and to
consummate the transactions contemplated hereby and thereby and to issue the
Securities, in accordance with the terms hereof and thereof, (ii) the execution
and delivery of this Agreement, the Note by the Company and the consummation by
it of the transactions contemplated hereby and thereby (including without
limitation, the issuance of the Note and the issuance and reservation for
issuance of the Conversion Shares issuable upon conversion or exercise thereof)
have been duly authorized by the Company's Board of Directors and no further
consent or authorization of the Company, its Board of Directors, or its
shareholders is required, (iii) this Agreement has been duly executed and
delivered by the Company by its authorized representative, and such authorized
representative is the true and official representative with authority to sign
this Agreement and the other documents executed in connection herewith and bind
the Company accordingly, and (iv) this Agreement constitutes, and upon execution
and delivery by the Company of the Note, each of such instruments will
constitute, a legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its terms.
c. Issuance of Shares. The Conversion Shares are duly authorized and reserved
for issuance and, upon conversion of the Note in accordance with its respective
terms, will be validly issued, fully paid and non-assessable, and 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 Company and will not impose personal liability upon the
holder thereof.
d. Acknowledgment of Dilution. The Company understands and acknowledges the
potentially dilutive effect to the Common Stock upon the issuance of the
Conversion Shares upon conversion of the Note. The Company further acknowledges
that its obligation to issue Conversion Shares upon conversion of the Note in
accordance with this Agreement, the Note is absolute and unconditional
regardless of the dilutive effect that such issuance may have on the ownership
interests of other shareholders of the Company.
e. No Conflicts. The execution, delivery and performance of this Agreement, the
Note by the Company and the consummation by the Company of the transactions
contemplated hereby and thereby (including, without limitation, the issuance and
reservation for issuance of the Conversion Shares) will not (i) conflict with or
result in a violation of any provision of the Certificate of Incorporation or
By-laws, or (ii) violate or conflict with, or result in a breach of any
provision of, or constitute a default (or an event which with notice or lapse of
time or both could become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
indenture, patent, patent license or instrument to which the Company or any of
its Subsidiaries is a party, or (iii) result in a violation of any law, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations and regulations of any self-regulatory organizations to
which the Company or its securities are subject) applicable to the Company or
any of its Subsidiaries or by which any property or asset of the Company or any
of its Subsidiaries is bound or affected (except for such conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations as would
not, individually or in the aggregate, have a Material Adverse Effect). All
consents, authorizations, orders, filings and registrations which the Company is
required to obtain pursuant to the preceding sentence have been obtained or
effected on or prior to the date hereof. The Company is not in violation of the
listing requirements of the OTCMarkets Exchange (the "OTC MARKETS") and does not
reasonably anticipate that the Common Stock will be delisted by the OTC MARKETS
in the foreseeable future, nor are the Company's securities "chilled" by FINRA.
The Company and its Subsidiaries are unaware of any facts or circumstances which
might give rise to any of the foregoing.
f. Absence of Litigation. Except as disclosed in the Company's Periodic Report
filings with the SEC, there is no action, suit, claim, proceeding, inquiry or
investigation before or by any court, public board, government agency,
self-regulatory organization or body pending or, to the knowledge of the Company
or any of its subsidiaries, threatened against or affecting the Company or any
of its subsidiaries, or their officers or directors in their capacity as such,
that could have a material adverse effect. Schedule 3(f) contains a complete
list and summary description of any pending or, to the knowledge of the Company,
threatened proceeding against or affecting the Company or any of its
subsidiaries, without regard to whether it would have a material adverse effect.
The Company and its subsidiaries are unaware of any facts or circumstances which
might give rise to any of the foregoing.
g. Acknowledgment Regarding Buyer' Purchase of Securities. The Company
acknowledges and agrees that the Buyer is acting solely in the capacity of arm's
length purchasers with respect to this Agreement and the transactions
contemplated hereby. The Company further acknowledges that the Buyer is not
acting as a financial advisor or fiduciary of the Company (or in any similar
capacity) with respect to this Agreement and the transactions contemplated
hereby and any statement made by the Buyer or any of its respective
representatives or agents in connection with this Agreement and the transactions
contemplated hereby is not advice or a recommendation and is merely incidental
to the Buyer' purchase of the Securities. The Company further represents to the
Buyer that the Company's decision to enter into this Agreement has been based
solely on the independent evaluation of the Company and its representatives.
h. No Integrated Offering. Neither the Company, nor any of its affiliates, nor
any person acting on its or their behalf, has directly or indirectly made any
offers or sales in any security or solicited any offers to buy any security
under circumstances that would require registration under the 1933 Act of the
issuance of the Securities to the Buyer.
i. Title to Property. The Company and its subsidiaries have good and marketable
title in fee simple to all real property and good and marketable title to all
personal property owned by them which is material to the business of the Company
and its subsidiaries, in each case free and clear of all liens, encumbrances and
defects except such as are described in Schedule 3(i) or such as would not have
a material adverse effect. Any real property and facilities held under lease by
the Company and its subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as would not have a material adverse
effect.
j. Bad Actor. No officer or director of the Company would be disqualified under
Rule 506(d) of the Securities Act as amended on the basis of being a "bad
actor" as that term is established in the September 19, 2013 Small Entity
Compliance Guide published by the Securities and Exchange Commission.
k. Breach of Representations and Warranties by the Company. If the Company
breaches any of the representations or warranties set forth in this Section 3,
and in addition to any other remedies available to the Buyer pursuant to this
Agreement, it will be considered an Event of default under the Note.
4. COVENANTS.
a. Expenses. At the Closing, the Company shall reimburse Buyer for expenses
incurred by them in connection with the negotiation, preparation, execution,
delivery and performance of this Agreement and the other agreements to be
executed in connection herewith ("Documents"), including, without limitation,
reasonable attorneys' and consultants' fees and expenses, transfer agent fees,
fees for stock quotation services, fees relating to any amendments or
modifications of the Documents or any consents or waivers of provisions in the
Documents, fees for the preparation of opinions of counsel, escrow fees, and
costs of restructuring the transactions contemplated by the Documents. When
possible, the Company must pay these fees directly, otherwise the Company must
make immediate payment for reimbursement to the Buyer for all fees and expenses
immediately upon written notice by the Buyer or the submission of an invoice by
the Buyer.
b. Listing. The Company shall promptly secure the listing of the Conversion
Shares upon each national securities exchange or automated quotation system, if
any, upon which shares of Common Stock are then listed (subject to official
notice of issuance) and, so long as the Buyer owns any of the Note Securities,
shall maintain, so long as any other shares of Common Stock shall be so listed,
such listing of all Conversion Shares from time to time issuable upon conversion
of the Note. The Company will obtain and, so long as the Buyer owns any of the
Securities, maintain the listing and trading of its Common Stock on the OTC
MARKETS or any equivalent replacement market, the Nasdaq stock market ("Nasdaq"),
the New York Stock Exchange ("NYSE"), or the American Stock Exchange ("AMEX")
and will comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the Financial Industry Regulatory
Authority ("FINRA") and such exchanges, as applicable. The Company shall
promptly provide to the Buyer copies of any notices it receives from the OTC
MARKETS and any other markets on which the Common Stock is then listed regarding
the continued eligibility of the Common Stock for listing on such markets.
c. Corporate Existence. So long as the Buyer beneficially owns the Note, the
Company shall maintain its corporate existence and shall not sell all or
substantially all of the Company's assets, except in the event of a merger or
consolidation or sale of all or substantially all of the Company's assets, where
the surviving or successor entity in such transaction (i) assumes the Company's
obligations hereunder and under the agreements and instruments entered into in
connection herewith and (ii) is a publicly traded corporation whose Common Stock
is listed for trading on the OTC MARKETS, Nasdaq, NYSE or AMEX.
d. No Integration. The Company shall not make any offers or sales of any
security (other than the Securities) under circumstances that would require
registration of the Securities being offered or sold hereunder under the 1933
Act or cause the offering of the Securities to be integrated with any other
offering of securities by the Company for the purpose of any stockholder
approval provision applicable to the Company or its securities.
e. Right of Additional Investment. For a period of 6 months following the
closing date of the sale of the first note being purchased herein, the Company
shall grant the Buyer the right to investment up to an additional $167,000, in
one or more tranches, on the same terms and conditions as those in the notes
being purchased herein.
f. Breach of Covenants. If the Company breaches any of the covenants set forth
in this Section 4, and in addition to any other remedies available to the Buyer
pursuant to this Agreement, it will be considered an event of default under the
Note.
5. Governing Law; Miscellaneous.
a. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York 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 New York or in the federal courts located in the state
and county of New York. 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. The Company and Buyer waive trial by jury. 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.
b. Counterparts; Signatures by Facsimile. 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.
This Agreement, once executed by a party, may be delivered to the other party
hereto by facsimile transmission of a copy of this Agreement bearing the
signature of the party so delivering this Agreement.
c. 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.
d. 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.
e. 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 majority in interest of the Buyer.
f. 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, (iv) via
electronic mail or (v) 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 delivery via electronic mail, 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 Company, to:
EWellness Healthcare Corp
11825 Major Street
Culver City, CA 90230
Attn: Darwin Fogt, CEO
If to the Buyer:
CROSSOVER CAPITAL FUND I, LLC
365 Ericksen Ave. NE #315
Bainbridge Island, WA 98110
Attn: Ken Lustig
Each party shall provide notice to the other party of any change in address.
g. Successors and Assigns. This Agreement shall be binding upon and inure to the
benefit of the parties and their successors and assigns. Neither the Company nor
the Buyer shall assign this Agreement or any rights or obligations hereunder
without the prior written consent of the other. Notwithstanding the foregoing,
the Buyer may assign its rights hereunder to any "qualified person", any "permitted assigns", or
"prospective transferee" that acquires or purchases Note
Securities in a private transaction from the Buyer or to any of its "affiliates," as that term is defined under the 1934 Act, without the consent of
the Company with Buyer's Opinion of Counsel. A qualified person is an "accredited investor" transferee, assignee, or purchaser of the Note who
succeeds to the Holder's right, title and interest to all or a portion of the
Note accompanied with an Opinion of Counsel as provided for in Section 2(f).
h. 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.
i. 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 their officers, directors, employees 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.
j. Further Assurances. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
k. 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.
l. 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.
IN WITNESS WHEREOF, the undersigned Buyer and the Company have caused this
Agreement to be duly executed as of the date first above written.
EWellness Healthcare Corp.
By:________________________________
Name: Darwin Fogt
Title: CEO
CROSSOVER CAPITAL FUND I, LLC.
By:
Name:Ken Lustig
Title: Manager
AGGREGATE SUBSCRIPTION AMOUNT: $167,000.00
Aggregate Principal Amount of Notes:
Aggregate Purchase Price:
Note 1: $83,500.00, less $8,500.00 in OID, less $3,750.00 in legal feesand less
$5,775.00 in due diligence fees to be retained by CROSSOVER CAPITAL FUND I LLC
Back End Note: $83,500.00, less $8,500.00 in OID, less $3,750.00 in legal fees
and less $5,775.00 in due diligence fees to be retained by CROSSOVER CAPITAL
FUND I LLC
EXHIBIT A
144 NOTE - $83,500
EXHIBIT B
BACK END NOTE - $83,500
INVESTMENT AGREEMENT
This INVESTMENT AGREEMENT (the "Agreement"), dated as of February 10,
2017(the "Execution Date"), is entered into by and between eWellness Healthcare
Corporation(the "Company"), a Nevada corporation, with its principal executive
offices at 11825 Major Street, Culver City, CA 90230, and Tangiers Global, LLC
(the "Investor"), a Wyoming limited liability company, with its principal
executive offices at Caribe Plaza Office Building 6th Floor, Palmeras St. #53,
San Juan, PR 00901.
RECITALS:
WHEREAS, the parties desire that, upon the terms and subject to the conditions
contained herein, the Investor shall invest up to five million dollars
($5,000,000) (the "Commitment Amount") to purchase the Company’s common stock,
par value of$0.001 per share(the "Common Stock");
WHEREAS, such investments will be made in reliance upon the exemption from
securities registration afforded by Section 4(a)(2) of the Securities Act of
1933, as amended (the "1933 Act"), Rule 506 of Regulation D promulgated by the
SEC under the 1933 Act, and/or upon such other exemption from the registration
requirements of the 1933 Act as may be available with respect to any or all of
the investments in Common Stock to be made hereunder; and
WHEREAS, contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement
substantially in the form attached hereto as Exhibit A(the "Registration Rights
Agreement") pursuant to which the Company has agreed to provide certain
registration rights under the 1933 Act, and the rules and regulations
promulgated thereunder, and applicable state securities laws.
NOW THEREFORE, in consideration of the foregoing recitals, which shall be
considered an integral part of this Agreement, the covenants and agreements set
forth hereafter, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Company and the Investor hereby
agree as follows:
SECTION I.
DEFINITIONS
For all purposes of and under this Agreement, the following terms shall have the
respective meanings below, and such meanings shall be equally applicable to the
singular and plural forms of such defined terms.
"1933 Act" shall have the meaning set forth in the recitals.
"1934 Act" shall mean the Securities Exchange Act of 1934, as amended, or any
similar federal statute, and the rules and regulations of the SEC thereunder,
all as the same will then be in effect.
"Affiliate" shall mean any individual or entity that, directly or indirectly
through one or more intermediaries, controls or is controlled by or is under
common control with another individual or entity as such terms are used in and
construed under Rule 405 under the 1933 Act.
"Agreement" shall have the meaning set forth in the preamble.
"Articles of Incorporation" shall have the meaning set forth in Section 4.3.
"By-laws" shall have the meaning set forth in Section 4.3.
"Certificate" shall have the meaning set forth in Section 2.5.
"Closing" shall have the meaning set forth in Section 2.5.
"Closing Date" shall have the meaning set forth in Section 2.5.
"Commitment Fee Note" shall have the meaning set forth in Section 10.17
"Commitment Amount" shall have the meaning set forth in the recitals.
"Common Stock" shall have the meaning set forth in the recitals.
"Company" shall have the meaning set forth in the preamble.
"DTC" shall have the meaning set forth in Section 2.5.
"DWAC" shall mean Deposit and Withdrawal at Custodian service provided by the
Depository Trust Company.
"Effective Date" shall mean the date the SEC declares effective under the 1933
Act the Registration Statement covering the Securities.
"Environmental Laws" shall have the meaning set forth in Section 4.13.
"Execution Date" shall have the meaning set forth in the preamble.
"FAST" shall have the meaning set forth in Section 2.5.
"Investor" shall have the meaning set forth in the preamble.
"Material Adverse Effect" shall have the meaning set forth in Section 4.1.
"Maximum Common Stock Issuance" shall have the meaning set forth in Section 2.6.
"Open Period" shall mean the period beginning on and including the Trading Day
immediately following the Effective Date and ending on the earlier to occur of
(i) the date which is thirty-six (36) months from the Effective Date; or (ii)
termination of the Agreement in accordance with Section 8.
"PCAOB" shall have the meaning set forth in Section 4.6.
"Pricing Period" shall mean, with respect to a particular Put Notice, the five
(5) consecutive Trading Days including and immediately following the applicable Put
Notice Date.
"Principal Market" shall mean the New York Stock Exchange, the NYSE MKT, the
Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select
Market, the OTC Bulletin Board or the OTC Markets Group, whichever is the
principal market on which the Common Stock is traded.
"Purchase Amount" shall mean the total amount being paid by the Investor on a
particular Closing Date to purchase the Securities, calculated by multiplying
the Purchase Price by the Put Amount.
"Purchase Price" shall mean the 80% of the lowest trading price of the Common
Stock during the Pricing Period applicable to the Put Notice, provided, however,
an additional 10% will be added to the discount of each Put if (i) the Company
is not DWAC eligible and(ii) an additional 15% will be added to the discount of
each Put if the Company is under DTC "chill" status on the applicable Put Notice
Date.
"Put" shall have the meaning set forth in Section 2.2.
"Put Amount" shall have the meaning set forth in Section 2.3.
"Put Notice" shall mean a written notice sent to the Investor by the Company
stating the Put Amount in U.S. dollars that the Company intends to sell to the
Investor pursuant to the terms of the Agreement and stating the current number
of Shares issued and outstanding on such date.
"Put Notice Date" shall mean the Trading Day on which the Investor receives a Put
Notice, determined as follows: a Put Notice shall be deemed delivered on (a) the
Trading Day it is received by electronic mail or otherwise by the Investor if
such notice is received prior to 9:30 a.m. (Pacific time), or (b) the immediately
succeeding Trading Day if it is received by electronic mail or otherwise after
9:30 a.m.(Pacifictime) on a Trading Day. No Put Notice may be deemed delivered
on a day that is not a Trading Day.
"Put Settlement Sheet" shall mean a written letter to the Company by the
Investor, evidencing acceptance of the Put and providing instructions for
delivery of the Securities to the Investor.
"Put Shares Due" shall mean the Shares to be sold to the Investor pursuant to
the Put.
"Registered Offering Transaction Documents" shall mean this Agreement and the
Registration Rights Agreement between the Company and the Investor as of the
date herewith.
"Registration Rights Agreement" shall have the meaning set forth in the
recitals.
"Registration Statement" means the registration statement of the Company filed
under the 1933 Act covering the resale of the Securities issuable hereunder by
the Investor, in the manner described in such Registration Statement.
"Resolutions" shall have the meaning set forth in Section 7.5.
"SEC" shall mean the U.S. Securities and Exchange Commission.
"SEC Documents" shall have the meaning set forth in Section 4.6.
"Securities" shall mean the shares of Common Stock issued pursuant to the terms
of the Agreement.
"Shares" shall mean the shares of the Company’s Common Stock.
"Subsidiaries" shall have the meaning set forth in Section 4.1.
"Trading Day" shall mean any day on which the Principal Market for the Common
Stock is open for trading, from the hours of 9:30 am until 4:00 pm.
"VWAP"shall mean, for any date, the price determined by the first of the
following clauses that applies: (a) if the Common Stock is then listed or quoted
on a Trading Market, the daily volume weighted average price of the Common Stock
for such date (or the nearest preceding date) on the Trading Market on which the
Common Stock is then listed or quoted for trading as reported by (i) Bloomberg
Financial L.P. or (ii) Stock Charts/Quote Media if the Investor does not
promptly provide the Company the Bloomberg quote/pricing charts for the days
involved upon the Company’s request(based on a Trading Day from 9:30 a.m. (New
York City time) to 4:02 p.m. (New York City time)) and (b) in all other cases,
the fair market value of a share of Common Stock as determined by an independent
appraiser selected in good faith by the Investor and to the Company.
"Waiting Period" shall have the meaning set forth in Section 2.3.
SECTION II
PURCHASE AND SALE OF COMMON STOCK
2.1 PURCHASE AND SALE OF COMMON STOCK. Subject to the terms and conditions set
forth herein, the Company shall issue and sell to the Investor, and the Investor
shall purchase from the Company, up to that number of Shares having an aggregate
Purchase Price of fivemillion dollars ($5,000,000).
2.2 DELIVERY OF PUT NOTICES. Subject to the terms and conditions of the
Registered Offering Transaction Documents, and from time to time during the Open
Period, the Company may, in its sole discretion, deliver a Put Notice to the
Investor which states the share amount (designated in whole shares of the
Company’s Common Stock), which the Company intends to sell to the Investor on a
Closing Date (the "Put"). The Put Notice shall be in the form attached hereto as
Exhibit B and incorporated herein by reference. Upon receipt of the Put Notice,
the Investor shall deliver to the Company a Put Settlement Sheet on the Put
Notice Date. The Put Settlement Sheet shall be in the form attached hereto as
Exhibit C and incorporated herein by reference.
2.3 PUT FORMULA. The maximum amount that the Company shall be entitled to Put to
the Investor per any applicable Put Noticean amount of shares of Common Stock up
to or equal to two hundred percent (200%) of the average of the daily trading
volume (U.S. market only) of the Common Stock for the ten (10) consecutive
Trading Days immediately prior to the applicable Put Notice Date (the "Put
Amount") so long as such amount is at least five thousand dollars ($5,000) and
does not exceed two hundred and fifty thousand dollars ($250,000), as calculated
by multiplying the Put Amount by the average daily VWAP for the ten (10)
consecutive Trading Days immediately prior to the applicable Put Notice Date.
During the Open Period, the Company shall not be entitled to submit a Put Notice
until after the previous Closing has been completed. Notwithstanding the
foregoing, the Company may not deliver a Put Notice on or earlier of the tenth
(10th) Trading Day immediately following the preceding Put Notice Date (the
"Waiting Period").
2.4 CONDITIONS TO INVESTOR’S OBLIGATION TO PURCHASE SHARES. Notwithstanding
anything to the contrary in this Agreement, the Company shall not be entitled to
deliver a Put Notice and the Investor shall not be obligated to purchase any
Shares at a Closing unless each of the following conditions are satisfied:
i. a Registration Statement shall have been declared effective and shall remain
effective and available for the resale of all the Put Shares Due at all times
until the Closing with respect to the applicable Put Notice;
ii. at all times during the period beginning on the related Put Notice Date and
ending on and including the related Closing Date, the Common Stock shall have
been listed or quoted for trading on the Principal Market and shall not have
been suspended from trading thereon during the Pricing Period;
iii. the Company has complied with its obligations and is otherwise not in
material breach of or in material default under, this Agreement, the
Registration Rights Agreement or any other agreement executed in connection
herewith which has not been cured prior to delivery to the Investor of the
applicable Put Notice;
iv. no injunction shall have been issued and remain in force, or action
commenced by a governmental authority which has not been stayed or abandoned,
prohibiting the purchase or the issuance of the Securities; and
v. the issuance of the Securities will not violate any shareholder approval
requirements of the Principal Market.
If any of the events described in clauses (i) through (v) above occurs during a
Pricing Period, then the Investor shall have no obligation to purchase the Put
Amount of Common Stock set forth in the applicable Put Notice.
2.5 MECHANICS OF PURCHASE OF SHARES BY INVESTOR. Subject to the satisfaction of
the conditions set forth in Sections 2.6 and 7 of this Agreement, the closing of
the purchase by the Investor of Securities (a "Closing") shall occur on the date
which is no earlier than five (5) Trading Days following and no later than seven
(7) Trading Days following the applicable Put Notice Date (each a "Closing
Date"). On each such Closing Date, if the Company's transfer agent is
participating in The Depository Trust Company ("DTC") Fast Automated Securities
Transfer ("FAST") program and that the Securities are eligible for inclusion in
the FAST program, the Company shall use all commercially reasonable efforts to
cause its transfer agent to electronically transmit the Securities to be issued
to the Investor on such date by crediting the account of the Investor’s prime
broker (as specified by the Investor in a Put Settlement Sheet) with DTC through
its DWAC service. If the Company is not DWAC eligible or the Company is under
DTC "chill" on such Closing Date, the Company shall deliver to the Investor
pursuant to this Agreement, certificates representing the Securities to be
issued to the Investor on such date and registered in the name of the Investor
(the "Certificate"). On such Closing Date, after receipt of confirmation of
delivery of such Securities to the Investor, the Investor shall disburse the
funds constituting the Purchase Amount to the Company’s designated account by
wire transfer of (i) immediately available funds if the Investor receives the
Securities by 9:30 a.m. (Pacific time) or (ii) next day available funds if the
Investor receives the Securities thereafter.
2.6 OVERALL LIMIT ON COMMON STOCK ISSUABLE.Notwithstanding anything contained
herein to the contrary, if during the Open Period the Company becomes listed on
an exchange that limits the number of shares of Common Stock that may be issued
without shareholder approval, then the number of Shares issuable by the Company
and purchasable by the Investor, shall not exceed that number of the shares of
Common Stock that may be issuable without shareholder approval (the "Maximum
Common Stock Issuance"). If such issuance of shares of Common Stock could cause
a delisting on the Principal Market, then the Maximum Common Stock Issuance
shall first be approved by the Company’s shareholders in accordance with
applicable law and the By-laws and the Articles of Incorporationof the Company,
if such issuance of shares of Common Stock could cause a delisting on the
Principal Market. The parties understand and agree that the Company’s failure to
seek or obtain such shareholder approval shall in no way adversely affect the
validity and due authorization of the issuance and sale of Securities or the
Investor’s obligation in accordance with the terms and conditions hereof to
purchase a number of Shares in the aggregate up to the Maximum Common Stock
Issuance limitation, and that such approval pertains only to the applicability
of the Maximum Common Stock Issuance limitation provided in this Section 2.6.
2.7 LIMITATION ON AMOUNT OF OWNERSHIP. Notwithstanding anything to the contrary
in this Agreement, in no event shall the Investor be entitled to purchase that
number of Shares, which when added to the sum of the number of shares of Common
Stock beneficially owned (as such term is defined under Section 13(d) and Rule
13d-3 of the 1934 Act), by the Investor, would exceed 9.99% of the number of
shares of Common Stock outstanding on the Closing Date, as determined in
accordance with Rule 13d-1(j) of the 1934 Act.
SECTION III
INVESTOR’S REPRESENTATIONS, WARRANTIES AND COVENANTS
The Investor represents and warrants to the Company, and covenants, that:
3.1 SOPHISTICATED INVESTOR. The Investor has, by reason of its business and
financial experience, such knowledge, sophistication and experience in financial
and business matters and in making investment decisions of this type that it is
capable of (i) evaluating the merits and risks of an investment in the
Securities and making an informed investment decision; (ii) protecting its own
interest; and (iii) bearing the economic risk of such investment for an
indefinite period of time.
3.2 AUTHORIZATION; ENFORCEMENT. This Agreement has been duly and validly
authorized, executed and delivered on behalf of the Investor and is a valid and
binding agreement of the Investor enforceable against the Investor in accordance
with its terms, subject as to enforceability to general principles of equity and
to applicable bankruptcy, insolvency, reorganization, moratorium, liquidation
and other similar laws relating to, or affecting generally, the enforcement of
applicable creditors’ rights and remedies.
3.3 SECTION 9 OF THE 1934 ACT. During the term of this Agreement, the Investor
will comply with the provisions of Section 9 of the 1934 Act, and the rules
promulgated thereunder, with respect to transactions involving the Common Stock.
The Investor agrees not to short sell the Company’s stock either directly or
indirectly through its affiliates, principals or advisors, the Common Stock
during the term of this Agreement. The Investor will only sell Company stock
that it has in its possession.
3.4 ACCREDITED INVESTOR. The Investor is an "accredited investor" as that term
is defined in Rule 501(a) of Regulation D of the 1933 Act.
3.5 NO CONFLICTS. The execution, delivery and performance of the Registered
OfferingTransaction Documents by the Investor and the consummation by the
Investor of the transactions contemplated hereby and thereby will not result in
a violation of limited liability company agreement or other organizational
documents of the Investor.
3.6 OPPORTUNITY TO DISCUSS. The Investor has received all materials relating to
the Company’s business, finance and operations which it has requested. The
Investor has had an opportunity to discuss the business, management and
financial affairs of the Company with the Company’s management.
3.7 INVESTMENT PURPOSES. The Investor is purchasing the Securities for its own
account for investment purposes and not with a view towards distribution and
agrees to resell or otherwise dispose of the Securities solely in accordance
with the registration provisions of the 1933 Act (or pursuant to an exemption
from such registration provisions).
3.8 NO REGISTRATION AS A DEALER. The Investor is not and will not be required to
be registered as a "dealer" under the 1934 Act, either as a result of its
execution and performance of its obligations under this Agreement or otherwise.
3.9 GOOD STANDING. The Investor is a limited liability company, duly organized,
validly existing and in good standing in the State of Nevada.
3.10 TAX LIABILITIES. The Investor understands that it is liable for its own tax
liabilities.
3.11 REGULATION M. The Investor will comply with Regulation M under the 1934
Act, if applicable.
3.12 General Solicitation. The Investor is not purchasing the Securities as a
result of any advertisement, article, notice or other communication regarding
the Securities published in any newspaper, magazine or similar media or
broadcast over television or radio or presented at any seminar or any other
general solicitation or general advertisement.
3.13 TRANSFER RESTRICTIONS. The Securities may only be disposed of in compliance
with federal and state securities laws. In connection with any transfer of
Securities other than pursuant to an effective registration statement or Rule
144, to the Company or to an affiliate of the Investor, the Company may require
the transferor thereof to provide to the Company an opinion of counsel selected
by the transferor and reasonably acceptable to the Company, the form and
substance of which opinion shall be reasonably satisfactory to the Company, to
the effect that such transfer does not require registration of such transferred
Securities under the 1933 Act; provided, however, that in connection with any
transfer of Securities pursuant to Rule 144, the Company may require the
transferor to provide a customary Rule 144 sellers representation letter. As a
condition of transfer, any such transferee shall agree in writing to be bound by
the terms of this Agreement and shall have the rights of the Investor under this
Agreement and the Registration Rights Agreement, as to issued Securities only.
SECTION IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the Schedules attached hereto, or as disclosed on the
Company’s SEC Documents, the Company represents and warrants to the Investor
that:
4.1 ORGANIZATION AND QUALIFICATION. The Company is a corporation duly organized
and validly existing in good standing under the laws of the State of Nevada, and
has the requisite corporate power and authorization to own its properties and to
carry on its business as now being conducted. Both the Company and the companies
it owns or controls ("Subsidiaries") are duly qualified to do business and are
in good standing in every jurisdiction in which its ownership of property or the
nature of the business conducted by it makes such qualification necessary,
except to the extent that the failure to be so qualified or be in good standing
would not have a Material Adverse Effect. As used in this Agreement, "Material
Adverse Effect" means a change, event, circumstance, effect or state of facts
that has had or is reasonably likely to have, a material adverse effect on the
business, properties, assets, operations, results of operations, financial
condition or prospects of the Company and its Subsidiaries, if any, taken as a
whole, or on the transactions contemplated hereby or by the agreements and
instruments to be entered into in connection herewith, or on the authority or
ability of the Company to perform its obligations under the Registered Offering
Transaction Documents.
4.2 AUTHORIZATION; ENFORCEMENT; COMPLIANCE WITH OTHER INSTRUMENTS.
i. The Company has the requisite corporate power and authority to enter into and
perform the Registered Offering Transaction Documents, and to issue the
Securities in accordance with the terms hereof and thereof.
ii. The execution and delivery of the Registered Offering Transaction Documents
by the Company and the consummation by it of the transactions contemplated
hereby and thereby, including without limitation the issuance of the Securities
pursuant to this Agreement, have been duly and validly authorized by the
Company’s board of directors and no further consent or authorization is required
by the Company, its board of directors, or its shareholders.
iii. The Registered Offering Transaction Documents have been duly and validly
executed and delivered by the Company.
iv. The Registered Offering Transaction Documents constitute the valid and
binding obligations of the Company enforceable against the Company in accordance
with their terms, except as such enforceability may be limited by general
principles of equity or applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation or similar laws relating to, or affecting generally, the
enforcement of creditors’ rights and remedies.
4.3 CAPITALIZATION. As of the date hereof, the authorized capital stock of the
Company consists of, _____________________shares of the Common Stock, par value
$0.001 per share, of which ___________________ were issued and outstanding as of
__________________. All of such outstanding shares have been, or upon issuance
will be, validly issued and are fully paid and non-assessable.
Except as disclosed in the Company’s publicly available filings with the SEC or
as otherwise set forth on Schedule 4.3:
i. no shares of the Company’s capital stock are subject to preemptive rights or
any other similar rights or any liens or encumbrances suffered or permitted by
the Company;
ii. there are no outstanding debt securities;
iii. there are no outstanding shares of capital stock, options, warrants, scrip,
rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, any shares of capital
stock of the Company or any of its Subsidiaries, or contracts, commitments,
understandings or arrangements by which the Company or any of its Subsidiaries
is or may become bound to issue additional shares of capital stock of the
Company or any of its Subsidiaries or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the
Company or any of its Subsidiaries;
iv. there are no agreements or arrangements under which the Company or any of
its Subsidiaries is obligated to register the sale of any of their securities
under the 1933 Act (except the Registration Rights Agreement);
v. there are no outstanding securities of the Company or any of its Subsidiaries
which contain any redemption or similar provisions, and there are no contracts,
commitments, understandings or arrangements by which the Company or any of its
Subsidiaries is or may become bound to redeem a security of the Company or any
of its Subsidiaries;
vi. there are no securities or instruments containing anti-dilution or similar
provisions that will be triggered by the issuance of the Securities as described
in this Agreement;
vii. the Company does not have any stock appreciation rights or "phantom stock"
plans or agreements or any similar plan or agreement; and
viii. there is no dispute as to the classification of any shares of the
Company’s capital stock.
The Company has furnished to the Investor, or the Investor has had access
through EDGAR to, true and correct copies of the Company’s Articles of
Incorporation, as in effect on the date hereof (the "Articles of
Incorporation"), and the Company’s By-laws, as in effect on the date hereof (the
"By-laws"), and the terms of all securities convertible into or exercisable for
Common Stock and the material rights of the holders thereof in respect thereto.
4.4 ISSUANCE OF SHARES. As of the Effective Date, the Company will have reserved
the amount of Shares included in the Registration Statement for issuance
pursuant to theRegistered Offering Transaction Documents, which will have been
duly authorized and reserved (subject to adjustment pursuant to the Company’s
covenant set forth in Section 5.5 below) pursuant to this Agreement. Upon
issuance in accordance with this Agreement, the Securities will be validly
issued, fully paid for and non-assessable and free from all taxes, liens and
charges with respect to the issuance thereof. In the event the Company cannot
reserve a sufficient number of Shares for issuance pursuant to this Agreement,
the Company will use its best efforts to authorize and reserve for issuance the
number of Shares required for the Company to perform its obligations hereunder
as soon as reasonably practicable.
4.5 NO CONFLICTS. The execution, delivery and performance of the Registered
Offering Transaction Documents by the Company and the consummation by the
Company of the transactions contemplated hereby and thereby will not (i) result
in a violation of the Articles of Incorporation or the By-laws; or (ii) conflict
with, or constitute a material default (or an event which with notice or lapse
of time or both would become a material default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any material
agreement, contract, indenture mortgage, indebtedness or instrument to which the
Company or any of its Subsidiaries is a party, or to the Company’s knowledge
result in a violation of any law, rule, regulation, order, judgment or decree
(including United States federal and state securities laws and regulations and
the rules and regulations of the Principal Market or principal securities
exchange or trading market on which the Common Stock is traded or listed)
applicable to the Company or any of its Subsidiaries or by which any property or
asset of the Company or any of its Subsidiaries is bound or affected. Neither
the Company nor its Subsidiaries is in violation of any term of, or in default
under, the Articles of Incorporation or the By-laws or their organizational
charter or by-laws, respectively, or any contract, agreement, mortgage,
indebtedness, indenture, instrument, judgment, decree or order or any statute,
rule or regulation applicable to the Company or its Subsidiaries, except for
possible conflicts, defaults, terminations, amendments, accelerations,
cancellations and violations that would not individually or in the aggregate
have or constitute a Material Adverse Effect. The business of the Company and
its Subsidiaries is not being conducted, and shall not be conducted, in
violation of any law, statute, ordinance, rule, order or regulation of any
governmental authority or agency, regulatory or self-regulatory agency, or
court, except for possible violations the sanctions for which either
individually or in the aggregate would not have a Material Adverse Effect.
Except as specifically contemplated by this Agreement and as required under the
1933 Act or any securities laws of any states, to the Company’s knowledge, the
Company is not required to obtain any consent, authorization, permit or order
of, or make any filing or registration (except the filing of a registration
statement as outlined in the Registration Rights Agreement between the parties)
with, any court, governmental authority or agency, regulatory or self-regulatory
agency or other third party in order for it to execute, deliver or perform any
of its obligations under, or contemplated by, the Registered Offering
Transaction Documents in accordance with the terms hereof or thereof. All
consents, authorizations, permits, orders, filings and registrations which the
Company is required to obtain pursuant to the preceding sentence have been
obtained or effected on or prior to the date hereof and are in full force and
effect as of the date hereof. The Company and its Subsidiaries are unaware of
any facts or circumstances which might give rise to any of the foregoing. The
Company is not, and will not be, in violation of the listing requirements of the
Principal Market as in effect on the date hereof and on each of the Closing
Dates and is not aware of any facts which would reasonably lead to delisting of
the Common Stock by the Principal Market in the foreseeable future.
4.6 SEC DOCUMENTS; FINANCIAL STATEMENTS. As of the date hereof, the Company has
filed all reports, schedules, forms, statements and other documents required to
be filed by it with the SEC pursuant to the reporting requirements of the 1934
Act (all of the foregoing filed prior to the date hereof and all exhibits
included therein and financial statements and schedules thereto and documents
incorporated by reference therein, and amendments thereto, being hereinafter
referred to as the "SEC Documents"). The Company has delivered to the Investor
or its representatives, or they have had access through EDGAR to, true and
complete copies of the SEC Documents. As of their respective filing dates, the
SEC Documents complied in all material respects with the requirements of the
1934 Act and the rules and regulations of the SEC promulgated thereunder
applicable to the SEC Documents, and none of the SEC Documents, at the time they
were filed with the SEC or the time they were amended, if amended, contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading. As of their
respective dates, the financial statements of the Company included in the SEC
Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles, by a firm that is a member of the
Public Companies Accounting Oversight Board ("PCAOB") consistently applied,
during the periods involved (except (i) as may be otherwise indicated in such
financial statements or the notes thereto, or (ii) in the case of unaudited
interim statements, to the extent they may exclude footnotes or may be condensed
or summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). No other written
information provided by or on behalf of the Company to the Investor which is not
included in the SEC Documents, including, without limitation, information
referred to in Section 4.3of this Agreement, contains any untrue statement of a
material fact or omits to state any material fact necessary to make the
statements therein, in the light of the circumstance under which they are or
were made, not misleading. The Company’s knowledge, neither the Company nor any
of its Subsidiaries or any of their officers, directors, employees or agents
have provided the Investor with any material, nonpublic information which was
not publicly disclosed prior to the date hereof and any material, nonpublic
information provided to the Investor by the Company or its Subsidiaries or any
of their officers, directors, employees or agents prior to any Closing Date
shall be publicly disclosed by the Company prior to such Closing Date.
4.7 ABSENCE OF CERTAIN CHANGES. Except as otherwise set forth in the SEC
Documents, the Company does not intend to change the business operations of the
Company in any material way. The Company has not taken any steps, and does not
currently expect to take any steps, to seek protection pursuant to any
bankruptcy law nor does the Company or its Subsidiaries have any knowledge or
reason to believe that its creditors intend to initiate involuntary bankruptcy
proceedings.
4.8 ABSENCE OF LITIGATION AND/OR REGULATORY PROCEEDINGS. Except as set forth in
the SEC Documents, there is no action, suit, proceeding, inquiry or
investigation before or by any court, public board, government agency,
self-regulatory organization or body pending or, to the knowledge of the
executive officers of Company or any of its Subsidiaries, threatened against or
affecting the Company, the Common Stock or any of the Company’s Subsidiaries or
any of the Company’s or the Company’s Subsidiaries’ officers or directors in
their capacities as such, in which an adverse decision could have a Material
Adverse Effect.
4.9 ACKNOWLEDGMENT REGARDING INVESTOR’S PURCHASE OF SHARES. The Company
acknowledges and agrees that the Investor is acting solely in the capacity of an
arm’s length purchaser with respect to the Registered Offering Transaction
Documents and the transactions contemplated hereby and thereby. The Company
further acknowledges that the Investor is not acting as a financial advisor or
fiduciary of the Company (or in any similar capacity) with respect to the
Registered Offering Transaction Documents and the transactions contemplated
hereby and thereby and any advice given by the Investor or any of its respective
representatives or agents in connection with the Registered Offering Transaction
Documents and the transactions contemplated hereby and thereby is merely
incidental to the Investor’s purchase of the Securities, and is not being relied
on by the Company. The Company further represents to the Investor that the
Company’s decision to enter into the Registered Offering Transaction Documents
has been based solely on the independent evaluation by the Company and its
representatives.
4.10 NO UNDISCLOSED EVENTS, LIABILITIES, DEVELOPMENTS OR CIRCUMSTANCES. Except
as set forth in the SEC Documents or required with respect to the Registered
Offering Transaction Documents, as of the date hereof, no event, liability,
development or circumstance has occurred or exists, or to the Company’s
knowledge is contemplated to occur, with respect to the Company or its
Subsidiaries or their respective business, properties, assets, prospects,
operations or financial condition, that would be required to be disclosed by the
Company under applicable securities laws on a registration statement filed with
the SEC relating to an issuance and sale by the Company of its Common Stock and
which has not been publicly announced.
4.11 EMPLOYEE RELATIONS. Neither the Company nor any of its Subsidiaries is
involved in any union labor dispute nor, to the knowledge of the Company or any
of its Subsidiaries, is any such dispute threatened. Neither the Company nor any
of its Subsidiaries is a party to a collective bargaining agreement, and the
Company and its Subsidiaries believe that relations with their employees are
good. No executive officer (as defined in Rule 501(f) of the 1933 Act) has
notified the Company that such officer intends to leave the Company’s employ or
otherwise terminate such officer’s employment with the Company.
4.12 INTELLECTUAL PROPERTY RIGHTS. The Company and its Subsidiaries own or
possess adequate rights or licenses to use all trademarks, trade names, service
marks, service mark registrations, service names, patents, patent rights,
copyrights, inventions, licenses, approvals, governmental authorizations, trade
secrets and rights necessary to conduct their respective businesses as now
conducted. Except as set forth in the SEC Documents, none of the Company’s
trademarks, trade names, service marks, service mark registrations, service
names, patents, patent rights, copyrights, inventions, licenses, approvals,
government authorizations, trade secrets or other intellectual property rights
necessary to conduct its business as now or as proposed to be conducted have
expired or terminated, or are expected to expire or terminate within two (2)
years from the date of this Agreement. The Company and its Subsidiaries do not
have any knowledge of any infringement by the Company or its Subsidiaries of
trademark, trade name rights, patents, patent rights, copyrights, inventions,
licenses, service names, service marks, service mark registrations, trade secret
or other similar rights of others, or of any such development of similar or
identical trade secrets or technical information by others and, except as set
forth in the SEC Documents, there is no claim, action or proceeding being made
or brought against, or to the Company’s knowledge, being threatened against, the
Company or its Subsidiaries regarding trademark, trade name, patents, patent
rights, invention, copyright, license, service names, service marks, service
mark registrations, trade secret or other infringement; and the Company and its
Subsidiaries are unaware of any facts or circumstances which might give rise to
any of the foregoing. The Company and its Subsidiaries have taken commercially
reasonable security measures to protect the secrecy, confidentiality and value
of all of their intellectual properties.
4.13 ENVIRONMENTAL LAWS. The Company and its Subsidiaries (i) are, to the
knowledge of the management and directors of the Company and its Subsidiaries,
in compliance with any and all applicable foreign, federal, state and local laws
and regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"); (ii) have, to the knowledge of the
management and directors of the Company, received all permits, licenses or other
approvals required of them under applicable Environmental Laws to conduct their
respective businesses as currently conducted; and (iii) are in compliance, to
the knowledge of the management and directors of the Company, with all terms and
conditions of any such permit, license or approval where, in each of the three
(3) foregoing cases, the failure to so comply would have, individually or in the
aggregate, a Material Adverse Effect.
4.14 TITLE. The Company and its Subsidiaries have good and marketable title to
all personal property owned by them which is material to the business of the
Company and its Subsidiaries, in each case free and clear of all liens,
encumbrances and defects except such as are described in the SEC Documents or
such as do not materially affect the value of such property and do not interfere
with the use made and proposed to be made of such property by the Company or any
of its Subsidiaries. Any real property and facilities held under lease by the
Company or any of its Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and buildings by the
Company and its Subsidiaries.
4.15 INSURANCE. Each of the Company’s Subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts as management of the Company reasonably believes to be prudent and
customary in the businesses in which the Company and its Subsidiaries are
engaged. Neither the Company nor any of its Subsidiaries has been refused any
insurance coverage sought or applied for and neither the Company nor its
Subsidiaries has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not have a Material Adverse Effect.
4.16 REGULATORY PERMITS. The Company and its Subsidiaries have in full force and
effect all certificates, approvals, authorizations and permits from the
appropriate federal, state, local or foreign regulatory authorities and
comparable foreign regulatory agencies, necessary to own, lease or operate their
respective properties and assets and conduct their respective businesses in the
manner currently being conducted, and neither the Company nor any such
Subsidiary has received any notice of proceedings relating to the revocation or
modification of any such certificate, approval, authorization or permit, except
for such certificates, approvals, authorizations or permits which if not
obtained, or such revocations or modifications which, would not have a Material
Adverse Effect.
4.17 INTERNAL ACCOUNTING CONTROLS. Except as otherwise set forth in the SEC
Documents, the Company and each of its Subsidiaries maintain a system of
internal accounting controls sufficientto provide reasonable assurance that (i)
transactions are executed in accordance with management’s general or specific
authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles by a firm with membership to the PCAOB and to maintain
asset accountability; (iii) access to assets is permitted only in accordance
with management’s general or specific authorization; and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences. The
Company’s management has determined that the Company’s internal accounting
controls were not effective as of the date of this Agreement as further
described in the SEC Documents.
4.18 NO MATERIALLY ADVERSE CONTRACTS, ETC. Neither the Company nor any of its
Subsidiaries is subject to any charter, corporate or other legal restriction, or
any judgment, decree, order, rule or regulation which in the judgment of the
Company’s officers has or is expected in the future to have a Material Adverse
Effect. Neither the Company nor any of its Subsidiaries is a party to any
contract or agreement which in the judgment of the Company’s officers has or is
expected to have a Material Adverse Effect.
4.19 TAX STATUS. The Company and each of its Subsidiaries has made or filed all
United States federal and state income and all other tax returns, reports and
declarations required by any jurisdiction to which it is subject (unless and
only to the extent that the Company and each of its Subsidiaries has set aside
on its books provisions reasonably adequate for the payment of all unpaid and
unreported taxes) and has paid all taxes and other governmental assessments and
charges that are material in amount, shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith
and has set aside on its books provision reasonably adequate for the payment of
all taxes for periods subsequent to the periods to which such returns, reports
or declarations apply. There are no unpaid taxes in any material amount claimed
to be due by the taxing authority of any jurisdiction, and the officers of the
Company know of no basis for any such claim.
4.20 CERTAIN TRANSACTIONS. Except as set forth in the SEC Documents and except
for transactions pursuant to which the Company makes payments in the ordinary
course of business upon terms no less favorable than the Company could obtain
from disinterested third parties and other than the grant of stock options
disclosed in the SEC Documents, none of the officers, directors, or employees of
the Company is presently a party to any transaction with the Company or any of
its Subsidiaries (other than for services as employees, consultants, officers
and directors), including any contract, agreement or other arrangement providing
for the furnishing of services to or by, providing for rental of real or
personal property to or from, or otherwise requiring payments to or from any
officer, director or such employee or, to the knowledge of the Company, any
corporation, partnership, trust or other entity in which any officer, director,
or any such employee has a substantial interest or is an officer, director,
trustee or partner, such that disclosure would be required in the SEC
Documents..
4.21 DILUTIVE EFFECT. The Company understands and acknowledges that the number
of shares of Common Stock issuable upon purchases pursuant to this Agreement
will increase in certain circumstances including, but not necessarily limited
to, the circumstance wherein the trading price of the Common Stock declines
during the period between the Effective Date and the end of the Open Period. The
Company’s executive officers and directors have studied and fully understand the
nature of the transactions contemplated by this Agreement and recognize that
they have a potential dilutive effect on the shareholders of the Company. The
board of directors of the Company has concluded, in its good faith business
judgment, and with full understanding of the implications, that such issuance is
in the best interests of the Company. The Company specifically acknowledges
that, subject to such limitations as are expressly set forth in the Registered
Offering Transaction Documents, its obligation to issue shares of Common Stock
upon purchases pursuant to this Agreement is absolute and unconditional
regardless of the dilutive effect that such issuance may have on the ownership
interests of other shareholders of the Company.
4.22 LOCK-UP. The Company shall cause its officers, insiders, directors, and
affiliates or other related parties under control of the Company, to refrain
from selling Common Stock during each Pricing Period.
4.23 NO GENERAL SOLICITATION. Neither the Company, nor any of its affiliates,
nor any person acting on its behalf, has engaged in any form of general
solicitation or general advertising (within the meaning of Regulation D) in
connection with the offer or sale of the Common Stock to be offered as set forth
in this Agreement.
4.24 NO BROKERS, FINDERS OR FINANCIAL ADVISORY FEES OR COMMISSIONS. No brokers,
finders or financial advisory fees or commissions will be payable by the
Company, its agents or Subsidiaries, with respect to the transactions
contemplated by this Agreement.
SECTION V
COVENANTS OF THE COMPANY
5.1 BEST EFFORTS. The Company shall use all commercially reasonable efforts to
timely satisfy each of the conditions set forth in Section 7 of this Agreement.
5.2 REPORTING STATUS. During the Open Period and until one of the following
occurs, the Company shall file all reports required to be filed with the SEC
pursuant to the 1934 Act, and the Company shall not terminate its status, or
take an action or fail to take any action, which would terminate its status as a
reporting company under the 1934 Act: (i) this Agreement terminates pursuant to
Section 8 and the Investor has the right to sell all of the Securities without
volume restrictions pursuant to Rule 144 promulgated under the 1933 Act, or such
other exemption, or (ii) the date on which the Investor has sold all the
Securities and this Agreement has been terminated pursuant to Section 8.
5.3 USE OF PROCEEDS. The Company will use the proceeds from the sale of the
Securities (excluding amounts paid or to be paid by the Company for fees as set
forth in the Registered Offering Transaction Documents, if any) for general
corporate and working capital purposes and acquisitions or assets, businesses or
operations or for other purposes that the board of directors of the Company, in
its good faith deem to be in the best interest of the Company.
5.4 FINANCIAL INFORMATION. During the Open Period, the Company agrees to make
available to the Investor via EDGAR or other electronic means the following
documents and information on the forms set forth: (i) within five (5) Trading
Days after the filing thereof with the SEC, a copy of its Annual Reports on Form
10-K, its Quarterly Reports on Form 10-Q, any Current Reports on Form 8-K and
any Registration Statements or amendments filed pursuant to the 1933 Act; (ii)
copies of any notices and other information made available or given to the
shareholders of the Company generally, contemporaneously with the making
available or giving thereof to the shareholders; and (iii) within two (2)
calendar days of filing or delivery thereof, copies of all documents filed with,
and all correspondence sent to, the Principal Market, any securities exchange or
market, or the Financial Industry Regulatory Association, unless such
information is material nonpublic information.
5.5 RESERVATION OF SHARES. The Company shall take all action necessary to at all
times have authorized, and reservedthe amount of Shares included in the
Registration Statement for issuance pursuant to the Registered Offering
Transaction Documents. In the event that the Company determines that it does not
have a sufficient number of authorized shares of Common Stock to reserve and
keep available for issuance as described in this Section 5.5, the Company shall
use all commercially reasonable efforts to increase the number of authorized
shares of Common Stock by seeking shareholder approval for the authorization of
such additional shares.
5.6 LISTING. The Company shall use all commercially reasonable efforts to
promptly secure and maintain the listing of all of the Registrable Securities
(as defined in the Registration Rights Agreement) on the Principal Market and
each other national securities exchange and automated quotation system, if any,
upon which shares of Common Stock are then listed (subject to official notice of
issuance) and shall maintain, such listing of all Registrable Securities from
time to time issuable under the terms of the Registered Offering Transaction
Documents. Neither the Company nor any of its Subsidiaries shall take any action
which would be reasonably expected to result in the delisting or suspension of
the Common Stock on the Principal Market (excluding suspensions of not more than
one (1) Trading Day resulting from business announcements by the Company). The
Company shall promptly provide to the Investor copies of any notices it receives
from the Principal Market regarding the continued eligibility of the Common
Stock for listing on such automated quotation system or securities exchange. The
Company shall pay all fees and expenses in connection with satisfying its
obligations under this Section 5.6.
5.7 FILING OF FORM 8-K. On or before the date which is four (4) Trading Days
after the Execution Date, the Company shall file a Current Report on Form 8-K
with the SEC describing the terms of the transaction contemplated by the
Registered Offering Transaction Documents in the form required by the 1934 Act,
if such filing is required.
5.8 CORPORATE EXISTENCE. The Company shall use all commercially reasonable
efforts to preserve and continue the corporate existence of the Company.
5.9 NOTICE OF CERTAIN EVENTS AFFECTING REGISTRATION; SUSPENSION OF RIGHT TO MAKE
A PUT. The Company shall promptly notify the Investor upon the occurrence of any
of the following events in respect of a Registration Statement or related
prospectus in respect of an offering of the Securities: (i) receipt of any
request for additional information by the SEC or any other federal or state
governmental authority during the period of effectiveness of the Registration
Statement for amendments or supplements to the Registration Statement or related
prospectus; (ii) the issuance by the SEC or any other federal or state
governmental authority of any stop order suspending the effectiveness of any
Registration Statement or the initiation of any proceedings for that purpose;
(iii) receipt of any notification with respect to the suspension of the
qualification or exemption from qualification of any of the Securities for sale
in any jurisdiction or the initiation or notice of any proceeding for such
purpose; (iv) the happening of any event that makes any statement made in such
Registration Statement or related prospectus or any document incorporated or
deemed to be incorporated therein by reference untrue in any material respect or
that requires the making of any changes in the Registration Statement, related
prospectus or documents so that, in the case of a Registration Statement, it
will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, and that in the case of the related prospectus, it will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; and (v) the Company’s reasonable determination that a post-effective
amendment or supplement to the Registration Statement would be appropriate, and
the Company shall promptly make available to Investor any such supplement or
amendment to the related prospectus. The Company shall not deliver to Investor
any Put Notice during the continuation of any of the foregoing events in this
Section 5.9.
5.10 TRANSFER AGENT. Upon effectiveness of the Registration Statement, and for
so long as the Registration Statement is effective, following delivery of a Put
Notice, the Company shall deliver instructions to its transfer agent to issue
Shares to the Investor that are covered for resale by the Registration
Statementfree of restrictive legends.
5.11 ACKNOWLEDGEMENT OF TERMS. The Company hereby represents and warrants to the
Investor that: (i) it is voluntarily entering into this Agreement of its own
freewill, (ii) it is not entering this Agreement under economic duress, (iii)
the terms of this Agreement are reasonable and fair to the Company, and (iv) the
Company has had independent legal counsel of its own choosing review this
Agreement, advise the Company with respect to this Agreement, and represent the
Company in connection with this Agreement.
SECTION VI
CONDITIONS OF THE COMPANY’S ELECTION TO SELL
There is no obligation hereunder of the Company to issue and sell the Securities
to the Investor. However, an election by the Company to issue and sell the
Securities hereunder, from time to time as permitted hereunder, is further
subject to the satisfaction, at or before each Closing Date, of each of the
following conditions set forth below. These conditions are for the Company’s
sole benefit and may be waived by the Company at any time in its sole
discretion.
6.1 The Investor shall have executed this Agreement and the Registration Rights
Agreement and delivered the same to the Company.
6.2 The Investor shall have delivered to the Company a Put Settlement Sheet in
the form attached here to as Exhibit Con the Put Notice Date.
6.3 No statute, rule, regulation, executive order, decree, ruling or injunction
shall have been enacted, entered, promulgated or endorsed by any court or
governmental authority of competent jurisdiction which prohibits the
consummation of any of the transactions contemplated by this Agreement.
SECTION VII
FURTHER CONDITIONS OF THE INVESTOR’S OBLIGATION TO PURCHASE
The obligation of the Investor hereunder to purchase Securities is subject to
the satisfaction, on or before each Closing Date, of each of the following
conditions set forth below.
7.1 The Company shall have executed the Registered Offering Transaction
Documents and delivered the same to the Investor.
7.2 The Common Stock shall be authorized for quotation on the Principal Market
and trading in the Common Stock shall not have been suspended by the Principal
Market or the SEC, at any time beginning on the date hereof and through and
including the respective Closing Date (excluding suspensions of not more than
one (1) Trading Day resulting from business announcements by the Company,
provided that such suspensions occur prior to the Company’s delivery of the Put
Notice related to such Closing).
7.3 The representations and warranties of the Company shall be true and correct
in all material respects as of the date when made and as of the applicable
Closing Date as though made at that time and the Company shall have materially
performed, satisfied and complied with the covenants, agreements and conditions
required by the Registered Offering Transaction Documents to be performed,
satisfied or complied with by the Company on or before such Closing Date. The
Investor may request an update as of such Closing Date regarding the
representation contained in Section 4.3.
7.4 The Company shall have executed and delivered to the Investor the
certificates representing, or have executed electronic book-entry transfer of,
the Securities (in such denominations as the Investor shall request) being
purchased by the Investor at such Closing.
7.5 The board of directors of the Company shall have adopted resolutions
consistent with Section 4.2(ii) (the "Resolutions") and such Resolutions shall
not have been materially amended or rescinded prior to such Closing Date.
7.6 No statute, rule, regulation, executive order, decree, ruling or injunction
shall have been enacted, entered, promulgated or endorsed by any court or
governmental authority of competent jurisdiction which prohibits the
consummation of any of the transactions contemplated by this Agreement.
7.7 The Registration Statement shall be effective on each Closing Date and no
stop order suspending the effectiveness of the Registration statement shall be
in effect or to the Company’s knowledge shall be pending or threatened.
Furthermore, on each Closing Date (i) neither the Company nor the Investor shall
have received notice that the SEC has issued or intends to issue a stop order
with respect to such Registration Statement or that the SEC otherwise has
suspended or withdrawn the effectiveness of such Registration Statement, either
temporarily or permanently, or intends or has threatened to do so (unless the
SEC’s concerns have been addressed), and (ii) no other suspension of the use or
withdrawal of the effectiveness of such Registration Statement or related
prospectus shall exist.
7.8 At the time of each Closing, the Registration Statement (including
information or documents incorporated by reference therein) and any amendments
or supplements thereto shall not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading or which would require public
disclosure or an update supplement to the prospectus.
7.9 If applicable, the shareholders of the Company shall have approved the
issuance of any Shares in excess of the Maximum Common Stock Issuance in
accordance with Section 2.6 or the Company shall have obtained appropriate
approval pursuant to the requirements of Nevada law and the Company’s Articles
of Incorporation and By-laws.
7.10 The conditions to such Closing set forth in Section 2.4 shall have been
satisfied on or before such Closing Date.
7.11 The Company shall have certified to the Investor the number of Shares of
Common Stock outstanding when a Put Notice is given to the Investor. The
Company’s delivery of a Put Notice to the Investor constitutes the Company’s
certification of the existence of the necessary number of shares of Common Stock
reserved for issuance.
SECTION VIII
TERMINATION
This Agreement shall terminate upon any of the following events:
i. when the Investor has purchased an aggregate of five million dollars
($5,000,000) in the Common Stock of the Company pursuant to this Agreement;
ii. on the date which is thirty-six (36) months after the Effective Date; or
iii. at such time that the Registration Statement is no longer in effect; or
iv. at any time at the election of the Company upon 15 days written notice.
Any and all shares, or penalties, if any, due under this Agreement shall be
immediately payable and due upon termination of this Agreement.
SECTION IX
SUSPENSION
This Agreement shall be suspended upon any of the following events, and shall
remain suspended until such event is rectified:
i. The trading of the Common Stock is suspended by the SEC, the Principal Market
or FINRA for a period of two (2) consecutive Trading Days during the Open
Period; or,
ii. During the Open Period the Common Stock ceases to be registered under the
1934 Act or listed or traded on the Principal Market or the Registration
Statement is no longer effective (except as permitted hereunder).
Immediately upon the occurrence of one of the above-described events, the
Company shall send written notice of such event to the Investor.
SECTION X
MISCELLANEOUS
10.1 Law Governing this Agreement. This Agreement shall be governed by, and
construed and interpreted in accordance with, the substantive laws of the
Commonwealth of Puerto Rico without giving effect to any conflict of laws rule
or principle that might require the application of the laws of another
jurisdiction. Any dispute, claim, suit, action or other legal proceeding arising
out of the transactions contemplated by this Agreement or the rights and
obligations of each of the parties shall be brought only in a competent court in
San Juan, Puerto Rico or in the federal courts of the United States of America
located in San Juan, Puerto Rico. 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. The parties executing
this Agreement and other agreements referred to herein or delivered in
connection herewith agree to submit to the in personam jurisdiction of such
courts. 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 Documents 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.
10.2 LEGAL FEES; AND MISCELLANEOUS FEES. Except as otherwise set forth in the
Registered Offering Transaction Documents (including but not limited to Section
5 of the Registration Rights Agreement), each party shall pay the fees and
expenses of its advisers, counsel, accountants and other experts, if any, and
all other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement. Any
attorneys’ fees and expenses incurred by either the Company or the Investor in
connection with the preparation, negotiation, execution and delivery of any
amendments to this Agreement or relating to the enforcement of the rights of any
party, after the occurrence of any breach of the terms of this Agreement by
another party or any default by another party in respect of the transactions
contemplated hereunder, shall be paid on demand by the party which breached the
Agreement and/or defaulted, as the case may be. The Company shall pay all stamp
and other taxes and duties levied in connection with the issuance of any
Securities.
10.3 COUNTERPARTS. This Agreement may be executed in any number of counterparts
and by the different signatories hereto on separate counterparts, each of which,
when so executed, shall be deemed an original, but all such counterparts shall
constitute but one and the same instrument. This Agreement may be executed by
facsimile transmission, PDF, electronic signature or other similar electronic
means with the same force and effect as if such signature page were an original
thereof.
10.4 HEADINGS; SINGULAR/PLURAL. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement. Whenever required by the context of this
Agreement, the singular shall include the plural and masculine shall include the
feminine.
10.5 SEVERABILITY. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.
10.6 ENTIRE AGREEMENT; AMENDMENTS. This Agreement is the FINAL AGREEMENT between
the Company and the Investor with respect to the terms and conditions set forth
herein, and, the terms of this Agreement may not be contradicted by evidence of
prior, contemporaneous, or subsequent oral agreements of the Parties.
10.7 NOTICES. Any notices or other communications required or permitted to be
given under the terms of this Agreement must be in writing and will be deemed to
have been delivered (i) upon receipt, when delivered personally; (ii) upon
receipt, when sent by electronic mail (provided confirmation of transmission is
mechanically or electronically generated and kept on file by the sending party);
or (iii) one (1) 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 email addresses for such communications shall be:
If to the Company:
eWellness Healthcare Corporation
11825 Major Street
Culver City, CA 90230
Attn:
Email:
If to the Investor: Tangiers Global, LLC
Caribe Plaza Office Building 6th Floor, Palmeras St. #53
San Juan, PR 00901
Attn: Rachel Terrell
Email: admin@tangierscapital.com
Each party shall provide five (5) business days prior written notice to the
other party of any change in address or email address.
10.8 NO ASSIGNMENT. This Agreement may not be assigned.
10.9 NO THIRD PARTY BENEFICIARIES. This Agreement is intended for the benefit of
the parties hereto and is not for the benefit of, nor may any provision hereof
be enforced by, any other person.
10.10 SURVIVAL. The representations and warranties of the Company and the
Investor contained in Sections 3 and 4, the agreements and covenants set forth
in Section 5and this Section 11, shall survive each of the Closings and the
termination of this Agreement.
10.11 PUBLICITY. The Company and the Investor shall consult with each other in
issuing any press releases or otherwise making public statements with respect to
the transactions contemplated hereby and no party shall issue any such press
release or otherwise make any such public statement without the prior consent of
the other party, which consent shall not be unreasonably withheld or delayed,
except that no prior consent shall be required if such disclosure is required by
law, as determined solely by the Company in consultation with its counsel. The
Investor acknowledges that this Agreement and all or part of the Registered
Offering Transaction Documents may be deemed to be "material contracts" as that
term is defined by Item 601(b)(10) of Regulation S-K, and that the Company may
therefore be required to file such documents as exhibits to reports or
registration statements filed under the 1933 Act or the 1934 Act. The Investor
further agrees that the status of such documents and materials as material
contracts shall be determined solely by the Company, in consultation with its
counsel.
10.12 EXCLUSIVITY. The Company shall not pursue an equity line transaction
similar to the transactions contemplated in this Agreement with any other person
or entity until the earlier of (i) the Effective Date and (ii) termination of
this Agreement in accordance with Section 8.
10.13 FURTHER ASSURANCES. Each party shall do and perform, or cause to be done
and performed, all such further acts and things, and shall execute and deliver
all such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
10.14 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, as the parties
mutually agree that each has had a full and fair opportunity to review this
Agreement and seek the advice of counsel on it.
10.15 REMEDIES. The Investor shall have all rights and remedies set forth in
this Agreement and the Registration Rights Agreement and all rights and remedies
which such holders have been granted at any time under any other agreement or
contract and all of the rights which the Investor has by law. Any person having
any rights under any provision of this Agreement shall be entitled to enforce
such rights specifically (without posting a bond or other security), to recover
damages by reason of any default or breach of any provision of this Agreement,
including the recovery of reasonable attorney’s fees and costs, and to exercise
all other rights granted by law.
10.16 PAYMENT SET ASIDE. To the extent that the Company makes a payment or
payments to the Investor hereunder or under the Registration Rights Agreement or
the Investor enforces or exercises its rights hereunder or thereunder, and such
payment or payments or the proceeds of such enforcement or exercise or any part
thereof are subsequently invalidated, declared to be fraudulent or preferential,
set aside, recovered from, disgorged by or are required to be refunded, repaid
or otherwise restored to the Company, a trustee, receiver or any other person
under any law (including, without limitation, any bankruptcy law, state or
federal law, common law or equitable cause of action), then to the extent of any
such restoration the obligation or part thereof originally intended to be
satisfied shall be revived and continued in full force and effect as if such
payment had not been made or such enforcement or setoff had not occurred.
10.17 COMMITMENT FEE. Upon the Execution Date of this Agreement, the Company
shall be required to issue to the Purchaser an8% $100,000 promissory note as a
commitment fee (the "Commitment Fee Note"). The Commitment Fee Note will have a
7 month maturity, which will be extended to 10 months if the S-1 goes effective
within 180 days. In the event that the S-1 is declared effective within 90 days
following document execution, $50,000 will be automatically deducted from the
balance of the Commitment Fee Note. In the event that the S-1 is declared
effective within 135 days (but more than 90 days) following document execution,
$25,000 will be automatically deducted from the balance of the Commitment Fee
Note. The Company agrees that the issuance of the Commitment Fee Note is a
material obligation and that the Commitment Fee Note is considered fully earned
as of the Execution Date of this Agreement, regardless of whether or not the
Company files the S-1 or is successful in having it deemed effective by the SEC.
SECTION XI
NON-DISCLOSURE OF NON-PUBLIC INFORMATION
The Company shall not disclose non-public information to the Investor, its
advisors, or its representatives.
Nothing in the Registered Offering Transaction Documents shall require or be
deemed to require the Company to disclose non-public information to the Investor
or its advisors or representatives, and the Company represents that it does not
disseminate non-public information to any investors who purchase stock in the
Company in a public offering, to money Managing Members or to securities
analysts, provided, however, that notwithstanding anything herein to the
contrary, the Company will, as hereinabove provided, immediately notify the
advisors and representatives of the Investor and, if any, underwriters, of any
event or the existence of any circumstance (without any obligation to disclose
the specific event or circumstance) of which it becomes aware, constituting
non-public information (whether or not requested of the Company specifically or
generally during the course of due diligence by such persons or entities),
which, if not disclosed in the prospectus included in the Registration Statement
would cause such prospectus to include a material misstatement or to omit a
material fact required to be stated therein in order to make the statements,
therein, in light of the circumstances in which they were made, not misleading.
Nothing contained in this Section 12 shall be construed to mean that such
persons or entities other than the Investor (without the written consent of the
Investor prior to disclosure of such information) may not obtain non-public
information in the course of conducting due diligence in accordance with the
terms of this Agreement and nothing herein shall prevent any such persons or
entities from notifying the Company of their opinion that based on such due
diligence by such persons or entities, that the Registration Statement contains
an untrue statement of material fact or omits a material fact required to be
stated in the Registration Statement or necessary to make the statements
contained therein, in light of the circumstances in which they were made, not
misleading.
SECTION XII
ACKNOWLEDGEMENTS OF THE PARTIES
Notwithstanding anything in this Agreement to the contrary, the parties hereto
hereby acknowledge and agree to the following: (i) the Investor makes no
representations or covenants that it will not engage in trading in the
securities of the Company, other than the Investor will not short or pre-sell,
either directly or indirectly through its affiliates, principals or advisors,
the Common Stock at any time during the Open Period; (ii) the Company shall
comply with its obligations under Section 5.8 in a timely manner; (iii) the
Company has not and shall not provide material non-public information to the
Investor unless prior thereto the Investor shall have executed a written
agreement regarding the confidentiality and use of such information; and (iv)
the Company understands and confirms that the Investor will be relying on the
acknowledgements set forth in clauses (i) through (iii) above if the Investor
effects any transactions in the securities of the Company.
[Signature Page to Follow.]
Your signature on this Signature Page evidences your agreement to be bound by
the terms and conditions of the Investment Agreement as of the date first
written above. The undersigned signatory hereby certifies that he has read and
understands the Investment Agreement, and the representations made by the
undersigned in this Investment Agreement are true and accurate, and agrees to be
bound by its terms.
TANGIERS GLOBAL, LLC
By: _________________________________
Name:
Title: Managing Member
EWELLNESS HEALTHCARE CORPORATION
By: __________________________________
Name:
Title:
[SIGNATURE PAGE OF INVESTMENT AGREEMENT]
LIST OF EXHIBITS
EXHIBIT A Registration Rights Agreement
EXHIBIT B Put Notice
EXHIBIT C Put Settlement Sheet
EXHIBIT A
REGISTRATION RIGHTS AGREEMENT
See attached.
EXHIBIT B
FORM OF PUT NOTICE
Date:
RE: Put Notice Number __
Dear Mr.__________,
This is to inform you that as of today, eWellness Healthcare Corporation, a
Nevadacorporation (the "Company"), hereby elects to exercise its right pursuant
to the Investment Agreement to require Tangiers Global, LLCto purchase shares of
its common stock. The Company hereby certifies that:
Put Amount in Shares__________.
The Pricing Period runs from _______________ until _______________.
The current number of shares of common stock issued and outstanding is:
_________________.
The number of shares currently available for resale on the S-1 is:
________________________.
Regards,
eWellness Healthcare Corporation
By: __________________________________
Name:
Title:
EXHIBIT C
PUT SETTLEMENT SHEET
Date: ________________
Dear ________,
Pursuant to the Put given by eWellness Healthcare Corporation, a Nevada
corporation (the "Company"), to Tangiers Global, LLC (the "Investor") on
_________________, 201_, we are now submitting the purchase price for the shares
of common stock.
Purchase Price per Share _________________.
Shares Being Purchased ___________________.
Total Purchase Price _____________________.
Please have a certificate bearing no restrictive legend issued to the Investor
immediately and sent via DWAC to the following account:
[INSERT]
If not DWAC eligible, please send FedEx Priority Overnight to:
[INSERT ADDRESS]
Once these shares are received by us, we will have the funds wired to the
Company.
Regards,
TANGIERS GLOBAL, LLC
By: _________________________________
Name:
Title: Managing Member
SCHEDULE 4.3
See attached.
Note: February 10 , 2017
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION 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.
THIS NOTE DOES NOT REQUIRE PHYSICAL SURRENDER OF THE NOTE IN THE EVENT OF A
PARTIAL REDEMPTION OR CONVERSION. AS A RESULT, FOLLOWING ANY REDEMPTION OR
CONVERSION OF ANY PORTION OF THIS NOTE, THE OUTSTANDING PRINCIPAL SUM
REPRESENTED BY THIS NOTE MAY BE LESS THAN THE PRINCIPAL SUM AND ACCRUED INTEREST
SET FORTH BELOW.
8% FIXED CONVERTIBLE PROMISSORY NOTE
OF
EWELLNESS HEALTHCARE CORPORATION
Issuance Date: February 10 , 2017
Total Face Value of Note: $100,000
This Note is a duly authorized Fixed Convertible Promissory Note of eWellness
Healthcare Corporation a corporation duly organized and existing under the laws
of the State of Nevada (the "Company"), designated as the Company's 8% Fixed
Convertible Promissory Note due September 10 , 2017 ("Maturity Date") in the
principal amount of $100,000 (the "Note").
For Value Received, the Company hereby promises to pay to the order of Tangiers
Global, LLC or its registered assigns or successors-in-interest ("Holder") the
Principal Sum of $100,000 (the "Principal Sum") and to pay "guaranteed" interest
on the principal balance hereof at an amount equivalent to 8% of the Principal
Sum, to the extent such Principal Sum and "guaranteed" interest and any other
interest, fees, liquidated damages and/or items due to Holder herein have not
been repaid or converted into the Company's Common Stock (the "Common Stock"),
in accordance with the terms hereof.
In addition to the "guaranteed" interest referenced above, and in the Event of
Default pursuant to Section 2.00(a), additional interest will accrue from the
date of the Event of Default at the rate equal to the lower of 15% per annum or
the highest rate permitted by law (the "Default Rate").
This Note will become effective only upon the execution by both parties,
including the execution of Exhibits B, C, the Irrevocable Transfer Agent
Instructions and the February 10 , 2017 Investment Agreement (the "Date of
Execution") between the Company and Holder (the "Effective Date").
This Note may not be prepaid by the Company, in whole or in part, at any time
without approval by the Holder, which approval will not be unreasonably
withheld.
For the purposes hereof, the following terms shall have the meanings ascribed to
them below:
"Business Day" shall mean any day other than a Saturday, Sunday or a day on
which commercial banks in the City of New York are authorized or required by law
or executive order to remain closed.
"Conversion Price" shall be fixed at a price equal to $0.20.
"Principal Amount" shall refer to the sum of (i) the original principal amount
of this Note (including the original issue discount, prorated if the Note has
not been funded in full), (ii) all guaranteed and other accrued but unpaid
interest hereunder, (iii) any fees due hereunder, (iv) liquidated damages, and
(v) any default payments owing under the Note, in each case previously paid or
added to the Principal Amount.
"Principal Market" shall refer to the primary exchange on which the Company's
common stock is traded or quoted.
"Trading Day" shall mean a day on which there is trading or quoting for any
security on the Principal Market.
"Underlying Shares" means the shares of common stock into which the Note is
convertible (including interest, fees, liquidated damages and/or principal
payments in common stock as set forth herein) in accordance with the terms
hereof.
The following terms and conditions shall apply to this Note:
Section 1.00 Conversion.
(a) Conversion Right. Subject to the terms hereof and restrictions and
limitations contained herein, the Holder shall have the right, at the Holder's
sole option, at any time and from time to time to convert in whole or in part
the outstanding and unpaid Principal Amount under this Note into shares of
Common Stock as per the Conversion Formula. The date of any conversion notice
("Conversion Notice") hereunder shall be referred to herein as the "Conversion
Date".
(b) Stock Certificates or DWAC. The Company will deliver to the Holder, or
Holder's authorized designee, no later than 2 Trading Days after the Conversion
Date, a certificate or certificates (which certificate(s) shall be free of
restrictive legends and trading restrictions if the shares of Common Stock
underlying the portion of the Note being converted are eligible under a resale
exemption pursuant to Rule 144(b)(1)(ii) and Rule 144(d)(1)(ii) of the
Securities Act of 1933, as amended) representing the number of shares of Common
Stock being acquired upon the conversion of this Note. In lieu of delivering
physical certificates representing the shares of Common Stock issuable upon
conversion of this Note, provided the Company's transfer agent is participating
in DTC's FAST program, the Company shall instead use commercially reasonable
efforts to cause its transfer agent to electronically transmit such shares
issuable upon conversion to the Holder (or its designee), by crediting the
account of the Holder's (or such designee's) broker with DTC through its DWAC
program (provided that the same time periods herein as for stock certificates
shall apply).
(c) Charges and Expenses. Issuance of Common Stock to Holder, or any of its
assignees, upon the conversion of this Note shall be made without charge to the
Holder for any issuance fee, transfer tax, legal opinion and related charges,
postage/mailing charge or any other expense with respect to the issuance of such
Common Stock. Company shall pay all Transfer Agent fees incurred from the
issuance of the Common Stock to Holder, as well as any and all other fees and
charges required by the Transfer Agent as a condition to effectuate such
issuance. Any such fees or charges, as noted in this Section that are paid by
the Holder (whether from the Company's delays, outright refusal to pay, or
otherwise), will be automatically added to the Principal Sum of the Note and
tack back to the Effective Date for purposes of Rule 144.
(d) Delivery Timeline. If the Company fails to deliver to the Holder such
certificate or certificates (or shares through the DWAC program) pursuant to
this Section (free of any restrictions on transfer or legends, if eligible)
prior to 3 Trading Days after the Conversion Date, the Company shall pay to the
Holder as liquidated damages an amount equal to $2,000 per day, until such
certificate or certificates are delivered. The Company acknowledges that it
would be extremely difficult or impracticable to determine the Holder's actual
damages and costs resulting from a failure to deliver the Common Stock and the
inclusion herein of any such additional amounts are the agreed upon liquidated
damages representing a reasonable estimate of those damages and costs. Such
liquidated damages will be automatically added to the Principal Sum of the Note
and tack back to the Effective Date for purposes of Rule 144.
(e) Reservation of Underlying Securities. The Company covenants that it will at
all times reserve and keep available for Holder, out of its authorized and
unissued Common Stock solely for the purpose of issuance upon conversion of this
Note, free from preemptive rights or any other actual contingent purchase rights
of persons other than the Holder, five times the number of shares of Common
Stock as shall be issuable (taking into account the adjustments under this
Section 1.00, but without regard to any ownership limitations contained herein)
upon the conversion of this Note (consisting of the Principal Amount), under the
formula in Section 2.00(c), to Common Stock (the "Required Reserve"). The
Company covenants that all shares of Common Stock that shall be issuable will,
upon issue, be duly authorized, validly issued, fully-paid, non-assessable and
freely-tradable (if eligible). If the number of shares on reserve in Holder's
name at the Company's transfer agent for this Note shall drop below the Required
Reserve, the Company will, within 2 Trading Days of notification from Holder,
instruct the transfer agent to increase the number of shares so that the
Required Reserve is met. In the event that the Company does not instruct the
transfer agent to increase the number of shares so that the Required Reserve is
met, the Holder will be allowed, if applicable, to provide this instruction as
per the terms of the Irrevocable Transfer Agent Instructions attached to this
Note. The Company agrees that the maintenance of the Required Reserve is a
material term of this Note and any breach of this Section 1.00(e) will result in
a default of the Note.
The Company agrees that this is a material term of this Note and any breach of
this Section 1.00(e) will result in a default of the Note.
(f) Conversion Limitation. The Holder will not submit a conversion to the
Company that would result in the Holder beneficially owning more than 9.99% of
the then total outstanding shares of the Company ("Restricted Ownership
Percentage").
(g) Conversion Delays. If the Company fails to deliver shares in accordance with
the timeframe stated in Section 1.00(b), 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. The rescinded
conversion amount will be returned to the Principal Sum with the rescinded
conversion shares returned to the Company, under the expectation that any
returned conversion amounts will tack back to the Effective Date.
(h) Shorting and Hedging. Holder may not engage in any "shorting" or "hedging"
transaction(s) in the Common Stock prior to conversion.
(i) Conversion Right Unconditional. If the Holder shall provide a Conversion
Notice as provided herein, the Company's obligations to deliver Common Stock
shall be absolute and unconditional, irrespective of any claim of setoff,
counterclaim, recoupment, or alleged breach by the Holder of any obligation to
the Company.
Section 2.00 Defaults and Remedies.
(a) Events of Default. An "Event of Default" is: (i) a default in payment of any
amount due hereunder which default continues for more than 5 Trading Days after
the due date; (ii) a default in the timely issuance of underlying shares upon
and in accordance with terms of Section 1.00, which default continues for 2
Trading Days after the Company has failed to issue shares or deliver stock
certificates within the 3rd Trading Day following the Conversion Date; (iii) if
the Company does not issue the press release or file the Current Report on Form
8-K, in each case in accordance with the provisions and the deadlines referenced
Section 4.00(h); (iv) failure by the Company for 3 days after notice has been
received by the Company to comply with any material provision of this Note; (v)
failure of the Company to remain compliant with DTC, thus incurring a "chilled"
status with DTC; (vi) any default of any mortgage, indenture or instrument which
may be issued, or by which there may be secured or evidenced any indebtedness,
for money borrowed by the Company or for money borrowed the repayment of which
is guaranteed by the Company, whether such indebtedness or guarantee now exists
or shall be created hereafter; (vii) if the Company is subject to any Bankruptcy
Event; (viii) any failure of the Company to satisfy its "filing" obligations
under Securities Exchange Act of 1934, as amended (the "1934 Act") and the rules
and guidelines issued by OTC Markets News Service, OTCMarkets.com and their
affiliates; (ix) failure of the Company to remain in good standing under the
laws of the State of Nevada; (x) any failure of the Company to provide the
Holder with information related to its corporate structure including, but not
limited to, the number of authorized and outstanding shares, public float, etc.
within 1 Trading Day of request by Holder; (xi) failure by the Company to
maintain the Required Reserve in accordance with the terms of Section 1.00(e);
(xii) failure of Company's Common Stock to maintain a closing bid price in its
Principal Market for more than 3 consecutive Trading Days; (xiii) any delisting
from a Principal Market for any reason; (xiv) failure by Company to pay any of
its Transfer Agent fees in excess of $2,000 or to maintain a Transfer Agent of
record; (xv) failure by Company to notify Holder of a change in Transfer Agent
within 24 hours of such change; (xvi) any trading suspension imposed by the
United States Securities and Exchange Commission (the "SEC") under Sections
12(j) or 12(k) of the 1934 Act; or (xvii) failure by the Company to meet all
requirements necessary to satisfy the availability of Rule 144 to the Holder or
its assigns, including but not limited to the 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.
(b) Remedies. If an Event of Default occurs, the outstanding Principal Amount of
this Note owing in respect thereof through the date of acceleration, shall
become, at the Holder's election, immediately due and payable in cash at the
"Mandatory Default Amount". The Mandatory Default Amount means 125% of the
outstanding Principal Amount of this Note, will be automatically added to the
Principal Sum of the Note and tack back to the Effective Date for purposes of
Rule 144. Commencing 5 days after the occurrence of any Event of Default that
results in the eventual acceleration of this Note, this Note shall accrue
additional interest, in addition to the Note's "guaranteed" interest, at a rate
equal to the lesser of 15% per annum or the maximum rate permitted under
applicable law. In connection with such acceleration described herein, the
Holder need not provide, and the Issuer hereby waives, any presentment, demand,
protest or other notice of any kind, and the Holder may immediately and without
expiration of any grace period enforce any and all of its rights and remedies
hereunder and all other remedies available to it under applicable law. No such
rescission or annulment shall affect any subsequent event of default or impair
any right consequent thereon. Nothing herein shall limit the Holder's right to
pursue any other remedies available to it at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief with
respect to the Issuer's failure to timely deliver certificates representing
shares of Common Stock upon conversion of the Note as required pursuant to the
terms hereof.
(c) Conversion Right. At any time and from time to time after a default occurs
solely due to the fact the Note is not retired on or before the Maturity Date
("Maturity Default"), subject to the terms hereof and restrictions and
limitations contained herein, the Holder shall have the right, at the Holder's
sole option, to convert in whole or in part the outstanding and unpaid Principal
Amount under this Note into shares of Common Stock at the Maturity Default
Conversion Price. The "Maturity Default Conversion Price" shall be equal to the
lower of: (a) the Conversion Price or (b) 75% of the average of the volume
weighted average prices of the Company's common stock during the 5 consecutive
Trading Days prior to the date on which the Holder elects to convert all or part
of the Note. For the purpose of calculating the Maturity Default Conversion
Price only, any time after 4:00 pm Eastern Time (the closing time of the
Principal Market) shall be considered to be the beginning of the next Business
Day. If the Company is placed on "chilled" status with the DTC, the discount
shall be increased by 10%, i.e., from 25% to 35%, until such chill is remedied.
If the Company is not DWAC eligible through their Transfer Agent and DTC's FAST
system, the discount will be increased by 5%, i.e., from 25% to 30%. In the case
of both, the discount shall be a cumulative increase of 15%, i.e., from 25% to
40%.
Section 3.00 Representations and Warranties of Holder.
Holder hereby represents and warrants to the Company that:
(a) Holder is an "accredited investor," as such term is defined in Regulation D
of the Securities Act of 1933, as amended (the "1933 Act"), and will acquire
this Note and the Underlying Shares (collectively, the "Securities") for its own
account and not with a view to a sale or distribution thereof as that term is
used in Section 2(a)(11) of the 1933 Act, in a manner which would require
registration under the 1933 Act or any state securities laws. Holder has such
knowledge and experience in financial and business matters that such Holder is
capable of evaluating the merits and risks of the Securities. Holder can bear
the economic risk of the Securities, has knowledge and experience in financial
business matters and is capable of bearing and managing the risk of investment
in the Securities. Holder recognizes that the Securities have not been
registered under the 1933 Act, nor under the securities laws of any state and,
therefore, cannot be resold unless the resale of the Securities is registered
under the 1933 Act or unless an exemption from registration is available. Holder
has carefully considered and has, to the extent Holder believes such discussion
necessary, discussed with its professional, legal, tax and financial advisors,
the suitability of an investment in the Securities for its particular tax and
financial situation and its advisers, if such advisors were deemed necessary,
and has determined that the Securities are a suitable investment for it. Holder
has not been offered the Securities by any form of general solicitation or
advertising, including, but not limited to, advertisements, articles, notices or
other communications published in any newspaper, magazine, or other similar
media or television or radio broadcast or any seminar or meeting where, to
Holders' knowledge, those individuals that have attended have been invited by
any such or similar means of general solicitation or advertising. Holder has had
an opportunity to ask questions of and receive satisfactory answers from the
Company, or any person or persons acting on behalf of the Company, concerning
the terms and conditions of the Securities and the Company, and all such
questions have been answered to the full satisfaction of Holder. The Company has
not supplied Holder any information regarding the Securities or an investment in
the Securities other than as contained in this Agreement, and Holder is relying
on its own investigation and evaluation of the Company and the Securities and
not on any other information.
(b) The Holder is a limited liability company duly organized, validly existing
and in good standing under the laws of the state of its incorporation and has
all requisite corporate power and authority to carry on its business as now
conducted. The Holder is duly qualified to transact business and is in good
standing in each jurisdiction in which the failure to so qualify would have a
material adverse effect on its business or properties.
(c) All corporate action has been taken on the part of the Holder, its officers,
directors and stockholders necessary for the authorization, execution and
delivery of this Note. The Holder has taken all corporate action required to
make all of the obligations of the Holder reflected in the provisions of this
Note, valid and enforceable obligations.
(d) Each certificate or instrument representing Securities will be endorsed with
the following legend (or a substantially similar legend), unless or until
registered under the 1933 Act or exempt from registration:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED
OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
ACT COVERING SUCH SECURITIES, THE TRANSFER IS MADE IN COMPLIANCE WITH RULE 144
PROMULGATED UNDER SUCH ACT OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THESE SECURITIES WHICH IS REASONABLY SATISFACTORY TO THE COMPANY,
STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.
Section 4.00 General.
(a) Payment of Expenses. The Company agrees to pay all reasonable charges and
expenses, including attorneys' fees and expenses, which may be incurred by the
Holder in successfully enforcing this Note and/or collecting any amount due
under this Note.
(b) Assignment, Etc. The Holder may assign or transfer this Note to any
transferee at its sole discretion. This Note shall be binding upon the Company
and its successors and shall inure to the benefit of the Holder and its
successors and permitted assigns.
(c) Piggyback Registration Rights. Purposely withheld
(d) Terms of Future Financings. So long as this Note is outstanding, upon any
issuance by the Company or any of its subsidiaries of any convertible debt
security (whether such debt begins with a convertible feature or such feature is
added at a later date) 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 the Holder's
option, shall become a part of this Note and its supporting documentation.. The
types of terms contained in the other security that may be more favorable to the
holder of such security include, but are not limited to, terms addressing
conversion discounts, conversion look back periods, interest rates, original
issue discount percentages and warrant coverage.
(e) Governing Law; Jurisdiction.
(i) Governing Law. This Note shall be governed by, and construed and interpreted
in accordance with, the substantive laws of the Commonwealth of Puerto Rico
without giving effect to any conflict of laws rule or principle that might
require the application of the laws of another jurisdiction.
(ii) Jurisdiction and Venue. Any dispute, claim, suit, action or other legal
proceeding arising out of or relating to this Note or the rights and obligations
of each of the parties shall be brought only in a competent court in San Juan,
Puerto Rico or in the federal courts of the United States of America located in
San Juan, Puerto Rico.
(iii) No Jury Trial. The Company hereto knowingly and voluntarily waives any and
all rights it may have to a trial by jury with respect to any litigation based
on, or arising out of, under, or in connection with, this Note.
(iv) Delivery of Process by the Holder to the Company. In the event of an action
or proceeding by the Holder against the Company, and only by the Holder against
the Company, service of copies of summons and/or complaint and/or any other
process that may be served in any such action or proceeding must be made by hand
delivery of such process to its last known attorney as set forth in its most
recent SEC filing.
(v) Notices. Any notice required or permitted hereunder (including Conversion
Notices) must be in writing and either personally served, sent by facsimile or
email transmission, or sent by overnight courier. Notices will be deemed
effectively delivered at the time of transmission if by facsimile or email, and
if by overnight courier the business day after such notice is deposited with the
courier service for delivery.
(f) No Bad Actor. No officer or director of the Company would be disqualified
under Rule 506(d) of the Securities Act of 1933, as amended, on the basis of
being a "bad actor" as that term is established in the September 13, 2013 Small
Entity Compliance Guide published by the SEC.
(g) Usury. If it shall be found that any interest or other amount deemed
interest due hereunder violates any applicable law governing usury, the
applicable rate of interest due hereunder shall automatically be lowered to
equal the maximum rate of interest permitted under applicable law. The Company
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 Company
from paying all or a portion of the principal, fees, liquidated damages or
interest on this Note.
(h) Securities Laws Disclosure; Publicity. The Company shall (a) by 9:30 a.m.
Eastern Time on the Trading Day immediately following the Date of Execution,
issue a press release disclosing the material terms of the transactions
contemplated hereby, and (b) file a Current Report on Form 8-K, including a copy
of this Note as an exhibit thereto, with the SEC within the time required by the
1934 Act. From and after the filing of such press release, the Company
represents to the Holder that it shall have publicly disclosed all material,
non-public information delivered to the Holder by the Company, or any of its
officers, directors, employees, or agents in connection with the transactions
contemplated by this Note. The Company and the Holder shall consult with each
other in issuing any other press releases with respect to the transactions
contemplated hereby, and neither the Company nor the Holder shall issue any such
press release nor otherwise make any such public statement without the prior
consent of the Company, with respect to any press release of the Holder, or
without the prior consent of the Holder, with respect to any press release of
the Company, none of which consents shall be unreasonably withheld, delayed,
denied, or conditioned except if such disclosure is required by law, in which
case the disclosing party shall promptly provide the other party with prior
notice of such public statement or communication. Notwithstanding the foregoing,
the Company shall not publicly disclose the name of the Holder, or include the
name of the Holder in any filing with the SEC or any regulatory agency or
Principal Market, without the prior written consent of the Holder, except to the
extent such disclosure is required by law or Principal Market regulations, in
which case the Company shall provide the Holder with prior notice of such
disclosure permitted hereunder.
The Company agrees that this is a material term of this Note and any breach of
this Section 4.00(h) will result in a default of the Note.
[Signature Page to Follow.]
IN WITNESS WHEREOF, the Company has caused this Fixed Convertible Promissory
Note to be duly executed on the day and in the year first above written.
EWELLNESS HEALTHCARE CORPORATION
By:
Name:
Title:
Email:
Address:
This Fixed Convertible Promissory Note of February 10 , 2017 is accepted this
_10_ day of February, 2017 by
TANGIERS GLOBAL, LLC
By:
Name:
Title: Managing Member
EXHIBIT A
FORM OF CONVERSION NOTICE
(To be executed by the Holder in order to convert all or part of that certain
$100,000 Fixed Convertible Promissory Note identified as the Note)
DATE: ____________________________
FROM: Tangiers Global, LLC (the "Holder")
Re: $100,000 Fixed Convertible Promissory Note (this "Note") originally issued
by eWellness Healthcare Corporation, a Nevada corporation, to Tangiers Global,
LLC on February 10 , 2017.
The undersigned on behalf of Tangiers Global, LLC, hereby elects to convert
$_______________________ of the aggregate outstanding Principal Amount (as
defined in the Note) indicated below of this Note into shares of Common Stock,
$0.001 par value per share, of eWellness Healthcare Corporation (the "Company"),
according to the conditions hereof, as of the date written below. If shares are
to be issued in the name of a person other than undersigned, the undersigned
will pay all transfer taxes payable with respect thereto and is delivering
herewith such certificates and opinions as reasonably requested by the Company
in accordance therewith. No fee will be charged to the holder for any
conversion, except for such transfer taxes, if any. The undersigned represents
as of the date hereof that, after giving effect to the conversion of this Note
pursuant to this Conversion Notice, the undersigned will not exceed the "Restricted Ownership Percentage" contained in this Note.
Conversion information:
Date to Effect Conversion
Aggregate Principal Sum of Note Being Converted
Aggregate Interest/Fees of Principal Amount Being Converted
Remaining Principal Balance
Number of Shares of Common Stock to be Issued
Applicable Conversion Price
Signature
Name
Address
EXHIBIT B
WRITTEN CONSENT OF THE BOARD OF DIRECTORS OF
EWELLNESS HEALTHCARE CORPORATION
The undersigned, being directors of eWellness Healthcare Corporation, a Nevada
corporation (the "Company"), acting pursuant to the Bylaws of the Corporation,
do hereby consent to, approve and adopt the following preamble and resolutions:
Convertible Note with Tangiers Global, LLC
The board of directors of the Company has reviewed and authorized the following
documents relating to the issuance of a Fixed Convertible Promissory Note in the
amount of $100,000 with Tangiers Global, LLC.
The documents agreed to and dated February 10 , 2017 are as follows:
8% Fixed Convertible Promissory Note of eWellness Healthcare Corporation
Irrevocable Transfer Agent Instructions
Certificate of Corporate Secretary
The board of directors further agree to authorize and approve the issuance of
shares to the Holder at Conversion prices that are below the Company's then
current par value.
IN WITNESS WHEREOF, the undersign member(s) of the board of the Company executed
this unanimous written consent as of February 10 , 2017.
_________________________________
By:
Its:
EXHIBIT C
NOTARIZED CERTIFICATE OF CORPORATE SECRETARY OF
EWELLNESS HEALTHCARE CORPORATION
(Two Pages)
The undersigned, _______________________ is the duly elected Corporate Secretary
of eWellness Healthcare Corporation, a Nevada corporation (the "Company").
I hereby warrant and represent that I have undertaken a complete and thorough
review of the Company's corporate and financial books and records, including,
but not limited to, the Company's records relating to the following:
(A) The issuance of that certain Fixed Convertible Promissory Note dated
February 10 , 2017 (the "Note Issuance Date") issued to Tangiers Global, LLC
(the "Holder") in the stated original principal amount of $100,000 (the "Note");
(B) The Company's Board of Directors duly approved the issuance of the Note to
the Holder;
(C) The Company has not received and does not contemplate receiving any new
consideration from any persons in connection with any later conversion of the
Note and the issuance of the Company's Common Stock upon any said conversion;
(D) To my best knowledge and after completing the aforementioned review of the
Company's stockholder and corporate records, I am able to certify that the
Holder (and the persons affiliated with the Holder) are not officers, directors,
or directly or indirectly, ten percent (10.00%) or more stockholders of the
Company and none of said persons has had any such status in the one hundred
(100) days immediately preceding the date of this Certificate;
(E) The Company's Board of Directors have approved duly adopted resolutions
approving the Irrevocable Instructions to the Company's Stock Transfer Agent
dated February 10 , 2017;
(F) Mark the appropriate selection:
___ The Company represents that it is not a "shell company," as that term is
defined in Section 12b-2 of the Securities Exchange Act of 1934, as amended, and
has never been a shell company, as so defined; or
___ The Company represents that (i) it was a "shell company," as that term is
defined in Section 12b-2 of the Securities Exchange Act of 1934, as amended,
(ii) since ______, 201__, it has no longer been a shell company, as so defined,
and (iii) on _______, 201__, it provided Form 10-type information in a filing
with the Securities and Exchange Commission.
(G) I understand the constraints imposed under Rule 144 on those persons who are
or may be deemed to be "affiliates," as that term is defined in Rule 144(a)(1)
of the Securities Act of 1933, as amended.
(H) I understand that all of the representations set forth in this Certificate
will be relied upon by counsel to Tangiers Global, LLC in connection with the
preparation of a legal opinion.
I hereby affix my signature to this Notarized Certificate and hereby confirm the
accuracy of the statements made herein.
Signed: ____________________________________ Date: __________________
Name: ____________________________________ Title: ___________________
SUBSCRIBED AND SWORN TO BEFORE ME ON THIS ________ DAY OF ____________________
2017.
Commission Expires:______________
____________________________________
Notary Public
Note: February 10, 2017
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
CONVERTIBLE HAVE BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE
COMMISSION 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.
THIS NOTE DOES NOT REQUIRE PHYSICAL SURRENDER OF THE NOTE IN THE EVENT OF A
PARTIAL REDEMPTION OR CONVERSION. AS A RESULT, FOLLOWING ANY REDEMPTION OR
CONVERSION OF ANY PORTION OF THIS NOTE, THE OUTSTANDING PRINCIPAL SUM
REPRESENTED BY THIS NOTE MAY BE LESS THAN THE PRINCIPAL SUM AND ACCRUED INTEREST
SET FORTH BELOW.
8% FIXED CONVERTIBLE PROMISSORY NOTE
OF
EWELLNESS HEALTHCARE CORPORATION
Issuance Date: February 10, 2017
Total Face Value of Note: $275,000
Initial Consideration: $125,000
Initial Original Issue Discount: $12,500
Initial Principal Sum Due: $137,500
This Note is a duly authorized Fixed Convertible Promissory Note of eWellness
Healthcare Corporation a corporation duly organized and existing under the laws
of the State of Nevada (the "Company"), designated as the Company's 8% Fixed
Convertible Promissory Note in the principal amount of $275,000 (the "Note").
This Note will become effective only upon execution by both parties and delivery
of the first payment of consideration by the Holder (the "Effective Date").
For Value Received, the Company hereby promises to pay to the order of Tangiers
Global, LLC or its registered assigns or successors-in-interest (the "Holder")
the Principal Sum of $275,000 (the "Principal Sum") and to pay "guaranteed"
interest on the principal balance hereof at an amount equivalent to 8% of the
Principal Sum, to the extent such Principal Sum and "guaranteed" interest and
any other interest, fees, liquidated damages and/or items due to Holder herein
have not been repaid or converted into the Company's Common Stock (the "Common
Stock"), in accordance with the terms hereof. The sum of $125,000 shall be
remitted and delivered to the Company, and $12,500 shall be retained by the
Purchaser through an original issue discount (the "OID") for due diligence and
legal bills related to this transaction. The OID is set at 10% of any
consideration paid. The Holder may pay additional Consideration to the Company
in such amounts and at such dates (each, an "Additional Consideration Date") as
Holder may choose in its sole discretion. The Principal Sum due to Holder shall
be prorated based on the Consideration actually paid by Holder (plus the "guaranteed" interest and 10% OID, both which are prorated based on the
Consideration actually paid by the Holder, as well as any other interest or
fees) such that the Company is only required to repay the amount funded and the
Company is not required to repay any unfunded portion of this Note. The Maturity
Date is seven months from the Effective Date of each payment (the "Maturity
Date") and is the date upon which the associated portion of the Principal Sum of
this Note, as well as any unpaid interest and other fees, shall be due and
payable.
In addition to the "guaranteed" interest referenced above, and in the Event of
Default pursuant to Section 2.00(a), additional interest will accrue from the
date of the Event of Default at the rate equal to the lower of 15% per annum or
the highest rate permitted by law (the "Default Rate").
This Note will become effective only upon the execution by both parties,
including the execution of Exhibits B, C and D and the Irrevocable Transfer
Agent Instructions (the "Date of Execution") and delivery of the initial payment
of consideration by the Holder (the "Effective Date").
As an investment incentive, the Company will issue 68,750 5 year cashless
warrants, exercisable at $.25.
This Note may be prepaid by the Company, in whole or in part, according to the
following schedule:
Days Since Effective Date Prepayment Amount
Under 90 120% of Principal Amount
91-135 130% of Principal Amount
136-180 140% of Principal Amount
After 180 days from the Effective Date, this Note may not be prepaid without
written consent from Holder, which consent may be withheld, delayed or denied in
Holder's sole and absolute discretion. Whenever any amount expressed to be due
by the terms of this Note is due on any day which is not a Business Day (as
defined below), the same shall instead be due on the next succeeding day which
is a Business Day. If the Note is in default, per Section 2.00(a) below, the
Company may not prepay the Note without written consent of the Holder.
For purposes hereof the following terms shall have the meanings ascribed to them
below:
"Business Day" shall mean any day other than a Saturday, Sunday or a day on
which commercial banks in the City of New York are authorized or required by law
or executive order to remain closed.
"Conversion Price" shall be equal to $0.20.
"Principal Amount" shall refer to the sum of (i) the original principal amount
of this Note (including the original issue discount, prorated if the Note has
not been funded in full), (ii) all guaranteed and other accrued but unpaid
interest hereunder, (iii) any fees due hereunder, (iv) liquidated damages, and
(v) any default payments owing under the Note, in each case previously paid or
added to the Principal Amount.
"Principal Market" shall refer to the primary exchange on which the Company's
common stock is traded or quoted.
"Trading Day" shall mean a day on which there is trading or quoting for any
security on the Principal Market.
"Underlying Shares" means the shares of common stock into which the Note is
convertible (including interest, fees, liquidated damages and/or principal
payments in common stock as set forth herein) in accordance with the terms
hereof.
The following terms and conditions shall apply to this Note:
Section 1.00 Conversion.
(a) Conversion Right. Subject to the terms hereof and restrictions and
limitations contained herein, the Holder shall have the right, at the Holder's
sole option, at any time and from time to time to convert in whole or in part
the outstanding and unpaid Principal Amount under this Note into shares of
Common Stock as per the Conversion Formula. The date of any conversion notice
("Conversion Notice") hereunder shall be referred to herein as the "Conversion
Date".
(b) Stock Certificates or DWAC. The Company will deliver to the Holder, or
Holder's authorized designee, no later than 2 Trading Days after the Conversion
Date, a certificate or certificates (which certificate(s) shall be free of
restrictive legends and trading restrictions if the shares of Common Stock
underlying the portion of the Note being converted are eligible under a resale
exemption pursuant to Rule 144(b)(1)(ii) and Rule 144(d)(1)(ii) of the
Securities Act of 1933, as amended) representing the number of shares of Common
Stock being acquired upon the conversion of this Note. In lieu of delivering
physical certificates representing the shares of Common Stock issuable upon
conversion of this Note, provided the Company's transfer agent is participating
in Depository Trust Company's ("DTC") Fast Automated Securities Transfer
("FAST") program, the Company shall instead use commercially reasonable efforts
to cause its transfer agent to electronically transmit such shares issuable upon
conversion to the Holder (or its designee), by crediting the account of the
Holder's (or such designee's) broker with DTC through its Deposits and
Withdrawal at Custodian ("DWAC") program (provided that the same time periods
herein as for stock certificates shall apply).
(c) Charges and Expenses. Issuance of Common Stock to Holder, or any of its
assignees, upon the conversion of this Note shall be made without charge to the
Holder for any issuance fee, transfer tax, legal opinion and related charges,
postage/mailing charge or any other expense with respect to the issuance of such
Common Stock. Company shall pay all Transfer Agent fees incurred from the
issuance of the Common Stock to Holder, as well as any and all other fees and
charges required by the Transfer Agent as a condition to effectuate such
issuance. Any such fees or charges, as noted in this Section that are paid by
the Holder (whether from the Company's delays, outright refusal to pay, or
otherwise), will be automatically added to the Principal Sum of the Note and
tack back to the Effective Date for purposes of Rule 144.
(d) Delivery Timeline. If the Company fails to deliver to the Holder such
certificate or certificates (or shares through the DWAC program) pursuant to
this Section (free of any restrictions on transfer or legends, if eligible)
prior to 3 Trading Days after the Conversion Date, the Company shall pay to the
Holder as liquidated damages an amount equal to $2,000 per day, until such
certificate or certificates are delivered. The Company acknowledges that it
would be extremely difficult or impracticable to determine the Holder's actual
damages and costs resulting from a failure to deliver the Common Stock and the
inclusion herein of any such additional amounts are the agreed upon liquidated
damages representing a reasonable estimate of those damages and costs. Such
liquidated damages will be automatically added to the Principal Sum of the Note
and tack back to the Effective Date for purposes of Rule 144.
(e) Reservation of Underlying Securities. The Company covenants that it will at
all times reserve and keep available for Holder, out of its authorized and
unissued Common Stock solely for the purpose of issuance upon conversion of this
Note, free from preemptive rights or any other actual contingent purchase rights
of persons other than the Holder, five times the number of shares of Common
Stock as shall be issuable (taking into account the adjustments under this
Section 1.00, but without regard to any ownership limitations contained herein)
upon the conversion of this Note (consisting of the Principal Amount), under the
formula in Section Section 2.00(c) below, to Common Stock (the "Required
Reserve"). The Company covenants that all shares of Common Stock that shall be
issuable will, upon issue, be duly authorized, validly issued, fully-paid,
non-assessable and freely-tradable (if eligible). If the number of shares on
reserve in Holder's name at the Company's transfer agent for this Note shall
drop below the Required Reserve, the Company will, within 2 Trading Days of
notification from Holder, instruct the transfer agent to increase the number of
shares so that the Required Reserve is met. In the event that the Company does
not instruct the transfer agent to increase the number of shares so that the
Required Reserve is met, the Holder will be allowed, if applicable, to provide
this instruction as per the terms of the Irrevocable Transfer Agent Instructions
attached to this Note. The Company agrees that the maintenance of the Required
Reserve is a material term of this Note and any breach of this Section 1.00(e)
will result in a default of the Note.
(f) Conversion Limitation. The Holder will not submit a conversion to the
Company that would result in the Holder beneficially owning more than 9.99% of
the then total outstanding shares of the Company ("Restricted Ownership
Percentage").
(g) Conversion Delays. If the Company fails to deliver shares in accordance with
the timeframe stated in Section 1.00(b), 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. The rescinded
conversion amount will be returned to the Principal Sum with the rescinded
conversion shares returned to the Company, under the expectation that any
returned conversion amounts will tack back to the Effective Date.
(h) Shorting and Hedging. Holder may not engage in any "shorting" or "hedging"
transaction(s) in the Common Stock of the Company prior to conversion.
(i) Conversion Right Unconditional. If the Holder shall provide a Conversion
Notice as provided herein, the Company's obligations to deliver Common Stock
shall be absolute and unconditional, irrespective of any claim of setoff,
counterclaim, recoupment, or alleged breach by the Holder of any obligation to
the Company.
Section 2.00 Defaults and Remedies.
(a) Events of Default. An "Event of Default" is: (i) a default in payment of any
amount due hereunder which default continues for more than 5 Trading Days after
the due date; (ii) a default in the timely issuance of underlying shares upon
and in accordance with terms of Section 1.00, which default continues for 2
Trading Days after the Company has failed to issue shares or deliver stock
certificates within the 3rd Trading Day following the Conversion Date; (iii) if
the Company does not issue the press release or file the Current Report on Form
8-K, in each case in accordance with the provisions and the deadlines referenced
Section 4.00(h); (iv) failure by the Company for 3 days after notice has been
received by the Company to comply with any material provision of this Note; (v)
failure of the Company to remain compliant with DTC, thus incurring a "chilled"
status with DTC; (vi) any default of any mortgage, indenture or instrument which
may be issued, or by which there may be secured or evidenced any indebtedness,
for money borrowed by the Company or for money borrowed the repayment of which
is guaranteed by the Company, whether such indebtedness or guarantee now exists
or shall be created hereafter; (vii) if the Company is subject to any Bankruptcy
Event; (viii) any failure of the Company to satisfy its "filing" obligations
under Securities Exchange Act of 1934, as amended (the "1934 Act") and the rules
and guidelines issued by OTC Markets News Service, OTCMarkets.com and their
affiliates; (ix) failure of the Company to remain in good standing under the
laws of the State of Nevada; (x) any failure of the Company to provide the
Holder with information related to its corporate structure including, but not
limited to, the number of authorized and outstanding shares, public float, etc.
within 1 Trading Day of request by Holder; (xi) failure by the Company to
maintain the Required Reserve in accordance with the terms of Section 1.00(e);
(xii) failure of Company's Common Stock to maintain a closing bid price in its
Principal Market for more than 3 consecutive Trading Days; (xiii) any delisting
from a Principal Market for any reason; (xiv) failure by Company to pay any of
its Transfer Agent fees in excess of $2,000 or to maintain a Transfer Agent of
record; (xv) failure by Company to notify Holder of a change in Transfer Agent
within 24 hours of such change; (xvi) any trading suspension imposed by the
United States Securities and Exchange Commission (the "SEC") under Sections
12(j) or 12(k) of the 1934 Act; (xvii) failure by the Company to meet all
requirements necessary to satisfy the availability of Rule 144 to the Holder or
its assigns, including but not limited to the 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; or (xviii) failure of the Company to abide by the terms of the right of
first refusal contained in Section 4.00(j).
(b) Remedies. If an Event of Default occurs, the outstanding Principal Amount of
this Note owing in respect thereof through the date of acceleration, shall
become, at the Holder's election, immediately due and payable in cash at the
"Mandatory Default Amount". The Mandatory Default Amount means 150% of the
outstanding Principal Amount of this Note, will be automatically added to the
Principal Sum of the Note and tack back to the Effective Date for purposes of
Rule 144. Commencing 5 days after the occurrence of any Event of Default that
results in the eventual acceleration of this Note, this Note shall accrue
additional interest, in addition to the Note's "guaranteed" interest, at a rate
equal to the lesser of 15% per annum or the maximum rate permitted under
applicable law. In connection with such acceleration described herein, the
Holder need not provide, and the Issuer hereby waives, any presentment, demand,
protest or other notice of any kind, and the Holder may immediately and without
expiration of any grace period enforce any and all of its rights and remedies
hereunder and all other remedies available to it under applicable law. Such
acceleration may be rescinded and annulled by the Holder at any time prior to
payment hereunder and the Holder shall have all rights as a holder of the note
until such time, if any, as the Holder receives full payment pursuant to this
Section 2.00(b). No such rescission or annulment shall affect any subsequent
event of default or impair any right consequent thereon. Nothing herein shall
limit the Holder's right to pursue any other remedies available to it at law or
in equity including, without limitation, a decree of specific performance and/or
injunctive relief with respect to the Issuer's failure to timely deliver
certificates representing shares of Common Stock upon conversion of the Note as
required pursuant to the terms hereof.
(c) Conversion Right. At any time and from time to time after a default occurs
solely due to the fact the Note is not retired on or before the Maturity Date
("Maturity Default"), subject to the terms hereof and restrictions and
limitations contained herein, the Holder shall have the right, at the Holder's
sole option, to convert in whole or in part the outstanding and unpaid Principal
Amount under this Note into shares of Common Stock at the Maturity Default
Conversion Price. The "Maturity Default Conversion Price" shall be equal to the
lower of: (a) the Conversion Price or (b) 75% of the average of the volume
weighted average prices of the Company's common stock during the 5 consecutive
Trading Days prior to the date on which the Holder elects to convert all or part
of the Note. For the purpose of calculating the Maturity Default Conversion
Price only, any time after 4:00 pm Eastern Time (the closing time of the
Principal Market) shall be considered to be the beginning of the next Business
Day. If the Company is placed on "chilled" status with the DTC, the discount
shall be increased by 10%, i.e., from 25% to 35%, until such chill is remedied.
If the Company is not DWAC eligible through their Transfer Agent and DTC's FAST
system, the discount will be increased by 5%, i.e., from 25% to 30%. In the case
of both, the discount shall be a cumulative increase of 15%, i.e., from 25% to
40%.
Section 3.00 Representations and Warranties of Holder.
Holder hereby represents and warrants to the Company that:
(a) Holder is an "accredited investor," as such term is defined in Regulation D
of the Securities Act of 1933, as amended (the "1933 Act"), and will acquire
this Note and the Underlying Shares (collectively, the "Securities") for its own
account and not with a view to a sale or distribution thereof as that term is
used in Section 2(a)(11) of the 1933 Act, in a manner which would require
registration under the 1933 Act or any state securities laws. Holder has such
knowledge and experience in financial and business matters that such Holder is
capable of evaluating the merits and risks of the Securities. Holder can bear
the economic risk of the Securities, has knowledge and experience in financial
business matters and is capable of bearing and managing the risk of investment
in the Securities. Holder recognizes that the Securities have not been
registered under the 1933 Act, nor under the securities laws of any state and,
therefore, cannot be resold unless the resale of the Securities is registered
under the 1933 Act or unless an exemption from registration is available. Holder
has carefully considered and has, to the extent Holder believes such discussion
necessary, discussed with its professional, legal, tax and financial advisors,
the suitability of an investment in the Securities for its particular tax and
financial situation and its advisers, if such advisors were deemed necessary,
and has determined that the Securities are a suitable investment for it. Holder
has not been offered the Securities by any form of general solicitation or
advertising, including, but not limited to, advertisements, articles, notices or
other communications published in any newspaper, magazine, or other similar
media or television or radio broadcast or any seminar or meeting where, to
Holders' knowledge, those individuals that have attended have been invited by
any such or similar means of general solicitation or advertising. Holder has had
an opportunity to ask questions of and receive satisfactory answers from the
Company, or any person or persons acting on behalf of the Company, concerning
the terms and conditions of the Securities and the Company, and all such
questions have been answered to the full satisfaction of Holder. The Company has
not supplied Holder any information regarding the Securities or an investment in
the Securities other than as contained in this Agreement, and Holder is relying
on its own investigation and evaluation of the Company and the Securities and
not on any other information.
(b) The Holder is a limited liability company duly organized, validly existing
and in good standing under the laws of the state of its incorporation and has
all requisite corporate power and authority to carry on its business as now
conducted. The Holder is duly qualified to transact business and is in good
standing in each jurisdiction in which the failure to so qualify would have a
material adverse effect on its business or properties.
(c) All corporate action has been taken on the part of the Holder, its officers,
directors and stockholders necessary for the authorization, execution and
delivery of this Note. The Holder has taken all corporate action required to
make all of the obligations of the Holder reflected in the provisions of this
Note, valid and enforceable obligations.
(d) Each certificate or instrument representing Securities will be endorsed with
the following legend (or a substantially similar legend), unless or until
registered under the 1933 Act or exempt from registration:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED
OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
ACT COVERING SUCH SECURITIES, THE TRANSFER IS MADE IN COMPLIANCE WITH RULE 144
PROMULGATED UNDER SUCH ACT OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THESE SECURITIES WHICH IS REASONABLY SATISFACTORY TO THE COMPANY,
STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.
Section 4.00 General.
(a) Payment of Expenses. The Company agrees to pay all reasonable charges and
expenses, including attorneys' fees and expenses, which may be incurred by the
Holder in successfully enforcing this Note and/or collecting any amount due
under this Note.
(b) Assignment, Etc. The Holder may assign or transfer this Note to any
transferee at its sole discretion. This Note shall be binding upon the Company
and its successors and shall inure to the benefit of the Holder and its
successors and permitted assigns.
(c) Funding Window. The Company agrees that it will not enter into a convertible
debt financing transaction, including 3(a)9 and 3(a)10 transactions, with any
party other than the Holder or current investors of the Company for a period of
45 Trading Days following the Effective Date and each Additional Consideration
Date, as relevant. The Company agrees that this is a material term of this Note
and any breach of this Section 4.00(c) will result in a default of the Note.
(d) Terms of Future Financings. So long as this Note is outstanding, upon any
issuance by the Company or any of its subsidiaries of any convertible debt
security (whether such debt begins with a convertible feature or such feature is
added at a later date) 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 the Holder's
option, shall become a part of this Note and its supporting documentation.. The
types of terms contained in the other security that may be more favorable to the
holder of such security include, but are not limited to, terms addressing
conversion discounts, conversion look back periods, interest rates, original
issue discount percentages and warrant coverage.
(e) Governing Law; Jurisdiction.
(i) Governing Law. This Note shall be governed by, and construed and interpreted
in accordance with, the substantive laws of the Commonwealth of Puerto Rico
without giving effect to any conflict of laws rule or principle that might
require the application of the laws of another jurisdiction.
(ii) Jurisdiction and Venue. Any dispute, claim, suit, action or other legal
proceeding arising out of or relating to this Note or the rights and obligations
of each of the parties shall be brought only in a competent court in San Juan,
Puerto Rico or in the federal courts of the United States of America located in
San Juan, Puerto Rico.
(iii) No Jury Trial. The Company hereto knowingly and voluntarily waives any and
all rights it may have to a trial by jury with respect to any litigation based
on, or arising out of, under, or in connection with, this Note.
(iv) Delivery of Process by the Holder to the Company. In the event of an action
or proceeding by the Holder against the Company, and only by the Holder against
the Company, service of copies of summons and/or complaint and/or any other
process that may be served in any such action or proceeding has to be made by
hand delivery of such process to its last known attorney as set forth in its
most recent SEC filing.
(v) Notices. Any notice required or permitted hereunder (including Conversion
Notices) must be in writing and either personally served, sent by facsimile or
email transmission, or sent by overnight courier. Notices will be deemed
effectively delivered at the time of transmission if by facsimile or email, and
if by overnight courier the business day after such notice is deposited with the
courier service for delivery.
(f) No Bad Actor. No officer or director of the Company would be disqualified
under Rule 506(d) of the Securities Act of 1933, as amended, on the basis of
being a "bad actor" as that term is established in the September 13, 2013 Small
Entity Compliance Guide published by the SEC.
(g) Usury. If it shall be found that any interest or other amount deemed
interest due hereunder violates any applicable law governing usury, the
applicable rate of interest due hereunder shall automatically be lowered to
equal the maximum rate of interest permitted under applicable law. The Company
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 Company
from paying all or a portion of the principal, fees, liquidated damages or
interest on this Note.
(h) Securities Laws Disclosure; Publicity. The Company shall (a) by 9:30 a.m.
Eastern Time on the Trading Day immediately following the Date of Execution,
issue a press release disclosing the material terms of the transactions
contemplated hereby, and (b) file a Current Report on Form 8-K, including a copy
of this Note as an exhibit thereto, with the SEC within the time required by the
1934 Act. From and after the filing of such press release, the Company
represents to the Holder that it shall have publicly disclosed all material,
non-public information delivered to the Holder by the Company, or any of its
officers, directors, employees, or agents in connection with the transactions
contemplated by this Note. The Company and the Holder shall consult with each
other in issuing any other press releases with respect to the transactions
contemplated hereby, and neither the Company nor the Holder shall issue any such
press release nor otherwise make any such public statement without the prior
consent of the Company, with respect to any press release of the Holder, or
without the prior consent of the Holder, with respect to any press release of
the Company, none of which consents shall be unreasonably withheld, delayed,
denied, or conditioned except if such disclosure is required by law, in which
case the disclosing party shall promptly provide the other party with prior
notice of such public statement or communication. Notwithstanding the foregoing,
the Company shall not publicly disclose the name of the Holder, or include the
name of the Holder in any filing with the SEC or any regulatory agency or
Principal Market, without the prior written consent of the Holder, except to the
extent such disclosure is required by law or Principal Market regulations, in
which case the Company shall provide the Holder with prior notice of such
disclosure permitted hereunder.
The Company agrees that this is a material term of this Note and any breach of
this Section 4.00(h) will result in a default of the Note.
(j) Right of First Refusal. From and after the date of this Note and at all
times hereafter while the Note is outstanding, the Parties agree that, in the
event that the Company receives any written or oral proposal (the "Proposal")
containing one or more offers to provide additional capital or equity or debt
financing (the "Financing Amount"), the Company agrees that it shall provide a
copy of all documents received relating to the Proposal together with a complete
and accurate description of the Proposal to the Holder and all amendments,
revisions, and supplements thereto (the "Proposal Documents") no later than 3
business days from the receipt of the Proposal Documents. Following receipt of
the Proposal Documents from the Company, the Holder shall have the right (the "Right of First Refusal"), but not the obligation, for a period of 5 business
days thereafter (the "Exercise Period"), to invest, at similar or better terms
to the Company, an amount equal to or greater than the Financing Amount, upon
written notice to the Company that the Holder is exercising the Right of First
Refusal provided hereby. In furtherance of the Right of First Refusal, the
Company agrees that it will cooperate and assist the Holder in conducting a due
diligence investigation of the Company and its corporate and financial affairs
and promptly provide the Holder with information and documents that the Holder
may reasonably request so as to allow the Holder to make an informed investment
decision. However, the Company and the Holder agree that the Holder shall have
no more than 5 business days from and after the expiration of the Exercise
Period to exercise its Right of First Refusal hereunder. This Right of First
Refusal shall extend to all purchases of debt held by, or assigned to or from,
current stockholders, vendors, or creditors, all transactions under Sections
3(a)9 and/or 3(a)10 or the Securities Act of 1933, as amended, and all equity
line-of-credit transactions. 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, without giving Right of
First Refusal to the Holder, 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.
Such liquidated damages will be automatically added to the Principal Sum of the
Note and tack back to the Effective Date for purposes of Rule 144.
[Signature Page to Follow.]
IN WITNESS WHEREOF, the Company has caused this Fixed Convertible Promissory
Note to be duly executed on the day and in the year first above written.
EWELLNESS HEALTHCARE CORPORATION
By:
Name:
Title:
Email:
Address:
This Fixed Convertible Promissory Note of February , 2017 is accepted this ___
day of , 2017 by
TANGIERS GLOBAL, LLC
By:
Name:
Title: Managing Member
EXHIBIT A
FORM OF CONVERSION NOTICE
(To be executed by the Holder in order to convert all or part of that certain
$275,000 Fixed Convertible Promissory Note identified as the Note)
DATE: ____________________________
FROM: Tangiers Global, LLC (the "Holder")
Re: $275,000 Fixed Convertible Promissory Note (this "Note") originally issued
by eWellness Healthcare Corporation, a Nevada corporation, to Tangiers Global,
LLC on February , 2017.
The undersigned on behalf of Tangiers Global, LLC, hereby elects to convert
$_______________________ of the aggregate outstanding Principal Amount (as
defined in the Note) indicated below of this Note into shares of Common Stock,
$0.001 par value per share, of eWellness Healthcare Corporation (the "Company"),
according to the conditions hereof, as of the date written below. If shares are
to be issued in the name of a person other than undersigned, the undersigned
will pay all transfer taxes payable with respect thereto and is delivering
herewith such certificates and opinions as reasonably requested by the Company
in accordance therewith. No fee will be charged to the holder for any
conversion, except for such transfer taxes, if any. The undersigned represents
as of the date hereof that, after giving effect to the conversion of this Note
pursuant to this Conversion Notice, the undersigned will not exceed the "Restricted Ownership Percentage" contained in this Note.
Conversion information:
Date to Effect Conversion
Aggregate Principal Sum of Note Being Converted
Aggregate Interest/Fees of Principal Amount Being Converted
Remaining Principal Balance
Number of Shares of Common Stock to be Issued
Applicable Conversion Price
Signature
Name
Address
EXHIBIT B
WRITTEN CONSENT OF THE BOARD OF DIRECTORS OF
EWELLNESS HEALTHCARE CORPORATION
The undersigned, being directors of eWellness Healthcare Corporation, a Nevada
corporation (the "Company"), acting pursuant to the Bylaws of the Corporation,
do hereby consent to, approve and adopt the following preamble and resolutions:
Convertible Note with Tangiers Global, LLC
The board of directors of the Company has reviewed and authorized the following
documents relating to the issuance of a Fixed Convertible Promissory Note in the
amount of $275,000 with Tangiers Global, LLC.
The documents agreed to and dated February , 2017 are as follows:
8% Fixed Convertible Promissory Note of eWellness Healthcare Corporation
Irrevocable Transfer Agent Instructions
Certificate of Corporate Secretary
Disbursement Instructions
The board of directors further agree to authorize and approve the issuance of
shares to the Holder at Conversion prices that are below the Company's then
current par value.
IN WITNESS WHEREOF, the undersign member(s) of the board of the Company executed
this unanimous written consent as of February , 2017.
_________________________________
By:
Its:
EXHIBIT C
CERTIFICATE OF CORPORATE SECRETARY OF
EWELLNESS HEALTHCARE CORPORATION
(Two Pages)
The undersigned, _______________________ is the duly elected Corporate Secretary
of eWellness Healthcare Corporation, a Nevada corporation (the "Company").
I hereby warrant and represent that I have undertaken a complete and thorough
review of the Company's corporate and financial books and records, including,
but not limited to, the Company's records relating to the following:
(A) The issuance of that certain convertible promissory note dated February ,
2017 (the "Note Issuance Date") issued to Tangiers Global, LLC (the "Holder") in
the stated original principal amount of $275,000 (the "Note");
(B) The Company's Board of Directors duly approved the issuance of the Note to
the Holder;
(C) The Company has not received and does not contemplate receiving any new
consideration from any persons in connection with any later conversion of the
Note and the issuance of the Company's Common Stock upon any said conversion;
(D) To my best knowledge and after completing the aforementioned review of the
Company's stockholder and corporate records, I am able to certify that the
Holder (and the persons affiliated with the Holder) are not officers, directors,
or directly or indirectly, ten percent (10.00%) or more stockholders of the
Company and none of said persons has had any such status in the one hundred
(100) days immediately preceding the date of this Certificate;
(E) The Company's Board of Directors have approved duly adopted resolutions
approving the Irrevocable Instructions to the Company's Stock Transfer Agent
dated February , 2017;
(F) Mark the appropriate selection:
___ The Company represents that it is not a "shell company," as that term is
defined in Section 12b-2 of the Securities Exchange Act of 1934, as amended, and
has never been a shell company, as so defined; or
___ The Company represents that (i) it was a "shell company," as that term is
defined in Section 12b-2 of the Securities Exchange Act of 1934, as amended,
(ii) since ______, 201__, it has no longer been a shell company, as so defined,
and (iii) on _______, 201__, it provided Form 10-type information in a filing
with the Securities and Exchange Commission.
(G) I understand the constraints imposed under Rule 144 on those persons who are
or may be deemed to be "affiliates," as that term is defined in Rule 144(a)(1)
of the Securities Act of 1933, as amended.
(H) I understand that all of the representations set forth in this Certificate
will be relied upon by counsel to Tangiers Global, LLC in connection with the
preparation of a legal opinion.
I hereby affix my signature to this Notarized Certificate and hereby confirm the
accuracy of the statements made herein.
Signed: ____________________________________ Date: __________________
Name: ____________________________________ Title: ___________________
SUBSCRIBED AND SWORN TO BEFORE ME ON THIS ________ DAY OF ____________________
2017.
Commission Expires:______________
____________________________________
Notary Public
EXHIBIT D
TO: Tangiers Global, LLC
FROM: eWellness Healthcare Corporation
DATE: February , 2017
RE: Disbursement of Funds
Pursuant to that certain Fixed Convertible Promissory Note between the parties
listed above and dated February , 2017, a disbursement of funds will take place
in the amount and manner described below:
Please disburse to:
Amount to disburse: $100,000
Form of distribution Wire
Name eWellness Healthcare Corporation
Company Address
Wire Instructions: Bank:
ABA Routing Number:
Account Number:
SWIFT Code:
Account Name:
Phone:
Please disburse to:
Amount to disburse: $25,000
Form of distribution Wire
Name
Company Address
Wire Instructions: Bank:
ABA Routing Number:
Account Number:
SWIFT Code:
Account Name:
Phone:
TOTAL: $125,000
For: eWellness Healthcare Corporation
By: _________________________________________ Dated: February , 2017
Name:
Its:
Note: April 11, 2017
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
CONVERTIBLE HAVE BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE
COMMISSION 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.
THIS NOTE DOES NOT REQUIRE PHYSICAL SURRENDER OF THE NOTE IN THE EVENT OF A
PARTIAL REDEMPTION OR CONVERSION. AS A RESULT, FOLLOWING ANY REDEMPTION OR
CONVERSION OF ANY PORTION OF THIS NOTE, THE OUTSTANDING PRINCIPAL SUM
REPRESENTED BY THIS NOTE MAY BE LESS THAN THE PRINCIPAL SUM AND ACCRUED INTEREST
SET FORTH BELOW.
8% FIXED CONVERTIBLE PROMISSORY NOTE
OF
EWELLNESS HEALTHCARE CORPORATION
Issuance Date: April 11, 2017
Total Face Value of Note: $308,000
This Note is a duly authorized Fixed Convertible Promissory Note of eWellness
Healthcare Corporation a corporation duly organized and existing under the laws
of the State of Nevada (the "Company"), designated as the Company's 8% Fixed
Convertible Promissory Note due November 11, 2018 ("Maturity Date") in the
principal amount of $308,000 (the "Note").
For Value Received, the Company hereby promises to pay to the order of Tangiers
Global, LLC or its registered assigns or successors-in-interest (the "Holder")
the Principal Sum of $308,000 (the "Principal Sum") and to pay "guaranteed"
interest on the principal balance hereof at an amount equivalent to 8% of the
Principal Sum, to the extent such Principal Sum and "guaranteed" interest and
any other interest, fees, liquidated damages and/or items due to Holder herein
have not been repaid or converted into the Company's Common Stock (the "Common
Stock"), in accordance with the terms hereof. The sum of $280,000 shall be
remitted and delivered to the Company, and $28,000 shall be retained by the
Purchaser through an original issue discount (the "OID") for due diligence and
legal bills related to this transaction. The OID is set at 10% of any
consideration paid.
In addition to the "guaranteed" interest referenced above, and in the Event of
Default pursuant to Section 2.00(a), additional interest will accrue from the
date of the Event of Default at the rate equal to the lower of 20% per annum or
the highest rate permitted by law (the "Default Rate").
This Note will become effective only upon the execution by both the Company and
the Holder (collectively, the "Parties" and individually, a "Party"), including
the execution of Exhibits B, C, D and E and the Irrevocable Transfer Agent
Instructions (the "Date of Execution") and delivery of the initial payment of
consideration by the Holder (the "Effective Date").
This Note may be prepaid by the Company, in whole or in part, according to the
following schedule:
Days Since Effective Date Prepayment Amount
Under 30 100% of Principal Amount
31-60 110% of Principal Amount
61-90 120% of Principal Amount
91-120 130% of Principal Amount
121-150 140% of Principal Amount
151-180 150% of Principal Amount
After 180 days from the Effective Date, this Note may not be prepaid without
written consent from Holder, which consent may be withheld, delayed or denied in
Holder's sole and absolute discretion. Whenever any amount expressed to be due
by the terms of this Note is due on any day which is not a Business Day (as
defined below), the same shall instead be due on the next succeeding day which
is a Business Day. If the Note is in default, per Section 2.00(a) below, the
Company may not prepay the Note without written consent of the Holder.
For purposes hereof the following terms shall have the meanings ascribed to them
below:
"Act" shall mean the Securities Act of 1933, as amended.
"Business Day" shall mean any day other than a Saturday, Sunday or a day on
which commercial banks in the City of New York are authorized or required by law
or executive order to remain closed.
"Conversion Price" shall be equal to $.20.
"Exchange Act" shall mean the Securities Exchange Act of 1934.
"Exempt Persons" shall mean those persons and entities set forth in Exhibit F.1
and F.2 hereto.
"Principal Amount" shall refer to the sum of (i) the original principal amount
of this Note (including the original issue discount, prorated if the Note has
not been funded in full), (ii) all guaranteed and other accrued but unpaid
interest hereunder, (iii) any fees due hereunder, (iv) liquidated damages, and
(v) any default payments owing under the Note, in each case previously paid or
added to the Principal Amount.
"Principal Market" shall refer to the primary exchange on which the Company's
common stock is traded or quoted.
"Trading Day" shall mean a day on which there is trading or quoting for any
security on the Principal Market.
"Underlying Shares" means the shares of common stock into which the Note is
convertible (including interest, fees, liquidated damages and/or principal
payments in common stock as set forth herein) in accordance with the terms
hereof.
The following terms and conditions shall apply to this Note:
Section 1.00 Conversion.
(a) Conversion Right. Subject to the terms hereof and restrictions and
limitations contained herein, the Holder shall have the right, at the Holder's
sole option, at any time and from time to time to convert in whole or in part
the outstanding and unpaid Principal Amount under this Note into shares of
Common Stock as per the Conversion Formula. The date of any conversion notice
("Conversion Notice") hereunder shall be referred to herein as the "Conversion
Date".
(b) Stock Certificates or DWAC. The Company will deliver to the Holder, or
Holder's authorized designee, no later than 2 Trading Days after the Conversion
Date, a certificate or certificates (which certificate(s) shall be free of
restrictive legends and trading restrictions if the shares of Common Stock
underlying the portion of the Note being converted are eligible under a resale
exemption pursuant to Rule 144(b)(1)(ii) and Rule 144(d)(1)(ii) promulgated by
the United States Securities and Exchange Commission (the "SEC") under the Act)
representing the number of shares of Common Stock being acquired upon the
conversion of this Note. In lieu of delivering physical certificates
representing the shares of Common Stock issuable upon conversion of this Note,
provided the Company's Transfer Agent is participating in DTC's FAST program,
the Company shall instead use commercially reasonable efforts to cause its
Transfer Agent to electronically transmit such shares issuable upon conversion
to the Holder (or its designee), by crediting the account of the Holder's (or
such designee's) broker with DTC through its DWAC program (provided that the
same time periods herein as for stock certificates shall apply).
(c) Charges and Expenses. Issuance of Common Stock to Holder, or any of its
assignees, upon the conversion of this Note shall be made without charge to the
Holder for any issuance fee, transfer tax, legal opinion and related charges,
postage/mailing charge or any other expense with respect to the issuance of such
Common Stock. Company shall pay all Transfer Agent fees incurred from the
issuance of the Common Stock to Holder, as well as any and all other fees and
charges required by the Transfer Agent as a condition to effectuate such
issuance. Any such fees or charges, as noted in this Section that are paid by
the Holder (whether from the Company's delays, outright refusal to pay, or
otherwise), will be automatically added to the Principal Sum of the Note and
tack back to the Effective Date for purposes of Rule 144.
(d) Delivery Timeline. If the Company fails to deliver to the Holder such
certificate or certificates (or shares through the DWAC program) pursuant to
this Section (free of any restrictions on transfer or legends, if eligible)
prior to 3 Trading Days after the Conversion Date, the Company shall pay to the
Holder as liquidated damages an amount equal to $2,000 per day, until such
certificate or certificates are delivered. The Company acknowledges that it
would be extremely difficult or impracticable to determine the Holder's actual
damages and costs resulting from a failure to deliver the Common Stock and the
inclusion herein of any such additional amounts are the agreed upon liquidated
damages representing a reasonable estimate of those damages and costs. Such
liquidated damages will be automatically added to the Principal Sum of the Note
and tack back to the Effective Date for purposes of Rule 144.
(e) Reservation of Underlying Securities. The Company covenants that it will at
all times reserve and keep available for Holder, out of its authorized and
unissued Common Stock solely for the purpose of issuance upon conversion of this
Note, free from preemptive rights or any other actual contingent purchase rights
of persons other than the Holder, five (5) times the number of shares of Common
Stock as shall be issuable (taking into account the adjustments under this
Section 1.00, but without regard to any ownership limitations contained herein)
upon the conversion of this Note (consisting of the Principal Amount) under the
formula in Section 2.00(c) below, to Common Stock (the "Required Reserve"). The
Company covenants that all shares of Common Stock that shall be issuable will,
upon issue, be duly authorized, validly issued, fully-paid, non-assessable and
freely-tradable (if eligible). If the number of shares on reserve in Holder's
name at the Company's Transfer Agent for this Note shall drop below the Required
Reserve, the Company will, within 2 Trading Days of notification from Holder,
instruct the Transfer Agent to increase the number of shares so that the
Required Reserve is met. In the event that the Company does not instruct the
Transfer Agent to increase the number of shares so that the Required Reserve is
met, the Holder will be allowed, if applicable, to provide this instruction as
per the terms of the Irrevocable Transfer Agent Instructions attached to this
Note. The Company agrees that the maintenance of the Required Reserve is a
material term of this Note and any breach of this Section 1.00(e) will result in
a default of the Note.
(f) Conversion Limitation. The Holder will not submit a conversion to the
Company that would result in the Holder beneficially owning more than 9.99% of
the then total outstanding shares of the Company ("Restricted Ownership
Percentage").
(g) Conversion Delays. If the Company fails to deliver shares in accordance with
the timeframe stated in Section 1.00(b), 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. The rescinded
conversion amount will be returned to the Principal Sum with the rescinded
conversion shares returned to the Company, under the expectation that any
returned conversion amounts will tack back to the Effective Date.
(h) Shorting and Hedging. Holder may not engage in any "shorting" or "hedging"
transaction(s) in the Common Stock prior to conversion.
(i) Conversion Right Unconditional. If the Holder shall provide a Conversion
Notice as provided herein, the Company's obligations to deliver Common Stock
shall be absolute and unconditional, irrespective of any claim of setoff,
counterclaim, recoupment, or alleged breach by the Holder of any obligation to
the Company.
Section 2.00 Defaults and Remedies.
(a) Events of Default. An "Event of Default" is: (i) a default in payment of any
amount due hereunder which default continues for more than 5 Trading Days after
the due date; (ii) a default in the timely issuance of underlying shares upon
and in accordance with terms of Section 1.00, which default continues for 2
Trading Days after the Company has failed to issue shares or deliver stock
certificates within the 3rd Trading Day following the Conversion Date; (iii) if
the Company does not issue the press release or file the Current Report on Form
8-K, in each case in accordance with the provisions and the deadlines referenced
Section 4.00(j); (iv) failure by the Company for 3 days after notice has been
received by the Company to comply with any material provision of this Note; (v)
failure of the Company to remain compliant with DTC, thus incurring a "chilled"
status with DTC; (vi) any default of any mortgage, indenture or instrument which
may be issued, or by which there may be secured or evidenced any indebtedness,
for money borrowed by the Company or for money borrowed the repayment of which
is guaranteed by the Company, whether such indebtedness or guarantee now exists
or shall be created hereafter; (vii) if the Company is subject to any Bankruptcy
Event; (viii) any failure of the Company to satisfy its "filing" obligations
under the Exchange Act and the rules and guidelines issued by OTC Markets News
Service, OTCMarkets.com and their affiliates; (ix) failure of the Company to
remain in good standing with its state of domicile; (x) any failure of the
Company to provide the Holder with information related to its corporate
structure including, but not limited to, the number of authorized and
outstanding shares, public float, etc. within 2 Trading Days of request by
Holder; (xi) failure by the Company to maintain the Required Reserve in
accordance with the terms of Section 1.00(e); (xii) failure of Company's Common
Stock to maintain a closing bid price in its Principal Market for more than 3
consecutive Trading Days; (xiii) any delisting from a Principal Market for any
reason; (xiv) failure by Company to pay any of its Transfer Agent fees in excess
of $2,000, which failure is not cured within 5 Trading Days or such shorter
period so as to be able to deliver or DWAC shares in a timely manner under this
Note, or to maintain a Transfer Agent of record; (xv) failure by Company to
notify Holder of a change in Transfer Agent within 24 hours of such change;
(xvi) any trading suspension imposed by the SEC under Sections 12(j) or 12(k) of
the 1934 Act; (xvii) failure by the Company to meet all requirements necessary
to satisfy the availability of Rule 144 to the Holder or its assigns, including
but not limited to the 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; or
(xviii) failure of the Company to abide by the terms of the right of first
refusal contained in Section 4.00(k).
(b) Remedies. If an Event of Default occurs, the outstanding Principal Amount of
this Note owing in respect thereof through the date of acceleration, shall
become, at the Holder's election, immediately due and payable in cash at the
"Mandatory Default Amount". The Mandatory Default Amount means 125% of the
outstanding Principal Amount of this Note, will be automatically added to the
Principal Sum of the Note and tack back to the Effective Date for purposes of
Rule 144. Commencing 5 days after the occurrence of any Event of Default that
results in the eventual acceleration of this Note, this Note shall accrue
additional interest, in addition to the Note's "guaranteed" interest, at a rate
equal to the lesser of 20% per annum or the maximum rate permitted under
applicable law. Finally, commencing 5 days after the occurrence of any Event of
Default that results in the eventual acceleration of this Note, an additional
permanent 10% increase to the Conversion Price discount will go into effect. In
connection with such acceleration described herein, the Holder need not provide,
and the Issuer hereby waives, any presentment, demand, protest or other notice
of any kind, and the Holder may immediately and without expiration of any grace
period enforce any and all of its rights and remedies hereunder and all other
remedies available to it under applicable law. Such acceleration may be
rescinded and annulled by the Holder at any time prior to payment hereunder and
the Holder shall have all rights as a holder of the note until such time, if
any, as the Holder receives full payment pursuant to this Section 2.00(b). No
such rescission or annulment shall affect any subsequent event of default or
impair any right consequent thereon. Nothing herein shall limit the Holder's
right to pursue any other remedies available to it at law or in equity
including, without limitation, a decree of specific performance and/or
injunctive relief with respect to the Issuer's failure to timely deliver
certificates representing shares of Common Stock upon conversion of the Note as
required pursuant to the terms hereof.
(c) Conversion Right. At any time and from time to time after a default occurs
solely due to the fact the Note is not retired on or before the Maturity Date
("Maturity Default"), subject to the terms hereof and restrictions and
limitations contained herein, the Holder shall have the right, at the Holder's
sole option, to convert in whole or in part the outstanding and unpaid Principal
Amount under this Note into shares of Common Stock at the Maturity Default
Conversion Price. The "Maturity Default Conversion Price" shall be equal to the
lower of: (a) the Conversion Price or (b) 65% of the lowest trading price of the
Company's common stock during the 15 consecutive Trading Days prior to the date
on which Holder elects to convert all or part of the Note. For the purpose of
calculating the Default Conversion Price only, any time after 4:00 pm Eastern
Time (the closing time of the Principal Market) shall be considered to be the
beginning of the next Business Day. If the Company is placed on "chilled" status
with the DTC, the discount shall be increased by 10%, i.e., from 35% to 45%,
until such chill is remedied. If the Company is not DWAC eligible through their
Transfer Agent and DTC's FAST system, the discount will be increased by 5%,
i.e., from 35% to 40%. In the case of both, the discount shall be a cumulative
increase of 15%, i.e., from 35% to 50%.
Section 3.00 Representations and Warranties of Holder.
Holder hereby represents and warrants to the Company that:
(a) Holder is an "accredited investor," as such term is defined in Rule 501 of
Regulation D promulgated by the SEC under the Act, and will acquire this Note
and the Underlying Shares (collectively, the "Securities") for its own account
and not with a view to a sale or distribution thereof as that term is used in
Section 2(a)(11) of the Act, in a manner which would require registration under
the Act or any state securities laws. Holder has such knowledge and experience
in financial and business matters that such Holder is capable of evaluating the
merits and risks of the Securities. Holder can bear the economic risk of the
Securities, has knowledge and experience in financial business matters and is
capable of bearing and managing the risk of investment in the Securities. Holder
recognizes that the Securities have not been registered under the Act, nor under
the securities laws of any state and, therefore, cannot be resold unless the
resale of the Securities is registered under the Act or unless an exemption from
registration is available. Holder has carefully considered and has, to the
extent Holder believes such discussion necessary, discussed with its
professional, legal, tax and financial advisors, the suitability of an
investment in the Securities for its particular tax and financial situation and
its advisers, if such advisors were deemed necessary, and has determined that
the Securities are a suitable investment for it. Holder has not been offered the
Securities by any form of general solicitation or advertising, including, but
not limited to, advertisements, articles, notices or other communications
published in any newspaper, magazine, or other similar media or television or
radio broadcast or any seminar or meeting where, to Holders' knowledge, those
individuals that have attended have been invited by any such or similar means of
general solicitation or advertising. Holder has had an opportunity to ask
questions of and receive satisfactory answers from the Company, or any person or
persons acting on behalf of the Company, concerning the terms and conditions of
the Securities and the Company, and all such questions have been answered to the
full satisfaction of Holder. The Company has not supplied Holder any information
regarding the Securities or an investment in the Securities other than as
contained in this Agreement, and Holder is relying on its own investigation and
evaluation of the Company and the Securities and not on any other information.
(b) The Holder is a limited liability company duly organized, validly existing
and in good standing under the laws of the state of its incorporation and has
all requisite corporate power and authority to carry on its business as now
conducted. The Holder is duly qualified to transact business and is in good
standing in each jurisdiction in which the failure to so qualify would have a
material adverse effect on its business or properties.
(c) All corporate action has been taken on the part of the Holder, its officers,
directors and stockholders necessary for the authorization, execution and
delivery of this Note. The Holder has taken all corporate action required to
make all of the obligations of the Holder reflected in the provisions of this
Note, valid and enforceable obligations.
(d) Each certificate or instrument representing Securities will be endorsed with
the following legend (or a substantially similar legend), unless or until
registered under the Act or exempt from registration:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED
OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
ACT COVERING SUCH SECURITIES, THE TRANSFER IS MADE IN COMPLIANCE WITH RULE 144
PROMULGATED UNDER SUCH ACT OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THESE SECURITIES WHICH IS REASONABLY SATISFACTORY TO THE COMPANY,
STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.
Section 4.00 General.
(a) Payment of Expenses. The Company agrees to pay all reasonable charges and
expenses, including attorneys' fees and expenses, which may be incurred by the
Holder in successfully enforcing this Note and/or collecting any amount due
under this Note.
(b) Assignment, Etc. The Holder may assign or transfer this Note to any
transferee at its sole discretion. This Note shall be binding upon the Company
and its successors and shall inure to the benefit of the Holder and its
successors and permitted assigns.
(c) Amendments. This Note may not be modified or amended, or any of the
provisions of this Note waived, except by written agreement of the Company and
the Holder.
(d) Funding Window. The Company agrees that it will not enter into a convertible
debt financing transaction with any party other than the Holder for a period of
45 Trading Days following the Effective Date. The Company agrees that this is a
material term of this Note and any breach of this will result in a default of
the Note.
(e) Piggyback Registration Rights. The Company shall include on the next
registration statement that the Company files with the SEC (or on the subsequent
registration statement if such registration statement is withdrawn) all shares
issuable upon conversion of this Note to the maximum extent permitted by Section
415 of the Act. Failure to do so will result in liquidated damages of 30% of the
outstanding Principal Sum of this Note, but not less than $20,000, being
immediately due and payable to the Holder at its election in the form of a cash
payment or an addition to the Principal Sum of this Note.
(f) Terms of Future Financings. So long as this Note is outstanding, upon any
issuance by the Company or any of its subsidiaries of any convertible debt
security (whether such debt begins with a convertible feature or such feature is
added at a later date) 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 the Holder's
option, shall become a part of this Note and its supporting documentation.. The
types of terms contained in the other security that may be more favorable to the
holder of such security include, but are not limited to, terms addressing
conversion discounts, conversion look back periods, interest rates, original
issue discount percentages and warrant coverage.
(g) Governing Law; Jurisdiction.
(i) Governing Law. This Note shall be governed by, and construed and interpreted
in accordance with, the substantive laws of the Commonwealth of Puerto Rico
without giving effect to any conflict of laws rule or principle that might
require the application of the laws of another jurisdiction.
(ii) Jurisdiction and Venue. Any dispute, claim, suit, action or other legal
proceeding arising out of or relating to this Note or the rights and obligations
of each of the parties shall be brought only in a competent court in San Juan,
Puerto Rico or in the federal courts of the United States of America located in
San Juan, Puerto Rico.
(iii) No Jury Trial. The Company hereto knowingly and voluntarily waives any and
all rights it may have to a trial by jury with respect to any litigation based
on, or arising out of, under, or in connection with, this Note.
(iv) Delivery of Process by the Holder to the Company. In the event of an action
or proceeding by the Holder against the Company, and only by the Holder against
the Company, service of copies of summons and/or complaint and/or any other
process that may be served in any such action or proceeding may be made by the
Holder via U.S. Mail, overnight delivery service such as FedEx or UPS, email,
fax, or process server, or by mailing or otherwise delivering a copy of such
process to the Company at its last known attorney as set forth in its most
recent SEC filing.
(v) Notices. Any notice required or permitted hereunder (including Conversion
Notices) must be in writing and either personally served, sent by facsimile or
email transmission, or sent by overnight courier. Notices will be deemed
effectively delivered at the time of transmission if by facsimile or email, and
if by overnight courier the business day after such notice is deposited with the
courier service for delivery.
(h) No Bad Actor. No officer or director of the Company would be disqualified
under Rule 506(d) of the Securities Act of 1933, as amended, on the basis of
being a "bad actor" as that term is established in the September 13, 2013 Small
Entity Compliance Guide published by the SEC.
(i) Usury. If it shall be found that any interest or other amount deemed
interest due hereunder violates any applicable law governing usury, the
applicable rate of interest due hereunder shall automatically be lowered to
equal the maximum rate of interest permitted under applicable law. The Company
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 Company
from paying all or a portion of the principal, fees, liquidated damages or
interest on this Note.
(j) Securities Laws Disclosure; Publicity. The Company shall (a) by 9:30 a.m.
Eastern Time on the Trading Day immediately following the Date of Execution,
issue a press release disclosing the material terms of the transactions
contemplated hereby, and (b) file a Current Report on Form 8-K, including a copy
of this Note as an exhibit thereto, with the SEC within the time required by the
1934 Act. From and after the filing of such press release, the Company
represents to the Holder that it shall have publicly disclosed all material,
non-public information delivered to the Holder by the Company, or any of its
officers, directors, employees, or agents in connection with the transactions
contemplated by this Note. The Company and the Holder shall consult with each
other in issuing any other press releases with respect to the transactions
contemplated hereby, and neither the Company nor the Holder shall issue any such
press release nor otherwise make any such public statement without the prior
consent of the Company, with respect to any press release of the Holder, or
without the prior consent of the Holder, with respect to any press release of
the Company, none of which consents shall be unreasonably withheld, delayed,
denied, or conditioned except if such disclosure is required by law, in which
case the disclosing party shall promptly provide the other party with prior
notice of such public statement or communication. Notwithstanding the foregoing,
the Company shall not publicly disclose the name of the Holder, or include the
name of the Holder in any filing with the SEC or any regulatory agency or
Principal Market, without the prior written consent of the Holder, except to the
extent such disclosure is required by law or Principal Market regulations, in
which case the Company shall provide the Holder with prior notice of such
disclosure permitted hereunder.
The Company agrees that this is a material term of this Note and any breach of
this Section 4.00(j) will result in a default of the Note.
(k) Right of First Refusal. From and after the date of this Note and at all
times hereafter while the Note is outstanding, the Parties agree that, in the
event that the Company receives any written or oral proposal (the "Proposal")
containing one or more offers to provide additional capital or equity or debt
financing (the "Financing Amount") from new third-party funding sources (other
than Exempt Persons, defined as existing investors and/or persons that presently
have or previously been issued convertible debt instruments by the Company), the
Company agrees that it shall provide a copy of all documents received relating
to the Proposal together with a complete and accurate description of the
Proposal to the Holder and all amendments, revisions, and supplements thereto
(the "Proposal Documents") no later than 3 business days from the receipt of the
Proposal Documents. Following receipt of the Proposal Documents from the
Company, the Holder shall have the right (the "Right of First Refusal"), but not
the obligation, for a period of 5 business days thereafter (the "Exercise
Period"), to invest, at similar or better terms to the Company, an amount equal
to or greater than the Financing Amount, upon written notice to the Company that
the Holder is exercising the Right of First Refusal provided hereby. In
furtherance of the Right of First Refusal, the Company agrees that it will
cooperate and assist the Holder in conducting a due diligence investigation of
the Company and its corporate and financial affairs and promptly provide the
Holder with information and documents that the Holder may reasonably request so
as to allow the Holder to make an informed investment decision. However, the
Company and the Holder agree that the Holder shall have no more than 5 business
days from and after the expiration of the Exercise Period to exercise its Right
of First Refusal hereunder. This Right of First Refusal shall extend to all
purchases of debt held by, or assigned to or from, current stockholders,
vendors, or creditors, all transactions under Sections 3(a)9 and/or 3(a)10 of
the Act, and all equity line-of-credit transactions ("New Financing
Transactions"), other than from or involving Exempt Persons . 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,
without giving Right of First Refusal to the Holder, 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. Such liquidated damages will be automatically added to the Principal
Sum of the Note and tack back to the Effective Date for purposes of Rule 144.
[Signature Page to Follow.]
IN WITNESS WHEREOF, the Company has caused this Fixed Convertible Promissory
Note to be duly executed on the day and in the year first above written.
EWELLNESS HEALTHCARE CORPORATION
By:
Name:
Title:
Email:
Address:
This Fixed Convertible Promissory Note of April 11, 2017 is accepted this ___
day of , 2017 by
TANGIERS GLOBAL, LLC
By:
Name:
Title: Managing Member
EXHIBIT A
FORM OF CONVERSION NOTICE
(To be executed by the Holder in order to convert all or part of that certain
$308,000 Fixed Convertible Promissory Note identified as the Note)
DATE: ____________________________
FROM: Tangiers Global, LLC (the "Holder")
Re: $308,000 Fixed Convertible Promissory Note (this "Note") originally issued
by eWellness Healthcare Corporation, a Nevada corporation, to Tangiers Global,
LLC on April 11, 2017.
The undersigned on behalf of Tangiers Global, LLC, hereby elects to convert
$_______________________ of the aggregate outstanding Principal Amount (as
defined in the Note) indicated below of this Note into shares of Common Stock,
$0.001 par value per share, of eWellness Healthcare Corporation (the "Company"),
according to the conditions hereof, as of the date written below. If shares are
to be issued in the name of a person other than undersigned, the undersigned
will pay all transfer taxes payable with respect thereto and is delivering
herewith such certificates and opinions as reasonably requested by the Company
in accordance therewith. No fee will be charged to the Holder for any
conversion, except for such transfer taxes, if any. The undersigned represents
as of the date hereof that, after giving effect to the conversion of this Note
pursuant to this Conversion Notice, the undersigned will not exceed the "Restricted Ownership Percentage" contained in this Note.
Conversion information:
Date to Effect Conversion
Aggregate Principal Sum of Note Being Converted
Aggregate Interest/ Fees of Principal Amount Being Converted
Remaining Principal Balance
Number of Shares of Common Stock to be Issued
Applicable Conversion Price
Signature
Name
Address
EXHIBIT B
WRITTEN CONSENT OF THE BOARD OF DIRECTORS OF
EWELLNESS HEALTHCARE CORPORATION
The undersigned, being directors of eWellness Healthcare Corporation, a Nevada
corporation (the "Company"), acting pursuant to the Bylaws of the Corporation,
do hereby consent to, approve and adopt the following preamble and resolutions:
Convertible Note with Tangiers Global, LLC
The board of directors of the Company has reviewed and authorized the following
documents relating to the issuance of a Fixed Convertible Promissory Note in the
amount of $308,000 with Tangiers Global, LLC.
The documents agreed to and dated April 11, 2017 are as follows:
8% Fixed Convertible Promissory Note of eWellness Healthcare Corporation
Irrevocable Transfer Agent Instructions
Notarized Certificate of Corporate Secretary
Disbursement Instructions
Company Capitalization Table
The board of directors further agree to authorize and approve the issuance of
shares to the Holder at Conversion prices that are below the Company's then
current par value.
IN WITNESS WHEREOF, the undersign member(s) of the board of the Company executed
this unanimous written consent as of April 11, 2017.
_________________________________
By:
Its:
EXHIBIT C
NOTARIZED CERTIFICATE OF CORPORATE SECRETARY OF
EWELLNESS HEALTHCARE CORPORATION
(Two Pages)
The undersigned, _______________________ is the duly elected Corporate Secretary
of eWellness Healthcare Corporation, a Nevada corporation (the "Company").
I hereby warrant and represent that I have undertaken a complete and thorough
review of the Company's corporate and financial books and records, including,
but not limited to, the Company's records relating to the following:
(A) The issuance of that certain Fixed Convertible Promissory Note dated April
11, 2017 (the "Note Issuance Date") issued to Tangiers Global, LLC (the "Holder") in the stated original principal amount of $308,000 (the
"Note");
(B) The Company's Board of Directors duly approved the issuance of the Note to
the Holder;
(C) The Company has not received and does not contemplate receiving any new
consideration from any persons in connection with any later conversion of the
Note and the issuance of the Company's Common Stock upon any said conversion;
(D) To my best knowledge and after completing the aforementioned review of the
Company's stockholder and corporate records, I am able to certify that the
Holder (and the persons affiliated with the Holder) are not officers, directors,
or directly or indirectly, ten percent (10.00%) or more stockholders of the
Company and none of said persons has had any such status in the one hundred
(100) days immediately preceding the date of this Certificate;
(E) The Company's Board of Directors have approved duly adopted resolutions
approving the Irrevocable Instructions to the Company's Stock Transfer Agent
dated April 11, 2017;
(F) Mark the appropriate selection:
___ The Company represents that it is not a "shell company," as that term is
defined in Section 12b-2 of the Securities Exchange Act of 1934, as amended, and
has never been a shell company, as so defined; or
___ The Company represents that (i) it was a "shell company," as that term is
defined in Section 12b-2 of the Securities Exchange Act of 1934, as amended,
(ii) since ______, 201__, it has no longer been a shell company, as so defined,
and (iii) on _______, 201__, it provided Form 10-type information in a filing
with the Securities and Exchange Commission.
(G) I understand the constraints imposed under Rule 144 on those persons who are
or may be deemed to be "affiliates," as that term is defined in Rule 144(a)(1)
of the Securities Act of 1933, as amended.
(H) I understand that all of the representations set forth in this Certificate
will be relied upon by counsel to Tangiers Global, LLC in connection with the
preparation of a legal opinion.
I hereby affix my signature to this Notarized Certificate and hereby confirm the
accuracy of the statements made herein.
Signed: ____________________________________ Date: __________________
Name: ____________________________________ Title: ___________________
SUBSCRIBED AND SWORN TO BEFORE ME ON THIS ________ DAY OF ____________________
2017.
Commission Expires: ______________
____________________________________
Notary Public
EXHIBIT D
TO: Tangiers Global, LLC
FROM: eWellness Healthcare Corporation
DATE: April 11, 2017
RE: Disbursement of Funds
Pursuant to that certain Fixed Convertible Promissory Note between the parties
listed above and dated April 11, 2017, a disbursement of funds will take place
in the amount and manner described below:
Please disburse to:
Amount to disburse: $280,000
Form of distribution Wire
Name eWellness Healthcare Corporation
Company Address
Wire Instructions: Bank:
ABA Routing Number:
Account Number:
SWIFT Code:
Account Name:
Phone:
TOTAL: $280,000
For: eWellness Healthcare Corporation
By: _________________________________________ Dated: April 11, 2017
Name:
Its:
EXHIBIT E
COMPANY CAPITALIZATION TABLE AS OF APRIL 11, 2017
COMMON STOCK AND COMMON STOCK EQUIVALENTS
ISSUED, OUTSTANDING AND RESERVED
DESCRIPTION AMOUNT
Authorized Stock
Authorized Capital Stock 420,000,000 shares
Authorized Common Stock 400,000,000 shares
Issued Common Stock 66,331,382 shares
Outstanding Common Stock 66,331,382 shares
Treasury Stock
*Authorized, but unissued
Authorized Preferred Stock 20,000,000 shares
Issued Preferred Stock -0-
Reserved for Equity Incentive Plans __
Reserved for Convertible Debt __
Reserved for Options and Warrants __
Reserved for Other Purposes __
TOTAL COMMON STOCK AND COMMON
STOCK EQUIVALENTS OUTSTANDING
* This number includes all shares reserved for Convertible Debt
Note: If not applicable, enter "n/a" or "zero" in Column 2.
EXHIBIT F.1
CURRENT DEBT AND LIABILITIES TABLE
FIXED CONVERTIBLE PROMISSORY NOTE BALANCES AND PROMISSORY NOTE BALANCES
(See table below)
DESCRIPTION AND NAME OF HOLDER ISSUANCE DATE AMOUNT
Convertible Promissory Note (See attached Table
Holder Issue Date Principal Amount Interest Rate Interest Balance Amount
Converted Principal & Interest remaining
JEB/Justin S 11/14/2016 $225,000 8% $7,200 ($18,800) $251,000
JEB 11/14/2016 $275,000 8% $8,800 $0 $283,800
JEB 2/14/2017 $55,000 8% $636 $0 $55,636
Crossover Capital 2/9/2017 $82,500 8% $1,045 $0 $83,545
Tangiers Global 2/10/2017 $105,000 8% $1,307 $0 $106,307
Note: If not applicable, enter "n/a" or "zero" in Column 2.
To my best knowledge and after completing the aforementioned review of the
Company's stockholder and corporate records, I am able to certify the accuracy
of the statements made herein.
EWELLNESS HEALTHCARE CORPORATION
By: Dated: April 11, 2017
Name:
Title:
EXHIBIT F.2
EXEMPT PERSONS
The table above sets forth the names of persons and entities that are not
included in or are otherwise subject to the Holder's Right of First Refusal
contained in Section 4.00(k), as follows:
JEB Partners
Justin Schreiber and related entities
Crossover Capital
NEITHER THIS SECURITY NOR THE SECURITIES FOR WHICH THIS SECURITY IS EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE 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. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.
COMMON STOCK PURCHASE WARRANT
EWellness Healthcare Corporation
Warrant Shares: 68,750 Initial Exercise Date: February 10, 2017
THIS COMMON STOCK PURCHASE WARRANT (the "Warrant") certifies that, for value
received, Tangiers Global, LLC, a Wyoming corporation, or its assigns (the "Holder") is entitled, upon the terms and subject to the limitations on exercise
and the conditions hereinafter set forth, at any time on or after the date
hereof (the "Initial Exercise Date") and on or prior to 5 PM New York City Time
on February , 2022 (the "Termination Date") but not thereafter, to subscribe for
and purchase from EWellness Healthcare Corporation, a Nevada corporation (the
"Company"), up to 68,750 shares (as subject to adjustment hereunder, the "Warrant Shares") of Common Stock. The purchase price of one share of Common
Stock under this Warrant shall be equal to the Exercise Price, as defined in
Section 1.00(b).
Section 1.00 Exercise.
a) Exercise of Warrant. Exercise of the purchase rights represented by this
Warrant may be made, in whole or in part, at any time or times on or after the
Initial Exercise Date and on or before the Termination Date by delivery to the
Company (or such other office or agency of the Company as it may designate by
notice in writing to the registered Holder at the address of the Holder
appearing on the books of the Company) of a duly executed facsimile copy (or
e-mail attachment) of the Notice of Exercise in the form annexed hereto and
within five (5) Trading Days of the date said Notice of Exercise is delivered to
the Company, the Company shall have received payment of the aggregate Exercise
Price of the shares thereby purchased by wire transfer or cashier's check drawn
on a United States bank or, if available, pursuant to the cashless exercise
procedure specified in Section 1.00(c) below. No ink-original Notice of Exercise
shall be required, nor shall any medallion guarantee (or other type of guarantee
or notarization) of any Notice of Exercise form be required. Notwithstanding
anything herein to the contrary, the Holder shall not be required to physically
surrender this Warrant to the Company until the Holder has purchased all of the
Warrant Shares available hereunder and the Warrant has been exercised in full,
in which case, the Holder shall surrender this Warrant to the Company for
cancellation within five (5) Trading Days of the date the final Notice of
Exercise is delivered to the Company. Partial exercises of this Warrant
resulting in purchases of a portion of the total number of Warrant Shares
available hereunder shall have the effect of lowering the outstanding number of
Warrant Shares purchasable hereunder in an amount equal to the applicable number
of Warrant Shares purchased. The Holder and the Company shall maintain records
showing the number of Warrant Shares purchased and the date of such purchases.
The Company shall deliver any objection to any Notice of Exercise within one (1)
Business Day of receipt of such notice. The Holder and any assignee, by
acceptance of this Warrant, acknowledge and agree that, by reason of the
provisions of this paragraph, following the purchase of a portion of the Warrant
Shares hereunder, the number of Warrant Shares available for purchase hereunder
at any given time may be less than the amount stated on the face hereof.
b) Exercise Price. The exercise price per share of the Common Stock under this
Warrant shall initially be $0.25, subject to adjustment hereunder (the "Exercise
Price").
c) Cashless Exercise. If at any time after the six-month anniversary of the
Initial Exercise Date, there is no effective Registration Statement registering,
or no current prospectus available for, the resale of the Warrant Shares by the
Holder, then this Warrant may only be exercised, in whole or in part, at such
time by means of a "cashless exercise" in which the Holder shall be entitled to
receive a number of Warrant Shares equal to the quotient obtained by dividing
[(A-B) (X)] by (A), where:
(A) = the VWAP on the Trading Day immediately preceding the date on which Holder
elects to exercise this Warrant by means of a "cashless exercise," as set forth
in the applicable Notice of Exercise;
(B) = the Exercise Price of this Warrant, as adjusted hereunder; and
(X) = the number of Warrant Shares that would be issuable upon exercise of this
Warrant in accordance with the terms of this Warrant if such exercise were by
means of a cash exercise rather than a cashless exercise.
If Warrant Shares are issued in such a cashless exercise, the parties
acknowledge and agree that in accordance with Section 3.00(a)(9) of the
Securities Act, the Warrant Shares shall take on the characteristics of the
Warrants being exercised, and the holding period of the Warrants being exercised
may be tacked on to the holding period of the Warrant Shares. The Company
agrees not to take any position contrary to this Section 2.00(c).
"Trading Day" shall mean a day on which there is trading or quoting for any
security on the Principal Market.
"VWAP" means, for any date, the price determined by the first of the following
clauses that applies: (a) if the Common Stock is then listed or quoted on a
Trading Market, the daily volume weighted average price of the Common Stock for
such date (or the nearest preceding date) on the Trading Market on which the
Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a
Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City
time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted
average price of the Common Stock for such date (or the nearest preceding date)
on OTCQB or OTCQX as applicable, (c) if the Common Stock is not then listed or
quoted for trading on OTCQB or OTCQX and if prices for the Common Stock are then
reported in the "Pink Sheets" published by OTC Markets, Inc. (or a similar
organization or agency succeeding to its functions of reporting prices), the
most recent bid price per share of the Common Stock so reported, or (d) in all
other cases, the fair market value of a share of Common Stock as determined by
an independent appraiser selected in good faith by the Holders of a majority in
interest of the Securities then outstanding and reasonably acceptable to the
Company, the fees and expenses of which shall be paid by the Company.
Notwithstanding anything herein to the contrary, on the Termination Date, this
Warrant shall be automatically exercised via cashless exercise pursuant to this
Section 1.00(c).
d) Mechanics of Exercise.
i. Delivery of Warrant Shares Upon Exercise. Warrant Shares purchased hereunder
shall be transmitted by the Transfer Agent to the Holder by crediting the
account of the Holder's or its designee's balance account with The Depository
Trust Company through its Deposit or Withdrawal at Custodian system ("DWAC") if
the Company is then a participant in such system and either (A) there is an
effective registration statement permitting the issuance of the Warrant Shares
to or resale of the Warrant Shares by the Holder or (B) the Warrant Shares are
eligible for resale by the Holder without volume or manner-of-sale limitations
pursuant to Rule 144, and otherwise by physical delivery of a certificate,
registered in the Company's share register in the name of the Holder or its
designee, for the number of Warrant Shares to which the Holder is entitled
pursuant to such exercise to the address specified by the Holder in the Notice
of Exercise by the date that is five (5) Trading Days after the delivery to the
Company of the Notice of Exercise (such date, the "Warrant Share Delivery
Date"). The Warrant Shares shall be deemed to have been issued, and Holder or
any other person so designated to be named therein shall be deemed to have
become a holder of record of such shares for all purposes, as of the date the
Warrant has been exercised, with payment to the Company of the Exercise Price
(or by cashless exercise, if permitted) and all taxes required to be paid by the
Holder, if any, pursuant to Section 1.00(d)(vi) prior to the issuance of such
shares, having been paid.
ii. Delivery of New Warrants Upon Exercise. If this Warrant shall have been
exercised in part, the Company shall, at the request of a Holder and upon
surrender of this Warrant, at the time of delivery of the Warrant Shares,
deliver to the Holder a new Warrant evidencing the rights of the Holder to
purchase the unpurchased Warrant Shares called for by this Warrant, which new
Warrant shall in all other respects be identical with this Warrant.
iii. Rescission Rights. If the Company fails to cause the Transfer Agent to
transmit to the Holder the Warrant Shares pursuant to Section 1.00(d)(i) by the
Warrant Share Delivery Date, then the Holder will have the right to rescind such
exercise.
iv. No Fractional Shares or Scrip. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant. As to any
fraction of a share which the Holder would otherwise be entitled to purchase
upon such exercise, the Company shall, at its election, either pay a cash
adjustment in respect of such final fraction in an amount equal to such fraction
multiplied by the Exercise Price or round up to the next whole share.
v. Charges, Taxes and Expenses. Issuance of Warrant Shares shall be made without
charge to the Holder for any issue or transfer tax or other incidental expense
in respect of the issuance of Warrant Shares, all of which taxes and expenses
shall be paid by the Company, and such Warrant Shares shall be issued in the
name of the Holder or in such name or names as may be directed by the Holder;
provided, however, that in the event that Warrant Shares are to be issued in a
name other than the name of the Holder, this Warrant when surrendered for
exercise shall be accompanied by the Assignment Form attached hereto duly
executed by the Holder and the Company may require, as a condition thereto, the
payment of a sum sufficient to reimburse it for any transfer tax incidental
thereto. The Company shall pay all Transfer Agent fees required for same-day
processing of any Notice of Exercise and all fees to the Depository Trust
Company (or another established clearing corporation performing similar
functions) required for same-day electronic delivery of the Warrant Shares.
vi. Closing of Books. The Company will not close its stockholder books or
records in any manner which prevents the timely exercise of this Warrant,
pursuant to the terms hereof.
e) Holder's Exercise Limitations. The Company shall not effect any exercise of
this Warrant, and a Holder shall not have the right to exercise any portion of
this Warrant, pursuant to Section 2.00 or otherwise, to the extent that after
giving effect to such issuance after exercise as set forth on the applicable
Notice of Exercise, the Holder (together with the Holder's Affiliates, and any
other Persons acting as a group together with the Holder or any of the Holder's
Affiliates), would beneficially own in excess of the Beneficial Ownership
Limitation (as defined below). For purposes of the foregoing sentence, the
number of shares of Common Stock beneficially owned by the Holder and its
Affiliates shall include the number of shares of Common Stock issuable upon
exercise of this Warrant with respect to which such determination is being made,
but shall exclude the number of shares of Common Stock which would be issuable
upon (i) exercise of the remaining, nonexercised portion of this Warrant
beneficially owned by the Holder or any of its Affiliates and (ii) exercise or
conversion of the unexercised or nonconverted portion of any other securities of
the Company (including, without limitation, any other Common Stock Equivalents)
subject to a limitation on conversion or exercise analogous to the limitation
contained herein beneficially owned by the Holder or any of its Affiliates.
Except as set forth in the preceding sentence, for purposes of this Section
1.00(e), beneficial ownership shall be calculated in accordance with Section
1.003(d) of the Exchange Act and the rules and regulations promulgated
thereunder, it being acknowledged by the Holder that the Company is not
representing to the Holder that such calculation is in compliance with Section
1.003(d) of the Exchange Act and the Holder is solely responsible for any
schedules required to be filed in accordance therewith. To the extent that the
limitation contained in this Section 1.00(e) applies, the determination of
whether this Warrant is exercisable (in relation to other securities owned by
the Holder together with any Affiliates) and of which portion of this Warrant is
exercisable shall be in the sole discretion of the Holder, and the submission of
a Notice of Exercise shall be deemed to be the Holder's determination of whether
this Warrant is exercisable (in relation to other securities owned by the Holder
together with any Affiliates) and of which portion of this Warrant is
exercisable, in each case subject to the Beneficial Ownership Limitation, and
the Company shall have no obligation to verify or confirm the accuracy of such
determination. In addition, a determination as to any group status as
contemplated above shall be determined in accordance with Section 1.003(d) of
the Exchange Act and the rules and regulations promulgated thereunder. For
purposes of this Section 1.00(e), in determining the number of outstanding
shares of Common Stock, a Holder may rely on the number of outstanding shares of
Common Stock as reflected in (A) the Company's most recent periodic or annual
report filed with the Commission, as the case may be, (B) a more recent public
announcement by the Company or (C) a more recent written notice by the Company
or the Transfer Agent setting forth the number of shares of Common Stock
outstanding. Upon the written or oral request of a Holder, the Company shall
within two Trading Days confirm orally and in writing to the Holder the number
of shares of Common Stock then outstanding. In any case, the number of
outstanding shares of Common Stock shall be determined after giving effect to
the conversion or exercise of securities of the Company, including this Warrant,
by the Holder or its Affiliates since the date as of which such number of
outstanding shares of Common Stock was reported. The "Beneficial Ownership
Limitation" shall be 9.99% of the number of shares of the Common Stock
outstanding immediately after giving effect to the issuance of shares of Common
Stock issuable upon exercise of this Warrant. The Holder, upon notice to the
Company, may increase or decrease the Beneficial Ownership Limitation provisions
of this Section 2.00(e), provided that the Beneficial Ownership Limitation in no
event exceeds 9.99% of the number of shares of the Common Stock outstanding
immediately after giving effect to the issuance of shares of Common Stock upon
exercise of this Warrant held by the Holder and the provisions of this Section
1.00(e) shall continue to apply. Any increase in the Beneficial Ownership
Limitation will not be effective until the 61st day after such notice is
delivered to the Company. The provisions of this paragraph shall be construed
and implemented in a manner otherwise than in strict conformity with the terms
of this Section 1.00(e) to correct this paragraph (or any portion hereof) which
may be defective or inconsistent with the intended Beneficial Ownership
Limitation herein contained or to make changes or supplements necessary or
desirable to properly give effect to such limitation. The limitations contained
in this paragraph shall apply to a successor holder of this Warrant.
Section 2.00 Certain Adjustments.
a) Stock Dividends and Splits. If the Company, at any time while this Warrant is
outstanding: (i) pays a stock dividend or otherwise makes a distribution or
distributions on shares of its Common Stock or any other equity or equity
equivalent securities payable in shares of Common Stock (which, for avoidance of
doubt, shall not include any shares of Common Stock issued by the Company upon
exercise of this Warrant), (ii) subdivides outstanding shares of Common Stock
into a larger number of shares, (iii) combines (including by way of reverse
stock split) outstanding shares of Common Stock into a smaller number of shares
or (iv) issues by reclassification of shares of the Common Stock any shares of
capital stock of the Company, then in each case the Exercise Price shall be
multiplied by a fraction of which the numerator shall be the number of shares of
Common Stock (excluding treasury shares, if any) outstanding immediately before
such event and of which the denominator shall be the number of shares of Common
Stock outstanding immediately after such event, and the number of shares
issuable upon exercise of this Warrant shall be proportionately adjusted such
that the aggregate Exercise Price of this Warrant shall remain unchanged. Any
adjustment made pursuant to this Section 2.00(a) 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.
b) Subsequent Rights Offerings. In addition to any adjustments pursuant to
Section 2.00(a) above, if at any time the Company grants, issues or sells any
Common Stock Equivalents or rights to purchase stock, warrants, securities or
other property pro rata to the record holders of any class of shares of Common
Stock (the "Purchase Rights"), then the Holder will be entitled to acquire, upon
the terms applicable to such Purchase Rights, the aggregate Purchase Rights
which the Holder could have acquired if the Holder had held the number of shares
of Common Stock acquirable upon complete exercise of this Warrant (without
regard to any limitations on exercise hereof, including without limitation, the
Beneficial Ownership Limitation) immediately before the date on which a record
is taken for the grant, issuance or sale of such Purchase Rights, or, if no such
record is taken, the date as of which the record holders of shares of Common
Stock are to be determined for the grant, issue or sale of such Purchase Rights
(provided, however, to the extent that the Holder's right to participate in any
such Purchase Right would result in the Holder exceeding the Beneficial
Ownership Limitation, then the Holder shall not be entitled to participate in
such Purchase Right to such extent (or beneficial ownership of such shares of
Common Stock as a result of such Purchase Right to such extent) and such
Purchase Right to such extent shall be held in abeyance for the Holder until
such time, if ever, as its right thereto would not result in the Holder
exceeding the Beneficial Ownership Limitation).
c) Pro Rata Distributions. During such time as this Warrant is outstanding, if
the Company shall declare or make any dividend or other distribution of its
assets (or rights to acquire its assets) to holders of shares of Common Stock,
by way of return of capital or otherwise (including, without limitation, any
distribution of cash, stock or other securities, property or options by way of a
dividend, spin off, reclassification, corporate rearrangement, scheme of
arrangement or other similar transaction) (a "Distribution"), at any time after
the issuance of this Warrant, then, in each such case, the Holder shall be
entitled to participate in such Distribution to the same extent that the Holder
would have participated therein if the Holder had held the number of shares of
Common Stock acquirable upon complete exercise of this Warrant (without regard
to any limitations on exercise hereof, including without limitation, the
Beneficial Ownership Limitation) immediately before the date of which a record
is taken for such Distribution, or, if no such record is taken, the date as of
which the record holders of shares of Common Stock are to be determined for the
participation in such Distribution (provided, however, to the extent that the
Holder's right to participate in any such Distribution would result in the
Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not
be entitled to participate in such Distribution to such extent (or in the
beneficial ownership of any shares of Common Stock as a result of such
Distribution to such extent) and the portion of such Distribution shall be held
in abeyance for the benefit of the Holder until such time, if ever, as its right
thereto would not result in the Holder exceeding the Beneficial Ownership
Limitation).
d) Fundamental Transaction. If, at any time while this Warrant is outstanding,
(i) the Company, directly or indirectly, in one or more related transactions
effects any merger or consolidation of the Company with or into another Person,
(ii) the Company, directly or indirectly, effects any sale, lease, license,
assignment, transfer, conveyance or other disposition of all or substantially
all of its assets in one or a series of related transactions, (iii) any, direct
or indirect, purchase offer, tender offer or exchange offer (whether by the
Company or another Person) is completed pursuant to which holders of Common
Stock are permitted to sell, tender or exchange their shares for other
securities, cash or property and has been accepted by the holders of 50% or more
of the outstanding Common Stock, (iv) the Company, directly or indirectly, in
one or more related transactions effects any reclassification, reorganization or
recapitalization of the Common Stock or any compulsory share exchange pursuant
to which the Common Stock is effectively converted into or exchanged for other
securities, cash or property, or (v) the Company, directly or indirectly, in one
or more related transactions consummates a stock or share purchase agreement or
other business combination (including, without limitation, a reorganization,
recapitalization, spin-off or scheme of arrangement) with another Person or
group of Persons whereby such other Person or group acquires more than 50% of
the outstanding shares of Common Stock (not including any shares of Common Stock
held by the other Person or other Persons making or party to, or associated or
affiliated with the other Persons making or party to, such stock or share
purchase agreement or other business combination) (each a "Fundamental
Transaction"), then, upon any subsequent exercise of this Warrant, the Holder
shall have the right to receive, for each Warrant Share that would have been
issuable upon such exercise immediately prior to the occurrence of such
Fundamental Transaction, at the option of the Holder (without regard to any
limitation in Section 1.00(e) on the exercise of this Warrant), the number of
shares of Common Stock of the successor or acquiring corporation or of the
Company, if it is the surviving corporation, and any additional consideration
(the "Alternate Consideration") receivable as a result of such Fundamental
Transaction by a holder of the number of shares of Common Stock for which this
Warrant is exercisable immediately prior to such Fundamental Transaction
(without regard to any limitation in Section 1.00(e) on the exercise of this
Warrant). For purposes of any such exercise, the determination of the Exercise
Price shall be appropriately adjusted to apply to such Alternate Consideration
based on the amount of Alternate Consideration issuable in respect of one share
of Common Stock in such Fundamental Transaction, and the Company shall apportion
the Exercise Price among the Alternate Consideration in a reasonable manner
reflecting the relative value of any different components of the Alternate
Consideration. If holders of Common Stock are given any choice as to the
securities, cash or property to be received in a Fundamental Transaction, then
the Holder shall be given the same choice as to the Alternate Consideration it
receives upon any exercise of this Warrant following such Fundamental
Transaction. Notwithstanding anything to the contrary, in the event of a
Fundamental Transaction, the Company or any Successor Entity (as defined below)
shall, at the Holder's option, exercisable at any time concurrently with, or
within 30 days after, the consummation of the Fundamental Transaction, purchase
this Warrant from the Holder by paying to the Holder an amount of cash equal to
the Black Scholes Value of the remaining unexercised portion of this Warrant on
the date of the consummation of such Fundamental Transaction. "Black Scholes
Value" means the value of this Warrant based on the Black and Scholes Option
Pricing Model obtained from the "OV" function on Bloomberg, L.P. ("Bloomberg")
determined as of the day of consummation of the applicable Fundamental
Transaction for pricing purposes and reflecting (A) a risk-free interest rate
corresponding to the U.S. Treasury rate for a period equal to the time between
the date of the public announcement of the applicable Fundamental Transaction
and the Termination Date, (B) an expected volatility equal to the greater of
100% and the 100 day volatility obtained from the HVT function on Bloomberg as
of the Trading Day immediately following the public announcement of the
applicable Fundamental Transaction, (C) the underlying price per share used in
such calculation shall be the sum of the price per share being offered in cash,
if any, plus the value of any non-cash consideration, if any, being offered in
such Fundamental Transaction and (D) a remaining option time equal to the time
between the date of the public announcement of the applicable Fundamental
Transaction and the Termination Date. The Company shall cause any successor
entity in a Fundamental Transaction in which the Company is not the survivor
(the "Successor Entity") to assume in writing all of the obligations of the
Company under this Warrant and the other Transaction Documents in accordance
with the provisions of this Section 3.00(e) pursuant to written agreements in
form and substance reasonably satisfactory to the Holder and approved by the
Holder (without unreasonable delay) prior to such Fundamental Transaction and
shall, at the option of the Holder, deliver to the Holder in exchange for this
Warrant a security of the Successor Entity evidenced by a written instrument
substantially similar in form and substance to this Warrant which is exercisable
for a corresponding number of shares of capital stock of such Successor Entity
(or its parent entity) equivalent to the shares of Common Stock acquirable and
receivable upon exercise of this Warrant (without regard to any limitations on
the exercise of this Warrant) prior to such Fundamental Transaction, and with an
exercise price which applies the exercise price hereunder to such shares of
capital stock (but taking into account the relative value of the shares of
Common Stock pursuant to such Fundamental Transaction and the value of such
shares of capital stock, such number of shares of capital stock and such
exercise price being for the purpose of protecting the economic value of this
Warrant immediately prior to the consummation of such Fundamental Transaction),
and which is reasonably satisfactory in form and substance to the Holder. Upon
the occurrence of any such Fundamental Transaction, the Successor Entity shall
succeed to, and be substituted for (so that from and after the date of such
Fundamental Transaction, the provisions of this Warrant and the other
Transaction Documents referring to the "Company" shall refer instead to the
Successor Entity), and may exercise every right and power of the Company and
shall assume all of the obligations of the Company under this Warrant and the
other Transaction Documents with the same effect as if such Successor Entity had
been named as the Company herein.
e) Calculations. All calculations under this Section 2.00 shall be made to the
nearest cent or the nearest 1/100th of a share, as the case may be. For purposes
of this Section 2.00, the number of shares of Common Stock deemed to be issued
and outstanding as of a given date shall be the sum of the number of shares of
Common Stock (excluding treasury shares, if any) issued and outstanding.
f) Notice to Holder.
i. Adjustment to Exercise Price. Whenever the Exercise Price is adjusted
pursuant to any provision of this Section 2.00, the Company shall promptly mail
to the Holder a notice setting forth the Exercise Price after such adjustment
and any resulting adjustment to the number of Warrant Shares and setting forth a
brief statement of the facts requiring such adjustment.
ii. Notice to Allow Exercise by Holder. If (A) the Company shall declare a
dividend (or any other distribution in whatever form) on the Common Stock, (B)
the Company shall declare a special nonrecurring cash dividend on or a
redemption of the Common Stock, (C) the Company shall authorize the granting to
all holders of the Common Stock rights or warrants to subscribe for or purchase
any shares of capital stock of any class or of any rights, (D) the approval of
any stockholders of the Company shall be required in connection with any
reclassification of the Common Stock, any consolidation or merger to which the
Company is a party, any sale or transfer of all or substantially all of the
assets of the Company, or any compulsory share exchange whereby the Common Stock
is converted into other securities, cash or property, or (E) the Company shall
authorize the voluntary or involuntary dissolution, liquidation or winding up of
the affairs of the Company, then, in each case, the Company shall cause to be
mailed to the Holder at its last address as it shall appear upon the Warrant
Register of the Company, at least 20 calendar days prior to the applicable
record or effective date hereinafter specified, a notice stating (x) the date on
which a record is to be taken for the purpose of such dividend, distribution,
redemption, rights or warrants, or if a record is not to be taken, the date as
of which the holders of the Common Stock of record to be entitled to such
dividend, distributions, redemption, rights or warrants are to be determined or
(y) the date on which such reclassification, consolidation, merger, sale,
transfer or share exchange is expected to become effective or close, and the
date as of which it is expected that holders of the Common Stock of record shall
be entitled to exchange their shares of the Common Stock for securities, cash or
other property deliverable upon such reclassification, consolidation, merger,
sale, transfer or share exchange; provided that the failure to mail such notice
or any defect therein or in the mailing thereof shall not affect the validity of
the corporate action required to be specified in such notice. To the extent that
any notice provided in this Warrant constitutes, or contains, material,
non-public information regarding the Company or any of the Subsidiaries, the
Company shall simultaneously file such notice with the Commission pursuant to a
Current Report on Form 8-K. The Holder shall remain entitled to exercise this
Warrant during the period commencing on the date of such notice to the effective
date of the event triggering such notice except as may otherwise be expressly
set forth herein.
Section 3.00 Transfer of Warrant.
a) Transferability. Subject to compliance with any applicable securities laws
and the conditions set forth in Section 3.00(d) hereof, this Warrant and all
rights hereunder are transferable, in whole or in part, upon surrender of this
Warrant at the principal office of the Company or its designated agent, together
with a written assignment of this Warrant substantially in the form attached
hereto duly executed by the Holder or its agent or attorney and funds sufficient
to pay any transfer taxes payable upon the making of such transfer. Upon such
surrender and, if required, such payment, the Company shall execute and deliver
a new Warrant or Warrants in the name of the assignee or assignees, as
applicable, and in the denomination or denominations specified in such
instrument of assignment, and shall issue to the assignor a new Warrant
evidencing the portion of this Warrant not so assigned, and this Warrant shall
promptly be cancelled. Notwithstanding anything herein to the contrary, the
Holder shall not be required to physically surrender this Warrant to the Company
unless the Holder has assigned this Warrant in full, in which case, the Holder
shall surrender this Warrant to the Company within three (3) Trading Days of the
date the Holder delivers an assignment form to the Company assigning this
Warrant full. The Warrant, if properly assigned in accordance herewith, may be
exercised by a new holder for the purchase of Warrant Shares without having a
new Warrant issued.
b) New Warrants. This Warrant may be divided or combined with other Warrants
upon presentation hereof at the aforesaid office of the Company, together with a
written notice specifying the names and denominations in which new Warrants are
to be issued, signed by the Holder or its agent or attorney. Subject to
compliance with Section 3.00(a), as to any transfer which may be involved in
such division or combination, the Company shall execute and deliver a new
Warrant or Warrants in exchange for the Warrant or Warrants to be divided or
combined in accordance with such notice. All Warrants issued on transfers or
exchanges shall be dated the original Issue Date and shall be identical with
this Warrant except as to the number of Warrant Shares issuable pursuant
thereto.
c) Warrant Register. The Company shall register this Warrant, upon records to be
maintained by the Company for that purpose (the "Warrant Register"), in the name
of the record Holder hereof from time to time. The Company may deem and treat
the registered Holder of this Warrant as the absolute owner hereof for the
purpose of any exercise hereof or any distribution to the Holder, and for all
other purposes, absent actual notice to the contrary.
d) Transfer Restrictions. If, at the time of the surrender of this Warrant in
connection with any transfer of this Warrant, the transfer of this Warrant shall
not be either (i) registered pursuant to an effective registration statement
under the Securities Act and under applicable state securities or blue sky laws
or (ii) eligible for resale without volume or manner-of-sale restrictions or
current public information requirements pursuant to Rule 144, the Company may
require, as a condition of allowing such transfer, that the Holder or transferee
of this Warrant, as the case may be, make usual and customary representations as
to investment intent to the Company
e) Representation by the Holder. The Holder, by the acceptance hereof,
represents and warrants that it is acquiring this Warrant and, upon any exercise
hereof, will acquire the Warrant Shares issuable upon such exercise, for its own
account and not with a view to or for distributing or reselling such Warrant
Shares or any part thereof in violation of the Securities Act or any applicable
state securities law, except pursuant to sales registered or exempted under the
Securities Act.
Section 4.00 Miscellaneous.
a) No Rights as Stockholder Until Exercise. This Warrant does not entitle the
Holder to any voting rights, dividends or other rights as a stockholder of the
Company prior to the exercise hereof as set forth in Section 1.00(d)(i), except
as expressly set forth in Section 2.00.
b) Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that
upon receipt by the Company of evidence reasonably satisfactory to it of the
loss, theft, destruction or mutilation of this Warrant or any stock certificate
relating to the Warrant Shares, and in case of loss, theft or destruction, of
indemnity or security reasonably satisfactory to it (which, in the case of the
Warrant, shall not include the posting of any bond), and upon surrender and
cancellation of such Warrant or stock certificate, if mutilated, the Company
will make and deliver a new Warrant or stock certificate of like tenor and dated
as of such cancellation, in lieu of such Warrant or stock certificate.
c) Saturdays, Sundays, Holidays, etc. If the last or appointed day for the
taking of any action or the expiration of any right required or granted herein
shall not be a Business Day, then, such action may be taken or such right may be
exercised on the next succeeding Business Day.
d) Authorized Shares.
The Company covenants that, during the period the Warrant is outstanding, it
will reserve from its authorized and unissued Common Stock a sufficient number
of shares to provide for the issuance of the Warrant Shares upon the exercise of
any purchase rights under this Warrant. The Company further covenants that its
issuance of this Warrant shall constitute full authority to its officers who are
charged with the duty of issuing the necessary Warrant Shares upon the exercise
of the purchase rights under this Warrant. The Company will take all such
reasonable action as may be necessary to assure that such Warrant Shares may be
issued as provided herein without violation of any applicable law or regulation,
or of any requirements of the Trading Market upon which the Common Stock may be
listed. The Company covenants that all Warrant Shares which may be issued upon
the exercise of the purchase rights represented by this Warrant will, upon
exercise of the purchase rights represented by this Warrant and payment for such
Warrant Shares in accordance herewith, be duly authorized, validly issued, fully
paid and nonassessable and free from all taxes, liens and charges created by the
Company in respect of the issue thereof (other than taxes in respect of any
transfer occurring contemporaneously with such issue).
Except and to the extent as waived or consented to by the Holder, the Company
shall not by any action, including, without limitation, amending 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 of this Warrant, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such actions as may be
necessary or appropriate to protect the rights of Holder as set forth in this
Warrant against impairment. Without limiting the generality of the foregoing,
the Company will (i) not increase the par value of any Warrant Shares above the
amount payable therefor upon such exercise immediately prior to such increase in
par value, (ii) take all such action as may be necessary or appropriate in order
that the Company may validly and legally issue fully paid and nonassessable
Warrant Shares upon the exercise of this Warrant and (iii) use commercially
reasonable efforts to obtain all such authorizations, exemptions or consents
from any public regulatory body having jurisdiction thereof, as may be,
necessary to enable the Company to perform its obligations under this Warrant.
Before taking any action which would result in an adjustment in the number of
Warrant Shares for which this Warrant is exercisable or in the Exercise Price,
the Company shall obtain all such authorizations or exemptions thereof, or
consents thereto, as may be necessary from any public regulatory body or bodies
having jurisdiction thereof.
e) Jurisdiction. All questions concerning the construction, validity,
enforcement and interpretation of this Warrant shall be determined in accordance
with the laws of the State of Wyoming as they are applied to contracts executed,
delivered and to be wholly performed within the State of Wyoming.
f) Restrictions. The Holder acknowledges that the Warrant Shares acquired upon
the exercise of this Warrant, if not registered and if the Holder does not
utilize cashless exercise, will have restrictions upon resale imposed by state
and federal securities laws.
g) Nonwaiver and Expenses. No course of dealing or any delay or failure to
exercise any right hereunder on the part of Holder shall operate as a waiver of
such right or otherwise prejudice the Holder's rights, powers or remedies,
notwithstanding the fact that all rights hereunder terminate on the Termination
Date. If the Company willfully and knowingly fails to comply with any provision
of this Warrant, which results in any material damages to the Holder, the
Company shall pay to the Holder such amounts as shall be sufficient to cover any
costs and expenses including, but not limited to, reasonable attorneys' fees,
including those of appellate proceedings, incurred by the Holder in collecting
any amounts due pursuant hereto or in otherwise enforcing any of its rights,
powers or remedies hereunder.
h) Notices. Any notice, request or other document required or permitted to be
given or delivered to the either party to the other shall be delivered in by
recognized overnight courier, facsimile or email as follows:
If to the Investor: Tangiers Global, LLC
Caribe Plaza Office Building 6th Floor
Palmeras St. #53
San Juan, PR 00901
Email: admin@tangierscapital.com
If to the Company: EWellness Healthcare Corporation
11825 Major Street
Culver City, CA 90230
Attn:
Email:
i) Limitation of Liability. No provision hereof, in the absence of any
affirmative action by the Holder to exercise this Warrant to purchase Warrant
Shares, and no enumeration herein of the rights or privileges of the Holder,
shall give rise to any liability of the Holder for the purchase price of any
Common Stock or as a stockholder of the Company, whether such liability is
asserted by the Company or by creditors of the Company.
j) Successors and Assigns. Subject to applicable securities laws, this Warrant
and the rights and obligations evidenced hereby shall inure to the benefit of
and be binding upon the successors and permitted assigns of the Company and the
successors and permitted assigns of Holder. The provisions of this Warrant are
intended to be for the benefit of any Holder from time to time of this Warrant
and shall be enforceable by the Holder or holder of Warrant Shares.
k) Amendment. This Warrant may be modified or amended or the provisions hereof
waived with the written consent of the Company and the Holder.
l) Severability. Wherever possible, each provision of this Warrant shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Warrant shall be prohibited by or invalid under
applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provisions
or the remaining provisions of this Warrant.
m) Headings. The headings used in this Warrant are for the convenience of
reference only and shall not, for any purpose, be deemed a part of this Warrant.
********************
[Signature Page to Follow.]
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its
officer thereunto duly authorized as of the date first above indicated.
EWellness Healthcare Corporation
By:__________________________________________
NOTICE OF EXERCISE
To: EWellness Healthcare Corporation
(1) The undersigned hereby elects to purchase ________ Warrant Shares of the
Company pursuant to the terms of the attached Warrant (only if exercised in
full), and tenders herewith payment of the exercise price in full, together with
all applicable transfer taxes, if any.
(2) Payment shall take the form of (check applicable box):
[ ] in lawful money of the United States; or
[ ] if permitted the cancellation of such number of Warrant Shares as is
necessary, in accordance with the formula set forth in subSection 1.00(c), to
exercise this Warrant with respect to the maximum number of Warrant Shares
purchasable pursuant to the cashless exercise procedure set forth in subSection
1.00(c).
(3) Please issue said Warrant Shares in the name of the undersigned or in such
other name as is specified below:
_______________________________
The Warrant Shares shall be delivered to the following DWAC Account Number:
_______________________________
_______________________________
_______________________________
(4) Accredited Investor. The undersigned is an "accredited investor" as defined
in Regulation D promulgated under the Securities Act of 1933, as amended.
[SIGNATURE OF HOLDER]
Name of Investing Entity:
________________________________________________________________________
Signature of Authorized Signatory of Investing Entity:
_________________________________________________
Name of Authorized Signatory:
___________________________________________________________________
Title of Authorized Signatory:
____________________________________________________________________
Date:
________________________________________________________________________________________
EXHIBIT B
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 Print)
Address:
(Please Print)
Dated: _______________ __, ______
Holder's Signature:
Holder's Address: