COMMITMENTS AND CONTINGENCIES

3 Months Ended

Mar. 31, 2024

NOTE 10.COMMITMENTS AND CONTINGENCIES

Commitments

The Company has entered into a product development agreement with remaining payments totaling approximately $300,000. The agreement requires that approximately $150,000 of the payments be made in conjunction with certain development milestones which the Company expects to meet over the next twelve months. The remainder is to be paid in conjunction with future new product sales.

In September 2023, the Company entered into an operating lease for its office location. The lease provides for a base rent of $5,280 per month through September 30, 2026. The lease may be renewed for one three-year period. At inception of the lease, the Company recorded a right of use asset and liability. The Company used an effective borrowing rate of 12.4% within the calculation. Rent expense totaled $16,236 under the current lease during the three months ended March 31, 2024.

The following outlines the maturities of our operating lease liabilities for the periods ending March 31,


2025	$	65,757
2026	$	67,730
2027	$	34,366
Total lease payments	$	167,853
Less imputed interest	$	(24,420)

Total	$	143,433

Contingencies

The Company is subject to various loss contingencies and assessments arising in the normal course of the business, some of which relate to litigation, claims, property taxes, and sales and use tax or goods and services tax assessments. The Company considers the likelihood of the loss or the incurrence of a liability, as well as its ability to reasonably estimate the amount of loss in determining loss contingencies and assessments. An estimated loss contingency or assessment is accrued when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. Management regularly evaluates current information available to them to determine whether such accruals should be adjusted. Currently, there are no pending court actions, or arbitration claims filed against the company that may reasonably be determined, as of the date of this filing, to exceed $5,000 individually or in the aggregate.

As of March 31, 2024, the Company is in default of two matured convertible promissory notes, including defaults resulting from the Company’s sale of its real property on March 15, 2023, issued to two lenders on March 10, 2022, and August 8, 2022, with principal and interest due in the amounts of $342,070 and $145,354, respectively. The convertible notes included a cross-default and a cross-default provision which required the Company to remit payment of principal, accrued interest, default interest, and legal fees, multiplied by 125% and 150%, respectively. The amount of $158,000 in default penalties has been accrued and recorded in the Company’s balance sheet as of March 31,2024, for these lenders. On April 3, 2024, the Company entered into a settlement agreement with the lender of the March 10,2022 convertible promissory note. The Company is in negotiations with the other lender to reform the note in default. See Note 11.

Electromedical Technologies, Inc 10-Q