UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q


(Mark One)

 

 

[X]

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

For the quarterly period ended March 31, 2016.

 

 

[   ]

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

For the transition period from _______ to _______.


Commission File Number: 333-176954


[endv10q_033116apg001.jpg]


ENDONOVO THERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)


Delaware

45-2552528

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)


6320 Canoga Avenue, 15th Floor, Woodland Hills, CA 91367

(Address of principal executive offices, zip code)


(800) 489-4774

(Registrant’s telephone number, including area code)


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [ X ]   No [   ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes [ X ]   No [   ]


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 [   ]

(do not check if smaller reporting company)

 Smaller reporting company [X]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [   ]  No [X]

 

As of May 20, 2016, there were 109,616,075 shares of common stock, $0.0001 par value issued and outstanding.




2




ENDONOVO THERAPEUTICS, INC.

TABLE OF CONTENTS

FORM 10-Q REPORT

March 31, 2016

 

 

 

 

 

 

  

 

Page

Number

 

PART I - FINANCIAL INFORMATION

 

 

 

  

 

 

 

Item 1.  

Financial Statements.

 

4

 

Item 2.  

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

14

 

Item 3.  

Quantitative and Qualitative Disclosures About Market Risk.

 

18

 

Item 4.  

Controls and Procedures.

 

18

 

  

  

 

 

 

PART II - OTHER INFORMATION

 

 

 

  

 

 

 

Item 1.  

Legal Proceedings.

 

19

 

Item 1A.

Risk Factors.

 

19

 

Item 2.  

Unregistered Sales of Equity Securities and Use of Proceeds.

 

19

 

Item 3.  

Defaults Upon Senior Securities.

 

20

 

Item 4.  

Mine Safety Disclosures

 

20

 

Item 5.  

Other Information.

 

20

 

Item 6.  

Exhibits.

 

20

 

  

  

 

 

 

SIGNATURES

 

21

 





3



PART I - FINANCIAL INFORMATION


Item 1.  Financial Statements.


Endonovo Therapeutics, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets


 

 

 

 March 31,

 

 

December 31,

 

 

 

 2016

 

 

 2015

 

 

 

 (Unaudited)

 

 

(Audited)

 ASSETS

 

 

 

 

 

 Current assets:

 

 

 

 

 

 

 Cash

$

108,893 

 

$

41,473 

 

 Other current assets

 

137,420 

 

 

336,233 

 Total current assets

 

246,313 

 

 

377,706 

 Property, Plant and Equipment, net

 

27,699 

 

 

31,657 

   

 

$

274,012 

 

$

409,363 

 

 

 

 

 

 

 

 LIABILITIES AND SHAREHOLDERS' DEFICIT

 

 

 

 

 

 Current Liabilities

 

 

 

 

 

 

 Accounts payable and accrued expenses

$

4,222,997 

 

$

3,990,185 

 

 Short term advances, related parties

 

 

 

3,605 

 

 Notes payable, net of discounts of $149,775 as of March 31, 2016  

 

 

 

 

 

 

    and $321,961 as of December 31, 2015

 

1,178,975 

 

 

1,261,790 

 

 Notes payable - related parties

 

245,000 

 

 

245,000 

 

 Derivative liability

 

3,340,633 

 

 

3,973,542 

 

 Current portion of long term loan

 

12,121 

 

 

12,031 

 Total current liabilities

 

8,999,726 

 

 

9,486,153 

 

 

 

 

 

 

 

 Notes payable, net of discounts of $693,390 as of March 31, 2016  

 

 

 

 

 

    and $477,346 of December 31, 2015

 

119,110 

 

 

27,654 

 Long term loan

 

13,552 

 

 

16,616 

 Acquisition payable

 

155,000 

 

 

155,000 

 Total liabilities

 

9,287,388 

 

 

9,685,423 

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 Shareholders' deficit

 

 

 

 

 

 

 Super AA super voting preferred stock, $0.0001 par value;

 

 

 

 

 

 

   1,000,000 authorized and 1,000 issued and outstanding

 

 

 

 

Common stock, $.0001 par value;

 

 

 

 

 

 

  250,000,000 shares authorized; 108,289,265 and 104,803,401 shares issued

 

 

 

 

 

  and outstanding as of March 31, 2016 and December 31, 2015

 

10,830 

 

 

10,479 

 

 Additional paid-in capital

 

4,939,438 

 

 

3,773,642 

 

 Stock subscriptions

 

(1,570)

 

 

(1,570)

 

 Accumulated deficit

 

(13,962,074)

 

 

(13,058,611)

 Total shareholders' deficit

 

(9,013,376)

 

 

(9,276,060)

 

 

$

274,012 

 

$

409,363 

 

 

 

 

 

 

 

See accompanying summary of accounting policies and notes to unaudited condensed consolidated financial statements.




4



Endonovo Therapeutics, Inc. and Subsidiaries

Condensed Consolidated Statement of Operations

 (Unaudited)


 

 

Three Months Ended

 

 

March 31,

 

 

 

2016

 

 

2015

 

 

 

 

 

 

 

 Revenues, net

$

 

$

2,745 

 Cost of goods sold

 

 

 

824 

 Gross profit

 

 

 

1,921 

 

 

 

 

 

 

 

 Operating expenses

 

1,402,120 

 

 

433,554 

 Loss from operations

 

(1,402,120)

 

 

(431,633)

 

 

 

 

 

 

 

 Other income (expense)

 

 

 

 

 

 

 Change in fair value of derivative liability

 

1,024,602 

 

 

 

 Gain on extinguishment of debt

 

133,038 

 

 

 

 Interest expense, net

 

(658,983)

 

 

(48,522)

   

 

 

498,657 

 

 

(48,522)

 

 

 

 

 

 

 

 Loss before income taxes

 

(903,463)

 

 

(480,155)

 

 

 

 

 

 

 

 Provision for income taxes

 

 

 

 

 

 

 

 

 

 

 Net loss

$

(903,463)

 

$

(480,155)

 

 

 

 

 

 

 

 Basic and diluted loss per share

$

(0.01)

 

$

(0.01)

 Weighted average common share outstanding:

 

 

 

 

 

 

 Basic and diluted

 

106,567,261 

 

 

84,824,577 

 

 

 

 

 

 

 

See accompanying summary of accounting policies and notes to unaudited condensed consolidated financial statements.





5



Endonovo Therapeutics, Inc. and Subsidiaries

Condensed Consolidated Statement of Cash Flows

(Unaudited)


 

 

 

 

 Three Months ended March 31,  

 

 

 

 

 

2016

 

 

2015

 Operating activities:

 

 

 

 

 

 

 Net loss

$

(903,463)

 

$

(480,155)

 

 Adjustments to reconcile net loss to cash  

 

 

 

 

 

 

 

 used in operating activities:

 

 

 

 

 

 

 

 Depreciation and amortization expense

 

3,958 

 

 

3,640 

 

 

 Fair value of equity issued for services

 

518,457 

 

 

2,304 

 

 

 Non-cash amortization of interest

 

529,456 

 

 

1,766 

 

 

 Non-cash expenses paid in debt issuance

 

115,000 

 

 

 

 

 Change in fair value of derivative liability

 

(1,024,602)

 

 

 

 

 Gain on extinguishment of liabilities

 

(133,038)

 

 

 

 

 Changes in assets and liabilities:

 

 

 

 

 

 

 

 

 Other current assets

 

200,000 

 

 

2,000 

 

 

 

 Accounts payable and accrued expenses

 

269,363 

 

 

276,609 

 Net cash used in operating activities

 

(424,869)

 

 

(193,836)

 Investing activities:

 

 

 

 

 

 

 Net cash used in investing activities

 

 

 

 Financing activities:

 

 

 

 

 

 

 Proceeds from the issuance of notes payable

 

285,000 

 

 

212,500 

 

 Proceeds from related party short-term advances

 

5,508 

 

 

7,755 

 

 Proceeds from issuance of common stock

 

366,275 

 

 

177 

 

 Repayments on notes payable

 

(125,000)

 

 

 

 Repayment of prepayment premium on note payable

 

(26,220)

 

 

 

 Repayments on related parties short term advances

 

(10,300)

 

 

 

 Payment against long term loan

 

(2,974)

 

 

(1,936)

 Net cash provided by financing activities

 

492,289 

 

 

218,496 

 

 

 

 

 

 

 

 

 

 Net increase in cash

 

67,420 

 

 

24,660 

 Cash, beginning of year

 

41,473 

 

 

988 

 Cash, end of period

$

108,893 

 

$

25,648 

 Supplemental disclosure of cash flow information:

 

 

 

 

 

 Cash paid for interest

$

12,383 

 

$

 Cash paid for income taxes

$

 

$

 

 

 

 

 

 

 

 

 

Non Cash Investing and Financing Activities:

 

 

 

 

 

 

 

Conversion of notes payable and accrued interest to equity

$

269,416 

 

$

328,138 

 

 

 

 

 

 

 

 

 

See accompanying summary of accounting policies and notes to unaudited condensed consolidated financial statements.



6



Endonovo Therapeutics, Inc. and Subsidiaries

Condensed Consolidated Statement of Shareholders’ Deficit

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 Additional

 

 

 Common Stock  

 

 

 

 

 

 Total

 

 Series AA Preferred Stock

 

 Common Stock

 

 

 Paid-in

 

 

 Subscription

 

 

 Retained  

 

 

 Shareholder's

 

 Shares

 

 

 Amount

 

 Shares

 

 

 Amount

 

 

 Capital

 

 

 Receivable

 

 

 Earnings

 

 

 Deficit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Balance December 31, 2015

1,000

 

$

-

 

104,803,401

 

 $

10,479

 

 $

3,773,642

 

 $

(1,570)

 

 $

(13,058,611)

 

 $

(9,276,060)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Shares issued for cash

-

 

 

-

 

512,273

 

 

51

 

 

106,973

 

 

 

 

 

 

107,024 

 Private placement units issued for cash

-

 

 

-

 

975,827

 

 

98

 

 

271,152

 

 

 

 

 

 

271,250 

 Shares issued for services

-

 

 

-

 

1,051,504

 

 

106

 

 

492,700

 

 

 

 

 

 

492,806 

 Shares issued with notes payable and extensions

-

 

 

-

 

70,110

 

 

8

 

 

25,643

 

 

 

 

 

 

25,651 

 Private placement units issued for conversion

of notes payable and accrued interest

-

 

 

-

 

876,150

 

 

88

 

 

269,328

 

 

 

 

 

 

269,416 

 Net loss for the period ended March 31, 2016

-

 

 

-

 

-

 

 

-

 

 

-

 

 

 

 

(903,463)

 

 

(903,463)

 Balance March 31, 2016

1,000

 

$

-

 

108,289,265

 

 $

10,830

 

 $

4,939,438

 

 $

(1,570)

 

 $

(13,962,074)

 

 $

(9,013,376)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying summary of accounting policies and notes to unaudited condensed consolidated financial statements.






Endonovo Therapeutics, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements



Note 1 - Organization and Nature of Business


Endonovo Therapeutics, Inc. and Subsidiaries (the “Company” or “ETI”) is primarily focused in the business of biomedical research and development, particularly in regenerative medicine, which has included the development of its proprietary square wave form device. The Company has historically been involved with intellectual property licensing and commercialization. 


Basis of Presentation and Principles of Consolidation


The accompanying unaudited interim condensed consolidated financial statements have been presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the instructions to Article 8 of Regulation S-X. Accordingly, the financial statements do not include all of the information and notes required by GAAP for complete financial statements. The condensed consolidated financial statements as of March 31, 2016 and 2015 are unaudited; however, in the opinion of management such interim condensed consolidated financial statements reflect all adjustments, consisting solely of normal recurring adjustments, necessary for a fair presentation of the results for the periods presented. The results of operations for the period presented are not necessarily indicative of the results that might be expected for future interim periods or for the full year.


The consolidated financial statements of the Company include the accounts of ETI and IPR as of March 14, 2012; Aviva as of April 2, 2013; and WeHealAnimals as of November 16, 2013. All significant intercompany accounts and transactions are eliminated in consolidation.


Going Concern


These accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business for a period following the date of these consolidated financial statements.  The Company has raised approximately $650,000 in debt and equity financing for the period January 1, 2016 to March 31, 2016.  The Company is raising additional capital through debt and equity securities in order to continue the funding of its operations.  However, there is no assurance that the Company can raise enough funds or generate sufficient revenues to pay its obligations as they become due, which raises substantial doubt about our ability to continue as a going concern.  No adjustments have been made to the carrying value of assets or liabilities as a result of this uncertainty. To reduce the risk of not being able to continue as a going concern, management and has initiated a private placement offering to raise capital through the sale of its common stock and is seeking out profitable companies.  Although, uncertainty exists as to whether the Company will be able to generate enough cash from operations to fund the Company’s working capital needs or raise sufficient capital to meet the Company’s obligations as they become due, no adjustments have been made to the carrying value of assets or liabilities as a result of this uncertainty.


Net Income (Loss) per Share


For the three month period ending March 31, 2016, the Company had 7,747,422 of weighted average common shares relating to the convertible debt, under the if-converted method, however, these shares are not dilutive because the Company recorded a loss during the fiscal quarter.  For the three months ended March 31, 2015, the Company had no dilutive securities.


Recent Accounting Standard Updates


The Company is not aware of any recently issued accounting pronouncements that when adopted will have a material effect on the Company’s financial position or results of its operations.





Endonovo Therapeutics, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (continued)



Note 2 – Property, Plant and Equipment


The following is a summary of equipment, at cost, less accumulated depreciation at March 31, 2016 and December 31, 2015:


 

 

 

March 31,

 

 

December 31,

 

 

 

2016

 

 

2015

 

 

 

 

 

 

 

Autos

 

$

64,458

 

$

64,458

Medical equipment

 

 

5,000

 

 

5,000

Other equipment

 

 

8,774

 

 

8,774

 

 

 

78,232

 

 

78,232

Less accumulated depreciation

 

 

50,533

 

 

46,575

 

 

$

27,699

 

$

31,657



Note 3 - Notes Payable and Long Term Loan


Notes Payable


During the three months ended March 31, 2016, the Company issued a Convertible Note (“Variable Note”) with an original term of one year and nine months and an add-on interest equal to 10% of the initial principal which contains a variable conversion rate with a discount of 30% of the Company’s common stock based on the terms included in the Variable Note.  The Variable Note contains a prepayment option which enables the Company to prepay the note for a period of 0-180 days subsequent to issuance at a premium of 125%.  The gross amount of this Variable Note outstanding is $302,500 as of March 31, 2016.


 

 

 

March 31,

 

 

December 31,

 

 

 

2016

 

 

2015

 

 

 

 

 

 

 

Notes payable at beginning of period

 

$

2,333,751 

 

$

1,377,416 

Notes payable issued

 

 

302,500 

 

 

1,586,250 

Repayments of notes payable in cash

 

 

(125,000)

 

 

(138,000)

Less amounts converted to equity

 

 

(125,000)

 

 

(491,915)

Notes payable at end of period

 

 

2,386,251 

 

 

2,333,751 

Less debt discount

 

 

(843,164)

 

 

(799,307)

 

 

$

1,543,087 

 

$

1,534,444 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notes payable issued to related parties

 

$

245,000 

 

$

245,000 

Notes payable issued to non-related parties

 

$

1,298,087 

 

$

1,289,444 





9



Endonovo Therapeutics, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (continued)


The maturity dates on the notes payable are as follows:

 

 

 

 

 

 

 

 

 

 

Notes to

 

 

 

12 months ending,

 

Related parties

 

 

Non-related parties

 

Total

 

 

 

 

 

 

 

 

 

March 31, 2017

$

245,000

 

$

1,328,750

 

$

1,573,750

March 31, 2018

$

-

 

$

762,500

 

$

762,500

March 31, 2019

$

-

 

$

50,000

 

$

50,000

 

$

245,000

 

$

2,141,250

 

$

2,386,250

 

 

 

 

 

 

 

 

 

Current notes payable

$

245,000

 

$

1,328,750

 

$

1,573,750

Long term notes payable

$

-

 

$

812,500

 

$

812,500



Derivative Liability

 

The Company has issued Variable Debentures which contained variable conversion rates based on unknown future prices of the Company’s common stock.  This results in a conversion feature.  The Company measures the conversion feature using the Black-Scholes option valuation model using the following assumptions:


 

 

Three months ended March 31,

 

 

2016

 

2015

 

 

 

 

Expected term

 

3 to 28  months

 

0

Exercise price

 

$0.07 to $0.26

 

$0.00

Expected volatility

 

221% to 264%

 

0%

Expected dividends

 

0

 

0

Risk-free interest rate

 

0.59% to 1.06%

 

0.00%

Forfeitures

 

0

 

0



The time period over which the Company will be required to evaluate the fair value of the conversion feature is nine to twenty-four months or conversion.


The assumptions used in determining fair value represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management’s judgment. As a result, if factors change, including changes in the market value of the Company’s common stock, managements’ assessment or significant fluctuations in the volatility of the trading market for the Company’s common stock, the Company’s fair value estimates could be materially different in the future.





10



Endonovo Therapeutics, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (continued)



The Company computes the fair value of the derivative liability at each reporting period and the change in the fair value is recorded as non-cash expense or non-cash income. The key component in the value of the derivative liability is the Company’s stock price, which is subject to significant fluctuation and is not under its control. The resulting effect on net loss is therefore subject to significant fluctuation and will continue to be so until the Company’s Variable Debentures, which the convertible feature is associated with, are converted into common stock or paid in full with cash. Assuming all other fair value inputs remain constant, the Company will record non-cash expense when its stock price increases and non-cash income when its stock price decreases.


As of March 31, 2016 and December 31, 2015, the balances of the Derivative Liability are as follows:

 

 

Derivative

 

 

Liability

Balance December 31, 2015

 

$

3,973,542 

 

 

 

 

  Issuance of convertible debt

 

 

628,132 

  Settlements by debt extinguishment

 

 

(236,439)

  Change in estimated fair value

 

 

(1,024,602)

 

 

 

 

Balance March 31, 2016

 

$

3,340,633 


Long Term Loan


The Company has financed the purchase of an automobile.  The maturity dates on the loan are as follows:


Maturity dates of long term debt

 

 

 

 

 

 

 

 

 

Twelve months ending,

 

 

 

 

March 31, 2017

 

$

12,121

 

March 31, 2018

 

$

12,488

 

March 31, 2019

 

$

1,064

 

 

 

$

25,673

 

 

 

 

 

 

Current portion

 

$

12,121

 

Long term portion

 

$

13,552




11



Endonovo Therapeutics, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (continued)



Note 4 - Shareholders’ Deficit


Common Stock


The Company has entered into consulting agreements with various consultants for service to be provided to the Company. The agreements stipulate a monthly fee and a certain number of shares that the consultant vests in over the term of the contract. The consultant is issued a prorated number of shares of common stock at the beginning of the contract, which the consultant earns over a three-month period. At the anniversary of each quarter, the consultant is issued a new allotment of common stock during the first 3 years of engagement. In accordance with ASC 505-50 – Equity-Based Payment to Non-Employees, the common stock shares issued to the consultant are valued upon their vesting, with interim estimates of value as appropriate during the vesting period.  During the three months ended March 31, 2016, the Company issued 901,504 shares of common stock with a value of $427,306 related to these consulting agreements.


During the three months ended March 31, 2016, the Company issued 150,000 shares of common stock related to lock-up agreements valued at $65,500 and 512,273 shares of common stock for cash in the amount of $107,025.


During the three months ended March 31, 2016, the Company issued pursuant to a private placement offering 1,851,977 shares of common stock and the same number of warrants for cash of $271,250 and conversion of notes and accrued interest in the amount of $269,416.


Also, during the three months ended March 31, 2016, the Company issued 70,110 shares of common stock valued at $25,651 related to the extension of outstanding notes.


Series AA Preferred Shares


On February 22, 2013, the Board of Directors of the Company authorized an amendment to the Company’s

Articles of Incorporation, as amended (the “Articles of Incorporation”), in the form of a Certificate of Designation that authorized the issuance of up to one million (1,000,000) shares of a new series of preferred stock, par value $0.0001 per share, designated “Series AA Super Voting Preferred Stock,” for which the board of directors established the rights, preferences and limitations thereof.  


Each holder of outstanding shares of Series AA Super Voting Preferred Stock shall be entitled to one hundred thousand (100,000) votes for each share of Series AA Super Voting Preferred Stock held on the record date for the determination of stockholders entitled to vote at each meeting of stockholders of the Company.  As of March 31, 2016, there were 1,000 shares of Series AA Preferred stock outstanding.


Note 5 – Related Party Transactions


Two officers and executives of the Company have entered into note payable agreements with the Company.  The balance of notes payable from related parties at March 31, 2016 is $245,000.


From time-to-time officers of the Company advance monies to the Company to cover costs.  During the three months ended March 31, 2016, officers advanced $5,508 of funds to the Company, and $10,300 were repaid to the officers The balance of short-term advances due to two officers and executives of the Company at March 31, 2016 is $0.





12



Endonovo Therapeutics, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (continued)



Note 6 –  Fair Value Measurements

 

Accounting guidance on fair value measurements and disclosures defines fair value, establishes a framework for measuring the fair value of assets and liabilities using a hierarchy system, and defines required disclosures. It clarifies that fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the reporting entity transacts business.

 

The Company's balance sheet contains derivative and warrant liabilities that are recorded at fair value on a recurring basis. The three-level valuation hierarchy for disclosure of fair value is as follows:


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


Level 2: uses observable market-based inputs or unobservable inputs that are corroborated by market data.

Level 3: uses unobservable inputs that are not corroborated by market data.

 

The fair value of the Company’s recorded derivative liability is determined based on unobservable inputs that are not corroborated by market data, which require a Level 3 classification. A Black-Scholes  option valuation model was used to determine the fair value. The Company records derivative liability on the condensed consolidated balance sheets at fair value with changes in fair value recorded in the condensed consolidated statements of operation.


The following table presents changes in the liabilities with significant unobservable inputs (Level 3) for the three months ended March 31, 2016:


 

 

Fair Value Measurements Using

 

 

 

Quoted Prices in

 

 

Significant Other

 

 

Significant

 

 

 

 

 

 

Active Markets for

 

 

Observable

 

 

Unobservable

 

 

 

 

 

 

Identical Assets

 

 

Inputs

 

 

Inputs

 

 

 

 

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

 

Total

As of March 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

   Derivative liability

 

$

-

 

$

-

 

$

3,340,633

 

$

3,340,633

Total

 

$

-

 

$

-

 

$

3,340,633

 

$

3,340,633



Note 7 – Subsequent Events

Subsequent to March 31, 2016, an aggregate of 750,000 shares of restricted common stock were issued as compensation to independent contractors.


Subsequent to March 31, 2016, the Company issued 540,810 shares of its restricted common stock pursuant to a Private Placement Memorandum and private offerings.


Subsequent to March 31, 2016, an aggregate of 36,000 shares of common stock were issued for leak out agreements.


As a result of these issuances the total number of shares outstanding is 109,616,075.



13



Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations


Cautionary Notice Regarding Forward Looking Statements

 

The information contained in Item 2 contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Actual results may materially differ from those projected in the forward-looking statements as a result of certain risks and uncertainties set forth in this report. Although management believes that the assumptions made and expectations reflected in the forward-looking statements are reasonable, there is no assurance that the underlying assumptions will, in fact, prove to be correct or that actual results will not be different from expectations expressed in this report.

 

This filing contains a number of forward-looking statements which reflect management’s current views and expectations with respect to our business, strategies, products, future results and events, and financial performance. All statements made in this filing other than statements of historical fact, including statements addressing operating performance, events, or developments which management expects or anticipates will or may occur in the future, including statements related to distributor channels, volume growth, revenues, profitability, new products, adequacy of funds from operations, statements expressing general optimism about future operating results, and non-historical information, are forward looking statements. In particular, the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “may,” and variations of such words, and similar expressions identify forward-looking statements, but are not the exclusive means of identifying such statements, and their absence does not mean that the statement is not forward-looking. These forward-looking statements are subject to certain risks and uncertainties, including those discussed below. Our actual results, performance or achievements could differ materially from historical results as well as those expressed in, anticipated, or implied by these forward-looking statements. We do not undertake any obligation to revise these forward-looking statements to reflect any future events or circumstances.

 

Readers should not place undue reliance on these forward-looking statements, which are based on management’s current expectations and projections about future events, are not guarantees of future performance, are subject to risks, uncertainties and assumptions (including those described below), and apply only as of the date of this filing. Our actual results, performance or achievements could differ materially from the results expressed in, or implied by, these forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.


Overview


Endonovo Therapeutics, Inc.  (the “Company” or “ETI”) operates in two business segments: (1) intellectual property licensing and commercialization; and (2) biomedical research and development which has included development of its proprietary square wave form device.


Our present primary focus is the development, patenting and regulatory approval of our biomedical proprietary technology.


Going Concern


Our independent registered auditors included an explanatory paragraph in their opinion on our consolidated financial statements as of and for the fiscal year ended December 31, 2015 that states our ongoing losses and lack of resources causes substantial doubt about our ability to continue as a going concern.


Critical Accounting Policies and Estimates


We prepare our condensed consolidated financial statements in accordance with accounting principles generally accepted in the U.S. (U.S. GAAP). In doing so, we have to make estimates and assumptions that affect our reported amounts of assets, liabilities, revenues, and expenses, as well as related disclosure of contingent assets and liabilities. In some cases, we could reasonably have used different accounting policies and estimates. In some cases, changes in the accounting estimates are reasonably likely to occur from period to period. Accordingly, actual results could differ materially from our estimates. To the extent that there are material differences between these estimates and actual results, our financial condition or results of operations will be affected. We base our estimates on past



14



experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. We refer to accounting estimates of this type as critical accounting policies and estimates, which we discuss further below.


Use of estimates


In the opinion of management, the accompanying condensed consolidated balance sheets and related interim statements of operations, cash flows, and shareholders' deficits include all adjustments, consisting only of normal recurring items, necessary for their fair presentation in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. The significant estimates were made for the fair value of common stock issued for services, with notes payable arrangements in connection with note extension agreements, and as repayment for outstanding debts, in estimating the useful life used for depreciation and amortization of our long-lived assets, in the valuation of the derivative liability, and the valuation of deferred income tax assets. Actual results and outcomes may differ from management's estimates and assumptions.


Revenue recognition


The Company recognizes revenue from its technology licensing and commercialization activities in accordance with paragraph 605-10-S99-1 of the FASB Accounting Standards Codification for revenue recognition.  The Company recognizes revenue when it is realized or realizable and earned.


The Company considers revenue realized or realizable and earned when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the services have been rendered to the customer and accepted by the customer as completed pursuant to Company’s Licensing Agreements, (iii) collectability is reasonably assured. The Company has yet to realize any revenues from its licensing agreements.  

 

Recently Issued Accounting Pronouncements


The Company is not aware of any recently issued accounting pronouncements that when adopted will have a material effect on the Company’s financial position or result of its operations.



Results of Operations for the Three Months ended March 31, 2016 and March 31, 2015


 

 

 

 

Three Months Ended March 31,

 

 

Favorable

 

 

 

 

 

 

 2016

 

 

 2015

 

 

(Unfavorable)

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

 

$

2,745 

 

$

(2,745)

 

-100.0%

Cost of revenue

 

 

 

 

824 

 

 

824 

 

100.0%

Gross profit

 

 

 

 

1,921 

 

 

(1,921)

 

-100.0%

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

1,402,120 

 

 

433,554 

 

 

(968,566)

 

223.4%

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

 

(1,402,120)

 

 

(431,633)

 

 

(970,487)

 

224.8%

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

498,657 

 

 

(48,522)

 

 

547,179 

 

1115.0%

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(903,463)

 

$

(480,155)

 

$

(423,308)

 

88.2%





15



Revenues


We had no revenue for the three months ended March 31, 2016 compared to $2,745 for the three months ended March 31, 2015. We are in an early stage and our revenues will be small and null until a device or biological license receives FDA approval or international research licensing develops.  The growth of our business is dependent on successfully raising additional capital to fund our growth.


Operating Expenses


Our operating expenses for the three months ended March 31, 2016 were approximately $1,402,000 compared to $434,000 for the corresponding period of the previous year. The operating expenses were comprised primarily from consulting and professional fees for the development of our intellectual property and expenses related to being a public company, approximately $500,000 of which was paid for in stock issuances, and payment of another approximate $400,000 of these fees were deferred.


Other Income (Expense)


Other income (expense) for the quarter ended March 31, 2016 was income of $498,657 compared to expense of $48,522 for the quarter ended March 31, 2015.  This change was due primarily to a change in valuation of our derivative liabilities, which did not exist as of March 31, 2015, and interest expense resulting from the amortization of the discounts on notes payable, also which did not exist as of March 31, 2015.  We anticipate continued large fluctuations in other income (expense) as a result of quarterly re-evaluation of these obligations.




16



Liquidity and Capital Resources  


 

 

 

 

 As of

 

 

Increase

 

 

 

 

 March 31,

2016

 

 

 December 31, 2015

 

 

(Decrease)

Working Capital

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets

 

$

246,313 

 

$

377,706 

 

$

(131,393)

Current liabilities

 

 

8,999,726 

 

 

9,486,153 

 

 

486,427 

  Working capital deficit

$

(8,753,413)

 

$

(9,108,447)

 

$

355,034 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt

 

$

287,662 

 

$

199,270 

 

$

88,392 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' deficit

 

$

(9,013,376)

 

$

(9,276,060)

 

$

(262,684)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Three Months Ended March 31,  

 

 

Increase

 

 

 

 

2016

 

 

2015

 

 

(Decrease)

Statements of Cash Flows Select Information

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash provided (used) by:

 

 

 

 

 

 

 

 

   Operating activities

 

$

(426,056)

 

$

(193,836)

 

$

(232,220)

   Investing activities

 

$

 

$

 

$

   Financing activities

 

$

493,476 

 

$

218,496 

 

$

274,980 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 As of

 

 

Increase

 

 

 

 

 March 31,

2016

 

 

December 31, 2015

 

 

(Decrease)

Balance Sheet Select Information

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Cash

 

 

$

108,893

 

$

41,473

 

$

67,420

 

 

 

 

 

 

 

 

 

 

 

  Accounts payable and accrued expenses

$

4,222,997

 

$

3,990,185

 

$

232,812



Since inception and through March 31, 2016, the Company has raised approximately $3.5 million in equity and debt transactions. These funds have been used to commence the operations of the Company to acquire and begin the development of its intellectual property portfolio. These activities include attending trade shows and corporate development.  Our accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business for the twelve month period following the date of these condensed consolidated financial statements. The Company has incurred substantial losses since inception.  Its current liabilities exceed its current assets and available cash is not sufficient to fund expected future operations.  The Company is raising additional capital through debt and equity securities in order to continue the funding of its operations. However, there is no assurance that the Company can raise enough funds or generate sufficient revenues to pay its obligations as they become due, which raises substantial doubt about our ability to continue as a going concern. To reduce the risk of not being able to continue as a going concern, management is increasing the value of its intellectual property through regulatory approvals and obtaining additional patent rights and has initiated a private placement offering to



17



raise capital through the sale of its common stock.  Although, uncertainty exists as to whether the Company will be able generate enough cash from operations to fund the Company’s working capital needs or raise sufficient capital to meet the Company’s obligations as they become due, no adjustments have been made to the carrying value of assets or liabilities as a result of this uncertainty.  Our cash on hand at March 31, 2016 was approximately $109,000.  This will be insufficient to fund operations if additional capital is not raised.  The Company raised an aggregate of approximately $650,000 through the sale of equity and debt securities during the three months ended March 31, 2016.


The Company is not aware of any recently issued accounting pronouncements that when adopted will have a material effect on the Company’s financial position or result of its operation.


Off-Balance Sheet Arrangements

 

We have no off-balance sheet arrangements.

 

Item 3.  Quantitative and Qualitative Disclosures About Market Risk.


We are a Smaller Reporting Company and are not required to provide the information under this item.


Item 4.  Controls and Procedures.


Disclosure of controls and procedures.

 

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports, filed under the Securities Exchange Act of 1934, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable and not absolute assurance of achieving the desired control objectives. In reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. In addition, the design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, a control may become inadequate because of changes in conditions or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

 

As required by the SEC Rule 13a-15(b), we carried out an evaluation under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses described below. 


In light of the material weaknesses described below, we performed additional analysis and other post-closing procedures to ensure our financial statements were prepared in accordance with generally accepted accounting principles.  Accordingly, we believe that the financial statements included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.


A material weakness is a control deficiency (within the meaning of the Public Company Accounting Oversight Board (PCAOB) Auditing Standard No. 2) or combination of control deficiencies that result in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.  Management has identified the following two material weaknesses which have caused management to conclude that as of March 31, 2016 our disclosure controls and procedures were not effective at the reasonable assurance level:



18




1.  We do not have written documentation of our internal control policies and procedures.  Written documentation of key internal controls over financial reporting is a requirement of Section 404 of the Sarbanes-Oxley Act which is applicable to us for the quarter ended March 31, 2016.  Management evaluated the impact of our failure to have written documentation of our internal controls and procedures on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.


2.  We do not have sufficient segregation of duties within accounting functions, which is a basic internal control.  Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible.  However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals.  Management evaluated the impact of our failure to have segregation of duties on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.


To address these material weaknesses, management performed additional analyses and other procedures to ensure that the financial statements included herein fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented.

 

Changes in internal controls over financial reporting.

 

There has been no change in our internal control over financial reporting that occurred during the fiscal quarter covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.


PART II - OTHER INFORMATION


Item 1.  Legal Proceedings.

 

We are not currently involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. 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 our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect. Notwithstanding the foregoing, several lenders have commenced litigation against us which is in the early stages.  We anticipate that these matters will be settled, however, if a settlement cannot be reached, we will vigorously defend these matters and we do not believe that there will be any material adverse effect as a result thereof, but there is always uncertainty  in any litigation and a result cannot be guaranteed.

 

Item 1A.  Risk Factors.

 

We are a Smaller Reporting Company (as defined in Rule 12b-2 of the Exchange Act) and are not required to provide the information under this item.

 

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.


Number of

 

 

 

 

Common Shares

 

Source of

 

 

Issued

 

Payment

 

Amount

1,051,504

 

Services

 

$

492,806

70,110

 

Note extension

 

$

25,651

1,488,100

 

Cash

 

$

378,275

876,150

 

Conversion of notes

 

$

269,416



19








The above issuances of securities during the three months ended March 31, 2016 were exempt from registration pursuant to Section 4(2), and/or Regulation D promulgated under the Securities Act. These securities qualified for exemption under Section 4(2) of the Securities Act since the issuance securities by us did not involve a public offering. The offering was not a “public offering” as defined in Section 4(2) due to the insubstantial number of persons involved in the deal, size of the offering, manner of the offering and number of securities offered. We did not undertake an offering in which we sold a high number of securities to a high number of investors. In addition, these stockholders had the necessary investment intent as required by Section 4(2) since they agreed to and received share certificates bearing a legend stating that such securities are restricted pursuant to Rule 144 of the Securities Act. This restriction ensures that these securities would not be immediately redistributed into the market and therefore not be part of a “public offering.” Based on an analysis of the above factors, we have met the requirements to qualify for exemption under Section 4(2) of the Securities Act for this transaction.


Item 3.  Defaults Upon Senior Securities.

 

None


Item 4.  Mine Safety Disclosures.

 

Not applicable


Item 5.  Other Information

 

None


Item 6.  Exhibits


Exhibit

Number

 

Exhibit Title

 

 

 

3.1

 

Certificate of Amendment to the Certificate of Incorporation affecting a 100 for one reverse stock split.

 

 

31.1

Certification of Principal Executive Officer and Principal Financial Officer, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

32.1

Certification of Principal Executive Officer and Principal Financial Officer, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

101.INS *

XBRL Instance Document

  

  

101.SCH *

XBRL Taxonomy Schema

  

  

101.CAL *

XBRL Taxonomy Calculation Linkbase

  

  

101.DEF *

XBRL Taxonomy Definition Linkbase

  

  

101.LAB *

XBRL Taxonomy Label Linkbase

  

  

101.PRE *

XBRL Taxonomy Presentation Linkbase

 

 

In accordance with SEC Release 33-8238, Exhibit 32.1 and 32.2 are being furnished and not filed.

 

 

* Furnished herewith. XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

  




20





SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 


 

 

 

 

Dated: May 20, 2016

Endonovo Therapeutics, Inc.

  

  

  

  

  

By:

/s/  Alan Collier

  

  

  

Alan Collier

  

  

  

Chief Executive Officer

(Duly Authorized Officer, Principal Executive Officer and Principal Financial Officer)

  




21