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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended June 30, 2021.

 

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: 000-55453

 

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)

 

Securities registered pursuant to Section 12(b) of the Securities Exchange Act: None

 

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 ☒ 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 ☒ No

 

Indicate by check mark whether the registrant is a large-accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large-accelerated filer,” “accelerated filer,” “non-accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐ Accelerated filer ☐
   
Non-accelerated filer Smaller reporting company
   
  Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No

 

As of August 20, 2021, there were 65,759,771 shares of common stock, $0.0001 par value issued and outstanding.

 

 

 

 

 

 

ENDONOVO THERAPEUTICS, INC.

TABLE OF CONTENTS

FORM 10-Q REPORT

June 30, 2021

 

   

Page

Number

PART I - FINANCIAL INFORMATION  
     
Item 1. Condensed Consolidated Financial Statements (unaudited). 3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 21
Item 3. Quantitative and Qualitative Disclosures About Market Risk. 26
Item 4. Controls and Procedures. 26
     
PART II - OTHER INFORMATION  
     
Item 1. Legal Proceedings. 27
Item 1A. Risk Factors. 27
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. 27
Item 3. Defaults Upon Senior Securities. 28
Item 4. Mine Safety Disclosures 28
Item 5. Other Information. 28
Item 6. Exhibits. 28
     
SIGNATURES 29

 

2
 

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

Endonovo Therapeutics, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

 

   June 30,
2021
   December 31,
2020
 
   (Unaudited)   (Audited) 
         
ASSETS          
Current assets:          
Cash  $8,538   $13,420 
Accounts receivable, net of allowance for doubtful accounts of $0   9,417    942 
Prepaid expenses and other current assets   20,725    31,825 
Total current assets   38,680    46,187 
           
Property, Plant and Equipment, net   -    1,580 
Patents, net   2,235,812    2,559,268 
Total assets  $2,274,492   $2,607,035 
           
LIABILITIES AND SHAREHOLDERS’ DEFICIT          
Current liabilities          
Accounts payable  $711,235   $700,932 
Accrued interest   2,164,506    1,904,136 
Deferred compensation   3,739,806    3,384,117 
Notes payable, net of discounts of $70,236 and $201,157 as of June 30, 2021, and December 31, 2020   6,538,340    6,491,039 
Notes payable – former related party   121,000    143,000 
Derivative liability   5,903,803    4,202,597 
           
Total current liabilities   19,178,690    16,825,821 
           
Acquisition payable   79,825    155,000 
Total liabilities   19,258,515    16,980,821 
COMMITMENTS AND CONTINGENCIES, note 10   -    - 
           
Shareholders’ deficit          
Super AA super voting preferred stock, $0.001 par value; 1,000,000 authorized and 25,000 issued and outstanding at June 30, 2021, and December 31, 2020   25    25 
Series B convertible preferred stock, $0.0001 par value; 50,000 shares authorized, 600 shares issued and outstanding at June 30, 2021, and December 31, 2020   1    1 
           
Series C convertible preferred stock, $0.0001 par value; 8,000 shares authorized, 738 and 763 shares issued and outstanding at June 30, 2021, and December 31, 2020   -    - 
           
Series D convertible preferred stock, $0.0001 par value; 20,000 shares authorized, 305 issued and outstanding at June 30, 2021, and December 31, 2020   -    - 
           
Common stock, $0.0001 par value; 2,500,000,000 shares authorized; 60,659,771 and 24,536,689 shares issued and outstanding as of June 30, 2021, and December 31, 2020   6,067    2,453 
Additional paid-in capital   40,327,526    38,963,827 
Stock subscriptions   (1,570)   (1,570)
Accumulated deficit   (57,316,072)   (53,338,522)
Total shareholders’ deficit   (16,984,023)   (14,373,786)
Total liabilities and shareholders’ deficit  $2,274,492   $2,607,035 

 

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

 

3
 

 

Endonovo Therapeutics, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)

 

   2021   2020   2021   2020 
   Three Months Ended   Six Months Ended 
   June 30,   June 30, 
   2021   2020   2021   2020 
                 
Revenue  $30,284   $44,631   $64,999   $114,316 
Cost of revenue   500    11,300    3,021    17,560 
Gross profit   29,784    33,331    61,978    96,756 
                     
Operating expenses   599,837    635,157    1,222,475    1,378,194 
Loss from operations   (570,053)   (601,826)   (1,160,497)   (1,281,438)
                     
Other income (expense)                    
Change in fair value of derivative liability   (720,439)   (861,147)   (2,420,449)   5,600,255 
Gain (loss) on settlement of debt   114,021    92,492    70,996    (516,783)
Interest expense, net   (120,198)   (264,170)   (467,600)   (1,098,267)
Other income (expense)   (726,616)   (1,032,825)   (2,817,053)   3,985,205 
                     
Income (Loss) before income taxes   (1,296,669)   (1,634,651)   (3,977,550)   2,703,767 
                     
Provision for income taxes   -    -    -    - 
                     
Net Income (loss) income  $(1,296,669)  $(1,634,651)  $(3,977,550)  $2,703,767 
                     
Basic Income (Loss) per share  $(0.02)  $(0.17)  $(0.08)  $0.42 
Diluted Income (Loss) per share  $(0.02)  $(0.17)  $(0.08)  $(0.15)
Weighted average common share outstanding:                    
Basic   58,487,227    9,833,073    50,084,150    6,368,543 
Diluted   58,487,227    9,833,073    50,084,150    15,065,162 

 

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

 

4
 

 

Endonovo Therapeutics, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

   2021   2020 
   Six Months ended June 30, 
   2021   2020 
Operating activities:          
Net (Loss) Income  $(3,977,550)  $2,703,767 
Adjustments to reconcile net (loss) income to cash used in operating activities:          
Depreciation and amortization expense   325,036    325,053 
Stock compensation expense   40,961    55,540 
Fair value of commitment shares issued with debt   33,470    - 
Fair value of equity issued for services   -    13,067 
Loss (gain) on extinguishment of debt   (70,996)   516,783 
Amortization of note discount and original issue discount   72,751    36,843 
Amortization of discount on Series C Preferred stock liability   -    248 
Non-cash interest expense   -    550,994 
Change in fair value of derivative liability   2,420,449    (5,600,255)
Changes in assets and liabilities:          
Accounts receivable   (8,475)   21,801 
Prepaid expenses and other current assets   11,100    17,560 
Account payable   10,304    9,936 
Accrued interest   361,379    510,184 
Deferred compensation   355,689    385,486 
Net cash used in operating activities   (425,882)   (452,061)
           
Financing activities:          
Proceeds from the issuance of notes payable   325,000    401,424 
Repayments on former related-party of notes payable   (22,000)   (13,000)
Repayments of convertible debt in cash   (8,000)   - 
Proceeds from issuance of common stock and units   126,000    - 
Proceeds from issuance of preferred stock   -    50,000 
Net cash provided by financing activities   421,000    438,424 
           
Net decrease in cash   (4,882)   (13,637)
Cash, beginning of year   13,420    18,893 
Cash, end of period  $8,538   $5,256 
           
Supplemental disclosure of cash flow information:          
Cash paid for interest  $-   $- 
Cash paid for income taxes  $-   $- 
           
Non-Cash Investing and Financing Activities:          
Conversion of notes payable and accrued interest to common stock  $501,629   $1,311,240 
Conversion of Preferred C Stock to common stock  $33,333   $1,387,601 
Issuance of common stock to Preferred C Stock inducement  $-   $8,152 
Exchange note and accrued interest to new convertible note  $-   $316,494 

  

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

 

5
 

 

Endonovo Therapeutics, Inc. and Subsidiaries

Condensed Consolidated Statement of Shareholders’ Deficit

(Unaudited)

 

For six months ended June 30, 2020.

 

   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Receivable   Earnings   Deficit 
  

Series AA

Preferred Stock

  

Series B

Convertible

Preferred Stock

  

Series C

Convertible

Preferred Stock

  

Series D

Convertible

Preferred Stock

   Common Stock  

Additional

Paid-in

   Subscription   Retained  

Total

Shareholder’s

 
   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Receivable   Earnings   Deficit 
Balance December 31, 2019   25,000   $    25    600   $       1    -   $        -    255   $        -    1,189,204   $118   $  32,432,392   $(1,570)  $  (52,934,786)  $     (20,503,820)
                                                                       
Reclassification Preferred Series C   -    -    -    -    1,814    -    -    -    -    -    2,418,269    -    -    2,418,269 
Shares issued for Preferred Series D   -    -    -    -    -    -    50    -    -    -    50,000    -    -    50,000 
Shares issued for conversion of notes payable and accrued interest   -    -    -    -    -    -    -    -    4,388,291    439    2,545,275    -    -    2,545,714 
Shares issued for conversion of Preferred Series C to common share   -    -    -    -    (990)   -    -    -    1,636,166    164    (164)   -    -    - 
Valuation of stock options issued for services   -    -    -    -    -    -    -    -    -    -    9,567    -    -    9,567 
Net loss for the quarter ended March 31, 2020   -    -    -    -    -    -    -    -    -    -         -    4,338,418    4,338,418 
Balance March 31, 2020   25,000   $25    600   $1    824   $-    305   $-    7,213,661   $721   $37,455,339   $(1,570)  $(48,596,368)  $(11,141,852)
                                                                       
Shares issued for conversion of Preferred Series C to Common share   -    -    -    -    (105)   -    -    -    985,322    99    27    -    -    126 
Shares issued for conversion of notes payable and accrued interest   -    -    -    -    -    -    -    -    3,353,044    335    475,627    -    -    475,962 
Restricted shares issued as inducement to Series C   -    -    -    -    -    -    -    -    58,428    6    8,146    -    (8,152)   - 
Common stock issued for services   -    -    -    -    -    -    -    -    25,000    3    3,497    -    -    3,500 
Commitment shares   -    -    -    -    -    -    -    -    385,963    39    55,501    -    -    55,540 
Common stock issued with exchange of convertible notes   -    -    -    -    -    -    -    -    409,000    41    58,814    -    -    58,855 
Net loss for the quarter ended June 30, 2020   -    -    -    -    -    -    -    -    -    -    -    -    (1,634,651)   (1,634,651)
Balance June 30, 2020   25,000   $25    600   $1    719   $-    305   $-    12,430,418   $1,244   $38,056,951   $(1,570)  $50,239,171)  $(12,182,520)

 

6
 

 

For six months ended June 30, 2021.

 

  

Series AA

Preferred Stock

  

Series B

Convertible

Preferred Stock

  

Series C

Convertible

Preferred Stock

  

Series D

Convertible

Preferred Stock

   Common Stock  

Additional

Paid-in

   Subscription   Retained  

Total

Shareholder’s

 
   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Receivable   Earnings   Deficit 
                                                         
Balance December 31, 2020   25,000   $   25    600   $     1    763   $       -    305   $         -    24,536,689   $2,453   $  38,963,827   $(1,570)  $  (53,338,522)  $     (14,373,786)
                                                                       
Shares issued as commitment to note holders   -    -    -    -    -    -    -    -    2,300,334    230    101,652    -    -    101,882 
Common stock issued for cash                                           7,000,000    700    125,300              126,000 
Shares issued for conversion of notes payable and accrued interest   -    -    -    -    -    -    -    -    17,686,548    1,769    831,429    -    -    833,198 
Valuation of stock options issued for services   -    -    -    -    -    -    -    -    -    -    20,471    -    -    20,471 
Net loss for the quarter ended March 31, 2021   -    -    -    -    -    -    -    -    -    -         -    (2,680,881)   (2,680,881)
Balance March 31, 2021   25,000   $25    600   $1    763   $-    305   $-    51,523,571   $5,152   $40,042,679   $(1,570)  $(56,019,403)  $(15,973,116)
Shares issued for conversion of notes payable and accrued interest   -    -    -    -    -    -    -    -    3,804,103    381    116,165    -    -    116,546 
Shares issued for conversion of Preferred Series C to Common share   -    -    -    -    (25)   -    -    -    1,111,111    111    (111)   -    -    - 
Common Shares issued for debt settlement   -    -    -    -    -    -    -    -    1,515,152    152    57,576    -    -    57,728 
Shares issued as commitment to note holders   -    -    -    -    -    -    -    -    200,000    20    6,280    -    -    6,300 
Shares issued as settlement of debt with former related party   -    -    -    -    -    -    -    -    2,505,834    251    84,446    -    -    84,697 
Valuation of stock options issued for services   -    -    -    -    -    -    -    -    -    -    20,491    -    -    20,491 
Net loss for the quarter ended June 30, 2021   -    -    -    -    -    -    -    -    -    -    -    -    (1,296,669)   (1,296,669)
Balance June 30, 2021   25,000   $25    600   $1    738   $-    305   $-    60,659,771   $6,067   $40,327,526   $(1,570)  $57,316,072   $(16,984,023)

 

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

 

7
 

 

Endonovo Therapeutics, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

 

Note 1 - Organization and Nature of Business

 

Endonovo Therapeutics, Inc. (Endonovo or the “Company”) is an innovative biotechnology company that has developed a bio-electronic approach to regenerative medicine. Endonovo is a growth stage company whose stock is publicly traded (OTCQB: ENDV).

 

The Company develops, manufactures, and distributes evolutionary medical devices focused on the rapid healing of wounds and reduction of pain, edema, and inflammation in the human body. The Company’s non-invasive bioelectric medical devices are designed to target inflammation, cardiovascular diseases, chronic kidney disease, and central nervous system disorders (“CNS” disorders).

 

The Company’s non-invasive Electroceutical® therapeutics device, SofPulse®, using pulsed short-wave radiofrequency at 27.12 MHz has been FDA-Cleared and CE Marked for the palliative treatment of soft tissue injuries and post-operative plain and edema, and has CMS National Coverage for the treatment of chronic wounds. The Company’s current portfolio of pre-clinical stage Electroceutical® therapeutics devices address chronic kidney disease, liver disease non-alcoholic steatohepatitis (NASH), cardiovascular and peripheral artery disease (PAD) and ischemic stroke.

 

Endonovo’s core mission is to transform the field of medicine by developing safe, wearable, non-invasive bioelectric medical devices that deliver the Company’s Electroceutical® Therapy. Endonovo’s bioelectric Electroceutical® devices harnesses bioelectricity to restore key electrochemical processes that initiate anti-inflammatory processes and growth factors in the body necessary for healing to rapidly occur.

 

Note 2 – Summary of significant accounting policies.

 

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 June 30, 2021, and 2020, 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 accompanying financial information should be read in conjunction with the financial statements and the notes thereto in the Company’s most recent Annual Report on Form 10-K, as filed with the Securities and Exchange Commission (the “SEC”) on April 13, 2021. 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.

 

Liquidity and Going Concern

 

The Company’s unaudited condensed consolidated financial statements are prepared using GAAP applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable.

 

As of June 30, 2021, the Company had cash of approximately $8,500 and a working capital deficiency of approximately $19.1 million. During the six months ended June 30, 2021, the Company used approximately $0.4 million of cash in its operation. The Company has incurred recurring losses resulting in an accumulated deficit of approximately $57.3 million as of June 30, 2021. These conditions raise substantial doubt as to its ability to continue as going concern within one year from issuance date of these financial statements.

 

During the six months ended June 30, 2021, the Company has raised approximately $0.5 million in debt and equity financing. The Company is raising additional capital through debt and equity securities 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 is commercializing its FDA cleared and CE marked products and has commenced implementing its business plan to materialize revenues from potential, future, license agreements, has raised capital through the sale of its common stock, and the issuance of convertible promissory notes.

 

In March 2020, the World Health Organization declared coronavirus COVID-19 a global pandemic. This contagious disease outbreak, which has continued to spread, and any related adverse public health developments, has adversely affected workforces, economies, and financial markets globally, potentially leading to an economic downturn. It is not possible for the Company to predict the duration or magnitude of the adverse results of the outbreak and its effects on the Company’s business or ability to raise funds.

 

8
 

 

Endonovo Therapeutics, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (continued)

 

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 amounts reported in the condensed consolidated financial statements and accompanying notes. Critical estimates include the value of shares issued for services, in connection with notes payable agreements, in connection with note extension agreements, and as repayment for outstanding debt, the useful lives of property and equipment, the valuation of the derivative liability, the valuation of warrants and stock options, and the valuation of deferred income tax assets. Management uses its historical records and knowledge of its business in making these estimates. Actual results could differ from these estimates.

 

Earnings (Loss) Per Share

 

The Company utilizes Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 260, “Earnings per Share.” Basic earnings (loss) per share is computed based on the earnings (loss) attributable to common shareholders divided by the weighted average number of shares outstanding for the period excluding any dilutive effects of options, warrants, unvested share awards and convertible securities. Diluted earnings (loss) per common share is calculated similar to basic earnings (loss) per share except that the denominator is increased to include additional common share equivalents available upon exercise of stock option, warrants, common shares issuable under convertible debt and restricted stock using the treasury stock method. Dilutive common share equivalents include the dilutive effect of in-the-money share equivalents, which are calculated based on the average share price for each period using the treasury stock method, excluding any common share equivalents if their effect would be anti-dilutive. In periods in which a net loss has been incurred, all potentially dilutive common shares are considered anti-dilutive and thus are excluded from the calculation. Securities that are excluded from the calculation of weighted average dilutive common shares because their inclusion would have been antidilutive for the six months ended June 30, 2021, include stock options, warrants, and notes payable. The Company has 3,013,730 options and 28,309 warrants to purchase common stock outstanding at June 30, 2021. The Company has 96,533 options and 71,078 warrants to purchase common stock outstanding at June 30, 2020.

 

The components of basic and diluted earnings per share for the six months ended June 30, 2021, and 2020 were as follows:

 

   2021   2020 
   Six months ended June 30, 
   2021   2020 
Numerator:          
Net income (loss) attributable to common shareholders  $(3,997,550)  $2,703,767 
           
Effect of dilutive securities          
Convertible notes   -    (4,921,950)
Net loss for diluted earnings per share  $(3,997,550)  $(2,218,183)
Denominator:          
Weighted-average number of common shares outstanding during the period   50,084,150    6,368,543 
Dilutive effect of convertible notes payable   -    8,696,619 
Common stock and common stock equivalents used for diluted earnings per share   50,084,150    15,065,162 

 

 

Accounts Receivable

 

The Company uses the specific identification method for recording the provision for doubtful accounts, which was $0 at June 30, 2021, and December 31, 2020. Account receivables are written off when all collection attempts have failed.

 

Research and Development

 

Costs relating to the development of new products are expensed as research and development as incurred in accordance with FASB Accounting Standards Codification (“ASC”) 730-10, Research and Development. Research and development costs amounted to $0 and $3,283 for the six months ended June 30, 2021, and 2020, respectively, and are included in operating expenses in the condensed consolidated statements of operations.

 

9
 

 

Endonovo Therapeutics, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (continued)

 

Recently Issued Accounting Pronouncements

 

In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40), which addresses issuer’s accounting for certain modifications or exchanges of freestanding equity-classified written call options. This amendment is effective for all entities, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted. The Company is evaluating the effects, if any, of the adoption of ASU 2021-04 guidance on the Company’s financial position, results of operations and cash flows.

 

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework- Changes to the Disclosure Requirements for Fair Value Measurement. The amendments in this Update modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, based on the concepts in the Concepts Statement, including the consideration of costs and benefits. Effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted upon issuance of this Update. Any entity is permitted to early adopt any removed or modified disclosures upon issuance of this Update and delay adoption of the additional disclosures until their effective date. The Company adopted ASU 2018-13 as of January 1, 2020, and ASU 2018-13 has not had a material impact on the condensed consolidated financial position or results of operations and liquidity.

 

In August 2020, the FASB issued ASU No. 2020-06 (“ASU 2020-06”) “Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.” ASU 2020-06 simplifies the accounting for convertible instruments by reducing the number of accounting models for convertible debt instruments and convertible preferred stock. Limiting the accounting models results in fewer embedded conversion features being separately recognized from the host contract as compared with current GAAP. Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital. In addition, ASU 2020-06 amends the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions. The Amendments also affects the diluted EPS calculation for instruments that may be settled in cash or shares and for convertible instruments. The amendments are effective for public entities excluding smaller reporting companies for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods. The Company adopted the new standard update on January 1, 2021, which did not result in a material impact on the Company’s condensed consolidated results of operations, financial position, and cash flows.

 

The Company has evaluated all the recent accounting pronouncements and determined that there are no other accounting pronouncements that will have a material effect on the Company’s financial statements.

 

10
 

 

Endonovo Therapeutics, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (continued)

 

Note 3 - Revenue Recognition

 

Contracts with Customers

 

The Company adopted ASC 606, Revenue from Contracts with Customers effective January 1, 2019, using the modified retrospective method applied to those contracts which were not substantially completed as of January 1, 2019. These standards provide guidance on recognizing revenue, including a five-step model to determine when revenue recognition is appropriate. The standard requires that an entity recognize revenue to depict the transfer of control of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

 

The Company routinely plan on entering into contracts with customers that include general commercial terms and conditions, notification requirements for price increases, shipping terms and in most cases prices for the products and services that we offer. The Company’s performance obligations are established when a customer submits a purchase order notification (in writing, electronically or verbally) for goods and services, and we accept the order. The Company identified performance obligations as the delivery of the requested product or service in appropriate quantities and to the location specified in the customer’s contract and/or purchase order. The Company generally recognize revenue upon the satisfaction of these criteria when control of the product or service has been transferred to the customer at which time, the Company has an unconditional right to receive payment. The Company’s sales and sale prices are final and our prices are not affected by contingent events that could impact the transaction price.

 

Revenues for our SofPulse® product is typically recognized at the time the product is shipped, at which time the title passes to the customer, and there are no further performance obligations.

 

In connection with offering products and services provided to the end user by third-party vendors, the Company reviews the relationship between us, the vendor, and the end user to assess whether revenue should be reported on a gross or net basis. In asserting whether revenue should be reported on a gross or net basis, the Company considers whether the Company acts as a principal in the transaction and control the goods and services used to fulfill the performance obligation(s) associated with the transaction.

 

Sources of Revenue

 

The Company has identified the following revenues by revenue source:

 

  1. Medical care providers

 

As of June 30, 2021, and 2020, the sources of revenue were as follows:

 

   2021   2020   2021   2020 
   Three Months Ended   Six Months Ended 
   June 30,   June 30, 
   2021   2020   2021   2020 
                 
Direct sales- medical care providers, gross  $30,284   $44,631   $64,999   $114,316 
Total sources of revenue  $30,284   $44,631   $64,999   $114,316 

 

11
 

 

Endonovo Therapeutics, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (continued)

 

Warranty

 

Our general product warranties do not extend beyond an assurance that the product delivered will be consistent with stated specifications and do not include separate performance obligations.

 

Significant Judgments in the Application of the Guidance in ASC 606

 

There are no significant judgments associated with the satisfaction of our performance obligations. We generally satisfy performance obligations upon shipment of the product to the customer. This is consistent with the time in which the customer obtains control of the products. Performance obligations are also generally settled quickly after the purchase order acceptance, therefore the value of unsatisfied performance obligations at the end of any reporting period is generally immaterial.

 

We consider variable consideration in establishing the transaction price. Forms of variable consideration applicable to our arrangements include sales returns, rebates, volume-based bonuses, and prompt pay discounts. We use historical information along with an analysis of the expected value to properly calculate and to consider the need to constrain estimates of variable consideration. Such amounts are included as a reduction to revenue from the sale of products in the periods in which the related revenue is recognized and adjusted in future periods as necessary.

 

Practical Expedients

 

Our payment terms for sales direct to distributors are substantially less than the one-year collection period that falls within the practical expedient in determination of whether a significant financing component exists.

 

Note 4 – Property, Plant and Equipment

 

The following is a summary of equipment, at cost, less accumulated depreciation at June 30, 2021, and December 31, 2020:

 

  

June 30,

2021

  

December 31,

2020

 
         
Autos  $64,458   $64,458 
Medical equipment   13,969    13,969 
Other equipment   11,367    11,367 
Property, Plant and Equipment, gross   89,794    89,794 
Less accumulated depreciation   89,794    88,214 
Property, Plant and Equipment, net  $-   $1,580 

 

Depreciation expense for the six months ended June 30, 2021, and 2020 was $1,580 and $2,529, respectively.

 

12
 

 

Endonovo Therapeutics, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (continued)

 

Note 5 – Patents.

 

In December 2017, we acquired from Rio Grande Neurosciences, Inc. (RGN) a patent portfolio for $4,500,000. The earliest patents expire in 2024. The following is a summary of patents less accumulated amortization at June 30, 2021, and December 31, 2020:

 

  

June 30,

2021

  

December 31,

2020

 
         
Patents  $4,500,000   $4,500,000 
           
Less accumulated amortization   2,264,188    1,940,732 
           
Patents, net  $2,235,812   $2,559,268 

 

Amortization expense associated with patents was $323,456 for the six months ended June 30, 2021, and 2020. The estimated future amortization expense related to patents as of June 30, 2021, is as follows:

 

     
Twelve Months Ending June 30,  Amount 
     
2021  $646,910 
2022   646,910 
2023   646,910 
2024   295,082 
      
Total  $2,235,812 

 

Note 6- Notes Payable

 

Notes Payable

 

During the six months ended June 30, 2021, the Company issued four (4) fixed rate promissory notes totaling $325,000 for funding of $325,000 with original terms of twelve months and interest rates of 15%. The holders of the promissory notes can convert the outstanding unpaid principal and accrued interest at a fixed conversion rate, subject to standard anti-dilution features.

 

During the six months ended June 30, 2021, the Company amended the terms of two of its promissory notes to accelerate the conversion feature and amend the conversion price of the instruments. The Company recorded the modification in accordance with ASC 470-50 Debt-Modifications and Extinguishments and recorded $58,407 as loss from debt extinguishment in the condensed consolidated statements of operations.

 

During the six months ended June 30, 2021, the Company settled one of its promissory note by issuing 1,515,152 restricted shares of the Company’s common stock with a fifteen percent (15%) make-whole provision. The Company recorded a gain on debt extinguishment of approximately $128,000.

 

13
 

 

Endonovo Therapeutics, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (continued)

 

During the six months ended June 30, 2021, the Company paid $8,000 in cash for one of its fixed rate promissory notes.

 

During the six months ended June 30, 2021, the Company converted $282,850 in principal and $91,485 in accrued but unpaid interest into 21,490,651 shares of common stock.

 

The gross amount of all convertible notes with variable conversion rates outstanding at June 30, 2021 is $4,770,926, of which $2,660,476 are past maturity.

 

Notes payable to a former related party in the aggregate amount of $121,000 were outstanding at June 30, 2021, which are past maturity date. The notes bear interest between 10% and 12% per annum. During the six months ended June 30, 2021, the Company paid $22,000 principal to this former related party.

 

As of June 30, 2021, fixed rate notes payable outstanding totaled $1,212,747, of which $160,747 is past maturity.

 

   June 30,
2021
   December 31,
2020
 
         
Notes payable at beginning of period  $6,835,196   $6,874,795 
Notes payable issued   325,000    1,364,611 
Liquidated damages   -    452,095 
Note modification   -    25,190 
Loan fees added to note payable   -    120,389 
Repayments of notes payable in cash   (30,000)   (22,000)
Settlements on note payable   (117,770)   (697,253)
Less amounts converted to stock   (282,850)   (1,282,631)
Notes payable at end of period   6,729,576    6,835,196 
Less debt discount   (70,236)   (201,157)
Note payable, net  $6,659,340   $6,634,039 
           
Notes payable issued to a former related party  $121,000   $143,000 
Notes payable issued to non-related parties  $6,538,340   $6,491,039 

 

The maturity dates on the notes-payable are as follows:

 

   Notes to     
12 months ending,  Former Related party   Non-related parties   Total 
             
Past due  $121,000   $3,446,126   $3,567,126 
June 30, 2022   -    3,162,450    3,162,450 
   $121,000   $6,608,576   $6,729,576 

 

14
 

 

Endonovo Therapeutics, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (continued)

 

Note 7 - Shareholders’ Deficit

 

Preferred Stock

 

The Company has authorized 5,000,000 shares of preferred stock which have been designated as follows:

 

   Number of Shares   Number of Shares Outstanding   Par   Liquidation 
   Authorized   at June 30, 2021   Value   Value 
Series AA   1,000,000    25,000   $0.0010   $- 
Preferred Series B   50,000    600   $0.0001   $100 
Preferred Series C   8,000    738   $0.0001   $1,000 
Preferred Series D   20,000    305   $0.0001   $1,000 
Undesignated   3,922,000    -    -    - 

 

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 $0.001 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. The Series AA Super Voting Preferred Stockholders will receive no dividends nor any value on liquidation. As of June 30, 2021, there were 25,000 shares of Series AA Preferred stock outstanding.

 

Series B Convertible Preferred Stock

 

On February 7, 2017, the Company filed a certificate of designation for 50,000 shares of Series B Convertible Preferred Stock designated as Series B (“Series B”) which are authorized and convertible, at the option of the holder, commencing six months from the date of issuance into common shares and warrants. For each share of Series B, the holder, on conversion, shall receive the stated value divided by 75% of the market price on the date of purchase of Series B and a three-year warrant exercisable into up to a like amount of common shares with an exercise price of 150% of the market price as defined in the Certificate of Designation. Dividends shall be paid only if dividends on the Company’s issued and outstanding Common Stock are paid, and the amount paid to the Series B holder will be as though the conversion shares had been issued. The Series B holders have no voting rights. Upon liquidation, the holder of Series B, shall be entitled to receive an amount equal to the stated value, $100 per share, plus any accrued and unpaid dividends thereon before any distribution is made to Series C Secured Redeemable Preferred Stock or common stockholders. As of June 30, 2021, 600 shares of Series B are outstanding.

 

Series C Convertible Redeemable Preferred Stock

 

On December 22, 2017, the Company filed a certificate of designation for 8,000 shares of Series C Secured Redeemable Preferred Stock (“Series C”). Each share of the C Preferred is entitled to receive a $20.00 quarterly dividend commencing March 31, 2018, and each quarter thereafter and is to be redeemed for the stated value, $1,000 per share, plus accrued dividends in cash (i) at the Company’s option, commencing one year from issuance and (ii) mandatorily as of December 31, 2019. Management determined that the Series C should be classified as liability per the guidance in ASC 480 Distinguishing Liabilities from Equity as of December 31, 2019. On January 29, 2020, the Company filed the amended and restated certificate of designation fort its Series C Secured Redeemable Preferred Stock. The amendment changed the rights of the Series C by (a) removing the requirement to redeem the Series C, (b) removing the obligation to pay dividends on the Series C, (c) Allowing the holders of shares of Series C to convert the stated value of their shares into common stock of the Company at 75% of the closing price of such common stock on the day prior to the conversion. The C Preferred does not have any rights to vote with the common stock.

 

15
 

 

Endonovo Therapeutics, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (continued)

 

Upon liquidation, the holder of Series C, shall be entitled to receive an amount equal to the stated value, $1,000 per share, plus any accrued and unpaid dividends thereon before any distribution is made to common stockholders but after distributions are made to holders of Series B.

 

During the six months ended June 30, 2021, and 2020, the Company converted 25 and 1,041 shares of Series C into 1,111,111 and 2,621,488 shares of common stock. As of June 30, 2021, there are 738 shares of Series C outstanding.

 

Series D Convertible Preferred Stock

 

On November 11, 2019, the Company filed a certificate of designation for 20,000 shares of Series D Convertible Preferred Stock designated as Series D (“Series D”), which are authorized and convertible, at the option of the holder, at any time from the date of issuance, into shares of common shares. On or prior to August 1, 2020, for each share of Series D, the holder, on conversion, shall receive a number of common shares equal to 0.01% of the Company’s issued and outstanding shares on conversion date and for conversion on or after August 2, 2020, the holder shall receive conversion shares as though the conversion date was August 1, 2020, with no further adjustments for issuances by the Company of common stock after August 1, 2020, except for stock split or reverse stock splits of the common stock. Management classified the Series D in permanent equity as of June 30, 2021.

 

The Series D holders have no voting rights. Upon liquidation, the holder of Series D, shall be entitled to receive an amount equal to the stated value, $1,000 per share, plus any accrued and unpaid dividends thereon before any distribution is made to common stockholders. The Company did not issue any shares of Series D in the six months ended June 30, 2021. As of June 30, 2021, there are 305 shares of Series D outstanding.

 

16
 

 

Endonovo Therapeutics, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (continued)

 

Common Stock

 

On May 18, 2020, the Company and Cavalry Fund I LP (the “investor”) entered into an Equity Line Purchase Agreement (“ELPA”) pursuant to which the investor committed to purchase, subject to certain restrictions and conditions, up to $10,000,000 (the “Commitment”) worth of the Company’s common stock, over a period of 24 months from the effectiveness of the registration statement registering the resale of shares purchased by the investor pursuant to the ELPA.

 

The Company agreed to issue shares of its common stock (the “commitment shares”) to the investor having a market value of 5% of the commitment ($500,000 and 3,859,630 shares) based on the market price of the shares at the execution of the ELPA to be delivered in three tranches of 385,963 shares on: (i) the execution of the ELPA; (ii) thirty days after the effectiveness of the registration statement to be filed under the RRA (the “registration right agreement” or the “registration statement”), and (iii) 90 trading days after the effectiveness of the registration statement with the balance of the commitment shares to be issued pro-rata over the first $3,000,000 of puts in accordance with a formula set forth in the ELPA.

 

The ELPA provides that at any time after the effective date of the registration statement and provided the closing sale price of the common shares on the OTCQB is not below $0.01, from time to time on any business day selected by the Company (the “Purchase Date”), the Company shall have the right, but not the obligation, to direct the investor to buy up to 300,000 shares of the common stock (the “regular purchase amount”) at a purchase price equal to the lower of: (i) the lowest applicable sales price on the date of the put and (ii) 85% of the arithmetic average of the 3 lowest closing prices for the common stock during the 10 consecutive trading days ending on the trading day immediately preceding such put date. The regular purchase amount may be increased as follows: to up to 400,000 shares of common stock if the closing price of the common shares is not below $0.25 per share and up to 500,000 shares if the closing price is not below $0.40 per share.

 

Under the ELPA the Company has the right to submit a regular purchase notice to the investor as often as every business day. The payment for the shares covered by each put notice will generally occur on the day following the put notice. The ELPA contains provisions which allow for the Company to make additional puts beyond the regular purchase amount at greater discounts to the market price of the common stock as forth in the ELPA.

 

The ELPA requires the Company to apply at least 50% of the proceeds of puts to the payment of certain variable rate convertible notes issued by the Company. The Company does not anticipate that it will raise any funds under the ELPA.

 

During the six months ended June 30, 2021, the Company issued 21,490,651 shares of common stock for the conversion of principal notes and accrued interest in the amount of $374,335.

 

During the six months ended June 30, 2021, the Company issued 2,500,334 shares of common stock labeled as commitment shares in connection with the issuance of promissory notes.

 

During the six months ended June 30, 2021, the Company issued 7,000,000 shares of common stock pursuant to securities purchase agreement for total consideration of $126,000.

 

During the six months ended June 30, 2021, the Company issued 1,111,111 shares of common stock with a value of $33,333, related to the conversion of Series C.

 

During the six months ended June 30, 2021, the Company issued 4,020,986 shares of common stock with a value of $142,424, related to the settlement of debts, of which 2,505,834 shares of common stock were issued with a fair value of $84,697 to a former related party.

 

During the six months ended June 30, 2020, the Company issued 7,741,335 shares of common stock for the conversion of notes and accrued interest in the amount of $1,311,240.

 

During the six months ended June 30, 2020, the Company issued 2,621,488 shares of common stock with a value of $1,387,600, related to the conversion of Series C.

 

During the six months ended June 30, 2020, the Company issued 58,428 shares of common stock to Series C with a value of $8,152 to convert into shares of common stock.

 

During the six months ended June 30, 2020, the Company issued 25,000 shares of common stock with a value of $3,500 related to services.

 

During the six months ended June 30, 2020, the Company issued 409,000 shares with a value of $58,855 to one investor to exchange one variable convertible note with remaining principal of $283,000 past maturity for a fixed rate convertible note with principal of $525,000 and maturing one year from issuance. The Company recorded a loss on debt extinguishment of $151,496 for the fair value of the shares issued in accordance with guidance in ASC 470-50 Debt-Modifications and Extinguishments.

 

17
 

 

Endonovo Therapeutics, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (continued)

 

Stock Options

 

The balance of all stock options outstanding as of June 30, 2021, is as follows:

       Weighted
Average
   Weighted
Average
Remaining
   Aggregate 
       Exercise Price   Contractual   Intrinsic 
   Options   Per Share   Term (years)   Value 
Outstanding at January 1, 2021   3,014,080   $0.37    1.67            - 
Granted   -   $-    -    - 
Cancelled   (350)  $47.00    -    - 
Exercised   -   $-    -    - 
Outstanding at June 30, 2021   3,013,730   $0.37    2.55   $- 
                     
Exercisable at June 30, 2021   1,013,730   $0.80    1.58   $- 

 

Share-based compensation expense for the six months ended June 30, 2021, totaled $40,961.