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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

(Mark One)

 

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

 

For the fiscal year ended December 31, 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

incorporation or organization

 

(I.R.S. Employer

Identification No.)

     

6320 Canoga Avenue, 15th Floor

Woodland Hills, CA

  91367
(Address of principal executive offices)   (Zip Code)

 

Registrant’s telephone number, including area code: (800) 489-4774

 

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934: None.

 

Securities registered pursuant to Section 12(g) of the Securities Exchange Act of 1934:

 

Title of each class   Trading Symbol(s)   Name of principal U.S. market on which traded
Common stock, par value $0.0001   ENDV   OTCMKTS

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes ☐ No

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes ☐ No

 

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 every Interactive Data File required to be submitted 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 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 emerging growth company. See the definitions of “large-accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large-accelerated filer   Accelerated filer
         
Non-accelerated filer   Smaller reporting company
      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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes ☐ No

 

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

 

The aggregate market value of the registrant’s voting common stock held by non-affiliates of the registrant was $2,304,075 as of the last business day of the fiscal quarter ended June 30, 2021, based on the closing price $0.038 per share for the common stock on such date as traded on the OTCQB.

 

As of April 13, 2022, the registrant had 149,527,538 shares of its common stock, par value $0.0001 per share, outstanding.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

None

 

 

 

 

 

 

TABLE OF CONTENTS

 

    Page
  PART I  
Item 1. Business. 4
Item 1A. Risk Factors. 9
Item 1B. Unresolved Staff Comments. 9
Item 2. Properties. 9
Item 3. Legal Proceedings. 9
Item 4. Mine Safety Disclosures. 9
     
  PART II  
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. 9
Item 6. Selected Financial Data. 10
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 10
Item 7A. Quantitative and Qualitative Disclosures About Market Risk. 14
Item 8. Financial Statements and Supplementary Data. 15
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. 39
Item 9A. Controls and Procedures. 39
Item 9B. Other Information. 42
     
  PART III  
Item 10. Directors, Executive Officers and Corporate Governance. 42
Item 11. Executive Compensation. 43
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. 44
Item 13. Certain Relationships and Related Transactions, and Director Independence. 45
Item 14. Principal Accounting Fees and Services. 46
     
  PART IV  
Item 15. Exhibits, Financial Statement Schedules. 46
   
SIGNATURES 48

 

2

 

 

FORWARD-LOOKING STATEMENTS

 

When used in this Report, the words “may,” “will,” “expect,” “anticipate,” “continue,” “estimate,” “intend,” and similar expressions are intended to identify forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) regarding events, conditions and financial trends which may affect the Company’s future plans of operations, business strategy, operating results, and financial position. Such statements are not guarantees of future performance and are subject to risks and uncertainties and actual results may differ materially from those included within the forward-looking statements for various reasons.” Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date made. Except as required under federal securities laws and the rules and regulations of the United States Securities and Exchange Commission, the Company does not undertake, and specifically declines, any obligation to update any of these statements or to publicly announce the results of any revisions to any forward-looking statements after the distribution of this report, whether as a result of new information, future events, changes in assumptions, or otherwise.

 

This Report contains certain estimates and plans related to us and the industry in which we operate, which assume certain events, trends, and activities will occur and the projected information based on those assumptions. We do not know all of our assumptions are accurate. In particular, we do not know what level of acceptance our strategy will achieve, how many acquisitions we will be able to consummate or finance, or the size thereof. If our assumptions are wrong about any events, trends, or activities, then our estimates for future growth for our business also may be wrong. There can be no assurances any of our estimates as to our business growth will be achieved.

 

3

 

 

PART I

 

Item 1. Business.

 

Overview

 

Endonovo Therapeutics, Inc. (Endonovo or the “Company”) is an innovative biotechnology company that has developed a bio-electronic approach to regenerative medicine.

 

The Company develops, manufactures and distributes evolutionary medical devices focused on the rapid healing of wounds and reduction of pain, edema and inflammation on and 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).

 

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.

 

Corporate History

 

Our predecessor company, Hanover Asset Management, Inc. was incorporated in November 2008 in California. For the purpose of reincorporating in Delaware, we merged with a newly incorporated successor company, Hanover Portfolio Acquisitions, Inc., in July 2011 under which we continue to operate.

 

IP Resources International, Inc. began operations on September 1, 2011, and was formally incorporated on October 17, 2011.

 

Reverse Acquisition

 

On March 14, 2012, we entered into a Share Exchange Agreement (“Agreement”) with IPR and certain of its shareholders. Under the Agreement, each participating IPR shareholder exchanged all of their issued and outstanding IPR common shares totaling 33,234,294, free and clear of all liens, and $155,000 for Company common shares equal to 1.2342 times the number of IPR shares being transferred to the Company for a total of 410 of our shares. The $155,000 was not paid at closing. The Company recorded the $155,000 as acquisition payable. IPR agreed to make payments of up to 25% of the proceeds from any private placement or gross profits earned by IPR until the obligation is satisfied. The percentage of the proceeds to be paid is at the sole discretion of IPR’s Chief Executive Officer and the ex-Chief Executive Officer of the Company based on the liquidity of the Company.

 

As a result of the Agreement, the former shareholders of IPR, immediately post acquisition owned approximately 89% of the Company and its officers and directors constituted the majority of the officers and directors of the Company. Since the shareholders, officers and directors of IPR have control of the Company, the acquisition constitutes a reverse acquisition, so IPR was the accounting acquirer and we were the accounting acquiree. For legal purposes, we are the legal parent and IPR is the legal subsidiary.

 

Acquisition of Aviva Companies Corporation

 

On April 2, 2013, the Company entered into an Acquisition Agreement (the “Acquisition Agreement”) with (i) The Aviva Companies Corporation (“Aviva”) and (ii) all of the shareholders of Aviva (the “Shareholders”) pursuant to which the Company acquired all of the outstanding shares of Aviva in exchange for the issuance of 60 shares of our common stock (60,000 pre-reverse split), par value $0.0001 per share to the Shareholders (the “Share Exchange”). As a result of the Share Exchange, Aviva became a wholly owned subsidiary of the Company.

 

Other than in respect to the transaction, there is no material relationship among Aviva’s stockholders and any of the Company’s affiliates, directors, or officers. We are not currently actively pursuing the development of the Aviva Companies Corporation.

 

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Acquisition of WeHealAnimals, Inc.

 

On November 16, 2013, the Company entered into an Acquisition Agreement (the “Acquisition Agreement”) with (i) WeHealAnimals, Inc. (“WHA”) and (ii) the sole shareholder of WHA (the “Shareholder”) pursuant to which the Company acquired all of the outstanding shares of WHA in exchange for the issuance of 3 shares of our common stock (3,000 shares pre- reverse split), par value $0.0001 per share and $96,000 to the Shareholder (the “Share Exchange”). As a result of the Share Exchange, WHA became a wholly owned subsidiary of the Company and all of the equity of WHA including its and its sole shareholder’s intellectual property became the property of the Company. This obligation was fully paid on December 15, 2015 through the issuance of 350 shares of stock (350,000 pre-reverse split) to Shareholder. WHA is a Nevada corporation with intellectual property in the fields of bio-technology, including its biologics and time-varying electromagnetic frequencies with potential applications on people and animals that management believes can be developed to the benefit of the Company and its shareholders. WHA’s sole shareholder was formerly Chairman and Chief Scientist of Regenetech, Inc. Regenetech was acquired by a company that wanted its technology, biomolecules grown in microgravity, for use in cosmetics. WHA’s sole shareholder left Regenetech with exclusive rights to this proprietary square wave form technology and stem cell technologies, including the patents and patent applications relating thereto.

 

Other than in respect to the transaction, there is no material relationship between WHA’s sole stockholder and any of the Company’s affiliates, directors, or officers.

 

Acquisition of Rio Grande Assets

 

On December 22, 2017, we acquired intellectual property and other assets (the “RGN Assets”) from Rio Grande Neurosciences, Inc. (RGN). The price was $4,500,000 of which we paid $3,000,000 in cash and delivered a $1,500,000 secured promissory note due November 30, 2018, and security agreement. Before such note was due, the note was assigned to Eagle Equities, LLC (“Eagle”) its due date was extended to November 30, 2019, and it was made convertible into our common stock at a price related to our common stock’s market price at the time of conversion. The maturity date was then extended to December 31, 2021. The RGN Assets relate to RGN’s PEMF portfolio of intellectual property, including 27 issued patents with foreign patent protection covering the therapeutic use of PEMF as well as the treatment of various central nervous system disorders. We intend to initiate and fund future clinical trials to evaluate the further use of PEMF in the treatment of central nervous system disorders, including traumatic brain injury, post-concussion syndrome, stroke, and multiple sclerosis. However, no assurance can be given that we will be successful in these endeavors or that the results of any tests will indicate further development of the RGN Assets.

 

The PEMF assets acquired include SofPulse®, a portable, disposable PEMF device with a CE Mark and an FDA 510(k) clearance for the treatment of post-surgical pain and edema in addition to medical reimbursement for the treatment of chronic wounds. Endonovo Therapeutics has begun the commercialization of the PEMF assets through marketing and the creation of various sales channels and distribution agreements.

 

Present Development Plans

 

We now are a biotechnology company developing bioelectronic devices and cell therapies for regenerative medicine and a commercial-stage developer of non-invasive wearable Electroceuticals™ therapeutic devices.

 

The Company’s current portfolio of commercial and clinical-stage wearable Electroceuticals™ therapeutic devices addresses wound healing, pain, post-surgical pain and edema, cardiovascular disease, chronic kidney disease, and Central Nervous System (CNS) Disorders, including traumatic brain injury (TBI), acute concussions, post- concussion syndrome and multiple sclerosis. The Company’s non-invasive Electroceutical™ therapeutic 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 pain and edema, and has CMS National Coverage for the treatment of chronic wounds. The Company’s current portfolio of pre-clinical stage Electroceuticals™ therapeutic devices address chronic kidney disease, liver disease non-alcoholic steatohepatitis (NASH), cardiovascular and peripheral artery disease (PAD), and ischemic stroke. The Company’s non-invasive, wearable Electroceuticals™ therapeutic devices work by restoring key electrochemical processes that initiate anti-inflammatory and growth factor cascades necessary for healing to occur.

 

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These bioelectronics devices are also commonly referred to as “electroceuticals.” These products are part of an emerging field termed “Bioelectronic Medicine,” that seeks to harness electrical signals in nerves and cells to alter the course of diseases and conditions. Whereas our competitors are primarily using implantable electrical nerve stimulators, we are developing devices that are not implantable and use electromagnetic pulses to deliver electrical stimulation to cells and tissues. We are developing these bioelectronic devices for the treatment of inflammatory conditions in tissues and vital organs with a concentration on vascular diseases and ischemia/reperfusion injuries.

  

Possible Additional Line of Business

 

Recently management has entered into a program to expand its operations through a program of acquisition of specialty construction and facilities maintenance companies. The Company has had contact with several potential acquisition targets and entered into a letter of intent with one such company. However, no definitive agreements have been signed and no assurance can be given that the Company will be able to make any such acquisition or that it will prove profitable.

 

Intellectual Property:

 

SofPulse: We have 29 issued patents with foreign patent protection covering the therapeutic use of tPEMF as well as the treatment of various central nervous system disorders. Additionally to date, we have filed seven patent applications in the U.S. through the U.S. Patent and Trademark Office (USPTO) and four international patent applications in the E.U., China, South Korea and Japan covering our Time-Varying Electromagnetic Field (TVEMF) technology, the production of biomolecules, the creation of an allogeneic mesenchymal stem cell product a treatment for chemical and radiation injuries, production of stem cell secretome and a method of treating tissues and organs using our TVEMF technology. To date, we have been granted one U.S. Patent (U.S. Patent No. 9,410,143) issued on August 9, 2017, covering the production of human biomolecules using our TVEMF technology. We will continue to seek to strengthen our portfolio of intellectual property by filing additional patents around uses of our core technologies.

 

Our business strategy is aimed at building value by positioning each of our technologies and therapies to treat specific diseases that lack effective treatment, post-operative pain and edema, or whose current standard of treatment involves invasive procedures and/or potentially harmful side effects. We anticipate updating and refining the business strategy as new medical and/or clinical advancements are made as a result of extensive research and development. In general, the component functions of the business model are to:

 

  Commercialize our FDA cleared technology through direct sales, distributors and licensees;
     
  License our technologies;
     
  Develop additional medical indications for our medical devices;
     
  Develop additional non-invasive, medical technologies;
     
  Conduct pre-clinical and clinical human studies for FDA Approval of our medical devices and cell therapies;
     
  Acquire subsidiaries under the parent company, Endonovo Therapeutics, to assist in the development and distribution of medical technologies;
     
  Incrementally invest, market, and refine acquired and developed medical technologies and therapies.

 

Industry Overview

 

Bioelectrical Medicine within the Healthcare Industry

 

The healthcare industry is one of the world’s largest and fastest-growing industries. Consuming over 10 percent of Gross Domestic Product (GDP) of most developed nations, health care can form an enormous part of a country’s economy.

 

As of 2016, 91.1% of residents had health protection in the United States, either through their employer or bought individually. During 2016, healthcare costs reached $3.3 trillion, or $10,348 per person. The share of U.S. GDP devoted to healthcare was 17.9% of U.S. Gross Domestic Product (GDP), the largest of any country in the world. Specifically, the cost of pharmaceuticals in the United States is the highest on the planet. It is expected that Healthcare’s share of U.S. GDP will continue its upward trend, reaching 20 percent of U.S. GDP by 2025. Globally, by 2040, Healthcare spending is expected to exceed $18 Trillion annually.

 

Bio-Electrical Medicine is a $17.2 Billion sector of the Healthcare Industry growing at more than a 11% CAGR estimated to exceed $35.5 Billion by 2025, according to Grand View Research. Get me a copy of this Bioelectric medicine is at the forefront of technological revolution in medical sciences. As opposed to the pharmaceutical industry, bioelectric medicine has a different treatment therapy that is based on electrical pulses instead of drugs to trigger the body’s recovery capabilities. Bioelectric medicine develops nerve stimulating and sensors activation technologies to regulate biological functions and treat diseases by combining bioengineering, neuroscience, molecular medicines and electronics. These technologies may change the future of therapies for wide range of diseases.

 

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On the basis of type of device, the global Electroceuticals®/Bioelectrical Medicine Market is classified into two major classes:

 

ØImplantable Electroceuticals® Devices, and
   
ØNon-invasive Electroceuticals® Devices.

 

BioElectric Medicine vs. Drug Therapies

 

Over the past 15 years, long-acting and extended-release opioids have been used to treat open wounds, post-operative wounds and chronic pain. These opioids are normally administered at high doses and over long treatment durations particularly in the United States, resulting in a drastic increase in the number opioid-tolerant individuals and a prescription opioid abuse epidemic. Endonovo offers an alternative, non-opioid treatment through its Electroceuticals® systems: The Company’s SofPulse® system is a medical device/designed to rapidly reduce post-operative swelling/edema, pain and to treat and accelerate the recovery of chronic wounds through the use of tPEMF. Chronic pain therapy via tPEMF works by relieving the underlying cause of pain – inflammation.

 

Drug therapies remain the standard of care for a broad range of medical conditions, including high blood pressure, chronic pain, autoimmune diseases, and psychiatric disorders. Management believes that bioelectronic medicine has developed as a viable alternative for the treatment of many disorders.

 

Normally, our nervous systems send signals to our tissues and organs to suppress inflammation, a phenomenon known as the inflammatory reflex. But sometimes, this system does not work properly, with malfunctions resulting in diseases like rheumatoid arthritis and inflammatory bowel disease. Traditionally, doctors have treated these diseases using drugs designed to suppress inflammation, such as infliximab (trade name Remicade) or adalimumab (Humira). But these drugs are expensive. Plus, they don’t work for everyone, often come with nasty side effects, and in some rare cases, they can even kill.

 

Current Product Being Sold – SofPulse®

 

 

In clinical trials, the SofPulse® device has proven to reduce mean pain scores by nearly 300% and inflammation by 275% thereby improving and reducing recovery time. Additionally, active patients have experienced a 2.2-fold reduction in narcotic use. The SofPulse® delivers tPEMF to enhance post-surgical recovery, naturally. Since the SofPulse® is non-invasive and non-pharmacologic, there are no known side effects and no potential for overdose or dependency AND no effects on healthy tissue.

 

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How the SofPulse® Works

 

SofPulse® delivers low intensity microcurrents of energy directly to the procedure site, to enhance recovery, by increasing the amount of naturally occurring Vascular Endothelial Growth Factor (VEGF), thereby increasing the physiological process through which new blood vessels form from pre-existing vessels (Angiogenesis). Within hours/days, the Fibroblast Growth Factor (FGF) enhances, thereby increasing the production of Collagen/Granulation (within days) and Transforming Growth Factor (TGF-β) accelerating Remodeling in the body within days/weeks. This device reduces inflammation and speeds/improves the healing process. The natural healing process allows patients to get back to life faster with lowered use of narcotics. A surgeon places and activates SofPulse® immediately after a procedure. The SofPulse® can be placed over a surgical dressing or clothing and can easily be applied and/or removed in many cases by the patient themselves. The length of time the device is used will vary depending on the type of procedure.

 


 

The SofPulse® allows patients to get back to an active life faster with less use of narcotics.

 

ØImmediately Usable and Effective - Single use patient device applied immediately after surgery.
ØEasy to Use - SofPulse® can easily be applied and or removed, including in many cases by the patient themselves
ØAutomated Dosing - Device is activated automatically or can be used as needed
ØVersatile - The product comes as a single device or dual device to accommodate different surgical procedures

 

Manufacturing

 

Our SofPulse® device is manufactured for us by ADM Tronics, Inc. in an FDA approved facility in Northvale, New Jersey.

 

Sales & Marketing

 

Endonovo’s strategy is to establish relationships with third parties, such as sales organizations, distributors and marketing coordinators, that assist us in developing, marketing, selling and implementing our products.

 

We believe that strategic and technology-based relationships with medical facilities are fundamental to our success. We have forged numerous relationships with medical device distributors to enhance our combined capabilities. This approach enhances our ability to accelerate market penetration, accelerate the pace of our sales growth and solidify relationships.

 

We have a variety of marketing programs designed to create brand awareness and market recognition for our product offerings and for sales lead generation. Our marketing efforts include attending and presenting at healthcare related conferences, advertising, content development and distribution, public relations, social media publication of technical and informative articles in industry journals and sales training.

 

In addition, our strategic partners augment our marketing and sales campaigns through seminars, trade shows and joint public relations and advertising campaigns. Our customers and strategic partners provide references and recommendations that we often feature in external marketing activities.

 

Endonovo also is utilizing Key Opinion Leaders (KOLs) and Scientific Advisory Board Members (SABs) within the medical community to develop a sales-channel recommendation to other physicians/surgeons.

 

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Competition

 

The pain management market is intensely competitive, highly fragmented and characterized by rapidly changing technology and drugs. We currently compete with other medical device manufacturers as well as pharmaceutical companies that have developed drugs many which are considered addictive.

 

Employees

 

The Company does not have any employees. However, we have retained approximately 7 individuals as independent contractors that are involved in business development and sales, research & development and administrative functions.

 

Item 1A. Risk Factors.

 

Not applicable because we are a smaller reporting company.

 

Item 1B. Unresolved Staff Comments.

 

Not applicable because we are a smaller reporting company.

 

Item 2. Properties.

 

We have one office located in Southern California. We believe such office is adequate for our present needs.

 

Item 3. Legal Proceedings.

 

We were defendants in a case entitled Auctus Fund, LLC v. Endonovo Therapeutics, Inc. et.al 20-cv-11286-PBS filed in the Federal District Court in Massachusetts in July 2020. The complaint sought damages related to a variable rate convertible note dated in August 2019 in the original amount of $275,250 and alleged various counts of State and Federal securities laws violations, breach of contract, fraud, consumer fraud and other claimed theories of damages while claiming damages in excess of $500,000, other unspecified damages and attorney fees. Auctus filed an amended complaint that was responded to by way of a motion to dismiss. On February 28, 2022, the Court granted our motion to dismiss, refused to extend supplemental jurisdiction over the State law claims and held that as a result of the dismissal, the Company’s counterclaims were moot.  To date neither party has appealed the ruling.   Due to the nature of our business, we may become active in litigation relating to the defense, or assertion of our patent rights or other corporate matters. Refer to Note 9 Commitments and Contingencies for further discussion

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

 

PART II

 

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

 

Market Information

 

Our common stock trades on the OTCQB under the symbol “ENDV”. The OTCQB is a quotation service that displays real-time quotes, last-sale prices, and volume information in over-the-counter (“OTC”) equity securities. An OTCQB equity security generally is any equity that is not listed or traded on a national securities exchange. Our stock is thinly traded, and a robust, active trading market may never develop. The market for the Company’s common stock has been limited, volatile, and sporadic.

 

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Price Range of Common Stock

 

The following table shows, for the periods indicated, the high and low closing prices per share of our common stock as reported by the OTCQB quotation service.

 

   Closing Price 
   High   Low 
         
Year Ended December 31, 2020          
First Quarter  $0.11   $3.90 
Second Quarter  $0.01   $0.38 
Third Quarter  $0.08   $0.15 
Fourth Quarter  $0.02   $0.10 
           
Year Ended December 31, 2021          
First Quarter  $0.10   $0.02 
Second Quarter  $0.04   $0.02 
Third Quarter  $0.06   $0.01 
Fourth Quarter  $0.04   $0.02 

 

Approximate Number of Equity Security Holders

 

As of April 11, 2022, there were approximately 407 stockholders of record. Because shares of our common stock are held by depositaries, brokers and other nominees, the number of beneficial holders of our shares is substantially larger than the number of stockholders of record.

 

Dividends

 

Holders of our common stock are entitled to receive dividends if, as and when declared by the Board of Directors out of funds legally available therefore. We have never declared or paid any dividends on our common stock. We intend to retain any future earnings for use in the operation and expansion of our business. Consequently, we do not anticipate paying any cash dividends on our common stock to our stockholders for the foreseeable future.

 

Item 6. Selected Financial Data.

 

Not applicable because we are a smaller reporting company.

 

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

The following discussion and analysis of financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this report. The information and financial data discussed below is only a summary and should be read in conjunction with the historical financial statements and related notes contained elsewhere in this 10-K. The financial statements contained elsewhere in this 10-K fully represent the Company’s financial condition and operations; however, they are not indicative of the Company’s future performance. 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 10-K.

 

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.

 

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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,” 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. Factors which could cause or contribute to such differences include, but are not limited to, the risks discussed in prior filings, in press releases and in other communications to shareholders issued by us from time to time which attempt to advise interested parties of the risks and factors which may affect our business. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

 

Critical Accounting Policies and Estimates

 

We prepare our 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 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.

 

Impairment of Other Intangible and Long-Lived Assets

 

The Company accounts for its intangible assets under the provisions of ASC 350, “Intangibles - Goodwill and Other”. In accordance with ASC 350, intangible assets with a definite life are analyzed for impairment under ASC 360-10-05 “Property, Plant and Equipment” and intangible assets with an indefinite life are analyzed for impairment under ASC 360 annually, or more often if circumstances dictate. The Company performs its annual simplified impairment test in the fourth quarter of each year. The Company reviews its long-lived assets for impairment whenever events or changes in business circumstances indicate that the carrying amount of assets may not be fully recoverable or that the useful lives of these assets are no longer appropriate. If impairment is indicated, the asset is written down to its estimated fair value.

 

Use of estimates

 

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 debt, 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.

 

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Recently Issued Accounting Pronouncements

 

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 consolidated results of operations, financial position, and cash flows.

 

Results of Operations

 

Results of Operations Year Ended December 31, 2021, vs. Year Ended December 31, 2020

 

   Year Ended December 31,   Favorable     
   2021   2020   (Unfavorable)   % 
                 
Revenue  $73,105   $165,796    (92,691)   (55.9)
Cost of revenue   14,985    65,369    50,384    77.1 
Gross profit   58,120    100,427    (42,307)   (42.1)
                     
Operating expenses   2,284,667    3,012,625    727,958    24.2 
                     
Loss from operations   (2,226,547)   (2,912,198)   685,651    23.5 
                     
Other income (expense)   (878,347)   2,516,614    (3,394,961)   (134.9)
                     
Net loss  $(3,104,894)  $(395,584)  $(2,709,310)   684.9 

 

Revenue

 

Revenue of the Company’s SofPulse® product during the current year decreased by $92,691 or 55.9% compared to the previous year.

 

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. Revenue has been negatively impacted by the COVID-19 contagious disease outbreak in March 2020. We anticipate that revenue will increase in future periods as the roll out of the SofPulse® product continues.

 

In connection with offering products and services provided to the end user by third-party vendors, we review 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, we consider whether we act as a principal in the transaction and control the goods and services used to fulfill the performance obligation(s) associated with the transaction.

 

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Cost of Revenue

 

Cost of revenue decreased by $50,384 or 77.1% from the previous year to $14,985 during the current year compared to $65,369 during the previous year. Cost of revenue is recognized on those sales recorded as gross for which we are the principal in the transaction as opposed to net sales which reflect no cost of revenue.

 

It is anticipated that cost of revenue will increase in future periods as the roll out of the SofPulse® product continues.

 

Operating Expenses

 

Our operating expenses decreased by $727,958 or 24.2% to $2,284,667 in 2021 compared to $3,012,625 for 2020. The operating expenses were comprised primarily of consulting, professional fees, amortization expenses, and stock-based compensation. This change was due primarily to a decrease in consulting fees of approximately $0.3 million, and a decrease in stock-based compensation of approximately $0.4 million.

 

Depreciation and Amortization

 

We incur depreciation and amortization expense for costs related to our assets, including our patents, information technology and software. Our depreciation and amortization expense was $648,492 in 2021 compared to $651,247 in 2020. No equipment was purchased or sold during the fiscal year ended December 31, 2021.

 

Other Income / Expense

 

Other expense was $878,347 in 2021 compared to an income of $2,516,614 in 2020. Other Income/Expense includes interest expense, change in fair value of derivative liability, amortization of debt issuance cost, gain on extinguishment of debt and default penalty.

 

The increase in other expense during our fiscal year 2021 was primarily the result of re-valuations to reflect liability accounting for convertible notes issued with variable conversion rates. Change in fair value of the Company’s derivative liability decreased by $5.5 million from an income of $5.6 million in 2020 to an income of $0.1 million in 2021, resulting from changes to the inputs to the fair value model. The above was offset by a decrease in interest expense of approximately $1.2 million, the incurrence of $22,162 loss on extinguishment of debt in 2021 as opposed to a $555,430 gain on debt extinguishment in 2020.

 

Liquidity and Capital Resources

 

   As of December 31,   Increase 
   2021   2020   (Decrease) 
Working Capital               
                
Current assets  $94,855   $46,187   $48,668 
Current liabilities   17,701,710    16,825,821    (875,889)
Working capital deficit  $(17,606,855)  $(16,779,634)  $(827,221)
                
Long-term debt  $79,825   $155,000   $75,175 
                
Stockholders’ deficit  $(15,774,324)  $(14,373,786)  $(1,400,538)

 

   For Year Ended December 31,   Increase 
   2021   2020   (Decrease) 
Statements of Cash Flows Select Information            
             
Net cash provided (used) by:               
Operating activities  $(986,584)  $(741.590)  $(244,994)
Investing activities  $-   $-   $- 
Financing activities  $1,059,100   $736,117   $322,983 

 

   As of December 31,   Increase 
   2021   2020   (Decrease) 
Balance Sheet Select Information               
                
Cash  $85,936   $13,420   $72,516 
                
Accounts payable and accrued expenses  $7,078,283   $5,989,185   $(1,089,098)

 

13

 

 

Since inception and through December 31, 2021, the Company has raised approximately $18 million in equity and debt transactions. These funds have been used to advance the operations of the Company, build its bio-medical platform, patent work and general corporate development. Our 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 the twelve-month period following the date of these consolidated financial statements. However, the Company has incurred substantial losses. Our current liabilities exceed our current assets and available cash is not sufficient to fund the 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 has implemented its business plan to materialize revenues from sales and future license agreements and has also initiated an equity line of credit offering to raise capital through the sale of its common stock and has engaged an Investment Banker to raise additional capital. 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 December 31, 2021 was $85,936. This will not be sufficient to fund operations if additional capital is not raised. The Company raised an aggregate of $0.1 million through the sale of equity and debt securities since January 1, 2022, through the date of this report.

d

Off-Balance Sheet Arrangements

 

We have no off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K, obligations under any guaranteed contracts or contingent obligations. We also have no other commitments, other than the costs of being a public company that will increase our operating costs or cash requirements in the future.

 

Seasonality

 

Management does not believe that our current business segment is seasonal to any material extent.

 

Securities Authorized for Issuance under Equity Compensation Plans

 

We do not have in effect any compensation plans under which our equity securities are authorized for issuance.

 

Unregistered Sales of Equity Securities

 

During the year ended December 31, 2021, we issued the following unregistered equity securities:

 

Number of        
Common Shares   Source of    
Issued   Payment  Amount 
 1,111,111   Conversion of Preferred Series C  $33,333 
 27,461,307   Conversion of notes and accrued interest  $1,117,990 
 4,020,986   Settlement of debt  $142,424 
 2,500,000   Services  $95,250 
 7,868,668   Commitment shares  $222,692 
 7,000,000   Issuance for cash  $126,000 

 

The above issuances of 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 7A. Quantitative and Qualitative Disclosures About Market Risk.

 

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

 

14

 

 

Item 8. Financial Statements and Supplementary Data.

 

ENDONOVO THERAPEUTICS, INC.

AND SUBSIDIARIES

INDEX TO FINANCIAL STATEMENTS

 

Report of Independent Registered Public Accounting Firm (PCAOB ID No: 468) 16
Consolidated Balance Sheets for December 31, 2021, and 2020 18
Consolidated Statements of Operations for the Years Ended December 31, 2021, and 2020 19
Consolidated Statement of Stockholders’ Deficit for the Years Ended December 31, 2021, and 2020 20
Consolidated Statements of Cash Flows for the Years Ended December 31, 2021, and 2020 22
Notes to Consolidated Financial Statements for the Years Ended December 31, 2021, and 2020 23

 

15

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders

Endonovo Therapeutics, Inc. and Subsidiaries

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of Endonovo Therapeutics, Inc. and Subsidiaries (the Company) as of December 31, 2021, and 2020, and the related statements of operations, stockholders’ deficit, and cash flows for each of the years in the two-year period ended December 31, 2021, and the related notes to the consolidated financial statements (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and 2020, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

 

Explanatory Paragraph – Going Concern

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has continued to incur significant operating losses and negative cash flows from operations, during the year ended December 31, 2021, and has negative working capital at December 31, 2021. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Basis for Opinion

 

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

Critical Audit Matters

 

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

 

16

 

 

Instruments with Embedded Conversion Features

 

Description of the Matter

 

As discussed in Note 1 to the Consolidated Financial Statements, the Company issues instruments with embedded conversion features. Some of these embedded conversion features result in a derivative liability that is measured at fair value.

 

Auditing derivative liability is complex and highly judgmental due to the variability and uncertainty associated with the Company’s assessment of estimates used in calculating the value of the derivative liability. Changes in these estimates would have a significant effect on the valuation of the derivative liability and the related change in fair value of derivative liability.

 

How We Addressed the Matter in Our Audit

 

To test the derivative liability, our audit procedures included, among others, evaluating the appropriateness of the Company’s accounting policy for instruments with embedded conversion features and the estimates and assumptions used in calculating the fair value of the derivative liability. We evaluated whether the methods used to calculate the fair value of the derivative liability were applied consistently. We also tested the completeness and accuracy of the underlying data used for the fair value measurement.

 

/s/ Rose, Snyder & Jacobs LLP

 

We have served as the Company’s auditor since 2008.

 

Encino, CA

April 13, 2022

 

17

 

 

Endonovo Therapeutics, Inc. and Subsidiaries

Consolidated Balance Sheets

As of December 31,

 

   2021   2020 
ASSETS          
Current Assets:          
Cash  $85,936   $13,420 
Accounts receivable, net of allowance for doubtful accounts of $0   944    942 
Prepaid expenses and other current assets   7,975    31,825 
Total current assets   94,855    46,187 
           
Property Plant and Equipment, net   -    1,580 
Patents, net   1,912,356    2,559,268 
Total assets  $2,007,211   $2,607,035 
           
LIABILITIES AND SHAREHOLDERS’ DEFICIT          
Current Liabilities          
Accounts payable  $658,463   $700,932 
Accrued interest   2,528,459    1,904,136 
Deferred compensation   3,891,361    3,384,117 
Notes payable, net of discounts of $75,800 as of December 31, 2021, and $201,157 as of December 31, 2020   7,055,030    6,491,039 
Notes payable – former related party   126,100    143,000 
Derivative liability   3,442,297    4,202,597 
Total current liabilities   17,701,710    16,825,821 
           
Acquisition payable   79,825    155,000 
Total liabilities   17,781,535    16,980,821 
COMMITMENTS AND CONTINGENCIES, note 9          
Shareholders’ deficit          
Super AA super voting preferred stock, $0.001 par value; 1,000,000 authorized and 25,000 issued and outstanding at December 31, 2021, and December 31, 2020   25    25 
Series B convertible preferred stock, $0.0001 par value; 50,000 shares authorized and 600 issued and outstanding at December 31, 2021 and December 31, 2020   1    1 
Series C convertible preferred stock, 8,000 shares authorized, 738 and 763 shares issued and outstanding at December 31, 2021, and December 31, 2020, respectively   -    - 
Series D convertible preferred stock, $0.0001 par value; 20,000 shares authorized and 305 issued and outstanding at December 31, 2021 and December 31, 2020   -    - 
Common stock, $0.0001 par value; 2,500,000,000 shares authorized; and 74,498,761 and 24,536,689 shares issued and outstanding as of December 31, 2021, and December 31, 2020, respectively   7,449    2,453 
Additional paid-in capital   40,663,187    38,963,827 
Stock subscriptions   (1,570)   (1,570)
Accumulated deficit   (56,443,416)   (53,338,522)
Total shareholders’ deficit   (15,774,324)   (14,373,786)
Total liabilities and shareholders’ deficit  $2,007,211   $2,607,035 

 

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

 

18

 

 

Endonovo Therapeutics, Inc. and Subsidiaries

Consolidated Statements of Operations

For the Years Ended December 31,

 

   2021   2020 
         
Revenue  $73,105   $165,796 
Cost of revenue   14,985    65,369 
Gross profit   58,120    100,427 
           
Operating expenses   2,284,667    3,012,625 
Loss from operations   (2,226,547)   (2,912,198)
           
Other income (expense)          
Change in fair value of derivative liability   41,057    5,607,213 
Gain (loss) on extinguishment of debt   22,162    (555,430)
Other expense, net   -    (452,095)
Interest expense, net   (941,566)   (2,083,074)
Total other income (expense)   (878,347)   2,516,614 
           
Loss before income taxes   (3,104,894)   (395,584)
           
Provision for income taxes   -    - 
           
Net loss  $(3,104,894)  $(395,584)
           
Basic and diluted loss per share  $(0.05)  $(0.03)
Weighted average common share outstanding:          
Basic and diluted   59,836,620    12,215,844 

 

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

 

19

 

 

Endonovo Therapeutics, Inc. and Subsidiaries

Consolidated Statement of Stockholders Deficit

For the Years Ended December 31, 2021, and 2020

 

 

                                                                       
   Series AA   Series B Convertible   Series D Convertible   Series C Convertible       Additional           Total 
   Preferred Stock   Preferred Stock   Preferred Stock   Preferred Stock   Common Stock   Paid-in   Subscription   Retained   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   -    -    -    -    -    -    -    -    14,557,343    1,456    3,337,653    -    -    3,339,109 
Shares issued for conversion of Preferred Series C to common share   -    -    -    -    -    -    (1,051)   -    2,754,822    276    (151)   -    -    125 
Valuation of stock options issued for services   -    -    -    -    -    -    -    -    -    -    57,400    -    -    57,400 
Shares issued for exchange of stock options   -    -    -    -    -    -    -    -    1,500,000    150    164,850    -    -    165,000 
Shares issued as inducement to note holder   -    -    -    -    -    -    -    -    855,000    85    79,055    -    -    79,140 
Common stock issued for services   -    -    -    -    -    -    -    -    1,206,398    120    109,680    -         109,800 
Restricted shares issued as inducement to Series C   -    -    -    -    -    -    -    -    58,428    6    8,146    -    (8,152)   - 
Common stock issued with exchange of convertible notes   -    -    -    -    -    -    -    -    409,000    41    58,814    -    -    58,855 
Commitment shares   -    -    -    -    -    -    -    -    771,926    78    97,842    -         97,920 
Common stock issued for cash                                           1,234,568    123    99,877    -    -    100,000 
Beneficial conversion feature on convertible note   -    -    -    -    -    -    -    -    -    -    50,000    -    -    50,000 
Net loss for the year ended December 31, 2020   -    -    -    -    -    -    -    -    -    -    -    -    (395,584)   (395,584)
Balance December 31, 2020   25,000    25    600    1    305    -    763    -    24,536,689    2,453    38,963,827    (1,570)   (53,338,522)   (14,373,786)

 

20

 

 

Endonovo Therapeutics, Inc. and Subsidiaries

Consolidated Statement of Stockholders Deficit

For the Years Ended December 31, 2021, and 2020

 

   Series AA  

Series B 

Convertible

  

Series D 

Convertible

  

Series C

Convertible

           Additional           Total 
  

Preferred Stock

  

Preferred Stock

 

Preferred Stock

  

Preferred Stock

  Common Stock   Paid-in   Subscription   Retained   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    305   $-    763    -    24,536,689   $2,453   $38,963,827   $(1,570)  $(53,338,522)  $(14,373,786)
                                                                       
Issuance of Commitment shares in connection with promissory notes   -    -    -    -    -    -    -    -    7,868,668    787    221,905    -    -    222,692 
Common Stock issued for cash   -    -    -    -    -    -    -    -    7,000,000    700    125,300    -    -    126,000 
Shares issued for conversion of notes payable and accrued interest   -    -    -    -    -    -    -    -    27,461,307    2,746    1,115,244    -    -    1,117,990 
Shares issued for conversion of Preferred Series C to common share   -    -    -    -    -    -    (25)   -    1,111,111    111    (111)   -    -    - 
Common Shares issued from debt settlement   -    -    -    -    -    -    -    -    1,515,152    151    57,576    -    -    57,727 
Common Share issued as settlement of debt with former related part   -    -    -    -    -    -    -    -    2,505,834    251    84,446    -    -    84,697 
Common Shares issued pursuant to consulting agreement   -    -    -    -    -    -    -    -    2,500,000    250    95,000    -    -    95,250 
Net loss for the year ended December 31, 2021   -    -    -    -    -    -    -    -    -    -    -    -    (3,104,894)   (3,104,894)
Balance December 31, 2021   25,000    25    600    1    305    -    738    -    74,498,761    7,449    40,663,187    (1,570)   (56,443,416)   (15,774,324)

 

 

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

 

21

 

 

Endonovo Therapeutics, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

For the Years Ended December 31, 2021, and 2020

 

   2021   2020 
Operating activities:          
Net loss  $(3,104,894)  $(395,584)
Adjustments to reconcile net loss to cash used in operating activities:          
Depreciation and amortization expense   648,492    651,247 
Amortization of discount on Series C Preferred stock liability   -    248 
Non-cash increase to convertible notes principal (included in interest expense)   -    452,095 
Fair value of commitment shares issued with debt   70,970    - 
Fair value of equity issued for services   95,250    - 
Non-cash interest and fees   -    1,032,358 
Stock compensation expense   -    456,519 
Amortization of note discount and original issue discount   144,196    225,171 
Change in fair value of derivative liability   (41,057)   (5,607,213)
Loss (gain) on extinguishment of debt   (22,162)   555,430 
Changes in assets and liabilities:          
Accounts receivable   (2)   21,800 
Prepaid expenses and other current assets   23,850    (10,905)
Accounts payable   (42,470)   94,202 
Accrued interest   733,999    830,298 
Deferred compensation   507,244    952,744 
Net cash used in operating activities   (986,584)   (741,590)
           
Investing activities:          
Acquisition of property and equipment   -    - 
Net cash used in investing activities   -    - 
           
Financing activities:          
Proceeds from the issuance of notes payable   950,000    608,117 
Repayments on former related party advances   (16,900)   (22,000)
Proceeds from issuance of common stock and units   126,000    100,000 
Proceeds from issuance of preferred shares   -    50,000 
           
Net cash provided by financing activities   1,059,100    736,117 
           
Net increase (decrease) in cash   72,516    (5,473)
Cash, beginning of year   13,420    18,893 
Cash, end of year  $85,936   $13,420 
           
Supplemental disclosure of cash flow information:          
Cash paid for interest  $-   $25,747 
Cash paid for income taxes  $-   $- 
Non-Cash Investing and Financing Activities:          
Conversion of notes payable and accrued interest
to common stock
  $493,748   $1,493,413 
Conversion of Preferred C stock to common stock  $33,333   $1,400,934 
Value of derivative liability from transfer to equity upon conversion of notes payable and accrued interest  $-   $1,879,398 
Exchange of note and accrued interest to new convertible note  $-   $316,494 
Issuance of common stock to Preferred C Stock inducement  $-   $8,152 
Issuance of common stock to settle debt  $202,697   $- 

 

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

 

22

 

 

Endonovo Therapeutics, Inc. and Subsidiary

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2021, and 2020

 

Note 1 - Nature of Business and Summary of Significant Accounting Policies

 

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 inflammation on and 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).

 

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.

 

On January 22, 2014, Hanover Portfolio Acquisitions, Inc. (the “Company”) received written consents in lieu of a meeting of stockholders from holders of a majority of the shares of Common Stock representing in excess of 50% of the total issued and outstanding voting power of the Company approving an amendment to the Company’s Certificate of Incorporation to change the name of the Company from “Hanover Portfolio Acquisitions, Inc.” to “Endonovo Therapeutics, Inc.” The name change was affected pursuant to a Certificate of Amendment (the “Certificate of Amendment”), filed with the Secretary of State of Delaware on January 24, 2014.

 

Basis of Presentation and Principles of Consolidation

 

The consolidated financial statements of the Company include the accounts of ETI, IP Resources International, Inc., Aviva Companies Corporation, and WeHealAnimals, Inc. 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 recurring net losses, negative cash flows from operations and working capital deficits. The Company has raised approximately $ 1.1 million in debt and equity financing for the year ended December 31, 2021. The Company is raising additional capital through debt and/or 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 has implemented its business plan to materialize revenues from potential, future, license agreements, has raised capital through the issuance of promissory notes and has engaged a broker/dealer to raise additional capital.

 

23

 

 

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 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, 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.

 

Cash and cash equivalents

 

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Financial instruments that potentially subject us to a concentration of credit risk consist of cash and cash equivalents. Cash is deposited with what we believe are highly credited, quality institutions. The deposited cash may exceed Federal Deposit Insurance Corporation (“FDIC”) insured limits. At December 31, 2021, the Company does not hold any cash in excess of FDIC limits.

 

Accounts Receivable

 

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

 

Property, plant, and equipment

 

Property, plant, and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which range between five and seven years. Repairs and maintenance are charged to expense as incurred while improvements are capitalized. Upon the sale, retirement or disposal of fixed assets, the accounts are relieved of the cost and the related accumulated depreciation with any gain or loss recorded to the consolidated statements of operations.

 

Impairment of Long-lived Assets

 

The Company reviews its long-lived assets for impairment whenever events or changes in business circumstances indicate that the carrying amount of assets may not be fully recoverable or that the useful lives of these assets are no longer appropriate. If impairment is indicated, the asset is written down to its estimated fair value.

 

Equity-Based Compensation

 

The Company measures equity-based compensation cost at the grant date based on the fair value of the award and recognizes it as expense, net of forfeitures which are recognized as they occur, over the vesting or service period, as applicable, of the stock award using the straight-line method.

 

The Company measured equity-based compensation using the Black-Scholes option valuation model using the following assumptions:

 

   For Years Ending December 31, 
   2021   2020 
         
Expected term   -    1.38 years 
Exercise price  $-   $0.15 
Expected volatility   -   $23,110
Expected dividends   -    None 
Risk-free interest rate   -    0.14%
Forfeitures   -    None 

 

24

 

 

Income Taxes

 

The Company records a tax provision for the anticipated tax consequences of its reported results of operations. The provision for income taxes is computed using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating losses and income tax credit carry-forward. Deferred tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which those tax assets are expected to be realized or settled. The Company records a valuation allowance to reduce deferred tax assets to the amount that is more likely than not to be realized.

 

The Company has adopted ASC Topic 740, which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. ASC Topic 740 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and also provides guidance on derecognition of tax benefits, classification on the balance sheet, interest and penalties, accounting in interim periods, disclosure and transition. The Company has determined that the adoption did not result in the recognition of any liability for unrecognized tax benefits and that there are no unrecognized tax benefits that would, if recognized, affect the Company’s effective tax rate.

 

Net Loss per Share

 

Basic net loss per share is calculated based on the net 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 net loss per common share assumes the conversion of all dilutive securities using the if-converted method and assumes the exercise or vesting of other dilutive securities, such as options, common shares issuable under convertible debt, warrants and restricted stock using the treasury stock method when dilutive.

 

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 years ended December 31, 2021, and 2020, respectively, and are included in operating expenses in the consolidated statements of operations.

 

Fair Value of Financial Instruments

 

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 liability that is 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-Sholes 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.

 

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The following table presents balances of the liabilities with significant unobservable inputs (Level 3) as of December 31, 2021, and 2020:

 

   Fair Value Measurements at December 31, 2021 Using 
   Quoted Prices in
Active
Markets for
   Significant
Other
   Significant     
   Identical
Assets
   Observable
Inputs
   Unobservable
Inputs
     
   (Level 1)   (Level 2)   (Level 3)   Total 
                 
Derivative liability  $-   $-   $3,442,297   $3,442,297 
Total  $-   $-   $3,442,297   $3,442,297 

 

   Fair Value Measurements at December 31, 2020 Using 
   Quoted Prices in
Active
Markets
for
   Significant
Other
   Significant      
   Identical
Assets
   Observable
Inputs
   Unobservable
Inputs
     
   (Level 1)   (Level 2)   (Level 3)   Total 
                 
Derivative liability  $-   $-   $4,202,597   $4,202,597 
Total  $-   $-   $4,202,597   $4,202,597 

 

The following table presents changes of the liabilities with significant unobservable inputs (Level 3) for the years ended December 31, 2021, and 2020:

 

   Derivative 
   Liability 
Balance December 31, 2019  $10,599,690 
      
Issuance of convertible debt   1,244,898 
Settlements by debt extinguishment   (1,857,356)
Extinguishment following note exchange   (177,422)
Change in estimated fair value   (5,607,213)
      
Balance December 31, 2020  $4,202,597 
      
Issuance of convertible debt   - 
Settlement by debt Extinguishment   (133,386)
Settlements by debt conversion   (585,857)
Change in estimated fair value   (41,057)
      
Balance December 31, 2021  $3,442,297 

 

Derivative Liability

 

The Company issued Variable Debentures during the years ended December 31, 2021, and 2020, which contained variable conversion rates based on unknown future prices of the Company’s common stock. This resulted in a derivative liability. The Company measures the derivative liability using the Black-Scholes option valuation model using the following assumptions:

 

      For Years Ending December 31,  
      2021       2020  
                 
Expected term     1-4 months       1 -6 months  
Exercise price     $0.01-$0.03       $0.01-$0.76  
Expected volatility     177%-206%       110%-249%  
Expected dividends     None       None  
Risk-free interest rate     0.06%-0.39%       0.03%-1.54%  
Forfeitures     None       None  

 

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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.

 

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, and the assessment of volatility. 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.

 

Preferred Stock

 

The Company elects to accrete the difference between the redemption value and carrying value of outstanding preferred stock over the period from the date of issuance to the earliest redemption date using the effective interest method.

 

Recent Accounting Standard Updates

 

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 consolidated results of operations, financial position, and cash flows.

 

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Note 2 - Revenue Recognition

 

Contracts with Customers

 

We have adopted ASC 606, Revenue from Contracts with Customers effective January 1, 2018, using the modified retrospective method applied to those contracts which were not substantially completed as of January 1, 2018. 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.

 

We 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. Our 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. We identify 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. We 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, we have an unconditional right to receive payment. Our 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, we review 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, we consider whether we act as a principal in the transaction and control the goods and services used to fulfill the performance obligation(s) associated with the transaction.

 

During the year ended December 31, 2021, and 2020, we recognized gross revenue of $73,105 and $165,796, respectively, from products we sold as a principal in the transaction.

 

Sources of Revenue

 

We have identified the following revenues disaggregated by revenue source:

 

  1. Plastic Surgeons
     
  2. Wound Care Facilities
     
  3. Hospitals
     
  4. Other Physicians

 

As of December 31, 2021, and 2020, the sources of revenue were as follows:

 

         
   Year Ended 
   December 31, 
   2021   2020 
         
Direct sales- Plastic surgeons, gross   73,105    165,796 
Total sources of revenue  $73,105   $165,796 

 

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.

 

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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 delivery 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, End Users, Hospitals and Doctors are substantially less than the one-year collection period that falls within the practical expedient in determination of whether a significant financing component exists.

 

Effective Date and Transition Disclosures

 

Adoption of the new standards related to revenue recognition did not have a material impact on our consolidated financial statements.

 

Note 3- Property and Equipment

 

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

   2021   2020 
   As of December 31, 
   2021   2020 
         
Autos  $-   $64,458 
Medical equipment   -    13,969 
Other equipment   -    11,367 
Property plant and equipment gross   -    89,794 
Less accumulated depreciation   -    88,214 
Property plant and equipment net  $-   $1,580 

 

Depreciation expense for the years ended December 31, 2021, and 2020 was $1,580, and $4,335, respectively.

 

Note 4 – Patents

 

In December 2017, we acquired from RGN a patent portfolio for $4,500,000. The earliest patent expires in 2024.

 

The following is a summary of patents less accumulated amortization at December 31, 2021, and 2020:

 

   2021   2020 
   December 31, 
   2021   2020 
         
Patents  $4,500,000   $4,500,000 
           
Less accumulated amortization   2,587,644    1,940,732 
           
Patents net  $1,912,356   $2,559,268 

 

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Amortization expense for the years ended December 31, 2021, and 2020, was $646,912.

 

The estimated future amortization expense related to patents as of December 31, 2021, is as follows:

 

Year Ended December 31.  Amount 
     
2022  $646,910 
2023   646,910 
2024   618,536 
Total  $1,912,356 

 

Note 5 - Notes payable

 

Notes Payable

 

During the year ended December 31, 2021, the Company issued eight (8) fixed rate promissory notes totaling $950,000 for funding of $950,000 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. As of December 31, 2021, the fixed-rate notes had an outstanding balance of $1,735,000, of which $785,000 are past maturity. As of December 31, 2020, the fixed-rate notes had an outstanding balance of $895,747, of which $25,000 were past maturity. As of December 31, 2021, the Company has 13 fixed rate promissory notes with unrelated parties for total amount of $1,735,000. Nine of these fixed rates promissory notes for total balance of $1,000,000 carry a make whole provision requiring the Company to issue additional shares of its common stock if the underlying investor is not able to realize a profit of 15% against the conversion price of such shares after customary and reasonable expenses.

 

During the year ended December 31, 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 consolidated statements of operations.

 

During the year ended December 31, 2021, the Company settled one of its promissory notes 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.

 

During the year ended December 31, 2021, the Company converted $393,597 in principal and $100,152 in accrued but unpaid interest into 27,461,307 shares of common stock.

 

The gross amount of all convertible notes with variable conversion rates outstanding as of December 31, 2021, is $4,770,926, of which $4,770,926 are past maturity.

 

Notes payable to a former related party in the aggregate amount of $126,100 was outstanding at December 31, 2021, which are past maturity date. The notes bear interest between 10% and 12% per annum. During the year ended December 31, 2021, the Company paid total principal of $16,900 to this former related party.

 

In October 2013, July 2014, October 2014 and August 2015, the Company initiated a series of private placements for up to $500,000, each, of financing by the issuance of notes payable at a minimum of $25,000, one unit. The notes bear interest at 10% per annum and were due and payable with accrued interest one year from issuance. During the years ended December 31, 2021, and 2020, the Company did not issue notes in connection with these private placements and did not repay any of these notes. As of December 31, 2021, and 2020, notes payable outstanding under these private placements are $624,903, all of which are past maturity.

 

During the year ended December 31, 2020, the Company issued nine fixed rate promissory notes totaling $1,485,000 for funding of $608,117 with original terms of two to twelve months and interest rates of 8% to 15%. If the notes are not paid at maturity, the fixed rate promissory notes bear a default interest of 10% to 24%. As of December 31, 2020, five of the nine newly issued promissory notes became variable rate notes, which triggered the recognition of $301,727 new derivative liability for the embedded conversion feature.

 

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During the year ended December 31, 2020, the Company converted seven (7) previous fixed rate notes into variable rate notes (including the five newly issued fixed rate promissory notes) in an accumulated amount of $1,136,000 as a result of the notes not being paid at maturity and, therefore, triggering a conversion option for the noteholder. For four of the variable rate notes, the conversion rate is between 70% and 75% of the Company’s common stock based on the terms included in the variable rate notes. For three of the variable rate notes, the conversion rate is 100% of the Company’s common stock based on the terms included in the variable rate notes. As of December 31, 2020, the Company exchanged one of the variable notes with $316,494 unamortized principal and accrued interest into one fixed rate promissory notes for $525,000 due in twelve months from issuance date and convertible upon an event of default. The Company recorded the exchange in accordance with ASC 470-50 Debt-Modifications and Extinguishments and recorded $151,496 as gain from debt extinguishment in the condensed consolidated statements of operations.

 

On May 20, 2020, the Company entered into modification and forbearance agreements (the “agreements”) with three investors as a condition for the execution of the equity line purchase agreement (see note 6), collectively totaling $4,397,000 in principal and approximately $1,080,000 in accrued interest. As long as the Equity Line Purchase Agreement is in effect and its terms are being complied with, the terms of the forbearance agreements include the extension of the maturity date, elimination of the conversion feature attached to the hybrid instrument and a 12.5% premium for future cash redemption.

 

On July 16, 2020, the Securities and Exchange Commission declared effective the registration statement on Form S-1, for the registration of the shares under the Equity Line Purchase Agreements, which was filed on June 23, 2020, and amended on July 10, 2020. Management reviewed the guidance per ASC 470-60 Troubled debt restructurings and ASC 470-50 Debt-Modifications and Extinguishments and concluded that the terms of the agreements were not substantially different as of December 31, 2020, accounted for the transaction as a debt modification.

 

Notes payable to a former related party in the aggregate amount of $143,000 were outstanding at December 31, 2020 which are past maturity date. The notes bear interest between 10% and 12% per annum. During the year ended December 31, 2020, the Company paid $22,000 principal to this former related party.

 

 

As of December 31, 2021, the Company had notes payable to related parties amounting to $126,100. Refer to Note 7– Related Party Transactions.

 

   2021   2020 
   As of December 31, 
   2021   2020 
         
Notes payable at beginning of period  $6,835,196   $6,874,795 
Notes payable issued   950,000    1,364,611 
Liquidated damages   -    452,095 
Notes modification   -    25,190 
Loan fees added to note payable   -    120,389 
Settlements on note payable   (117,770)   (697,253)
Repayments of notes payable in cash   (16,900)   (22,000)
Less amounts converted to stock   (393,596)   (1,282,631)
Notes payable at end of period   7,256,930    6,835,196 
Less debt discount   (75,800)   (201,157)
  $7,181,130   $6,634,039 
           
Notes payable issued to former related party  $126,100   $143,000 
Notes payable issued to non-related party  $7,055,030   $6,491,039 

 

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The maturity dates on the notes payable are as follows:

Twelve months ending,  Non-related parties   Former
Related
party
   Total 
Past due  $6,180,830   $126,100   $6,306,930 
December 31, 2022   950,000    -    950,000 
Total  $7,130,830   $126,100   $7,256,930 

 

Notes payable totaling $2,110,450 are secured by the intellectual property acquired from RGN including patents obtained in the acquisition.

 

Acquisition Payable

 

In connection with the Company’s acquisition of IPR in 2012, IPR recorded a $155,000 long-term acquisition payable for costs that were not paid at closing. This payable is non-interest bearing and IPR agreed to make payments up to 25% of the proceeds from any private placement or gross profits earned by IPR until the obligation is satisfied. The percentage of the proceeds to be paid is at the sole discretion of IPR’s Chief Executive Officer and the ex-Chief Executive Officer of the Company based on the liquidity of the Company.

 

During the year ended December 31, 2021, the Company issued 2,505,834 as extinguishment for $75,175 in principal and interest.

 

Effective Interest Rate

 

During the year ended December 31, 2021, and 2020, the Company’s effective interest rate was 12% and 37% respectively.

 

Note 6 - Shareholders’ Deficit

 

Preferred Stock

 

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

 

   Number of Shares
Authorized
   Number of Shares
Outstanding at
December 31,
2021
   Par Value   Liquidation Value
per Share
 
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. As of December 31, 2021, and 2020, there were and 25,000 shares of Series AA Preferred stock outstanding.

 

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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. There has been no activity during the year ended December 31, 2021, and 2020. As of December 31, 2021, and 2020, there are 600 shares of Series B outstanding.

 

Series C Secured 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. 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 Series C preferred does not have any rights to vote with the common stock. 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.

 

Management reviewed the guidance in ASC 470-60 Troubled Debt Restructurings and ASC 470-50 Debt Modifications and Extinguishments and concluded that the changes to the terms of the Series C qualified for debt extinguishment and recorded a loss on debt extinguishment totaling approximately $604,000 for the year ended December 31, 2020.

 

Management determined the fair value of the new instrument based on the guidance in ASC 820 Fair Value Measurement. Management concluded that the preferred stock should not be classified as a liability per the guidance in ASC 480 Distinguishing Liabilities from Equity even though the conversion would require the issuance of variable number of shares since such obligation is not unconditional. Management classified the Series C in permanent equity as of December 31, 2021, and 2020.

 

During the year ended December 31, 2021, and 2020, the Company converted 25 and 1,051 shares of Series C into 1,111,111 and 2,754,822 shares of common stock, respectively. As of December 31, 2021, and 2020, there were 738 and 763 shares of Series C outstanding, respectively.

 

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.

 

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.

 

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During the years ended December 31, 2021, and 2020, 0 and 50 shares of Series D have been issued, respectively. As of December 31, 2021, and 2020, there are 305 shares of Series D outstanding.

 

Common Stock

 

Equity Purchase Line Agreement

 

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 years ended December 31, 2021, and 2020, pursuant to the execution of the ELPA, the Company issued 0 and 771,926 shares of common stock with a fair value of $97,920. No funds were raised under the ELPA during the years ended December 31, 2021, and 2020. The Company does not anticipate that it will raise any funds under the ELPA.

 

Activity during the year ended December 31, 2021:

 

During the year ended December 31, 2021, the Company issued 27,461,307 shares of common stock for the conversion of principal notes and accrued interest for aggregate fair value of issued common stock of $1,117,990.

 

During the year ended December 31, 2021, the Company issued 7,868,668 shares of common stock labeled as commitment shares in connection with the issuance of promissory notes for a total fair value of approximately $223,000.

 

During the year ended December 31, 2021, the Company issued 7,000,000 shares of common stock pursuant to securities purchase agreement for total consideration of $126,000.

 

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During the year ended December 31, 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 year ended December 31, 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 year ended December 31, 2021, the Company issued 2,500,000 shares of common stock in connection with the consulting agreement, with a fair value of approximately $95,000.

 

Activity during the year ended December 31, 2020:

 

During the year ended December 31, 2020, the Company issued 14,557,343 shares of common stock for the conversion of notes and accrued interest for aggregate fair value of issued common stock of $3,339,109.

 

During the year ended December 31, 2020, the Company issued 1,206,398 shares of common stock with a value of $109,800 related to services.

 

During the year ended December 31, 2020, the Company issued 1,234,568 shares of common stock in exchange for $100,000 cash pursuant to Securities Purchase Agreements.

 

During the year ended December 31, 2020, the Company issued 1,500,000 shares of common stock for total value of $165,000 in exchange for 34,690 stock options regarding the ambiguity of price adjustment in the event of a reverse split that the Company completed on December 20, 2019.

 

During the year ended December 31, 2020, the Company issued 58,428 shares of common stock to Series C with a value of $8,152 to induce the holders to convert into shares of common stock.

 

During the year ended December 31, 2020, the Company issued 2,754,822 shares of common stock with a value of $1,400,934, related to the conversion of Series C.

 

During the year ended December 31, 2020, the Company modified the terms of its promissory note with one investor, which extended the maturity date of its promissory note and the issuance of 500,000 restricted stock with a fair value of $55,000. The recorded of this transaction resulted in a loss on debt extinguishment of $55,000 per ASC 470-60 Troubled Debt Restructurings.

 

During the year ended December 31, 2020, in connection with the issuance of a new self-amortization promissory note, the Company issued 355,000 restricted shares as inducement with a fair value of $24,140.

 

During the year ended December 31, 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 fix 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.

 

Stock Options

 

The Company did not issue any stock options during the year ended December 31, 2021. The Company cancelled 2,500,350 stock options during the year ended December 31, 2021.

 

During the year ended December 31, 2020, the Company granted stock options to independent contractor exercisable into up to 3,000,000 shares of common stock with an exercise price of $ 0.15 per share and expiration date of 2 years from the vesting date. The options shall vest in twelve equal quarterly instalments so long as the contractor remains under retention by the Company to provide service. The stock options will vest in twelve equal instalments of 250,000 shares. These options were valued at approximately $245,900 using the Black Scholes option pricing model. The Company cancelled 2,500,000 of these stock options since the contract terminated on January 1, 2021.

 

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Share-based compensation expense for the years ended December 31, 2021, and 2020, totaled $0 and $57,400, respectively.

 

The weighted average grant date fair value of stock options issued during the year ended December 31, 2020, was $0.08 per share. The Company did not issue any stock options during the year ended December 31, 2021.

 

Stock option activities for the years ended December 31, 2021, and 2020, are as follows:

 

   Options   Weighted
Average
Exercise Price
Per Share
   Weighted
Average
Remaining
Contractual
Term (years)
   Aggregate
Intrinsic
Value
 
Outstanding at December 31, 2019   99,833   $27.81    2.02   $         - 
Granted   3,000,000   $0.15    1.65    - 
Cancelled   (85,753)  $23.53    0.68    - 
Exercised   -   $-    -    - 
Outstanding at December 31, 2020   3,014,080   $0.37    1.67   $- 
                     
Granted   -   $-    -    - 
Cancelled   (2,500,350)  $0.16    0.65    - 
Exercised   -   $-           
Outstanding at December 31, 2021   513,730   $1.43    0.76   $- 
                     
Exercisable at December 31, 2021   513,730   $1.43    0.76   $- 

 

The balance of all stock options outstanding as of December 31, 2021, is as follows:

 

   Outstanding   Exercisable 
       Weighted             
       Average   Weighted       Weighted 
Range of      Remaining   Average       Average 
Exercise  Number   Contractual   Exercise   Number   Exercise 
Prices  Outstanding   Life   Price   Exercisable   Price 
                     
 Options                         
$54.00   11,750    5.30   $54.00    11,750   $54.00 
$11.60   1,980    0.75   $11.60    1,980   $11.60 
$0.15   500,000    0.65   $0.15    500,000   $0.15 
     513,730    0.76   $1.43