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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended September 30, 2022.

 

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

 

For the transition period from _______ to _______.

 

Commission File Number: 000-55453

 

ENDONOVO THERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware   45-2552528
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification No.)

 

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

(Address of principal executive offices, zip code)

 

(800) 489-4774

(Registrant’s telephone number, including area code)

 

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

 

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

Yes ☒ No ☐

 

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

Yes ☐ No

 

As of November 18, 2022, there were 194,326,730 shares of common stock, $0.0001 par value issued and outstanding.

 

 

 

 
 

 

ENDONOVO THERAPEUTICS, INC.

TABLE OF CONTENTS

FORM 10-Q REPORT

September 30, 2022

 

   

Page

Number

PART I - FINANCIAL INFORMATION  
     
Item 1. Condensed Consolidated Financial Statements (unaudited). 3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 20
Item 3. Quantitative and Qualitative Disclosures About Market Risk. 24
Item 4. Controls and Procedures. 24
     
PART II - OTHER INFORMATION  
     
Item 1. Legal Proceedings. 25
Item 1A. Risk Factors. 25
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. 25
Item 3. Defaults Upon Senior Securities. 26
Item 4. Mine Safety Disclosures 26
Item 5. Other Information. 26
Item 6. Exhibits. 26
     
SIGNATURES 27

 

 2 
 

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

Endonovo Therapeutics, Inc.

Condensed Consolidated Balance Sheets

 

     September 30, 2022     December 31, 2021 
   (Unaudited)   (Audited) 
         
ASSETS          
Current assets:          
Cash  $23,139   $85,936 
Accounts receivable, net of allowance for doubtful accounts of $0   944    944 
Prepaid expenses and other current assets   -    7,975 
Total current assets   24,083    94,855 
           
Patents, net   1,427,172    1,912,356 
Total assets  $1,451,255   $2,007,211 
           
LIABILITIES AND SHAREHOLDERS’ DEFICIT          
Current liabilities          
Accounts payable and accrued liabilities  $865,753   $658,463 
Accrued interest   3,279,906    2,528,459 
Deferred compensation   4,355,923    3,891,361 
Notes payable, net of discounts of $29,471 and $75,800 as of September 30, 2022, and December 31, 2021   7,123,433    7,055,030 
Notes payable – former related party   116,600    126,100 
Derivative liability   5,235,694    3,442,297 
           
Total current liabilities   20,977,309    17,701,710 
           
Acquisition payable   79,825    79,825 
Total liabilities   21,057,134    17,781,535 
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 September 30, 2022, and December 31, 2021   25    25 
Series B convertible preferred stock, $0.0001 par value; 50,000 shares authorized, 600 shares issued and outstanding at September 30, 2022, and December 31, 2021   1    1 
           
Series C convertible preferred stock, $0.0001 par value; 8,000 shares authorized, 738 shares issued and outstanding at September 30, 2022, and December 31, 2021   -    - 
           
Series D convertible preferred stock, $0.0001 par value; 20,000 shares authorized, 305 issued and outstanding at September 30, 2022, and December 31, 2021   -    - 
           
Common stock, $0.0001 par value; 2,500,000,000 shares authorized; 159,227,538 and 74,498,761 shares issued and outstanding as of September 30, 2022, and December 31, 2021   15,922    7,449 
Additional paid-in capital   42,365,859    40,663,187 
Stock subscriptions payable   (1,570)   (1,570)
Accumulated deficit   (61,986,116)   (56,443,416)
Total shareholders’ deficit   (19,605,879)   (15,774,324)
Total liabilities and shareholders’ deficit  $1,451,255   $2,007,211 

 

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

 

 3 
 

 

Endonovo Therapeutics, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

 

     2022     2021     2022     2021 
   Three Months Ended   Nine Months Ended 
   September 30,   September 30, 
   2022   2021   2022   2021 
                 
Revenue  $10,960   $7,790   $13,892   $72,789 
Cost of revenue   4,027    3,103    5,124    6,124 
Gross profit   6,933    4,687    8,768    66,665 
                     
Operating expenses   503,711    696,943    2,790,057    1,919,418 
Loss from operations   (496,778)   (692,256)   (2,781,289)   (1,852,753)
                     
Other income (expense)                    
Change in fair value of derivative liability   (56,213)   (542,346)   (1,903,177)   (2,962,795)
Gain (loss) on settlement of debt   319,081    (42,460)   362,894    28,536 
Other expense   (30,879)   -    (208,879)   - 
Interest expense, net   (338,571)   (246,612)   (1,012,249)   (714,212)
Other expense   (106,582)   (831,418)   (2,761,411)   (3,648,471)
                     
Loss before income taxes   (603,360)   (1,523,674)   (5,542,700)   (5,501,224)
                     
Provision for income taxes   -    -    -    - 
                     
Net Loss  $(603,360)  $(1,523,674)  $(5,542,700)  $(5,501,224)
                     
Basic and Diluted Loss per share  $(0.00)  $(0.02)  $(0.05)  $(0.10)
Weighted average common share outstanding:                    
Basic and diluted   153,599,760    66,291,292    122,537,266    55,303,026 

 

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

 

 4 
 

 

Endonovo Therapeutics, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

      2022       2021  
    Nine Months ended September 30,  
    2022     2021  
Operating activities:                
Net Loss   $ (5,542,700)     $ (5,501,224)  
Adjustments to reconcile net loss to cash used in operating activities:                
Depreciation and amortization expense     485,184       486,764  
Stock compensation expense     -       61,453  
Fair value of commitment shares issued with debt     -       70,971  
Fair value of equity issued for services     1,281,900       95,250  
Loss (gain) on extinguishment of debt     (362,894)       (28,536)  
Amortization of note discount and original issue discount     90,427       103,659  
Amortization of discount on Series C Preferred stock liability     -       -  
Non-cash interest expense     -       -  
Change in fair value of derivative liability     1,903,177       2,962,795  
Changes in assets and liabilities:                
Accounts receivable     -       (6,150)  
Prepaid expenses and other current assets     7,975       (17,900)  
Account payable & accrued liabilities     297,250       52,109  
Accrued interest     921,822       539,582  
Deferred compensation     464,562       585,939  
Net cash used in operating activities     (453,297 )     (595,288)  
                 
Financing activities:                
Proceeds from the issuance of notes payable     400,000       475,000  
Repayments on former related party of notes payable     (9,500 )     (10,400)  
Repayments of convertible debt in cash     -       (3,000)  
Proceeds from issuance of common stock and units     -       126,000  
Net cash provided by financing activities     390,500       587,600  
                 
Net decrease in cash     (62,797 )     (7,688)  
Cash, beginning of year     85,936       13,420  
Cash, end of period   $ 23,139     $ 5,732  
                 
Supplemental disclosure of cash flow information:                
Cash paid for interest   $ -     $ -  
Cash paid for income taxes   $ -     $ -  
                 
Non-Cash Investing and Financing Activities:                
Conversion of notes payable and accrued interest to common stock   $ 339,000     $ 458,335  
Issuance of common stock to settle debt   $       $ 127,522  
Conversion of Preferred C Stock to common stock   $ -     $ 33,333  
Debt discount from commitment shares issued with notes   $ 44,098     $ -  

 

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

 

 5 
 

 

Endonovo Therapeutics, Inc.

Condensed Consolidated Statement of Shareholders’ Deficit

(Unaudited)

 

For three and nine months ended September 30, 2022

 

   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Receivable   Earnings   Deficit 
   Series AA Preferred Stock   Series B Convertible Preferred Stock   Series C Convertible Preferred Stock   Series D Convertible Preferred Stock   Common Stock   Additional Paid-in   Subscription   Retained   Total Shareholder’s 
   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Receivable   Earnings   Deficit 
                                                         
Balance December 31, 2021   25,000   $25    600   $1    738   $-    305   $-    74,498,761   $7,449   $40,663,187   $(1,570)  $(56,443,416)  $(15,774,324)
                                                                       
Shares issued for conversion of notes payable and accrued interest   -    -    -    -    -    -    -    -    3,700,000    370    88,430    -    -    88,800 
Common stock issued for settlement of debt                                           2,428,777    243    45,904              46,147 
Issuance of commitment shares in connection with promissory note   -    -    -    -    -    -    -    -    700,000    70    15,680    -    -    15,750 
Net loss for the quarter ended March 31, 2022   -    -    -    -    -          -    -    -    -    -         -    (2,413,209)   (2,413,209)
Balance March 31, 2022   25,000   $25    600   $1    738   $-    305   $-    81,327,538   $8,132   $40,813,201   $(1,570)  $(58,856,625)  $(18,036,836)
                                                                       
Shares issued for conversion of notes payable and accrued interest   -    -    -    -    -    -    -    -    6,500,000    650    114,550    -    -    115,200 
Issuance of commitment shares in connection with promissory note   -    -    -    -    -    -    -    -    350,000    35    5,698    -    -    5,733 
Common Shares issued for services   -    -    -    -    -    -    -    -    62,250,000    6,225    1,275,675    -    -    1,281,900 
Net loss for the quarter ended June 30, 2022   -    -    -    -    -    -    -    -    -    -    -    -    (2,526,131)   (2,526,131)
Balance June 30, 2022   25,000   $25    600   $1    738   $-    305   $-    150,427,538   $15,042   $42,209,124   $(1,570)  $(61,382,756)  $(19,160,134)
                                                                       
Issuance of commitment shares in connection with promissory notes   -    -    -    -    -    -    -    -    2,050,000    205    22,410    -    -    22,615 

Common shares issued for services

   -    -    -    -    -    -    -    -    6,750,000    675    134,325    -    -    135,000 
Net loss for the quarter ended September 30, 2022   -    -    -    -    -    -    -    -    -    -    -    -    (603,360)   (603,360)
Balance September 30, 2022   25,000   $25    600   $1    738   $-    305   $-    159,227,538    15,922    42,365,859    (1,570)   (61,986,116)   (19,605,879)

 

 6 
 

 

For three and nine months ended September 30, 2021

 

   Series AA Preferred Stock   Series B Convertible Preferred Stock   Series C Convertible Preferred Stock   Series D Convertible Preferred Stock   Common Stock   Additional Paid-in   Subscription   Retained   Total Shareholder’s 
   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Receivable   Earnings   Deficit 
                                                         
Balance December 31, 2020   25,000   $25    600   $1    763   $-    305   $-    24,536,689   $2,453   $38,963,827   $(1,570)  $(53,338,522)  $(14,373,786 
                                                                       
Shares issued as commitment to note holders   -    -    -    -    -    -    -    -    2,300,334    230    101,652    -    -    101,882 
Common stock issued for cash                                           7,000,000    700    125,300              126,000 
Shares issued for conversion of notes payable and accrued interest   -    -    -    -    -    -    -    -    17,686,548    1,769    831,429    -    -    833,198 
Valuation of stock options issued for services   -    -    -    -    -    -    -    -    -    -    20,471    -    -    20,471 
Net loss for the quarter ended March 31, 2021   -    -    -    -    -    -    -    -    -    -         -    (2,680,881)   (2,680,881 
Balance March 31, 2021   25,000   $25    600   $1    763   $-    305   $-    51,523,571   $5,152   $40,042,679   $(1,570)  $(56,019,403)  $(15,973,116 
                                                                       
Shares issued for conversion of notes payable and accrued interest   -    -    -    -    -    -    -    -    3,804,103    381    116,165    -    -    116,546 
Shares issued for conversion of Preferred Series C to Common share   -    -    -    -    (25)   -    -    -    1,111,111    111    (111)   -    -    - 
Common Shares issued for debt settlement   -    -    -    -    -    -    -    -    1,515,152    152    57,576    -    -    57,728 
Shares issued as commitment to note holders   -    -    -    -    -    -    -    -    200,000    20    6,280    -    -    6,300 
Shares issued as settlement of debt with former related party   -    -    -    -    -    -    -    -    2,505,834    251    84,446    -    -    84,697 
Valuation of stock options issued for services   -    -    -    -    -    -    -    -    -    -    20,491    -    -    20,491 
Net loss for the quarter ended June 30, 2021   -    -    -    -    -    -    -    -    -    -    -    -    (1,296,669)   (1,296,669)
Balance June 30, 2021   25,000   $25    600   $1    738   $-    305   $-    60,659,771   $6,067   $40,327,526   $(1,570)  $(57,316,072)  $(16,984,023)
                                                                       
Common shares issued as commitment to note holders   -    -    -    -    -    -    -         1,833,334    183    46,917    -    -    47,100 
Shares issued for conversion of notes payable and accrued interest   -     -    -    -    -    -    -         4,200,000    420    126,040    -    -    126,460 
Stock-based compensation   -    -    -    -    -    -    -         -    -    20,491    -    -    20,491 
Common shares issued pursuant to consulting agreement   -     -    -    -    -    -    -         2,500,000    250    95,000    -    -    95,250 
Net loss for the quarter ended September 30, 2021   -     -    -    -    -    -    -    -     -    -    -    -    (1,523,674)   (1,523,674)
                                                                       
Balance September 30, 2021   25,000   $25    600   $1    738   $-    305   $-    $69,193,105   $6,920    40,615,974   $(1,570)  $(58,839,746)  $(18,218,396)

 

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

 

 7 
 

 

Endonovo Therapeutics, Inc.

Notes to Condensed Consolidated Financial Statements

 

Note 1 - Organization and Nature of Business

 

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

 

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

 

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

 

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

 

Note 2 – Summary of significant accounting policies.

 

Basis of Presentation and Principles of Consolidation

 

The accompanying unaudited interim condensed consolidated financial statements have been presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the instructions to Article 8 of Regulation S-X. Accordingly, the financial statements do not include all of the information and notes required by GAAP for complete financial statements. The accompanying condensed consolidated balance sheet as of September 30, 2022, the condensed consolidated statements of operations for the three and nine months ended September 30, 2022 and 2021, the condensed consolidated statements of cash flows for the nine months ended September 30, 2022 and 2021, and the condensed consolidated statements of shareholders’ deficit for the three and nine months ended September 30, 2022 and 2021 are unaudited; however, in the opinion of management such interim condensed consolidated financial statements reflect all adjustments, consisting solely of normal recurring adjustments, necessary for a fair presentation of the results for the periods presented. The accompanying financial information should be read in conjunction with the financial statements and the notes thereto in the Company’s most recent Annual Report on Form 10-K, as filed with the Securities and Exchange Commission (the “SEC”) on April 14, 2022. The results of operations for the period presented are not necessarily indicative of the results that might be expected for future interim periods or for the full year.

 

Liquidity and Going Concern

 

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

 

As of September 30, 2022, the Company had cash of approximately $23,100 and a working capital deficiency of approximately $20.9 million. During the nine months ended September 30, 2022, the Company used approximately $0.5 million of cash in its operation. The Company has incurred recurring losses resulting in an accumulated deficit of approximately $62.0 million as of September 30, 2022. These conditions raise substantial doubt as to its ability to continue as going concern within one year from issuance date of these financial statements.

 

 8 
 

 

Endonovo Therapeutics, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

 

During the nine months ended September 30, 2022, the Company has raised $0.4 million in debt financing through the issuance of promissory notes with fixed-rate conversion feature. The Company continues to raise additional capital through debt financing to fund 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.

 

On September 26, 2022, the Company entered into an asset purchase agreement with a Company, which is engaged in the business of providing and laying of concrete primarily for residential tract developers, pursuant to which the Company will acquire all of the assets and liabilities for approximately $25.2 million. The Company intends to raise the consideration through debt and equity financing.

 

No adjustments have been made to the carrying value of assets or liabilities as a result of this uncertainty. To reduce the risk of not being able to continue as a going concern, management is commercializing its FDA cleared and CE marked products and has commenced implementing its business plan to materialize revenues from potential future license agreements, and or diversifying its business activities with the potential acquisition of specialty construction company. The Company will continue to raise additional capital through the issuance of fixed-rate conversion feature promissory notes.

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Critical estimates include the value of shares issued for services, in connection with notes payable agreements, in connection with note extension agreements, and as repayment for outstanding debt, the useful lives of property and equipment, the valuation of the derivative liability, the valuation of warrants and stock options, and the valuation of deferred income tax assets. Management uses its historical records and knowledge of its business in making these estimates. Actual results could differ from these estimates.

 

Earnings (Loss) Per Share

 

The Company utilizes Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 260, “Earnings per Share.” Basic earnings (loss) per share is computed based on the earnings (loss) attributable to common shareholders divided by the weighted average number of shares outstanding for the period excluding any dilutive effects of options, warrants, unvested share awards and convertible securities. Diluted earnings (loss) per common share is calculated similar to basic earnings (loss) per share except that the denominator is increased to include additional common share equivalents available upon exercise of stock option, warrants, common shares issuable under convertible debt and restricted stock using the treasury stock method. Dilutive common share equivalents include the dilutive effect of in-the-money share equivalents, which are calculated based on the average share price for each period using the treasury stock method, excluding any common share equivalents if their effect would be anti-dilutive. In periods in which a net loss has been incurred, all potentially dilutive common shares are considered anti-dilutive and thus are excluded from the calculation. Securities that are excluded from the calculation of weighted average dilutive common shares because their inclusion would have been antidilutive for the three and nine months ended September 30, 2022, include stock options, warrants, and notes payable.

 

The Company has 263,070 options and 2,000 warrants to purchase common stock outstanding at September 30, 2022. The Company has 3,013,730 options and 26,115 warrants to purchase common stock outstanding at September 30, 2021

 

Accounts Receivable

 

The Company uses the specific identification method for recording the provision for doubtful accounts, which was $0 as of September 30, 2022, and December 31, 2021. Account receivables are written off when all collection attempts have failed.

 

 9 
 

 

Endonovo Therapeutics, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

 

Newly Adopted Accounting Principles

 

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

 

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

 

Note 3 - Revenue Recognition

 

Contracts with Customers

 

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

 

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

 

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

 

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

 

 10 
 

 

Endonovo Therapeutics, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

 

Sources of Revenue

 

The Company has identified the following revenues by revenue source:

 

  1. Medical care providers

 

For the three and nine months ended September 30, 2022, and 2021, the sources of revenue were as follows:

 

   2022   2021   2022   2021 
   Three Months Ended   Nine Months Ended 
   September 30,   September 30, 
   2022   2021   2022   2021 
                 
Direct sales- medical care providers, gross  $10,960   $7,790   $13,892   $72,789 
Total sources of revenue  $10,960   $7,790   $13,892   $72,789 

 

Warranty

 

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

 

Significant Judgments in the Application of the Guidance in ASC 606

 

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

 

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

 

Practical Expedients

 

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

 

 11 
 

 

Endonovo Therapeutics, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

 

Note 4 – Patents.

 

In December 2017, we acquired from Rio Grande Neurosciences, Inc. (RGN) a patent portfolio for $4,500,000. The earliest patents expire in 2024. The following is a summary of patents less accumulated amortization at September 30, 2022, and December 31, 2021:

 

   September 30,
2022
   December 31,
2021
 
         
Patents  $4,500,000   $4,500,000 
           
Less accumulated amortization   3,072,828    2,587,644 
           
Patents, net  $1,427,172   $1,912,356 

 

Amortization expense associated with patents was $485,184 for the nine months ended September 30, 2022, and 2021, respectively.

 

The estimated future amortization expense related to patents as of September 30, 2022, is as follows:

 

Twelve Months Ending September 30,  Amount 
     
2023  $646,910 
2024   646,910 
2025   133,352 
      
Total  $1,427,172 

 

Note 5- Notes Payable

 

As of September 30, 2022, and December 31, 2021, the notes payable activity was as follows:

 

   September 30,
2022
   December 31,
2021
 
         
Notes payable at beginning of period  $7,256,930   $6,835,196 
Notes payable issued   400,000    950,000 
Repayments of notes payable in cash   (9,500)   (16,900)
Settlement on note payable   (163,826)   (117,770)
Less amounts converted to stock   (214,100)   (393,596)
Notes payable at end of period   7,269,504    7,256,930 
Less debt discount   (29,471)   (75,800)
Note payable, net  $7,240,033   $7,181,730 
           
Notes payable issued to a former related party  $116,600   $126,100 
Notes payable issued to non-related parties  $7,123,433   $7,055,030 

 

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

 

   Notes to     
12 months ending,  Former related party   Non-related parties   Total 
             
Past due  $116,600   $6,277,904   $6,394,504 
September 30, 2023   -    875,000    875,000 
   $116,600   $7,152,904   $7,269,504 

 

 12 
 

 

Endonovo Therapeutics, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

 

Activity for the nine months ended September 30, 2022

 

Fixed rates Notes

 

During the nine months ended September 30, 2022, the Company issued five (5) fixed rate promissory notes totaling $400,000 for funding of $400,000 with original terms of nine months and interest rates of 15% and 18%. The holder of the promissory note can convert the outstanding unpaid principal and accrued interest at a fixed conversion rate, subject to standard anti-dilution features, six-month after issuance date.

 

As of September 30, 2022, the Company has eighteen (18) fixed-rate promissory notes with an outstanding balance of $1,920,900, of which $1,045,900 are past maturity. As of September 30, 2022, the Company has a total of fourteen (14) fixed rate notes for total principal amount of $1,400,000 includes a make good shares provision. Such provision will require the Company to issue additional shares to ensure that the investor can realize a profit of 15% or 18% reselling the conversion shares. The Company accrued approximately $209,000 related to the make-good provision as the amount is probable and can be reasonably estimated pursuant to ASC 450 Contingencies. Such amount was presented as other expense in the condensed consolidated statements of operations.

 

During the nine months ended September 30, 2022, the Company converted $124,900 in accrued interest and $214,100 in principal balance into 16,950,000 shares of common stock.

 

Certain fixed-rate notes include a prepayment provision, which entitles the holder to a 15% or 18% premium upon cash redemption by the Company. The prepayment penalty approximates $243,000 as of September 30, 2022, but the Company determined that such liability is not probable as of September 30, 2022, pursuant to ASC 450 Contingencies.

 

Variable-rate notes

 

The gross amount of all convertible notes with variable conversion rates outstanding as of September 30, 2022, is $4,607,100, which are all past maturity. There has been no conversion of notes into the Company’s common stock during the three and nine months ended September 30, 2022.

 

During the nine months ended September 30, 2022, the Company settled one variable note with a principal of $163,826 and $45,475 in accrued interest is no longer outstanding.

 

Activity for the nine months ended September 30, 2021

 

During the nine months ended September 30, 2021, the Company issued five (5) fixed rate promissory notes totaling $475,000 for funding of $475,000 with original terms of twelve months and interest rates of 15%. The holders of the promissory notes can convert the outstanding unpaid principal and accrued interest at a fixed conversion rate, subject to standard anti-dilution features.

 

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

 

During the nine months ended September 30, 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 nine months ended September 30, 2021, the Company paid $3,000 in cash for one of its fixed rate promissory notes.

 

During the nine months ended September 30, 2021, the Company converted $358,443 in principal and $99,892 in accrued but unpaid interest into 25,690,651 shares of common stock.

 

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

 

Fixed Rate note (former related-party)

 

Notes payable to a former related party in the aggregate amount of $116,600 were outstanding at September 30, 2022, which are past maturity date. The notes bear interest between 10% and 12% per annum. During the nine months ended September 30, 2022, the Company paid $9,500 in principal amount to this former related party. Refer to Note 7- Related Party Transactions.

 13 
 

 

Endonovo Therapeutics, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

 

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 September 30, 2022   Par
Value
   Liquidation
Value
 
Series AA   1,000,000    25,000   $0.0010   $- 
Preferred Series B   50,000    600   $0.0001   $100 
Preferred Series C   8,000    738   $0.0001   $1,000 
Preferred Series D   20,000    305   $0.0001   $1,000 
Undesignated   3,922,000    -    -    - 

 

Series AA Preferred Shares

 

On February 22, 2013, the Board of Directors of the Company authorized an amendment to the Company’s Articles of Incorporation, as amended (the “Articles of Incorporation”), in the form of a Certificate of Designation that authorized the issuance of up to one million (1,000,000) shares of a new series of preferred stock, par value $0.001 per share, designated “Series AA Super Voting Preferred Stock,” for which the board of directors established the rights, preferences and limitations thereof.

 

Each holder of outstanding shares of Series AA Super Voting Preferred Stock shall be entitled to one hundred thousand (100,000) votes for each share of Series AA Super Voting Preferred Stock held on the record date for the determination of stockholders entitled to vote at each meeting of stockholders of the Company. The Series AA Super Voting Preferred Stockholders will receive no dividends nor any value on liquidation. There was no activity during the nine months ended September 30, 2022. As of September 30, 2022, there were 25,000 shares of Series AA Preferred stock outstanding.

 

Series B Convertible Preferred Stock

 

On February 7, 2017, the Company filed a certificate of designation for 50,000 shares of Series B Convertible Preferred Stock designated as Series B (“Series B”) which are authorized and convertible, at the option of the holder, commencing six months from the date of issuance into common shares and warrants. For each share of Series B, the holder, on conversion, shall receive the stated value divided by 75% of the market price on the date of purchase of Series B and a three-year warrant exercisable into up to a like amount of common shares with an exercise price of 150% of the market price as defined in the Certificate of Designation. Dividends shall be paid only if dividends on the Company’s issued and outstanding Common Stock are paid, and the amount paid to the Series B holder will be as though the conversion shares had been issued. The Series B holders have no voting rights. Upon liquidation, the holder of Series B, shall be entitled to receive an amount equal to the stated value, $100 per share, plus any accrued and unpaid dividends thereon before any distribution is made to Series C Secured Redeemable Preferred Stock or common stockholders. There was no activity during the nine months ended September 30, 2022. As of September 30, 2022, 600 shares of Series B are outstanding.

 

Series C Convertible Redeemable Preferred Stock

 

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

 

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.

 

There was no activity during the nine months ended September 30, 2022. As of September 30, 2022, there are 738 shares of Series C outstanding

 

 14 
 

 

Endonovo Therapeutics, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

 

Series D Convertible Preferred Stock

 

On November 11, 2019, the Company filed a certificate of designation for 20,000 shares of Series D Convertible Preferred Stock designated as Series D (“Series D”), which are authorized and convertible, at the option of the holder, at any time from the date of issuance, into shares of common shares. On or prior to August 1, 2020, for each share of Series D, the holder, on conversion, shall receive a number of common shares equal to 0.01% of the Company’s issued and outstanding shares on conversion date and for conversion on or after August 2, 2020, the holder shall receive conversion shares as though the conversion date was August 1, 2020, with no further adjustments for issuances by the Company of common stock after August 1, 2020, except for stock split or reverse stock splits of the common stock. Management classified the Series D in permanent equity as of September 30, 2022.

 

The Series D holders have no voting rights. Upon liquidation, the holder of Series D, shall be entitled to receive an amount equal to the stated value, $1,000 per share, plus any accrued and unpaid dividends thereon before any distribution is made to common stockholders. The Company did not issue any shares of Series D in the nine months ended September 30, 2022. As of September 30, 2022, there are 305 shares of Series D outstanding.

 

On September 27, 2022, the Company offered to all holders of Series D the opportunity through October 31, 2022, to convert each share of Series D into 100,000 shares of common stock which is an effective conversion price of $0.01 per share. The Company also committed to provide additional shares of common stock if the holder of Series D does not realize a 15% profit on the resale in an ordinary market transaction. No conversion took place in the nine months ended September 30, 2022. Refer to subsequent disclosures (Note 11).

 

Common Stock

 

Activity during the nine months ended September 30, 2022

 

During the nine months ended September 30, 2022, the Company issued 16,950,000 shares of common stock for the conversion of $214,100 of principal notes and accrued interest in the amount of $124,900.

 

During the nine months ended September 30, 2022, the Company issued 2,428,777 shares of common stock pursuant to a make-whole provision from an April 2021 debt settlement with one investor.

 

During the nine months ended September 30, 2022, the Company issued 3,100,000 shares of common stock as commitment shares in connection with promissory notes.

 

During the nine months ended September 30, 2022, the Company issued 62,250,000 shares of common stock for services for total fair value of $1,281,900.

 

Activity during the nine months ended September 30, 2021

 

During the nine months ended September 30, 2021, the Company issued 25,690,651 shares of common stock for the conversion of principal notes and accrued interest in the amount of $458,335.

 

During the nine months ended September 30, 2021, the Company issued 4,333,668 shares of common stock labeled as commitment shares in connection with the issuance of promissory notes.

 

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

 

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

 

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

 

During the nine months ended September 30, 2021, the Company issued 2,500,000 shares of common stock in connection with the consulting agreement.

 

 15 
 

 

Endonovo Therapeutics, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

 

Stock Options

 

The balance of all stock options outstanding as of September 30, 2022, is as follows:

 

       Weighted
Average
   Weighted
Average
Remaining
   Aggregate 
       Exercise Price   Contractual   Intrinsic 
   Options   Per Share   Term (years)   Value 
Outstanding at December 31, 2021   513,730   $1.43    0.76    - 
Granted   -   $-    -    - 
Cancelled   (250,660)  $0.18    -    - 
Exercised   -   $-    -    - 
Outstanding at September 30, 2022   263,730   $2.61    0.35   $- 
                     
Exercisable at September 30, 2022   263,070   $2.61    0.35   $- 

 

Share-based compensation expense for the nine months ended September 30, 2022, and 2021, totaled $0 and $61,000, respectively.

 

Warrants

 

The balance of all warrants outstanding as of September 30, 2022, is as follows:

 

 

   Outstanding Warrants     
       Weighted
Average
   Weighted Average Remaining 
       Exercise Price   Contractual 
   Shares   Per Share   Term (years) 
Outstanding at December 31, 2021   22,200   $59.25    0.32 
Granted   -   $-    - 
Cancelled   (20,200)  $60.17    - 
Exercised   -   $-      
Outstanding at September 30, 2022   2,000   $50.00    0.47 
                
Exercisable at September 30, 2022   2,000   $50.00    0.47 

 

 16 
 

 

Endonovo Therapeutics, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

 

Note 7 – Related Party and former related parties Transactions.

 

One executive officer of the Company has agreed to defer a portion of his compensation until cash flow improves. As of September 30, 2022, the balance of the deferred compensation was $504,818, which reflects $225,000 accrual of deferred compensation and $114,000 cash repayment of deferred compensation during the nine months ended September 30, 2022.

 

One former executive of the Company has agreed to defer a portion of his compensation until cash flow improves. As of September 30, 2022, the balance of his deferred compensation was $632,257. No activity occurred during the nine months ended September 30, 2022

 

From time-to-time officer of the Company advance monies to the Company to cover costs. The balance of short-term advances due to one officer of the Company at September 30, 2022, was $125 and is included in the Company’s accounts payable balance as of September 30, 2022. During the nine months ended September 30, 2022, the Company’s executive officer advanced an aggregate amount of $15,921 for corporate expenses, of which $15,921 was repaid back as of September 30, 2022.

 

As of September 30, 2022, notes payable remained outstanding to the former President of the Company, in the amount of $116,600. As of September 30, 2022, accrued interests on these notes payable totaled approximately $77,180, and are included in accrued expenses on the condensed consolidated balance sheet.

 

Note 8 – Fair Value Measurements

 

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

 

   Nine months ended September 30, 
   2022   2021 
         
Expected term   1 months    14 months 
Exercise price   $0.004-$0.015    $0.012-$0.030 
Expected volatility   153%-169%    177%-206% 
Expected dividends   None    None 
Risk-free interest rate   1.63% to 4.05%    0.06% to 0.13% 
Forfeitures   None    None 

 

The assumptions used in deter