Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurements

v3.21.2
Fair Value Measurements
6 Months Ended
Jun. 30, 2021
Fair Value Disclosures [Abstract]  
Fair Value Measurements

Note 9 – 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:

 

 

      Six months ended June 30,  
      2021       2020  
                 
Expected term     14 months       -  
Exercise price   $ 0.012-$0.028       -  
Expected volatility     182%-206 %     -  
Expected dividends     None       -  
Risk-free interest rate     0.07% to 0.13 %     -  
Forfeitures     None       -  

 

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. 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.

 

The following table presents changes in the liabilities with significant unobservable inputs (level 3) for the six months ended June 30, 2021:

 

 

    Derivative  
    Liability  
Balance December 31, 2020   $ 4,202,597  
         
Extinguishment     (133,386 )
Settlements by debt settlement     (585,857 )
Change in estimated fair value     2,420,449  
         
Balance June 30, 2021   $ 5,903,803  

 

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.

 

  

Endonovo Therapeutics, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (continued)

 

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

 

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

 

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

 

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

 

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

 

The following table presents balances in the liabilities with significant unobservable inputs (Level 3) at June 30, 2021:

 

    (Level 1)     (Level 2)     (Level 3)     Total  
    Fair Value Measurements Using  
    Quoted Prices in     Significant            
   

Active

Markets for

   

Other

Observable

   

Significant

Unobservable

       
    Identical Assets     Inputs     Inputs        
    (Level 1)     (Level 2)     (Level 3)     Total  
                         
As of June 30, 2021                                
Derivative liability   $      -     $        -     $ 5,903,803     $ 5,903,803  
Total   $ -     $ -     $ 5,903,803     $ 5,903,803