Notes
to Condensed Consolidated Financial Statements
Note
1 - Organization and Nature of Business
Endonovo
Therapeutics, Inc. and Subsidiaries (the “Company” or “ETI”) is primarily focused in the business of biomedical
research and development, particularly in regenerative medicine, which has included the development of its proprietary square
wave form device. The Company has historically been involved with intellectual property licensing and commercialization.
Basis
of Presentation and Principles of Consolidation
The
accompanying unaudited interim condensed consolidated financial statements have been presented in accordance with accounting principles
generally accepted in the United States of America (“GAAP”) for interim financial information and the instructions
to Article 8 of Regulation S-X. Accordingly, the financial statements do not include all of the information and notes required
by GAAP for complete financial statements. The condensed consolidated financial statements as of June 30, 2017 and 2016 are unaudited;
however, in the opinion of management such interim condensed consolidated financial statements reflect all adjustments, consisting
solely of normal recurring adjustments, necessary for a fair presentation of the results for the periods presented. The results
of operations for the period presented are not necessarily indicative of the results that might be expected for future interim
periods or for the full year.
The
consolidated financial statements of the Company include the accounts of ETI and IPR as of March 14, 2012; Aviva as of April 2,
2013; and WeHealAnimals as of November 16, 2013. All significant intercompany accounts and transactions are eliminated in consolidation.
Going
Concern
These
accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern, which
contemplates realization of assets and the satisfaction of liabilities in the normal course of business for the twelve month period
following the date these consolidated financial statements are issued. The Company has raised approximately $1,351,000 in debt
and equity financing for the period January 1, 2017 to June 30, 2017. The Company is raising additional capital through debt and
equity securities in order to continue the funding of its operations. However, there is no assurance that the Company can raise
enough funds or generate sufficient revenues to pay its obligations as they become due, which raises substantial doubt about our
ability to continue as a going concern. No adjustments have been made to the carrying value of assets or liabilities as a result
of this uncertainty. To reduce the risk of not being able to continue as a going concern, management has implemented its business
plan to materialize revenues from potential, future, license agreements, has initiated a private placement offering to raise capital
through the sale of its common stock, and is seeking out profitable companies. In addition, management has a commitment from a
current lender for a total of $2.7 million in the form of convertible notes. As of June 30, 2017, the Company has received cash
funding of $878,500 for $938,750 of convertible notes under this commitment. This commitment is subject to the Company not taking
any variable financing from any other investor or lender. Although, uncertainty exists as to whether the Company will be able
to generate enough cash from operations to fund the Company’s working capital needs or raise sufficient capital to meet
the Company’s obligations as they become due, no adjustments have been made to the carrying value of assets or liabilities
as a result of this uncertainty.
Basic
and Diluted Income (Loss) per Share
Basic
income (loss) per share is computed by dividing the net income (loss) to common stockholders for the period by the weighted average
number of common shares outstanding during the period. Diluted income (loss) per share is computed by dividing the net income
(loss) for the period by the weighted average number of common and dilutive common equivalent shares outstanding during the period.
Common
equivalent shares, consisting of incremental common shares for the three months ended June 30, 2017 issuable upon the
exercise of stock options, warrants, and convertible debt have been included in the diluted
earnings
per share calculation. These shares have not been included for the three and six months ended June 30, 2016 or the six
months ended June 30, 2017 because their effect is anti-dilutive.
Endonovo
Therapeutics, Inc. and Subsidiaries
Notes
to Condensed Consolidated Financial Statements (continued)
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) for basic earnings per share
|
|
$
|
1,857,989
|
|
|
$
|
(1,453,537
|
)
|
|
$
|
(5,906,987
|
)
|
|
$
|
(2,357,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
234,997,177
|
|
|
|
111,155,833
|
|
|
|
198,404,131
|
|
|
|
108,861,547
|
|
Shares used in calculation- basic
|
|
|
234,997,177
|
|
|
|
111,155,833
|
|
|
|
198,404,131
|
|
|
|
108,861,547
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issuable for stock options, warrants and convertible debt
|
|
|
95,804,089
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Shares used in calculation- diluted
|
|
|
330,801,266
|
|
|
|
111,155,833
|
|
|
|
198,404,131
|
|
|
|
108,861,547
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.01
|
|
|
$
|
(0.01
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.01
|
|
|
$
|
(0.01
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.02
|
)
|
Recently
Issued Accounting Pronouncements
In
August 2014, the FASB issued FASB ASU2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40):
Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. FASB ASU 2014-15 changes to the
disclosure of uncertainties about an entity’s ability to continue as a going concern. These changes require an
entity’s management to evaluate whether there are conditions or events, considered in the aggregate, that raise
substantial doubt about the entity’s ability to continue as a going concern within one year after the date that
financial statements are issued. Substantial doubt is defined as an indication that it is probable that an entity will be
unable to meet its obligations as they become due within one year after the date that financial statements are issued. If
management has concluded that substantial doubt exists, then the following disclosures should be made in the financial
statements: (i) principal conditions or events that raised the substantial doubt, (ii) management’s evaluation of the
significance of those conditions or events in relation to the entity’s ability to meet its obligations, (iii)
management’s plans that alleviated the initial substantial doubt or, if substantial doubt was not alleviated,
management’s plans that are intended to at least mitigate the conditions or events that raise substantial doubt, and
(iv) if the latter in (iii) is disclosed, an explicit statement that there is substantial doubt about the entity’s
ability to continue as a going concern. These changes became effective for the Company for the 2016 annual period. Management
has evaluated the impact of the adoption of these changes and has determined there will be no material impact on
the consolidated financial statements. Subsequent to adoption, this guidance will need to be applied by management at the end
of each annual period and interim period therein to determine what, if any, impact there will be on the consolidated
financial statements in a given reporting period.
Endonovo
Therapeutics, Inc. and Subsidiaries
Notes
to Condensed Consolidated Financial Statements (continued)
In
April 2015, the FASB issued ASU No 2015-3, Simplifying the Presentation of Debt Issuance Costs. This update changes the
presentation of debt issuance costs in the balance sheet. ASU 2015-03 requires debt issuance costs related to a recognized
debt obligation to be presented in the balance sheet as a direct deduction from the carrying amount of the related debt
liability rather than being presented as an asset. Amortization of debt issuance costs will continue to be reported as
interest expense. In August 2015, the FASB issued ASU 2015-15, “Presentation and Subsequent Measurement of Debt
Issuance Costs Associated with Line-of-Credit Arrangements”. This ASU clarified guidance in ASC 2015-03 stating that
the SEC staff would not object to a company presenting debt issuance costs related to a line-of-credit arrangement on the
balance sheet as a deferred asset, regardless of whether there were any outstanding borrowings at period-end. This update is
effective for annual and interim periods beginning after December 15, 2015, which required us to adopt these provisions in
the first quarter of 2016. This update was applied on a retrospective basis, wherein the balance sheet of each period
presented was adjusted to reflect the effects of applying the new guidance. The adoption of this guidance did not have a
material impact on our consolidated financial statements.
In
November 2015, the FASB issued ASU No 2015-17, Income Taxes (Topic 740). The amendments in ASU 2015-17 change the requirements
for the classification of deferred taxes on the balance sheet. Currently, GAAP requires an entity to separate deferred income
tax liabilities and assets into current and noncurrent amounts in a classified statement of financial position. To simplify the
presentation of deferred income taxes, the amendments in this ASU require that deferred tax liabilities and assets be classified
as noncurrent in a classified statement of financial position. The pronouncement is effective for fiscal years and interim periods
within those fiscal years beginning after December 15, 2016. Earlier application is permitted for all entities as of the beginning
of an interim or annual reporting period. The Company has early adopted this pronouncement for the fiscal reporting period ended
December 31, 2016, and has reclassified the presentation of deferred income taxes in the prior period to conform with the current
year classification in the consolidated balance sheets. As a result of the Company having recognized a valuation reserve for the
entire deferred tax liability balance at June 30, 2017 and December 31, 2016, there is no impact of the presentation of deferred
income taxes in our financial statements.
In January 2016, the Financial
Accounting Standards Board (“FASB”) issued ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition
and Measurement of Financial Assets and Financial Liabilities. The update intends to enhance the reporting model for financial
instruments to provide users of financial statements with more decision-useful information and addresses certain aspects of the
recognition, measurement, presentation and disclosure of financial instruments. The new standard affects all entities that hold
financial assets or owe financial liabilities. For public business entities, the amendments in this Update are effective for fiscal
years beginning after December 15, 2017, including interim periods within those fiscal years. Management is evaluating the impact
of the adoption of these changes will have on the consolidated financial statements.
In February 2016, the
FASB issued ASU 2016-02, Leases (Topic 842), which supersedes existing guidance on accounting for leases in “Leases (Topic
840)” and generally requires all leases to be recognized in the consolidated balance sheet. ASU 2016-02 is effective for
annual and interim reporting periods beginning after December 15, 2018; early adoption is permitted. The provisions of ASU 2016-02
are to be applied using a modified retrospective approach. The Company is currently evaluating the impact of the adoption
of this standard on its consolidated financial statements.
Endonovo
Therapeutics, Inc. and Subsidiaries
Notes
to Condensed Consolidated Financial Statements (continued)
Note
2 – Property, Plant and Equipment
The
following is a summary of equipment, at cost, less accumulated depreciation at June 30, 2017 and December 31, 2016:
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
Autos
|
|
$
|
64,458
|
|
|
$
|
64,458
|
|
Medical equipment
|
|
|
5,000
|
|
|
|
5,000
|
|
Other equipment
|
|
|
8,774
|
|
|
|
8,774
|
|
|
|
|
78,232
|
|
|
|
78,232
|
|
Less accumulated depreciation
|
|
|
69,788
|
|
|
|
62,407
|
|
|
|
$
|
8,444
|
|
|
$
|
15,825
|
|
Depreciation
expense for the six months ended June 30, 2017 and 2016 was $7,381 and $7,917, respectively. 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.
Note
3 - Notes Payable and Long Term Loan
Notes
Payable
During
the six months ended June 30, 2017, the Company issued six Convertible Notes (“Variable Notes”) totaling $928,750
with original terms ranging from eight months to one year with interest rates equal to 10%, and a variable conversion rate with
a discounts of 30% of the Company’s common stock based on the terms included in the Variable Notes. The Variable Notes contain
a prepayment option, which enables the Company to prepay the note subsequent to issuance at a premium of 125%.
During
the six months ended June 30, 2017, an investor in the Company’s Variable Notes purchased from another holder of the Company’s
Variable Notes an aggregate of $720,000 principal and $33,028 of accrued interest with terms that extended the maturities to a
one-year and increased the interest rate from 6% to 10%. As a result of this modification, the Company recognized a gain on debt
extinguishment of $2,556,653 during the six months ended June 30, 2017.
The
gross amount of all Variable Notes outstanding at June 30, 2017 is $2,150,278. Of this amount outstanding, $66,000 of the Variable
Debentures were past maturity.
As
of June 30, 2017, other notes payable outstanding totaled $1,144,903, all of which are past maturity.
Endonovo
Therapeutics, Inc. and Subsidiaries
Notes
to Condensed Consolidated Financial Statements (continued)
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
Notes payable at beginning of period
|
|
$
|
3,193,956
|
|
|
$
|
2,333,751
|
|
Notes payable issued
|
|
|
928,750
|
|
|
|
1,776,895
|
|
Default interest added to note payable
|
|
|
-
|
|
|
|
62,500
|
|
Accrued interest payable added to note payable
|
|
|
33,028
|
|
|
|
-
|
|
Settlements on note payable
|
|
|
-
|
|
|
|
(55,000
|
)
|
Repayments of notes payable in cash
|
|
|
(30,000
|
)
|
|
|
(241,500
|
)
|
Less amounts converted to stock
|
|
|
(830,553
|
)
|
|
|
(682,690
|
)
|
Notes payable at end of period
|
|
|
3,295,181
|
|
|
|
3,193,956
|
|
Less debt discount
|
|
|
(925,970
|
)
|
|
|
(1,145,849
|
)
|
|
|
$
|
2,369,211
|
|
|
$
|
2,048,107
|
|
|
|
|
|
|
|
|
|
|
Notes payable issued to related parties
|
|
$
|
170,000
|
|
|
$
|
170,000
|
|
Notes payable issued to non-related parties
|
|
$
|
2,199,211
|
|
|
$
|
1,878,107
|
|
The maturity dates on the notes payable are as follows:
|
|
Notes to
|
|
|
|
|
12 months ending,
|
|
Related parties
|
|
|
Non-related parties
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
$
|
170,000
|
|
|
$
|
3,125,181
|
|
|
$
|
3,295,181
|
|
|
|
$
|
170,000
|
|
|
$
|
3,125,181
|
|
|
$
|
3,295,181
|
|
Long
Term Loan
The
Company has financed the purchase of an automobile. The maturity dates on the loan are as follows:
Twelve months ending,
|
|
|
|
June 30, 2018
|
|
$
|
10,465
|
|
|
|
$
|
10,465
|
|
|
|
|
|
|
Current portion
|
|
$
|
10,465
|
|
Long term portion
|
|
$
|
-
|
|
Endonovo
Therapeutics, Inc. and Subsidiaries
Notes
to Condensed Consolidated Financial Statements (continued)
Note
4 - Shareholders’ Deficit
Increase
in Authorized Shares
On
January 17, 2017, an increase in authorized capital stock from 250,000,000 shares to 500,000,000 shares became effective.
Series
B Convertible Preferred Stock
At
June 30, 2017, there are 50,000 shares of Series B Convertible Preferred Stock (“Series B”) which are authorized and
convertible into a like amount of common shares. None of the Series B have been issued or are outstanding at June 30, 2017.
Common
Stock
The
Company has entered into consulting agreements with various consultants for service to be provided to the Company. The agreements
stipulate a monthly fee and a certain number of shares that the consultant vests in over the term of the contract. The consultant
is issued a prorated number of shares of common stock at the beginning of the contract, which the consultant earns over a three-month
period. At the anniversary of each quarter, the consultant is issued a new allotment of common stock during the first 3 years
of engagement. In accordance with ASC 505-50 – Equity-Based Payment to Non-Employees, the common stock shares issued to
the consultant are valued upon their vesting, with interim estimates of value as appropriate during the vesting period. During
the six months ended June 30, 2017, the Company issued 3,022,336 shares of common stock with a value of $183,835 related to these
consulting agreements.
During
the six months ended June 30, 2017, the Company issued pursuant to a private placement offering 19,544,908 shares of common stock
and the same number of warrants for cash of $472,749 and conversion of notes and accrued interest in the amount of $66,367. The
Company also issued 83,085,396 shares of common stock for the conversion of notes and accrued interest of $761,810 which resulted
in a loss on debt extinguishment of $322,997 during the six months ended June 30, 2017.
Also, during the six months
ended June 30, 2017, the Company issued 114,118 shares of common stock valued at $7,144 related to the extension of outstanding
notes and lock-up agreements, 2,500,000 shares of common stock valued at $98,950 for partial repayment of a $175,000 accrued liability
in connection with a variable note settlement agreement entered into in December 2016, and 1,565,816 shares of common stock valued
at $86,995 for settlement of the principal and interest outstanding on two notes payable.
Series
AA Preferred Shares
On
February 22, 2013, the Board of Directors of the Company authorized an amendment to the Company’s Articles of Incorporation,
as amended (the “Articles of Incorporation”), in the form of a Certificate of Designation that authorized the issuance
of up to one million (1,000,000) shares of a new series of preferred stock, par value $0.0001 per share, designated “Series
AA Super Voting Preferred Stock,” for which the board of directors established the rights, preferences and limitations thereof.
Each
holder of outstanding shares of Series AA Super Voting Preferred Stock shall be entitled to one hundred thousand (100,000) votes
for each share of Series AA Super Voting Preferred Stock held on the record date for the determination of stockholders entitled
to vote at each meeting of stockholders of the Company. As of June 30, 2017, there were 1,000 shares of Series AA Preferred stock
outstanding.
Endonovo
Therapeutics, Inc. and Subsidiaries
Notes
to Condensed Consolidated Financial Statements (continued)
Warrants
During
the six months ended June 30, 2017, in conjunction with the sale of common stock and issuance of notes, the Company issued five-year
common stock purchase warrants to acquire up to 19,544,909 shares of common stock. These warrants have exercise prices ranging
from $0.0165 to $0.1275 per share. In addition, during the six months ended June 30, 2017, the Company issued five-year common
stock purchase warrants to acquire up to 1,100,678 shares of common stock valued at $71,113 related to consulting services received
by the Company. These warrants have exercise prices ranging from $0.0961 to $0.2669 per share. The balance of all warrants outstanding
as of June 30, 2017 is as follows:
|
|
Outstanding Warrants
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
Exercise Price
|
|
|
|
Shares
|
|
|
Per Share
|
|
Outstanding at January 1, 2017
|
|
|
9,494,940
|
|
|
$
|
0.33
|
|
Granted
|
|
|
20,645,587
|
|
|
$
|
0.06
|
|
Cancelled
|
|
|
-
|
|
|
$
|
-
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
Outstanding at June 30, 2017
|
|
|
30,140,527
|
|
|
$
|
0.14
|
|
|
|
|
|
|
|
|
|
|
Exercisable at June 30, 2017
|
|
|
30,140,527
|
|
|
$
|
0.14
|
|
Stock
Options
During
the six months ended June 30, 2017, the Company granted stock options to independent contractors exercisable into up to 19,250,000
shares of common stock. These options have an exercise price of $0.054 per share, a ten-year life, cashless exercise rights and
were valued at $1,000,090 using the Black Scholes option pricing model. The stock options vested immediately and were expensed
in full during the six months ended June 30, 2017. The balance of all stock options outstanding as of June 30, 2017 is as follows:
Endonovo
Therapeutics, Inc. and Subsidiaries
Notes
to Condensed Consolidated Financial Statements (continued)
|
|
|
|
|
Weighted Average
|
|
|
Weighted Average
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
Exercise Price
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Options
|
|
|
Per Share
|
|
|
Term (years)
|
|
|
Value (1)
|
|
Outstanding at January 1, 2017
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
|
|
|
Granted
|
|
|
19,250,000
|
|
|
$
|
0.054
|
|
|
|
9.94
|
|
|
|
|
|
Cancelled
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
|
|
|
Outstanding at June 30, 2017
|
|
|
19,250,000
|
|
|
$
|
0.054
|
|
|
|
9.94
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at June 30, 2017
|
|
|
19,250,000
|
|
|
$
|
0.054
|
|
|
|
9.94
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average fair value of options granted during the period
|
|
|
19,250,000
|
|
|
$
|
0.052
|
|
|
|
|
|
|
|
|
|
The
following assumptions were used at June 30, 2017 to value the stock options using the Black Scholes option pricing model.
|
|
Six months ended
|
|
|
|
June 30, 2017
|
|
|
|
|
|
Expected term
|
|
|
5 years
|
|
Exercise price
|
|
$
|
0.05
|
|
Expected volatility
|
|
|
184
|
%
|
Expected dividends
|
|
|
None
|
|
Risk-free interest rate
|
|
|
1.79
|
%
|
Forfeitures
|
|
|
None
|
|
Note 5 – Related Party Transactions
One officer and
executive of the Company has entered into note payable agreements with the Company. The balance of notes payable from related parties
at June 30, 2017 is $170,000.
Two executive officers
and the operations manager of the Company have agreed to defer a portion of their compensation until cash flow improves.
As of June 30, 2017 and December 31, 2016, the balance of their deferred compensation is approximately $1,823,294 and $1,861,327,
respectively.
From time-to-time executive
officers and the operations manager of the Company advance monies to the Company to cover costs. During the six months ended June
30, 2017, officers advanced $12,650 of funds to the Company of which $11,500 were repaid during the period. The balance of short-term
advances due to executive officers and the operations manager of the Company at June 30, 2017 is $6,973.
Endonovo Therapeutics, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial
Statements (continued)
Note 6 – 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:
|
|
|
Three months ended June 30,
|
|
|
|
Six months ended June 30,
|
|
|
|
|
2017
|
|
|
|
2016
|
|
|
|
2017
|
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected term
|
|
|
8 months - 5 years
|
|
|
|
9 months - 3 years
|
|
|
|
8 months - 5 years
|
|
|
|
9 months - 3 years
|
|
Exercise price
|
|
|
$0.0203-$0.28
|
|
|
|
$0.0659-$0.28
|
|
|
|
$0.0203-$0.28
|
|
|
|
$0.0659-$0.28
|
|
Expected volatility
|
|
|
184%-201%
|
|
|
|
221%-276%
|
|
|
|
184%-276%
|
|
|
|
199%-276%
|
|
Expected dividends
|
|
|
None
|
|
|
|
None
|
|
|
|
None
|
|
|
|
None
|
|
Risk-free interest rate
|
|
|
1.05% to 1.79%
|
|
|
|
0.45% to 1.06%
|
|
|
|
0.45% to 1.79%
|
|
|
|
0.45% to 1.06%
|
|
Forfeitures
|
|
|
None
|
|
|
|
None
|
|
|
|
None
|
|
|
|
None
|
|
The time
period over which the Company will be required to evaluate the fair value of the conversion feature is eight to twenty-four months
or conversion.
The assumptions
used in determining fair value represent management’s best estimates, but these estimates involve inherent uncertainties
and the application of management’s judgment. As a result, if factors change, including changes in the market value of the
Company’s common stock, managements’ assessment or significant fluctuations in the volatility of the trading market
for the Company’s common stock, the Company’s fair value estimates could be materially different in the future.
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.
Endonovo Therapeutics, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial
Statements (continued)
The following
table presents changes in the liabilities with significant unobservable inputs (level 3) for the six months ended June 30, 2017:
|
|
Derivative
|
|
|
|
Liability
|
|
Balance December 31, 2016
|
|
$
|
1,927,752
|
|
|
|
|
|
|
Issuance of convertible debt
|
|
|
4,327,488
|
|
Settlements by debt extinguishment
|
|
|
(6,514,428
|
)
|
Change in estimated fair value
|
|
|
2,400,778
|
|
|
|
|
|
|
Balance June 30, 2017
|
|
$
|
2,141,590
|
|
Accounting
guidance on fair value measurements and disclosures defines fair value, establishes a framework for measuring the fair value
of assets and liabilities using a hierarchy system, and defines required disclosures. It clarifies that fair value is the
price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants in the market in which the reporting entity transacts business.
The Company’s
balance sheet contains derivative and warrant liabilities that are recorded at fair value on a recurring basis. The three-level
valuation hierarchy for disclosure of fair value is as follows:
Level 1:
uses quoted market prices in active markets for identical assets or liabilities.
Level 2:
uses observable market-based inputs or unobservable inputs that are corroborated by market data.
Level 3:
uses unobservable inputs that are not corroborated by market data.
The fair
value of the Company’s recorded derivative liability is determined based on unobservable inputs that are not corroborated
by market data, which require a Level 3 classification. A Black Scholes option 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, 2017:
Endonovo Therapeutics, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial
Statements (continued)
|
|
Fair Value Measurements Using
|
|
|
|
Quoted Prices in
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
|
|
Active Markets for
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
Identical Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,141,590
|
|
|
$
|
2,141,590
|
|
Total
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,141,590
|
|
|
$
|
2,141,590
|
|
Note 7 – Commitments and Contingencies
|
Legal Matters
|
|
|
|
The Company may become involved in various legal proceedings in the normal course of business.
|
Note 8 – Subsequent Events
Subsequent to June 30,
2017, an aggregate of 576,000 shares of restricted common stock were issued for services.
Subsequent to June
30, 2017, the Company issued 5,175,121 shares of its restricted common stock and 5,175,121 warrants pursuant to a Private Placement
Memorandum and private offerings for $100,000
Subsequent to
June 30, 2017, an aggregate of 10,275,649 shares of restricted common stock were issued on the conversion of $141,000 of principal
and $4,200 of accrued interest pursuant to one Variable Note.
Subsequent to June
30, 2017, an aggregate of 12,500 shares of restricted common stock were issued pursuant to a leak out agreement.
Subsequent to June 30,
2017, the Company received $217,500 of funding in connection with $228,750 of convertible notes issued.
Subsequent
to June 30, 2017, an aggregate of 1,800,000 shares of restricted common stock were issued pursuant to a 2016 debt settlement agreement
that is included in accounts payable and accrued expenses which had a balance of $76,050 at June 30, 2017.
Subsequent to June 30,
2017, The Corporation made an offer to certain consultants offering the right to convert up to $220,000 of deferred compensation
to three-year stock options, with a cashless exercise feature and an exercise price of $0.0216 per share where for each option
the consultant receives, $0.0216 of accrued compensation shall be relinquished by the consultant. This offer shall expire on August
30, 2017
Subsequent to June 30,
2017, The Board of Directors of the Company issued an additional 4,000 shares of Series AA Super Voting Preferred Stock to an
officer and director of the Company.
As a result of these issuances
the total number of shares outstanding is 262,009,141.