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 non-invasive
electrocuetical 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 September 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 $2,302,000 in debt
and equity financing for the period January 1, 2017 to September 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 and has initiated a private placement offering
to raise capital through the sale of its common stock,. 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 September 30, 2017, the Company has received cash funding of $1,562,000
for $1,667,500 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.
Endonovo
Therapeutics, Inc. and Subsidiaries
Notes
to Condensed Consolidated Financial Statements (continued)
Common
equivalent shares, consisting of incremental common shares for the three and nine months ended September 30, 2017 issuable upon
the exercise of stock options, warrants, and convertible debt have not been included in the diluted earnings per share calculation
for the three and nine months ended September 30, 2017 or 2016 because their effect is anti-dilutive.
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.
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 to 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 September 30, 2017 and December 31, 2016, there is no impact of the presentation of deferred
income taxes in our financial statements.
Endonovo
Therapeutics, Inc. and Subsidiaries
Notes
to Condensed Consolidated Financial Statements (continued)
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.
Note
2 – Property, Plant and Equipment
The
following is a summary of equipment, at cost, less accumulated depreciation at September 30, 2017 and December 31, 2016:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
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
|
|
|
73,478
|
|
|
|
62,407
|
|
|
|
$
|
4,754
|
|
|
$
|
15,825
|
|
Depreciation
expense for the nine months ended September 30, 2017 and 2016 was $11,071 and $11,876, 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 nine months ended September 30, 2017, the Company issued eleven Convertible Notes (“Variable Notes”) totaling
$1,667,500 with original terms ranging from six months to one year with interest rates equal to 10%, and a variable conversion
rate with a discount 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%.
Endonovo
Therapeutics, Inc. and Subsidiaries
Notes
to Condensed Consolidated Financial Statements (continued)
During
the nine months ended September 30, 2017, an investor in the Company’s Variable Notes purchased from another holder of the
Company’s Variable Notes an aggregate of $920,000 principal and $39,570 of accrued interest with terms that extended the
maturities to one-year and increased the interest rate from 6% to 10% and contains a prepayment option, which enables the Company
to prepay the note subsequent to issuance. As a result of this modification, the Company recognized a gain on debt extinguishment
of $2,358,919 during the nine months ended September 30, 2017.
During
the nine months ended September 30, 2017, the Company entered into a settlement agreement with a holder of two $33,000 convertible
promissory notes totaling $66,000 in principal and $11,400 accrued interest wherein the Company repaid in full the principal and
accrued interest balance with a payment of $90,000. In accordance with FASB ASC 470-50, Debt modifications and Extinguishments,
the Company recognized a $58,115 gain on extinguishment of debt in connection with this settlement agreement.
The
gross amount of all Variable Notes outstanding at September 30, 2017 is $2,495,315.
Notes
payable to a related party in the aggregate amount of $170,000 were extended.
As
of September 30, 2017, other notes payable outstanding totaled $974,903, all of which are past maturity.
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Notes payable at beginning of period
|
|
$
|
3,193,956
|
|
|
$
|
2,333,751
|
|
Notes payable issued
|
|
|
1,667,500
|
|
|
|
1,776,895
|
|
Default interest added to note payable
|
|
|
-
|
|
|
|
62,500
|
|
Accrued interest payable added to note payable
|
|
|
39,570
|
|
|
|
-
|
|
Settlements on note payable
|
|
|
-
|
|
|
|
(55,000
|
)
|
Repayments of notes payable in cash
|
|
|
(96,000
|
)
|
|
|
(241,500
|
)
|
Less amounts converted to stock
|
|
|
(1,164,808
|
)
|
|
|
(682,690
|
)
|
Notes payable at end of period
|
|
|
3,640,218
|
|
|
|
3,193,956
|
|
Less debt discount
|
|
|
(920,773
|
)
|
|
|
(1,145,849
|
)
|
|
|
$
|
2,719,445
|
|
|
$
|
2,048,107
|
|
|
|
|
|
|
|
|
|
|
Notes payable issued to related parties
|
|
$
|
170,000
|
|
|
$
|
170,000
|
|
Notes payable issued to non-related parties
|
|
$
|
2,549,445
|
|
|
$
|
1,878,107
|
|
The maturity dates on the notes payable are as follows:
|
|
Notes to
|
|
|
|
|
12 months ending,
|
|
Related parties
|
|
|
Non-related parties
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
$
|
170,000
|
|
|
$
|
3,470,218
|
|
|
$
|
3,640,218
|
|
|
|
$
|
170,000
|
|
|
$
|
3,470,218
|
|
|
$
|
3,640,218
|
|
Endonovo
Therapeutics, Inc. and Subsidiaries
Notes
to Condensed Consolidated Financial Statements (continued)
Long
Term Loan
The
Company has financed the purchase of an automobile. The maturity dates on the loan are as follows:
Twelve months ending,
|
|
|
|
September 30, 2018
|
|
$
|
7,355
|
|
|
|
$
|
7,355
|
|
|
|
|
|
|
Current portion
|
|
$
|
7,355
|
|
Long term portion
|
|
$
|
-
|
|
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
September 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 September 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 and discretionary bonuses. 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 nine months ended September 30, 2017, the Company issued 3,598,996 shares of common stock with a value
of $195,555 related to these consulting agreements.
During
the nine months ended September 30, 2017, the Company issued pursuant to two private placement offerings 32,200,069 shares of
common stock and the same number of warrants for cash of $727,750 and conversion of notes and accrued interest in the amount of
$66,367. The Company also issued 106,110,372 shares of common stock for the conversion of notes and accrued interest of $1,108,321,
which resulted in a loss on debt extinguishment of $269,255 during the nine months ended September 30, 2017.
Also,
during the nine months ended September 30, 2017, the Company issued 126,618 shares of common stock valued at $7,530 related to
the extension of outstanding notes and lock-up agreements, 6,125,000 shares of common stock valued at $202,681 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 $86,994 for settlement of the principal and interest outstanding on two notes payable.
Endonovo
Therapeutics, Inc. and Subsidiaries
Notes
to Condensed Consolidated Financial Statements (continued)
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. During the quarter ended September 30, 2017, the Company issued 4,000
shares of Series AA Preferred Stock to an officer and director of the Company for $4. As of September 30, 2017, there were 5,000
shares of Series AA Preferred Stock outstanding.
Warrants
During
the nine months ended September 30, 2017, in conjunction with the sale of common stock and issuance of notes, the Company issued
three and five-year common stock purchase warrants to acquire up to 32,200,069 shares of common stock. These warrants have exercise
prices ranging from $0.0165 to $1.00 per share. In addition, during the nine months ended September 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 September 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
|
|
|
33,300,747
|
|
|
$
|
0.24
|
|
Cancelled
|
|
|
-
|
|
|
$
|
-
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
Outstanding at September 30, 2017
|
|
|
42,795,687
|
|
|
$
|
0.26
|
|
|
|
|
|
|
|
|
|
|
Exercisable at September 30, 2017
|
|
|
42,795,687
|
|
|
$
|
0.26
|
|
Stock
Options
During
the nine months ended September 30, 2017, the Company granted stock options to independent contractors exercisable into up to
25,272,305 shares of common stock with exercise prices ranging from $0.0269 to $0.054 per share, lives ranging from three to ten
years, and cashless exercise rights and were valued at $1,139,403 using the Black Scholes option pricing model. The stock options
vested on grant and were expensed in full during the nine months ended September 30, 2017.
Endonovo
Therapeutics, Inc. and Subsidiaries
Notes
to Condensed Consolidated Financial Statements (continued)
In
addition, during the nine months ended September 30, 2017, the Company issued stock options to independent contractors exercisable
into up to 67,931,064 shares of common stock in exchange for the conversion of $1,467,311 of deferred compensation due to the
independent contractors. These options have an exercise price of $0.0216 per share, a three-year life and cashless exercise rights.
These options vested on grant. The balance of all stock options outstanding as of September 30, 2017 is as follows:
|
|
|
|
|
Weighted Average
|
|
|
Weighted Average
|
|
|
Aggregate
|
|
|
|
|
|
|
Exercise Price
|
|
|
Remaining Contractual
|
|
|
Intrinsic
|
|
|
|
Options
|
|
|
Per Share
|
|
|
Term (years)
|
|
|
Value
|
|
Outstanding at January 1, 2017
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
93,203,369
|
|
|
$
|
0.029
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2017
|
|
|
93,203,369
|
|
|
$
|
0.029
|
|
|
|
4.29
|
|
|
$
|
2,674,937
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at September 30, 2017
|
|
|
93,203,369
|
|
|
$
|
0.029
|
|
|
|
4.29
|
|
|
$
|
2,674,937
|
|
The
following assumptions were used at September 30, 2017 to value the stock options using the Black Scholes option pricing model.
|
|
Nine months ended
|
|
|
September 30, 2017
|
|
|
|
Expected term
|
|
1.5 - 5 years
|
Exercise price
|
|
$0.0216 - $0.054
|
Expected volatility
|
|
184% - 190%
|
Expected dividends
|
|
None
|
Risk-free interest rate
|
|
1.23% - 1.79%
|
Forfeitures
|
|
None
|
Note
5 – Related Party Transactions
One
officer and executive of the Company has entered into note payable agreement with the Company. The balance of notes payable from
related parties at September 30, 2017 is $170,000.
As
of September 30, 2017 and December 31, 2016, the balance of two executive officers and the operations manager deferred
compensation is approximately $1,155,794 and $1,861,327, respectively. During the nine months ended September 30, 2017, these
individuals converted a total of $660,000 of deferred compensation into three-year stock options exercisable into up to 30,555,555
shares of common stock at an exercise price of $0.0216 per share.
From
time-to-time executive officers and the operations manager of the Company advance monies to the Company to cover costs. During
the nine months ended September 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 of the Company at September 30, 2017 is $6,973.
Endonovo
Therapeutics, Inc. and Subsidiaries
Notes
to Condensed Consolidated Financial Statements (continued)
During
the quarter ended September 30, 2017, 4,000 shares of Series AA Preferred Stock was issued to an officer and director of the Company
for $4.
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 September 30,
|
|
|
|
Nine months ended September 30,
|
|
|
|
|
2017
|
|
|
|
2016
|
|
|
|
2017
|
|
|
|
2016
|
|
Expected term
|
|
|
.01 months - 1 year
|
|
|
|
1 month - 1 year
|
|
|
|
.01 months - 1 years
|
|
|
|
1 month - 2.2 years
|
|
Exercise price
|
|
|
$0.0130-$0.0182
|
|
|
|
$0.0690-$0.1051
|
|
|
|
$0.0085-$0.0385
|
|
|
|
$0.0645-$0.28
|
|
Expected volatility
|
|
|
189%-200%
|
|
|
|
255%-276%
|
|
|
|
189%-201%
|
|
|
|
220%-276%
|
|
Expected dividends
|
|
|
None
|
|
|
|
None
|
|
|
|
None
|
|
|
|
None
|
|
Risk-free interest rate
|
|
|
1.05% to 1.31%
|
|
|
|
0.52% to 0.59%
|
|
|
|
1.03% to 1.31%
|
|
|
|
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 nine months ended September
30, 2017:
|
|
Derivative
|
|
|
|
|
Liability
|
|
Balance December 31, 2016
|
|
$
|
1,927,752
|
|
|
|
|
|
|
Issuance of convertible debt
|
|
|
5,781,056
|
|
Settlements by debt extinguishment
|
|
|
(7,437,183
|
)
|
Change in estimated fair value
|
|
|
6,945,434
|
|
|
|
|
|
|
Balance September 30, 2017
|
|
$
|
7,217,059
|
|
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.
Endonovo
Therapeutics, Inc. and Subsidiaries
Notes
to Condensed Consolidated Financial Statements (continued)
The
following table presents balances in the liabilities with significant unobservable inputs (Level 3) at September 30, 2017:
|
|
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 September 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
7,217,059
|
|
|
$
|
7,217,059
|
|
Total
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
7,217,059
|
|
|
$
|
7,217,059
|
|
Note
7 – Commitments and Contingencies
Legal
Matters
The
Company may become involved in various legal proceedings in the normal course of business.
On
September 19, 2017, the Company entered into a Settlement Agreement with Kodiak Capital Group, LLC for $80,000 relative to the
2015 EPA Agreement.
Note
8 – Subsequent Events
Subsequent
to September 30, 2017, an aggregate of 74,026 shares of restricted common stock were issued for services.
Subsequent to September
30, 2017, the Company issued 10,160,435 shares of its restricted common stock and 9,697,473 warrants pursuant to a Private
Placement Memorandum and private offerings for $429,990 in cash and $30,000 of converted notes.
Subsequent
to September 30, 2017, an aggregate of 10,320,197 shares of restricted common stock were issued on the conversion of $160,000
of principal and $7,600 of accrued interest pursuant to one Variable Note.
Subsequent
to September 30, 2017, an aggregate of 252,676 shares of restricted common stock were issued pursuant to leak out agreements.
Subsequent
to September 30, 2017, the Company cancelled 196,078 shares of restricted common stock priced at $12,500 previously issued under
a subscription agreement and 196,078 warrants to purchase the Company’s common stock.
Subsequent
to September 30, 2017, the Company received $195,000 of funding in connection with $210,000 of convertible notes issued.
Subsequent
to September 30, 2017, the Company issued a final tranche of 600,000 shares as full repayment on the $175,000 accrued liability
in connection with a variable note settlement agreement entered into in December 2016.
As a result of these issuances
the total number of shares outstanding is 305,274,764.