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 condensed consolidated financial statements as of June 30, 2021, and 2020, 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 13, 2021. 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 allow it to continue as a going concern. The ability of the Company to
continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable.
As
of June 30, 2021, the Company had cash of approximately $8,500 and a working capital deficiency of approximately $19.1 million. During
the six months ended June 30, 2021, the Company used approximately $0.4 million of cash in its operation. The Company has incurred recurring
losses resulting in an accumulated deficit of approximately $57.3 million as of June 30, 2021. These conditions raise substantial doubt
as to its ability to continue as going concern within one year from issuance date of these financial statements.
During
the six months ended June 30, 2021, the Company has raised approximately $0.5 million in debt and equity financing. The Company is raising
additional capital through debt and equity securities 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 is commercializing its FDA cleared and CE marked products and has commenced implementing
its business plan to materialize revenues from potential, future, license agreements, has raised capital through the sale of its common
stock, and the issuance of convertible promissory notes.
In
March 2020, the World Health Organization declared coronavirus COVID-19 a global pandemic. This contagious disease outbreak, which has
continued to spread, and any related adverse public health developments, has adversely affected workforces, economies, and financial
markets globally, potentially leading to an economic downturn. It is not possible for the Company to predict the duration or magnitude
of the adverse results of the outbreak and its effects on the Company’s business or ability to raise funds.
Endonovo
Therapeutics, Inc. and Subsidiaries
Notes
to Condensed Consolidated Financial Statements (continued)
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 six months ended June 30, 2021, include stock options, warrants, and notes payable. The Company has 3,013,730 options
and 28,309 warrants to purchase common stock outstanding at June 30, 2021. The Company has 96,533 options and 71,078 warrants to purchase
common stock outstanding at June 30, 2020.
The
components of basic and diluted earnings per share for the six months ended June 30, 2021, and 2020 were as follows:
Schedule of Earnings (Loss) Per Share
|
|
|
2021
|
|
|
2020
|
|
|
|
|
Six months ended June 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common shareholders
|
|
$
|
(3,997,550
|
)
|
|
$
|
2,703,767
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities
|
|
|
|
|
|
|
|
|
|
Convertible notes
|
|
|
-
|
|
|
|
(4,921,950
|
)
|
|
Net loss for diluted earnings per share
|
|
$
|
(3,997,550
|
)
|
|
$
|
(2,218,183
|
)
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
Weighted-average number of common shares outstanding during the period
|
|
|
50,084,150
|
|
|
|
6,368,543
|
|
|
Dilutive effect of convertible notes payable
|
|
|
-
|
|
|
|
8,696,619
|
|
|
Common stock and common stock equivalents used for diluted earnings per share
|
|
|
50,084,150
|
|
|
|
15,065,162
|
|
Accounts
Receivable
The
Company uses the specific identification method for recording the provision for doubtful accounts, which was $0 at June 30, 2021, and
December 31, 2020. Account receivables are written off when all collection attempts have failed.
Research
and Development
Costs
relating to the development of new products are expensed as research and development as incurred in accordance with FASB Accounting Standards
Codification (“ASC”) 730-10, Research and Development. Research and development costs amounted to $0 and $3,283 for
the six months ended June 30, 2021, and 2020, respectively, and are included in operating expenses in the condensed consolidated statements
of operations.
Endonovo
Therapeutics, Inc. and Subsidiaries
Notes
to Condensed Consolidated Financial Statements (continued)
Recently
Issued Accounting Pronouncements
In
May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt-Modifications
and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s
Own Equity (Subtopic 815-40), which addresses issuer’s accounting for certain modifications or exchanges of freestanding equity-classified
written call options. This amendment is effective for all entities, for fiscal years beginning after December 15, 2021, including interim
periods within those fiscal years. Early adoption is permitted. The Company is evaluating the effects, if any, of the adoption of ASU
2021-04 guidance on the Company’s financial position, results of operations and cash flows.
In
August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework- Changes to the Disclosure Requirements
for Fair Value Measurement. The amendments in this Update modify the disclosure requirements on fair value measurements in Topic 820,
Fair Value Measurement, based on the concepts in the Concepts Statement, including the consideration of costs and benefits. Effective
for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The amendments on
changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair
value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent
interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to
all periods presented upon their effective date. Early adoption is permitted upon issuance of this Update. Any entity is permitted to
early adopt any removed or modified disclosures upon issuance of this Update and delay adoption of the additional disclosures until their
effective date. The Company adopted ASU 2018-13 as of January 1, 2020, and ASU 2018-13 has not had a material impact on the condensed
consolidated financial position or results of operations and liquidity.
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.
Endonovo
Therapeutics, Inc. and Subsidiaries
Notes
to Condensed Consolidated Financial Statements (continued)
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.
Sources
of Revenue
The
Company has identified the following revenues by revenue source:
|
|
1.
|
Medical
care providers
|
As
of June 30, 2021, and 2020, the sources of revenue were as follows:
Schedule of Source of Revenue
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct sales- medical care providers,
gross
|
|
$
|
30,284
|
|
|
$
|
44,631
|
|
|
$
|
64,999
|
|
|
$
|
114,316
|
|
|
Total sources of revenue
|
|
$
|
30,284
|
|
|
$
|
44,631
|
|
|
$
|
64,999
|
|
|
$
|
114,316
|
|
Endonovo
Therapeutics, Inc. and Subsidiaries
Notes
to Condensed Consolidated Financial Statements (continued)
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.
Note
4 – Property, Plant and Equipment
The
following is a summary of equipment, at cost, less accumulated depreciation at June 30, 2021, and December 31, 2020:
Summary of Property, Plant and Equipment
|
|
|
June 30,
2021
|
|
|
December 31,
2020
|
|
|
|
|
|
|
|
|
|
|
Autos
|
|
$
|
64,458
|
|
|
$
|
64,458
|
|
|
Medical equipment
|
|
|
13,969
|
|
|
|
13,969
|
|
|
Other equipment
|
|
|
11,367
|
|
|
|
11,367
|
|
|
Property, Plant and Equipment, gross
|
|
|
89,794
|
|
|
|
89,794
|
|
|
Less accumulated depreciation
|
|
|
89,794
|
|
|
|
88,214
|
|
|
Property, Plant and Equipment,
net
|
|
$
|
-
|
|
|
$
|
1,580
|
|
Depreciation
expense for the six months ended June 30, 2021, and 2020 was $1,580 and $2,529, respectively.
Endonovo
Therapeutics, Inc. and Subsidiaries
Notes
to Condensed Consolidated Financial Statements (continued)
Note
5 – 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 June 30, 2021, and December 31, 2020:
Schedule of Patents
|
|
|
June 30,
2021
|
|
|
December 31,
2020
|
|
|
|
|
|
|
|
|
|
|
Patents
|
|
$
|
4,500,000
|
|
|
$
|
4,500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Less accumulated amortization
|
|
|
2,264,188
|
|
|
|
1,940,732
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents, net
|
|
$
|
2,235,812
|
|
|
$
|
2,559,268
|
|
Amortization
expense associated with patents was $323,456 for the six months ended June 30, 2021, and 2020. The estimated future amortization expense
related to patents as of June 30, 2021, is as follows:
Schedule of Estimated Future Amortization Expense
|
|
|
|
|
|
Twelve Months Ending June 30,
|
|
Amount
|
|
|
|
|
|
|
|
2021
|
|
$
|
646,910
|
|
|
2022
|
|
|
646,910
|
|
|
2023
|
|
|
646,910
|
|
|
2024
|
|
|
295,082
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,235,812
|
|
Note
6- Notes Payable
Notes
Payable
During
the six months ended June 30, 2021, the Company issued four (4) fixed rate promissory notes totaling $325,000
for funding of $325,000
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 six months ended June 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 six months ended June 30, 2021, the Company settled one of its promissory note 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.
Endonovo
Therapeutics, Inc. and Subsidiaries
Notes
to Condensed Consolidated Financial Statements (continued)
During
the six months ended June 30, 2021, the Company paid $8,000 in cash for one of its fixed rate promissory notes.
During
the six months ended June 30, 2021, the Company converted $282,850 in principal and $91,485 in accrued but unpaid interest into 21,490,651
shares of common stock.
The
gross amount of all convertible notes with variable conversion rates outstanding at June 30, 2021 is $4,770,926, of which $2,660,476
are past maturity.
Notes
payable to a former related party in the aggregate amount of $121,000 were outstanding at June 30, 2021, which are past maturity date.
The notes bear interest between 10% and 12% per annum. During the six months ended June 30, 2021, the Company paid $22,000 principal
to this former related party.
As
of June 30, 2021, fixed rate notes payable outstanding totaled $1,212,747, of which $160,747 is past maturity.
Schedule of Notes Payable
|
|
|
June 30,
2021
|
|
|
December 31,
2020
|
|
|
|
|
|
|
|
|
|
|
Notes payable at beginning of period
|
|
$
|
6,835,196
|
|
|
$
|
6,874,795
|
|
|
Notes payable issued
|
|
|
325,000
|
|
|
|
1,364,611
|
|
|
Liquidated damages
|
|
|
-
|
|
|
|
452,095
|
|
|
Note modification
|
|
|
-
|
|
|
|
25,190
|
|
|
Loan fees added to note payable
|
|
|
-
|
|
|
|
120,389
|
|
|
Repayments of notes payable in cash
|
|
|
(30,000
|
)
|
|
|
(22,000
|
)
|
|
Settlements on note payable
|
|
|
(117,770
|
)
|
|
|
(697,253
|
)
|
|
Less amounts converted to stock
|
|
|
(282,850
|
)
|
|
|
(1,282,631
|
)
|
|
Notes payable at end of period
|
|
|
6,729,576
|
|
|
|
6,835,196
|
|
|
Less debt discount
|
|
|
(70,236
|
)
|
|
|
(201,157
|
)
|
|
Note payable, net
|
|
$
|
6,659,340
|
|
|
$
|
6,634,039
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable issued to a former related party
|
|
$
|
121,000
|
|
|
$
|
143,000
|
|
|
Notes payable issued to non-related parties
|
|
$
|
6,538,340
|
|
|
$
|
6,491,039
|
|
The
maturity dates on the notes-payable are as follows:
Schedule of Maturity Dates of Notes Payable
|
|
|
Notes to
|
|
|
|
|
|
12 months ending,
|
|
Former Related party
|
|
|
Non-related parties
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Past due
|
|
$
|
121,000
|
|
|
$
|
3,446,126
|
|
|
$
|
3,567,126
|
|
|
June 30, 2022
|
|
|
-
|
|
|
|
3,162,450
|
|
|
|
3,162,450
|
|
|
|
|
$
|
121,000
|
|
|
$
|
6,608,576
|
|
|
$
|
6,729,576
|
|
Endonovo
Therapeutics, Inc. and Subsidiaries
Notes
to Condensed Consolidated Financial Statements (continued)
Note
7 - Shareholders’ Deficit
Preferred
Stock
The
Company has authorized 5,000,000 shares of preferred stock which have been designated as follows:
Schedule of Preferred Stock
|
|
|
Number of Shares
|
|
|
Number of Shares Outstanding
|
|
|
Par
|
|
|
Liquidation
|
|
|
|
|
Authorized
|
|
|
at June 30, 2021
|
|
|
Value
|
|
|
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. As of June 30, 2021, 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. As of June 30, 2021, 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.
Endonovo
Therapeutics, Inc. and Subsidiaries
Notes
to Condensed Consolidated Financial Statements (continued)
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.
During
the six months ended June 30, 2021, and 2020, the Company converted 25 and 1,041 shares of Series C into 1,111,111 and 2,621,488 shares
of common stock. As of June 30, 2021, there are 738 shares of Series C outstanding.
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 June 30, 2021.
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 six months ended June 30, 2021. As of June 30, 2021, there are 305 shares of
Series D outstanding.
Endonovo
Therapeutics, Inc. and Subsidiaries
Notes
to Condensed Consolidated Financial Statements (continued)
Common
Stock
On
May 18, 2020, the Company and Cavalry Fund I LP (the “investor”) entered into an Equity Line Purchase Agreement (“ELPA”)
pursuant to which the investor committed to purchase, subject to certain restrictions and conditions, up to $10,000,000 (the “Commitment”)
worth of the Company’s common stock, over a period of 24 months from the effectiveness of the registration statement registering
the resale of shares purchased by the investor pursuant to the ELPA.
The
Company agreed to issue shares of its common stock (the “commitment shares”) to the investor having a market value of 5%
of the commitment ($500,000 and 3,859,630 shares) based on the market price of the shares at the execution of the ELPA to be delivered
in three tranches of 385,963 shares on: (i) the execution of the ELPA; (ii) thirty days after the effectiveness of the registration statement
to be filed under the RRA (the “registration right agreement” or the “registration statement”), and (iii) 90
trading days after the effectiveness of the registration statement with the balance of the commitment shares to be issued pro-rata over
the first $3,000,000 of puts in accordance with a formula set forth in the ELPA.
The
ELPA provides that at any time after the effective date of the registration statement and provided the closing sale price of the common
shares on the OTCQB is not below $0.01, from time to time on any business day selected by the Company (the “Purchase Date”),
the Company shall have the right, but not the obligation, to direct the investor to buy up to 300,000 shares of the common stock (the
“regular purchase amount”) at a purchase price equal to the lower of: (i) the lowest applicable sales price on the date of
the put and (ii) 85% of the arithmetic average of the 3 lowest closing prices for the common stock during the 10 consecutive trading
days ending on the trading day immediately preceding such put date. The regular purchase amount may be increased as follows: to up to
400,000 shares of common stock if the closing price of the common shares is not below $0.25 per share and up to 500,000 shares if the
closing price is not below $0.40 per share.
Under
the ELPA the Company has the right to submit a regular purchase notice to the investor as often as every business day. The payment for
the shares covered by each put notice will generally occur on the day following the put notice. The ELPA contains provisions which allow
for the Company to make additional puts beyond the regular purchase amount at greater discounts to the market price of the common stock
as forth in the ELPA.
The
ELPA requires the Company to apply at least 50% of the proceeds of puts to the payment of certain variable rate convertible notes issued
by the Company. The Company does not anticipate that it will raise any funds under the ELPA.
During
the six months ended June 30, 2021, the Company issued 21,490,651 shares of common stock for the conversion of principal notes and accrued
interest in the amount of $374,335.
During
the six months ended June 30, 2021, the Company issued 2,500,334 shares of common stock labeled as commitment shares in connection with
the issuance of promissory notes.
During
the six months ended June 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 six months ended June 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 six months ended June 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 six months ended June 30, 2020, the Company issued 7,741,335
shares of common stock for the conversion of
notes and accrued interest in the amount of $1,311,240.
During
the six months ended June 30, 2020, the Company issued 2,621,488 shares of common stock with a value of $1,387,600, related to the conversion
of Series C.
During
the six months ended June 30, 2020, the Company issued 58,428 shares of common stock to Series C with a value of $8,152 to convert into shares of common stock.
During
the six months ended June 30, 2020, the Company issued 25,000 shares of common stock with a value of $3,500 related to services.
During
the six months ended June 30, 2020, the Company issued 409,000 shares with a value of $58,855 to one investor to exchange one variable
convertible note with remaining principal of $283,000 past maturity for a fixed rate convertible note with principal of $525,000 and
maturing one year from issuance. The Company recorded a loss on debt extinguishment of $151,496 for the fair value of the shares issued
in accordance with guidance in ASC 470-50 Debt-Modifications and Extinguishments.
Endonovo
Therapeutics, Inc. and Subsidiaries
Notes
to Condensed Consolidated Financial Statements (continued)
Stock
Options
The
balance of all stock options outstanding as of June 30, 2021, is as follows:
Schedule of Stock Options Outstanding
|
|
|
|
|
|
Weighted
Average
|
|
|
Weighted
Average
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
|
Exercise Price
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
|
Options
|
|
|
Per Share
|
|
|
Term (years)
|
|
|
Value
|
|
|
Outstanding at January 1, 2021
|
|
|
3,014,080
|
|
|
$
|
0.37
|
|
|
|
1.67
|
|
|
|
-
|
|
|
Granted
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Cancelled
|
|
|
(350
|
)
|
|
$
|
47.00
|
|
|
|
-
|
|
|
|
-
|
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Outstanding at June 30, 2021
|
|
|
3,013,730
|
|
|
$
|
0.37
|
|
|
|
2.55
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at June 30, 2021
|
|
|
1,013,730
|
|
|
$
|
0.80
|
|
|
|
1.58
|
|
|
$
|
-
|
|
Share-based
compensation expense for the six months ended June 30, 2021, totaled $40,961.
The
total unrecognized compensation expense amounts to approximately $157,000 and should be recognized evenly over a 22.8-month period.
On
June 11, 2020, the Board of Directors approved the issuance of 74,668,000 non-incentive stock options to officers, directors, and key
consultants. The key terms and conditions of the award have not been mutually understood and agreed upon, and as a result, the Company
has not recognized stock compensation for such award for the six months ended June 30, 2021.
Warrants
A
summary of the status of the warrants granted under these agreements at June 30, 2021, and changes during the six months then ended is
presented below:
Schedule of Warrants Outstanding
|
|
|
Outstanding
Warrants
|
|
|
Weighted
|
|
|
|
|
|
|
|
Weighted
Average
|
|
|
Average Remaining
|
|
|
|
|
|
|
|
Exercise
Price
|
|
|
Contractual
|
|
|
|
|
Shares
|
|
|
Per
Share
|
|
|
Term
(years)
|
|
|
Outstanding
at January 1, 2021
|
|
|
39,295
|
|
|
$
|
200.72
|
|
|
|
0.93
|
|
|
Granted
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
Cancelled
|
|
|
(10,986
|
)
|
|
$
|
489.75
|
|
|
|
-
|
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
Outstanding
at June 30, 2021
|
|
|
28,309
|
|
|
$
|
88.56
|
|
|
|
0.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
at June 30, 2021
|
|
|
28,309
|
|
|
$
|
88.56
|
|
|
|
0.63
|
|
Note
8 – 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 June 30, 2021, the
balance of the deferred compensation was $400,789, which reflects $150,000 accrual of deferred compensation and approximately $86,679
cash repayment of deferred compensation during the six months ended June 30, 2021.
One
former executive of the Company has agreed to defer a portion of his compensation until cash flow improves. As of June 30, 2021, the
balance of his deferred compensation was $632,257. No activity occurred during the six months ended June 30, 2021.
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 June 30, 2021, was $6,529 and is included in the Company’s accounts payable balance as of June 30, 2021. During
the six months ended June 30, 2021, the Company’s executive officer advanced an aggregate amount of $19,750 for corporate expenses
and notes repayment, of which $19,750 was repaid back as of June 30, 2021.
At
June 30, 2021, notes payable remain outstanding to the former President of the Company, in the amount of $121,000. At June 30, 2021,
accrued interests on these notes payable totaled $61,026, and are included in accrued expenses on the condensed consolidated balance
sheet.
Endonovo
Therapeutics, Inc. and Subsidiaries
Notes
to Condensed Consolidated Financial Statements (continued)
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:
Schedule of Conversion Feature Using Black Scholes Option Pricing Model
|
|
|
|
Six months ended June 30,
|
|
|
|
|
|
2021
|
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected term
|
|
|
1 – 4 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:
Schedule of Fair Value of Derivative Liability
|
|
|
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:
Schedule of Liabilities Significant Unobservable Inputs
|
|
|
(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
|
|
Note
10 – Commitments and Contingencies
Legal
Matters
The
Company is a defendant in a case brought by Auctus Fund, LLC seeking to enforce a variable rate dated in August 2019, which was in the
original amount of $275,250 and claiming damages in excess of $500,000, other unspecified damages and attorney fees. The Company is vigorously
defending the action and as filed an answer with counterclaims. While the matter is in its early stages and there are always uncertainties
in litigation, management does not believe that the litigation will have a result significantly averse to the Company.
The
Company may become involved in various legal proceedings in the normal course of business.
Note
11 – Concentrations.
Sales
During
the six months ended June 30, 2021, we had two significant customers, which accounted for 47%
of sales.
Supplier
We
also have a single source for our bioelectric medical devices, which account for 100% of our sales. The interruption of products provided
by this supplier would adversely affect our business and financial condition unless an alternative source of products could be found.
Accounts
Receivable
At
June 30, 2021, we had one customer which accounted for approximately 48% of our account receivable balances.
Note
12 – Subsequent Events
Subsequent
to June 30, 2021, an aggregate of 2,600,000
shares of restricted common stock were issued
on the conversion of $44,839
of principal and $7,161
of accrued interest pursuant to one fixed
promissory note.
Subsequent
to June 30, 2021, an aggregate of 2,500,000
shares of restricted common stock were issued
pursuant to consulting agreement.