UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One) | |
[X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2017.
For the quarterly period ended March 31, 2019. | |
[ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _______ to _______. |
For the transition period from _______ to _______.
Commission File Number:000-55453
ENDONOVO THERAPEUTICS, INC.
(Exact name of registrant as specified in its charter)
Delaware | 45-2552528 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) |
6320 Canoga Avenue, 15th Floor, Woodland Hills, CA 91367
(Address of principal executive offices, zip code)
(800) 489-4774
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] | Accelerated filer [ ] |
Non-accelerated filer [ ] (do not check if smaller reporting company) | Smaller reporting company [X] |
Emerging growth company [X] |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [X]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
As of November 3, 2017,May 6, 2019, there were 3,274,764558,158,330 shares of common stock, $0.0001 par value issued and outstanding.
ENDONOVO THERAPEUTICS, INC.
TABLE OF CONTENTS
FORM 10-Q REPORT
September 30, 2017March 31, 2019
Page Number | ||
PART I - FINANCIAL INFORMATION | ||
Item 1. | Financial Statements. | 3 |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. | |
Item 3. | Quantitative and Qualitative Disclosures About Market Risk. | |
Item 4. | Controls and Procedures. | |
PART II - OTHER INFORMATION | ||
Item 1. | Legal Proceedings. | |
Item 1A. | Risk Factors. | |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. | |
Item 3. | Defaults Upon Senior Securities. | |
Item 4. | Mine Safety Disclosures | |
Item 5. | Other Information. | |
Item 6. | Exhibits. | |
SIGNATURES |
2 |
PART I - FINANCIAL INFORMATION
Endonovo Therapeutics, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
September 30, | December 31, | |||||||
2017 | 2016 | |||||||
(Unaudited) | (Audited) | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash | $ | 64,479 | $ | 55,533 | ||||
Prepaid expenses and other current assets | 91,000 | 247,321 | ||||||
Total current assets | 155,479 | 302,854 | ||||||
Property Plant and Equipment, net | 4,754 | 15,825 | ||||||
Total assets | $ | 160,233 | $ | 318,679 | ||||
LIABILITIES AND SHAREHOLDERS' DEFICIT | ||||||||
Current Liabilities | ||||||||
Accounts payable and accrued expenses | $ | 3,238,237 | $ | 4,727,247 | ||||
Short term advances | 6,973 | 5,823 | ||||||
Notes payable, net of discounts of $920,773 as of September 30, 2017 and $1,145,849 as of December 31, 2016 | 2,549,445 | 1,878,107 | ||||||
Notes payable - related parties | 170,000 | 170,000 | ||||||
Derivative liability | 7,217,059 | 1,927,752 | ||||||
Current portion of long term loan | 7,355 | 12,395 | ||||||
Total current liabilities | 13,189,069 | 8,721,324 | ||||||
Long term loan | - | 4,221 | ||||||
Acquisition payable | 155,000 | 155,000 | ||||||
Total liabilities | 13,344,069 | 8,880,545 | ||||||
COMMITMENTS AND CONTINGENCIES | ||||||||
Shareholders' deficit | ||||||||
Super AA super voting preferred stock, $0.001 par value; 1,000,000 authorized and 5,000 and 1,000 issued and outstanding at September 30, 2017 and December 31, 2016 | 5 | - | ||||||
Series B convertible preferred stock, $0.0001 par value; 50,000 shares authorized, 0 shares issued and outstanding at September 30, 2017 and December 31, 2016 | - | - | ||||||
Common stock, $.0001 par value; 500,000,000 shares authorized; 284,063,508 and 134,336,637 shares issued and outstanding as of September 30, 2017 and December 31, 2016 | 28,404 | 13,434 | ||||||
Additional paid-in capital | 17,755,199 | 9,800,553 | ||||||
Stock subscriptions | (14,070 | ) | (1,570 | ) | ||||
Accumulated deficit | (30,953,374 | ) | (18,374,283 | ) | ||||
Total shareholders' deficit | (13,183,836 | ) | (8,561,866 | ) | ||||
Total liabilities and shareholders' deficit | $ | 160,233 | $ | 318,679 |
March 31, 2019 | December 31, 2018 | |||||||
(Unaudited) | (Audited) | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash | $ | 58,477 | $ | 379,151 | ||||
Accounts receivable, net of allowance for doubtful accounts of $0 | 10,315 | 3,345 | ||||||
Total current assets | 68,792 | 382,496 | ||||||
Property Plant and Equipment, net | 5,980 | 6,727 | ||||||
Patents, net | 3,691,363 | 3,853,090 | ||||||
Total assets | $ | 3,766,135 | $ | 4,242,313 | ||||
LIABILITIES AND SHAREHOLDERS’ DEFICIT | ||||||||
Current Liabilities | ||||||||
Accounts payable | $ | 198,885 | $ | 157,388 | ||||
Accrued interest | 978,387 | 786,098 | ||||||
Deferred compensation | 2,276,307 | 2,245,757 | ||||||
Notes payable, net of discounts of $1,204,411 and $1,833,795 as of March 31, 2019 and December 31, 2018 | 6,015,993 | 6,054,403 | ||||||
Notes payable - related party | 260,000 | 270,000 | ||||||
Derivative liability | 3,868,155 | 4,426,026 | ||||||
Series C preferred stock liability, net of discounts of $146,105 and $180,712 at March 31, 2019 and December 31, 2018 | 1,638,086 | 1,539,479 | ||||||
Total current liabilities | 15,235,813 | 15,479,151 | ||||||
Acquisition payable | 155,000 | 155,000 | ||||||
Total liabilities | 15,390,813 | 15,634,151 | ||||||
COMMITMENTS AND CONTINGENCIES, note 9 | ||||||||
Shareholders’ deficit | ||||||||
Super AA super voting preferred stock, $0.001 par value; 1,000,000 authorized and 25,000 issued and outstanding at March 31, 2019 and December 31, 2018 | 25 | 25 | ||||||
Series B convertible preferred stock, $0.0001 par value; 50,000 shares authorized, 600 shares issued and outstanding at March 31, 2019 and December 31, 2018 | 1 | 1 | ||||||
Common stock, $0.0001 par value; 2,500,000,000 shares authorized; 516,773,223 and 431,063,061 shares issued and outstanding as of March 31, 2019 and December 31, 2018 | 51,676 | 43,106 | ||||||
Additional paid-in capital | 26,351,697 | 24,186,882 | ||||||
Stock subscriptions | (1,570 | ) | (1,570 | ) | ||||
Accumulated deficit | (38,026,507 | ) | (35,620,282 | ) | ||||
Total shareholders’ deficit | (11,624,678 | ) | (11,391,838 | ) | ||||
Total liabilities and shareholders’ deficit | $ | 3,766,135 | $ | 4,242,313 |
See accompanying summary of accounting policies and notes to unaudited condensed consolidated financial statements.
3 |
Endonovo Therapeutics, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended | ||||||||
March 31, | ||||||||
2019 | 2018 | |||||||
Revenue | $ | 44,952 | $ | 6,972 | ||||
Cost of revenue | 7,711 | - | ||||||
Gross profit | 37,241 | 6,972 | ||||||
Operating expenses | 850,238 | 1,282,316 | ||||||
Loss from operations | (812,997 | ) | (1,275,344 | ) | ||||
Other income (expense) | ||||||||
Change in fair value of derivative liability | (8,542 | ) | 1,814,058 | |||||
Gain (loss) on settlement of debt | 38,891 | 114,828 | ||||||
Interest expense, net | (1,623,577 | ) | (1,272,459 | ) | ||||
Other income (expense) | (1,593,228 | ) | 656,427 | |||||
Loss before income taxes | (2,406,225 | ) | (618,917 | ) | ||||
Provision for income taxes | - | - | ||||||
Net loss | $ | (2,406,225 | ) | $ | (618,917 | ) | ||
Basic and diluted loss per share | $ | (0.00 | ) | $ | (0.00 | ) | ||
Weighted average common share outstanding: | ||||||||
Basic and diluted | 481,827,046 | 327,507,303 |
See accompanying summary of accounting policies and notes to unaudited condensed consolidated financial statements.
4 |
Endonovo Therapeutics, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Three Months ended March 31, | ||||||||
2019 | 2018 | |||||||
Operating activities: | ||||||||
Net loss | $ | (2,406,225 | ) | $ | (618,917 | ) | ||
Adjustments to reconcile net loss to cash used in operating activities: | ||||||||
Depreciation and amortization expense | 162,474 | 161,994 | ||||||
Fair value of equity issued for services | 92,084 | 4,535 | ||||||
Loss (gain) on extinguishment of debt | (38,891 | ) | (114,828 | ) | ||||
Amortization of note discount and original issue discount | 671,929 | 1,036,609 | ||||||
Amortization of discount on Series C Preferred stock liability | 46,119 | 16,080 | ||||||
Non-cash interest expense | 563,267 | 48,873 | ||||||
Non-cash value of stock options and warrants issued for services and notes | 5,279 | 380,750 | ||||||
Change in fair value of derivative liability | 8,542 | (1,814,058 | ) | |||||
Changes in assets and liabilities: | ||||||||
Accounts receivable | (6,970 | ) | (6,972 | ) | ||||
Account payable | 41,497 | 102,297 | ||||||
Accrued interest | 302,112 | 138,286 | ||||||
Deferred compensation | 30,550 | 74,600 | ||||||
Net cash used in operating activities | (528,233 | ) | (590,751 | ) | ||||
Investing activities: | ||||||||
Acquisition of property and equipment | - | (8,969 | ) | |||||
Net cash used in investing activities | - | (8,969 | ) | |||||
Financing activities: | ||||||||
Proceeds from the issuance of notes payable | 320,000 | 375,000 | ||||||
Proceeds from related party short-term advances | - | 60,000 | ||||||
Repayments on related parties short term advances | - | (82,000 | ) | |||||
Repayments of convertible debt in cash | (140,000 | ) | - | |||||
Proceeds from issuance of common stock and units | 27,559 | 60,000 | ||||||
Payment against long term loan | - | (3,157 | ) | |||||
Proceeds from issuance of preferred stock | - | 195,000 | ||||||
Net cash provided by financing activities | 207,559 | 604,843 | ||||||
Net (decrease) increase in cash | (320,674 | ) | 5,123 | |||||
Cash, beginning of year | 379,151 | 90,173 | ||||||
Cash, end of period | $ | 58,477 | $ | 95,296 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Cash paid for interest | $ | 39,504 | $ | 49,690 | ||||
Cash paid for income taxes | $ | - | $ | - | ||||
Non Cash Investing and Financing Activities: | ||||||||
Conversion of notes payable and accrued interest to common stock | $ | 919,618 | $ | 513,530 | ||||
Conversion of fixed rate notes to Preferred C Stock | $ | 64,000 | $ | - |
See accompanying summary of accounting policies and notes to unaudited condensed consolidated financial statements.
5 |
Endonovo Therapeutics, Inc. and Subsidiaries
Condensed Consolidated Statement of Operations
(Unaudited)
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Operating expenses | $ | 1,035,628 | $ | 1,310,748 | $ | 3,770,929 | $ | 4,778,109 | ||||||||
Loss from operations | (1,035,628 | ) | (1,310,748 | ) | (3,770,929 | ) | (4,778,109 | ) | ||||||||
Other income (expense) | ||||||||||||||||
Change in fair value of derivative liability | (4,544,656 | ) | 46,997 | (6,945,434 | ) | 2,645,681 | ||||||||||
Gain (loss) on extinguishment of debt | (58,197 | ) | (42,507 | ) | 2,175,459 | (435,625 | ) | |||||||||
Settlement expense | (80,000 | ) | - | (80,000 | ) | - | ||||||||||
Interest expense, net | (953,623 | ) | (912,583 | ) | (3,958,187 | ) | (2,007,788 | ) | ||||||||
(5,636,476 | ) | (908,093 | ) | (8,808,162 | ) | 202,268 | ||||||||||
Loss before income taxes | (6,672,104 | ) | (2,218,841 | ) | (12,579,091 | ) | (4,575,841 | ) | ||||||||
Provision for income taxes | - | - | - | - | ||||||||||||
Net loss | $ | (6,672,104 | ) | $ | (2,218,841 | ) | $ | (12,579,091 | ) | $ | (4,575,841 | ) | ||||
Basic and diluted loss per share | $ | (0.03 | ) | $ | (0.02 | ) | $ | (0.06 | ) | $ | (0.04 | ) | ||||
Weighted average common share outstanding: | ||||||||||||||||
Basic and diluted | 263,535,090 | 123,138,397 | 220,353,026 | 113,649,351 |
See accompanying summary of accounting polices and notes to unaudited condensed consolidated financial statements.
Endonovo Therapeutics, Inc. and Subsidiaries
Condensed Consolidated Statement of Cash Flows
(Unaudited)
Nine Months ended September 30, | ||||||||
2017 | 2016 | |||||||
Operating activities: | ||||||||
Net loss | $ | (12,579,091 | ) | $ | (4,575,841 | ) | ||
Adjustments to reconcile net loss to cash used in operating activities: | ||||||||
Depreciation and amortization expense | 11,070 | 11,876 | ||||||
Fair value of equity issued for services | 1,410,071 | 2,402,736 | ||||||
Gain on extinguishment of debt | (2,175,459 | ) | 545,905 | |||||
Non-cash interest expense | 2,465,912 | 779,045 | ||||||
Non-cash operating expenses on fees paid | - | 106,720 | ||||||
Amortization of note discount | 1,467,888 | 826,063 | ||||||
Change in fair value of derivative liability | 6,945,434 | (2,645,681 | ) | |||||
Changes in assets and liabilities: | ||||||||
Other current assets | 156,321 | 196,133 | ||||||
Accounts payable and accrued expenses | 108,658 | 549,360 | ||||||
Net cash used in operating activities | (2,189,196 | ) | (1,803,684 | ) | ||||
Investing activities: | ||||||||
Net cash used in investing activities | - | - | ||||||
Financing activities: | ||||||||
Proceeds from the issuance of notes payable | 1,562,000 | 1,051,228 | ||||||
Proceeds from short term advances | 12,650 | 5,618 | ||||||
Repayments on short term advances | (11,500 | ) | (15,300 | ) | ||||
Proceeds from issuance of preferred stock | 5 | - | ||||||
Proceeds from issuance of common stock and units | 740,250 | 1,055,829 | ||||||
Payment against long term loan | (9,263 | ) | (8,989 | ) | ||||
Payment against notes payable | (96,000 | ) | (156,500 | ) | ||||
Payment against notes payable- related parties | - | (75,000 | ) | |||||
Net cash provided by financing activities | 2,198,142 | 1,856,886 | ||||||
Net increase in cash | 8,946 | 53,202 | ||||||
Cash, beginning of year | 55,533 | 41,473 | ||||||
Cash, end of period | $ | 64,479 | $ | 94,675 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Cash paid for interest | $ | 27,022 | $ | 25,486 | ||||
Cash paid for income taxes | $ | - | $ | - | ||||
Non Cash Investing and Financing Activities: | ||||||||
Conversion of notes payable and accrued interest to common stock | $ | 1,108,321 | $ | 532,018 | ||||
Common stock issued on settlement of debt | $ | 289,675 | $ | - | ||||
Notes payable and accrued interest exchanged for common stock units | $ | 66,367 | $ | - | ||||
Value of stock options granted in satisfaction of deferred compensation | $ | 1,467,311 | $ | - |
See accompanying summary of accounting polices and notes to unaudited condensed consolidated financial statements.
Endonovo Therapeutics, Inc. and Subsidiaries
Condensed Consolidated Statement of Shareholders’ Deficit
(Unaudited)
Series AA Preferred Stock | Series B Convertible Preferred Stock | Common Stock | Additional Paid-in | Common Stock Subscription | Retained | Total Shareholder's | ||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Capital | Receivable | Earnings | Deficit | |||||||||||||||||||||||||||||||
Balance December 31, 2016 | 1,000 | $ | - | - | $ | - | 134,336,637 | $ | 13,434 | $ | 9,800,553 | $ | (1,570 | ) | $ | (18,374,283 | ) | $ | (8,561,866 | ) | ||||||||||||||||||||
Private placement units issued for cash | - | - | - | - | 28,830,028 | 2,882 | 737,368 | (12,500 | ) | - | 727,750 | |||||||||||||||||||||||||||||
Preferred stock issued for cash | 4,000 | 5 | - | - | - | - | - | - | - | 5 | ||||||||||||||||||||||||||||||
Shares issued for services | - | - | - | - | 3,598,996 | 359 | 199,196 | - | - | 199,555 | ||||||||||||||||||||||||||||||
Shares issued with lock-up agreements | - | - | - | - | 126,618 | 13 | 7,517 | - | - | 7,530 | ||||||||||||||||||||||||||||||
Shares issued for conversion of notes payable and accrued interest | - | - | - | - | 106,110,372 | 10,610 | 3,977,803 | - | - | 3,988,413 | ||||||||||||||||||||||||||||||
Private placement units issued for conversion of notes payable and accrued interest | - | - | - | - | 3,370,041 | 337 | 66,029 | - | - | 66,366 | ||||||||||||||||||||||||||||||
Shares issued related to debt extinguishment | - | - | - | - | 1,565,816 | 156 | 86,838 | - | - | 86,994 | ||||||||||||||||||||||||||||||
Shares issued for repayment of accrued liabiity | - | - | - | - | 6,125,000 | 613 | 202,068 | - | - | 202,681 | ||||||||||||||||||||||||||||||
Valuation of stock options issued for servces | - | - | - | - | - | - | 1,139,403 | - | - | 1,139,403 | ||||||||||||||||||||||||||||||
Valuation of warrants issued for services | - | - | - | - | - | - | 71,113 | - | - | 71,113 | ||||||||||||||||||||||||||||||
Valuation of stock options issued in exchange of deferred compensation | - | - | - | - | - | - | 1,467,311 | - | - | 1,467,311 | ||||||||||||||||||||||||||||||
Net loss for the period ended September 30, 2017 | - | - | - | - | - | - | - | - | (12,579,091 | ) | (12,579,091 | ) | ||||||||||||||||||||||||||||
Balance September 30, 2017 | 5,000 | $ | 5 | - | $ | - | 284,063,508 | $ | 28,404 | $ | 17,755,199 | $ | (14,070 | ) | $ | (30,953,374 | ) | $ | (13,183,836 | ) |
Common | ||||||||||||||||||||||||||||||||||||||||
Series AA Preferred Stock | Series B Convertible Preferred Stock | Common Stock | Additional Paid-in | Stock | Retained | Total Shareholder’s | ||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Capital | Receivable | Earnings | Deficit | |||||||||||||||||||||||||||||||
Balance December 31, 2018 | 25,000 | $ | 25 | 600 | $ | 1 | 431,063,061 | $ | 43,106 | $ | 24,186,882 | $ | (1,570 | ) | $ | (35,620,282 | ) | $ | (11,391,838 | ) | ||||||||||||||||||||
Common stock issued for cash | - | - | - | - | 2,000,000 | 200 | 27,359 | - | - | 27,559 | ||||||||||||||||||||||||||||||
Common stock issued for services | - | - | - | - | 4,132,251 | 413 | 91,671 | - | - | 92,084 | ||||||||||||||||||||||||||||||
Valuation of warrants issued with Preferred Stock C | - | - | - | - | - | - | 11,512 | - | - | 11,512 | ||||||||||||||||||||||||||||||
Shares issued for conversion of notes payable and accrued interest | - | - | - | - | 78,043,649 | 7,804 | 1,994,378 | - | - | 2,002,182 | ||||||||||||||||||||||||||||||
Valuation of stock issued with notes | - | - | - | - | 1,091,000 | 109 | 26,436 | - | - | 26,545 | ||||||||||||||||||||||||||||||
Valuation of common stock issued for note extensions | - | - | - | - | 443,262 | 44 | 8,289 | - | - | 8,333 | ||||||||||||||||||||||||||||||
Valuation of stock options issued for services | - | - | - | - | - | - | 5,170 | - | - | 5,170 | ||||||||||||||||||||||||||||||
Net loss for the period ended March 31, 2019 | - | - | - | - | - | - | - | - | (2,406,225 | ) | (2,406,225 | ) | ||||||||||||||||||||||||||||
Balance March 31, 2019 | 25,000 | $ | 25 | 600 | $ | 1 | 516,773,223 | $ | 51,676 | $ | 26,351,697 | $ | (1,570 | ) | $ | (38,026,507 | ) | $ | (11,624,678 | ) |
See accompanying summary of accounting policies and notes to unaudited condensed consolidated financial statements.
6 |
Endonovo Therapeutics, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Note 1 - Organization and Nature of Business
Endonovo Therapeutics, Inc. and Subsidiaries (the(Endonovo or the “Company” or “ETI”) is primarilyan innovative biotechnology company that has developed a bio-electronic approach to regenerative medicine.
The Company develops, manufactures and distributes evolutionary medical devices focused on the rapid healing of wounds and reduction of pain, edema and inflammation on and in the businesshuman 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™ therapeutic device, SofPulse®, using pulsed short-wave radiofrequency at 27.12 MHz has been FDA-Cleared and CE Marked for the palliative treatment of biomedical researchsoft tissue injuries and development, particularlypost-operative pain and edema, and has CMS National Coverage for the treatment of chronic wounds. The Company's current portfolio of pre-clinical stage Electroceuticals™ therapeutic 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 harnessesbioelectricityto restore key electrochemical processes that initiate anti-inflammatory processes and growth factors 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.body necessary for healing to rapidly occur.
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, 2017March 31, 2019 and 20162018 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 15, 2019. 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 monthtwelve-month period following the date these consolidated financial statements are issued. The Company has raised approximately $2,302,000$347,559 in debt and equity financing for the period January 1, 20172019 to September 30, 2017.March 31, 2019. 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 is commercializing its FDA cleared and CE marked products and has implementedcommenced implementing its business plan to materialize revenues from potential, future, license agreements, and has initiated a private placement offering to raiseraised capital through the sale of its preferred and common stock,. In addition, management has a commitment from a current lender for a totalentered into an investment agreement whereby the company has access to an equity line 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 commitmentcredit and 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 adjustmentsseeking out profitable companies.
Reclassification
Certain reclassifications have been made to the carrying valueMarch 31, 2018 financial statements in order for them to conform to the March 31, 2019 presentation. Such reclassifications have no impact on the Company’s financial position or results of assets or liabilities as a result of this uncertainty.operations.
Basic and Diluted Income (Loss) per ShareUse of Estimates
BasicThe 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 (loss) per share is computed by dividing the net income (loss) to common stockholders for the period by the weighted average numbertax assets. Management uses its historical records and knowledge 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.its business in making these estimates. Actual results could differ from these estimates.
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Endonovo Therapeutics, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
Common equivalentNet Income (Loss) per Share
Basic net income (loss) per share is calculated based on the net income (loss) attributable to common shareholders divided by the weighted average number of shares consistingoutstanding for the period excluding any dilutive effects of incrementaloptions, warrants, unvested share awards and convertible securities. Diluted net income (loss) per common share assumes the conversion of all dilutive securities using the if-converted method and assumes the exercise or vesting of other dilutive securities, such as options, common shares issuable under convertible debt, warrants and restricted stock using the treasury stock method when dilutive.
Accounts Receivable
The Company uses the specific identification method for recording the provision for doubtful accounts, which was $0 at March 31, 2019 and December 31, 2018. Accounts receivable 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 $63,301 and $114,108 for the three and nine months ended September 30, 2017 issuable upon the exercise of stock options, warrants,March 31, 2019 and convertible debt have not been2018, respectively, and are included in operating expenses 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.condensed consolidated statements of operations.
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 has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting.
In June 2018, the FASB issued ASU No. 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which simplifies several aspects of the accounting for nonemployee share-based payment transactions resulting from expanding the scope of Topic 718, Compensation—Stock Compensation, to include share-based payment transactions for acquiring goods and services from nonemployees. This ASU is effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, but no earlier than an entity’s adoption date of Topic 606. The Company has early adopted ASU 2018-07 and the adoption did not have a significant impact on the Company’s consolidated financial statements.
In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases. The amendments in this Update affect the amendments in Update 2016-02, which are not yet effective, but for which early adoption upon issuance is permitted. For entities that early adopted Topic 842, the amendments are effective upon issuance of this Update, and the transition requirements are the same as those in Topic 842. For entities that have not adopted Topic 842, the effective date and transition requirements will be the same as the effective date and transition requirements in Topic 842. The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting.
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Endonovo Therapeutics, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
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 has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting.
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.
Note2 - Revenue Recognition
Contracts with Customers
We have adopted ASC 606,Revenue from Contracts with Customers effective January 1, 2018 using the modified retrospective method applied to those contracts which were not substantially completed as of January 1, 2018. These standards provide guidance on recognizing revenue, including a five-step model to determine when revenue recognition is currently evaluatingappropriate. The standard requires that an entity recognize revenue to depict the impacttransfer 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. Revenues for 2018 are reported under ASC 606, while prior period amounts are not adjusted and continue to be reported under ASC 605,Revenue Recognition.
We 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. Our 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. We identify performance obligations as the delivery of the adoptionrequested product or service in appropriate quantities and to the location specified in the customer’s contract and/or purchase order. We generally recognize revenue upon the satisfaction of this standardthese criteria when control of the product or service has been transferred to the customer at which time we have an unconditional right to receive payment. Our 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, we review the relationship between us, the vendor and the end user to assess whether revenue should be reported on itsa gross or net basis. In asserting whether revenue should be reported on a gross or net basis, we consider whether we act as a principal in the transaction and control the goods and services used to fulfill the performance obligation(s) associated with the transaction.
9 |
Endonovo Therapeutics, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
During the three months ended March 31, 2019, we recognized gross revenue of $44,952 from products we sold as a principal in the transaction. During the three months ended March 31, 2018, we recognized net revenue of $6,972 from products with gross revenue of $22,173.
Sources of Revenue
We have identified the following revenues by revenue source:
1. Medical care providers
As of March 31, 2019 and 2018 the sources of revenue were as follows:
Three Months Ended | ||||||||
March 31, | ||||||||
2019 | 2018 | |||||||
Distributor- Medical care providers, net | $ | - | $ | 6,972 | ||||
Direct sales- Medical care providers, gross | 44,952 | - | ||||||
Total sources of revenue | $ | 44,952 | $ | 6,972 |
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 delivery 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.
Taxes Collected from Customers
Taxes collected on the value of transaction revenue are excluded from product revenues and are accrued in current liabilities until remitted to governmental authorities.
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Endonovo Therapeutics, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
Effective Date and Transition Disclosures
Adoption of the new standards related to revenue recognition did not have a material impact on our consolidated financial statements.
Note 23 – Property, Plant and Equipment
The following is a summary of equipment, at cost, less accumulated depreciation at September 30, 2017March 31, 2019 and December 31, 2016:2018:
September 30, | December 31, | |||||||||||||||
2017 | 2016 | March 31, 2019 | December 31, 2018 | |||||||||||||
Autos | $ | 64,458 | $ | 64,458 | $ | 64,458 | $ | 64,458 | ||||||||
Medical equipment | 5,000 | 5,000 | 13,969 | 13,969 | ||||||||||||
Other equipment | 8,774 | 8,774 | 8,774 | 8,774 | ||||||||||||
78,232 | 78,232 | 87,201 | 87,201 | |||||||||||||
Less accumulated depreciation | 73,478 | 62,407 | 81,221 | 80,474 | ||||||||||||
$ | 4,754 | $ | 15,825 | $ | 5,980 | $ | 6,727 |
Depreciation expense for the ninethree months ended September 30, 2017March 31, 2019 and 2016December 31, 2018 was $11,071$747 and $11,876,$266, 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 Loan4 – Patents
Notes PayableIn December 2017, we acquired from Rio Grande Neurosciences, Inc. (RGN) a patent portfolio for $4,500,000 as part of a settlement agreement. The oldest patents expire in 2024. The patent portfolio is amortized through 2024. The following is a summary of patents less accumulated amortization at March 31, 2019 and December 31, 2018:
March 31, 2019 | December 31, 2018 | |||||||
Patents | $ | 4,500,000 | $ | 4,500,000 | ||||
Less accumulated amortization | 808,637 | 646,910 | ||||||
$ | 3,691,363 | $ | 3,853,090 |
During
Amortization expense associated with patents was $161,727 and $161,727 for the ninethree months ended September 30, 2017, the Company issued eleven Convertible Notes (“Variable Notes”) totaling $1,667,500 with original terms ranging from six monthsMarch 31, 2019 and December 31, 2018. The estimated future amortization expense related to one year with interest rates equal to 10%, and a variable conversion rate with a discountpatents as 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, 2017March 31, 2019 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 |
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Endonovo Therapeutics, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
Twelve Months Ending March 31, | Amount | |||
2020 | $ | 646,910 | ||
2021 | 646,910 | |||
2022 | 646,910 | |||
2023 | 646,910 | |||
2024 | 646,910 | |||
Thereafter | 456,813 | |||
Total | $ | 3,691,363 |
Long Term LoanNote 5 - Notes Payable
Notes Payable
During the three months ended March 31, 2019, the Company issued two fixed rate promissory notes totaling $336,000 for funding of $320,000 with original terms of two months and interest rates of 10% for the first two months and, if the notes are not paid at maturity, an additional 2% per month for the next three months. As of March 31, 2019, both notes remain outstanding of which $231,000 is past maturity.
During the three months ended March 31, 2019, the Company converted a previous fixed rate note into a variable rate note in an amount of $1,100,000 as a result of the note not being paid at maturity and, therefore, triggering a conditional conversion option for the noteholder. The conversion rate is 68% of the Company’s common stock based on the terms included in the variable rate note.
The gross amount of all convertible notes with variable conversion rates outstanding at March 31, 2019 is $5,589,500, of which $3,313,000 is past maturity.
Notes payable to a related party in the aggregate amount of $260,000 were outstanding at March 31, 2019. The notes bear interest at 12% per annum and mature on June 30, 2019. During the three months ended March 31, 2019, the Company has financed the purchasepaid $10,000 principal and $5,100 interest to this related party.
As of an automobile. March 31, 2019, fixed rate notes payable outstanding totaled $1,630,904, of which $875,904 is past maturity.
12 |
Endonovo Therapeutics, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
March 31, 2019 | December 31, 2018 | |||||||
Notes payable at beginning of period | $ | 8,158,198 | $ | 7,356,144 | ||||
Notes payable issued | 336,000 | 3,131,870 | ||||||
Loan fees added to note payable | - | 147,000 | ||||||
Settlements on note payable | - | (47,500 | ) | |||||
Repayments of notes payable in cash | (140,000 | ) | (555,500 | ) | ||||
Less amounts converted to redeemable notes | (47,500 | ) | (212,500 | ) | ||||
Less amounts converted to stock | (826,294 | ) | (1,661,316 | ) | ||||
Notes payable at end of period | 7,480,404 | 8,158,198 | ||||||
Less debt discount | (1,204,411 | ) | (1,833,795 | ) | ||||
$ | 6,275,993 | $ | 6,324,403 | |||||
Notes payable issued to related parties | $ | 260,000 | $ | 270,000 | ||||
Notes payable issued to non-related party | $ | 6,015,993 | $ | 6,054,403 |
The maturity dates on the loannotes payable are as follows:
Twelve months ending, | ||||
September 30, 2018 | $ | 7,355 | ||
$ | 7,355 | |||
Current portion | $ | 7,355 | ||
Long term portion | $ | - |
Notes to | ||||||||||||
12 months ending, | Related parties | Non-related parties | Total | |||||||||
Past due | $ | - | $ | 4,188,904 | $ | 4,188,904 | ||||||
March 31, 2020 | 260,000 | 3,031,500 | 3,291,500 | |||||||||
$ | 260,000 | $ | 7,220,404 | $ | 7,480,404 |
Note 46 - Shareholders’ Deficit
Increase in Authorized SharesPreferred Stock
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 ofauthorized 5,000,000 shares of commonpreferred 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 valuehave been designated 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.
follows:
Number of Shares | Number of Shares Outstanding at | Par | Liquidation | |||||||||||||
Authorized | March 31, 2019 | 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 | 1,784 | $ | 0.0001 | $ | 1,000 | ||||||||||
Undesignated | 3,942,000 | - | - | - |
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.
13 |
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$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. During the quarter ended September 30, 2017, the Company issued 4,000The Series AA Super Voting Preferred Stock holders will receive no dividends nor any value on liquidation. As of March 31, 2019, there were 25,000 shares of Series AA Preferred stock outstanding.
Series B Convertible Preferred Stock to an officer and director of
On February 7, 2017, the Company filed a certificate of designation for $4. As of September 30, 2017, there were 5,00050,000 shares of Series AAB 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 March 31, 2019, 600 shares of Series B and 4,805,600 warrant shares remain outstanding.
Series C Secured 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. The C Preferred does not have any rights to vote with the common stock. Upon liquidation, the holder of Series C, shall be entitled to receive an amount equal to the stated value, $1,000 per share, plus any accrued and unpaid dividends thereon before any distribution is made to common stockholders but after distributions are made to holders of Series B. Since the C Preferred is mandatorily payable, the obligation has been included in long term liabilities on the consolidated balance sheets as of March 31, 2019 and December 31, 2018. The Company’s obligation to redeem the C Preferred is secured by a security interest in the RGN Assets. During the three months ended March 31, 2019, the Company issued 64 shares of C Preferred in units comprised of shares of C Preferred and common stock purchase warrants exercisable into up to 549,966 shares of common stock for consideration of $64,000. The warrants resulted in a debt discount of $11,512 for the three months ended March 31, 2019 and are recorded as a discount to the preferred stock liability on the consolidated balance sheet.
14 |
Endonovo Therapeutics, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
WarrantsCommon Stock
On December 31, 2018, we entered into a non-transferrable Investment Agreement whereby the investor committed to purchase up to $10,000,000 of our common stock, over the course of 36 months. The aggregate number of shares issuable by us and purchasable by the investor under the Investment Agreement is 81,250,000. A registration statement for the sale of our common stock related to the Investment Agreement went effective on February 11, 2019.
We may draw on the facility from time to time, as and when we determine appropriate in accordance with the terms and conditions of the Investment Agreement. The maximum amount that we are entitled to put in any one notice is the greater of: (i) 200% of the average daily volume (U.S. market only) of the common stock for the three (3) trading days prior to the date of delivery of the applicable put notice, multiplied by the average of the closing prices for such trading days or (ii) $100,000. The purchase price shall be set at ninety-four percent (94%) of the lowest daily VWAP of our common stock during the Pricing Period. However, if, on any trading day during a Pricing Period, the daily VWAP of the common stock is lower than the floor price specified by us in the put notice, then we will withdraw that portion of the put amount for each such trading day during the Pricing Period, with only the balance of such put amount above the minimum acceptable price being put to the investor. There are put restrictions applied on days between the put notice date and the closing date with respect to that particular put. During such time, we are not entitled to deliver another put notice.
There are circumstances under which we will not be entitled to put shares to the investor, including the following:
● we will not be entitled to put shares to the investor unless there is an effective registration statement under the Securities Act to cover the resale of the shares by the investor;
● we will not be entitled to put shares to the investor unless our common stock continues to be quoted on the OTCQB market, or becomes listed on a national securities exchange;
● we will not be entitled to put shares to the investor to the extent that such shares would cause the investor’s beneficial ownership to exceed 4.99% of our outstanding shares; and
● we will not be entitled to put shares to the investor prior to the closing date of the preceding put.
In connection with the preparation of the Investment Agreement and the registration rights agreement, we incurred fees of $20,000.
In no event will we be obligated to register for resale more than $10,000,000 in value of shares of common stock, or 81,250,000 shares.
During the three months ended March 31, 2019, we issued 2,000,000 shares of common stock in exchange for $27,559 cash pursuant to the Investment Agreement.
During the three months ended March 31, 2019, the Company issued 78,043,649 shares of common stock for the conversion of notes and accrued interest in the amount of $919,618.
During the three months ended March 31, 2019, the Company issued 443,262 shares of common stock valued at $8,333 related to the extension of outstanding notes.
During the nine months ended September 30, 2017, in conjunction with the sale of common stock and issuance of notes,March 31, 2019, 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 1,100,6784,132,251 shares of common stock valued at $71,113with a value of $92,084, related to consulting services receivedservices.
Endonovo Therapeutics, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
During the three months ended March 31, 2019, the Company issued 1,091,000 shares of common stock with a value of $26,545 as additional consideration for the issuance of two promissory notes totaling $336,000.
The Variable Debentures issued by the Company. These warrantsCompany each have exercise prices ranging from $0.0961a provision requiring the Company to $0.2669 per share. The balancereserve a variable amount of all warrants outstanding asshares of September 30, 2017 is as follows:common stock for when the holder of the Variable Debenture converts.
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
The balance of all stock options outstanding as of March 31, 2019 is as follows:
Weighted Average | Weighted Average | |||||||||||||||
Exercise Price | Remaining | Aggregate Intrinsic | ||||||||||||||
Options | Per Share | Term (years) | Value | |||||||||||||
Outstanding at January 1, 2019 | 94,553,369 | $ | 0.029 | 2.94 | �� | |||||||||||
Granted | - | $ | - | |||||||||||||
Cancelled | - | $ | - | |||||||||||||
Exercised | - | $ | - | |||||||||||||
Outstanding at March 31, 2019 | 94,553,369 | $ | 0.029 | 2.69 | $ | - | ||||||||||
Exercisable at March 31, 2019 | 94,136,702 | $ | 0.029 | 2.70 | $ | - |
Warrants
During the ninethree months ended September 30, 2017,March 31, 2019, in conjunction with the conversion of fixed rate promissory notes into Preferred C Stock, the Company grantedissued two-year common stock optionspurchase warrants to independent contractors exercisable intoacquire up to 25,272,305549,966 shares of common stock with exercise prices ranging from $0.0269$0.0195 to $0.054$0.0279 per share, lives ranging from three to ten years, and cashless exercise rights and were valued at $1,139,403share.
The Company measures the fair value of warrants issued using the Black Scholes option pricing model. The stock options vested on grant and were expensed in full duringmodel using the nine months ended September 30, 2017.following assumptions:
16 |
Endonovo Therapeutics, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
In addition,
Three months ended March 31, | ||||||||
2019 | 2018 | |||||||
Expected term | 2 years | 2 years - 5 years | ||||||
Exercise price | $0.0195-$0.0279 | $0.0001-$0.0516 | ||||||
Expected volatility | 231%-242% | 176%-193% | ||||||
Expected dividends | None | None | ||||||
Risk-free interest rate | 2.45% to 2.60% | 1.92% to 2.65% | ||||||
Forfeitures | None | None |
A summary of the status of the warrants granted under these agreements at March 31, 2019, and changes during the ninethree months then 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:presented below:
Weighted Average | Weighted Average | Aggregate | Outstanding Warrants | |||||||||||||||||||||
Exercise Price | Remaining Contractual | Intrinsic | ||||||||||||||||||||||
Options | Per Share | Term (years) | Value | Weighted Average | ||||||||||||||||||||
Outstanding at January 1, 2017 | - | $ | - | |||||||||||||||||||||
Exercise Price | ||||||||||||||||||||||||
Shares | Per Share | |||||||||||||||||||||||
Outstanding at January 1, 2019 | 77,550,880 | $ | 0.30 | |||||||||||||||||||||
Granted | 93,203,369 | $ | 0.029 | 549,966 | $ | 0.02 | ||||||||||||||||||
Cancelled | - | $ | - | - | $ | - | ||||||||||||||||||
Exercised | - | $ | - | - | $ | - | ||||||||||||||||||
Outstanding at September 30, 2017 | 93,203,369 | $ | 0.029 | 4.29 | $ | 2,674,937 | ||||||||||||||||||
Outstanding at March 31, 2019 | 78,100,846 | $ | 0.30 | |||||||||||||||||||||
Exercisable at September 30, 2017 | 93,203,369 | $ | 0.029 | 4.29 | $ | 2,674,937 | ||||||||||||||||||
Exercisable at March 31, 2019 | 78,100,846 | $ | 0.30 |
The following assumptions were used at September 30, 2017 to value the stock options using the Black Scholes option pricing model.
Note 57 – Related Party Transactions
One officer and executive of the Company has entered into note payable agreementagreements with the Company. The balance of notes payable from the related partiesparty at SeptemberMarch 31, 2019 is $260,000. The notes bear interest at 12% per annum and mature on June 30, 2017 is $170,000.2019. During the three months ended March 31, 2019, the Company paid $10,000 principal and $5,100 interest to this related party.
As of September 30, 2017March 31, 2019 and December 31, 2016,2018, the balance of two executive officers and the operations managerexecutives’ deferred compensation is approximately $1,155,794$940,450 and $1,861,327,$933,150, 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 68 – 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 |
17 |
The time period over which the Company will be required
Endonovo Therapeutics, Inc. and Subsidiaries
Notes to evaluate the fair value of the conversion feature is eight to twenty-four months or conversion.Condensed Consolidated Financial Statements (continued)
Three months ended March 31, | ||||||||
2019 | 2018 | |||||||
Expected term | 1 month - 1 year | 1 month - 1 year | ||||||
Exercise price | $0.0107-$0.0129 | $0.0202-$0.0326 | ||||||
Expected volatility | 134%-147% | 145%-195% | ||||||
Expected dividends | None | None | ||||||
Risk-free interest rate | 2.40% to 2.87% | 1.79% to 2.02% | ||||||
Forfeitures | None | 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.
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 ninethree months ended September 30, 2017:March 31, 2019:
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 |
Derivative | ||||
Liability | ||||
Balance December 31, 2018 | $ | 4,426,026 | ||
Issuance of convertible debt | 555,042 | |||
Settlements by debt settlement | (1,121,455 | ) | ||
Change in estimated fair value | 8,542 | |||
Balance March 31, 2019 | $ | 3,868,155 |
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.
18 |
Endonovo Therapeutics, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
The Company'sCompany’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:March 31, 2019:
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 |
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 March 31, 2019 | ||||||||||||||||
Derivative liability | $ | - | $ | - | $ | 3,868,155 | $ | 3,868,155 | ||||||||
Total | $ | - | $ | - | $ | 3,868,155 | $ | 3,868,155 |
Note 79 – Commitments and Contingencies
Legal Matters
The Company may become involved in various legal proceedings in the normal course of business.
On September 19, 2017,Note 10 – Concentrations
Sales
During the Company entered intothree months ended March 31, 2019, we had two significant customers which accounted for 21% and 18% of sales.
Supplier
We also have a Settlement Agreement with Kodiak Capital Group, LLCsingle source for $80,000 relativeour 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.
19 |
Endonovo Therapeutics, Inc. and Subsidiaries
Notes to the 2015 EPA Agreement.Condensed Consolidated Financial Statements (continued)
Accounts Receivable
At March 31, 2019, we had four customers which accounted for 30%, 29%, 12% and 11% of our accounts receivable balances.
Note 811 – Subsequent Events
Subsequent to September 30, 2017,March 31, 2019, pursuant to an aggregate of 74,026Investment Agreement, 2,400,000 shares of restricted common stock were issued in exchange for services.
Subsequent to September 30, 2017, the Company issued 10,160,435$33,547. The shares of its restricted common stock and 9,697,473 warrants pursuant to a Private Placement Memorandum and private offerings for $429,990were registered in cash and $30,000 of converted notes.February 2019.
Subsequent to September 30, 2017,March 31, 2019, an aggregate of 10,320,19738,985,097 shares of restricted common stock were issued on the conversion of $160,000$234,973 of principal and $7,600$149,869 of accrued interest pursuant to onethree Variable Note.Notes.
Subsequent to September 30, 2017,March 31, 2019, the company received $75,000 cash on the issuance of a conditional convertible promissory note in an aggregateamount of 252,676$80,000. The note bears interest at 10% per annum for six months and, if not paid at maturity, is convertible into common shares of restricted common stock were issued pursuantat a rate of 68% of the lowest closing bid price for the 10 days previous to leak out agreements.the conversion notice date.
Subsequent to September 30, 2017,March 31, 2019, the Company cancelled 196,078company received $500,000 cash on the issuance of a conditional convertible promissory note in an amount of $550,000. The note bears interest at 10% per annum for six months and, if not paid at maturity, is convertible into common shares of restricted common stock priced at $12,500 previously issued under a subscription agreement and 196,078 warrantsrate of 70% of the lowest closing bid price for the 15 days previous to purchase the Company’s common stock.conversion notice date.
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,March 31, 2019, the Company issued a final tranche22.6 shares of 600,000 shares as full repayment on the $175,000 accrued liability in connectionPreferred C stock and 311,724 common stock purchase warrants with a variable note settlement agreement entered intotwo-year life and exercise price of $0.0145 per share in December 2016.exchange for $22,600 of principal and interest in an outstanding fixed rate note.
As a result of these issuances, the total number of common shares outstanding is 305,274,764.558,158,330, Preferred B shares outstanding is 600 and Preferred C shares outstanding is 1,806.8.
20 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Notice Regarding Forward Looking Statements
The information contained in Item 2 contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Actual results may materially differ from those projected in the forward-looking statements as a result of certain risks and uncertainties set forth in this report. Although management believes that the assumptions made and expectations reflected in the forward-looking statements are reasonable, there is no assurance that the underlying assumptions will, in fact, prove to be correct or that actual results will not be different from expectations expressed in this report.
This filing contains a number of forward-looking statements which reflect management’s current views and expectations with respect to our business, strategies, products, future results and events, and financial performance. All statements made in this filing other than statements of historical fact, including statements addressing operating performance, events, or developments which management expects or anticipates will or may occur in the future, including statements related to distributor channels, volume growth, revenues, profitability, new products, adequacy of funds from operations, statements expressing general optimism about future operating results, and non-historical information, are forward looking statements. In particular, the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “may,” and variations of such words, and similar expressions identify forward-looking statements, but are not the exclusive means of identifying such statements, and their absence does not mean that the statement is not forward-looking. These forward-looking statements are subject to certain risks and uncertainties, including those discussed below. Our actual results, performance or achievements could differ materially from historical results as well as those expressed in, anticipated, or implied by these forward-looking statements. We do not undertake any obligation to revise these forward-looking statements to reflect any future events or circumstances.
Readers should not place undue reliance on these forward-looking statements, which are based on management’s current expectations and projections about future events, are not guarantees of future performance, are subject to risks, uncertainties and assumptions (including those described below), and apply only as of the date of this filing. Our actual results, performance or achievements could differ materially from the results expressed in, or implied by, these forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
Overview
Endonovo Therapeutics, Inc. (the(Endonovo or the “Company” or “ETI”) operates in two business segments: (1) intellectual property licensing and commercialization; and (2) biomedical research and development whichis an innovative biotechnology company that has included development of its proprietary non-invasive electrocuetical device.developed a bio-electronic approach to regenerative medicine.
Our present primary focusThe Company develops, manufactures and distributes evolutionary medical devices focused on the rapid healing of wounds and reduction of pain, edema and inflammation on and 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™ therapeutic 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 pain and edema, and has CMS National Coverage for the treatment of chronic wounds. The Company's current portfolio of pre-clinical stage Electroceuticals™ therapeutic 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 development, patentingfield of medicine by developing safe, wearable, non-invasive bioelectric medical devices that deliver the Company’s Electroceutical® Therapy. Endonovo’s bioelectric Electroceutical® devices harnessesbioelectricity to restore key electrochemical processes that initiate anti-inflammatory processes and regulatory approval of our biomedical proprietary technology.growth factors in the body necessary for healing to rapidly occur.
Going Concern
Our independent registered auditors included an explanatory paragraph in their opinion on our consolidated financial statements as of and for the fiscal year ended December 31, 20162018 that states that our ongoing losses and lack of resources causes substantial doubt about our ability to continue as a going concern.
21 |
Critical Accounting Policies and Estimates
We prepareA summary of our condensedsignificant accounting policies is included in Note 1 of the “Notes to Consolidated Financial Statements,” contained in our Form 10-K for the year ended December 31, 2018. Management believes that the consistent application of these policies enables us to provide users of the financial statements with useful and reliable information about our operating results and financial condition. The summary consolidated financial statements are prepared in accordance with accounting principles generally accepted in the U.S. (U.S. GAAP). In doing so, we have, which require us to make estimates and assumptions that affectassumptions. We did not experience any significant changes during the three months ended March 31, 2019 in any of our reported amounts of assets, liabilities, revenues, and expenses, as well as related disclosure of contingent assets and liabilities. In some cases, we could reasonably have used different accounting policies and estimates. In some cases, changesCritical Accounting Policies from those contained in the accounting estimates are reasonably likely to occur from period to period. Accordingly, actual results could differ materially from our estimates. To the extent that there are material differences between these estimates and actual results, our financial condition or results of operations will be affected. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. We refer to accounting estimates of this type as critical accounting policies and estimates, which we discuss further below.
Use of estimates
In the opinion of management, the accompanying condensed consolidated balance sheets and related interim statements of operations, cash flows, and shareholders' deficits include all adjustments, consisting only of normal recurring items, necessary for their fair presentation in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. The significant estimates were madeForm 10-K for the fair value of common stock issued for services, with notes payable arrangements in connection with note extension agreements, and as repayment for outstanding debts, in estimating the useful life used for depreciation and amortization of our long-lived assets, in the valuation of the derivative liability, and the valuation of deferred income tax assets. Actual results and outcomes may differ from management's estimates and assumptions.year ended December 31, 2018.
Recently IssuedNew Accounting Pronouncements
In August 2014, the FASB issued FASB ASU2014-15, PresentationSee Note 1 of Notes to Condensed Consolidated Financial Statements—Going Concern (Subtopic 205-40): DisclosureStatements for further discussion 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 therenew accounting standards that have been adopted or 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 effectivebeing evaluated 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.
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.future adoption.
Results of Operations
Three Months ended September 30, 2017March 31, 2019 and 20162018
Three Months Ended September 30, | Favorable | Three Months Ended March 31, | Favorable | |||||||||||||||||||||||||||||
2017 | 2016 | (Unfavorable) | % | 2019 | 2018 | (Unfavorable) | % | |||||||||||||||||||||||||
Revenue | $ | 44,952 | $ | 6,972 | $ | 37,980 | 544.8 | % | ||||||||||||||||||||||||
Cost of revenue | 7,711 | - | (7,711 | ) | NM | |||||||||||||||||||||||||||
Gross profit | 37,241 | 6,972 | 30,269 | 434.2 | % | |||||||||||||||||||||||||||
Operating expenses | $ | 1,035,628 | $ | 1,310,748 | $ | 275,120 | -21.0 | % | 850,238 | 1,282,316 | 432,078 | 33.7 | % | |||||||||||||||||||
Loss from operations | (1,035,628 | ) | (1,310,748 | ) | 275,120 | -21.0 | % | (812,997 | ) | (1,275,344 | ) | 462,347 | 36.3 | % | ||||||||||||||||||
Other income (expense) | (5,636,476 | ) | (908,093 | ) | (4,728,383 | ) | 520.7 | % | (1,593,228 | ) | 656,427 | (2,249,655 | ) | NM | ||||||||||||||||||
Net income (loss) | $ | (6,672,104 | ) | $ | (2,218,841 | ) | $ | (4,453,263 | ) | 200.7 | % | |||||||||||||||||||||
Net loss | $ | (2,406,225 | ) | $ | (618,917 | ) | $ | (1,787,308 | ) | -288.8 | % |
Revenue
Revenue of the Company’s SofPulse® product during the three months ended March 31, 2019 was $44,952, an increase of $37,980, or 544.8%, compared to $6,972 for the three months ended March 31, 2018.
We anticipate that revenue will continue to increase in future periods as the roll out of the SofPulse® product continues.
Cost of Revenue
Cost of revenue was $7,711 during the three months ended March 31, 2019 compared to no cost of revenue during the previous year corresponding period. During the current quarter, cost of revenue was recognized on those sales recorded as gross for which we are the principal in the transaction as opposed to in the corresponding quarter of the previous fiscal year, net sales to distributors were recorded net of cost of sales.
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It is anticipated that cost of revenue will increase in future quarters.
Operating Expenses
Our operatingOperating expenses decreased by$432,078, 33.7%, to $850,238 for the three months ended September 30, 2017 were approximately $1,035,628March 31, 2019 compared to $1,310,748$1,282,316 for the corresponding period of the previous year. The operating expenses were comprised primarily from consulting and professional fees for the development of our intellectual property and expenses related to being a public company. A significant portion of these fees were paid for with the issuance of restricted shares of common stock. During the three months ended September 30, 2017, 576,660 sharesMarch 31, 2018. There was a reduction in consulting and professional expenses of common stock were issued for consulting services valued at $15,720 as compared to 4,513,514 shares of common stock being issued for consulting services valued at $663,519, during the corresponding period of the previous year.
Other Income (Expense)
Other income (expense) for the quarter ended September 30, 2017 was expense of $5,636,476 compared to expense of $908,093 for the quarter ended September 30, 2016. This change was due primarily to a change in valuation of our derivative liabilities and net of interest expense resulting from the amortization of the discounts on notes payable. In addition, we had a loss on extinguishment of debt of $58,197 during the quarter ended September 30, 2017 compared to a loss of $42,507 during the quarter ended September 30, 2016. We anticipate continued large fluctuations in other income (expense)approximately $380,000 as a result of quarterly re-evaluation of these derivative liabilities.
Nine months ended September 30, 2017 and 2016
Nine Months Ended September 30, | Favorable | |||||||||||||||
2017 | 2016 | (Unfavorable) | % | |||||||||||||
Operating expenses | $ | 3,770,929 | $ | 4,778,109 | $ | 1,007,180 | 21.1 | % | ||||||||
Loss from operations | (3,770,929 | ) | (4,778,109 | ) | 1,007,180 | 21.1 | % | |||||||||
Other income (expense) | (8,808,162 | ) | 202,268 | (9,010,430 | ) | NM | ||||||||||
Net loss | $ | (12,579,091 | ) | $ | (4,575,841 | ) | $ | (8,003,250 | ) | -174.9 | % |
Operating Expenses
Our operating expenses for the nine months ended September 30, 2017 were approximately $3,770,929 compared to $4,778,109 for the corresponding period ofstock-based compensation during the previous year. The operating expenses were comprised primarily from consulting and professional fees for the development of our intellectual property and expenses related to being a public company. A significant portion of these fees were paid forfiscal year period with the issuance of restricted shares of common stock. During the nine months ended September 30, 2017, 3,598,996 shares of common stock were issued for consulting services valued at $199,555 as compared to 9,346,760 shares of common stock being issued for consulting services valued at $2,291,373,no corresponding expense during the correspondingcurrent fiscal year period and a reduction of the previous year. Also, during the nine months ended September 30, 2107 the company issued stock options valued at $1,139,403 to independent contractors.research and development costs of approximately $51,000.
Other Income (Expense)
Other income (expense) for the nine monthsquarter ended September 30, 2017March 31, 2019 was expense of $8,808,162$1,593,228 compared to income of $202,268$656,427 for the nine monthsquarter ended September 30, 2016.March 31, 2018. This change was due primarily to a change in valuation of our derivative liabilities and net of approximately $1,822,000 coupled with a change in interest expense resulting fromand the amortization of the discounts on notes payable. In addition, we had income on extinguishmentdebt issuance costs and amortizations of debt of $2,175,459 during the nine months ended September 30, 2017 compared to a loss of $435,625 during the nine months ended September 30, 2016.approximately $349,000. We anticipate continued large fluctuations in other income (expense) as a result of quarterly re-evaluation of these derivative liabilities.
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Liquidity and Capital Resources
As of | Favorable | As of | Favorable | |||||||||||||||||||||
September 30, 2017 | December 31, 2016 | (Unfavorable) | March 31, 2019 | December 31, 2018 | (Unfavorable) | |||||||||||||||||||
Working Capital | ||||||||||||||||||||||||
Current assets | $ | 155,479 | $ | 302,854 | $ | (147,375 | ) | $ | 68,792 | $ | 382,496 | $ | (313,704 | ) | ||||||||||
Current liabilities | 13,189,069 | 8,721,324 | (4,467,745 | ) | 15,235,813 | 15,479,151 | 243,338 | |||||||||||||||||
Working capital deficit | $ | (13,033,590 | ) | $ | (8,418,470 | ) | $ | (4,615,120 | ) | $ | (15,167,021 | ) | $ | (15,096,655 | ) | $ | (70,366 | ) | ||||||
Long-term debt | $ | 155,000 | $ | 159,221 | $ | 4,221 | $ | 155,000 | $ | 155,000 | $ | - | ||||||||||||
Stockholders' deficit | $ | (13,183,836 | ) | $ | (8,561,866 | ) | $ | (4,621,970 | ) | |||||||||||||||
Stockholders’ deficit | $ | (11,624,678 | ) | $ | (11,391,838 | ) | $ | (232,840 | ) |
Three Months Ended March 31, | Favorable | |||||||||||
2019 | 2018 | (Unfavorable) | ||||||||||
Statements of Cash Flows Select Information | ||||||||||||
Net cash provided (used) by: | �� | |||||||||||
Operating activities | $ | (528,233 | ) | $ | (590,751 | ) | $ | 62,518 | ||||
Investing activities | $ | - | $ | (8,969 | ) | $ | 8,969 | |||||
Financing activities | $ | 207,559 | $ | 604,843 | $ | (397,284 | ) |
As of | Favorable | |||||||||||
March 31, 2019 | December 31, 2018 | (Unfavorable) | ||||||||||
Balance Sheet Select Information | ||||||||||||
Cash | $ | 58,477 | $ | 379,151 | $ | (320,674 | ) | |||||
Accounts payable and accrued expenses | $ | 3,453,579 | $ | 3,189,243 | $ | (264,336 | ) |
Nine Months Ended September 30, | Favorable | |||||||||||
2017 | 2016 | (Unfavorable) | ||||||||||
Statements of Cash Flows Select Information | ||||||||||||
Net cash provided (used) by: | ||||||||||||
Operating activities | $ | (2,189,196 | ) | $ | (1,803,684 | ) | $ | (385,512 | ) | |||
Investing activities | $ | - | $ | - | $ | - | ||||||
Financing activities | $ | 2,198,142 | $ | 1,856,886 | $ | 341,256 |
As of | Favorable | |||||||||||
September 30, 2017 | December 31, 2016 | (Unfavorable) | ||||||||||
Balance Sheet Select Information | ||||||||||||
Cash | $ | 64,479 | $ | 55,533 | $ | 8,946 | ||||||
Accounts payable and accrued expenses | $ | 3,238,237 | $ | 4,727,247 | $ | 1,489,010 |
Since inception and through September 30, 2017,March 31, 2019, the Company has raised approximately $7.8$14 million in equity and debt transactions. These funds have been used forto commence the operations of the Company to acquire and begin the development of its intellectual property portfolio. These activities include attending trade shows and corporate development. Our accompanying condensed 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 monthtwelve-month period following the date of these condensed consolidated financial statements. The Company has incurred substantial losses since inception. Its current liabilities exceed its current assets and available cash is not sufficient to fund expected future operations. 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. 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 implementedcommenced its business plan to materialize revenues from potential, future, license agreements, and has initiated a private placement offering to raiseraised 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 commitmentstock and 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.seeking out profitable companies. Our cash on hand at September 30, 2017March 31, 2019 was approximately $64,479.$58,477. This will be insufficient to fund operations if additional capital is not raised. The Company raised an aggregate of approximately $2,302,000$347,559 through the sale of equity and debt securities during the ninethree months ended September 30, 2017.March 31, 2019.
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The Company is not aware of any recently issued accounting pronouncements that when adopted will have a material effect on the Company’s financial position or result of its operation.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
We are a Smaller Reporting Company and are not required to provide the information under this item.
Item 4. Controls and Procedures.
Disclosure of controls and procedures.
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports, filed under the Securities Exchange Act of 1934, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable and not absolute assurance of achieving the desired control objectives. In reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. In addition, the design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, a control may become inadequate because of changes in conditions or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
As required by the SEC Rule 13a-15(b), we carried out an evaluation under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses described below.
In light of the material weaknesses described below, we performed additional analysis and other post-closing procedures to ensure our financial statements were prepared in accordance with generally accepted accounting principles. Accordingly, we believe that the financial statements included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.
A material weakness is a control deficiency (within the meaning of the Public Company Accounting Oversight Board (PCAOB) Auditing Standard No. 2) or combination of control deficiencies that result in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. Management has identified the following two material weaknesses which have caused management to conclude that as of September 30, 2017March 31, 2019 our disclosure controls and procedures were not effective at the reasonable assurance level:
1. We do not have written documentation of our internal control policies and procedures. Written documentation of key internal controls over financial reporting is a requirement of Section 404 of the Sarbanes-Oxley Act which is applicable to us for the quarter ended September 30, 2017.March 31, 2019. Management evaluated the impact of our failure to have written documentation of our internal controls and procedures on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.
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2. We do not have sufficient segregation of duties within accounting functions, which is a basic internal control. Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals. Management evaluated the impact of our failure to have segregation of duties on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.
To address these material weaknesses, management performed additional analyses and other procedures to ensure that the financial statements included herein fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented.
Changes in internal controls over financial reporting.
There has been no change in our internal control over financial reporting that occurred during the fiscal quarter covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
We are not currently involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect. Notwithstanding the foregoing, a consultant has commenced litigation against us, which is in the early stages. We anticipate that these matters will be settled, however, if a settlement cannot be reached, we will vigorously defend these matters and we do not believe that there will be any material adverse effect as a result thereof, but there is always uncertainty in any litigation and a result cannot be guaranteed.
We are a Smaller Reporting Company (as defined in Rule 12b-2 of the Exchange Act) and are not required to provide the information under this item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Number of | Number of | ||||||||||||||
Common Shares | Common Shares | Source of | Source of | ||||||||||||
Issued | Issued | Payment | Amount | Payment | Amount | ||||||||||
576,660 | Services | $ | 15,720 | ||||||||||||
12,500 | Note extension | $ | 386 | ||||||||||||
12,655,161 | Cash | $ | 255,000 | ||||||||||||
23,024,976 | Conversion of notes | $ | 660,743 | ||||||||||||
3,625,000 | Settlement of Liabilities | $ | 103,730 | ||||||||||||
4,132,251 | Services | $ | 92,084 | ||||||||||||
443,262 | Note extension | $ | 8,333 | ||||||||||||
1,091,000 | Issued with notes | $ | 26,545 | ||||||||||||
78,043,649 | Conversion of notes | $ | 2,002,182 |
The above issuances of securities during the three months ended September 30, 2017March 31, 2019 were exempt from registration pursuant to Section 4(2), and/or Regulation D promulgated under the Securities Act. These securities qualified for exemption under Section 4(2) of the Securities Act since the issuance securities by us did not involve a public offering. The offering was not a “public offering” as defined in Section 4(2) due to the insubstantial number of persons involved in the deal, size of the offering, manner of the offering and number of securities offered. We did not undertake an offering in which we sold a high number of securities to a high number of investors. In addition, these stockholders had the necessary investment intent as required by Section 4(2) since they agreed to and received share certificates bearing a legend stating that such securities are restricted pursuant to Rule 144 of the Securities Act. This restriction ensures that these securities would not be immediately redistributed into the market and therefore not be part of a “public offering.” Based on an analysis of the above factors, we have met the requirements to qualify for exemption under Section 4(2) of the Securities Act for this transaction.
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Item 3. Defaults upon Senior Securities.
None
Item 4. Mine Safety Disclosures.
Not applicable
None
Exhibit Number | Exhibit Title | |
31.1 | Certification of Principal Executive Officer and Principal Financial Officer, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1 | Certification of Principal Executive Officer and Principal Financial Officer, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
101.INS * | XBRL Instance Document | |
101.SCH * | XBRL Taxonomy Schema | |
101.CAL * | XBRL Taxonomy Calculation Linkbase | |
101.DEF * | XBRL Taxonomy Definition Linkbase | |
101.LAB * | XBRL Taxonomy Label Linkbase | |
101.PRE * | XBRL Taxonomy Presentation Linkbase |
In accordance with SEC Release 33-8238, Exhibit 32.1 and 32.2 are being furnished and not filed.
* Furnished herewith. XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: | Endonovo Therapeutics, Inc. | |
By: | /s/ Alan Collier | |
Alan Collier | ||
Chief Executive Officer (Duly Authorized Officer, Principal Executive Officer and Principal Financial Officer) |
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