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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended: September 30, 2023

 

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

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)

 

Securities registered pursuant to Section 12(b) of the Securities Exchange Act: None

 

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 ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐ Accelerated filer ☐
   
Non-accelerated filer ☒ Smaller reporting company ☒
   
  Emerging growth company ☐

 

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. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

 

As of December 28, 2023, there were 318,751,597 shares of common stock, $0.0001 par value issued and outstanding.

 

 

 

 
 

 

ENDONOVO THERAPEUTICS, INC.

TABLE OF CONTENTS

FORM 10-Q REPORT

September 30, 2023

 

   

Page

Number

PART I - FINANCIAL INFORMATION  
     
Item 1. Condensed Consolidated Financial Statements (unaudited) 3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 20
Item 3. Quantitative and Qualitative Disclosures About Market Risk 23
Item 4. Controls and Procedures 23
     
PART II - OTHER INFORMATION  
     
Item 1. Legal Proceedings 24
Item 1A. Risk Factors 24
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 24
Item 3. Defaults Upon Senior Securities. 25
Item 4. Mine Safety Disclosures 25
Item 5. Other Information. 25
Item 6. Exhibits. 25
     
SIGNATURES 26

 

2
 

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

Endonovo Therapeutics, Inc.

Condensed Consolidated Balance Sheets

 

   September 30, 2023   December 31, 2022 
   (Unaudited)   (Audited) 
         
ASSETS          
Current assets:          
Cash  $0   $98 
Prepaid expenses and other current assets   35,504    15,724 
Total current assets   35,504    15,822 
           
Patents, net   780,260    1,265,444 
Total assets  $815,764   $1,281,266 
           
LIABILITIES AND SHAREHOLDERS’ DEFICIT          
Current liabilities          
Accounts payable and accrued liabilities  $1,180,968   $884,195 
Accounts payable and accrued liabilities – related party   278,665    - 
Accrued interest related to notes payable   4,417,039    3,542,650 
Deferred compensation   4,229,029    3,918,788 
Deferred compensation – related party   630,568    523,818 
Notes payable, net of discounts of $28,210 and $10,587 as of September 30, 2023 and December 31, 2022   6,952,372    7,041,145 
Notes payable – former related party   104,600    112,100 
Derivative liability   5,902,829    17,359,064 
           
Total current liabilities   23,696,070    33,381,760 
           
Acquisition payable   79,825    79,825 
Total liabilities   23,775,895    33,461,585 
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 September 30, 2023 and December 31, 2022   25    25 
Series B convertible preferred stock, $0.0001 par value; 50,000 shares authorized, 600 shares issued and outstanding at September 30, 2023 and December 31, 2022   1    1 
Series C convertible preferred stock, $0.0001 par value; 8,000 shares authorized, 738 shares issued and outstanding at September 30, 2023 and December 31, 2022   -    - 
Series D convertible preferred stock, $0.0001 par value; 20,000 shares authorized, 0 and 50 issued and outstanding at September 30, 2023 and December 31, 2022   -    - 
Common stock, $0.0001 par value; 2,500,000,000 shares authorized; 318,751,597 and 213,227,538 shares issued and outstanding as of September 30, 2023 and December 31, 2022   27,940    21,322 
Additional paid-in capital   43,644,063    42,919,086 
Stock subscriptions receivable   (1,570)   (1,570)
Accumulated deficit   (66,630,590)   (75,119,183)
Total shareholders’ deficit   (22,960,131)   (32,180,319)
Total liabilities and shareholders’ deficit  $815,764   $1,281,266 

 

See accompanying summary of accounting policies and notes to unaudited condensed consolidated financial statements.

 

3
 

 

Endonovo Therapeutics, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

 

                 
   Three Months Ended   Nine Months Ended 
   September 30,   September 30, 
   2023   2022   2023   2022 
                 
Revenue  $1,520   $10,960   $134,260   $13,892 
Cost of revenue   827    4,027    4,823    5,124 
Gross profit   693    6,933    129,437    8,768 
                     
Operating expenses   473,490    503,711    2,262,833    2,790,057 
Loss from operations   (472,797)   (496,778)   (2,133,396)   (2,781,289)
                     
Other income (expense)                    
Change in fair value of derivative liability   0    (56,213)   11,445,466    (1,903,177)
Gain (loss) on settlement of debt   0    319,081    156,062    362,894 
Other expense   (7,481)   (30,879)   (31,999)   (208,879)
Interest expense, net   (285,892)   (338,571)   (908,141)   (1,012,249)
Other income (expense)   (293,373)   (106,582)   10,661,388    (2,761,411)
                     
Income (Loss) before income taxes   (766,170)   (603,360)   8,527,992    (5,542,700)
                     
Provision for income taxes   -    -    -    - 
                     
Net Income (Loss)  $(766,170)  $(603,360)  $8,527,992   $(5,542,700)
                     
Basic Income (Loss) per share  $(0.002)  $(0.00)  $0.03   $(0.05)
Diluted Loss per share  $(0.00)  $(0.00)  $(0.00)  $(0.05)
Weighted average common share outstanding:                    
Basic   298,391,943    153,599,760    276,355,156    122,537,266 
Diluted   1,350,805,130    153,599,760    1,350,768,342    122,537,266 

 

See accompanying summary of accounting policies and notes to unaudited condensed consolidated financial statements.

 

4
 

 

Endonovo Therapeutics, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

         
   Nine Months ended September 30, 
   2023   2022 
Operating activities:          
Net Income (Loss)  $8,527,992   $(5,542,700)
Adjustments to reconcile net income (loss) to cash used in operating activities:          
Amortization expense   485,185    485,184 
Stock compensation expense   200,966    - 
Fair value of equity issued for services   720,562    1,281,900 
Loss (gain) on extinguishment of debt   (156,062)   (362,894)
Amortization of note discount and original issue discount   12,002    90,427 
Change in fair value of derivative liability   (11,445,466)   1,903,177 
Changes in assets and liabilities:          
Prepaid expenses and other current assets   9,052    7,975 
Account payable and accrued liabilities (related and unrelated parties)   49,534    297,250 
Accrued interest   908,141    921,822 
Deferred compensation   283,731    464,562 
Net cash used in operating activities   (404,363)   (453,297)
           
Financing activities:          
Proceeds from the issuance of notes payable    195,000    400,000 
Repayments on former related party of notes payable   (7,500)   (9,500)
Repayments of convertible debt in cash   (40,000)   - 
Proceeds from issuance of common stock and units, net   256,765    - 
Net cash provided by financing activities   404,265    390,500 
           
Net increase (decrease) in cash   (98)   (62,797)
Cash, beginning of year   98    85,936 
Cash, end of period  $0   $23,139 
           
Supplemental disclosure of cash flow information:          
Cash paid for interest  $-   $- 
Cash paid for income taxes  $-   $- 
           
Non-Cash Investing and Financing Activities:          
Conversion of notes payable and accrued interest to common stock  $109,000   $339,000 
Conversion of Preferred C Stock to common stock  $500   $- 
Issuance of common stock to settle debt  $45,000   $- 
Debt discount from issuance of debt  $32,875   $44,098 
Conversion of notes to common stock pursuant to settlement agreement  $159,419   $- 

 

See accompanying summary of accounting policies and notes to unaudited condensed consolidated financial statements.

 

5
 

 

Endonovo Therapeutics, Inc.

Condensed Consolidated Statement of Shareholders’ Deficit

(Unaudited)

 

For three and nine months ended September 30, 2023

 

                                                         
   Series AA Preferred Stock   Series B Convertible Preferred Stock   Series C Convertible Preferred Stock   Series D Convertible Preferred Stock   Common Stock  

Additional

Paid-in

   Subscription   Accumulated  

Total

Shareholder’s

 
   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount  

Capital

   Receivable   Deficit  

Deficit

 
Balance December 31, 2022   25,000   $25    600   $1    738   $-    50   $-    213,227,538   $21,322   $42,919,086   $(1,570)  $(75,119,183)  $(32,180,319)
                                                                       
Shares issued for conversion of notes payable and accrued interest   -    -    -    -    -    -    -    -    10,900,000    1,090    107,910    -    -    109,000 
Shares issued pursuant to make good provision                                           1,507,277    151    24,719              24,870 
Shares issued for settlement of debt   -    -    -    -    -    -    -    -    4,300,590    430    66,659    -    -    67,089 
Issuance of common shares for services   -    -    -    -    -    -    -    -    12,850,000    1,285    171,665    -    -    172,950 
Common stock issued for cash, net of fees   -    -    -    -    -    -    -    -    22,500,000    2,250    204,750    -    -    207,000 
Shares issued for conversion of Preferred Series D to common shares   -    -    -    -    -    -    (50)   -    5,000,000    500    (500)   -    -    - 
Inducement loss related to conversion of preferred stock   -    -    -    -    -    -    -    -    -    -    39,398    -    (39,398)   - 
Net income   -    -    -    -    -    -    -    -    -    -         -    7,230,502    7,230,502 
Balance March 31, 2023   25,000   $25    600   $1    738   $-    -   $-    270,285,405   $27,028   $43,533,687   $(1,570)  $(67,928,079)  $(24,368,908)
Shares issued for conversion of deferred compensation   -    -    -    -    -    -    -    -    1,667,000    167    24,171    -    -    24,338 
Issuance of commitment shares in connection with promissory notes   -    -    -    -    -    -    -    -    850,000    85    11,040    -    -    11,125 
Stock-based compensation   -    -    -    -    -    -    -    -    -    -    6,025    -    -    6,025 
Common Shares issued for services   -    -    -    -    -    -    -    -    1,000,000    100    15,900    -    -    

16,000

 
Common stock issued for cash, net of fees   -    -    -    -    -    -    -    -    5,000,000    500    45,500    -    -    46,000 
Net Income   -    -    -    -    -    -    -    -    -    -    -    -    2,063,660    2,063,660 
Balance June 30, 2023   25,000   $25    600   $1    738   $-    -   $-    289,152,405   $27,940   $43,644,063   $(1,570)  $(66,082,348)  $(22,411,889)
                                                                       
Shares issued for conversion of deferred compensation   -    -    -    -    -    -    -    -    -    -    -    -    -    - 
Issuance of commitment shares in connection with promissory notes   -    -    -    -    -    -    -    -    2,000,000    25    3,225    -    -    3,250 
Stock-based compensation   -    -    -    -    -    -    -    -    350,000    35    4,515    -    -    4,550 
Common Shares issued for services   -    -    -    -    -    -    -    -    8,000,000    -    -    -    -    - 
Common stock issued for cash, net of fees   -    -    -    -    -    -    -    -    -    -    -    -    -    - 
Net Income   -    -    -    -    -    -    -    -    -    -    -    -    (766,170)   (766,170)
Balance September 30, 2023   25,000   $25    600   $1    738   $-    -   $-    289,152,405   $27,940   $43,644,063   $(1,570)  $(66,630,590)  $(22,960,131)

 

6
 

 

For three and nine months ended September 30, 2022

 

   Series AA Preferred Stock   Series B Convertible Preferred Stock   Series C Convertible Preferred Stock   Series D Convertible Preferred Stock   Common Stock   Additional Paid-in  

Subscription

   Accumulated   Total Shareholder’s 
   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Receivable   Deficit   Deficit 
Balance December 31, 2021   25,000   $25    600   $1    738   $-    305   $-    74,498,760   $7,449   $40,663,187   $(1,570)  $(56,443,416)  $(15,774,324)
                                                                       
Shares issued for conversion of notes payable and accrued interest   -    -    -    -    -    -    -    -    3,700,000    370    88,430    -    -    88,800 
Common stock issued for settlement of debt                                           2,428,777    243    45,904              46,147 
Issuance of commitment shares in connection with promissory note   -    -    -    -    -    -    -    -    700,000    70    15,680    -    -    15,750 
Net loss for the quarter ended March 31, 2022   -    -    -    -    -    -    -    -    -    -         -    (2,413,209)   (2,413,209)
Balance March 31, 2022   25,000   $25    600   $1    738   $-    305   $-    81,327,538   $8,132   $40,813,201   $(1,570)  $(58,856,625)  $(18,036,836)
                                                                       
Shares issued for conversion of notes payable and accrued interest   -    -    -    -    -    -    -    -    6,500,000    650    114,550    -    -    115,200 
Issuance of commitment shares in connection with promissory note   -    -    -    -    -    -    -    -    350,000    35    5,698    -    -    5,733 
Common Shares issued for services   -    -    -    -    -    -    -    -    62,250,000    6,225    1,275,675    -    -    1,281,900 
Net loss   -    -    -    -    -    -    -    -    -    -    -    -    (2,526,131)   (2,526,131)
Balance June 30, 2022   25,000   $25    600   $1    738   $-    305   $-    150,427,538   $15,042   $42,209,124   $(1,570)  $(61,382,756)  $(19,160,134)
                                                                       
Issuance of commitment shares in connection with promissory note   -    -    -    -    -    -    -    -    2,050,000    205    22,410    -    -    22,615 
Common Shares issued for services   -    -    -    -    -    -    -    -    6,750,000    675    134,325    -    -    135,000 
Net loss   -    -    -    -    -    -    -    -    -    -    -    -    (603,360)   (603,360)
Balance September 30, 2022   25,000   $25    600   $1    738   $-    305   $-    159,227,538   $15,922   $42,365,859   $(1,570)  $(61,986,116)  $(19,605,879)

 

See accompanying summary of accounting policies and notes to unaudited condensed consolidated financial statements.

 

7
 

 

Endonovo Therapeutics, Inc.

Notes to Condensed Consolidated Financial Statements

 

Note 1 - Organization and Nature of Business

 

Endonovo Therapeutics, Inc. (Endonovo or the “Company”) is an innovative biotechnology company that has developed a bio-electronic approach to regenerative medicine. Endonovo is a growth stage company whose stock is publicly traded (OTCQB: ENDV).

 

The Company develops, manufactures, and distributes evolutionary medical devices focused on the rapid healing of wounds and reduction of pain, edema, and inflammation in the human body. The Company’s non-invasive bioelectric medical devices are designed to target inflammation, cardiovascular diseases, chronic kidney disease, and central nervous system disorders (“CNS” disorders).

 

The Company’s non-invasive Electroceutical® therapeutics device, SofPulse®, using pulsed short-wave radiofrequency at 27.12 MHz has been FDA-Cleared and CE Marked for the palliative treatment of soft tissue injuries and post-operative plain and edema, and has CMS National Coverage for the treatment of chronic wounds. The Company’s current portfolio of pre-clinical stage Electroceutical® therapeutics devices address chronic kidney disease, liver disease non-alcoholic steatohepatitis (NASH), cardiovascular and peripheral artery disease (PAD) and ischemic stroke.

 

Endonovo’s core mission is to transform the field of medicine by developing safe, wearable, non-invasive bioelectric medical devices that deliver the Company’s Electroceutical® Therapy. Endonovo’s bioelectric Electroceutical® devices harnesses bioelectricity to restore key electrochemical processes that initiate anti-inflammatory processes and growth factors in the body necessary for healing to rapidly occur.

 

The Company intends to be structured into two separate divisions:

 

  ■ A commercial stage developer primarily of non-invasive wearable Electroceuticals® therapeutic devices for pain relief, general wellness, and wound curatives with many of its products marketed under the SofPulse® brand name. This division will be controlled by Ira Weisberg, the Company’s President and Chief Commercial Officer.
  ■ M&A division with a strategy of purchasing profitable companies, which will be managed by the Company’s current Chief Executive Officer.

 

Note 2 – Summary of significant accounting policies.

 

Basis of Presentation and Principles of Consolidation

 

The accompanying unaudited interim condensed consolidated financial statements have been presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the instructions to Article 8 of Regulation S-X. Accordingly, the financial statements do not include all of the information and notes required by GAAP for complete financial statements. The accompanying consolidated condensed balance sheet as of September 30, 2023, the consolidated statements of operations for the three and nine months ended September 30, 2023 and 2022, the consolidated statements of cash flows for the nine months ended September 30, 2023 and 2022, and the consolidated statements of shareholders’ deficit for the three and nine months ended September 30, 2023 and 2022 are unaudited; however, in the opinion of management such interim 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 17, 2023. The results of operations for the period presented are not necessarily indicative of the results that might be expected for future interim periods or for the full year.

 

Liquidity and Going Concern

 

The Company’s unaudited condensed consolidated financial statements are prepared using GAAP applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company’s ability to obtain adequate capital to fund operating losses until it becomes profitable.

 

As of September 30, 2023, the Company had cash of approximately $0 and a working capital deficiency of approximately $23.1 million. During the nine months ended September 30, 2023, the Company used approximately $0.4 million of cash in its operation. The Company has incurred recurring losses resulting in an accumulated deficit of approximately $66.6 million as of September 30, 2023. These conditions raise substantial doubt as to its ability to continue as going concern within one year from issuance date of these unaudited consolidated financial statements.

 

8
 

 

Endonovo Therapeutics, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

 

During the nine months ended September 30, 2023, the Company has raised $0.5 million in equity and debt financings. The Company will continue to raise additional capital through either debt or equity financing to fund 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.

 

On September 26, 2022, the Company entered into an asset purchase agreement with a Company, which is engaged in the business of providing and laying of concrete primarily for residential tract developers, pursuant to which the Company will acquire all of the assets and liabilities for approximately $25.2 million. The Company intends to raise the consideration through debt and equity financing. Such a transaction has not yet closed at the report date.

 

No adjustments have been made to the carrying value of assets or liabilities as a result of this uncertainty. To reduce the risk of not being able to continue as a going concern, management is commercializing its FDA cleared and CE marked products and has commenced implementing its business plan to materialize revenues from potential future license agreements, and or diversifying its business activities with the potential acquisition of specialty construction company. The Company will continue to raise additional capital through the issuance of fixed-rate conversion feature promissory notes.

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Critical estimates include the assessment of impairment of finite lived intangibles, the valuation of the derivative liability, the valuation of warrants and stock options, and the valuation of deferred income tax assets. Management uses its historical records and knowledge of its business in making these estimates. Actual results could differ from these estimates.

 

Earnings (Loss) Per Share

 

The Company utilizes Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 260, “Earnings per Share.” Basic earnings (loss) per share is computed based on the earnings (loss) attributable to common shareholders divided by the weighted average number of shares outstanding for the period excluding any dilutive effects of options, warrants, unvested share awards and convertible securities. Diluted earnings (loss) per common share is calculated similar to basic earnings (loss) per share except that the denominator is increased to include additional common share equivalents available upon exercise of stock option, warrants, common shares issuable under convertible debt and restricted stock using the treasury stock method. Dilutive common share equivalents include the dilutive effect of in-the-money share equivalents, which are calculated based on the average share price for each period using the treasury stock method, excluding any common share equivalents if their effect would be anti-dilutive. In periods in which a net loss has been incurred, all potentially dilutive common shares are considered anti-dilutive and thus are excluded from the calculation. Securities that are excluded from the calculation of weighted average dilutive common shares because their inclusion would have been antidilutive for the nine months ended September 30, 2023, include stock options, warrants, and notes payable.

 

The Company has 6,011,750 stock options to purchase an equivalent number of shares of common stock outstanding at September 30, 2023. The Company has 263,070 options and 2,000 warrants to purchase common stock outstanding at September 30, 2022.

 

The components of basic and diluted income (loss) per share for the nine months ended September 30, 2023 and 2022 were as follows:

 

   2023   2022 
   Nine months ended September 30, 
   2023   2022 
Numerator:        
Net income (loss) attributable to common shareholders  $8,857,992   $(5,542,700)
           
Effect of dilutive securities          
Convertible notes   (10,823,217)   - 
Net loss for diluted earnings per share  $(2,295,225)  $(5,542,700)
Denominator:          
Weighted-average number of common shares outstanding during the period   276,355,156    55,303,026 
Dilutive effect of convertible notes payable   1,074,413,187    - 
Common stock and common stock equivalents used for diluted loss per share   1,350,768,342    55,303,026 

 

The components of basic and diluted income (loss) per share for the three months ended September 30, 2023 and 2022 were as follows:

 

   2023   2022 
   Three months ended September 30, 
   2023   2022 
Numerator:        
Net income (loss) attributable to common shareholders  $(766,170)  $(603,360)
           
Effect of dilutive securities          
Convertible notes   285,892    - 
Net loss for diluted earnings per share  $(480,278)  $(603,360)
Denominator:          
Weighted-average number of common shares outstanding during the period   298,391,943    153,599,760 
Dilutive effect of convertible notes payable   1,074,413,187    - 
Common stock and common stock equivalents used for diluted loss per share   1,372,805,130    153,599,760 

 

Accounts Receivable

 

The Company uses the specific identification method for recording the provision for doubtful accounts, which was $0 as of September 30, 2023 and December 31, 2022. Account receivables are written off when all collection attempts have failed.

 

9
 

 

Endonovo Therapeutics, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

 

Newly Adopted Accounting Principles

 

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 consolidated financial statements.

 

Note 3 - Revenue Recognition

 

Contracts with Customers

 

The Company adopted ASC 606, Revenue from Contracts with Customers effective January 1, 2019, using the modified retrospective method applied to those contracts which were not substantially completed as of January 1, 2019. These standards provide guidance on recognizing revenue, including a five-step model to determine when revenue recognition is appropriate. The standard requires that an entity recognize revenue to depict the transfer of control of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

 

The Company routinely plans on entering into contracts with customers that include general commercial terms and conditions, notification requirements for price increases, shipping terms and in most cases prices for the products and services that we offer. The Company’s performance obligations are established when a customer submits a purchase order notification (in writing, electronically or verbally) for goods and services, and we accept the order. The Company identified performance obligations as the delivery of the requested product or service in appropriate quantities and to the location specified in the customer’s contract and/or purchase order. The Company generally recognize revenue upon the satisfaction of these criteria when control of the product or service has been transferred to the customer at which time, the Company has an unconditional right to receive payment. The Company’s sales and sale prices are final, and our prices are not affected by contingent events that could impact the transaction price.

 

Revenues for our SofPulse® product is typically recognized at the time the product is shipped, at which time the title passes to the customer, and there are no further performance obligations. Royalty/licensing revenue is also recognized at one point in time, when the units are shipped.

 

In connection with offering products and services provided to the end user by third-party vendors, the Company reviews the relationship between us, the vendor, and the end user to assess whether revenue should be reported on a gross or net basis. In asserting whether revenue should be reported on a gross or net basis, the Company considers whether the Company acts as a principal in the transaction and control the goods and services used to fulfill the performance obligation(s) associated with the transaction.

 

10
 

 

Endonovo Therapeutics, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

 

Sources of Revenue

 

The Company has identified the following revenues by revenue source:

 

1. Sales to plastic surgeons
2. Sales to wound care facilities
3. Sales to hospital
4. Sales to other physicians
5. Royalty fee from licensing, net

 

For the three and nine months ended September 30, 2023 and 2022, the sources of revenue were as follows:

 Schedule of Source of Revenue

   2023   2022   2023   2022 
  

Three Months Ended

September 30,

   Nine Months Ended
September 30,		 
   2023   2022   2023   2022 
                 
Royalty/licensing, net  $-   $-   $126,520   $- 
Direct sales- medical care providers, gross   1,520    10,960    7,740    13,892 
Total sources of revenue  $1,520   $10,960   $134,260   $13,892 

 

The royalty/licensing revenue recognized in the nine months ended September 30, 2023, resulted from specific transactions. No general patent rights were assigned to the distributor. The royalty / licensing revenue is recorded on a net basis as the Company was not considered the principal but an agent for accounting purposes. The royalty / licensing revenue, net includes an ongoing contract with a customer that has a total gross sales value of $300,000, for which the Company recognized net revenue of $126,520 based on 1,000 units delivered during the period ended September 30, 2023. The royalty/licensing revenue is recognized when the customer picks up the units from the Company’s vendor.

 

On January 25, 2023, the Company entered into a sales support services agreement with Pulse Therapeutic Technology (“PTT”), an entity controlled by a former related party, under which PTT has been selling SofPulse® on a nonexclusive basis. Pursuant to such agreement, the deferred compensation owed to this former related party has been fully extinguished for a total amount of approximately $118,000.

 

Warranty

 

Our general product warranties do not extend beyond an assurance that the product delivered will be consistent with stated specifications and do not include separate performance obligations.

 

Significant Judgments in the Application of the Guidance in ASC 606

 

There are no significant judgments associated with the satisfaction of our performance obligations. We generally satisfy performance obligations upon shipment of the product to the customer. This is consistent with the time in which the customer obtains control of the products. Performance obligations are also generally settled quickly after the purchase order acceptance, therefore the value of unsatisfied performance obligations at the end of any reporting period is generally immaterial.

 

We consider variable consideration in establishing the transaction price. Forms of variable consideration applicable to our arrangements include sales returns, rebates, volume-based bonuses, and prompt pay discounts. We use historical information along with an analysis of the expected value to properly calculate and to consider the need to constrain estimates of variable consideration. Such amounts are included as a reduction to revenue from the sale of products in the periods in which the related revenue is recognized and adjusted in future periods as necessary.

 

Practical Expedients

 

Our payment terms for sales direct to distributors are substantially less than the one-year collection period that falls within the practical expedient in determination of whether a significant financing component exists.

 

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Endonovo Therapeutics, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

 

Note 4 – Patents.

 

In December 2017, we acquired from Rio Grande Neurosciences, Inc. (RGN) a patent portfolio for $4,500,000. The earliest patents expire in 2024. The following is a summary of patents less accumulated amortization at September 30, 2023 and December 31, 2022:

    September 30, 2023     December 31, 2022  
             
Patents   $ 4,500,000     $ 4,500,000  
                 
Less accumulated amortization     3,719,740       3,234,556  
                 
Patents, net   $ 780,260     $ 1,265,444  

 

Amortization expense associated with patents was $485,184 for the nine months ended September 30, 2023.

 

The estimated future amortization expense related to patents as of September 30, 2023, is as follows:

Schedule of Estimated Future Amortization Expense

Twelve Months Ending September 30,  Amount 
     
2024  $646,192 
2025   134,068 
      
Total  $780,260 

 

Note 5- Notes Payable

 

As of September 30, 2023, and December 31, 2022, the notes payable activity was as follows:

   September 30, 2023   December 31, 2022 
         
Notes payable at beginning of period  $7,163,832   $7,256,930 
Notes payable issued   195,000    465,000 
Repayments of notes payable in cash   (40,000)   (14,000)
Settlement on note payable   (133,650)   (163,826)
Less amounts converted to stock   (100,000)   (380,272)
Notes payable at end of period   7,085,182    7,163,832 
Less debt discount   (28,210)   (10,587)
Note payable, net  $7,056,972   $7,153,245 
           
Notes payable issued to a former related party  $104,600   $112,100 
Notes payable issued to non-related parties  $6,952,372   $7,041,145 

 

The maturity dates on the notes-payable are as follows:

   Notes to     
12 months ending,  Former
related party		   Non-related
parties		   Total 
             
Past due  $104,600   $6,770,582   $6,875,182 
September 30, 2024   -    210,000    210,000 
   $104,600   $6,948,082   $7,085,182 

 

Activity for the nine months ended September 30, 2023

 

Fixed rate notes

 

During the nine months ended September 30, 2023, the Company converted $100,000 in principal and $9,000 in accrued interest into 10,900,000 shares of common stock.

 

During the nine months ended September 30, 2023, the Company executed an amendment or allonges to three fixed rate notes to extend the maturity date in exchange for $20,000 payment to the current balance of one note and an aggregate of 1,000,000 shares of common stock to two noteholders as of September 30, 2023, and $2,500 in extension fee payable at the revised maturity date.

 

During the nine months ended September 30, 2023, the Company issued five fixed-rate notes for an aggregate amount of $195,000, which carry interest between 10% and 15% and with maturity ranging between one to nine (1 to 9) months from issuance.

 

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Endonovo Therapeutics, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

 

As of September 30, 2023, the Company has a total of twenty-four (24) fixed-rate notes, of which eighteen (18) have a make good provision for a total principal of $1,440,000 and approximately $338,403 in accrued interest. Balance of fixed-rate notes was $1,849,728 and $1,819,728 as of September 30, 2023, and December 31, 2022, respectively. Accrued interest on fixed-rate notes was approximately $429,500 and $310,960 as of September 30, 2023, and December 31, 2023, respectively.

 

Such provision will require the Company to issue additional shares to ensure that the investor can realize a profit of 15% or 18% reselling the conversion shares. The value of the make good provision was approximately $250,000 as of September 30, 2023 and is reported under Accounts payable and accrued liabilities in the condensed consolidated balance sheet as of June 30, 2023. In addition, certain fixed-rate notes include a prepayment provision, which entitles the holder to a 15% cash premium. The Company concluded that such provision was not deemed material and probable as of September 30, 2023.

 

Variable-rate notes

 

During the nine months ended September 30, 2023, the Company executed a settlement agreement with one investor to extinguish the remaining principal balance of a promissory note into 4,300,590 shares of common stock, which resulted in a gain from debt extinguishment of approximately $77,000.

 

Fixed Rate note (former related party)

 

Notes payable to a former related party in the aggregate amount of $104,600 were outstanding at September 30, 2023, which are past maturity date. The notes bear interest between 10% and 12% per annum. During the nine months ended September 30, 2023, the Company repaid $7,500 in principal amount to this former related party. Refer to Note 7- Related Party Transactions.

 

Activity for the nine months ended September 30, 2022

 

Fixed rates Notes

 

During the nine months ended September 30, 2022, the Company issued five (5) fixed rate promissory notes totaling $400,000 for funding of $400,000 with original terms of nine months and interest rates of 15% and 18%. The holder of the promissory note can convert the outstanding unpaid principal and accrued interest at a fixed conversion rate, subject to standard anti-dilution features, six-month after issuance date.

 

As of September 30, 2022, the Company has eighteen (18) fixed-rate promissory notes with an outstanding balance of $1,920,900, of which $1,045,900 are past maturity. As of September 30, 2022, the Company has a total of fourteen (14) fixed rate notes for total principal amount of $1,400,000 includes a make good shares provision. Such provision will require the Company to issue additional shares to ensure that the investor can realize a profit of 15% or 18% reselling the conversion shares. The Company accrued approximately $209,000 related to the make-good provision as the amount is probable and can be reasonably estimated pursuant to ASC 450 Contingencies. Such amount was presented as other expense in the condensed consolidated statements of operations.

 

During the nine months ended September 30, 2022, the Company converted $124,900 in accrued interest and $214,100 in principal balance into 16,950,000 shares of common stock.

 

Certain fixed-rate notes include a prepayment provision, which entitles the holder to a 15% or 18% premium upon cash redemption by the Company. The prepayment penalty approximates $243,000 as of September 30, 2022, but the Company determined that such liability is not probable as of September 30, 2022, pursuant to ASC 450 Contingencies.

 

Variable-rate notes

 

The gross amount of all convertible notes with variable conversion rates outstanding as of September 30, 2022, is $4,607,100, which are all past maturity. There has been no conversion of notes into the Company’s common stock during the three and nine months ended September 30, 2022.

 

13
 

 

Endonovo Therapeutics, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

 

Note 6 - Shareholders’ Deficit

 

Preferred Stock

 

The Company has authorized 5,000,000 shares of preferred stock which have been designated as follows:

   Number of Shares
Authorized		   Number of Shares
Outstanding at
September 30, 2023		   Par Value   Liquidation
Value		 
Series AA   1,000,000    25,000   $0.0010   $- 
Preferred Series B   50,000    600   $0.0001   $100 
Preferred Series C   8,000    738   $0.0001   $1,000 
Preferred Series D   20,000    -   $0.0001   $1,000 
Undesignated   3,922,000    -    -    - 

 

Series AA Preferred Shares

 

On February 22, 2013, the Board of Directors of the Company authorized an amendment to the Company’s Articles of Incorporation, as amended (the “Articles of Incorporation”), in the form of a Certificate of Designation that authorized the issuance of up to one million (1,000,000) shares of a new series of preferred stock, par value $0.001 per share, designated “Series AA Super Voting Preferred Stock,” for which the board of director established the rights, preferences and limitations thereof.

 

Each holder of outstanding shares of Series AA Super Voting Preferred Stock shall be entitled to one hundred thousand (100,000) votes for each share of Series AA Super Voting Preferred Stock held on the record date for the determination of stockholders entitled to vote at each meeting of stockholders of the Company. The Series AA Super Voting Preferred Stockholders will receive no dividends nor any value on liquidation.

 

There was no activity during the nine months ended September 30, 2023. There were 25,000 shares of Series AA Preferred stock outstanding as of September 30, 2023 and December 31, 2022.

 

Series B Convertible Preferred Stock

 

On February 7, 2017, the Company filed a certificate of designation for 50,000 shares of Series B Convertible Preferred Stock designated as Series B (“Series B”) which are authorized and convertible, at the option of the holder, commencing six months from the date of issuance into common shares and warrants. For each share of Series B, the holder, on conversion, shall receive the stated value divided by 75% of the market price on the date of purchase of Series B and a three-year warrant exercisable into up to a like amount of common shares with an exercise price of 150% of the market price as defined in the Certificate of Designation. Dividends shall be paid only if dividends on the Company’s issued and outstanding Common Stock are paid, and the amount paid to the Series B holder will be as though the conversion shares had been issued. 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.

 

There was no activity during the nine months ended September 30, 2023. There were 600 shares of Series B outstanding as of September 30, 2023 and December 31, 2022.

 

14
 

 

Endonovo Therapeutics, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

 

Series C Convertible Redeemable Preferred Stock

 

On December 22, 2017, the Company filed a certificate of designation for 8,000 shares of Series C Secured Redeemable Preferred Stock (“Series C”). Each share of the C Preferred is entitled to receive a $20 quarterly dividend commencing March 31, 2018, and each quarter thereafter and is to be redeemed for the stated value, $1,000 per share, plus accrued dividends in cash (i) at the Company’s option, commencing one year from issuance and (ii) mandatorily as of December 31, 2019. Management determined that the Series C should be classified as liability per the guidance in ASC 480 Distinguishing Liabilities from Equity as of December 31, 2019. On January 29, 2020, the Company filed the amended and restated certificate of designation fort its Series C Secured Redeemable Preferred Stock. The amendment changed the rights of the Series C by (a) removing the requirement to redeem the Series C, (b) removing the obligation to pay dividends on the Series C, (c) Allowing the holders of shares of Series C to convert the stated value of their shares into common stock of the Company at 75% of the closing price of such common stock on the day prior to the conversion. The C Preferred does not have any rights to vote with the common stock.

 

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.

 

There was no activity during the nine months ended September 30, 2023. There were 738 shares of Series C outstanding, as of September 30, 2023 and December 31, 2022

 

Series D Convertible Preferred Stock

 

On November 11, 2019, the Company filed a certificate of designation for 20,000 shares of Series D Convertible Preferred Stock designated as Series D (“Series D”), which are authorized and convertible, at the option of the holder, at any time from the date of issuance, into shares of common shares. On or prior to August 1, 2020, for each share of Series D, the holder, on conversion, shall receive a number of common shares equal to 0.01% of the Company’s issued and outstanding shares on conversion date and for conversion on or after August 2, 2020, the holder shall receive conversion shares as though the conversion date was August 1, 2020, with no further adjustments for issuances by the Company of common stock after August 1, 2020, except for stock split or reverse stock splits of the common stock. Management classified the Series D in permanent equity as of June 30, 2023.

 

The Series D holders have no voting rights. Upon liquidation, the holder of Series D, shall be entitled to receive an amount equal to the stated value, $1,000 per share, plus any accrued and unpaid dividends thereon before any distribution is made to common stockholders.

 

During the six months ended June 30, 2023, the Company issued 5,000,000 shares of common stock upon conversion of the remaining 50 shares of Series D preferred stock. The Company is also committed to providing additional shares of common stock if the holders of Series D do not realize a 15% profit on the resale of the conversion shares. As of June 30, 2023, and December 31, 2022, there were 0 and 50 shares of Series D outstanding, respectively.

 

Common Stock

 

Activity during the nine months ended September 30, 2023

 

During the nine months ended September 30, 2023, the Company issued 10,900,000 shares of common stock for the conversion of $109,000 of principal accrued interest from one note holder.

 

During the nine months ended September 30, 2023, the Company issued 1,507,277 shares of common stock pursuant to a make-good provision, which resulted in a loss on debt extinguishment of $24,870.

 

During the nine months ended September 30, 2023, the Company issued 4,300,590 shares of common stock pursuant to a debt settlement of aggregate principal of $113,650, resulting in a gain on debt extinguishment of approximately $77,000.

 

During the nine months ended September 30, 2023, the Company issued 1,667,000 shares of common stock pursuant to a deferred compensation settlement with a fair value of $24,338.

 

During the nine months ended September 30, 2023, the Company issued 5,967,590 shares of common stock pursuant to a debt settlement.

 

During the nine months ended September 30, 2023, the Company issued 43,800,000 shares of common stock for services for a total fair value of $720,562

 

During the nine months ended September 30, 2023, the Company issued 5,000,000 shares of common stock in exchange for 50 shares of Series D Preferred, which resulted in an inducement loss of $39,398 recorded as a deemed dividend in the shareholders’ deficit as of September 30, 2023.

 

During the nine months ended September 30, 2023, the Company issued 5 1/2 units or the equivalent of 27,500,000 shares of common stock pursuant to a private placement for total net cash receipt of $253,000.

 

During the nine months ended September 30, 2023, the Company issued 1,850,000 commitment shares pursuant to executed securities purchase agreements with an estimated fair value of $25,625.

 

During the nine months ended September 30, 2023, the Company issued 1,000,000 shares for note extension and pursuant to executed allonges with an estimated fair value of $11,125.

 

Activity during the nine months ended September 30, 2022

 

During the nine months ended September 30, 2022, the Company issued 16,950,000 shares of common stock for the conversion of $214,100 of principal notes and accrued interest in the amount of $124,900.

 

During the nine months ended September 30, 2022, the Company issued 2,428,777 shares of common stock pursuant to a make-whole provision from an April 2021 debt settlement with one investor.

 

During the nine months ended September 30, 2022, the Company issued 3,100,000 shares of common stock as commitment shares in connection with promissory notes.

 

During the nine months ended September 30, 2022, the Company issued 62,250,000 shares of common stock for services for total fair value of $1,281,900.

 

15
 

 

Endonovo Therapeutics, Inc.