Endonovo Therapeutics, Inc 10-K for FY2021
Endonovo Therapeutics, Inc. (ENDV)
About this 10-K
Endonovo Therapeutics, Inc filed this 10-K on April 14, 2022, covering the fiscal year ended December 31, 2021 (FY2021).
Headline figures
Fiscal year ended December 31, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $73.11K
- down 55.9% from $165.8K a year earlier
- Net loss
- $3.1M
- compared with a net loss of $395.58K a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the fiscal year ended
| 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:
(Exact name of registrant as specified in its charter)
State or other jurisdiction of incorporation or organization |
(I.R.S. Employer Identification No.) | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s
telephone number, including area code:
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934: None.
Securities registered pursuant to Section 12(g) of the Securities Exchange Act of 1934:
| Title of each class | Trading Symbol(s) | Name of principal U.S. market on which traded | ||
| OTCMKTS |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes
☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes
☐
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.
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).
Indicate by check mark whether the registrant is a large-accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or 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 | ☐ | |
| ☒ | 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 has filed a report on and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered
public accounting firm that prepared or issued its audit report. Yes ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐
The
aggregate market value of the registrant’s voting common stock held by non-affiliates of the registrant was $
As of April 13, 2022, the registrant had shares of its common stock, par value $0.0001 per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
TABLE OF CONTENTS
| 2 |
FORWARD-LOOKING STATEMENTS
When used in this Report, the words “may,” “will,” “expect,” “anticipate,” “continue,” “estimate,” “intend,” and similar expressions are intended to identify forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) regarding events, conditions and financial trends which may affect the Company’s future plans of operations, business strategy, operating results, and financial position. Such statements are not guarantees of future performance and are subject to risks and uncertainties and actual results may differ materially from those included within the forward-looking statements for various reasons.” Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date made. Except as required under federal securities laws and the rules and regulations of the United States Securities and Exchange Commission, the Company does not undertake, and specifically declines, any obligation to update any of these statements or to publicly announce the results of any revisions to any forward-looking statements after the distribution of this report, whether as a result of new information, future events, changes in assumptions, or otherwise.
This Report contains certain estimates and plans related to us and the industry in which we operate, which assume certain events, trends, and activities will occur and the projected information based on those assumptions. We do not know all of our assumptions are accurate. In particular, we do not know what level of acceptance our strategy will achieve, how many acquisitions we will be able to consummate or finance, or the size thereof. If our assumptions are wrong about any events, trends, or activities, then our estimates for future growth for our business also may be wrong. There can be no assurances any of our estimates as to our business growth will be achieved.
| 3 |
PART I
Item 1. Business.
Overview
Endonovo Therapeutics, Inc. (Endonovo or the “Company”) is an 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 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).
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.
Corporate History
Our predecessor company, Hanover Asset Management, Inc. was incorporated in November 2008 in California. For the purpose of reincorporating in Delaware, we merged with a newly incorporated successor company, Hanover Portfolio Acquisitions, Inc., in July 2011 under which we continue to operate.
IP Resources International, Inc. began operations on September 1, 2011, and was formally incorporated on October 17, 2011.
Reverse Acquisition
On March 14, 2012, we entered into a Share Exchange Agreement (“Agreement”) with IPR and certain of its shareholders. Under the Agreement, each participating IPR shareholder exchanged all of their issued and outstanding IPR common shares totaling 33,234,294, free and clear of all liens, and $155,000 for Company common shares equal to 1.2342 times the number of IPR shares being transferred to the Company for a total of 410 of our shares. The $155,000 was not paid at closing. The Company recorded the $155,000 as acquisition payable. IPR agreed to make payments of up to 25% of the proceeds from any private placement or gross profits earned by IPR until the obligation is satisfied. The percentage of the proceeds to be paid is at the sole discretion of IPR’s Chief Executive Officer and the ex-Chief Executive Officer of the Company based on the liquidity of the Company.
As a result of the Agreement, the former shareholders of IPR, immediately post acquisition owned approximately 89% of the Company and its officers and directors constituted the majority of the officers and directors of the Company. Since the shareholders, officers and directors of IPR have control of the Company, the acquisition constitutes a reverse acquisition, so IPR was the accounting acquirer and we were the accounting acquiree. For legal purposes, we are the legal parent and IPR is the legal subsidiary.
Acquisition of Aviva Companies Corporation
On April 2, 2013, the Company entered into an Acquisition Agreement (the “Acquisition Agreement”) with (i) The Aviva Companies Corporation (“Aviva”) and (ii) all of the shareholders of Aviva (the “Shareholders”) pursuant to which the Company acquired all of the outstanding shares of Aviva in exchange for the issuance of 60 shares of our common stock (60,000 pre-reverse split), par value $0.0001 per share to the Shareholders (the “Share Exchange”). As a result of the Share Exchange, Aviva became a wholly owned subsidiary of the Company.
Other than in respect to the transaction, there is no material relationship among Aviva’s stockholders and any of the Company’s affiliates, directors, or officers. We are not currently actively pursuing the development of the Aviva Companies Corporation.
| 4 |
Acquisition of WeHealAnimals, Inc.
On November 16, 2013, the Company entered into an Acquisition Agreement (the “Acquisition Agreement”) with (i) WeHealAnimals, Inc. (“WHA”) and (ii) the sole shareholder of WHA (the “Shareholder”) pursuant to which the Company acquired all of the outstanding shares of WHA in exchange for the issuance of 3 shares of our common stock (3,000 shares pre- reverse split), par value $0.0001 per share and $96,000 to the Shareholder (the “Share Exchange”). As a result of the Share Exchange, WHA became a wholly owned subsidiary of the Company and all of the equity of WHA including its and its sole shareholder’s intellectual property became the property of the Company. This obligation was fully paid on December 15, 2015 through the issuance of 350 shares of stock (350,000 pre-reverse split) to Shareholder. WHA is a Nevada corporation with intellectual property in the fields of bio-technology, including its biologics and time-varying electromagnetic frequencies with potential applications on people and animals that management believes can be developed to the benefit of the Company and its shareholders. WHA’s sole shareholder was formerly Chairman and Chief Scientist of Regenetech, Inc. Regenetech was acquired by a company that wanted its technology, biomolecules grown in microgravity, for use in cosmetics. WHA’s sole shareholder left Regenetech with exclusive rights to this proprietary square wave form technology and stem cell technologies, including the patents and patent applications relating thereto.
Other than in respect to the transaction, there is no material relationship between WHA’s sole stockholder and any of the Company’s affiliates, directors, or officers.
Acquisition of Rio Grande Assets
On December 22, 2017, we acquired intellectual property and other assets (the “RGN Assets”) from Rio Grande Neurosciences, Inc. (RGN). The price was $4,500,000 of which we paid $3,000,000 in cash and delivered a $1,500,000 secured promissory note due November 30, 2018, and security agreement. Before such note was due, the note was assigned to Eagle Equities, LLC (“Eagle”) its due date was extended to November 30, 2019, and it was made convertible into our common stock at a price related to our common stock’s market price at the time of conversion. The maturity date was then extended to December 31, 2021. The RGN Assets relate to RGN’s PEMF portfolio of intellectual property, including 27 issued patents with foreign patent protection covering the therapeutic use of PEMF as well as the treatment of various central nervous system disorders. We intend to initiate and fund future clinical trials to evaluate the further use of PEMF in the treatment of central nervous system disorders, including traumatic brain injury, post-concussion syndrome, stroke, and multiple sclerosis. However, no assurance can be given that we will be successful in these endeavors or that the results of any tests will indicate further development of the RGN Assets.
The PEMF assets acquired include SofPulse®, a portable, disposable PEMF device with a CE Mark and an FDA 510(k) clearance for the treatment of post-surgical pain and edema in addition to medical reimbursement for the treatment of chronic wounds. Endonovo Therapeutics has begun the commercialization of the PEMF assets through marketing and the creation of various sales channels and distribution agreements.
Present Development Plans
We now are a biotechnology company developing bioelectronic devices and cell therapies for regenerative medicine and a commercial-stage developer of non-invasive wearable Electroceuticals™ therapeutic devices.
The Company’s current portfolio of commercial and clinical-stage wearable Electroceuticals™ therapeutic devices addresses wound healing, pain, post-surgical pain and edema, cardiovascular disease, chronic kidney disease, and Central Nervous System (CNS) Disorders, including traumatic brain injury (TBI), acute concussions, post- concussion syndrome and multiple sclerosis. 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. The Company’s non-invasive, wearable Electroceuticals™ therapeutic devices work by restoring key electrochemical processes that initiate anti-inflammatory and growth factor cascades necessary for healing to occur.
| 5 |
These bioelectronics devices are also commonly referred to as “electroceuticals.” These products are part of an emerging field termed “Bioelectronic Medicine,” that seeks to harness electrical signals in nerves and cells to alter the course of diseases and conditions. Whereas our competitors are primarily using implantable electrical nerve stimulators, we are developing devices that are not implantable and use electromagnetic pulses to deliver electrical stimulation to cells and tissues. We are developing these bioelectronic devices for the treatment of inflammatory conditions in tissues and vital organs with a concentration on vascular diseases and ischemia/reperfusion injuries.
Possible Additional Line of Business
Recently management has entered into a program to expand its operations through a program of acquisition of specialty construction and facilities maintenance companies. The Company has had contact with several potential acquisition targets and entered into a letter of intent with one such company. However, no definitive agreements have been signed and no assurance can be given that the Company will be able to make any such acquisition or that it will prove profitable.
Intellectual Property:
SofPulse: We have 29 issued patents with foreign patent protection covering the therapeutic use of tPEMF as well as the treatment of various central nervous system disorders. Additionally to date, we have filed seven patent applications in the U.S. through the U.S. Patent and Trademark Office (USPTO) and four international patent applications in the E.U., China, South Korea and Japan covering our Time-Varying Electromagnetic Field (TVEMF) technology, the production of biomolecules, the creation of an allogeneic mesenchymal stem cell product a treatment for chemical and radiation injuries, production of stem cell secretome and a method of treating tissues and organs using our TVEMF technology. To date, we have been granted one U.S. Patent (U.S. Patent No. 9,410,143) issued on August 9, 2017, covering the production of human biomolecules using our TVEMF technology. We will continue to seek to strengthen our portfolio of intellectual property by filing additional patents around uses of our core technologies.
Our business strategy is aimed at building value by positioning each of our technologies and therapies to treat specific diseases that lack effective treatment, post-operative pain and edema, or whose current standard of treatment involves invasive procedures and/or potentially harmful side effects. We anticipate updating and refining the business strategy as new medical and/or clinical advancements are made as a result of extensive research and development. In general, the component functions of the business model are to:
| ● | Commercialize our FDA cleared technology through direct sales, distributors and licensees; | |
| ● | License our technologies; | |
| ● | Develop additional medical indications for our medical devices; | |
| ● | Develop additional non-invasive, medical technologies; | |
| ● | Conduct pre-clinical and clinical human studies for FDA Approval of our medical devices and cell therapies; | |
| ● | Acquire subsidiaries under the parent company, Endonovo Therapeutics, to assist in the development and distribution of medical technologies; | |
| ● | Incrementally invest, market, and refine acquired and developed medical technologies and therapies. |
Industry Overview
Bioelectrical Medicine within the Healthcare Industry
The healthcare industry is one of the world’s largest and fastest-growing industries. Consuming over 10 percent of Gross Domestic Product (GDP) of most developed nations, health care can form an enormous part of a country’s economy.
As of 2016, 91.1% of residents had health protection in the United States, either through their employer or bought individually. During 2016, healthcare costs reached $3.3 trillion, or $10,348 per person. The share of U.S. GDP devoted to healthcare was 17.9% of U.S. Gross Domestic Product (GDP), the largest of any country in the world. Specifically, the cost of pharmaceuticals in the United States is the highest on the planet. It is expected that Healthcare’s share of U.S. GDP will continue its upward trend, reaching 20 percent of U.S. GDP by 2025. Globally, by 2040, Healthcare spending is expected to exceed $18 Trillion annually.
Bio-Electrical Medicine is a $17.2 Billion sector of the Healthcare Industry growing at more than a 11% CAGR estimated to exceed $35.5 Billion by 2025, according to Grand View Research. Get me a copy of this Bioelectric medicine is at the forefront of technological revolution in medical sciences. As opposed to the pharmaceutical industry, bioelectric medicine has a different treatment therapy that is based on electrical pulses instead of drugs to trigger the body’s recovery capabilities. Bioelectric medicine develops nerve stimulating and sensors activation technologies to regulate biological functions and treat diseases by combining bioengineering, neuroscience, molecular medicines and electronics. These technologies may change the future of therapies for wide range of diseases.
| 6 |
On the basis of type of device, the global Electroceuticals®/Bioelectrical Medicine Market is classified into two major classes:
| Ø | Implantable Electroceuticals® Devices, and | |
| Ø | Non-invasive Electroceuticals® Devices. |
BioElectric Medicine vs. Drug Therapies
Over the past 15 years, long-acting and extended-release opioids have been used to treat open wounds, post-operative wounds and chronic pain. These opioids are normally administered at high doses and over long treatment durations particularly in the United States, resulting in a drastic increase in the number opioid-tolerant individuals and a prescription opioid abuse epidemic. Endonovo offers an alternative, non-opioid treatment through its Electroceuticals® systems: The Company’s SofPulse® system is a medical device/designed to rapidly reduce post-operative swelling/edema, pain and to treat and accelerate the recovery of chronic wounds through the use of tPEMF. Chronic pain therapy via tPEMF works by relieving the underlying cause of pain – inflammation.
Drug therapies remain the standard of care for a broad range of medical conditions, including high blood pressure, chronic pain, autoimmune diseases, and psychiatric disorders. Management believes that bioelectronic medicine has developed as a viable alternative for the treatment of many disorders.
Normally, our nervous systems send signals to our tissues and organs to suppress inflammation, a phenomenon known as the inflammatory reflex. But sometimes, this system does not work properly, with malfunctions resulting in diseases like rheumatoid arthritis and inflammatory bowel disease. Traditionally, doctors have treated these diseases using drugs designed to suppress inflammation, such as infliximab (trade name Remicade) or adalimumab (Humira). But these drugs are expensive. Plus, they don’t work for everyone, often come with nasty side effects, and in some rare cases, they can even kill.
Current Product Being Sold – SofPulse®
In clinical trials, the SofPulse® device has proven to reduce mean pain scores by nearly 300% and inflammation by 275% thereby improving and reducing recovery time. Additionally, active patients have experienced a 2.2-fold reduction in narcotic use. The SofPulse® delivers tPEMF to enhance post-surgical recovery, naturally. Since the SofPulse® is non-invasive and non-pharmacologic, there are no known side effects and no potential for overdose or dependency AND no effects on healthy tissue.
| 7 |
How the SofPulse® Works
SofPulse® delivers low intensity microcurrents of energy directly to the procedure site, to enhance recovery, by increasing the amount of naturally occurring Vascular Endothelial Growth Factor (VEGF), thereby increasing the physiological process through which new blood vessels form from pre-existing vessels (Angiogenesis). Within hours/days, the Fibroblast Growth Factor (FGF) enhances, thereby increasing the production of Collagen/Granulation (within days) and Transforming Growth Factor (TGF-β) accelerating Remodeling in the body within days/weeks. This device reduces inflammation and speeds/improves the healing process. The natural healing process allows patients to get back to life faster with lowered use of narcotics. A surgeon places and activates SofPulse® immediately after a procedure. The SofPulse® can be placed over a surgical dressing or clothing and can easily be applied and/or removed in many cases by the patient themselves. The length of time the device is used will vary depending on the type of procedure.
The SofPulse® allows patients to get back to an active life faster with less use of narcotics.
| Ø | Immediately Usable and Effective - Single use patient device applied immediately after surgery. | |
| Ø | Easy to Use - SofPulse® can easily be applied and or removed, including in many cases by the patient themselves | |
| Ø | Automated Dosing - Device is activated automatically or can be used as needed | |
| Ø | Versatile - The product comes as a single device or dual device to accommodate different surgical procedures |
Manufacturing
Our SofPulse® device is manufactured for us by ADM Tronics, Inc. in an FDA approved facility in Northvale, New Jersey.
Sales & Marketing
Endonovo’s strategy is to establish relationships with third parties, such as sales organizations, distributors and marketing coordinators, that assist us in developing, marketing, selling and implementing our products.
We believe that strategic and technology-based relationships with medical facilities are fundamental to our success. We have forged numerous relationships with medical device distributors to enhance our combined capabilities. This approach enhances our ability to accelerate market penetration, accelerate the pace of our sales growth and solidify relationships.
We have a variety of marketing programs designed to create brand awareness and market recognition for our product offerings and for sales lead generation. Our marketing efforts include attending and presenting at healthcare related conferences, advertising, content development and distribution, public relations, social media publication of technical and informative articles in industry journals and sales training.
In addition, our strategic partners augment our marketing and sales campaigns through seminars, trade shows and joint public relations and advertising campaigns. Our customers and strategic partners provide references and recommendations that we often feature in external marketing activities.
Endonovo also is utilizing Key Opinion Leaders (KOLs) and Scientific Advisory Board Members (SABs) within the medical community to develop a sales-channel recommendation to other physicians/surgeons.
| 8 |
Competition
The pain management market is intensely competitive, highly fragmented and characterized by rapidly changing technology and drugs. We currently compete with other medical device manufacturers as well as pharmaceutical companies that have developed drugs many which are considered addictive.
Employees
The Company does not have any employees. However, we have retained approximately 7 individuals as independent contractors that are involved in business development and sales, research & development and administrative functions.
Item 1A. Risk Factors.
Not applicable because we are a smaller reporting company.
Item 1B. Unresolved Staff Comments.
Not applicable because we are a smaller reporting company.
Item 2. Properties.
We have one office located in Southern California. We believe such office is adequate for our present needs.
Item 3. Legal Proceedings.
We were defendants in a case entitled Auctus Fund, LLC v. Endonovo Therapeutics, Inc. et.al 20-cv-11286-PBS filed in the Federal District Court in Massachusetts in July 2020. The complaint sought damages related to a variable rate convertible note dated in August 2019 in the original amount of $275,250 and alleged various counts of State and Federal securities laws violations, breach of contract, fraud, consumer fraud and other claimed theories of damages while claiming damages in excess of $500,000, other unspecified damages and attorney fees. Auctus filed an amended complaint that was responded to by way of a motion to dismiss. On February 28, 2022, the Court granted our motion to dismiss, refused to extend supplemental jurisdiction over the State law claims and held that as a result of the dismissal, the Company’s counterclaims were moot. To date neither party has appealed the ruling. Due to the nature of our business, we may become active in litigation relating to the defense, or assertion of our patent rights or other corporate matters. Refer to Note 9 Commitments and Contingencies for further discussion
Item 4. Mine Safety Disclosures.
Not applicable.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
Our common stock trades on the OTCQB under the symbol “ENDV”. The OTCQB is a quotation service that displays real-time quotes, last-sale prices, and volume information in over-the-counter (“OTC”) equity securities. An OTCQB equity security generally is any equity that is not listed or traded on a national securities exchange. Our stock is thinly traded, and a robust, active trading market may never develop. The market for the Company’s common stock has been limited, volatile, and sporadic.
| 9 |
Price Range of Common Stock
The following table shows, for the periods indicated, the high and low closing prices per share of our common stock as reported by the OTCQB quotation service.
| Closing Price | ||||||||
| High | Low | |||||||
| Year Ended December 31, 2020 | ||||||||
| First Quarter | $ | 0.11 | $ | 3.90 | ||||
| Second Quarter | $ | 0.01 | $ | 0.38 | ||||
| Third Quarter | $ | 0.08 | $ | 0.15 | ||||
| Fourth Quarter | $ | 0.02 | $ | 0.10 | ||||
| Year Ended December 31, 2021 | ||||||||
| First Quarter | $ | 0.10 | $ | 0.02 | ||||
| Second Quarter | $ | 0.04 | $ | 0.02 | ||||
| Third Quarter | $ | 0.06 | $ | 0.01 | ||||
| Fourth Quarter | $ | 0.04 | $ | 0.02 | ||||
Approximate Number of Equity Security Holders
As of April 11, 2022, there were approximately 407 stockholders of record. Because shares of our common stock are held by depositaries, brokers and other nominees, the number of beneficial holders of our shares is substantially larger than the number of stockholders of record.
Dividends
Holders of our common stock are entitled to receive dividends if, as and when declared by the Board of Directors out of funds legally available therefore. We have never declared or paid any dividends on our common stock. We intend to retain any future earnings for use in the operation and expansion of our business. Consequently, we do not anticipate paying any cash dividends on our common stock to our stockholders for the foreseeable future.
Item 6. Selected Financial Data.
Not applicable because we are a smaller reporting company.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this report. The information and financial data discussed below is only a summary and should be read in conjunction with the historical financial statements and related notes contained elsewhere in this 10-K. The financial statements contained elsewhere in this 10-K fully represent the Company’s financial condition and operations; however, they are not indicative of the Company’s future performance. 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 10-K.
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.
| 10 |
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,” 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. Factors which could cause or contribute to such differences include, but are not limited to, the risks discussed in prior filings, in press releases and in other communications to shareholders issued by us from time to time which attempt to advise interested parties of the risks and factors which may affect our business. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
Critical Accounting Policies and Estimates
We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the U.S. (U.S. GAAP). In doing so, we have to make estimates and assumptions that affect 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, changes 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.
Impairment of Other Intangible and Long-Lived Assets
The Company accounts for its intangible assets under the provisions of ASC 350, “Intangibles - Goodwill and Other”. In accordance with ASC 350, intangible assets with a definite life are analyzed for impairment under ASC 360-10-05 “Property, Plant and Equipment” and intangible assets with an indefinite life are analyzed for impairment under ASC 360 annually, or more often if circumstances dictate. The Company performs its annual simplified impairment test in the fourth quarter of each year. The Company reviews its long-lived assets for impairment whenever events or changes in business circumstances indicate that the carrying amount of assets may not be fully recoverable or that the useful lives of these assets are no longer appropriate. If impairment is indicated, the asset is written down to its estimated fair value.
Use of estimates
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 made 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 debt, 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.
| 11 |
Recently Issued Accounting Pronouncements
In August 2020, the FASB issued ASU No. 2020-06 (“ASU 2020-06”) “Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.” ASU 2020-06 simplifies the accounting for convertible instruments by reducing the number of accounting models for convertible debt instruments and convertible preferred stock. Limiting the accounting models results in fewer embedded conversion features being separately recognized from the host contract as compared with current GAAP. Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital. In addition, ASU 2020-06 amends the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions. The Amendments also affects the diluted EPS calculation for instruments that may be settled in cash or shares and for convertible instruments. The amendments are effective for public entities excluding smaller reporting companies for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods. The Company adopted the new standard update on January 1, 2021, which did not result in a material impact on the Company’s consolidated results of operations, financial position, and cash flows.
Results of Operations
Results of Operations Year Ended December 31, 2021, vs. Year Ended December 31, 2020
| Year Ended December 31, | Favorable | |||||||||||||||
| 2021 | 2020 | (Unfavorable) | % | |||||||||||||
| Revenue | $ | 73,105 | $ | 165,796 | (92,691 | ) | (55.9 | ) | ||||||||
| Cost of revenue | 14,985 | 65,369 | 50,384 | 77.1 | ||||||||||||
| Gross profit | 58,120 | 100,427 | (42,307 | ) | (42.1 | ) | ||||||||||
| Operating expenses | 2,284,667 | 3,012,625 | 727,958 | 24.2 | ||||||||||||
| Loss from operations | (2,226,547 | ) | (2,912,198 | ) | 685,651 | 23.5 | ||||||||||
| Other income (expense) | (878,347 | ) | 2,516,614 | (3,394,961 | ) | (134.9 | ) | |||||||||
| Net loss | $ | (3,104,894 | ) | $ | (395,584 | ) | $ | (2,709,310 | ) | 684.9 | ||||||
Revenue
Revenue of the Company’s SofPulse® product during the current year decreased by $92,691 or 55.9% compared to the previous year.
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. Revenue has been negatively impacted by the COVID-19 contagious disease outbreak in March 2020. We anticipate that revenue will increase in future periods as the roll out of the SofPulse® product continues.
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 a 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.
| 12 |
Cost of Revenue
Cost of revenue decreased by $50,384 or 77.1% from the previous year to $14,985 during the current year compared to $65,369 during the previous year. Cost of revenue is recognized on those sales recorded as gross for which we are the principal in the transaction as opposed to net sales which reflect no cost of revenue.
It is anticipated that cost of revenue will increase in future periods as the roll out of the SofPulse® product continues.
Operating Expenses
Our operating expenses decreased by $727,958 or 24.2% to $2,284,667 in 2021 compared to $3,012,625 for 2020. The operating expenses were comprised primarily of consulting, professional fees, amortization expenses, and stock-based compensation. This change was due primarily to a decrease in consulting fees of approximately $0.3 million, and a decrease in stock-based compensation of approximately $0.4 million.
Depreciation and Amortization
We incur depreciation and amortization expense for costs related to our assets, including our patents, information technology and software. Our depreciation and amortization expense was $648,492 in 2021 compared to $651,247 in 2020. No equipment was purchased or sold during the fiscal year ended December 31, 2021.
Other Income / Expense
Other expense was $878,347 in 2021 compared to an income of $2,516,614 in 2020. Other Income/Expense includes interest expense, change in fair value of derivative liability, amortization of debt issuance cost, gain on extinguishment of debt and default penalty.
The increase in other expense during our fiscal year 2021 was primarily the result of re-valuations to reflect liability accounting for convertible notes issued with variable conversion rates. Change in fair value of the Company’s derivative liability decreased by $5.5 million from an income of $5.6 million in 2020 to an income of $0.1 million in 2021, resulting from changes to the inputs to the fair value model. The above was offset by a decrease in interest expense of approximately $1.2 million, the incurrence of $22,162 loss on extinguishment of debt in 2021 as opposed to a $555,430 gain on debt extinguishment in 2020.
Liquidity and Capital Resources
| As of December 31, | Increase | |||||||||||
| 2021 | 2020 | (Decrease) | ||||||||||
| Working Capital | ||||||||||||
| Current assets | $ | 94,855 | $ | 46,187 | $ | 48,668 | ||||||
| Current liabilities | 17,701,710 | 16,825,821 | (875,889 | ) | ||||||||
| Working capital deficit | $ | (17,606,855 | ) | $ | (16,779,634 | ) | $ | (827,221 | ) | |||
| Long-term debt | $ | 79,825 | $ | 155,000 | $ | 75,175 | ||||||
| Stockholders’ deficit | $ | (15,774,324 | ) | $ | (14,373,786 | ) | $ | (1,400,538 | ) | |||
| For Year Ended December 31, | Increase | |||||||||||
| 2021 | 2020 | (Decrease) | ||||||||||
| Statements of Cash Flows Select Information | ||||||||||||
| Net cash provided (used) by: | ||||||||||||
| Operating activities | $ | (986,584 | ) | $ | (741.590 | ) | $ | (244,994 | ) | |||
| Investing activities | $ | - | $ | - | $ | - | ||||||
| Financing activities | $ | 1,059,100 | $ | 736,117 | $ | 322,983 | ||||||
| As of December 31, | Increase | |||||||||||
| 2021 | 2020 | (Decrease) | ||||||||||
| Balance Sheet Select Information | ||||||||||||
| Cash | $ | 85,936 | $ | 13,420 | $ | 72,516 | ||||||
| Accounts payable and accrued expenses | $ | 7,078,283 | $ | 5,989,185 | $ | (1,089,098 | ) | |||||
| 13 |
Since inception and through December 31, 2021, the Company has raised approximately $18 million in equity and debt transactions. These funds have been used to advance the operations of the Company, build its bio-medical platform, patent work and general corporate development. Our accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business for the twelve-month period following the date of these consolidated financial statements. However, the Company has incurred substantial losses. Our current liabilities exceed our current assets and available cash is not sufficient to fund the 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 has implemented its business plan to materialize revenues from sales and future license agreements and has also initiated an equity line of credit offering to raise capital through the sale of its common stock and has engaged an Investment Banker to raise additional capital. Although, uncertainty exists as to whether the Company will be able 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. Our cash on hand at December 31, 2021 was $85,936. This will not be sufficient to fund operations if additional capital is not raised. The Company raised an aggregate of $0.1 million through the sale of equity and debt securities since January 1, 2022, through the date of this report.
d
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K, obligations under any guaranteed contracts or contingent obligations. We also have no other commitments, other than the costs of being a public company that will increase our operating costs or cash requirements in the future.
Seasonality
Management does not believe that our current business segment is seasonal to any material extent.
Securities Authorized for Issuance under Equity Compensation Plans
We do not have in effect any compensation plans under which our equity securities are authorized for issuance.
Unregistered Sales of Equity Securities
During the year ended December 31, 2021, we issued the following unregistered equity securities:
| Number of | ||||||||
| Common Shares | Source of | |||||||
| Issued | Payment | Amount | ||||||
| 1,111,111 | Conversion of Preferred Series C | $ | 33,333 | |||||
| 27,461,307 | Conversion of notes and accrued interest | $ | 1,117,990 | |||||
| 4,020,986 | Settlement of debt | $ | 142,424 | |||||
| 2,500,000 | Services | $ | 95,250 | |||||
| 7,868,668 | Commitment shares | $ | 222,692 | |||||
| 7,000,000 | Issuance for cash | $ | 126,000 | |||||
The above issuances of 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.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
We are a Smaller Reporting Company and are not required to provide the information under this item.
| 14 |
Item 8. Financial Statements and Supplementary Data.
ENDONOVO THERAPEUTICS, INC.
AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
| 15 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Endonovo Therapeutics, Inc. and Subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Endonovo Therapeutics, Inc. and Subsidiaries (the Company) as of December 31, 2021, and 2020, and the related statements of operations, stockholders’ deficit, and cash flows for each of the years in the two-year period ended December 31, 2021, and the related notes to the consolidated financial statements (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and 2020, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.
Explanatory Paragraph – Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has continued to incur significant operating losses and negative cash flows from operations, during the year ended December 31, 2021, and has negative working capital at December 31, 2021. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
| 16 |
Instruments with Embedded Conversion Features
Description of the Matter
As discussed in Note 1 to the Consolidated Financial Statements, the Company issues instruments with embedded conversion features. Some of these embedded conversion features result in a derivative liability that is measured at fair value.
Auditing derivative liability is complex and highly judgmental due to the variability and uncertainty associated with the Company’s assessment of estimates used in calculating the value of the derivative liability. Changes in these estimates would have a significant effect on the valuation of the derivative liability and the related change in fair value of derivative liability.
How We Addressed the Matter in Our Audit
To test the derivative liability, our audit procedures included, among others, evaluating the appropriateness of the Company’s accounting policy for instruments with embedded conversion features and the estimates and assumptions used in calculating the fair value of the derivative liability. We evaluated whether the methods used to calculate the fair value of the derivative liability were applied consistently. We also tested the completeness and accuracy of the underlying data used for the fair value measurement.
/s/
We have served as the Company’s auditor since 2008.
April 13, 2022
| 17 |
Endonovo Therapeutics, Inc. and Subsidiaries
Consolidated Balance Sheets
As of December 31,
| 2021 | 2020 | |||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net of allowance for doubtful accounts of $ | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property Plant and Equipment, net | - | |||||||
| Patents, net | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS’ DEFICIT | ||||||||
| Current Liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued interest | ||||||||
| Deferred compensation | ||||||||
| Notes payable, net of discounts of $ | ||||||||
| Notes payable – former related party | ||||||||
| Derivative liability | ||||||||
| Total current liabilities | ||||||||
| Acquisition payable | ||||||||
| Total liabilities | ||||||||
| COMMITMENTS AND CONTINGENCIES, note 9 | ||||||||
| Shareholders’ deficit | ||||||||
| Super AA super voting preferred stock, $ par value; authorized and issued and outstanding at December 31, 2021, and December 31, 2020 | ||||||||
| Series B convertible preferred stock, $ par value; shares authorized and issued and outstanding at December 31, 2021 and December 31, 2020 | ||||||||
| Series C convertible preferred stock, shares authorized, and shares issued and outstanding at December 31, 2021, and December 31, 2020, respectively | - | - | ||||||
| Series D convertible preferred stock, $ par value; shares authorized and issued and outstanding at December 31, 2021 and December 31, 2020 | - | - | ||||||
| Common stock, $ par value; shares authorized; and and shares issued and outstanding as of December 31, 2021, and December 31, 2020, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Stock subscriptions | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total shareholders’ deficit | ( | ) | ( | ) | ||||
| Total liabilities and shareholders’ deficit | $ | $ | ||||||
See accompanying summary of accounting policies and notes to consolidated financial statements.
| 18 |
Endonovo Therapeutics, Inc. and Subsidiaries
Consolidated Statements of Operations
For the Years Ended December 31,
| 2021 | 2020 | |||||||
| Revenue | $ | $ | ||||||
| Cost of revenue | ||||||||
| Gross profit | ||||||||
| Operating expenses | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Other income (expense) | ||||||||
| Change in fair value of derivative liability | ||||||||
| Gain (loss) on extinguishment of debt | ( | ) | ||||||
| Other expense, net | - | ( | ) | |||||
| Interest expense, net | ( | ) | ( | ) | ||||
| Total other income (expense) | ( | ) | ||||||
| Loss before income taxes | ( | ) | ( | ) | ||||
| Provision for income taxes | - | - | ||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Basic and diluted loss per share | $ | ( | ) | $ | ( | ) | ||
| Weighted average common share outstanding: | ||||||||
| Basic and diluted | ||||||||
See accompanying summary of accounting policies and notes to consolidated financial statements.
| 19 |
Endonovo Therapeutics, Inc. and Subsidiaries
Consolidated Statement of Stockholders Deficit
For the Years Ended December 31, 2021, and 2020
| Series AA | Series B Convertible | Series D Convertible | Series C Convertible | Additional | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Preferred Stock | Preferred Stock | Preferred Stock | Common Stock | Paid-in | Subscription | Retained | Shareholder’s | ||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Receivable | Earnings | Deficit | |||||||||||||||||||||||||||||||||||||||||||
| Balance December 31, 2019 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||||||||||
| Reclassification Preferred Series C | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued for Preferred Series D | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued for conversion of notes payable and accrued interest | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued for conversion of Preferred Series C to common share | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Valuation of stock options issued for services | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued for exchange of stock options | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued as inducement to note holder | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for services | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Restricted shares issued as inducement to Series C | - | - | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued with exchange of convertible notes | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commitment shares | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for cash | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Beneficial conversion feature on convertible note | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss for the year ended December 31, 2020 | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance December 31, 2020 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| 20 |
Endonovo Therapeutics, Inc. and Subsidiaries
Consolidated Statement of Stockholders Deficit
For the Years Ended December 31, 2021, and 2020
| Series AA | Series B Convertible | Series D Convertible | Series C Convertible | Additional | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||
|
Preferred Stock |
Preferred Stock | Preferred Stock | Preferred Stock | Common Stock | Paid-in | Subscription | Retained | Shareholder’s | ||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Receivable | Earnings | Deficit | |||||||||||||||||||||||||||||||||||||||||||
| Balance December 31, 2020 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||||||||||
| Issuance of Commitment shares in connection with promissory notes | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock issued for cash | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued for conversion of notes payable and accrued interest | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued for conversion of Preferred Series C to common share | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Common Shares issued from debt settlement | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Share issued as settlement of debt with former related part | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Shares issued pursuant to consulting agreement | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss for the year ended December 31, 2021 | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance December 31, 2021 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
See accompanying summary of accounting policies and notes to consolidated financial statements.
| 21 |
Endonovo Therapeutics, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2021, and 2020
| 2021 | 2020 | |||||||
| Operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to cash used in operating activities: | ||||||||
| Depreciation and amortization expense | ||||||||
| Amortization of discount on Series C Preferred stock liability | - | |||||||
| Non-cash increase to convertible notes principal (included in interest expense) | - | |||||||
| Fair value of commitment shares issued with debt | - | |||||||
| Fair value of equity issued for services | - | |||||||
| Non-cash interest and fees | - | |||||||
| Stock compensation expense | - | |||||||
| Amortization of note discount and original issue discount | ||||||||
| Change in fair value of derivative liability | ( | ) | ( | ) | ||||
| Loss (gain) on extinguishment of debt | ( | ) | ||||||
| Changes in assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Prepaid expenses and other current assets | ( | ) | ||||||
| Accounts payable | ( | ) | ||||||
| Accrued interest | ||||||||
| Deferred compensation | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Investing activities: | ||||||||
| Acquisition of property and equipment | - | - | ||||||
| Net cash used in investing activities | - | - | ||||||
| Financing activities: | ||||||||
| Proceeds from the issuance of notes payable | ||||||||
| Repayments on former related party advances | ( | ) | ( | ) | ||||
| Proceeds from issuance of common stock and units | ||||||||
| Proceeds from issuance of preferred shares | - | |||||||
| Net cash provided by financing activities | ||||||||
| Net increase (decrease) in cash | ( | ) | ||||||
| Cash, beginning of year | ||||||||
| Cash, end of year | $ | $ | ||||||
| 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 | $ | $ | ||||||
| Conversion of Preferred C stock to common stock | $ | $ | ||||||
| Value of derivative liability from transfer to equity upon conversion of notes payable and accrued interest | $ | $ | ||||||
| Exchange of note and accrued interest to new convertible note | $ | $ | ||||||
| Issuance of common stock to Preferred C Stock inducement | $ | $ | ||||||
| Issuance of common stock to settle debt | $ | $ | ||||||
See accompanying summary of accounting policies and notes to consolidated financial statements.
| 22 |
Endonovo Therapeutics, Inc. and Subsidiary
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2021, and 2020
Note 1 - Nature of Business and Summary of Significant Accounting Policies
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 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).
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.
Basis of Presentation and Principles of Consolidation
The consolidated financial statements of the Company include the accounts of ETI, IP Resources International, Inc., Aviva Companies Corporation, and WeHealAnimals, Inc. 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 a period following the date of these consolidated
financial statements. The Company has recurring net losses, negative cash flows from operations and working capital deficits. The Company
has raised approximately $
| 23 |
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 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, 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.
Cash and cash equivalents
The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Financial instruments that potentially subject us to a concentration of credit risk consist of cash and cash equivalents. Cash is deposited with what we believe are highly credited, quality institutions. The deposited cash may exceed Federal Deposit Insurance Corporation (“FDIC”) insured limits. At December 31, 2021, the Company does not hold any cash in excess of FDIC limits.
Accounts Receivable
The
Company uses the specific identification method for recording the provision for doubtful accounts, which was $
Property, plant, and equipment
Property,
plant, and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the
assets, which range between and
Impairment of Long-lived Assets
The Company reviews its long-lived assets for impairment whenever events or changes in business circumstances indicate that the carrying amount of assets may not be fully recoverable or that the useful lives of these assets are no longer appropriate. If impairment is indicated, the asset is written down to its estimated fair value.
The Company measures equity-based compensation cost at the grant date based on the fair value of the award and recognizes it as expense, net of forfeitures which are recognized as they occur, over the vesting or service period, as applicable, of the stock award using the straight-line method.
Schedule of Measured Stock - Based Compensation
| For Years Ending December 31, | ||||||||
| 2021 | 2020 | |||||||
| Expected term | years | |||||||
| Exercise price | $ | $ | ||||||
| Expected volatility | $ | |||||||
| Expected dividends | ||||||||
| Risk-free interest rate | % | |||||||
| Forfeitures | ||||||||
| 24 |
Income Taxes
The Company records a tax provision for the anticipated tax consequences of its reported results of operations. The provision for income taxes is computed using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating losses and income tax credit carry-forward. Deferred tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which those tax assets are expected to be realized or settled. The Company records a valuation allowance to reduce deferred tax assets to the amount that is more likely than not to be realized.
The Company has adopted ASC Topic 740, which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. ASC Topic 740 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and also provides guidance on derecognition of tax benefits, classification on the balance sheet, interest and penalties, accounting in interim periods, disclosure and transition. The Company has determined that the adoption did not result in the recognition of any liability for unrecognized tax benefits and that there are no unrecognized tax benefits that would, if recognized, affect the Company’s effective tax rate.
Basic net loss per share is calculated based on the net 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 net 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.
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 $
Fair Value of Financial Instruments
Accounting guidance on fair value measurements and disclosures defines fair value, establishes a framework for measuring the fair value of assets and liabilities using a hierarchy system, and defines required disclosures. It clarifies that fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the reporting entity transacts business.
The Company’s balance sheet contains derivative liability that is 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-Sholes option valuation 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.
| 25 |
The following table presents balances of the liabilities with significant unobservable inputs (Level 3) as of December 31, 2021, and 2020:
Schedule of Balances of Liabilities Measured at Fair Value
| Fair Value Measurements at December 31, 2021 Using | ||||||||||||||||
| Quoted Prices in Active Markets for | Significant Other | Significant | ||||||||||||||
| Identical Assets | Observable Inputs | Unobservable Inputs | ||||||||||||||
| (Level 1) | (Level 2) | (Level 3) | Total | |||||||||||||
| Derivative liability | $ | $ | $ | $ | ||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| Fair Value Measurements at December 31, 2020 Using | ||||||||||||||||
| Quoted Prices in Active Markets for | Significant Other | Significant | ||||||||||||||
| Identical Assets | Observable Inputs | Unobservable Inputs | ||||||||||||||
| (Level 1) | (Level 2) | (Level 3) | Total | |||||||||||||
| Derivative liability | $ | $ | $ | $ | ||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
The following table presents changes of the liabilities with significant unobservable inputs (Level 3) for the years ended December 31, 2021, and 2020:
Schedule of Changes in the Liabilities with Significant Unobservable Inputs
| Derivative | ||||
| Liability | ||||
| Balance December 31, 2019 | $ | |||
| Issuance of convertible debt | ||||
| Settlements by debt extinguishment | ( | ) | ||
| Extinguishment following note exchange | ( | ) | ||
| Change in estimated fair value | ( | ) | ||
| Balance December 31, 2020 | $ | |||
| Issuance of convertible debt | ||||
| Settlement by debt Extinguishment | ( | ) | ||
| Settlements by debt conversion | ( | ) | ||
| Change in estimated fair value | ( | ) | ||
| Balance December 31, 2021 | $ | |||
Derivative Liability
The Company issued Variable Debentures during the years ended December 31, 2021, and 2020, which contained variable conversion rates based on unknown future prices of the Company’s common stock. This resulted in a derivative liability. The Company measures the derivative liability using the Black-Scholes option valuation model using the following assumptions:
Schedule of Variable Debentures Black-Scholes Valuation Assumptions
| For Years Ending December 31, | ||||||||
| 2021 | 2020 | |||||||
| Expected term | ||||||||
| Exercise price | $ |
$ |
||||||
| Expected volatility | ||||||||
| Expected dividends | ||||||||
| Risk-free interest rate | ||||||||
| Forfeitures | ||||||||
| 26 |
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, and the assessment of volatility. 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.
Preferred Stock
The Company elects to accrete the difference between the redemption value and carrying value of outstanding preferred stock over the period from the date of issuance to the earliest redemption date using the effective interest method.
Recent Accounting Standard Updates
In August 2020, the FASB issued ASU No. 2020-06 (“ASU 2020-06”) “Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.” ASU 2020-06 simplifies the accounting for convertible instruments by reducing the number of accounting models for convertible debt instruments and convertible preferred stock. Limiting the accounting models results in fewer embedded conversion features being separately recognized from the host contract as compared with current GAAP. Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital. In addition, ASU 2020-06 amends the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions. The Amendments also affects the diluted EPS calculation for instruments that may be settled in cash or shares and for convertible instruments. The amendments are effective for public entities excluding smaller reporting companies for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods. The Company adopted the new standard update on January 1, 2021, which did not result in a material impact on the Company’s consolidated results of operations, financial position, and cash flows.
| 27 |
Note 2 - 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 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.
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 requested 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 these 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 a 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.
During
the year ended December 31, 2021, and 2020, we recognized gross revenue of $
Sources of Revenue
We have identified the following revenues disaggregated by revenue source:
| 1. | Plastic Surgeons | |
| 2. | Wound Care Facilities | |
| 3. | Hospitals | |
| 4. | Other Physicians |
As of December 31, 2021, and 2020, the sources of revenue were as follows:
Schedule of Source of Revenue
| Year Ended | ||||||||
| December 31, | ||||||||
| 2021 | 2020 | |||||||
| Direct sales- Plastic surgeons, gross | ||||||||
| Total sources of revenue | $ | $ | ||||||
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.
| 28 |
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, End Users, Hospitals and Doctors are substantially less than the one-year collection period that falls within the practical expedient in determination of whether a significant financing component exists.
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 3- Property and Equipment
The following is a summary of equipment, at cost, less accumulated depreciation at December 31, 2021, and 2020:
Summary of Property, Plant and Equipment
| 2021 | 2020 | |||||||
| As of December 31, | ||||||||
| 2021 | 2020 | |||||||
| Autos | $ | $ | ||||||
| Medical equipment | - | |||||||
| Other equipment | - | |||||||
| Property plant and equipment gross | - | |||||||
| Less accumulated depreciation | - | |||||||
| Property plant and equipment net | $ | $ | ||||||
Depreciation
expense for the years ended December 31, 2021, and 2020 was $
Note 4 – Patents
In
December 2017, we acquired from RGN a patent portfolio for $
The following is a summary of patents less accumulated amortization at December 31, 2021, and 2020:
Schedule of Patents
| 2021 | 2020 | |||||||
| December 31, | ||||||||
| 2021 | 2020 | |||||||
| Patents | $ | $ | ||||||
| Less accumulated amortization | ||||||||
| Patents net | $ | $ | ||||||
| 29 |
Amortization
expense for the years ended December 31, 2021, and 2020, was $
The estimated future amortization expense related to patents as of December 31, 2021, is as follows:
Schedule of Estimated Future Amortization Expense
| Year Ended December 31. | Amount | |||
| 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| Total | $ | |||
Note 5 - Notes payable
Notes Payable
During
the year ended December 31, 2021, the Company issued eight (8) fixed rate promissory notes totaling $
During
the year ended December 31, 2021, the Company amended the terms of two of its promissory notes to accelerate the conversion feature and
amend the conversion price of the instruments. The Company recorded the modification in accordance with ASC 470-50 Debt-Modifications
and Extinguishments and recorded $
During
the year ended December 31, 2021, the Company settled one of its promissory notes by issuing restricted shares of the Company’s
common stock with a fifteen percent (
During
the year ended December 31, 2021, the Company converted $
The
gross amount of all convertible notes with variable conversion rates outstanding as of December 31, 2021, is $
Notes
payable to a former related party in the aggregate amount of $
In
October 2013, July 2014, October 2014 and August 2015, the Company initiated a series of private placements for up to $
During
the year ended December 31, 2020, the Company issued nine fixed rate promissory notes totaling $
| 30 |
During
the year ended December 31, 2020, the Company converted seven (7) previous fixed rate notes into variable rate notes (including the five
newly issued fixed rate promissory notes) in an accumulated amount of $
On
May 20, 2020, the Company entered into modification and forbearance agreements (the “agreements”) with three investors as
a condition for the execution of the equity line purchase agreement (see note 6), collectively totaling $
On July 16, 2020, the Securities and Exchange Commission declared effective the registration statement on Form S-1, for the registration of the shares under the Equity Line Purchase Agreements, which was filed on June 23, 2020, and amended on July 10, 2020. Management reviewed the guidance per ASC 470-60 Troubled debt restructurings and ASC 470-50 Debt-Modifications and Extinguishments and concluded that the terms of the agreements were not substantially different as of December 31, 2020, accounted for the transaction as a debt modification.
Notes
payable to a former related party in the aggregate amount of $
As
of December 31, 2021, the Company had notes payable to related parties amounting to $
Schedule of Notes Payable
| 2021 | 2020 | |||||||
| As of December 31, | ||||||||
| 2021 | 2020 | |||||||
| Notes payable at beginning of period | $ | $ | ||||||
| Notes payable issued | ||||||||
| Liquidated damages | - | |||||||
| Notes modification | - | |||||||
| Loan fees added to note payable | - | |||||||
| Settlements on note payable | ( | ) | ( | ) | ||||
| Repayments of notes payable in cash | ( | ) | ( | ) | ||||
| Less amounts converted to stock | ( | ) | ( | ) | ||||
| Notes payable at end of period | ||||||||
| Less debt discount | ( | ) | ( | ) | ||||
| $ | $ | |||||||
| Notes payable issued to former related party | $ | $ | ||||||
| Notes payable issued to non-related party | $ | $ | ||||||
| 31 |
The maturity dates on the notes payable are as follows:
Schedule of Maturity Dates of Notes Payable
| Twelve months ending, | Non-related parties | Former Related party | Total | |||||||||
| Past due | $ | $ | $ | |||||||||
| December 31, 2022 | ||||||||||||
| Total | $ | $ | $ | |||||||||
Notes payable totaling $
Acquisition Payable
In
connection with the Company’s acquisition of IPR in 2012, IPR recorded a $
During
the year ended December 31, 2021, the Company issued as extinguishment for $
Effective Interest Rate
During
the year ended December 31, 2021, and 2020, the Company’s effective interest rate was
Note 6 - Shareholders’ Deficit
Preferred Stock
The Company has authorized shares of preferred stock which have been designated as follows:
Schedule of Preferred Stock
| Number of Shares Authorized | Number of Shares Outstanding at December 31, 2021 | Par Value | Liquidation Value per Share | |||||||||||||
| Series AA | $ | |||||||||||||||
| Preferred Series B | $ | |||||||||||||||
| Preferred Series C | $ | |||||||||||||||
| Preferred Series D | $ | |||||||||||||||
| Undesignated | ||||||||||||||||
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 () shares of a new series of preferred stock, par value $ per share, designated “Series AA Super Voting Preferred Stock,” for which the board of directors established the rights, preferences and limitations thereof.
| 32 |
Series B Convertible Preferred Stock
On
February 7, 2017, the Company filed a certificate of designation for 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 % of the market price on the date of purchase of Series B and a
Series C Secured Redeemable Preferred Stock
On
December 22, 2017, the Company filed a certificate of designation for shares of Series C Secured Redeemable Preferred Stock (“Series
C”). Each share of the C Preferred is entitled to receive a $ quarterly dividend commencing March 31, 2018, and each quarter
thereafter and is to be redeemed for the stated value, $ 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. On January 29, 2020,
Management
reviewed the guidance in ASC 470-60 Troubled Debt Restructurings and ASC 470-50 Debt Modifications and Extinguishments and
concluded that the changes to the terms of the Series C qualified for debt extinguishment and recorded a loss on debt extinguishment
totaling approximately $
Management determined the fair value of the new instrument based on the guidance in ASC 820 Fair Value Measurement. Management concluded that the preferred stock should not be classified as a liability per the guidance in ASC 480 Distinguishing Liabilities from Equity even though the conversion would require the issuance of variable number of shares since such obligation is not unconditional. Management classified the Series C in permanent equity as of December 31, 2021, and 2020.
During the year ended December 31, 2021, and 2020, the Company converted and shares of Series C into and shares of common stock, respectively. As of December 31, 2021, and 2020, there were and shares of Series C outstanding, respectively.
Series D Convertible Preferred Stock
On
November 11, 2019, the Company filed a certificate of designation for 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
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, $
| 33 |
During the years ended December 31, 2021, and 2020, and shares of Series D have been issued, respectively. As of December 31, 2021, and 2020, there are shares of Series D outstanding.
Common Stock
Equity Purchase Line Agreement
On
May 18, 2020, the Company and Cavalry Fund I LP (the “investor”) entered into an Equity Line Purchase Agreement (“ELPA”)
pursuant to which the investor committed to purchase, subject to certain restrictions and conditions, up to $
The Company agreed to issue shares of its common stock (the “commitment shares”) to the investor having a market value of 5% of the commitment ($ and shares) based on the market price of the shares at the execution of the ELPA to be delivered in three tranches of shares on: (i) the execution of the ELPA; (ii) thirty days after the effectiveness of the registration statement to be filed under the RRA (the “registration right agreement” or the “registration statement”), and (iii) 90 trading days after the effectiveness of the registration statement with the balance of the commitment shares to be issued pro-rata over the first $ of puts in accordance with a formula set forth in the ELPA.
.
Under the ELPA the Company has the right to submit a regular purchase notice to the investor as often as every business day. The payment for the shares covered by each put notice will generally occur on the day following the put notice. The ELPA contains provisions which allow for the Company to make additional puts beyond the regular purchase amount at greater discounts to the market price of the common stock as forth in the ELPA.
The
ELPA requires the Company to apply at least
During
the years ended December 31, 2021, and 2020, pursuant to the execution of the ELPA, the Company issued and shares of common
stock with a fair value of $
Activity during the year ended December 31, 2021:
During
the year ended December 31, 2021, the Company issued shares of common stock for the conversion of principal notes and accrued
interest for aggregate fair value of issued common stock of $
During
the year ended December 31, 2021, the Company issued shares of common stock labeled as commitment shares in connection with
the issuance of promissory notes for a total fair value of approximately $
During
the year ended December 31, 2021, the Company issued shares of common stock pursuant to securities purchase agreement for total
consideration of $
| 34 |
During
the year ended December 31, 2021, the Company issued shares of common stock with a value of $
During
the year ended December 31, 2021, the Company issued shares of common stock with a value of $
During
the year ended December 31, 2021, the Company issued shares of common stock in connection with the consulting agreement, with
a fair value of approximately $
Activity during the year ended December 31, 2020:
During
the year ended December 31, 2020, the Company issued shares of common stock for the conversion of notes and accrued interest
for aggregate fair value of issued common stock of $
During
the year ended December 31, 2020, the Company issued shares of common stock with a value of $
During
the year ended December 31, 2020, the Company issued shares of common stock in exchange for $
During
the year ended December 31, 2020, the Company issued shares of common stock for total value of $
During
the year ended December 31, 2020, the Company issued shares of common stock to Series C with a value of $
During
the year ended December 31, 2020, the Company issued shares of common stock with a value of $
During
the year ended December 31, 2020, the Company modified the terms of its promissory note with one investor, which extended the maturity
date of its promissory note and the issuance of restricted stock with a fair value of $. The recorded of this transaction
resulted in a loss on debt extinguishment of $
During the year ended December 31, 2020, in connection with the issuance of a new self-amortization promissory note, the Company issued restricted shares as inducement with a fair value of $.
During
the year ended December 31, 2020, the Company issued shares with a value of $
Stock Options
The Company did not issue any stock options during the year ended December 31, 2021. The Company cancelled stock options during the year ended December 31, 2021.
During the year ended December 31, 2020, the Company granted stock options to independent contractor exercisable into up to shares of common stock with an exercise price of $ per share and expiration date of from the vesting date. The options shall vest in twelve equal quarterly instalments so long as the contractor remains under retention by the Company to provide service. The stock options will vest in twelve equal instalments of shares. These options were valued at approximately $ using the Black Scholes option pricing model. The Company cancelled of these stock options since the contract terminated on January 1, 2021.
| 35 |
Share-based compensation expense for the years ended December 31, 2021, and 2020, totaled $ and $, respectively.
The weighted average grant date fair value of stock options issued during the year ended December 31, 2020, was $ per share. The Company did not issue any stock options during the year ended December 31, 2021.
Schedule of Stock Options Outstanding
| Options | Weighted Average Exercise Price Per Share | Weighted Average Remaining Contractual Term (years) | Aggregate Intrinsic Value | |||||||||||||
| Outstanding at December 31, 2019 | $ | $ | - | |||||||||||||
| Granted | $ | |||||||||||||||
| Cancelled | ( | ) | $ | |||||||||||||
| Exercised | $ | |||||||||||||||
| Outstanding at December 31, 2020 | $ | $ | ||||||||||||||
| Granted | $ | |||||||||||||||
| Cancelled | ( | ) | $ | |||||||||||||
| Exercised | $ | |||||||||||||||
| Outstanding at December 31, 2021 | $ | $ | ||||||||||||||
| Exercisable at December 31, 2021 | $ | $ | ||||||||||||||
Schedule of Share-based Compensation, Shares Authorized Under Stock Option Plans, by Exercise Price Range
| Outstanding | Exercisable | ||||||||||||||||||||
| Weighted | |||||||||||||||||||||
| Average | Weighted | Weighted | |||||||||||||||||||
| Range of | Remaining | Average | Average | ||||||||||||||||||
| Exercise | Number | Contractual | Exercise | Number | Exercise | ||||||||||||||||
| Prices | Outstanding | Life | Price | Exercisable | Price | ||||||||||||||||
| Options | |||||||||||||||||||||
| $ | $ | $ | |||||||||||||||||||
| $ | $ | $ | |||||||||||||||||||
| $ | $ | $ | |||||||||||||||||||
| $ | $ | ||||||||||||||||||||
Warrants
During the years ended December 31, 2021, and 2020, the Company did not issue any warrants.
| 36 |
A summary of the status of the warrants at December 31, 2021, and changes during the years ended December 31, 2021, and 2020, are presented below:
Schedule of Warrants Outstanding
| Outstanding Warrants | ||||||||
| Weighted Average | ||||||||
| Exercise Price | ||||||||
| Shares | Per Share | |||||||
| Outstanding at December 31, 2019 | $ | |||||||
| Granted | $ | |||||||
| Cancelled | ( | ) | $ | |||||
| Exercised | ( | ) | $ | |||||
| Outstanding at December 31, 2020 | $ | |||||||
| Granted | $ | |||||||
| Cancelled | ( | ) | $ | |||||
| Exercised | $ | |||||||
| Outstanding at December 31, 2021 | $ | |||||||
| Exercisable at December 31, 2021 | $ | |||||||
| Outstanding | Exercisable | ||||||||||||||||||||
| Weighted | |||||||||||||||||||||
| Average | Weighted | Weighted | |||||||||||||||||||
| Range of | Remaining | Average | Average | ||||||||||||||||||
| Exercise | Number | Contractual | Exercise | Number | Exercise | ||||||||||||||||
| Prices | Outstanding | Life | Price | Exercisable | Price | ||||||||||||||||
| Warrants | |||||||||||||||||||||
| $ | - | $ | $ | ||||||||||||||||||
| $ | - | $ | $ | ||||||||||||||||||
| $ | - | $ | $ | ||||||||||||||||||
| $ | $ | $ | |||||||||||||||||||
| $ | $ | ||||||||||||||||||||
Note 7 – Related Party and former Related Parties Transactions
One
executive officer, one former executive and one former operational manager of the Company have agreed to defer a portion of their compensation
until cash flow improves. As of December 31, 2021, and 2020, the balances of their deferred compensation were $
From
time-to-time officers of the Company advance monies to the Company to cover costs. During the years ended December 31, 2021, and 2020,
officers and operational manager advanced $
The
balance of short-term advances due to one officer and executive of the Company at December 31, 2021, and 2020 was $
At
December 31, 2021 and 2020, notes payable remain outstanding to the former President of the Company, in the amounts of $
| 37 |
Note 8 - Income taxes
The Company files income tax returns with the Internal Revenue Service (“IRS”) and various state jurisdictions. For jurisdictions in which tax filings are prepared, the Company is subject to income tax examinations by state tax authorities and federal tax authorities for all tax years.
The
deferred tax assets are mainly comprised of net loss carryforwards. As of December 31, 2021, and 2020, the Company had approximately
$
A reconciliation of the provision for income tax expense with the expected income tax computed by applying the federal statutory income tax rate to income before provision for income taxes was as follows for the years ended December 31, 2021, and 2020:
Schedule of Effective Income Tax Rate Reconciliation
| 2021 | 2020 | |||||||
| Income tax computed at federal statutory rate | - | % | - | % | ||||
| State taxes, net of federal benefit | - | % | - | % | ||||
| Non-Deductible expenses | % | % | ||||||
| Change in valuation allowance | % | % | ||||||
| Total | % | % | ||||||
The primary difference between income tax expense attributable to continuing operations and the amount of income tax expense that would result from applying domestic federal statutory rates to income before provision for income taxes relates to the change in the valuation allowance.
The
Company has adopted the accounting standards that clarify the accounting for uncertainty in income taxes recognized in an enterprise’s
financial statements and prescribes a recognition threshold of more likely than not and a measurement process for financial statement
recognition and measurement of a tax position taken or expected to be taken in a tax return. In making this assessment, a company must
determine whether it is more likely than not that a tax position will be sustained upon examination, based solely on the technical merits
of the position, and must assume that the tax position will be examined by taxing authorities. Our policy is to include interest and
penalties related to unrecognized tax benefits in income tax expense. Interest and penalties totaled $
Note 9 - Commitments and Contingencies
Legal matters
We were defendants in a case entitled Auctus
Fund, LLC v. Endonovo Therapeutics, Inc. et.al 20-cv-11286-PBS filed in the Federal District Court in Massachusetts
in July 2020. The complaint sought damages related to a variable rate convertible note dated in August 2019 in the original amount of
$
The Company is subject to certain legal proceedings, which it considers routine to its business activities. As of December 31, 2021, the Company believes, after consultation with legal counsel, that the ultimate outcome of such legal proceedings, whether individually or in the aggregate, is not likely to have a material adverse effect on the Company’s financial position, results of operations or liquidity.
Note 10 – Concentrations.
Sales
During
the year ended December 31, 2021, we had two significant customers which accounted for
During
the year ended December 31, 2020, we had two significant customers which accounted for
| 38 |
Supplier
We
also have a single source for our bioelectric medical devices, which account for
Accounts Receivable
At
December 31, 2021, and 2020, we had two customers which accounted for
Note 11 - Subsequent Events.
Subsequent
to December 31, 2021, the Company prepared and filed an offering circular on Form 1-A with the Securities and Exchange Commission relating
to an offering of up to $
Subsequent
to December 31, 2021, an aggregate of shares of restricted common stock were issued on the conversion of $
Subsequent to December 31, 2021, the Company issued shares of common stock pursuant to a debt settlement agreement with existing convertible debt holder.
Subsequent
to December 31, 2021, the Company executed two convertible notes for a total aggregate principal of $
Subsequent to December 31, 2021, the Board of director approved the issuance of shares of common stock for past services with estimated fair value of approximately $ million.
As a result of these issuances, the total number of common shares outstanding is , Preferred B shares outstanding is , Preferred C shares outstanding is and Preferred D shares outstanding is .
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None.
Item 9A. 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 December 31, 2021. Based on the foregoing, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective as of December 31, 2021, at the reasonable assurance level due to the material weaknesses described below.
| 39 |
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 December 31, 2021, 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 year ended December 31, 2021. 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.
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 authorization of transactions, the custody of assets and the recording of transactions should be performed by separate individuals. The recording of transactions function is maintained by a third-party consulting firm whereas authorization and custody remains under the Company’s Chief Executive Officer’s responsibility. 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.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, the issuer’s principal executive and principal financial officers and effected by the issuer’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America and includes those policies and procedures that:
● Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the issuer.
● Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the issuer; and
● Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the issuer’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
| 40 |
As of the end of our most recent fiscal year, management assessed the effectiveness of our internal control over financial reporting based on the criteria for effective internal control over financial reporting established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and SEC guidance on conducting such assessments. Based on that evaluation, they concluded that as of December 31, 2021, such internal control over financial reporting was not effective. This was due to deficiencies that existed in the design or operation of our internal control over financial reporting that adversely affected our internal controls and that may be considered to be material weaknesses.
The matters involving internal control over financial reporting that our management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board were: (1) lack of a functioning audit committee due to a lack of a majority of independent members and a lack of a majority of outside directors on our board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures; (2) inadequate segregation of duties consistent with control objectives of having segregation of the initiation of transactions, the recording of transactions and the custody of assets; and (3) lack of communication between management and external accounting personnel. The aforementioned material weaknesses were identified by our Chief Executive Officer in connection with the review of our financial statements as of December 31, 2021.
Management believes that the material weaknesses set forth in items (1) and (2) above did not have an effect on our financial results. However, management believes that the lack of a functioning audit committee and the lack of a majority of outside directors on our board of directors, result in ineffective oversight in the establishment and monitoring of required internal controls and procedures, which could result in a material misstatement in our financial statements in future periods.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the SEC that permit the Company to provide only the management’s report in this annual report.
Management’s Remediation Initiatives
In an effort to remediate the identified material weaknesses and other deficiencies and enhance our internal controls, we have initiated, or plan to initiate, the following series of measures: we will increase our personnel resources and technical accounting expertise within the accounting function when funds are available to us. First, we will create a position to segregate duties consistent with control objectives of having separate individuals perform (i) the authorization of transactions, (ii) the recording of transactions and (iii) the custody of assets. Second, we will create a senior position to focus on financial reporting and standardizing and documenting our accounting procedures with the goal of increasing the effectiveness of the internal controls in preventing and detecting misstatements of accounting information. Third, we plan to appoint one or more outside directors to our board of directors who shall be appointed to an audit committee resulting in a fully functioning audit committee who will undertake the oversight in the establishment and monitoring of required internal controls and procedures such as reviewing and approving estimates and assumptions made by management when funds are available to us. Lastly, we will improve channels of communication between management and accounting through regularly scheduled monthly meetings. We anticipate the costs of implementing these remediation initiatives will be approximately $50,000 to $100,000 a year in increased salaries, legal and accounting expenses.
Management believes that the appointment of one or more outside directors, who shall be appointed to a fully functioning audit committee, will remedy the lack of a functioning audit committee and a lack of a majority of outside directors on our Board.
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 Annual Report on Form 10-K that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
| 41 |
Item 9B. Other Information.
On April 3, 2013, the Company filed an amendment to the Company’s Articles of Incorporation, as amended (the “Articles of Incorporation”), in the form of a Certificate of Designation that authorized the issuance of up to one million (1,000,000) shares of a new series of preferred stock, par value $0.001 per share, designated “Series AA Super Voting Preferred Stock,” for which the board of directors established the rights, preferences and limitations thereof.
The Company’s board of directors authorized the Series AA Super Voting Preferred Stock pursuant to the authority given to the board under the Articles of Incorporation, which authorizes the issuance of up to 5,000,000 shares of preferred stock, par value $0.001 per share, and authorized the board, by resolution, to establish any or all of the unissued shares of preferred stock, not then allocated to any series into one or more series and to fix and determine the designation of each such shares, the number of shares which shall constitute such series and certain preferences, limitations and relative rights of the shares of each series so established.
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 summary of the rights, privileges and preferences of the Series AA Super Voting Preferred Stock described above is qualified in its entirety by reference to the Certificate of Designation as filed with the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.
Past maturity Notes
Due to its limited resources, the Company has not been able to pay certain promissory notes when due. As of December 31, 2021, there are $7,256,930 in existing notes with an aggregate principal of $6,306,930 which are beyond their maturity date. Management believes that the Company may have valid defenses as to some of the promissory notes and will be able to modify some of these notes if requested by the holders to do so and otherwise avoid any default.
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
The following table sets forth the name and age of officer and director. Our Executive officer is elected annually by our Board of Directors. Our executive officers hold their offices until they resign, are removed by the Board, or his successor is elected and qualified.
| Name | Age | Position | ||
| Alan Collier | 56 | Director, Chief Executive
Officer, Interim Chief Financial Officer, and Secretary |
Biographies
Alan Collier has been the Chief Executive Officer, Secretary, and a director of the Company Since March 2012. Mr. Collier has more than twenty (20) years of experience in finance, telecommunications, and consumer products. Over the progression of his career, he has specialized in the development and financing of early stage, high growth, and acquisitive companies (public and private). He has structured, participated in, and completed numerous transactions including mergers and acquisitions, equity and debt placements, capital restructuring, joint venture development, and channel partner procurement. Additionally, Mr. Collier was a Senior Managing Director at Mid-Market Securities, a FINRA-registered Broker-Dealer. He is also the co-founder and a Managing Member of C2 Capital, LLC, which provides management consulting services to companies preparing to go public. Prior to joining Mid-Market Securities, Mr. Collier was a Managing Director of Mosaic Capital and co-managed its Capital Markets Group at Mosaic Capital. He was previously a Vice President at Corporate Capital Group and Managing Director and CEO of Greenbridge Capital Group. He has held numerous board and executive positions throughout his career.
| 42 |
Except as set forth in our discussion below in “Certain Relationships and Related Transactions,” none of our directors or executive officers has been involved in any transactions with us or any of our directors, executive officers, affiliates or associates which are required to be disclosed pursuant to the rules and regulations of the Commission.
Key Staff Member
In February 2022, we retained Garry Michael Kann, age 65, as Head of Corporate Development. Mr. Kann’s primary responsibilities will be to oversee the development of Endonovo’s “build up strategy” of acquiring complementary specialty service providers in the construction industry. Key responsibilities will be in identifying, preforming due diligence on, evaluating, and otherwise assisting in company mergers and acquisitions, principally in the specialty construction industry.
For more than the past five years, Mr. Kann has been the CEO of Firebird Partners a private investment firm and chairs the Capital Markets Group at Mosaic Capital LLC, a financial advisory firm both located in Los Angeles, California. Mr. Kann has been a prominent corporate finance professional in the United States on both the East and West Coasts for over 30 years. Over that time, he has been an innovator in asset backed financial instruments and has worked with clientele around the globe including Europe, Asia, Central and South America. As an investment banker he has completed more than 60 mergers and acquisition transactions exceeding $2 billion in value. Previously, while in senior management positions for a wide variety of financial institutions serving the middle market, he structured and completed more than 200 transactions exceeding several billion dollars in value.
Code of Ethics
We do not have a code of ethics that applies to our officers, employees and directors.
Corporate Governance
The business and affairs of the company are managed under the direction of our board. We have a board consisting of one member. In addition to the contact information in this annual report, each stockholder will be given specific information on how he/she can direct communications to the officers and our director of the corporation. All material communications from stockholders are relayed to our board.
Role in Risk Oversight
Our board is primarily responsible for overseeing our risk management processes. The board receives and reviews periodic reports from management, auditors, legal counsel, and others, as considered appropriate regarding our company’s assessment of risks. The board focuses on the most significant risks facing our company and our company’s general risk management strategy, and also ensures that risks undertaken by our company are consistent with the board’s appetite for risk. While the board oversees our company’s risk management, management is responsible for day-to-day risk management processes. We believe this division of responsibilities is the most effective approach for addressing the risks facing our company and that our board leadership structure supports this approach.
Section 16(a) Beneficial Ownership Reporting Compliance
We became subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (“34 Act”) on June 15, 2015, when we filed a Form 8-A. Our officers and director have made appropriate filings under Section 16(a) of the Exchange Act, although on two occasions, Mr. Mann filed his Form 4 a few days late. These instances involved reporting of open market purchases and did not involve any short swing profits.
Item 11. Executive Compensation.
The following executive of the Company earned compensation in the amounts set forth in the chart below for the fiscal years ended December 31, 2021, and 2020. No other item of compensation was paid to any officer or director of the Company other than reimbursement of expenses.
Summary Compensation Table
| Name and Principal Position | Fiscal Year | Salary ($) | Bonus ($) | Stock Awards ($) | All Other Compensation ($) | Total ($) | ||||||||||||||||||
| Alan Collier, CEO, Interim | 2021 | $ | 300,000 | $ | - | $ | - | $ | - | $ | 300,000 | |||||||||||||
| CFO, Secretary and Director (*) | 2020 | $ | 300,000 | $ | - | $ | - | $ | - | $ | 305,000 | |||||||||||||
(*) Salary information as reflected above represents compensation earned but not paid based on terms of consulting agreements. The Company’s Chief Executive was paid $243,650 as compensation and receive $13,405 of expenses reimbursement and $6,529 of accounts payable during the year ended December 31, 2021.
| 43 |
Outstanding Equity Awards at Fiscal Year-End Table
| Name | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Option Exercise Price ($) | Option Expiration Date | ||||||||||
| Alan Collier, CEO, Interim | 5,000 | - | $ | 54.00 | 4/17/2027 | |||||||||
| CFO, Secretary and Director | ||||||||||||||
Compensation of Directors
The directors receive no compensation for serving as directors. However, the Company may reimburse its directors for any out-of-pocket cost reasonably incurred to attend a Board meeting.
Compensation Agreements
All of the new officers pursuant to the terms of the Share Exchange Agreement dated March 14, 2012, have agreed to accrue and defer payment of their compensation until the Company has generated sufficient financing proceeds or revenue to pay such compensation. Initially, Messrs. Collier and Mann each received compensation of $10,000 per month which has increased to $25,000 and $22,500 per month, respectively. No compensation was provided for Michael Mann (former President of the Company) during the year ended December 31, 2021, and 2020. Mr. Mann has been acting as an advisor since he retired on February 28, 2019.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table sets forth certain information regarding our shares of common stock beneficially owned as of April 13, 2022, for (i) each stockholder known to be the beneficial owner of 5% or more of our outstanding shares of common stock, (ii) each named executive officer and director, and (iii) all executive officers and directors as a group. A person is considered to beneficially own any shares: (i) over which such person, directly or indirectly, exercises sole or shared voting or investment power, or (ii) of which such person has the right to acquire beneficial ownership at any time within 60 days through an exercise of stock options or warrants. Unless otherwise indicated, voting and investment power relating to the shares shown in the table for our directors and executive officers is exercised solely by the beneficial owner or shared by the owner and the owner’s spouse or children.
For purposes of this table, a person or group of persons is deemed to have “beneficial ownership” of any shares of common stock that such person has the right to acquire within 60 days of April 13, 2022. For purposes of computing the percentage of outstanding shares of our common stock held by each person or group of persons named above, any shares that such person or persons has the right to acquire within 60 days of April 11, 2022, is deemed to be outstanding but is not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. The inclusion herein of any shares listed as beneficially owned does not constitute an admission of beneficial ownership. Unless otherwise specified, the address of each of the persons set forth below is care of the company at the address of 6320 Canoga Avenue, 15th Floor Woodland Hills, CA 91367.
| Name of Beneficial Owner | Amount of (1) | Percent of (2) | ||||||
| Alan Collier | 25,031,219 | 16.74 | % | |||||
| Tucker Andersen | 9,284,568 | 6.21 | % | |||||
| Michael Mann | 13,525,437 | 9.05 | % | |||||
| All officers and directors as a group (1 person) | 25,031,219 | 16.74 | % | |||||
| (1) | This includes common shares controlled by Mr. Collier, acting Chief Executive Officer and interim Chief Financial Officer. | |
| (2) | Based on shares of common stock outstanding as of April 12, 2022. |
| 44 |
Item 13. Certain Relationships and Related Transactions, and Director Independence.
On February 10, 2015, the Company issued a promissory note to Michael Mann (former President) for a principal amount of $50,000. The Note carries an interest rate of 12% per annum and a maturity date of June 4, 2015, with interest due monthly. On September 29, 2019, the maturity date of the promissory note was extended to December 31, 2019. As of December 31, 2021, and 2020, the Company has a remaining principal balance of $26,100 and $43,000, respectively. During the year ended December 31, 2021, the Company has repaid $16,900 in cash.
On December 21, 2017, the Company issued a promissory note to Michael Mann (former President) for a principal amount of $100,000. The Note carries an interest rate of 10% per annum and a maturity date of March 22, 2018, with interest due monthly. On September 29, 2019, the maturity date of the promissory note was extended to December 31, 2019. As of December 31, 2021, and 2020, the Company has a remaining principal balance of $100,000.
The outstanding notes to Mr. Mann equal $126,100 at December 31, 2021. In the opinion of management, these notes were on terms no less favorable to the lender than the Company might have obtained from an unaffiliated party.
Director Independence
We do not have any independent directors. Because our common stock is not currently listed on a national securities exchange, we have used the definition of “independence” of The NASDAQ Stock Market to make this determination. NASDAQ Listing Rule 5605(a)(2) provides that an “independent director” is a person other than an officer or employee of the company or any other individual having a relationship which, in the opinion of the Company’s Board of Directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The NASDAQ listing rules provide that a director cannot be considered independent if:
| ● | the director is, or at any time during the past three years was, an employee of the company; |
| ● | the director or a family member of the director accepted any compensation from the company in excess of $120,000 during any period of 12 consecutive months within the three years preceding the independence determination (subject to certain exclusions, including, among other things, compensation for board or board committee service); |
| a family member of the director is, or at any time during the past three years was, an executive officer of the company; | |
| ● | the director or a family member of the director is a partner in, controlling stockholder of, or an executive officer of an entity to which the company made, or from which the company received, payments in the current or any of the past three fiscal years that exceed 5% of the recipient’s consolidated gross revenue for that year or $200,000, whichever is greater (subject to certain exclusions); |
| ● | the director or a family member of the director is employed as an executive officer of an entity where, at any time during the past three years, any of the executive officers of the company served on the compensation committee of such other entity; or |
| ● | the director or a family member of the director is a current partner of the Company’s outside auditor, or at any time during the past three years was a partner or employee of the Company’s outside auditor, and who worked on the company’s audit. |
Mr. Alan Collier is not considered independent because he is the Company’s Chief Executive Officer and acting Chief Financial Officer.
We do not currently have a separately designated audit, nominating or compensation committee.
| 45 |
Item 14. Principal Accounting Fees and Services.
Audit Fees
For the Company’s fiscal years ended December 31, 2021, and 2020, we were billed approximately $98,520 and $98,500, respectively, for professional services rendered for the audit and review of our financial statements.
Audit Related Fees
There were no fees for audit related services for the years ended December 31, 2021, and 2020.
Tax Fees
For the Company’s fiscal years ended December 31, 2021, and 2020, we were billed approximately $8,400 and $9,245 for professional services rendered for tax compliance, tax advice, and tax planning.
All Other Fees
For the Company’s fiscal years ended December 31, 2021, and 2020, we were billed approximately $0 and $11,000, respectively, for professional services rendered in connection with our registration statement.
The Company did not incur any other fees related to services rendered by our principal accountant for the fiscal years ended December 31, 2021, and 2020.
Effective May 6, 2003, the Securities and Exchange Commission adopted rules that require that before our auditor is engaged by us to render any auditing or permitted non-audit related service, the engagement be:
| ● | approved by our audit committee; or |
| ● | entered into pursuant to pre-approval policies and procedures established by the audit committee, provided the policies and procedures are detailed as to the particular service, the audit committee is informed of each service, and such policies and procedures do not include delegation of the audit committee’s responsibilities to management. |
We do not have an audit committee. Our board of directors pre-approves all services provided by our independent auditors. The pre-approval process has just been implemented in response to the new rules. Therefore, our board of directors does not have records of what percentage of the above fees was pre-approved. However, all of the above services and fees were reviewed and approved by the board of directors either before or after the respective services were rendered.
PART IV
Item 15. Exhibits, Financial Statement Schedules.
(a) The following documents are filed as part of this report:
(1) Financial Statements and Report of Independent Registered Public Accounting Firm, which are set forth in the index to Consolidated Financial Statements of this report.
(2) Financial Statement Schedule: None.
| 46 |
(3) Exhibits
| 47 |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 on this 13th day of April 2022.
| ENDONOVO THERAPEUTICS, INC. | ||
| By: | /s/ Alan Collier | |
| Alan Collier | ||
Chief Executive Officer (Duly Authorized, Principal Executive Officer) | ||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Signature | Title | Date | ||
| /s/ Alan Collier | Chief Executive Officer, Interim Chief Financial Officer, Secretary and Director | April 13, 2022 | ||
| Alan Collier | (Principal Executive, Financial and Accounting Officer) |
| 48 |
Exhibit 31.1
CERTIFICATION
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Alan Collier, certify that:
1. I have reviewed this annual report on Form 10-K of Endonovo Therapeutics, Inc.
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; and
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; and
4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; and
(b) Designed such control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; and
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Dated: April 13, 2022
| Signature: | /s/ Alan Collier | |
| Name: | Alan Collier | |
| Title: | Chairman and Chief Executive Officer |
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Endonovo Therapeutics, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2021, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned Chief Executive Officer and Chief Financial Officer of the Company hereby certifies, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002 that based on his knowledge:
1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and
2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the periods covered in the Report.
| /s/ Alan Collier | |
| Alan Collier | |
| Chairman, Chief Executive and Chief Financial Officer |
Dated: April 13, 2022