Endonovo Therapeutics, Inc 10-Q for FY2022 Q3
Endonovo Therapeutics, Inc. (ENDV)
About this 10-Q
Endonovo Therapeutics, Inc filed this 10-Q on November 21, 2022, covering the quarter ended September 30, 2022 (FY2022 Q3).
Headline figures
Quarter ended September 30, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $10.96K
- up 40.7% from $7790 a year earlier
- Net loss
- $603.36K
- compared with a net loss of $1.52M a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For
the quarterly period ended
For the transition period from _______ to _______.
Commission
File Number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | 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: None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
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 an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ |
| Smaller reporting company
| |
| Emerging growth company
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
☐
As of November 18, 2022, there were shares of common stock, $0.0001 par value issued and outstanding.
ENDONOVO THERAPEUTICS, INC.
TABLE OF CONTENTS
FORM 10-Q REPORT
September 30, 2022
Page Number | ||
| PART I - FINANCIAL INFORMATION | ||
| Item 1. | Condensed Consolidated Financial Statements (unaudited). | 3 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. | 20 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk. | 24 |
| Item 4. | Controls and Procedures. | 24 |
| PART II - OTHER INFORMATION | ||
| Item 1. | Legal Proceedings. | 25 |
| Item 1A. | Risk Factors. | 25 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. | 25 |
| Item 3. | Defaults Upon Senior Securities. | 26 |
| Item 4. | Mine Safety Disclosures | 26 |
| Item 5. | Other Information. | 26 |
| Item 6. | Exhibits. | 26 |
| SIGNATURES | 27 | |
| 2 |
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Endonovo Therapeutics, Inc.
Condensed Consolidated Balance Sheets
| September 30, 2022 | December 31, 2021 | |||||||
| (Unaudited) | (Audited) | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net of allowance for doubtful accounts of $ | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Patents, net | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS’ DEFICIT | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued liabilities | $ | $ | ||||||
| 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 September 30, 2022, and December 31, 2021 | ||||||||
| Series B convertible preferred stock, $ par value; shares authorized, shares issued and outstanding at September 30, 2022, and December 31, 2021 | ||||||||
| Series C convertible preferred stock, $ par value; shares authorized, shares issued and outstanding at September 30, 2022, and December 31, 2021 | ||||||||
| Series D convertible preferred stock, $ par value; shares authorized, issued and outstanding at September 30, 2022, and December 31, 2021 | ||||||||
| Common stock, $ par value; shares authorized; and shares issued and outstanding as of September 30, 2022, and December 31, 2021 | ||||||||
| Additional paid-in capital | ||||||||
| Stock subscriptions payable | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total shareholders’ deficit | ( | ) | ( | ) | ||||
| Total liabilities and shareholders’ deficit | $ | $ | ||||||
See accompanying summary of accounting policies and notes to unaudited condensed consolidated financial statements.
| 3 |
Endonovo Therapeutics, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Cost of revenue | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense) | ||||||||||||||||
| Change in fair value of derivative liability | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Gain (loss) on settlement of debt | ( | ) | ||||||||||||||
| Other expense | ( | ) | ( | ) | ||||||||||||
| Interest expense, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other 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 unaudited condensed consolidated financial statements.
| 4 |
Endonovo Therapeutics, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| 2022 | 2021 | |||||||
| Nine Months ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Operating activities: | ||||||||
| Net Loss | $ | ( |
$ | ( |
||||
| Adjustments to reconcile net loss to cash used in operating activities: | ||||||||
| Depreciation and amortization expense | ||||||||
| Stock compensation expense | ||||||||
| Fair value of commitment shares issued with debt | ||||||||
| Fair value of equity issued for services | ||||||||
| Loss (gain) on extinguishment of debt | ( |
( |
||||||
| Amortization of note discount and original issue discount | ||||||||
| Amortization of discount on Series C Preferred stock liability | ||||||||
| Non-cash interest expense | ||||||||
| Change in fair value of derivative liability | ||||||||
| Changes in assets and liabilities: | ||||||||
| Accounts receivable | ( |
|||||||
| Prepaid expenses and other current assets | ( |
|||||||
| Account payable & accrued liabilities | ||||||||
| Accrued interest | ||||||||
| Deferred compensation | ||||||||
| Net cash used in operating activities | ( |
) | ( |
|||||
| Financing activities: | ||||||||
| Proceeds from the issuance of notes payable | ||||||||
| Repayments on former related party of notes payable | ( |
) | ( |
|||||
| Repayments of convertible debt in cash | ( |
|||||||
| Proceeds from issuance of common stock and units | ||||||||
| Net cash provided by financing activities | ||||||||
| Net decrease in cash | ( |
) | ( |
|||||
| Cash, beginning of year | ||||||||
| Cash, end of period | $ | $ | ||||||
| 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 | $ | $ | ||||||
| Issuance of common stock to settle debt | $ | $ | ||||||
| Conversion of Preferred C Stock to common stock | $ | $ | ||||||
| Debt discount from commitment shares issued with notes | $ | $ | ||||||
See accompanying summary of accounting policies and notes to unaudited condensed consolidated financial statements.
| 5 |
Endonovo Therapeutics, Inc.
Condensed Consolidated Statement of Shareholders’ Deficit
(Unaudited)
For three and nine months ended September 30, 2022
| Series AA Preferred Stock | Series B Convertible Preferred Stock | Series C Convertible Preferred Stock | Series D Convertible Preferred Stock | Common Stock | Additional Paid-in | Subscription | Retained | Total Shareholder’s | ||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Receivable | Earnings | Deficit | |||||||||||||||||||||||||||||||||||||||||||
| Balance December 31, 2021 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||||||||||
| Shares issued for conversion of notes payable and accrued interest | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for settlement of debt | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of commitment shares in connection with promissory note | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss for the quarter ended March 31, 2022 | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance March 31, 2022 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||||||||||
| Shares issued for conversion of notes payable and accrued interest | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of commitment shares in connection with promissory note | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Shares issued for services | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss for the quarter ended June 30, 2022 | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance June 30, 2022 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||||||||||
| Issuance of commitment shares in connection with promissory notes | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Common shares issued for services | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss for the quarter ended September 30, 2022 | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance September 30, 2022 | $ | $ | $ | $ | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||
| 6 |
For three and nine months ended September 30, 2021
| Series AA Preferred Stock | Series B Convertible Preferred Stock | Series C Convertible Preferred Stock | Series D Convertible Preferred Stock | Common Stock | Additional Paid-in | Subscription | Retained | Total Shareholder’s | ||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Receivable | Earnings | Deficit | |||||||||||||||||||||||||||||||||||||||||||
| Balance December 31, 2020 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ||||||||||||||||||||||||||||||||||||||||||
| Shares issued as commitment to note holders | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for cash | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued for conversion of notes payable and accrued interest | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Valuation of stock options issued for services | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss for the quarter ended March 31, 2021 | - | - | - | - | - | ( | ) | ( | ||||||||||||||||||||||||||||||||||||||||||||||||
| Balance March 31, 2021 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ||||||||||||||||||||||||||||||||||||||||||
| Shares issued for conversion of notes payable and accrued interest | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued for conversion of Preferred Series C to Common share | - | - | ( | ) | - | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Common Shares issued for debt settlement | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued as commitment to note holders | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued as settlement of debt with former related party | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Valuation of stock options issued for services | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss for the quarter ended June 30, 2021 | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance June 30, 2021 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||||||||||
| Balance | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||||||||||
| Common shares issued as commitment to note holders | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued for conversion of notes payable and accrued interest | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Common shares issued pursuant to consulting agreement | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss for the quarter ended September 30, 2021 | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance September 30, 2021 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||||||||||
| Balance | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||||||||||
See accompanying summary of accounting policies and notes to unaudited condensed consolidated financial statements.
| 7 |
Endonovo Therapeutics, Inc.
Notes to Condensed Consolidated Financial Statements
Note 1 - Organization and Nature of Business
Endonovo Therapeutics, Inc. (Endonovo or the “Company”) is an innovative biotechnology company that has developed a bio-electronic approach to regenerative medicine. Endonovo is a growth stage company whose stock is publicly traded (OTCQB: ENDV).
The Company develops, manufactures, and distributes evolutionary medical devices focused on the rapid healing of wounds and reduction of pain, edema, and inflammation in the human body. The Company’s non-invasive bioelectric medical devices are designed to target inflammation, cardiovascular diseases, chronic kidney disease, and central nervous system disorders (“CNS” disorders).
The Company’s non-invasive Electroceutical® therapeutics device, SofPulse®, using pulsed short-wave radiofrequency at 27.12 MHz has been FDA-Cleared and CE Marked for the palliative treatment of soft tissue injuries and post-operative plain and edema, and has CMS National Coverage for the treatment of chronic wounds. The Company’s current portfolio of pre-clinical stage Electroceutical® therapeutics devices address chronic kidney disease, liver disease non-alcoholic steatohepatitis (NASH), cardiovascular and peripheral artery disease (PAD) and ischemic stroke.
Endonovo’s core mission is to transform the field of medicine by developing safe, wearable, non-invasive bioelectric medical devices that deliver the Company’s Electroceutical® Therapy. Endonovo’s bioelectric Electroceutical® devices harnesses bioelectricity to restore key electrochemical processes that initiate anti-inflammatory processes and growth factors in the body necessary for healing to rapidly occur.
Note 2 – Summary of significant accounting policies.
Basis of Presentation and Principles of Consolidation
The accompanying unaudited interim condensed consolidated financial statements have been presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the instructions to Article 8 of Regulation S-X. Accordingly, the financial statements do not include all of the information and notes required by GAAP for complete financial statements. The accompanying condensed consolidated balance sheet as of September 30, 2022, the condensed consolidated statements of operations for the three and nine months ended September 30, 2022 and 2021, the condensed consolidated statements of cash flows for the nine months ended September 30, 2022 and 2021, and the condensed consolidated statements of shareholders’ deficit for the three and nine months ended September 30, 2022 and 2021 are unaudited; however, in the opinion of management such interim condensed consolidated financial statements reflect all adjustments, consisting solely of normal recurring adjustments, necessary for a fair presentation of the results for the periods presented. The accompanying financial information should be read in conjunction with the financial statements and the notes thereto in the Company’s most recent Annual Report on Form 10-K, as filed with the Securities and Exchange Commission (the “SEC”) on April 14, 2022. The results of operations for the period presented are not necessarily indicative of the results that might be expected for future interim periods or for the full year.
Liquidity and Going Concern
The Company’s unaudited condensed consolidated financial statements are prepared using GAAP applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company’s ability to obtain adequate capital to fund operating losses until it becomes profitable.
As
of September 30, 2022, the Company had cash of approximately $
| 8 |
Endonovo Therapeutics, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
During
the nine months ended September 30, 2022, the Company has raised $
On
September 26, 2022, the Company entered into an asset purchase agreement with a Company, which is engaged in the business of providing
and laying of concrete primarily for residential tract developers, pursuant to which the Company will acquire all of the assets and liabilities
for approximately $
No adjustments have been made to the carrying value of assets or liabilities as a result of this uncertainty. To reduce the risk of not being able to continue as a going concern, management is commercializing its FDA cleared and CE marked products and has commenced implementing its business plan to materialize revenues from potential future license agreements, and or diversifying its business activities with the potential acquisition of specialty construction company. The Company will continue to raise additional capital through the issuance of fixed-rate conversion feature promissory notes.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Critical estimates include the value of shares issued for services, in connection with notes payable agreements, in connection with note extension agreements, and as repayment for outstanding debt, the useful lives of property and equipment, the valuation of the derivative liability, the valuation of warrants and stock options, and the valuation of deferred income tax assets. Management uses its historical records and knowledge of its business in making these estimates. Actual results could differ from these estimates.
The Company utilizes Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 260, “Earnings per Share.” Basic earnings (loss) per share is computed based on the earnings (loss) attributable to common shareholders divided by the weighted average number of shares outstanding for the period excluding any dilutive effects of options, warrants, unvested share awards and convertible securities. Diluted earnings (loss) per common share is calculated similar to basic earnings (loss) per share except that the denominator is increased to include additional common share equivalents available upon exercise of stock option, warrants, common shares issuable under convertible debt and restricted stock using the treasury stock method. Dilutive common share equivalents include the dilutive effect of in-the-money share equivalents, which are calculated based on the average share price for each period using the treasury stock method, excluding any common share equivalents if their effect would be anti-dilutive. In periods in which a net loss has been incurred, all potentially dilutive common shares are considered anti-dilutive and thus are excluded from the calculation. Securities that are excluded from the calculation of weighted average dilutive common shares because their inclusion would have been antidilutive for the three and nine months ended September 30, 2022, include stock options, warrants, and notes payable.
The Company has options and warrants to purchase common stock outstanding at September 30, 2022. The Company has options and warrants to purchase common stock outstanding at September 30, 2021
Accounts Receivable
The
Company uses the specific identification method for recording the provision for doubtful accounts, which was $
| 9 |
Endonovo Therapeutics, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
Newly Adopted Accounting Principles
In August 2020, the FASB issued ASU No. 2020-06 (“ASU 2020-06”) “Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.” ASU 2020-06 simplifies the accounting for convertible instruments by reducing the number of accounting models for convertible debt instruments and convertible preferred stock. Limiting the accounting models results in fewer embedded conversion features being separately recognized from the host contract as compared with current GAAP. Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital. In addition, ASU 2020-06 amends the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions. The Amendments also affects the diluted EPS calculation for instruments that may be settled in cash or shares and for convertible instruments. The amendments are effective for public entities excluding smaller reporting companies for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods. The Company adopted the new standard update on January 1, 2021, which did not result in a material impact on the Company’s condensed consolidated results of operations, financial position, and cash flows.
The Company has evaluated all the recent accounting pronouncements and determined that there are no other accounting pronouncements that will have a material effect on the Company’s financial statements.
Note 3 - Revenue Recognition
Contracts with Customers
The Company adopted ASC 606, Revenue from Contracts with Customers effective January 1, 2019, using the modified retrospective method applied to those contracts which were not substantially completed as of January 1, 2019. These standards provide guidance on recognizing revenue, including a five-step model to determine when revenue recognition is appropriate. The standard requires that an entity recognize revenue to depict the transfer of control of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
The Company routinely plan on entering into contracts with customers that include general commercial terms and conditions, notification requirements for price increases, shipping terms and in most cases prices for the products and services that we offer. The Company’s performance obligations are established when a customer submits a purchase order notification (in writing, electronically or verbally) for goods and services, and we accept the order. The Company identified performance obligations as the delivery of the requested product or service in appropriate quantities and to the location specified in the customer’s contract and/or purchase order. The Company generally recognize revenue upon the satisfaction of these criteria when control of the product or service has been transferred to the customer at which time, the Company has an unconditional right to receive payment. The Company’s sales and sale prices are final, and our prices are not affected by contingent events that could impact the transaction price.
Revenues for our SofPulse® product is typically recognized at the time the product is shipped, at which time the title passes to the customer, and there are no further performance obligations.
In connection with offering products and services provided to the end user by third-party vendors, the Company reviews the relationship between us, the vendor, and the end user to assess whether revenue should be reported on a gross or net basis. In asserting whether revenue should be reported on a gross or net basis, the Company considers whether the Company acts as a principal in the transaction and control the goods and services used to fulfill the performance obligation(s) associated with the transaction.
| 10 |
Endonovo Therapeutics, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
Sources of Revenue
The Company has identified the following revenues by revenue source:
| 1. | Medical care providers |
For the three and nine months ended September 30, 2022, and 2021, the sources of revenue were as follows:
Schedule of Source of Revenue
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Direct sales- medical care providers, 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.
Significant Judgments in the Application of the Guidance in ASC 606
There are no significant judgments associated with the satisfaction of our performance obligations. We generally satisfy performance obligations upon shipment of the product to the customer. This is consistent with the time in which the customer obtains control of the products. Performance obligations are also generally settled quickly after the purchase order acceptance, therefore the value of unsatisfied performance obligations at the end of any reporting period is generally immaterial.
We consider variable consideration in establishing the transaction price. Forms of variable consideration applicable to our arrangements include sales returns, rebates, volume-based bonuses, and prompt pay discounts. We use historical information along with an analysis of the expected value to properly calculate and to consider the need to constrain estimates of variable consideration. Such amounts are included as a reduction to revenue from the sale of products in the periods in which the related revenue is recognized and adjusted in future periods as necessary.
Practical Expedients
Our payment terms for sales direct to distributors are substantially less than the one-year collection period that falls within the practical expedient in determination of whether a significant financing component exists.
| 11 |
Endonovo Therapeutics, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
Note 4 – Patents.
In
December 2017, we acquired from Rio Grande Neurosciences, Inc. (RGN) a patent portfolio for $
Schedule of Patents
| September 30, 2022 | December 31, 2021 | |||||||
| Patents | $ | $ | ||||||
| Less accumulated amortization | ||||||||
| Patents, net | $ | $ | ||||||
Amortization
expense associated with patents was $
The estimated future amortization expense related to patents as of September 30, 2022, is as follows:
Schedule of Estimated Future Amortization Expense
| Twelve Months Ending September 30, | Amount | |||
| 2023 | $ | |||
| 2024 | ||||
| 2025 | ||||
| Total | $ | |||
Note 5- Notes Payable
As of September 30, 2022, and December 31, 2021, the notes payable activity was as follows:
Schedule of Notes Payable
| September 30, 2022 | December 31, 2021 | |||||||
| Notes payable at beginning of period | $ | $ | ||||||
| Notes payable issued | ||||||||
| Repayments of notes payable in cash | ( | ) | ( | ) | ||||
| Settlement on note payable | ( | ) | ( | ) | ||||
| Less amounts converted to stock | ( | ) | ( | ) | ||||
| Notes payable at end of period | ||||||||
| Less debt discount | ( | ) | ( | ) | ||||
| Note payable, net | $ | $ | ||||||
| Notes payable issued to a former related party | $ | $ | ||||||
| Notes payable issued to non-related parties | $ | $ | ||||||
The maturity dates on the notes-payable are as follows:
Schedule of Maturity Dates of Notes Payable
| Notes to | ||||||||||||
| 12 months ending, | Former related party | Non-related parties | Total | |||||||||
| Past due | $ | $ | $ | |||||||||
| September 30, 2023 | ||||||||||||
| $ | $ | $ | ||||||||||
| 12 |
Endonovo Therapeutics, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
Activity for the nine months ended September 30, 2022
Fixed rates Notes
During
the nine months ended September 30, 2022, the Company issued five (5) fixed rate promissory notes totaling $
As
of September 30, 2022, the Company has eighteen (18) fixed-rate promissory notes with an outstanding balance of $
During
the nine months ended September 30, 2022, the Company converted $
Variable-rate notes
The
gross amount of all convertible notes with variable conversion rates outstanding as of September 30, 2022, is $
During
the nine months ended September 30, 2022, the Company settled one variable note with a principal of $
Activity for the nine months ended September 30, 2021
During
the nine months ended September 30, 2021, the Company issued five (5) fixed rate promissory notes totaling $
During
the nine months ended September 30, 2021, the Company amended the terms of two of its promissory notes to accelerate the conversion feature
and amend the conversion price of the instruments. The Company recorded the modification in accordance with ASC 470-50 Debt-Modifications
and Extinguishments and recorded $
During
the nine months ended September 30, 2021, the Company settled one of its promissory notes by issuing
During
the nine months ended September 30, 2021, the Company paid $
During
the nine months ended September 30, 2021, the Company converted $
The
gross amount of all convertible notes with variable conversion rates outstanding as of September 30, 2021, is $
Fixed Rate note (former related-party)
Notes
payable to a former related party in the aggregate amount of $
| 13 |
Endonovo Therapeutics, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
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 September 30, 2022 | Par Value | Liquidation Value | |||||||||||||
| 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.
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 Convertible 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, $
Upon
liquidation, the holder of Series C, shall be entitled to receive an amount equal to the stated value, $
There was no activity during the nine months ended September 30, 2022. As of September 30, 2022, there are shares of Series C outstanding
| 14 |
Endonovo Therapeutics, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
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, $
Common Stock
Activity during the nine months ended September 30, 2022
During
the nine months ended September 30, 2022, the Company issued shares of common stock for the conversion of $
During the nine months ended September 30, 2022, the Company issued shares of common stock pursuant to a make-whole provision from an April 2021 debt settlement with one investor.
During the nine months ended September 30, 2022, the Company issued shares of common stock as commitment shares in connection with promissory notes.
During
the nine months ended September 30, 2022, the Company issued shares of common stock for services for total fair value of $
Activity during the nine months ended September 30, 2021
During
the nine months ended September 30, 2021, the Company issued shares of common stock for the conversion of principal notes
and accrued interest in the amount of $
During the nine months ended September 30, 2021, the Company issued shares of common stock labeled as commitment shares in connection with the issuance of promissory notes.
During
the nine months ended September 30, 2021, the Company issued shares of common stock pursuant to securities purchase agreement
for total consideration of $
During
the nine months ended September 30, 2021, the Company issued shares of common stock with a value of $
During
the nine months ended September 30, 2021, the Company issued shares of common stock with a value of $
During the nine months ended September 30, 2021, the Company issued shares of common stock in connection with the consulting agreement.
| 15 |
Endonovo Therapeutics, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
Stock Options
The balance of all stock options outstanding as of September 30, 2022, is as follows:
Schedule of Stock Options Outstanding
| Weighted Average | Weighted Average Remaining | Aggregate | ||||||||||||||
| Exercise Price | Contractual | Intrinsic | ||||||||||||||
| Options | Per Share | Term (years) | Value | |||||||||||||
| Outstanding at December 31, 2021 | $ | |||||||||||||||
| Granted | $ | |||||||||||||||
| Cancelled | ( | ) | $ | |||||||||||||
| Exercised | $ | |||||||||||||||
| Outstanding at September 30, 2022 | $ | $ | ||||||||||||||
| Exercisable at September 30, 2022 | $ | $ | ||||||||||||||
Share-based compensation expense for the nine months ended September 30, 2022, and 2021, totaled $ and $, respectively.
Warrants
The balance of all warrants outstanding as of September 30, 2022, is as follows:
Schedule of Warrants Outstanding
| Outstanding Warrants | ||||||||||||
| Weighted Average | Weighted Average Remaining | |||||||||||
| Exercise Price | Contractual | |||||||||||
| Shares | Per Share | Term (years) | ||||||||||
| Outstanding at December 31, 2021 | $ | |||||||||||
| Granted | $ | - | ||||||||||
| Cancelled | ( | ) | $ | - | ||||||||
| Exercised | $ | |||||||||||
| Outstanding at September 30, 2022 | $ | |||||||||||
| Exercisable at September 30, 2022 | $ | |||||||||||
| 16 |
Endonovo Therapeutics, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
Note 7 – Related Party and former related parties Transactions.
One
executive officer of the Company has agreed to defer a portion of his compensation until cash flow improves. As of September 30, 2022,
the balance of the deferred compensation was $
One
former executive of the Company has agreed to defer a portion of his compensation until cash flow improves. As of September 30, 2022,
the balance of his deferred compensation was $
From
time-to-time officer of the Company advance monies to the Company to cover costs. The balance of short-term advances due to one officer
of the Company at September 30, 2022, was $
As
of September 30, 2022, notes payable remained outstanding to the former President of the Company, in the amount of $
Note 8 – Fair Value Measurements
The Company has issued Variable Debentures which contained variable conversion rates based on unknown future prices of the Company’s common stock. This results in a conversion feature. The Company measures the conversion feature using the Black Scholes option pricing model using the following assumptions:
Schedule of Conversion Feature Using Black Scholes Option Pricing Model
| Nine months ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Expected term | ||||||||
| Exercise price | $-$ | $-$ | ||||||
| Expected volatility | ||||||||
| Expected dividends | ||||||||
| Risk-free interest rate | ||||||||
| Forfeitures | ||||||||
The assumptions used in determining fair value represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management’s judgment. As a result, if factors change, including changes in the market value of the Company’s common stock, managements’ assessment, or significant fluctuations in the volatility of the trading market for the Company’s common stock, the Company’s fair value estimates could be materially different in the future.
The Company computes the fair value of the derivative liability at each reporting period and the change in the fair value is recorded as non-cash expense or non-cash income. The key component in the value of the derivative liability is the Company’s stock price, which is subject to significant fluctuation and is not under its control. The resulting effect on net loss is therefore subject to significant fluctuation and will continue to be so until the Company’s variable debentures, which the convertible feature is associated with, are converted into common stock or paid in full with cash. Assuming all other fair value inputs remain constant, the Company will record non-cash expense when its stock price increases and non-cash income when its stock price decreases.
| 17 |
Endonovo Therapeutics, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
The following table presents changes in the liabilities with significant unobservable inputs (level 3) for the nine months ended September 30, 2022:
Schedule of Fair Value of Derivative Liability
| Derivative | ||||
| Liability | ||||
| Balance December 31, 2021 | $ | |||
| Extinguishment | ( | ) | ||
| Change in estimated fair value | ||||
| Balance September 30, 2022 | $ | |||
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 liabilities that are recorded at fair value on a recurring basis. The three-level valuation hierarchy for disclosure of fair value is as follows:
Level 1: uses quoted market prices in active markets for identical assets or liabilities.
Level 2: uses observable market-based inputs or unobservable inputs that are corroborated by market data.
Level 3: uses unobservable inputs that are not corroborated by market data.
The fair value of the Company’s recorded derivative liability is determined based on unobservable inputs that are not corroborated by market data, which require a Level 3 classification. A Black Scholes option pricing model was used to determine the fair value. The Company records derivative liability on the condensed consolidated balance sheets at fair value with changes in fair value recorded in the condensed consolidated statements of operation.
The following table presents balances in the liabilities with significant unobservable inputs (Level 3) as of September 30, 2022:
Schedule of Liabilities Significant Unobservable Inputs
| Fair Value Measurements Using | ||||||||||||||||
| Quoted Prices in | ||||||||||||||||
| Active Markets for | Significant Other | Significant | ||||||||||||||
| Identical Assets | Observable Inputs | Unobservable Inputs | ||||||||||||||
| (Level 1) | (Level 2) | (Level 3) | Total | |||||||||||||
| As of September 30, 2022 | ||||||||||||||||
| Derivative liability | $ | $ | $ | $ | ||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| 18 |
Endonovo Therapeutics, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
Note 9 – Commitments and Contingencies
Legal Matters
The Company is subject to certain legal proceedings, which it considers routine to its business activities. As of September 30, 2022, 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 nine months ended September 30, 2022, we had two significant customers, which accounted for approximately
Supplier
We
also have a single source for our bioelectric medical devices, which account for
Accounts Receivable
At
September 30, 2022, we had two customers which accounted for approximately
Note 11 – Subsequent Events
Management has evaluated events that have occurred subsequent to the date of these condensed consolidated financial statements and has determined that, other than those listed below, no such reportable subsequent events exist through the date the financial statements were issued in accordance with FASB ASC Topic 855, “Subsequent Events.”
Subsequent
to September 30, 2022, the Company issued common shares for $
Subsequent to September 30, 2022, the Company issued common shares pursuant to consulting agreements.
Subsequent
to September 30, 2022, the Company executed two convertible notes for aggregate price of $
On September 27, 2022, the Company extended an offer to the holders of Series D, under which, the Company offers to convert each share of Series D into shares of common stock. As incentive, the Company also provides each investor additional shares of common stock if the investor does not realize at least 15% profit on the resale after the six-month holding period. Subsequent to September 30, 2022, the Company exchanged Series D shares into shares of common stock.
Subsequent
to September 30, 2022, the Company extended the maturity date of one convertible note with total payment of $
Subsequent
to September 30, 2022, the Company settled two promissory notes for a total amount of $
On
September 26, 2022, the Company entered into an Asset Purchase Agreement (“APA”) by and among the Company, Western Star
Concrete, LLC (“Western Star”), and Mark Gabriel Salmons (the “Owner”) pursuant to which the Company will
acquire substantially all of the assets and assume certain liabilities of Western Star. Western Star is engaged in the business of
providing and laying of concrete primarily for residential tract developers. The purchase price formula is four times Western
Star’s EBITDA for the twelve full months prior to closing subject to certain adjustments as set forth in the APA. Closing is
conditioned on the satisfactory completion of the Company’s due diligence and the completion of an audit of Western
Star’s financial statements for the last two fiscal years. The effectiveness of the closing is contingent upon the securement of a financing. The purchase price is estimated to be approximately $
| 19 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Notice Regarding Forward Looking Statements
The information contained in Item 2 contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Actual results may materially differ from those projected in the forward-looking statements as a result of certain risks and uncertainties set forth in this report. Although management believes that the assumptions made and expectations reflected in the forward-looking statements are reasonable, there is no assurance that the underlying assumptions will, in fact, prove to be correct or that actual results will not be different from expectations expressed in this report.
This filing contains a number of forward-looking statements which reflect management’s current views and expectations with respect to our business, strategies, products, future results and events, and financial performance. All statements made in this filing other than statements of historical fact, including statements addressing operating performance, events, or developments which management expects or anticipates will or may occur in the future, including statements related to distributor channels, volume growth, revenues, profitability, new products, adequacy of funds from operations, statements expressing general optimism about future operating results, and non-historical information, are forward looking statements. In particular, the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “may,” and variations of such words, and similar expressions identify forward-looking statements, but are not the exclusive means of identifying such statements, and their absence does not mean that the statement is not forward-looking. These forward-looking statements are subject to certain risks and uncertainties, including those discussed below. Our actual results, performance or achievements could differ materially from historical results as well as those expressed in, anticipated, or implied by these forward-looking statements. We do not undertake any obligation to revise these forward-looking statements to reflect any future events or circumstances.
Readers should not place undue reliance on these forward-looking statements, which are based on management’s current expectations and projections about future events, are not guarantees of future performance, are subject to risks, uncertainties and assumptions (including those described below), and apply only as of the date of this filing. Our actual results, performance or achievements could differ materially from the results expressed in, or implied by, these forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
Overview
Endonovo Therapeutics, Inc. (Endonovo or the “Company”) is an innovative biotechnology company that has developed a bio-electronic approach to regenerative medicine. Endonovo is a growth stage company whose stock is publicly traded (OTCQB: ENDV).
The Company develops, manufactures and distributes evolutionary medical devices focused on the rapid healing of wounds and reduction of pain, edema and inflammation in the human body. The Company’s non-invasive bioelectric medical devices are designed to target inflammation, cardiovascular diseases, chronic kidney disease, and central nervous system disorders (“CNS” disorders).
The Company’s non-invasive Electroceutical® therapeutics device, SofPulse®, using pulsed short-wave radiofrequency at 27.12 MHz has been FDA-Cleared and CE Marked for the palliative treatment of soft tissue injuries and post-operative plain and edema, and has CMS National Coverage for the treatment of chronic wounds. The Company’s current portfolio of pre-clinical stage Electroceutical® therapeutics devices address chronic kidney disease, liver disease non-alcoholic steatohepatitis (NASH), cardiovascular and peripheral artery disease (PAD) and ischemic stroke.
Endonovo’s core mission is to transform the field of medicine by developing safe, wearable, non-invasive bioelectric medical devices that deliver the Company’s Electroceutical® Therapy. Endonovo’s bioelectric Electroceutical® devices harnesses bioelectricity to restore key electrochemical processes that initiate anti-inflammatory processes and growth factors in the body necessary for healing to rapidly occur.
| 20 |
Going Concern
Our independent registered auditors included an explanatory paragraph in their opinion on our consolidated financial statements as of and for the fiscal year ended December 31, 2021, that states that our ongoing losses and lack of resources causes doubt about our ability to continue as a going concern.
The World Health Organization declared the Coronavirus outbreak a pandemic on March 11, 2020, and in the United States various emergency actions have been taken on the National, State and Local levels. The effects of this pandemic on the Company’s business are uncertain.
Critical Accounting Policies
A summary of our significant accounting policies is included in Note 1 of the “Notes to the Consolidated Financial Statements,” contained in our Form 10-K for the year ended December 31, 2021. Management believes that the consistent application of these policies enables us to provide users of the financial statements with useful and reliable information about our operating results and financial condition. The summary condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the U.S., which require us to make estimates and assumptions. We did not experience any significant changes during the nine months ended September 30, 2022, in any of our Critical Accounting Policies from those contained in our Form 10-K for the year ended December 31, 2021.
New Accounting Pronouncements
See Note 1 of Notes to Condensed Consolidated Financial Statements for further discussion of new accounting standards that have been adopted or are being evaluated for future adoption.
Results of Operations
Nine Months ended September 30, 2022, and 2021:
| Nine Months Ended September 30, | Favorable | |||||||||||||||
| 2022 | 2021 | (Unfavorable) | % | |||||||||||||
| Revenue | $ | 13,892 | $ | 72,789 | $ | (58,897 | ) | -80.9 | % | |||||||
| Cost of revenue | 5,124 | 6,124 | 1,000 | 16.3 | % | |||||||||||
| Gross profit | 8,768 | 66,665 | (57,897 | ) | -86.9 | % | ||||||||||
| Operating expenses | 2,790,057 | 1,919,418 | (870,639 | ) | -45.3 | % | ||||||||||
| Loss from operations | (2,781,289 | ) | (1,852,753 | ) | (928,536 | ) | -50.1 | % | ||||||||
| Other expense | (2,761,411 | ) | (3,648,471 | ) | 887,060 | 24.3 | % | |||||||||
| Net loss | $ | (5,542,700 | ) | $ | (5,501,224 | ) | $ | 41,476 | 0.75 | % | ||||||
Revenue
Revenue of the Company’s SofPulse® product during the nine months ended September 30, 2022, was $13,892, a decrease of $58,897, or approximately 81%, compared to $72,789 for the nine months ended September 30, 2021.
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 continues to be 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.
| 21 |
Cost of Revenue
Cost of revenue during the nine months ended September 30, 2022, was $5,124, a decrease of $1,000 or 16.3% compared to $6,124 for the nine months ended September 30, 2021. 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 quarters as the roll out of the SofPulse® product continues.
Operating Expenses
Operating expenses increased by $870,639 or 45%, to $2,790,057 for the nine months ended September 30, 2022, compared to $1,919,418 for the nine months ended September 30, 2021. This change was due primarily to an increase in non-cash stock-based compensation related to the issuance of 62,250,000 of common shares for services for approximately $1.2 million, offset by a reduction in consulting fees by approximately $0.2 million.
Other Expense/Income
Other expense decreased by $887,060 or 24% to $2,761,411 for the nine months ended September 30, 2022 compared to an expense of $3,648,471 for the nine months ended September 30, 2021. This change was due primarily to a decrease in valuation of our derivative liabilities of approximately $1.1 million, an increase in our gain from debt extinguishment by $0.3 million, offset by an increase of approximately $0.3 million in interest expense, and an increase of $0.2 million related to the accrual of the make good provision. We anticipate continued large fluctuations in other income/expense as a result of quarterly re-evaluation of derivative liabilities.
Three Months ended September 30, 2022, and 2021:
Three Months Ended September 30, | Favorable | |||||||||||||||
| 2022 | 2021 | (Unfavorable) | % | |||||||||||||
| Revenue | $ | 10,960 | $ | 7,790 | $ | 3,170 | 40.7 | % | ||||||||
| Cost of revenue | 4,027 | 3,103 | (924 | ) | (29.8 | )% | ||||||||||
| Gross profit | 6,933 | 4,687 | 2,246 | 47.9 | % | |||||||||||
| Operating expenses | 503,711 | 696,943 | 193,232 | 27.7 | % | |||||||||||
| Loss from operations | (496,778 | ) | (692,256 | ) | 195,478 | 28.2 | % | |||||||||
| Other expense | (106,582 | ) | (831,418 | ) | 724,836 | 87.2 | % | |||||||||
| Net loss | $ | (603,360 | ) | $ | (1,523,674 | ) | $ | 920,314 | 60.4 | % | ||||||
Revenue
Revenue of the Company’s SofPulse® product during the three months ended September 30, 2022, was $10,960, an increase of $3,170, or 40.7%, compared to $7,790 for the three months ended September 30, 2021. 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 continues to be negatively impacted by the COVID-19 contagious disease outbreak in March 2020. We anticipate that revenue will continue to increase in future periods as the roll out of the SofPulse® product continues.
Cost of Revenue
Cost of revenue during the three months ended September 30, 2022, was $4,027, an increase of $924 or approximately 30% compared to $3,103 for the three months ended September 30, 2021. 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 quarters as the roll out of the SofPulse® product continues.
Operating Expenses
Operating expenses decreased by $193,232 or 27.7%, to $503,711 for the three months ended September 30, 2022, compared to $696,943 for the three months ended September 30, 2021. This change was due primarily to a decrease in non-cash stock-based compensation by approximately $0.1 million and a decrease of approximately $0.1million in consulting fees.
Other Income (Expense)
Other expense for the three months ended September 30, 2022, was $106,582 compared to $831,418 for the three months ended September 30, 2021. This change was due primarily to a decrease in the valuation of our derivative liabilities of approximately $0.5 million, an increase in our gain from debt extinguishment by approximately $0.4 million, offset by an increase in interest expense of approximately $0.1 million.
| 22 |
Liquidity and Capital Resources
| As of | ||||||||||||
| September 30, 2022 | December 31, 2021 | Favorable (Unfavorable) | ||||||||||
| Working Capital | ||||||||||||
| Current assets | $ | 24,083 | $ | 94,855 | $ | (70,772 | ) | |||||
| Current liabilities | 20,977,309 | 17,701,710 | (3,275,599 | ) | ||||||||
| Working capital deficit | $ | (20,953,226 | ) | $ | (17,606,855 | ) | $ | (3,346,371 | ) | |||
| Long-term debt | $ | 79,825 | $ | 79,825 | $ | - | ||||||
| Shareholders’ deficit | $ | (19,605,879 | ) | $ | (15,774,324 | ) | $ | (3,831,555 | ) | |||
| Nine Months Ended September 30, | Favorable | |||||||||||
| 2022 | 2021 | (Unfavorable) | ||||||||||
| Statements of Cash Flows Select Information | ||||||||||||
| Net cash provided (used) by: | ||||||||||||
| Operating activities | $ | (453,297 | ) | $ | (595,288 | ) | $ | 141,991 | ||||
| Financing activities | $ | 390,500 | $ | 587,600 | $ | (197,100 | ) | |||||
| As of | ||||||||||||
| September 30, 2022 | December 31, 2021 | Favorable (Unfavorable) | ||||||||||
| Balance Sheet Select Information | ||||||||||||
| Cash | $ | 23,139 | $ | 85,936 | $ | (62,797 | ) | |||||
| Accounts payable and accrued expenses | $ | 8,501,582 | $ | 7,078,283 | $ | (1,423,299 | ) | |||||
Since January 1, 2022, and through September 30, 2022, the Company has raised approximately $0.4 million in debt transactions. These funds have been used to fund on-going corporate operations. Our accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business for the twelve-month period following the date of these condensed consolidated financial statements. Our cash on hand at September 30, 2022 was approximately $23,100. The Company has incurred substantial losses since inception. Its current liabilities exceed its current assets and available cash is not sufficient to fund expected future operations. The Company is contemplating raising additional capital through debt and equity in order to continue the funding of its operations and to acquire a profitable business. However, there is no assurance that the Company can raise sufficient 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.
| 23 |
The Company is not aware of any recently issued accounting pronouncements that when adopted will have a material effect on the Company’s financial position or result of its operation.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
We are a Smaller Reporting Company and are not required to provide the information under this item.
Item 4. Controls and Procedures.
Disclosure of controls and procedures.
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports, filed under the Securities Exchange Act of 1934, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable and not absolute assurance of achieving the desired control objectives. In reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. In addition, the design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, a control may become inadequate because of changes in conditions or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
As required by the SEC Rule 13a-15(b), we carried out an evaluation under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses described below.
In light of the material weaknesses described below, we performed additional analysis and other post-closing procedures to ensure our financial statements were prepared in accordance with generally accepted accounting principles. Accordingly, we believe that the financial statements included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.
A material weakness is a control deficiency (within the meaning of the Public Company Accounting Oversight Board (PCAOB) Auditing Standard No. 2) or combination of control deficiencies that result in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. Management has identified the following two material weaknesses which have caused management to conclude that as of September 30, 2022, our disclosure controls and procedures were not effective at the reasonable assurance level:
1. We do not have written documentation of our internal control policies and procedures. Written documentation of key internal controls over financial reporting is a requirement of Section 404 of the Sarbanes-Oxley Act which is applicable to us for the quarter ended September 30, 2022. Management evaluated the impact of our failure to have written documentation of our internal controls and procedures on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.
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2. We do not have sufficient segregation of duties within accounting functions, which is a basic internal control. Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, the 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.
Changes in internal controls over financial reporting.
There has been no change in our internal control over financial reporting that occurred during the fiscal quarter covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
The Company is subject to certain legal proceedings, which it considers routine to its business activities. As of September 30, 2022, 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.
Item 1A. Risk Factors.
We are a Smaller Reporting Company (as defined in Rule 12b-2 of the Exchange Act) and are not required to provide the information under this item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
| Number of | ||||||
| Common Shares | Source of | |||||
| Issued | Payment | Amount | ||||
| 16,950,000 | Conversion of notes | $ | 321,300 | |||
| 2,428,777 | Settlement of debt | 46,147 | ||||
| 3,100,000 | Commitment shares | 44,098 | ||||
| 62,250,000 | Shares for services | 1,281,900 | ||||
The above issuances of securities during the nine months ended September 30, 2022, were exempt from registration pursuant to Section 4(2), and/or Regulation D promulgated under the Securities Act. These securities qualified for exemption under Section 4(2) of the Securities Act since the issuance securities by us did not involve a public offering. The offering was not a “public offering” as defined in Section 4(2) due to the insubstantial number of persons involved in the deal, size of the offering, manner of the offering and number of securities offered. We did not undertake an offering in which we sold a high number of securities to a high number of investors. In addition, these stockholders had the necessary investment intent as required by Section 4(2) since they agreed to and received share certificates bearing a legend stating that such securities are restricted pursuant to Rule 144 of the Securities Act. This restriction ensures that these securities would not be immediately redistributed into the market and therefore not be part of a “public offering.” Based on an analysis of the above factors, we have met the requirements to qualify for exemption under Section 4(2) of the Securities Act for this transaction.
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Item 3. Defaults upon Senior Securities.
None
Item 4. Mine Safety Disclosures.
Not applicable
Item 5. Other Information
None
Item 6. Exhibits
| Exhibit Number | Exhibit Title | |
| 31.1* | Certification of Principal Executive Officer and Principal Financial Officer, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 32.1* | Certification of Principal Executive Officer and Principal Financial Officer, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 101 | The following materials from the Company’s Quarterly report for the period ended September 30, 2022, formatted in Extensible Business Reporting Language (XBRL). | |
| 101.INS | Inline XBRL Instance Document | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
| * | Filed Herewith |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Dated: November 21, 2022 | Endonovo Therapeutics, Inc. | |
| By: | /s/ Alan Collier | |
| Alan Collier | ||
Chief Executive Officer (Duly Authorized Officer, Principal Executive Officer, and Principal Financial Officer) | ||
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Exhibit 31.1
Certification of Principal Executive Officer and Principal Financial Officer
Pursuant to 18 U.S.C. 1350
(Section 302 of the Sarbanes-Oxley Act of 2002)
I, Alan Collier, Chief Executive Officer, and Principal Financial Officer, certifies that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Endonovo Therapeutics, Inc. for the period ended September 30, 2022; |
| 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; |
| 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; |
| 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; | |
| (b) | Designed such internal 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; | |
| (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, to the registrant’s auditors and the audit committee of 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 controls. |
| Dated: November 21, 2022 | /s/ Alan Collier |
| Chief Executive Officer and Principal Financial Officer |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. §1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Endonovo Therapeutics, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Alan Collier, Chief Executive Officer, and Principal Financial Officer of the Company, certifies, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
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.
| /s/ Alan Collier | ||
| Name: | Alan Collier | |
| Title: | Chief Executive Officer and Principal Financial Officer | |
| Date: | November 21, 2022 |
This certification accompanies each Report pursuant to § 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of §18 of the Securities Exchange Act of 1934, as amended.