ENDV 10-Q/A
Endonovo Therapeutics, Inc. (ENDV)
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 December 28, 2023, there were shares of common stock, $0.0001 par value issued and outstanding.
EXPLANATORY NOTE
ENDONOVO THERAPEUTICS, INC.
TABLE OF CONTENTS
FORM 10-Q REPORT
September 30, 2023
Page Number | ||
| PART I - FINANCIAL INFORMATION | ||
| Item 1. | Condensed Consolidated Financial Statements (unaudited) | 3 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 20 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 23 |
| Item 4. | Controls and Procedures | 23 |
| PART II - OTHER INFORMATION | ||
| Item 1. | Legal Proceedings | 24 |
| Item 1A. | Risk Factors | 24 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 24 |
| Item 3. | Defaults Upon Senior Securities. | 25 |
| Item 4. | Mine Safety Disclosures | 25 |
| Item 5. | Other Information. | 25 |
| Item 6. | Exhibits. | 25 |
| SIGNATURES | 26 | |
| 2 |
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Endonovo Therapeutics, Inc.
Condensed Consolidated Balance Sheets
| September 30, 2023 | December 31, 2022 | |||||||
| (Unaudited) | (Audited) | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Patents, net | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS’ DEFICIT | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued liabilities | $ | $ | ||||||
| Accounts payable and accrued liabilities – related party | ||||||||
| Accrued interest related to notes payable | ||||||||
| Deferred compensation | ||||||||
| Deferred compensation – related party | ||||||||
| 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, 2023 and December 31, 2022 | ||||||||
| Series B convertible preferred stock, $ par value; shares authorized, shares issued and outstanding at September 30, 2023 and December 31, 2022 | ||||||||
| Series C convertible preferred stock, $ par value; shares authorized, shares issued and outstanding at September 30, 2023 and December 31, 2022 | ||||||||
| Series D convertible preferred stock, $ par value; shares authorized, and issued and outstanding at September 30, 2023 and December 31, 2022 | ||||||||
| Common stock, $ par value; shares authorized; and shares issued and outstanding as of September 30, 2023 and December 31, 2022 | ||||||||
| Additional paid-in capital | ||||||||
| Stock subscriptions receivable | ( | ) | ( | ) | ||||
| 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)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| 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 income (expense) | ( | ) | ( | ) | ( | ) | ||||||||||
| Income (Loss) before income taxes | ( | ) | ( | ) | ( | ) | ||||||||||
| Provision for income taxes | ||||||||||||||||
| Net Income (Loss) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||
| Basic Income (Loss) per share | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||
| Diluted Loss per share | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average common share outstanding: | ||||||||||||||||
| Basic | ||||||||||||||||
| 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)
| Nine Months ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Operating activities: | ||||||||
| Net Income (Loss) | $ | $ | ( | ) | ||||
| Adjustments to reconcile net income (loss) to cash used in operating activities: | ||||||||
| Amortization expense | ||||||||
| Stock compensation expense | ||||||||
| Fair value of equity issued for services | ||||||||
| Loss (gain) on extinguishment of debt | ( | ) | ( | ) | ||||
| Amortization of note discount and original issue discount | ||||||||
| Change in fair value of derivative liability | ( | ) | ||||||
| Changes in assets and liabilities: | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Account payable and accrued liabilities (related and unrelated parties) | ||||||||
| 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 | ||||||||
| Net cash provided by financing activities | ||||||||
| Net increase (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 | $ | $ | ||||||
| Conversion of Preferred C Stock to common stock | $ | $ | ||||||
| Issuance of common stock to settle debt | $ | $ | ||||||
| Debt discount from issuance of debt | $ | $ | ||||||
| Conversion of notes to common stock pursuant to settlement agreement | $ | $ | ||||||
See accompanying summary of accounting policies and notes to unaudited condensed consolidated financial statements.
| 5 |
Endonovo Therapeutics, Inc.
Condensed Consolidated Statement of Shareholders’ Deficit
(Unaudited)
For three and nine months ended September 30, 2023
| Series AA Preferred Stock | Series B Convertible Preferred Stock | Series C Convertible Preferred Stock | Series D Convertible Preferred Stock | Common Stock | Additional Paid-in | Subscription | Accumulated | Total Shareholder’s | ||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Receivable | Deficit | Deficit | |||||||||||||||||||||||||||||||||||||||||||
| Balance December 31, 2022 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||||||||||
| Shares issued for conversion of notes payable and accrued interest | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued pursuant to make good provision | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued for settlement of debt | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common shares for services | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for cash, net of fees | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued for conversion of Preferred Series D to common shares | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Inducement loss related to conversion of preferred stock | - | - | - | - | - | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance March 31, 2023 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||||||||||
| Shares issued for conversion of deferred compensation | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of commitment shares in connection with promissory notes | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Shares issued for services | - | - | - | - |
| |||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for cash, net of fees | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net Income | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance June 30, 2023 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||||||||||
| Shares issued for conversion of deferred compensation | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of commitment shares in connection with promissory notes | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Shares issued for services | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for cash, net of fees | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Net Income | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance September 30, 2023 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||||||||||
| 6 |
For three and nine months ended September 30, 2022
| Series AA Preferred Stock | Series B Convertible Preferred Stock | Series C Convertible Preferred Stock | Series D Convertible Preferred Stock | Common Stock | Additional Paid-in | Subscription | Accumulated | Total Shareholder’s | ||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Receivable | Deficit | Deficit | |||||||||||||||||||||||||||||||||||||||||||
| Balance December 31, 2021 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||||||||||
| 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 | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance June 30, 2022 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||||||||||
| Issuance of commitment shares in connection with promissory note | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Shares issued for services | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance September 30, 2022 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||||||||||
See accompanying summary of accounting policies and notes to unaudited condensed consolidated financial statements.
| 7 |
Endonovo Therapeutics, Inc.
Notes to Condensed Consolidated Financial Statements
Note 1 - Organization and Nature of Business
Endonovo Therapeutics, Inc. (Endonovo or the “Company”) is an innovative biotechnology company that has developed a bio-electronic approach to regenerative medicine. Endonovo is a growth stage company whose stock is publicly traded (OTCQB: ENDV).
The Company develops, manufactures, and distributes evolutionary medical devices focused on the rapid healing of wounds and reduction of pain, edema, and inflammation in the human body. The Company’s non-invasive bioelectric medical devices are designed to target inflammation, cardiovascular diseases, chronic kidney disease, and central nervous system disorders (“CNS” disorders).
The Company’s non-invasive Electroceutical® therapeutics device, SofPulse®, using pulsed short-wave radiofrequency at 27.12 MHz has been FDA-Cleared and CE Marked for the palliative treatment of soft tissue injuries and post-operative plain and edema, and has CMS National Coverage for the treatment of chronic wounds. The Company’s current portfolio of pre-clinical stage Electroceutical® therapeutics devices address chronic kidney disease, liver disease non-alcoholic steatohepatitis (NASH), cardiovascular and peripheral artery disease (PAD) and ischemic stroke.
Endonovo’s core mission is to transform the field of medicine by developing safe, wearable, non-invasive bioelectric medical devices that deliver the Company’s Electroceutical® Therapy. Endonovo’s bioelectric Electroceutical® devices harnesses bioelectricity to restore key electrochemical processes that initiate anti-inflammatory processes and growth factors in the body necessary for healing to rapidly occur.
The Company intends to be structured into two separate divisions:
| ■ | A commercial stage developer primarily of non-invasive wearable Electroceuticals® therapeutic devices for pain relief, general wellness, and wound curatives with many of its products marketed under the SofPulse® brand name. This division will be controlled by Ira Weisberg, the Company’s President and Chief Commercial Officer. | |
| ■ | M&A division with a strategy of purchasing profitable companies, which will be managed by the Company’s current Chief Executive Officer. |
Note 2 – Summary of significant accounting policies.
Basis of Presentation and Principles of Consolidation
The accompanying unaudited interim condensed consolidated financial statements have been presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the instructions to Article 8 of Regulation S-X. Accordingly, the financial statements do not include all of the information and notes required by GAAP for complete financial statements. The accompanying consolidated condensed balance sheet as of September 30, 2023, the consolidated statements of operations for the three and nine months ended September 30, 2023 and 2022, the consolidated statements of cash flows for the nine months ended September 30, 2023 and 2022, and the consolidated statements of shareholders’ deficit for the three and nine months ended September 30, 2023 and 2022 are unaudited; however, in the opinion of management such interim consolidated financial statements reflect all adjustments, consisting solely of normal recurring adjustments, necessary for a fair presentation of the results for the periods presented. The accompanying financial information should be read in conjunction with the financial statements and the notes thereto in the Company’s most recent Annual Report on Form 10-K, as filed with the Securities and Exchange Commission (the “SEC”) on April 17, 2023. The results of operations for the period presented are not necessarily indicative of the results that might be expected for future interim periods or for the full year.
Liquidity and Going Concern
The Company’s unaudited condensed consolidated financial statements are prepared using GAAP applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company’s ability to obtain adequate capital to fund operating losses until it becomes profitable.
As
of September 30, 2023, the Company had cash of approximately $
| 8 |
Endonovo Therapeutics, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
During
the nine months ended September 30, 2023, 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 assessment of impairment of finite lived intangibles, the valuation of the derivative liability, the valuation of warrants and stock options, and the valuation of deferred income tax assets. Management uses its historical records and knowledge of its business in making these estimates. Actual results could differ from these estimates.
The Company utilizes Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 260, “Earnings per Share.” Basic earnings (loss) per share is computed based on the earnings (loss) attributable to common shareholders divided by the weighted average number of shares outstanding for the period excluding any dilutive effects of options, warrants, unvested share awards and convertible securities. Diluted earnings (loss) per common share is calculated similar to basic earnings (loss) per share except that the denominator is increased to include additional common share equivalents available upon exercise of stock option, warrants, common shares issuable under convertible debt and restricted stock using the treasury stock method. Dilutive common share equivalents include the dilutive effect of in-the-money share equivalents, which are calculated based on the average share price for each period using the treasury stock method, excluding any common share equivalents if their effect would be anti-dilutive. In periods in which a net loss has been incurred, all potentially dilutive common shares are considered anti-dilutive and thus are excluded from the calculation. Securities that are excluded from the calculation of weighted average dilutive common shares because their inclusion would have been antidilutive for the nine months ended September 30, 2023, include stock options, warrants, and notes payable.
The Company has stock options to purchase an equivalent number of shares of common stock outstanding at September 30, 2023. The Company has options and warrants to purchase common stock outstanding at September 30, 2022.
| Nine months ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Numerator: | ||||||||
| Net income (loss) attributable to common shareholders | $ | $ | ( | ) | ||||
| Effect of dilutive securities | ||||||||
| Convertible notes | ( | ) | ||||||
| Net loss for diluted earnings per share | $ | ( | ) | $ | ( | ) | ||
| Denominator: | ||||||||
| Weighted-average number of common shares outstanding during the period | ||||||||
| Dilutive effect of convertible notes payable | ||||||||
| Common stock and common stock equivalents used for diluted loss per share | ||||||||
The components of basic and diluted income (loss) per share for the three months ended September 30, 2023 and 2022 were as follows:
| Three months ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Numerator: | ||||||||
| Net income (loss) attributable to common shareholders | $ | ( | ) | $ | ( | ) | ||
| Effect of dilutive securities | ||||||||
| Convertible notes | ||||||||
| Net loss for diluted earnings per share | $ | ( | ) | $ | ( | ) | ||
| Denominator: | ||||||||
| Weighted-average number of common shares outstanding during the period | ||||||||
| Dilutive effect of convertible notes payable | ||||||||
| Common stock and common stock equivalents used for diluted loss per share | ||||||||
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
The Company has evaluated all the recent accounting pronouncements and determined that there are no other accounting pronouncements that will have a material effect on the Company’s consolidated financial statements.
Note 3 - Revenue Recognition
Contracts with Customers
The Company adopted ASC 606, Revenue from Contracts with Customers effective January 1, 2019, using the modified retrospective method applied to those contracts which were not substantially completed as of January 1, 2019. These standards provide guidance on recognizing revenue, including a five-step model to determine when revenue recognition is appropriate. The standard requires that an entity recognize revenue to depict the transfer of control of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
The Company routinely plans on entering into contracts with customers that include general commercial terms and conditions, notification requirements for price increases, shipping terms and in most cases prices for the products and services that we offer. The Company’s performance obligations are established when a customer submits a purchase order notification (in writing, electronically or verbally) for goods and services, and we accept the order. The Company identified performance obligations as the delivery of the requested product or service in appropriate quantities and to the location specified in the customer’s contract and/or purchase order. The Company generally recognize revenue upon the satisfaction of these criteria when control of the product or service has been transferred to the customer at which time, the Company has an unconditional right to receive payment. The Company’s sales and sale prices are final, and our prices are not affected by contingent events that could impact the transaction price.
Revenues for our SofPulse® product is typically recognized at the time the product is shipped, at which time the title passes to the customer, and there are no further performance obligations. Royalty/licensing revenue is also recognized at one point in time, when the units are shipped.
In connection with offering products and services provided to the end user by third-party vendors, the Company reviews the relationship between us, the vendor, and the end user to assess whether revenue should be reported on a gross or net basis. In asserting whether revenue should be reported on a gross or net basis, the Company considers whether the Company acts as a principal in the transaction and control the goods and services used to fulfill the performance obligation(s) associated with the transaction.
| 10 |
Endonovo Therapeutics, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
Sources of Revenue
The Company has identified the following revenues by revenue source:
| 1. | Sales to plastic surgeons |
| 2. | Sales to wound care facilities |
| 3. | Sales to hospital |
| 4. | Sales to other physicians |
| 5. | Royalty fee from licensing, net |
For the three and nine months ended September 30, 2023 and 2022, the sources of revenue were as follows:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Royalty/licensing, net | $ | $ | $ | $ | ||||||||||||
| Direct sales- medical care providers, gross | ||||||||||||||||
| Total sources of revenue | $ | $ | $ | $ | ||||||||||||
The
royalty/licensing revenue recognized in the nine months ended September 30, 2023, resulted from specific transactions. No general patent
rights were assigned to the distributor. The royalty / licensing revenue is recorded on a net basis as the Company was not considered
the principal but an agent for accounting purposes. The royalty / licensing revenue, net includes an ongoing contract with a customer
that has a total gross sales value of $
On
January 25, 2023, the Company entered into a sales support services agreement with Pulse Therapeutic Technology (“PTT”),
an entity controlled by a former related party, under which PTT has been selling SofPulse® on a nonexclusive basis. Pursuant to such
agreement, the deferred compensation owed to this former related party has been fully extinguished for a total amount of approximately
$
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 $
| September 30, 2023 | December 31, 2022 | |||||||
| Patents | $ | $ | ||||||
| Less accumulated amortization | ||||||||
| Patents, net | $ | $ | ||||||
Amortization
expense associated with patents was $
The estimated future amortization expense related to patents as of September 30, 2023, is as follows:
| Twelve Months Ending September 30, | Amount | |||
| 2024 | $ | |||
| 2025 | ||||
| Total | $ | |||
Note 5- Notes Payable
As of September 30, 2023, and December 31, 2022, the notes payable activity was as follows:
| September 30, 2023 | December 31, 2022 | |||||||
| Notes payable at beginning of period | $ | $ | ||||||
| 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 | ( | ) | ( | ) | ||||
| $ | $ | |||||||
| 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:
| Notes to | ||||||||||||
| 12 months ending, | Former related party | Non-related parties | Total | |||||||||
| Past due | $ | $ | $ | |||||||||
| September 30, 2024 | ||||||||||||
| $ | $ | $ | ||||||||||
Activity for the nine months ended September 30, 2023
Fixed rate notes
During
the nine months ended September 30, 2023, the Company converted $
During
the nine months ended September 30, 2023, the Company executed an amendment or allonges to three fixed rate notes to extend the maturity
date in exchange for $
During
the nine months ended September 30, 2023, the Company issued five fixed-rate notes for an aggregate amount of $
| 12 |
Endonovo Therapeutics, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
As
of September 30, 2023, the Company has a total of twenty-four (24) fixed-rate notes, of which eighteen (18) have a make good provision
for a total principal of $
Such
provision will require
Variable-rate notes
During
the nine months ended September 30, 2023, the Company executed a settlement agreement with one investor to extinguish the remaining principal
balance of a promissory note into shares of common stock, which resulted in a gain from debt extinguishment of approximately
$
Fixed Rate note (former related party)
Notes
payable to a former related party in the aggregate amount of $
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 $
| 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:
| Number of Shares Authorized | Number of Shares Outstanding at September 30, 2023 | 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 director established the rights, preferences and limitations thereof.
There was no activity during the nine months ended September 30, 2023. There were shares of Series AA Preferred stock outstanding as of September 30, 2023 and December 31, 2022.
Series B Convertible Preferred Stock
On
February 7, 2017, the Company filed a certificate of designation for 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
There was no activity during the nine months ended September 30, 2023. There were shares of Series B outstanding as of September 30, 2023 and December 31, 2022.
| 14 |
Endonovo Therapeutics, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
Series C Convertible Redeemable Preferred Stock
On
December 22, 2017, the Company filed a certificate of designation for 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, 2023. There were shares of Series C outstanding, as of September 30, 2023 and December 31, 2022
Series D Convertible Preferred Stock
On
November 11, 2019, the Company filed a certificate of designation for 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, $
During
the six months ended June 30, 2023, the Company issued shares of common stock upon conversion of the remaining shares of
Series D preferred stock.
Common Stock
Activity during the nine months ended September 30, 2023
During
the nine months ended September 30, 2023, the Company issued shares of common stock for the conversion of $
During
the nine months ended September 30, 2023, the Company issuedshares of common stock pursuant to a make-good provision, which
resulted in a loss on debt extinguishment of $
During
the nine months ended September 30, 2023, the Company issued shares of common stock pursuant to a debt settlement of aggregate
principal of $
During the nine months ended September 30, 2023, the Company issued shares of common stock pursuant to a deferred compensation settlement with a fair value of $.
During the nine months ended September 30, 2023, the Company issued shares of common stock pursuant to a debt settlement.
During
the nine months ended September 30, 2023, the Company issued shares of common stock for services for a total fair value of
$
During
the nine months ended September 30, 2023, the Company issued shares of common stock in exchange for shares of Series D Preferred,
which resulted in an inducement loss of $
During
the nine months ended September 30, 2023, the Company issued 5 1/2 units or the equivalent of shares of common stock pursuant
to a private placement for total net cash receipt of $
During
the nine months ended September 30, 2023, the Company issued commitment shares pursuant to executed securities purchase agreements
with an estimated fair value of $
During the nine months ended September 30, 2023, the Company issued shares for note extension and pursuant
to executed allonges with an estimated fair value of $
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 $
| 15 |
Endonovo Therapeutics, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
Stock Options
| Weighted Average | Weighted Average Remaining | Aggregate | ||||||||||||||
| Exercise Price | Contractual | Intrinsic | ||||||||||||||
| Options | Per Share | Term (years) | Value | |||||||||||||
| Outstanding at December 31, 2022 | $ | |||||||||||||||
| Granted | $ | - | ||||||||||||||
| Cancelled | ( | ) | $ | - | ||||||||||||
| Exercised | $ | - | ||||||||||||||
| Outstanding at September 30, 2023 | $ | $ | ||||||||||||||
| Exercisable at September 30, 2023 | $ | $ | ||||||||||||||
Share-based compensation expenses for the nine months ended September 30, 2023 and 2022, totaled approximately $ and $, respectively. The remaining stock-based compensation to be recognized is approximately $, which will be recognized over years.
Warrants
The balance of all warrants outstanding as of September 30, 2023, is as follows:
| Outstanding Warrants | ||||||||||||
| Weighted Average | Weighted Average Remaining | |||||||||||
| Exercise Price | Contractual | |||||||||||
| Shares | Per Share | Term (years) | ||||||||||
| Outstanding at December 31, 2022 | $ | |||||||||||
| Granted | $ | - | ||||||||||
| Cancelled | ( | ) | $ | - | ||||||||
| Exercised | $ | |||||||||||
| Outstanding at September 30, 2023 | $ | - | ||||||||||
| Exercisable at September 30, 2023 | $ | - | ||||||||||
| 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, 2023,
the balance of the deferred compensation was $
As
of September 30, 2023, the Company issued for the issuance of shares of the Company’s common stock with a fair value
of $
One
former executive of the Company has agreed to defer a portion of his compensation until cash flow improves. As of September 30, 2023,
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, 2023, was $
As
of September 30, 2023, notes payable remained outstanding to the former President of the Company, in the amount of $
Note 8 – Fair Value Measurements
The Company 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:
| Nine months ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| 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 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 income (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 in 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. Company will perform valuation of derivative liabilities as a part of its 2023 10-K filing.
| 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, 2023:
| Derivative | ||||
| Liability | ||||
| Balance December 31, 2022 | $ | |||
| Settlement debt | ( | ) | ||
| Change in estimated fair value | ( | ) | ||
| Balance September 30, 2023 | $ | |||
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, 2023:
| 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, 2023 | ||||||||||||||
| 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, 2023, 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, 2023, we had one significant customer, which accounted for approximately
Supplier
We
also have a single source for our bioelectric medical devices, which account for
Note 11 – Subsequent Events
Management has evaluated events that have occurred subsequent to the date of these consolidated condensed financial statements and has determined that no such reportable subsequent events exist through the date the financial statements were issued in accordance with FASB ASC Topic 855, “Subsequent Events.”
| 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.
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, 2022, that states that our ongoing losses and lack of resources cause reasonable doubt about our ability to continue as a going concern.
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, 2022. 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, 2023, in any of our critical accounting policies from those contained in our Form 10-K for the year ended December 31, 2022.
| 20 |
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, 2023, and 2022:
| Nine Months Ended September 30, | Favorable | |||||||||||||||
| 2023 | 2022 | (Unfavorable) | % | |||||||||||||
| Revenue | $ | 134,260 | $ | 13,892 | $ | 120,368 | 866 | % | ||||||||
| Cost of revenue | 4,823 | 5,124 | 301 | 6 | % | |||||||||||
| Gross profit | 129,437 | 8,768 | 120,669 | 1,376 | % | |||||||||||
| Operating expenses | 2,262,833 | 2,790,057 | 527,224 | 19 | % | |||||||||||
| Loss from operations | (2,133,396 | ) | (2,781,289 | ) | 647,893 | 23 | % | |||||||||
| Other income (expense) | 10,661,388 | (2,761,411 | ) | 13,422,799 | 486 | % | ||||||||||
| Net loss | $ | 8,527,992 | $ | (5,542,700 | ) | $ | 14,070,692 | 254 | % | |||||||
Revenue
Revenue of the Company’s SofPulse® product during the nine months ended September 30, 2023, was $134,260, an increase of $120,368, or 44%, compared to $13,892 for the nine months ended September 30, 2022.
We anticipate that revenue will increase in future periods as the roll out of the SofPulse® product continues. The Company is looking to partner with global participants in the medical device market to spur its expansion. The Company expects such investment alternatives to include partnerships, joint ventures, distribution, and licensing agreements for the PEMF medical technology. The Company is also looking to expand on current initiatives with the Department of Defense, the Department of Veterans Affairs, and other surgical and pain management markets.
During the nine months ended September 30, 2023, the Company also recognized $126,520 in royalty/licensing revenue from a former related party.
Cost of Revenue
Cost of revenue during the nine months ended September 30, 2023, was $4,823, a decrease of $301 or 6% compared to $5,124 for the nine months ended September 30, 2022. 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 $527,224 or 19%, to $2,262,833 for the nine months ended September 30, 2023, compared to $2,790,057 for the nine months ended September 30, 2022. This change was due primarily due a decrease in stock-based compensation expense by approximately $603,600.
Other Expense/Income
Other income for the nine months ended September 30, 2023, was $10,661,388 compared to an expense of $2,761,411 for the nine months ended September 30, 2022. This change was due primarily to a decrease in the fair value of the Company’s derivative liability which generated an income from the change of fair value of $11.4 million as opposed to an expense of $1.9 million in the comparable period in the previous year.
We anticipate continued large fluctuations in other income/expense as a result of quarterly re-evaluation of the Company’s derivative liabilities.
Three Months ended September 30, 2023, and 2022:
| Three Months Ended September 30, | Favorable | |||||||||||||||
| 2023 | 2022 | (Unfavorable) | % | |||||||||||||
| Revenue | $ | 1,520 | $ | 10,960 | $ | (9,440 | ) | (86) | % | |||||||
| Cost of revenue | 827 | 4,027 | 3,200 | 79 | % | |||||||||||
| Gross profit | 693 | 6,933 | (6,240 | ) | (90) | % | ||||||||||
| Operating expenses | 473,490 | 503,711 | 30,221 | 6 | % | |||||||||||
| Loss from operations | (472,797 | ) | (496,778 | ) | 23,981 | 5 | % | |||||||||
| Other income (expense) | (293,373 | ) | (106,582 | ) | (186,791) | (175 | )% | |||||||||
| Net gain/loss | $ | (766,170 | ) | $ | (603,360 | ) | $ | 162,810 | 27 | % | ||||||
| 21 |
Revenue
Revenue of the Company’s SofPulse® product during the three months ended September 30, 2023, was $1,520, a decrease of $9,440, or 86%, compared to $10,960 for the three months ended September 30, 2022.
We anticipate that revenue will increase in future periods as the roll out of the SofPulse® product continues. The Company is looking to partner with global participants in the medical device market to spur its expansion. The Company expects such investment alternatives to include partnerships, joint ventures, distribution, and licensing agreements for the PEMF medical technology. The Company is also looking to expand on current initiatives with the Department of Defense, the Department of Veterans Affairs, and other surgical and pain management markets.
Cost of Revenue
Cost of revenue during the three months ended September 30, 2023, was $827, a decrease of $3,200 or 80% compared to $4,027 for the three months ended September 30, 2022. 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 $30,221 or 6%, to $473,490 for the three months ended September 30, 2023, compared to $503,711 for the three months ended September 30, 2022.
Other Income (Expense)
Other expenses for the three months ended September 30, 2023, was $293,373 compared to other expense of $106,582 for the three months ended September 30, 2022.
Liquidity and Capital Resources
| As of | ||||||||||||
| September
30, 2023 |
December
31, 2022 |
Favorable
(Unfavorable) |
||||||||||
| Working Capital | ||||||||||||
| Current assets | $ | 35,504 | $ | 15,822 | $ | 19,682 | ||||||
| Current liabilities | 23,696,070 | 33,381,760 | 9, 685,690 | |||||||||
| Working capital deficit | $ | (23,660,566 | ) | $ | (33,365,938 | ) | $ | 9,705,372 | ||||
| Long-term debt | $ | 79,825 | $ | 79,825 | $ | - | ||||||
| Shareholders’ deficit | $ | (22,960,131 | ) | $ | (32,180,319 | ) | $ | 9,220,188 | ||||
| Nine Months Ended September 30, | Favorable | |||||||||||
| 2023 | 2022 | (Unfavorable) | ||||||||||
| Statements of Cash Flows Select Information | ||||||||||||
| Net cash provided (used) by: | ||||||||||||
| Operating activities | $ | (404,363 | ) | $ | (329,436 | ) | $ | (74,829 | ) | |||
| Financing activities | $ | 404,265 | $ | 243,500 | $ | 160,765 | ||||||
| As of | ||||||||||||
| September 30, 2023 | December 31, 2022 | Favorable (Unfavorable) | ||||||||||
| Balance Sheet Select Information | ||||||||||||
| Cash | $ | - | $ | 98 | $ | 98 | ||||||
| Accounts payable and accrued expenses | $ | 10,736,269 | $ | 8,869,451 | $ | (1,866,818 | ) | |||||
Since January 1, 2023, and through September 30, 2023, the Company has raised approximately $0.5 million in equity and 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, 2023 was approximately $0. The Company has incurred substantial losses since its 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.
| 22 |
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 results of its operations.
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, 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 a 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, 2023, 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, 2023. 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, 2023, 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 | ||||
| 10,900,000 | Conversion of notes and accrued interest | $ | 109,000 | |||
| 4,300,590 | Settlement of debt | 67,089 | ||||
| 1,667,000 | Settlement of deferred compensation | 24,338 | ||||
| 5,000,000 | Conversion preferred stock | - | ||||
| 27,500,000 | Cash | 460,000 | ||||
| 1,507,277 | Make good provision | 24,870 | ||||
| 43,800,000 | Shares for services | 720,562 | ||||
| 1,850,000 | Commitment shares | 25,625 | ||||
| 1,000,000 | Note Extension Agreements | 11,130 | ||||
| 8,000,000 | Production Agreement | 112,800 | ||||
The above issuances of securities during the nine months ended September 30, 2023, 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 of these 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
(a) 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* | Inline XBRL Document set for the financial statements and accompanying notes in Part I, Item 1, of this Quarterly Report on Form 10-Q | |
| 104* | Inline XBRL for the cover page of this Quarterly Report on Form 10-Q, included in the Exhibit 101 Inline XBRL Document Set. | |
| Exhibits designated by the symbol * are filed or furnished with this Quarterly Report on Form 10-Q |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this amended report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Dated: December 29, 2023 | 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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