ENDONOVO THERAPEUTICS, INC. - Annual Report: 2017 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended December 31, 2017

For the transition period from __________ to __________

Commission file number: 000-55453

ENDONOVO THERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (800) 489-4774

Securities registered under Section 12(b) of the Act: None

Securities registered under Section 12(g) of the Act: Common Stock, par value $0.0001

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes [  ] No [X]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes [  ] No [X]

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes [X] No [  ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [  ]

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

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 Act). Yes [  ] No [X]

The aggregate market value of the voting Common Stock held by non-affiliates, computed by reference to the price at which the voting Common Stock was sold as of the last business day of the Company’s most recently completed second fiscal quarter is $7,634,351.

As of April 6, 2018, the registrant had 341,345,596 shares of its common stock, par value $0.0001 per share, outstanding.

Documents Incorporated by Reference: None.

TABLE OF CONTENTS

FORWARD-LOOKING STATEMENTS

When used in this Report, the words “may,” “will,” “expect,” “anticipate,” “continue,” “estimate,” “intend,” and similar expressions are intended to identify forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) regarding events, conditions and financial trends which may affect the Company’s future plans of operations, business strategy, operating results, and financial position. Such statements are not guarantees of future performance and are subject to risks and uncertainties and actual results may differ materially from those included within the forward-looking statements for various reasons, including those identified under “Risk Factors.” Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date made. Except as required under federal securities laws and the rules and regulations of the United States Securities and Exchange Commission, the Company does not undertake, and specifically declines, any obligation to update any of these statements or to publicly announce the results of any revisions to any forward-looking statements after the distribution of this report, whether as a result of new information, future events, changes in assumptions, or otherwise.

This Report contains certain estimates and plans related to us and the industry in which we operate, which assume certain events, trends, and activities will occur and the projected information based on those assumptions. We do not know all of our assumptions are accurate. In particular, we do not know what level of acceptance our strategy will achieve, how many acquisitions we will be able to consummate or finance, or the size thereof. If our assumptions are wrong about any events, trends, or activities, then our estimates for future growth for our business also may be wrong. There can be no assurances any of our estimates as to our business growth will be achieved.

PART I

Overview

Endonovo Therapeutics, Inc. and Subsidiaries (the “Company” or “ENDV” “we” “us” “our”) is primarily focused in the business of biomedical research and development, particularly in regenerative medicine, which has included the development of its proprietary non-invasive electrocuetical device and intellectual property licensing and commercialization.

Our intellectual property management and commercialization segment is focused primarily on licensing various commercially desirable technologies and patents from companies that need operating capital or that need help commercializing their technology and sublicense such technology in designated territories. This segment acquires exclusive licenses for marketable technology normally without the payment of any upfront license fee to the licensor and thereafter, to sub-license the technology in the designated markets, including Asia, Europe, and Brazil. Our results depend upon our ability to locate available, licensable, and readily marketable technology, to negotiate favorable licenses for such technology, and to sub-license the technology in the designated markets at a sufficient level of volume in an effort to generate maximum revenues. Due to the history of our acquisitions, as set forth below, and management’s assessment of what has been the most promising of our technologies, we have determined to focus ourselves as a developer of biotechnology, particularly in regenerative medicine. We are commercial stage developer of non-invasive medical devices designed to deliver its proprietary Electroceutical™ Therapy for the treatment of inflammatory conditions, cardiovascular diseases and central nervous system disorders.

Corporate History

Our predecessor company, Hanover Asset Management, Inc. was incorporated in November 2008 in California. For the purpose of reincorporating in Delaware, we merged with a newly incorporated successor company, Hanover Portfolio Acquisitions, Inc., in July 2011 under which we continue to operate.

IP Resources International, Inc. began operations on September 1, 2011 and was formally incorporated on October 17, 2011.

Reverse Acquisition

On March 14, 2012, we entered into a Share Exchange Agreement (“Agreement”) with IPR and certain of its shareholders. Under the Agreement, each participating IPR shareholder exchanged all of their issued and outstanding IPR common shares totaling 33,234,294, free and clear of all liens, and $155,000 for Company common shares equal to 1.2342 times the number of IPR shares being transferred to the Company for a total of 410,177 of our shares. The $155,000 was not paid at closing. The Company recorded the $155,000 as acquisition payable. IPR agreed to make payments of up to 25% of the proceeds from any private placement or gross profits earned by IPR until the obligation is satisfied. The percentage of the proceeds to be paid is at the sole discretion of IPR’s Chief Executive Officer and the ex-Chief Executive Officer of the Company based on the liquidity of the Company.

As a result of the Agreement, the former shareholders of IPR, immediately post acquisition owned approximately 89% of the Company and its officers and directors constituted the majority of the officers and directors of the Company. Since the shareholders, officers and directors of IPR have control of the Company, the acquisitions constitutes a reverse acquisition, so IPR was the accounting acquirer and we were the accounting acquiree. For accounting purposes, IPR became the parent and we became a wholly owned subsidiary. For legal purposes, we are the legal parent and IPR is the legal subsidiary.

Acquisition of Aviva Companies Corporation

On April 2, 2013, the Company entered into an Acquisition Agreement (the “Acquisition Agreement”) with (i) The Aviva Companies Corporation (“Aviva”) and (ii) all of the shareholders of Aviva (the “Shareholders”) pursuant to which the Company acquired all of the outstanding shares of Aviva in exchange for the issuance of 60,000 shares of our common stock, par value $0.0001 per share to the Shareholders (the “Share Exchange”). As a result of the Share Exchange, Aviva became a wholly-owned subsidiary of the Company.

Other than in respect to the transaction, there is no material relationship among Aviva’s stockholders and any of the Company’s affiliates, directors or officers. We are not currently actively pursuing the development of the Aviva Companies Corporation.

Acquisition of WeHealAnimals, Inc.

On November 16, 2013, the Company entered into an Acquisition Agreement (the “Acquisition Agreement”) with (i) WeHealAnimals ,Inc. (“WHA”) and (ii) the sole shareholder of WHA (the “Shareholder”) pursuant to which the Company acquired all of the outstanding shares of WHA in exchange for the issuance of 3,000 shares of our common stock, par value $0.0001 per share and $96,000 to the Shareholder (the “Share Exchange”). As a result of the Share Exchange, WHA became a wholly-owned subsidiary of the Company and all of the equity of WHA including its and its sole shareholder’s intellectual property became the property of the Company. This obligation was fully paid on December 15, 2015 through the issuance of 350,000 shares of stock to the CEO of WHA. WHA is a Nevada corporation with intellectual property in the fields of bio-technology including its biologics and time-varying electromagnetic frequencies with potential applications on people and animals that management believes can be developed to the benefit of the Company and its shareholders. WHA’s sole shareholder was formerly Chairman and Chief Scientist of Regenetech, Inc. Regenetech was acquired by a company that wanted its technology, biomolecules grown in microgravity, for use in cosmetics. WHA’s sole shareholder left Regenetech with exclusive rights to this proprietary non-invasive electrocuetical technology and stem cell technologies, including the patents and patent applications relating thereto.

Other than in respect to the transaction, there is no material relationship between WHA’s sole stockholder and any of the Company’s affiliates, directors or officers.

Present Development Plans

Establish SofPulse™ as standard care for post-surgical healing in cosmetic surgery

We will seek to commercialize our Electroceutical™ Therapy for the treatment of pain and post-surgical edema with a specific concentration on cosmetic surgeries, including breast augmentation, reduction and reconstruction surgery, rhinoplasty, and liposuction procedures. An American Society of Plastic Surgeons report found Americans spent more than $16 billion on cosmetic plastic surgeries and minimally invasive procedures in 2016, the most the U.S. has ever spent on such operations. In 2016, 290,467 breast augmentation surgeries were performed, 223,018 rhinoplasty procedures, 127,633 tummy tucks, 235,237 liposuction procedures, and 18,489 buttock augmentations were performed across the U.S., respectively.

We will seek to target this market by hiring a small 10 to 15 person sales team specifically targeting cosmetic surgeons. We currently have a small group of cosmetic surgeons who prescribe our Electroceutical™ Therapy to their patients and include the cost of our Electroceutical™ Therapy in the total cost of the procedure. We will also pursue licensing and/or distribution agreements for cosmetic surgery indications.

Our Electroceutical™ Therapy was previously licensed to Allergan by Ivivi Technologies (predecessor firm and original owner of SofPulse™) for the cosmetic surgery market. This licensing agreement was terminated when Ivivi Technologies failed to secure FDA-Clearance for the palliative treatment of pain and post-surgical edema. We believe that a similar licensing agreement or a marketing/distribution agreement can be secured to target the cosmetic surgery market.

Establish dedicated sales team to target skilled nursing facilities and the elderly care market

We will seek to market and sell our Electroceutical Therapy to skilled nursing facilities (SNFs), which include both long-term residential care and short-term post-acute or rehabilitative care.

While the number of Americans living in SNFs for extended periods has fallen steadily over the past decade as an increasing proportion of older individuals remain in their homes or in assisted living facilities, the number receiving short-term nursing care has risen dramatically. In 2014, 1.7 million fee- for-service (FFS) Medicare beneficiaries were cared for in 15,000 SNFs, costing Medicare USD $28.6 billion. This represents 2.4 million SNF stays: 20 percent of all hospitalized FFS Medicare beneficiaries are discharged to a SNF. The majority of these facilities are the same institutions as those providing residential long-term care: 95 percent of SNFs provide both kinds of careⁱ.

SNF residents, whether short- or long-term, tend to be old, female, and have multiple impairments in their activities of daily living (ADLs). Of those in SNFs in 2014, 16.6 percent were between the ages of 65 and 74, 26.6 percent were between 75 and 84, 33.7 percent were between 85 and 94, and 7.8 percent were 95 years of age or olderⁱⁱ. In the same population, 6.1 percent had impairments in three ADLs, 41.2 percent had impairments in four ADLs, and 22.4 percent had impairments in five ADLs. Cognitive impairment is also widespread in this population, with 36.9 percent exhibiting severe impairment, 24.9 percent having moderate impairment, and 38.2 percent with mild or no impairment.

SNF care represents a substantial segment of health care costs for older individuals: in the United States in 2010, $143 billion was spent on SNF care, of which 14 percent was paid by Medicare, 63 percent by Medicaid, and 22 percent privatelyⁱⁱⁱ. The costs of care are covered differently, depending on whether the patient is receiving long- or short-term care.

In addition to the use of our Electroceutical™ Therapy for the palliative treatment of pain and post-surgical edema, our Electroceutical™ Therapy received CMS National Coverage for the treatment of chronic wounds in 2004. We believe that this reimbursement will allow SNFs to purchase our SofPulse™ medical devices for treating elderly patients suffering from chronic wounds and pressure ulcers, which affects between 8 to 28 percent of all nursing home patients. Pressure ulcers are both common and very costly, and on average, per Medicare’s self-reporting of claims payments, a single hospitalization related to an acute pressure sore treatment need of a patient often resulted in prolonged stays due to complications and the slow healing process of the wound itself.

On average, these stays for stage two or higher pressure ulcers cost insurers no less than $16,000 per patient, who frequently requires eight (8) to nine (9) additional days in an extremely costly hospital care setting due to the precarious nature of bedsore injuries in the elderly. On average, these stays for stage two or higher pressure ulcers cost insurers no less than $16,000 per patient, who frequently requires eight (8) to nine (9) additional days in an extremely costly hospital care setting due to the precarious nature of bedsore injuries in the elderly.

We believe our Electroceutical Therapy presents both cost savings opportunities for SNFs and improve patient outcomes. We will seek to target these approximately 15,000 SNFs using the same small sales and marketing team outlined above.

Pursue licensing and/or distribution agreements to enter European market

Our Electroceutical™ Therapy (SofPulse™) received CE Mark certification for commercial distribution in the member countries of the European Union for use in the promotion of wound healing, reduction of pain and post operative edema. We will seek commercial partners and or marketing/distribution agreements to penetrate the European market. We anticipate a significant amount of our efforts will concentrate on wound healing due to the aging population in the European Union and a lack of effective treatment options for patients with pressure ulcers/chronic wounds.

ⁱ Medicare Payment Advisory Committee. Report to the Congress: Medicare payment policy. Washington, DC 2016.

http://medpac.gov/documents/reports/march-2016-report-to-the-congress-medicare-payment-

ⁱⁱ Centers for Medicare and Medicaid Services. Nursing Home Data Compendium, 2015. https://www.cms.gov/Medicare/Provider-Enrollment-and-Certification/CertificationandComplianc/Downloads/nursinghomedatacompendium_508-2015.pdf

ⁱⁱⁱ Henry J Kaiser Family Foundation. Overview of nursing facility capacity, financing, and ownership in the United States. June 2013.

http://kff.org/medicaid/fact-sheet/overview-of-nursing-facility-capacity-financing-and-ownership-in-the-united-states-in-2011/

Design neurology-specific devices to deliver our Electroceutical™ Therapy

We are currently in the process of designing a neurology-specific medical device to deliver our Electroceutical™ Therapy for the treatment of central nervous system disorders. We believe the design and functionality of our CNS- specific devices is a critical component for market penetration and share, as well as patient compliance.

Furthermore, the design of a CNS-specific medical device will allow our Electroceutical Therapy to be more precisely delivered to the brain. Additionally, in most cases, our Electroceutical™ Therapy will be used at home and self-administered by patients. Therefore, the design, fit, and functionality of our CNS-specific devices will be critical to achieve patient compliance, market penetration and adoptions, and ultimately clinically meaningful outcomes.

Design cardiovascular-specific devices to deliver our Electroceutical™ Therapy

Prior to pursuing a larger clinical trial to assess the efficacy of our Electroceutical™ Therapy for the treatment of ischemic cardiomyopathy, we will seek to design a cardiovascular-specific medical device to target the heart. The pilot clinical trial conducted on “no option” ischemic cardiomyopathy patients used an older version of our medical devices, which were secured on patients using a garment. We believe the fit, design and functionality of our medical devices used to deliver our Electroceutical Therapy in cardiovascular disease patients will be a critical component to patient compliance, market penetration and adoption, as well as the achievement of clinically meaningful outcomes.

Pursue a Humanitarian Device Exemption for treating encephalopathy in Lyme disease patients

We are seeking to enter the CNS market via a Humanitarian Device Exemption (HDE), which is regulatory pathway for medical devices addressing rare diseases that occur in no more than 8,000 individual per year in the United States. The HDE pathway is the medical device equivalent of orphan drugs and is similar in both form and content to an FDA Pre-Market Approval (PMA). However, rather than being required to demonstrate safety and efficacy, the HDE pathway allows for medical devices to receive FDA Approval if they can demonstrate that their probable benefit outweighs their probable risk.

We will seek to enter the CNS market via a HDE for the treatment of encephalopathy in Lyme disease patients. Our FDA-Cleared Electroceutical Therapy is currently prescribed by a group of physicians to reduce neuroinflammation. We will seek to gather data from approximately 10 to 15 patients to support a Humanitarian Device Exemption from the FDA to reduce neuroinflammation in Lyme disease patients.

In general, the HDE pathway contains restrictions on profit for medical device manufactures. However, the Food and Drug Administration Amendments Act of 2007 (FDAAA) contained incentives to facilitate development of medical devices for pediatric populations (defined as patients who are younger than 22 years of age). Under section 520(m)(6)(A)(i) of the FD&C Act, an HUD is only eligible to be sold for profit after receiving an HDE approval if the device is intended for the treatment or diagnosis of a disease or condition that either:

The number of HDE devices that may be sold for profit is limited to a quantity known as the Annual Distribution Number (ADN). If the FDA determines that an HDE holder is eligible to sell the device for profit, FDA will determine the ADN and notify the HDE holder. The ADN is calculated by taking the number of devices reasonably necessary to treat or diagnose an individual per year and multiplying it by 8000. For example, if the typical course of treatment using an HDE device, in accordance with its intended use, requires the use of two devices per patient per year, then the ADN for that HDE device would be 16,000 (i.e., 2 x 8000). If the number of devices distributed in a year exceeds the ADN, the sponsor can continue to sell the device but cannot earn a profit for the remainder of the year.

We believe encephalopathy in Lyme disease patients may allow us to sell our medical devices for profit.

Our initial step to pursue this pathway is to file an application to the FDA to designate our medical device as a Humanitarian Use Device (HUD), which is a medical device intended to benefit patients in the treatment or diagnosis of a disease or condition that affects or is manifested in not more than 8,000 individuals in the United States per year. In order to obtain HUD designation, the applicant must provide documentation, with appended authoritative references, to demonstrate that the device meets this definition. In addition to the documentation describing the disease or condition, the applicant must also provide the proposed indications for use of the device, and the reasons why such a device is needed for the patient population. One aspect that has become increasingly difficult is if the HUD is proposed for an indication that represents a subset of a common disease or condition. In these situations, the applicant must demonstrate that the subset is an “orphan subset.” An “orphan subset” is a regulatory phrase used to describe the subset of individuals with a non-rare disease or condition on who use of a device is appropriate, where use of the device on the remaining individuals with that disease or condition would be inappropriate given some intrinsic feature of the device (e.g., adverse event profile or mode of action). An “orphan subset” is not a readily identifiable subset or a group of patients who meet or do not meet the inclusion and exclusion criteria for a clinical study. Likewise, they are not patients with an unmet medical need. If the HUD application is designated, the applicant can then submit the HDE marketing application to the Center for Devices and Radiological Health (CDRH) or Center for Biologics Evaluation and Research (CBER) for marketing review.

The figure below is an estimated regulatory timeline to obtain a Humanitarian Device Exemption for our Electroceutical™ Therapy for the treatment of encephalopathy in Lyme disease patients.

Pursue a “label expansion” strategy in CNS disorders

If we are able to secure a Humanitarian Device Exemption for our Electroceutical™ Therapy from the FDA for the treatment of encephalopathy in Lyme disease patients, we will then pursue a “label expansion” strategy. This would entail entering the CNS market via the HDE pathway for the treatment of encephalopathy in Lyme disease patients and then applying to expand the label for our Electroceutical Therapy for other CNS disorders we are pursuing, including acute concussion, traumatic brain injury, post-concussion syndrome, multiple sclerosis and stoke. This strategy will require that we conduct several clinical trials simultaneously in order to fully benefit from pursuing a HDE pathway and label expansion strategy; such benefits include a potentially shorter and less costly regulatory process for our other CNS indications.

Leverage our first-to-market position to rapidly drive market penetration

There are currently no effective treatments for most CNS disorders and many pharmaceutical companies, such as Pfizer are shifting their resources to other indications outside of CNS disorders. Furthermore, several of our competitors in neurological devices, including implantable vagus nerve stimulators, trigeminal nerve stimulators, Transcutaneous Magnetic Stimulation (TMS), Transcutaneous Direct Current Stimulators (tDCS), suffer from a lack of understanding of their mechanism of action, a lack of industrial design and engineering to increase their market penetration and adoption. These factors may allow us to reach market faster and capture a significant market share. Furthermore, we believe elegant design of CNS-specific devices with market leading fit and functionality may allow us to increase market penetration and adoption in CNS disorders, which represent a substantially unmet clinical need.

Expand our Electroceutical™ Therapy into peripheral artery disease (PAD), non-alcoholic fatty liver disease (NAFLD) and chronic kidney disease (CKD)

We are currently conducting several pre- clinical studies to assess the effectiveness of our Electroceutical Therapy in animal models of critical limb ischemia (CLI), non-alcoholic steatohepatitis (NASH) and renal inflammation.

We recently completed a mouse model of CLI, which found that animals treated three times per day with the our Pulsed Electromagnetic Fields (PEMF) device had significantly higher blood flow (ratio of blood flow of the ischemic limb to blood flow of non-ischemic limb) at day 7 and 14 (57% and 71%, versus 36% and 52%) versus the controls. Furthermore, animals treated with PEMF three times per day had significantly improved foot movement scores and less tissue damage in the ischemic hind limb versus the controls. Critical Limb Ischemia (CLI) is an advanced stage of Peripheral Artery Disease (PAD), a common vascular disease that affects approximately 200 million people worldwide, where fatty deposits block arteries in the legs, leading to pain, non-healing ulcers, and gangrene. Worldwide, approximately 22-30 million people suffer from CLI, according to The Sage Group. Patients with CLI have a high risk of amputation and death, and patients unsuitable for revascularization are left with no adequate treatment options.

Furthermore, we are preparing to evaluate the effectiveness of our Electroceutical™ Therapy in reducing liver inflammation in a mouse model of non-alcoholic steatohepatitis (NASH). The American Liver Foundation estimates that up to 30% of the U.S. population is affected by non-alcoholic fatty liver diseases, including NASH and other obesity related liver ailments. NASH is liver inflammation and cellular damage caused by a buildup of fat in the liver. NASH occurs in people who drink little or no alcohol, especially people who are middle-aged and overweight or obese. Approximately 20% of NASH cases result in scarring of the liver and cirrhosis if untreated, with the most acute cases often requiring liver transplantation. There are no approved therapies for the treatment of NASH and there are few pharmaceutical therapies nearing approval over the next several years.

We are also preparing to evaluate the effectiveness of our Electroceutical™ Therapy in the treatment of renal inflammation in a unilateral ureter obstruction (UUO) animal model. More than 31 million people in the United States are currently living with chronic kidney disease (CKD), according to the American Kidney Fund. Diabetes and high blood pressure are the most common causes of kidney disease. Chronic kidney disease means lasting damage to the kidneys that can get worse over time and in cases where the damage is severe, it can lead to kidney failure, also known as end-stage renal disease. If the kidneys fail the only option for patients is a kidney transplant or dialysis. According to the National Institute of Diabetes and Digestive and Kidney Disease (NIDDK), the five-year survival rate for dialysis patients is only 35.8%, in comparison to a five-year survival rate of 85.5% for transplant patients. However, there are currently 100,791 people waiting for a kidney transplant, according to the National Kidney Foundation. This severe donor kidney shortage means that the median wait time for a patient’s first kidney transplant is 3.6 years. A significant rise in the pool of patients suffering from CKD, particularly the rising number of elderly people prone to a variety of diseases, such as diabetes, cardiovascular disorders and neurological conditions that affect the kidneys severely will grow the demand for CKD treatments.

The market for chronic kidney disease (CKD) drugs is estimated to reach $15.8 billion by 2024, according to Transparency Market Research. Several kidney diseases have a strong inflammatory component and our aim is to demonstrate the anti-inflammatory and anti-fibrotic properties of our Electroceutical™ Therapy. Reversing inflammation in the kidneys that can cause injury, fibrosis and ultimately end-stage renal disease may provide a significant opportunity for our Electroceutical Therapy to achieve high market penetration and adoption as well as produce significantly meaningful clinical outcomes.

Pursue potential licensees or strategic partnerships for chronic kidney disease (CKD)

We believe a significant opportunity for our Electroceutical™ Therapy will be in the adjunctive treatment of chronic kidney disease. Chronic kidney disease is a type of kidney disease in which there is a gradual loss of kidney function over a period of months or years.

Causes of CKD include diabetes, high blood pressure, glomerulonephritis, and polycystic kidney disease. The diagnosis of CKD is generally by blood tests to measure the glomerular filtration rate and urine tests to measure albumin. Further tests, such as an ultrasound or kidney biopsy may be done to determine the underlying cause.

Chronic kidney disease affected about 323 million people globally in 2015^iv. In 2015 it resulted in 1.2 million deaths, up from 409,000 in 1990. The causes that contribute to the greatest number of deaths are high blood pressure at 550,000, followed by diabetes at 418,000, and glomerulonephritis at 238,000.

All individuals with a glomerular filtration rate (GFR) <60 ml/min/1.73 m2 for 3 months are classified as having chronic kidney disease, irrespective of the presence or absence of kidney damage. The rationale for including these individuals is that reduction in kidney function to this level or lower represents loss of half or more of the adult level of normal kidney function, which may be associated with a number of complications such as the development of cardiovascular disease^v.

Protein in the urine is regarded as an independent marker for worsening of kidney function and cardiovascular disease. Hence, British guidelines append the letter “P” to the stage of chronic kidney disease if protein loss is significant^vi.

Inflammation as an essential part of CKD has been recognized since the 1990’s, when it was liked to cardiovascular disease, protein-energy wasting, and mortality^vii,viii. Over the last 15 years there has been a growing interest in inflammation in CKD and end-stage renal disease (ESRD), which led to the change in the perception of inflammation from a novel to a well-established risk factor of morbidity and mortality in CKD.

The inverse correlation between glomerular filtration rate (GFR) and inflammation has now been proven. In the Chronic Renal Insufficiency Cohort (CRIC) study, biomarkers of inflammation (IL-1β, IL- 1 receptor antagonist, IL-6, TNF-α, CRP, and fibrinogen) were inversely associated with the measures of kidney function and positively with albuminuria^ix. Inflammation is present not only in adult, but also in pediatric patients with CKD/ESRD^x. The figure below outlines the causes and consequences of inflammation in chronic kidney disease:

A variety of interventions that have been proposed to target inflammation in CKD can be divided into three broad categories: lifestyle modifications, pharmacological interventions, and optimization of dialysis^xi.

For ESRD patients, two main approaches to decrease inflammatory load related to the dialysis procedure were proposed: elimination of factors triggering inflammation and direct removal of inflammatory mediators^xii.

^iv GBD 2015 Disease and Injury Incidence and Prevalence, Collaborators. (8 October 2016). “Global, regional, and national incidence, prevalence, and years lived with disability for 310 diseases and injuries, 1990-2015: a systematic analysis for the Global Burden of Disease Study 2015”. Lancet. 388 (10053): 1545–1602.

^v National Kidney Foundation (2002). “K/DOQI clinical practice guidelines for chronic kidney disease”

^vi National Institute for Health and Clinical Excellence. Clinical guideline 73: Chronic kidney disease. London, 2008.

^vii Stenvinkel P, Heimburger O, Paultre F, Diczfalusy U, Wang T, Berglund L, Jogestrand T: Strong association between malnutrition, inflammation, and atherosclerosis in chronic renal failure. Kidney Int 1999;55:1899- 1911.

^viii Zimmermann J, Herrlinger S, Pruy A, Metzger T, Wanner C: Inflammation enhances cardiovascular risk and mortality in hemodialysis patients. Kidney Int 1999;55:648-658.

^ix Gupta J, Mitra N, Kanetsky PA, Devaney J, Wing MR, Reilly M, Shah VO, Balakrishnan VS, Guzman NJ, Girndt M, Periera BG, Feldman HI, Kusek JW, Joffe MM, Raj DS: Association between albuminuria, kidney function, and inflammatory biomarker profile in CKD in CRIC. Clin J Am Soc Nephrol 2012;7:1938-1946.

^x Goldstein SL, Leung JC, Silverstein DM: Pro- and anti-inflammatory cytokines in chronic pediatric dialysis patients: effect of aspirin. Clin J Am Soc Nephrol 2006;1:979-986.

^xi Carrero JJ, Yilmaz MI, Lindholm B, Stenvinkel P: Cytokine dysregulation in chronic kidney disease: how can we treat it? Blood Purif 2008;26:291-299.

^xii Santoro A, Mancini E: Is hemodiafiltration the technical solution to chronic inflammation affecting hemodialysis patients? Kidney Int 2014;86:235-237.

We are developing our Electroceutical™ Therapy to target inflammation in CKD and ESRD patients. We believe seeking commercial partnerships with several of the largest providers of dialysis may allow our Electroceutical™ Therapy to achieve high market penetration and adoption. Figure 1 below outlines the 10 largest U.S. dialysis providers in 2017.

We anticipate our Electroceutical™ Therapy will be used as an adjunctive therapy in the treatment of inflammation in CKD and ESRD and may not represent a replacement for hemodialysis in patients. However, we believe our Electroceutical™ Therapy may be used early on as an adjunctive treatment in CKD to potentially prevent or delay the progression of CKD to end-stage renal disease by alleviating inflammation and improving glomerular filtration rate (GFR).

Protect and expand our intellectual property

We will continue to protect and expand our portfolio of intellectual property in the non-invasive electrotherapeutic device sector. Our portfolio of intellectual property includes 27 issued patents with foreign patent protection.

Our issued patents include both apparatus and method claims in the treatment of tissues and organs using electromagnetic fields. Our patents for treating certain CNS disorders, including neurological injuries caused by stoke, neurodegenerative conditions and head, cerebral and neural injury in animals and humans were granted by the United States Patent and Trademark Office in 2016. Furthermore, we currently have several pending patent applications for the treatment of certain CNS disorders.

We also have a U.S. Patent (US 8,415,123) covering an electromagnetic apparatus and method for angiogenesis modulation of living tissues and cells that covers the use of our technology and Electroceutical™ Therapy for promoting angiogenesis in cardiovascular disease, cerebral diseases, cerebrovascular diseases, peripheral vascular disease and chronic soft tissue wounds.

We will seek to expand our portfolio of intellectual property to include newly developed apparatuses and methods for treating liver and kidney diseases.

Intellectual Property:

Rio Grande Neurosciences, Inc. Assets

On December 22, 2017, we exercised an option (the “Option”) to acquire intellectual property and other assets (the “RGN Assets”) from Rio Grande Neurosciences, Inc. (RGN). The Option’s price was $4,500,000 of which we paid $3,000,000 in cash and delivered a $1,500,000 secured promissory note due November 30, 2018 and security agreement. We were granted the Option pursuant to a Settlement Agreement and Mutual Release (the “Settlement”) by and among us, RGN, and RGN’s principal shareholder which ended litigation brought by us related to our previous agreement with RGN. The terms of the settlement included a payment of $150,000 to us by RGN (which has been received) and the grant of the Option. The $3,000,000 Option payment was available due to the sale of $700,000 of a new class of preferred stock, a $1,800,000 secured convertible note from Eagle Equities, LLC, and the application of available company funds. The RGN Assets relate to RGN’s Pulsed Electromagnetic Field Therapy (PEMF) portfolio of intellectual property, including 27 issued patents with foreign patent protection covering the therapeutic use of PEMF as well as the treatment of various central nervous system disorders. We intend to initiate and fund both currently planned and all future clinical trials to evaluate the use of PEMF in the treatment of central nervous system disorders, including traumatic brain injury, post-concussion syndrome, stroke and multiple sclerosis. However, no assurance can be given that we will be successful in these endeavors or that the results of any tests will indicate further development of the RGN Assets.

The PEMF assets acquired under the Option also include a portable, disposable PEMF device with a CE Mark and an FDA 510(k) clearance for the treatment of soft tissue injuries and post-surgical pain and edema in addition to medical reimbursement for the treatment of chronic wounds. Endonovo Therapeutics will begin the commercialization of the PEMF assets through licensing and joint venture agreements and the creation of various sales channels and distribution agreements.

We will continue to seek to strengthen our portfolio of intellectual property by filing additional patents around uses of our core technologies. We will continue to develop applications of our technologies that we may license out to our competitors in the drug/pharmaceutical and life sciences industry. To date, we have filed seven patent applications in the U.S. through the U.S. Patent and Trademark Office (USPTO) and four international patent applications in the E.U., China, South Korea and Japan covering our technology, the production of biomolecules, the creation of an allogeneic mesenchymal stem cell product a treatment for chemical and radiation injuries, production of stem cell secretome and a method of treating tissues and organs using our TVEMF technology. To date, we have been granted one U.S. Patent (U.S. Patent No. 9,410,143) issued on August 9, 2016 covering the production of human biomolecules using our technology.

Our business strategy is aimed at building value by positioning each of our technologies and therapies to treat specific diseases that lack effective treatment or whose current standard of treatment involves invasive procedures and/or potentially harmful side effects. We anticipate updating and refining the business strategy as new medical and/or clinical advancements are made as a result of extensive research and development.

Industry Overview

Regenerative Medicine

The regenerative medicine/tissue engineering industry is a rapidly growing interdisciplinary field involving the life, physical and engineering sciences and seeking to develop clinical therapies for the repair, maintenance, replacement and/or enhancement of biological function. Regenerative medicine has a wide area of applications, such as musculoskeletal diseases, cardiovascular, neurology, orthopedic, and other disorders. The regenerative medicine industry is now regarded as having begun with the advent of cell culture in the very early part of the twentieth century, and continues to advance as technological advancements have been made.

The regenerative medicine industry is driven by several technological advancements in stem cell therapy and tissue engineering therapy. The regenerative medicine market is expected to grow to a value of US$6.5 billion by 2019 from a value of US$2.6 billion in 2012, according to Transparency Market Research.

Neurological Devices

The global neurology devices market size was valued at USD $6.2 billion in 2014, according to Grand View Research. The growing advancement in the field of imaging technologies and the consequent development of neurological endoscopy devices are likely to drive growth over the period from 2012 to 2022. Globally, the neurology devices market is expected to reach a value of USD $10.8 billion by 2022.

Furthermore, a rise in the incidence of cerebral stroke and other severe disorders, such as Alzheimer's disease and Parkinson's disease is expected to fuel demand for neurological devices. According to the National Institute of Neurological Disorders and Stroke (NINDS), approximately 50 million Americans are affected due to these disorders, which present high economic and disease cost burden for medical expenses and a loss of productivity.

Globally, there are approximately 15 million strokes per year according to the World Health Organization (WHO) and of these, 5 million die and another 5 million are permanently disabled.

In 2014, neurostimulation devices, which include our proprietary medical devices, accounted for 50% of the revenue generated in the market. The growing number of chronic CNS disorders, the global aging population and the development of minimally invasive neurological and faster acting stimulation devices that attract higher market usage and penetration will drive growth.

Bioelectronic Medicine

The bioelectronic medicine industry is a rapidly expanding segment that seeks to harness electrical signals in nerves and cells to alter the course of diseases and conditions. These technologies seek to stimulate what is known as the inflammatory reflex, a phenomenon where the nervous system sends signals to tissues and organs to suppress inflammation. It is widely believed that these signals send by the nervous system are electrical impulses.

Currently a significant portion of the bioelectronic medicine market is concentrated on the development of implantable neurostimulators, such as vagus nerve stimulators. The bioelectronic medicine market is being driven by innovations and management expects it to grow significantly as new therapies are brought to market. The global electroceuticals/bioelectric medicine market is expected to reach USD 25.20 billion by 2021 from USD 17.20 billion in 2016, growing at a CAGR of 7.9% from 2016 to 2021, according to Markets and Markets.

Cell Therapy Market

The global stem cell market, which is a segment of the regenerative medicine market is forecast to grow at a compounded annual growth rate (CAGR) of 39.5% from 2015-2020, to reach a value of US$330 million by 2020, according to Markets and Markets. North America is expected to hold the largest share of this market due to extensive government funding and increased fast-track approvals for stem cell therapeutics by the FDA.

Competition

The biotech and regenerative therapy industries are capital intensive and highly competitive and many of our competitors have far greater assets than we have presently and will have even if all of the funding possibly available to us is realized. We will seek to compete by establishing the uniqueness, efficacy and other advantages of our technologies and the therapies based upon it.

The Company anticipates significant competition to maximize the value of regenerative therapies from competitors within the biotechnology sector. These competitors will look to bring to market medical technologies and therapies of their own to compete with the Company.

The Company has progressed on the belief that the major competitors in the biotechnology field are currently developing products that will be ineffective in extending and enhancing the human life by regenerating tissues and organs. The Company's platform using its PEMF technology present potentially safer, more effective and lower costing treatments for various autoimmune, vascular, inflammatory and degenerative diseases.

Whereas, the Company's major competitors seek to bring to market technologies and therapies that are inferior, costlier and do not suit the dire need to treat various vascular, inflammatory, autoimmune and degenerative diseases. The Company has acquired medical technology currently being advanced and reconfigured to treat vascular and inflammatory diseases and continues to pursue and develop other non-invasive, regenerative medicine technologies that can be brought to market in a relatively short amount of time compared to pharmaceutical-based treatments being developed by its competitors. These technologies have the potential to prolong and improve the life of humans around the world.

We believe that our disruptive platforms, our industry relationships and experienced team will allow us to capture significant market share and position the Company to become the industry leader in regenerative medicine.

Employees

We do not have any employees. However, we have retained approximately 15 individuals as independent contractors that are involved in business development and administrative functions.

Item 1A. Risk Factors.

Not applicable because we are a smaller reporting company.

Item 1B. Unresolved Staff Comments.

Not applicable because we are a smaller reporting company.

Item 2. Properties.

Our corporate headquarters is located at Endonovo Therapeutics, Inc., 6320 Canoga Avenue, 15th Floor, Woodland Hills, CA 91367. We have a month-to-month contract with Regus Management Group, LLC in the amount of $119 per month.

Item 3. Legal Proceedings.

From time to time, we may become involved in various lawsuits and legal proceedings, which arise, in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse effect on our business, financial condition or operating results.

Item 4. Mine Safety Disclosures.

Not applicable.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market Information

Our common stock trades on the OTCQB under the symbol “ENDV”. The OTCQB is a quotation service that displays real-time quotes, last-sale prices, and volume information in over-the-counter (“OTC”) equity securities. An OTCQB equity security generally is any equity that is not listed or traded on a national securities exchange. Our stock is thinly traded, and a robust, active trading market may never develop. The market for the Company’s common stock has been limited, volatile, and sporadic.

Price Range of Common Stock

The following table shows, for the periods indicated, the high and low closing prices per share of our common stock as reported by the OTCQB quotation service.

Approximate Number of Equity Security Holders

As of April 2, 2018, there were approximately 350 stockholders of record. Because shares of our common stock are held by depositaries, brokers and other nominees, the number of beneficial holders of our shares is substantially larger than the number of stockholders of record.

Dividends

Holders of our common stock are entitled to receive dividends if, as and when declared by the Board of Directors out of funds legally available therefore. We have never declared or paid any dividends on our common stock. We intend to retain any future earnings for use in the operation and expansion of our business. Consequently, we do not anticipate paying any cash dividends on our common stock to our stockholders for the foreseeable future.

Item 6. Selected Financial Data.

Not applicable because we are a smaller reporting company.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The information and financial data discussed below is derived from the audited financial statements of the Company for its fiscal year ended December 31, 2017. The audited financial statements were prepared and presented in accordance with generally accepted accounting principles in the United States. The information and financial data discussed below is only a summary and should be read in conjunction with the historical financial statements and related notes contained elsewhere in this 10-K. The financial statements contained elsewhere in this 10-K fully represent the Company’s financial condition and operations; however, they are not indicative of the Company’s future performance. Although management believes that the assumptions made and expectations reflected in the forward-looking statements are reasonable, there is no assurance that the underlying assumptions will, in fact, prove to be correct or that actual results will not be different from expectations expressed in this 10-K.

Cautionary Notice Regarding Forward Looking Statements

The information contained in Item 2 contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Actual results may materially differ from those projected in the forward-looking statements as a result of certain risks and uncertainties set forth in this report. Although management believes that the assumptions made and expectations reflected in the forward-looking statements are reasonable, there is no assurance that the underlying assumptions will, in fact, prove to be correct or that actual results will not be different from expectations expressed in this report.

This filing contains a number of forward-looking statements which reflect management’s current views and expectations with respect to our business, strategies, products, future results and events, and financial performance. All statements made in this filing other than statements of historical fact, including statements addressing operating performance, events, or developments which management expects or anticipates will or may occur in the future, including statements related to distributor channels, volume growth, revenues, profitability, new products, adequacy of funds from operations, statements expressing general optimism about future operating results, and non-historical information, are forward looking statements. In particular, the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “may,” variations of such words, and similar expressions identify forward-looking statements, but are not the exclusive means of identifying such statements, and their absence does not mean that the statement is not forward-looking. These forward-looking statements are subject to certain risks and uncertainties, including those discussed below. Our actual results, performance or achievements could differ materially from historical results as well as those expressed in, anticipated, or implied by these forward-looking statements. We do not undertake any obligation to revise these forward-looking statements to reflect any future events or circumstances.

Readers should not place undue reliance on these forward-looking statements, which are based on management’s current expectations and projections about future events, are not guarantees of future performance, are subject to risks, uncertainties and assumptions (including those described below), and apply only as of the date of this filing. Our actual results, performance or achievements could differ materially from the results expressed in, or implied by, these forward-looking statements. Factors which could cause or contribute to such differences include, but are not limited to, the risks discussed in this Annual Report on Form 10K, in press releases and in other communications to shareholders issued by us from time to time which attempt to advise interested parties of the risks and factors which may affect our business. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

Critical Accounting Policies and Estimates

We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the U.S. (U.S. GAAP). In doing so, we have to make estimates and assumptions that affect our reported amounts of assets, liabilities, revenues, and expenses, as well as related disclosure of contingent assets and liabilities. In some cases, we could reasonably have used different accounting policies and estimates. In some cases, changes in the accounting estimates are reasonably likely to occur from period to period. Accordingly, actual results could differ materially from our estimates. To the extent that there are material differences between these estimates and actual results, our financial condition or results of operations will be affected. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. We refer to accounting estimates of this type as critical accounting policies and estimates, which we discuss further below.

Use of estimates

Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. The significant estimates were made for the fair value of common stock issued for services, with notes payable arrangements, in connection with note extension agreements, and as repayment for outstanding debt, in estimating the useful life used for depreciation and amortization of our long-lived assets, in the valuation of the derivative liability, and the valuation of deferred income tax assets. Actual results and outcomes may differ from management’s estimates and assumptions.

Recently Issued Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes existing guidance on accounting for leases in “Leases (Topic 840)” and generally requires all leases to be recognized in the consolidated balance sheet. ASU 2016-02 is effective for annual and interim reporting periods beginning after December 15, 2018; early adoption is permitted. The provisions of ASU 2016-02 are to be applied using a modified retrospective approach. The Company does not expect the adoption of this standard to significantly impact its consolidated financial statements.

In 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”), which provides clarification regarding how certain cash receipts and cash payments are presented and classified in the statement of cash flows and ASU 2016-18, Restricted Cash (“ASU 2016-18”), which requires an entity to show the changes in total cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. ASU 2016-15 and ASU 2016-18 are effective for us beginning January 1, 2018 and was applied by us using a retrospective transition method. Adoption of these standards did not have an impact on our Consolidated Financial Statements.

In 2016, the FASB issued ASU 2016-16, Intra-Entity Transfers of Assets Other Than Inventory (“ASU 2016-16”), which requires a company to recognize the tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. ASU 2016-16 is effective for us beginning January 1, 2018 and was applied by us using a modified retrospective method. Adoption of this standard did not have an impact on our Consolidated Financial Statements.

On January 1, 2017, we adopted ASU 2016-09, Compensation - Stock Compensation (“ASU 2016-09”) which simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for forfeitures and statutory tax withholding requirements, as well as classification in the statement of cash flows. Adoption of ASU 2016-09 did not have a significant impact on our Consolidated Financial Statements.

In January 2017, the FASB issued ASU 2017-01, Business Combinations (“ASU 2017-01") which provided new guidance clarifying the definition of a business for determining whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The new standard is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017 with early adoption permitted for transactions that occurred before the issuance date or effective date of the standard if the transactions were not reported in financial statements that have been issued or made available for issuance. Upon early adoption, the standard did not impact how we assess acquisitions (or disposals) of assets or businesses.

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350) that simplifies the test for goodwill impairment by eliminating step two from the goodwill impairment test. Under the new guidance, an entity should recognize an impairment charge for the amount based on the excess of a reporting unit’s carrying amount over its fair value. The impairment charge will be limited to the amount of goodwill allocated to that reporting unit. For public companies, the guidance is effective for annual and interim impairment tests performed in periods beginning after December 15, 2019 on a prospective basis, and earlier adoption is permitted for goodwill impairment tests performed on testing dates after January 1, 2017. We early adopted this guidance during the three months ended March 2017, and the adoption did not impact our financial statements.

Results of Operations

Results of Operations Year Ended December 31, 2017 vs. Year Ended December 31, 2016

Operating Expenses

Our operating expenses for 2017 were $4,603,886 compared to $5,410,923 for 2016. The operating expenses were comprised primarily of consulting and professional fees for the development of our intellectual property, research and development and expenses related to being a public company. $1,414,822 of the operating expenses represents stock-based compensation (stocks and warrants issued for services). The primary reasons for the decrease in operating expenses was a reduction in consulting and professional fees of approximately $990,000 offset by an increase in research and development expenses of approximately $115,000.

Depreciation

We incur depreciation expense for costs related to our assets, including our information technology and software. Our depreciation was $14,761 in 2017 from $15,833 in 2016. There were no significant equipment purchases or sales during 2017.

Other Income (Expense)

Our Other Income (Expense) was expense of $6,206,274 in 2017 compared to income of $95,251 in 2016. The income in 2017 and the expense in 2016 was primarily the result of changes in our financings and re-valuations to reflect liability accounting for convertible debt issued with variable conversion rates.

Liquidity and Capital Resources

Since inception and through December 31, 2017, the Company has raised approximately $9.9 million in equity and debt transactions. These funds have been used to advance the operations of the Company, build its bio-medical platform, patent work & general corporate development. Our accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business for the twelve-month period following the date of these consolidated financial statements. However, the Company has incurred substantial losses. Our current liabilities exceed our current assets and available cash is not sufficient to fund the expected future operation. The Company is raising additional capital through debt and equity securities in order to continue the funding of its operations. However, there is no assurance that the Company can raise enough funds or generate sufficient revenues to pay its obligations as they become due, which raises substantial doubt about our ability to continue as a going concern. To reduce the risk of not being able to continue as a going concern, management is commercializing its FDA cleared and CE marked products and has implemented its business plan to materialize revenues from potential, future, license agreements, has initiated a private placement offering to raise capital through the sale of its common stock and is seeking out profitable companies. Although, uncertainty exists as to whether the Company will be able generate enough cash from operations to fund the Company’s working capital needs or raise sufficient capital to meet the Company’s obligations as they become due, no adjustments have been made to the carrying value of assets or liabilities as a result of this uncertainty. Our cash on hand at December 31, 2017 was $90,173. This will not be sufficient to fund operations if additional capital is not raised. The Company raised an aggregate of $823,000 through the sale of equity and debt securities since December 31, 2017 through the date of this report.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K, obligations under any guarantee contracts or contingent obligations. We also have no other commitments, other than the costs of being a public company that will increase our operating costs or cash requirements in the future.

Seasonality

Management does not believe that our current business segment is seasonal to any material extent.

Securities Authorized for Issuance under Equity Compensation Plans

We do not have in effect any compensation plans under which our equity securities are authorized for issuance.

Unregistered Sales of Equity Securities

During the quarter ended December 31, 2017, we issued the following unregistered equity securities:

The above issuances of were exempt from registration pursuant to Section 4(2), and/or Regulation D promulgated under the Securities Act. These securities qualified for exemption under Section 4(2) of the Securities Act since the issuance securities by us did not involve a public offering. The offering was not a “public offering” as defined in Section 4(2) due to the insubstantial number of persons involved in the deal, size of the offering, manner of the offering and number of securities offered. We did not undertake an offering in which we sold a high number of securities to a high number of investors. In addition, these stockholders had the necessary investment intent as required by Section 4(2) since they agreed to and received share certificates bearing a legend stating that such securities are restricted pursuant to Rule 144 of the Securities Act. This restriction ensures that these securities would not be immediately redistributed into the market and therefore not be part of a “public offering.” Based on an analysis of the above factors, we have met the requirements to qualify for exemption under Section 4(2) of the Securities Act for this transaction.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

We are a Smaller Reporting Company and are not required to provide the information under this item.

Item 8. Financial Statements and Supplementary Data.

EDONOVO THERAPEUTICS, INC.

AND SUBSIDIARIES

INDEX TO FINANCIAL STATEMENTS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

Endonovo Therapeutics, Inc. and Subsidiaries

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Endonovo Therapeutics, Inc. and Subsidiaries (the Company) as of December 31, 2017 and 2016, and the related statements of operations, stockholders’ deficit, and cash flows for each of the years in the two-year period ended December 31, 2017, and the related notes to the consolidated financial statements (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.

Explanatory Paragraph – Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has continued to incur significant operating losses and negative cash flows from operations, during the year ended December 31, 2017 and has negative working capital at December 31, 2017. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Rose, Snyder & Jacobs LLP

We have served as the Company’s auditor since 2008.

Encino, California

April 6, 2018

Endonovo Therapeutics, Inc. and Subsidiaries

Consolidated Balance Sheets

As of December 31,

See accompanying summary of accounting polices and notes to consolidated financial statements.

Endonovo Therapeutics, Inc. and Subsidiaries

Consolidated Statements of Operations

For the Years Ended December 31,

See accompanying summary of accounting polices and notes to consolidated financial statements.

Endonovo Therapeutics, Inc. and Subsidiaries

Consolidated Statement of Stockholders Deficit

For the Years Ended December 31, 2017 and 2016

See accompanying summary of accounting polices and notes to consolidated financial statements.

Endonovo Therapeutics, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

For the Years Ended December 31,

See accompanying summary of accounting polices and notes to consolidated financial statements.

Endonovo Therapeutics, Inc. and Subsidiary

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2017 and 2016

Note 1 - Nature of Business and Summary of Significant Accounting Policies

Endonovo Therapeutics, Inc. and Subsidiaries (the “Company” or “ETI”) is primarily focused in the business of biomedical research and development, particularly in regenerative medicine, which has included the development of the proprietary non-invasive electrocuetical device and intellectual property licensing and commercialization.

On January 22, 2014 Hanover Portfolio Acquisitions, Inc. (the “Company”) received written consents in lieu of a meeting of stockholders from holders of a majority of the shares of Common Stock representing in excess of 50% of the total issued and outstanding voting power of the Company approving an amendment to the Company’s Certificate of Incorporation to change the name of the Company from “Hanover Portfolio Acquisitions, Inc.” to “Endonovo Therapeutics, Inc.” The name change was affected pursuant to a Certificate of Amendment (the “Certificate of Amendment”), filed with the Secretary of State of Delaware on January 24, 2014.

Basis of Presentation and Principles of Consolidation

The consolidated financial statements of the Company include the accounts of ETI, IP Resources International, Inc., Aviva Companies Corporation, and WeHealAnimals, Inc. All significant intercompany accounts and transactions are eliminated in consolidation.

Going Concern

These accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business for a period following the date of these consolidated financial statements. The Company has recurring net losses, negative cash flows from operations and working capital deficits. The Company has raised approximately $4.4 million in debt and equity financing for the year ended December 31, 2017. The Company is raising additional capital through debt and equity securities in order to continue the funding of its operations. However, there is no assurance that the Company can raise enough funds or generate sufficient revenues to pay its obligations as they become due, which raises substantial doubt about our ability to continue as a going concern. No adjustments have been made to the carrying value of assets or liabilities as a result of this uncertainty. To reduce the risk of not being able to continue as a going concern, management is commercializing its FDA cleared and CE marked products and has implemented its business plan to materialize revenues from potential, future, license agreements, has initiated a private placement offering to raise capital through the sale of its common stock and is seeking out profitable companies.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Critical estimates include the value of shares issued for services, in connection with notes payable agreements, in connection with note extension agreements, and as repayment for outstanding debt, the useful lives of property and equipment, the valuation of the derivative liability, and the valuation of deferred income tax assets. Management uses its historical records and knowledge of its business in making these estimates. Actual results could differ from these estimates.

Cash and cash equivalents

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Financial instruments that potentially subject us to a concentration of credit risk consist of cash and cash equivalents. Cash is deposited with what we believe are highly credited, quality institutions. The deposited cash may exceed Federal Deposit Insurance Corporation (“FDIC”) insured limits. At December 31, 2017, cash and cash equivalents did not exceed FDIC limits.

Endonovo Therapeutics, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

Property, plant and equipment

Property, plant and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which range between five and seven years. Repairs and maintenance are charged to expense as incurred while improvements are capitalized. Upon the sale, retirement or disposal of fixed assets, the accounts are relieved of the cost and the related accumulated depreciation with any gain or loss recorded to the consolidated statements of operations.

Impairment of Long-lived Assets

The Company reviews its long-lived assets for impairment whenever events or changes in business circumstances indicate that the carrying amount of assets may not be fully recoverable or that the useful lives of these assets are no longer appropriate. Each impairment test is based on a comparison of the undiscounted future cash flows generated from the asset group to the recorded value of the asset group. If impairment is indicated, the asset is written down to its estimated fair value.

Stock-Based Compensation

The Company measures stock-based compensation cost at the grant date based on the fair value of the award and recognizes it as expense, net of estimated forfeitures, over the vesting or service period, as applicable, of the stock award using the straight-line method. When our common stock is thinly traded, we have made estimates of the fair value of the common stock based not only on market prices but other factors such as financial condition and results of operations.

The Company measured stock-based compensation using the Black-Scholes option valuation model using the following assumptions:

Income Taxes

The Company records a tax provision for the anticipated tax consequences of its reported results of operations. The provision for income taxes is computed using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating losses and income tax credit carryforwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which those tax assets are expected to be realized or settled. The Company records a valuation allowance to reduce deferred tax assets to the amount that is more likely than not to be realized.

The Company has adopted ASC Topic 740, which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. ASC Topic 740 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and also provides guidance on derecognition of tax benefits, classification on the balance sheet, interest and penalties, accounting in interim periods, disclosure and transition. The Company has determined that the adoption did not result in the recognition of any liability for unrecognized tax benefits and that there are no unrecognized tax benefits that would, if recognized, affect the Company’s effective tax rate.

Endonovo Therapeutics, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

Net Income (Loss) per Share

Basic net income (loss) per share is calculated based on the net income (loss) attributable to common shareholders divided by the weighted average number of shares outstanding for the period excluding any dilutive effects of options, warrants, unvested share awards and convertible securities. Diluted net income (loss) per common share assumes the conversion of all dilutive securities using the if-converted method and assumes the exercise or vesting of other dilutive securities, such as options, common shares issuable under convertible debt, warrants and restricted stock using the treasury stock method when dilutive.

Research and Development

Costs relating to the development of new products are expensed as research and development as incurred in accordance with FASB Accounting Standards Codification (“ASC”) 730-10, Research and Development. Research and development costs amounted to $115,159 and $0 for the years ended December 31, 2017 and 2016, respectively, and are included in operating expenses in the consolidated statements of operations.

Fair Value of Financial Instruments

Accounting guidance on fair value measurements and disclosures defines fair value, establishes a framework for measuring the fair value of assets and liabilities using a hierarchy system, and defines required disclosures. It clarifies that fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the reporting entity transacts business.

The Company’s balance sheet contains derivative liability that is recorded at fair value on a recurring basis. The three-level valuation hierarchy for disclosure of fair value is as follows:

Level 1: uses quoted market prices in active markets for identical assets or liabilities.

Level 2: uses observable market-based inputs or unobservable inputs that are corroborated by market data.

Level 3: uses unobservable inputs that are not corroborated by market data.

The fair value of the Company’s recorded derivative liability is determined based on unobservable inputs that are not corroborated by market data, which require a Level 3 classification. A Black-Sholes option valuation model was used to determine the fair value. The Company records derivative liability on the condensed consolidated balance sheets at fair value with changes in fair value recorded in the condensed consolidated statements of operation.

Endonovo Therapeutics, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

The following table presents changes in the liabilities with significant unobservable inputs (Level 3) for the years ended December 31, 2017 and 2016: