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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
|
|
FOR THE QUARTERLY PERIOD ENDED
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
|
|
COMMISSION FILE NUMBER
(Exact name of registrant as specified in its charter) |
(State of incorporation) | (I.R.S. Employer Identification No.) |
(Address of principal executive office) (Zip code)
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
| Trading Symbol(s) |
| Name of each exchange on which registered |
|
|
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, 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 August 15, 2022, there were
TABLE OF CONTENTS
| 2 |
| Table of Contents |
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ENDRA Life Sciences Inc.
Condensed Consolidated Balance Sheets
|
| June 30, |
|
| December 31, |
| ||
Assets |
| 2022 |
|
| 2021 |
| ||
Current Assets |
| (Unaudited) |
|
|
|
| ||
Cash |
| $ |
|
| $ |
| ||
Prepaid expenses |
|
|
|
|
|
| ||
Inventory |
|
|
|
|
|
| ||
Total Current Assets |
|
|
|
|
|
| ||
Non-Current Assets |
|
|
|
|
|
|
|
|
Fixed assets, net |
|
|
|
|
|
| ||
Right of use assets |
|
|
|
|
|
| ||
Other assets |
|
|
|
|
|
| ||
Total Assets |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity |
|
|
|
|
|
|
|
|
Current Liabilities |
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
| $ |
|
| $ |
| ||
Lease liabilities, current portion |
|
|
|
|
|
| ||
Total Current Liabilities |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Long Term Debt |
|
|
|
|
|
|
|
|
Loans |
|
|
|
|
|
| ||
Lease liabilities |
|
| 444,168 |
|
|
| 518,147 |
|
Total Long Term Debt |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Total Liabilities |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Stockholders’ Equity |
|
|
|
|
|
|
|
|
Series A Convertible Preferred Stock, $ |
|
|
|
|
|
| ||
Series B Convertible Preferred Stock, $ |
|
|
|
|
|
| ||
Common stock, $ |
|
|
|
|
|
| ||
Additional paid in capital |
|
|
|
|
|
| ||
Stock payable |
|
|
|
|
|
| ||
Accumulated deficit |
|
| ( | ) |
|
| ( | ) |
Total Stockholders’ Equity |
|
|
|
|
|
| ||
Total Liabilities and Stockholders’ Equity |
| $ |
|
| $ |
| ||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 3 |
| Table of Contents |
ENDRA Life Sciences Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
|
| Three Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
|
| Six Months Ended |
| ||||
|
| June 30, |
|
| June 30, |
|
| June 30, |
|
| June 30, |
| ||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Operating Expenses |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Research and development |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Sales and marketing |
|
|
|
|
|
|
|
|
|
|
|
| ||||
General and administrative |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total operating expenses |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on extinguishment of debt |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Other income (expense) |
|
| ( | ) |
|
|
|
|
| ( | ) |
|
| ( | ) | |
Total other expenses |
|
| ( | ) |
|
|
|
|
| ( | ) |
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations before income taxes |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deemed dividend |
|
|
|
|
|
|
|
|
|
|
| ( | ) | |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss attributable to common stockholders |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share – basic and diluted |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares – basic and diluted |
|
|
|
|
|
|
|
|
|
|
|
| ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 4 |
| Table of Contents |
ENDRA Life Sciences Inc.
Condensed Consolidated Statements Changes in Stockholders’ Equity
(Unaudited)
Three Months Ended June 30, 2021 |
| Series A Convertible |
|
| Series B Convertible |
|
|
|
|
|
|
|
| Additional |
|
|
|
|
|
|
|
| Total |
| ||||||||||||||||
|
| Preferred Stock |
|
| Preferred Stock |
|
| Common Stock |
|
| Paid in |
|
| Stock |
|
| Accumulated |
|
| Stockholders' |
| |||||||||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Payable |
|
| Deficit |
|
| Equity |
| ||||||||||
Balance as of March 31, 2021 |
|
|
|
| $ |
|
|
| - |
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
|
|
|
|
| ( | ) |
|
|
| ||||||||
Common stock issued for warrant exercise |
|
| - |
|
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
| ||||||
Common stock issued for option exercise |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
| |||||||
Fair value of vested stock options |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Stock payable towards preference dividend |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
| ||||||
Stock payable for services |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
| |||||||
Net loss |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) | |||||
Balance as of June 30, 2021 |
|
|
|
| $ |
|
|
| - |
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
| ||||||||
Three Months Ended June 30, 2022 |
| Series A Convertible |
|
| Series B Convertible |
|
|
|
|
|
|
|
| Additional |
|
|
|
|
|
|
|
| Total |
| ||||||||||||||||
|
| Preferred Stock |
|
| Preferred Stock |
|
| Common Stock |
|
| Paid in |
|
| Stock |
|
| Accumulated |
|
| Stockholders' |
| |||||||||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Payable |
|
| Deficit |
|
| Equity |
| ||||||||||
Balance as of March 31, 2022 |
|
|
|
| $ |
|
|
| - |
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
|
|
|
|
| ( | ) |
|
|
| ||||||||
Common stock issued for cash, net of funding costs |
|
| - |
|
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Fair value of vested stock options |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Stock payable towards preference dividend |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
| ||||||
Net loss |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) | |||||
Balance as of June 30, 2022 |
|
|
|
| $ |
|
|
| - |
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Six Months Ended June 30, 2021 |
| Series A Convertible |
|
| Series B Convertible |
|
|
|
|
|
|
|
| Additional |
|
|
|
|
|
|
|
| Total |
| ||||||||||||||||
|
| Preferred Stock |
|
| Preferred Stock |
|
| Common stock |
|
| Paid in |
|
| Stock |
|
| Accumulated |
|
| Stockholders' |
| |||||||||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Payable |
|
| Deficit |
|
| Equity |
| ||||||||||
Balance as of December 31, 2020 |
|
|
|
| $ |
|
|
| - |
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
|
|
|
|
| ( | ) |
|
|
| ||||||||
Series A Convertible Preferred Stock converted to common stock |
|
| ( | ) |
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
| ||||||
Common stock issued for cash, net of funding costs |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Common stock issued for warrant exercise |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Common stock issued for option exercise |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
| |||||||
Fair value of vested stock options |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Stock payable towards preference dividend |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
| ||||||
Common stock issued for services |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Stock payable towards RSU's |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Deemed dividend |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
| ||||||
Net loss |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) | |||||
Balance as of June 30, 2021 |
|
|
|
| $ |
|
|
| - |
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Six Months Ended June 30, 2022 |
| Series A Convertible |
|
| Series B Convertible |
|
|
|
|
|
|
|
| Additional |
|
|
|
|
|
|
|
| Total |
| ||||||||||||||||
|
| Preferred Stock |
|
| Preferred Stock |
|
| Common stock |
|
| Paid in |
|
| Stock |
|
| Accumulated |
|
| Stockholders' |
| |||||||||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Payable |
|
| Deficit |
|
| Equity |
| ||||||||||
Balance as of December 31, 2021 |
|
|
|
| $ |
|
|
| - |
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
|
|
|
|
| ( | ) |
|
|
| ||||||||
Common stock issued for cash, net of funding costs |
|
| - |
|
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Fair value of vested stock options |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Stock payable towards preference dividend |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
| (8,049 | ) |
|
|
|
|
|
| ||||||
Net loss |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) | |||||
Balance as of June 30, 2022 |
|
|
|
| $ |
|
|
| - |
|
| $ |
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|
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
| ||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 5 |
| Table of Contents |
ENDRA Life Sciences Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
|
| Six Months Ended |
|
| Six Months Ended |
| ||
|
| June 30, |
|
| June 30, |
| ||
|
| 2022 |
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| 2021 |
| ||
Cash Flows from Operating Activities |
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Net loss |
| $ | ( | ) |
| $ | ( | ) |
Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation and amortization |
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Stock compensation expense including common stock issued for RSUs |
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Stock payable for investor relations |
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Amortization of right of use assets |
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Gain on extinguishment of debt |
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| ( | ) | |
Changes in operating assets and liabilities: |
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|
Decrease in prepaid expenses |
|
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| ( | ) | |
Increase in inventory |
|
| ( | ) |
|
| ( | ) |
Decrease in accounts payable and accrued liabilities |
|
| ( | ) |
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|
| |
Decrease in lease liability |
|
| ( | ) |
|
| ( | ) |
Net cash used in operating activities |
|
| ( | ) |
|
| ( | ) |
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|
Cash Flows from Investing Activities |
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|
Purchases of fixed assets |
|
| ( | ) |
|
| ( | ) |
Net cash used in investing activities |
|
| ( | ) |
|
| ( | ) |
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Cash Flows from Financing Activities |
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Proceeds from warrant exercise |
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Proceeds from issuance of common stock |
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Net cash provided by financing activities |
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Net increase in cash |
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Cash, beginning of period |
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Cash, end of period |
| $ |
|
| $ |
| ||
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|
Supplemental disclosures of cash items |
|
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|
Interest paid |
| $ |
|
| $ |
| ||
Income tax paid |
| $ |
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| $ |
| ||
|
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|
Supplemental disclosures of non-cash items |
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|
Deemed dividend |
| $ |
|
| $ |
| ||
Conversion of Series A Convertible Preferred Stock |
| $ |
|
| $ | ( | ) | |
Stock dividend payable |
| $ |
|
| $ | ( | ) | |
Right of use asset |
| $ |
|
| $ |
| ||
Lease liability |
| $ |
|
| $ |
| ||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 6 |
| Table of Contents |
ENDRA Life Sciences Inc.
Notes to Condensed Consolidated Financial Statements
For the Three and Six Months ended June 30, 2022 and 2021
(Unaudited)
Note 1 - Nature of the Business
ENDRA Life Sciences Inc. (“ENDRA” or the “Company”) has developed and is continuing to develop technology for increasing the capabilities of clinical diagnostic ultrasound to broaden patient access to the safe diagnosis and treatment of a number of significant medical conditions in circumstances where expensive X-ray computed tomography (“CT”) and magnetic resonance imaging (“MRI”) technology is unavailable or impractical.
ENDRA was incorporated on July 18, 2007 as a Delaware corporation.
Note 2 - Summary of Significant Accounting Policies
Use of Estimates
The preparation of the financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.
Management makes estimates that affect certain accounts including deferred income tax assets, accrued expenses, fair value of equity instruments and reserves for any other commitments or contingencies. Any adjustments applied to estimates are recognized in the period in which such adjustments are determined.
The COVID-19 pandemic has prompted governments and regulatory bodies throughout the world to issue “stay-at-home” or similar orders, and enact restrictions on the performance of “non-essential” services, public gatherings and travel.
The extent to which COVID-19 impacts the Company’s business and financial results will depend on numerous evolving factors including, but not limited to: the magnitude and duration of COVID-19, the extent to which it continues impact worldwide macroeconomic conditions, the emergence of variants of the virus and effectiveness of vaccines, access to capital markets, and governmental and business reactions to the pandemic. The Company assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to the Company and the unknown future impacts of COVID-19 as of June 30, 2022 and through the date of the filing of this Quarterly Report on Form 10-Q. The accounting matters assessed included, but were not limited to, estimates related to the accounting for potential liabilities and accrued expenses, the assumptions utilized in valuing stock-based compensation issued for services, the realization of deferred tax assets, and assessments of impairment related to long-lived assets. The Company’s future assessment of the magnitude and duration of COVID-19, as well as other factors, could result in additional material impacts to the Company’s consolidated financial statements in future reporting periods.
Despite the Company’s efforts, the ultimate impact of COVID-19 on the Company’s business depends on factors beyond the Company’s knowledge or control, including the duration and severity of the outbreak, as well as third-party actions taken to contain its spread and mitigate its public health effects. As a result, the Company is unable to estimate the extent to which COVID-19 will negatively impact its financial results or liquidity.
Principles of Consolidation
The Company’s consolidated financial statements include all accounts of the Company and its consolidated subsidiaries and/or entities as of reporting period ending date(s) and for the reporting period(s) then ended. All inter-company balances and transactions have been eliminated.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements and related notes have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulations. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six months ended June 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. The balance sheet at December 31, 2021 has been derived from the audited financial statements at that date. For further information, refer to the financial statements and footnotes thereto included in ENDRA Life Sciences Inc. annual financial statements for the twelve months ended December 31, 2021 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 30, 2022.
| 7 |
| Table of Contents |
Cash and Cash Equivalents
The Company considers all cash on hand and in banks, including accounts in book overdraft positions, certificates of deposit and other highly-liquid investments with maturities of one year or less, when purchased, to be cash. As of June 30, 2022 and December 31, 2021, the Company had no cash equivalents. The Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts and periodically evaluates the credit worthiness of the financial institutions and has determined the credit exposure to be negligible.
Inventory
The Company’s inventory is stated at the lower of cost or estimated net realizable value, with cost primarily determined on a weighted-average cost basis on the first-in, first-out method. The Company periodically determines whether a reserve should be taken for devaluation or obsolescence of inventory.
Capitalization of Fixed Assets
The Company capitalizes expenditures related to property and equipment, subject to a minimum rule, that have a useful life greater than one year for: (1) assets purchased; (2) existing assets that are replaced, improved or the useful lives have been extended; or (3) all land, regardless of cost. Acquisitions of new assets, additions, replacements and improvements (other than land) costing less than the minimum rule in addition to maintenance and repair costs, including any planned major maintenance activities, are expensed as incurred.
Leases
Accounting Standards Update (“ASU”) No. 2016-02 requires a lessee to record a right of use asset and a corresponding lease liability on the balance sheet for all leases with terms longer than 12 months. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest period presented in the financial statements. At June 30, 2022 and December 31, 2021 the Company recorded a right of use asset of $
Revenue Recognition
ASU No. 2014-09, “Revenue from Contracts with Customers” (“ASC Topic 606”) provides a single set of guidelines for revenue recognition to be used across all industries and requires additional disclosures. The updated guidance introduces a five-step model to achieve its core principal of the entity recognizing revenue to depict the transfer of goods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
Under ASC Topic 606, in order to recognize revenue, the Company is required to identify an approved contract with commitments to perform respective obligations, identify rights of each party in the transaction regarding goods to be transferred, identify the payment terms for the goods transferred, verify that the contract has commercial substance and verify that collection of substantially all consideration is probable. The adoption of ASC Topic 606 did not have an impact on the Company’s operations or cash flows.
Research and Development Costs
The Company follows FASB Accounting Standards Codification (“ASC”) Subtopic 730-10, “Research and Development”. Research and development costs are charged to the statement of operations as incurred. During the three months ended June 30, 2022 and 2021, the Company incurred $
Net Earnings (Loss) Per Common Share
The Company computes earnings per share under ASC Subtopic 260-10, “Earnings Per Share”. Basic earnings (loss) per share is computed by dividing the net income (loss) attributable to the common stockholders (the numerator) by the weighted average number of shares of common stock outstanding (the denominator) during the reporting periods. Diluted loss per share is computed by increasing the denominator by the weighted average number of additional shares that could have been outstanding from securities convertible into common stock (using the “treasury stock” method), unless their effect on net loss per share is anti-dilutive. There were
| 8 |
| Table of Contents |
The potential shares, which are excluded from the determination of basic and diluted net loss per share as their effect is anti-dilutive, are as follows:
|
| June 30, 2022 |
|
| December 31, 2021 |
| ||
Options to purchase common stock |
|
|
|
|
|
| ||
Warrants to purchase common stock |
|
|
|
|
|
| ||
Shares issuable upon conversion of Series A Convertible Preferred Stock |
|
|
|
|
|
| ||
Potential equivalent shares excluded |
|
|
|
|
|
| ||
Fair Value Measurements
Disclosures about fair value of financial instruments require disclosure of the fair value information, whether or not recognized in the balance sheet, where it is practicable to estimate that value.
In accordance with ASC Topic 820, “Fair Value Measurements and Disclosures,” the Company measures certain financial instruments at fair value on a recurring basis. ASC Topic 820 defines fair value, established a framework for measuring fair value in accordance with accounting principles generally accepted in the United States, and expands disclosures about fair value measurements.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 established a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). These tiers include:
| ● | Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets; |
| ● | Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and |
| ● | Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. |
Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable.
The carrying amounts of the Company’s financial assets and liabilities, including cash, accounts receivable, prepaid expenses, accounts payable, accrued expenses, and other current liabilities, approximate their fair values because of the short maturity of these instruments. The fair value of notes payable and convertible notes approximates their fair values since the current interest rates and terms on these obligations are the same as prevailing market rates.
Share-based Compensation
The Company’s 2016 Omnibus Incentive Plan (the “Omnibus Plan”) permits the grant of stock options and other share-based awards to its employees, consultants and non-employee members of the board of directors. Each January 1 the pool of shares available for issuance under the Omnibus Plan automatically increases by an amount equal to the lesser of (i) the number of shares necessary such that the aggregate number of shares available under the Omnibus Plan equals 25% of the number of fully-diluted outstanding shares on the increase date (assuming the conversion of all outstanding shares of preferred stock and other outstanding convertible securities and exercise of all outstanding options and warrants to purchase shares) and (ii) if the board of directors takes action to set a lower amount, the amount determined by the board. On January 1, 2022, the pool of shares authorized for issuance under the Omnibus Plan automatically increased by
The Company records share-based compensation in accordance with the provisions of the Share-based Compensation Topic of the FASB Codification. The guidance requires the use of option-pricing models that require the input of highly subjective assumptions, including the option’s expected life and the price volatility of the underlying stock. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option valuation model, and the resulting charge is expensed using the straight-line attribution method over the vesting period.
Stock compensation expense recognized during the period is based on the value of share-based awards that were expected to vest during the period adjusted for estimated forfeitures. The estimated fair value of grants of stock options and warrants to non-employees of the Company is charged to expense, if applicable, in the financial statements. These options vest in the same manner as the employee options granted under the stock incentive plan as described above.
| 9 |
| Table of Contents |
Going Concern
The Company’s financial statements are prepared using accounting principles generally accepted in the United States (“U.S. 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 limited commercial experience and had a cumulative net loss from inception to June 30, 2022 of $
Recent Accounting Pronouncements
The Company considered recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the SEC, did not or in management’s opinion will not have a material impact on the Company’s present or future consolidated financial statements.
Note 3 - Inventory
As of June 30, 2022 and December 31, 2021, inventory consisted of raw materials, subassemblies to be used in the assembly of TAEUS systems, and finished goods. As of June 30, 2022, the Company had no orders pending for the sale of a TAEUS system.
As of June 30, 2022 and December 31, 2021, the Company had inventory valued at $
Note 4 - Fixed Assets
As of June 30, 2022 and December 31, 2021, fixed assets consisted of the following:
|
| June 30, 2022 |
|
| December 31, 2021 |
| ||
Property, leasehold and capitalized software |
| $ |
|
| $ |
| ||
TAEUS development and testing |
|
|
|
|
|
| ||
Accumulated depreciation |
|
| ( | ) |
|
| ( | ) |
Fixed assets, net |
| $ |
|
| $ |
| ||
Depreciation expense for the three months ended June 30, 2022 and 2021 was $
Depreciation expense for the six months ended June 30, 2022 and 2021 was $
Note 5 - Accounts Payable and Accrued Liabilities
As of June 30, 2022 and December 31, 2021, current liabilities consisted of the following:
|
| June 30, 2022 |
|
| December 31, 2021 |
| ||
Accounts payable |
| $ |
|
| $ |
| ||
Accrued payroll |
|
|
|
|
|
| ||
Accrued bonuses |
|
|
|
|
|
| ||
Accrued employee benefits |
|
|
|
|
|
| ||
Insurance premium financing |
|
|
|
|
|
| ||
Total |
| $ |
|
| $ |
| ||
| 10 |
| Table of Contents |
Note 6 - Bank Loans
U.S. SBA Paycheck Protection Program
In April 2020, the Company issued a U.S. Small Business Administration (“SBA”) Paycheck Protection Program Note (the “SBA Note”) to First Republic Bank (the “Lender”) for a loan in the principal amount of $308,600 (the “SBA Loan”) under the Paycheck Protection Program (“PPP”) promulgated under the Coronavirus Aid, Relief and Economic Security Act of 2020, as modified by the Paycheck Protection Program Flexibility Act of 2020.
On May 10, 2021 received notice that the SBA Loan had been forgiven in full in accordance with the terms and provisions of the PPP.
The Company did not provide any collateral or personal guarantees for the SBA Loan, nor did the Company pay any facility charge to the government or to the Lender.
Toronto-Dominion Bank Loan
On April 27, 2020, the Company entered into a commitment loan with TD Bank under the Canadian Emergency Business Account, in the principal aggregate amount of CAD
Note 7 - Capital Stock
At June 30, 2022, the authorized capital of the Company consisted of
As of June 30, 2022, there were
During the six months ended June 30, 2022, the Company issued a total of
During the six months ended June 30, 2021, the Company issued a total of
| ● | |
| ● | 3,914,217 shares in return for aggregate net proceeds of $9,798,293 from sales of common stock; |
| ● | |
| ● | |
| ● | |
| ● |
At-the-Market Equity Offering Program
On June 21, 2021, the Company entered into the At-The-Market Issuance Sales Agreement with Ascendiant (the “June 2021 ATM Agreement”) to sell shares of common stock for aggregate gross proceeds of up to $
| 11 |
| Table of Contents |
Note 8 - Common Stock Options
Common Stock Options
Stock options are awarded to the Company’s employees, consultants and non-employee members of the board of directors under the 2016 Omnibus Incentive Plan (the “Omnibus Plan”) and are generally granted with an exercise price equal to the market price of the Company’s common stock at the date of grant. The aggregate fair value of these stock options granted by the Company during the six months ended June 30, 2022 was determined to be $
|
| Number of Options |
|
| Weighted Average Exercise Price |
|
| Weighted Average Remaining Contractual Term (Years) |
| |||
Balance outstanding at December 31, 2021 |
|
|
|
| $ |
|
|
|
| |||
Granted |
|
|
|
|
|
|
|
|
| |||
Exercised |
|
|
|
|
|
|
|
| - |
| ||
Forfeited |
|
|
|
|
|
|
|
| - |
| ||
Cancelled or expired |
|
| ( | ) |
|
|
|
|
| - |
| |
Balance outstanding at June 30, 2022 |
|
|
|
| $ |
|
|
|
| |||
Exercisable at June 30, 2022 |
|
|
|
| $ |
|
|
|
| |||
Note 9 - Common Stock Warrants
Warrant Conversions and Consent Solicitation
The following table summarizes all stock warrant activity of the Company for the six months ended June 30, 2022:
|
| Number of Warrants |
|
| Weighted Average Exercise Price |
|
| Weighted Average Contractual Term (Years) |
| |||
Balance outstanding at December 31, 2021 |
|
|
|
| $ |
|
|
|
| |||
Granted |
|
| - |
|
|
|
|
|
| - |
| |
Exercised |
|
| - |
|
|
|
|
|
| - |
| |
Forfeited |
|
| - |
|
|
|
|
|
| - |
| |
Expired |
|
| ( | ) |
|
|
|
|
| - |
| |
Balance outstanding at June 30, 2022 |
|
|
|
| $ |
|
|
|
| |||
Exercisable at June 30, 2022 |
|
|
|
| $ |
|
|
|
| |||
Note 10 - Commitments and Contingencies
Office Lease
Effective January 1, 2015, the Company entered into an office lease agreement with Green Court, LLC, a Michigan limited liability company, for approximately
The Company records the lease asset and lease liability at the present value of lease payments over the lease term. The lease typically does not provide an implicit rate; therefore, the Company uses its estimated incremental borrowing rate at the time of lease commencement to discount the present value of lease payments. The Company’s discount rate for operating leases at June 30, 2022 was
| 12 |
| Table of Contents |
As of June 30, 2022, the maturities of operating lease liabilities are as follows:
|
| Operating Lease |
| |
|
|
|
| |
2022 |
|
|
| |
2023 |
|
|
| |
2024 |
|
|
| |
2025 and beyond |
|
|
| |
Total |
| $ |
| |
Less: amount representing interest |
|
| ( | ) |
Present value of future minimum lease payments |
|
|
| |
Less: current obligations under leases |
|
|
| |
Long-term lease obligations |
| $ |
| |
For the three months ended June 30, 2022 and 2021, the Company incurred rent expenses of $
For the six months ended June 30, 2022 and 2021, the Company incurred rent expenses of $
Employment and Consulting Agreements
Francois Michelon - The Company has an employment agreement with Francois Michelon, the Company’s Chief Executive Officer and Chairman of the board of directors, dated May 12, 2017 and amended on December 27, 2019. The employment agreement provides for an annual base salary that is subject to adjustment at the board of directors’ discretion. The annual base salary in effect during the period covered by this Form 10-Q was $
If Mr. Michelon’s employment is terminated by the Company without cause or Mr. Michelon terminates his employment for good reason, Mr. Michelon will be entitled
Under his employment agreement, Mr. Michelon is eligible to receive benefits that are substantially similar to those of the Company’s other senior executive officers.
Michael Thornton - The Company has an employment agreement with Michael Thornton, the Company’s Chief Technology Officer, dated May 12, 2017 and on December 27, 2019. The employment agreement provides for an annual base salary that is subject to adjustment at the board of directors’ discretion. The annual base salary in effect during the period covered by this Form 10-Q was $
If Mr. Thornton’s employment is terminated by the Company without cause or Mr. Thornton terminates his employment for good reason, Mr. Thornton will be entitled
Under his employment agreement, Mr. Thornton is eligible to receive benefits that are substantially similar to those of the Company’s other senior executive officers.
| 13 |
| Table of Contents |
Renaud Maloberti - The Company has an employment agreement with Renaud Maloberti, dated April 15, 2019, that provides for an annual base salary of $
Unless terminated sooner, the term of Mr. Maloberti’s employment agreement renews on a year--to--year basis. If Mr. Maloberti’s employment is terminated by the Company without cause (as defined in the 2016 Plan), Mr. Maloberti will be entitled to receive, subject to his execution of a standard release agreement, 8 months’ continuation of his current base salary and a lump sum payment equal
Under his employment agreement, Mr. Maloberti is eligible to receive benefits that are substantially similar to those of the Company’s other senior executive officers.
Litigation
From time to time the Company may become a party to litigation in the normal course of business. As of June 30, 2022, there were no legal matters that management believes would have a material effect on the Company’s financial position or results of operations.
Note 12 - Subsequent Events
Not applicable.
| 14 |
| Table of Contents |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
As used in this Quarterly Report on Form 10-Q (this “Form 10-Q”), unless the context otherwise requires, the terms “we,” “us,” “our,” “ENDRA” and the “Company” refer to ENDRA Life Sciences Inc., a Delaware corporation, and its direct and indirect subsidiaries. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our historical financial statements and related notes thereto in this Form 10-Q. This Form 10-Q 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, that are intended to be covered by the “safe harbor” created by those sections. Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies and expectations, can generally be identified by the use of forward-looking terms such as “believe,” “expect,” “may,” “will,” “should,” “could,” “seek,” “intend,” “plan,” “estimate,” “anticipate” or other comparable terms. All statements other than statements of historical facts included in this Form 10-Q regarding our strategies, prospects, financial condition, operations, costs, plans and objectives are forward-looking statements. Examples of forward-looking statements include, among others, statements we make regarding expectations for revenues, cash flows and financial performance, the anticipated results of our development efforts and the timing for receipt of required regulatory approvals and product launches. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the following: our limited commercial experience, limited cash and history of losses; our ability to obtain adequate financing to fund our business operations in the future; our ability to achieve profitability; our ability to develop a commercially feasible application based on our Thermo-Acoustic Enhanced Ultrasound (“TAEUS”) technology; market acceptance of our technology; uncertainties associated with COVID-19 or coronavirus, including its possible effects on our operations; results of our human studies, which may be negative or inconclusive; our ability to find and maintain development partners; our reliance on collaborations and strategic alliances and licensing arrangements; the amount and nature of competition in our industry; our ability to protect our intellectual property; potential changes in the healthcare industry or third-party reimbursement practices; delays and changes in regulatory requirements, policy and guidelines including potential delays in submitting required regulatory applications for Food and Drug Administration (“FDA”) approval; our ability to obtain and maintain CE mark certification and secure required FDA and other governmental approvals for our TAEUS applications; our ability to comply with regulation by various federal, state, local and foreign governmental agencies and to maintain necessary regulatory clearances or approvals; and the other risks and uncertainties described in the Risk Factors section of our Annual Report on Form 10-K for the period ended December 31, 2021, as filed with the SEC on March 30, 2022, and in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of this Form 10-Q. We undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise.
Available Information
From time to time, we use press releases, Twitter (@endralifesci) and LinkedIn (www.linkedin.com/company/endra-inc) to distribute material information. Our press releases and financial and other material information are routinely posted to and accessible on the Investors section of our website, www.endrainc.com. Accordingly, investors should monitor these channels, in addition to our SEC filings and public conference calls and webcasts. In addition, investors may automatically receive e-mail alerts and other information about the Company by enrolling their e-mail addresses by visiting the “Email Alerts” section of our website at investors.endrainc.com. Information that is contained in and can be accessed through our website, Twitter posts and LinkedIn are not incorporated into, and do not form a part of, this Quarterly Report or any other report or document we file with the SEC.
Overview
We are leveraging experience with pre-clinical enhanced ultrasound devices to develop technology for increasing the capabilities of clinical diagnostic ultrasound, to broaden patient access to the safe diagnosis and treatment of a number of significant medical conditions in circumstances where expensive X-ray computed tomography (“CT”) and magnetic resonance imaging (“MRI”) technology, or other diagnostic technologies such as surgical biopsy, are unavailable or impractical. Building on our expertise in thermoacoustics, we have developed a next-generation technology platform - Thermo Acoustic Enhanced Ultrasound, or TAEUS - which is intended to enhance the capability of clinical ultrasound technology and support the diagnosis and treatment of a number of significant medical conditions that currently require the use of expensive CT or MRI imaging or where imaging is not practical using existing technology.
The first-generation TAEUS application is a standalone ultrasound accessory designed to cost-effectively quantify fat in the liver and stage progression of nonalcoholic fatty liver disease (“NAFLD”), which can otherwise only be achieved today with impractical surgical biopsies or MRI scans. Subsequent TAEUS offerings are expected to be implemented via a second generation hardware platform that can run multiple clinical software applications that we will offer TAEUS users for a one-time licensing fee - adding ongoing customer value to the TAEUS platform and a growing software revenue stream for our Company.
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Each of our TAEUS platform applications will require regulatory approvals before we are able to sell or license the application. Based on certain factors, such as the installed base of ultrasound systems, availability of other imaging technologies, such as CT and MRI, economic strength and applicable regulatory requirements, we intend to seek initial approval of our applications for sale in the European Union and the United States, followed by China.
In March 2020, we received CE mark approval for our TAEUS FLIP (Fatty Liver Imaging Probe) System, enabling its marketing and sales in the European Union and other CE mark geographies, including the 27 EU member states.
In June 2020, we submitted a 510(k) Application to the FDA for our TAEUS FLIP System. In February 2022, we announced that we will pursue FDA approval of our TAEUS ® FLIP System through the FDA’s “de novo” process. We voluntarily withdrew our 510(k) application and plan to submit an application for de novo review, which will include additional clinical data, in the third quarter of 2022.
Financial Operations Overview
Revenue
No revenue has been generated by our TAEUS technology, which we have not commercially sold as of June 30, 2022.
Research and Development Expenses
Our research and development expenses primarily include wages, fees and equipment for the development of our TAEUS technology platform and the proposed applications. Additionally, we incur certain costs associated with the protection of our products and inventions through a combination of patents, licenses, applications and disclosures. These costs and expenses include:
| · | employee-related expenses, such as salaries, bonuses and benefits, consultant-related expenses such as consultant fees and bonuses, stock-based compensation, overhead related expenses and travel-related expenses for our research and development personnel; |
| · | expenses incurred under agreements with contract research organizations (CROs), contract manufacturing organizations (CMOs) as well as consultants that support the implementation of our clinical and non-clinical studies; |
| · | manufacturing and packaging costs in connection with conducting clinical trials; |
| · | formulation, research and development expenses related to our TAEUS technology; and |
| · | costs for sponsored research. |
We plan to incur research and development expenses for the foreseeable future as we expect to continue the development of TAEUS and pursue FDA approval of the NAFLD TAEUS system. At this time, due to the inherently unpredictable nature of clinical development and regulatory approvals, we are unable to estimate with certainty the costs we will incur and the timelines we will require in our continued development efforts.
Sales and Marketing Expenses
Sales and marketing expenses consist primarily of headcount and consulting costs, and marketing and tradeshow expenses. Currently, our marketing efforts are through our website and attendance of key industry meetings and conferences. In connection with the commercialization of our TAEUS applications, we are building a small sales and marketing team to train and support global ultrasound distributors, and expect to execute traditional marketing activities such as promotional materials, electronic media and participation in industry events and conferences. As of June 30, 2022, we had one full-time sales representative in the United Kingdom, two representatives in France and one in Germany. We expect to continue actively adding to our sales representation and support headcount for operations in the EU in the coming quarters, and plan to begin staffing our sales efforts in the United States once we have obtained FDA approval for the sale of the NAFLD TAEUS device in that region.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and related expenses for our management and personnel, and professional fees, such as for accounting, consulting and legal services. We anticipate that our general and administrative expenses will increase in the future as we support our continued research and development activities, expand our sales and marketing operations, and continue as a public company. These increases would likely include increased costs related to the hiring of personnel, including compensation and employee-related expenses, including stock-based compensation, and fees to outside consultants, lawyers and accountants, among other expenses. Additionally, we anticipate increased costs associated with being a public company, including expenses related to services associated with maintaining compliance with The Nasdaq Capital Market and SEC requirements, directors and officers insurance, increased legal and accounting costs and investor relations costs.
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Critical Accounting Policies and Estimates
Use of Estimates
The preparation of the financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.
Management makes estimates that affect certain accounts including deferred income tax assets, accrued expenses, fair value of equity instruments and reserves for any other commitments or contingencies. Any adjustments applied to estimates are recognized in the period in which such adjustments are determined.
Share-based Compensation
Our 2016 Omnibus Incentive Plan (as amended, the “Omnibus Plan”) permits the grant of stock options and other stock awards to our employees, consultants and non-employee members of our board of directors. Each January 1 the pool of shares available for issuance under the Omnibus Plan automatically increases by an amount equal to the lesser of (i) the number of shares necessary such that the aggregate number of shares available under the Omnibus Plan equals 25% of the number of fully-diluted outstanding shares on the increase date (assuming the conversion of all outstanding shares of preferred stock and other outstanding convertible securities and exercise of all outstanding options and warrants to purchase shares) and (ii) if the board of directors takes action to set a lower amount, the amount determined by the board. On January 1, 2022, the pool of shares issuable under the Omnibus Plan automatically increased by 1,622,848 shares from 7,461,228 shares to 9,084,076. As of June 30, 2022, there were 1,088,350 shares of common stock remaining available for issuance under the Omnibus Plan.
We record share-based compensation in accordance with the provisions of the Share-based Compensation Topic of the FASB Codification. The guidance requires the use of option-pricing models that require the input of highly subjective assumptions, including the option’s expected life and the price volatility of the underlying stock. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option valuation model which uses certain assumptions related to risk-free interest rates, expected volatility, expected life of the common stock options, and future dividends, and the resulting charge is expensed using the straight-line attribution method over the vesting period.
Stock compensation expense recognized during the period is based on the value of share-based awards that were expected to vest during the period adjusted for estimated forfeitures. The estimated fair value of grants of stock options and warrants to non-employees is charged to expense, if applicable, in the financial statements.
Debt Discount and Detachable Debt-Related Warrants
The Company accounts for debt discounts originating in connection with conversion features that are embedded in certain previously outstanding notes and warrants in accordance with ASC Subtopic 470-20, Debt with Conversion and Other Options. These costs are classified on the consolidated balance sheet as a direct deduction from the debt liability. The Company amortized these costs over the term of the securities as interest expense-debt discount in the consolidated statement of operations. Debt discounts relate to the relative fair value of warrants issued in conjunction with the debt and are also recorded as a reduction to the debt balance and accreted over the expected term of the securities to interest expense.
Recent Accounting Pronouncements
See Note 2 of the accompanying financial statements for a discussion of recently issued accounting standards.
Results of Operations
Three months ended June 30, 2022 and 2021
Revenue
We had no revenue during the three months ended June 30, 2022 and 2021.
Cost of Goods Sold
We had no cost of goods sold during the three months ended June 30, 2022 and 2021.
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Research and Development
Research and development expenses were $1,847,560 for the three months ended June 30, 2022, as compared to $1,744,925 for the three months ended June 30, 2021, an increase of $102,635, or 6%. The costs include primarily wages, fees and equipment for the development of our TAEUS product line. Research and development expenses increased from the same period due to increased wage and related expenses.
Sales and Marketing
Sales and marketing expenses were $342,039 for the three months ended June 30, 2022, as compared to $256,763 for the three months ended June 30, 2021, an increase of $ 85,276, or 33%. The increase was primarily due to additional headcount and pre-selling activities for our TAEUS product line. Currently, our marketing efforts are through our website and attendance of key industry meetings.
General and Administrative
Our general and administrative expenses for the three months ended June 30, 2022 were $ 1,382,094, compared to $ 1,198,502 for the three months ended June 30, 2021, an increase of $ 183,592, or 15%. Our wage and related expenses for the three months ended June 30, 2022 were $569,712, compared to $488,102 for the three months ended June 30, 2021. Wage and related expenses in the three months ended June 30, 2022 included $67,932 for bonuses and $111,819 of stock compensation expense related to the issuance and vesting of options, compared to $52,230 for bonuses, $112,867 of stock compensation expense related to the issuance and vesting of options, for the three months ended June 30, 2021. Our professional fees, which include legal, audit, and investor relations, for the three months ended June 30, 2022 were $545,614, compared to $500,046 for the three months ended June 30, 2021.
Net Loss
As a result of the foregoing, for the three months ended June 30, 2022, we recorded a net loss of $3,591,067, compared to a net loss of $3,199,104 for the three months ended June 30, 2021.
Six months ended June 30, 2022 and 2021
Revenue
We had no revenue during the six months ended June 30, 2022 and 2021.
Cost of Goods Sold
We had no cost of goods sold during the six months ended June 30, 2022 and 2021.
Research and Development
Research and development expenses were $3,060,582 for the six months ended June 30, 2022, as compared to $2,886,411 for the six months ended June 30, 2021, an increase of $174,171, or 6%. The costs include primarily wages, fees and equipment for the development of our TAEUS product line. Research and development expenses increased from the same period due to increased wage and related expenses.
Sales and Marketing
Sales and marketing expenses were $ 681,942 for the six months ended June 30, 2022, as compared to $ 417,698 for the six months ended June 30, 2021, an increase of $264,244, or 63%. The increase was primarily due to additional headcount and pre-selling activities for our TAEUS product line. Currently, our marketing efforts are through our website and attendance of key industry meetings.
General and Administrative
Our general and administrative expenses for the six months ended June 30, 2022 were $ 2,684,438, compared to $ 2,471,920 for the six months ended June 30, 2021, an increase of $ 212,518, or 9%. Our wage and related expenses for the six months ended June 30, 2022 were $1,121,025, compared to $1,000,889 for the six months ended June 30, 2021. Wage and related expenses in the six months ended June 30, 2022 included $113,475 for bonuses and $200,775 of stock compensation expense related to the issuance and vesting of options, compared to $104,460 for bonuses and $230,791 of stock compensation expense related to the issuance and vesting of options, for the six months ended June 30, 2021. Our professional fees, which include legal, audit, and investor relations, for the six months ended June 30, 2022 were $1,049,109, compared to $1,078,147 for the six months ended June 30, 2021.
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Gain on Extinguishment of Debt
During the six months ending June 30, 2021, we received notice that the U.S. Small Business Administrative approved forgiveness of our loan received under the Paycheck Protection Program (the “PPP”) in accordance with the terms and provisions of the PPP, and recorded a gain on extinguishment of debt of $308,600.
Net Loss
As a result of the foregoing, for the six months ended June 30, 2022, we recorded a net loss of $6,449,269, compared to a net loss of $5,589,451 for the six months ended June 30, 2021.
Near-Term Liquidity and Capital Resources
Since inception, we have incurred losses and expect to continue to incur losses for the foreseeable future. As of June 30, 2022, we had an accumulated deficit of $75,140,079 and had $11,278,041 in cash. To date we have funded our operations through private and public sales of our securities and will need to raise additional funds in order to execute on our business plan, fully commercialize our TAEUS technology, and generate revenues.
As of the date of this Quarterly Report, we believe that our cash on hand will be sufficient to fund our current operations into the first half of 2023. We will need additional capital by such time to allow us to continue to execute our commercialization plans. We continue to evaluate and manage our capital needs to support our clinical, regulatory and operational activities, progress EU commercialization, and prepare for U.S. commercialization upon FDA approval of our NAFLD TAEUS device. We are considering potential financing options that may be available to us, including additional sales of our common stock through our At-The-Market Issuance Sales Agreement with Ascendiant Capital Markets, LLC, dated June 21, 2021 (the “June 2021 ATM Agreement”); however, as of the date of this Quarterly Report, based on the market value of our public float, we are prevented from making additional sales under our shelf registration statement by General Instruction I.B.6 of Form S-3. Except for the June 2021 ATM Agreement, we have no commitments to obtain any additional funds, and there can be no assurance funds will be available in sufficient amounts or on acceptable terms. If we are unable to obtain sufficient additional financing in a timely fashion and on terms acceptable to us, our financial condition and results of operations may be materially adversely affected and we may not be able to continue operations or execute our stated commercialization plan.
The consolidated financial statements included in this Form 10-Q have been prepared assuming we will continue as a going concern, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying consolidated financial statements, during the six months ended June 30, 2022, we incurred net losses of $6,449,269 and used cash in operations of $6,433,852. While we maintain cash balances in excess of our anticipated needs for cash for the next twelve months, it is likely that we will need to raise additional capital prior to any ability to fund operations from revenue generated from the sale of our products. The financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern.
Operating Activities
During the six months ended June 30, 2022, we used $6,433,852 of cash in operating activities primarily as a result of our net loss of $6,449,269, offset by share-based compensation of $599,886, depreciation expense of $40,739, amortization of right of use assets of $67,158, and net changes in operating assets and liabilities of $(692,366).
During the six months ended June 30, 2021, we used $5,722,895 of cash in operating activities primarily as a result of our net loss of $5,468,380, offset by share-based compensation of $705,036, gain on extinguishment of debt of $308,600, depreciation expense of $65,154, amortization of right of use assets of $44,086, and net changes in operating assets and liabilities of $(760,191).
Investing Activities
During the six months ended June 30, 2022, we used $149,153 in investing activities related to purchases of equipment.
During the six months ended June 30, 2021, we used $45,000 in investing activities related to purchases of equipment.
Financing Activities
During the six months ended June 30, 2022, our financing activities provided $8,399,512 in proceeds from issuances of common stock.
During the six months ended June 30, 2021, our financing activities provided $12,583,920, including $9,798,293 in proceeds from issuance of common stock, and $2,785,627 in proceeds from warrant exercises.
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Long-Term Liquidity
We have not completed the commercialization of any of our TAEUS technology platform applications. We expect to continue to incur significant expenses for the foreseeable future. We anticipate that our expenses will increase substantially as we:
| ● | advance the engineering design and development of our NAFLD TAEUS application; |
| ● | acquire parts and build finished goods inventory of the TAEUS FLIP system; |
| ● | complete regulatory filings required for marketing approval of our NAFLD TAEUS application in the United States; |
| ● | seek to hire a small internal marketing team to engage and support channel partners and clinical customers for our NAFLD TAEUS application; |
| ● | expand marketing of our NAFLD TAEUS application; |
| ● | advance development of our other TAEUS applications; and |
| ● | add operational, financial and management information systems and personnel, including personnel to support our product development, planned commercialization efforts and our operation as a public company. |
It is possible that we will not achieve the progress that we expect because the actual costs and timing of completing the development and regulatory approvals for a new medical device are difficult to predict and are subject to substantial risks and delays. We have no committed external sources of funds except for the June 2021 ATM Agreement, the use of which may be limited due to registration statement rules relating to public float. We do not expect that our existing cash will be sufficient for us to complete the commercialization of our NAFLD TAEUS application or to complete the development of any other TAEUS application and we will need to raise substantial additional capital for those purposes. As a result, we will need to finance our future cash needs through public or private equity offerings, debt financings, corporate collaboration and licensing arrangements or other financing alternatives. Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement and involves risks and uncertainties, and actual results could vary as a result of a number of factors, including the factors discussed in the Risk Factors section of our Annual Report on Form 10-K for the period ended December 31, 2021, as filed with the SEC on March 30, 2022. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect.
Until we can generate a sufficient amount of revenue from our TAEUS platform applications, if ever, we expect to finance future cash needs through public or private equity offerings, debt financings or corporate collaborations and licensing arrangements. Additional funds may not be available when we need them on terms that are acceptable to us, or at all. As described below, the COVID-19 pandemic has impacted our business operations to some extent and is expected to continue to do so and, in light of the effect of such pandemic on financial markets, these impacts may include reduced access to capital. Additionally, a recession or other unfavorable market conditions, including economic slowdowns, recessions, inflation, rising interest rates and tightening of credit markets caused by the ongoing COVID-19 pandemic, the conflict in Ukraine or otherwise, may limit our access to capital. If adequate funds are not available, we may be required to delay, reduce the scope of or eliminate one or more of our research or development programs or our commercialization efforts or perhaps even cease the operation of our business. To the extent that we raise additional funds by issuing equity securities, our stockholders may experience additional dilution, and debt financing, if available, may involve restrictive covenants. To the extent that we raise additional funds through collaborations and licensing arrangements, it may be necessary to relinquish some rights to our technologies or applications or grant licenses on terms that may not be favorable to us. We may seek to access the public or private capital markets whenever conditions are favorable, even if we do not have an immediate need for additional capital at that time.
Coronavirus (“COVID-19”) Pandemic
The COVID-19 pandemic has prompted governments and regulatory bodies throughout the world to issue “stay-at-home” or similar orders, and enact restrictions on the performance of “non-essential” services, public gatherings and travel. These restrictions and other precautionary measures have continued to varying degrees based on local COVID-19 rates and increased infections caused by variants of the coronavirus that causes COVID-19.
The COVID-19 pandemic has impacted our clinical trial activities. Patient visits in ongoing clinical trials have been delayed, for example, due to prioritization of hospital resources toward the COVID-19 outbreak, travel restrictions imposed by governments, and the inability to access sites for initiation and monitoring. COVID-19 has also had an effect on the business at the FDA and other health authorities by causing them to reallocate resources to addressing the pandemic, which has resulted in delays of reviews and approvals, including with respect to our NAFLD TAEUS application. Although we believe conditions are improving in both the EU and United States, allowing us to travel and attend trade shows and conferences in-person and for our clinical trials to progress, it is not certain that these improvements will persist and we be restricted from travelling or need to limit in-person meetings in the future, or our clinical trials may need to be delayed in response to adverse developments in the COVID-19 pandemic.
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Nasdaq Capital Market Listing
On January 5, 2022, the Company received a notification letter from the Listing Qualifications Department of The Nasdaq Stock Market LLC (“Nasdaq”) notifying the Company that, because the closing bid price for the Company’s common stock listed on Nasdaq was below $1.00 for 30 consecutive trading days, the Company no longer meets the minimum bid price requirement for continued listing on The Nasdaq Capital Market under Nasdaq Marketplace Rule 5550(a)(2), requiring a minimum bid price of $1.00 per share (the “Minimum Bid Price Requirement”).
The notification has no immediate effect on the listing of the Company’s common stock. In accordance with Nasdaq Marketplace Rule 5810(c)(3)(A), the Company had a period of 180 calendar days from January 5, 2022, or until July 5, 2022, to regain compliance with the Minimum Bid Price Requirement. Prior to July 5, 2022, the Company applied for, and was provided, an additional 180-day period to regain compliance with the Minimum Bid Price Requirement. If at any time before January 1, 2023, the bid price of the Company’s common stock closes at or above $1.00 per share for a minimum of 10 consecutive business days, Nasdaq will provide written notification that the Company has achieved compliance with the Minimum Bid Price Requirement. In the event that the Company is not able to cure the deficiency during the additional 180-day period, it may effect a reverse stock split in able to regain compliance with the Minimum Bid Price Requirement.
If we do not regain compliance with the Bid Price Rule and maintain compliance with other rules for continued listing on the Nasdaq, our common stock may be delisted. If our common stock were delisted from the Nasdaq Capital Market, it could, among other things, lead to a number of negative implications, including reduced liquidity in our common stock, the loss of federal preemption of state securities laws and greater difficulty in obtaining financing.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
As a smaller reporting company, we are not required to provide the information required by this Item 3.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Form 10-Q, management performed, with the participation of our principal executive officer and principal financial officer, an evaluation of the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”). Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosures. Based on the evaluation, our principal executive officer and principal financial officer concluded that, as of June 30, 2022, our disclosure controls and procedures were not effective.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. We identified the following material weakness as of June 30, 2022: insufficient personnel resources within the accounting function to segregate the duties over financial transaction processing and reporting.
To remediate our internal control weaknesses, management intends to implement the following measures, as finances allow:
| · | Adding sufficient accounting personnel or outside consultants to properly segregate duties and to effect a timely, accurate preparation of the financial statements. We currently engage a bookkeeping service provider to supplement our resources for accounting tasks, including preparation of financial statements and periodic reports filed with the Securities and Exchange Commission. |
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| · | Upon the hiring of additional accounting personnel or outside consultants, develop and maintain adequate written accounting policies and procedures. |
The additional hiring is contingent upon our efforts to obtain additional funding and the results of our operations. However, based on current capital needs for the Company’s core operations, competitive labor market, and general economic conditions, management provides no assurances that it will be able to raise sufficient funding in order to support such additional hiring during the current fiscal year.
Changes in Internal Control over Financial Reporting
There were no changes to our internal control over financial reporting or in other factors that could affect these controls during the six months ended June 30, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
We are not currently a party to any pending legal proceedings that we believe will have a material adverse effect on our business or financial condition. We may, however, be subject to various claims and legal actions arising in the ordinary course of business from time to time.
Item 1A. Risk Factors
In addition to the other information set forth in this report, you should carefully consider the factors discussed under “Risk Factors” in our Annual Report on Form 10-K for the period ended December 31, 2021, as filed with the Securities and Exchange Commission on March 30, 2022. These factors could materially adversely affect our business, financial condition, liquidity, results of operations and capital position, and could cause our actual results to differ materially from our historical results or the results contemplated by any forward-looking statements contained in this report. Except as set forth below, there have been no material changes to the risk factors described in Part I, Item 1A, “Risk Factors,” included in our Annual Report on Form 10-K for the period ended December 31, 2021.
If we fail to regain compliance with the minimum closing bid requirement of the Nasdaq Capital Market or to satisfy other requirements for continued listing, our common stock may be delisted and the price of our common stock and our ability to access the capital markets could be negatively impacted.
Our common stock is listed for trading on the Nasdaq Capital Market. To maintain this listing, we must satisfy Nasdaq’s continued listing requirements, including, among other things, a minimum closing bid price requirement of $1.00 per share under Nasdaq Listing Rule 5550(a)(2) (the “Bid Price Rule”).
On January 5, 2022, we received a notification letter from Nasdaq informing us that for 30 consecutive business days, the bid price of our common stock had closed below $1.00 per share. This notice had no immediate effect on our Nasdaq listing, and we had 180 calendar days from January 5, 2022, or until July 5, 2022, to regain compliance. Prior to July 5, 2022, the Company applied for, and was provided, an additional 180-day period, or until January 1, 2023, to regain compliance with the Bid Price Rule.
The closing bid price of our common stock must be at least $1.00 per share for a minimum of ten consecutive business days to regain compliance with the Bid Price Rule. If we are unable to regain compliance with the Bid Price Rule by January 1, 2023 or if we fail to maintain compliance with any of the other continued listing requirements, our common stock may be delisted from Nasdaq, which could materially reduce the liquidity of our common stock and result in a corresponding material reduction in the price of our common stock. In addition, delisting could harm our ability to raise capital through alternative financing sources on terms acceptable to us, or at all, and may result in the potential loss of confidence by investors, employees and business development opportunities. Further, if we were to be delisted from Nasdaq, our common stock may no longer be recognized as a “covered security” and we would be subject to regulation in each state in which we offer our securities. Thus, delisting from Nasdaq could adversely affect our ability to raise additional financing through the public or private sale of equity securities, would significantly impact the ability of investors to trade our securities and would negatively impact the value and liquidity of our common stock.
Item 2. Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Not applicable.
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Item 6. Exhibits
Exhibit Number |
| Description |
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101.INS |
| XBRL Instance Document (filed herewith) |
101.SCH |
| XBRL Taxonomy Schema (filed herewith) |
101.CAL |
| XBRL Taxonomy Extension Calculation Linkbase (filed herewith) |
101.DEF |
| XBRL Taxonomy Extension Definition Linkbase (filed herewith) |
101.LAB |
| XBRL Taxonomy Extension Label Linkbase (filed herewith) |
101.PRE |
| XBRL Taxonomy Extension Presentation Linkbase (filed herewith) |
* Indicates management compensatory plan, contract or arrangement.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| ENDRA LIFE SCIENCES INC. |
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Date: August 15, 2022 | By: | /s/ Francois Michelon |
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| Francois Michelon |
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| Chief Executive Officer and Chairman (Principal Executive Officer) |
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| ENDRA LIFE SCIENCES INC. |
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Date: August 15, 2022 | By: | /s/ Irina Pestrikova |
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| Irina Pestrikova |
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| Senior Director, Finance (Principal Financial and Accounting Officer) |
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