Company Quick10K Filing
Quick10K
Endra Life Sciences
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
8-K 2019-08-14
8-K 2019-07-26 Enter Agreement, Off-BS Arrangement, Sale of Shares, Regulation FD, Exhibits
8-K 2019-05-16 Shareholder Vote
8-K 2019-03-11 Earnings, Exhibits
8-K 2018-11-08 Enter Agreement, Regulation FD, Exhibits
8-K 2018-10-10 Enter Agreement, Other Events, Exhibits
8-K 2018-08-16 Delisting
8-K 2018-07-18 Regulation FD
8-K 2018-06-28 Enter Agreement, Off-BS Arrangement, Sale of Shares, Regulation FD, Exhibits
8-K 2018-06-12 Officers, Shareholder Vote, Other Events
8-K 2018-03-29
8-K 2018-01-30 Enter Agreement, Regulation FD, Exhibits
ELRE Yinfu Gold 89
SPRS Surge Components 18
CTDH CTD Holdings 17
VIDE Video Display 6
HCGS Highcom Global Security 4
SFHI Sports Field Holdings 3
PRVL Prevail Therapeutics 0
BRKA Berkshire Hathaway 0
ZIMCF ZIM 0
AVTR Avantor 0
NDRAU 2019-06-30
Note 1 – Nature of The Business
Note 2 – Summary of Significant Accounting Policies
Note 3 – Going Concern
Note 4 – Inventory
Note 5 – Fixed Assets
Note 6 – Accounts Payable and Accrued Liabilities
Note 7 – Capital Stock
Note 8 – Stock Options and Warrants
Note 9 – Commitments & Contingencies
Note 10 – Subsequent Event
EX-10.2 ndra_ex102.htm
EX-31.1 ndra_ex311.htm
EX-31.2 ndra_ex312.htm
EX-32.1 ndra_ex321.htm
EX-99.1 ndra_ex991.htm

Endra Life Sciences Earnings 2019-06-30

NDRAU 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 ndra_10q.htm QUARTERLY REPORT Blueprint
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
(Mark One)
 
     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2019
 
OR
 
   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
COMMISSION FILE NUMBER 001-37969
 
ENDRA LIFE SCIENCES INC.
      (Exact name of registrant as specified in its charter)
 
Delaware
 
26-0579295
(State of incorporation)
 
(I.R.S. Employer Identification No.)
 
3600 Green Court, Suite 350, Ann Arbor, MI 48105-1570
(Address of principal executive office)     (    Zip code    )
 
(734) 335-0468
(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
Common Stock, par value $0.0001 per share
NDRA
The Nasdaq Stock Market LLC
Warrants, each to purchase one share of Common Stock
NDRAW
The Nasdaq Stock Market LLC
 
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              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              No      
 
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
Non-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                     No      
 
As of August 8, 2019, there were 7,422,642 shares of our Common Stock, par value $0.0001 per share, outstanding.
 


 
 
ENDRA LIFE SCIENCES INC.
FORM 10-Q
FOR THE SIX MONTHS ENDED JUNE 30, 2019
 
INDEX
 
 
PAGE
               
3
             
 
15
             
 
21
             
 
21
             
 
 
     
 
22
             
 
22
             
 
22
             
 
22
             
 
22
             
 
22
             
 
23
 
 
 
24
 
 
 
23
 

 
 
PART I - FINANCIAL INFORMATION
 
Item 1. Financial Statements
ENDRA Life Sciences Inc.
Condensed Consolidated Balance Sheets
 
 
 
 
June 30,
 
 
 December 31,
 
Assets
 
2019
 
 
2018
 
 Assets
 
 (Unaudited)
 
 
 
 
Cash
 $2,267,530 
 $6,471,375 
Prepaid expenses
  243,782 
  145,424 
Inventory
  74,280 
  59,444 
Other current assets
  366,390 
  273,315 
Total Current Assets
  2,951,982 
  6,949,558 
Other Assets
    
    
Fixed assets, net
  238,727 
  273,233 
Total Assets
 $3,190,709 
 $7,222,791 
 
    
    
Liabilities and Stockholders’ Equity
    
    
Current Liabilities:
    
    
Accounts payable and accrued liabilities
 $1,366,391 
 $974,583 
Total Liabilities
  1,366,391 
  974,583 
 
    
    
Stockholders’ Equity
    
    
Preferred stock, $0.0001 par value; 10,000,000 shares authorized;
no shares issued or outstanding
  - 
  - 
Common stock, $0.0001 par value; 50,000,000 shares authorized;
7,422,642 and 7,422,642 shares issued and outstanding
  742 
  742 
Additional paid in capital
  34,598,379 
  33,939,162 
Accumulated deficit
  (32,774,803)
  (27,691,696)
Total Stockholders’ Equity
  1,824,318 
  6,248,208 
Total Liabilities and Stockholders’ Equity
 $3,190,709 
 $7,222,791 
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 

3
 
 
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,
 
 
 
2019
 
 
2018
 
 
2019
 
 
2018
 
Revenue
 $- 
 $- 
 $- 
 $6,174 
 
    
    
    
    
Cost of Goods Sold
  - 
  - 
  - 
  - 
 
    
    
    
    
Gross Profit
 $- 
 $- 
 $- 
 $6,174 
 
    
    
    
    
Operating Expenses
    
    
    
    
Research and development
  1,304,809 
  839,756 
  3,078,306 
  2,508,579 
Sales and marketing
  88,343 
  41,357 
  145,161 
  148,534 
General and administrative
  932,021 
  941,955 
  1,848,924 
  2,009,747 
Total operating expenses
  2,325,173 
  1,823,068 
  5,072,391 
  4,666,860 
 
    
    
    
    
Operating loss
  (2,325,173)
  (1,823,068)
  (5,072,391)
  (4,660,686)
 
    
    
    
    
Other Expenses
    
    
    
    
Other expense
  (9,199)
  (23,704)
  (10,716)
  (11,389)
Total other expenses
  (9,199)
  (23,704)
  (10,716)
  (11,389)
 
    
    
    
    
Loss from operations before income taxes
  (2,334,372)
  (1,846,772)
  (5,083,107)
  (4,672,075)
 
    
    
    
    
Provision for income taxes
  - 
  - 
  - 
  - 
 
    
    
    
    
Net Loss
 $(2,334,372)
 $(1,846,772)
 $(5,083,107)
 $(4,672,075)
 
    
    
    
    
Net loss per share – basic and diluted
 $(0.31)
 $(0.47)
 $(0.68)
 $(1.19)
 
    
    
    
    
Weighted average common shares – basic and diluted
  7,422,642 
  3,923,027 
  7,422,642 
  3,923,027 
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 

4
 
 
ENDRA Life Sciences Inc.
Condensed Consolidated Statements of Stockholders’ Equity
 (Unaudited)
 
Six Months Ended June 30, 2018 and 2019
 
Common stock
 
 
 
 
 
 
 
 
Total
 
 
 
 Shares
 
 
Amount
 
 
Additional Paid in Capital
 
 
Accumulated Deficit
 
 
Stockholders' Equity
 
 Balance as of December 31, 2017
  3,923,027 
 $392 
 $23,170,531 
 $(17,895,435)
 $5,275,488 
 Common stock issued for services
  - 
  - 
  47,865 
  - 
  47,865 
 Warrants issued for services
  - 
  - 
  61,660 
  - 
  61,660 
 Fair value of vested stock options
  - 
  - 
  640,224 
  - 
  640,224 
 Debt discount
  - 
  - 
  587,541 
  - 
  587,541 
 Net loss
  - 
  - 
  - 
  (4,672,075)
  (4,672,075)
 Balance as of June 30, 2018
  3,923,027 
 $392 
 $24,507,821 
 $(22,567,510)
 $1,940,703 
 
    
    
    
    
    
 Balance as of December 31, 2018
  7,422,642 
  742 
  33,939,162 
 (27,691,696)
  6,248,208 
 Fair value of vested stock options
  - 
  - 
  659,217 
  - 
  659,217 
 Net loss
  - 
  - 
  - 
  (5,083,107)
  (5,083,107)
 Balance as of June 30, 2019
  7,422,642 
 $742 
 $34,598,379 
 $(32,774,803)
 $1,824,318 
 
Three Months Ended June 30, 2018 and 2019
 
Common stock
 
 
 
 
 
 
 
 
Total
 
 
 
 Shares
 
 
Amount
 
 
Additional Paid in Capital
 
 
Accumulated Deficit
 
 
Stockholders' Equity
 
 Balance as of March 31, 2018
  3,923,027 
 $392 
 $23,550,220 
 $(20,720,738)
 $2,829,874 
 Common stock issued for services
  - 
  - 
  19,146 
  - 
  19,146 
 Warrants issued for services
  - 
  - 
  30,049 
  - 
  30,049 
 Fair value of vested stock options
  - 
  - 
  320,865 
  - 
  320,865 
 Debt discount
  - 
  - 
  587,541 
  - 
  587,541 
 Net loss
  - 
  - 
  - 
  (1,846,772)
  (1,846,772)
 Balance as of June 30, 2018
  3,923,027 
 $392 
 $24,507,821 
 $(22,567,510)
 $1,940,703 
 
    
    
    
    
    
 Balance as of March 31, 2019
  7,422,642 
 $742 
 $34,241,430 
 $(30,440,432)
 $3,801,740 
 Fair value of vested stock options
  - 
  - 
  356,949 
  - 
  356,949 
 Net loss
  - 
  - 
  - 
  (2,334,372)
  (2,334,372)
 Balance as of June 30, 2019
  7,422,642 
 $742 
 $34,598,379 
 $(32,774,804)
 $1,824,317 
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
 
5
 
 
ENDRA Life Sciences Inc.
Condensed Consolidated Statements of Cash Flows
 (Unaudited)
 
 
 
Six Months Ended
 
 
Six Months Ended
 
 
 
June 30,
 
 
June 30,
 
 
 
2019
 
 
2018
 
Cash Flows from Operating Activities
 
 
 
 
 
 
Net loss
 $(5,083,107)
 $(4,672,075)
Adjustments to reconcile net loss to net cash used in operating activities:
    
    
Depreciation and amortization
  39,744 
  30,204 
Common stock, options and warrants issued for services
  659,217 
  749,749 
Imputed interest on promissory notes
  - 
  5,822 
Changes in operating assets and liabilities:
    
    
Increase in accounts receivable
  - 
  (4,920)
Increase in prepaid expenses
  (98,358)
  (251,428)
Increase in inventory
  (14,837)
  (87,530)
Increase in other asset
  (93,075)
  (4,304)
Increase/decrease in accounts payable and accrued liabilities
  391,809
  (96,838)
Net cash used in operating activities
  (4,198,607)
  (4,331,320)
 
    
    
Cash Flows from Investing Activities:
    
    
Purchases of fixed assets
  (5,238)
  - 
Net cash used in investing activities
  (5,238)
  - 
 
    
    
Cash Flows from Financing Activities
    
    
Proceeds from senior secured convertible promissory notes, net of fees
  - 
  935,300 
Net cash provided by financing activities
  - 
  935,300 
 
    
    
Net Increase/(Decrease) in cash
  (4,203,845)
  (3,396,020)
 
    
    
Cash, beginning of period
  6,471,375 
  5,601,878 
 
    
    
Cash, end of period
 $2,267,531 
 $2,205,858 
 
    
    
Supplemental disclosures:
    
    
      Interest paid
 $- 
 $- 
      Income tax paid
 $- 
 $- 
 
    
    
Supplemental disclosures of non-cash Items:
    
    
Discount on convertible notes
 $- 
 $587,541 
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 

6
 
 
ENDRA Life Sciences Inc.
Notes to Condensed Consolidated Financial Statements
For the six months ended June 30, 2019 and 2018
(Unaudited)
 
Note 1 – Nature of the Business
 
ENDRA Life Sciences Inc. (“ENDRA” or the “Company”) is developing 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.
 
ENDRA Life Sciences Canada Inc. was organized under the laws of Ontario, Canada on July 6, 2017, and is wholly owned by the Company.
 
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.
 
Principles of Consolidation
 
The Company’s consolidated financial statements include all accounts of the Company and its consolidated subsidiary 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 three and six months ended June 30, 2019 are not necessarily indicative of the results that may be expected for the year ended December 31, 2019. The balance sheet at December 31, 2018 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, 2018 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 11, 2019.
 
 
7
 
 
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, 2019 and December 31, 2018, 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.
 
Revenue Recognition
 
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers” (“ASC Topic 606”). This standard 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. The Company adopted the updated guidance effective January 1, 2018 using the full retrospective method. The new standard did not have a material impact on its financial position and results of operations, as it did not change the manner or timing of recognizing revenue.
 
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 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, 2019 and 2018, the Company incurred $1,304,809 and $839,756 of expenses related to research and development costs, respectively. During the six months ended June 30, 2019 and 2018, the Company incurred $3,078,306 and $2,508,579 of expenses related to research and development costs, respectively.
 
Net Earnings (Loss) Per Common Share
 
The Company computes earnings per share under ASC Subtopic 260-10, “Earnings Per Share” (“ASC 260-10”). 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 4,167,874 and 3,900,939 potentially dilutive shares, which include outstanding common stock options, warrants, and convertible notes, as of June 30, 2019 and December 31, 2018, respectively.
  
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,
2019
 
 
 
December 31,
2018
 
Options to purchase common stock
  1,539,846 
  1,272,911 
Warrants to purchase common stock
  2,628,028 
  2,628,028 
Potential equivalent shares excluded
  4,167,874 
  3,900,939 
 
 
8
 
 
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, 2019, the pool of shares available for issuance under the Omnibus Plan automatically increased from 1,345,074 shares to 2,649,378 shares.
 
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. The Company has elected to use the calculated value method to account for the options it issued in 2017 (prior to commencement on June 28, 2017 of public trading in the Company’s common stock). Under the Share-based Compensation Topic of the FASB Codification, a nonpublic entity that is unable to estimate the expected volatility of the price of its underlying shares may measure awards based on a “calculated value,” which substitutes the volatility of appropriate public companies (representative of the company’s size and industry) as a benchmark for the volatility of the entity’s own share price. The Company has used the historical closing values of these companies to estimate volatility, which was calculated to be 90%, for periods prior to June 28, 2017, when there was no active market for the Company’s common stock.
  
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
 
 
Recent Accounting Pronouncements
 
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. ASU 2014-09 is a comprehensive revenue recognition standard that supersedes nearly all existing revenue recognition guidance under current U.S. GAAP and replaces it with a principle based approach for determining revenue recognition. Under ASU 2014-09, revenue is recognized when a customer obtains control of promised goods or services and is recognized in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The FASB has recently issued ASU 2016-08, ASU 2016-10, ASU 2016-11, ASU 2016-12, and ASU 2016-20, all of which clarify certain implementation guidance within ASU 2014-09. ASU 2014-09 is effective for interim and annual periods beginning after December 15, 2017. The standard can be adopted either retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the cumulative catch-up transition method). The Company has reviewed ASU 2014-09 and using the full retrospective method has determined that its adoption has had no impact on its financial position, results of operations or cash flows. The Company adopted the provisions of this standard in the first quarter of fiscal 2018.
 
In February 2016, the FASB issued ASU No. 2016-02, Leases. ASU 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. ASU 2016-02 is effective for all interim and annual reporting periods beginning after December 15, 2018. Early adoption is permitted. 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. The Company evaluated the impact that the application of the new standard has on its consolidated financial statements and related disclosures, and determined there has been no impact. The Company adopted the provisions of this standard in the first quarter of fiscal 2019.
 
In May 2017, the FASB issued ASU No. 2017-09, Compensation – Stock Compensation (Topic 718) Scope of Modification Accounting. The amendments in ASU 2017-09 provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The adoption of ASU 2017-09, which is effective for annual periods beginning after December 15, 2017 and for interim periods within those annual periods, did not have any impact on the Company’s consolidated financial statement presentation or disclosures.
 
Other 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 – 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, 2019 of $32,774,803. The Company had working capital of $1,585,591 as of June 30, 2019. The Company has not established an ongoing source of revenue sufficient to cover its operating costs and to allow it to continue as a going concern. The accompanying financial statements for the period ended June 30, 2019 have been prepared assuming the Company will continue as a going concern. However, the Company’s cash resources will likely be insufficient to meet its anticipated needs during the next twelve months. The Company will require additional financing to fund its future planned operations, including research and development and commercialization of its products.
 
The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it establishes a revenue stream and becomes profitable. Management’s plans to continue as a going concern include raising additional capital through sales of equity securities and borrowing. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans. If the Company is not able to obtain the necessary additional financing on a timely basis, the Company will be required to delay, reduce the scope of or eliminate one or more of the Company’s research and development activities or commercialization efforts or perhaps even cease the operation of its business. The ability of the Company to continue as a going concern is dependent upon its ability to successfully secure other sources of financing and attain profitable operations. There is substantial doubt about the ability of the Company to continue as a going concern for one year from the issuance of the accompanying condensed consolidated financial statements. The accompanying condensed consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
  
Note 4 – Inventory
  
As of June 30, 2019 and December 31, 2018, inventory consisted of raw materials to be used in the assembly of a TAEUS system. As of June 30, 2019, the Company had no orders pending for the sale of a TAEUS system.
 
 
10
 
 
Note 5 – Fixed Assets
 
As of June 30, 2019 and December 31, 2018, fixed assets consisted of the following:
 

 
 
June 30,
2019
 
 
 
December 31,
2018
 
Computer equipment and fixtures
 $684,418 
 $679,179 
Accumulated depreciation
  (445,691)
  (405,946)
Fixed assets, net
 $238,727 
 $273,233 
 
Depreciation expense for the six months ended June 30, 2019 and June 30, 2018 was $39,744 and $30,204, respectively.
  
Note 6 – Accounts Payable and Accrued Liabilities
 
As of June 30, 2019 and December 31, 2018, current liabilities consisted of the following:

 
 
June 30,
2019
 
 
 
December 31,
2018
 
Accounts payable
 $1,011,324 
 $631,472 
Accrued payroll
  88,488 
  29,302 
Accrued bonuses
  260,829 
  263,497 
Accrued employee benefits
  5,750 
  27,804 
Insurance premium financing
  - 
  22,508 
Total
 $1,366,391 
 $974,583 
  
Note 7 – Capital Stock
 
At June 30, 2019, the authorized capital of the Company consisted of 60,000,000 shares of capital stock, consisting of 50,000,000 shares of common stock with a par value of $0.0001 per share, and 10,000,000 shares of preferred stock with a par value of $0.0001 per share. As of June 30, 2019 and December 31, 2018, there were 7,422,642 shares of common stock issued and outstanding and no preferred stock outstanding.
  
 
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Note 8 – Stock Options and Warrants
 
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 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, 2019 was determined to be $769,451 using the Black-Scholes-Merton option-pricing model based on the following assumptions: (i) volatility rate of 103% to 124%, (ii) discount rate of 0%, (iii) zero expected dividend yield, and (iv) expected life of 7 to 10 years. A summary of option activity under the Company’s stock options as of June 30, 2019, and changes during the six months then ended is presented below:
 

 
 
 
Number of Options
 
 
 
Weighted
Average
Exercise Price
 
 
 
Weighted
Average
Remaining
Contractual Term (Years)
 
Balance outstanding at December 31, 2018
  1,272,911 
 $4.56 
  6.31 
Granted
  348,000 
  2.05 
  7.01 
Exercised
  - 
  - 
  - 
Forfeited
  - 
  - 
  - 
Cancelled or expired
  (81,065)
  - 
  - 
Balance outstanding at June 30, 2019
  1,539,846 
 $3.99 
  6.10 
Exercisable at June 30, 2019
  660,300 
 $5.41 
  5.33 
 
 
The following table summarizes all stock warrant activity of the Company for the six months ended June 30, 2019:
 
  
 

 
 
 
Number of Warrants
 
 
 
 
Weighted Average Exercise Price
 
 
 
Weighted Average Remaining Contractual Term (Years)
 
Balance outstanding at December 31, 2018
  2,628,028 
 $6.32 
  3.17 
Granted
  - 
  - 
  - 
Exercised
  - 
  - 
  - 
Forfeited
  - - 
    
  - 
Expired
  - 
  - 
  - 
Balance outstanding at June 30, 2019
  2,628,028 
 $6.32 
  2.92 
Exercisable at June 30, 2019
  2,628,028 
 $6.32 
  2.92 
 
 
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Note 9 – Commitments & 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 3,657 rentable square feet of space, for the initial monthly rent of $5,986, which commenced on January 1, 2015 for an initial term of 60 months. On October 10, 2017 this lease was amended, increasing the rentable square feet of space to 3,950 and the monthly rent to $7,798. Under the terms of the lease the Company has an option on the same space for an additional 60-month term. Future minimum payments under this lease are as follows:
 
2019
  46,788 
Total
 $46,788 
 
For the three and six months ended June 30, 2019 and 2018, the Company incurred rent expenses of $23,188 and $52,507 and $26,104 and $52,248, respectively.
 
Employment and Consulting Agreements
 
Francois Michelon – Effective May 12, 2017, the Company entered into an amended and restated employment agreement with Francois Michelon, the Company’s Chief Executive Officer and Chairman of the board of directors. The term of the employment agreement runs through December 31, 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 $355,350. Under the employment agreement, Mr. Michelon is eligible for an annual cash bonus based upon achievement of performance-based objectives established by the board of directors. Pursuant to Mr. Michelon’s employment agreement, in connection with the closing of the Company’s initial public offering he was granted options to purchase an aggregate 339,270 shares of common stock. The options have a weighted average exercise price of $4.96 per share of common stock and vest in three equal annual installments beginning on May 12, 2018. Upon termination without cause, any portion of Mr. Michelon’s options scheduled to vest within 12 months will automatically vest, and upon termination without cause within 12 months following a change of control, the entire unvested portion of the options will automatically vest. Upon termination for any other reason, the entire unvested portion of the options will terminate.
 
If Mr. Michelon’s employment is terminated by the Company without cause, Mr. Michelon will be entitled to receive 12 months’ continuation of his current base salary and a lump sum payment equal to 12 months of continued healthcare coverage (or 24 months’ continuation of his current base salary and a lump sum payment equal to 24 months of continued healthcare coverage if such termination occurs within one year following a change in control).
 
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 – Effective May 12, 2017, the Company entered into an amended and restated employment agreement with Michael Thornton, the Company’s Chief Technology Officer. The term of the employment agreement runs through December 31, 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 $267,800. Under the employment agreement, Mr. Thornton is eligible for an annual cash bonus based upon achievement of performance-based objectives established by the board of directors. Pursuant to Mr. Thornton’s employment agreement, in connection with the closing of the Company’s initial public offering he was granted options to purchase an aggregate 345,298 shares of common stock. The options have a weighted average exercise price of $4.96 per share of common stock and vest in three equal annual installments beginning on May 12, 2018. Upon termination without cause, any portion of Mr. Thornton’s option scheduled to vest within 12 months will automatically vest, and upon termination without cause within 12 months following a change of control, the entire unvested portion of the options will automatically vest. Upon termination for any other reason, the entire unvested portion of the options will terminate.
  
If Mr. Thornton’s employment is terminated by the Company without cause, Mr. Thornton will be entitled to receive 12 months’ continuation of his current base salary and a lump sum payment equal to 12 months of continued healthcare coverage (or 24 months’ continuation of his current base salary and a lump sum payment equal to 24 months of continued healthcare coverage if such termination occurs within one year following a change in control).
 
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.
 
 
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David Wells – On May 12, 2017, the Company entered into a consulting agreement with StoryCorp Consulting (“StoryCorp”), pursuant to which David Wells provides services to the Company as its Chief Financial Officer. Pursuant to the consulting agreement, the Company pays to StoryCorp a monthly fee of $9,000, and in May 2018 this monthly fee was increased to $9,540. Additionally, pursuant to the consulting agreement, the Company granted to Mr. Wells a stock option to purchase 15,000 shares of common stock in connection with the closing of the Company’s initial public offering, having an exercise price per share equal to $5.00 and vesting in twelve equal quarterly installments, and, for so long as the consulting agreement is in place, will grant to Mr. Wells a stock option to purchase the same number of shares of common stock with the same terms on each annual anniversary of the date of the consulting agreement. In May 2018, the annual stock option amount was increased and on December 13, 2018, Mr. Wells was granted options to purchase an additional 35,000 shares of common stock.
 
On May 13, 2019, the Company entered into an employment agreement with David Wells that supersedes the consulting agreement between the Company and StoryCorp. The employment agreement provides for an annual base salary of $230,000 and eligibility for an annual cash bonus to be paid based on attainment of Company and individual performance objectives to be established by the Company’s board of directors (in 2019, the amount of such cash bonus if all goals are achieved will be 30% of the base salary plus base fees paid to StoryCorp Consulting under the Consulting Agreement). The Employment Agreement also provides for eligibility to receive benefits substantially similar to those of the Company’s other senior executive officers.
 
 
Pursuant to the Employment Agreement, on May 13, 2019 Mr. Wells was granted stock options to purchase 56,000 shares of the Company’s common stock. The stock options have an exercise price of $1.38 per share, and vest in three equal annual installments beginning on the first anniversary of the grant date.
 
Litigation
 
From time to time the Company may become a party to litigation in the normal course of business. There are currently no legal matters that management believes would have a material effect on the Company’s financial position or results of operations.
 
Note 10 – Subsequent Event
 
On July 26, 2019, the Company conducted a private placement in which the Company sold $2,587,893 aggregate principal amount of senior secured convertible promissory notes (the “Notes”) to accredited investors.
 
The Notes are convertible into common stock at a conversion price per share equal to $1.49 and bear interest at a rate of 10% per annum until maturity on April 26, 2020 (the “Maturity Date”). Interest will be paid in arrears on the outstanding principal amount on the three month anniversary of the issuance of the Notes and each three month period thereafter and on the Maturity Date. The Notes provide for customary events of default. In the case of an event of default with respect to the Notes, each noteholder may declare its Note to be due and payable immediately without further action or notice. If such an event of default occurs and be continuing, interest on the Notes will automatically be increased to 18% until the default is cured.
 
In addition, the Company issued warrants exercisable for 1,736,855 shares of the Company’s common stock to accredited investors and issued to National Securities Corporation, which served as placement agent in the offering, and its designees warrants exercisable for 173,685 shares of common stock. Each warrant entitles the holder to purchase shares of Common Stock for an exercise price per share equal to $1.49. The warrants are exercisable immediately and expire July 26, 2022.
 
Completion of the offering described above increased the Company’s stockholders’ equity by approximately $1,274,916. Accordingly, on a pro forma basis after giving effect to the offering, the Company’s total stockholders’ equity as of June 30, 2019 would have been approximately $3,099,235. 
 

14
 
 
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 wholly-owned subsidiary. 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; 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 CE mark certification or Food and Drug Administration (“FDA”) approval; our ability to obtain 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, 2018, as filed with the SEC on March 11, 2019, 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.
 
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 is unavailable or impractical.
 
In 2010, we began marketing and selling our Nexus 128 system, which combined light-based thermoacoustics and ultrasound to address the imaging needs of researchers studying disease models in pre-clinical applications. Building on this 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. We ceased production of our Nexus 128 system as of January 1, 2019 and stopped providing service support and parts for all existing Nexus 128 systems as of July 1, 2019 in order to focus our resources on the development of our TAEUS technology.
 
Unlike the near-infrared light pulses used in our legacy Nexus 128 system, our TAEUS technology uses radio frequency (“RF”) pulses to stimulate tissues, using a small fraction of the energy that would be transmitted into the body during an MRI scan. The use of RF energy allows our TAEUS technology to penetrate deep into tissue, enabling the imaging of human anatomy at depths equivalent to those of conventional ultrasound. The RF pulses are absorbed by tissue and converted into ultrasound signals, which are detected by an external ultrasound receiver and a digital acquisition system that is part of the TAEUS system. The detected ultrasound is processed into images using our proprietary algorithms and displayed to complement conventional gray-scale ultrasound images.
 
We expect that the first-generation TAEUS application will be a standalone ultrasound accessory designed to cost-effectively quantify fat in the liver and stage progression of nonalcoholic fatty liver disease (“NAFLD”), which can 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.
 
 
15
 
 
In April 2016, we entered into a Collaborative Research Agreement with General Electric Company, acting through its GE Healthcare business unit and the GE Global Research Center (collectively, “GE Healthcare”). Under the terms of the agreement, GE Healthcare has agreed to assist us in our efforts to commercialize our TAEUS technology for use in a fatty liver application by, among other things, providing equipment and technical advice, and facilitating introductions to GE Healthcare clinical ultrasound customers. In return for this assistance, we have agreed to afford GE Healthcare certain rights of first offer with respect to manufacturing and licensing rights for the target application. More specifically, we have agreed that, prior to commercially releasing our NAFLD TAEUS application, we will offer to negotiate an exclusive ultrasound manufacturer relationship with GE Healthcare for a period of at least one year of commercial sales. The commercial sales would involve, within our sole discretion, either our Company commercially selling GE Healthcare ultrasound systems as the exclusive ultrasound system with our TAEUS fatty liver application embedded, or GE Healthcare being the exclusive ultrasound manufacturer to sell ultrasound systems with our TAEUS fatty liver application embedded. The agreement is subject to termination by either party upon not less than 60 days’ notice. On January 30, 2018, we and GE Healthcare entered into an amendment to our agreement, extending its term by 21 months to January 22, 2020.
 
In November 2017, we contracted with the Centre for Imaging Technology Commercialization (“CIMTEC”) to initiate human studies, through Canada-based Robarts Research Institute, with our TAEUS device targeting NAFLD. In October 2018, we received an Investigational Testing Authorization from Health Canada to commence the first human studies with our TAEUS clinical system targeting NAFLD, guiding our algorithm development, and comparing our technology to MRI. The feasibility study, the first of several planned human studies, is being conducted in collaboration with Robarts Research Institute in London, Canada. We reported our initial study results in March 2019. The data collected from the study, including additional usability inputs, will be included in our TAEUS liver device technical file submission for device CE Mark, which we anticipate in the second half of 2019. 
 
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, followed by the United States and China.
  
Financial Operations Overview
 
Revenue
 
To date our revenue has been generated by the placement and sale of our discontinued Nexus 128 thermoacoustic imaging systems for use in pre-clinical applications, and related service revenue. No revenue has been generated by our TAEUS technology, which is currently in the product development stage.
 
Cost of Goods Sold
 
Our cost of goods sold is related to our direct costs associated with the development and shipment of our discontinued Nexus 128 systems placed in pre-clinical settings, and costs associated with service provided for these systems.
 
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.
 
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 expect to build a small sales and marketing team to train and support global ultrasound distributors, as well as execute traditional marketing activities such as promotional materials, electronic media and participation in industry events and conferences.
 
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 accounting, consulting and legal.
  
 
16
 
 
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 (the “Omnibus Plan”) permits the grant of share options and shares 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, 2019, the pool of shares available for issuance under the Omnibus Plan automatically increased from 1,345,074 shares to 2,649,378 shares.
 
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.
 
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, 2019 and 2018
 
Revenue
 
We had no revenue during the three months ended June 30, 2019 and 2018.
 
Cost of Goods Sold
 
There was no cost of goods sold for each of the three months ended June 30, 2019 and 2018.
 
 
17
 
 
Research and Development
 
Research and development expenses were $1,304,809 for the three months ended June 30, 2019, as compared to $839,756 for the three months ended June 30, 2018, an increase of $465,053, or 55%. 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 for the prior year due primarily to increased spending to develop TAEUS applications, which included expenses for our contracted development vendors.
 
Sales and Marketing
 
Sales and marketing expenses were $88,343 for the three months ended June 30, 2019, as compared to $41,357 for the three months ended June 30, 2018, an increase of $46,986, or 114%. The increase was primarily due 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. Our future clinical business will involve hiring and training additional staff to support our sales efforts. As we seek to complete the development and commercialization of our TAEUS applications, subject to available funds, we intend to build a small sales and marketing team to train and support global ultrasound distributors, as well as execute traditional marketing activities such as promotional materials, electronic media and participation in industry conferences.
  
General and Administrative
 
Our general and administrative expenses for the three months ended June 30, 2019 were $932,021, compared to $941,955 for the three months ended June 30, 2018, a decrease of $9,934, or 1%. Our wage and related expenses for the three months ended June 30, 2019 were $501,850, compared to $440,449 for the three months ended June 30, 2018. Wage and related expenses in the three months ended June 30, 2019, included $58,731 for bonuses and $178,905 of stock compensation expense related to the issuance and vesting of options, compared to $40,800 for bonuses and $163,371 of stock compensation expense for the same period in 2018. Our professional fees for the three months ended June 30, 2019 were $334,468, compared to $438,402 for the three months ended June 30, 2018.
 
Net Loss
 
As a result of the foregoing, for the three months ended June 30, 2019, we recorded a net loss of $2,334,372 compared to a net loss of $1,846,772 for the three months ended June 30, 2018.
  
Six months Ended June 30, 2019 and 2018
 
Revenue
 
We had no revenue during the six months ended June 30, 2019, as compared to $6,174 for the six months ended June 30, 2018. The revenue was a result of service activity on our installed base of Nexus 128 pre-clinical systems. During the six months ended June 30, 2019, we ceased production of our Nexus 128 system and announced our plan to stop providing service support and parts for all existing systems as of July 1, 2019, in order to focus our resources on the development of our TAEUS technology.
 
Cost of Goods Sold
 
There was no cost of goods sold for each of the six months ended June 30, 2019 and 2018.
 
 
18
 
 
Research and Development
 
Research and development expenses were $3,078,306 for the six months ended June 30, 2019, as compared to $2,508,579 for the six months ended June 30, 2018, an increase of $569,727, or 23%. 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 for the prior year due primarily to increased spending to develop TAEUS applications, which included expenses for our contracted development vendors.
 
Sales and Marketing
 
Sales and marketing expenses were $145,161 for the six months ended June 30, 2019, as compared to $148,534 for the six months ended June 30, 2018, a decrease of $3,373, or 2%. The decrease was primarily due to reduced costs associated with commercialization of the TAEUS product line. Currently, our marketing efforts are through our website and attendance of key industry meetings. Our future clinical business will involve hiring and training additional staff to support our sales efforts. As we seek to complete the development and commercialization of our TAEUS applications, we intend to build a small sales and marketing team to train and support global ultrasound distributors, as well as execute traditional marketing activities such as promotional materials, electronic media and participation in industry conferences.
  
General and Administrative
 
Our general and administrative expenses for the six months ended June 30, 2019 were $1,848,924, compared to $2,009,747 for the six months ended June 30, 2018, a decrease of $160,823, or 8%. Our wage and related expenses for the six months ended June 30, 2019 were $910,194, compared to $916,703 for the six months ended June 30, 2018. Wage and related expenses in the six months ended June 30, 2019, included $93,102 for bonuses and $350,742 of stock compensation expense related to the issuance and vesting of options, compared to $177,950 for bonuses and $327,042 of stock compensation expense for the same period in 2018. Our professional fees for the six months ended June 30, 2019 were $692,305, compared to $853,139 for the six months ended June 30, 2018.
 
Net Loss
 
As a result of the foregoing, for the six months ended June 30, 2019, we recorded a net loss of $5,083,107 compared to a net loss of $4,672,075 for the six months ended June 30, 2018.
 
Liquidity and Capital Resources
 
To date we have funded our operations through private and public sales of our securities. As of June 30, 2019, we had $2,267,530 in cash. In May 2017, we completed our initial public offering, raising net proceeds of approximately $8.6 million after deducting offering expenses of approximately $0.8 million in underwriting discounts, commissions and expenses and approximately $0.3 million in offering expenses payable by us. In June 2018, we completed the placement of senior secured convertible promissory notes and warrants, raising net proceeds of approximately $935,000 after deducting offering expenses of approximately $142,000 payable by us. On October 15, 2018, we completed an underwritten public offering of 1,477,750 shares of our common stock. The net proceeds from this offering were approximately $2.7 million, after deducting underwriting discounts and commissions and other offering expenses. On November 13, 2018, we completed an underwritten public offering of 1,385,750 shares of our common stock. The net proceeds from this offering were approximately $4.9 million, after deducting underwriting discounts and commissions and other offering expenses. In connection with these underwritten public offerings, the promissory notes issued in June 2018 converted into common stock pursuant to their terms. In July 2019, we completed a private placement of senior secured convertible promissory notes and warrants, raising net proceeds of approximately $2,490,500 after deducting offering expenses of approximately $314,500 payable by us. The promissory notes bear interest at a rate of 10% per annum until maturity on April 26, 2020.
 
We believe that cash on hand at June 30, 2019, together with the proceeds from our July 2019 convertible note financing, will be sufficient to fund our current operations into the fourth quarter of 2019. However, we still need additional capital to execute our commercialization plan and if we do not raise additional capital in the next several months we will need to significantly slow or pause our business activities until such time as we are able to raise additional capital. We continue to evaluate and manage our capital needs to support our clinical, regulatory and operational activities and prepare for the results of our human studies data and EU commercialization. We are currently exploring potential financing options that may be available to us, including additional sales of our common stock. However, we have no commitments to obtain any additional funds, and there can be no assurance such funds will be available on acceptable terms or at all. If we are unable to obtain 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 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 financial statements, during the six months ended June 30, 2019, we incurred net losses of $5,083,107 and used cash in operations of $4,198,607. These and other factors raise substantial doubt about our ability to continue as a going concern for one year from the issuance of the accompanying financial statements. The financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern.
 
 
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Operating Activities
 
During the six months ended June 30, 2019, we used $4,198,607 of cash in operating activities primarily as a result of our net loss of $5,083,107, which included non-cash charges for share-based compensation of $659,217, depreciation expenses of $39,744, and net changes in operating assets and liabilities of $(185,539).
 
During the six months ended June 30, 2018, we used $4,331,320 of cash in operating activities primarily as a result of our net loss of $4,672,075, which included non-cash charges for share-based compensation of $749,749, $30,204 in depreciation expenses, $5,822 in imputed interest on promissory notes, and net changes in operating assets and liabilities of $(445,020).
  
Investing Activities
 
During the six months ended June 30, 2019, the Company used $5,238 in investing activities related to purchase of equipment.
 
During the six months ended June 30, 2018, the Company had no cash flows from investing activities.
 
Financing Activities
 
During the six months ended June 30, 2019, there were no cash flows from financing activities.
 
During the six months ended June 30, 2018, the Company received $935,300 in financing activities in proceeds from convertible notes.
 
Funding Requirements
 
We have not completed development 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;
 
● prepare regulatory filings required for marketing approval of our NAFLD TAEUS application in the European Union and 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;
 
● commence 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.
 
 
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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. 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 section of our Annual Report on Form 10-K for the year ended December 31, 2018, entitled “Risk Factors” . 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. 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.
  
Off-Balance Sheet Transactions
 
At June 30, 2019, the Company did not have any transactions, obligations or relationships that could be considered off-balance sheet arrangements.
 
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, 2019, 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, 2019: 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.
 
● Developing and maintaining adequate written accounting policies and procedures, once we hire additional accounting personnel or outside consultants.
 
The additional hiring is contingent upon our efforts to obtain additional funding and the results of our operations. Management expects to secure funds in the coming fiscal year but provides no assurances that it will be able to do so.
 
Changes in Internal Control over Financial Reporting
 
There was no change to our internal controls or in other factors that could affect these controls during the three months ended June 30, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. However, our management is currently seeking to improve our controls and procedures in an effort to remediate the deficiency described above.
 

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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, 2018, as filed with the Securities and Exchange Commission on March 11, 2019. 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.
 
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
 
On August 8, 2019, we issued an earnings release reporting our results of operations for the three months ended June 30, 2019. A copy of that earnings release is furnished herewith as Exhibit 99.1 pursuant to Item 2.02 of Form 8-K. This information shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, nor shall it be deemed incorporated by reference in any filing under the Securities Act
 

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Item 6. Exhibits
 
Exhibit Number
 
Description
 
Fourth Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on May 12, 2017)
 
Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.4 to the Company’s Registration Statement on Form S-1 (File No. 333-214724), as amended, originally filed on November 21, 2016)
 
Specimen Certificate representing shares of common stock of the Company (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-1 (File No. 333-214724), as amended, originally filed on November 21, 2016)
 
Employment Agreement, dated May 13, 2019, by and between the Company and David Wells* (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed on May 14, 2019)
 
Employment Agreement, dated April 20, 2019, by and between the Company and Renaud Maloberti* (filed herewith)
 
Certification of Periodic Report by Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14a and pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
 
Certification of Periodic Report by Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14a and pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
 
Certification of Periodic Report by Chief Executive Officer and Chief Financial Officer pursuant to U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)
 
Earnings release issued August 8, 2019 (furnished herewith)
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.
 
(Registrant)
 
 
 
 
 
 
Date: August 8, 2019
By:
/s/ Francois Michelon
 
 
Name: Francois Michelon
 
 
Title: Chief Executive Officer and Chairman
          (Principal Executive Officer)
  
 
Date: August 8, 2019
By:
/s/ David Wells
 
 
Name: David Wells
 
 
Title: Chief Financial Officer
          (Principal Financial and Accounting Officer)
 

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