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 SEPTEMBER 30, 2022

 

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

 

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 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). 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 November 14, 2022, there were 63,174,455 shares of our common stock, par value $0.0001 per share, outstanding.

 

 

 

 

TABLE OF CONTENTS

 

 

 

 

Page

 

PART I - FINANCIAL INFORMATION 

 

 

 

 

 

 

 

 

Item 1.

Condensed Consolidated Financial Statements (unaudited)

 

3

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets - September 30, 2022 (unaudited) and December 31, 2021

 

3

 

 

 

 

 

 

 

Condensed Consolidated Statements of Operations - Three and Nine months ended September 30, 2022 and 2021 (unaudited)

 

4

 

 

 

 

 

 

 

Condensed Consolidated Statements of Changes in Stockholders’ Equity as of September 30, 2022 and 2021 (unaudited)

 

5

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows - Three and Nine months ended September 30, 2022 and 2021 (unaudited)

 

7

 

 

 

 

 

 

 

Notes to the Condensed Consolidated Financial Statements (unaudited)

 

8

 

 

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

16

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

22

 

 

 

 

 

Item 4.

Controls and Procedures

 

22

 

 

 

 

 

Item 1.

Legal Proceedings

 

23

 

 

 

 

 

Item1A.

Risk Factors

 

23

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

23

 

 

 

 

 

Item 3.

Defaults Upon Senior Securities

 

23

 

 

 

 

 

Item 4.

Mine Safety Disclosure

 

23

 

 

 

 

 

Item 5.

Other Information

 

23

 

 

 

 

 

 

Item 6.

Exhibits

 

24

 

 

 

 

 

 

 

Signatures

 

25

 

 

 
2

Table of Contents

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

ENDRA Life Sciences Inc.

Condensed Consolidated Balance Sheets

 

 

 

September 30,

 

 

December 31,

 

 

 

2022

 

 

2021

 

Assets

 

Current Assets

 

 

 

 

 

 

Cash

 

$ 8,016,350

 

 

$ 9,461,534

 

Prepaid expenses

 

 

914,261

 

 

 

1,348,003

 

Inventory

 

 

2,634,077

 

 

 

1,284,578

 

Total Current Assets

 

 

11,564,688

 

 

 

12,094,115

 

Non-Current Assets

 

 

 

 

 

 

 

 

Fixed assets, net

 

 

230,612

 

 

 

131,130

 

Right of use assets

 

 

541,456

 

 

 

643,413

 

Other assets

 

 

5,986

 

 

 

5,986

 

Total Assets

 

$ 12,342,742

 

 

$ 12,874,644

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

Current Liabilities

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$ 1,558,097

 

 

$ 1,411,437

 

Lease liabilities, current portion

 

 

147,057

 

 

 

132,330

 

Total Current Liabilities

 

 

1,705,154

 

 

 

1,543,767

 

 

 

 

 

 

 

 

 

 

Long Term Debt

 

 

 

 

 

 

 

 

Loans

 

 

28,484

 

 

 

28,484

 

Lease liabilities

 

 

405,773

 

 

 

518,147

 

Total Long Term Debt

 

 

434,257

 

 

 

546,631

 

 

 

 

 

 

 

 

 

 

Total Liabilities

 

 

2,139,411

 

 

 

2,090,398

 

 

 

 

 

 

 

 

 

 

Stockholders’ Equity

 

 

 

 

 

 

 

 

Series A Convertible Preferred Stock, $0.0001 par value; 10,000 shares authorized; 141,397 and 141,397 shares issued and outstanding, respectively

 

 

1

 

 

 

1

 

Series B Convertible Preferred Stock, $0.0001 par value; 1,000 shares authorized; no shares issued and outstanding

 

 

-

 

 

 

-

 

Common stock, $0.0001 par value; 80,000,000 shares authorized; 63,174,455 and 42,554,514 shares issued and outstanding, respectively

 

 

6,315

 

 

 

4,254

 

Additional paid in capital

 

 

88,768,831

 

 

 

79,456,938

 

Stock payable

 

 

8,490

 

 

 

13,863

 

Accumulated deficit

 

 

(78,580,306 )

 

 

(68,690,810 )

Total Stockholders’ Equity

 

 

10,203,331

 

 

 

10,784,246

 

Total Liabilities and Stockholders’ Equity

 

$ 12,342,742

 

 

$ 12,874,644

 

 

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

 

 

Nine Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

September 30,

 

 

September 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Operating Expenses

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$ 1,830,297

 

 

$ 1,173,319

 

 

$ 4,890,879

 

 

$ 4,059,730

 

Sales and marketing

 

 

420,439

 

 

 

275,565

 

 

 

1,102,381

 

 

 

693,263

 

General and administrative

 

 

1,166,480

 

 

 

1,201,851

 

 

 

3,850,918

 

 

 

3,673,771

 

Total operating expenses

 

 

3,417,216

 

 

 

2,650,735

 

 

 

9,844,178

 

 

 

8,426,764

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating loss

 

 

(3,417,216 )

 

 

(2,650,735 )

 

 

(9,844,178 )

 

 

(8,426,764 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain on extinguishment of debt

 

 

-

 

 

 

-

 

 

 

-

 

 

 

308,600

 

Other income (expense)

 

 

(23,011 )

 

 

(7,507 )

 

 

(45,318 )

 

 

(8,458 )

Total other expenses

 

 

(23,011 )

 

 

(7,507 )

 

 

(45,318 )

 

 

300,142

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from operations before income taxes

 

 

(3,440,227 )

 

 

(2,658,242 )

 

 

(9,889,496 )

 

 

(8,126,622 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss

 

$ (3,440,227 )

 

$ (2,658,242 )

 

$ (9,889,496 )

 

$ (8,126,622 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deemed dividend

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(121,071 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss attributable to common stockholders

 

$ (3,440,227 )

 

$ (2,658,242 )

 

$ (9,889,496 )

 

$ (8,247,693 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per share – basic and diluted

 

$ (0.05 )

 

$ (0.06 )

 

$ (0.18 )

 

$ (0.20 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares – basic and diluted

 

 

63,174,455

 

 

 

41,912,535

 

 

 

56,016,219

 

 

 

40,471,906

 

 

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

September 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 June 30, 2021

 

 

141,397

 

 

$ 1

 

 

 

-

 

 

$ -

 

 

 

41,857,352

 

 

$ 4,185

 

 

$ 77,838,745

 

 

$ 74,907

 

 

$ (62,927,940 )

 

$ 14,989,899

 

Common stock issued for warrant exercise

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

283,953

 

 

 

28

 

 

 

496,585

 

 

 

-

 

 

 

-

 

 

 

496,613

 

Common stock issued for option exercise

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,606

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Fair value of vested stock options

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

327,797

 

 

 

-

 

 

 

-

 

 

 

327,797

 

Stock payable towards preference dividend

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(4,218 )

 

 

4,218

 

 

 

-

 

 

 

-

 

Stock payable for RSU

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

22,815

 

 

 

2

 

 

 

36,458

 

 

 

(36,460 )

 

 

-

 

 

 

-

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,658,242 )

 

 

(2,658,242 )

Balance as of September 30, 2021

 

 

141,397

 

 

$ 1

 

 

 

-

 

 

$ -

 

 

 

42,165,726

 

 

$ 4,215

 

 

$ 78,695,367

 

 

$ 42,665

 

 

$ (65,586,182 )

 

$ 13,156,066

 

Three Months Ended

September 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 June 30, 2022

 

 

141,397

 

 

$ 1

 

 

 

-

 

 

$ -

 

 

 

63,174,455

 

 

$ 6,315

 

 

$ 88,462,324

 

 

 

5,814

 

 

 

(75,140,079 )

 

 

13,334,375

 

Fair value of vested stock options

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

309,183

 

 

 

-

 

 

 

-

 

 

 

309,183

 

Stock payable towards preference dividend

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,676 )

 

 

2,676

 

 

 

-

 

 

 

-

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(3,440,227 )

 

 

(3,440,227 )

Balance as of September 30, 2022

 

 

141,397

 

 

$ 1

 

 

 

-

 

 

$ -

 

 

 

63,174,455

 

 

$ 6,315

 

 

$ 88,768,831

 

 

$ 8,490

 

 

$ (78,580,306 )

 

$ 10,203,331

 

 

  

 
5

Table of Contents

 

Nine Months Ended September 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

 

 

196,794

 

 

$ 1

 

 

 

-

 

 

$ -

 

 

 

34,049,704

 

 

$ 3,404

 

 

$ 64,493,611

 

 

 

10,795

 

 

 

(57,338,489 )

 

 

7,169,322

 

Series A Convertible Preferred Stock converted to common stock

 

 

(55,397 )

 

 

-

 

 

 

-

 

 

 

-

 

 

 

67,889

 

 

 

7

 

 

 

(7 )

 

 

-

 

 

 

-

 

 

 

-

 

Common stock issued for cash, net of funding costs

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

4,198,170

 

 

 

420

 

 

 

10,294,479

 

 

 

-

 

 

 

-

 

 

 

10,294,899

 

Common stock issued for warrant exercise

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

3,770,786

 

 

 

377

 

 

 

2,785,250

 

 

 

-

 

 

 

-

 

 

 

2,785,627

 

Common stock issued for option exercise

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

23,835

 

 

 

2

 

 

 

(2 )

 

 

-

 

 

 

-

 

 

 

-

 

Fair value of vested stock options

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

922,375

 

 

 

-

 

 

 

-

 

 

 

922,375

 

Stock payable towards preference dividend

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(31,870 )

 

 

31,870

 

 

 

-

 

 

 

-

 

Common stock issued for services

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

32,527

 

 

 

3

 

 

 

74,997

 

 

 

-

 

 

 

-

 

 

 

74,000

 

Stock payable towards RSU's

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

22,815

 

 

 

2

 

 

 

36,458

 

 

 

-

 

 

-

 

 

 

36,460

 

Deemed dividend

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

121,071

 

 

-

 

 

 

(121,071

 

 

-

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(8,126,622 )

 

 

(8,126,622 )

Balance as of September 30, 2021

 

 

141,397

 

 

$ 1

 

 

 

-

 

 

$ -

 

 

 

42,165,726

 

 

$ 4,215

 

 

$ 78,695,367

 

 

$ 42,665

 

 

$ (65,586,182 )

 

$ 13,156,066

 

Nine Months Ended September 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

 

 

141,397

 

 

$ 1

 

 

 

-

 

 

$ -

 

 

 

42,554,514

 

 

$ 4,254

 

 

$ 79,456,938

 

 

 

13,863

 

 

 

(68,690,810 )

 

 

10,784,246

 

Common stock issued for cash, net of funding costs

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

20,619,941

 

 

 

2,061

 

 

 

8,397,451

 

 

 

-

 

 

 

-

 

 

 

8,399,512

 

Fair value of vested stock options

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

909,069

 

 

 

-

 

 

 

-

 

 

 

909,069

 

Stock payable towards preference dividend

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

5,373

 

 

 

(5,373 )

 

 

-

 

 

 

-

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(9,889,496 )

 

 

(9,889,496 )

Balance as of September 30, 2022

 

 

141,397

 

 

$ 1

 

 

 

-

 

 

$ -

 

 

 

63,174,455

 

 

$ 6,315

 

 

$ 88,768,831

 

 

$ 8,490

 

 

$ (78,580,306 )

 

$ 10,203,331

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 
6

Table of Contents

 

ENDRA Life Sciences Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

Nine Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2022

 

 

2021

 

Cash Flows from Operating Activities

 

 

 

 

 

 

Net loss

 

$ (9,889,496 )

 

$ (8,126,622 )

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

64,532

 

 

 

94,977

 

Stock compensation expense including common stock issued for RSUs

 

 

909,069

 

 

 

1,032,835

 

Stock payable for investor relations

 

 

-

 

 

 

-

 

Amortization of right of use assets

 

 

101,957

 

 

 

75,768

 

Gain on extinguishment of debt

 

 

-

 

 

 

(308,600 )

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Decrease in prepaid expenses

 

 

433,742

 

 

 

(786,401 )

Increase in inventory

 

 

(1,349,499 )

 

 

(910,123 )

Increase in accounts payable and accrued liabilities

 

 

146,660

 

 

 

528,797

 

Decrease in lease liability

 

 

(97,647 )

 

 

(70,289 )

Net cash used in operating activities

 

 

(9,680,682 )

 

 

(8,469,658 )

 

 

 

 

 

 

 

 

 

Cash Flows from Investing Activities

 

 

 

 

 

 

 

 

Purchases of fixed assets

 

 

(164,014 )

 

 

(45,000 )

Net cash used in investing activities

 

 

(164,014 )

 

 

(45,000 )

 

 

 

 

 

 

 

 

 

Cash Flows from Financing Activities

 

 

 

 

 

 

 

 

Proceeds from warrant exercise

 

 

-

 

 

 

2,785,627

 

Proceeds from issuance of common stock

 

 

8,399,512

 

 

 

10,294,899

 

Net cash provided by financing activities

 

 

8,399,512

 

 

 

13,080,526

 

 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash

 

 

(1,445,184 )

 

 

4,565,875

 

 

 

 

 

 

 

 

 

 

Cash, beginning of period

 

 

9,461,534

 

 

 

7,227,316

 

 

 

 

 

 

 

 

 

 

Cash, end of period

 

$ 8,016,350

 

 

$ 11,793,189

 

 

 

 

 

 

 

 

 

 

Supplemental disclosures of cash items

 

 

 

 

 

 

 

 

Interest paid

 

$ -

 

 

$ 40,887

 

Income tax paid

 

$ -

 

 

$ -

 

 

 

 

 

 

 

 

 

 

Supplemental disclosures of non-cash items

 

 

 

 

 

 

 

 

Deemed dividend

 

$ -

 

 

$ 121,071

 

Conversion of Series A Convertible Preferred Stock

 

$ -

 

 

$ (7 )

Stock dividend payable

 

$ -

 

 

$ (31,870 )

Right of use asset

 

$ 541,456

 

 

$ 675,822

 

Lease liability

 

$ 552,830

 

 

$ 680,526

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 
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ENDRA Life Sciences Inc.

Notes to Condensed Consolidated Financial Statements

For the Three and Nine months ended September 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 September 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 nine months ended September 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.

 

 
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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 September 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 September 30, 2022 and December 31, 2021 the Company recorded a right of use asset of $541,456 and $643,413, respectively. At September 30, 2022 and December 31, 2021 the Company recorded a lease liability of $552,830 and $650,477, respectively.

 

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 September 30, 2022 and 2021, the Company incurred $1,830,297 and $1,173,319 of expenses related to research and development costs, respectively. During the nine months ended September 30, 2022 and 2021, the Company incurred $4,890,879 and $4,059,730 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”. 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 8,375,004 and 7,848,899 potentially dilutive shares, which include outstanding common stock options, and warrants, as of September 30, 2022 and December 31, 2021, respectively.

 

 
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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:

 

 

 

September 30,

2022

 

 

December 31,

2021

 

Options to purchase common stock

 

 

8,005,726

 

 

 

5,249,210

 

Warrants to purchase common stock

 

 

206,753

 

 

 

2,437,164

 

Shares issuable upon conversion of Series A Convertible Preferred Stock

 

 

162,525

 

 

 

162,525

 

Potential equivalent shares excluded

 

 

8,375,004

 

 

 

7,848,899

 

 

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 1,622,848 shares from 7,461,228 shares to 9,084,076 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.

 

 
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Table of Contents

 

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.

 

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 September 30, 2022 of $78,580,306. The Company had working capital of $9,859,534 as of September 30, 2022. 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 and will require additional financing to fund its future planned operations, including research and development and commercialization of its products. The accompanying financial statements for the period ended September 30, 2022 have been prepared assuming the Company will continue as a going concern, but 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. The accompanying consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

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 September 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 September 30, 2022, the Company had no orders pending for the sale of a TAEUS system.

 

As of September 30, 2022 and December 31, 2021, the Company had inventory valued at $2,634,077 and $1,284,578, respectively.

 

Note 4 - Fixed Assets

 

As of September 30, 2022 and December 31, 2021, fixed assets consisted of the following:

 

 

 

September 30,

2022

 

 

December 31,

2021

 

Property, leasehold and capitalized software

 

$ 733,461

 

 

$ 605,248

 

TAEUS development and testing

 

 

143,482

 

 

 

107,682

 

Accumulated depreciation

 

 

(646,331 )

 

 

(581,800 )

Fixed assets, net

 

$ 230,612

 

 

$ 131,130

 

 

Depreciation expense for the three months ended September 30, 2022 and 2021 was $23,793 and $29,823, respectively.

 

Depreciation expense for the nine months ended September 30, 2022 and 2021 was $64,532 and $94,977, respectively.

 

Note 5 - Accounts Payable and Accrued Liabilities

 

As of September 30, 2022 and December 31, 2021, current liabilities consisted of the following:

 

 

 

September 30,

2022

 

 

December 31,

2021

 

Accounts payable

 

$ 636,695

 

 

$ 791,052

 

Accrued payroll

 

 

164,357

 

 

 

101,459

 

Accrued bonuses

 

 

517,195

 

 

 

396,043

 

Accrued employee benefits

 

 

5,750

 

 

 

5,750

 

Insurance premium financing

 

 

234,100

 

 

 

117,133

 

Total

 

$ 1,558,097

 

 

$ 1,411,437

 

 

 
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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 40,000, which is due and payable upon the expiration of the initial term on December 31, 2022. This note bears interest on the unpaid balance at the rate of zero percent (0%) per annum during the initial term. Under this note no interest payments are due until January 1, 2023. Under the conditions of the loan, twenty-five percent (25%) of the loan will be forgiven if seventy-five percent (75%) is repaid prior to the initial term date.

 

Note 7 - Capital Stock

 

At September 30, 2022, the authorized capital of the Company consisted of 90,000,000 shares of capital stock, comprised of 80,000,000 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. The Company has designated 10,000 shares of its preferred stock as Series A Convertible Preferred Stock (“Series A Preferred Stock”) and 1,000 shares of its preferred stock as Series B Convertible Preferred Stock (“Series B Preferred Stock”), and the remainder of 9,989,000 shares remain authorized but undesignated.

 

As of September 30, 2022, there were 63,174,455 shares of common stock, 141,397 shares of Series A Preferred Stock, and no shares of Series B Preferred Stock issued and outstanding, and a stock payable balance of $8,490.

 

During the nine months ended September 30, 2022, the Company issued a total of 20,619,941 shares of its common stock in return for aggregate net proceeds of $8,399,512 under the June 2021 ATM Agreement (as described below).

 

During the nine months ended September 30, 2021, the Company issued a total of 8,116,023 shares of its common stock, as follows:

 

 

67,889 shares upon the conversion of 55,397 shares of its Series A Preferred Stock;

 

4,198,170 shares in return for aggregate net proceeds of $10,294,904 from sales of common stock;

 

3,567,899 shares upon warrant exercises for an aggregate exercise price of $2,785,627;

 

202,887 shares upon cashless warrant exercises;

 

23,835 shares upon cashless option exercise;

 

32,527 shares for services valued at $74,000; and

 

22,815 shares upon vesting of restricted stock units (“RSUs”) valued at $36,460.

 

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 $20.0 million, from time to time, through an “at-the-market” equity offering program under which Ascendiant acts as sales agent. As of September 30, 2022, under the June 2021 ATM Agreement the Company has issued an aggregate of 21,292,682 shares of common stock in return for net proceeds of $9,216,618, resulting in approximately $286,289 of compensation paid to Ascendiant. During the nine months ended September 30, 2022, under the June 2021 ATM Agreement the Company has issued an aggregate of 20,619,941 shares of common stock in return for net proceeds of $8,398,936, resulting in $260,776 of compensation paid to Ascendiant.

 

 
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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 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 nine months ended September 30, 2022 was determined to be $909,072 using the Black-Scholes-Merton option-pricing model based on the following assumptions: (i) volatility rate of 74% to 99%, (ii) discount rate of 0%, (iii) zero expected dividend yield, (iv) risk free rate of 1.37% to 3.37%, and (v) expected life of 8-10 years. A summary of option activity under the Company’s Omnibus Plan as of September 30, 2022, and changes during the year then ended, is presented below:

 

 

 

Number of

Options

 

 

Weighted

Average

Exercise

Price

 

 

Weighted Average

Remaining Contractual

Term (Years)

 

Balance outstanding at December 31, 2021

 

 

5,249,210

 

 

$ 2.21

 

 

 

7.42

 

Granted

 

 

2,804,285

 

 

 

0.41

 

 

 

9.38

 

Exercised

 

 

-

 

 

 

-

 

 

 

-

 

Forfeited

 

 

-

 

 

 

-

 

 

 

-

 

Cancelled or expired

 

 

(47,769 )

 

 

-

 

 

 

-

 

Balance outstanding at September 30, 2022

 

 

8,005,726

 

 

$ 1.58

 

 

 

7.62

 

Exercisable at September 30, 2022

 

 

3,142,632

 

 

$ 2.28

 

 

 

5.68

 

 

Note 9 - Common Stock Warrants

 

Warrant Conversions and Consent Solicitation

 

The following table summarizes all stock warrant activity of the Company for the nine months ended September 30, 2022:

 

 

 

Number of Warrants

 

 

Weighted Average

Exercise Price

 

 

Weighted Average

Contractual Term (Years)

 

Balance outstanding at December 31, 2021

 

 

2,437,164

 

 

$ 5.54

 

 

 

0.58

 

Granted

 

 

-

 

 

 

-

 

 

 

-

 

Exercised

 

 

-

 

 

 

-

 

 

 

-

 

Forfeited

 

 

-

 

 

 

-

 

 

 

-

 

Expired

 

 

(2,230,411 )

 

 

5.94

 

 

 

-

 

Balance outstanding at September 30, 2022

 

 

206,753

 

 

$ 1.25

 

 

 

2.03

 

Exercisable at September 30, 2022

 

 

206,753

 

 

$ 1.25

 

 

 

2.03

 

 

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 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. On July 16, 2019, the Company exercised its option to extend the lease for an additional 5 years past the initial term originally expiring on December 31, 2019.

 

On March 15, 2021, the Company entered into an amendment to the lease, adding approximately 3,248 rentable square feet, increasing the initial monthly rent to $15,452 effective May 2021, and extending the term of the lease to December 31, 2025.

 

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 September 30, 2022 was 10%. Lease expense is recognized on a straight-line basis over the lease term to the extent that collection is considered probable. As a result, the Company has been recognizing rents as they become payable based on the adoption of ASC Topic 842. The weighted-average remaining lease term is 3.25 years.

 

 
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As of September 30, 2022, the maturities of operating lease liabilities are as follows:

 

 

 

Operating

Lease

 

 

 

 

 

2022

 

 

47,741

 

2023

 

 

196,721

 

2024

 

 

202,624

 

2025 and beyond

 

 

202,624

 

Total

 

$ 649,710

 

Less: amount representing interest

 

 

(96,879 )

Present value of future minimum lease payments

 

 

552,830

 

Less: current obligations under leases

 

 

(147,057 )

Long-term lease obligations

 

$ 405,773

 

 

For the three months ended September 30, 2022 and 2021, the Company incurred rent expenses of $53,698 and $53,263, respectively.

 

For the nine months ended September 30, 2022 and 2021, the Company incurred rent expenses of $160,302 and $119,802, respectively.

 

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 $423,000. 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. Upon termination without cause, any portion of Mr. Michelon’s option award 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 option award will automatically vest. Upon termination for any other reason, the entire unvested portion of the option award will terminate.

 

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 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 - 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 $324,000. 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. Upon termination without cause, any portion of Mr. Thornton’s option award 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 option award will automatically vest. Upon termination for any other reason, the entire unvested portion of the option award will terminate.

 

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 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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Renaud Maloberti - The Company has an employment agreement with Renaud Maloberti, dated April 15, 2019, that provides for an annual base salary of $250,000 and eligibility for an annual cash bonus to be paid based on attainment of Company and individual performance objectives to be established by the Board of Directors. The annual base salary in effect during the period covered by this Form 10-Q was $296,000. The employment agreement also provides for eligibility to receive benefits substantially similar to those of the Company’s other senior executive officers. Upon termination without cause that is not the result of death or disability within 12 months following a change in control, the entire unvested portion of the award will automatically vest without any limitation upon sales. Upon termination for any other reason, the entire unvested portion of the award will terminate. If the termination is for cause, the vested portion of the award will also terminate.

 

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 Omnibus 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 to 8 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. 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 September 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

 

On September 26, 2022, the Company’s board of directors declared a dividend of one one-thousandth of a share of Series C Preferred Stock, par value $0.0001 per share (“Series C Preferred Stock”), for each outstanding share of the Company’s common stock, and 1.359 shares of Series C Preferred Stock for each outstanding share of Series A Convertible Preferred Stock, to stockholders of record at 5:00 p.m. Eastern Time on October 7, 2022. Each whole share of Series C Preferred Stock entitles the holder thereof to 1,000,000 votes (and each fraction of a share of Series C Preferred Stock will have a ratable number of votes) on any proposal to adopt an amendment to the Company’s certificate of incorporation to reclassify the outstanding shares of the Company’s common stock into a smaller number of shares at a ratio specified in or determined in accordance with the terms of such amendment (the “Reverse Stock Split”). All shares of Series C Preferred stock that are not present in person or by proxy at any meeting of stockholders held to vote on the Reverse Stock Split as of immediately prior to the opening of the polls at such meeting will automatically be redeemed in whole by the Company without further action on the part of the Company or the holder of shares of Series C Preferred Stock. Any outstanding shares of Series C Preferred Stock that are not redeemed at such time will be redeemed (i) if such redemption is ordered by the Company’s board of directors in its sole discretion, automatically and effective on such time and date specified by the board of directors or (ii) automatically upon the approval by the Company’s stockholders of the Reverse Stock Split at any meeting of stockholders held for the purpose of voting on such proposal. Each share of Series C Preferred Stock redeemed in any redemption described above will be redeemed for no consideration. The Series C Preferred Stock is not convertible into, or exchangeable for, shares of any other class or series of stock or other securities of the Company. No shares of Series C Preferred Stock may be transferred by the holder thereof except in connection with a transfer by such holder of shares of Common Stock or Series A Preferred Stock, as applicable, of such holder, in which case a number of (i) one one-thousandths (1/1,000ths) of a share of Series C Preferred Stock equal to the number of shares of Common Stock to be transferred by such holder or (ii) a number of shares of Series C Preferred Stock issued in respect of each share of Series A Preferred Stock to be transferred will be automatically transferred to the transferee of such shares of Common Stock or Series A Preferred Stock, as applicable.

 

The foregoing description of the Series C Preferred Stock does not purport to be complete and is qualified in its entirety by reference to the Certificate of Designations of Series C Preferred Stock, which is filed as Exhibit 4.5 hereto. 

 

 
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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 CT  and 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 fourth quarter of 2022 or first quarter of 2023.

 

Financial Operations Overview

 

Revenue

 

No revenue has been generated by our TAEUS technology, which we have not commercially sold as of September 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 September 30, 2022, we had a full-time sales representative in each of the United Kingdom, France and 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 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 shares. As of September 30, 2022, there were 1,078,350 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 September 30, 2022 and 2021

 

Revenue

 

We had no revenue during the three months ended September 30, 2022 and 2021.

 

 
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Cost of Goods Sold

 

We had no cost of goods sold during the three months ended September 30, 2022 and 2021.

 

Research and Development

 

Research and development expenses were $1,830,297 for the three months ended September 30, 2022, as compared to $1,173,319 for the three months ended September 30, 2021, an increase of $656,978, or 56%. 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 $420,439 for the three months ended September 30, 2022, as compared to $275,565 for the three months ended September 30, 2021, an increase of $144,874, or 53%. 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 September 30, 2022 were $1,166,480, compared to $1,201,851 for the three months ended September 30, 2021, a decrease of $35,371, or 3%. Our wage and related expenses for the three months ended September 30, 2022 were $479,228, compared to $517,831 for the three months ended September 30, 2021. Wage and related expenses in the three months ended September 30, 2022 included $67,932 for bonuses and $111,861 of stock compensation expense related to the issuance and vesting of options, compared to $44,652 for bonuses, $136,008 of stock compensation expense related to the issuance and vesting of options, for the three months ended September 30, 2021. Our professional fees, which include legal, audit, and investor relations, for the three months ended September 30, 2022 were $454,707, compared to $448,728 for the three months ended September 30, 2021.

 

Net Loss

 

As a result of the foregoing, for the three months ended September 30, 2022, we recorded a net loss of $3,440,227, compared to a net loss of $2,658,242 for the three months ended September 30, 2021.

 

Nine months ended September 30, 2022 and 2021

 

Revenue

 

We had no revenue during the nine months ended September 30, 2022 and 2021.

 

Cost of Goods Sold

 

We had no cost of goods sold during the nine months ended September 30, 2022 and 2021.

 

Research and Development

 

Research and development expenses were $4,890,879 for the nine months ended September 30, 2022, as compared to $4,059,730 for the nine months ended September 30, 2021, an increase of $831,149, or 20%. 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 $1,102,381 for the nine months ended September 30, 2022, as compared to $693,263 for the nine months ended September 30, 2021, an increase of $409,118, or 59%. 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 nine months ended September 30, 2022 were $3,850,918, compared to $3,673,771 for the nine months ended September 30, 2021, an increase of $177,147, or 5%. Our wage and related expenses for the nine months ended September 30, 2022 were $1,600,240, compared to $1,518,718 for the nine months ended September 30, 2021. Wage and related expenses in the nine months ended September 30, 2022 included $181,407 for bonuses and $312,636 of stock compensation expense related to the issuance and vesting of options, compared to $149,112 for bonuses and $366,799 of stock compensation expense related to the issuance and vesting of options, for the nine months ended September 30, 2021. Our professional fees, which include legal, audit, and investor relations, for the nine months ended September 30, 2022 were $1,503,816, compared to $1,526,874 for the nine months ended September 30, 2021. 

 

 
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Gain on Extinguishment of Debt

 

During the nine months ending September 30, 2021, we received notice that the U.S. SBA approved forgiveness of our loan received under 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 nine months ended September 30, 2022, we recorded a net loss of $9,889,496, compared to a net loss of $8,126,622 for the nine months ended September 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 September 30, 2022, we had an accumulated deficit of $78,580,306 and had $8,016,350 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 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 nine months ended September 30, 2022, we incurred net losses of $9,889,496 and used cash in operations of $9,680,682. In light of our cash balance as of September 30, 2022, we will need to raise additional capital in order to fund operations through the next twelve months, and 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 nine months ended September 30, 2022, we used $9,680,682 of cash in operating activities primarily as a result of our net loss of $9,889,496, offset by share-based compensation of $909,069, depreciation expense of $64,532, amortization of right of use assets of $101,957, and net changes in operating assets and liabilities of $(866,744).

 

During the nine months ended September 30, 2021, we used $8,469,658 of cash in operating activities primarily as a result of our net loss of $8,126,622, offset by share-based compensation of $1,032,840, gain on extinguishment of debt of $308,600, depreciation expense of $94,977, amortization of right of use assets of $75,768, and net changes in operating assets and liabilities of $(1,238,016).

 

Investing Activities

 

During the nine months ended September 30, 2022, we used $164,014 in investing activities related to purchases of equipment.

 

During the nine months ended September 30, 2021, we used $45,000 in investing activities related to purchases of equipment.

 

 
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Financing Activities

 

During the nine months ended September 30, 2022, our financing activities provided $8,399,512 in proceeds from issuances of common stock.

 

During the nine months ended September 30, 2021, our financing activities provided $13,080,526, including $10,294,899 in proceeds from issuance of common stock, and $2,785,627 in proceeds from warrant exercises. 

 

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.

 

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. On October 17, 2022, the Company distributed to stockholders and filed with the SEC a definitive proxy statement relating to a special meeting scheduled for November 29, 2022 at which stockholders will vote on a proposal to approve an amendment to the Company’s certificate of incorporation to effect, at the discretion of the Company’s board of directors, a reverse stock split of the Company’s common stock at a stock split ratio between 1-for-2 and 1-for-30, with the ultimate ratio to be determined by the board of directors in its sole discretion, and the implementation and timing of which shall be subject to the discretion of the board of directors.

 

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 September 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 September 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 SEC.

 

 

 

 

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 nine months ended September 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. In connection with the deficiency under the Bid Price Rule, the Company has scheduled a special meeting of stockholders on November 29, 2022 at which stockholders as of the record date will vote on a proposal to amend the Company’s certificate of incorporation to effect a reverse stock split of the Company’s common stock.

 

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

3.1

 

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 August 15, 2017)

3.2

 

Certificate of Amendment to the Fourth Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on June 18, 2020).

3.3

 

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)

4.1

 

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)

4.2

 

Certificate of Designations of Series A Convertible Preferred Stock (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on December 11, 2019)

4.3

 

Form of Warrant issued in December 2019 Series A Convertible Preferred Stock Offering (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on December 11, 2019)

4.4

 

Form of Warrant issued in December 2019 Series B Convertible Preferred Stock Offering (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on December 26, 2019)

4.5

 

Certificate of Designations of Series C Preferred Stock (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on September 27, 2022)

31.1

 

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)

31.2

 

Certification of Periodic Report by Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14a and pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)

32.1

 

Certification of Periodic Report by Chief Executive Officer and Principal Financial Officer pursuant to U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (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.

 

 

 

 

Date: November 14, 2022

By:

/s/ Francois Michelon

 

 

 

Francois Michelon

 

 

 

Chief Executive Officer and Chairman

(Principal Executive Officer)

 

 

 

ENDRA LIFE SCIENCES INC.

 

 

 

 

 

Date: November 14, 2022

By:

/s/ Irina Pestrikova

 

 

 

Irina Pestrikova

 

 

 

Senior Director, Finance

(Principal Financial and Accounting Officer)

 

 

 
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