ENDRA Life Sciences(NDRA) - 2019 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements For the nine months ended September 30, 2019, ENDRA Life Sciences reported no revenue and an increased net loss of $8.5 million, with significant declines in cash and stockholders' equity raising substantial doubt about its going concern ability Condensed Consolidated Balance Sheets As of September 30, 2019, total assets decreased to $3.6 million, liabilities increased to $2.2 million, and stockholders' equity sharply dropped to $1.4 million Key Balance Sheet Figures | | Sep 30, 2019 (Unaudited) | Dec 31, 2018 | | :--- | :--- | :--- | | Total Current Assets | $2,976,181 | $6,949,558 | | Total Assets | $3,615,467 | $7,222,791 | | Total Current Liabilities | $1,853,808 | $974,583 | | Total Liabilities | $2,212,723 | $974,583 | | Total Stockholders' Equity | $1,402,744 | $6,248,208 | - Cash decreased significantly from $6,471,375 at the end of 2018 to $2,275,302 as of September 30, 2019[7] - The company reported new liabilities in 2019, including $590,026 in convertible notes payable and total lease liabilities of $424,210[7] Condensed Consolidated Statements of Operations The company reported no revenue, with net losses widening to $3.4 million for Q3 2019 and $8.5 million for the nine-month period, driven by increased R&D and new debt discount amortization expenses Key Statements of Operations Figures | | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2018 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $ - | $ - | $ - | $6,174 | | Operating loss | $(2,640,533) | $(2,355,515) | $(7,712,925) | $(7,016,201) | | Net Loss | $(3,413,562) | $(2,758,576) | $(8,496,670) | $(7,430,651) | | Net loss per share | $(0.46) | $(0.70) | $(1.14) | $(1.89) | - Research and development expenses increased to $1,468,441 in Q3 2019 from $1,162,911 in Q3 2018[10] - A significant new expense in Q3 2019 was the amortization of debt discount, amounting to $728,417, which was not present in the same period of 2018[10] Condensed Consolidated Statements of Cash Flows Net cash used in operating activities increased to $6.7 million for the nine months ended September 30, 2019, leading to a $4.2 million net decrease in cash and an ending balance of $2.3 million Key Statements of Cash Flows Figures | | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :--- | :--- | :--- | | Net cash used in operating activities | $(6,681,336) | $(5,800,054) | | Net cash used in investing activities | $(5,238) | $(100,000) | | Net cash provided by financing activities | $2,490,501 | $935,300 | | Net Decrease in cash | $(4,196,073) | $(4,964,754) | | Cash, end of period | $2,275,302 | $637,124 | Notes to Condensed Consolidated Financial Statements Key notes detail the company's focus on TAEUS technology, a significant going concern warning due to a cumulative net loss of $36.2 million and insufficient cash, and a July 2019 private placement of $2.8 million in convertible notes - The company is developing Thermo-Acoustic Enhanced Ultrasound (TAEUS) technology to enhance clinical diagnostic ultrasound capabilities[17] - There is substantial doubt about the company's ability to continue as a going concern due to a cumulative net loss of $36,188,366 and insufficient cash resources to meet anticipated needs for the next twelve months[44][45][46] - In July 2019, the company raised approximately $2.8 million in gross proceeds through a private placement of senior secured convertible promissory notes and warrants[51] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the strategic shift to focus on TAEUS technology, increased net losses from higher R&D, and a critical liquidity situation requiring additional capital to avoid delisting Overview ENDRA is strategically focusing on developing its TAEUS technology for liver fat quantification, having ceased production of its legacy Nexus 128 system, and completed a human feasibility study for CE Mark submission - The company has ceased production and support for its legacy Nexus 128 system to focus resources on the development of its TAEUS technology[77] - The first-generation TAEUS application is designed to quantify fat in the liver to address nonalcoholic fatty liver disease (NAFLD)[79] - A human feasibility study for the TAEUS liver device was completed on September 26, 2019, with data to be used for a CE Mark submission anticipated in the first half of 2020[83] Results of Operations The company reported no revenue, with Q3 2019 net loss widening to $3.4 million and nine-month net loss to $8.5 million, primarily due to increased R&D expenses and new debt discount amortization Key Operating Expenses | Expense Category | Q3 2019 | Q3 2018 | Change (%) | | :--- | :--- | :--- | :--- | | Research and development | $1,468,441 | $1,162,911 | +26% | | Sales and marketing | $100,203 | $72,179 | +39% | | General and administrative | $1,071,889 | $832,884 | +29% | - The company incurred a new non-cash expense of $728,417 in Q3 2019 for the amortization of debt discount related to convertible notes issued in July 2019[102] - For the nine months ended September 30, 2019, the company recorded a net loss of $8,496,670 compared to a net loss of $7,430,651 for the same period in 2018[111] Liquidity and Capital Resources The company's critical financial condition, with $2.3 million cash sufficient only into Q1 2020, necessitates additional capital to continue operations and execute its commercialization plan - As of September 30, 2019, the company had $2,275,302 in cash, believed to be sufficient to fund operations only into the first quarter of 2020[112] - Management has concluded there is substantial doubt about the company's ability to continue as a going concern for one year from the issuance of the financial statements[114] - In July 2019, the company raised net proceeds of approximately $2,490,501 through a private placement of senior secured convertible promissory notes and warrants[113] Quantitative and Qualitative Disclosure About Market Risk As a smaller reporting company, ENDRA Life Sciences is exempt from providing this specific market risk disclosure - The company is a smaller reporting company and is not required to provide the information for this item[124] Controls and Procedures Management concluded that disclosure controls were ineffective as of September 30, 2019, due to a material weakness in accounting personnel resources, with remediation contingent on additional funding - Management concluded that the company's disclosure controls and procedures were not effective as of September 30, 2019[125] - A material weakness was identified due to insufficient personnel resources in the accounting function, leading to a lack of segregation of duties[126] - Remediation plans, which include hiring additional personnel, are contingent upon the company's ability to obtain additional funding[127] PART II – OTHER INFORMATION Legal Proceedings The company is not currently involved in any pending legal proceedings expected to materially affect its business or financial condition - The company reports no pending legal proceedings that would have a material effect on its financial position or results of operations[131] Risk Factors Critical risk factors include the urgent need for additional capital to fund operations and repay $2.6 million in convertible notes, alongside a Nasdaq delisting warning for failing to maintain minimum stockholders' equity - The company needs to raise additional capital to maintain operations and repay senior secured convertible promissory notes of $2,587,895 maturing on April 26, 2020[133] - On August 14, 2019, the company received a notification from Nasdaq for failing to maintain the minimum stockholders' equity of $2,500,000, which could result in the delisting of its common stock[137] Exhibits This section lists the exhibits filed with the Form 10-Q, including corporate governance documents, forms of securities from a recent financing, and certifications by the CEO and CFO