ENDRA Life Sciences(NDRA) - 2021 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION This section presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis Item 1. Condensed Consolidated Financial Statements (unaudited) This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, equity, cash flows, and their notes Condensed Consolidated Balance Sheets This section provides a snapshot of the company's financial position at specific dates, detailing assets, liabilities, and equity Condensed Consolidated Balance Sheets | Metric | Sep 30, 2021 | Dec 31, 2020 | | :--------------------------- | :----------- | :----------- | | Cash | $11,793,189 | $7,227,316 | | Total Current Assets | $14,470,133 | $8,207,736 | | Total Assets | $15,314,206 | $8,764,976 | | Total Current Liabilities | $1,576,826 | $986,663 | | Total Liabilities | $2,158,140 | $1,595,655 | | Total Stockholders' Equity | $13,156,066 | $7,169,321 | | Accumulated Deficit | $(65,586,182) | $(57,338,489) | Condensed Consolidated Statements of Operations This section outlines the company's financial performance over specific periods, detailing revenues, expenses, and net loss Condensed Consolidated Statements of Operations | Metric | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :---------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Research and development | $1,173,319 | $1,769,339 | $4,059,730 | $4,774,534 | | Sales and marketing | $275,565 | $139,751 | $693,263 | $389,469 | | General and administrative | $1,201,851 | $1,346,360 | $3,673,771 | $4,083,572 | | Total operating expenses | $2,650,735 | $3,255,450 | $8,426,764 | $9,247,575 | | Operating loss | $(2,650,735) | $(3,255,450) | $(8,426,764) | $(9,247,575) | | Gain on extinguishment of debt | - | - | $308,600 | - | | Net Loss | $(2,658,242) | $(3,258,071) | $(8,126,622) | $(9,474,740) | | Net loss per share – basic and diluted | $(0.06) | $(0.15) | $(0.20) | $(0.41) | Condensed Consolidated Statements of Equity This section details changes in the company's equity over specific periods, including net loss and stock issuances Condensed Consolidated Statements of Equity | Metric | Sep 30, 2021 | Sep 30, 2020 | | :---------------------------------- | :----------- | :----------- | | Total Stockholders' Equity (end of period) | $13,156,066 | $3,334,982 | | Common stock issued for cash, net of funding costs (9 months) | $10,294,899 | $1,321,890 | | Common stock issued for warrant exercise (9 months) | $2,785,627 | $4,914,411 | | Net loss (9 months) | $(8,126,622) | $(9,474,740) | Condensed Consolidated Statements of Cash Flows This section presents the cash inflows and outflows from operating, investing, and financing activities over specific periods Condensed Consolidated Statements of Cash Flows | Metric | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :---------------------------------- | :-------------------------- | :-------------------------- | | Net cash used in operating activities | $(8,469,653) | $(8,673,489) | | Net cash used in investing activities | $(45,000) | $(10,483) | | Net cash provided by financing activities | $13,080,526 | $6,303,058 | | Net increase (decrease) in cash | $4,565,875 | $(2,380,914) | | Cash, end of period | $11,793,189 | $3,793,293 | Notes to the Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements Note 1 – Nature of the Business This note describes the company's core business, focusing on developing technology for clinical diagnostic ultrasound - ENDRA Life Sciences Inc. develops technology to enhance clinical diagnostic ultrasound capabilities, aiming to broaden patient access to diagnosis and treatment for medical conditions where expensive X-ray computed tomography (CT) and magnetic resonance imaging (MRI) technology is unavailable or impractical[25] Note 2 – Summary of Significant Accounting Policies This note outlines the key accounting principles, estimates, and assumptions used in preparing the financial statements - The Company's financial statements are prepared using U.S. GAAP, requiring management to make estimates and assumptions affecting reported amounts[27][28] - The COVID-19 pandemic's ultimate impact on the Company's business and financial results remains uncertain, potentially affecting macroeconomic conditions, capital markets access, and governmental responses[30][31] - The Company adopted ASU 2016-02 'Leases', recording a lease liability of $680,526 as of September 30, 2021, and a right-of-use asset of $675,822[37] - The Company's financial statements are prepared assuming it will continue as a going concern, despite a cumulative net loss of $65,586,182 and the need for additional financing to fund future operations[51][52] Note 3 – Inventory This note details the composition of the company's inventory, primarily raw materials and subassemblies for the TAEUS system - Inventory consists of raw materials and subassemblies for the TAEUS system[56] - As of September 30, 2021, there were no pending orders for the sale of a TAEUS system[56] Note 4 – Fixed Assets This note provides information on the company's fixed assets, including net values and depreciation expenses Fixed Assets | Metric | Sep 30, 2021 | Dec 31, 2020 | | :--------------------------- | :----------- | :----------- | | Fixed assets, net | $162,265 | $212,242 | | Depreciation expense (9 months) | $94,977 | $45,114 | Note 5 – Accounts Payable and Accrued Liabilities This note presents a breakdown of the company's accounts payable and accrued liabilities at specific dates Accounts Payable and Accrued Liabilities | Metric | Sep 30, 2021 | Dec 31, 2020 | | :--------------------------- | :----------- | :----------- | | Accounts payable | $747,762 | $402,910 | | Accrued payroll | $196,079 | $48,260 | | Total | $1,449,130 | $910,183 | Note 6 – Bank Loans This note details the company's bank loans, including PPP loan forgiveness and Canadian emergency loan terms - The U.S. SBA Paycheck Protection Program Loan of $308,600 was fully forgiven on May 10, 2021[60][61] - The Company has a CAD 40,000 loan from TD Bank under the Canadian Emergency Business Account, due December 31, 2022, with 0% interest until January 1, 2023, and 25% forgiveness if 75% is repaid by the initial term date[62] Note 7 – Capital Stock This note outlines the company's authorized and outstanding capital stock, including common and preferred shares - Authorized capital consists of 90,000,000 shares (80,000,000 common, 10,000,000 preferred)[64] Capital Stock Outstanding | Stock Type | Shares Outstanding (Sep 30, 2021) | | :---------------------------------- | :-------------------------------- | | Common stock | 42,165,726 | | Series A Convertible Preferred Stock | 141,397 | | Series B Convertible Preferred Stock | 0 | - During the nine months ended September 30, 2021, the Company issued 8,116,023 shares of common stock, including 3,914,217 shares for $9,798,293 net proceeds under the February 2021 ATM Agreement and 283,953 shares for $496,613 net proceeds under the June 2021 ATM Agreement[66][69] Note 8 – Common Stock Options and Restricted Stock Units ("RSU's") This note details the activity and status of common stock options and restricted stock units under the company's Omnibus Plan - On January 1, 2021, the pool of shares available for issuance under the Omnibus Plan automatically increased by 1,599,570 shares, from 5,861,658 to 7,461,228[48][116] Stock Options Activity | Stock Options Activity | Number of Options | Weighted Average Exercise Price | | :---------------------------------- | :---------------- | :------------------------------ | | Balance outstanding at Dec 31, 2020 | 3,569,707 | $2.13 | | Granted | 1,679,000 | $1.98 | | Exercised | (37,645) | - | | Cancelled or expired | (114,852) | - | | Balance outstanding at Sep 30, 2021 | 5,096,210 | $2.08 | | Exercisable at Sep 30, 2021 | 2,073,249 | $2.79 | - On January 28, 2021, 22,815 RSUs were granted to a member of management, vesting immediately, with a total fair value of $45,858[70] Note 9 – Common Stock Warrants This note provides information on the company's common stock warrants, including issuances, exercises, and outstanding balances - During the nine months ended September 30, 2021, the Company issued 3,567,899 shares of common stock upon Private Warrant exercises for net proceeds of $2,785,626[74] - Additionally, 202,887 shares of common stock were issued upon cashless exercise election by certain warrant holders[74] Warrants Activity | Warrants Activity | Number of Warrants | Weighted Average Exercise Price | | :---------------------------------- | :----------------- | :------------------------------ | | Balance outstanding at Dec 31, 2020 | 6,251,103 | $2.79 | | Granted | 314,291 | $0.88 | | Exercised | (3,916,996) | $0.83 | | Expired | (211,234) | - | | Balance outstanding at Sep 30, 2021 | 2,437,164 | $5.54 | | Exercisable at Sep 30, 2021 | 2,437,164 | $5.54 | Note 10 – Commitments & Contingencies This note discloses the company's contractual commitments, including lease obligations, and any material legal contingencies - On March 15, 2021, the Company amended its office lease, adding approximately 3,248 rentable square feet, increasing initial monthly rent to $15,452, and extending the term to December 31, 2025[77] Operating Lease Liabilities (Sep 30, 2021) | Operating Lease Liabilities (Sep 30, 2021) | Amount | | :---------------------------------- | :----------- | | Total future minimum lease payments | $839,287 | | Present value of future minimum lease payments | $680,526 | | Long-term lease obligations | $552,830 | - David Wells resigned as Chief Financial Officer effective June 18, 2021; Irina Pestrikova was appointed Senior Director, Finance, and Principal Financial Officer, receiving 75,000 stock options and an annual salary of $160,000[90][91] - As of September 30, 2021, there were no legal matters that management believes would have a material effect on the Company's financial position or results of operations[92] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion and analysis of financial condition and results of operations, including forward-looking statements and COVID-19 impact Forward-Looking Statements This section cautions that the report contains forward-looking statements subject to inherent uncertainties and risks - The report contains forward-looking statements based on current beliefs and assumptions, which are subject to inherent uncertainties, risks, and changes in circumstances[94] - Important factors that could cause actual results to differ materially include limited commercial experience, ability to obtain financing, market acceptance, regulatory approvals, and the impact of COVID-19[94][95] Available Information This section lists the various channels the company uses to disseminate material information to the public - The Company uses press releases, Twitter (@endralifesci), LinkedIn (www.linkedin.com/company/endra-inc), and its investor relations website (investors.endrainc.com) to distribute material information[96] Overview This section provides a general business overview, focusing on the development and regulatory status of the TAEUS technology - ENDRA is developing Thermo Acoustic Enhanced Ultrasound (TAEUS) technology to enhance clinical diagnostic ultrasound, particularly for quantifying fat in the liver (NAFLD)[97][98][101] - The TAEUS FLIP System received CE mark approval in March 2020 for sale in the European Union and other CE mark geographies[104][105] - A 510(k) Application for the TAEUS FLIP System was submitted to the FDA in June 2020, but the review process is taking longer than expected due to the technology's advancement[106] - The Company has a Collaborative Research Agreement with GE Healthcare, extended to December 16, 2022, and clinical evaluation agreements with several research institutions[102][107] Financial Operations Overview This section describes the company's financial operational aspects, including R&D, sales, and marketing expenses - No revenue or cost of goods sold has been generated by the TAEUS technology as of September 30, 2021[108][109] - Research and development expenses primarily cover wages, fees, equipment for TAEUS development, and patent protection[110] - Sales and marketing efforts are expanding with additional headcount in the EU (UK, France, Germany) for pre-selling activities, with plans to staff US sales efforts post-FDA approval[111] Critical Accounting Policies and Estimates This section highlights significant accounting policies and estimates that require management judgment - Management makes estimates for accounts such as deferred income tax assets, accrued expenses, fair value of equity instruments, and reserves for commitments or contingencies[114] - Share-based compensation is recorded using the Black-Scholes option valuation model, with the resulting charge expensed over the vesting period[117] - Debt discounts related to conversion features and warrants are classified as a direct deduction from debt liability and amortized as interest expense[119] Results of Operations This section analyzes the company's financial performance, comparing key operating expenses and net loss for specified periods Three months ended September 30, 2021 and 2020 This section compares the company's operating expenses and net loss for the three-month periods ended September 30, 2021 and 2020 - No revenue was generated during the three months ended September 30, 2021 and 2020[121] Operating Expenses and Net Loss (Three Months) | Expense Category | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | Change (%) | | :--------------------------- | :-------------------------- | :-------------------------- | :--------- | | Research and Development | $1,173,319 | $1,769,339 | -34% | | Sales and Marketing | $275,565 | $139,751 | +97% | | General and Administrative | $1,201,851 | $1,346,360 | -11% | | Net Loss | $(2,658,242) | $(3,258,071) | -18.4% | Nine months ended September 30, 2021 and 2020 This section compares the company's operating expenses and net loss for the nine-month periods ended September 30, 2021 and 2020 - No revenue was generated during the nine months ended September 30, 2021 and 2020[128] Operating Expenses and Net Loss (Nine Months) | Expense Category | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | Change (%) | | :--------------------------- | :-------------------------- | :-------------------------- | :--------- | | Research and Development | $4,059,730 | $4,774,534 | -15% | | Sales and Marketing | $693,263 | $389,469 | +78% | | General and Administrative | $3,673,771 | $4,083,572 | -10% | | Gain on Extinguishment of Debt | $308,600 | - | N/A | | Amortization of Debt Discount | - | $232,426 | -100% | | Net Loss | $(8,126,622) | $(9,474,740) | -14.2% | Liquidity and Capital Resources This section discusses the company's cash position, funding requirements, and financing activities to support future operations - As of September 30, 2021, the Company had $11,793,189 in cash, which is believed to be sufficient to fund current operations into the second half of 2022[137][138] - Additional capital will be required to fund future planned operations, including research and development and commercialization of products, with potential financing options including equity offerings and debt financings[138][147] - The Company incurred net losses of $8,126,622 and used $8,469,653 in operating activities during the nine months ended September 30, 2021, indicating a dependence on external financing to continue as a going concern[139][140] - Financing activities provided $13,080,526 during the nine months ended September 30, 2021, primarily from common stock issuance ($10.3 million) and warrant exercises ($2.8 million)[144] - Significant expenses are anticipated for advancing TAEUS application development, regulatory filings, marketing, and expanding operational, financial, and management systems[145] Coronavirus ("COVID-19") Pandemic This section outlines the impact of the COVID-19 pandemic on the company's operations, clinical trials, and regulatory processes - The Company implemented precautionary measures, including remote work and temporary salary reductions for management (offset by RSUs), to minimize risks from COVID-19[149] - The pandemic has impacted clinical trial activities, causing delays in patient visits and site access, and has led to delays in FDA reviews and approvals for the TAEUS application due to resource reallocation[150] Off-Balance Sheet Transactions This section confirms the absence of any off-balance sheet arrangements as of the reporting date - As of September 30, 2021, the Company did not have any off-balance sheet arrangements[151] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, ENDRA Life Sciences Inc. is exempt from providing quantitative and qualitative disclosures about market risk - The Company is not required to provide information on market risk as it qualifies as a smaller reporting company[152] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were not effective due to a material weakness in accounting personnel resources - As of September 30, 2021, management concluded that the Company's disclosure controls and procedures were not effective[153] - A material weakness was identified: insufficient personnel resources within the accounting function to segregate duties over financial transaction processing and reporting[154] - Remediation plans include hiring additional accounting personnel or outside consultants and developing written accounting policies and procedures, contingent upon obtaining additional funding[155][164] PART II – OTHER INFORMATION This section provides additional information not covered in the financial statements, including legal proceedings, risk factors, and exhibits Item 1. Legal Proceedings The Company is not currently involved in any legal proceedings that management believes would have a material adverse effect on its business or financial condition - The Company is not currently a party to any pending legal proceedings that are expected to have a material adverse effect on its business or financial condition[159] Item 1A. Risk Factors This section directs readers to the comprehensive 'Risk Factors' discussion in the Company's Annual Report on Form 10-K for a detailed overview of potential business risks - Readers should refer to the 'Risk Factors' section in the Company's Annual Report on Form 10-K for the period ended December 31, 2020, for a detailed discussion of potential risks[160] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This item is not applicable to the current report - This item is not applicable[161] Item 3. Defaults Upon Senior Securities This item is not applicable to the current report - This item is not applicable[162] Item 4. Mine Safety Disclosure This item is not applicable to the current report - This item is not applicable[163] Item 5. Other Information This item is not applicable to the current report - This item is not applicable[165] Item 6. Exhibits This section lists all exhibits filed as part of this Form 10-Q, including various corporate documents and certifications - The exhibits include the Fourth Amended and Restated Certificate of Incorporation, Amended and Restated Bylaws, Specimen Certificate for common stock, Certificates of Designations for Series A and B Preferred Stock, Forms of Warrants, and Certifications (31.1, 31.2, 32.1)[166] Signatures The report is duly signed on November 15, 2021, by the Chief Executive Officer and Chairman, and the Senior Director, Finance - The report was signed on November 15, 2021[170] - Signatories include Francois Michelon, Chief Executive Officer and Chairman, and Irina Pestrikova, Senior Director, Finance (Principal Financial and Accounting Officer)[170][171]