UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
FOR THE QUARTERLY PERIOD ENDED
OR
COMMISSION FILE NUMBER
(Exact name of registrant as specified in its charter) |
| ||
(State of incorporation) |
| (I.R.S. Employer Identification No.) |
(Address of principal executive office) (Zip code)
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
| Trading Symbol(s) |
| Name of each exchange on which registered |
|
| The |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer | ☐ | Accelerated filer | ☐ |
☒ | Smaller reporting company | ||
|
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of August 14, 2024, there were
TABLE OF CONTENTS
2 |
Table of Contents |
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ENDRA Life Sciences Inc.
Condensed Consolidated Balance Sheets
|
| June 30, |
|
| December 31, |
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Assets |
| 2024 |
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| 2023 |
| ||
Current Assets |
| (Unaudited) |
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Cash |
| $ |
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| $ |
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Prepaid expenses |
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Total Current Assets |
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Non-Current Assets |
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Inventory |
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Fixed assets, net |
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Right of use assets |
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Prepaid expenses, long term |
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Other assets |
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Total Assets |
| $ |
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| $ |
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Liabilities and Stockholders’ Equity |
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Current Liabilities |
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Accounts payable and accrued liabilities |
| $ |
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Lease liabilities, current portion |
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Loans |
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Total Current Liabilities |
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Long Term Debt |
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Lease liabilities |
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Total Long Term Debt |
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Total Liabilities |
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Stockholders’ Equity |
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Series A Convertible Preferred Stock, $ |
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Series B Convertible Preferred Stock, $ |
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Series C Convertible Preferred Stock, $ |
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Common stock, $ |
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Additional paid in capital |
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Stock payable |
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Accumulated deficit |
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Total Stockholders’ Equity |
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Total Liabilities and Stockholders’ Equity |
| $ |
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| $ |
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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 |
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| Three Months Ended |
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| Six Months Ended |
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| Six Months Ended |
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| June 30, |
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| June 30, |
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| June 30, |
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| June 30, |
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| 2024 |
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| 2023 |
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| 2024 |
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| 2023 |
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Operating Expenses |
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Research and development |
| $ |
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| $ |
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| $ |
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| $ |
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Sales and marketing |
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General and administrative |
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Total operating expenses |
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Operating loss |
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| ( | ) |
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Other Income |
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Other income |
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Total other income |
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Loss from operations before income taxes |
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| ( | ) |
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Provision for income taxes |
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Net Loss |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
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Net loss per share – basic and diluted |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
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Weighted average common shares – basic and diluted |
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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 of Stockholders’ Equity
(Unaudited)
Six Months Ended June 30, 2023 |
| Series A Convertible |
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| Series B Convertible |
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| Additional |
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| Total |
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| Preferred Stock |
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| Preferred Stock |
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| Common stock |
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| Paid in |
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| Stock |
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| Accumulated |
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| Stockholders' |
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| Shares |
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| Amount |
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| Shares |
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| Amount |
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| Shares |
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| Amount |
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| Capital |
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| Payable |
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| Deficit |
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| Equity |
| ||||||||||
Balance as of December 31, 2022 |
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| $ |
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| - |
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| $ |
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| $ |
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| $ |
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| $ |
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| $ | ( | ) |
| $ |
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Common stock issued for cash, net of funding costs |
|
| - |
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| - |
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Warrants issued for cash, net of funding costs |
|
| - |
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| - |
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| - |
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Fair value of vested stock options |
|
| - |
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| - |
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| - |
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Stock payable towards preference dividend |
|
| - |
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| - |
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| - |
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| ( | ) |
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Net loss |
|
| - |
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| - |
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| - |
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| ( | ) |
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| ( | ) | |||||
Balance as of June 30, 2023 |
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| $ |
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| - |
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| $ |
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| $ |
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| $ |
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| $ |
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| $ | ( | ) |
| $ |
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Six Months Ended June 30, 2024 |
| Series A Convertible Preferred Stock |
|
| Series B Convertible Preferred Stock |
|
| Common stock |
|
| Additional Paid in |
|
| Stock | Accumulated | Total Stockholders' |
| |||||||||||||||||||||||
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| Shares |
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| Amount |
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| Shares |
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| Amount |
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| Shares |
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| Amount |
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| Capital |
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| Payable |
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| Deficit |
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| Equity |
| ||||||||||
Balance as of December 31, 2023 |
|
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| $ |
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| - |
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| $ |
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| $ |
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| $ |
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| $ |
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| $ | ( | ) |
| $ |
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Preferred stock conversion to common stock |
|
| ( | ) |
|
| - |
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| - |
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Common stock issued for cash |
|
| - |
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| - |
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Common stock issued for warrant exercise |
|
| - |
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| - |
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Common stock issued for cashless warrant exercise |
|
| - |
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| - |
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Fair value of vested common stock |
|
| - |
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| - |
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Fair value of vested stock options |
|
| - |
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| - |
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| - |
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Stock payable towards preference dividend |
|
| - |
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| - |
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| - |
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| ( | ) |
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Net loss |
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| - |
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| - |
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| - |
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| ( | ) |
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| ( | ) | |||||
Balance as of June 30, 2024 |
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| $ |
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| - |
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| $ |
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| $ |
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| $ |
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| $ |
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| $ | ( | ) |
| $ |
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5 |
Table of Contents |
Three Months Ended June 30, 2023 |
| Series A Convertible |
|
| Series B Convertible |
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| Additional |
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| Total |
| ||||||||||||||||
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| Preferred Stock |
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| Preferred Stock |
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| Common stock |
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| Paid in |
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| Stock |
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| Accumulated |
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| Stockholders' |
| |||||||||||||||||||
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| Shares |
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| Amount |
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| Shares |
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| Amount |
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| Shares |
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| Amount |
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| Capital |
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| Payable |
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| Deficit |
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| Equity |
| ||||||||||
Balance as of March 31, 2023 |
|
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| $ |
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| - |
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| $ |
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| $ |
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| $ |
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| $ |
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| $ | ( | ) |
| $ |
| ||||||||
Common stock issued for cash, net of funding costs |
|
| - |
|
| $ |
|
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| - |
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| $ |
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| $ |
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| $ |
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| ||||||||
Warrants issued for cash, net of funding costs |
|
| - |
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| $ |
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| - |
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| $ |
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| - |
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| $ |
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| $ |
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Fair value of vested stock options |
|
| - |
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| - |
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| - |
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Stock payable towards preference dividend |
|
| - |
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| - |
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| - |
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| ( | ) |
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| ||||||
Net loss |
|
| - |
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| - |
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| - |
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| ( | ) |
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| ( | ) | |||||
Balance as of June 30, 2023 |
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| $ |
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| - |
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| $ |
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| $ |
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| $ |
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| $ |
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| $ | ( | ) |
| $ |
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Three Months Ended June 30, 2024 |
| Series A Convertible |
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| Series B Convertible |
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| Additional |
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| Total |
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| Preferred Stock |
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| Preferred Stock |
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| Common stock |
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| Paid in |
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| Stock |
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| Accumulated |
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| Stockholders' |
| |||||||||||||||||||
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| Shares |
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| Amount |
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| Shares |
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| Amount |
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| Shares |
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| Amount |
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| Capital |
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| Payable |
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| Deficit |
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| Equity |
| ||||||||||
Balance as of March 31, 2024 |
|
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| $ |
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| - |
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| $ |
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| $ |
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| $ |
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| $ |
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| $ | ( | ) |
| $ |
| ||||||||
Preferred stock conversion to common stock |
|
| ( | ) |
|
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|
| - |
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| ||||||||
Common stock issued for cash |
|
| - |
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| - |
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| ||||||||
Common stock issued for warrant exercise |
|
| - |
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| - |
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| ||||||||
Common stock issued for cashless warrant exercise |
|
| - |
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| - |
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| |||||||
Fair value of vested common stock |
|
| - |
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| - |
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| - |
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Fair value of vested stock options |
|
| - |
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| - |
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| - |
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Stock payable towards preference dividend |
|
| - |
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| - |
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| - |
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| ( | ) |
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Net loss |
|
| - |
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| - |
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| - |
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| ( | ) |
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| ( | ) | |||||
Balance as of June 30, 2024 |
|
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| $ |
|
|
| - |
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
|
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)
|
| Six Months Ended |
|
| Six Months Ended |
| ||
|
| June 30, |
|
| June 30, |
| ||
|
| 2024 |
|
| 2023 |
| ||
Cash Flows from Operating Activities |
|
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|
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|
| ||
Net loss |
| $ | ( | ) |
| $ | ( | ) |
Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation and amortization |
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Fixed assets write off |
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Inventory reserve |
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Stock compensation expense |
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Amortization of right of use assets |
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| ||
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Increase in prepaid expenses |
|
| ( | ) |
|
| ( | ) |
Increase in inventory |
|
| ( | ) |
|
| ( | ) |
Decrease in accounts payable and accrued liabilities |
|
|
|
|
|
| ||
Decrease in lease liability |
|
| ( | ) |
|
| ( | ) |
Net cash used in operating activities |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities |
|
|
|
|
|
|
|
|
Purchases of fixed assets |
|
| ( | ) |
|
| ( | ) |
Proceeds from sale of fixed assets |
|
|
|
|
|
| ||
Net cash used in investing activities |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities |
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock |
|
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|
|
| ||
Proceeds from warrant exercise |
|
|
|
|
|
| ||
Proceeds from issuance of warrants |
|
|
|
|
|
| ||
Repayment of loan |
|
| ( | ) |
|
|
| |
Net cash provided by financing activities |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash |
|
|
|
|
| ( | ) | |
|
|
|
|
|
|
|
|
|
Cash, beginning of period |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Cash, end of period |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash items |
|
|
|
|
|
|
|
|
Interest paid |
| $ |
|
| $ |
| ||
Income tax paid |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Supplemental disclosures of non-cash items |
|
|
|
|
|
|
|
|
Stock dividend payable |
| $ | ( | ) |
| $ | ( | ) |
Right of use asset |
| $ |
|
| $ |
| ||
Lease liability |
| $ |
|
| $ |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
7 |
Table of Contents |
ENDRA Life Sciences Inc.
Notes to Condensed Consolidated Financial Statements
For the six months ended June 30, 2024 and 2023
(Unaudited)
Note 1 - Nature of the Business
ENDRA Life Sciences Inc. (“ENDRA” or the “Company”) has developed and is continuing to develop technology for characterizing tissue non-invasively, at the point of patient care, 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”), magnetic resonance imaging (“MRI”) or other technologies are 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.
Principles of Consolidation
The Company’s consolidated financial statements include all accounts of the Company and its consolidated subsidiaries and/or entities as of reporting period ending date(s) and for the reporting period(s) then ended. All inter-company balances and transactions have been eliminated.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements and related notes have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulations. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six months ended June 30, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024. The balance sheet at June 30, 2024 has been derived from the audited financial statements at that date. For further information, refer to the financial statements and footnotes thereto included in the Company’s annual financial statements for the twelve months ended December 31, 2023 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 28, 2024.
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. Cash equivalents include investments in an institutional money market fund, which invests in U.S. Treasury bills, notes and bonds, and/or repurchase agreements, backed by such obligations. Carrying value approximates fair value. 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 creditworthiness of the financial institutions and has determined the credit exposure to be negligible. The Company maintains cash deposits at multiple banks to mitigate the risk associated with a failure of any specific bank.
8 |
Table of Contents |
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. The Company assessed its inventory at June 30, 2024 and determined that certain challenges, including potential damage and a longer timeframe for initial sales, warranted the establishment of an inventory shrinkage reserve. As a result, the Company recognized an inventory reserve of
Capitalization of Fixed Assets
The Company capitalizes expenditures related to property and equipment, subject to a minimum rule, that have a useful life greater than one year for: (1) assets purchased; (2) existing assets that are replaced, improved or the useful lives have been extended; or (3) all land, regardless of cost. Acquisitions of new assets, additions, replacements and improvements (other than land) costing less than the minimum rule in addition to maintenance and repair costs, including any planned major maintenance activities, are expensed as incurred.
Leases
Accounting Standards Update (“ASU”) No. 2016-02 requires a lessee to record a right of use asset and a corresponding lease liability on the balance sheet for all leases with terms longer than 12 months. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest period presented in the financial statements. At June 30, 2024 and December 31, 2023 the Company recorded a right of use asset of $
Revenue Recognition
ASU No. 2014-09, “Revenue from Contracts with Customers” (“ASC Topic 606”) provides a single set of guidelines for revenue recognition to be used across all industries and requires additional disclosures. The updated guidance introduces a five-step model to achieve its core principal of the entity recognizing revenue to depict the transfer of goods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
Under ASC Topic 606, in order to recognize revenue, the Company is required to identify an approved contract with commitments to perform respective obligations, identify rights of each party in the transaction regarding goods to be transferred, identify the payment terms for the goods transferred, verify that the contract has commercial substance and verify that collection of substantially all consideration is probable. The adoption of ASC Topic 606 did not have an impact on the Company’s operations or cash flows.
Research and Development Costs
The Company follows FASB Accounting Standards Codification (“ASC”) Subtopic 730-10, “Research and Development”. Research and development costs are charged to the statement of operations as incurred. During the three months ended June 30, 2024 and 2023, the Company incurred $
Net Earnings (Loss) Per Common Share
The Company computes earnings per share under ASC Subtopic 260-10, “Earnings Per Share”. Basic earnings (loss) per share is computed by dividing the net income (loss) attributable to the common stockholders (the numerator) by the weighted average number of shares of common stock outstanding (the denominator) during the reporting periods. Diluted loss per share is computed by increasing the denominator by the weighted average number of additional shares that could have been outstanding from securities convertible into common stock (using the “treasury stock” method), unless their effect on net loss per share is anti-dilutive. There were
|
| June 30, 2024 |
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| December 31, 2023 |
| ||
Options to purchase common stock |
|
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|
| ||
Warrants to purchase common stock |
|
|
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|
| ||
Shares issuable upon conversion of Series A Convertible Preferred Stock |
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|
| ||
Potential equivalent shares excluded |
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9 |
Table of Contents |
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.
The Company records share-based compensation in accordance with the provisions of the Share-based Compensation Topic of the FASB Codification. The guidance requires the use of option-pricing models that require the input of highly subjective assumptions, including the option’s expected life and the price volatility of the underlying stock. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option valuation model, and the resulting charge is expensed using the straight-line attribution method over the vesting period.
Stock compensation expense recognized during the period is based on the value of share-based awards that were expected to vest during the period adjusted for estimated forfeitures. The estimated fair value of grants of stock options and warrants to non-employees of the Company is charged to expense, if applicable, in the financial statements. These options vest in the same manner as the employee options granted under the stock incentive plan as described above.
10 |
Table of Contents |
Going Concern
The Company’s financial statements are prepared using accounting principles generally accepted in the United States (“U.S. GAAP”) applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has limited commercial experience and had a cumulative net loss from inception to June 30, 2024 of $
Recent Accounting Pronouncements
The Company considered recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the SEC, did not or in management’s opinion will not have a material impact on the Company’s present or future consolidated financial statements.
Note 3 - Inventory
As of June 30, 2024 and December 31, 2023, inventory consisted of raw materials, subassemblies to be used in the assembly of TAEUS systems, and finished goods. As of June 30, 2024, the Company had no orders pending for the sale of a TAEUS system.
As of June 30, 2024, the Company recorded inventory reserve of
As of June 30, 2024 and December 31, 2023, the Company had inventory valued at $
Note 4 - Fixed Assets
As of June 30, 2024 and December 31, 2023, fixed assets consisted of the following:
|
| June 30, 2024 |
|
| December 31, 2023 |
| ||
Property, leasehold and capitalized software |
| $ |
|
| $ |
| ||
TAEUS development and testing |
|
|
|
|
|
| ||
Accumulated depreciation |
|
| ( | ) |
|
| ( | ) |
Fixed assets, net |
| $ |
|
| $ |
|
Depreciation expense for the six months ended June 30, 2024 and 2023 was $
Note 5 - Accounts Payable and Accrued Liabilities
As of June 30, 2024 and December 31, 2023, current liabilities consisted of the following:
|
| June 30, 2024 |
|
| December 31, 2023 |
| ||
Accounts payable |
| $ |
|
| $ |
| ||
Accrued payroll |
|
|
|
|
|
| ||
Accrued bonuses |
|
|
|
|
|
| ||
Accrued employee benefits |
|
|
|
|
|
| ||
Insurance premium financing |
|
|
|
|
|
| ||
Total |
| $ |
|
| $ |
|
11 |
Table of Contents |
Note 6 - Bank Loans
Toronto-Dominion Bank Loan
On April 27, 2020, the Company entered into a commitment loan with TD Bank under the Canadian Emergency Business Account, in the principal aggregate amount of CAD
Note 7 - Capital Stock
Capital Stock
At June 30, 2024, the authorized capital of the Company consisted of
As of June 30, 2024, there were
During the six months ended June 30, 2024, the Company issued a total of
-
-
-
-
-
During the six months ended June 30, 2024, a total of
During the six months ended June 30, 2023, the Company issued a total of
Registered Offering
On June 4, 2024, the Company entered into a placement agency agreement (the “Placement Agreement”) with Craig-Hallum Capital Group LLC (the “Placement Agent”) pursuant to which the Placement Agent served, on a best efforts basis, in connection with the issuance and sale (the “Offering”) of 6,107,691 shares of common stock and pre-funded warrants to purchase up to an aggregate of
12 |
Table of Contents |
The Company received net proceeds from the Offering, after deducting offering expenses payable by the Company, of $
The Offering was made pursuant to the Company’s registration statement on Form S-1 (File No. 333-278842), declared effective by the SEC on June 4, 2024.
The Series Warrants became exercisable on August 9, 2024, the first trading day following effectiveness of an amendment to the Company’s certificate of incorporation (the “Charter Amendment”) to increase the number of authorized shares of common stock (the “Initial Exercise Date”). Each Series A Warrant has an exercise price of $
Under the alternate cashless exercise option of the Series B Warrants, the holder of a Series B Warrant has the right to receive an aggregate number of shares equal to the product of (x) the aggregate number of shares of common stock that would be issuable upon a cashless exercise of the Series B Warrant using $
Subject to certain exceptions, the Series A Warrants provide for an adjustment to the exercise price and number of shares underlying the Series A Warrants upon the Company’s issuance of Common Stock or Common Stock equivalents at a price per share that is less than the exercise price of the Series A Warrants, provided that such adjusted price shall be no less than $0.0434 (subject to adjustment for reverse and forward splits, recapitalizations and similar transactions).
A holder does not have the right to exercise any portion of the Series A Warrants or Series B Warrants if the holder (together with its affiliates) would beneficially own
Pursuant to the Placement Agreement, in addition to the Placement Agent Warrants described above,
The Company has agreed, subject to certain exceptions, not to effect any issuance of Common Stock or securities convertible into Common Stock involving a Variable Rate Transaction, as defined in the Placement Agreement, for a period commencing on the date of the Placement Agreement until 180 days following the closing of the Offering.
At-the-Market Equity Offering Programs
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 $
13 |
Table of Contents |
Note 8 - Common Stock Options and Restricted Stock
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 six months ended June 30, 2024 was determined to be $
|
| Number of Options |
|
| Weighted Average Exercise Price |
|
| Weighted Average Remaining Contractual Term (Years) |
| |||
Balance outstanding at December 31, 2023 |
|
|
|
| $ |
|
|
|
| |||
Granted |
|
|
|
|
|
|
|
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| |||
Exercised |
|
| - |
|
|
|
|
|
| - |
| |
Forfeited |
|
|
|
|
|
|
|
| - |
| ||
Cancelled or expired |
|
| ( | ) |
|
|
|
|
| - |
| |
Balance outstanding at June 30, 2024 |
|
|
|
| $ |
|
|
|
| |||
Exercisable at June 30, 2024 |
|
|
|
| $ |
|
|
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|
Restricted Common Stock
On November 30, 2023, the Company issued 202,020 shares of restricted common stock (the “Restricted Stock”) of the Company to PatentVest, Inc. (“PatentVest”) pursuant to a Restricted Stock Agreement and Consulting Services Agreement, each with PatentVest, in exchange for certain services related to the Company’s patent portfolio. The fair value of the Restricted Stock was determined to be $
Note 9 - Common Stock Warrants
On June 4, 2024, the Company entered into the Placement Agreement in which the company issued pre-funded warrants to purchase up to an aggregate of 55,430,770 shares of common stock (the “pre-funded warrants”), together with
Warrant Exercises
On May 2, 2023, the Company conducted a registered offering in which the Company issued
Between June 4, 2024 and June 7, 2024,
14 |
Table of Contents |
The following table summarizes all stock warrant activity of the Company for the six months ended June 30, 2024:
|
| Number of Warrants |
|
| Weighted Average Exercise Price |
|
| Weighted Average Contractual Term (Years) |
| |||
Balance outstanding at December 31, 2023 |
|
|
|
| $ |
|
|
|
| |||
Granted |
|
| ( | ) |
|
|
|
|
|
| ||
Exercised |
|
| ( | ) |
|
|
|
|
|
| ||
Forfeited |
|
| - |
|
|
| - |
|
|
| - |
|
Expired |
|
| - |
|
|
|
|
|
| - |
| |
Balance outstanding at June 30, 2024 |
|
|
|
| $ |
|
|
|
| |||
Exercisable at June 30, 2024 |
|
|
|
| $ |
|
|
|
|
Note 10 - Related Party Transactions
On October 17, 2023, the Company entered into a consulting agreement with one of its directors, Alex Tokman, pursuant to which Mr. Tokman provides commercialization services. Under the terms of the agreement, Mr. Tokman was compensated at a rate of $
On November 30, 2023, the Company entered into a Restricted Stock Agreement and Consulting Services Agreement, each with PatentVest, in exchange for certain services related to the Company’s patent portfolio. PatentVest is a wholly-owned subsidiary of MDB Capital Holdings, LLC (“MDB”). Anthony DiGiandomenico, a member of the Company’s board of directors, is the Chief of Transactions and a director of MDB. Lou Basenese, a member of our board of directors, is President and Chief Market Strategist at Public Ventures LLC, a wholly-owned subsidiary of MDB.
Note 11 - 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
On March 15, 2021, the Company entered into an amendment to the lease, adding approximately
The Company records the lease asset and lease liability at the present value of lease payments over the lease term. The lease typically does not provide an implicit rate; therefore, the Company uses its estimated incremental borrowing rate at the time of lease commencement to discount the present value of lease payments. The Company’s discount rate for operating leases at June 30, 2024 was
As of June 30, 2024, the maturities of operating lease liabilities are as follows:
|
| Operating Lease |
| |
2024 |
|
|
| |
2025 and beyond |
|
|
| |
Total |
| $ |
| |
Less: amount representing interest |
|
| ( | ) |
Present value of future minimum lease payments |
|
|
| |
Less: current obligations under leases |
|
| ( | ) |
Long-term lease obligations |
| $ |
|
15 |
Table of Contents |
For the six months ended June 30, 2024 and 2023, the Company incurred rent expenses of $
Employment and Consulting Agreements
Francois Michelon - As of June 30, 2024, the Company had an employment agreement with Francois Michelon, the Company’s Chief Executive Officer and Chairman of the board of directors, dated May 12, 2017, as amended on December 27, 2019. Effective January 1, 2022, the Compensation Committee increased Mr. Michelon’s annual salary to $
Pursuant to his employment agreement, if Mr. Michelon’s employment was terminated by the Company without cause or Mr. Michelon terminated his employment for good reason, Mr. Michelon would be
Under his employment agreement, Mr. Michelon was 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, as amended December 27, 2019. The employment agreement provides for an annual base salary that is subject to adjustment at the board of directors’ discretion. Effective January 1, 2022, the Compensation Committee increased Mr. Thornton’s annual salary to $
If Mr. Thornton’s employment is terminated by the Company without cause or Mr. Thornton terminates his employment for good reason,
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.
Warrants
As described in Note 7, our Registered Offering included Series A Warrants and Series B Warrants which were subject to shareholder approval and consequently have not been included in the financial statements as of June 30, 2024. The Series A Warrants and Series B Warrants were approved by shareholders on August 6, 2024.
Litigation
From time to time the Company may become a party to litigation in the normal course of business. As of June 30, 2024, 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
Leadership Changes
On August 5, 2024, Irina Pestrikova notified the Company of her resignation as the Company’s Senior Director, Finance, effective August 7, 2024. Ms. Pestrikova’s resignation was not in connection with any disagreement relating to the Company’s operations, policies, or practices. Ms. Pestrikova may provide consulting services to the Company after her resignation, as desired and agreed to between Ms. Pestrikova and Company management, in order to assist with the transitional matters.
On August 7, 2024, the Company’s Board of Directors appointed Richard Jacroux as Chief Financial Officer, effective upon Ms. Pestrikova’s resignation.
On August 12, 2024, the Company and Francois Michelon mutually agreed on Mr. Michelon’s resignation as the Company’s Chief Executive Officer and as a member of the Company’s Board of Directors. Mr. Michelon’s resignation as a member of the Board did not involve any disagreement with the Company on any matter relating to the Company’s operations, policies, or practices.
The terms of Mr. Michelon’s separation from the Company have been memorialized pursuant to a Separation Agreement and Release, dated August 12, 2024 (the “Separation Agreement”). Pursuant to the Separation Agreement, Mr. Michelon will be entitled to a single cash payment of $
Effective August 13, 2024, the Board appointed Alexander Tokman as the Company’s acting Chief Executive Officer and Chairman of the Board. As described in Part II, Item 5, in connection with such appointment the Company and Mr. Tokman entered into employment agreement.
Increase in Authorized Shares of Common Stock
At the 2024 Annual Meeting of the Company’s Stockholders held on August 6, 2024 (the “Annual Meeting”), the Company’s stockholders approved and adopted a Certificate of Amendment to the Company’s Fourth Amended and Restated Certificate of Incorporation (the “Certificate of Incorporation”) to increase
The Charter Amendment was filed with the Secretary of State of the State of Delaware on August 8, 2024 and was effective upon filing.
Reverse Stock Split
At the Annual Meeting, the Company’s stockholders approved a Certificate of Amendment to the Certificate of Incorporation to effect a reverse stock split of the shares of the Common Stock at a stock split ratio between
16 |
Table of Contents |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
As used in this Quarterly Report on Form 10-Q (this “Form 10-Q”), unless the context otherwise requires, the terms “we,” “us,” “our,” “ENDRA” and the “Company” refer to ENDRA Life Sciences Inc., a Delaware corporation, and its direct and indirect subsidiaries. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our historical financial statements and related notes thereto in this Form 10-Q. This Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that are intended to be covered by the “safe harbor” created by those sections. Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies and expectations, can generally be identified by the use of forward-looking terms such as “believe,” “expect,” “may,” “will,” “should,” “could,” “would,” “seek,” “intend,” “plan,” “estimate,” “anticipate” or other comparable terms. All statements other than statements of historical facts included in this Form 10-Q, including those 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, or implied by, 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 any future pandemic, including 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 regain compliance with the listing standards of the Nasdaq Capital Market and maintain the listing of our common stock on such exchange; 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, 2023, as filed with the SEC on March 28, 2024, 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 and other types of capital equipment, 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.
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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 licensing fee-adding ongoing customer value to the TAEUS platform and a growing software revenue stream for our Company.
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 Fatty Live Imaging Probe (“FLIP”) System. In February 2022, we announced that we would pursue FDA reclassification and clearance of our TAEUS FLIP System through the FDA’s “de novo” process. We subsequently voluntarily withdrew our 510(k) Application submitted a de novo request for the TAEUS system to the FDA in the third quarter of 2023. In the fourth quarter of 2023, the FDA sent us an Additional Information (“AI”) request related to our de novo application. After we received the AI request, we have had several interactions with the FDA and have provided additional information. In order to fully respond to the FDA’s questions, we will need to compile additional clinical data, provide additional device test data, and respond to cybersecurity related questions in a new de novo submission. We had an in-person pre-submission meeting with the FDA on May 16, 2024. We currently anticipate completing the necessary clinical studies by the fourth quarter of 2024 or first quarter of 2025 and submitting the new de novo request to the FDA in the first half of 2025.
Financial Operations Overview
Revenue
No revenue has been generated by our TAEUS technology, which we have not commercially sold as of June 30, 2024.
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; |
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· | 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; |
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· | manufacturing and packaging costs in connection with conducting clinical trials; |
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· | formulation, research and development expenses related to our TAEUS technology; and |
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· | 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.
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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. During the quarter, we restructured our European sales operations to better align with the Company’s near-term sales prospects. We expect to add to our sales representation and support headcount for operations in the EU as resources permit in the future, 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 continued 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.
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, 2024, the pool of shares issuable under the Omnibus Plan automatically increased by 1,717,783 shares from 1,322,169 shares to 3,039,952 shares. As of June 30, 2024, there were 2,360,765 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.
Recent Accounting Pronouncements
See Note 2 of the accompanying financial statements for a discussion of recently issued accounting standards.
Results of Operations
Three months ended June 30, 2024 and 2023
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Revenue
We had no revenue during the three months ended June 30, 2024 and 2023.
Cost of Goods Sold
We had no cost of goods sold during the three months ended June 30, 2024 and 2023.
Research and Development
Research and development expenses were $716,366 for the three months ended June 30, 2024, as compared to $1,400,182 for the three months ended June 30, 2023, a decrease of $683,816 or 49%. The costs include primarily wages, fees and equipment for the development of our TAEUS product line. Research and development expenses decreased from the prior year as we complete development of our initial TAEUS product and began focusing our spending on clinical trials and commercialization of the product that has been developed.
Sales and Marketing
Sales and marketing expenses were $162,952 for the three months ended June 30, 2024, as compared to $247,773 for the three months ended June 30, 2023, a decrease of $84,821, or 34%. The costs include primarily headcount and pre-selling activities for our TAEUS product line. Sales and marketing expenses decreased largely due to the decrease in consulting fees. Currently, our marketing efforts are through our website and attendance of key industry meetings.
General and Administrative
Our general and administrative expenses for the three months ended June 30, 2024 were $1,351,535, compared to $1,346,610 for the three months ended June 30, 2023, an increase of $4,925, or 0%. Our wage and related expenses for the three months ended June 30, 2024 were $581,096, compared to $558,068 for the three months ended June 30, 2023. Wage and related expenses in the three months ended June 30, 2024 included $72,869 of stock compensation expense related to the issuance and vesting of options, compared to $88,200 of stock compensation expense related to the issuance and vesting of options, for the three months ended June 30, 2023. Our professional fees, which include legal, audit, and investor relations, for the three months ended June 30, 2024 were $582,327, compared to $503,697 for the three months ended June 30, 2023.
Other Income
Other income was $1,700 for the three months ended June 30, 2024, as compared to $437,433 for the three months ended June 30, 2023. Other income for the three months ended June 30, 2023, resulted mostly from the completion of the Employer Retention Tax Credit for employee retention in 2021 and 2022 of $ 413,844.
Net Loss
As a result of the foregoing, for the three months ended June 30, 2024, we recorded a net loss of $2,229,153, compared to a net loss of $2,557,132 for the three months ended June 30, 2023.
Six months ended June 30, 2024 and 2023
Revenue
We had no revenue during the six months ended June 30, 2024 and 2023.
Cost of Goods Sold
We had no cost of goods sold during the six months ended June 30, 2024 and 2023.
Research and Development
Research and development expenses were $1,757,892 for the six months ended June 30, 2024, as compared to $2,791,496 for the six months ended June 30, 2023, a decrease of $1,033,604 or 37%. The costs include primarily wages, fees and equipment for the development of our TAEUS product line. Research and development expenses decreased from the prior year as we completed development of our initial TAEUS product and began focusing our spending on commercialization of the product that has been developed.
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Sales and Marketing
Sales and marketing expenses were $401,612 for the six months ended June 30, 2024, as compared to $429,389 for the six months ended June 30, 2023, a decrease of $27,777, or 6%. The costs include primarily headcount and pre-selling activities for our TAEUS product line. Sales and marketing expenses decreased largely due to the decrease in consulting fees. Currently, our marketing efforts are through our website and attendance of key industry meetings.
General and Administrative
Our general and administrative expenses for the six months ended June 30, 2024 were $2,851,890, compared to $2,713,008 for the six months ended June 30, 2023, an increase of $138,882, or 5%. Our wage and related expenses for the six months ended June 30, 2024 were $1,222,478, compared to $1,169,887 for the six months ended June 30, 2023. Wage and related expenses in the six months ended June 30, 2024 included $237,990 of stock compensation expense related to the issuance and vesting of options, compared to $166,065 of stock compensation expense related to the issuance and vesting of options, for the six months ended June 30, 2023. Our professional fees, which include legal, audit, and investor relations, for the six months ended June 30, 2024 were $1,222,199, compared to $1,024,335 for the six months ended June 30, 2023.
Other Income
Other income was $6,541 for the six months ended June 30, 2024, as compared to $434,015 for the six months ended June 30, 2023. Other income for the six months ended June 30, 2023, resulted mostly from the completion of the Employer Retention Tax Credit for employee retention in 2021 and 2022 of $413,844.
Net Loss
As a result of the foregoing, for the six months ended June 30, 2024, we recorded a net loss of $5,004,853, compared to a net loss of $5,499,878 for the six months ended June 30, 2023.
Near-Term Liquidity and Capital Resources
We are experiencing financial and operating challenges. As of June 30, 2024, we had an accumulated deficit of $96,935,005 and had $6,400,732 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.
We need additional capital to allow us to continue to execute our commercialization plans. We are considering potential financing options that may be available to us, such as sales of our common stock, including through our at-the-market sales program with Ascendiant Capital Markets, LLC. Except for the at-the-market sales program, 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. In addition, the Company agreed, subject to certain exceptions, not to effect any issuance of common stock or securities convertible into common stock involving a Variable Rate Transaction, as defined in the Placement Agreement and which includes sales of common stock under the at-the-market sales program, for a period commencing on the date of the Placement Agreement until 180 days following the closing of our June 2024 public offering. If we are unable to obtain sufficient additional financing in a timely fashion and on terms acceptable to us, our financial condition and results of operations may be materially adversely affected and we may not be able to continue operations or execute our stated commercialization plan.
The consolidated financial statements included in this Form 10-Q have been prepared assuming we will continue as a going concern, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying consolidated financial statements, during the six months ended June 30, 2024, we incurred net losses of $5,004,853 and used cash in operations of $4,227,613. In light of our cash balance as of June 30, 2024, 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 six months ended June 30, 2024, we used $4,227,613 of cash in operating activities primarily as a result of our net loss of $5,004,853, offset by share-based compensation of $504,087, amortization of right of use assets of $81,807, inventory reserve of $4,687, depreciation expense of $23,993, fixed assets write-off of $8,808, and net changes in operating assets and liabilities of $153,858.
During the six months ended June 30, 2023, we used $4,775,442 of cash in operating activities primarily as a result of our net loss of $5,499,878, offset by share-based compensation of $493,134, depreciation expense of $69,781, amortization of right of use assets of $73,974, and net changes in operating assets and liabilities of $87,547.
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Investing Activities
During the six months ended June 30, 2024, we used $16,000 in investing activities related to purchases of fixed assets, and received $3,204 in proceeds from sale of fixed assets.
During the six months ended June 30, 2023, we used $27,000 in investing activities related to purchases of fixed assets.
Financing Activities
During the six months ended June 30, 2024, our financing activities provided $1,148,470 in proceeds from issuances of common stock, $6,687,248 in proceeds from warrant exercises. We also used $28,484 to repay a loan from TD Bank under the Canadian Emergency Business Account.
During the six months ended June 30, 2023, our financing activities provided $4,732,803 in proceeds from issuances of common stock and warrants.
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 TAEUS technology; |
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| · | acquire parts and build finished goods inventory of the TAEUS FLIP system; |
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| · | complete regulatory filings required for marketing approval of our NAFLD TAEUS application in the United States, including clinical studies to advance our de novo application with the FDA; |
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| · | seek to hire a small internal marketing team to engage and support channel partners and clinical customers for our NAFLD TAEUS application; |
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| · | expand marketing of our NAFLD TAEUS application; |
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| · | advance development of our other TAEUS applications; and |
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| · | 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 February 2024 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 this Annual Report on Form 10-K. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect.
Until we can generate a sufficient amount of revenue from our TAEUS platform applications, if ever, we expect to finance future cash needs through public or private equity offerings, debt financings or corporate collaborations and licensing arrangements. Additional funds may not be available when we need them on terms that are acceptable to us, or at all. If adequate funds are not available, we may be required to delay, reduce the scope of or eliminate one or more of our research or development programs or our commercialization efforts or perhaps even cease the operation of our business. To the extent that we raise additional funds by issuing equity securities, our stockholders may experience additional dilution, and debt financing, if available, may involve restrictive covenants. To the extent that we raise additional funds through collaborations and licensing arrangements, it may be necessary to relinquish some rights to our technologies or applications or grant licenses on terms that may not be favorable to us. We may seek to access the public or private capital markets whenever conditions are favorable, even if we do not have an immediate need for additional capital at that time.
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Off-Balance Sheet Transactions
At June 30, 2024, the Company did not have any transactions, obligations or relationships that could be considered off-balance sheet arrangements.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
As a smaller reporting company, we are not required to provide the information required by this Item 3.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Form 10-Q, management performed, with the participation of our principal executive officer and principal financial officer, an evaluation of the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”). Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosures. Based on the evaluation, our principal executive officer and principal financial officer concluded that, as of June 30, 2024, our disclosure controls and procedures were not effective.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. We identified the following material weakness as of June 30, 2024: insufficient personnel resources within the accounting function to segregate the duties over financial transaction processing and reporting.
To remediate the material weakness, management intends to implement the following measures during 2024, as the Company’s resources and financial means allow:
· | Add additional accounting personnel or outside consultants, such as a new controller, to properly segregate duties and to effect timely, accurate preparation of the financial statements; and |
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· | Continue the development of adequate written accounting policies and procedures. |
The additional hiring is contingent upon our efforts to obtain additional funding and the results of our operations.
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 three months ended June 30, 2024 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 in this section and under “Risk Factors” in our Annual Report on Form 10-K for the period ended December 31, 2023, as filed with the Securities and Exchange Commission on March 28, 2024. These factors could materially adversely affect our business, financial condition, liquidity, results of operations and capital position, and could cause our actual results to differ materially from our historical results or the results contemplated by any forward-looking statements contained in this report.
Item 2. Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None of the Company’s directors or officers adopted, modified, or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the Company’s fiscal quarter ended June 30, 2024.
Effective August 13, 2024, the Board appointed Alexander Tokman as the Company’s acting Chief Executive Officer and Chairman of the Board of Directors. In connection with his appointment, Mr. Tokman and the Company entered into and employment agreement, dated August 13, 2024 (the “Employment Agreement”). Mr. Tokman’s employment with the Company is “at will” and may be terminated by him or the Company at any time and for any reason. Pursuant to the Employment Agreement, Mr. Tokman will receive an annual base salary of $300,000, subject to adjustment at the Board’s discretion. Mr. Tokman is also eligible for an annual cash bonus based upon the achievement of performance-based objectives established by the Board of Directors.
If Mr. Tokman’s employment is terminated by the Company without cause (as defined in the Company’s 2016 Omnibus Incentive Plan, as amended), if Mr. Tokman resigns for good reason (as defined in the Employment Agreement), or if Mr. Tokman’s employment ends following the hiring no later than February 13, 2026 of a replacement chief executive officer whom Mr. Tokman assists in recruiting, Mr. Tokman will be entitled to receive, subject to his execution of a standard release agreement, 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). Additionally, under the Employment Agreement, Mr. Tokman is eligible to receive benefits that are substantially similar to those of the Company’s other senior executive officers.
The foregoing description of the Employment Agreement does not purport to be complete and is subject to, and qualified in its entirety by the full text of the Employment Agreement, which will be filed as an exhibit with the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2024.
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Item 6. Exhibits
Exhibit Number |
| Description |
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101.INS |
| XBRL Instance Document (filed herewith) |
101.SCH |
| XBRL Taxonomy Schema (filed herewith) |
101.CAL |
| XBRL Taxonomy Extension Calculation Linkbase (filed herewith) |
101.DEF |
| XBRL Taxonomy Extension Definition Linkbase (filed herewith) |
101.LAB |
| XBRL Taxonomy Extension Label Linkbase (filed herewith) |
101.PRE |
| XBRL Taxonomy Extension Presentation Linkbase (filed herewith) |
* Indicates management compensatory plan, contract or arrangement.
† Filed herewith.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| ENDRA LIFE SCIENCES INC. |
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Date: August 14, 2024 | By: | /s/ Alexander Tokman |
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| Alexander Tokman |
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| Chief Executive Officer and Chairman (Principal Executive Officer) |
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| ENDRA LIFE SCIENCES INC. |
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Date: August 14, 2024 | By: | /s/ Richard Jacroux |
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| Richard Jacroux |
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| Chief Financial Officer (Principal Financial and Accounting Officer) |
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