UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
(Mark One)
 
☑   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2019
 
OR
 
☐  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
COMMISSION FILE NUMBER 001-37969
 
ENDRA LIFE SCIENCES INC.
     (Exact name of registrant as specified in its charter)
 
Delaware
 
26-0579295
(State of incorporation)
 
(I.R.S. Employer Identification No.)
 
3600 Green Court, Suite 350, Ann Arbor, MI 48105-1570
(Address of principal executive office)    (   Zip code   )
 
(734) 335-0468
(Registrant’s telephone number, including area code)
 
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.0001 per share
NDRA
The Nasdaq Stock Market LLC
Warrants, each to purchase one share of Common Stock
NDRAW
The Nasdaq Stock Market LLC
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes     ☑       No     ☐
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes     ☑       No     ☐
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
 
Large accelerated filer
☐
Accelerated filer
☐
Non-accelerated filer
☑  
Smaller reporting company
☑
 
 
Emerging growth company
☑
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ☐
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes     ☐              No     ☑
 
As of May 14, 2019, there were 7,422,642 shares of our Common Stock, par value $0.0001 per share, outstanding.
 

 
 
 
ENDRA LIFE SCIENCES INC.
FORM 10-Q
FOR THE THREE MONTHS ENDED MARCH 31, 2019
 
INDEX
 
 
PART I - FINANCIAL INFORMATION 
PAGE
               
             
 
             
 
             
 
             
 
PART II – OTHER INFORMATION 
 
     
 
             
 
             
 
             
 
             
 
             
 
             
 

 
 
 
 
 
 
 
 
 
 
 
PART I - FINANCIAL INFORMATION
 
Item 1. Financial Statements
ENDRA Life Sciences Inc.
Condensed Consolidated Balance Sheets
 
 
 
March 31,
 
 
 December 31,
 
Assets
 
2019
(Unaudited)
 
 
2018
 
 Assets
 
 
 
 
 
 
Cash
 $3,925,474 
 $6,471,375 
Prepaid expenses
  105,069 
  145,424 
Inventory
  74,275 
  59,444 
Other current assets
  273,315 
  273,315 
Total Current Assets
  4,378,133 
  6,949,558 
Other Assets
    
    
Fixed assets, net
  258,839 
  273,233 
Total Assets
 $4,636,972 
 $7,222,791 
 
    
    
Liabilities and Stockholders’ Equity
    
    
Current Liabilities
    
    
Accounts payable and accrued liabilities
 $835,232 
 $974,583 
Total Liabilities
  835,232 
  974,583 
 
    
    
Stockholders’ Equity
    
    
Preferred stock, $0.0001 par value; 10,000,000 shares authorized; no shares issued or outstanding
  - 
  - 
Common stock, $0.0001 par value; 50,000,000 shares authorized; 7,422,642 and 7,422,642 shares issued and outstanding
  742 
  742 
Additional paid in capital
  34,241,430 
  33,939,162 
Accumulated deficit
  (30,440,432)
  (27,691,696)
Total Stockholders’ Equity
  3,801,740 
  6,248,208 
Total Liabilities and Stockholders’ Equity
 $4,636,972 
 $7,222,791 
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 
1
 
 
ENDRA Life Sciences Inc.
Condensed Consolidated Statements of Operations
 (Unaudited)
 
 
 
Three Months Ended
 
 
Three Months Ended
 
 
 
March 31,
 
 
March 31,
 
 
 
2019
 
 
2018
 
Revenue
 $- 
 $6,174 
 
    
    
Cost of Goods Sold
  - 
  - 
 
    
    
Gross Profit
 $- 
 $6,174 
 
    
    
Operating Expenses
    
    
Research and development
  1,773,498 
  1,668,823 
Sales and marketing
  56,818 
  107,177 
General and administrative
  916,903 
  1,067,792 
Total operating expenses
  2,747,219 
  2,843,792 
 
    
    
Operating loss
  (2,747,219)
  (2,837,618)
 
    
    
Other Income (Expenses)
    
    
Other income (expenses)
  (1,517)
  12,315 
Total other income (expenses)
  (1,517)
  12,315 
 
    
    
Loss from operations before income taxes
  (2,748,736)
  (2,825,303)
 
    
    
Provision for income taxes
  - 
  - 
 
    
    
Net Loss
 $(2,748,736)
 $(2,825,303)
 
    
    
Net loss per share – basic and diluted
 $(0.37)
 $(0.72)
 
    
    
Weighted average common shares – basic and diluted
  7,422,642 
  3,923,027 
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
 
2
 
 
ENDRA Life Sciences Inc.
Condensed Consolidated Statements of Stockholders’ Equity
 (Unaudited)
 
Three Months Ended March 31, 2018
 
Common stock
 
 
 
 
 
 
 
 
Total
 
 
 
 Shares
 
 
Amount
 
 
Additional Paid in Capital
 
 
Accumulated Deficit
 
 
Stockholders' Equity
 
 Balance as of December 31, 2017
  3,923,027 
 $392 
 $23,170,531 
 $(17,895,435)
 $5,275,488 
 Common stock issued for services
  - 
  - 
  28,719 
  - 
  28,719 
 Warrants issued for services
  - 
  - 
  31,611 
  - 
  31,611 
 Fair value of vested stock options
  - 
  - 
  319,359 
  - 
  319,359 
 Net loss
  - 
  - 
  - 
  (2,825,303)
  (2,825,303)
 Balance as of March 31, 2018
  3,923,027 
 $392 
 $23,550,220 
 $(20,720,738)
 $2,829,874 
 
Three Months Ended March 31, 2019
 
Common stock
 
 
 
 
 
 
 
 
Total
 
 
 
 Shares
 
 
Amount
 
 
Additional Paid in Capital
 
 
Accumulated Deficit
 
 
Stockholders' Equity
 
 Balance as of December 31, 2018
  7,422,642 
  742 
  33,939,162 
  - (27,691,696) 
  6,248,208 
 Fair value of vested stock options
  - 
  - 
  302,268 
  - 
  302,268 
 Net loss
  - 
  - 
  - 
  (2,748,736)
  (2,748,736)
 Balance as of March 31, 2019
  7,422,642 
 $742 
 $34,241,430 
 $(30,440,432)
 $3,801,740 
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
 
3
 
 
ENDRA Life Sciences Inc.
Condensed Consolidated Statements of Cash Flows
 (Unaudited)
 
 
 
Three Months Ended
 
 
Three Months Ended
 
 
 
March 31,
 
 
March 31,
 
 
 
2019
 
 
2018
 
Cash Flows from Operating Activities
 
 
 
 
 
 
Net loss
 $(2,748,736)
 $(2,825,303)
Adjustments to reconcile net loss to net cash used in operating activities:
    
    
Depreciation
  19,632 
  15,339 
Common stock, options and warrants issued for services
  302,268 
  379,689 
Changes in operating assets and liabilities:
    
    
Increase in accounts receivable
  - 
  (4,920)
Decrease in prepaid expenses
  40,354 
  28,899 
Increase in inventory
  (14,831)
  (54,282)
Increase in other assets
  - 
  (3,293)
(Decrease) Increase in accounts payable and accrued liabilities
  (139,349)
  11,981 
Net cash used in operating activities
  (2,540,662)
  (2,451,890)
 
    
    
Cash Flows from Investing Activities:
    
    
Purchases of fixed assets
  (5,239)
  - 
Net cash used in investing activities
  (5,239)
  - 
 
    
    
Net Decrease in cash
  (2,545,901)
  (2,451,890)
 
    
    
Cash, beginning of period
  6,471,375 
  5,601,878 
 
    
    
Cash, end of period
 $3,925,474 
 $3,149,988 
 
    
    
Supplemental disclosures:
    
    
      Interest paid
 $- 
 $- 
      Income tax paid
 $- 
 $- 
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
 
4
 
ENDRA Life Sciences Inc.
Notes to Condensed Consolidated Financial Statements
For the three months ended March 31, 2019 and 2018
(Unaudited)
 
Note 1 – Nature of the Business
 
ENDRA Life Sciences Inc. (“ENDRA” or the “Company”) is developing technology for increasing the capabilities of clinical diagnostic ultrasound, to broaden patient access to the safe diagnosis and treatment of a number of significant medical conditions in circumstances where expensive X-ray computed tomography (“CT”) and magnetic resonance imaging (“MRI”) technology is unavailable or impractical.
 
ENDRA was incorporated on July 18, 2007 as a Delaware corporation.
 
ENDRA Life Sciences Canada Inc. was organized under the laws of Ontario, Canada on July 6, 2017, and is wholly owned by the Company.
 
Note 2 – Summary of Significant Accounting Policies
 
Use of Estimates
 
The preparation of the financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.
 
Management makes estimates that affect certain accounts including deferred income tax assets, accrued expenses, fair value of equity instruments and reserves for any other commitments or contingencies. Any adjustments applied to estimates are recognized in the period in which such adjustments are determined.
 
Principles of Consolidation
 
The Company’s consolidated financial statements include all accounts of the Company and its consolidated subsidiary and/or entities as of reporting period ending date(s) and for the reporting period(s) then ended. All inter-company balances and transactions have been eliminated.
  
Basis of Presentation
 
The accompanying unaudited condensed consolidated financial statements and related notes have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulations. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2019 are not necessarily indicative of the results that may be expected for the year ended December 31, 2019. The balance sheet at December 31, 2018 has been derived from the audited financial statements at that date. For further information, refer to the financial statements and footnotes thereto included in ENDRA Life Sciences Inc. annual financial statements for the twelve months ended December 31, 2018 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 11, 2019.
 
 Cash and Cash Equivalents
 
The Company considers all cash on hand and in banks, including accounts in book overdraft positions, certificates of deposit and other highly-liquid investments with maturities of one year or less, when purchased, to be cash. As of March 31, 2019 and December 31, 2018, the Company had no cash equivalents. The Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts and periodically evaluates the credit worthiness of the financial institutions and has determined the credit exposure to be negligible.
 
 
 
5
 
 
Inventory
 
The Company’s inventory is stated at the lower of cost or estimated net realizable value, with cost primarily determined on a weighted-average cost basis on the first-in, first-out method. The Company periodically determines whether a reserve should be taken for devaluation or obsolescence of inventory.
 
Capitalization of Fixed Assets
 
The Company capitalizes expenditures related to property and equipment, subject to a minimum rule, that have a useful life greater than one year for: (1) assets purchased; (2) existing assets that are replaced, improved or the useful lives have been extended; or (3) all land, regardless of cost. Acquisitions of new assets, additions, replacements and improvements (other than land) costing less than the minimum rule in addition to maintenance and repair costs, including any planned major maintenance activities, are expensed as incurred.
 
Revenue Recognition
 
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers” (“ASC Topic 606”). This standard provides a single set of guidelines for revenue recognition to be used across all industries and requires additional disclosures. The updated guidance introduces a five-step model to achieve its core principal of the entity recognizing revenue to depict the transfer of goods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company adopted the updated guidance effective January 1, 2018 using the full retrospective method. The new standard did not have a material impact on its financial position and results of operations, as it did not change the manner or timing of recognizing revenue.
 
Under ASC Topic 606, in order to recognize revenue, the Company is required to identify an approved contract with commitments to perform respective obligations, identify rights of each party in the transaction regarding goods to be transferred, identify the payment terms for the goods transferred, verify that the contract has commercial substance and verify that collection of substantially all consideration is probable. The adoption of ASC Topic 606 did not have an impact on the Company’s operations or cash flows.
   
Research and Development Costs
 
The Company follows ASC Subtopic 730-10, “Research and Development”. Research and development costs are charged to the statement of operations as incurred. During the three months ended March 31, 2019 and March 31, 2018, the Company incurred $1,773,498 and $1,668,823 of expenses related to research and development costs, respectively.
 
Net Earnings (Loss) Per Common Share
 
The Company computes earnings per share under ASC Subtopic 260-10, “Earnings Per Share” (“ASC 260-10”). Basic earnings (loss) per share is computed by dividing the net income (loss) attributable to the common stockholders (the numerator) by the weighted average number of shares of common stock outstanding (the denominator) during the reporting periods. Diluted loss per share is computed by increasing the denominator by the weighted average number of additional shares that could have been outstanding from securities convertible into common stock (using the “treasury stock” method), unless their effect on net loss per share is anti-dilutive. There were 4,067,145 and 3,900,939 potentially dilutive shares, which include outstanding common stock options, warrants, and convertible notes, as of March 31, 2019 and December 31, 2018, respectively.
  
The potential shares, which are excluded from the determination of basic and diluted net loss per share as their effect is anti-dilutive, are as follows:
 
 
 
March 31,
2019
 
 
December 31,
2018
 
Options to purchase common stock
  1,439,117 
  1,272,911 
Warrants to purchase common stock
  2,628,028 
  2,628,028 
Potential equivalent shares excluded
  4,067,145 
  3,900,939 
 
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.
 
 
 
6
 
 
In accordance with ASC Topic 820, “Fair Value Measurements and Disclosures,” the Company measures certain financial instruments at fair value on a recurring basis. ASC Topic 820 defines fair value, established a framework for measuring fair value in accordance with accounting principles generally accepted in the United States, and expands disclosures about fair value measurements.
 
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 established a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). These tiers include:
 
● Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets;
 
● Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and
 
● Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
 
Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable.
 
The carrying amounts of the Company’s financial assets and liabilities, including cash, accounts receivable, prepaid expenses, accounts payable, accrued expenses, and other current liabilities, approximate their fair values because of the short maturity of these instruments. The fair value of notes payable and convertible notes approximates their fair values since the current interest rates and terms on these obligations are the same as prevailing market rates.
 
Share-based Compensation
 
The Company’s 2016 Omnibus Incentive Plan (the “Omnibus Plan”) permits the grant of stock options and other share-based awards to its employees, consultants and non-employee members of the board of directors. Each January 1 the pool of shares available for issuance under the Omnibus Plan automatically increases by an amount equal to the lesser of (i) the number of shares necessary such that the aggregate number of shares available under the Omnibus Plan equals 25% of the number of fully-diluted outstanding shares on the increase date (assuming the conversion of all outstanding shares of preferred stock and other outstanding convertible securities and exercise of all outstanding options and warrants to purchase shares) and (ii) if the board of directors takes action to set a lower amount, the amount determined by the board. On January 1, 2019, the pool of shares available for issuance under the Omnibus Plan automatically increased from 1,345,074 shares to 2,649,378 shares.
 
The Company records share-based compensation in accordance with the provisions of the Share-based Compensation Topic of the FASB Codification. The guidance requires the use of option-pricing models that require the input of highly subjective assumptions, including the option’s expected life and the price volatility of the underlying stock. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option valuation model, and the resulting charge is expensed using the straight-line attribution method over the vesting period. The Company has elected to use the calculated value method to account for the options it issued in 2017 (prior to commencement on June 28, 2017 of public trading in the Company’s common stock). Under the Share-based Compensation Topic of the FASB Codification, a nonpublic entity that is unable to estimate the expected volatility of the price of its underlying shares may measure awards based on a “calculated value,” which substitutes the volatility of appropriate public companies (representative of the company’s size and industry) as a benchmark for the volatility of the entity’s own share price. The Company has used the historical closing values of these companies to estimate volatility, which was calculated to be 90%, for periods prior to June 28, 2017, when there was no active market for the Company’s common stock.
  
Stock compensation expense recognized during the period is based on the value of share-based awards that were expected to vest during the period adjusted for estimated forfeitures. The estimated fair value of grants of stock options and warrants to non-employees of the Company is charged to expense, if applicable, in the financial statements. These options vest in the same manner as the employee options granted under the stock incentive plan as described above.
 
 
 
7
 
 
Recent Accounting Pronouncements
 
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. ASU 2014-09 is a comprehensive revenue recognition standard that supersedes nearly all existing revenue recognition guidance under current U.S. GAAP and replaces it with a principle based approach for determining revenue recognition. Under ASU 2014-09, revenue is recognized when a customer obtains control of promised goods or services and is recognized in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The FASB has recently issued ASU 2016-08, ASU 2016-10, ASU 2016-11, ASU 2016-12, and ASU 2016-20, all of which clarify certain implementation guidance within ASU 2014-09. ASU 2014-09 is effective for interim and annual periods beginning after December 15, 2017. The standard can be adopted either retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the cumulative catch-up transition method). The Company has reviewed ASU 2014-09 and using the full retrospective method has determined that its adoption has had no impact on its financial position, results of operations or cash flows. The Company adopted the provisions of this standard in the first quarter of fiscal 2018.
 
In February 2016, the FASB issued ASU No. 2016-02, Leases. ASU 2016-02 requires a lessee to record a right of use asset and a corresponding lease liability on the balance sheet for all leases with terms longer than 12 months. ASU 2016-02 is effective for all interim and annual reporting periods beginning after December 15, 2018. Early adoption is permitted. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest period presented in the financial statements. The Company evaluated the impact that the application of the new standard has on its consolidated financial statements and related disclosures, and determined there has been no impact. The Company adopted the provisions of this standard in the first quarter of fiscal 2019.
 
In May 2017, the FASB issued ASU No. 2017-09, Compensation – Stock Compensation (Topic 718) Scope of Modification Accounting. The amendments in ASU 2017-09 provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The adoption of ASU 2017-09, which is effective for annual periods beginning after December 15, 2017 and for interim periods within those annual periods, did not have any impact on the Company’s consolidated financial statement presentation or disclosures.
 
Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the SEC did not or in management’s opinion will not have a material impact on the Company’s present or future consolidated financial statements.
 
Note 3 – Going Concern
 
The Company’s financial statements are prepared using accounting principles generally accepted in the United States (“U.S. GAAP”) applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has limited commercial experience and had a cumulative net loss from inception to March 31, 2019 of $30,440,432. The Company had working capital of $3,542,901 as of March 31, 2019. The Company has not established an ongoing source of revenue sufficient to cover its operating costs and to allow it to continue as a going concern. The accompanying financial statements for the period ended March 31, 2019 have been prepared assuming the Company will continue as a going concern. However, the Company’s cash resources will likely be insufficient to meet its anticipated needs during the next twelve months. The Company will require additional financing to fund its future planned operations, including research and development and commercialization of its products.
 
The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it establishes a revenue stream and becomes profitable. Management’s plans to continue as a going concern include raising additional capital through sales of equity securities and borrowing. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans. If the Company is not able to obtain the necessary additional financing on a timely basis, the Company will be required to delay, reduce the scope of or eliminate one or more of the Company’s research and development activities or commercialization efforts or perhaps even cease the operation of its business. The ability of the Company to continue as a going concern is dependent upon its ability to successfully secure other sources of financing and attain profitable operations. There is substantial doubt about the ability of the Company to continue as a going concern for one year from the issuance of the accompanying consolidated financial statements. The accompanying consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
  
Note 4 – Inventory
  
As of March 31, 2019 and December 31, 2018, inventory consisted of raw materials to be used in the assembly of a TAEUS system. As of March 31, 2019, the Company had no orders pending for the sale of a TAEUS system.
 
 
 
8
 
 
Note 5 – Fixed Assets
 
As of March 31, 2019 and December 31, 2018, fixed assets consisted of the following:
 
 
 
March 31,
2019
 
 
December 31,
2018
 
Computer equipment and fixtures
 $684,418 
 $679,179 
Accumulated depreciation
  (425,579)
  (405,946)
Fixed assets, net
 $258,839 
 $273,233 
 
Depreciation expense for the three months ended March 31, 2019 and March 31, 2018 was $19,632 and $15,339, respectively.
  
Note 6 – Accounts Payable and Accrued Liabilities
 
As of March 31, 2019 and December 31, 2018, current liabilities consisted of the following:
 
 
 
March 31,
2019
 
 
December 31,
2018
 
Accounts payable
 $553,004 
 $631,472 
Accrued payroll
  38,694 
  29,302 
Accrued bonuses
  237,784 
  263,497 
Accrued employee benefits
  5,750 
  27,804 
Insurance premium financing
  - 
  22,508 
Total
 $835,232 
 $974,583 
  
Note 7 – Capital Stock
 
At March 31, 2019, the authorized capital of the Company consisted of 60,000,000 shares of capital stock, consisting of 50,000,000 shares of common stock with a par value of $0.0001 per share, and 10,000,000 shares of preferred stock with a par value of $0.0001 per share. As of March 31, 2019 and December 31, 2018, there were 7,422,642 shares of common stock issued and outstanding and no preferred stock outstanding.
  
Note 8 – Stock Options and Warrants
 
Stock options are awarded to the Company’s employees, consultants and non-employee members of the board of directors under the 2016 Omnibus Incentive Plan and are generally granted with an exercise price equal to the market price of the Company’s common stock at the date of grant. The aggregate fair value of these stock options granted by the Company during the three months ended March 31, 2019 was determined to be $640,402, respectively, using the Black-Scholes-Merton option-pricing model based on the following assumptions: (i) volatility rate of 103% to 112%, (ii) discount rate of 0%, (iii) zero expected dividend yield, and (iv) expected life of 7 to 10 years. A summary of option activity under the Company’s stock options as of March 31, 2019, and changes during the three months then ended is presented below:
 
 
 
 
Number of Options
 
 
Weighted
Average
Exercise Price
 
 
Weighted
Average
Remaining
Contractual Term (Years)
 
Balance outstanding at December 31, 2018
  1,272,911 
 $4.56 
  6.31 
Granted
  242,500 
  2.85 
  9.73 
Exercised
  - 
  - 
  - 
Forfeited
  - 
  - 
  - 
Cancelled or expired
  (76,294)
  - 
  - 
Balance outstanding at March 31, 2019
  1,439,117 
 $4.28 
  6.68 
Exercisable at March 31, 2019
  433,965 
 $5.71 
  5.24 
 
 
 
 
9
 
 
The following table summarizes all stock warrant activity of the Company for the three months ended March 31, 2019:
 
 
 
 
 
 
Number of Warrants
 
 
 
Weighted Average Exercise Price
 
 
Weighted Average Remaining Contractual Term (Years)
 
 
Balance outstanding at December 31, 2018
 
  2,628,028 
 $6.32 
  3.17 
 
Granted
 
  - 
  - 
  - 
 
Exercised
 
  - 
  - 
  - 
Forfeited
  - 
  - 
  - 
 
Expired
 
  - 
  - 
  - 
 
Balance outstanding at March 31, 2019
 
  2,628,028 
 $6.32 
  2.92 
 
Exercisable at March 31, 2019
 
  2,583,695 
 $6.38 
  2.90 
  
Note 9 – Commitments & Contingencies
 
Office Lease
 
Effective January 1, 2015, the Company entered into an office lease agreement with Green Court, LLC, a Michigan limited liability company, for approximately 3,657 rentable square feet of space, for the initial monthly rent of $5,986, which commenced on January 1, 2015 for an initial term of 60 months. On October 10, 2017 this lease was amended, increasing the rentable square feet of space to 3,950 and the monthly rent to $7,798. Under the terms of the lease the Company has an option on the same space for an additional 60-month term. Future minimum payments under this lease are as follows:
 
2019
  70,182 
Total
 $70,182 
 
For the three months ended March 31, 2019 and 2018, the Company incurred rent expenses of $23,188 and $26,104, respectively.
 
Employment and Consulting Agreements
 
Francois Michelon – Effective May 12, 2017, the Company entered into an amended and restated employment agreement with Francois Michelon, the Company’s Chief Executive Officer and Chairman of the board of directors. The term of the employment agreement runs through December 31, 2019. The employment agreement provides for an annual base salary that is subject to adjustment at the board of directors’ discretion. The annual base salary in effect during the period covered by this Form 10-Q was $345,000 through March 25, 2019, at which time Mr. Michelon’s base salary was increased to $355,350. Under the employment agreement, Mr. Michelon is eligible for an annual cash bonus based upon achievement of performance-based objectives established by the board of directors. Pursuant to Mr. Michelon’s employment agreement, in connection with the closing of the Company’s initial public offering he was granted options to purchase an aggregate 339,270 shares of common stock. The options have a weighted average exercise price of $4.96 per share of common stock and vest in three equal annual installments beginning on May 12, 2018. Upon termination without cause, any portion of Mr. Michelon’s options scheduled to vest within 12 months will automatically vest, and upon termination without cause within 12 months following a change of control, the entire unvested portion of the options will automatically vest. Upon termination for any other reason, the entire unvested portion of the options will terminate.
 
If Mr. Michelon’s employment is terminated by the Company without cause, Mr. Michelon will be entitled to receive 12 months’ continuation of his current base salary and a lump sum payment equal to 12 months of continued healthcare coverage (or 24 months’ continuation of his current base salary and a lump sum payment equal to 24 months of continued healthcare coverage if such termination occurs within one year following a change in control).
 
Under his employment agreement, Mr. Michelon is eligible to receive benefits that are substantially similar to those of the Company’s other senior executive officers.
 
 
 
10
 
 
Michael Thornton – Effective May 12, 2017, the Company entered into an amended and restated employment agreement with Michael Thornton, the Company’s Chief Technology Officer. The term of the employment agreement runs through December 31, 2019. The employment agreement provides for an annual base salary that is subject to adjustment at the board of directors’ discretion. The annual base salary in effect during the period covered by this Form 10-Q was $260,000 through March 25, 2019, at which time Mr. Thornton’s base salary was increased to $267,800. Under the employment agreement, Mr. Thornton is eligible for an annual cash bonus based upon achievement of performance-based objectives established by the board of directors. Pursuant to Mr. Thornton’s employment agreement, in connection with the closing of the Company’s initial public offering he was granted options to purchase an aggregate 345,298 shares of common stock. The options have a weighted average exercise price of $4.96 per share of common stock and vest in three equal annual installments beginning on May 12, 2018. Upon termination without cause, any portion of Mr. Thornton’s option scheduled to vest within 12 months will automatically vest, and upon termination without cause within 12 months following a change of control, the entire unvested portion of the options will automatically vest. Upon termination for any other reason, the entire unvested portion of the options will terminate.
  
If Mr. Thornton’s employment is terminated by the Company without cause, Mr. Thornton will be entitled to receive 12 months’ continuation of his current base salary and a lump sum payment equal to 12 months of continued healthcare coverage (or 24 months’ continuation of his current base salary and a lump sum payment equal to 24 months of continued healthcare coverage if such termination occurs within one year following a change in control).
 
Under his employment agreement, Mr. Thornton is eligible to receive benefits that are substantially similar to those of the Company’s other senior executive officers.
 
David Wells – On May 12, 2017, the Company entered into a consulting agreement with StoryCorp Consulting (“StoryCorp”), pursuant to which David Wells provides services to the Company as its Chief Financial Officer. Pursuant to the consulting agreement, the Company pays to StoryCorp a monthly fee of $9,000, and in May 2018 this monthly fee was increased to $9,540. Additionally, pursuant to the consulting agreement, the Company granted to Mr. Wells a stock option to purchase 15,000 shares of common stock in connection with the closing of the Company’s initial public offering, having an exercise price per share equal to $5.00 and vesting in twelve equal quarterly installments, and, for so long as the consulting agreement is in place, will grant to Mr. Wells a stock option to purchase the same number of shares of common stock with the same terms on each annual anniversary of the date of the consulting agreement. In May 2018, the annual stock option amount was increased and on December 13, 2018, Mr. Wells was granted options to purchase an additional 35,000 shares of common stock.
 
Litigation
 
From time to time the Company may become a party to litigation in the normal course of business. There are currently no legal matters that management believes would have a material effect on the Company’s financial position or results of operations.
 
Note 10 – Subsequent Events
 
None.
 
 
11
 
 
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
Forward-Looking Statements
 
As used in this Quarterly Report on Form 10-Q (this “Form 10-Q”), unless the context otherwise requires, the terms “we,” “us,” “our,” “ENDRA” and the “Company” refer to ENDRA Life Sciences Inc., a Delaware corporation, and its wholly-owned subsidiary. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our historical financial statements and related notes thereto in this Form 10-Q. This Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that are intended to be covered by the “safe harbor” created by those sections. Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies and expectations, can generally be identified by the use of forward-looking terms such as “believe,” “expect,” “may,” “will,” “should,” “could,” “seek,” “intend,” “plan,” “estimate,” “anticipate” or other comparable terms. All statements other than statements of historical facts included in this Form 10-Q regarding our strategies, prospects, financial condition, operations, costs, plans and objectives are forward-looking statements. Examples of forward-looking statements include, among others, statements we make regarding expectations for revenues, cash flows and financial performance, the anticipated results of our development efforts and the timing for receipt of required regulatory approvals and product launches. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the following: our limited commercial experience, limited cash and history of losses; our ability to obtain adequate financing to fund our business operations in the future; our ability to achieve profitability; our ability to develop a commercially feasible application based on our Thermo-Acoustic Enhanced Ultrasound (“TAEUS”) technology; market acceptance of our technology; results of our human studies, which may be negative or inconclusive; our ability to find and maintain development partners; our reliance on collaborations and strategic alliances and licensing arrangements; the amount and nature of competition in our industry; our ability to protect our intellectual property; potential changes in the healthcare industry or third-party reimbursement practices; delays and changes in regulatory requirements, policy and guidelines including potential delays in submitting required regulatory applications for CE mark certification or Food and Drug Administration (“FDA”) approval; our ability to obtain CE mark certification and secure required FDA and other governmental approvals for our TAEUS applications; our ability to comply with regulation by various federal, state, local and foreign governmental agencies and to maintain necessary regulatory clearances or approvals; and the other risks and uncertainties described in the Risk Factors section of our Annual Report on Form 10-K for the period ended December 31, 2018, as filed with the SEC on March 11, 2019, and in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of this Form 10-Q. We undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise.
 
Overview
 
We are leveraging experience with pre-clinical enhanced ultrasound devices to develop technology for increasing the capabilities of clinical diagnostic ultrasound, to broaden patient access to the safe diagnosis and treatment of a number of significant medical conditions in circumstances where expensive X-ray computed tomography (“CT”) and magnetic resonance imaging (“MRI”) technology is unavailable or impractical.
 
In 2010, we began marketing and selling our Nexus 128 system, which combined light-based thermoacoustics and ultrasound to address the imaging needs of researchers studying disease models in pre-clinical applications. Building on this expertise in thermoacoustics, we have developed a next-generation technology platform — Thermo Acoustic Enhanced Ultrasound, or TAEUS — which is intended to enhance the capability of clinical ultrasound technology and support the diagnosis and treatment of a number of significant medical conditions that currently require the use of expensive CT or MRI imaging or where imaging is not practical using existing technology. We ceased production of our Nexus 128 system as of January 1, 2019 and plan to stop providing service support and parts for all existing Nexus 128 systems as of July 1, 2019 in order to focus our resources on the development of our TAEUS technology.
 
Unlike the near-infrared light pulses used in our legacy Nexus 128 system, our TAEUS technology uses radio frequency (“RF”) pulses to stimulate tissues, using a small fraction of the energy that would be transmitted into the body during an MRI scan. The use of RF energy allows our TAEUS technology to penetrate deep into tissue, enabling the imaging of human anatomy at depths equivalent to those of conventional ultrasound. The RF pulses are absorbed by tissue and converted into ultrasound signals, which are detected by an external ultrasound receiver and a digital acquisition system that is part of the TAEUS system. The detected ultrasound is processed into images using our proprietary algorithms and displayed to complement conventional gray-scale ultrasound images.
 
 
 
12
 
 
We expect that the first-generation TAEUS application will be a standalone ultrasound accessory designed to cost-effectively quantify fat in the liver and stage progression of nonalcoholic fatty liver disease (“NAFLD”), which can only be achieved today with impractical surgical biopsies or MRI scans. Subsequent TAEUS offerings are expected to be implemented via a second generation hardware platform that can run multiple clinical software applications that we will offer TAEUS users for a one-time licensing fee – adding ongoing customer value to the TAEUS platform and a growing software revenue stream for our Company.
 
In April 2016, we entered into a Collaborative Research Agreement with General Electric Company, acting through its GE Healthcare business unit and the GE Global Research Center (collectively, “GE Healthcare”). Under the terms of the agreement, GE Healthcare has agreed to assist us in our efforts to commercialize our TAEUS technology for use in a fatty liver application by, among other things, providing equipment and technical advice, and facilitating introductions to GE Healthcare clinical ultrasound customers. In return for this assistance, we have agreed to afford GE Healthcare certain rights of first offer with respect to manufacturing and licensing rights for the target application. More specifically, we have agreed that, prior to commercially releasing our NAFLD TAEUS application, we will offer to negotiate an exclusive ultrasound manufacturer relationship with GE Healthcare for a period of at least one year of commercial sales. The commercial sales would involve, within our sole discretion, either our Company commercially selling GE Healthcare ultrasound systems as the exclusive ultrasound system with our TAEUS fatty liver application embedded, or GE Healthcare being the exclusive ultrasound manufacturer to sell ultrasound systems with our TAEUS fatty liver application embedded. The agreement is subject to termination by either party upon not less than 60 days’ notice. On January 30, 2018, we and GE Healthcare entered into an amendment to our agreement, extending its term by 21 months to January 22, 2020.
 
In November 2017, we contracted with the Centre for Imaging Technology Commercialization (“CIMTEC”) to initiate human studies, through Canada-based Robarts Research Institute, with our TAEUS device targeting NAFLD. In October 2018, we received an Investigational Testing Authorization from Health Canada to commence the first human studies with our TAEUS clinical system targeting NAFLD, guiding our algorithm development, and comparing our technology to MRI. The feasibility study, the first of several planned human studies, is being conducted in collaboration with Robarts Research Institute in London, Canada. We reported our initial study results in March 2019. The data collected from the study, including additional usability inputs, will be included in our TAEUS liver device technical file submission for device CE Mark, which we anticipate in mid-2019. 
 
Each of our TAEUS platform applications will require regulatory approvals before we are able to sell or license the application. Based on certain factors, such as the installed base of ultrasound systems, availability of other imaging technologies, such as CT and MRI, economic strength and applicable regulatory requirements, we intend to seek initial approval of our applications for sale in the European Union, followed by the United States and China.
  
Financial Operations Overview
 
Revenue
 
To date our revenue has been generated by the placement and sale of our discontinued Nexus 128 thermoacoustic imaging systems for use in pre-clinical applications, and related service revenue. No revenue has been generated by our TAEUS technology, which is currently in the product development stage.
 
Cost of Goods Sold
 
Our cost of goods sold is related to our direct costs associated with the development and shipment of our discontinued Nexus 128 systems placed in pre-clinical settings, and costs associated with service provided for these systems.
 
Research and Development Expenses
 
Our research and development expenses primarily include wages, fees and equipment for the development of our TAEUS technology platform and the proposed applications. Additionally, we incur certain costs associated with the protection of our products and inventions through a combination of patents, licenses, applications and disclosures.
 
Sales and Marketing Expenses
 
Sales and marketing expenses consist primarily of headcount and consulting costs, and marketing and tradeshow expenses. Currently, our marketing efforts are through our website and attendance of key industry meetings and conferences. In connection with the commercialization of our
 
 
13
 
 
TAEUS applications, we expect to build a small sales and marketing team to train and support global ultrasound distributors, as well as execute traditional marketing activities such as promotional materials, electronic media and participation in industry events and conferences.
 
General and Administrative Expenses
 
General and administrative expenses consist primarily of salaries and related expenses for our management and personnel, and professional fees, such as accounting, consulting and legal.
  
Critical Accounting Policies and Estimates
 
Use of Estimates
 
The preparation of the financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.
 
Management makes estimates that affect certain accounts including deferred income tax assets, accrued expenses, fair value of equity instruments and reserves for any other commitments or contingencies. Any adjustments applied to estimates are recognized in the period in which such adjustments are determined.
  
Share-based Compensation
 
Our 2016 Omnibus Incentive Plan (the “Omnibus Plan”) permits the grant of share options and shares to our employees, consultants and non-employee members of our board of directors. Each January 1 the pool of shares available for issuance under the Omnibus Plan automatically increases by an amount equal to the lesser of (i) the number of shares necessary such that the aggregate number of shares available under the Omnibus Plan equals 25% of the number of fully-diluted outstanding shares on the increase date (assuming the conversion of all outstanding shares of preferred stock and other outstanding convertible securities and exercise of all outstanding options and warrants to purchase shares) and (ii) if the board of directors takes action to set a lower amount, the amount determined by the board. On January 1, 2019, the pool of shares available for issuance under the Omnibus Plan automatically increased from 1,345,074 shares to 2,757,131 shares.
 
We record share-based compensation in accordance with the provisions of the Share-based Compensation Topic of the FASB Codification. The guidance requires the use of option-pricing models that require the input of highly subjective assumptions, including the option’s expected life and the price volatility of the underlying stock. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option valuation model which uses certain assumptions related to risk-free interest rates, expected volatility, expected life of the common stock options, and future dividends, and the resulting charge is expensed using the straight-line attribution method over the vesting period.
 
Stock compensation expense recognized during the period is based on the value of share-based awards that were expected to vest during the period adjusted for estimated forfeitures. The estimated fair value of grants of stock options and warrants to non-employees is charged to expense, if applicable, in the financial statements.
 
Recent Accounting Pronouncements
 
See Note 2 of the accompanying financial statements for a discussion of recently issued accounting standards.
 
Results of Operations
 
Three Months Ended March 31, 2019 and 2018
 
Revenue
 
We had no revenue during the three months ended March 31, 2019, as compared to $6,174 for the three months ended March 31, 2018. The revenue was a result of service activity on our installed base of Nexus 128 pre-clinical systems. During the three months ended March 31, 2019, we ceased production of our Nexus 128 system and announced our plan to stop providing service support and parts for all existing systems as of July 1, 2019, in order to focus our resources on the development of our TAEUS technology.
 
 
 
14
 
 
Cost of Goods Sold
 
There was no cost of goods sold for each of the three months ended March 31, 2019 and 2018.
 
Research and Development
 
Research and development expenses were $1,773,498 for the three months ended March 31, 2019, as compared to $1,668,823 for the three months ended March 31, 2018, an increase of $104,675, or 6%. The costs include primarily wages, fees and equipment for the development of our TAEUS product line. Research and development expenses increased from the same period for the prior year due primarily to increased spending to develop TAEUS applications, which included expenses for our contracted development vendors.
 
Sales and Marketing
 
Sales and marketing expenses were $56,818 for the three months ended March 31, 2019, as compared to $107,177 for the three months ended March 31, 2018, a decrease of $50,359, or 47%. The decrease was primarily due to reduced costs pending costs associated with commercialization of the TAEUS product line. Currently, our marketing efforts are through our website and attendance of key industry meetings. Our future clinical business will involve hiring and training additional staff to support our sales efforts. As we seek to complete the development and commercialization of our TAEUS applications, we intend to build a small sales and marketing team to train and support global ultrasound distributors, as well as execute traditional marketing activities such as promotional materials, electronic media and participation in industry conferences.
  
General and Administrative
 
Our general and administrative expenses for the three months ended March 31, 2019 were $916,903, a decrease of $150,889, or 14%, compared to $1,067,792 for the three months ended March 31, 2018. Our wage and related expenses for the three months ended March 31, 2019 were $408,345, compared to $516,255 for the three months ended March 31, 2018. Wage and related expenses in the three months ended March 31, 2019, included $34,372 for bonuses and $171,837 of stock compensation expense related to the issuance and vesting of options, compared to $137,500 for bonuses and $163,671 of stock compensation expense for the same period in 2018. Our professional fees for the three months ended March 31, 2019 were $357,837, compared to $386,722 for the three months ended March 31, 2018.
 
Net Loss
 
As a result of the foregoing, for the three months ended March 31, 2019, we recorded a net loss of $2,748,736 compared to a net loss of $2,825,303 for the three months ended March 31, 2018.
 
Liquidity and Capital Resources
 
To date we have funded our operations through private and public sales of our securities. As of March 31, 2019, we had $3,925,474 in cash. In May 2017, we completed our initial public offering, raising net proceeds of approximately $8.6 million after deducting offering expenses of approximately $0.8 million in underwriting discounts, commissions and expenses and approximately $0.3 million in offering expenses payable by us. In June 2018, we completed the placement of senior secured convertible promissory notes and warrants, raising net proceeds of approximately $935,000 after deducting offering expenses of approximately $142,000 payable by us. On October 15, 2018, we completed an underwritten public offering of 1,477,750 shares of our common stock. The net proceeds from this offering were approximately $2.7 million, after deducting underwriting discounts and commissions and other offering expenses. On November 13, 2018, we completed an underwritten public offering of 1,385,750 shares of our common stock. The net proceeds from this offering were approximately $4.9 million, after deducting underwriting discounts and commissions and other offering expenses. In connection with these underwritten public offerings, the promissory notes issued in June 2018 converted into common stock pursuant to their terms.
 
We believe that cash on hand at March 31, 2019, including the net proceeds from our October and November 2018 underwritten public offerings, will be sufficient to fund our current operations into the third quarter of 2019. If we do not raise additional capital in the next several months we will need to significantly slow or pause our business activities until such time as we are able to raise additional capital. We continue to evaluate and manage our capital needs to support our clinical, regulatory and operational activities and prepare for the results of our human studies data and EU commercialization. We are currently exploring potential financing options that may be available to us, including additional sales of our common stock. However, we have no commitments to obtain any additional funds, and there can be no assurance such funds will be available on acceptable terms or at all. If we are unable to obtain additional financing in a timely fashion and on terms acceptable to us, our financial condition and results of operations may be materially adversely affected and we may not be able to continue operations or execute our stated commercialization plan.
 
 
 
15
 
 
The financial statements included in this Form 10-Q have been prepared assuming we will continue as a going concern, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying financial statements, during the three months ended March 31, 2019, we incurred net losses of $2,748,736 and used cash in operations of $2,540,662. These and other factors raise substantial doubt about our ability to continue as a going concern for one year from the issuance of the accompanying financial statements. The financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern.
 
Operating Activities
 
During the three months ended March 31, 2019, we used $2,540,662 of cash in operating activities primarily as a result of our net loss of $2,748,736, which included non-cash charges for share-based compensation of $302,268, depreciation expenses of $19,632, and net changes in operating assets and liabilities of $113,827.
 
During the three months ended March 31, 2018, we used $2,451,890 of cash in operating activities primarily as a result of our net loss of $2,825,303, which included non-cash charges for share-based compensation of $379,689, $15,339 in depreciation expenses, and net changes in operating assets and liabilities of $21,615.
  
Investing Activities
 
During the three months ended March 31, 2019, the Company used $5,239 in investing activities related to purchase of equipment.
 
During the three months ended March 31, 2018, the Company had no cash flows from investing activities.
 
Financing Activities
 
During each of the three months ended March 31, 2019 and 2018, there were no cash flows from financing activities.
 
Funding Requirements
 
We have not completed development of our TAEUS technology platform applications. We expect to continue to incur significant expenses for the foreseeable future. We anticipate that our expenses will increase substantially as we:
 
● advance the engineering design and development of our NAFLD TAEUS application;
 
● prepare regulatory filings required for marketing approval of our NAFLD TAEUS application in the European Union and the United States;
 
● seek to hire a small internal marketing team to engage and support channel partners and clinical customers for our NAFLD TAEUS application;
 
● commence marketing of our NAFLD TAEUS application;
 
● advance development of our other TAEUS applications; and
 
● add operational, financial and management information systems and personnel, including personnel to support our product development, planned commercialization efforts and our operation as a public company.
 
It is possible that we will not achieve the progress that we expect because the actual costs and timing of completing the development and regulatory approvals for a new medical device are difficult to predict and are subject to substantial risks and delays. We have no committed external sources of funds. We do not expect that our existing cash will be sufficient for us to complete the commercialization of our NAFLD TAEUS application or to complete the development of any other TAEUS application and we will need to raise substantial additional capital for those purposes. As a result, we will need to finance our future cash needs through public or private equity offerings, debt financings, corporate collaboration and licensing arrangements or other financing alternatives. Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement and involves risks and uncertainties, and actual results could vary as a result of a number of factors, including the factors discussed in the section of our Annual Report on Form 10-K for the year ended December 31, 2018, entitled “Risk Factors” . We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect.
 
 
 
16
 
 
Until we can generate a sufficient amount of revenue from our TAEUS platform applications, if ever, we expect to finance future cash needs through public or private equity offerings, debt financings or corporate collaborations and licensing arrangements. Additional funds may not be available when we need them on terms that are acceptable to us, or at all. If adequate funds are not available, we may be required to delay, reduce the scope of or eliminate one or more of our research or development programs or our commercialization efforts or perhaps even cease the operation of our business. To the extent that we raise additional funds by issuing equity securities, our stockholders may experience additional dilution, and debt financing, if available, may involve restrictive covenants. To the extent that we raise additional funds through collaborations and licensing arrangements, it may be necessary to relinquish some rights to our technologies or applications or grant licenses on terms that may not be favorable to us. We may seek to access the public or private capital markets whenever conditions are favorable, even if we do not have an immediate need for additional capital at that time.
  
Off-Balance Sheet Transactions
 
At March 31, 2019, the Company did not have any transactions, obligations or relationships that could be considered off-balance sheet arrangements.
 
Item 3. Quantitative and Qualitative Disclosure About Market Risk
 
As a smaller reporting company, we are not required to provide the information required by this Item 3.
 
Item 4. Controls and Procedures
 
Evaluation of Disclosure Controls and Procedures
 
As of the end of the period covered by this Form 10-Q, management performed, with the participation of our principal executive officer and principal financial officer, an evaluation of the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”). Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosures. Based on the evaluation, our principal executive officer and principal financial officer concluded that, as of March 31, 2019, our disclosure controls and procedures were not effective.
 
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. We identified the following material weakness as of March 31, 2019: insufficient personnel resources within the accounting function to segregate the duties over financial transaction processing and reporting.
 
To remediate our internal control weaknesses, management intends to implement the following measures, as finances allow:
 
● Adding sufficient accounting personnel or outside consultants to properly segregate duties and to effect a timely, accurate preparation of the financial statements.
 
● Developing and maintaining adequate written accounting policies and procedures, once we hire additional accounting personnel or outside consultants.
 
The additional hiring is contingent upon our efforts to obtain additional funding and the results of our operations. Management expects to secure funds in the coming fiscal year but provides no assurances that it will be able to do so.
 
Changes in Internal Control over Financial Reporting
 
There was no change to our internal controls or in other factors that could affect these controls during the three month period ended March 31, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. However, our management is currently seeking to improve our controls and procedures in an effort to remediate the deficiency described above.
 
 
 
17
 
 
PART II – OTHER INFORMATION
 
Item 1.  Legal Proceedings
 
We are not currently a party to any pending legal proceedings that we believe will have a material adverse effect on our business or financial condition. We may, however, be subject to various claims and legal actions arising in the ordinary course of business from time to time.
 
Item 1A.  Risk Factors
 
In addition to the other information set forth in this report, you should carefully consider the factors discussed under “Risk Factors” in our Annual Report on Form 10-K for the period ended December 31, 2018, as filed with the Securities and Exchange Commission on March 11, 2019. These factors could materially adversely affect our business, financial condition, liquidity, results of operations and capital position, and could cause our actual results to differ materially from our historical results or the results contemplated by any forward-looking statements contained in this report.
 
Item 2. Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities
   
Not applicable.
 
Item 3. Defaults Upon Senior Securities
 
Not applicable.
 
Item 4. Mine Safety Disclosures
 
Not applicable.
 
Item 5. Other Information
 
Earnings Release
 
On May 14, 2019, we issued an earnings release reporting our results of operations for the three months ended March 31, 2019. A copy of that earnings release is furnished herewith as Exhibit 99.1 pursuant to Item 2.02 of Form 8-K. This information shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, nor shall it be deemed incorporated by reference in any filing under the Securities Act.
 
Employment Agreement
 
On May 13, 2019, the Company entered into an employment agreement with David Wells, its Chief Financial Officer (the “Employment Agreement”). The Employment Agreement supersedes the consulting agreement between the Company and StoryCorp Consulting (the Consulting Agreement”), pursuant to which Mr. Wells provided services to the Company as its Chief Financial Officer. The Employment Agreement provides for an annual base salary of $230,000 and eligibility for an annual cash bonus to be paid based on attainment of Company and individual performance objectives to be established by the Company’s board of directors (in 2019, the amount of such cash bonus if all goals are achieved will be 30% of the base salary plus base fees paid to StoryCorp Consulting under the Consulting Agreement). The Employment Agreement also provides for eligibility to receive benefits substantially similar to those of the Company’s other senior executive officers.
 
Pursuant to the Employment Agreement, Mr. Wells was granted stock options (the “Stock Option”) to purchase 56,000 shares of the Company’s common stock. The Stock Option has an exercise price of $1.38 per share, and vests in three equal annual installments beginning on the first anniversary of the grant date.
 
The foregoing description of the Employment Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Employment Agreement, a copy of which is filed as Exhibit 10.2 to this Quarterly Report on Form 10-Q, pursuant to Item 5.02 of Form 8-K, and incorporated herein by reference.
 
 
 
18
 
 
Item 6. Exhibits
 
Exhibit Number
 
Description
 
Fourth Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on May 12, 2017)
 
Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.4 to the Company’s Registration Statement on Form S-1 (File No. 333-214724), as amended, originally filed on November 21, 2016)
 
Specimen Certificate representing shares of common stock of the Company (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-1 (File No. 333-214724), as amended, originally filed on November 21, 2016)
 
Non-Employee Director Compensation Policy* (filed herewith)
 
Employment Agreement, dated May 13, 2019, by and between the Company and David Wells* (filed herewith)
 
Certification of Periodic Report by Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14a and pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
 
Certification of Periodic Report by Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14a and pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
 
Certification of Periodic Report by Chief Executive Officer and Chief Financial Officer pursuant to U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)
 
Earnings release issued May 14, 2019 (furnished herewith) 
101.INS
 
XBRL Instance Document (filed herewith)
101.SCH
 
XBRL Taxonomy Schema (filed herewith)
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase (filed herewith)
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase (filed herewith)
101.LAB
 
XBRL Taxonomy Extension Label Linkbase (filed herewith)
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase (filed herewith)
 
 
* Indicates management compensatory plan, contract or arrangement.
 
 
19
 
 
SIGNATURES
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
ENDRA LIFE SCIENCES INC.
 
(Registrant)
 
 
 
 
 
 
Date: May 14, 2019
By:
/s/ Francois Michelon
 
 
Name: Francois Michelon
 
 
Title: Chief Executive Officer and Chairman
          (Principal Executive Officer)
  
 
Date: May 14, 2019
By:
/s/ David Wells
 
 
Name: David Wells
 
 
Title: Chief Financial Officer
          (Principal Financial and Accounting Officer)
 
 
 
20
  Exhibit 10.1
ENDRA Life Sciences Inc.
 
Non-Employee Director Compensation Policy
 
(Adopted by the ENDRA Life Sciences Inc. Board of Directors, effective March 25, 2019)
 
Members of the Board of Directors (the “Board”) of ENDRA Life Sciences Inc. (the “Company”) who are not employees of the Company or any subsidiary of the Company (“Directors”) shall be paid the following amounts in consideration for their services on the Board.
 
Initial Option Grant
 
Upon his or her initial election to the Board (the “Appointment Date”), each new Director shall be awarded 50,000 Options (an “Initial Option Grant”) under the Company’s 2016 Omnibus Incentive Plan (the “Plan”). To make up for the fact that each of the Company’s non-employee directors as of the effective date of this Policy (the “Policy Effective Date”) did not receive an Initial Option Grant when they joined the Board, on the Policy Effective Date, each such non-employee director shall receive an Initial Option Grant. All such Options shall vest and become exercisable in three equal annual installments beginning on the one year anniversary of the Grant Date; provided, if a Director ceases to serve as a Director due to the Director’s death, or if there is a Change in Control, then any remaining unvested portion of such Options shall become fully exercisable as of the date of such death or Change in Control. If a Director ceases to serve as a Director at any time for any reason other than death or a Change in Control, then any remaining unvested portion of such Options shall be forfeited as of the date of such cessation of services.
 
Annual Compensation
 
Cash Compensation
 
Each Director shall be paid an annual cash retainer of $40,000, prorated for partial years of service and paid quarterly in arrears.
 
Equity Compensation
 
On the first trading day of each calendar year (each, an “Option Grant Date”), each Director will be awarded 12,000 Options; provided no such Options shall be granted for 2019. Such Options shall not become exercisable until the first anniversary of their Option Grant Date (each, an “Annual Award Vesting Date”). If a Director ceases to serve as a Director before the applicable Annual Award Vesting Date due to the Director’s death, or if there is a Change in Control prior to the Annual Award Vesting Date, then the Options shall become fully exercisable as of the date of such death or Change in Control. If a Director ceases to serve as a Director at any time for any reason other than death before the earlier of the Annual Award Vesting Date or a Change in Control, then any Options issued pursuant to the annual equity grant shall become vested pro rata (based on the number of days between the Option Grant Date and the date of cessation of services divided by 365), and to the extent the Options are not thereby exercisable, they shall be forfeited as of the date of such cessation of services.
 
 
 
 
Equity Award Terms
 
Capitalized terms used in this Policy and not otherwise defined shall have the meanings given to them in the Plan, or any successor equity compensation plan under which Directors receive awards (the “Plan”). Any Options granted under this Policy shall be granted under and pursuant to the Plan. Any Options issued in accordance with the terms of this Policy shall have a term of ten years and shall be exercisable through the date that is 12 months following the date the Director ceases to serve as a Director unless otherwise provided in the Plan. The Board, in its sole discretion and in recognition for meritorious service, may elect to vest up to 100% of a Director’s unvested equity awards upon retirement.
 
Expense Reimbursement
 
The compensation described in this Policy is in addition to reimbursement of all reasonable out-of-pocket expenses incurred by Directors in attending meetings of the Board.
 
Employee Directors
 
An employee of the Company who serves as a director on the Board or on the board of directors of a Company subsidiary shall not receive any additional compensation for such service.
 
Section 409A
 
This Policy is intended to comply with Code Section 409A to the extent subject thereto, and, accordingly, to the maximum extent permitted, the Policy shall be interpreted and administered to be in compliance therewith.
 
 
  Exhibit 10.2
 
May 13, 2019 (Effective Date)
 
 
Dear David:
 
ENDRA Life Sciences Inc. (the “Company”) is pleased to offer you employment on the following terms:
 
1. Position. Your title will be Chief Financial Officer of the Company, and you will report directly to the Chief Executive Officer of the Company. This is a full-time position. While you render services to the Company, you will not engage in any other employment, consulting or other business activity (whether full-time or part-time) that would create a conflict of interest with the Company. By signing this letter agreement, you confirm to the Company that you have no contractual commitments or other legal obligations that would prohibit you from performing your duties for the Company, and that you have relinquished control of and involvement in any other business operations (including, but not limited to, Wells Compliance); provided, the foregoing shall not prohibit your retaining your ownership interest in Atlas Bookkeeping as long as such ownership does not in any way interfere with the performance of your duties for the Company. For the duration of your employment with the Company, you hereby agree from and after the Effective Date, (i) to cease all operations with Storycorp/Wells Compliance; and (ii) to not provide any finance outsourcing services to any individual, company, organization, or other entity without prior written approval from the Company’s Chief Executive Officer.
 
2. Term. Subject to the remaining provisions of this paragraph, this letter agreement will be for an initial term that begins as of the date first set forth above (the “Effective Date”) and continues in effect through the second (2nd) anniversary of the Effective Date (the “Initial Term”) and, unless terminated sooner, will continue on a year-to-year basis after the Initial Term (each year, a “Renewal Term”). If either party elects not to renew this letter agreement, that party must give a written notice of termination to the other party at least 90 days before the expiration of the then-current Initial Term or Renewal Term. If one party provides the other with a notice of termination, no further automatic extensions will occur and this letter agreement will terminate at the end of the then-existing Initial Term or Renewal Term, and such termination will not result in any entitlement to compensation pursuant to Section 9 below or otherwise.
 
 
 
 
3. Cash Compensation. The Company will pay you a base salary at an annual rate of $230,000, in accordance with the Company’s standard payroll schedule and subject to applicable deductions and withholdings. This salary will be subject to periodic review and adjustments at the Board’s discretion. In addition, you will be eligible to receive an annual bonus to be paid based on attainment of Company and individual performance objectives to be established annually by the Board. With respect to 2019, the annual bonus target to be paid if all goals are achieved will be a cash payment equal to 30% of your base salary plus base fees paid to Wells Compliance earned in 2019 and will be based on the realization of milestones determined and approved by the Board.  
 
4. Employee Benefits. As a regular employee of the Company, you will be eligible to participate in a number of Company-sponsored benefits. You will receive 15 days of paid time off (PTO) per calendar year, in accordance with Company policy in effect from time to time and in compliance with applicable state law. Without limiting the generality of the foregoing, while you are an employee of the Company, the Company will provide you life insurance, with you to designate the beneficiary thereunder, in an amount equal to your base salary as in effect on the date of this letter agreement and as in effect on the first business day of each calendar year thereafter. You will also be eligible to participate in a long-term disability insurance plan sponsored by the Company.
 
5. Stock Option.
 
(a) Number of Shares. On your first date of employment with the Company, you will be granted an Option to purchase 56,000 shares of the Company’s common stock (the “Stock Option”).
 
(b) Plan Terms Control. The Stock Option will be subject to the terms and conditions applicable to Options granted under the Plan, as described in the Plan and the applicable Award Agreement.
 
(c) Scheduled Vesting. The Stock Option will vest as described in the applicable Award Agreement.
 
(d) Accelerated Vesting. If your Separation from Service is the result of an involuntary discharge by the Company that is without Cause and is not the result of your death or Disability, then any shares subject to the Stock Option that are scheduled to vest within 12 months of such Separation from Service will vest immediately upon such Separation from Service, and any remaining unvested portion of the shares subject to the Stock Option will terminate immediately.
 
(e) Accelerated Vesting upon Change in Control. If your Separation from Service is the result of an involuntary discharge by the Company that is without Cause, and is not the result of your death or Disability, and is within 12 months following a Change in Control, then the Stock Option will vest immediately upon such Separation from Service.
 
(f) Forfeiture of Unvested Options. If your Separation from Service is for any reason other than an involuntary discharge by the Company that is without Cause, the unvested portion of the Stock Option will immediately terminate.
 
 
 
 
(g) Separation from Service for Cause. If your Separation from Service is for Cause, the unvested and vested portion of the Stock Option will immediately terminate.
 
(h) Exercise Period following Separation from Service. Following your Separation from Service for any reason other than Cause, the vested portion of the Stock Option will remain exercisable for one year (by you or your beneficiaries in the event of your death), subject to any outer limits contained in the Company’s 2016 Omnibus Stock Incentive Plan, as amended (the “Plan”) or the applicable Award Agreement.
 
6. Confidential Information, Assignment of Inventions, and Non-Solicitation Agreement. You will be required, as a condition of your continued employment with the Company, to sign (or re-sign) the Company’s Confidential Information, Assignment of Inventions, and Non-Solicitation Agreement, a copy of which is attached hereto as Exhibit A.
 
7. Time and Place of Employment; Travel. It is acknowledged that your regular workplace will not be the Company’s offices in Ann Arbor, Michigan and instead will be in the state of California; however, the Company requires that you work at least four business days per month out of the Company’s offices in Ann Arbor, Michigan; provided that this requirement may be waived for any given month by the CEO in writing (email acceptable) should other Company business travel interfere with your ability to be present in Ann Arbor. The Company will pay or reimburse your reasonable travel for business on the Company’s behalf from your home in California, lodging, meal and related incidental costs, consistent with the Company’s travel policies in effect from time to time. The Company requires presentation of receipts or an itemized accounting prior to making any reimbursements under this paragraph.
 
8. Employment Relationship. Your employment with the Company is “at will,” meaning that either you or the Company may terminate your employment at any time and for any reason, with or without cause; provided, for avoidance of doubt, the foregoing does not limit your right to receive separation benefits as provided for elsewhere in this Agreement. Any contrary representations that may have been made to you are superseded by this letter agreement. This is the full and complete agreement between you and the Company on this term. Although your job duties, title, compensation and benefits, as well as the Company’s personnel policies and procedures, may change from time to time, the “at will” nature of your employment may only be changed in an express written agreement signed by you and a duly authorized officer of the Company (other than you).
 
 
 
 
 
9. Certain Payments upon Termination. If you are terminated by the Company without Cause, then, contingent upon your execution, delivery and non-revocation of a release in form and substance satisfactory to the Company and consistent with the Company’s standard release agreement, which contains a full release of all claims against the Company and certain other provisions (the “Release Agreement”), including a reaffirmation of the covenants in your Confidential Information, Assignment of Inventions, and Non-Solicitation Agreement, you will be entitled to (i) 6 months’ (or 12 months’ if such termination occurs within one year following a Change in Control) continuation of your current base salary and (ii) a lump sum payment equal to 6 months (or 12 months if such termination occurs within one year following a Change in Control) of COBRA premiums based on the terms of Company’s group health plan and your coverage under such plan as of the date of your Separation from Service (regardless of any COBRA election actually made by you or the actual COBRA coverage period under the Company’s group health plan). The Company’s obligations under this paragraph are subject to the requirements and time periods set forth in this paragraph and in the Release Agreement. Prior to receiving the payments described in this paragraph, you must execute the Release Agreement on or before the date 21 days (or such longer period to the extent required by law) after your Separation from Service. If you fail to timely execute and remit the Release Agreement, you waive any right to the payments provided under this paragraph. Payments under this paragraph will commence within 15 days of your execution and delivery of the Release Agreement, provided that you do not revoke the Release Agreement and allow it to become effective in accordance with its terms. Your rights following a Separation from Service under the terms of any Company plan, whether tax-qualified or not, that are not specifically addressed in this letter agreement, will be subject to the terms of such plan, and this letter agreement will have no effect upon such terms except as specifically provided herein. Except as specifically provided in this paragraph, you will not have any further rights to compensation under this letter agreement following your Separation from Service.
 
10. Removal from any Boards and Positions. Unless you and the Company agree otherwise at the time of your Separation from Service, upon your Separation from Service, you will be deemed to resign (a) if a member, from the Board and the board of directors of any affiliate and any other board to which you have been appointed or nominated by or on behalf of the Company or an affiliate, (b) from each position with the Company and any affiliate, including as an officer of the Company or an affiliate and (c) as a fiduciary of any employee benefit plan of the Company and any affiliate.
 
11. Tax Matters.
 
(a) Withholding. All forms of compensation referred to in this letter agreement are subject to reduction to reflect applicable withholding and payroll taxes and other deductions required by law.
 
(b) Tax Advice. You are encouraged to obtain your own tax advice regarding your compensation from the Company. You agree that the Company does not have a duty to design its compensation policies in a manner that minimizes your tax liabilities.
 
12. Confidentiality. You and the Company have entered into a Confidential Information, Assignment of Inventions, and Non-Solicitation Agreement. In addition to the terms of that agreement, you agree that the terms and conditions of this letter agreement are strictly confidential and, with the exception of your legal counsel, tax advisor, immediate family or as required by applicable law, have not and will not be disclosed, discussed or revealed to any other persons, entities or organizations, whether within or outside the Company, without prior written approval of the Company. For avoidance of doubt, you may not utilize the terms of this letter agreement to seek employment with another party.
 
 
 
 
13. Interpretation, Amendment and Enforcement. This letter agreement and Exhibit A hereto constitute the complete agreement between you and the Company, contain all of the terms of your continued employment with the Company and supersede any prior agreements, representations or understandings (whether written, oral or implied) between you and the Company including the Consulting Agreement between the Company and StoryCorp Consulting dated July 23, 2014 which is hereby terminated and shall have no further force or effect. This letter agreement may not be amended or modified, except by an express written agreement signed by both you and a duly authorized officer of the Company. The terms of this letter agreement and the resolution of any disputes as to the meaning, effect, performance or validity of this letter agreement or arising out of, related to, or in any way connected with, this letter agreement, your employment with the Company or any other relationship between you and the Company will be governed by California law, excluding laws relating to conflicts or choice of law. Capitalized terms used and not defined herein have the meanings ascribed thereto in the Plan; provided “Cause” shall include, in addition to the meaning ascribed thereto in the Plan, the occurrence of events relating to the past or future operations of Storycorp/Wells Compliance that interfere with your ability to effectively perform your duties for the Company.
 
14. Section 409A. It is intended that this letter agreement comply with Section 409A of the Internal Revenue Code of 1986 (“Section 409A”), to the extent applicable. This letter agreement will be administered in a manner consistent with this intent, and any provision that would cause this letter agreement to fail to satisfy Section 409A will have no force or effect until amended to comply with Section 409A. Notwithstanding anything in this letter agreement to the contrary, in the event any payment or benefit hereunder is determined to constitute nonqualified deferred compensation subject to Section 409A, then to the extent necessary to comply with Section 409A, such payment or benefit will not be made, provided or commenced until six months after your Separation from Service. For purposes of Section 409A, the right to a series of installment payments will be treated as a right to a series of separate payments. Notwithstanding anything in this letter agreement to the contrary, to the extent required in order to avoid accelerated taxation and/or additional taxes under Section 409A, amounts reimbursable to you under this letter agreement will be paid to you on or before the last day of the year following the year in which the expense was incurred and the amount of expenses eligible for reimbursement (and in-kind benefits provided to you) during any one year may not effect amounts reimbursable or provided in any subsequent year.
 
* * * * *
 
 
 
 
 
You may indicate your agreement with the terms of this letter agreement by signing and dating both the enclosed duplicate original of this letter agreement and the enclosed Confidential Information, Assignment of Inventions, and Non-Solicitation Agreement and returning them to me.
 
 
Very truly yours,
 
ENDRA LIFE SCIENCES INC.
 
 
/s/ Francois Michelon             
 
By: Francois Michelon, Chief Executive Officer 
 
I have read and accept this employment letter agreement:
 
/s/ David Wells                    
Signature of David Wells
 
Dated: May 13, 2019         
 
Attachment
 
Exhibit A: Confidential Information, Assignment of Inventions, and Non-Solicitation Agreement
 
 
 
EXHIBIT 31.1
 
CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
 
I, Francois Michelon, certify that:
 
1.   I have reviewed this Quarterly Report on Form 10-Q of ENDRA Life Sciences Inc.:
 
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
a) 
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
b) 
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
c) 
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
d) 
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
 
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
 
a) 
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
 
b) 
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
  
Date: May 14, 2019
 
 
/s/ Francois Michelon
 
Name: Francois Michelon
 
Title: Chief Executive Officer and Chairman
 
(Principal Executive Officer)
 
 
  
 
EXHIBIT 31.2
 
CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
 
I, David Wells, certify that:
 
1. I have reviewed this Quarterly Report on Form 10-Q of ENDRA Life Sciences Inc.:
 
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
a) 
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
b) 
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
c) 
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
d) 
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
 
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
 
c) 
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
 
d) 
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
 
Date: May 14, 2019
 
 
/s/ David R. Wells
 
Name: David R. Wells
 
Title: Chief Financial Officer
           (Principal Financial and Accounting Officer) 
 
 
 
 
EXHIBIT 32.1
 
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
 
 
In connection with the Quarterly Report of ENDRA Life Sciences Inc. (the “Company”) on Form 10-Q for the period March 31, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, Francois Michelon, Chief Executive Officer and Chairman of the Company, and David Wells, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
 
(1)  The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
 
(2)  The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
A signed original of this written statement required by Section 906 has been provided to ENDRA Life Sciences Inc. and will be retained by ENDRA Life Sciences Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
 
 
/s/ Francois Michelon
 
/s/ David R. Wells
Name: Francois Michelon
 
Name: David R. Wells
Title: Chief Executive Officer and Chairman
 
Title: Chief Financial Officer
Date: May 14, 2019
 
Date: May 14, 2019
 
 
 
Exhibit 99.1
 
ENDRA Life Sciences Reports First Quarter 2019 Financial & Operational Results
 
Management to Host First Quarter 2019 Conference Call Today at 4:30 p.m. ET
 
ANN ARBOR, Michigan – May 14, 2019 - ENDRA Life Sciences Inc. (“ENDRA”) (NASDAQ: NDRA), a developer of enhanced ultrasound technologies, reported its financial and operational results for the first quarter ended March 31, 2019.
 
Key First Quarter 2019 & Subsequent Highlights:
 
●
Received ISO 13485 certification from British Standards Institute, indicating the company’s Quality Management System meets the current regulatory requirements specific to the medical device industry. The ISO certification will be an essential foundation of ENDRA’s CE application.
●
Reported initial findings on 25 subjects in the first human Thermo Acoustic Enhanced Ultrasound (TAEUS™) feasibility study of liver fat at the Robarts Research Institute:
o
Correlation between thermoacoustic measurements of ENDRA's TAEUS system and the percent fat fraction by MRI had an R2 of 0.61, suggesting a moderate correlation1 on a small set of data, with a standard error of the mean of 2.98%.
▪
Separate from the TAEUS testing, the correlation of BMI (Body Mass Index) with MRI fat measurement was only 0.19, and the correlation of abdominal fat thickness (as determined by ultrasound) with MRI fat measurement was 0.31.
o
The Robarts feasibility study is in the process of enrolling 25 additional study subjects that aim to stratify the range of liver fat fraction seen in mild, moderate and severe fatty liver, typically 6% - 50% liver fat by MRI.
o
Findings on the 50 total subjects may vary from initial data, whose 25 subjects had predominantly healthy livers.
●
Grew intellectual property (IP) portfolio from 42 to 50 assets in preparation, filed, issued or licensed status, encompassing a range of device and method-focused IP in targeted global markets.
o
One U.S. patent was issued subsequent to the closing of the first quarter of 2019 for determining fractional fat content of tissue.
●
Participated in the American Institute of Ultrasound in Medicine (AIUM) Conference and the European Association for the Study of the Liver (EASL) International Liver Congress in April 2019.
o
Developed relationships and discussed initial findings with attending clinicians, sonographers, scientists and ENDRA’s partner, GE Healthcare.
●
Partnered with the Ladak Laboratory at Western University in Canada to develop artificial intelligence (AI) tools for ENDRA’s TAEUS technology.
●
Hired Amy Sitzler as ENDRA’s Vice President of Engineering and Programs. Amy’s career includes 20 years at GE Healthcare during which she had a 5-year assignment in France leading a 200 person global engineering team that introduced the first digital mammography product
 
1 E.G., see User’s Guide to Correlation Coefficients, Table 1, Haldun Akoglu, Turk J Emerg Med. 2018 Sep; 18(3): 91–93.
 
 
1
 
 
Management Commentary
 
“The first quarter of 2019 was marked by continued progress for our planned controlled commercial launch of the Thermo-Acoustic Enhanced UltraSound (TAEUS™) clinical system in Europe in the second half of 2019,” said Francois Michelon, CEO of ENDRA Life Sciences. “Most notably in the first quarter we reported initial findings from the first 25 patient cohort of our expected 50 patient TAEUS human study in collaboration with Imaging Laboratories at Robarts Research in London, Canada.
 
“We are pleased with the initial findings from our TAEUS system, and it is very encouraging to see a 0.61 correlation to MRI on a small group of subjects right out of the gate. In addition to the Robarts study, we plan to initiate several additional North American clinical studies this summer to further build a strong base of clinical data to support our initial commercialization efforts in Europe, following an anticipated CE Mark,” continued Michelon.
 
“As of today, we are happy to report that data collection in the Robarts feasibility study has been completed on a total of 36 subjects,” said ENDRA Life Sciences CTO, Michael Thornton. “The data collected from the study, including additional usability inputs, will both inform our final commercial product design, and be included in our technical file submission for device CE Mark, which we anticipate filing this summer.
 
“We realize the reported findings on our first 25 subjects created some confusion amongst our followers due to the limited nature of the reported data, which was constrained by a majority of study subjects stratifying the range of liver fat seen in the healthy/normal range. However, we were encouraged that the correlation between thermoacoustic measurements of our TAEUS system and the percent fat fraction by MRI had an R2 of 0.61, with a standard error of the mean of 2.98%. The data so far shows that TAEUS measurements track MRI fat measurements more strongly than BMI and abdominal fat thickness. We believe this finding is very encouraging given the small study sample size,” concluded Thornton.
 
Other Achievements
 
“On the intellectual property front, we continued to expand our diverse IP portfolio from 42 to 50 assets in preparation, filed, issued or licensed status, and continued our strong focus on protecting enabling methodologies and technical innovations related to our TAEUS fatty liver application,” continued Michelon. “Most recently, we were issued a U.S. patent for determining fractional fat content of issue, further protecting our proprietary TAEUS technology, and strengthening the accuracy of TAEUS fat quantification methodologies.
 
“We also announced an exciting artificial intelligence (AI) collaboration with Western University in Ontario, Canada to explore how we can apply advanced AI tools to a variety of computational tasks related to TAEUS imaging applications, such as image segmentation, artifact corrections and measurement calibration.
 
 
 
2
 
 
“In April 2019 we received the ISO 13485 certification for our Quality Management System, representing the culmination of a year's work of development, implementation, training and refinement of nearly 50 core business processes. This represents an important milestone achievement towards our CE Mark as it demonstrates the commitment of our global cross-functional development and manufacturing teams to quality, and to meeting customer and international regulatory expectations.
 
“As we move through the second quarter of 2019, ENDRA is well-positioned to deliver on key milestones for ENDRA’s fatty liver application, including:
 
●
Reporting additional findings on 50 subjects in our first human TAEUS feasibility study of liver fat;
●
Initiating several additional clinical studies;
●
Filing for CE Mark in Europe in the summer of 2019; and
●
Beginning a controlled launch of the TAEUS liver device in Europe in the second half of 2019,” concluded Michelon.
 
First Quarter 2019 Financial Results
 
We had no revenue in Q1 2019, as compared to $6,174 in Q1 2018.
 
Operating expenses decreased to $2.7 million in Q1 2019 from $2.8 million in Q1 2018. The decrease in operating expenses in Q1 2019 as compared to Q1 2018 was primarily due to decreased sales and marketing expenses, and general and administrative costs.
 
Net loss in Q1 2019 totaled $2.7 million, or ($0.37) per basic and diluted share, as compared to a net loss of $2.8 million, or ($0.72) per basic and diluted share in Q1 2018.
 
Cash balance at March 31, 2019 totaled $3.9 million, as compared to $6.5 million at December 31, 2018, with no long-term debt outstanding.
 
Conference Call
 
ENDRA CEO Francois Michelon, CFO David Wells and CTO Michael Thornton will host a conference call, followed by a question and answer period.
 
To access the call, please use the following information:
 
Date: 
Tuesday, May 14, 2019
Time:
4:30 p.m. ET, 1:30 p.m. PT
Toll-free dial-in number: 
844-602-0380
International dial-in number:
862-298-0970
  
 
3
 
 
Please call the conference telephone number 5-10 minutes prior to the start time. An operator will register your name and organization. If you have any difficulty connecting with the conference call, please contact MZ Group at 1-949-491-8235.
 
The conference call will be broadcast live and available for replay at  https://www.investornetwork.com/event/presentation/47141 and via the investor relations section of the Company's website at www.endrainc.com.
 
A replay of the conference call will be available after 7:30 p.m. Eastern time through May 28, 2019.
 
Toll-free replay number:
877-481-4010
International replay number:
919-882-2331
Replay ID:
47141
 
About ENDRA Life Sciences Inc.
ENDRA Life Sciences Inc. ("ENDRA") (NASDAQ: NDRA) is a developer of enhanced ultrasound technologies. ENDRA is developing a next generation Thermo-Acoustic Enhanced UltraSound (TAEUS™) platform to enable clinicians to visualize human tissue composition, function and temperature in ways previously possible only with CT & MRI - at a fraction of the cost, and at the point-of-care. ENDRA's first TAEUS application will focus on the fatty liver tissue characterization, for early detection and monitoring of Non-Alcoholic Fatty Liver Disease (NAFLD). ENDRA's goal is to bring new capabilities to ultrasound - thereby broadening access to better healthcare. For more information, please visit www.endrainc.com.
 
About Non-Alcoholic Fatty Liver Disease (NAFLD)
NAFLD is a condition closely associated with obesity, diabetes, hepatitis-C and certain genetic predispositions in which fat accumulates in the liver. NAFLD affects over 1 billion people globally and is estimated to cost the U.S healthcare system over $100 billion annually. NAFLD is often asymptomatic and if left untreated, NAFLD can progress to inflammation (NASH), tissue scarring (fibrosis), cell death (cirrhosis) and liver cancer. By 2025, NAFLD is forecast to be the greatest root cause of liver transplants. The only tools currently available for diagnosing and monitoring NAFLD are impractical: expensive Magnetic Resonance Imaging (MRI) or an invasive surgical biopsy.
 
 
 
4
 
 
Forward-Looking Statements
All statements in this release that are not based on historical fact are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies and expectations, can generally be identified by the use of forward-looking terms such as "believe," "expect," "may," "will," "should," "could," "seek," "intend," "plan," "goal," "estimate," "anticipate," or other comparable terms. Examples of forward-looking statements include, among others, statements we make regarding the results of pending human studies and nature of the data obtained from such studies; the adequacy of protections afforded to us by the patents that we own and the success we may have in, and the cost to us of, maintaining, enforcing and defending those patents; expectations concerning ENDRA's ability to secure regulatory approvals; anticipated product pricing; expectations with respect to current and future partnerships; estimates of the timing of future events and achievements, including product launches; and expectations concerning ENDRA's business strategy. Forward-looking statements involve inherent risks and uncertainties which could cause actual results to differ materially from those in the forward-looking statements, as a result of various factors including, among others, the following: our ability to develop a commercially feasible technology; receipt of necessary regulatory approvals; our ability to find and maintain development partners; market acceptance of our technology; the amount and nature of competition in our industry; our ability to protect our intellectual property; and the other risks and uncertainties described in ENDRA's filings with the Securities and Exchange Commission. The forward-looking statements made in this release speak only as of the date of this release, and ENDRA assumes no obligation to update any such forward-looking statements to reflect actual results or changes in expectations, except as otherwise required by law.
 
Company Contact:
David Wells
Chief Financial Officer
(734) 997-0464
investors@endrainc.com
www.endrainc.com
 
Media & Investor Relations Contact:
MZ North America
Chris Tyson
Managing Director
(949) 491-8235
NDRA@mzgroup.us
www.mzgroup.us
 
 
5
 
 
ENDRA Life Sciences Inc.
Consolidated Balance Sheets
 
 
 
March 31,
 
 

 
Assets
 
2019
(Unaudited)
 
 
  December 31,
2018
 
 Assets
 
 
 
 
 
 
Cash
 $3,925,474 
 $6,471,375 
Prepaid expenses
  105,069 
  145,424 
Inventory
  74,275 
  59,444 
Other current assets
  273,315 
  273,315 
Total Current Assets
  4,378,133 
  6,949,558 
Other Assets
    
    
Fixed assets, net
  258,839 
  273,233 
Total Assets
 $4,636,972 
 $7,222,791 
 
    
    
Liabilities and Stockholders’ Equity
    
    
Current Liabilities
    
    
Accounts payable and accrued liabilities
 $835,232 
 $974,583 
Total Liabilities
  835,232 
  974,583 
 
    
    
Stockholders’ Equity
    
    
Preferred stock, $0.0001 par value; 10,000,000 shares authorized; no shares issued or outstanding
  - 
  - 
Common stock, $0.0001 par value; 50,000,000 shares authorized; 7,422,642 and 7,422,642 shares issued and outstanding
  742 
  742 
Additional paid in capital
  34,241,430 
  33,939,162 
Accumulated deficit
  (30,440,432)
  (27,691,696)
Total Stockholders’ Equity
  3,801,740 
  6,248,208 
Total Liabilities and Stockholders’ Equity
 $4,636,972 
 $7,222,791 
 
 
6
 
 
ENDRA Life Sciences Inc.
Condensed Consolidated Statements of Operations
 
 
 
Three Months Ended
 
 
Three Months Ended
 
 
 
March 31,
 
 
March 31,
 
 
 
2019
 
 
2018
 
Revenue
 $- 
 $6,174 
 
    
    
Cost of Goods Sold
  - 
  - 
 
    
    
Gross Profit
 $- 
 $6,174 
 
    
    
Operating Expenses
    
    
Research and development
  1,773,498 
  1,668,823 
Sales and marketing
  56,818 
  107,177 
General and administrative
  916,903 
  1,067,792 
Total operating expenses
  2,747,219 
  2,843,792 
 
    
    
Operating loss
  (2,747,219)
  (2,837,618)
 
    
    
Other Income (Expenses)
    
    
Other income (expenses)
  (1,517)
  12,315 
Total other income (expenses)
  (1,517)
  12,315 
 
    
    
Loss from operations before income taxes
  (2,748,736)
  (2,825,303)
 
    
    
Provision for income taxes
  - 
  - 
 
    
    
Net Loss
 $(2,748,736)
 $(2,825,303)
 
    
    
Net loss per share – basic and diluted
 $(0.37)
 $(0.72)
 
    
    
Weighted average common shares – basic and diluted
  7,422,642 
  3,923,027 
 
 
7
 
 
ENDRA Life Sciences Inc.
Consolidated Statements of Cash Flows
 
 
 
Three Months Ended
 
 
Three Months Ended
 
 
 
March 31,
 
 
March 31,
 
 
 
2019
 
 
2018
 
Cash Flows from Operating Activities
 
 
 
 
 
 
Net loss
 $(2,748,736)
 $(2,825,303)
Adjustments to reconcile net loss to net cash used in operating activities:
    
    
Depreciation
  19,632 
  15,339 
Common stock, options and warrants issued for services
  302,268 
  379,689 
Changes in operating assets and liabilities:
    
    
Increase in accounts receivable
  - 
  (4,920)
Decrease in prepaid expenses
  40,354 
  28,899 
Increase in inventory
  (14,831)
  (54,282)
Increase in other assets
  - 
  (3,293)
(Decrease) Increase in accounts payable and accrued liabilities
  (139,349)
  11,981 
Net cash used in operating activities
  (2,540,662)
  (2,451,890)
 
    
    
Cash Flows from Investing Activities:
    
    
Purchases of fixed assets
  (5,239)
  - 
Net cash used in investing activities
  (5,239)
  - 
 
    
    
Net Decrease in cash
  (2,545,901)
  (2,451,890)
 
    
    
Cash, beginning of period
  6,471,375 
  5,601,878 
 
    
    
Cash, end of period
 $3,925,474 
 $3,149,988 
 
    
    
Supplemental disclosures:
    
    
      Interest paid
 $- 
 $- 
      Income tax paid
 $- 
 $- 
  
 
8