| 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. Basis
of Presentation The
accompanying unaudited 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- and six-month periods ended June 30, 2017 are not necessarily
indicative of the results that may be expected for the year ended December 31, 2017. The balance sheet at December 31, 2016 has
been derived from the audited financial statements at such date. For further information, refer to the financial statements and
footnotes thereto included in ENDRA Life Sciences Inc. annual financial statements for the year ended December 31, 2016 included
in Amendment No. 10 to the Companys Registration Statement on Form S-1 filed with the SEC on May 1, 2017. 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 three months or less, when purchased, to be cash and cash equivalents. As of June
30, 2017 and December 31, 2016, the Company had no cash equivalents. The Company maintains its cash in bank deposit accounts which,
at times, may exceed federally insured limits. Inventory The
Companys inventory is stated at the lower of cost or estimated realizable value, with cost primarily determined on a weighted-average
cost basis on the first-in, first-out (FIFO) method. The Company periodically determines whether a reserve should
be taken for devaluation or obsolescence of inventory. As of June 30, 2017 and December 31, 2016, no such reserve was taken. 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. Capitalization
of Intangible Assets The
Company records the purchase of intangible assets not purchased in a business combination in accordance with the ASC Topic 350. Revenue
Recognition The
Company recognizes revenue in accordance with the requirements of ASC 605-10-599, which directs that it should recognize revenue
when (1) persuasive evidence of an arrangement exists (contracts); (2) delivery has occurred; (3) the sellers price is fixed
or determinable (per the customers contract); and (4) collectability is reasonably assured (based upon our credit policy).
For products sold to end users revenue is recognized when title has passed to the customer and collectability is reasonably assured;
and no further efforts are required. Future revenue from anticipated new products will follow this same policy. Income
Taxes The
Company utilizes ASC 740, Income Taxes, which requires the recognition of deferred tax assets and liabilities for
the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method,
deferred tax assets and liabilities are determined based on the difference between the tax basis of assets and liabilities and
their financial reporting amounts based on enacted tax laws and statutory tax rates applicable to the periods in which the differences
are expected to affect taxable income. A valuation allowance is recorded when it is more likely-than-not that a deferred
tax asset will not be realized. The
Company generated a deferred tax asset through net operating loss carry-forwards. However, a valuation allowance of 100% has been
established due to the uncertainty of the Companys realization of the net operating loss carry forward prior to its expiration. Research
and Development Costs The
Company follows ASC 730-10, Research and Development. Research and development costs are charged to the statement
of operations as incurred. During the three and six months ended June 30, 2017, the Company incurred $174,726 and $270,540 of expenses
related to research and development costs, respectively. During the three and six months ended June 30, 2016, the Company incurred
$103,640 and $198,877 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 3,176,262 and 1,346,441 potentially dilutive shares, which include outstanding common stock
options, warrants, and convertible notes, as of June 30, 2017 and December 31, 2016, 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:
June
30, 2017
December
31, 2016
Options to purchase common stock 928,121 151,881
Warrants to purchase common stock 2,248,141 152,812
Convertible notes - 1,041,748
Potential equivalent shares excluded 3,176,262 1,346,441 Fair
Value Measurements Disclosures
about fair value of financial instruments require disclosure of the fair value information, whether or not recognized in our balance
sheet, where it is practicable to estimate that value. As of June 30, 2017 and December 31, 2016, the amounts reported for cash,
accrued liabilities and accrued interest approximated fair value because of their short maturities. In
accordance with ASC Topic 820, Fair Value Measurements and Disclosures, the Company measure 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 Companys financial assets and liabilities, including cash, 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
Companys 2016 Omnibus Incentive Plan, which has been approved by its board of directors, permits the grant of share options
and shares to its employees, consultants and non-employee members of the board of directors for up to 1,345,074 shares of common
stock, of which approximately 500,000 remain available to be granted. 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 options 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 Companys common stock) and in 2016. A nonpublic entity that is unable to estimate the expected
volatility of the price of its underlying share may measure awards based on a calculated value, which substitutes
the volatility of appropriate public companies (representative of the companys size and industry) as a bench mark for the
volatility of the entitys own share price. Prior to June 28, 2017, there was no active market for the Companys common
shares. The Company has used the historical closing values of these companies to estimate volatility, which was calculated to be
90%. 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. Beneficial
Conversion Feature If
the conversion feature of conventional convertible debt provides for a rate of conversion that is below market value, this feature
is characterized as a beneficial conversion feature (BCF). A BCF is recorded by the Company as a debt discount pursuant
to ASC Topic 470-20 Debt with Conversion and Other Options. In those circumstances, the convertible debt is recorded
net of the discount related to the BCF and the Company amortizes the discount to interest expense over the life of the debt using
the effective interest method. Debt
Discount The
Company determines if the convertible debenture should be accounted for as liability or equity under ASC 480, Liabilities
Distinguishing Liabilities from Equity. ASC 480 applies to certain contracts involving a companys own equity, and requires
that issuers classify the following freestanding financial instruments as liabilities. Mandatorily redeemable financial instruments,
obligations that require or may require repurchase of the issuers equity shares by transferring assets (e.g., written put
options and forward purchase contracts), and certain obligations where at inception the monetary value of the obligation is based
solely or predominantly on:
● A fixed monetary amount known at inception, for example, a payable settleable with a variable number of the issuers equity shares with an issuance date fair value equal to a fixed dollar amount;
● Variations in something other than the fair value of the issuers equity shares, for example, a financial instrument indexed to the S&P 500 and settleable with a variable number of the issuers equity shares; or
● Variations inversely related to changes in the fair value of the issuers equity shares, for example, a written put that could be net share settled.
Going
Concern The
Companys 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 a limited operating history and had a cumulative net loss from inception to June 30,
2017 of $14,691,886. The Company had working capital of $7,510,198 as of June 30, 2017. The Company has not yet 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 June 30, 2017 have been prepared assuming the Company will continue as a going concern.
The Companys cash resources could 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. Managements 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 forced to delay or scale down some or all of its development activities 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 within one year after the date that the financial statements are issued.
The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue
as a going concern. Recent
Accounting Pronouncements In
May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU)
No. 2014-09, Revenue from Contracts with Customers. ASU 2014-09 is a comprehensive revenue recognition standard that will supersede
nearly all existing revenue recognition guidance under current U.S. GAAP and replace 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. Early adoption is permitted only in annual reporting periods beginning after December 15, 2016,
including interim periods therein. 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 is currently in the process of analyzing the
information necessary to determine the impact of adopting this new guidance on its financial position, results of operations, and
cash flows. The Company plans to adopt the provisions of this statement 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 is currently evaluating the expected impact that the standard could have
on its financial statements and related disclosures. Other
recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified
Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact
on the Companys present or future financial statements. |
