ENDRA Life Sciences Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023; financial statements are unaudited. ENDRA is developing TAEUS, an enhanced-ultrasound platform, including an application intended to assess liver fat. The company had not commercially sold TAEUS or generated revenue by quarter-end.
Financial performance and position
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Operating expenses | $3.13 million | $3.42 million | $9.06 million | $9.84 million |
| Operating loss | $3.13 million | $3.42 million | $9.06 million | $9.84 million |
| Net loss | $3.10 million | $3.44 million | $8.60 million | $9.89 million |
| Basic and diluted loss per share | $0.40 | $1.09 | $1.53 | $3.53 |
With no revenue or cost of goods sold, gross margin and operating margin are not meaningful. No income tax provision was reported. Nine-month 2023 other income was $462,241, mainly including a $413,844 Employee Retention Tax Credit; the comparable 2022 period reported $45,318 of other expense.
- Cash and liquidity: Cash was $3.33 million at September 30, 2023, down from $4.89 million at December 31, 2022. Working capital was $4.23 million; total assets were $7.60 million.
- Cash flows: Nine-month operating cash use was $7.37 million, versus $9.68 million in 2022. Investing cash use was $27,000 versus $164,014. Financing provided $5.85 million, versus $8.40 million in 2022.
- Liabilities: Total liabilities were $2.41 million, including $405,773 of lease liabilities and $28,484 of loans. The loan note is denominated in CAD 40,000, carries 0% interest during its initial term, and is due December 31, 2023.
- Inventory: $2.76 million, up from $2.64 million at year-end; the company reported no pending TAEUS system orders at September 30.
Material changes and financing
- Quarterly and nine-month operating expenses declined year over year, principally as research and development spending fell 11% and 10%, respectively, after completion of initial product development and a shift toward commercialization. Sales and marketing expense declined 42% for the quarter and 39% for the nine months, partly following the Chief Commercial Officer’s departure.
- General and administrative expense increased 7% for the quarter and 3% for the nine months.
- In May 2023, an underwritten offering generated approximately $4.7 million in net proceeds through common-stock and warrant sales. The company also received $1.11 million net from its ATM program during the first nine months. These financings contributed to common shares outstanding increasing from 3.17 million at December 31, 2022 to 8.41 million at September 30, 2023.
- After quarter-end through the report date, the company issued 43,145 additional ATM shares for $44,451 net proceeds.
Outlook, risks and other significant matters
- Management said additional capital would be needed to support operations through the next 12 months and to execute commercialization plans beyond Q4 2023. The company has no committed funding source other than its ATM agreement and gave no assurance that further financing will be available on acceptable terms.
- The filing includes a going-concern warning: without timely financing, ENDRA may have to delay, reduce or discontinue development or commercialization activities, or cease operations. Management expects continued losses and substantial spending on product development, regulatory work and commercialization.
- The company announced submission of a De Novo request for its TAEUS system to the FDA on August 14, 2023. Its TAEUS FLIP system had CE mark approval, but FDA clearance is still required for U.S. sales. No formal financial guidance or specific approval timeline is provided.
- Key risks include financing and dilution, regulatory approval and timing, product development and market acceptance, and the company’s limited commercial history. Management reported no legal matters believed to have a material effect on financial position or results.
- Disclosure controls and procedures were assessed as ineffective due to a material weakness: insufficient accounting personnel to segregate transaction-processing and reporting duties. Remediation, including additional accounting resources and written procedures, is contingent on available funding.
Important facts for investors to verify
- Cash burn and financing needs against the stated need for capital to fund the next 12 months; available ATM capacity and any subsequent financing.
- FDA De Novo review progress, regulatory requirements and timing, and evidence of TAEUS commercialization, customer orders and revenue.
- Potential dilution from outstanding warrants, options, ATM issuance and other equity awards.
- Inventory valuation and whether the $2.76 million inventory can be sold or used as planned, given the absence of pending system orders.
- Progress in remediating the disclosed material weakness and the approaching December 31, 2023 loan maturity.