ENDRA Life Sciences Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. ENDRA is developing its Thermo-Acoustic Enhanced Ultrasound (TAEUS) platform, including an application intended to assess liver fat. The unaudited statements are prepared on a going-concern basis.
Financial results and liquidity
| Metric | Q1 2023 | Q1 2022 / comparison |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development | $1.391 million | $1.213 million; up 15% |
| Sales and marketing | $182,000 | $340,000; down 47% |
| General and administrative | $1.366 million | $1.302 million; up 5% |
| Total operating expenses | $2.939 million | $2.855 million |
| Net loss | $2.943 million | $2.858 million |
| Net loss per share, basic and diluted | $0.93 | $1.33 |
| Operating cash used | $2.507 million | $3.099 million |
| Cash at period end | $2.355 million | $4.889 million at Dec. 31, 2022 |
No gross margin or operating margin is meaningful to report because the company had no revenue or cost of goods sold. Cash used in investing activities was $27,000; there were no financing cash flows during the quarter. Working capital was $3.687 million. Total liabilities were $2.156 million, including $28,484 in loans and $481,618 in lease liabilities; the TD Bank loan bears 0% interest during its initial term.
Changes and material developments
- Net loss increased by $85,000 year over year. R&D costs rose, primarily due to higher wages and related costs; sales and marketing costs fell following the Chief Commercial Officer’s departure.
- Cash declined by $2.534 million during the quarter. Operating cash use improved year over year, in part because working-capital movements differed from the prior period.
- Inventory was $2.735 million, up from $2.645 million at year-end. The company reported no pending orders for a TAEUS system as of March 31.
- Stockholders’ equity fell to $4.499 million from $7.205 million at year-end. Common shares outstanding were 3,169,103 at March 31; the filing reports 7,481,603 shares outstanding as of May 15.
Outlook, risks and unusual items
- ENDRA had generated no TAEUS revenue and had not commercially sold the technology as of March 31. The company expects continued operating losses and says it will need additional financing. It warns that without sufficient funding it may delay, reduce or eliminate development or commercialization efforts, or cease operations.
- Management said the April 2023 public offering would not eliminate the need for further capital. The filing states the company needs additional capital to fund operations through the next 12 months and expects to need capital for commercialization beyond Q4 2023.
- The April offering closed May 2, after the reporting period, and included 4,312,500 common shares and warrants for 2,156,250 shares after full exercise of the underwriter’s over-allotment option. The filing gives net proceeds as approximately $4.5 million in the subsequent-events note and $4.7 million in MD&A; this difference is not reconciled in the provided text. The offering also presents potential dilution.
- ENDRA received CE mark approval for its TAEUS FLIP system in 2020. It withdrew its FDA 510(k) application and planned to pursue de novo review, including additional clinical data, as soon as practicable in 2023. No approval timetable or revenue guidance is provided.
- Management identified a material weakness in internal controls: insufficient accounting personnel to segregate financial-processing and reporting duties. Remediation plans, including additional accounting resources and written procedures, are contingent on available funding. Disclosure controls were assessed as ineffective at March 31.
- Management cited financing availability, development and regulatory uncertainty, market acceptance, clinical-study outcomes, competition, and access to capital among significant risks. It reported no legal matters believed to have a material effect and no off-balance-sheet arrangements.
Important facts for investors to verify
- Reconcile the April offering’s reported net proceeds of approximately $4.5 million versus $4.7 million and assess remaining cash runway and financing needs.
- Track progress, clinical evidence, regulatory submissions and FDA de novo review timing for the NAFLD TAEUS application.
- Monitor sales orders, inventory utilization and evidence of commercial demand, given the absence of pending system orders at quarter-end.
- Assess potential dilution from the offering warrants, outstanding options and the expanded equity-plan share pool.
- Review remediation of the material weakness and the effect of accounting-resource constraints on controls and reporting.