ENDRA Life Sciences Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; financial statements are unaudited. ENDRA is developing Thermo-Acoustic Enhanced Ultrasound (TAEUS), including an application intended to assess liver fat. The company had not commercially sold TAEUS or generated revenue by quarter-end.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 / comparison |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development | $1.21 million | $1.14 million; up 6% |
| Sales and marketing | $0.34 million | $0.16 million; up 111% |
| General and administrative | $1.30 million | $1.27 million; up 2% |
| Total operating expenses / operating loss | $2.86 million | $2.58 million / operating loss increased about 11% |
| Net loss | $2.86 million | $2.27 million |
| Basic and diluted loss per share | $0.07 | $0.06 |
| Cash used in operating activities | $3.10 million | $2.92 million |
| Cash at quarter-end | $7.13 million | $9.46 million at December 31, 2021 |
| Working capital | $8.76 million | Not stated for the comparable period |
| Total liabilities | $1.87 million | $2.09 million at December 31, 2021 |
No gross margin is reported because there was no revenue or cost of goods sold. Q1 financing activities provided $0.85 million, from common-stock issuance; investing activities used $0.09 million. There was no material operating debt disclosed beyond a CAD 40,000 Canadian emergency loan and lease liabilities of $0.62 million, including $0.14 million current.
Inventory increased to $1.93 million from $1.28 million, consisting of materials and subassemblies for TAEUS systems. The company reported no pending orders for a TAEUS system at March 31.
Changes, outlook and material matters
- Net loss worsened year over year, partly because Q1 2021 included a $308,600 gain from forgiveness of a Paycheck Protection Program loan; no such gain was recorded in Q1 2022.
- Sales and marketing costs rose as the company added staff and undertook pre-selling activities. R&D increased mainly due to wages and related expenses.
- Management said cash on hand was expected to fund current operations into the first half of 2023, but additional capital would be needed to carry out commercialization plans. The filing also states that the company has no established revenue source sufficient to cover operating costs and that financing may not be available on acceptable terms. Failure to raise funds could force reductions or delays in development and commercialization, or cessation of operations.
- After quarter-end through the filing date, ENDRA issued 18,615,037 shares under its ATM agreement for approximately $7.5 million net proceeds. This provides additional capital but materially increases potential shareholder dilution.
- In February 2022, the company said it would pursue FDA review of its TAEUS FLIP system through the de novo pathway, with additional clinical data, and planned to withdraw its prior 510(k) application. The product already had CE mark approval; no FDA approval had been obtained as of the report.
- ENDRA received a Nasdaq notice in January 2022 for failing the $1.00 minimum bid-price requirement. The initial compliance period ran through July 5, 2022; the company intended to seek an additional 180-day period if needed. Delisting could impair liquidity and access to financing.
- Disclosure controls and procedures were deemed ineffective as of March 31, 2022. Management identified a material weakness from insufficient accounting personnel to segregate financial-processing and reporting duties; remediation hiring depended on financing.
- COVID-19-related clinical, regulatory and operational disruptions remained risks, though management said conditions appeared to be improving. No material litigation was reported.
Important facts for investors to verify
- Whether the approximately $7.5 million post-quarter ATM proceeds and remaining financing capacity are sufficient to meet the company’s stated operating and commercialization needs, and the resulting dilution.
- Actual cash runway and burn rate, given Q1 operating cash use of $3.10 million and management’s forecast into the first half of 2023.
- Timing, clinical-data requirements and outcome of the planned FDA de novo submission, and progress toward TAEUS commercialization and customer orders.
- Whether the company regained Nasdaq minimum bid-price compliance and whether the accounting material weakness was remediated.
- Potential inventory recoverability and obsolescence, particularly in light of the absence of pending TAEUS system orders at quarter-end.