ENDRA Life Sciences Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; filed March 16, 2023. This is an annual report, not a standalone fourth-quarter report. ENDRA is developing TAEUS, a thermo-acoustic ultrasound platform; its initial application is intended to quantify liver fat and support monitoring of fatty liver disease.
Financial performance and liquidity
| Metric | FY2022 | FY2021 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $6.55 million | $5.48 million |
| Sales and marketing expense | $1.43 million | $1.08 million |
| General and administrative expense | $5.17 million | $4.94 million |
| Operating loss | $13.16 million | $11.50 million |
| Net loss | $13.18 million | $11.23 million |
| Cash used in operating activities | $12.77 million | $11.12 million |
| Cash at year-end | $4.89 million | $9.46 million |
Operating expenses rose about 14% and net loss about 17% year over year. R&D increased 20%, mainly due to higher wages and related costs; sales and marketing increased 33%, reflecting added personnel and pre-sales activity. The 2021 net loss benefited from a $308,600 gain on forgiveness of a Paycheck Protection Program loan; there was no comparable gain in 2022. With no revenue, gross margin and other revenue-based margin measures are not meaningful.
At December 31, 2022, working capital was $6.82 million, total current assets were $8.53 million and current liabilities were $1.70 million. Inventory was $2.64 million, up from $1.28 million, and the company reported no pending TAEUS system orders. Total liabilities were $2.07 million, including $28,484 in current loans and $518,147 in lease liabilities. Financing activities provided $8.40 million, principally from common-stock sales under the ATM program. Cash fell by $4.57 million over the year.
Business, developments and outlook
- TAEUS FLIP received CE marking in March 2020, permitting sales in applicable European markets. The company had a small sales team in France, the UK and Germany, but reported no TAEUS revenue through year-end 2022.
- ENDRA withdrew its FDA 510(k) submission and shifted to the de novo pathway, which it said would require additional clinical data. It planned to submit the de novo application as soon as practicable in 2023. The filing states that additional FDA clearance may be needed for diagnostic claims about fatty tissue content.
- The company said its existing CE certification was due to expire in May 2024 and that it was working on MDR recertification. A February 2023 EU amendment extended the transition deadline for eligible Class IIa devices to December 31, 2028, subject to conditions.
- Management stated that existing cash was insufficient to fund operations through the next 12 months and that additional capital was needed to continue operations and commercialization plans beyond the second quarter of 2023. The company had no committed funding beyond its ATM agreement; it also disclosed limits on further sales under its shelf registration statement. The auditor and management identified substantial doubt about the company’s ability to continue as a going concern.
- The GE Healthcare collaboration was extended to December 16, 2024, but either party may terminate it on at least 60 days’ notice. The agreement includes certain negotiation rights for GE Healthcare.
- ENDRA effected a 1-for-20 reverse stock split in December 2022 and regained Nasdaq’s minimum bid-price compliance. It issued 1,041,377 common shares during 2022 for approximately $8.40 million net proceeds. As of March 16, 2023, 3,169,103 common shares were outstanding.
Risks, contingencies and other notable items
- Funding and going concern: Continuing losses, negative operating cash flow and limited financing access create a risk that development or commercialization could be delayed, reduced or stopped; further equity financing could dilute existing holders.
- Regulatory and commercial execution: FDA de novo review, additional clinical evidence, EU MDR recertification, reimbursement, manufacturing, distribution and physician adoption remain uncertain. The company depends on third parties for product engineering and manufacturing.
- Financial reporting controls: Management concluded disclosure controls and internal control over financial reporting were ineffective at year-end due to insufficient accounting personnel to segregate duties. Remediation efforts were underway; the auditor did not attest to internal-control effectiveness.
- Other matters: The company disclosed no material pending legal proceedings and no off-balance-sheet arrangements. The audit opinion was unqualified and identified no critical audit matters.
Important facts for investors to verify
- Current cash, subsequent financing, actual operating runway and any changes in going-concern status.
- Whether and when the FDA de novo submission was filed, accepted and reviewed, and what clinical evidence or additional clearances are required.
- EU MDR recertification status and continued eligibility to market under the extended transition provisions.
- Commercial traction: orders, installations, sales, pricing, reimbursement and evidence supporting TAEUS performance.
- Inventory recoverability and future working-capital needs, alongside the potential dilution from equity issuance and the expanded equity-plan share reserve.
- Progress in remediating the material weakness in internal controls and any subsequent changes in key personnel or the GE Healthcare relationship.