ENDRA Life Sciences Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022; filed November 14, 2022. ENDRA is developing TAEUS, an ultrasound technology platform intended to expand diagnostic capabilities. The company had not commercially sold TAEUS or generated revenue by quarter-end.
Financial performance and position
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development | $1.83 million | $1.17 million | $4.89 million | $4.06 million |
| Sales and marketing | $0.42 million | $0.28 million | $1.10 million | $0.69 million |
| General and administrative | $1.17 million | $1.20 million | $3.85 million | $3.67 million |
| Operating expenses | $3.42 million | $2.65 million | $9.84 million | $8.43 million |
| Net loss | $3.44 million | $2.66 million | $9.89 million | $8.13 million |
| Basic and diluted loss per share | $0.05 | $0.06 | $0.18 | $0.20 |
Gross margin is not applicable because the company reported no revenue or cost of goods sold. Q3 operating expenses rose about 29% year over year, primarily reflecting higher R&D and sales and marketing spending; nine-month operating expenses rose about 17%. Management attributed R&D increases mainly to wages and related costs, and sales and marketing increases to added headcount and pre-selling activity. The nine-month 2021 comparison included a $308,600 gain from forgiveness of a PPP loan; no comparable gain was recorded in 2022.
At September 30, cash was $8.02 million, down from $9.46 million at December 31, 2021. Working capital was $9.86 million; total assets were $12.34 million and total liabilities $2.14 million. Nine-month operating cash use was $9.68 million, investing cash use $0.16 million, and financing cash inflow $8.40 million, primarily from common-stock issuance. Inventory increased to $2.63 million from $1.28 million; the company reported no pending orders for TAEUS systems. Debt included a $28,484 bank loan and lease liabilities totaling $552,830.
Material changes, outlook, and risks
- The company issued 20.62 million common shares through its ATM program during the first nine months, receiving approximately $8.40 million net. Shares outstanding increased from 42.55 million at December 31, 2021 to 63.17 million at September 30, 2022; 63,174,455 shares were reported outstanding November 14.
- Management estimated cash on hand would fund current operations into the first half of 2023 and said additional capital would be needed by then. The company has no committed funding beyond its ATM agreement, and stated that public-float rules then prevented further sales under its shelf registration statement. Management warned that unavailable or insufficient financing could force reductions or delays to development and commercialization, or cessation of operations. The filing identifies the company’s ability to continue as a going concern as dependent on obtaining adequate capital.
- ENDRA had CE mark approval for TAEUS FLIP in the EU. It withdrew its FDA 510(k) application and planned to pursue a de novo review with additional clinical data, targeting submission in Q4 2022 or Q1 2023. The company cautioned that development and regulatory timing and costs are uncertain.
- Management expected continued and potentially higher R&D and commercialization spending. It reported full-time sales representatives in the UK, France, and Germany, and planned to build EU sales support; U.S. sales staffing was expected after FDA approval.
- Nasdaq had granted an extension through January 1, 2023 to regain the $1.00 minimum bid-price requirement. A November 29, 2022 shareholder meeting was scheduled to vote on authorizing a reverse split between 1-for-2 and 1-for-30, at the board’s discretion. Failure to meet listing requirements could result in delisting and impair liquidity and access to capital.
- Disclosure controls and procedures were deemed ineffective due to a material weakness: insufficient accounting personnel to segregate transaction-processing and reporting duties. Remediation, including additional personnel or consultants, was contingent on funding; management gave no assurance it could fund the hires during the fiscal year.
- The filing discusses possible effects of COVID-19 on clinical activity, regulatory review, travel, and capital access, as well as risks from economic conditions, competition, market acceptance, clinical outcomes, regulatory approvals, and financing availability. Management reported no legal matters believed to have a material effect as of September 30, 2022.
Important facts for investors to verify
- Actual cash use and financing availability relative to management’s stated first-half-2023 runway, including whether ATM or other funding becomes available.
- Progress and timing of the planned FDA de novo submission, supporting clinical data, and regulatory decisions; the filing’s target dates are forward-looking.
- EU commercialization progress, customer orders, and conversion of the $2.63 million inventory into sales.
- Outcome of the Nasdaq bid-price compliance process and reverse-split vote, and any effects on listing status and share liquidity.
- Whether management remediates the accounting personnel material weakness and reports effective controls in subsequent filings.
- Further dilution, including equity-plan awards and the effect of outstanding options, warrants, and preferred-stock conversion rights.