ENDRA Life Sciences Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; unaudited. ENDRA is developing TAEUS ultrasound technology, initially targeting liver-fat imaging. It had not commercially launched TAEUS or generated revenue.
Key financial results and position
| Metric | Q1 2021 | Q1 2020 / comparison |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $2.576 million | $3.101 million |
| Operating loss | $2.576 million | $3.101 million |
| Net loss | $2.269 million | $3.323 million |
| Net loss attributable to common stockholders | $2.390 million, including $121,071 deemed dividend | $3.323 million |
| Basic and diluted loss per share | $0.06 | $0.29 |
| Cash used in operations | $2.923 million | $3.088 million |
| Cash and working capital at March 31, 2021 | $16.843 million; $17.586 million | Cash was $7.227 million at Dec. 31, 2020 |
| Total liabilities | $1.047 million | $1.596 million at Dec. 31, 2020 |
No gross margin or operating margin is meaningful because the company reported no revenue or cost of goods sold. Q1 cash increased by $9.615 million, chiefly reflecting $9.798 million net proceeds from common-stock sales and $2.786 million from warrant exercises; investing activities used $45,000.
Material changes and financing
- Research and development expense decreased 25% year over year to $1.141 million as ENDRA said it completed development of its initial TAEUS product and shifted emphasis toward commercialization.
- Sales and marketing expense rose 40% to $161,000, primarily from added headcount and pre-selling activities. General and administrative expense fell 13% to $1.273 million.
- During Q1 the company issued 3.914 million shares through its Ascendiant at-the-market program for $9.798 million net proceeds, and 3.568 million shares upon warrant exercises for $2.786 million. Common shares outstanding increased from 34.050 million at year-end to 41.615 million at March 31.
- The company recorded a $308,600 gain on extinguishment of debt related to its PPP loan. The filing also says forgiveness notice was received subsequent to quarter-end, so the timing of recognition and notice merits verification.
- At March 31, debt included $28,484 of loans and $331,520 of lease liabilities. PPP loan forgiveness was confirmed after quarter-end. A CAD 40,000 zero-interest Canadian loan remained payable under its stated terms.
Outlook, risks, and contingencies
- Management estimated March 31 cash would fund current operations through the second quarter of 2022, but said additional capital would be needed by then and existing cash would not fund full commercialization and further development. Funding may come from equity, debt, collaborations, or licensing; availability and terms are uncertain.
- The company disclosed cumulative losses of $59.729 million and no established revenue source sufficient to cover operating costs. It warned that failure to raise financing could force it to delay or reduce development or commercialization, or cease operations.
- TAEUS FLIP received CE mark approval in March 2020. ENDRA submitted a U.S. FDA 510(k) application in June 2020. A March 2021 agreement with a clinical-stage biopharmaceutical company would use TAEUS as an add-on in an upcoming clinical trial; the filing gives no revenue value or assured commercialization outcome. The GE Healthcare collaboration was extended through December 16, 2022.
- COVID-19 had affected clinical activities and could delay trial work and regulatory reviews, including the NAFLD TAEUS application; management could not quantify its ultimate financial or liquidity impact.
- Disclosure controls and procedures were deemed ineffective due to a material weakness: insufficient accounting personnel to segregate financial processing and reporting duties. Remediation depends partly on obtaining funding and hiring support.
- The March 2021 office lease amendment added space, raised monthly rent to $15,452 effective May 2021, and extended the lease through December 2025. Management reported no pending legal matter expected to have a material effect.
Important facts for investors to verify
- FDA review status, regulatory timing, clinical evidence, and the pathway and cost to commercialize TAEUS in the U.S. and Europe.
- Actual cash burn and runway against management’s second-quarter 2022 estimate, plus the timing, amount, and terms of future financing.
- Whether the PPP forgiveness gain was appropriately recognized in Q1 given the filing’s differing descriptions of when forgiveness notice was received.
- Further share issuance, ATM capacity and use, warrant exercises, and resulting dilution.
- Progress in remediating the material weakness and whether accounting staffing and controls improve.