ENDRA Life Sciences Inc. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. The company is developing Thermo-Acoustic Enhanced Ultrasound (TAEUS), including an application intended to assess fatty liver disease. It had not commercially sold TAEUS and reported no revenue.
Key financial metrics
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development | $1.77 million | $1.47 million | $4.77 million | $4.55 million |
| Sales and marketing | $0.14 million | $0.10 million | $0.39 million | $0.25 million |
| General and administrative | $1.35 million | $1.07 million | $4.08 million | $2.92 million |
| Operating loss | $(3.26) million | $(2.64) million | $(9.25) million | $(7.71) million |
| Net loss | $(3.26) million | $(3.41) million | $(9.47) million | $(8.50) million |
| Net loss per share, basic and diluted | $(0.15) | $(0.46) | $(0.41) | $(1.14) |
- Cash at September 30 was reported as $3.793 million on the balance sheet; the cash flow statement gives $3.793293 million, a $1 difference.
- Working capital was $3.381 million. Current assets were $4.780 million and current liabilities $1.399 million.
- Nine-month operating cash outflow was $8.673 million; investing outflow was $10,483; financing inflow was $6.303 million. Cash decreased $2.381 million.
- Debt included $337,084 of long-term loans and $364,113 of lease liabilities ($73,624 current and $290,489 long-term). No convertible notes remained on the balance sheet at quarter-end.
- No gross margin is reported because there was no revenue or cost of goods sold.
Changes versus prior comparable periods
- Q3 operating expenses rose 23% year over year, with R&D up 20% and G&A up 26%. For the first nine months, operating expenses rose 20%; G&A increased 40% and sales and marketing 59%.
- Nine-month net loss widened to $9.475 million from $8.497 million. Q3 net loss was lower than the prior-year quarter, primarily because 2019 included $728,417 of noncash debt-discount amortization; there was no such charge in Q3 2020.
- Cash used in operations increased to $8.673 million from $6.681 million for the first nine months. Financing included $4.644 million of warrant-exercise proceeds, $1.322 million from common-stock issuance, and $337,084 of loan proceeds.
- Common shares outstanding increased from 8.42 million at December 31, 2019 to 25.02 million at September 30, 2020, reflecting warrant exercises, preferred-stock and note conversions, equity sales, and share awards.
Outlook, risks and unusual items
- Liquidity and going concern: Management said quarter-end cash was expected to fund operations only into Q1 2021 and that additional financing was needed. The filing states there is substantial doubt about the company’s ability to continue as a going concern for one year from issuance. Without timely financing, it may slow, pause, reduce, or cease operations. No assurance is given that financing will be available on acceptable terms.
- Product and regulatory progress: The TAEUS FLIP system received CE mark approval in March 2020; the company submitted an FDA 510(k) application in June 2020. It was preparing for commercialization, but had no TAEUS revenue and no pending system orders at September 30. The GE Healthcare collaboration was extended to January 14, 2021.
- COVID-19: The company cited potential effects on operations, studies, regulatory timelines, supply chains, commercial activity and access to capital. It cut management cash salaries by 33% for the remainder of 2020, replacing that portion with RSUs, and paid director retainers in RSUs.
- Financing and dilution: The company raised cash through warrant exercises and equity issuance and had a new ATM agreement with up to $6.8 million in gross proceeds; no shares had been sold under that agreement by quarter-end. Subsequent to quarter-end, it reported $132,654 net proceeds from ATM sales. Future equity financing could dilute existing holders.
- Nasdaq listing: The company had received notices concerning the $1.00 minimum bid-price rule and the $2.5 million stockholders’ equity rule. It submitted a plan regarding the equity deficiency and was in discussions with Nasdaq; delisting could impair liquidity and financing access.
- Controls and contingencies: Management concluded disclosure controls were ineffective due to insufficient accounting personnel to segregate duties. A contractor was engaged in October 2020 to assist with accounting and SEC filings. Management reported no pending legal matters expected to materially affect financial position or results.
- No formal numerical revenue, earnings, or cash-flow guidance was provided.
Important facts for investors to verify
- Current cash, operating burn, and the timing and terms of any new financing; reconcile the filing’s $1 cash balance difference and its cash-use figures.
- FDA review status and timing, human-study results, CE-mark commercialization progress, and whether customer orders or revenue materialize.
- Nasdaq compliance status for both bid price and stockholders’ equity, including any subsequent cure or reverse split.
- Potential dilution from outstanding warrants, options, preferred shares, ATM issuance, and other equity-linked securities.
- Progress in remediating the material weakness in financial reporting controls and any further effects of COVID-19.