ENDRA Life Sciences Inc. quarterly report, Q2 FY2021

ENDRA Life Sciences Inc. — Q2 2021 Form 10-Q

Reporting period: Three and six months ended June 30, 2021; filed August 12, 2021. ENDRA is developing TAEUS, an ultrasound-based platform, and had not commercially launched it by quarter-end.

Financial performance and position

Metric	Q2 2021	Q2 2020	Six months 2021	Six months 2020
Revenue	$0	$0	$0	$0
Operating expenses	$3.20 million	$2.89 million	$5.78 million	$5.99 million
Net loss	$3.20 million	$2.89 million	$5.47 million	$6.22 million
Operating cash used	Not presented quarterly	Not presented quarterly	$5.72 million	$6.54 million

• Q2 R&D was $1.74 million, up 17% year over year; sales and marketing was $257,000, up 91%; G&A was $1.20 million, down 6%.
• Six-month loss improvement included a $308,600 gain from forgiveness of the PPP loan and no debt-discount amortization, compared with $232,426 of such amortization in 2020. Six-month operating expenses declined 4%.
• Cash was $14.04 million at June 30, up from $7.23 million at December 31, 2020. Working capital was $14.70 million. Financing activities provided $12.58 million, including $9.80 million in net stock proceeds and $2.79 million from warrant exercises.
• Total liabilities were $2.25 million, including $709,000 in lease liabilities and $28,000 in loans. The company reported no material gross margin information because it had no revenue or cost of goods sold.
• Common shares outstanding rose from 34.05 million at year-end to 41.86 million at June 30. Potentially dilutive options, warrants, and preferred shares totaled 7.67 million; these were excluded from diluted loss per share as anti-dilutive.

Business outlook, risks, and notable items

• Management estimated June-end cash would fund current operations through Q2 2022, but said further financing would be needed to continue commercialization plans. The company had no committed funding beyond its June 2021 ATM agreement, which permits up to $20 million in gross sales; no shares had been sold under that agreement by June 30.
• The company had received CE marking for its TAEUS FLIP system and was pursuing FDA 510(k) clearance. Management was optimistic about clearance in 2021 but cautioned that review was taking longer than expected and timing and outcome were uncertain. A clinical-trial collaboration was announced in March 2021.
• Management cited cumulative losses of $62.93 million and no established revenue source sufficient to cover operating costs. It warned that unavailable financing could require delaying, reducing, or ending development or commercialization activities, or ceasing operations.
• COVID-19 had affected clinical-trial visits and could delay regulatory review, including FDA review; the company said the pandemic’s effects on its business and liquidity were difficult to estimate.
• Disclosure controls were deemed ineffective due to a material weakness: insufficient accounting personnel to segregate financial-processing and reporting duties. Remediation, including added personnel or consultants, depended on available funding.
• The company expanded its office lease in March 2021, raising monthly rent to $15,452 effective May and extending the term through December 2025. The CFO resigned effective June 18; the Senior Director of Finance became principal financial officer.
• The filing’s MD&A contains apparent comparison-period labeling inconsistencies. The financial statements present three- and six-month comparisons to June 30, 2020; investors should confirm the narrative comparisons against those statements.

Important facts for investors to verify

• Whether FDA 510(k) clearance was obtained, and the resulting timing and scope of U.S. commercialization.
• Cash burn, actual runway, and the amount and terms of financing needed after the stated Q2 2022 runway estimate.
• Sales activity and remaining capacity under the $20 million ATM agreement, along with resulting dilution.
• Commercial traction, customer orders, and the company’s ability to turn TAEUS development and clinical evaluations into revenue.
• Progress in remediating the material weakness and whether disclosure controls improve.