ENDRA Life Sciences Inc. — Q3 2021 Form 10-Q
Business context and reporting period
Unaudited results cover the quarter and nine months ended September 30, 2021; comparisons are to the corresponding 2020 periods. ENDRA is developing its TAEUS ultrasound platform, including an application intended to assess fatty liver disease. It had not commercially sold TAEUS or generated revenue by quarter-end.
Financial results and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development | $1.17 million | $1.77 million | $4.06 million | $4.77 million |
| Sales and marketing | $276,000 | $140,000 | $693,000 | $389,000 |
| General and administrative | $1.20 million | $1.35 million | $3.67 million | $4.08 million |
| Operating loss | $2.65 million | $3.26 million | $8.43 million | $9.25 million |
| Net loss | $2.66 million | $3.26 million | $8.13 million | $9.47 million |
| Net loss per share, basic and diluted | $0.06 | $0.15 | $0.20 | $0.41 |
Gross margin is not meaningful because there was no revenue or cost of goods sold. Nine-month operating cash use was $8.47 million, versus $8.67 million in 2020; investing cash use was $45,000 versus $10,000. Financing provided $13.08 million, mainly from common-stock sales ($10.29 million) and warrant exercises ($2.79 million). Cash increased by $4.57 million to $11.79 million.
At September 30, 2021, current assets were $14.47 million, current liabilities $1.58 million, and working capital $12.89 million. Total assets were $15.31 million and total liabilities $2.16 million. Debt consisted of $28,484 in loans and $680,526 in lease liabilities, of which $127,696 was current. The company reported a $65.59 million accumulated deficit.
Changes versus prior comparable periods
- Quarterly net loss narrowed by about 18%; nine-month net loss narrowed by about 14%. The nine-month comparison includes a $308,600 gain from forgiveness of the 2020 PPP loan; 2020 included $232,426 of debt-discount amortization.
- R&D spending declined as management said initial TAEUS development was completed and spending shifted toward commercialization. Sales and marketing expense rose as the company added staff and pre-selling activity.
- Common shares outstanding increased from 34.05 million at December 31, 2020 to 42.17 million at September 30, 2021, primarily reflecting equity issuance and warrant exercises.
Outlook, risks, and notable matters
- Management estimated September cash would fund current operations into the second half of 2022, but said further capital would be needed to execute commercialization plans. No additional financing was committed apart from the June 2021 ATM agreement; financing may be unavailable or dilutive.
- The filing identifies substantial ongoing losses, no established revenue source, and a need for further funding. Failure to raise capital could force delays, reductions, or cessation of development or commercialization activities.
- TAEUS FLIP had CE marking in Europe. The FDA 510(k) submission, filed in June 2020, remained under review; ENDRA said review was taking longer than expected and timing and outcome were uncertain. The company reported a clinical-trial collaboration and evaluation agreements, but no pending orders for TAEUS systems at quarter-end.
- COVID-19 had affected clinical activity and contributed to delays at the FDA and other health authorities; the company said the impact on future results and liquidity could not be estimated.
- Disclosure controls were deemed ineffective because accounting personnel were insufficient to segregate financial-processing and reporting duties. Management described remediation plans, contingent on available financing.
- No legal proceedings were reported that management believed would materially affect financial position or results.
Important facts for investors to verify
- Whether cash burn and commercialization spending remain consistent with the stated runway into the second half of 2022, and the timing and terms of future financing.
- Progress and timing of FDA review, European commercialization, and any resulting product orders or revenue.
- The extent of potential dilution from the ATM program, outstanding warrants and options, and future equity financing.
- Remediation of the disclosed material weakness in internal controls.
- The MD&A contains apparent comparison-period wording inconsistencies, referring in places to December 31, 2020 where the financial statements show three- and nine-month comparisons ended September 30, 2020; verify the intended periods against the statements.