ENDRA Life Sciences Inc. — Q2 2020 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2020; filed August 14, 2020. ENDRA is developing TAEUS, an ultrasound-enhancement platform. Its first planned application targets liver-fat measurement. The company reported no revenue and no cost of goods sold in either the quarter or first half.
Financial performance and liquidity
- Q2: Operating expenses and operating loss were $2.89 million, versus $2.33 million a year earlier. Net loss was $2.89 million, compared with $2.33 million; basic and diluted loss per share was $0.20 versus $0.31.
- First half: Operating expenses and operating loss were $5.99 million, versus $5.07 million in 2019. Net loss was $6.22 million, compared with $5.08 million; loss per share was $0.45 versus $0.68.
- First-half R&D expense declined 2% to $3.01 million; sales and marketing rose 72% to $249,718; general and administrative expense rose 48% to $2.74 million. The filing attributes higher G&A partly to compensation and professional fees.
- Cash was $748,561 at June 30, down from $6.17 million at December 31, 2019. Current assets were $2.28 million and current liabilities $1.24 million, for reported working capital of $1.04 million. Total liabilities were $1.89 million; long-term debt included $337,084 in loans and $308,366 in lease liabilities. The July 2019 convertible notes had been converted or repaid by June 30.
- Cash-flow statement reports first-half operating cash use of $6.54 million, investing cash use of $22,350, and financing cash provided of $1.14 million; ending cash was $748,561. Management’s discussion gives different operating cash-use and financing figures (see verification items).
- The company had no established revenue stream sufficient to cover operating costs. Management said June 30 cash was expected to fund operations only into Q3 2020 and that additional financing was needed; the filing states substantial doubt about the company’s ability to continue as a going concern for one year from issuance.
Changes, outlook, and material risks
- In March 2020, ENDRA received CE marking for its TAEUS FLIP system; it submitted a 510(k) application to the FDA in June. Commercial sales had not begun. Management planned to pursue commercialization, additional product development, regulatory work, and sales support, but gave no quantified financial guidance or assurance of funding.
- Financing during the first half included $791,474 gross proceeds from common-stock sales under an ATM facility, $337,084 in loans, and $50,438 from warrant exercises. The company also received a $308,600 PPP loan and a CAD40,000 Canadian CEBA loan. PPP forgiveness was uncertain and subject to review.
- After quarter-end, the company reported approximately $2.2 million of gross proceeds from warrant exercises at reduced prices, 539,365 shares sold through the ATM for $550,307, and 811,423 shares issued upon Series A preferred conversions. It was seeking stockholder approval for potential further reduced-price warrant exercises that could issue up to 8.1 million additional shares.
- COVID-19 created risks to operations, clinical activities, supply chains, regulatory timelines, and capital access. Management reduced cash salaries of management by 33% for the remainder of 2020, using restricted stock units for the difference; director retainers were also shifted to stock units.
- Nasdaq notified ENDRA that it was below the $1.00 minimum bid-price requirement, with a compliance deadline of December 28, 2020. Stockholders’ equity was below Nasdaq’s $2.5 million requirement at June 30; the company said it had regained compliance with that equity requirement by August 13, subject to continued compliance.
- Disclosure controls and procedures were deemed ineffective due to insufficient accounting personnel to segregate duties. Management planned remediation contingent on available funding. The filing reported no material pending litigation and no off-balance-sheet arrangements.
Important facts for investors to verify
- Reconcile the cash-flow figures: the cash-flow statement reports operating cash use of $6.54 million and financing cash inflow of $1.14 million, while MD&A reports $6.58 million and $1.18 million, respectively.
- Confirm post-quarter cash, financing proceeds, and current share count. The filing reports 20,960,993 common shares outstanding as of August 13, 2020, alongside potential additional warrant-related issuance and preferred conversions.
- Track FDA review and CE-mark commercialization progress, customer orders, and the company’s ability to generate revenue; the filing states there were no TAEUS orders pending at June 30.
- Assess funding needs and going-concern risk, including possible dilution, PPP loan forgiveness or repayment, and whether additional financing is available on acceptable terms.
- Monitor Nasdaq bid-price and stockholders’ equity compliance, and progress in remediating the disclosed internal-control material weakness.