ENDRA Life Sciences Inc. — FY2018 Form 10-K
Reporting period: Fiscal year ended December 31, 2018. This is an annual filing, not a report limited to 2018 Q4. ENDRA is developing TAEUS, a radio-frequency-enhanced ultrasound platform; its first planned clinical application targets measurement of liver fat and nonalcoholic fatty liver disease (NAFLD). TAEUS had generated no revenue by year-end.
Financial results and liquidity
| Metric | FY2018 | FY2017 |
|---|---|---|
| Revenue | $6,174 | $351,622 |
| Research and development | $4,722,465 | $1,931,075 |
| Sales and marketing | $262,641 | $122,604 |
| General and administrative | $3,752,535 | $2,751,219 |
| Operating loss | $(9,019,008) | $(4,626,058) |
| Net loss | $(9,796,261) | $(5,376,962) |
| Net loss per share, basic and diluted | $(2.17) | $(1.95) |
| Cash used in operating activities | $(7,702,481) | $(3,300,913) |
- Cash at December 31, 2018 was $6,471,375, versus $5,601,878 a year earlier. Management said this cash was expected to fund current operations into Q3 2019, but further capital was needed.
- Year-end total current assets were $6,949,558, total current liabilities $974,583, and working capital $5,974,975. Total assets were $7,222,791; stockholders’ equity was $6,248,208.
- The June 2018 convertible notes, with $1,077,000 principal, were converted into common stock during 2018; $40,085 of accrued interest was paid. No convertible-note balance was reported at year-end. The balance sheet lists $974,583 of accounts payable and accrued liabilities.
- Financing activities provided $8,671,978, including $7,736,678 from common stock issuance and $935,300 from convertible notes. Cash increased by $869,497 overall.
- No meaningful commercial margin trend is established: FY2018 revenue was minimal and cost of goods sold was zero, while FY2017 gross margin was reported at approximately 51%.
Material changes versus FY2017
- Revenue fell by $345,448, as activity was limited to service for the installed Nexus 128 pre-clinical systems.
- R&D expense increased 145% as ENDRA expanded TAEUS development, including contracted engineering work. G&A rose 36%, and sales and marketing rose 114%.
- Net loss increased by $4,419,299, while cash used in operations increased by $4,401,568.
- A $287,541 inventory impairment was recorded in 2018, fully reserving Nexus 128 parts inventory.
- Common shares outstanding increased from 3,923,027 to 7,422,642, reflecting public offerings and conversion of notes, among other issuances.
Outlook, risks and unusual items
- In October 2018, ENDRA received Health Canada authorization for a human feasibility study of TAEUS for NAFLD. Robarts Research Institute completed initial data collection on 25 healthy subjects in December and was authorized to expand enrollment to 50. Management expected results in Q1 2019.
- Management anticipated submitting the TAEUS liver device technical file for CE Mark in the first half of 2019, with the EU as the initial target market. U.S. FDA submissions were planned subsequently, subject to funding and regulatory requirements. No TAEUS application had been approved for sale.
- The independent auditor and management disclosed substantial doubt about ENDRA’s ability to continue as a going concern. The company reported recurring losses, no sufficient ongoing revenue source, and no committed external financing. Failure to raise funds could force delays, reductions, or cessation of operations.
- ENDRA ceased Nexus 128 production effective January 1, 2019 and planned to end service support and parts supply on July 1, 2019, redirecting resources to TAEUS.
- GE Healthcare’s collaboration was extended to January 22, 2020. It provides GE certain rights of first offer regarding manufacturing and licensing; either party may terminate on at least 60 days’ notice.
- ENDRA regained Nasdaq’s minimum stockholders’ equity compliance in December 2018 after receiving a deficiency notice in August. Management also reported a material weakness in internal controls due to insufficient accounting personnel to segregate duties; disclosure controls were deemed ineffective at year-end.
- Key risks include financing availability and dilution, technical and clinical study outcomes, regulatory clearance and timing, market adoption and reimbursement, dependence on contractors and partners, and competition. The filing reports no material pending legal proceedings and no off-balance-sheet arrangements.
Important facts for investors to verify
- Subsequent financing, cash runway, and whether operating plans or study timelines changed after the filing date.
- Results and completion status of the expanded human study, and whether the data support the planned CE Mark submission and intended claims.
- Actual regulatory submission and clearance dates in the EU and U.S., including any additional clinical evidence required.
- Progress in remediating the accounting-control material weakness and any changes in financial reporting controls.
- Current share count, potential dilution from outstanding options and warrants, and any further capital raises.
- Whether the GE Healthcare collaboration remains in effect and what commercial, manufacturing, or licensing arrangements result from it.