ENDRA Life Sciences Inc. — FY2017 Form 10-K
Reporting period: Fiscal year ended December 31, 2017, with FY2016 comparatives. This is an annual report, not a standalone fourth-quarter filing. The company develops thermoacoustic imaging technology. Its commercial product was the Nexus 128 pre-clinical research system; its clinical TAEUS platform remained in development and had no approved applications.
Key financial metrics
| Metric | FY2017 | FY2016 |
|---|---|---|
| Revenue | $351,622 | $515,582 |
| Gross profit / gross margin | $178,840 / approximately 51% | $279,704 / approximately 54% |
| Research and development | $1,931,075 | $495,377 |
| Sales and marketing | $122,604 | $34,130 |
| General and administrative | $2,751,219 | $1,541,955 |
| Operating loss | $(4,626,058) | $(1,791,758) |
| Net loss | $(5,376,962) | $(2,775,368) |
| Cash used in operating activities | $(3,300,914) | $(1,315,623) |
| Cash and cash equivalents at year-end | $5,601,878 | $144,953 |
- At December 31, 2017, total current assets were $5.88 million, current liabilities were $848,214, and working capital was approximately $5.03 million. Total liabilities were $848,214; notes payable and convertible notes were zero after repayment or conversion.
- FY2017 financing activities provided $8.77 million, including approximately $8.59 million in net IPO proceeds and $225,000 in convertible-note proceeds, partly offset by $50,000 in note repayments. Convertible notes and accrued interest totaling $1.73 million converted into common shares before the IPO.
- Accumulated deficit was $17.90 million at year-end. No income tax provision was recorded.
Material changes versus FY2016
- Revenue declined 32% to $351,622, reflecting lower Nexus 128 sales and service revenue; management attributed the decrease partly to prioritizing TAEUS development. Nexus 128 system sales were approximately $287,000 in 2017 versus $500,000 in 2016.
- Gross margin declined approximately three percentage points, to 51%, primarily because of higher costs for certain system parts.
- R&D expense rose 290%, to $1.93 million, as the company increased TAEUS development using IPO proceeds. G&A increased 78%, partly due to increased headcount and one-time IPO costs; stock compensation also increased.
- Net loss widened to $5.38 million from $2.78 million, and operating cash use rose to $3.30 million from $1.32 million.
- Year-end cash increased substantially following the IPO. The company issued 1,932,000 units at $5.00 each; each unit included one common share and a warrant. Common shares outstanding were 3,923,027 at December 31, 2017.
Outlook, risks, and notable items
- Management estimated that year-end cash and potential Nexus 128 revenue would fund current operations into the third quarter of 2018. The company said it would need additional capital within months or significantly slow or pause development. No financing commitment was in place, and the filing states substantial doubt about the company’s ability to continue as a going concern.
- The first planned TAEUS application targets measurement of liver fat and assessment of non-alcoholic fatty liver disease. Productization and human studies had begun; the company intended to seek EU CE marking first, followed by U.S. FDA clearance and Chinese approvals. TAEUS had not received regulatory clearance, and human-study results were not yet reported.
- The company expected to price the initial NAFLD accessory at approximately $40,000–$50,000. This was an intended price, not a firm commercial forecast. No formal revenue or profitability guidance was provided.
- The GE Healthcare collaboration provides technical support and certain rights of first offer relating to manufacturing and licensing for the fatty-liver application. Either party may terminate on at least 60 days’ notice; its term was extended to January 2020 in January 2018.
- Key risks include dependence on additional financing, continued losses, uncertain technical and clinical results, regulatory delays or additional testing, market acceptance and reimbursement, competition, and reliance on outside engineering, software, manufacturing, and distribution partners.
- Management reported ineffective disclosure controls due to a material weakness: insufficient accounting personnel to segregate financial processing and reporting duties. Remediation depended partly on obtaining additional funding.
- The independent auditor issued an unmodified opinion on the financial statements but highlighted substantial doubt about the company’s ability to continue as a going concern. No material pending legal proceeding was disclosed.
Most important facts for investors to verify
- Whether the company obtained financing after the filing date, on what terms, and whether its cash runway and going-concern position changed.
- Subsequent TAEUS engineering, human-study, CE-mark, FDA, and commercialization milestones, including any added clinical or regulatory requirements.
- Whether Nexus 128 sales and service revenue can be sustained, and whether TAEUS can generate meaningful revenue at the proposed price.
- Progress in remediating the accounting-control material weakness and any later disclosures of control deficiencies or financial-statement revisions.
- The potential dilution from outstanding options and warrants: the filing reported 940,121 options and 2,268,141 warrants outstanding at year-end.