Business context and reporting period
ENDRA Life Sciences Inc. filed this Form 10-K for the fiscal year ended December 31, 2020, reporting results against fiscal 2019. The company is developing TAEUS, a radio-frequency thermoacoustic technology intended to enhance conventional ultrasound. Its first planned application targets measurement of liver fat associated with NAFLD. ENDRA had not commercially launched TAEUS by year-end and reported no TAEUS revenue.
The company received CE Mark approval for its TAEUS FLIP liver application in March 2020 and submitted a 510(k) application to the FDA in June 2020. FDA clearance remained pending at year-end. ENDRA had discontinued production and support of its legacy Nexus 128 system in 2019 to focus on TAEUS.
Financial results and liquidity
| Metric | FY 2020 | FY 2019 |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $11.50 million | $10.84 million |
| Operating loss | $11.50 million | $10.84 million |
| Net loss | $11.73 million | $13.31 million |
| Net loss attributable to common stockholders | $12.12 million | $17.53 million |
| Basic and diluted loss per share | $0.63 | $2.34 |
| Cash used in operating activities | $10.75 million | $8.59 million |
| Cash at year-end | $7.23 million | $6.17 million |
Research and development expense declined 10% to $5.92 million as development of the initial product was completed and spending shifted toward commercialization. Sales and marketing expense rose 41% to $582,000; general and administrative expense increased 30% to $5.00 million, primarily reflecting higher investor-relations and financing-related legal costs. Debt-discount amortization, a non-cash expense, fell to $232,000 from $2.36 million.
At December 31, 2020, current assets were $8.21 million and current liabilities were $987,000; reported working capital was $7.23 million. Total liabilities were $1.60 million, including $337,000 of bank loans and $348,000 of lease liabilities. No convertible notes were outstanding on the year-end balance sheet. Stockholders’ equity was $7.17 million, and accumulated deficit was $57.34 million. No gross margin was reported because the company had no revenue or cost of goods sold.
Financing activities provided $11.88 million in 2020, mainly from common-stock issuance ($6.78 million) and warrant exercises ($4.76 million), plus $337,000 of loans. Common shares outstanding increased from 8.42 million at December 31, 2019 to 34.05 million at December 31, 2020. The filing reports 41.60 million shares outstanding as of March 24, 2021.
Material changes, outlook and risks
- Despite a lower net loss, operating expenses increased and operating cash use rose year over year. The lower net loss principally reflected substantially reduced debt-discount amortization and a smaller deemed dividend.
- Management estimated year-end cash would fund current operations into the fourth quarter of 2021, but said additional capital was needed to carry out commercialization plans. The auditor and management disclosed substantial doubt about the company’s ability to continue as a going concern for one year from issuance of the financial statements. Management cautioned that without timely financing it could slow or pause activities, reduce development or commercialization, or cease operations.
- After year-end, ENDRA entered a new ATM agreement with capacity for up to $12.6 million and reported issuing 3.91 million shares for approximately $10.10 million in proceeds through March 24, 2021. It also reported post-year-end warrant exercises for $2.92 million gross proceeds. These financings provided cash but increased share dilution.
- COVID-19 delayed clinical visits and affected access to study sites and regulatory review. Management also reduced cash salaries for executives and other management by 33% for the remainder of 2020, substituting restricted stock units, and paid certain director retainers in stock units.
- Key execution risks include pending U.S. clearance, the need for further clinical evidence for diagnostic claims, market acceptance and reimbursement, dependence on third-party development and manufacturing, and continuing financing needs. The GE Healthcare collaboration was extended through December 16, 2022, but either party may terminate it on at least 60 days’ notice.
- The company reported a material weakness in financial reporting controls due to insufficient accounting personnel to segregate duties; disclosure controls were deemed ineffective. Management described remediation steps, including additional accounting support and written procedures.
- ENDRA received Nasdaq notices in 2020 concerning bid-price and stockholders’ equity requirements, then reported regaining compliance with the equity requirement in December 2020 and the bid-price requirement in February 2021. Continued listing compliance remains a risk.
- The $308,600 U.S. Paycheck Protection Program loan was subject to a forgiveness application. The company believed it qualified, but an adverse review could require repayment. A separate Canadian loan was also outstanding.
Most important facts for investors to verify
- Whether ENDRA can secure enough additional funding to meet operating needs and execute its commercialization plan, and the resulting dilution or financing terms.
- The FDA’s decision and timing on the TAEUS FLIP 510(k), and what claims or further clinical evidence would be required for U.S. sales.
- Whether CE-marked product registration, launch, sales and customer adoption progress as planned, and whether any revenue or reimbursement develops.
- Cash burn, cash runway, outstanding debt and loan-forgiveness status, particularly in light of the going-concern uncertainty.
- Progress in remediating the material weakness and maintaining Nasdaq listing compliance.
- Share-count and warrant changes after year-end, including the effect of ATM sales and warrant exercises on existing shareholders.