ENDRA Life Sciences Inc. — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017. ENDRA is developing thermoacoustic imaging technology, including its TAEUS platform for clinical ultrasound applications. The unaudited results are for the period before the company’s May 2017 IPO.
Financial results and liquidity
| Metric | Q1 2017 | Q1 2016 / comparison |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development | $95,814 | $95,237 |
| Sales and marketing | $1,124 | $4,433 |
| General and administrative | $263,760 | $273,786 |
| Total operating expenses / operating loss | $360,698 | $373,456 |
| Other expenses | $380,926 | $6,022 |
| Net loss | $741,623 | $379,478 |
| Net loss per share, basic and diluted | $1.03 | $0.52 |
| Cash used in operating activities | $236,274 | $53,757 |
As of March 31, cash was $133,679, total current assets were $265,648, and total current liabilities were $1,924,832, producing a working-capital deficit of $1,659,184. Total assets were $545,126; total liabilities were $1,924,832; and stockholders’ deficit was $1,379,706. Current liabilities included $1,251,703 of convertible notes payable, net of discounts, and $50,000 of notes payable. The filing reports no investing cash flows and $225,000 of financing cash inflows from convertible notes.
No gross margin is reported because there was no revenue in either quarter. The increased net loss reflected $380,926 of other expenses, including $351,727 of noncash amortization of convertible-debt discount. Cash-flow comparisons also reflect greater operating cash use in 2017.
Material developments and outlook
- Subsequent IPO: The company sold 1,932,000 units at $5.00 each; the offering closed in May 2017 and generated approximately $8.6 million of net proceeds after stated underwriting and offering expenses. Each unit included common stock and a warrant. This financing occurred after quarter-end.
- Debt conversion: On May 12, 2017, convertible notes and accrued interest totaling $1,726,079 converted into 1,232,859 common shares at $1.40 per share. The company also reported that the $50,000 promissory notes were repaid after quarter-end.
- Management outlook: Management said IPO cash was expected to fund development and regulatory approval and preparation for commercialization of the NAFLD TAEUS application in the EU. It did not expect available cash to fund full commercialization or development of other TAEUS applications; additional capital may be needed. Delays or reduced development activity are possible if financing is unavailable.
- Going concern: Before considering the subsequent IPO proceeds, the filing states that cash resources were insufficient for anticipated needs over the next 12 months and that substantial doubt existed about the company’s ability to continue as a going concern. The financial statements contain no going-concern adjustments.
- Product and regulatory risks: TAEUS remained under development, with no TAEUS applications approved for sale and no clinical studies yet conducted, according to the filing. Commercialization depends on technical development, regulatory clearances, market acceptance, reimbursement, and third-party manufacturing and distribution arrangements.
- Controls and contingencies: Disclosure controls were deemed ineffective due to insufficient accounting personnel to segregate duties. Remediation plans depended on obtaining funding. Management reported no legal proceedings believed to have a material adverse effect and no off-balance-sheet transactions.
Most important facts for investors to verify
- Post-IPO cash, actual spending, and the resulting runway relative to the stated development and EU regulatory plans.
- Progress, evidence, timelines, and required regulatory pathway for the NAFLD TAEUS application; the filing provides no clear commercialization date.
- Share count and dilution from the IPO units and warrants, the note conversion, executive options, and other potentially dilutive securities.
- Whether the accounting-staffing material weakness was remediated and whether disclosure controls improved.
- The filing contains differing common-share figures: the balance sheet lists 723,335 shares, a note lists 732,335, and another passage gives 2,531,808 pre-reverse-split shares. Confirm the correct period-end count and split-adjusted presentation.