ENDRA Life Sciences Inc. — Form 10-Q Summary
Reporting period: Three and nine months ended September 30, 2018; filed November 5, 2018. ENDRA is developing TAEUS, a thermoacoustic technology intended to enhance clinical ultrasound, initially for liver-fat assessment. Its legacy Nexus 128 pre-clinical business is being wound down or evaluated for strategic alternatives. TAEUS had generated no revenue.
Financial performance and position
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Revenue | $0 | $287,000 | $6,174 | $344,772 |
| Operating expenses | $2.36 million | $1.08 million | $7.02 million | $2.50 million |
| Operating loss | $2.36 million | $0.91 million | $7.02 million | $2.33 million |
| Net loss | $2.76 million | $0.91 million | $7.43 million | $3.08 million |
| Net loss per share, basic and diluted | $0.70 | $0.23 | $1.89 | $1.30 |
- Research and development expense rose to $1.16 million in Q3 and $3.67 million for the nine months, principally reflecting greater TAEUS development spending. General and administrative expense was $832,883 and $2.84 million, respectively.
- Q3 included a one-time $287,541 full write-down of Nexus 128 inventory; no inventory remained on the September 30 balance sheet.
- Cash was $637,124 at September 30, down from $5.60 million at December 31, 2017. Total assets were $1.29 million and total liabilities were $1.75 million; stockholders’ equity was a deficit of $457,610.
- Reported working capital deficit was approximately $751,000. Nine-month operating cash use was $5.80 million, compared with $1.93 million in 2017; investing cash use was $100,000. Financing provided $935,300, versus $8.77 million in the prior-year period, which included IPO proceeds.
- June 2018 financing issued $1.077 million aggregate principal of senior secured convertible notes, bearing 10% interest and maturing December 31, 2018. The balance sheet reports $681,187 of convertible notes net of discount. The notes have conversion terms tied to a qualified financing, subject to a price floor and cap.
Changes, outlook, and material risks
- Revenue fell sharply as Nexus 128 sales and service activity declined; management did not expect substantial future revenue from that business. The company reported no pending Nexus 128 orders at September 30.
- On October 15, 2018, after the quarter, ENDRA closed a public offering of 1,477,750 shares, including the underwriter’s fully exercised over-allotment, for approximately $2.7 million net proceeds. Management said cash at quarter-end plus these proceeds was expected to fund current operations into Q2 2019, but additional financing would be needed to advance development and commercialization.
- The company disclosed substantial doubt about its ability to continue as a going concern for one year from issuance of the financial statements. It has no committed additional funding; absent financing, it may need to slow, pause, reduce, or discontinue activities. Further equity financing could dilute shareholders; debt or licensing arrangements could impose restrictive terms or require relinquishing rights.
- Health Canada approval for NAFLD-related human studies was received in October 2018 and the studies were underway. Management anticipated announcing results in Q4 2018. Results, regulatory approval, commercialization timing, market acceptance, and access to development partners remain uncertain; the filing gives no quantified revenue or earnings guidance.
- Nasdaq had accepted the company’s plan to regain compliance with the $2.5 million stockholders’ equity requirement and granted an extension through February 15, 2019. ENDRA expected to regain compliance but gave no assurance it would do so or satisfy other listing standards.
- Disclosure controls and procedures were reported ineffective due to a material weakness: insufficient accounting personnel to segregate financial-processing and reporting duties. Remediation, including additional accounting support and written procedures, was contingent on available funds.
- The filing reported no legal proceedings believed likely to materially affect financial condition or results, and no off-balance-sheet arrangements. It disclosed office lease payments totaling $119,720 for the remainder of 2018 and 2019.
Key facts investors should verify
- Whether subsequent financing or other capital raises were obtained, and how proceeds and share issuance affected cash runway and dilution.
- Whether the December 31, 2018 convertible notes were repaid, converted, or otherwise addressed, including any accrued interest and resulting shares.
- Actual cash burn versus management’s estimate of funding into Q2 2019, and any updated going-concern assessment.
- NAFLD human-study results, regulatory progress, product-development milestones, and any commercial or manufacturing arrangements with GE Healthcare.
- Whether ENDRA regained Nasdaq stockholders’ equity compliance by February 15, 2019 and remediated the disclosed internal-control material weakness.