What changed in this filing

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

2023-03-16 compared with 2022-03-30 · 105 added, 217 removed, 354 unchanged (48% of the section changed)

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and Subsidiaries (collectively, the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of operations, shareholders’ equity and cash flows for each of the two years in the period ended December 31, 2022, and the related notes and schedules (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022 and 2021 in conformity with accounting principles generally accepted in the United States of America.

The Company's Ability to Continue as a Going Concern

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

We determined that there are no critical audit matters.

We have served as the Company’s auditor since 2015.

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Long Term Debt

Loans, long term

Lease liabilities

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10,000 shares authorized;

141 .397 and 190 .288 shares issued and outstanding, respectively

141,397 shares issued and outstanding

Series B Convertible Preferred Stock, $ 0.0001 par value;

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Other Expenses

Amortization of debt discount

Gain on extinguishment of debt

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Series A Convertible Preferred Stock converted to common stock

( 6,141 .696 )

Series B Convertible Preferred Stock converted to common stock

Common stock issued for cash, net of funding costs

Common stock issued for note conversions

Common stock issued for warrant exercise

Common stock issued for services

Common stock issued for RSU

Common stock issued for option exercise

Fair value of vested stock options

Fair value adjustment related to warrants repricing

Stock payable towards preference dividend

Common stock issued for services

Stock issued for RSU

Deemed dividend

( 11,231,250 )

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( 68,690,810 )

Series A Convertible Preferred Stock converted to common stock

Common stock issued for cash, net of funding costs

Common stock issued for warrant exercise

Common stock issued for option exercise

Fair value of vested stock options

Stock payable towards preference dividend

Common stock issued for services

Common stock issued for RSU

Deemed dividend

Stock paid towards preference dividend

( 13,179,092 )

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Stock compensation expense including common stock issued for RSUs

Amortization of debt discount

Amortization of right of use assets

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Changes in operating assets and liabilities:

Increase in prepaid expenses

Decrease in prepaid expenses

Increase in inventory

Decrease in other current asset

( 1,360,139 )

Increase in accounts payable and accrued liabilities

Increase in lease liability

Decrease in lease liability

Net cash used in operating activities

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Proceeds from warrant exercise

Proceeds from loans

Proceeds from issuance of common stock

Net cash provided by financing activities

Net increase in cash

Net increase (decrease) in cash

( 4,572,436 )

Cash, beginning of year

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Supplemental disclosures of non-cash items

Conversion of convertible notes and accrued interest

Exchange of balance in convertible notes and accrued interest for Series A preferred stock

Deemed dividend

Conversion of Series A Convertible Preferred Stock

Conversion of Series B Convertible Preferred Stock

Stock issued for financing cost

Stock dividend payable

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ENDRA Life Sciences Inc.

N otes to Consolidated Financial Statements

Notes to Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

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Any adjustments applied to estimates are recognized in the period in which such adjustments are determined.

The COVID-19 outbreak, which the World Health Organization has classified as a pandemic, has prompted governments and regulatory bodies throughout the world to issue “stay-at-home” or similar orders, and enact restrictions on the performance of “non-essential” services, public gatherings and travel.

The COVID-19 pandemic has prompted governments and regulatory bodies throughout the world to issue “stay-at-home” or similar orders, and enact restrictions on the performance of “non-essential” services, public gatherings and travel.

The extent to which COVID-19 impacts the Company’s business and financial results will depend on numerous evolving factors including, but not limited to:

the magnitude and duration of COVID-19, the extent to which it will impact worldwide macroeconomic conditions, the speed of the anticipated recovery, access to capital markets, and governmental and business reactions to the pandemic.

the magnitude and duration of COVID-19, the extent to which it continues impact worldwide macroeconomic conditions, the emergence of variants of the virus and effectiveness of vaccines, access to capital markets, and governmental and business reactions to the pandemic.

The Company assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to the Company and the unknown future impacts of COVID-19 as of December 31, 2022 and through the date of the filing of this Annual Report on Form 10-K.

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Principles of Consolidation

The Company’s consolidated financial statements include all accounts of the Company and its consolidated subsidiary and/or entities as of reporting period ending date(s) and for the reporting period(s) then ended.

The Company’s consolidated financial statements include all accounts of the Company and its consolidated subsidiaries and/or entities as of reporting period ending date(s) and for the reporting period(s) then ended.

All inter-company balances and transactions have been eliminated.

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The Company considers all cash on hand and in banks, including accounts in book overdraft positions, certificates of deposit and other highly-liquid investments with maturities of one year or less, when purchased, to be cash.

As of December 31, 2021 and December 31, 2020, the Company had no cash equivalents.

As of December 31, 2022 and 2021, the Company had no cash equivalents.

The Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits.

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Acquisitions of new assets, additions, replacements and improvements (other than land) costing less than the minimum rule in addition to maintenance and repair costs, including any planned major maintenance activities, are expensed as incurred.

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2016-02, “Leases.” ASU 2016-02 requires a lessee to record a right of use asset and a corresponding lease liability on the balance sheet for all leases with terms longer than 12 months.

ASU 2016-02 is effective for all interim and annual reporting periods beginning after December 15, 2018.

Early adoption is permitted.

Accounting Standards Update (“ASU”) No.

2016-02 requires a lessee to record a right of use asset and a corresponding lease liability on the balance sheet for all leases with terms longer than 12 months.

A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest period presented in the financial statements.

At December 31, 2021 and December 31, 2020 the Company recorded a lease liability of $ 650,477 and $ 348,388 , respectively.

At December 31, 2021 and December 31, 2020 the Company recorded a right of use asset of $ 643,413 and $ 339,012 , respectively.

At December 31, 2022 and 2021 the Company recorded a right of use asset of $ 505,816 and $ 643,413 , respectively.

At December 31, 2022 and 2021 the Company recorded a lease liability of $ 518,147 and $ 650,477 , respectively.

Revenue Recognition

In May 2014, the FASB issued Accounting Standards Update (“ASU”) No.

2014-09, “Revenue from Contracts with Customers” (“ASC Topic 606”).

This standard provides a single set of guidelines for revenue recognition to be used across all industries and requires additional disclosures.

2014-09, “Revenue from Contracts with Customers” (“ASC Topic 606”) provides a single set of guidelines for revenue recognition to be used across all industries and requires additional disclosures.

The updated guidance introduces a five-step model to achieve its core principal of the entity recognizing revenue to depict the transfer of goods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

The Company adopted the updated guidance effective January 1, 2018 using the full retrospective method.

The new standard did not have a material impact on its financial position and results of operations, as it did not change the manner or timing of recognizing revenue.

Under ASC Topic 606, in order to recognize revenue, the Company is required to identify an approved contract with commitments to perform respective obligations, identify rights of each party in the transaction regarding goods to be transferred, identify the payment terms for the goods transferred, verify that the contract has commercial substance and verify that collection of substantially all consideration is probable.

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During the years ended December 31, 2022 and 2021, the Company incurred $ 6,554,194 and $ 5,482,531 of expenses related to research and development costs, respectively.

The Company utilizes ASC Topic 740, “Income Taxes,” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns.

Under this method, deferred tax assets and liabilities are determined based on the difference between the tax basis of assets and liabilities and their financial reporting amounts based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income.

A valuation allowance is recorded when it is “more likely-than-not” that a deferred tax asset will not be realized.

The Company generated a deferred tax asset through net operating loss carry-forwards.

However, a valuation allowance of 100% has been established due to the uncertainty of the Company’s realization of the net operating loss carry forward prior to its expiration.

Net Earnings (Loss) Per Common Share

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Diluted loss per share is computed by increasing the denominator by the weighted average number of additional shares that could have been outstanding from securities convertible into common stock (using the “treasury stock” method), unless their effect on net loss per share is anti-dilutive.

There were 7,848,899 and 10,047,010 potentially dilutive shares, which include outstanding common stock options, warrants, and convertible notes, as of December 31, 2021 and December 31, 2020, respectively.

The potential shares, which are excluded from the determination of basic and diluted net loss per share as their effect is anti-dilutive, are as follows:

There were 410,358 and 392,425 potentially dilutive shares, which include outstanding common stock options, and warrants, as of December 31, 2022 and 2021, respectively.

Options to purchase common stock

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Each January 1 the pool of shares available for issuance under the Omnibus Plan automatically increases by an amount equal to the lesser of (i) the number of shares necessary such that the aggregate number of shares available under the Omnibus Plan equals 25% of the number of fully-diluted outstanding shares on the increase date (assuming the conversion of all outstanding shares of preferred stock and other outstanding convertible securities and exercise of all outstanding options and warrants to purchase shares) and (ii) if the board of directors takes action to set a lower amount, the amount determined by the board.

On January 1, 2022, the pool of shares available for issuance under the Omnibus Plan automatically increased by 1,622,848 shares from 7,461,228 shares to 9,084,076 .

On January 1, 2023, the pool of shares issuable under the Omnibus Plan automatically increased by 867,966 shares from 454,204 shares to 1,322,169 shares .

The Company records share-based compensation in accordance with the provisions of the Share-based Compensation Topic of the FASB Codification.

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The Company had working capital of $ 6,822,966 as of December 31, 2022.

The Company has not established an ongoing source of revenue sufficient to cover its operating costs and to allow it to continue as a going concern.

The accompanying financial statements for the period ended December 31, 2021 have been prepared assuming the Company will continue as a going concern.

Although the Company’s cash resources will likely be sufficient to meet its anticipated needs during the next nine months, the Company will require additional financing to fund its future planned operations, including research and development and commercialization of its products.

The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it establishes a revenue stream and becomes profitable.

The Company has not established an ongoing source of revenue sufficient to cover its operating costs and to allow it to continue as a going concern and will require additional financing to fund its future planned operations, including research and development and commercialization of its products.

The accompanying financial statements for the year ended December 31, 2022 have been prepared assuming the Company will continue as a going concern, but the ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it establishes a revenue stream and becomes profitable.

Management’s plans to continue as a going concern include raising additional capital through sales of equity securities and borrowing.

However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans.

As described further below under “Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations” the COVID-19 pandemic has impacted the Company’s business operations to some extent and is expected to continue to do so and, in light of the effect of such pandemic on financial markets, these impacts may include reduced access to capital.

If the Company is not able to obtain the necessary additional financing on a timely basis, the Company will be required to delay, reduce the scope of, or eliminate one or more of the Company’s research and development activities or commercialization efforts or perhaps even cease the operation of its business.

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Note 3 - Inventory

As of December 31, 2021 and December 31, 2020, inventory consisted of raw materials and subassemblies to be used in the assembly of a TAEUS system.

As of December 31, 2022 and 2021, inventory consisted of raw materials, subassemblies to be used in the assembly of TAEUS systems, and finished goods.

As of December 31, 2022, the Company had no orders pending for the sale of a TAEUS system.

As of December 31, 2021 and December 31, 2020, the Company had inventory valued at $ 1,284,578 and $ 589,620 , respectively.

As of December 31, 2022 and 2021, the Company had inventory valued at $ 2,644,717 and $ 1,284,578 , respectively.

Note 4 - Fixed Assets

As of December 31, 2021 and December 31, 2020, fixed assets consisted of the following:

As of December 31, 2022 and 2021, fixed assets consisted of the following:

Property, leasehold and capitalized software

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Fixed assets, net

Depreciation expense for the years ended December 31, 2021 and 2020 was $ 116,238 and $ 99,342 , respectively.

Depreciation expense for the year ended December 31, 2022 and 2021 was $ 96,661 and $ 116,238 , respectively.

Note 5 - Accounts Payable and Accrued Liabilities

As of December 31, 2021 and December 31, 2020, current liabilities consisted of the following:

As of December 31, 2022 and 2021, current liabilities consisted of the following:

Accounts payable

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Small Business Administration (“SBA”) Paycheck Protection Program Note (the “SBA Note”) to First Republic Bank (the “Lender”) for a loan in the principal amount of $ 308,600 (the “SBA Loan”) under the Paycheck Protection Program (“PPP”) promulgated under the Coronavirus Aid, Relief and Economic Security Act of 2020, as modified by the Paycheck Protection Program Flexibility Act of 2020.

The Company has applied to the Lender for the SBA Loan to be forgiven and on May 10, 2021 received notice that the SBA Loan had been forgiven in full in accordance with the terms and provisions of the PPP.

On May 10, 2021 received notice that the SBA Loan had been forgiven in full in accordance with the terms and provisions of the PPP.

The Company did not provide any collateral or personal guarantees for the SBA Loan, nor did the Company pay any facility charge to the government or to the Lender.

Toronto-Dominion Bank Loan

On April 27, 2020, the Company entered into a commitment loan with TD Bank under the Canadian Emergency Business Account, in the principal aggregate amount of CAD 40,000 , which is due and payable upon the expiration of the initial term on December 31, 2022 .

On April 27, 2020, the Company entered into a commitment loan with TD Bank under the Canadian Emergency Business Account, in the principal aggregate amount of CAD 40,000 , due and payable upon the expiration of the initial term on December 31, 2022 , which was later extended to December 31, 2023.

This note bears interest on the unpaid balance at the rate of zero percent ( 0 %) per annum during the initial term.

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Note 7 - Capital Stock

Reverse Stock Split

On December 7, 2022, the Company filed with the Secretary of State of the State of Delaware a certificate of amendment (the “Certificate of Amendment”) to its certificate of incorporation, which Certificate of Amendment effectuated as of December 19, 2022 at 12:01 a.m.

Eastern Time (the “Effective Time”) a reverse split of the Company’s common stock by a ratio of one-for-20 (the “Reverse Split”).

All per share amounts and number of shares in the consolidated financial statements and related notes have been retroactively restated to reflect the Reverse Split.

No fractional shares were, or shall be, issued in connection with the Reverse Split.

A stockholder who would otherwise be entitled to receive a fractional share of common stock is entitled to receive the fractional share rounded up to the next whole share.

The Reverse Split did not change the number of shares of common or preferred stock that the Company is authorized to issue, or the par value of the Company’s common or preferred stock.

The Reverse Split resulted in a proportionate adjustment to the per share conversion or exercise price and the number of shares of common stock issuable upon the conversion or exercise of outstanding preferred stock, stock options and warrants, as well as the number of shares of common stock eligible for issuance under the Company’s 2016 Omnibus Incentive Plan.

Capital Stock

At December 31, 2022, the authorized capital of the Company consisted of 90,000,000 shares of capital stock, comprised of 80,000,000 shares of common stock with a par value of $ 0.0001 per share, and 10,000,000 shares of preferred stock with a par value of $ 0.0001 per share.

The Company has designated 10,000 shares of its preferred stock as Series A Convertible Preferred Stock (“Series A Preferred Stock”) and 1,000 shares of its preferred stock as Series B Convertible Preferred Stock (“Series B Preferred Stock”), and the remainder of 9,989,000 shares remain authorized but undesignated.

As of December 31, 2021, there were 42,554,514 shares of common stock, 141 .397shares of Series A Preferred Stock, and no shares of Series B Preferred Stock issued and outstanding, and a stock payable balance of $ 13,863 .

The Company has designated 10,000 shares of its preferred stock as Series A Convertible Preferred Stock (“Series A Preferred Stock”), 1,000 shares of its preferred stock as Series B Convertible Preferred Stock (“Series B Preferred Stock”), 100,000 shares of its preferred stock as Series C Preferred Stock, and the remainder of the 9,889,000 preferred shares remain authorized but undesignated.

As of December 31, 2022, there were 3,169,103 shares of common stock, 141 .397 shares of Series A Preferred Stock, and no shares of Series B Preferred Stock or Series C Preferred Stock issued and outstanding, and a stock payable balance of $ 6,073 .

On September 26, 2022, the board of directors declared a dividend of one one-thousandth of a share of Series C Preferred Stock for each outstanding share of the Company’s common stock and 1.359 shares of Series C Preferred Stock for each outstanding share of Series A Preferred Stock, to stockholders of record at 5:00 p.m.

Eastern Time on October 7, 2022.

Each whole share of Series C Preferred Stock (other than shares held by the Company’s directors and named executive officers) entitled the holder thereof to 1,000,000 votes on the proposal to adopt an amendment to the Company’s certificate of incorporation to reclassify the outstanding shares of common stock into a smaller number of shares of common stock.

Shares of Series C Preferred Stock were eligible to vote at the special meeting of the Company’s stockholders held on November 29, 2022, at which the Company’s stockholders approved a reverse stock split of its common stock.

All shares of Series C Preferred Stock were automatically redeemed in connection with the special meeting and no shares of Series C Preferred Stock remained outstanding as of December 31, 2022.

During the year ended December 31, 2022, the Company issued a total of 1,041,377 shares of its common stock in return for aggregate net proceeds of $ 8,399,512 under the June 2021 ATM Agreement (as described below).

During the year ended December 31, 2021, the Company issued a total of 425,241 shares of its common stock, as follows:

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1,141 shares for RSUs valued at $ 36,460 .

During the year ended December 31, 2020, the Company issued a total of 25,628,303 shares of its common stock, as follows:

7,178,400 shares upon the conversion of 6,141 .696 shares of its Series A Preferred Stock;

360,279 shares upon the conversion of 351 .711shares of its Series B Preferred Stock;

7,857,286 shares on December 18, 2020 in an underwritten offering for net proceeds of $ 5,000,192 ;

7,098,108 shares upon warrant exercises for an aggregate exercise price of $ 4,757,011 ;

2,005,491 shares in return for aggregate net proceeds of $ 1,780,750 from sales through its at-the-market equity offering programs;

331,441 shares upon the conversion of $ 493,847 principal and accrued interest on convertible promissory notes issued in July 2019;

149,025 shares to certain consultants pursuant to services agreements;

648,273 shares to its employees pursuant to RSU agreements with these employees.

At-the-Market Equity Offering Programs

During the year ended December 31, 2021, the Company entered into at-the-market equity offering sales agreements with Ascendiant to sell shares of common stock.

On February 19, 2021, the Company entered into the At-The-Market Issuance Sales Agreement with Ascendiant (the “February 2021 ATM Agreement”) to sell shares of common stock for aggregate gross proceeds of up to $ 12.6 million, from time to time, through an “at-the-market” equity offering program under which Ascendiant acted as sales agent.

On June 21, 2021, the Company entered into the At-The-Market Issuance Sales Agreement with Ascendiant (the “June 2021 ATM Agreement” and, together with the February 2021 ATM Agreement, the “2021 ATM Agreements”) to sell shares of common stock for aggregate gross proceeds of up to $ 20.0 million, from time to time, through an “at-the-market” equity offering program under which Ascendiant acts as sales agent.

The February 2021 ATM Agreement terminated upon the Company’s and Ascendiant’s entry into the June 2021 ATM Agreement.

Prior to its termination in June 2021, under the February 2021 ATM Agreement the Company issued an aggregate of 3,914,217 shares of common stock in return for net proceeds of $ 9,798,293 , resulting in approximately $ 303,243 of compensation paid to Ascendiant.

At-the-Market Equity Offering Program

On June 21, 2021, the Company entered into the At-The-Market Issuance Sales Agreement with Ascendiant (the “June 2021 ATM Agreement”) to sell shares of common stock for aggregate gross proceeds of up to $ 20.0 million, from time to time, through an “at-the-market” equity offering program under which Ascendiant acts as sales agent.

As of December 31, 2022, under the June 2021 ATM Agreement the Company has issued an aggregate of 1,064,634 shares of common stock in return for net proceeds of $ 9,216,618 , resulting in approximately $ 286,289 of compensation paid to Ascendiant.

Note 8 – Common Stock Options and Restricted Stock Units (RSU’s)

During the year ended December 31, 2022, under the June 2021 ATM Agreement the Company issued an aggregate of 1,041,377 shares of common stock in return for net proceeds of $ 8,398,936 , resulting in $ 260,776 of compensation paid to Ascendiant.

Note 8 - Common Stock Options and Restricted Stock Units (RSUs)

Common Stock Options

Stock options are awarded to the Company’s employees, consultants and non-employee members of the board of directors under the 2016 Omnibus Incentive Plan (the “Omnibus Plan”) and are generally granted with an exercise price equal to the market price of the Company’s common stock at the date of grant.

Stock options are awarded to the Company’s employees, consultants and non-employee members of the board of directors under the Omnibus Plan and are generally granted with an exercise price equal to the market price of the Company’s common stock at the date of grant.

The aggregate fair value of these stock options granted by the Company during the year ended December 31, 2022 was determined to be $ 919,915 using the Black-Scholes-Merton option-pricing model based on the following assumptions:

(i) volatility rate of 81 % to 99 %, (ii) discount rate of 0 %, (iii) zero expected dividend yield, and (iv) expected life of 8 - 10 years.

(i) volatility rate of 74 % to 99 %, (ii) discount rate of 0 %, (iii) zero expected dividend yield, (iv) risk free rate of 1.37 % to 4.36 %, and (v) expected life of 8 - 10 years.

A summary of option activity under the Company’s Omnibus Plan as of December 31, 2022, and changes during the year then ended, is presented below:

Number of Options

Weighted Average Exercise Price

Weighted Average Remaining Contractual Term (Years)

Balance outstanding at December 31, 2021

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Exercisable at December 31, 2022

Restricted Stock Units

A restricted stock unit grants a participant the right to receive one share of common stock, following the completion of the requisite service period.

Restricted stock units are classified as equity.

Compensation cost is based on the Company’s stock price on the grant date and is recognized on a straight-line basis over the vesting period for the entire award.

As a cash-conserving measure taken in light of the adverse economic conditions caused by the COVID-19 pandemic, in April 2020 the Company reduced the cash salaries of members of management by 33% for the remainder of 2020, including the salaries of its named executive officers.

In lieu of cash, the Company paid this portion of management salaries in the form of restricted stock units (the “RSU’s”) that vested over the remainder of the year.

Additionally, the Company amended its Non-Employee Director Compensation Policy to provide that its non-employee directors’ annual retainers for the second, third and fourth fiscal quarters of 2020 would also be paid in in the form of RSU’s rather than cash.

On April 9, 2020, the Company granted 674,019 RSU’s to non-employee directors and certain members of management.

The 461,146 RSU’s granted to management vested daily over the term through December 31, 2020.

The 212,873 RSU’s granted to non-employee directors vested in three equal quarterly installments on the last date of the second, third and fourth fiscal quarters of 2020.

The total fair value of the RSU’s granted on April 9, 2020 was $ 471,813 , based on the grant date closing price of $ 0.70 per share.

On January 28, 2021, the Company granted 22,815 RSU’s to a member of management.

The RSU’s vested immediately.

The total fair value of the RSU’s granted on January 28, 2021 was $ 45,858 , based on the grant date closing price of $ 2.01 per share.

As of December 31, 2021 the Company had issued and vested the following RSU’s:

Restricted Stock

Units Outstanding

Weighted Average

Grant Date Fair Value

Balance Outstanding at December 31, 2020

Vested / Released

Cancelled or expired

Balance outstanding at December 31, 2021

Note 9 - Common Stock Warrants

Warrant Conversions and Consent Solicitation

Certain holders of our warrants issued in private placements in (i) June 2018, exercisable for an aggregate of 283,337 shares of common stock, (ii) July 2019, exercisable for an aggregate of 1,910,540 shares of common stock, and (iii) December 2019, exercisable for an aggregate of 8,958,358 shares of common stock (collectively, the “Private Warrants”) indicated to the Company that they were willing to exercise their Private Warrants at reduced exercise prices.

Our board of directors approved the Company’s partially waiving the exercise prices of Private Warrants to provide for reduced exercised prices which resulted in a deemed dividend.

Prices were subsequently agreed upon between the Company and each exercising warrant holder, and the Company obtained stockholder approval for the issuance of an aggregate number of shares of the Company’s common stock upon the exercise of Private Warrants greater than 19.99% of the number of shares outstanding prior to any such issuance , in compliance with Nasdaq Listing Rule 5635(d).

On December 15, 2020, the Company issued warrants exercisable for 314,291 shares of the Company’s common stock.

Each warrant entitles the holder to purchase shares of common stock for an exercise price per share equal to $ 0.875 and expire December 15, 2025 .

The fair value of these warrants was determined to be $ 171,520 using the Black-Scholes option-pricing model based on the following assumptions:

(i) volatility rate of 89 %, (ii) discount rate of 0 %, (iii) zero expected dividend yield, and (iv) expected life of 5 years.

During the year ended December 31, 2021, the Company issued an aggregate of 3,567,899 shares of its common stock upon Private Warrant exercises for net proceeds of $ 2,785,626 .

During year ended December 31, 2021, the Company issued an aggregate of 202,887 shares of its common stock upon the cashless exercise election by certain warrant holders.

During the year ended December 31, 2020, the Company issued an aggregate of 7,098,108 shares of its common stock upon Private Warrant exercises for net proceeds of $ 4,757,011 .

The following table summarizes all stock warrant activity of the Company for the year ended December 31, 2022:

Number of Warrants

Weighted Average Exercise Price

Weighted Average Contractual Term (Years)

Balance outstanding at December 31, 2021

( 3,916,996 )

Balance outstanding at December 31, 2022

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As of December 31, 2022, the maturities of operating lease liabilities are as follows:

Operating Lease

2025 and beyond

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Employment and Consulting Agreements

Francois Michelon - Effective May 12, 2017, the Company entered into an amended and restated employment agreement with Francois Michelon, the Company’s Chief Executive Officer and Chairman of the board of directors and, on December 27, 2019, entered into an amendment to the employment agreement.

The employment agreement provides for an annual base salary that is subject to adjustment at the board of directors’ discretion.

The annual base salary in effect during the period covered by this Form 10-K was $ 376,991 .

Francois Michelon - The Company has an employment agreement with Francois Michelon, the Company’s Chief Executive Officer and Chairman of the board of directors, dated May 12, 2017 and amended on December 27, 2019.

Effective January 1, 2021, the Compensation Committee increased Mr.

Michelon’s annual salary to $ 376,991 and, effective January 1, 2022, it increased Mr.

Michelon’s annual salary to $ 423,000 .

Michelon is also eligible for an annual cash bonus based upon achievement of performance-based objectives established by the Board of Directors.

Under the employment agreement, Mr.

Michelon is eligible for an annual cash bonus based upon achievement of performance-based objectives established by the board of directors.

Pursuant to Mr.

Michelon’s employment agreement, in connection with the closing of the Company’s initial public offering he was granted options to purchase an aggregate 339,270 shares of common stock.

The options have a weighted average exercise price of $ 4.96 per share of common stock and vest in three equal annual installments beginning on May 12, 2018.

Upon termination without cause, any portion of Mr.

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Michelon is eligible to receive benefits that are substantially similar to those of the Company’s other senior executive officers.

Michael Thornton - Effective May 12, 2017, the Company entered into an amended and restated employment agreement with Michael Thornton, the Company’s Chief Technology Officer and, on December 27, 2019, entered into an amendment to the employment agreement.

The term of the employment agreement runs through December 31, 2020 and continues on a year-to-year basis thereafter.

Michael Thornton - The Company has an employment agreement with Michael Thornton, the Company’s Chief Technology Officer, dated May 12, 2017 and on December 27, 2019.

The employment agreement provides for an annual base salary that is subject to adjustment at the board of directors’ discretion.

The annual base salary in effect during the period covered by this Form 10-K was $ 289,963 .

Effective January 1, 2021, the Compensation Committee increased Mr.

Thornton’s annual salary to $ 289,963 and, effective January 1, 2022, it increased Mr.

Thornton’s annual salary to $ 324,000 .

Under the employment agreement, Mr.

Thornton is eligible for an annual cash bonus based upon achievement of performance-based objectives established by the board of directors.

Pursuant to Mr.

Thornton’s employment agreement, in connection with the closing of the Company’s initial public offering he was granted options to purchase an aggregate 345,298 shares of common stock.

The options have a weighted average exercise price of $ 4.96 per share of common stock and vest in three equal annual installments beginning on May 12, 2018.

Upon termination without cause, any portion of Mr.

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Thornton is eligible to receive benefits that are substantially similar to those of the Company’s other senior executive officers.

David Wells - On May 13, 2019, the Company entered into an employment agreement with David Wells that superseded a consulting agreement between the Company and StoryCorp Consulting, pursuant to which Mr.

Wells provided services to the Company as its Chief Financial Officer.

The employment agreement provides for an annual base salary of $ 230,000 and eligibility for an annual cash bonus to be paid based on attainment of Company and individual performance objectives to be established by the Company’s board of directors (in 2019, the amount of such cash bonus if all goals were achieved would be 30 % of the base salary plus base fees paid to StoryCorp under the consulting agreement).

The employment agreement also provides for eligibility to receive benefits substantially similar to those of the Company’s other senior executive officers.

Pursuant to the employment agreement, on May 13, 2019 Mr.

Wells was granted stock options to purchase 56,000 shares of the Company’s common stock.

Renaud Maloberti - The Company had an employment agreement with Renaud Maloberti, dated April 15, 2019, that provided for an annual base salary of $ 250,000 and eligibility for an annual cash bonus to be paid based on attainment of Company and individual performance objectives to be established by the Board of Directors.

Effective January 1, 2021, the Compensation Committee increased Mr.

Maloberti’s annual salary to $ 266,255 .

On December 21, 2022, Mr.

Maloberti notified the Company of his resignation as the Company’s Chief Commercial Officer, effective January 13, 2023.

Pursuant to his employment agreement, on April 28, 2019, Mr.

Maloberti was granted stock options to purchase 35,000 shares of the Company’s common stock.

The stock options have an exercise price of $ 1.04 per share, and vest in three equal annual installments beginning on the first anniversary of the grant date.

On June 9, 2021, Mr.

Wells notified the Company of his resignation as the Company’s Chief Financial Officer, effective June 18, 2021.

On June 11, 2021, the Company’s Board of Directors appointed Irina Pestrikova as Senior Director, Finance, effective upon Mr.

Wells’ resignation.

Pestrikova will serve as the Company’s Principal Financial Officer in such role.

In connection with her appointment, Ms.

Pestrikova will receive 75,000 stock options vesting in three equal annual installments.

She will receive an annual salary of $ 160,000 .

From time to time the Company may become a party to litigation in the normal course of business.

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Note 11 - Income Taxes

The components of earnings before income taxes for the years ended December 31, 2021 and 2020 were as follows:

For the Years Ended December 31,

Income (loss) before income taxes

( 10,030,200 )

( 11,725,500 )

( 1,201,000 )

Total income (loss) before income taxes

$ ( 11,231,200 )

$ ( 11,725,500 )

Income tax provision (benefit) consists of the following for the years ended December 31, 2021 and 2020:

Income tax provision (benefit):

For the Years Ended December 31,

Total Current

Total Deferred

Total income tax provision (benefit)

A reconciliation of the income tax provision (benefit) by applying the statutory United States federal income tax rate to income (loss) before income taxes is as follows:

Rate Reconciliation

For the Years Ended December 31,

Expected tax at statutory rates

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

Significant components of the Company’s deferred tax assets as of December 31, 2022 and 2021 are summarized below.

Net operating loss carryforward

$ ( 17,251,804 )

$ ( 14,200,629 )

Permanent Differences

State Income Tax, Net of Federal benefit

State Rate Change-Federal Impact

State Rate Change Adjustment

Foreign taxes at rate different than US Taxes

Current Year Change in Valuation Allowance

Prior Year True-Ups

Income tax provision (benefit)

Deferred tax assets and liabilities are provided for significant income and expense items recognized in different years for tax and financial reporting purposes.

Temporary differences, which give rise to a net deferred tax asset is as follows:

For the Years Ended December 31,

Deferred Tax Assets (Liabilities):

Stock based compensation

Fair value of options

ROU Liability

Net Operating Losses (US)

Net Operating Losses (Foreign)

Net deferred tax assets (liabilities)

Valuation allowance

Total deferred tax assets

( 16,939,846 )

Net deferred tax assets (liabilities)

The domestic U.S.

net operating loss carryforward increased from $ 42,616,847 at December 31, 2020 to $ 51,119,315 at December 31, 2021.

After consideration of all the evidence, both positive and negative, management has recorded a full valuation allowance at December 31, 2021 and 2020, due to the uncertainty of realizing the deferred income tax assets.

Out of the $ 51,240,386 net operating losses carry forward, $ 16,012,698 will begin to expire in 2028 and $ 35,106,617 will have an indefinite life.

There are also net operating losses from Canada, France, Germany, Netherlands and UK total to 1,201,026 as of December 31, 2021.

The Internal Revenue Code includes a provision, referred to as Global Intangible Low-Taxed Income (“GILTI”), which provides for a 10.5 % tax on certain income of controlled foreign corporations.

We have elected to account for GILTI as a period cost if and when occurred, rather than recognizing deferred taxes for basis differences expected to reverse.

The Company is subject to taxation in the U.S.

and various states and foreign jurisdictions.

federal income tax returns for 2018 and after remain open to examination.

We and our subsidiaries are also subject to income tax in multiple states and foreign jurisdictions.

Generally, foreign income tax returns after 2017 remain open to examination.

No income tax returns are currently under examination.

As of December 31, 2021 and 2020, the Company does not have any unrecognized tax benefits, and continues to monitor its current and prior tax positions for any changes.

The Company recognizes penalties and interest related to unrecognized tax benefits as income tax expense.

For the years ended December 31, 2021 and 2020, there were no penalties or interest recorded in income tax expense.

Note 12 – Subsequent Events

Common Stock Issued

Subsequent to the year ended December 31, 2021, the Company issued a total of 1,534,721 shares of common stock in return for net proceeds of $ 683,588 from sales under the 2021 Ascendiant ATM Agreement.

Nasdaq Qualification Notice

On January 5, 2022, the Company received a notification letter from the Listing Qualifications Department of The Nasdaq Stock Market LLC (“Nasdaq”) notifying the Company that, because the closing bid price for the Company’s common stock listed on Nasdaq was below $ 1.00 for 30 consecutive trading days, the Company no longer meets the minimum bid price requirement for continued listing on The Nasdaq Capital Market under Nasdaq Marketplace Rule 5550(a)(2), requiring a minimum bid price of $ 1.00 per share (the “Minimum Bid Price Requirement”).

The notification has no immediate effect on the listing of the Company’s common stock.

In accordance with Nasdaq Marketplace Rule 5810(c)(3)(A), the Company has a period of 180 calendar days from January 5, 2022, or until July 5, 2022, to regain compliance with the Minimum Bid Price Requirement.

If at any time before July 5, 2022, the bid price of the Company’s common stock closes at or above $1.00 per share for a minimum of 10 consecutive business days, Nasdaq will provide written notification that the Company has achieved compliance with the Minimum Bid Price Requirement.

The notification letter also disclosed that in the event the Company does not regain compliance with the Minimum Bid Price Requirement by July 5, 2022, the Company may be eligible for additional time.

To qualify for additional time, the Company would be required to meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for The Nasdaq Capital Market, with the exception of the bid price requirement, and would need to provide written notice of its intention to cure the deficiency during the second compliance period, by effecting a reverse stock split, if necessary.

If the Company meets these requirements, Nasdaq will inform the Company that it has been granted an additional 180 calendar days to regain compliance.

However, if it appears to the staff of Nasdaq (the “Staff”) that the Company will not be able to cure the deficiency, or if the Company is otherwise not eligible, the Staff would notify the Company that its securities will be subject to delisting.

In the event of such notification, the Company may appeal the Staff’s determination to delist its securities, but there can be no assurance the Staff would grant the Company’s request for continued listing.

( 13,825,040 )

Valuation allowance

Net deferred tax asset

In assessing the potential realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized.

The ultimate realization of deferred tax assets is dependent upon the Company attaining future taxable income during the periods in which those temporary differences become deductible.

As of December 31, 2022 and 2021, management was unable to determine if it is more likely than not that the Company’s deferred tax assets will be realized, and has therefore recorded an appropriate valuation allowance against deferred tax assets at such dates.

The Company has not completed its evaluation of net operating loss (“NOL”) utilization limitations under Internal Revenue Code, as amended (the “Code”), Section 382/383, change of ownership rules.

If the Company has had a change in ownership, the NOL’s would be limited as to the amount that could be utilized each year, or possibly eliminated, based on the Code, as amended.

No federal or state/local tax provision has been provided for the years ended December 31, 2022 and 2021 due to the losses incurred during such periods.

Reconciled below is the difference between the income tax rate computed by applying the U.S.

federal statutory rate and the effective tax rate for the years ended December 31, 2021 and 2020.

federal statutory income tax

State tax, net of federal tax benefit

Stock based compensation

Change in valuation allowance

Effective tax rate

At December 31, 2022, the Company has available net operating loss carryforwards for federal and state income tax purposes of approximately $ 65.2 million, of which $ 16 million will begin to expire in 2028 through 2038.

ENDRA Life Sciences Canada Inc., the Company’s wholly-owned subsidiary which was incorporated in 2017, is subject to income taxes in the jurisdictions in which it operates, Canada, at a current rate of approximately 26.6 percent for 2022.

Significant judgment is required in determining the provision for income tax.

There are many transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain.

The Company recognizes liabilities for anticipated tax audit issues based on its current understanding of the tax law.

Where the final tax outcome of these matters is different from the carrying amounts, such differences will impact the current and deferred tax provisions in the period in which such determination is made.

ENDRA Life Sciences Canada Inc.’s operations were not material for tax purposes as of December 31, 2022 and 2021 and therefore the entity had no significant impact on the year-end 2022 and 2021 tax provision.

Generally, all expenses relating to research & development that are incurred in Canada are the responsibility and owned by the United States parent company, since it is the owner of all of the Company’s intangibles.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7A. Quantitative and Qualitative Disclosures About Market Risk