What changed in this filing

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Item 1. Financial Statements

2024-11-19 compared with 2024-08-14 · 178 added, 141 removed, 344 unchanged (48% of the section changed)

2 unchanged sentences

Condensed Consolidated Balance Sheets

September 30,

Current Assets

2 unchanged sentences

Non-Current Assets

Inventory, net

Fixed assets, net

8 unchanged sentences

Lease liabilities

Warrant Liability

Total Long Term Debt

25 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Operating Expenses

4 unchanged sentences

Operating loss

( 2,230,853 )

( 2,994,565 )

( 5,011,394 )

( 5,933,893 )

Total other income

Other Expenses

Other income (expense)

Warrant expense

Changes in fair value of warrant liability

Gain or Loss on settlement of warrant exercise

Total other expenses

Loss from operations before income taxes

( 2,229,153 )

( 2,557,132 )

( 5,004,853 )

( 5,499,878 )

Provision for income taxes

4 unchanged sentences

Net loss per share – basic and diluted

$ (2,672.98 )

Weighted average common shares – basic and diluted

2 unchanged sentences

Condensed Consolidated Statements of Stockholders’ Equity

Six Months Ended June 30, 2023

Nine Months Ended September 30,2023

Series A Convertible

9 unchanged sentences

Stock payable towards preference dividend

( 5,499,878 )

Balance as of June 30, 2023

Balance as of September 30,2023

$ (90,470,616 )

Six Months Ended June 30, 2024

Nine Months Ended September 30,2024

Series A Convertible

Preferred Stock

Series B Convertible

Preferred Stock

Stockholders'

5 unchanged sentences

Common stock issued for cashless warrant exercise

Fair value of vested common stock

Fair value of vested common stock (netted off with cancellation of options for terminated employees)

Fair value of vested stock options

Stock payable towards preference dividend

( 5,004,853 )

Balance as of June 30, 2024

Balance as of September 30,2024

$ 105,893,728

$ (99,289,095 )

Three Months Ended June 30, 2023

Three Months Ended September 30,2023

Series A Convertible

3 unchanged sentences

Stockholders'

Balance as of March 31, 2023

Balance as of June 30,2023

$ (87,369,780 )

Common stock issued for cash, net of funding costs

Warrants issued for cash, net of funding costs

Fair value of vested stock options

Stock payable towards preference dividend

( 2,557,132 )

Balance as of June 30, 2023

Balance as of September 30,2023

$ (90,470,616 )

Three Months Ended June 30, 2024

Three Months Ended September 30,2024

Series A Convertible

3 unchanged sentences

Stockholders'

Balance as of March 31, 2024

Balance as of June 30,2024

$ 105,928,915

Preferred stock conversion to common stock

Common stock issued for cash

$ (96,935,005 )

Common stock issued for warrant exercise

Common stock issued for cashless warrant exercise

Fair value of vested common stock

Fair value of vested stock options

Fair value of vested stock options (netted off with cancellation of options for terminated employees)

Stock payable towards preference dividend

( 2,229,153 )

Balance as of June 30, 2024

Balance as of September 30,2024

$ 105,893,728

$ (99,289,095 )

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

ENDRA Life Sciences Inc.

Condensed Consolidated Statements of Cash Flows

Six Months Ended

Nine Months Ended

September 30,

Cash Flows from Operating Activities

7 unchanged sentences

Amortization of right of use assets

Warrant expense

Changes in fair value of warrant liability

Gain or Loss on settlement of warrant exercise

Changes in operating assets and liabilities:

Increase in prepaid expenses

Decrease in prepaid expenses

Increase in inventory

2 unchanged sentences

Net cash used in operating activities

( 4,227,613 )

( 4,775,442 )

Cash Flows from Investing Activities

4 unchanged sentences

Proceeds from issuance of common stock

Proceeds from warrant exercise

Proceeds from issuance of warrants

Proceeds from issuance of cashless warrants

Repayment of loan

10 unchanged sentences

Lease liability

Cashless warrants

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

For the six months ended June 30, 2024 and 2023

For the nine months ended September 30, 2024 and 2023

Note 1 - Nature of the Business

15 unchanged sentences

In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.

Operating results for the six months ended June 30, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024.

The balance sheet at June 30, 2024 has been derived from the audited financial statements at that date.

Operating results for the nine months ended September 30, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024.

The balance sheet at September 30, 2024 has been derived from the audited financial statements at that date.

For further information, refer to the financial statements and footnotes thereto included in the Company’s annual financial statements for the twelve months ended December 31, 2023 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 28, 2024.

9 unchanged sentences

The Company periodically determines whether a reserve should be taken for devaluation or obsolescence of inventory.

The Company assessed its inventory at June 30, 2024 and determined that certain challenges, including potential damage and a longer timeframe for initial sales, warranted the establishment of an inventory shrinkage reserve.

The Company assessed its inventory at September 30, 2024 and determined that certain challenges, including potential damage and a longer timeframe for initial sales, warranted the establishment of an inventory shrinkage reserve.

As a result, the Company recognized an inventory reserve of 5% amounting to $142,733, which resulted in the net carrying value of inventory of $2,711,923.

8 unchanged sentences

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 June 30, 2024 and December 31, 2023 the Company recorded a right of use asset of $ 272,284 and $ 354,091 , respectively.

At June 30, 2024 and December 31, 2023 the Company recorded a lease liability of $ 281,154 and $ 365,919 , respectively.

At September 30, 2024 and December 31, 2023 the Company recorded a right of use asset of $229,771 and $354,091, respectively.

At September 30, 2024 and December 31, 2023 the Company recorded a lease liability of $237,162 and $365,919, respectively.

Revenue Recognition

6 unchanged sentences

Research and development costs are charged to the statement of operations as incurred.

During the three months ended June 30, 2024 and 2023, the Company incurred $ 716,366 and $ 1,400,182 of expenses related to research and development costs, respectively.

During the six months ended June 30, 2024 and 2023, the Company incurred $ 1,757,892 and $ 2,791,496 of expenses related to research and development costs, respectively.

During the three months ended September 30, 2024 and 2023, the Company incurred $794,444 and $1,632,849 of expenses related to research and development costs, respectively.

During the nine months ended September 30, 2024 and 2023, the Company incurred $2,552,336 and $ 4,424,345 of expenses related to research and development costs, respectively.

Net Earnings (Loss) Per Common Share

2 unchanged sentences

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 4,520,560 and 1,514,715 potentially dilutive shares, which include outstanding common stock options, and warrants, as of June 30, 2024 and December 31, 2023, respectively.

There were 181,974 and 788 potentially dilutive shares, which include outstanding common stock options, and warrants, as of September 30, 2024 and December 31, 2023, respectively.

September 30,

Options to purchase common stock

29 unchanged sentences

GAAP”) applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business.

The Company has limited commercial experience and had a cumulative net loss from inception to June 30, 2024 of $ 96,935,005 .

The Company had working capital of $ 5,363,307 as of June 30, 2024.

The Company has limited commercial experience and had a cumulative net loss from inception to September 30, 2024 of $99,289,095.

The Company had working capital of $4,148,262 as of September 30, 2024.

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.

These matters raise substantial doubt about the Company's ability to continue as going concern.

The accompanying financial statements for the six months ended June 30, 2024 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.

The accompanying financial statements for the nine months ended September 30, 2024 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.

6 unchanged sentences

Note 3 - Inventory

As of June 30, 2024 and December 31, 2023, inventory consisted of raw materials, subassemblies to be used in the assembly of TAEUS systems, and finished goods.

As of June 30, 2024, the Company had no orders pending for the sale of a TAEUS system.

As of June 30, 2024, the Company recorded inventory reserve of 5 % or $ 142,733 .

As of June 30, 2024 and December 31, 2023, the Company had inventory valued at $ 2,711,923 and $ 2,622,865 , respectively.

As of September 30, 2024 and December 31, 2023, inventory consisted of raw materials, subassemblies to be used in the assembly of TAEUS systems, and finished goods.

As of September 30, 2024, the Company had no orders pending for the sale of a TAEUS system.

As of September 30, 2024, the Company recorded inventory reserve of 5% or $142,733.

As of September 30, 2024 and December 31, 2023, the Company had inventory valued at $2,711,923 and $2,622,865, respectively.

Note 4 - Fixed Assets

As of June 30, 2024 and December 31, 2023, fixed assets consisted of the following:

As of September 30, 2024 and December 31, 2023, fixed assets consisted of the following:

September 30,

Property, leasehold and capitalized software

2 unchanged sentences

Fixed assets, net

Depreciation expense for the six months ended June 30, 2024 and 2023 was $ 23,993 and $ 69,781 .

Depreciation expense for the three months ended September 30, 2024 and 2023 was $11,496 and $32,058.

Depreciation expense for the nine months ended September 30, 2024 and 2023 was $35,489 and $101,839.

Note 5 - Accounts Payable and Accrued Liabilities

As of June 30, 2024 and December 31, 2023, current liabilities consisted of the following:

As of September 30, 2024 and December 31, 2023, current liabilities consisted of the following:

September 30,

Accounts payable

9 unchanged sentences

Under the conditions of the loan, twenty-five percent (25%) of the loan will be forgiven if seventy-five percent (75%) is repaid prior to the initial term date.

During the six months ended June 30, 2024, the loan was repaid in full.

As of June 30, 2024 and December 31, 2023, the loan had a balance of CAD 0 and CAD 40,000 , respectively.

During the nine months ended September 30, 2024, the loan was repaid in full.

As of September 30, 2024 and December 31, 2023, the loan had a balance of CAD 0 and CAD 40,000, respectively.

Note 7 - Capital Stock

Capital Stock

At June 30, 2024, 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.

At September 30, 2024, the authorized capital of the Company consisted of 30,000,000 shares of capital stock, comprised of 20,000,000 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”), 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 June 30, 2024, there were 72,439,526 shares of common stock outstanding (which excludes both the 121,212 unvested shares of restricted stock described in Note 8 below and the conversion of Series A Preferred Stock into 1,005 shares of common stock ), 17 .488 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 $ 27 .

During the six months ended June 30, 2024, the Company issued a total of 62,049,376 shares of its common stock, as follows:

As of September 30, 2024, there were 534,863 shares of common stock outstanding (which excludes both the 69 unvested shares of restricted stock described in Note 8 below and the conversion of Series A Preferred Stock into 1 shares of common stock and does include 12,857 shares of common stock due to exercise of warrants ), 17.488 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 $0.

During the nine months ended September 30, 2024, the Company issued a total of 528,926 shares of its common stock, as follows:

Registered offering (described below):

- 3,490 shares of its common stock in return for aggregate net proceeds of $728,503 under the Placement Agreement;

- 31,666 shares of its common stock upon exercise of pre-funded warrants for aggregate net proceeds of $6,609,831 under the Placement Agreement (includes net proceeds from sale and exercise of pre-funded warrants);

Other issuances:

- 68 shares of its common stock upon warrant exercises for aggregate net proceeds of $77,419;

1 unchanged sentence

- 5 shares of its common stock upon conversion of 123.909 shares of its Series A Preferred Stock;

During the six months ended June 30, 2024, a total of 80,808 shares of the previously issued restricted common stock vested.

- 46 shares of the previously issued restricted common stock vested.

The shares were issued for services and valued at $80,000.

During the six months ended June 30, 2023, the Company issued a total of 4,312,500 shares of its common stock in return for aggregate net proceeds of $ 4,712,750 .

Series B warrant exercises:

- 493,469 shares of its common stock upon cashless exercise of Series B Warrants

During the nine months ended September 30, 2023, the Company issued a total of 2,464 shares of its common stock in return for aggregate net proceeds of $4,712,750 under the Offering.

The company issued an additional 531 shares of its common stock in return for aggregate net proceeds of $1,113,832 under the June 2021 ATM Agreement.

Registered Offering

7 unchanged sentences

333-278842), declared effective by the SEC on June 4, 2024.

The Series Warrants became exercisable on August 9, 2024, the first trading day following effectiveness of an amendment to the Company’s certificate of incorporation (the “Charter Amendment”) to increase the number of authorized shares of common stock (the “Initial Exercise Date”).

Each Series A Warrant has an exercise price of $ 0.22 per share of common stock and will expire five years from the Initial Exercise Date.

Each Series B Warrant has an exercise price of $ 0.22 per share of common stock and will expire two and one-half years from the Initial Exercise Date.

The Series Warrants were first exercised in connection with the reverse stock split effective on August 20, 2024.

Each Series A Warrant will expire five years from the Initial Exercise Date.

Each Series B Warrant will expire two and one-half years from the Initial Exercise Date.

Under the alternate cashless exercise option of the Series B Warrants, the holder of a Series B Warrant has the right to receive an aggregate number of shares equal to the product of (x) the aggregate number of shares of common stock that would be issuable upon a cashless exercise of the Series B Warrant using $1.75 as the exercise price for that purpose and (y) 3.0.

In addition, the Series Warrants include a provision that resets their respective exercise prices in the event of a reverse split of the Company’s common stock to a price equal to the lesser of (i) the then current exercise price and (ii) lowest volume weighted average price (VWAP) during the period commencing five trading days immediately preceding and the five trading days commencing on the date the Company effects a reverse stock split, (such lower price, the “Floor Price”), provided that such Floor Price shall not be lower than $0.0434 (subject to adjustment for reverse and forward splits, recapitalizations and similar transactions), with a proportionate adjustment to the number of shares underlying the Series A Warrants and Series B Warrants.

The effect of the Company’s August 2024 and November 2024 reverse splits are that the number of shares underlying the Series A Warrants and Series B Warrants totaled 178,255 each.

Subject to certain exceptions, the Series A Warrants provide for an adjustment to the exercise price and number of shares underlying the Series A Warrants upon the Company’s issuance of Common Stock or Common Stock equivalents at a price per share that is less than the exercise price of the Series A Warrants, provided that such adjusted price shall be no less than $75.95 (subject to adjustment for reverse and forward splits, recapitalizations and similar transactions).

7 unchanged sentences

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 June 30, 2024, under the June 2021 ATM Agreement the Company had issued an aggregate of 2,706,644 shares of common stock in return for net proceeds of $ 11,407,240 , resulting in $ 354,527 of compensation paid to Ascendiant.

Prior to its replacement by the February 2024 ATM Agreement (as defined below), under the June 2021 ATM Agreement the Company issued an aggregate of 1,547 shares of common stock in return for net proceeds of $11,407,240, resulting in $354,527 of compensation paid to Ascendiant.

On February 14, 2024, the Company entered into a new At-The-Market Issuance Sales Agreement with Ascendiant (the “February 2024 ATM Agreement”) to sell shares of common stock for aggregate gross proceeds of up to $6.2 million, which replaced the June 2021 ATM Agreement.

As of June 30, 2024, the Company had not sold any shares under the February 2024 ATM Agreement.

As of September 30, 2024, the Company had not sold any shares under the February 2024 ATM Agreement.

Reverse Stock Split

On August 16, 2024, 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 August 20, 2024 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-50 (the “August 2024 Reverse Stock Split”).

All per share amounts (including exercise prices) and number of shares in the consolidated financial statements and related notes have been retroactively restated to reflect the August 2024 Reverse Stock Split and the November 2024 Reverse Stock Split (as described in Note 13 below).

No fractional shares were, or shall be, issued in connection with the August 2024 Reverse Stock Split.

The August 2024 Reverse Stock 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 Omnibus Plan.

Note 8 - Common Stock Options and Restricted Stock

1 unchanged sentence

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 six months ended June 30, 2024 was determined to be $ 77,418 using the Black-Scholes-Merton option-pricing model based on the following assumptions:

The aggregate fair value of these stock options granted by the Company during the nine months ended September 30, 2024 was determined to be $77,418 using the Black-Scholes-Merton option-pricing model based on the following assumptions:

(i) volatility rate of 107% to 111%, (ii) discount rate of 0%, (iii) zero expected dividend yield, (iv) risk free rate of 3.93% to 4.21%, (v) price of $1,9777.50 to $2,782.50, and (vi) expected life of 8-10 years.

A summary of option activity under the Company’s Omnibus Plan as of June 30, 2024, and changes during the year then ended, is presented below:

A summary of option activity under the Company’s Omnibus Plan as of September 30, 2024, and changes during the year then ended, is presented below:

Balance outstanding at December 31, 2023

Cancelled or expired

Balance outstanding at June 30, 2024

Exercisable at June 30, 2024

Balance outstanding at September 30, 2024

Exercisable at September 30, 2024

Restricted Common Stock

3 unchanged sentences

The Restricted Stock is subject to a vesting schedule pursuant to the Restricted Stock Agreement and the shares may not be sold, assigned, transferred, pledged, hypothecated, disposed of or otherwise encumbered prior to becoming vested.

During the six months ended June 30, 2024, the Company recorded as vested 80,808 shares valued at $ 80,000 .

During the nine months ended September 30, 2024, the Company recorded as vested 46 shares valued at $80,000.

Note 9 - Common Stock Warrants

On June 4, 2024, the Company entered into the Placement Agreement in which the company issued pre-funded warrants to purchase up to an aggregate of 55,430,770 shares of common stock (the “pre-funded warrants”), together with Series A warrants to purchase up to an aggregate of 61,538,461 shares of common stock (the “Series A Warrants”) and Series B warrants to purchase up to an aggregate of 61,538,461 shares of common stock (the “Series B Warrants” and, together with the Series A Warrants, the “common warrants”).

Additionally, the Series B Warrants contain an alternative cashless exercise option whereby the holder of a Series B Warrant has the right to receive an aggregate number of shares equal to the product of (x) the aggregate number of shares of common stock that would be issuable upon a cashless exercise of the Series B Warrant using $0.001 as the exercise price for that purpose and (y) 3.0.

The common stock, pre-funded warrants and common warrants were sold in a fixed combination, with each share of common stock or pre-funded warrant accompanied by a Series A Warrant to purchase one share of common stock and a Series B Warrant to purchase one share of common stock.

In connection with the Offering, the Company also issued placement agent warrants (“Placement Agent Warrants” and, together with the pre-funded warrants and the common warrants, the “Warrants”) to purchase up to 3,076,923 shares of common stock.

The purchase price of each share of common stock and accompanying common warrants was $ 0.13 and the purchase price of each pre-funded warrant and accompanying common warrants was $ 0.1299 .

As described above in “Registered Offering” (Note 7), the Company issued pre-funded warrants to purchase up to an aggregate of 31,666 shares of common stock (the “pre-funded warrants”), together with Series A Warrants to purchase up to an aggregate of 178,255 shares of common stock and Series B Warrants to purchase up to an aggregate of 178,255.

Additionally, the Series B Warrants contain an alternative cashless exercise option whereby the holder of a Series B Warrant has the right to receive an aggregate number of shares equal to the product of (x) the aggregate number of shares of common stock that would be issuable upon a cashless exercise of the Series B Warrant using $1.75 (after adjustment) as the exercise price for that purpose and (y) 3.0.

In connection with the Offering, the Company also issued placement agent warrants (“Placement Agent Warrants” and, together with the pre-funded warrants and the Series Warrants, the “Warrants”) to purchase up to 1,758 shares of common stock.

The purchase price of each share of common stock and accompanying Series Warrants was $227.50 and the purchase price of each pre-funded warrant and accompanying Series Warrants was $227.325.

Warrant Exercises

2 unchanged sentences

In December 2023, the Board approved a temporary reduction of the exercise price per share from $2,450 to $1,225.

The Company also issued to the placement agent and its designees warrants exercisable for an aggregate of 301,875 shares of common stock for an exercise price per share equal to $ 1.50 .

The Company also issued to the underwriter and its designees warrants exercisable for an aggregate of 172 shares of common stock for an exercise price per share equal to $2,625.

The warrants expire November 2, 2026.

During the six months ended June 30, 2024, the Company issued a total of 118,904 shares of its common stock upon warrant exercises for an aggregate net proceeds of $ 83,233 .

During the nine months ended September 30, 2024, the Company issued a total of 67 shares of its common stock upon warrant exercises for aggregate net proceeds of $83,233.

Between June 4, 2024 and June 7, 2024, 31,674 pre-funded warrants were exercised.

The company issued a total of 55,416,117 shares of its common stock upon the cash exercises of 44,344,616 warrants and cashless exercises of 11,071,501 warrants for aggregate net proceeds of $ 6,609,831 (includes net proceeds from sale and exercise of pre-funded warrants).

The remaining 14,653 warrants were used to satisfy the exercise price under the warrants’ cashless exercise provision.

The following table summarizes all stock warrant activity of the Company for the six months ended June 30, 2024:

The company issued a total of 31,666 shares of its common stock upon the cash exercises of 25,339 pre-funded warrants and cashless exercises of 6,327 pre-funded warrants for aggregate net proceeds of $6,609,831 (includes net proceeds from sale and exercise of pre-funded warrants).

The remaining 8 pre-funded warrants were used to satisfy the exercise price under the warrants’ cashless exercise provision.

Between August 19, 2024 and September 3, 2024, the Company issued a total of 493,469 shares of its common stock upon the alternate cashless exercise of 177,000 Series B Warrants.

The following table summarizes all warrant activity of the Company for the nine months ended September 30, 2024:

Balance outstanding at December 31, 2023

( 58,493,040 )

( 55,535,021 )

Balance outstanding at June 30, 2024

Exercisable at June 30, 2024

Balance outstanding at September 30, 2024

Exercisable at September 30, 2024

Common Stock Warrants

On August 20, 2024 (the “Issuance Date”), the Company issued 178,225 Series A Warrants and 178,225 Series B Warrants.

The Company accounts for the 356,510 warrants, in the aggregate, in accordance with the guidance in ASC 815 “Derivative and Hedging” whereby under that provision the warrants do not meet the criteria for equity treatment and must be recorded as a liability.

Accordingly, the Company classified the warrant instruments as a liability at fair value and adjusts the instruments to fair value each period.

This liability will be re-measured at each balance sheet date until the warrants are exercised or expire, and any change in fair value will be recognized in the Company’s statement of operations.

During the three and nine months ending September 30, 2024, the Company recognized $7,323,685 as warrant liability expense and income from the change in fair value of warrant liability of $3,341,829 in the statement of operations.

For the nine month period ended September 30, 2024, the Company recognized $3,071,252 as gain on settlement for the exercise of warrants during the period, and $910,556 as a warrant liability as of September 30, 2024.

Series A Warrants

Each Series A Warrant entitles the holder to purchase one share of the Company’s common stock at $28.70 per share, subject to antidilution adjustments, and expires on August 19, 2029.

In addition, if the Company sells or issues equity or an equity linked instrument for consideration per share less than the price equal to the exercise price then in effect, then the exercise price shall be reduced to an amount equal to the lower of (a) the new issuance price, or (b) the lowest volume weighted average price (“VWAP”) during the five consecutive trading days immediately following the dilutive issuance.

The reduced share price shall not be less than $75.95.

In addition, if there is a share price adjustment upon a split, reverse-split, share dividend, or share combination recapitalization, and the lowest VWAP during the preceding five trading days is less than the exercise price in effect (the “Event Market Price”), the then exercise price shall be reduced to the Event Market Price and the number of warrant issuable shall be increased such that the aggregate exercise price of the Series A Warrant on the Issuance Date then outstanding shall remain unchanged.

Series B Warrants

Each Series B Warrant entitles the holder to purchase one share of the Company’s common stock at $28.70 per share, subject to antidilution adjustments, and expires on February 18, 2027.

The reduced share price shall not be less than $75.95.

In addition, if there is a share price adjustment upon a split, reverse-split, share dividend, or share combination recapitalization, and the lowest VWAP during the preceding five trading days is less than the exercise price in effect (the “Event Market Price”), the then exercise price shall be reduced to the Event Market Price and the number of warrant issuable shall be increased such that the aggregate exercise price of the Series B Warrant on the Issuance Date then outstanding shall remain unchanged.

Alternative Cashless Exercise for Series B Warrants

The holders of the Series B Warrants may exercise their warrants at the alternative cashless exercise price of $1.75 per share.

Also, upon cashless exercise, the holder receives three underlying common shares for each warrant exercised.

Redemption Right

The Series A and Series B Warrants may be redeemed at the option of the Company any time after (i) the VWAP has equal or exceeded $16.50 for ten consecutive trading days and (ii) the average daily trading volume for such days exceeded $150,000.

Recurring Fair Value Measurements

The Company’s warrant liability for the Series A and Series B Warrants is based on the Black-Scholes option pricing model utilizing management judgement and pricing inputs from observable and unobservable markets.

Significant deviations from these estimates and inputs could result in a material change in fair value.

The fair value of the warrant liability is classified within Level 2 of the fair value hierarchy because the Company uses observable inputs like market prices for its common stock and risk-free interest rate, but requires estimations for factors like the Company’s own volatility, which is not directly quoted in active markets.

The Company established the initial fair value for the warrant liability on August 20, 2024, the date the warrants were issued.

Upon exercise, the instrument is marked to its fair value upon exercise, and the shares delivered are recorded at fair value in the Company’s statement of stockholders’ equity.

The warrant liability was valued based on the following inputs for the Series A and Series B Warrants, respectively:

August 20, 2024 (Initial Measurement)

September 30, 2024

Exercise price

$0.82 and $0.05

122% and 145%

127% and 152%

Discount rate

3.70% and 3.90%

3.58% and 3.63%

Expected dividend

Expected life (years)

4.89 and 2.39

Note 10 - Related Party Transactions

On October 17, 2023, the Company entered into a consulting agreement with one of its directors, Alex Tokman, pursuant to which Mr.

Tokman provides commercialization services.

Tokman provided commercialization services.

Under the terms of the agreement, Mr.

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Lou Basenese, a member of our board of directors, is President and Chief Market Strategist at Public Ventures LLC, a wholly-owned subsidiary of MDB.

There were no related party transactions during the quarter ended September 30, 2024.

Note 11 - Commitments and Contingencies

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therefore, the Company uses its estimated incremental borrowing rate at the time of lease commencement to discount the present value of lease payments.

The Company’s discount rate for operating leases at June 30, 2024 was 10 %.

The Company’s discount rate for operating leases at September 30, 2024 was 10%.

Lease expense is recognized on a straight-line basis over the lease term to the extent that collection is considered probable.

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The weighted-average remaining lease term is 1.5 years.

As of June 30, 2024, the maturities of operating lease liabilities are as follows:

As of September 30, 2024, the maturities of operating lease liabilities are as follows:

2025 and beyond

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Long-term lease obligations

For the six months ended June 30, 2024 and 2023, the Company incurred rent expenses of $ 109,608 and $ 108,187 , respectively.

For the nine months ended September 30, 2024 and 2023, the Company incurred rent expenses of $164,405 and $163,104, respectively.

Employment and Consulting Agreements

Francois Michelon - As of June 30, 2024, the Company had an employment agreement with Francois Michelon, the Company’s Chief Executive Officer and Chairman of the board of directors, dated May 12, 2017, as amended on December 27, 2019.

Effective January 1, 2022, the Compensation Committee increased Mr.

Michelon’s annual salary to $ 423,000 .

In September 2023, Mr.

Michelon agreed to a 30% reduction of his base salary received for the remainder of 2023 in order to preserve cash for the Company’s operations.

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

Upon termination without cause, any portion of Mr.

Michelon’s option award scheduled to vest within 12 months would automatically vest, and upon termination without cause within 12 months following a change of control, the entire unvested portion of the option award would automatically vest.

Upon termination for any other reason, the entire unvested portion of the option award would terminate.

Pursuant to his employment agreement, if Mr.

Michelon’s employment was terminated by the Company without cause or Mr.

Michelon terminated his employment for good reason, Mr.

Michelon would be entitled to receive 12 months’ continuation of his then-current base salary and a lump sum payment equal to 12 months of continued healthcare coverage (or 24 months’ continuation of his then-current base salary and a lump sum payment equal to 24 months of continued healthcare coverage if such termination occurred within one year following a change in control).

Under his employment agreement, Mr.

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

Alexander Tokman - Effective August 13, 2024, the Board appointed Alexander Tokman as the Company’s acting Chief Executive Officer and Chairman of the Board of Directors.

In connection with his appointment, Mr.

Tokman and the Company entered into an employment agreement, dated August 13, 2024 (the “Employment Agreement”).

Tokman’s employment with the Company is “at will” and may be terminated by him or the Company at any time and for any reason.

Pursuant to the Employment Agreement, Mr.

Tokman will receive an annual base salary of $300,000, subject to adjustment at the Board’s discretion.

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

Tokman’s employment is terminated by the Company without cause (as defined in the Omnibus Plan), if Mr.

Tokman resigns for good reason (as defined in the Employment Agreement), or if Mr.

Tokman’s employment ends following the hiring no later than February 13, 2026 of a replacement chief executive officer whom Mr.

Tokman assists in recruiting, Mr.

Tokman will be entitled to receive, subject to his execution of a standard release agreement, 12 months’ continuation of his current base salary and a lump sum payment equal to 12 months of continued healthcare coverage (or 24 months’ continuation of his current base salary and a lump sum payment equal to 24 months of continued healthcare coverage if such termination occurs within one year following a change in control).

Additionally, under the Employment Agreement, Mr.

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

The foregoing description of the Employment Agreement does not purport to be complete and is subject to, and qualified in its entirety by the full text of the Employment Agreement, which is filed as an exhibit with this Report.

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

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

As described in Note 7, our Registered Offering included Series A Warrants and Series B Warrants which were subject to shareholder approval and consequently have not been included in the financial statements as of June 30, 2024.

The Series A Warrants and Series B Warrants were approved by shareholders on August 6, 2024.

Richard Jacroux - On August 7, 2024, the Company’s Board of Directors appointed Richard Jacroux as Chief Financial Officer.

Jacroux works in a part-time capacity for the Company through Impact Solve, LLC (dba Impact Solutions) an accounting and chief financial officer service firm.

Jacroux receives a base monthly fee of $8,650 plus expenses in respect of his services to the Company.

The Company’s needs have typically required more than the base fee., averaging $11,000 a month for the three months ending September 30, 2024.

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

As of June 30, 2024, there were no legal matters that management believes would have a material effect on the Company’s financial position or results of operations.

As of September 30, 2024, there were no legal matters that management believes would have a material effect on the Company’s financial position or results of operations.

Note 12– Subsequent Events

Leadership Changes

On August 5, 2024, Irina Pestrikova notified the Company of her resignation as the Company’s Senior Director, Finance, effective August 7, 2024.

Pestrikova’s resignation was not in connection with any disagreement relating to the Company’s operations, policies, or practices.

Pestrikova may provide consulting services to the Company after her resignation, as desired and agreed to between Ms.

Pestrikova and Company management, in order to assist with the transitional matters.

On August 7, 2024, the Company’s Board of Directors appointed Richard Jacroux as Chief Financial Officer, effective upon Ms.

Pestrikova’s resignation.

On August 12, 2024, the Company and Francois Michelon mutually agreed on Mr.

Michelon’s resignation as the Company’s Chief Executive Officer and as a member of the Company’s Board of Directors.

Michelon’s resignation as a member of the Board did not involve any disagreement with the Company on any matter relating to the Company’s operations, policies, or practices.

The terms of Mr.

Michelon’s separation from the Company have been memorialized pursuant to a Separation Agreement and Release, dated August 12, 2024 (the “Separation Agreement”).

Pursuant to the Separation Agreement, Mr.

Michelon will be entitled to a single cash payment of $ 100,000 , which is equal to 4 months’ continuation of his current base salary, a cash payment for accrued vacation time and $ 1,705 monthly for up to 12 months for continued healthcare coverage in consideration for a release of any and all claims he may have against the Company, its affiliates, and their respective representatives and other related parties.

The Separation Agreement also terminated certain restrictive covenants applicable to Mr.

Michelon under his employment agreement with the Company.

Effective August 13, 2024, the Board appointed Alexander Tokman as the Company’s acting Chief Executive Officer and Chairman of the Board.

As described in Part II, Item 5, in connection with such appointment the Company and Mr.

Tokman entered into employment agreement.

Increase in Authorized Shares of Common Stock

At the 2024 Annual Meeting of the Company’s Stockholders held on August 6, 2024 (the “Annual Meeting”), the Company’s stockholders approved and adopted a Certificate of Amendment to the Company’s Fourth Amended and Restated Certificate of Incorporation (the “Certificate of Incorporation”) to increase the number of authorized shares of Company’s Common stock, from 80,000,000 shares to 1,000,000,000 shares (the “Charter Amendment”).

The Charter Amendment was filed with the Secretary of State of the State of Delaware on August 8, 2024 and was effective upon filing.

Reverse Stock Split

At the Annual Meeting, the Company’s stockholders approved a Certificate of Amendment to the Certificate of Incorporation to effect a reverse stock split of the shares of the Common Stock at a stock split ratio between 1-for-20 and 1-for-50 , inclusive (the “Reverse Stock Split”), with the ultimate ratio and precise timing of the Reverse Stock Split to be determined by the Company’s Board of Directors in its sole discretion.

On August 8, 2024, the Board of Directors approved a ratio of 1-for-50 for the Reverse Stock Split.

At a Special Meeting of Stockholders of the Company held on October 28, 2024 (the “Special Meeting”), the stockholders of the Company approved amendments to the Company’s Fourth Amended and Restated Certificate of Incorporation effecting reverse stock splits of the Company’s common stock, and authorized the Company’s Board of Directors, in its discretion, to effect a reverse stock split of Common Stock , whereby each issued and outstanding share of Common Stock would be reclassified and converted into a fraction of a share between ¼ and 1/35 (the “Ratios” and each, a “Ratio”), inclusive (the “November 2024 Reverse Stock Split”).

Following the Special Meeting, the Board approved a Ratio of 1/35.

The November 2024 Reverse Stock 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 Omnibus Plan.

All per share amounts (including exercise prices) and numbers of shares in the consolidated financial statements and related notes have been retroactively restated to reflect the November 2024 Reverse Stock Split.

No fractional shares were, or shall be, issued in connection with the November 2024 Reverse Stock Split.

Issuance of Shares

The company issued 2,007 shares on November 11, 2024 and an additional 38 shares on November 13, 2024, for a total of 2,045 shares, primarily due to the exercise of 988 warrants.

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-Q

Item 1. Financial Statements