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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

2025-03-31 compared with 2024-03-28 · 232 added, 86 removed, 418 unchanged (43% of the section changed)

11 unchanged sentences

Notes to Consolidated Financial Statements for the years ended December 31, 2024 and 2023

New York Office:

805 Third Avenue

New York, NY 10022

Houston Office:

7915 FM 1960 West, Ste.

Houston, Texas 77070

www.rbsmllp.com

31 unchanged sentences

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

March 28, 2024

New York, NY Washington DC Mumbai & Pune, India Boca Raton, FL

San Francisco, CA Las Vegas, NV Beijing, China Athens, Greece

ANTEA International with affiliated offices worldwide

7915 FM 1960 West, Ste.

Houston, Texas 77070

ENDRA Life Sciences Inc.

1 unchanged sentence

Current Assets

Cash and cash equivalents

Prepaid expenses

12 unchanged sentences

Lease liabilities

Warrant Liability

Total Long Term Debt

3 unchanged sentences

10,000 shares authorized;

141 .397 shares issued and outstanding

17 .488 and 141 .397 shares issued and outstanding, respectively

Series B Convertible Preferred Stock, $ 0.0001 par value;

1 unchanged sentence

no shares issued and outstanding

Series C Convertible Preferred Stock, $ 0.0001 par value;

Series C Preferred Stock, $ 0.0001 par value;

100,000 shares authorized;

21 unchanged sentences

( 10,520,735 )

Other Income (Expenses)

Other income (expenses)

Total other income (expenses)

Other (expenses) income

Warrant expense

( 7,323,685 )

Changes in fair value of warrant liability

Gain on settlement of warrant exercise

Total other expenses

Loss from operations before income taxes

5 unchanged sentences

Net loss per share – basic and diluted

$ ( 2,766.85 )

Weighted average common shares – basic and diluted

4 unchanged sentences

Series A Convertible

Preferred Stock

Series B Convertible

Preferred Stock

Stockholders’

Paid in Capital

Stock Payable

Balance as of December 31, 2022

1 unchanged sentence

Common stock issued for cash, net of funding costs

Common stock issued for warrant exercise

Warrants issued for cash, net of funding costs

Fair value of vested stock options

6 unchanged sentences

Series A Convertible

Preferred Stock

Series B Convertible

Preferred Stock

Stockholders’

Paid in Capital

Stock Payable

Balance as of December 31, 2023

$ ( 91,930,152 )

Common stock issued for cash, net of funding costs

Preferred stock conversion to common stock

Common stock issued for cash

Common stock issued for warrant exercise

Warrants issued for cash, net of funding costs

Common stock issued for cashless warrant exercise

Fair value of vested common stock

Fair value of vested stock options

4 unchanged sentences

$ 105,998,412

$ ( 103,438,099 )

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

2 unchanged sentences

Cash Flows from Operating Activities

December 31, 2024

December 31, 2023

$ ( 11,507,947 )

4 unchanged sentences

Inventory reserve

Stock compensation expense including common stock issued for RSUs

Stock compensation expense

Amortization of right of use assets

Warrant Expense

Changes in fair value of warrant liability

( 3,447,737 )

Gain or Loss on Settlement of warrant exercise

( 3,076,664 )

Changes in operating assets and liabilities:

Decrease in prepaid expenses

Increase in inventory

( 1,360,139 )

Decrease in inventory

Decrease in accounts payable and accrued liabilities

9 unchanged sentences

Proceeds from issuance of common stock

Proceeds from issuance of warrants

Proceeds from warrant exercise

Proceeds from warrant issuances and exercises

Repayment of loan

Net cash provided by financing activities

Net decrease in cash

( 2,055,191 )

Net increase (decrease) in cash

( 2,055,191 )

Cash, beginning of year

Cash, end of year

Cash, beginning of period

Cash, end of period

Supplemental disclosures of cash items

4 unchanged sentences

Right of use asset

Lease liability

Cashless warrants

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

4 unchanged sentences

ENDRA Life Sciences Inc.

(“ENDRA” or the “Company”) has developed and is continuing to develop technology for characterizing tissue non-invasively, at the point of patient care, to broaden patient access to the safe diagnosis and treatment of a number of significant medical conditions in circumstances where expensive X-ray computed tomography (“CT”), magnetic resonance imaging (“MRI”) or other technologies are unavailable or impractical.

(“ENDRA” or the “Company”) is designing a medical device for accurate liver fat measurement for use in metabolic disease detection and management and GLP-1 drug eligibility and management in circumstances where other technologies are unavailable or impractical.

ENDRA was incorporated on July 18, 2007 as a Delaware corporation.

Certain reclassifications have been made to the 2022 consolidated financial statements in order to conform to the current period presentations.

These classifications did not impact the net loss for the period ended December 31, 2023.

Note 2 - Summary of Significant Accounting Policies and Going Concern

2 unchanged sentences

Actual results could differ from those estimates.

Management makes estimates that affect certain accounts including inventory reserve, deferred income tax assets, accrued expenses, fair value of equity instruments and reserves for any other commitments or contingencies.

Management makes estimates that affect certain accounts including inventory reserve, deferred income tax assets, accrued expenses, fair value of equity instruments, fair value of warrant liability and reserves for any other commitments or contingencies.

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

15 unchanged sentences

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

The Company assessed its inventory at December 31, 2023 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 $ 138,045 , which resulted in the net carrying value of inventory of $ 2,622,865 .

In 2024, The Company determined that it needed to redesign its system so that it requires less space, is simpler to use and is more cost effective.

Based on this, the Company performed a thorough assessment of the valuation of inventory as of December 31, 2024 and reserved 100 % of the inventory.

This reserve totaled $ 2,525,179 as of December 31, 2024.

Our reserve was 5 % of inventory, or $ 138,045 as of December 31, 2023.

Capitalization of Fixed Assets

11 unchanged sentences

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 updated guidance introduces a five-step model to achieve its core principle 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.

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.

26 unchanged sentences

The carrying amounts of the Company’s financial assets and liabilities, including cash, accounts receivable, prepaid expenses, accounts payable, accrued expenses, and other current liabilities, approximate their fair values because of the short maturity of these instruments.

The fair value of notes payable and convertible notes approximates their fair values since the current interest rates and terms on these obligations are the same as prevailing market rates.

The fair value of options and warrants is estimated using the Black-Scholes option pricing model or other appropriate valuation techniques.

Key assumptions include expected volatility, risk-free interest rate, expected term, and dividend yield.

These inputs are based on observable market data where available (Level 2) or, when necessary, management’s estimates (Level 3).

Fair value measurements are reassessed at each reporting date, and any changes are reflected in the financial statements.

Share-based Compensation

8 unchanged sentences

These options vest in the same manner as the employee options granted under the stock incentive plan as described above.

Accounting guidance requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

The Company has limited historical experience with forfeitures and were based on management’s estimates.

Going Concern

4 unchanged sentences

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.

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

The accompanying financial statements for the year ended December 31, 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.

9 unchanged sentences

As of December 31, 2024, the Company had no orders pending for the sale of a TAEUS system.

As of December 31, 2023, the Company recorded inventory reserve of 5 % or $ 138,045 .

As of December 31, 2024 and 2023, the Company had recorded inventory reserves totaling $ 2,525,179 and $ 138,045 , respectively.

As of December 31, 2024 and 2023, the Company had inventory valued at $ 0 and $ 2,622,865 , respectively.

5 unchanged sentences

Fixed assets, net

Depreciation expense for the year ended December 31, 2023 and 2022 was $ 123,726 and $ 96,661 .

Depreciation expense for the years ended December 31, 2024 and 2023 was $ 46,489 and $ 123,726 , respectively.

Note 5 - Accounts Payable and Accrued Liabilities

11 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 .

As of December 31, 2023 and December 31, 2022, the loan had a balance of CAD 40,000 .

Subsequent to the year ended December 31, 2023, the loan was repaid in full.

As of December 31, 2023, the loan had a balance of CAD 40,000 .

The loan was fully repaid in 2024.

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.

Reverse Stock Splits

On August 16, 2024, the Company filed with the Secretary of State of the State of Delaware a certificate of amendment to its certificate of incorporation, which effectuated as of August 20, 2024 at 12:01 a.m.

Eastern Time a reverse split of the Company’s common stock by a ratio of one-for-50 (the “August 2024 Reverse Stock Split”).

On November 4, 2024, the Company filed with the Secretary of State of the State of Delaware a certificate of amendment to its certificate of incorporation, which effectuated as of November 7, 2024 at 12:01 a.m.

Eastern Time a reverse split of the Company’s common stock by a ratio of one-for-35 (the “November 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 both the August 2024 Reverse Stock Split and the November 2024 Reverse Stock Split.

The August 2024 Reverse Stock Split and 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.

Capital Stock

1 unchanged sentence

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, 2023, there were 10,390,150 shares of common stock, (which exclude 202,020 unvested shares of restricted stock described in Note 8 below) 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 $ 5,233 .

As of December 31, 2024, there were 536,908 shares of common stock (which excludes both the 69 unvested shares of restricted stock described in Note 8 below, the 1 share of common stock into which the outstanding shares of Series A Preferred Stock are convertible 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 year ended December 31, 2024, the Company issued a total of 530,971 shares of its common stock, as follows:

- 4,312,500 shares of its common stock in return for aggregate net proceeds of $ 4,712,750 in a registered underwritten offering that closed on May 2, 2023 (the "Offering");

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 ;

181 shares of its common stock in return for aggregate net proceeds of $ 419,967 under the June 2021 ATM Agreement;

5 shares of its common stock upon conversion of 123 .909 shares of its Series A Preferred Stock;

46 shares of the previously issued restricted common stock vested.

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

39 shares of common stock issued as beneficial round up shares as a result of our reverse stock splits

Series B warrant exercises:

495,476 shares of its common stock upon cashless exercise of Series B Warrants

During the year ended December 31, 2023, the Company issued a total of 4,126 shares of its common stock, as follows:

2,464 shares of its common stock in return for aggregate net proceeds of $ 4,712,750 in a registered underwritten offering that closed on May 2, 2023;

757 shares of its common stock in return for aggregate net proceeds of $ 1,770,643 under the June 2021 ATM Agreement;

905 upon warrant exercises for an aggregate net proceeds of $ 1,014,859 .

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).

At-the-Market Equity Offering Program

Registered Offering

On June 4, 2024, the Company entered into a placement agency agreement (the “Placement Agreement”) with Craig-Hallum Capital Group LLC (the “Placement Agent”) pursuant to which the Placement Agent served, on a best efforts basis, in connection with the issuance and sale (the “Offering”) of 3,490 shares of common stock and 31,674 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 (the “Series A Warrants”) and Series B warrants to purchase up to an aggregate of 178,255 shares of common stock (the “Series B Warrants” and, together with the Series A Warrants, the “Series Warrants”).

The common stock, pre-funded warrants and Series 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 to the Placement Agent warrants (“Placement Agent Warrants”) to purchase up to 1,758 shares of common stock.

The Offering closed on June 5, 2024.

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 common warrants was $ 227.325 .

The Company received net proceeds from the Offering, after deducting offering expenses payable by the Company, of $ 7,338,333 .

The Offering was made pursuant to the Company’s registration statement on Form S-1 (File No.

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

The Series Warrants were first exercised in connection with effectiveness of the amendment to the Company’s certificate of incorporation filed for the August 2024 Reverse Stock Split (the “Initial Exercise Date”).

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.

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 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 .

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.

A holder does not have the right to exercise any portion of the Series A Warrants or Series B Warrants if the holder (together with its affiliates) would beneficially own in excess of 4.99% of the number of shares of the Company’s common stock outstanding immediately after giving effect to the exercise, as such percentage ownership is determined in accordance with the terms of the Series A Warrants and Series B Warrants.

However, any holder may increase or decrease such percentage to any other percentage not in excess of 9.99% , provided that any increase in such percentage shall not be effective until 61 days following notice from the holder to us.

Pursuant to the Placement Agreement, in addition to the Placement Agent Warrants described above, the Company paid the Placement Agent a cash placement fee equal to 7.0% of the aggregate gross proceeds raised in the Offering .

The Company reimbursed expenses of the Placement Agent in connection with the Offering, including but not limited to legal fees, of $ 100,000 .

The Placement Agent Warrants have an expiration date of three and one- half years from the Initial Exercise Date and were immediately exercisable upon issuance.

The Company has agreed, subject to certain exceptions, not to effect any issuance of Common Stock or securities convertible into Common Stock involving a Variable Rate Transaction, as defined in the Placement Agreement, for a period commencing on the date of the Placement Agreement until 180 days following the closing of the Offering.

At-the-Market Equity Offering Programs

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, 2023, under the June 2021 ATM Agreement the Company had issued an aggregate of 2,389,681 shares of common stock in return for net proceeds of $ 10,987,263 , resulting in $ 341,433 of compensation paid to Ascendiant.

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

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 December 31, 2024, the Company had not sold any shares under the February 2024 ATM Agreement.

Note 8 - Common Stock Options and Restricted Stock

13 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 year ended December 31, 2024, the Company recorded as vested 46 shares valued at $ 80,000 .

Note 9 - Common Stock Warrants

Warrant Conversions

On May 2, 2023, the Company conducted the Offering in which the Company issued 2,156,250 warrants to purchase shares of common stock for an exercise price per share equal to $ 1.40 .

As described above in “Registered Offering” (Note 7), the Company issued 31,674 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 shares of common stock.

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

On May 2, 2023, the Company conducted a registered offering in which the Company issued 1,232 warrants to purchase shares of common stock for an exercise price per share equal to $ 2,450 .

The warrants expire May 2, 2028 .

In December 2023, the Board approved the reduction of the exercise price per share from $ 1.40 to $ 0.70 .

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 .

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 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 year ended December 31, 2023, the Company issued a total of 1,583,500 shares of its common stock upon warrant exercises for an aggregate net proceeds of $ 1,014,859 .

During the year ended December 31, 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 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 December 31, 2024, the Company issued a total of 495,476 shares of its common stock upon the alternate cashless exercise of 177,987 Series B Warrants.

The following table summarizes all stock warrant activity of the Company for the year ended December 31, 2024:

Balance outstanding at December 31, 2023

( 1,583,500 )

Balance outstanding at December 31, 2024

Exercisable at December 31, 2024

Common Stock Warrants

As described above in “Registered Offering” (Note 7), the Company issued 178,255 Series A Warrants and 178,255 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 year ending December 31, 2024, the Company recognized $ 7,323,685 as warrant liability expense and income from the change in fair value of warrant liability of $ 3,447,737 in the statement of operations.

For the year ended December 31, 2024, the Company recognized $ 3,076,664 as gain on settlement for the exercise of warrants during the period, and $ 799,284 as a warrant liability as of December 31, 2024.

Series A Warrants

Each Series A Warrant entitles the holder to purchase one share of the Company’s common stock at $ 75.95 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 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.

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

Series B Warrants

Each Series B Warrant entitles the holder to purchase one share of the Company’s common stock at $ 75.95 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.

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

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 $577.50 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 initially exercisable.

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)

December 31, 2024

Exercise price

$ 28.70 and $ 1.75

122 % and 145 %

131 % and 167 %

Discount rate

3.70 % and 3.90 %

Expected life (years)

Note 10 - Related Party Transactions

On May 2, 2023, the Company conducted the Offering in which the Company sold 83,333 shares of its common stock and 41,667 warrants to the Company’s director, Anthony DiGiandomenico, for cash at the public offering price, which was less than 5 % of beneficial ownership in the Company.

On May 2, 2023, the Company conducted a registered offering in which the Company sold 48 shares of its common stock and 24 warrants to the Company’s director, Anthony DiGiandomenico, for cash at the public offering price, which was less than 5 % of beneficial ownership in the Company.

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.

Tokman is compensated at a rate of $ 150 per hour for his services.

Tokman was compensated at a rate of $ 150 per hour for his services.

On August 13, 2024, this agreement was replaced with an employment agreement as described in Note 11.

On November 30, 2023, the Company entered into a Restricted Stock Agreement and Consulting Services Agreement, each with PatentVest, in exchange for certain services related to the Company’s patent portfolio.

1 unchanged sentence

Anthony DiGiandomenico, a member of the Company’s board of directors, is the Chief of Transactions and a director of MDB.

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.

In September 2024 the Company began using IS Bookkeeping & Payroll which is a division of Impact Solve, LLC (dba Impact Solutions) an accounting and chief financial officer service firm.

As described below in note 11, the Company’s Chief Financial Officer works in a part-time capacity for the Company through Impact Solutions.

In 2024, IS Bookkeeping & Payroll provided human resources and payroll processing services to the Company totaling $ 18,693 .

Note 11 - Commitments and Contingencies

1 unchanged sentence

On October 10, 2017, this lease was amended increasing the rentable square feet of space to 3,950 and the monthly rent to $7,798 .

On March 15, 2021, the Company entered into an amendment to the lease, adding approximately 3,248 rentable square feet, increasing the initial monthly rent to $15,452 effective May 2021, and extending the term of the lease to December 31, 2025 .

On March 15, 2021, the Company entered into an amendment to the lease, increasing the total rentable square feet to 7,198 , increasing the initial monthly rent to $ 15,452 effective May 2021, and extending the term of the lease to December 31, 2025 .

On December 1, 2024, the Company entered into an amendment to the lease, decreasing the total rentable square feet to 6,513 , decreasing the initial monthly rent to $ 15,278 effective March 2025 (after three months of no rent) and extending the term of the lease to March 31, 2029 .

The Company records the lease asset and lease liability at the present value of lease payments over the lease term.

11 unchanged sentences

Long-term lease obligations

For the year ended December 31, 2023 and 2022, the Company incurred rent expenses of $ 218,815 and $ 213,912 , respectively.

For the years ended December 31, 2024 and 2023, the Company incurred rent expenses of $ 203,265 and $ 218,815 , respectively.

Employment and Consulting Agreements

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, 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 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.

Upon termination without cause, any portion of Mr.

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

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

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

Michelon terminates his employment for good reason, Mr.

Michelon will be entitled to receive 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).

Under his employment agreement, Mr.

Michelon is 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.

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.

3 unchanged sentences

In September 2023, Mr.

Thorton 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.

Thornton 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.

Under the employment agreement, 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.

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.

The Company pays Impact Solutions a base monthly fee of $ 8,650 plus expenses in respect of his services to the Company and any hours worked in excess of 20 hours per week are paid at a rate of $ 150 per hour

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

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Permanent Differences

$ ( 157,900 )

State Income Tax, Net of Federal benefit

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Accrued Bonus

Accrued Expenses

$ ( 148,800 )

ROU Liability

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( 24,573,700 )

( 18,531,802 )

Net deferred tax assets (liabilities)

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For the years ended December 31, 2024 and 2023, there were no penalties or interest recorded in income tax expense.

Note 13 – Segment Reporting

Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker, or decision making group, in deciding how to allocate resources in assessing performance.

The Company has one reportable segment:

The biotech segment consists of the development of clinical and preclinical product candidates for the development of the Company’s proprietary new enhanced thermoacoustic technology platform.

The Company’s chief operating decision maker (“CODM”) is the chief executive officer.

The accounting policies of the biotech segment are the same as those described in the summary of significant accounting policies.

The CODM assesses performance for the biotech segment based on net loss, which is reported on the income statement as consolidated net loss.

The measure of segment assets is reported on the balance sheet as total consolidated assets.

To date, the Company has not generated any product revenue.

The Company expects to continue to incur significant expenses and operating losses for the foreseeable future as it advances product candidates through all stages of development and clinical trials and, ultimately, seek regulatory approval.

As such, the CODM uses cash forecast models in deciding how to invest into the biotech segment.

Such cash forecast models are reviewed to assess the entity-wide operating results and performance.

Net loss is used to monitor budget versus actual results.

Monitoring budgeted versus actual results is used in assessing performance of the segment and in establishing management’s compensation, along with cash forecast models.

The table below summarizes the significant expense categories regularly reviewed by the CODM for the years ended December 31, 2024, and 2023:

Operating Expenses

Research and development

Sales and marketing

General and administrative

Total operating expenses

Operating loss

( 10,817,147 )

( 10,520,735 )

Other segment items (a)

$ ( 11,507,947 )

$ ( 10,060,250 )

Reconciliation of net loss

Adjustments and reconciling items

Consolidated net loss

$ ( 11,507,947 )

$ ( 10,060,250 )

(a) Other segment items included in segment loss includes warrant expense, changes in warrant liability, gain on settlement of warrant liability and interest income.

Note 1 4 - Subsequent Events

Subsequent to the year ended December 31, 2023, the Company issued a total of 118,904 shares of its common stock upon warrant exercises for an aggregate net proceeds of $ 77,407 .

Subsequent to the year ended December 31, 2023, the Company issued a total of 316,963 shares of its common stock in return for aggregate net proceeds of $ 419,977 under the June 2021 ATM Agreement.

Subsequent to the year ended December 31, 2023, the Toronto-Dominion Bank Loan was repaid in full (see note 6).

The Company has evaluated events through, March 31, 2025, the filing date of this Annual Report on Form 10-K, and determined that, other than as disclosed below, no other events have occurred that would require adjustment to or disclosures in these consolidated financial statements.

Subsequent to the year ended December 31, 2024, the Company issued a total of 25,305 shares of its common stock in return for aggregate gross proceeds of $ 150,416 under the February 2024 ATM Agreement.

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