ENDRA Life Sciences Inc. 10-Q

Item 1. Financial Statements ENDRA Life Sciences Inc. Condensed Consolidated Balance Sheets March 31, December 31, Assets 2025 2024 Current Assets (Unaudited) Cash $ 2,064,874 $ 3,229,480 Prepaid expenses 115,332 204,185 Total Current Assets 2,180,206 3,433,665 Non-Current Assets Fixed assets, net 72,775 69,281 Right of use assets 546,216 578,013 Prepaid expenses, long term 365,417 365,417 Other assets 5,984 5,986 Total Assets $ 3,170,598 $ 4,452,362 Liabilities and Stockholders’ Equity Current Liabilities Accounts payable and accrued liabilities $ 439,688 $ 508,293 Lease liabilities, current portion 126,097 96,937 Total Current Liabilities 565,785 605,230 Long Term Debt Lease liabilities 461,206 487,482 Warrant Liability 390,722 799,284 Total Long Term Debt 851,928 1,286,766 Total Liabilities 1,417,713 1,891,996 Stockholders’ Equity Series A Convertible Preferred Stock, $ 0.0001 par value; 10,000 shares authorized; 17.488 and 17.488 shares issued and outstanding, respectively - - Series B Convertible Preferred Stock, $ 0.0001 par value; 1,000 shares authorized; no shares issued and outstanding - - Series C Preferred Stock, $ 0.0001 par value; 100,000 shares authorized; no shares issued and outstanding - - Common stock, $ 0.0001 par value; 20,000,000 shares authorized; 562,213 and 536,908 shares issued and outstanding, respectively 55 53 Additional paid in capital 106,227,259 105,998,412 Stock payable - - Accumulated deficit ( 104,474,429 ) ( 103,438,099 ) Total Stockholders’ Equity 1,752,885 2,560,366 Total Liabilities and Stockholders’ Equity $ 3,170,598 $ 4,452,362 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 3 Table of Contents ENDRA Life Sciences Inc. Condensed Consolidated Statements of Operations (Unaudited) Three Months Ended Three Months Ended March 31, March 31, 2025 2024 Operating Expenses Research and development $ 528,685 $ 1,041,526 Sales and marketing 68,991 238,660 General and administrative 871,606 1,500,355 Total operating expenses 1,469,282 2,780,541 Operating loss ( 1,469,282 ) ( 2,780,541 ) Other Expenses Other income (expense) 24,390 4,841 Changes in fair value of warrant liability 408,562 - Total other expenses 432,952 4,841 Loss from operations before income taxes ( 1,036,330 ) ( 2,775,700 ) Provision for income taxes - - Net Loss $ ( 1,036,330 ) $ ( 2,775,700 ) Net loss per share – basic and diluted $ ( 1.86 ) $ ( 449.58 ) Weighted average common shares – basic and diluted 557,582 6,174 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 4 Table of Contents ENDRA Life Sciences Inc. Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) Three Months Ended March 31, 2024 Series A Convertible Series B Convertible Additional Total Preferred Stock Preferred Stock Common stock Paid in Stock Accumulated Stockholders’ Shares Amount Shares Amount Shares Amount Capital Payable Deficit Equity Balance as of December 31, 2023 141.397 $ 1 - $ - 5,937 $ 1 $ 97,583,906 $ 5,233 $ ( 91,930,152 ) $ 5,658,989 Preferred stock conversion to common stock (106.421 ) ( 1 ) - - 4 - 1 - - - Common stock issued for cash - - - - 181 - 419,967 - - 419,967 Common stock issued for warrant exercise - - - - 68 - 77,419 - - 77,419 Fair value of vested common stock for services - - - - 46 - 80,000 - - 80,000 Fair value of vested stock options - - - - - - 237,497 - - 237,497 Stock payable toward preference dividend - - - - - - 4,932 ( 4,932 ) - - Net loss - - - - - - - - ( 2,775,700 ) ( 2,775,700 ) Balance as of March 31, 2024 34.976 $ - - $ - 6,236 $ 1 $ 98,403,722 $ 301 $ ( 94,705,852 ) $ 3,698,172 Three Months Ended March 31, 2025 Series A Convertible Series B Convertible Additional Total Preferred Stock Preferred Stock Common stock Paid in Stock Accumulated Stockholders’ Shares Amount Shares Amount Shares Amount Capital Payable Deficit Equity Balance as of December 31, 2024 17.488 $ - - $ - 536,908 $ 53 $ 105,998,412 $ - $ ( 103,438,099 ) $ 2,560,366 Fair value of vested common stock - - - - 25,305 2 145,801 - - 145,803 Fair value of vested stock options - - - - - - 83,046 - - 83,046 Stock payable towards preference dividend - - - - - - - - - - Net loss - - - - - - - - ( 1,036,330 ) ( 1,036,330 ) Balance as of March 31, 2025 17.488 $ - - $ - 562,213 $ 55 $ 106,227,259 $ - $ ( 104,474,429 ) $ 1,752,885 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 5 Table of Contents ENDRA Life Sciences Inc. Condensed Consolidated Statements of Cash Flows (Unaudited) Three Months Ended Three Months Ended March 31, March 31, 2025 2024 Cash Flows from Operating Activities Net loss $ ( 1,036,330 ) $ ( 2,775,700 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 13,786 15,300 Fixed assets write off - 8,808 Inventory reserve - 142,733 Stock compensation expense 83,046 317,497 Amortization of right of use assets 31,797 40,376 Changes in fair value of warrant liability ( 408,562 ) - Changes in operating assets and liabilities: Decrease in prepaid expenses 88,854 42,609 Increase in inventory - ( 231,791 ) Decrease in accounts payable and accrued liabilities ( 68,604 ) 337,711 Decrease in lease liability 2,884 ( 41,855 ) Net cash used in operating activities ( 1,293,129 ) ( 2,144,312 ) Cash Flows from Investing Activities Purchases of fixed assets ( 17,280 ) ( 27,000 ) Proceeds from sale of fixed assets - 3,204 Net cash used in investing activities ( 17,280 ) ( 23,796 ) Cash Flows from Financing Activities Proceeds from issuance of common stock 145,803 419,967 Proceeds from warrant issuances and exercises - 77,419 Repayment of loan - ( 28,484 ) Net cash provided by financing activities 145,803 468,902 Net decrease in cash ( 1,164,606 ) ( 1,699,206 ) Cash, beginning of period 3,229,480 2,833,907 Cash, end of period $ 2,064,874 $ 1,134,701 Supplemental disclosures of cash items Interest paid $ 14,855 $ 8,801 Income tax paid $ - $ - Supplemental disclosures of non-cash items Stock dividend payable $ - $ ( 4,932 ) Right of use asset $ 546,216 $ 313,715 Lease liability $ 587,303 $ 324,064 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 6 Table of Contents ENDRA Life Sciences Inc. Notes to Condensed Consolidated Financial Statements For the three months ended March 31, 2025 and 2024 (Unaudited) Note 1 - Nature of the Business 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 was incorporated on July 18, 2007 as a Delaware corporation. Note 2 - Summary of Significant Accounting Policies Use of Estimates The preparation of the financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. 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. Any adjustments applied to estimates are recognized in the period in which such adjustments are determined. Principles of Consolidation The Company’s consolidated financial statements include all accounts of the Company and its consolidated subsidiaries and/or entities as of reporting period ending date(s) and for the reporting period(s) then ended. All inter-company balances and transactions have been eliminated. Basis of Presentation The accompanying unaudited condensed consolidated financial statements and related notes have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulations. 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 three months ended March 31, 2025 are not necessarily indicative of the results that may be expected for the year ending December 31, 2025. The balance sheet at March 31, 2025 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, 2024 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 31, 2025. Cash and Cash Equivalents The Company considers all cash on hand and in banks, including accounts in book overdraft positions, certificates of deposit, and other highly liquid investments with maturities of one year or less, when purchased, to be cash. Cash equivalents include investments in an institutional money market fund, which invests in U.S. Treasury bills, notes and bonds, and/or repurchase agreements, backed by such obligations. Carrying value approximates fair value. The Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts and periodically evaluates the creditworthiness of the financial institutions and has determined the credit exposure to be negligible. The Company maintains cash deposits at multiple banks to mitigate the risk associated with a failure of any specific bank. Inventory The Company’s inventory is stated at the lower of cost or estimated net realizable value, with cost primarily determined on a weighted-average cost basis on the first-in, first-out method. The Company periodically determines whether a reserve should be taken for devaluation or obsolescence of inventory. The Company assessed its inventory at March 31, 2025 and the reserve remained at 100 % of the inventory. As of March 31, 2025 and December 31, 2024, the Company had recorded reserves of $ 2,525,179 . As of March 31, 2025 and December 31, 2024, the Company had inventory valued at $ 0 . 7 Table of Contents Capitalization of Fixed Assets The Company capitalizes expenditures related to property and equipment, subject to a minimum rule, that have a useful life greater than one year for: (1) assets purchased; (2) existing assets that are replaced, improved or the useful lives have been extended; or (3) all land, regardless of cost. Acquisitions of new assets, additions, replacements and improvements (other than land) costing less than the minimum rule in addition to maintenance and repair costs, including any planned major maintenance activities, are expensed as incurred. Leases Accounting Standards Update (“ASU”) No. 2016-02 requires a lessee to record a right of use asset and a corresponding lease liability on the balance sheet for all leases with terms longer than 12 months. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest period presented in the financial statements. At March 31, 2025 and December 31, 2024 the Company recorded a right of use asset of $ 546,216 and $ 578,013 , respectively. At March 31, 2025 and December 31, 2024 the Company recorded a lease liability of $ 587,303 and $ 584,419 , respectively. Revenue Recognition ASU No. 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. 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. The adoption of ASC Topic 606 did not have an impact on the Company’s operations or cash flows. Research and Development Costs The Company follows FASB Accounting Standards Codification (“ASC”) Subtopic 730-10, “Research and Development”. Research and development costs are charged to the statement of operations as incurred. During the three months ended March 31, 2025 and 2024, the Company incurred $ 528,685 and $ 1,041,526 of expenses related to research and development costs, respectively. Net Earnings (Loss) Per Common Share The Company computes earnings per share under ASC Subtopic 260-10, “Earnings Per Share”. Basic earnings (loss) per share is computed by dividing the net income (loss) attributable to the common stockholders (the numerator) by the weighted average number of shares of common stock outstanding (the denominator) during the reporting periods. 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 180,983 and 180,986 potentially dilutive shares, which include outstanding common stock options, and warrants, as of March 31, 2025 and December 31, 2024, respectively. March 31, 2025 December 31, 2024 Options to purchase common stock 275 278 Warrants to purchase common stock 180,707 180,707 Shares issuable upon conversion of Series A Convertible Preferred Stock 1 1 Potential equivalent shares excluded 180,983 180,986 8 Table of Contents Fair Value Measurements Disclosures about fair value of financial instruments require disclosure of the fair value information, whether or not recognized in the balance sheet, where it is practicable to estimate that value. In accordance with ASC Topic 820, “Fair Value Measurements and Disclosures,” the Company measures certain financial instruments at fair value on a recurring basis. ASC Topic 820 defines fair value, established a framework for measuring fair value in accordance with accounting principles generally accepted in the United States, and expands disclosures about fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 established a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). These tiers include: · Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets; · Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and · Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable. 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. Share-based Compensation The Company’s 2016 Omnibus Incentive Plan (the “Omnibus Plan”) permits the grant of stock options and other share-based awards to its employees, consultants and non-employee members of the board of directors. Each January 1 the pool of shares available for issuance under the Omnibus Plan automatically increases by an amount equal to the lesser of (i) the number of shares necessary such that the aggregate number of shares available under the Omnibus Plan equals 25% of the number of fully-diluted outstanding shares on the increase date (assuming the conversion of all outstanding shares of preferred stock and other outstanding convertible securities and exercise of all outstanding options and warrants to purchase shares) and (ii) if the board of directors takes action to set a lower amount, the amount determined by the board. Effective January 1, 2025, the pool of shares issuable under the Omnibus Plan automatically increased by 178,033 shares from 1,738 shares to 179,771 shares . The Company records share-based compensation in accordance with the provisions of the Share-based Compensation Topic of the FASB Codification. The guidance requires the use of option-pricing models that require the input of highly subjective assumptions, including the option’s expected life and the price volatility of the underlying stock. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option valuation model, and the resulting charge is expensed using the straight-line attribution method over the vesting period. Stock compensation expense recognized during the period is based on the value of share-based awards that were expected to vest during the period adjusted for estimated forfeitures. The estimated fair value of grants of stock options and warrants to non-employees of the Company is charged to expense, if applicable, in the financial statements. These options vest in the same manner as the employee options granted under the stock incentive plan as described above. Going Concern The Company’s financial statements are prepared using accounting principles generally accepted in the United States (“U.S. 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 March 31, 2025 of $ 104,474,429 . The Company had working capital of $ 1,614,421 as of March 31, 2025. 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 three months ended March 31, 2025 have been prepared assuming the Company will continue as a going concern, but the ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it establishes a revenue stream and becomes profitable. Management’s plans to continue as a going concern include raising additional capital through sales of equity securities and borrowing. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans. If the Company is not able to obtain the necessary additional financing on a timely basis, the Company will be required to delay, reduce the scope of, or eliminate one or more of the Company’s research and development activities or commercialization efforts or perhaps even cease the operation of its business. The ability of the Company to continue as a going concern is dependent upon its ability to successfully secure other sources of financing and attain profitable operations. The accompanying consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. 9 Table of Contents Recent Accounting Pronouncements The Company considered recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the SEC, did not or in management’s opinion will not have a material impact on the Company’s present or future consolidated financial statements. Note 3 - Inventory As of March 31, 2025 and December 31, 2024, inventory consisted of raw materials, subassemblies to be used in the assembly of TAEUS systems, and finished goods. As of March 31, 2025, the Company had no orders pending for the sale of a TAEUS system. As of March 31, 2025 and December 31, 2024, the Company had recorded reserves of $ 2,525,179 . As of March 31, 2025 and December 31, 2024, the Company had inventory valued at $ 0 . Note 4 - Fixed Assets As of March 31, 2025 and December 31, 2024, fixed assets consisted of the following: March 31, 2025 December 31, 2024 Property, leasehold and capitalized software $ 597,235 $ 579,954 TAEUS development and testing 125,150 125,151 Accumulated depreciation ( 649,610 ) ( 635,824 ) Fixed assets, net $ 72,775 $ 69,281 Depreciation expense for the three months ended March 31, 2025 and March 31, 2024 was $ 13,786 and $ 15,300 , respectively. Note 5 - Accounts Payable and Accrued Liabilities As of March 31, 2025 and December 31, 2024, current liabilities consisted of the following: March 31, 2025 December 31, 2024 Accounts payable $ 223,595 $ 269,683 Payroll accrual 116,163 63,140 Accrued employee benefits - 5,750 Accrued expenses 99,930 169,720 Total $ 439,688 $ 508,293 Note 6 - Bank Loans Toronto-Dominion Bank Loan On April 27, 2020, the Company entered into a commitment loan with TD Bank under the Canadian Emergency Business Account, in the principal aggregate amount of CAD 40,000 , due and payable upon the expiration of the initial term mon December 31, 2022 which was later extended to December 31, 2023 . This note bears interest on the unpaid balance at the rate of zero percent ( 0 %) per annum during the initial term. Under this note no interest payments were due until January 1, 2024. 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 three months ended March 31, 2024, the loan was repaid in full. 10 Table of Contents Note 7 - Capital Stock Capital Stock At March 31, 2025, 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 March 31, 2025, there were 562,213 shares of common stock outstanding (which excludes 69 unvested shares of restricted stock described in Note 8 below and 24,695 shares issued by the Company pursuant to the February 2024 ATM Agreement (as defined below) and includes the conversion of Series A Preferred Stock into 1 share of common stock and 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 three months ended March 31, 2025, the Company issued a total of 25,305 shares of its common stock under the February 2024 ATM Agreement in return for aggregate net proceeds of $ 145,803 , which takes into account $ 4,641 in compensation paid to Ascendiant Capital Markets, LLC (“Ascendiant”) in its role as Sales Agent under the February 2024 ATM Agreement. At-the-Market Equity Offering Programs 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 Company’s prior At-The-Market Issuance Sales Agreement . Under the February 2024 ATM Agreement, as of March 31, 2025, the Company has issued a total of 25,305 shares of its common stock in return for aggregate net proceeds of $ 145,803 , resulting in $ 4,641 of compensation paid to Ascendiant. Reverse Stock Split 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. Note 8 - Common Stock Options and Restricted Stock Common Stock Options 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. There were no issuances of stock options in the quarter ended March 31, 2025. A summary of option activity under the Company’s Omnibus Plan as of March 31, 2025, and changes during the quarter then ended, is presented below: Number of Options Weighted Average Exercise Price Weighted Average Remaining Contractual Term (Years) Balance outstanding at December 31, 2024 278 $ 30,628.90 5.35 Granted - - - Exercised - - - Forfeited - - - Cancelled or expired ( 3 ) 11,211.67 - Balance outstanding at March 31, 2025 275 $ 30,840.73 5.16 Exercisable at March 31, 2025 236 $ 34,731.35 4.72 11 Table of Contents Restricted Common Stock On November 30, 2023, the Company issued 115 shares of restricted common stock (the “Restricted Stock”) of the Company to PatentVest, Inc. (“PatentVest”) pursuant to a Restricted Stock Agreement and Consulting Services Agreement, each with PatentVest, in exchange for certain services related to the Company’s patent portfolio. The fair value of the Restricted Stock was determined to be $ 200,485 using the market price of the stock on the date of the issuance. 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 three months ended March 31, 2024, the Company recorded as vested 46 shares valued at $ 80,000 . 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. No services were provided by PatentVest, Inc. in the quarter ended March 31, 2025. Note 9 - Common Stock Warrants In June 2024, as part of a registered offering, 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 (together with the Series A Warrants, the “Series 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 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 three months ended March 31, 2025, no warrants were exercised. The following table summarizes all warrant activity of the Company for the three months ended March 31, 2025: Number of Warrants Weighted Average Exercise Price Weighted Average Contractual Term (Years) Balance outstanding at December 31, 2024 180,707 $ 85.38 4.58 Granted - - - Exercised - - - Forfeited - - - Expired - - - Balance outstanding at March 31, 2025 180,707 $ 85.38 4.34 Exercisable at March 31, 2025 180,707 $ 85.38 4.34 Common Stock Warrants In June 2024, as part of a registered offering, 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 three months ended March 31, 2025, the Company recognized income from the change in fair value of warrant liability of $ 408,562 in the statement of operations. As of March 31, 2025, the Company recognized $ 390,722 as a warrant liability. 12 Table of Contents 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. Measurement 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: Input March 31, 2025 December 31, 2024 Exercise Price $ 75.95 $ 28.70 and $ 1.75 Stock Price $ 4.10 $ 7.26 Volatility 135 % and 168 % 131 % and 167 % Discount Rate 3.94 % and 3.91 % 4.36% Expected Dividend - - Expected Life (Years) 4.39 and 1.89 4.64 Note 10 - Related Party Transactions 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. The Company’s Chief Financial Officer works in a part-time capacity for the Company through Impact Solutions. In the first quarter of 2025, Impact Solutions and IS Bookkeeping & Payroll provided services to the Company totaling $ 35,926 and $ 13,260 , respectively. Note 11 - Commitments and Contingencies Office Lease Effective January 1, 2015, the Company entered into an office lease agreement with Green Court, LLC, a Michigan limited liability company, for approximately 3,657 rentable square feet of space, for the initial monthly rent of $ 5,986 , which commenced on January 1, 2015 for an initial term of 60 months. 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 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. The lease typically does not provide an implicit rate; 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 March 31, 2025 was 10 %. Lease expense is recognized on a straight-line basis over the lease term to the extent that collection is considered probable. As a result, the Company has been recognizing rents as they become payable based on the adoption of ASC Topic 842. The weighted-average remaining lease term is 3.92 years. As of March 31, 2025, the maturities of operating lease liabilities are as follows: Operating Lease 2025 137,506 2026 and beyond 579,966 Total $ 717,472 Less: amount representing interest ( 130,169 ) Present value of future minimum lease payments 587,303 Less: current obligations under leases ( 126,097 ) Long-term lease obligations $ 461,206 For the three months ended March 31, 2025 and 2024, the Company incurred rent expenses of $ 51,733 and $ 54,839 , respectively. 13 Table of Contents Employment and Consulting Agreements 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”). Mr. 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. Mr. Tokman is also eligible for an annual cash bonus based upon the achievement of performance-based objectives established by the Board of Directors. If Mr. 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. The employment agreement provides for an annual base salary that is subject to adjustment at the board of directors’ discretion. Effective January 1, 2022, the Compensation Committee increased Mr. Thornton’s annual salary to $ 324,000 . In September 2023, Mr. 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. Thornton 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. Thornton’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. If Mr. Thornton’s employment is terminated by the Company without cause or Mr. Thornton terminates his employment for good reason, Mr. Thornton 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. 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. Mr. 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. Mr. 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 $11,975 a month for the three months ending March 31, 2025 . Litigation From time to time the Company may become a party to litigation in the normal course of business. As of March 31, 2025, 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 – 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: biotech. 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. 14 Table of Contents The table below summarizes the significant expense categories regularly reviewed by the CODM for the three months ended March 31, 2025, and 2024: Operating Expenses Three Months Ended March 31, 2025 Three Months Ended March 31, 2024 Research and development $ 528,685 $ 1,041,526 Sales and marketing 68,991 238,660 General and administrative 871,606 1,500,355 Total operating expenses 1,469,282 2,780,541 Operating loss ( 1,469,282 ) ( 2,780,541 ) Other segment items (a) 432,952 4,841 Net loss $ ( 1,036,330 ) $ ( 2,775,700 ) Reconciliation of net loss Adjustments and reconciling items - - Consolidated net loss $ ( 1,036,330 ) $ ( 2,775,700 ) (a) Other segment items included in segment loss includes warrant expense, changes in warrant liability and interest income. Note 13– Subsequent Events The Company has assessed operations through, May 15, 2025, the filing date of this Quarterly Report on Form 10-Q and determined that there were no material subsequent events requiring adjustment to, or disclosure in, our consolidated financial statements for the three months ended March 31, 2025, other than the following: Issuance of Shares The Company issued a total of 176,157 shares of its common stock in return for aggregate gross proceeds of $ 834,353 under the February 2024 ATM Agreement. 15 Table of Contents