# HeartSciences Inc.: Form 10-Q for the period ended Jan 31, 2023

- Company: [HeartSciences Inc.](/companies/hscs.md) (CIK 1468492)
- Form: 10-Q
- Filed: 2023-03-16
- Accepted by EDGAR: Mar 16, 2023, 16:01 ET
- Period: 2023-01-31
- Accession: 0000950170-23-008432
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1468492/000095017023008432/hscs-20230131.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1468492/000095017023008432/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-01-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2022-11-01 to 2023-01-31 | $1.9k | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2022-05-01 to 2023-01-31 | $5.2k | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2022-11-01 to 2023-01-31 | $760 | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2022-05-01 to 2023-01-31 | $2.8k | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2022-11-01 to 2023-01-31 | $1.2k | us-gaap:GrossProfit |
| Gross profit | 9 months, 2022-05-01 to 2023-01-31 | $2.4k | us-gaap:GrossProfit |
| Research and development | 3 months, 2022-11-01 to 2023-01-31 | $643.3k | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2022-05-01 to 2023-01-31 | $1.9m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2022-11-01 to 2023-01-31 | $667.2k | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2022-05-01 to 2023-01-31 | $2.6m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2022-11-01 to 2023-01-31 | −$1.3m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2022-05-01 to 2023-01-31 | −$4.5m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2022-11-01 to 2023-01-31 | $32.8k | us-gaap:InterestExpense |
| Interest expense | 9 months, 2022-05-01 to 2023-01-31 | $209.2k | us-gaap:InterestExpense |
| Net income | 3 months, 2022-11-01 to 2023-01-31 | −$1.3m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2022-05-01 to 2023-01-31 | −$4.7m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2022-11-01 to 2023-01-31 | −$0.16 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2022-05-01 to 2023-01-31 | −$0.64 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2022-11-01 to 2023-01-31 | −$0.16 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2022-05-01 to 2023-01-31 | −$0.64 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2022-11-01 to 2023-01-31 | 8,240,798 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2022-05-01 to 2023-01-31 | 7,371,764 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2022-05-01 to 2023-01-31 | −$3.9m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2022-05-01 to 2023-01-31 | $10.7k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2023-01-31 | $1.9m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-01-31 | $2.9m | us-gaap:AssetsCurrent |
| Total assets | at 2023-01-31 | $3.5m | us-gaap:Assets |
| Current liabilities | at 2023-01-31 | $2.0m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-01-31 | $3.7m | us-gaap:Liabilities |
| Shareholders' equity | at 2023-01-31 | −$257.9k | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 24,086 characters.

*The following discussion and analysis is intended as a review of significant factors affecting our financial condition and results of operations for the periods indicated. The discussion should be read in conjunction with our unaudited financial statements and the notes presented herein included in this Quarterly Report on Form 10-Q and the audited financial statements and the related notes set forth in our 2022 Annual Report on Form 10-K. The discussion below contains forward-looking statements that are based upon our current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these expectations due to inaccurate assumptions and known or unknown risks and uncertainties, including those identified in “Cautionary Note Regarding Forward-Looking Statements” and under “Risk Factors” as identified under Part 1, Item 1A of our 2022 Annual Report on Form 10-K.*

### Overview

We are a medical technology company focused on applying innovative AI-based technology to an ECG (also known as an EKG) to expand and improve an ECG’s clinical usefulness. Our objective is to make an ECG a far more valuable cardiac screening tool, particularly in frontline or point-of-care clinical settings. HeartSciences’ first product candidate for FDA clearance, the MyoVista *wav*ECG (the “MyoVista”) is a resting 12-lead ECG that is designed to provide diagnostic information related to cardiac dysfunction, as well as conventional ECG information in the same test. The cardiac dysfunction information has only traditionally been available through the use of cardiac imaging. Our business model, which involves the use of the MyoVista device and consumables for each test, is expected to be “razor-razorblade” as the electrodes used with the MyoVista are proprietary to HeartSciences, and new electrodes are required for every test performed. As of January 31, 2023, we had 12 full-time employees and one part-time employee.

Our device is not yet cleared for marketing by the FDA and our future success is dependent upon receiving FDA De Novo clearance for the MyoVista. Additional funding may be required in order to achieve FDA clearance for the MyoVista and, if clearance is achieved, would then be required to support the sales launch of the MyoVista into the U.S., provide working capital and support further research and development, or R&D.

We believe that there is currently no low-cost, front-line, medical device that is effective at screening for heart disease. As a result, we believe that frontline physicians face a significant challenge in determining if a patient has heart disease. Although many think of the ECG as the frontline heart disease test, in 2012, the United States Preventive Services Task Force, or USPSTF, conducted an evaluation of conventional ECG testing and stated: “There is no good evidence that an ECG helps physicians predict heart risks in people with no symptoms any better than traditional considerations such as current or former smoking, blood pressure and cholesterol levels.”

ECG devices record the electrical signals of a patient’s heart. The ECG is a ubiquitous, relatively low-cost, simple and quick test; it is portable and can be performed in a wide range of clinical settings by a non-specialist clinician or clinical aide. There are three basic categories of heart disease: electrical (such as an arrhythmia), structural (such as valvular disease) and ischemic (such as coronary artery disease, or CAD). Conventional resting ECGs have limited sensitivity in detecting structural and ischemic disease and are typically used for diagnosing cardiac rhythm abnormalities, such as atrial fibrillation, also known as Afib, or acute coronary syndrome, such as a myocardial infarction, which is also known as a heart attack. However, traditional ECGs have a limited role in identifying cardiac dysfunction associated with structural and ischemic disease.

HeartSciences has designed the MyoVista to help address these limitations and extend the clinical capability of an ECG in detecting cardiac dysfunction. We have been applying AI-machine learning to the signal processed electrical signal of the heart to develop a proprietary algorithm designed to detect cardiac dysfunction caused by heart disease and/or age-related cardiac dysfunction. The MyoVista has not yet received FDA clearance.

The editorial comment associated with the study titled “Prediction of Abnormal Myocardial Relaxation from Signal Processed Surface ECG” presented below discusses recent applications of machine learning to data derived from surface 12-lead ECGs in relation to cardiac dysfunction:

*“These are some of the most significant advances in electrocardiography since its inception, which has historically had a limited, if any, role in the evaluation of cardiac dysfunction. In the past, our cardiovascular community was resigned to the fact that surface ECGs are poor indicators for cardiac dysfunction.”*

Khurram Nasir, MD, MPH, MSC, Department of Cardiology, Houston Methodist DeBakey Heart & Vascular Center, Houston, Texas, et. al., *Journal of American College of Cardiology Editorial Comment Volume 76 Number 8 2020.*

Almost all forms of heart disease, including CAD and structural disease, affect heart muscle, or cardiac, function prior to symptoms. Impaired cardiac function is first observed as impaired cardiac relaxation which is an early indicator of diastolic dysfunction and usually continues to increase in severity as heart disease progresses. The diastolic phase of the cardiac cycle occurs when the heart muscle relaxes (following contraction). Diastolic dysfunction may also be related to age-related cardiac dysfunction.

If we receive FDA clearance for the MyoVista, our main target markets would be frontline healthcare environments in the U.S., such as primary care, to assist physician decision making in the cardiology referral process. Currently, cardiology referral decisions are often based on a patient’s risk factors and/or a conventional ECG test. Accordingly, many patients with heart disease are left undetected while no treatment or intervention is required for most patients referred for cardiac imaging. We believe that adding the capability to detect cardiac dysfunction to a standard 12-lead resting ECG could help improve cardiac referral pathways and be valuable for patients, physicians, health systems and third-party payors.

New Class II devices, such as the MyoVista, require FDA De Novo premarket review. The MyoVista along with its proprietary software and hardware is classified as a Class II medical device by the FDA. Premarket review and clearance by the FDA for these devices is generally accomplished through the 510(k) premarket notification process or De Novo classification request, or petition process. We previously submitted an FDA De Novo classification request in December 2019 and following feedback and communications with the FDA during and since that submission, we have been making modifications to our device, including our proprietary algorithm. We are part way through a new, pivotal clinical validation study and have been undertaking device and algorithm development and testing for a revised FDA De Novo submission, which we expect to take place during 2023.

We have been using the funding from the IPO to continue our work towards FDA resubmission and clearance and for general corporate purposes. Although our current aim is to achieve FDA clearance, which would allow us to market the MyoVista in the U.S., with the remaining net proceeds of the IPO, there is no assurance that this will be the case. Additional funding would be required to support the sales launch of the MyoVista into the U.S., provide working capital and support further R&D. These events and conditions indicate that a material uncertainty exists that may cast significant doubt on our ability to continue as a going concern. If we are unable to continue as a going concern, we may have to liquidate our assets, and the values we receive for our assets in liquidation or dissolution could be significantly lower than the values reflected in our financial statements. Our independent registered public accounting firm has issued an opinion on our audited financial statements included in our 2022 Annual Report on Form 10-K that contains an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern because we have experienced recurring losses, negative cash flows from operations, limited capital resources and a net stockholders' deficit.

### Recent Developments

### Collaboration Agreement

On November 29, 2022, we entered into a multi-year Collaboration Agreement with Rutgers, The State University of New Jersey, to develop AI-based ECG algorithms for new or improved ECG indications, which is expected to accelerate our product development pipeline and further expand the clinical value of an ECG for low-cost detection of heart disease.

### Compliance with Nasdaq Listing Requirements

On December 21, 2022, we received notice from the Listing Qualifications Staff of The Nasdaq Stock Market, LLC, or Nasdaq, stating that we were not in compliance with the minimum stockholders’ equity requirement for continued listing on the Nasdaq Capital Market, under Listing Rule 5550(b)(1) (the “Minimum Stockholders’ Equity Requirement”), because our stockholders’ equity of $1,082,676 as reported in our Quarterly Report on Form 10-Q for the quarter ended October 31, 2022 was below the required minimum of $2.5 million, and because, as of October 31, 2022, we did not meet the alternative compliance standards, relating to the market value of listed securities of $35 million or net income from continuing operations of $500,000 in the most recently completed fiscal year or in two of the last three most recently completed fiscal years.

On February 3, 2023 we submitted to Nasdaq a plan to regain compliance with the Minimum Stockholders’ Equity Requirement. On February 8, 2023, Nasdaq notified us that they have granted us an extension of up to 180 calendar days from December 21, 2022, or through June 19, 2023, to regain compliance. If we fail to evidence compliance upon filing our annual report for the year ending April 30, 2023 with the SEC and Nasdaq, we may be subject to delisting. If Nasdaq determines to delist our Common Stock, we will have the right to appeal to a Nasdaq hearings panel.

### Patent Grant

In February 2023, we were granted patents from the Korean Intellectual Property Office (“KIPO”) and the Israel Patent Office for MyoVista Wavelet Technology, further extending international coverage.

### Bridge Warrant Amendment

On February 3, 2023, the Company entered into a second written amendment to the Bridge Warrants with the lead investor in the private placement of the 2021 Bridge Securities. The amendment lowered the exercise price of the Bridge Warrants from $4.25 per share to $1.00 per share for a period of ten business days beginning February 3, 2023 and ending February 16, 2023 (the “Limited Period”). The amendment also amended the Bridge Warrants to provide that, during the Limited Period, the holders of the Bridge Warrants were permitted to elect a cashless exercise of the Bridge Warrants in whole or in part, pursuant to which the holder would receive a number of shares of Common Stock equal to one-third of the total number of shares with respect to each Bridge Warrant exercised. During the Limited Period, the Company issued 1,172,304 shares of Common Stock and a pre-funded warrant to purchase 150,000 shares of Common Stock pursuant to the exercise of the Bridge Warrants and received approximately $1.3 million in proceeds from these exercises. Immediately after the end of the Limited Period, Bridge Warrants to purchase 298,667 shares of Common Stock remained outstanding, with a fixed exercise price of $4.25.

### Equity Purchase Agreement

On March 10, 2023, the Company entered into a purchase agreement and registration rights agreement with Lincoln Park Capital Fund, LLC (“Lincoln Park”) providing for the purchase, from time to time at the Company’s discretion of up to $15.0 million of the Company’s Common Stock, over the thirty-six (36) month term of the purchase agreement. The Company issued to Lincoln Park 100,000 shares of its Common Stock as initial commitment shares in consideration for entering into the purchase agreement and has agreed to issue an additional 62,500 shares of Common Stock, as additional commitment shares, upon receiving $2.0 million of proceeds. The Company does not have the right to commence any sales until all of the conditions set forth in the purchase agreement have been satisfied , including, but not limited to, a resale registration statement being declared effective by the SEC.

### Results of Operations

#### Revenues

Revenues, which have been minimal to date, consist mainly of sales of devices, electrodes and other supplies in the establishment of distributor relationships outside the U.S. during the approval, development and improvement of the MyoVista.

#### Cost of Sales

Cost of sales consists primarily of costs related to materials, components and subassemblies. Cost of sales also includes certain direct costs such as those incurred for shipping and freight.

### Operating Expenses

Our operating expenses have consisted solely of research and development expenses and selling, general and administrative expenses.

#### Research and Development Expenses

Our research and development activities primarily consist of clinical, regulatory, engineering and research and development work associated with our MyoVista device. Research and development expenses include payroll and personnel-related costs for our research and development, clinical and regulatory personnel, including expenses related to stock-based compensation for such employees, consulting services, clinical trial expenses, regulatory expenses, prototyping and testing. Research and development expenses also include costs attributable to clinical trial expenses including clinical trial design, site development and study costs, data, related travel expenses, the cost of products used for clinical activities, internal and external costs associated with regulatory compliance and patent costs. We have expensed research and development costs as they have been incurred.

#### Selling, General and Administrative Expenses

Our selling, general and administrative expenses consist of payroll and personnel-related costs for our field support, business development, and administrative and management personnel that support our general operations including executive management and financial accounting, including expenses related to stock-based compensation. Selling, general and administrative expenses also include costs attributable to our public company and related costs, professional fees including legal and audit, premises costs, IT, insurance, consulting, recruiting fees, related travel expenses and depreciation.

#### Interest Expense

Interest expense relates to our loan facilities and convertible notes.

#### Other Income (Expense), Net

Other income (expense), net primarily consists of forgiveness of loans issued under the CARES Act.

The following table summarizes our results of operations for the periods presented on our statement of operations data.

*(In thousands, except percentages, unaudited)*

|  | For the three months ended January 31, 2023 | 2022 | $ Change | % Change | For the nine months ended January 31, 2023 | 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Revenue | $2 | $3 | $(1) | (29)% | $5 | $10 | $(5) | (50)% |
| Cost of sales | 1 | 1 | —% | —% | 3 | 7 | (4) | (58)% |
| Gross margin | 1 | 2 | (1) | (37)% | 2 | 4 | (1) | (35)% |
| Operating expenses: |  |  |  |  |  |  |  |  |
| Research and development | 643 | 699 | (56) | (8)% | 1,926 | 1,646 | 281 | 17% |
| Selling, general and administrative | 667 | 403 | 264 | 66% | 2,590 | 1,089 | 1,501 | 138% |
| Total operating expenses | 1,310 | 1,102 | 208 | 19% | 4,517 | 2,735 | 1,781 | 65% |
| Loss from operations | (1,309) | (1,100) | (209) | 19% | (4,514) | (2,732) | (1,783) | 65% |
| Other income (expense) |  |  |  |  |  |  |  |  |
| Interest expense | (33) | (139) | 106 | (76)% | (209) | (295) | 85 | (29)% |
| Gain on extinguishment of debt | — | — | — | —% | — | 250 | (250) | (100)% |
| Other income | — | 1 | (1) | (100)% | 2 | 1 | 1 | 87% |
| Other income (expense), net | (33) | (138) | 105 | (76)% | (208) | (44) | (164) | 377% |
| Net loss | $(1,342) | $(1,239) | $(104) | 8% | $(4,722) | $(2,775) | $(1,947) | 70% |

*Summary of Statements of Operations for the three and nine months ended January 31, 2023 compared with the three and nine months ended January 31, 2022:*

Revenues were $2,000 and costs of sales were $1,000 for the three months ended January 31, 2023, representing a decline of $1,000 in revenue, or 29%, and no change in cost of sales. Revenues were $5,000 and cost of sales were $3,000 for the nine months ended January 31, 2023, representing a decline of $5,000 in revenue, or 50%, and $4,000 in cost of sales, or 58%, when compared to the same period ended January 31, 2022. Our revenues to date have been mainly generated in the establishment of distributor relationships outside the United States as part of obtaining feedback during product development and improvement. The decrease in revenue, and related decrease in cost of sales, is due to our proactive reduction in new international distributor engagement in the run up to FDA submission and until we update our certificate of conformity, called a CE Mark, under the new European Union Medical Device Regulation regime to reflect hardware and software improvements being incorporated into the device for FDA submission.

Research and development expenses were $643,000 and $1.9 million for the three and nine months ended January 31, 2023, respectively, representing a decrease of $56,000, or 8%, and an increase of $281,000, or 17%, respectively, as compared to the same periods in 2022. For the three months ended January 31, 2023, the decrease is primarily due to reductions in clinical trial and hardware development expenditure for a period in the quarter ended January 31, 2023. For the nine months ended January 31, 2023, the increase is primarily due to an increase in software consulting and hardware development of approximately $233,000 and an increase in clinical trial studies of approximately $195,000, when compared to the same periods ended January 31, 2022, which is consistent with work being performed for device development and ongoing clinical validation studies in preparation for a new De Novo submission, offset by approximately $160,000 consisting of approximately $81,000 in supplier credits and approximately $70,000 in prior year inventory adjustments.

Selling, general, and administrative expenses were $667,000 and $2.6 million for the three and nine months ended January 31, 2023, respectively, representing an increase of $264,000, or 66%, and $1.5 million, or 138%, respectively as compared to the same periods in 2022. This is primarily due to an increase of approximately $369,000 and $1.3 million for the three and nine months ended January 31, 2023, respectively, for preparatory expenses, or on-going expenses associated with, being a public company including investor and public relations, SEC reporting, accounting and legal, insurance, and stock registrar expenses, and an approximately $16,000 and $381,000 increase in payroll related expenses and stock compensation for the three and nine months ended January 31, 2023, respectively, due to the vesting of options when compared to the same periods ended January 31, 2022.

Interest expense during the three and nine months ended January 31, 2023, of $33,000 and $209,000, respectively, is related to interest on the $1M Loan and Security Agreement and interest and debt service amortization related to the Bridge Notes for approximately half of the quarter ended July 31, 2022. All of the Bridge Notes and accrued interest were converted to equity upon consummation of the IPO in June 2022.

### Liquidity and Capital Resources

As of January 31, 2023, we had approximately $1.9 million of cash, an increase of $1.0 million from $918,000 as of April 30, 2022. We incurred a net loss of $4.7 million and $2.8 million for the nine months ended January 31, 2023, and 2022, respectively. As of January 31, 2023, we had an accumulated deficit of $59.1 million and working capital of $0.9 million.

On June 17, 2022, we completed our IPO, which consisted of the sale of 1,500,000 Units, with each Unit consisting of one share of Common Stock and one IPO Warrant to purchase one share of Common Stock at a combined public offering price of $4.25 per Unit. We received approximately $5.2 million in net proceeds from the IPO after deducting the underwriting discount and commission and other IPO expenses payable by the Company of approximately $1.2 million.

In February 2023, we raised approximately $1.3 million from the exercise of Bridge Warrants.

On March 10, 2023, we entered into a purchase agreement and registration rights agreement with Lincoln Park Capital Fund, LLC (“Lincoln Park”) providing for the purchase, from time to time at the Company’s discretion, of up to $15.0 million of the Company’s Common Stock, over the thirty-six (36) month term of the purchase agreement. Actual sales of shares of Common Stock to Lincoln Park will depend on a variety of factors to be determined by us from time to time. The net proceeds received from these purchases will depend on the frequency and prices at which we sell shares of our Common Stock to Lincoln Park. We expect that any proceeds received from such sales to Lincoln Park will be used for working capital and general corporate purposes.

Our cash requirements are, and will continue to be, dependent upon a variety of factors. We expect to continue devoting significant capital resources to R&D, clinical studies and go-to-market strategies. Our principal sources of capital are cash on hand and the proceeds of future offerings of equity and debt securities. We cannot assure you that we will be able to consummate the sale of any such securities on terms acceptable to us, if at all.

The table below presents our cash flows for the periods indicated:

*U.S. dollars, in thousands*

*(Unaudited)*

|  | For the nine months ended January 31, 2023 | 2022 |
| --- | ---: | ---: |
| Net cash used in operating activities | $(3,912) | $(2,452) |
| Net cash (used in) provided by investing activities | $(11) | $(2) |
| Net cash provided by financing activities | $4,935 | $3,058 |
| Net change in cash and cash equivalents during the period | $1,013 | $605 |

#### Operating Activities

Net cash used by our operating activities of $3.9 million during the nine months ended January 31, 2023 is primarily due to our net loss of $4.7 million plus $149,000 in non-cash expenses plus $661,000 of net changes in operating assets and liabilities. Net cash used by our operating activities of $2.5 million during the nine months ended January 31, 2022 is primarily due to our net loss of $2.8 million less $78,000 in non-cash expenses plus $401,000 of net changes in operating assets and liabilities.

#### Financing Activities

Net cash provided by financing activities of $4.9 million during the nine months ended January 31, 2023 is primarily from the issuance of Common Stock in the IPO. Net cash provided by financing activities of $3.1 million during the nine months ended January 31, 2022 is primarily from the issuance of Bridge notes.

### Critical Accounting Policies and Estimates

There have been no material changes to our critical accounting policies and estimates from the information provided in Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations,” included in our 2022 Annual Report on Form 10-K.

## Controls and procedures

As filed, 2,556 characters.

#### Disclosure Controls and Procedures

The Company has adopted and maintains disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in the reports filed under the Exchange Act, such as this Quarterly Report on Form 10-Q, is collected, recorded, processed, summarized and reported within the time periods specified in the rules of the SEC. The Company's disclosure controls and procedures are also designed to ensure that such information is accumulated and communicated to management to allow timely decisions regarding required disclosure. Based upon the most recent evaluation of internal controls over financial reporting, our Chief Executive Officer (our principal executive officer) and our Chief Financial Officer (our principal financial officer) determined that our disclosure controls and procedures were not effective as of January 31, 2023 as a result of identified material weaknesses in our internal control over financial reporting. The identified material weaknesses were as follows: (i) we did not maintain sufficient U.S. GAAP and SEC accounting resources commensurate with those required of a public company; (ii) we had an insufficient number of staff to maintain optimal segregation of duties and levels of oversight; and (iii) we did not have strong accounting consideration and analysis over equity accounts and inventory valuation. We have taken and continue to take remedial steps to improve our internal controls over financial reporting, which includes hiring additional accounting and financial reporting personnel and implementing additional policies, procedures, and controls. Our management is monitoring the effectiveness of these and other processes, procedures and controls and will make any further changes deemed appropriate. Our management believes the foregoing actions will effectively remediate the material weaknesses. However, our material weaknesses will not be considered remediated until the above controls are in place for a period of time, the controls are tested, and management concludes that these controls are properly designed and operating effectively.

#### Changes in Internal Control Over Financial Reporting

Except as described above with respect to the remediation steps we are taking, there have been no changes in our internal control over financial reporting during the quarter ended January 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 416 characters.

For a discussion of risk factors, please refer to Item 1A of our 2022 Annual Report on Form 10-K. There have been no material changes to the risk factors contained in Item 1A of our 2022 Annual Report on Form 10-K. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, and/or operating results.

Filed Mar 16, 2023.
Source: SEC EDGAR, the filing index for accession 0000950170-23-008432. Last ingested by Listed: Nov 2, 2026, 08:01 ET. No prices; not investment advice.