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

- Company: [HeartSciences Inc.](/companies/hscs.md) (CIK 1468492)
- Form: 10-Q
- Filed: 2023-12-14
- Accepted by EDGAR: Dec 14, 2023, 16:04 ET
- Period: 2023-10-31
- Accession: 0000950170-23-070381
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1468492/000095017023070381/hscs-20231031.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1468492/000095017023070381/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-10-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-08-01 to 2023-10-31 | $3.9k | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 6 months, 2023-05-01 to 2023-10-31 | $3.9k | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-08-01 to 2023-10-31 | $1.5k | us-gaap:CostOfRevenue |
| Cost of revenue | 6 months, 2023-05-01 to 2023-10-31 | $1.5k | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2023-08-01 to 2023-10-31 | $2.4k | us-gaap:GrossProfit |
| Gross profit | 6 months, 2023-05-01 to 2023-10-31 | $2.4k | us-gaap:GrossProfit |
| Research and development | 3 months, 2023-08-01 to 2023-10-31 | $757.3k | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 6 months, 2023-05-01 to 2023-10-31 | $1.3m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2023-08-01 to 2023-10-31 | $815.0k | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 6 months, 2023-05-01 to 2023-10-31 | $1.6m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-08-01 to 2023-10-31 | −$1.6m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2023-05-01 to 2023-10-31 | −$2.9m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-08-01 to 2023-10-31 | $178.4k | us-gaap:InterestExpense |
| Interest expense | 6 months, 2023-05-01 to 2023-10-31 | $214.7k | us-gaap:InterestExpense |
| Net income | 3 months, 2023-08-01 to 2023-10-31 | −$1.7m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2023-05-01 to 2023-10-31 | −$3.1m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-08-01 to 2023-10-31 | −$0.16 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2023-05-01 to 2023-10-31 | −$0.29 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-08-01 to 2023-10-31 | −$0.16 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2023-05-01 to 2023-10-31 | −$0.29 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-08-01 to 2023-10-31 | 10,938,932 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2023-05-01 to 2023-10-31 | 10,658,151 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2023-05-01 to 2023-10-31 | −$2.4m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2023-05-01 to 2023-10-31 | $6.9k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2023-10-31 | $100.1k | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-10-31 | $1.8m | us-gaap:AssetsCurrent |
| Total assets | at 2023-10-31 | $2.4m | us-gaap:Assets |
| Current liabilities | at 2023-10-31 | $3.5m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-10-31 | $4.0m | us-gaap:Liabilities |
| Shareholders' equity | at 2023-10-31 | −$1.6m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 33,375 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 2023 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 2023 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. HeartSciences’ first product candidate for FDA clearance, the MyoVista, is a resting 12-lead ECG that will incorporate HeartSciences’ first AI-based algorithm designed to provide diagnostic information related to cardiac dysfunction as well as conventional ECG information in the same test. In the future, we intend to incorporate additional AI-based algorithms in the MyoVista and develop a cloud-based platform to provide access to a range of AI-based ECG cardiovascular algorithms on an ECG hardware agnostic basis. The AI-based ECG algorithms provide diagnostic information related to structural heart disease which traditionally has only been available through the use of cardiac imaging. We believe, the MyoVista is particularly well suited for a frontline or point of care clinical setting and the initial revenue model, which involves the use of the MyoVista hardware, associated software and consumables for each test, is expected to be “razor-razorblade” as the cable connection to the electrodes used with the MyoVista are proprietary to HeartSciences, and new electrodes are used for every test performed. As further algorithms are made commercially available via the MyoVista or cloud-based platform we would expect to adopt revenue models based on algorithm usage and/or recurring subscriptions.

On September 20, 2023, we entered into multiple definitive license agreements (each a “License Agreement” and collectively, the “License Agreements”) with Icahn School of Medicine at Mount Sinai (“Mount Sinai”) to commercialize a range of AI-based cardiovascular algorithms developed by Mount Sinai as well as a memorandum of understanding for ongoing cooperation encompassing de-identified data access, on-going research, and the evaluation of the MyoVista. The License Agreements, of which there are eleven in total, cover rights to thirteen AI-based cardiovascular algorithms, two data science methods for use with ECG waveforms and three filed patents. These License Agreements closed on December 1, 2023.

Neither the MyoVista hardware, nor any of the AI-based ECG algorithms, are cleared for marketing by the FDA and our future success is dependent upon receiving FDA clearances. Additional funding may be required as part of achieving FDA clearance and thereafter would be required to support the sales launch of the MyoVista into the U.S., provide working capital and support further research and development (“R&D”).

We believe that there is currently no low-cost, front-line, medical device that is effective at screening broadly for many types of 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 test for heart disease, in 2012, the United States Preventive Services Task Force conducted an evaluation of conventional ECG testing and stated: “There is no good evidence the test, called an ECG, helps doctors predict heart risks any better than traditional considerations such as smoking, blood pressure and cholesterol levels in people with no symptoms.”

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, 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 or licensed algorithms to help address these limitations and extend the clinical capability of an ECG to detect cardiac dysfunction or specific cardiovascular disease types. The first AI algorithm to be incorporated into the MyoVista has been designed by the Company and applies AI learning to the signal processed ECG signal to develop a proprietary algorithm designed to detect cardiac dysfunction caused by heart disease and/or age cardiac dysfunction. We recently proposed adjustment of the echocardiographic measurement thresholds to the FDA to reflect recent clinical findings in respect of ≥ 60 year old patients which we believe will further increase the clinical value of the algorithm. The FDA has now confirmed this approach and we are in the process of updating our algorithm to reflect these updated echo measurement thresholds. 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 represent 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 our first product candidates, the MyoVista hardware and its associated cardiac dysfunction algorithm, 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 current 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 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 testing for a revised FDA submission. In August 2023, the FDA granted an industry first De Novo clearance and created a new Class II product code for cardiovascular machine learning-based notification software in respect of a hypertrophic cardiomyopathy algorithm and in December 2023 we received confirmation from the FDA that a change to submit the MyoVista, including it’s AI algorithm, under the 510(k) pathway would be acceptable. The 510(k) pathway is more common than De Novo and, on average, has a faster decision process than De Novo by the FDA. As a result, we now expect a revised submission to be filed during the first half of calendar year 2024. Assuming a submission under 510(k) in the first half of calendar year 2024, we would anticipate a determination by the FDA in 2024 which, if successful, would provide the ability to market and sell the MyoVista in the U.S. If successful, additional funding would be required to support the sales launch of the MyoVista in the U.S., provide working capital and support further R&D.

### Recent Developments

### 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 granted us an extension of up to 180 calendar days from December 21, 2022, or through June 19, 2023, to regain compliance. On June 20, 2023, we received a delist determination letter from Nasdaq advising us that Nasdaq determined that we did not meet the terms of the extension by the June 19, 2023 deadline.

On June 27, 2023, we submitted a hearing request to the Nasdaq Hearing Panel (the “Panel”) to appeal the delisting determination. In response to our request for a hearing, on June 27, 2023, we received a letter from Nasdaq stating that its delisting action has been stayed, pending a final decision by the Panel and a hearing will be held on August 17, 2023.

On August 2, 2023, we received a letter from the Listing Qualifications staff of Nasdaq indicating that, based upon the closing bid price of the Company’s Common Stock for the last 30 consecutive business days, the Company no longer met the requirement to maintain a minimum bid price of $1 per share (the “Minimum Bid Price Requirement”). In accordance with Nasdaq listing rules, we have until January 29, 2024 to regain compliance with the Minimum Bid Price Requirement. In the event we do not regain compliance during this period, we may be eligible to seek an additional 180 calendar day compliance period if we meet the Nasdaq continued listing requirement for market value of publicly held shares and all other initial listing standards, with the exception of the Minimum Bid Price Requirement, and provide written notice to Nasdaq of our intent to cure the deficiency during this second compliance period.

The Company attended an August 17, 2023 hearing before the Panel, and requested the continued listing of its securities on the Nasdaq Capital Market pending its return to compliance with the Minimum Stockholder's Equity Requirement and Minimum Bid Price Requirement.

On August 28, 2023, the Company received a decision from the Panel granting the Company's request for continued listing on the Nasdaq Capital Market, subject to the Company demonstrating compliance with the Minimum Stockholders’ Equity Requirement on or before November 21, 2023, and certain other conditions. In addition, the Company has until January 29, 2024, to demonstrate compliance with the Minimum Bid Price Requirement.

On November 22, 2023, the Company was formally notified by the Panel that the Company has demonstrated compliance with the Minimum Stockholders’ Equity Requirement. The Company will be subject to a Mandatory Panel Monitor through November 22, 2024.

### Patents

In August 2023, we were issued a notice of patent allowance from the European Patent Office covering quantification by an ECG of key echocardiographic measures of heart function using AI methods.

In September 2023, we were issued a notice of patent allowance from the Brazilian Patent and Trademark Office and the United Arab Emirates Ministry of Economy covering MyoVista wavelet technology utilizing AI for early detection of heart disease.

### MSW Note

On September 7, 2023, we entered into the MSW Note with Matthews Southwest Holdings, Inc., for an unsecured drawdown loan of up to $1,000,000, drawn in installments consisting of (i) $250,000 on or prior to September 8, 2023, (ii) $250,000 on or prior to September 20, 2023, and (iii) further drawdowns of up to $500,000 in such amounts and such times to be mutually agreed upon between the Company and Matthews Southwest Holdings, Inc. In September 2023, we drew down $0.5 million pursuant to the terms of the note and issued 1,000,000 warrants to purchase shares of Common Stock in lieu of a facility fee.

On November 16, 2023, we entered into the MSW Note Conversion Letter Agreement with the Lender. Pursuant to the MSW Note Conversion Letter Agreement, in consideration for the conversion of the aggregate principal and interest amount due under the MSW Note, on November 16, 2023, we (i) issued to the Lender 3,125,000 shares of common stock at a conversion price of $0.16 per share; and (ii) entered into the MSW Warrant Amendment Agreement with the Lender, amending the Existing MSW Warrants to reduce the exercise price of an aggregate of 1,000,000 Existing MSW Warrants to $0.16 per share.

### Equity Distribution Agreement

On September 18, 2023, we entered into an EDA with Maxim Group LLC as sales agent pursuant to which we may offer and sell up to $3.25 million of our shares of Common Stock in an at-the-market offering. The shares may be issued and sold from time to time through or to the placement agent acting as sales agent or principal pursuant to our shelf registration statement on Form S-3 (the “Shelf S”), as filed with the SEC on September 18, 2023. Pursuant to General Instruction I.B.6 of Form S, we may not sell the shelf securities in a public primary offering with a value exceeding more than one of the aggregate market value of its voting and non-voting ordinary shares held by non-affiliates in any 12 month period as long as the aggregate market value of our outstanding ordinary shares held by non-affiliates is less than $75 million. The $3.25 million shares comprised of Common Stock that may be offered, issued and sold under the at-the-market offering prospectus is included in the $50.0 million of securities that may be offered, issued, and sold by us under the base prospectus of the Shelf S-3. The Shelf S-3 was declared effective by the SEC on September 28, 2023. On November 9, 2023, we entered into Amendment No.1 of the EDA with Maxim pursuant to which, we may issue and sell up to

$10.0 million worth of shares of Common Stock from time to time through the sales agent. On November 11, 2023, we entered into Amendment No. 2 of the EDA with Maxim pursuant to which, we may issue and sell up to $15.0 million shares of Common Stock through the sales agent. During November and December 2023, we sold 40,175,218 shares of Common Stock under the ATM Facility, receiving gross proceeds of $9.7 million and net proceeds of approximately $9.2 million after Maxim fees, legal fees and other costs.

### Debt conversion

As previously disclosed in our Current Report on Form 8-K filed with the SEC on January 24, 2023, we entered into Amendment No. 4 to the $1M Loan and Security Agreement with FRV and John Q. Adams. Pursuant to the $1M Loan and Security Agreement, a secured promissory note in the original principal amount of $500,000 was issued to FRV and a secured promissory note in the original principal amount of $500,000 was issued to John Q. Adams. The Loan and Security Agreement was further amended on September 29, 2023 to amend the dates on which principal and accrued interest is due under the JQA Note. As consideration for such extension, we issued FRV and Mr. Adams $1M Lender Warrants to purchase an aggregate of 200,000 shares of Common Stock at an exercise price of $0.44 per share.

On November 16, 2023, we entered into the Adams Note Conversion Letter Agreements with Mr. Adams. Pursuant to the Adams Note Conversion Letter Agreement, in consideration for the conversion of the principal and interest amounts due under the JQA Note, on November 16, 2023, we: (1) issued 3,656,288 shares of Common Stock to Mr. Adams; and (2) entered into the Adams Warrant Amendment, amending the $1M Lender Warrants owned by Adams to reduce the exercise price of an aggregate of 107,575 $1M Lender Warrants to $0.16 per share.

### Mount Sinai Agreement

On September 20, 2023, we entered into the License Agreements with Mount Sinai to commercialize a range of AI cardiovascular algorithms developed by Mount Sinai as well as a memorandum of understanding for ongoing cooperation encompassing de data access, on research, and the evaluation of the MyoVista. The License Agreements, of which there are eleven in total, cover rights to thirteen AI cardiovascular algorithms, two data science methods for use with ECG waveforms and three filed patents.

The closing of the MTS Transaction, dated as of September 20, 2023, by and between us and Mount Sinai, and the effectiveness of the licenses under the License Agreements, are subject to the satisfaction or waiver of certain conditions, including a condition that we must complete the Financing Requirement prior to December 31, 2023. On November 15, 2023, we satisfied the Financing Requirement and, accordingly, the licenses under the License Agreements were deemed effective.

On November 16, 2023, and pursuant to the Securities Purchase agreement, the Company issued to Mount Sinai the following:

- 4,854,853 shares of Common Stock;
- pre-funded warrants to purchase up to 710,605 shares of Common Stock, with an exercise price per share of $0.00001, which warrants were issued in lieu of shares of Common Stock issuable to Mount Sinai to ensure that the number of shares of Common Stock held by Mount Sinai does not exceed the Beneficial Ownership Limitation (the “MTS Pre-Funded Warrants”); and
- Common stock warrants to purchase up to 914,148 shares of Common Stock, having an exercise price per share equal to $0.5060, which warrants shall be exercisable immediately upon (x) completion of the Additional Financing from the period commencing August 1, 2023 and ending on or prior to June 30, 2024 or (y) waiver by Mount Sinai of the Company’s Additional Financing Requirement.

The License Agreements may be terminated by Mount Sinai if the Company does not meet the Additional Financing Requirement by June 30, 2024. Registration rights related to the MTS Securities provide that on or prior to the date of one hundred and fifty days (150) days after the closing date, the Company shall prepare and file with the SEC a Registration Statement on Form S-1 (or such other form as applicable) covering the resale under the Securities Act of the MTS Securities issued to Mount Sinai, subject to any limitations imposed by the Nasdaq Rules. On December 1, 2023, the Company satisfied the Additional Financing Requirement.

### 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 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 field support personnel, business development, consulting, stock-based compensation, and for administrative personnel that support our general operations such as executive management and financial accounting. Selling, general and administrative expenses also include costs attributable to professional fees for legal and accounting services, premises costs, IT, insurance, consulting, recruiting fees, travel expenses and depreciation.

#### Interest Expense

Interest expense relates to our loan facilities and convertible notes.

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

*(In thousands, except percentages, unaudited)*

*(In thousands, except percentages, unaudited)*

|  | Three months ended October 31, 2023 | 2022 | $ Change | % Change | Six months ended October 31, 2023 | 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Revenue | $4 | $— | $4 | —% | $4 | $3 | $1 | 22% |
| Cost of sales | 2 | — | 2 | —% | 2 | 2 | (1) | (25)% |
| Gross margin | 2 | — | 2 | —% | 2 | 1 | 1 | 104% |
| Operating expenses: |  |  |  |  |  |  |  |  |
| Research and development | 757 | 849 | (92) | (11)% | 1,323 | 1,283 | 40 | 3% |
| Selling, general and administrative | 815 | 925 | (110) | (12)% | 1,580 | 1,922 | (342) | (18)% |
| Total operating expenses | 1,572 | 1,774 | (202) |  | 2,903 | 3,205 | (302) | (9)% |
| Loss from operations | (1,570) | (1,774) | 204 |  | (2,901) | (3,204) | 303 | (9)% |
| Interest expense | (178) | (33) | (146) | 444% | (215) | (176) | (38) | 22% |
| Other income | - | 1 | (1) | (100)% | — | 2 | (2) | (100)% |
| Other income (expense), net | (178) | (33) | (146) | 444% | (215) | (176) | (38) | 22% |
| Net loss | $(1,748) | $(1,807) | $58 |  | $(3,115) | $(3,380) | $265 | (8)% |

#### Summary of Statements of Operations for the three and six months ended October 31, 2023 compared with the three and six months ended October 31, 2022:

Revenues were $4,000 and costs of sales were $2,000 for the three months ended October 31, 2023. Revenues were $4,000 and costs of sales were $2,000 for the six months ended October 31, 2023 compared to revenues of $3,000 and costs of sales of $2,000 for the six months ended October 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 $757,000 and $1.3 million for the three and six months ended October 31, 2023, representing a decrease of $92,000, or 11%, and an increase of $40,000, or 3%, when compared to the same periods in 2022. For the three months ended October 31, 2023, decrease is primarily due to reductions in clinical trial related expenditures resulting from the completion of patient enrollment in our clinical study for FDA submission. For the six months ended October 31, 2023, the increase is primarily due to personnel expenses.

Selling, general, and administrative expenses were $815,000 and $1.6 million for the three and six months ended October 31, 2023, representing a decrease of $110,000, or 12%, and a decrease of $342,000, or 18%, when compared to the same periods in 2022. For the three and six months ended October 31, 2023, the decrease is primarily due to reduction in legal expenses, reduced D&O insurance premiums, and related supplier credits.

Interest expense during the three and six months ended October 31, 2023, of $178,000 and 215,000, respectively, is related to interest on the $1M Loan and Security Agreement, warrants issued as consideration for extension of the JQA interest maturity date in October 2023, and interest and debt service amortization related to MSW Note. Interest expense during the three and six months ended October 31, 2022 of $33,000 and $176,000, respectively, is related to interest on the $1M Loan and Security Agreement 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

### Going Concern Considerations

We have incurred significant losses and have experienced negative cash flows from operations since inception. At October 31, 2023, we had an accumulated deficit of $63.9 million and stockholder's deficit of $1.6 million compared to an accumulated deficit of $60.8 million and stockholder's equity of $0.2 million as of April 30, 2023. At October 31, 2023, we incurred a net loss of $3.1 million for the six month period then ended and a net loss of $3.4 million for the six month period ended October 31, 2022.

During the year ended April 30, 2023, we raised approximately $5.2 million in net proceeds from the sale of Common Stock and Warrants in our IPO and raised approximately $1.3 million from warrant exercises.

On March 10, 2023, we entered into the Lincoln Park Purchase Agreement providing for the purchase, from time to time at our discretion, of up to $15.0 million of our Common Stock, over the 36-month term of the agreement. Actual sales of shares of Common Stock 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. As of the date of this Quarterly Report, we have received approximately $1.1 million from the sale of Common Stock pursuant to the Lincoln Park Purchase Agreement. We expect that any proceeds received from such sales to Lincoln Park will be used for working capital and general corporate purposes.

On September 18, 2023, we entered into an EDA with Maxim Group LLC as sales agent pursuant to which we may offer and sell up to $3.25 million of our shares of Common Stock in at-the-market offerings. The EDA was further amended on November 9, 2023 and again on November 17, 2023, to increase the amount of shares of Common Stock we may sell to up to $15.0 million. The shares may be issued and sold from time to time through or to the placement agent acting as sales agent or principal pursuant to our shelf registration statement on the Shelf S-3, as filed with the SEC on September 18, 2023. As of the date of this Quarterly Report, we have received approximately $9.2 million in net proceeds, after Maxim fees, legal fees and other costs, from the sale of Common Stock pursuant to the amended EDA. We expect that any proceeds received from such sales under the ATM Facility will be used for working capital and general corporate purposes

In September 2023, the Company entered into the MSW Note for up to $1.0 million, drawn in installments consisting of (i) $0.25 million on or prior to September 8, 2023, (ii) ) $0.25 million on or prior to September 20, 2023, and (iii) further drawdowns of up to $0.5 million in such amounts and such times to be mutually agreed upon between the Company and lender. As of October 31, 2023, the Company has drawn $0.5 million pursuant to the terms of the note. In November 2023, the MSW Note was converted into shares of Common Stock.

As of the date of this Annual Report, we have begun the process of an offering with Maxim Group, for the sale of up to $8.0 million worth of shares of our Common Stock, on a best-efforts basis. This offering has not yet been declared effective by the SEC.

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. We will need to continue to raise capital through the sale of additional equity securities, debt, or capital inflows from strategic partnerships, however we can provide no assurance that that we will be able to consummate the sale of any such securities or strategic relationships will be available on terms acceptable to us, if at all.

### Liquidity

Since our inception, we have raised capital through the public and private sale of debt and equity. As of October 31, 2023, we had cash of approximately $0.1 million and negative working capital of approximately $1.7 million.

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

*U.S. dollars, in thousands*

*(Unaudited)*

|  | Six months ended October 31, 2023 | 2022 |
| --- | ---: | ---: |
| Net cash used in operating activities | $(2,392) | $(2,892) |
| Net cash (used in) provided by investing activities | $(7) | $(7) |
| Net cash provided by financing activities | $839 | $5,057 |
| Net change in cash and cash equivalents during the period | $(1,560) | $2,158 |

#### Operating Activities

Net cash used by our operating activities of $2.4 million during the six months ended October 31, 2023 is primarily due to our net loss of $3.1 million plus $561,000 in non-cash expenses plus $162,000 of net changes in operating assets and liabilities.

Net cash used by our operating activities of $2.9 million during the six months ended October 31, 2022 is primarily due to our net loss of $3.4 million plus $141,000 in non-cash expenses plus $347,000 of net changes in operating assets and liabilities.

#### Financing Activities

Net cash provided by financing activities of $0.8 million during the six months ended October 31, 2023 is primarily from the issuance of Common Stock under the Equity Line, ATM Facility, and net proceeds from the MSW Note.

Net cash provided by financing activities of $5.1 million during the six months ended October 31, 2022 is primarily from the issuance of Common Stock in our IPO.

From November 1, 2023, through the date of filing, the Company has raised additional capital of approximately $9.3 million, net of fees, from the Equity Line and ATM Facility.

### 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 2023 Annual Report on Form 10-K.

## Controls and procedures

As filed, 3,274 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 October 31, 2023 as a result of identified material weaknesses in our internal control over financial reporting. The identified material weaknesses were as follows: (i) lack of proper approval processes and review processes and documentation for such reviews; (ii) we did not maintain sufficient U.S. GAAP and SEC accounting resources commensurate with those required of a public company; and (iii) insufficient number of staff to maintain optimal segregation of duties and levels of oversight. 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. We cannot assure you that these measures will significantly improve or remediate the material weaknesses described above. Management is monitoring the effectiveness of these and other processes, procedures and controls and will make any further changes deemed appropriate. 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 October 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

#### CEO and CFO Certifications

Exhibits 31.1 and 31.2 to this Quarterly Report are the Certifications of our Chief Executive Officer and Interim Chief Financial Officer, respectively. These Certifications are required in accordance with Section 302 of the Sarbanes-Oxley Act (the “Section 302 Certifications”). This Item 4 of this Quarterly Report, which you are currently reading, is the information concerning the evaluation referred to above and in the Section 302 Certifications and this information should be read in conjunction with the Section 302 Certifications for a more complete understanding of the topics presented.

## Risk factors

As filed, 416 characters.

For a discussion of risk factors, please refer to Item 1A of our 2023 Annual Report on Form 10-K. There have been no material changes to the risk factors contained in Item 1A of our 2023 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 Dec 14, 2023.
Source: SEC EDGAR, the filing index for accession 0000950170-23-070381. Last ingested by Listed: Nov 2, 2026, 08:01 ET. No prices; not investment advice.