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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes included elsewhere in this 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” elsewhere in this 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 wavECG, or the MyoVista, is a resting 12-lead ECG that is also designed to provide diagnostic information related to cardiac dysfunction which has traditionally only been available through the use of cardiac imaging. The MyoVista also provides conventional ECG information in the same test. 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 July 28, 2022, we had 12 full-time employees.

Our device is not 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 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 apply AI-machine learning to the signal processed electrical signal of the heart. Our first algorithm, which is not yet FDA cleared, is designed to detect cardiac dysfunction caused by heart disease and/or age-related cardiac dysfunction.

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.”

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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.

For additional information regarding the FDA regulatory process, see “Business—FDA and Other Government Regulation.”

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. Based on feedback and communications with the FDA during 2020, we have been making modifications to our device and are partially through a new, pivotal clinical validation study and the device testing and development necessary for a revised FDA De Novo submission, which we expect to take place later in the fiscal year ending April 30, 2023.

We are using the funding from the IPO to continue our work towards FDA resubmission and clearance. Although our current aim is to achieve FDA clearance, which would allow us to market the MyoVista in the U.S., with the net proceeds of the IPO, there is no assurance that this will be the case. Additional funding will be required to support the sales launch of the MyoVista into the U.S., provide working capital and support further R&D. Our independent registered public accounting firm has issued an opinion on our audited financial statements included in this 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, and have a working capital deficiency. 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.

Recent Developments

Initial Public Offering

On June 17, 2022, we completed the IPO. The IPO 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. The Common Stock and the IPO Warrants were immediately separable following the IPO. The IPO Warrants are exercisable at any time up to expiration, which is five years from the date of issuance. We received approximately $5.2 million in net proceeds from the IPO after deducting the underwriting discount and commission and other estimated offering expenses payable by the Company of approximately $1.2 million.

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. As of

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July 27, 2022, we have used approximately $800,000 of the net proceeds from the IPO for costs directly related to achieving FDA clearance for the MyoVista device, to pay accrued and unpaid interest under the $1M Loan and Security Agreement, and for working capital and general corporate purposes including personnel costs, capital expenditures and the costs of operating as a public company. We intend to use the remaining $4.4 million of the net proceeds from the IPO for costs directly related to achieving FDA clearance and for working capital and general corporate purposes.

Changing circumstances may cause us to consume capital significantly faster than we currently anticipate. The amounts and timing of our actual expenditures will depend upon numerous factors, including the progress of our global marketing and sales efforts, our development efforts and the overall economic environment. Therefore, our management will retain broad discretion over the use of the remaining proceeds from the IPO. We ultimately may use the remaining proceeds for different purposes than what we currently intend. Pending any ultimate use of any portion of the proceeds from the IPO, if the anticipated proceeds will not be sufficient to fund all the proposed purposes, our management will determine the order of priority for using the remaining proceeds, as well as the amount and sources of other funds needed.

Pending our use of the net proceeds from the IPO, we may invest the net proceeds in a variety of capital preservation investments, including short-term, investment grade, interest bearing instruments and U.S. government securities.

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.

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Interest Expense

Interest expense relates to our loan facilities and convertible notes. For more information, see “—Description of Indebtedness.”

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 and as a percentage of our total revenue for those periods based on our statement of operations data. The year over year comparison of results of operations is not necessarily indicative of results of operations for future periods.

Summary of Statements of Operations for Fiscal 2022 and Fiscal 2021:

For the year ended April 30,

(In thousands, except percentages)

Operating expenses:

(Gain) loss on disposal of property and equipment — (2 ) 2 (100 )%

Gain on extinguishment of debt 250 250 — —

Other income 3 — 3 NM

Other expense — (4 ) 4 (100 )%

*NM - Not meaningful

Revenues declined from $26,000 to $14,000 in Fiscal 2022 when compared to Fiscal 2021, a decrease of approximately 46%. Our revenues to date have been in relation to establishing distributor relationships outside the United States and obtaining feedback during product development and improvement. The decrease in revenue is due to the timing of engaging new distributors and fact that our CE Mark under the MDD lapsed in Fiscal 2022 as well as the continuing effects of the COVID-19 pandemic which impacted engagement with medical institutions and distributors.

The cost of sales decreased $3,000, or 27%, to $8,000 during Fiscal 2022 compared to $11,000 for Fiscal 2021 and the decline is consistent with the decrease noted in revenue.

During Fiscal 2022, research and development expenses increased $1.3 million when compared to Fiscal 2021, an increase of 76%, primarily resulting from increase of $783,000 related to clinical trial studies, $328,000 in software consulting and hardware development, and $120,000 in payroll expenditures which is consistent with work being performed for device development and ongoing clinical validation studies in preparation for a new De Novo submission.

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During Fiscal 2022, selling, general, and administrative expenses increased $839,000, or 96%, when compared to Fiscal 2021. The increase is primarily due to additional accounting, audit, and professional and recruiting fees incurred as part of preparation for the IPO.

Interest expense increased $240,000 during Fiscal 2022 when compared to Fiscal 2021, an increase of 182%, primarily due to interest and debt service amortization related to the Bridge Notes. For more information, see “—Description of Indebtedness.”

Liquidity and Capital Resources

We had an accumulated deficit as of April 30, 2022, of approximately $54.4 million as well as incurring a net loss of approximately $4.8 million and negative operating cash flows in Fiscal 2022. We have incurred net losses and negative cash flows from operations since inception and we expect to continue to incur significant operating losses for the foreseeable future.

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.

As of April 30, 2022, we had approximately $918,000 of cash, an increase of $195,000 from $723,000 as of April 30, 2021.

During Fiscal 2022, we raised $4.2 million in gross proceeds (excluding, an original issue discount of $0.5 million on the Bridge Notes), offset by approximately $385,000 in deferred financing costs, in connection with the 2021 Bridge Financing to support the Company prior to the IPO.

Since our inception through April 30, 2022, we have funded our operations principally from sales of equity and debt securities.

Our independent registered public accounting firm has issued an opinion on our audited financial statements included in this 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, and have a working capital deficiency. The events and conditions described in this paragraph, along with other matters, indicate that a material uncertainty exists that may cast significant doubt on our ability to continue as a going concern. Additionally, financial statements for future fiscal years may continue to include this explanatory paragraph with respect to our ability to continue as a going concern. Our financial statements do not include any adjustments that may result from the outcome of this uncertainty. This going concern opinion could materially limit our ability to raise additional funds through the issuance of equity or debt securities or otherwise. Until we can generate significant recurring revenues, we expect to satisfy our future cash needs through debt or equity financing. We cannot be certain that additional funding will be available to us on acceptable terms, if at all. If funds are not available, we may be required to delay, reduce the scope of, or eliminate research or development plans for, or efforts with respect to launch of sales of, our device. 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 lack of cash resources and our potential inability to continue as a going concern may materially adversely affect our share price and our ability to raise new capital, enter into critical contractual relations with third parties and otherwise execute our business objectives.

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

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Year EndedApril 30,

Net cash used in operating activities $ (3,644 ) $ (2,452 )

Net cash (used in) provided by investing activities $ (2 ) $ (1 )

Net cash provided by financing activities $ 3,841 $ 2,680

Net change in cash and cash equivalents during the period $ 195 $ 227

Operating Activities

Net cash used by our operating activities of $3.6 million during Fiscal 2022 was primarily due to our net loss of $4.8 million plus net non-cash items of $59,000, offset by $1.0 million of net changes in operating assets and liabilities. Net cash used by our operating activities of $2.5 million during Fiscal 2021 was primarily due to our net loss during the period.

Financing Activities

During Fiscal 2022, net cash provided by financing activities was $3.8 million and was primarily from the issuance of the Bridge Securities. During Fiscal 2021, net cash provided by financing activities was $2.7 million and was primarily from the issuance of convertible promissory notes, Series C Preferred Stock, and shareholder notes. For additional information, please refer to “—Description of Indebtedness.”

Future Capital Needs

Although our current aim is that the proceeds from our IPO would be sufficient to achieve FDA clearance, which would allow us to market the MyoVista in the U.S., there is no assurance this will be case. Additional funding will be required to support the sales launch of the MyoVista into the U.S., provide working capital, and support further R&D.

Our primary current sources of capital are the net proceeds from the IPO and the net proceeds of the 2021 Bridge Financing. If an opportunity presents itself, we may in the future attempt to obtain funding through the sale of debt or equity securities, although we may not be able to complete financing on terms acceptable to us or at all. The accompanying financial statements have been prepared assuming that the Company will continue as a “going concern.” For more information, please refer to “Risk Factors—There is substantial doubt about our ability to continue as a going concern, which could prevent us from obtaining new financing either on reasonable terms or at all."

Description of Indebtedness

As of April 30, 2022, we had a total of $6.0 million of indebtedness, excluding accrued and unpaid interest, outstanding as follows:

As of April 30,

Bridge Notes $ 3,442 $ —

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2021 Bridge Financing

In December 2021, the Board approved the sale of Senior Subordinated Convertible Loan Notes (the “Bridge Notes”) and associated warrants (the “Bridge Warrants”), (together the “2021 Bridge Securities”).

The Company sold $4,695,555 principal value of the Bridge Notes which were issued with a 10% original issue discount (OID), and accrued interest at 8% per annum and had a maturity date of December 22, 2024. In accordance with their terms, the entire amount of the Bridge Notes, including $165,516 of accrued interest, converted upon the IPO into 1,606,027 shares of Common Stock to at a conversion price of $2.89 and Pre-Funded Warrants to acquire 77,443 shares of Common Stock at an exercise price of $0.0033 per share. The Bridge Warrants have a 5-year term from their date of issuance and, in accordance with their terms following the IPO, have the right to purchase 1,365,960 shares of Common Stock at an exercise price of $5.16 per share. The exercise price of the Bridge Warrants is subject to full ratchet downward adjustment for 18 months following the IPO in the event of an issuance of Common Stock at a share price (or issuance of convertible securities or options at a lower conversion price or exercise price, as applicable) lower than the then current exercise price. Upon a lowering of the exercise price, the holder will be entitled to exercise the Bridge Warrants such that new exercise price multiplied by the number of shares of Common Stock purchased is 150% of the principal amount of the Bridge Notes originally purchased.

$130K Note

On August 12, 2019, the Company entered into an unsecured drawdown convertible promissory note with Front Range Ventures, LLC, or FRV, for an aggregate amount not to exceed $130,000, which we refer to as the $130K Note. The $130K Note may be repaid at any time upon 20 days’ notice to the holder. The $130K Note is convertible into Series C Preferred Stock at any time, upon written notice by either the holder or the Company or at maturity, at the lowest price paid for the Series C Preferred Stock prior to conversion, which is currently $25 per share. The $130K Note matures 20 days following FDA clearance of the MyoVista. Under the terms of the agreement, the note is non-interest bearing.

The $130K Note does not contain any covenants that restrict our ability to conduct business. The $130K Note does not contain specific events of default but any breach of its terms by the Company would entitle FRV to all available rights and remedies, at law or in equity.

$1.5M Notes

In December 2020, the Board of Directors approved the offering of a series of secured convertible promissory notes in the amount of $1,500,000 (“$1.5M Notes”). The $1.5M Notes were sold as a series to a number of different investors with $1,490,000 of the notes being sold to shareholders of the Company of which members of the Board of Directors of the Company subscribed for $30,000. The notes had an original maturity of July 31, 2022 and were subsequently amended on November 2, 2021, extending maturity to October 31, 2022. As part of the extension agreements, in November 2021, the Company issued warrants, or the $1.5M Lender Warrants, to purchase 4,545 shares of Common Stock of the Company which, in accordance with their terms, have an exercise price of $2.89 following the IPO. The $1.5M Lender Warrants expire on October 12, 2026.

The entire amount of the $1.5M Notes converted upon the IPO into 909,071 shares of Common Stock at a conversion price of $1.65. In accordance with their terms no interest was payable as they converted prior to maturity.

$1M Loan and Security Agreement

In April 2020, the Company entered into a loan and security agreement with FRV and John Q. Adams, Sr. who are both shareholders of the Company. Mr. Adams is also a former director of the Company. Each party committed to lend a principal amount of $500,000, totaling $1,000,000 and the loan was drawn in three installments of $300,000 upon execution of the loan agreement, $350,000 on or about July 2, 2020 and $350,000 on or about September 4, 2020. The loan had an original maturity date of September 30, 2021, which was amended on September 30, 2021 making the note repayable on demand. The loan was amended again on November 3, 2021, extending the maturity to September 30, 2022. As part of the extension agreement, in November 2021, the Company

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issued 15,152 warrants to purchase Common Stock of the Company at an exercise price of $2.89 following the IPO. The loan was further amended on May 24, 2022, extending maturity to September 30, 2023. In connection with the amendment in May 2022, the Company agreed to pay Mr. Adams all accrued but unpaid interest on his note prior to September 30, 2022.

The loan accrues interest at a rate of 12% per annum, compounded annually, which is payable at maturity. The Company is also required to pay default interest at a rate of 18% per annum, compounded annually, on any unpaid amounts due at maturity until the loan amounts are fully repaid. The loan is collateralized by substantially all of the Company’s assets and intellectual property, except for the secured interest on the covered technology as discussed in Note 10 to the Notes to our Financial Statements.

As of April 30, 2022 and April 30, 2021, accrued interest was approximately $229,000 and $98,000, respectively, of which approximately $115,000 was due to Mr. Adams. In June 2022, the Company paid approximately $126,000 in accrued interest to Mr. Adams.

The $1M Notes contain numerous events of default, including:

•

nonpayment of principal or interest;

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the breach of any representation or warranty set forth in any of the documents and instruments executed and delivered in connection with the $1M Loan and Security Agreement, as amended;

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cross default and cross acceleration to certain other indebtedness;

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bankruptcy and judgments;

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a final judgment or order for payment of money in excess of $10,000 rendered against the Company;

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cessation of our operations; and

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sale, conveyance or disposition of all or substantially all of the Company’s assets or the effectuation of a transaction or series of related transactions in which more than 50% of the voting power of the Company is transferred.

The $1M Notes do not contain any covenants, other than those that are defined as events of default and therefore listed above, that restrict our ability to conduct business.

Paycheck Protection Program Loans

On April 20, 2020, the Company received loan proceeds in the amount of $250,200 under the Paycheck Protection Program, or the PPP, which was established as part of the Coronavirus Aid, Relief and Economic Security Act. Following the PPP guidelines, the loan was forgiven in November 2020.

On January 25, 2021, the Company received a second PPP loan in the amount of $250,200. Following the PPP guidelines, the loan was forgiven in June 2021.

Current Outlook

We have financed our operations to date primarily through the issuance of Common Stock, preferred stock, warrants and debt securities. We have incurred losses and generated negative cash flows from operations since inception. Since inception, we have generated limited revenues from the sale of products through establishment of distributor relationships outside the U.S. during the development of the MyoVista. We require FDA clearance to market the MyoVista in the U.S. and do not expect to generate significant revenues from the sale of our device in the near future or prior to FDA clearance.

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As of April 30, 2022, our cash and cash equivalents were $918,000 and in June 2022, we received net proceeds of $5.2 million in the IPO. We will need to seek additional financing to fund our future operations. Our future capital requirements will depend on many factors, including:

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the progress and costs of our research and development activities;

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the costs of manufacturing our device;

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the costs of filing, prosecuting, enforcing and defending patent claims and other intellectual property rights;

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the potential costs of contracting with third parties to provide marketing and distribution services for us or for building such capacities internally; and

•

the magnitude of our general and administrative expenses.

Until we can generate sufficient cash flow from operations, we expect to satisfy our future cash needs through equity financings. Additional funding will be required to support the sales launch of the MyoVista into the U.S., provide working capital and support further R&D. We cannot be certain that additional funding will be available to us when needed on acceptable terms, if at all. If funds are not available, we may be required to delay, reduce the scope of, or eliminate research or development plans for, or efforts with respect to launch of sales of, our device. 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 lack of cash resources and our potential inability to continue as a going concern may materially adversely affect our share price and our ability to raise new capital, enter into critical contractual relations with third parties and otherwise execute our business objectives.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States, or U.S. GAAP. The preparation of these financial statements in accordance with U.S. GAAP requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. Our estimates are based on our knowledge of current events and actions we may undertake in the future and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may materially differ from these estimates under different assumptions or conditions. We believe the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgements and estimates. For additional details regarding our critical accounting policies, see the “Financial Statements—Notes to the Financial Statements, Note 3 - Summary of Significant Accounting Policies”.

Determination of Fair Value of Common Stock

Given the absence of a public trading market of our Common Stock prior to the IPO, and in accordance with the guidance as outlined in the American Institute of Certified Public Accountants’ Accounting and Valuation Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation, our Board of Directors exercised reasonable judgment and considered numerous objective and subjective factors to determine the best estimate of the fair value of our Common Stock including:

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external market conditions affecting the medical devices industry and trends within the industry;

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actual operating and financial performance;

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current business conditions and projections;

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the rights, preferences and privileges of our preferred stock relative to those of our Common Stock;

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our financial condition and operating results, including our levels of available capital resources;

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the progress of our research and development efforts;

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equity market conditions affecting comparable public companies; and

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general U.S. market conditions and the lack of marketability of our Common Stock.

Stock-Based Compensation

The Company accounts for employee and non-employee share-based compensation in accordance with the provisions of ASC 718, Compensation—Stock Compensation. Under ASC 718, share-based compensation cost is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the requisite service period (generally the vesting period of the equity grant).

The estimated fair value of common stock option awards is calculated using the Black-Scholes option pricing model, based on key assumptions such as fair value of common stock, expected volatility, and expected term. These estimates require the input of subjective assumptions, including (i) the expected stock price volatility, (ii) the calculation of the expected term of the award, (iii) the risk-free rate and (iv) expected dividend yields. As there had not been a public market for the Company’s Common Stock prior to the IPO, management has determined the expected stock price volatility at the time of grant of the option by considering a number of objective and subjective factors, including stock price volatility of comparable companies that are publicly available and based on the industry, stage of life cycle, size and financial leverage of such other comparable companies.

The Company has estimated the expected term of its Common Stock options using the “simplified” method, whereby, the expected term equals the arithmetic average of the vesting term and the original contractual term of the option due to its lack of sufficient historical data. The expected volatility is derived from the historical volatilities of comparable publicly traded companies over a period approximately equal to the expected term for the options. The risk-free interest rates for periods within the expected term of the option are based on the US Treasury securities with a maturity date that commensurate with the expected term of the associated award. There is no expected dividend yield since the Company has never paid cash dividends and does not expect to pay cash dividends in the foreseeable future.

For stock options issued to employees and non-employees, the fair value of stock-based awards is recognized as compensation expense over the requisite service period, which is defined as the period during which an employee is required to provide service in exchange for an award. The Company uses a straight-line attribution method for all grants that include only a service condition.The Company accounts for forfeitures when they occur. Stock-based compensation expense recognized in the financial statements is reduced by actual awards forfeited.

Pricing and Valuation of Inventories

Inventory consists of finished goods, work in progress, sub-assemblies and raw materials and is stated at the lower of cost or net realizable value. Net realizable value is the estimated sales price, which is derived from similar marketable devices, less standard costs approximating the purchase costs on a first-in, first-out basis. Reserves for slow-moving, excess, or obsolete inventories are recorded when required to reduce inventory values to their estimated net realizable values based on product life cycle, development plans, production expiration or quality issues. Inventory that is used for research and development are expensed as consumed.

Inventory consists mainly of raw materials and components used in the current hardware build of the MyoVista. Devices and components are used for research and development purposes and device sales, which to date have been in international markets as sale of the MyoVista in the U.S. is subject to FDA clearance. We are partially through a new, pivotal clinical validation study and device testing and development necessary for a revised FDA De Novo submission, which we expect to take place later in the fiscal year ending April 30, 2023. We believe that our hardware platform is in final form; however, prior to FDA clearance and market acceptance of the MyoVista, further hardware changes could be necessary which could have an impact on net realizable values. The majority of the Company’s current inventory is intended for use to build finished products for sales both internationally and in the U.S. following regulatory clearance. Finished products do not contain materials that would degrade significantly over the useable life of the device and are considered to have a useable life of over seven years. Existing inventory

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related to finished devices are planned to be updated to the latest hardware revision and specifically allocated to a limited distribution for field reliability studies and are not slated for general purpose sales. On a quarterly basis, management evaluates inventory and makes specific write-offs and provides an allowance for inventory that is considered obsolete due to hardware and/or software related changes. If the Company does not receive FDA clearance and/or obtain market acceptance of the MyoVista, the Company could have further material write-downs of inventory due to obsolescence in excess of the amount currently reserved.

Going Concern

The Company is subject to a number of risks similar to those of early-stage companies, including dependence on key individuals and products, the difficulties inherent in the development of a commercial market, the need to obtain additional capital, competition from larger companies, and other technologies.

At April 30, 2022, the Company had an accumulated deficit of $54.4 million and stockholder’s deficit of $6.1 million. In addition, the Company has generated recurring losses and negative cash flows from operations since its inception and has a working capital deficiency. Based on these factors there is a substantial doubt regarding the Company’s ability to continue as a going concern.

In June 2022, the Company raised approximately $5.2 million in net proceeds from the completion of the IPO. The Company’s forecasts and cashflow projections indicate that current resources would be insufficient to support operations significantly beyond the second calendar quarter of 2023 and repay the $1M Notes as they fall due in September 2023. Additionally, the FDA can delay, limit or deny clearance of a medical device for many reasons outside the Company’s control which may involve substantial unforeseen costs. A negative variance in the forecasts and cashflow projections would make the Company’s ability to continue as a going concern dependent on an additional capital fund raise.

The Company’s plans include raising capital through the sale of additional equity securities, debt or capital inflows from strategic partnerships. Management can provide no assurance that such financing or strategic relationships will be available on acceptable terms, or at all, which would likely have a material adverse effect on the Company and its financial statements.

Recent Accounting Pronouncements

In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. For convertible instruments, the FASB decided to reduce the number of accounting models for convertible debt instruments and convertible preferred stock. Limiting the accounting models results in fewer embedded conversion features being separately recognized from the host contract as compared with current U.S. GAAP.

Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital. The FASB decided to amend the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions.

The FASB observed that the application of the derivatives scope exception guidance results in accounting for some contracts as derivatives while accounting for economically similar contracts as equity. The FASB also decided to improve and amend the related EPS guidance.

The amendments in this ASU are effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. The Company adopted ASU 2020-06 as of the reporting period beginning May 1, 2021. The adoption of this ASU did not have a material impact on the Company's financial statements.

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In October 2020, the FASB issued ASU 2020-10, Codification Improvements, which updates various codification topics by clarifying or improving disclosure requirements to align with the SEC’s regulations. The Company adopted ASU 2020-10 as of the reporting period beginning May 1, 2021. The adoption of this ASU did not have a material impact on the Company's financial statements.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

The Company is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is not required to provide the information under this item.

Item 8. Financial Statements and Supplementary Data.

The financial statements and supplementary data of the Company required by this Item are described in Item 15 of this Annual Report on Form 10-K and are presented beginning on page F-1.

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

None

Item 9A. Controls and Procedures.

Evaluation of 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 Annual Report on Form 10-K, 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. As required under Exchange Act Rule 13a-15, the Company’s management, including the Chief Executive Officer (our principal executive officer) and our Chief Financial Officer (our principal financial officer), after evaluating the effectiveness of disclosure controls and procedures, determined that our disclosures controls and procedures were not effective as of April 30, 2022 as a result of the identified material weaknesses in our internal control over financial reporting. The material weaknesses identified include (i) we did not maintain sufficient U.S. GAAP and SEC accounting resources commensurate with those required of a public company; (ii) we did not employ month-end financial reporting controls that prevented timely production of accurate monthly financial reports; (iii) we did not employ proper independent review of monthly financial reports to verify that such reports are accurate and reconciled properly to the supporting documentation schedules; and (iv) we did not have strong accounting consideration and analysis over equity accounts and inventory valuation. We have begun implementation of a plan to remediate these material weaknesses. These remediation measures are ongoing and include hiring additional accounting and financial reporting personnel and implementing additional policies, procedures, and controls.

Management’s Annual Report on Internal Control over Financial Reporting

This Annual Report on Form 10-K does not include a report of management's assessment regarding internal control over financial reporting or an attestation report of the Company's registered public accounting firm due to a transition period established by rules of the SEC for newly public companies.

Changes in Internal Control

There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the fiscal year ended April 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Item 9B. Other Information.

None

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.

Not applicable

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GLOSSARY OF TERMS

The following definitions shall apply to the terms used in this Annual Report on Form 10-K.

Terms Used by and for United States Federal Regulators and Regulations

“510(k)” means a premarket notification submission to the FDA for determination that a medical device is substantially equivalent to another legally U.S. marketed medical device prior to such device being marketed.

“510(k) Clearance” means a determination from FDA that a device is substantially equivalent to another legally U.S. marketed medical device thereby authorizing the device to be marketed in the U.S.

“ACA” means the Patient Protection and Affordable Care Act, as amended.

“CARES Act” means the Coronavirus Aid, Relief and Economic Security Act.

“CDC” means the U.S. Centers for Disease Control and Prevention.

“Class I” means a classification of medical devices with the lowest risk to the patient for which safety and effectiveness can be assured by adherence to the FDA’s General Controls for medical devices, which include compliance with the applicable portions of the QSR facility registration and product listing, reporting of adverse medical events, and truthful and non-misleading labeling, advertising and promotional materials.

“Class II” means a classification of medical devices that are subject to the FDA’s General Controls, and special controls as deemed necessary by the FDA to ensure the safety and effectiveness of the device. These special controls can include submission of a 510(k), performance standards, post-market surveillance, patient registries and FDA guidance documents.

“Class III” means a classification of medical devices that pose the greatest risks, such as life sustaining, life supporting or some implantable devices, or devices that have a new intended use, or use advanced technology that is not substantially equivalent to that of a legally marketed device. Class III devices generally require approval of a PMA.

“Covered Entities” means, collectively, health plans, health care clearinghouses and certain health care providers as provided for under HIPAA.

“CMS” means U.S. Centers for Medicare & Medicaid Services.

“De Novo” means the process for obtaining authorization from the FDA of a novel medical device that is low to moderate risk for which general controls alone, or general and special controls, provide reasonable assurance of safety and effectiveness for the intended use, but for which there is no legally marketed predicate device. Devices that are classified (or re-classified) into Class I or Class II through a De Novo classification request may be marketed and used as predicates for future premarket notification 510(k) submissions, when applicable.

“DOJ” means the U.S. Department of Justice.

“FCA” means the False Claims Act.

“FDA” means the U.S. Food and Drug Administration.

“FDASIA” means the Food and Drug Administration Safety and Innovation Act of 2012, as amended.

“FDCA” means the Federal Food, Drug and Cosmetic Act, as amended.

“FINRA” means the Financial Industry Regulatory Authority.

“GUDID” means the FDA’s Global Unique Device Identification Database.

“HCPCS” means Healthcare Common Procedure Coding System.

“HHS” means the U.S. Health and Human Services—Office of the Inspector General.

“HIPAA” means the Health Insurance Portability and Accountability Act of 1996, as amended.

“HITECH” means the Health Information Technology for Economic and Clinical Health Care Act.

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“IDE” means the FDA’s investigational device exemption regulations which govern medical device clinical trials. The IDE regulations exempt investigational devices from many regulations, but otherwise govern investigational device labeling, prohibit promotion of the investigational device, and specify an array of submission, recordkeeping, reporting and monitoring responsibilities of study sponsors and study investigators intended to encourage public health and safety and with ethical standards.

“IRB” means the Institutional Review Board formally designated by the FDA regulations, which has oversite of a study being conducted at a clinical site.

“JOBS Act” means the Jumpstart our Business Startups Act of 2012.

“NAMCS” means the 2018 National Ambulatory Medical Care Survey.

“PMA” means a premarket approval application requesting the determination of the safety and effectiveness of Class III medical devices pursuant to a scientific and regulatory review by the FDA.

“QSR” means the FDA’s Quality System Regulation, which is the current good manufacturing practice requirements for medical devices. The requirements govern the methods used in, and the facilities and controls used for, the design, manufacture, packaging, labeling, storage, installation, and servicing of all finished devices intended for human use. The requirements are intended to ensure that finished devices will be safe and effective and otherwise in compliance with the Federal Food, Drug, and Cosmetic Act.

“SEC” means the U.S. Securities and Exchange Commission.

“Trade Laws” means, collectively, U.S. and foreign anticorruption, anti-money laundering, export control, sanctions and other trade laws and regulations.

“UDI” means Unique Device Identifiers as required by U.S. federal laws and regulations.

“USPSTF” means the U.S. Preventive Services Task Force.

“VA” means the U.S. Department of Veterans Affairs.

Terms Used for Other Regulators and Regulations within the U.S.

“CCPA” means the California Consumer Privacy Act.

“CPRA” means the California Privacy Rights Act.

Terms Used in Jurisdictions Other Than the U.S.

“CE” means Conformité Européene.

“CJEU” means the Court of Justice of the European Union.

“EC” means European Community.

“EEA” means the European Economic Area.

“EU” means the European Union.

“EU MDR” means the EU Medical Device Regulation.

“Financial Promotion Order” means the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended.

“FinSA” means the Swiss Financial Services Act.

“FSMA” means the UK’s Financial Services and Markets Act 2000, as amended.

“GDPR” means the EU’s General Data Protection Regulation.

“MDD” means the EU Medical Devices Directive.

“Notified Body” means an organization accredited by a Relevant State to conduct conformity assessments.

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“Privacy Shield” means the transfer framework, agreed to by the U.S. and the EU, for transferring data from the EU to the U.S., but which was invalidated in July 2020 by the CJEU.

“Prospectus Regulation” means Regulation (EU) 2017/1129.

“relevant persons” means, collectively, persons outside the UK and those persons in the UK who (i) who have professional experience in matters relating to investments and who fall within the definition of investment professionals (as defined in Article 19(5) of the Financial Promotion Order), (ii) fall within Article 49(2)(a) to (d) of the Financial Promotion Order, or (iii) are any other persons to whom it may otherwise lawfully be made under the Financial Promotion Order.

“Relevant State” means a member state of the EEA.

“UK” means the United Kingdom.

Terms Used for Medical and Medical Device Related Purposes

“ACC” means the American College of Cardiology.

“Afib” means atrial fibrillation or an irregular and often very rapid heart rhythm (or arrhythmia).

“AI” means artificial intelligence.

“AMA” means the American Medical Association.

“APC” means ambulatory payment classification.

“ARIC score” means the Atherosclerosis Risk in Communities studies score.

“AUC” means area under the curve.

“BNP testing” means the B-type natriuretic peptide testing.

“CAD” means coronary artery disease.

“CPT” means Current Procedural Terminology.

“CROs” means contract research organizations.

“CT” means computerized tomography.

“CCTAs” means coronary CT angiograms

“CVD” means cardiovascular disease.

“diastolic phase” means the period of the heart’s relaxation or filling phase (as opposed to the heart’s period of contraction or pumping phase called “systolic”) of a heartbeat.

“diastolic dysfunction” means impaired left ventricular relaxation and elevated filling pressures during the diastolic phase.

“ECG” means electrocardiogram or electrocardiograph as appropriate, which is also known by the acronym “EKG.”

“echo” means an echocardiogram.

“elderly” means an individual that is 65 years old or older.

“e-prime” or “ e’ ” means a key echocardiographic measurement of left ventricular diastolic function during the early diastolic phase, more specifically, this is a measurement of the speed of mitral annular motion at early diastole.

“GCP” means good clinical practice.

“HFpEF” means heart failure with preserved ejection fraction or where a patient is not yet classified as having systolic dysfunction, or, also known as severe diastolic dysfunction.

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“HFrEF” means heart failure with reduced ejection fraction, or heart failure is classified with systolic dysfunction, also known as severe diastolic dysfunction.

“KOLs” means key opinion leaders, such as leading cardiologists.

“LV” means left ventricular.

“LVD” means left ventricular dysfunction.

“LVDD” means left ventricular diastolic dysfunction.

“myocardial infarction” is another term for a heart attack.

“off-label” means the use of products for a purpose other than as approved by the FDA.

“sensitivity” means the true positive rate or the percentage probability of a positive test result identifying patient with a condition as compared to the gold standard test which in our case is an echo.

“specificity” means the true negative rate or the percentage probability of a negative test result identifying a patient without a condition as compared to the gold standard test, which in our case is an echo.

Terms Used in Connection with the Company and Our Products

“$1.5M Lender Warrants” means the warrants issued to holders of the $1.5M Notes as consideration for the extension of the maturity of the $1.5M Notes.

“$1.5M Notes” means our 12% secured subordinated convertible promissory notes in the aggregate principal amount of $1.5 million issued to accredited investors between December 2020 and April 2021.

“$130K Note” means our private placement on August 12, 2019 with FRV, an accredited investor, of an unsecured drawdown convertible promissory note in the amount of $130,000.

“$1M Lender Warrants” means the warrants issued to holders of the $1M Notes as consideration for the extension of the maturity of the $1M Notes.

“$1M Loan and Security Agreement” means Loan and Security Agreement by and among the Company, FRV and John Q. Adams, Sr. in April 2020 in connection with the $1M Notes.

“$1M Notes” means our 12% secured, non-convertible promissory notes payable to FRV and John Q. Adams, Sr. in the aggregate principal amount of $1 million.

“ewECG” means energy waveform ECG, an alternative description of the MyoVista wavECG device used in the study published in JACC Cardiovascular Imaging Oct 2021, Volume 14 Number 10 and undertaken by Elizabeth L. Potter, MBBS, Thomas H. Marwick, MBBS, PHD, MPH et al.

“Investor Warrants” means all outstanding warrants to purchase 56,743 shares of our Common Stock issued in connection with funding or as consideration for services rendered to the Company and excludes the Bridge Warrants, other Pre-Funded Warrants, $1M Lender Warrants and $1.5M Lender Warrants.

"IPO Warrants" means all outstanding warrants to purchase shares of our Common Stock that were issued as part of the Units in the IPO plus additional warrants to purchase 225,000 shares of Common Stock that were issued in the IPO as a result of the underwriter’s exercise of its over-allotment option in part.

"Underwriter’s Warrants" means the warrants to purchase an aggregate of 105,000 shares of Common Stock that were issued to the underwriter in the IPO as a portion of the underwriting compensation payable in connection with the IPO.

“IT” means our information technology.

“MyoVista” means the MyoVista wavECG device.

“MyoVista Algorithm” means our wavECG proprietary algorithm.

“Series A Preferred Stock” means our Series A convertible preferred stock, par value $0.001 per share.

“Series B Preferred Stock” means our Series B convertible preferred stock, par value $0.001 per share.

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“Series C Preferred Stock” means our Series C convertible preferred stock, par value $0.001 per share.

Terms Used in Connection with Our 2021 Bridge Financing

“2021 Bridge Financing” means our private placement, pursuant to a Securities Purchase Agreement, with a lead investor and additional accredited investors of the Bridge Notes and Bridge Warrants from December 2021 to February 2022, which were issued to such additional accredited investors in exchange for the secured subordinated convertible notes and warrants issued to them in an initial closing of a private placement in October 2021.

“Attribution Parties” are any Purchaser, together with its affiliates and any other person acting as a group as defined under Section 13(d) of the Exchange Act with regard to determining Maximum Percentage.

“Bridge Notes” means the 8% secured subordinated convertible notes we sold to Purchasers pursuant to the Securities Purchase Agreement.

“Bridge Warrants” means warrants to purchase our Common Stock issued pursuant to the Securities Purchase Agreement.

“Maximum Percentage” means the beneficial ownership in excess of 4.99% of the number of shares of the Common Stock outstanding immediately prior to, and immediately after giving effect to, the conversion of all or any portion of the Bridge Notes as applied to Attribution Parties unless a holder has notified the Company that it has elected to increase the Maximum Percentage to 9.99%.

“OID” means the 10% original issue discount on our Bridge Notes.

“Pre-Funded Warrants” means the warrants issued in the event the number of shares of Common Stock to be issued to a Purchaser upon conversion of in the Bridge Notes would be in excess of the Maximum Percentage.

“Purchasers” means the accredited investors who purchased our Securities pursuant to the Securities Purchase Agreement.

“Registration Rights Agreement” means the registration rights agreement we entered into with the Purchasers in conjunction with the Securities Purchase Agreement.

“Securities” means, collectively, all of the Bridge Notes, Bridge Warrants and Pre-Funded Warrants sold pursuant to the Securities Purchase Agreement.

“Securities Purchase Agreement” means the Securities Purchase Agreement we entered into with the Purchasers in connection with the 2021 Bridge Financing.

Terms Used in Connection with this Annual Report on Form 10-K Not Otherwise Listed

“ASC” means the Accounting Standards Codification.

“FRV” means Front Range Ventures, LLC.

“FRV Side Letter” means the letter agreement entered into by and between the Company and FRV on April 10, 2019.

“GE” means the General Electric Company.

“Hill-Rom” means Hill-Rom Holdings, Inc.

“MD&A” means Management’s Discussion & Analysis of Financial Condition and Results of Operations.

“Nasdaq” means The Nasdaq Stock Market LLC.

“Philips” means Koninklijke Philips N.V.

“PPP” means the Paycheck Protection Program established pursuant to the CARES Act.

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PART III

Item 10. Directors, Executive Officers and Corporate Governance.

Executive Officers and Directors

Our business and affairs are managed under the direction of our Board of Directors, which currently consists of five members. The number of directors is determined by our Board of Directors, subject to the terms of our amended and restated certificate of formation and amended and restated bylaws.

Our Board of Directors is divided into three classes as nearly equal in size as is practicable. The composition of the Board of Directors is as follows:

•

Class I, which consists of Brian Szymczak and Bruce Bent, whose terms will expire at our annual meeting of shareholders to be held in 2023;

•

Class II, which consists of Mark Hilz and Patrick Kanouff, whose terms will expire at our annual meeting of shareholders to be held in 2024; and

•

Class III, which consists of Andrew Simpson, whose term will expire at our annual meeting of shareholders to be held in 2025.

Upon the expiration of the initial term of office for each class of directors, each director in such class shall be elected for a term of three years and serve until a successor is duly elected and qualified or until his or her earlier death, resignation or removal. Vacancies occurring on the Board of Directors, whether due to death, resignation, removal, retirement, disqualification or for any other reason, and newly created directorships resulting from an increase in the authorized number of directors, may be filled by a majority of the remaining members of the Board of Directors. Directors may be removed, but only for cause, with the affirmative vote of the holders of a majority of the voting power of our Common Stock and Preferred Stock voting together as a single class.

Director Independence

Our Common Stock and IPO Warrants are listed on Nasdaq. No assurance can be given that an active trading market will develop. Our Common Stock and IPO Warrants are listed on Nasdaq under the symbol “HSCS” and “HSCSW,” respectively. Under Nasdaq rules, independent directors must comprise a majority of a listed company’s Board of Directors within a specified period after completion of the IPO. In addition, Nasdaq rules require that, subject to specified exceptions, each member of a listed company’s audit, compensation and nominating and governance committees must be independent. Under Nasdaq rules, a director will only qualify as an “independent director” if, in the opinion of that Company’s Board of Directors, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. Ownership of a significant amount of our stock, by itself, does not constitute a material relationship.

Audit committee members of a listed company must also satisfy the independence criteria set forth in Rule 10A-3 under the Exchange Act. In order to be considered independent for purposes of Rule 10A-3, a member of an audit committee of a listed company may not, other than in his or her capacity as a member of the audit committee, the Board of Directors, or any other board committee: (i) accept, directly or indirectly, any consulting, advisory, or other compensatory fee from the listed company or any of its subsidiaries; or (ii) be an affiliated person of the listed company or any of its subsidiaries. We have an audit committee composed of three independent directors who each meet the Nasdaq audit committee independence standards for a listed company.

Nasdaq rules require that, subject to limited exceptions, a listed company’s compensation committee must consist of at least two members, each of whom must be independent. In affirmatively determining the independence of any director who will serve on the compensation committee, the board of directors must consider all factors specifically relevant to determining whether a director has a relationship to the listed company which is material to that director’s ability to be independent from management in connection with the duties of a compensation committee member, including, but not limited to (i) the source of compensation of such director, including any consulting, advisory or other compensatory fee paid by the listed company to such director, and (ii) whether such

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director is affiliated with the listed company, a subsidiary of the listed company or an affiliate of a subsidiary of the listed company. We have a compensation committee composed of three independent directors.

Nasdaq rules require that director nominees must either be selected, or recommended for the board of director’s selection, either by (i) independent directors constituting a majority of the board’s independent directors in a vote in which only independent directors participate, or (ii) a nominations committee comprised solely of independent directors. We have a nominating and governance committee composed of three independent directors that recommends to our Board of Directors nominees for election as directors.

Our Board of Directors undertook a review of its composition, the composition of its committees and the independence of each director. Based upon information requested from and provided by each director concerning his or her background, employment and affiliations, including family relationships, our Board of Directors has determined that that Bruce Bent, Patrick Kanouff and Brian Szymczak, representing a majority of our directors, do not have any relationships that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each of these directors is “independent” as that term is defined under Nasdaq rules and Rule 10A-3 under the Exchange Act. In making these determinations, our Board of Directors considered the relationships that each non-employee director has with our Company and all other facts and circumstances our Board of Directors deemed relevant in determining their independence, including the beneficial ownership of our capital stock by each non-employee director.

Background and Experience of Directors and Executive Officers

When considering whether directors and nominees have the experience, qualifications, attributes or skills, taken as a whole, to enable our Board of Directors to satisfy its oversight responsibilities effectively in light of our business and structure, the Board of Directors focused primarily on each person’s background and experience as reflected in the information discussed in each of the directors’ individual biographies set forth below. We believe that our directors provide an appropriate mix of experience and skills relevant to the size and nature of our business.

The following table sets forth certain information regarding our executive officers and directors of the Company:

Board of Directors and Executive Officers

Name Age Position

Mark Hilz 64 Chief Operating Officer, Secretary and Director

Danielle Watson 40 Chief Financial Officer and Treasurer

Bruce Bent 66 Director

Patrick Kanouff 52 Director

Brian Szymczak 49 Director

Andrew Simpson—President, Chief Executive Officer and Chairman of the Board of Directors

Since March 2022, Andrew Simpson, 54, has served as the President and Chief Executive Officer of the Company. Mr. Simpson has also served as the Chairman of the Board of Directors, since June 2013, and as a director, since July 2012. Mr. Simpson is the sole director and controlling shareholder of Kyngstone Limited, which has provided consulting services to the Company. For more information related to this, see “Item 13. Certain Relationships and Related Transactions, and Director Independence —Related Party Transactions —Kyngstone Agreement.” Mr. Simpson has over 30 years’ experience across a variety of business sectors and sizes. He was Group CEO of The Peel Group from 2006 to 2010, which is a large private company in the UK which, at the time, had approximately $8 billion of business assets across the real estate, ports, airports, energy, media, telecoms and environmental sectors. He was a main board director of Speedy Hire plc from 2003 to 2006 (during which time it became a FTSE 250 company) and during his tenure was Managing Director of its Equipment Rental division which had revenues of approximately $200 million and was also responsible for the Group’s development and expansion

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which included seventeen acquisitions and several non-core divestments. Mr. Simpson qualified as a Chartered Accountant with Price Waterhouse and spent eight years working in investment banking at Rothschild, advising on a wide variety of merger and acquisition transactions, debt and equity fundraisings, IPOs and other advisory assignments. Mr. Simpson graduated with first class honors in 1991 from Sheffield Hallam University in the UK where he received a Bachelor of Arts (honors) in Accounting and Management Control.

Mark Hilz—Chief Operating Officer, Secretary and Director

Since March 2022, Mark Hilz, 64, has served as the Chief Operating Officer and Secretary of the Company and, since June 2013, has also been a director of the Company. Mr. Hilz served as the Chief Executive Officer of the Company from June 2013 until March 2022. Mr. Hilz has over 30 years of experience as a President and/or CEO of multiple startup companies. He was previously CEO of INX Inc., a technology infrastructure consulting company. INX Inc. started in 2000 and grew to $400 million in revenue. INX Inc. was traded on Nasdaq, completed multiple offerings until it was acquired in December 2011. Prior to that, Mr. Hilz founded and was CEO of a technology logistics outsourcing firm, PC Service Source Inc., that grew to over $160 million in revenue. Mr. Hilz raised the startup capital from traditional venture capital sources and after four years of operations took PC Service Source Inc. public in an initial public offering as a Nasdaq global listed company. Mr. Hilz’s experience includes raising venture capital as well as multiple successful public offerings and numerous merger and acquisition transactions as both a buyer and a seller.

Danielle Watson—Chief Financial Officer and Treasurer

Since April 2022, Danielle Watson, 40, has served as our Chief Financial Officer. Prior to her appointment in April 2022, Ms. Watson, a CPA, served as the Company’s Financial Controller since November 2021. Ms. Watson brings over 15 years of financial experience to her role. Before joining the Company, Ms. Watson held senior leadership roles at Moss Adams, LLP from November 2007 to November 2021 where she provided audit and assurance services to both public and privately held companies with an emphasis in financial reporting, consolidations, strategic planning, purchase price accounting, and SEC reporting. Ms. Watson earned her Bachelor of Science, with a double concentration in accounting and finance from Texas Christian University and her Master of Science in accounting from the University of Texas at Arlington and is an active Certified Public Accountant in Texas.

Bruce Bent—Director

Since May 2020, Bruce Bent, 66, has served as a director of the Company. Mr. Bent has more than 35 years of experience in financial management. Since September 2014, Mr. Bent has served as Chairman of Enerdynamic Hybrid Technologies Corp., a TSXV listed public company. In addition, since March 2018, Mr. Bent has served as Chairman for Astro Aerospace Ltd., an OTC listed public company. Since June 2020, Mr. Bent has been Vice President and Chief Financial Officer Emeritus of The Matthews Group, referred to in this section as Matthews, and, from August 2004 to June 2020, he served as the Chief Financial Officer of Matthews as well as president of various Canadian subsidiaries of Matthews. Matthews is a $500M real estate development company. During his tenure with Matthews, among other projects, Mr. Bent was integral in the completion of a $1.7 billion dollar corporate headquarters building for Encana (now Ovintiv Inv., NYSE: OVV). Since April 2000, Mr. Bent has served as president of MSW Investments Limited, a family office providing early stage financing. Mr. Bent graduated from the University of Manitoba with a Bachelor of Commerce (honors) and obtained his Chartered Professional Accounting designation from the Province of Ontario.

We believe Mr. Bent’s extensive financial experience provides valuable knowledge to our Board of Directors. In addition, Matthews is one of our largest shareholders. Mr. Bent also serves as the chairman of the Audit Committee and “audit committee financial expert.” For more information, see “—Board Committees—Audit Committee.”

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Brian Szymczak—Director

Since 2014, Brian Szymczak, 49, has served as a director of the Company. Since 2014, Mr. Szymczak has been the lead attorney for Apollo Endosurgery, Inc., referred to in this section as Apollo, in Austin, Texas where he serves as Vice President of Legal and Compliance. In this role, Mr. Szymczak manages legal disputes and litigation matters and provides general legal counsel to the company’s leadership, sales, operations, research and development, and human resources groups. Prior to working at Apollo, from 2006 to 2014, Mr. Szymczak served in various roles including as Associate General Counsel and Director of Legal Affairs for a large surgical device manufacturer and from, 1999 to 2006, worked as an associate at the law firm of Baker Botts, LLP where he counseled clients on patent and other intellectual property matters in a variety of industries. Mr. Szymczak is a 1999 graduate of Duke University School of Law and holds a Bachelor of Science in Mechanical Engineering from Texas A&M University.

Mr. Szymczak was designated a director pursuant to the MyoVista Technology Agreement, which grants Guangren “Gary” Chen the right to designate a person of his choosing to sit on the Board of Directors of the Company. We believe Mr. Szymczak’s education, legal skills and experience with medical device manufacturers provides valuable knowledge to our Board of Directors.

Patrick Kanouff—Director

Since April 2019, Patrick Kanouff, 52, has served as a director of the Company. Mr. Kanouff has served as Chief Operating Officer of Bohemian Companies since 2020. Bohemian Companies is a private family financial office and is associated with Bohemian Asset Management, an investment management company with private equity, fixed income securities, and private equity investments. Prior to Bohemian Companies, from 2009 to 2014, Mr. Kanouff was the managing partner of Davis & Ceriani, P.C., a law firm located in Denver, CO, where Mr. Kanouff’s practice was comprised of a combination of complex commercial litigation and business counseling. Mr. Kanouff is a 1995 graduate of the University of Denver School of Law and holds a Bachelor of Arts from Creighton University.

Mr. Kanouff was designated as a director pursuant to the letter agreement entered into by and between the Company and FRV on April 10, 2019, or the FRV Side Letter, which grants FRV the right to designate a person of its choosing to sit on the Board of Directors of the Company. We believe Mr. Kanouff’s education and legal, operational and business counseling experience provides valuable knowledge to our Board of Directors.

Board Committees

Our Board of Directors have three standing committees: an audit committee, a compensation committee and a nominating and corporate governance committee. Under Nasdaq rules and Rule 10A-3 under the Exchange Act, the membership of the audit committee is required to consist entirely of independent directors, subject to applicable phase-in periods. The following is a brief description of our committees.

Audit Committee

Our Audit Committee is a separately-designated audit committee established in accordance with Section 3(a)(58)(A) of the Exchange Act. In accordance with our audit committee charter, our audit committee oversees our corporate accounting and financial reporting processes and our internal controls over financial reporting; evaluates our independent registered public accounting firm’s qualifications, independence and performance; engages and provides for the compensation of our independent registered public accounting firm; approves the retention of our independent registered public accounting firm to perform any proposed permissible non-audit services; reviews our financial statements; reviews our critical accounting policies and estimates and internal controls over financial reporting; and discusses with management and our independent registered public accounting firm the results of the annual audit and the reviews of our quarterly financial statements. We believe that our audit committee members meet the requirements for financial literacy under the current requirements of the Sarbanes-Oxley Act, Nasdaq and SEC rules and regulations. The audit committee is composed of Bruce Bent, Patrick Kanouff and Brian Szymczak. Our Board of Directors has determined that Mr. Brent is an "audit committee financial expert" as defined by SEC rules. Nasdaq rules require that all of the members of the audit committee meet the independence standards set forth

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above, subject to the applicable phase-in periods of Nasdaq. Our Board of Directors has determined that Bruce Bent, Patrick Kanouff and Brian Szymczak meet the independence requirements of the Sarbanes-Oxley Act, Rule 10A-3 under the Exchange Act and the applicable listing standards of Nasdaq.

Compensation Committee

In accordance with our compensation committee charter, our compensation committee reviews and recommends policies relating to compensation and benefits of our officers and employees, including reviewing and approving corporate goals and objectives relevant to compensation of the Chief Executive Officer and other senior officers, evaluating the performance of these officers in light of those goals and objectives and setting compensation of these officers based on such evaluations. The compensation committee also administers the issuance of stock options and other awards under our equity-based incentive plans. We believe that the composition of our compensation committee meets the requirements for independence under, and the functioning of our compensation committee complies with, any applicable requirements of the Sarbanes-Oxley Act, Nasdaq and SEC rules and regulations. We intend to comply with future requirements to the extent they become applicable to us. The compensation committee is composed of Bruce Bent, Patrick Kanouff and Brian Szymczak.

Nominating and Governance Committee

In accordance with our nominating and governance committee charter, our nominating and governance committee recommends to the Board of Directors nominees for election as directors, and meets as necessary to review director and nominees for election as directors; recommends members for each committee of the Board of Directors; oversees corporate governance standards and compliance with applicable listing and regulatory requirements; develops and recommends to the Board of Directors governance principles applicable to the company; and oversees the evaluation of the Board of Directors and its committees. We believe that the composition of our nominating and governance committee meets the requirements for independence under, and the functioning of our nominating and governance committee complies with, any applicable requirements of the Sarbanes-Oxley Act, Nasdaq and SEC rules and regulations. We intend to comply with future requirements to the extent they become applicable to us. The nominating and governance committee is composed of Bruce Bent, Patrick Kanouff and Brian Szymczak.

Our nominating and governance committee has not adopted a procedure by which shareholders may recommend nominees to our Board of Directors.

Board Meetings and Attendance

During Fiscal 2022, our Board of Directors held 15 meetings. During Fiscal 2022, each of our current directors attended at least 75% of all Board meetings. Our audit committee, compensation committee and nominating and governance committee were established in connection with the IPO and, as such, there were no meetings of these committees held during Fiscal 2022.

Delinquent Section 16(a) Reports

Section 16(a) of the Securities Exchange Act requires the Company’s directors and executive officers, and persons who own more than 10% of a registered class of the Company’s equity securities, to file reports of securities ownership and changes in such ownership with the SEC. Andrew Simpson, Mark Hilz, Danielle Watson, Bruce Bent, Patrick Kanouff and Brian Szymczak were each late in filing his or her initial Form 3 with the SEC, which disclosed each of their beneficial ownership of securities of the Company as of June 14, 2022, the effective date of the Registration Statement on Form S-1 that registered the securities offered in the IPO.

Code of Business Conduct and Ethics

The Company adopted a code of ethics policy in 2022 for its principle executive officer and senior financial officers that is also applicable to all directors, officers and employees, a copy of which is available online at www.heartsciences.com.

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Compensation Committee Interlocks and Insider Participation

None of the members of our compensation committee is an executive officer or employee of our Company. None of our executive officers serves as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving on our Board of Directors or compensation committee.

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Item 11. Executive Compensation.

Summary Compensation Table

The following table sets forth summary compensation information for our President, Chief Executive Officer and Chairman of the Board of Directors, our Chief Operating Officer and Secretary, and our Chief Financial Officer and Treasurer. The Company had no other executive officers during Fiscal 2022 and Fiscal 2021. The following table includes all compensation earned by the named executive officers for the respective period, regardless of whether such amounts were actually paid during the period

Name and Position(1) FiscalYears Salary($) OptionAwards($)(2) Total($)

Chief Financial Officer and Treasurer 2021 — — —

(1)

During Fiscal 2021, the Company did not employ a Chief Financial Officer.

(2)

Represents the full grant date value of the stock award or option grant, as applicable, calculated in accordance with FASB ASC Topic 718, Compensation—Stock Compensation. Our policy and assumptions made in the valuation of share-based payments are contained in Note 7 of the notes to our Fiscal 2021 financial statements. The value of option awards presented in the Summary Compensation Table reflects the grant date fair value of the awards and does not correspond to the actual value that will be recognized by the named executive officers.

(3)

Excludes $87,500 and $100,000 in Fiscal 2022 and Fiscal 2021, respectively, in respect of fees payable to Kyngstone Limited of which Mr. Simpson is the sole director and controlling shareholder. For additional information regarding this agreement, see “Item 13. Certain Relationships and Related Transactions, and Director Independence—Related Party Transactions.”

Employment Agreements

The Company has an employment agreement with its President and Chief Executive Officer, Andrew Simpson and with its Chief Operating Officer and Secretary, Mark Hilz. The employment agreement for each of Mr. Simpson and Mr. Hilz provides for his terms of employment, duties and responsibilities, base salary, bonus and stock option opportunities at the discretion of the Board of Directors, and eligibility to participate in our employee benefit plans generally. Each of their employment agreements contains certain restrictive covenants that restrict their ability to take certain actions, such as a non-compete, a non-solicitation covenant restricting their ability to solicit employees of the Company, and the requirement that they devote their full time and attention to the business of the Company. Each of Mr. Simpson’s and Mr. Hilz’s employment agreements automatically renews until otherwise terminated in accordance with its terms.

Outstanding Equity Awards at April 30, 2022

The following table shows outstanding option awards held by the named executive officers as of April 30, 2022:

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Option Awards Stock Awards

Andrew Simpson

Mark Hilz

Danielle Watson

(1)

Represents restricted shares of Series B Preferred Stock. These restricted shares were cancelled as a result of the IPO.

(2)

Represents options to purchase shares of Common Stock.

Non-Employee Director Compensation

The following table sets forth a summary of compensation for the fiscal year ended April 30, 2022 that the Company paid to each non-employee director. The Company does not sponsor a non-equity incentive plan or a non-qualified deferred compensation plan for its directors; therefore, these columns have been omitted from the following table. Additionally, the Company did not issue any stock awards to its directors during Fiscal 2022.

Name Fees Earned or Paid in Cash ($)(1) Option Awards ($)(2) Total ($)(3)

(1)

This column represents the amounts paid in cash to each director.

(2)

The amounts in this column reflect the aggregate grant date fair value of stock options granted in Fiscal 2022 to each director calculated in accordance with FASB ASC Topic 718. See Note 7 of the notes to our financial

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statements included in this Annual Report on Form 10-K for a discussion of all assumptions made in the calculation of these amounts.

(3)

The dollar value in this column for each director represents the sum of all compensation reflected in the previous columns.

The following table shows outstanding vested and unvested option awards (represented by the number of shares of Common Stock such awards entitle the holder to purchase) held by our directors as of April 30, 2022:

Name Vested Option Awards Unvested Option Awards Total Awards

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters.

The following table sets forth information regarding beneficial ownership of our Common Stock and Series C Preferred Stock as of July 28, 2022 by:

•

each person, or group of affiliated persons, known to us to be the beneficial owner of more than 5% of our outstanding Common Stock or Series C Preferred Stock;

•

each of our directors and executive officers; and

•

all of our directors and executive officers as a group.

Beneficial ownership is determined in accordance with the rules of the SEC, and includes voting or investment power with respect to the shares of capital stock indicated. The Common Stock issuable upon (i) conversion of Series C Preferred Stock or (ii) conversion of the convertible securities or exercise of options or warrants, in each case, that are convertible or exercisable within 60 days after July 28, 2022, are deemed outstanding for the purpose of computing the percentage ownership of the person holding such convertible securities, Series C Preferred Stock, options or warrants but are not deemed outstanding for the purpose of computing the percentage ownership of any other person.

We are not controlled by another corporation, by any foreign government or by any natural or legal persons except as set forth herein, and there are no arrangements known to us which would result in a change in control of our Company at a subsequent date. Except as indicated in footnotes to this table, we believe that the shareholders named in this table have sole voting and investment power with respect to all shares shown to be beneficially owned by them, based on information provided to us by such shareholders. Unless otherwise noted below, each beneficial owner’s address is c/o Heart Test Laboratories, Inc., 550 Reserve Street, Suite 360, Southlake, Texas 76092.

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The percentage of beneficial ownership in the table below is based on 8,236,291 shares of our Common Stock outstanding as of July 28, 2022.

Beneficial Ownership

Number of Shares(1) Percentage(2)

Common Series CPreferred Common Series CPreferred CombinedVotingPower (3)

Holders of 5% or more of each class of our securities:

Directors and executive officers:

Patrick Kanouff(11) 19,270 — * % — * %

Bruce Bent(12) 3,532 — * % — * %

Danielle Watson 4,545 — * % — * %

* Less than 1%.

(1)

For each person named in the table, the total number of shares of Series C Preferred Stock beneficially owned by such person is listed opposite of such person’s name.

(2)

For each person named in the table, the Series C Preferred Stock percentage listed opposite of such person’s name represents the percentage of the total number of the shares of Series C Preferred Stock owned by such person as a percentage of all of the shares our outstanding Series C Preferred Stock as a class.

(3)

For each person named in the table, the voting percentages listed opposite of such person’s name under the columns “Combined Voting Power” represent the combined voting percentage of all shares of our Common Stock and Series C Preferred Stock, on an as converted basis, owned by such person.

(4)

FRV’s sole member is the L. Lee Stryker Irrevocable Trust U/A/D 09/10/1974. Bohemian Asset Management, Inc. has voting and dispositive power with respect to the shares of our Common Stock on behalf of the L. Lee Stryker Irrevocable Trust U/A/D 09/10/1974. Includes (i) 567,274 shares of our Common Stock issuable upon conversion of the Series C Preferred Stock; (ii) 7,575 shares of our Common Stock issuable upon exercise of $1M Lender Warrants; and (iii) 19,902 shares of our Common Stock issuable upon conversion of the $130K Note.

(5)

Mr. Matthews is the controlling shareholder of Matthews Holdings Southwest, Inc. and has sole voting and dispositive power over all of the shares set forth opposite his name. Includes (i) 1,562 shares of our Common Stock issuable upon exercise of $1.5M Lender Warrants, (ii) 161,615 shares of our Common Stock issuable upon exercise of the Bridge Warrants; and (iii) 117,647 shares of our Common Stock issuable upon exercise of IPO Warrants.

(6)

All of the shares are owned of record by either PSKS Investments, L.P. or Mr. Knuckley and Mr. Knuckley, as general partner of PSKS Investments, L.P., has sole voting and dispositive power over all such shares. Includes (i) 96,305 shares of our Common Stock issuable upon conversion of the Series C Preferred Stock; (ii) 152 shares of our Common Stock issuable upon exercise of $1.5M Lender Warrants; and (iii) 32,323 shares of our Common Stock issuable upon exercise of Bridge Warrants.

(7)

All of the shares are owned of record by either Lary Snodgrass Family Limited, Snodgrass Children’s Limited, or Mr. Snodgrass and Mr. Snodgrass, as sole managing member and general partner of Lary

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Snodgrass Family Limited and Snodgrass Children’s Limited, has sole voting and dispositive power over all such shares. Includes (i) 111,913 shares of our Common Stock issuable upon conversion of the Series C Preferred Stock; (ii) 303 shares of our Common Stock issuable upon exercise of $1.5M Lender Warrants; and (iii) 64,646 shares of our Common Stock issuable upon exercise of Bridge Warrants.

(8)

Includes (i) 23,412 shares of our Common Stock issuable upon conversion of our Series C Preferred Stock; (ii) 30 shares of our Common Stock issuable upon exercise of $1.5M Lender Warrants; (iii) 1,023 shares of our Common Stock issuable upon exercise of Investor Warrants; and (iii) options to purchase 125,000 shares of our Common Stock, which were issued as compensation for services rendered to the Company as its Chairman of the Board of Directors. Excludes 1,697 shares of our Common Stock owned by the Simpson Family Benefit Trust, the trustee of which, Equiom (Guernsey) Limited, has voting and dispositive power over all such shares. Equiom (Guernsey) Limited disclaims beneficial ownership of all such shares.

(9)

Includes (i) 7,961 shares of our Common Stock issuable upon conversion of the Series C Preferred Stock; (ii) 30 shares of our Common Stock issuable upon exercise of $1.5M Lender Warrants; (iii) 1,023 shares of our Common Stock issuable upon exercise of Investor Warrants; and (iv) options to purchase 125,000 shares of our Common Stock issued as compensation for services as an officer of the Company.

(10)

Includes (i) 1,530 shares of our Common Stock issuable upon conversion of our Series C Preferred Stock held jointly with Mr. Szymczak’s spouse; (ii) 30 shares of our Common Stock issuable upon exercise of $1.5M Lender Warrants; and (iii) 21,212 shares of our Common Stock issuable upon exercise of options issued as compensation for services rendered to the Company.

(11)

Includes (i) 4,924 shares of our Common Stock issuable upon exercise of options issued as compensation for services rendered to the Company; and (ii) 6,464 shares of our Common Stock issuable upon exercise of Bridge Warrants.

(12)

Includes (i) 1,638 shares of our Common Stock held by Mr. Bent’s spouse and (ii) 1,894 shares of our Common Stock issuable upon exercise of options issued as compensation for services rendered to the Company.

The following table gives information about shares of our Common Stock that may be issued upon the exercise of options that were granted pursuant to individual compensation arrangements, as of April 30, 2022. See “Item 11. Executive Compensation” for more information regarding option awards.

(a) (b) (c)

Equity compensation plans approved by shareholders — — —

Equity compensation plans not approved by shareholders 502,268 $ 5.82 (2 )

(1)

As of April 30, 2022, only options were outstanding with respect to individual compensation arrangements.

(2)

The options referenced in this table were granted pursuant to individual compensation arrangements rather than formal equity compensation plans. There are no additional options available for future issuance with

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respect to such individual compensation arrangements, although the Company may issue additional options or other securities pursuant to new individual compensation arrangements in the future.

Item 13. Certain Relationships and Related Transactions, and Director Independence.

The following is a description of transactions or series of transactions since the beginning of Fiscal 2022 to which we were or will be a party, in which:

•

The amount involved in the transaction exceeds, or will exceed, the lesser of $120,000 or one percent of the average of our total assets for the last two completed fiscal years; and

•

in which any of our executive officers, directors or holders of five percent or more of any class of our capital stock, including their immediate family members or affiliated entities, had or will have a direct or indirect material interest.

For additional information regarding compensation arrangements for our named executive officers and directors, see “Executive Compensation.”

Related Party Transactions

$130K Note

On August 12, 2019, the Company entered into an unsecured drawdown convertible promissory note, which is referred to as the $130K Note, with Front Range Ventures, LLC, or FRV, for an aggregate amount not to exceed $130,000. FRV is a beneficial owner of more than five percent (5%) of the combined voting power of our outstanding capital stock and is entitled to appoint a member of the Company’s Board of Directors. As of July 28, 2022, the Company had a total of $130,000 outstanding under the $130K Note. For more information regarding the $130K Note and other indebtedness of the Company, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Description of Indebtedness—$130K Note.”

$1.5M Notes

In December 2020, we issued a series of secured convertible promissory notes, which we refer to as the $1.5M Notes, in the amount of $1.5 million. The $1.5M Notes bear interest at a simple interest rate of 12% per annum. For more information regarding the $1.5M Notes and other indebtedness of the Company, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Description of Indebtedness—$1.5M Notes.”

In November 2021, in consideration for the extension of the maturity date of the $1.5M Notes from July 31, 2022 to October 31, 2022, we issued warrants, that we refer to as the $1.5M Lender Warrants, to purchase an aggregate of 4,545 shares of Common Stock.

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The following table summarizes purchases of the $1.5M Notes by related parties of the Company and the number of shares of Common Stock issuable upon exercise of $1.5M Lender Warrants issued to related parties of the Company in consideration of the extension of the maturity of the $1.5M Notes:

(1)

Represents the principal amount of $1.5M Notes held by Matthews Holdings Southwest, Inc.

(2)

Represents the principal amount of $1.5M Notes held by Lary Snodgrass Family Limited and Snodgrass Children’s Limited.

(3)

Represents the principal amount of $1.5M Notes held by PSKS Investments LP.

(4)

All $1.5M Notes converted into shares of Common Stock upon consummation of the IPO.

In May 2022, the terms of the $1.5M Notes were further amended. As amended, the $1.5M Notes automatically converted upon the consummation of the IPO, eliminating the condition that the $1.5M Notes would automatically convert upon the consummation of a public offering of Common Stock which values the entire equity capital of the Company at $50 million or more.

All such purchases of the $1.5M Notes by, and issuances of the $1.5M Lender Warrants to, related parties of the Company were made on the same basis as the purchases made by, and issuances made to, unrelated purchasers.

$1M Loan and Security Agreement

Beginning in April 2020, the Company entered into a loan and security agreement, which we refer to as the $1M Loan and Security Agreement, with FRV, a beneficial owner of more than five percent (5%) of the combined voting power of our outstanding capital stock, and John Q. Adams, Sr. (a former director of the Company). For more information regarding the $1M Loan and Security Agreement and other indebtedness of the Company, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Description of Indebtedness—$1M Loan and Security Agreement.”

In November 2021, in consideration for an extension of the maturity date of the $1M Loan and Security Agreement from September 30, 2021 to September 30, 2022, we issued warrants, that we refer to as the $1M Lender Warrants, to purchase an aggregate of 15,152 shares of Common Stock to FRV and Mr. Adams. The $1M Loan and Security Agreement was further amended in May 2022 to extend the maturity date to September 30, 2023. In connection with this amendment, we agreed to pay all accrued and unpaid interest owed to Mr. Adams prior to September 30, 2022. In June 2022, the Company paid approximately $126,000 in accrued interest to Mr. Adams.

2021 Bridge Financing

In connection with the 2021 Bridge Financing, the related parties listed below purchased Bridge Notes and received Bridge Warrants. All such purchases were made on the same basis as the purchases made by unrelated purchasers.

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The following table sets forth the names of such related parties and amount of the Bridge Notes and Bridge Warrants purchased:

(1)

Includes Bridge Notes and Bridge Warrants held by Matthews Holdings Southwest, Inc.

(2)

The principal amount of all Bridge Notes and accrued interest thereunder converted into shares of Common Stock upon consummation of the IPO.

Registration Rights Agreement

In connection with the 2021 Bridge Financing, we entered into the Registration Rights Agreement with the purchasers of the Bridge Notes pursuant to which we agreed to file a resale registration statement, no later than September 12, 2022, with respect to the shares of Common Stock issuable upon conversion of the Bridge Notes, exercise of the Bridge Warrants or resulting from anti-dilution provisions in the Bridge Notes, the Bridge Warrants and the Pre-Funded Warrants or any securities issued or the issuable upon any stock split, dividend or other distribution, recapitalization or similar event, collectively referred to as the Registrable Securities.

Short-term $500K Unsecured Note

On August 12, 2021, we issued a note, for the amount of $500,000 to Matthews Southwest Holdings, Inc., a beneficial owner owning more than 5% of our Common Stock. The maturity date of this note, as amended, was November 30, 2021. This note has been repaid and there are no further obligations owed by the Company. In connection with the issuance of this note, we also issued 10,101 shares of Common Stock to Matthews Southwest Holdings, Inc.

Kyngstone Agreement

Andrew Simpson, the Chairman and CEO of the Company, is the sole and controlling shareholder of Kyngstone Limited, or Kyngstone, a company incorporated in the United Kingdom. Kyngstone has provided advisory services to the Company pursuant to an Agreement dated June 25, 2013 between the Company and Kyngstone. Since the beginning of Fiscal 2022, the Company has expensed $87,500 in respect of fees to Kyngstone.

Agreements with Front Range Ventures

Pursuant to the FRV Side Letter, FRV has the right to designate a director of the Company, who is currently Patrick Kanouff.

Policy Related to Related Party Transactions

Our Board of Directors has adopted a formal, written related party transactions policy setting forth the Company’s policies and procedures for the review, approval, or ratification of “related party transactions.” For these purposes, a “related party” is (i) any person who is or was an executive officer, director, or director nominee of the Company at any time since the beginning of the Company’s last fiscal year, (ii) a person who is or was an immediate family member of an executive officer, director, director nominee at any time since the beginning of the

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Company’s last fiscal year, (iii) any person who, at the time of the occurrence or existence of the transaction, is the beneficial owner of more than 5% of any class of the Company’s voting securities, (iv) any person who, at the time of the occurrence or existence of the transaction, is an immediate family member of a shareholder owning more than 5% of any class of the Company’s voting securities or (v) any entity that, at the time of the occurrence or existence of the transaction, is a an entity in which a director of the Company is a partner, shareholder or executive officer or otherwise over which such director has influence or control. This policy applies to any transaction between the Company and a related party other than the following:

•

Transactions available to all employees generally.

•

Transactions, which when aggregated with the amount of all similar transactions, involve less than $5,000.

Any related party transaction subject to this policy may only be consummated or may continue only if the Audit Committee approves or ratifies such transaction in accordance with the guidelines set forth in the policy and if the transaction is on terms comparable to those that could be obtained in arm’s length dealings with an unrelated third party and the transaction is approved by the disinterested members of the Board of Directors. In addition, if the transaction involves compensation, the compensation must have been approved by the Compensation Committee.

Our Audit Committee will analyze the following factors, in addition to any other factors the members of the Audit Committee deem appropriate, in determining whether to approve a related-person transaction:

•

The benefits to the Company.

•

The impact on a director’s independence in the event the related party is a director, an immediate family member of a director or an entity in which a director is a partner, shareholder or executive officer or otherwise over which such director has influence or control.

•

The availability of other sources for comparable products or services.

•

The terms of the related party transaction.

•

The terms available to unrelated third parties or to employees generally.

Our Audit Committee shall approve only those related party transactions that are in, or are not inconsistent with, the best interests of the Company and its shareholders, as the Audit Committee determines in good faith.

Item 14. Principal Accounting Fees and Services.

The following table represents aggregate fees billed to during Fiscal 2022 and Fiscal 2021, by Haskell & White LLP, our independent registered public accounting firm.

Year Ended April 30,

(1) Audit fees relate to professional services rendered in connection with the audit of the Company's annual financial statements, quarterly review of financial statements and audit services provided in connection with other statutory and regulatory filings.

(2) Fees related to the IPO in June 2022.

Audit Committee Pre-Approval Policies and Procedures

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The Audit Committee is responsible for the appointment, compensation and oversight of the work of the independent registered public accounting firm and approves in advance any services to be performed by the independent registered public accounting firm, whether audit-related or not. The Audit Committee reviews each proposed engagement to determine whether the provision of services is compatible with maintaining the independence of the independent registered public accounting firm. As no Audit Committee was in place as of April 30, 2022, all of the fees shown above were pre-approved by the entire Board of Directors.

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PART IV

Item 15. Exhibits, Financial Statement Schedules.