HEART TEST LABORATORIES, INC. Management report and analysis of the financial situation and operating results. (Form 10-K)

0
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 more information on the FDA’s 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 approx. $5.2 million as net proceeds from the IPO after deducting the discount and underwriting commission and other IPO fees payable by the Company of approximately $1.2 million. From

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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.

Until we use the net proceeds from the IPO, we may invest the net proceeds in a variety of capital-preserving investments, including short-term, high-quality, interest-bearing and WE state titles.

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.

Functionnary costs

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

Research and development costs

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 include salaries and personnel costs for field support staff, business development, consulting, stock-based compensation and administrative staff who support our general operations such as general 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, recruitment costs, travel costs and amortization.

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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 (expenses), net

Other income (expense), net, consists mainly of the cancellation 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 income statements for fiscal 2022 and fiscal 2021:

                                             For the year ended April 30,
                                               2022                 2021           $ Change       % Change
                                                          (In thousands, except percentages)
Revenue                                   $           14       $           26     $      (12 )           (46 )%
Cost of sales                                          8                   11             (3 )           (27 )%
Gross margin                                           6                   15             (9 )           (60 )%
Operating expenses:
Research and development                           3,001                1,708          1,293              76 %
Selling, general and administrative                1,714                  875            839              96 %
(Gain) loss on disposal of property and
equipment                                              -                   (2 )            2            (100 )%
Total operating expenses                           4,715                2,581          2,134              83 %
Loss from operations                              (4,709 )             (2,566 )       (2,143 )            84 %
Interest expense                                    (372 )               (132 )         (240 )           182 %
Gain on extinguishment of debt                       250                  250              -               -
Other income                                           3                    -              3              NM
Other expense                                          -                   (4 )            4            (100 )%
Other income (expense), net                         (119 )                114           (233 )          (204 )%
Net loss                                  $       (4,828 )     $       (2,452 )   $   (2,376 )            97 %


*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.

Cost of sales decreased $3,000i.e. 27%, at $8,000 in fiscal year 2022 compared to $11,000 for the 2021 financial year and the decrease is consistent with the observed decrease in revenues.

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 in fiscal 2022 compared to fiscal 2021, an increase of 182%, primarily due to bridge note interest and debt service amortization. For more information, see “-Description of indebtedness”.

Cash 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.

From April 30, 2022we had about $918,000 cash flow, an increase of
$195,000 of $723,000 of the April 30, 2021.

In fiscal 2022, we raised $4.2 million in gross proceeds (excluding an initial issue discount of $0.5 million on the Bridge Notes), offset by approximately $385,000 in deferred financing costs, as part of the 2021 bridge financing to support the Company before the IPO.

From our inception to April 30, 2022we have funded our operations primarily through the sale 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 Ended
                                                                  April 30,
U.S. dollars, in thousands                                    2022         2021
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.

Fundraising 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 requirements

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 the debt

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

                                    As of April 30,
                                    2022        2021

Bridge Notes                      $  3,442     $     -
$130K Note                             130         130
$1.5M Notes                          1,500       1,500
$1M Loan and Security Agreement      1,000       1,000
PPP Loan                                 -         250
Total:                            $  6,072     $ 2,880




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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 Remarks

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.

$1 million Loan and guarantee 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.

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

The $1 million Notes contain many fault events, including:

non-payment of principal or interest;

breach of any representation or warranty set forth in any of the documents and instruments executed and delivered under the $1 million Loan and Guarantee Agreement, as amended;

cross default and cross acceleration of certain other debts;

bankruptcy and judgments;

a final judgment or an order for the payment of a sum greater than $10,000 rendered against the Company;

cessation of our activities; and

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 $1 million The Notes do not contain any terms, other than those defined as Events of Default and therefore listed above, which restrict our ability to conduct our 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, 2021the Company received a second PPP loan in the amount of
$250,200. In accordance with PPP guidelines, the loan was canceled 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:

the progress and costs of our research and development activities;

the costs of manufacturing our device;

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

the potential costs of contracting with third parties to provide us with marketing and distribution services or to build such capabilities 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.

Significant 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 the fair value of common shares

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:

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

actual operational and financial performance;

current business conditions and projections;

the rights, preferences and privileges of our preferred stock over those of our common stock;

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

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•

advancing our research and development efforts;

stock market conditions affecting comparable public companies; and

general US 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.

Inventory pricing and valuation

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 start-up companies, including dependence on key people and products, the inherent difficulties of developing a commercial market, the need for ‘obtain additional capital, competition from large 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 cannot guarantee that such financing or strategic relationships will be available on acceptable terms, or not 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 applying the guidance on the scope exception for derivatives results in some contracts being accounted for as derivatives while accounting for economically similar contracts as equity. The FASB has also decided to improve and modify the guidelines relating to the EPS.

Amendments to this ASU are effective for fiscal years beginning after
December 15, 2021, including interim periods during those years. The Company has adopted ASU 2020-06 effective the reporting period commencing 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.

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