Annual Report for Fiscal Year Ending 04-30, 2026 (Form 10-K)

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

HeartSciences is a healthcare information technology company focused on advancing electrocardiography ("ECG" or "EKG") through the integration of artificial intelligence ("AI"). The Company has developed MyoVista Insights™, a cloud-native, vendor- and device-agnostic ECG management platform designed to modernize ECG workflows and enable scalable deployment of AI-ECG capabilities across healthcare systems.

MyoVista Insights™ is classified as a Medical Device Data System ("MDDS") and is exempt from U.S. Food and Drug Administration ("FDA") 510(k) requirements. The platform is designed to streamline ECG study organization, enhance waveform analysis, and simplify clinical workflows, enabling more efficient interpretation, storage, and management of ECG data. It is also designed to host AI-ECG algorithms from multiple vendors and integrate them directly into clinical workflows, providing a flexible and extensible foundation for the adoption of AI in ECG.

Following its early adopter launch in 2025, we have implemented phased enhancements to MyoVista Insights™. In March 2026, we released a significant version upgrade for broader deployment across cardiology and healthcare IT environments. This release included mobile device access, enhanced reporting capabilities, and expanded interoperability designed to support integration across large health systems and enterprise environments.

In March 2026, MyoVista Insights™ received Epic Toolbox designation for the ECG Management System category from Epic Systems Corporation. We believe this designation supports its positioning within enterprise healthcare IT ecosystems and may facilitate adoption within Epic-enabled health systems.

We expect to generate revenue from installation fees, software-as-a-service ("SaaS") usage fees and fees associated with AI-ECG algorithms made available through the platform's AI-ECG marketplace, including third-party algorithms.

We have also developed the MyoVista® wavECG™ device, which provides conventional ECG functionality and is designed to host embedded AI-ECG algorithms. We submitted the MyoVista wavECG device to the FDA for 510(k) premarket clearance in December 2025, and the submission remains under FDA review. We cannot provide assurance on the timing or outcome of the FDA's review, and there can be no assurance that 510(k) clearance will be obtained.

The future success of the MyoVista® wavECG™ device is dependent on obtaining FDA clearance and the integration of an impaired cardiac relaxation (e') AI-ECG algorithm under development. Following the publication of updated American Society of Echocardiography ("ASE") guidelines for the assessment of Left Ventricular Diastolic Dysfunction ("LVDD"), including revised age-based thresholds for cardiac relaxation (e'), the Company elected to separate the FDA submissions for the MyoVista wavECG device and the impaired cardiac relaxation algorithm. Additional development and validation will be required for the impaired cardiac relaxation algorithm to align with the updated clinical standards.

The Company will require additional funding to support working capital, continued development and commercialization of MyoVista Insights™, and regulatory clearance of the MyoVista wavECG device and the impaired cardiac relaxation AI-ECG algorithm.

Recent Developments

Merger Agreement with Fortitude

On June 23, 2026, we and the Merger Sub entered into the Merger Agreement with Seller and Fortitude. The Merger Agreement provides that, subject to the satisfaction or waiver of certain closing conditions set forth in the Merger Agreement (including receipt of the Parent Stockholder Approvals (as defined in the Merger Agreement)), at the Effective Time, Merger Sub will merge with and into Fortitude, with Fortitude surviving the Merger with our Company thereby becoming the sole managing member of the Surviving Company following the consummation of the Transactions. The completion of the proposed Merger and the other Transactions are subject to a number of closing conditions, which make the completion and timing of the completion of the proposed Merger and the other Transactions uncertain. For additional information about the Merger Agreement, the Merger and the Transactions, please see our Current Report on Form 8-K filed with the SEC on June 23, 2026.

Launch of MyoVista Insights™

The MyoVista Insights™ initially launched in May 2025 and we have since implemented phased enhancements to the platform. In March 2026, we released a significant version upgrade for broader deployment across cardiology and healthcare IT environments. This release included mobile device access, enhanced reporting capabilities, and expanded interoperability designed to support integration across large health systems and enterprise environments.

In March 2026, MyoVista Insights™ received Epic Toolbox designation for the ECG Management System category from Epic Systems Corporation. We believe this designation supports its positioning within enterprise healthcare IT ecosystems and may facilitate adoption within Epic-enabled health systems.

In June 2026, we launched MyoVista Insights™ version 1.3 which introduces an AI-ECG Algorithm Marketplace that allows healthcare providers to access FDA-cleared cardiac AI tools though a single use system, beginning with an FDA-cleared AI-ECG model from Bunkerhill Health. The launch marks the first time a cleared AI-ECG algorithm is available through MyoVista Insights™ and establishes the platform as a commercial pathway for AI-ECG developers seeking to reach clinical users though a recurring, Software as a Service ("SaaS") based revenue model.

First Commercial Customers

In May 2026, the Company announced it signed two commercial agreements to deploy the MyoVista Insights™ platform. The agreements mark an important commercial milestone for the Company, representing first mainstream SaaS based revenue-generating deployments of MyoVista Insights™.

FDA 510(k) Submission of MyoVista® wavECG™ Device

In December 2025, we submitted our MyoVista® wavECG™ device to the FDA for 510(k) premarket clearance, and the submission remains under FDA review.

Patents

In June 2026, we were granted a patent from the European Patent Office covering machine-learning models that use ECG data to estimate echocardiogram parameters indicative of diastolic function.

Going Concern

On July 23, 2026, our independent registered public accounting firm issued an opinion on our audited financial statements, included in our Annual Report on Form 10-K for the year ended April 30, 2026, that contained 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 limited capital resources.

$3.6M Streeterville Note Purchase Agreement and Promissory Note

On January 13, 2026, we entered into a Note Purchase Agreement (the "Note Purchase Agreement"), with Streeterville Capital, LLC, an accredited investor ("Streeterville"), pursuant to which we issued to Streeterville an unsecured note in the original principal amount of $3,605,000 (the "$3.6M Streeterville Note"). The $3.6M Streeterville Note bears interest at a rate of 12% per annum and matures 18 months after its issuance date. The $3.6M Streeterville Note carried an OID of $600,000, and $5,000 was reimbursement for Streeterville's transaction expenses. As a result, we received aggregate net proceeds of $3.0 million in connection with the issuance of the $3.6M Streeterville Note. From time to time, beginning six months after issuance, Streeterville may require us to redeem a portion of the $3.6M Streeterville Note, not to exceed an amount of $405,000 per month. In the event we have not reduced the outstanding balance under the $3.6M Streeterville Note by at least $1,250,000 by the 12-month anniversary of the $3.6M Streeterville Note issuance date, then the outstanding balance of the $3.6M Streeterville Note at such time will automatically increase by 5%. Subject to the terms and conditions set forth in the $3.6M Streeterville Note, we may prepay all or any portion of the outstanding balance of the $3.6M Streeterville Note at any time.

The Note Purchase Agreement and the $3.6M Streeterville Note contain customary agreements, affirmative and restrictive covenants, representations and warranties and customary events of default, including if we undertake a fundamental transaction (including consolidations, mergers, and certain changes in control of our Company), without Streeterville's prior written consent, subject to certain exceptions as provided in the $3.6M Streeterville Note. As described in the $3.6M Streeterville Note, upon the occurrence of certain events of default, the outstanding balance of the Note will become automatically due and payable. Additionally, upon an event of default described in the $3.6M Streeterville Note (i.e., the failure to pay amounts under the $3.6M Streeterville Note when due or to observe any covenant under the Note Purchase Agreement), the outstanding balance of the $3.6M Streeterville Note automatically increases to the lesser of 18% or the maximum rate permitted by law.

$2.5M Streeterville Note Extension

On March 11, 2026, we and Streeterville amended the $2.5M Streeterville Note to extend the maturity date to June 30, 2026. On June 23, 2026, the Company entered into an exchange agreement with Streeterville, pursuant to which Streeterville exchanged the remaining balance of accrued interest of approximately $164,017 owed under the $2.5M Streeterville Note for 78,103 shares of the Company's Common Stock. The issuance of the shares was made pursuant to the exemption from the registration requirements afforded by Section 3(a)(9) of the Securities Act. As of the date of this Annual Report, the $2.5M Streeterville note and accrued interest has been repaid in full.

FRV Amendment No. 7

On September 26, 2025, the Company and FRV entered into Amendment No. 7 of the Loan and Security Agreement and No. 3 Amended and Restated Secured Promissory Note, pursuant to which the parties agreed to further extend the maturity date to September 30, 2026 and for the Company to pay the outstanding accrued interest as follows: (i) a payment of accrued interest on or before September 30, 2025 and (ii) thereafter all accrued interest due shall be payable at maturity. The Company may elect to repay all or any part of the FRV Note, as amended, in its sole discretion at any time prior to the extended maturity date, provided such repayment shall not be less than $50,000 and shall first be applied to accrued interest and thereafter to outstanding principal. During the year ended April 30, 2026, the Company paid approximately $61,000 in accrued interest to FRV.

Regulation A Offering

We filed an Offering Statement on Form 1-A (File No. 024-12572) (as amended and supplemented from time to time, the "Form 1-A"), with the SEC and which was qualified by the SEC on March 10, 2025, to register the offering of up to 4,285,714 units of our Company (the "Units") at an offering price of $3.50 per Unit, for a maximum offering amount of $15,000,000 worth of Units (collectively, the "Offering"). Each Unit consists of one share of our Series D Preferred Stock, $0.001 par value per share (the "Series D Preferred Stock"), and one warrant (each a "Warrant" and collectively the "Warrants") to purchase one share of our Common Stock at an exercise price of $5.00 per share. On April 10, 2026, we filed a Post-Qualification Amendment No. 1 to the Form 1-A with the SEC and which was qualified by the SEC on April 17, 2026.

As of the date of this Annual Report, we have received a total of approximately $6.7 million of gross proceeds, resulting in the issuance of 1,912,383 Units, as a result of several closings of the Offering. As of the date of this Annual Report, holders of 1,486,547 shares of Series D Preferred Stock, received as part of the issued Units, have elected to convert such shares of Series D Preferred Stock into 1,486,547 shares of Common Stock.

Results of Operations

Revenue

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 wavECG.

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 R&D expenses and selling, general and administrative expenses.

Research and Development Expenses

Our R&D activities primarily consist of clinical, regulatory, engineering and research work associated with our MyoVista wavECG device. R&D expenses include payroll and personnel-related costs for our R&D, clinical and regulatory personnel, including expenses related to stock-based compensation for such employees, consulting services, clinical trial expenses, regulatory expenses, prototyping and testing. R&D 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 R&D costs related to the MyoVista wavECG device as they have been incurred.

Selling, General and Administrative Expenses

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

Interest Expense

Interest expense relates to our loan facilities.

Other Income (Expense), Net

Other income (expense), net primarily consists of interest earned on cash balances.

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 2026 and Fiscal 2025:

Revenues were $4 thousand and cost of sales were $2 thousand for each of the years ended April 30, 2026 and April 30, 2025. Our revenues in the fiscal years have been mainly generated from suppliers outside the United States relating to devices placed as part of obtaining feedback during product development and improvement of the MyoVista wavECG.

Research and development expenses are primarily from software consulting and hardware development which is consistent with work being performed for our MyoVista wavECG and MyoVista Insights™. R&D expenses were $2.8 million for the year ended April 30, 2026, representing a decrease of $1.6 million, or 35%, when compared to the year ended April 30, 2025. The decrease is primarily due to reduced consulting costs as we completed and launched phase 1 of MyoVista Insights™ in May 2025. Further decrease is a result of capitalization of approximately $0.7 million in software related costs related to our MyoVista Insights™.

Selling, general, and administrative expenses are primarily related to personnel and professional services. Selling, general, and administrative expenses were $5.6 million for the year ended April 30, 2026, representing an increase of $1.6 million, or 41%, when compared to the year ended April 30, 2025. The increase is primarily related to an increase in compensation costs of approximately $0.2 million for additional personnel hired during the year, increased stock compensation related to equity grants for approximately $1.0 million, and $0.7 million related to legal, accounting and other professional fee expenses that were expensed related to the offering on Form 1-A. Costs were further offset by reductions in professional fees related to withdrawal of the Company's S-1/A registration statement in Fiscal 2025, for an aggregate amount of approximately $0.3 million.

Interest expense was $0.8 million for the year ended April 30, 2026, representing an increase of $0.3 million, or 50%, when compared to the year ended April 30, 2025. Interest expense in Fiscal 2026 is related to interest on the FRV Note and interest and debt service amortization on the Streeterville Notes.

Other income of $24 thousand and $88 thousand for the fiscal years ended April 30, 2026 and 2025, respectively, is related to interest earned on our cash balances which fluctuated during such fiscal years ended.

Liquidity and Capital Resources

As of April 30, 2026, we had approximately $1.7 million in cash, an increase of $0.6 million from $1.1 million as of April 30, 2025. We incurred a net loss of $9.1 million for the year ended April 30, 2026. As of April 30, 2026, we had an accumulated deficit of $85.3 million and working capital deficit of $2.3 million.

On June 23, 2026, we and the Merger Sub entered into the Merger Agreement with Seller and Fortitude. The Merger Agreement provides that, subject to the satisfaction or waiver of certain closing conditions set forth in the Merger Agreement (including receipt of the Parent Stockholder Approvals (as defined in the Merger Agreement)), at the Effective Time, Merger Sub will merge with and into Fortitude, with Fortitude surviving the Merger with our Company thereby becoming the sole managing member of the Surviving Company following the consummation of the Transactions. The completion of the proposed Merger and the other Transactions is subject to a number of closing conditions, which make the completion and timing of the completion of the proposed Merger and the other Transactions uncertain. Failure to complete the proposed Merger and the other Transactions are not completed would likely materially adversely affect our business, financial condition, results of operations and stock price.

We filed an Offering Statement on Form 1-A (File No. 024-12572) (as amended and supplemented from time to time, the "Form 1-A"), with the SEC and which was qualified by the SEC on March 10, 2025, to register the offering of up to 4,285,714 Units at an offering price of $3.50 per Unit, for a maximum offering amount of $15,000,000 worth of Units. Each Unit consists of one share of our Series D Preferred Stock and one Warrant to purchase one share of our Common Stock at an exercise price of $5.00 per share. On April 10, 2026, we filed a Post-Qualification Amendment No. 1 to the Form 1-A with the SEC and qualified by the SEC on April 17, 2026. As of the date of this Annual Report, we have received a total of approximately $6.7 million of gross proceeds, resulting in the issuance of 1,912,383 Units, as a result of several closings of this offering. As of the date of this Annual Report, holders of 1,486,547 shares of Series D Preferred Stock, received as part of the issued Units, have elected to convert such shares of Series D Preferred Stock into 1,486,547 shares of Common Stock. The Company terminated the offering in June 2026.

In September 2023, the Company entered into an Equity Distribution Agreement (the "EDA") with an institutional investor, pursuant to which the Company may offer and sell an aggregate of up to $3.25 million of its shares of Common Stock in At-the-Market offerings ("ATM Facility"). In November 2023, the EDA was further amended increasing the aggregate amount of Common Stock that may be sold under the ATM Facility to up to $15.0 million, and further amended again in August 2025, increasing the aggregate amount of Common Stock that may be sold under the ATM Facility from to up to $25.0 million. The Company is eligible to sell up to $14.7 million worth of shares of Common Stock as the aggregate market value of the Company's shares of Common Stock eligible for sale under the EDA is subject to limitations of General Instruction I.B.6 of Form S-3 until such time that the Company's public float equals or exceeds $75.0 million or the availability pursuant to General Instruction I.B.6 of Form S-3 further increases. In the event the aggregate market value of the Company's outstanding Common Stock held by non-affiliates equals or exceeds $75.0 million, then the one-third limitation on sales set forth in General Instruction I.B.6 of Form S-3 shall not apply to additional sales made pursuant to the EDA. During the year ended April 30, 2026, the Company has issued and sold 48,858 shares of Common Stock under the ATM Facility for net proceeds of approximately $0.2 million, after banker fees, legal fees and other costs. There was approximately $4.2 million available for issuance under the ATM Facility as of the date of this Annual Report. We expect any proceeds received from the ATM Facility will be used for working capital and general corporate purposes.

On March 10, 2023, the Company entered into a purchase agreement with Lincoln Park Capital Fund, LLC ("Lincoln Park"), under which, subject to specified terms and conditions, the Company may sell to Lincoln Park up to $15.0 million of Common Stock, from time to time, over the thirty-six (36) month term of the purchase agreement, which ended on March 10, 2026. As of the date of this Annual Report, we have received approximately $2.2 million from the sale of Common Stock pursuant to the purchase agreement.

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.

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 limited capital resources. 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:

Operating Activities

Net cash used by our operating activities of $7.4 million during Fiscal 2026 was primarily due to our net loss of $9.1 million plus net non-cash operating expense items of $2.8 million less $1.1 million of net changes in operating assets and liabilities.

Net cash used by our operating activities of $7.4 million during Fiscal 2025 as primarily due to our net loss of $8.8 million plus net non-cash operating expense items of $0.8 million and $0.6 million of net changes in operating assets and liabilities.

Financing Activities

Net cash provided by financing activities of $8.0 million during Fiscal 2026 is primarily from the issuance of Series D Preferred Stock and warrants and net proceeds from the $3.6M Streeterville Note.

Net cash provided by financing activities of $2.7 million during Fiscal 2025 is primarily from the issuances of Common Stock and proceeds from the $2.5M Streeterville Note.

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 wavECG.

As of April 30, 2026, our cash and cash equivalents were $1.7 million. We will need to seek additional financing to fund our future operations. Our future capital requirements will depend on many factors, including:

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 our products 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 products. 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".

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. These assumptions are primarily based on historical data, peer company data and the judgment of management regarding future trends and other factors.

Management 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. For restricted stock units ("RSUs") issued to employees, the Company recognizes the grant date fair value of the RSUs over the requisite service period, which is generally the vesting term. For awards only subject to service-based vesting conditions, the Company recognizes stock-based compensation expense on a straight-line basis. For awards subject to performance-based vesting conditions, the Company recognizes stock-based compensation expense using the accelerated attribution method when the achievement of the performance condition becomes probable.

Capitalized Internal-Use Software Costs

The Company capitalizes certain costs incurred in the development and implementation of internal-use software in accordance with ASC 350-40, Internal-Use Software. Internal-use software includes software developed or obtained for use in the Company's MyoVista Insights™ platform, including software that supports the delivery of the Company's software-as-a-service ("SaaS") offerings. Software development costs meeting the capitalization criteria, are capitalized once the preliminary project stage is complete, management authorizes and commits to funding the project, and it is probable the project will be completed and used as intended. Capitalized costs primarily consist of external contractor costs, employee compensation, and costs directly attributable to software development activities. Capitalized software costs are amortized over an estimated useful life and included in depreciation and amortization expense. Amortization begins when the software is substantially complete and ready for its intended use. Costs associated with upgrades and enhancements that result in additional functionality are capitalized, while costs incurred for maintenance, and support activities are expensed as incurred. The Company evaluates capitalized internal-use software for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

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 R&D are expensed as consumed.

Inventory consists mainly of raw materials and components used in the current hardware build of the MyoVista wavECG devices and components are used for R&D purposes and device sales, which to date have been in international markets as sale of the MyoVista wavECG in the U.S. is subject to FDA clearance. The Company believes that its hardware platform is in final form, however, prior to FDA clearance and market acceptance of the MyoVista wavECG devices, 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 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 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. The Company periodically 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 wavECG, the Company could have further material write-downs of inventory due to obsolescence in excess of the amount currently reserved.

Recent Accounting Pronouncements

See Note 3 - Summary of Significant Accounting Policies to our audited financial statements included elsewhere in this Annual Report on Form 10-K.