Autonomix Medical Inc

Notes to the Financial Statements

Note1 – Description of the Business, Basis of Presentation and Summary of Significant Accounting Policies

Description of the Business

Autonomix Medical, Inc (“we,” “our,” the “Company”) is a medical device company organized as a Delaware corporation on* June 10, 2014.*The Company is a pre-revenue, clinical stage life sciences company focused on advancing innovative technologies for sensing and treating disorders relating to the peripheral nervous system.

Liquidity and Going Concern

The Company's financial statements are prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The Company is an early-stage company that is subject to all the risks associated with early-stage and emerging growth companies and has incurred losses since inception. For the years ended* March 31, 2024and2023,* the Company has net losses of approximately $15.4 million and $2.0 million, respectively and had net cash flows used in operating activities of $6.6 million and $1.9 million, respectively. The Company hadno revenues for the years ended* March 31, 2024and2023,* respectively, accumulated deficit of $39.0 million and working capital of approximately $8.6 million as of* March 31, 2024.The Company doesnot* expect to generate positive cash flows from operating activities in the near future. These conditions, and the Company's ability to comply with such conditions, raise substantial doubt about the Company's ability to continue as a going concern withinone year after the date that the financial statements are issued. The accompanying financial statements have been prepared on a going concern basis and donot include any adjustments that might be necessary if the Company is unable to continue as a going concern.

On* January 26, 2024,the Company completed its initial public offering (“IPO”) of common stock. During the IPO, the Company sold a total of 2,234,222 shares of common stock at a purchase price of $5.00 per share for gross proceeds of $11.2 million and net proceeds of $9.8 million. On May 13, 2024,the Company cancelled 1,050 shares represented in the IPO due to payment disputes. As part of the IPO closing, $0.3 million was retained by the Company’s marketing partner as a holdback to be paid90* days after the IPO. This $0.3 million was recorded in other current assets on the Company's balance sheet. In connection with the closing of the IPO, a portion of the Company’s convertible notes were converted into 335,000 shares of the Company’s common stock. Upon the closing of the IPO, certain notes were to be automatically converted according to their terms into the Company’s common stock to the extent and provided that certain holders of these notes arenot permitted to convert such notes to the extent that the holders or any of its affiliates would beneficially own in excess of4.99% of the Company’s common stock after such conversion. Due to this 4.99% limitation, principal representing $1.3 million, or 665,000 shares, of these convertible notes remained outstanding. The Company's existing cash resources, unexercised warrants and the cash received from the IPO arenot expected to provide sufficient funds to carry out the Company's operations and clinical trials through the nexttwelve months.

The Company paid a cash commission of 7.0% to the selling agent on sales of the shares of common stock in the IPO. In addition, the Company has issued the selling agent warrants to purchase up to a total number of shares of common stock equal to 2.675% of the total number of shares sold in the IPO at an exercise price equal to 125% of the public offering price of the shares sold in the IPO. The selling agent warrants will be exercisable at any time, and from time to time, in whole or in part, commencing from the date that issix months after the commencement date of sales in the IPO and expiring on thefifth anniversary of the commencement date of sales in the IPO. The selling agent warrants will have a cashless exercise provision and will provide for registration rights with respect to the registration of the shares underlying the warrants.

The Company estimates its current cash resources, including the approximately $9.8 million of net proceeds from the IPO is sufficient to fund its operations into butnot beyond thefirst calendar quarter of2025. The Company recognizes it will need to raise additional capital to continue to execute its business plan, including obtaining regulatory clearance for its products currently under development and commercializing and generating revenues from products under development. There isno assurance that additional financing will be available when needed or that management will be able to obtain financing on terms acceptable to the Company. A failure to raise sufficient capital, generate sufficient product revenues, control expenditures and regulatory matters, among other factors, will adversely impact the Company’s ability to meet its financial obligations as they become due and payable and to achieve its intended business objectives. If the Company is unable to raise sufficient additional funds, it will have to scale back its operations.

Basis of Presentation

The annual financial statements and disclosures have been prepared using the accrual basis of accounting in accordance with U.S. generally accepted accounting principles (“GAAP”).

51

Use of Estimates in Financial Statement Presentation

The preparation of these financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. The Company's significant estimates and assumptions include the valuation of equity related instruments, and initial and recurring fair value measurements for the warrant liability. Although the Company believes that its estimates and assumptions are reasonable, they are based upon information available at the time the estimates and assumptions were made. Some of these judgments can be subjective and complex, and, consequently, actual results could differ from those estimates.

Cash and Cash Equivalents

The Company considers all highly liquid accounts with original maturities ofthree months or less at the date of acquisition to be cash equivalents. Periodically, the Company* maycarry cash balances at financial institutions in excess of the federally insured limit of$250,000.* The Company hasnot experienced losses on these accounts and management believes, based upon the quality of the financial institutions, that the credit risk with regard to these deposits isnot significant.

Offering Costs

Offering costs consist of professional costs incurred through the balance sheet date that are direct and incremental related to the Company’s anticipated IPO. These costs, together with the selling agent fees, were reclassified to additional paid-in capital upon completion of the Company’s IPO on* January 26, 2024.*Costs associated with salaries and other period costs were expensed as incurred.

During the year ended* March 31, 2024,*the Company paid $1.3 million of offering costs related to its IPO.

Property and Equipment

Property and equipment are stated at historical cost and depreciated on a straight-line basis over their estimated useful lives, generallythree years. Upon disposition of the assets, the costs and related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the results of operations.

Convertible Notes

The Company evaluates embedded redemption, conversion and other features within its debt to determine whether any embedded features should be bifurcated from the host instrument and accounted for as a derivative at fair value, with changes in fair value recorded in the statement of operations.

The Company’s debt is carried on the balance sheet on a historical cost basis net of unamortized discounts and premiums because the Company hasnot elected the fair value option of accounting. Costs associated with acquiring debt, including detachable warrants issued in connection with the financing, are capitalized as a debt discount. The debt discount is presented in the balance sheet as a direct deduction from the carrying amount of the debt liability. The costs are amortized over the estimated contractual life of the related debt instrument using the effective interest method and are included in interest expense in the statement of operations.

If the Company incurs costs associated with its convertible notes, in advance of the receipt of proceeds, the Company will record a deferred asset. Upon receipt of proceeds the Company will reclassify the deferred asset as a direct deduction from the carrying amount, as described above. In addition, since the instruments included a substantive conversion feature as of time of issuance, the issuance of equity securities were accounted for as a contractual conversion withno gain or loss recognized related to the equity securities issued to settle the instrument.

Fair Value of Financial Instruments

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. The Company utilizes athree-level valuation hierarchy for disclosures of fair value measurements, defined as follows:

Level1 – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

52

Level2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments.

Level3 – inputs to the valuation methodology are unobservable and significant to the fair value and require significant judgment and estimation.

The carrying value of short-term instruments, including cash, accounts payable, accrued expenses and convertible notes included in long-term debt, approximate fair value due to the relatively short period to maturity for these instruments.

Related Parties

The Company follows ASC850, Related Party Disclosures, for the identification of related parties and disclosure of related party transactions. See further discussion in the Notes below on this matter.

Income Taxes

The Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and the tax basis of reported assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company must then assess the likelihood that the resulting deferred tax assets will be realized. A valuation allowance is provided when it is more likely thannot that some portion or all of a deferred tax asset willnot be realized. As of* March 31, 2024* and* March 31, 2023* the Company determined a full valuation allowance was required to offset its deferred tax assets as a result of recurring operating losses.

The Company accounts for uncertain tax positions in accordance with the provisions of ASC740-10 which prescribes a recognition threshold and measurement attribute for financial statement disclosure of tax positions taken, or expected to be taken, on its tax return. The Company evaluates and records any uncertain tax positions based on the amount that management deems is more likely thannot to be sustained upon examination and ultimate settlement with the tax authorities in the tax jurisdictions in which it operates. As of* March 31, 2024* and* March 31, 2023* the Company hadno uncertain tax positions.

Stock-based Compensation

Employee share-based compensation is measured at the grant date, based on the fair value of the award, and is recognized as an expense over the requisite service period. For awards with a performance condition, compensation expense is recognized over the requisite service period if it is probable that the performance condition will be satisfied. For awards to non-employees, the Company recognizes compensation expense in the same manner as if the Company had paid cash for the goods or services. The Company estimates the fair value of options and equity classified warrants granted using an options pricing model. Expense is recognized within general and administrative and research and development expenses and forfeitures are recognized as they are incurred.

Warrants

The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in FASB ASC480, Distinguishing Liabilities from Equity (“ASC480”) and ASC815, Derivatives and Hedging (“ASC815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC480, meet the definition of a liability pursuant to ASC480, and whether the warrants meet all of the requirements for equity classification under ASC815, including whether the warrants are indexed to the Company’s own ordinary shares and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.

For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that donot meet all the criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss on the statements of operations. The fair value of the warrants is estimated using a Black-Scholes pricing model or a Monte Carlo simulation.

The Company issued warrants to purchase shares of common stock (i) in connection with the Bridge Offering, (ii) as part of selling agent compensation in2024, and (iii) in connection with the Exclusive License Termination Agreement (the “Termination Agreement”). Based on the guidance noted above, we determined that warrants issued in connection with the Termination Agreement should be accounted for as a liability and the remaining warrants issued meet the requirements for equity classification. Liability classified warrants are subject to remeasurement at each balance sheet date, while equity classified warrants are valued at inception only. As discussed in Note2, the liability warrants subsequently met equity classification.

Loss Per Common Share

Basic loss per common share is computed by dividing net loss by the weighted-average number of common shares outstanding during the period. Diluted loss per common share is determined using the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents. In periods when losses are reported, the weighted-average number of common shares outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive. Generally, the Company’s outstanding warrants are non-participating securities as they arenot entitled to non-forfeitable rights to dividends or dividend equivalents during the vesting term and haveno obligation to fund losses. The dilutive effect of convertible securities is calculated using the “if-converted method.” Under the if-converted method, securities are assumed to be converted at the beginning of the period, and the resulting common shares are included in the denominator of the diluted calculation for the entire period being presented. However, the warrants described in Note2 are participating securities as they receive a right to dividends, but they arenot obligated to fund losses. In periods of loss, sinceno income is allocated to these securities, the Company's use of the treasury stock method derives the same result.

53

For thetwelve months ended* March 31, 2024and2023,* dilutive securities that werenot included in the calculations of the loss per common share because they would be anti-dilutive included the following:

Research and Development Costs

Research and development costs are expensed as incurred.

Advertising

It is our policy to expense advertising costs as incurred. Advertising expenses are included within general and administrative expenses within the statement of operations. For the years ended* March 31, 2024and2023,* the Company recorded $1.7 million and $0.1 million, respectively.

Fair Value of Common Stock

Prior to establishing a public market for the Company’s common stock, the estimated fair value of the Company’s common stock was determined by the Company’s Board of Directors (the "Board") as of the date of each option grant, with input from management, considering the Company’s most recently availablethird-party valuations of common stock, recent sales of common stock tothird parties, and the Company’s board of directors’ assessment of additional objective and subjective factors that it believed were relevant and which* may*have changed from the date of the most recent valuation through the date of the grant.

JOBS Act Accounting Election

The Company qualifies as an emerging growth company ("EGC"), as defined in the Jumpstart Our Business Startups Act of2012 (the “JOBS Act”). The JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has electednot to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This* may*make comparison of the Company’s financial statements with another public company which is neither an early-stage company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.

Segments

The Company currently operates inone reportable segment based on management’s view of its business for purposes of evaluating performance and making operating decisions. Based upon this business model, the Company’s Chief Executive Officer, whom the Company has determined to be its chief operating decision-maker, reviews financial information asone operating segment.

Recent Accounting Pronouncements

In* December 2023,the FASB issued ASU2023*-09, “Income Taxes (Topic740): Improvements to Income Tax Disclosures,” which requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid. The guidance is effective for the Company’s fiscal years beginning after* December 15, 2024,with early adoption permitted. The Company doesnot* expect the adoption of this standard to have any material impact onits financial statements.

In* June 2016,the FASB issued ASUNo.* 2016-13, “Financial Instruments – Credit Losses (Topic326): Measurement of Credit Losses on Financial Instruments,” which introduced a new model for recognizing credit losses on financial instruments based on an estimate of current expected credit losses (“CECL”). The new guidance applies to loans, accounts receivable, trade receivables, other financial assets measured at amortized cost, loan commitments and other off-balance sheet credit exposures. The new guidance also applies to debt securities and other financial assets measured at fair value through other comprehensive income. Estimated credit losses under CECL consider relevant information about past events, current conditions and reasonable and supporting forecasts that affect the collectability of financial assets. Given the non-revenue nature of the Company, the adoption of this standard didnot result in an adoption adjustment or material impact.

The Company doesnot believe that any recently issued effective pronouncements, or pronouncements issued butnot yet effective, if adopted, would have a material effect on the accompanying financial statements.

Reclassifications

Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications hadno effect on the reported results of operations.

Correction of an Immaterial Error in the Prior Period Financial Statements

During thefourth quarter of2024 (* March 31, 2024),the Company determined that the prior year financial statements had an error caused by an immaterial classification error of certain research and development expense in accordance with ASC730.* As a result, certain prior year amounts have been revised for consistency with the current year presentation. The Company assessed the materiality of this change in presentation on prior period financial statements in accordance withSEC Staff Accounting BulletinNo.* 99*, “Materiality,” (ASC Topic250,* Accounting Changes and Error Corrections*). Based on this assessment, the Company concluded that these classification error corrections in its Statements of Operations arenot material to any previously presented financial statements based upon overall considerations of both quantitative and qualitative factors. The corrections hadno impact on the fiscal year2023 Balance Sheet, Statements of Cash Flows, or Statement of Changes in Stockholders’ Equity. Further, the immaterial corrections didnot result in a change in operating losses, net loss, or basic or diluted earnings per share in the Income Statement. Accordingly, the Company corrected the previously reported immaterial errors for the year ended* March 31, 2023in this Annual Report on Form10*-K.

A summary of immaterial corrections reflecting the prior period impact to the Company’s Statement of Operations, for the year ended* March 31, 2023*is shown below (in thousands):

54

Note2 – Warrant Liability and Fair Value of Financial Instruments

Financial assets and financial liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. While the Company believes that its valuation methods are appropriate, the Company recognizes that the use of different methodologies or assumptions to determine the fair value could result in a different estimate of fair value at the reporting date. The primary assumptions that would significantly affect the fair values are the probability weighting of the different settlement outcomes used.

The Company didnot have any assets or liabilities measured at fair value as of or during the12-month period ending* March 31, 2023.There werenot* any transfers into or out of Level3 as of* March 31, 2024and March 31, 2023.*

The following table summarizes the activity of the Level3 fair value measurements (in thousands):

The Company recognized the initial warrant expense as a component of operating expenses on the statement of operations underwarrant expense–* termination agreement* for $4.6 million and the changes in the fair value underwarrant liability–* mark-to-marketfor$3.4* million. There wereno changes to the valuation approaches or techniques used for Level3 measurements.

Warrant Liabilities

As more fully detailed inNote6* – Related Party Transactions*, on* July 7, 2023,the Company entered into an Exclusive License Termination Agreement (the “Termination Agreement”) with a licensee in exchange for the issuance, upon the closing of the Company’s IPO withinone* year of the agreement’s execution, of a warrant (the "Warrant") to purchase shares of the Company for a variable number of shares.

The fair value of the warrant liability has been estimated using a discounted cash flow model under various scenarios and used the probability-weighted expected return method (“PWERM”) comparing the probabilities of different outcomes. The outcomes considered included (i) the closing of a qualified financing as part of the Company’s IPO at various points in time and (ii) the possibility of default whereby the licensee receives nothing. Key assumptions for the model were as follows for the initial measurement:

On* January 29, 2024,the Company issued1.6* million warrant shares pursuant to the Termination Agreement.

The completion of the Company’s IPO fixed the number of warrant shares issuable and the Company re-classified the Warrant to additional-paid in capital as it met the requirements for equity classification. Upon reclassification, the Company valued the warrant at $8.0 million, which represented the fair value of the shares issued on that date.

Note3 – Convertible Notes Payable

On* September 9, 2023,the Company's Board authorized an offering up to $2.0 million in unsecured, non-interest bearing convertible promissory notes (the “Notes”) and accompanying warrants (the “Bridge Financing Warrants”) (collectively, the “Bridge Offering”) that will mature on December 31, 2025.*The Notes provided that, on the closing date of the IPO, the outstanding principal would be automatically converted into common stock at the conversion price of $2.00. Each dollar in principal amount of Notes purchased were accompanied by afive-year Bridge Financing Warrant to purchase 0.25 shares of Common stock with an exercise price of $1.00 per share. The Company records the Bridge Financing Warrants as a discount to the Notes.

The Bridge Financing Warrants can be exercised from the date of Notes issuance through thefive-year anniversary of the issuance of the Notes. The shares issuable pursuant to the Notes and Bridge Financing Warrants have a 180-day lock-up after the Company’s IPO. Thereafter, the foregoing lock-up agreement will cease to apply to 25% of the purchased shares each month for a period offour months. The Note holders arenot permitted to convert their Notes when the holders or any of their affiliates would beneficially own in excess of 4.99% of the Company’s common stock after such conversion.

As of* March 31, 2024,the Company received proceeds of $2.0 million of Notes executed from the Bridge Offering. Upon the closing of the IPO, certain notes were to be automatically converted according to their terms into the Company’s common stock to the extent and provided that certain holders of these notes arenot* permitted to convert such notes to the extent that the holders or any of its affiliates would beneficially own in excess of 4.99% of the Company’s common stock after such conversion. Due to this 4.99% limitation, principal representing $1.3 million, or 665,000 shares, of these notes remained outstanding. As discussed in Note1, the remaining notes converted into common stock in accordance with their original terms on the IPO.

The Company’s effective interest rate for the Notes is 15.3% due to the amortization of the discount stemming from the issuance of the Bridge Financing Warrants.

The table below summarizes the Company’s outstanding convertible notes payable as of* March 31, 2024* (in thousands).

Warrants

The Company issued the Notes with detachable warrants for the purchase of shares of the Company’s common stock. The Company utilized a Monte Carlo simulation model to determine the fair value of each Bridge Offering Warrant. During the year ended* March 31, 2024,*the Company issued warrants valued at $0.6 million. The key inputs to the Monte Carlo simulation used to determine the fair value of each warrant include, the Company’s stock price fair value which was determined through a back solve calculation such that the stock price results in the average total value of the Notes and the Bridge Offering Warrants being equal to the cash proceeds received, volatility based on a selection of publicly held peer companies of 101.88%, expected term of 5 years, risk free rate of 4.40%, discount rate of 20.00% and a discount for lack of marketability of 15.77%.

During the year ended* March 31, 2024*, the Company recorded less than $0.1 million in interest expense related to the amortization of the debt discount.

The following table presents a summary of activity for the warrants issued in connection with the Company’s Notes:

*Aggregate Intrinsic Value = Excess of market value over the exercise price of all in-the-money warrants.

56

Note4 – Equity

On* November 29, 2023,*the Company’s Board of Directors and applicable shareholders approved to amend and restate the Company’s certificate of incorporation and increased the authorized shares to 500,000,000 shares of common stock, with a par value of$.001 per share, and 10,000,000 shares of preferred stock, with a par value of$.001 per share. The specific rights of the preferred stock shall be determined by the Board of Directors.

Preferred Stock

As of* March 31, 2024*, the Company hadno shares of preferred stock outstanding.

Restricted Stock

On* February 15, 2024,the Company issued 35,000 restricted shares of common stock to the Company's marketing consultant at the closing price of $3.80 of the Company's common stock. The total value of these shares is $133,000. These shares vest monthly over a12*-month period beginning on the issue date.

For the year ended* March 31, 2024,there was $116,375 of unrecognized stock-based compensation expense related to unvested Restricted Stock, which is expected to be recognized over the period April 2024through February 2025.*

A summary of activity regarding Restricted Stock issued is as follows:

Common Stock

On* April 6, 2023,the Board of Directors approved a private placement offering of up to 2,000,000 common shares at a price of $2.00 per share. During the year ended March 31, 2024,*the Company sold 1,420,000 shares for cash proceeds of $2,840,000. The Company didnot incur any costs that were direct and incremental to the private placement.

On* September 9, 2023,the Board approved a Bridge Offering. See Note3* Convertible Notes Payable for additional detail as these notes are convertible into common stock.

Stock Plan and Stock Options

In* June 2023,the Company adopted, and the Company’s shareholders approved, the Autonomix Medical, Inc.2023 Stock Plan (the “Plan”). The Plan is a stock-based compensation plan that provides for discretionary grants of stock options, stock awards and stock unit awards to key employees, non-employee directors, and consultants, subject to certain individual threshold limitations. The Plan provides for up to 4,000,000 shares to be issued. Shares that are surrendered because of forfeiture, expiration, termination, or cancellation are available for re-issuance. As of March 31, 2024,*the Plan has 1,996,400 shares remaining available to be issued.

In* August 2023,the Plan was amended to allow for an automatic increase of the available shares for issuance, whereby on the1st* of each fiscal year, beginning on* April 1, 2024and ending on (and including) April 1, 2033in an amount equal tofive* percent (5%) of the total number of shares of Common Stock outstanding on the* March**31st* immediately preceding the applicable date. However, the Board* mayact prior to the automatic increase of a given year to provide that there will beno* increase for such year, or that the increase for such year will be a lesser number of shares of Common Stock. The Board didnot take any such action and on* April 1, 2024,*the increase took place.

The following table summarizes the stock option activity for the year ended* March 31, 2024*. There wereno options outstanding during the year ended* March 31, 2023*.

*Aggregate Intrinsic Value = Excess of market value over the exercise price of all in-the-money stock.

57

During the year ended* March 31, 2024*, the Company granted certain individuals options to purchase 2,003,600 shares of common stock with contractual terms ranging from three years toten years, and vesting periods that included monthly overone year, quarterly overone year, monthly over four years, and annually over four years. The options had an aggregate grant date fair value of $3.7 million that was calculated using the Black-Scholes option pricing model. Variables used in the Black-Scholes option pricing model included the following: (1) fair value of common stock on the measurement date of $2.00 per share for options granted as of* September 30, 2023,$5.00 per share for options granted subsequent to September 30, 2023but prior to our IPO and $2.70 for options granted subsequent to our IPO; (2) discount rate ranging from 4.02% to 4.98% based on the daily yield curve rates for U.S. Treasury obligations, (3) expected life ranging from 1.77 years to 6.25 years based on the simplified method (vesting plus contractual term divided bytwo*), and (4) expected volatility ranging from 95% to 119% based on the historical volatility of comparable companies' stock.

All options issued and outstanding are being amortized over their respective vesting periods. The unrecognized compensation expense at* March 31, 2024* was $3.1 million. During the year ended* March 31, 2024*, the Company recorded stock-based compensation - option expense of $0.6 million, of which $0.5 million was recorded in general and administrative expenses and $0.1 million was recorded in research and development expenses in the statements of operations. There wasno recorded stock-based compensation - option expense for the year ended* March 31, 2023*.

Equity-Based Stock Warrants

On* March 26, 2024,the Company issuedfive*-year warrants to the selling agent in the Company's IPO to purchase 59,765 shares of common stock at an exercise price of $6.25. Under the fair value method, the fair value of these warrants was estimated on the grant date using the Black-Scholes option pricing model. Variables used in the Black-Scholes warrant pricing model included the following: (1) fair value of common stock on the measurement date of $5.00 per share; (2) discount rate of 4.04% based on the daily yield curve rates for U.S. Treasury obligations; (3) expected life of 5 years and (4) expected volatility of 104% based on the historical volatility of comparable companies' stock. The costs associated with these shares were reclassified to additional paid-in capital upon completion of the Company’s IPO on* January 26, 2024.*

The Company will periodically grant warrants to investors in connection with equity financing or tothird-party service providers in exchange for services rendered. The following table summarizes the stock warrant activity for the year ended* March 31, 2024*:

*Aggregate Intrinsic Value = Excess of market value over the exercise price of all in-the-money stock.

**All exercised shares utilized the “cashless exercise” option.

The unrecognized compensation expense at* March 31, 2024* was less than $0.1 million. During the year ended* March 31, 2024*, the Company recorded stock-based compensation - warrant expense of less than $0.1 million, respectively. There wasno recorded stock-based compensation - warrant expense for the year ended* March 31, 2023*.

Under the fair value method, the fair value of each warrant was estimated on the grant date using the Black-Scholes option pricing model. Variables used in the Black-Scholes warrant pricing model included the following:

Note5 – Commitments and Contingencies

From time to time, we* may*be involved in claims that arise during the ordinary course of business. Although the results of litigation and claims cannot be predicted with certainty, we donot currently have any pending litigation to which we are a party or to which our property is subject that we believe to be material. Regardless of the outcome, litigation can be costly and time consuming, and it can divert management’s attention from important business matters and initiatives, negatively impacting our overall operations.

58

Employment Agreements

The Company has agreements with key employees to provide certain benefits, including salary and other wage-related benefits, in the event of termination. In addition, the Company has adopted a severance policy for certain key members of executive management to provide certain benefits, including salary and other wage-related benefits, in the event of termination without cause. In total, these benefits would amount to $0.8 million using the rate of compensation in effect at* March 31, 2024*.

Note6 – Related Party Transactions

The Company utilizes a consulting firm that is owned by the Company’s former Chief Financial Officer to provide accounting and financial reporting services and pays certain expenses on behalf of the Company. During the year ended* March 31, 2024and2023*, the Company incurred fees of less than $0.1 million, respectively, for these services, excluding officer compensation. As of* March 31, 2024* and* March 31, 2023*, the Company owed the consulting firm less than $0.1 million, respectively, for services and expenses.

As of* March 31, 2024*, members of the Company’s management/Board and an immediate family member of the Company’s management (related party), collectively purchased $0.5 million ($0.4 million and $0.1 million, respectively) of the Bridge Offering.

On* December 21, 2021,the Company entered into a perpetual, worldwide, exclusive license agreement (the “License” or “License Agreement”) with a company controlled by a significant stockholder of the Company (the “Licensee”). The License allows the Licensee to use certain intellectual property and technology related to the diagnosis and treatment of cardiovascular conditions held by the Company. Upon90* days following the completion of an IPO or special purpose acquisition company transaction, the Licensee* may*enter into sublicenses of the licensed intellectual property and technology.

59

On* July 7, 2023,the Company and the Licensee entered into an Exclusive License Termination Agreement (the “Termination Agreement”) in exchange for the issuance, upon the closing of the Company’s IPO withinone* year of the agreement’s execution, of a warrant to purchase shares of the Company for a variable number of shares. Upon the Company's closing of its IPO on* January 29, 2024,1.6 million warrant shares were issued at $5.00 per share for a fixed value of $8.0 million. The warrants are exercisable at a price of $0.001 per share and maybe exercised any time after the issuance date, subject to a beneficial ownership limitation, and expire five years from the original issuance. The warrants contain dividend rights commensurate with the holders of common stock. The warrants donot* include any other stockholder rights or privileges prior to exercise.

The shares underlying the warrant will be subject to a lockup agreement for a period ofsix months after the closing of the IPO with respect to 12.5% of the shares issued andtwelve months after the closing of the IPO for the remainder of the shares. In connection with the Termination Agreement, the Company agreed to register the resale of the shares of common stock. One of the Company’s directors holds a 20% interest in the company receiving the warrant.

Note7 – Income Taxes

The Company files U.S. federal and various U.S. state income tax returns. Due to the Company’s losses, there wasno income tax expense for the years ended* March 31, 2024and2023* (in thousands):

The effective income tax rate varied from the statutory rate in2024 primarily due to permanent differences and the increase in the valuation allowance. The effective income tax rate varied from the statutory rate in2023 as a result of the increase in the valuation allowance.

Deferred tax assets and liabilities consist of the following (in thousands):

60

At* March 31, 2024,the Company had U.S. federal net operating loss ("NOL") carry forwards of $11.2 million. Approximately $3.4 million of the U.S. federal NOLs will start expiring in2034.* Additionally, the Company generated a U.S. federal NOL carry forward of approximately $7.7 million post-2017 to2024. Under the new Tax Act, post-2017 federal NOL carry forwards donot expire, but can only offset80% of taxable income in the year the loss carry forward is used. The Company also had state NOL carry forwards of approximately $11.1 million which begin to expire in2034.

Sections382 and383 of the Internal Revenue Code limit the annual use of NOL carry forwards and tax credit carry forwards, respectively, following an ownership change. NOL carry forwards* maybe subject to annual limitations under Internal Revenue Code Section382* (Section382) (or comparable provisions of state law) if certain changes in ownership were to occur. The Company is pre-revenue and has been generating net operating losses. Therefore,no NOLs are being utilized nor subject to any utilization limitations. Determination of ownership change or limitation hasn’t been calculated; however, the Company will perform the NOL limitation analysis under Section382 before any NOLs are expected to be utilized.

The Company has recorded a full valuation allowance against its net total deferred tax assets as of* March 31, 2024and2023* because management determined that it isnot more-likely-thannot that those assets will be realized. In assessing the realization of deferred tax assets, management considers whether it is more likely thannot that some portion or all of deferred assets willnot be realized. The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. During the year ended* March 31, 2024,*the valuation allowance increased by $1.9 million mainly due to additional net operating losses and capitalized R&D Costs.

The Company is subject to income taxes in the U.S. federal jurisdiction, and various state jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. As of* March 31, 2024,all of the tax years remained open to examination by the federal and state taxing authorities, forthree* orfour years from the tax year in which net operating losses or tax credits are utilized completely.

As of* March 31, 2024,the Company hasno* reserve for uncertain tax positions.

Note8 – Subsequent Events

On* April 1, 2024,* pursuant to the provisions of the Company's 2023 Stock Plan, the shares of Common Stock underlying the Plan increased byfive percent (5%) of the total number of shares of Common Stock outstanding on the* March**31st* immediately preceding the applicable date. This resulted in increasing the available shares of Common Stock under the Plan by 942,305.

On* April 5, 2024,the Company granted75,000* stock options to a new employee. These stock options vest infour equal annual installments.