HeartBeam Inc

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Branislav Vajdic his attorney-in-fact, with the power of substitution, for him in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:

Contents

To the Board of Directors and Stockholders of

HeartBeam Inc.

Opinion on the Financial Statements

We have audited the accompanying balance sheets of HeartBeam, Inc. (the “Company”) as of December 31, 2023 and 2022, the related statements of operations, stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2023, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

Explanatory Paragraph – Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 2, the Company has a significant working capital deficiency, has incurred significant losses and needs to raise additional funds to meet its obligations and sustain its operations. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/Marcum LLP

We have served as the Company’s auditor since 2020

East Hanover, New Jersey

March 20, 2024

Balance Sheets

(In thousands, except share data)

Statements of Operations

(In thousands, except share and per share data)

Statement of Changes in Stockholders’ Equity

(In thousands, except share data)

Statements of Cash Flows

(In thousands)

NOTES TO FINANCIAL STATEMENTS

NOTE 1 –ORGANIZATION AND OPERATIONS

HeartBeam, Inc. (“HeartBeam” or the “Company”) is a medical technology company primarily focusing on developing and commercializing higher resolution ambulatory Electrocardiogram (“ECG”) solutions that enable the detection and monitoring of cardiac disease outside a healthcare facility setting. The Company’s ability to develop higher resolution ECG solutions is achieved through the development of the Company’s proprietary and patented Vector Electrocardiography (“VECG”) technology platform. HeartBeam’s VECG is capable of developing three-dimensional (3D) images of cardiac electrical activity by displaying the spatial locations of ECG waveforms that demonstrated in early studies to deliver equal or superior diagnostic capability than traditional hospital-based ECG systems.

The Company has validated this novel technology and is seeking U.S. Food and Drug Administration (“FDA”) clearance of its initial telehealth products during 2024.

The Company was incorporated in 2015 as a Delaware corporation. The Company’s operations are based in Santa Clara, California and operates asone segment.

NOTE 2 –GOING CONCERN AND OTHER UNCERTAINTIES

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

The Company has incurred losses each year since inception and has experienced negative cash flows from operations in each year since inception. As of December 31, 2023 and December 31, 2022, the Company had an accumulated deficit of approximately $36.8 million and $22.2 million, respectively. As of December 31, 2023 the Company had approximately $16.2 million cash and cash equivalents.

In February 2023, the Company entered into a sales agreement (the “Sales Agreement”) with A.G.P./Alliance Global Partners (“AGP”) pursuant to which the Company may issue and sell, from time to time, shares of our common stock having an aggregate offering price of up to $13.0 million in at-the-market offerings (“ATM”) sales. At the same time, the Company filed a prospectus supplement under a shelf registration relating to the Sales Agreement. AGP will act as sales agent and will be paid a 3% commission on each sale under the Sales Agreement. The Company’s common stock will be sold at prevailing market prices at the time of the sale, and, as a result, prices will vary. Asof December 31, 2023 there was approximately $11.0 million available for issuance under the ATM.

In February 2023, the Company entered into a securities purchase agreement and a note purchase agreement (“SPA”, NPA” or together “Agreements”) with Maverick Capital Partners, LLC (“Maverick” or “Investor”). Pursuant to the terms of the Agreements, as amended, the Company agreed to sell up to $4,000,000 of the Company’s common stock at 75% of the average calculated Volume Weighted Average Price (“VWAP”) per share during a Drawdown Pricing Period as defined in the Agreements.

In February 2023, the Company issued a $500,000 Convertible Note to the Investor pursuant to the NPA. On March 9, 2023 the Convertible Note was settled upon the execution of a SPA and related issuance of 0.2 million shares of common stock pursuant to the SPA drawdown notice dated March 7, 2023. These shares of common stock were registered under the Company’s registration statement on Form S-3 dated February 10, 2023 and the related prospectus supplement dated March 9, 2023.

Based on its current business plan assumptions and expected cash burn rate, the Company believes that the existing cash is insufficient to fund operations for the next twelve months following the issuance of these financial statements. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern.

The Company’s continued operations will depend on its ability to raise additional capital through various potential sources, such as equity and/or debt financings, strategic relationships and revenue. Management can provide no assurance that such financing or strategic relationships will be available on acceptable terms, or at all, which would likely have a material adverse effect on the Company and its financial statements.

The accompanying financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that may result should the Company be unable to continue as a going concern.

NOTE 3 –SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The accompanying audited financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("US GAAP") and in conformity with the instructions on Form 10-K and Rule 8-03 of Regulation S-X and the related rules and regulations of the Securities and Exchange Commission (“SEC”) and have been prepared on a basis which assumes that the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business.

USE OF ESTIMATES

The preparation of financial statements in conformity with US GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may be based on amounts that differ from those estimates. On an ongoing basis, management evaluates its estimate related to probability and timing related to vesting of the stock-based compensation related to probability and timing related to vesting of milestone options

CASH, CASH EQUIVALENTS AND RESTRICTED CASH

The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. As of December 31, 2023 the Company has $15.9 million held as cash equivalents and as of December 31, 2022 there were $2.6 million held as cash equivalents. The Company maintains cash balances in accounts which exceed the federally insured limits during the year ended December 31, 2023 and 2022. The Company has made a deposit to the bank for their credit cards in the amount of $50,000 and is classified as restricted cash included in other non-current assets as of December 31, 2023.

PROPERTY AND EQUIPMENT, NET

Property and equipment are stated at cost less accumulated depreciation. Depreciation of property and equipment is calculated using the straight-line method over the estimated useful lives of the assets. The Company regularly evaluates the estimated remaining useful lives of the Company’s property and equipment, net, to determine whether events or changes in circumstances warrant a revision to the remaining period of depreciation. Maintenance and repairs are expensed as incurred. As of December 31, 2023, property and equipment, net represents construction-in-progress of $256,000 related to tooling development that has not been placed into service. Construction-in-progress amounts are not subject to depreciation as such assets are not yet available for their intended use.

RESEARCH AND DEVELOPMENT EXPENSE

The Company expenses the cost of research and development as incurred. Research and development expenses consist primarily of professional services costs associated with the development of cardiovascular technologies and products.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company’s financial instruments consist primarily of cash, accounts payable and accrued liabilities. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset transaction between market participants on the measurement date. Where available, fair value is based on observable market prices or is derived from such prices. The Company uses the market approach valuation technique to value its investments. The market approach uses prices and other pertinent information generated from market transactions involving identical or comparable assets or liabilities. The types of factors that the Company may consider in fair value pricing the investments include available current market data, including relevant and applicable market quotes.

Financial assets and liabilities carried at fair value are classified and disclosed in one of the following three categories:

•Level 1 - Observable inputs such as quoted prices in active markets.

•Level 2 - Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly.

•Level 3 - Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the assignment of an asset or liability within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

ACCOUNTING FOR WARRANTS

The Company classifies as equity any contracts that (i) require physical settlement or net-share settlement or (ii) gives the Company a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement). The Company classifies as assets or liabilities any contracts that (i) require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside the control of the Company) or (ii) gives the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement). The Company accounts for its currently issued warrant instruments in conjunction with the Company’s common stock in permanent equity. These warrants are indexed to the Company’s stock and meet the requirements of equity classification as prescribed under ASC 815. Warrants classified as equity are initially measured at fair value, and subsequent changes in fair value are not recognized so long as the warrants continue to be classified as equity.

STOCK-BASED COMPENSATION

The Company periodically issues stock options and restricted stock awards (“RSUs”) to employees and non-employees for services. The Company accounts for such grants issued and vesting to employees and non-employees based on ASC 718, whereby the value of the award is measured on the date of grant and recognized as compensation expense over the vesting period.

The fair value of stock options on the date of grant is calculated using the Black-Scholes option pricing model, based on key assumptions such as the 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 interest rate and (iv) expected dividends. These assumptions are primarily based on historical data, peer company data and the judgment of management regarding future trends and other factors. The Company has estimated the expected term of its employee 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 risk-free interest rates for periods within the expected term of the option are based on the US Treasury securities with a maturity date commensurate with the expected term of the associated award. The Company has never paid and does not expect to pay dividends in the foreseeable future. The Company accounts for forfeitures when they occur. Stock-based compensation expense recognized in the financial statements is reduced by the actual awards forfeited.

Compensation cost for RSUs issued to employees and non-employees is measured using the grant date fair value of the award, and expense is recognized over the service period, adjusted to reflect actual forfeitures.

INCOME TAXES

The Company accounts for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and tax carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

A valuation allowance is established to reduce net deferred tax assets to the amount expected to be realized The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being recognized. Changes in recognition and measurement are reflected in the period in which the change in judgment occurs. Interest and penalties related to unrecognized tax benefits are included in income tax expense.

NET LOSS PER COMMON SHARE

Basic net loss per share excludes the effect of dilution and is computed by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding.

Diluted net loss per share is computed by giving effect to all potential shares of common stock, including stock options and warrants to the extent dilutive. Basic net loss per share was the same as diluted net loss per share for the years ended December 31, 2023 and 2022 as the inclusion of all potential common shares outstanding would have an anti-dilutive effect.

As of December 31, 2022, the penny warrants issued during 2019 have been excluded from the net loss per common share calculation following treatment of contingently issuable shares as there are circumstances under which these shares would not be issued and therefore not exercisable. These warrants expired as unissued in February 2023.

In accordance with ASC 260-10-45-13, exercisable penny options are included in the calculation of weighted average basic and diluted earnings per share. As of December 31, 2023, and 2022,176,674 and 175,958 penny options have been included in the calculation of weighted average basic and diluted earnings per share.

The following is a summary of awards outstanding as of December 31, 2023 and 2022, which are not included in the computation of basic and diluted weighted average shares:

RECENTLY ISSUED ACCOUNTING STANDARDS

Not Yet Adopted as of December 31, 2023:

In November 2023, the Financial Standards Accounting Board (FASB) issued Accounting Standards Update (ASU) 2023-07 "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures" which expands annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses. ASU 2023-07 is effective for our annual periods beginning January 1, 2024, and for interim periods beginning January 1, 2025, with early adoption permitted. We do not expect that the updated standard will have a rather significant impact on our financial statement disclosures

In December 2023, the FASB issued ASU 2023-09 "Income Taxes (Topics 740): Improvements to Income Tax Disclosures" to expand the disclosure requirements for income taxes, specifically related to the rate reconciliation and income taxes paid. ASU 2023-09 is effective for our annual periods beginning January 1, 2025, with early adoption permitted. We are currently evaluating the potential effect that the updated standard will have on our financial statement disclosures.

Adopted as of December 31, 2023:

In June 2016, the FASB issued ASU 2016-13 “Financial Instruments-Credit Losses-Measurement of Credit Losses on Financial Instruments”. This guidance replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The guidance applies to loans, accounts receivable, trade receivables and other financial assets measured at amortized cost, loan commitments, debt securities and beneficial interests in securitized financial assets, but the effect on the Company is projected to be limited to accounts receivable. In May 2019, the FASB issued ASU 2019-05 “Financial Instruments-Credit Losses (Topic 326)” which provides transition relief for companies adopting ASU 2016-13. This guidance amends ASU 2016-13 to allow companies to elect, upon adoption of ASU 2016-13, the fair value option on financial instruments that were previously recorded at amortized cost under certain circumstances. Companies are required to make this election on an instrument by instrument basis. The guidance is effective for the fiscal year beginning January 1, 2023, including interim periods within that year. The Company has adopted this guidance and it had an immaterial impact on Company’s accounting.

NOTE 4 –STOCKHOLDERS’ EQUITY

On November 14, 2022 the Company held a Special Meeting of Stockholders (“Special Meeting”), wherein the stockholders of the Company approved an amendment to the Company’s Certificate of Incorporation (“Certificate of Incorporation”) to increase the number of authorized shares of the Company’s common stock, par value $0.0001 per share (“Common Stock”) to 100,000,000, and to authorize 10,000,000 shares of the Company’s preferred stock. The amendment to the Certificate of Incorporation became effective upon filing with, and acceptance for record by, the Secretary of State of Delaware on November 16, 2022.

COMMON STOCK

On January 14, 2022, the Company issued 78,025 shares of Common Stock to a consulting firm for services provided that were related to the IPO. The Company calculated the value of the common stock using closing stock price on November 11, 2022, resulting in a fair value of approximately $365,000. Additionally, the Company was required to issue 72,727 warrants based on performance metrics achieved in 2021, the warrants have an exercise price of $5.50 with an expiration offive years from the date of issuance. The Company calculated the fair value of $1.25 each for these warrants using the Black-Scholes option pricing model on the date the consulting firm achieved the milestone, using the following assumptions: (a) fair value of $2.28 per share, (b) expected volatility of 90.81%, (c) dividend yield of 0%, (d) risk-free interest rate of 0.87%, and (e) expected life of 5 years, resulting in the fair value of approximately $91,000.

On February 18, 2022, the Company entered into a stock purchase agreement (“Stock Purchase Agreement”) pursuant to which the Company agreed to issue and sell (“Private Placement”) to OpenSky Opportunities Fund Ltd.58,000 shares of common stock par value $0.0001 and 58,000 warrants to purchaseone share of common stock at a combined price of $6.00 per share. The common stock and the warrants were immediately separable and issued separately but were purchased together in the Private Placement. These securities issued pursuant to the Stock Purchase Agreement. The Company received $348,000 in proceeds from the Private Placement. The Warrants will expire five years from the date of issuance. The Company paid no underwriting discounts or commissions.

On May 2, 2023, the Company entered into a Securities Purchase Agreement with an accredited investor, for the purchase and sale in a registered direct offering of 1,000,000 shares of the Company’s common stock at a price of $1.50 per share, generating net proceeds from the offering of approximately $1.1 million after deducting financial advisory and legal fees as well as other estimated offering expenses.

On April 20, 2023, the Company entered into a Placement Agency Agreement with Public Ventures, LLC to consummate an offering of 16,666,666 shares of Common Stock at an offering price of $1.50 per share, which closed in accordance with the subscription agreement dated May 2, 2023. The Company received $23.2 million in net proceeds from the offering after deducting placement agent discounts and commission and other estimated offering expenses payable by the Company. In

addition, the subscription agreement grants placement agent warrants as part of this transaction. See Warrants section below.

On February 2, 2023, the Company entered into a securities purchase agreement and a note purchase agreement (“SPA”, NPA” or together “Agreements”) with Maverick Capital Partners, LLC (“Investor”). Pursuant to the terms of the Agreements, as amended, the Company agreed to sell up to $4,000,000 of the Company’s common stock at 75% of the average calculated Volume Weighted Average Price per share.

On February 28, 2023, the Company issued a $500,000 Convertible Note to the Investor pursuant to the NPA. On March 9, 2023, the Convertible Note was settled upon the execution of the SPA and related issuance of 200,105 shares of common stock pursuant to the SPA draw down notice dated March 9, 2023. These shares of common stock were registered under the Company’s registration statement on Form S-3 dated February 10, 2023 and the related prospectus supplement dated March 9, 2023, whereby, the Company received total proceeds of $500,000. These were the only transactions consummated under the SPA and NPA and the respective agreements expired on May 31 2023.

On February 1, 2023, the Company entered into an At-the-Market Sales Agreement (“ATM” or “Sales Agreement”) with A.G.P./ Alliance Global Partners as placement agent, to issue and sell shares of the Company’s common stock. The issuance and sale of shares of Common Stock to or through the placement agent are effected pursuant to the Registration Statement dated February 2, 2023. The Company shall pay to the sales agent in cash, upon each sale of placement shares through the placement agent pursuant to the Sales Agreement, an amount equal to 3.00% of the aggregate gross proceeds from each sale of placement shares. In connection to the Sales Agreement, on February 17, 2023 and February 22, 2023, the Company sold 6,184 shares at$3.76 per share for gross proceeds of approxi mately $23,000. Asof December 31, 2023 there was approximately $11.0 million available for issuance under the ATM.

Total stock issuance costs, which consist primarily of legal, accounting and underwriting fees in connection with the above stated transactions related to the offerings and SPA was approximately $174,000, which as of December 31 2023, was recorded in additional paid in capital.

During the years ended December 31, 2023 and 2022 the Company issued 439,042 and 63,806 shares of common stock upon exercise of vested stock options and vesting of restricted stock units.

WARRANTS

During 2019, milestone warrants were issued to certain executives totaling 407,272 warrants (“Penny Warrants”). These warrants were valued on the date of grant at $0.0003 to vest upon meeting certain milestones. These warrants expired unissued in February 2023.

On January 14, 2022, the Company issued 72,727 warrants based on performance metrics achieved in 2021 to purchase 72,727 shares of common stock at an exercise price of $5.50 per share, with an expiration offive years from the date of issuance.

On February 28, 2022, the Company issued 58,000 warrants to purchase 58,000 shares of common stock at an exercise price of $6.00 per share.

On May 2, 2023 the Company issued 1,666,666 placement agent warrants to purchase shares of Common Stock sold in the offering, with an exercise price of $1.875 per share and are exercisable forfive years from the date of issuance.

During the year ended December 31, 2023,11,638 warrants were exercised, of which 5,817 were exercised in the form of a cashless exercise utilizing 4,346 warrants which resulted in the net issuance of 1,471 common shares. The remaining 5,821 warrants were exercised for cash for approximately $16,000.

A summary of the outstanding warrants as of December 31, 2023 and 2022 is as follows:

NOTE 5 –STOCK-BASED COMPENSATION

In 2015, the Company’s Board of Directors approved the HeartBeam, Inc. 2015 Equity Incentive Plan ("2015 Plan"), to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to employees, directors, and consultants, and to promote the success of the Company’s business. The 2015 Plan provides for the grant of stock options and RSU’s to purchase common stock of which 1,636,362 were authorized by the board of which 970,704 are outstanding as of December 31, 2023. The 2015 Plan was terminated upon shareholder approval of the 2022 Equity Incentive Plan (“2022 Equity Plan”) whereby no new awards can be issued under the 2015 Plan.

The Company’s shareholders approved the 2022 Equity Plan at the annual meeting of stockholders held on June 15, 2022, pursuant to which 1,900,000 shares of common stock were authorized for issuance. Under the 2022 Equity Plan, the number of shares available for issuance will be increased on the first day of each fiscal year beginning with the 2023 fiscal year, in an amount equal to the lesser of 3,800,000 shares, five percent (5%) of the total number of shares of all classes of common stock of the Company outstanding on the last day of the immediately preceding fiscal year, and a lesser number of shares determined by the administrator. On January 1, 2023400,487 shares, equivalent to five percent (5%) of common stock outstanding were added to the shares available for issuance under the 2022 Equity Plan. Also see Note 9- Subsequent event section below.

At the July 7, 2023, Annual Shareholders’ Meeting, the proposal to amend the 2022 Equity Incentive Plan to increase the number of authorized shares from 1,900,000 shares to 5,900,000 shares was approved.

The 2022 Equity Plan includes a provision to add-back any cancelled options from the 2015 Plan up to 1,372,816 shares. As of December 31, 2023, there are 252,856 shares from the 2015 Plan that are included in the 849,171 shares available for issuance under the 2022 Equity Plan.

During 2023, the Company granted 2,208,000 options to various executives and employees. Sixty percent (60%) of these options vest based on FDA Clearance for marketing of HeartBeam’s synthesized 12L product and the remaining forty percent (40%) vest monthly over a period of 48 months. The Company calculated the fair value for each of these grants using the Black-Scholes option pricing model and it is expensed based on management’s probability assessment of FDA clearance. The 60% milestone options are issued and outstanding as of December 31, 2023.

The Company received proceeds of $0.2 million from the exercise of stock options during the year ended December 31, 2023 and a de minimis amount during the year ended December 31, 2022.

STOCK OPTIONS

The following is a summary of stock option activity during the years ended December 31, 2023 and 2022:

(*) Intrinsic value is based onthe fair market value of the Company's common stock.

The Company estimates the fair values of stock options using the Black-Scholes option-pricing model on the date of grant. For the years ended December 31, 2023 and 2022, the assumptions used in the Black-Scholes option pricing model, which was used to estimate the grant date fair value per option, were as follows:

RESTRICTED STOCK UNITS

The following is a summary of RSUs award activity:

STOCK BASED COMPENSATION

The following is a summary of stock-based compensation expense:

As of December 31, 2023 total compensation cost not yet recognized related to unvested stock options and unvested RSUs was approximately $8.1 million and $0.4 million, respectively, which is expected to be recognized over a weighted-average period of 2.66 years and 1.2 years, respectively.

NOTE 6 –RELATED PARTY TRANSACTIONS

During the course of business, the Company obtains accounting services from CTRLCFO, a firm in which the Company’s former Chief Financial Officer has significant influence. The Company incurred accounting fees from these firms of approximately $20,000 and $21,000 during the years ended December 31, 2023 and 2022, respectively. As of December 31, 2023 and 2022, the Company had balances due to these firms amounting to approximately $2,000.

NOTE 7 –COMMITMENTS

Lease Obligations

In May 2019, the Company entered into a month to month lease agreement for our headquarters. The agreement is for an undefined term and can be cancelled at any time, givenone month’s notice by either party. The Company’s monthly rent expense associated with this agreement is approximately $1,440. The Company’s month to month headquarters lease is in the name of the Company’s Chief Executive Officer, and the cost is reimbursed monthly.

For the years ended December 31, 2023 and 2022, rent expense was approximately $17,000, for each year.

Partnership Agreement

In January 2022, the Company entered into a partnership agreement with LIVMOR Inc. (“LIVMOR”) to build a Company-branded version of the LIVMOR’s Halo+ FDA cleared turnkey solution for RPM to connect physicians and patients. As included in the agreement, the Company and LIVMOR have the right to enter into additional agreements as needed in order to further the Company’s development of its products. The agreement with LIVMOR included a commitment in 2022 of $1.0 million.

In August 2022, the Company entered into a supplemental agreement with LIVMOR. The supplemental agreement stated the Company would pay an additional $0.2 million for the source code access under the partnership agreement. Payments totaling $0.2 million have been made by the Company and LIVMOR has delivered to the Company copies of source materials and codes. All licenses granted by LIVMOR will automatically be converted into a non-exclusive and perpetual license and become licenses granted on a royalty-free and fully paid-up basis, in which LIVMOR hereby expressly waives and relinquishes all HeartBeam payment obligations under the initial partnership agreement. Based on management’s review of Topic ASC 805 and 730, it was determined that only the source code and perpetual license were purchased and it was determined there was no alternative future uses, therefore management recorded the expense as research and development expense.

As of December 31, 2022, the Company expensed a total of $1.2 million associated with the LIVMOR agreements, which

has been recognized as R&D expense. In February 2023, the Company acquired LIVMOR’s Halo+™ Atrial Fibrillation Detection System, the world’s first FDA-cleared (K201208) prescription wearable for continuous cardiac rhythm monitoring, comprising of intellectual property, including 3 issued United States patents.

Professional Services Agreement

In March 2022, the Company entered into a professional services agreement with Triple Ring Technologies, Inc. (“TRT”), a co-development company, to assist in the design and development of the Company’s telehealth complete solution 3D vector ECG collection device for remote heart attack or MI monitoring. This agreement was followed by several amendments. The agreement with Triple Ring includes a commitment totaling $1.7 million.

As of December 31, 2023 the Company has a remaining commitment of $0.4 million.

NOTE 8 -INCOME TAX

Income tax expense attributable to pretax loss from continuing operations differed from the amounts computed by applying the U.S. federal income tax rate of 21% to pretax loss from continuing operations as a result of the following:

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities are presented below as of December 31:

Realization of deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain. Accordingly, the net deferred tax assets have been fully offset by a valuation allowance. The valuation allowance increased by approximately $3,044,500 for the period ended December 31, 2023.

As of December 31, 2023, the Company had federal and state net operating loss (“NOL”) carryforwards of approximately $21,496,500 and $18,394,200, respectively. The federal NOL carryforwards consist of $2,405,400 generated prior to 2018 which will begin to expire in 2035, however, are able to offset 100% of taxable income and $19,091,000 generated after December 31, 2017 that will carryforward indefinitely but will be subject to 80% taxable income limitation beginning tax years after December 31, 2021 as provided by the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act (PL 116-136).

The Company has federal R&D credit carryforwards of approximately $617,000 which will begin to expire in 2041 and state R&D credit carryforwards of approximately $338,400 which do not expire.

The utilization of NOLs and tax credit carryforwards to offset future taxable income may be subject to an annual limitation as a result of ownership changes that have occurred previously or may occur in the future. Under Sections 382 and 383 of the Internal Revenue Code (“IRC”) a corporation that undergoes an ownership change may be subject to limitations on its ability to utilize its pre-change NOLs and other tax attributes otherwise available to offset future taxable income and/or tax liability. An ownership change is defined as a cumulative change of 50% or more in the ownership positions of certain stockholders during a rolling three-year period. The Company has not completed a formal study to determine if any ownership changes within the meaning of IRC Section 382 and 383 have occurred. If an ownership change has occurred, the Company’s ability to use its NOLs or tax credit carryforwards may be restricted, which could require the Company to pay federal or state income taxes earlier than would be required if such limitations were not in effect.

Effective for tax years beginning after December 31, 2021, taxpayers are required to capitalize any expenses incurred that are considered incidental to research and experimentation (“R&E”) activities under IRC Section 174. While taxpayers historically had the option of deducting these expenses under IRC Section 174, the December 2017 Tax Cuts and Jobs Act mandates capitalization and amortization of R&E expenses for tax years beginning after December 31, 2021. Expenses incurred in connection with R&E activities in the US must be amortized over a 5-year period if incurred, and R&E expenses incurred outside the US must be amortized over a 15-year period. R&E activities are broader in scope than qualified research activities considered under IRC Section 41 (relating to the research tax credit). For the years ended December 31, 2023 and December 31, 2022, the Company performed an analysis based on available guidance and determined that it will continue to be in a loss position even after the required capitalization and amortization of its R&E expenses. The Company will continue to monitor this issue for future developments, but it does not expect R&E capitalization and amortization to require it to pay cash taxes now or in the near future.

The total amount of unrecognized tax benefits as of December 31, 2023 is approximately $286,600, which relates to federal and state R&D credits. If recognizednone of the unrecognized tax benefits would affect the effective tax rate.

The Company's policy is to account for interest and penalties as income tax expense. As of the December 31, 2023 the Company hadno interest related to unrecognized tax benefits. No amounts of penalties related to unrecognized tax benefits were recognized in the provision for income taxes. We do not anticipate any significant change within twelve months of this reporting date.

The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions, with varying statutes of limitations. The tax years from inception through 2023 remain open to examination due to the carryover of unused net operating losses that are being carried forward for tax purposes.

In August 2022, the U.S. Inflation Reduction Act of 2022 and the CHIPS and Science Act of 2022 were signed into law. These acts include, among other provisions, a corporate alternative minimum tax of 15%, an excise tax on the repurchase of corporate stock, various climate and energy provisions, and incentives for investment in semiconductor manufacturing. These provisions are not expected to have a material impact on the Company’s results of operations or financial position.

NOTE 9 -SUBSEQUENT EVENTS

1. Under the 2022 Equity Plan, the number of shares available for issuance are increased on the first day of each fiscal year beginning with the 2023 fiscal year, in an amount equal to the lesser of 3,800,000 shares, five percent (5%) of the total number of shares of all classes of common stock of the Company outstanding on the last day of the immediately preceding fiscal year, and a lesser number of shares determined by the administrator. On January 1, 2024,1,316,452 shares, equivalent to five percent (5%) of common stock outstanding were added to the shares available for issuance under the 2022 Equity Plan.

2. On March 8, 2024, the Company has entered into an agreement with Clinical Research Organization (CRO) to perform certain services related to project set up, clinical trial management and monitoring during next six months. As per terms of the agreement, the Company will pay CRO approximately $0.5 million for these services. Additionally, the Company has signed a Clinical Study Agreement with first offive planned sites to carry out the clinical study for which CRO will act as Company sponsor in relation to payment for these services. The total cost of the clinical trial including the CRO cost is expected to approximate $0.7 million.