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ROC

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 31, 2022

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-41422

 

HEART TEST LABORATORIES, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

Texas

26-1344466

( State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

 

 

550 Reserve Street, Suite 360

Southlake, Texas

76092

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (682)-237-7781

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock

 

HSCS

 

The Nasdaq Stock Market LLC

Warrants

 

HSCSW

 

The Nasdaq Stock Market LLC

 

 

 

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

Accelerated filer

 

Non-accelerated filer

 

 

Smaller reporting company

 

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

As of September 12, 2022, the registrant had 8,202,550 shares of common stock outstanding.

 

 

 

 


 

HEART TEST LABORATORIES, INC.

NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements relate to our future plans, objectives, expectations and intentions and may be identified by terminology such as “may,” “will,” “should,” “expects,” “aims,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “intends,” or “continue,” or the negative of these terms or other comparable terminology. Readers are cautioned that these forward-looking statements are based on our current beliefs, expectations and assumptions and are subject to risks, uncertainties, and assumptions that are difficult to predict, including those identified below, under Part II, Item 1A. “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q and those risks identified under Part I, Item 1A of our Annual Report on Form 10-K for the year ended April 30, 2022 filed with the Securities and Exchange Commission on July 29, 2022 ("2022 Annual Report on Form 10-K"). Therefore, actual results may differ materially and adversely from those expressed, projected or implied in any forward-looking statements. We undertake no obligation to revise or update any forward-looking statements for any reason.

These forward-looking statements may include, but are not limited to, statements relating to our objectives, plans and strategies, statements that contain projections of results of operations or of financial condition, expected capital needs and expenses, statements relating to the research, development, completion and use of our device, and all statements (other than statements of historical facts) that address activities, events or developments that we intend, expect, project, believe or anticipate will or may occur in the future.

Forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties. We have based these forward-looking statements on assumptions and assessments made by our management in light of their experience and their perception of historical trends, current conditions, expected future developments and other factors they believe to be appropriate.

Important factors that could cause actual results, developments and business decisions to differ materially from those anticipated in these forward-looking statements include, among other things:

our expectation regarding the sufficiency of our existing cash and cash equivalents to fund our current operations;
our ability to receive regulatory clearance for the MyoVista wavECG, or the MyoVista, from the U.S. Food and Drug Administration, or FDA, state regulators, if any, or other similar foreign regulatory agencies, including approval to conduct clinical trials, the timing and scope of those trials and the prospects for regulatory approval or clearance of, or other regulatory action with respect to the MyoVista;
our ability to advance the development of the MyoVista, our full function conventional 12-lead electrocardiograph, or ECG, device that incorporates an additional proprietary artificial intelligence-based algorithm that has been designed with the expectation of detecting cardiac dysfunction caused by heart disease or age-related cardiac dysfunction, and future potential products;
our ability to launch sales of the MyoVista into the U.S. and any future potential products;
our assessment of the potential of the MyoVista and future potential products to diagnose certain indications;
our planned level of capital expenditures and liquidity;
our plans to continue to invest in research and development to develop technology for new products;
the regulatory environment and changes in the health policies and regimes in the countries in which we intend to operate, including the impact of any changes in regulation and legislation that could affect the medical device industry;
our ability to meet our expectations regarding the commercial supply of the MyoVista and any future products;
our ability to retain key executives;
our ability to internally develop new inventions and intellectual property;
the overall global economic environment;
the impact of COVID-19 and resulting government actions on us;
the impact of competition and new technologies;
general market, political and economic conditions in the countries in which we operate;
our ability to internally develop new devices and intellectual property;

 


 

our expectations regarding the use of proceeds from the initial public offering (the "IPO") of units (the "Units"), with each Unit consisting of (a) one share of our common stock, par value $0.001 per share ("Common Stock"), and (b) a warrant (the "IPO Warrants") to purchase one share of our Common Stock, and additional IPO Warrants through the exercise, in part, of the underwriter's over-allotment option, in the IPO in June 2022;
changes in our strategy; and
litigation.

These statements are only current predictions and are subject to known and unknown risks, uncertainties, and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from those anticipated by the forward-looking statements.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by law, we are under no duty to update or revise any of the forward-looking statements, whether as a result of new information, future events or otherwise for any reason.

The Company will continue to file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission (the “SEC”). Forward-looking statements speak only as of the dates specified in such filings. Except as expressly required under federal securities laws and the rules and regulations of the SEC, we do not undertake any obligation to update any forward-looking statements to reflect events or circumstances arising after any such date, whether as a result of new information or future events or otherwise. You should not place undue reliance on the forward-looking statements included in this report or that may be made elsewhere from time to time by us, or on our behalf. All forward-looking statements attributable to us are expressly qualified by these cautionary statements.

NOTE REGARDING COMPANY REFERENCES

Throughout this Quarterly Report on Form 10-Q, “HeartSciences,” the “Company,” “we,” “us” and “our” refer to Heart Test Laboratories, Inc. References to "Fiscal 2023" refer to the 12-months ending April 30, 2023 and references to "Fiscal 2022" refer to the 12-months ended April 30, 2022.

 


 

Table of Contents

 

 

 

Page

 

 

 

PART I.

FINANCIAL INFORMATION

 

 

 

 

Item 1.

Condensed Unaudited Financial Statements

1

 

Condensed Balance Sheets as of July 31, 2022 and April 30, 2022

1

 

Condensed Statements of Operations for the three months ended July 31, 2022 and 2021

2

 

Condensed Statements of Stockholders' Equity (Deficit) for the three months ended July 31, 2022 and 2021

3

 

Condensed Statements of Cash Flows for the three months ended July 31, 2022 and 2021

4

 

Notes to the Condensed Unaudited Financial Statements

5

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

18

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

21

Item 4.

Controls and Procedures

21

 

 

 

PART II.

OTHER INFORMATION

23

 

 

 

Item 1.

Legal Proceedings

23

Item 1A.

Risk Factors

23

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

23

Item 3.

Defaults Upon Senior Securities

23

Item 4.

Mine Safety Disclosures

23

Item 5.

Other Information

23

Item 6.

Exhibits

24

Signatures

25

 

i


 

HEART TEST LABORATORIES, INC.

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Heart Test Laboratories, Inc.

Condensed Balance Sheets

 

 

July 31,

 

 

April 30,

 

 

 

2022

 

 

2022

 

 

 

(Unaudited)

 

 

 

 

ASSETS

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

Cash and cash equivalents

 

$

4,272,499

 

 

$

918,260

 

Accounts receivable

 

 

 

 

 

2,321

 

Inventory

 

 

677,669

 

 

 

674,139

 

Prepaid expenses

 

 

445,924

 

 

 

49,383

 

Other current assets

 

 

40,374

 

 

 

40,374

 

Deferred offering costs

 

 

 

 

 

246,400

 

Total current assets

 

 

5,436,466

 

 

 

1,930,877

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

70,870

 

 

 

70,035

 

Right-of-use assets, net

 

 

59,923

 

 

 

88,535

 

 

 

 

 

 

 

 

TOTAL ASSETS

 

$

5,567,259

 

 

$

2,089,447

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

Accounts payable

 

$

455,744

 

 

$

694,745

 

Accrued expenses

 

 

505,547

 

 

 

1,053,636

 

Operating lease liabilities

 

 

61,546

 

 

 

90,968

 

Current portion of notes payable

 

 

130,000

 

 

 

1,630,000

 

Other current liabilities

 

 

389,186

 

 

 

1,220

 

Total current liabilities

 

 

1,542,023

 

 

 

3,470,569

 

 

 

 

 

 

 

 

LONG-TERM LIABILITIES

 

 

 

 

 

 

Notes payable

 

 

1,000,000

 

 

 

4,441,807

 

Accrued expenses

 

 

137,967

 

 

 

232,868

 

Total long-term liabilities

 

 

1,137,967

 

 

 

4,674,675

 

 

 

 

 

 

 

 

TOTAL LIABILITIES

 

 

2,679,990

 

 

 

8,145,244

 

 

 

 

 

 

 

 

COMMITMENTS AND CONTINGENCIES (NOTE 2, 5, and 8)

 

 

 

 

 

 

STOCKHOLDERS EQUITY (DEFICIT)

 

 

 

 

 

 

Series A, B, and C convertible preferred stock, $0.001 par value, 20,000,000 shares authorized and 620,000 designated; 412,589 shares issued and outstanding as of July 31, 2022 and 483,265 shares issued and outstanding as of April 30, 2022.

 

 

413

 

 

 

483

 

Common stock, $0.001 par value, 500,000,000 shares authorized; 8,174,375 shares issued and outstanding as of July 31, 2022 and 3,323,942 shares issued and outstanding as of April 30, 2022.

 

 

8,173

 

 

 

3,323

 

Additional paid-in capital

 

 

58,854,894

 

 

 

48,343,305

 

Accumulated deficit

 

 

(55,976,211

)

 

 

(54,402,908

)

TOTAL STOCKHOLDERS EQUITY (DEFICIT)

 

 

2,887,269

 

 

 

(6,055,797

)

TOTAL LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)

 

$

5,567,259

 

 

$

2,089,447

 

The accompanying notes are an integral part of these condensed unaudited financial statements.

 

1


 

Heart Test Laboratories, Inc.

Condensed Statements of Operations

(Unaudited)

 

 

 

Three Months Ended
July 31,

 

 

 

2022

 

 

2021

 

 

 

 

 

 

 

 

Revenue

 

$

3,200

 

 

$

7,484

 

 

 

 

 

 

 

 

Cost of sales

 

 

2,036

 

 

 

5,756

 

 

 

 

 

 

 

 

Gross margin

 

 

1,164

 

 

 

1,728

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

Research and development

 

 

434,198

 

 

 

401,114

 

Selling, general and administrative

 

 

997,063

 

 

 

275,060

 

Total operating expenses

 

 

1,431,261

 

 

 

676,174

 

 

 

 

 

 

 

 

Loss from operations

 

 

(1,430,097

)

 

 

(674,446

)

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

Interest expense

 

 

(143,607

)

 

 

(77,605

)

Gain on extinguishment of debt

 

 

 

 

 

250,200

 

Other income

 

 

401

 

 

 

 

Total other (expense) income

 

 

(143,206

)

 

 

172,595

 

 

 

 

 

 

 

 

Net loss

 

$

(1,573,303

)

 

$

(501,851

)

 

 

 

 

 

 

 

Net loss per share, basic and diluted

 

$

(0.28

)

 

$

(0.15

)

 

 

 

 

 

 

 

Weighted average common shares outstanding, basic and diluted

 

 

5,645,230

 

 

 

3,313,841

 

 

The accompanying notes are an integral part of these condensed unaudited financial statements.

 

2


 

Heart Test Laboratories, Inc.

Condensed Statements of Stockholders' Equity (Deficit) (Unaudited)

Three Month Periods Ended July 31, 2022 and 2021

 

 

Series A Convertible
Preferred Stock

 

 

Series B Convertible
Preferred Stock

 

 

Series C Convertible
Preferred Stock

 

 

Total
Convertible
Preferred

 

 

Common Stock

 

 

Additional
Paid-in

 

 

Accumulated

 

 

Total
Stockholder's

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Stock

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Deficit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE AT APRIL 30, 2022

 

10,000

 

 

$

10

 

 

 

10,000

 

 

$

10

 

 

 

463,265

 

 

$

463

 

 

$

483

 

 

 

3,323,942

 

 

$

3,323

 

 

$

48,343,305

 

 

$

(54,402,908

)

 

$

(6,055,797

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sale of common stock and warrants, net of fees

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,500,000

 

 

 

1,500

 

 

 

5,193,240

 

 

 

 

 

 

5,194,740

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock issued upon conversion of $1.5M Notes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

909,071

 

 

 

909

 

 

 

1,499,091

 

 

 

 

 

 

1,500,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock issued upon conversion of Bridge Notes and accrued interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,544,114

 

 

 

1,544

 

 

 

3,617,160

 

 

 

 

 

 

3,618,704

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock issued upon conversion of Series A and B Convertible Preferred Stock

 

(10,000

)

 

 

(10

)

 

 

(10,000

)

 

 

(10

)

 

 

 

 

 

 

 

 

(20

)

 

 

703,290

 

 

 

703

 

 

 

(683

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock issued upon conversion of Series C Convertible Preferred Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

(50,676

)

 

 

(50

)

 

 

(50

)

 

 

193,958

 

 

 

194

 

 

 

(144

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock based compensation - management & other employees

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

145,722

 

 

 

 

 

 

145,722

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrants issued to non-employees

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

57,203

 

 

 

 

 

 

57,203

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,573,303

)

 

 

(1,573,303

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE AT JULY 31, 2022

 

 

 

$

 

 

 

 

 

$

 

 

 

412,589

 

 

$

413

 

 

$

413

 

 

 

8,174,375

 

 

$

8,173

 

 

$

58,854,894

 

 

$

(55,976,211

)

 

$

2,887,269

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE AT APRIL 30, 2021

 

10,000

 

 

$

10

 

 

 

10,000

 

 

$

10

 

 

 

463,265

 

 

$

463

 

 

$

483

 

 

 

3,313,841

 

 

$

3,313

 

 

$

47,661,262

 

 

$

(49,574,648

)

 

$

(1,909,590

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock based compensation - management & other employees

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,583

 

 

 

 

 

 

1,583

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrants issued to non-employees

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,609

 

 

 

 

 

 

1,609

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE AT JULY 31, 2021

 

10,000

 

 

$

10

 

 

 

10,000

 

 

$

10

 

 

 

463,265

 

 

$

463

 

 

 

483

 

 

 

3,313,841

 

 

$

3,313

 

 

$

47,664,454

 

 

$

(49,574,648

)

 

$

(1,906,398

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3


 

 

The accompanying notes are an integral part of these condensed unaudited financial statements.

 

4


 

Heart Test Laboratories, Inc.

Statements of Cash Flows

(Unaudited)

 

 

 

Three Months Ended
July 31,

 

 

 

2022

 

 

2021

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

$

(1,573,303

)

 

$

(501,851

)

Net loss

 

 

 

 

 

 

Adjustments to reconcile net loss to net cash used in operating activities

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation

 

 

6,412

 

 

 

6,973

 

Amortization of debt discounts and deferred financing costs

 

 

61,381

 

 

 

 

Stock-based compensation

 

 

145,722

 

 

 

1,583

 

Warrants issued to non-employees

 

 

 

 

 

1,609

 

Gain on settled accounts payable

 

 

(81,200

)

 

 

 

Gain on extinguishment of debt

 

 

 

 

 

(250,200

)

 

 

 

 

 

 

 

Changes in current assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

2,321

 

 

 

 

Inventory

 

 

(3,530

)

 

 

33,660

 

Prepaid and other current assets

 

 

29,412

 

 

 

14,019

 

Deferred offering costs

 

 

236,353

 

 

 

 

Accounts payable

 

 

(157,801

)

 

 

(76,513

)

Accrued liabilities

 

 

(477,475

)

 

 

53,229

 

Net cash used in operating activities

 

 

(1,811,708

)

 

 

(717,491

)

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

Purchase of property and equipment

 

 

(7,247

)

 

 

 

Net cash used in investing activities

 

 

(7,247

)

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

Issuance of common stock in IPO, net of fees

 

 

5,194,740

 

 

 

 

Issuance of warrants in IPO

 

 

17,250

 

 

 

 

Principal repayments of finance lease obligations

 

 

(38,796

)

 

 

 

Net cash provided by investing activities

 

 

5,173,194

 

 

 

 

 

 

 

 

 

 

 

Net change in cash and cash equivalents during the period

 

 

3,354,239

 

 

 

(717,491

)

Cash and cash equivalents, beginning of period

 

 

918,260

 

 

 

723,481

 

Cash and cash equivalents, end of period

 

$

4,272,499

 

 

$

5,990

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURES OF NON-CASH TRANSACTIONS:

 

 

 

 

 

 

Accrued interest on Bridge Notes converted to common stock

 

$

165,516

 

 

$

 

Financed insurance premiums

 

$

426,762

 

 

$

 

Warrants issued as underwriter compensation

 

$

39,953

 

 

$

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed unaudited financial statements.

 

4


 

Heart Test Laboratories, Inc.

Notes to Condensed Unaudited Financial Statements

Note 1. Basis of Presentation

Heart Test Laboratories, Inc. d/b/a HeartSciences (“HeartSciences” or the "Company") is a medical technology company specializing in cardiovascular diagnostic technology. The Company is a Texas C-Corporation and is headquartered in Southlake, Texas.

HeartSciences’ initial focus is on applying novel technology to extend the clinical indications for use of an electrocardiograph (“ECG”) device. Its first device, the MyoVista is an ECG which can be used in a wide range of clinical settings and provides diagnostic information to a qualified healthcare professional on cardiac dysfunction which has traditionally only been provided using cardiac imaging. In addition, the MyoVista provides conventional ECG information. The Company plans to market its device both domestically and internationally to various hospitals, clinics, and medical centers and manufacture the devices using outsourced production facilities. To date the Company has had small amounts of revenue from key opinion leader engagement and establishment of distributor relationships outside the United States during the development and product improvement phase of the MyoVista. There have been a number of published clinical studies that have validated the MyoVista technology and the Company is preparing to seek U.S. Food and Drug Administration (“FDA”) clearance of the MyoVista during the fiscal year ending April 30, 2023.

On June 3, 2022, the Company filed a Certificate of Amendment to the Amended and Restated Certificate of Formation with the Secretary of the State of Texas to effect a 1-for-33 reverse stock split of its outstanding shares of common stock, with an effective date of June 10, 2022. As a result of the reverse stock split, every 33 shares of the Company's issued and outstanding pre-reverse split common stock were combined into one share of common stock, except to the extent that the reverse stock split resulted in any of the Company's shareholders owning a fractional share, which was rounded up to the next highest whole share if such fraction was equal to or greater than one-half. In connection with the reverse stock split, there was no change in the par value per share of $0.001. All share and per share numbers have been retroactively adjusted to give effect to the reverse stock split for all periods presented, unless otherwise indicated.

Note 2. Liquidity, 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 need to obtain additional capital, competition from larger companies, and other technologies.

At July 31, 2022 and April 30, 2022, the Company had an accumulated deficit of $56.0 and $54.4 million and stockholder’s equity of $2.9 million and stockholders' deficit of $6.1 million, respectively. In addition, the Company has generated recurring losses and negative cash flows from operations since its inception and has a working capital deficiency. Based on these factors there is a substantial doubt regarding the Company’s ability to continue as a going concern.

In June 2022, the Company raised approximately $5.2 million in net proceeds from the completion of the initial public offering (the "IPO") (see Note 5). The Company’s forecasts and cashflow projections indicate that current resources would be insufficient to support operations significantly beyond the second calendar quarter of 2023 and repay the $1M Notes as they fall due in September 2023 (see Note 4). Additionally, the FDA can delay, limit or deny clearance of a medical device for many reasons outside the Company’s control which may involve substantial unforeseen costs.

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

These unaudited financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern for a reasonable period.

In March 2020, the World Health Organization declared a pandemic related to the coronavirus (COVID-19) outbreak, which led to a global health emergency. The full impact of COVID-19 remains uncertain, and the related health crisis adversely affected and may continue to adversely affect the global economy. While the extent of these disruptions have reduced, they may continue to negatively impact the Company’s results of operations and liquidity.

 

5


 

Note 3. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited 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-Q and Rule 8-03 of Regulation S-X and the related rules and regulations of the Securities and Exchange Commissions ("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. In the opinion of management, the unaudited interim financial statements reflect all adjustments, which include only normal recurring adjustments necessary for the fair statement of the balances and results of operations for the periods presented. The interim operating results are not necessarily indicative of results that may be expected for any subsequent period. The accompanying unaudited financial statements should be read in conjunction with the Company's audited financial statements and notes thereto included in the Company's 2022 Annual Report on Form 10-K filed with the SEC on July 29, 2022.

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 the disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. The fair value of cash and cash equivalents approximates carrying value. At times, the Company’s cash balances may exceed the current insured amounts under the Federal Deposit Insurance Corporation (“FDIC”).

Inventory

All inventories are stated at lower of cost or net realizable value, with cost determined substantially on a “first-in, first-out” basis. Selling, general, and administrative expenses are not inventoried, but are charged to expense when incurred. The following is a summary of the Company’s inventories at July 31, 2022 and April 30, 2022:

 

 

 

 

July 31,

 

 

April 30,

 

 

 

2022

 

 

2022

 

Raw materials

 

$

359,965

 

 

$

359,965

 

Sub-assemblies

 

 

348,746

 

 

 

345,217

 

Work in progress

 

 

21,741

 

 

 

21,741

 

Finished goods

 

 

28,663

 

 

 

28,662

 

Reserve for obsolescence

 

 

(81,446

)

 

 

(81,446

)

Total Inventory

 

$

677,669

 

 

$

674,139

 

 

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

6


 

Research and Development Expenses

In accordance with ASC Topic 730, Accounting for Research and Development Costs, the Company accounts for research and development expenditures, including payments to collaborative research partners and regulatory filing costs, as research and development expenses. Accordingly, all research and development costs are charged to expense as incurred.

Property and Equipment