HeartSciences Inc 10-Q for FY2023 Q2

HeartSciences Inc. (HSCS)

10-Q 2022-12-15 For: 2022-10-31

Added on April 06, 2026

About this 10-Q

HeartSciences Inc filed this 10-Q on December 15, 2022, covering the quarter ended October 31, 2022 (FY2023 Q2).

Headline figures

Quarter ended October 31, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.

Net loss: $1.81M; compared with a net loss of $1.03M a year earlier
Diluted EPS: -$0.22; compared with -$0.31 a year earlier

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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)


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


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
Emerging growth company	☒


		Page

PART I.	FINANCIAL INFORMATION

Item 1.	Condensed Financial Statements:
	Condensed Balance Sheets as of October 31, 2022 and April 30, 2022	1
	Condensed Statements of Operations for the three and six months ended October 31, 2022 and 2021	2
	Condensed Statements of Stockholders' Equity (Deficit) for the three months ended October 31, 2022 and 2021	3
	Condensed Statements of Stockholders' Equity (Deficit) for the six months ended October 31, 2022 and 2021	4
	Condensed Statements of Cash Flows for the six months ended October 31, 2022 and 2021	5
	Notes to the Condensed Unaudited Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	23
Item 4.	Controls and Procedures	23

PART II.	OTHER INFORMATION	24

Item 1.	Legal Proceedings	24
Item 1A.	Risk Factors	24
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	24
Item 3.	Defaults Upon Senior Securities	24
Item 4.	Mine Safety Disclosures	24
Item 5.	Other Information	24
Item 6.	Exhibits	25
Signatures		26


	October 31,			April 30,
	2022			2022
	(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	3,075,966		$	918,260
Accounts receivable		—			2,321
Inventory		677,669			674,139
Prepaid expenses		333,010			49,383
Other current assets		40,374			40,374
Deferred offering costs		—			246,400
Total current assets		4,127,019			1,930,877

Property and equipment, net		64,057			70,035
Right-of-use assets, net		579,649			88,535
TOTAL ASSETS	$	4,770,725		$	2,089,447

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable	$	795,266		$	694,745
Accrued expenses		890,654			1,053,636
Operating lease liabilities, current portion		31,232			90,968
Current portion of notes payable		1,130,000			1,630,000
Other current liabilities		291,670			1,220
Total current liabilities		3,138,822			3,470,569

LONG-TERM LIABILITIES
Notes payable		—			4,441,807
Accrued expenses		—			232,868
Operating lease liabilities, long-term portion		549,227			—
Total long-term liabilities		549,227			4,674,675
TOTAL LIABILITIES		3,688,049			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; 403,228 shares issued and outstanding as of October 31, 2022 and 483,265 shares issued and outstanding as of April 30, 2022.		403			483
Common stock, $0.001 par value, 500,000,000 shares authorized; 8,210,503 shares issued and outstanding as of October 31, 2022 and 3,323,942 shares issued and outstanding as of April 30, 2022.		8,210			3,323
Additional paid-in capital		58,856,785			48,343,305
Accumulated deficit		(57,782,722	)		(54,402,908	)
TOTAL STOCKHOLDERS EQUITY (DEFICIT)		1,082,676			(6,055,797	)
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)	$	4,770,725		$	2,089,447


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


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


	Three months ended October 31,						Six months ended October 31,
	2022			2021			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		848,976			545,773			1,283,174			946,887
Selling, general and administrative		925,929			411,083			1,922,992			686,143
Total operating expenses		1,774,905			956,856			3,206,166			1,633,030

Loss from operations		(1,774,905	)		(956,856	)		(3,205,002	)		(1,631,302	)

Other income (expense)
Interest expense		(32,805	)		(77,914	)		(176,412	)		(155,519	)
Gain on extinguishment of debt		—			—			—			250,200
Other income		1,199			—			1,600			—
Total other (expense) income		(31,606	)		(77,914	)		(174,812	)		94,681

Net loss	$	(1,806,511	)	$	(1,034,770	)	$	(3,379,814	)	$	(1,536,621	)

Net loss per share, basic and diluted	$	(0.22	)	$	(0.31	)	$	(0.49	)	$	(0.46	)

Weighted average common shares outstanding, basic and diluted		8,210,497			3,313,841			6,934,872			3,313,841


	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 JULY 31, 2022		—	$	—		—	$	—		412,589		$	413		$	413			8,174,375	$	8,173	$	58,854,894		$	(55,976,211	)	$	2,887,269

Common stock issued upon conversion of Series C Convertible Preferred Stock		—		—		—		—		(9,361	)		(10	)		(10	)		36,128		37		(27	)		—			—

Stock based compensation - management & other employees		—		—		—		—		—			—			—			—		—		1,918			—			1,918

Net loss		—		—		—		—		—			—			—			—		—		—			(1,806,511	)		(1,806,511	)

BALANCE AT OCTOBER 31, 2022		—	$	—		—	$	—		403,228		$	403		$	403			8,210,503	$	8,210	$	58,856,785		$	(57,782,722	)	$	1,082,676



BALANCE AT JULY 31, 2021		10,000	$	10		10,000	$	10		463,265		$	463		$	483			3,313,841	$	3,313	$	47,664,454		$	(50,076,499	)	$	(2,408,249	)

Stock based compensation - management & other employees		—		—		—		—		—			—			—			—		—		834			—			834

Net loss		—		—		—		—		—			—			—			—		—		—			(1,034,770	)		(1,034,770	)

BALANCE AT OCTOBER 31, 2021		10,000	$	10		10,000	$	10		463,265		$	463			483			3,313,841	$	3,313	$	47,665,288		$	(51,111,269	)	$	(3,442,185	)


	Number of Shares
Issuance of common stock in IPO		1,500,000
Conversion of $1.5M notes to common stock (see Note 4)		909,071
Conversion of Bridge Notes and accrued interest to common stock (see Note 4)		1,544,114
Conversion of Series A convertible preferred stock to common stock		703,290
Conversion of Series C convertible preferred stock to common stock		230,086
Issued during the six months ended October 31, 2022		4,886,561

Summary table of common stock share transactions:
Balance at April 30, 2022		3,323,942
Issued in Fiscal 2023		4,886,561
Balance at October 31, 2022		8,210,503


	Warrants Outstanding and Exercisable			Exercise Price Per Share		Weighted Average Strike Price per Share
Balance, April 30, 2022		1,442,401		$3.47-$15.18		$	9.00
Issued		3,652,826		$0.0001-$4.25		$	4.09
Cancelled		(1,365,960	)	$	5.16	$	5.16
Balance, October 31, 2022		3,729,267		$0.0001-$15.18		$	4.15


	Number of Options Outstanding			Weighted Average Exercise Price		Average Remaining Contractual Life (in years)
Outstanding - April 30, 2022		254,215		$	11.79		4.6
Options forfeited		(2,273	)		1.16		—
Outstanding - October 31, 2022		251,942		$	11.89		4.1

Non-vested at October 31, 2022		4,672		$	3.22		9.1
Vested at October 31, 2022		247,270		$	12.05		4.0


	October 31,
	2022
Right-of-use assets	$	579,649

Lease liabilities, current		31,232
Lease liabilities, net of current portion		549,227
Total lease liabilities	$	580,459

Weighted average remaining term (in years)		0.5
Weighted average discount rate		12	%


April 30, 2023	$	31,859
April 30, 2024		98,053
April 30, 2025		161,164
April 30, 2026		165,190
April 30, 2027		169,307
Thereafter		188,052
Less imputed interest		(233,166	)
Total operating lease liabilities	$	580,459


	For the three months ended October 31,												For the six months ended October 31,
	2022			2021			$ Change			% Change			2022			2021			$ Change			% Change
	(In thousands, except percentages, unaudited)
Revenue	$	—		$	—		$	—			—	%	$	3		$	7		$	(4	)		(57	)%
Cost of sales		—			—			—			—	%		2			6			(4	)		(65	)%
Gross margin		—			—			—			—	%		1			2			(1	)		(33	)%
Operating expenses:
Research and development		849			546			303			56	%		1,283			947			336			36	%
Selling, general and administrative		926			411			515			125	%		1,923			686			1,237			180	%
Total operating expenses		1,775			957			818			85	%		3,206			1,633			1,573			96	%
Loss from operations		(1,775	)		(957	)		(818	)		85	%		(3,205	)		(1,631	)		(1,574	)		96	%
Interest expense		(33	)		(78	)		45			(58	)%		(176	)		(156	)		(21	)		13	%
Gain on extinguishment of debt		—			—			—			—	%		—			250			(250	)		(100	)%
Other income		1			—			1			—	%		2			—			2			—	%
Other income (expense), net		(33	)		(78	)		45			(58	)%		(176	)		95			(271	)		(286	)%
Net loss	$	(1,808	)	$	(1,035	)	$	(773	)		75	%	$	(3,381	)	$	(1,537	)	$	(1,845	)		120	%


	October 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


	October 31,			April 30,
	2022			2022
Equipment	$	386,859		$	379,612
Furniture & fixtures		102,563			102,563
Leasehold improvements		32,812			32,812
Total		522,234			514,987
Less: Accumulated depreciation		(458,177	)		(444,952	)
Property and equipment, net	$	64,057		$	70,035


	October 31,			April 30,
	2022			2022
$130,000 unsecured drawdown convertible promissory note ("$130K Note")	$	130,000		$	130,000
$1.5 million secured convertible promissory notes ("$1.5M Notes")		—			1,500,000
$1M Notes		1,000,000			1,000,000
Bridge convertible notes, net of discounts and deferred financing costs		—			3,441,807
		1,130,000			6,071,807
Less: current maturities		(1,130,000	)		(1,630,000	)
Notes payable, long-term	$	—		$	4,441,807


	October 31,			April 30,
	2022			2022
Deferred tax assets (liabilities):

Net operating loss carryforwards	$	9,058,133		$	8,387,881
Start-up costs		985,539			1,036,080
Stock option and warrant payments		450,050			423,624
Accumulated depreciation		(2,782	)		(2,668	)
Research and development credits		255,600			255,600
Research and development warrants		21,488			21,488
Total deferred tax assets, net		10,768,028			10,122,005
Valuation Allowance		(10,768,028	)		(10,122,005	)
Net Deferred Tax Assets	$	—		$	—


	For the six months ended October 31,
U.S. dollars, in thousands	2022			2021
	(Unaudited)
Net cash used in operating activities	$	(2,892	)	$	(1,486	)
Net cash (used in) provided by investing activities	$	(7	)	$	(2	)
Net cash provided by financing activities	$	5,057		$	1,134
Net change in cash and cash equivalents during the period	$	2,158		$	(353	)


Exhibit Number		Description
3.1		Amended and Restated Certificate of Formation of Heart Test Laboratories, Inc. (incorporated by reference to Exhibit 3.1 to our Registration Statement on Form S-1 filed May 17, 2022)
3.2		Certificate of Designations, Number, Voting Power, Preferences and Rights of Series C Convertible Preferred Stock of Heart Test Laboratories, Inc. (incorporated by reference to Exhibit 3.2 to our Registration Statement on Form S-1 filed May 17, 2022)
3.3		Second Amended and Restated Bylaws of Heart Test Laboratories, Inc. (incorporated by reference to Exhibit 3.3 to our Registration Statement on Form S-1 filed May 17, 2022)
3.4		Form of Certificate of Amendment to Amended and Restated Certificate of Formation of Heart Test Laboratories, Inc. (incorporated by reference to Exhibit 3.4 to Amendment No. 1 to our Registration Statement on Form S-1 filed June 6, 2022)
3.5		Certificate of Amendment to Amended and Restated Certificate of Formation of Heart Test Laboratories, Inc., as amended (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed June 23, 2022)
31.1*		Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*		Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*		Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS		Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document.
101.SCH		Inline XBRL Taxonomy Extension Schema Document
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document
104		Cover Page Interactive Data File (embedded within the Inline XBRL document)


	Heart Test Laboratories, Inc.

Date: December 15, 2022	By:	/s/ Andrew Simpson
	Name:	Andrew Simpson
	Title:	President, Chief Executive Officer, and Chairman of the Board of Directors (Principal Executive Officer)

Date: December 15, 2022	By:	/s/ Danielle Watson
	Name:	Danielle Watson
	Title:	Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)