HeartSciences Inc 10-Q for FY2023 Q3

HeartSciences Inc. (HSCS)

10-Q 2023-03-16 For: 2023-01-31

Added on April 06, 2026

About this 10-Q

HeartSciences Inc filed this 10-Q on March 16, 2023, covering the quarter ended January 31, 2023 (FY2023 Q3).

Headline figures

Quarter ended January 31, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $1950; down 28.8% from $2740 a year earlier
Net loss: $1.34M; compared with a net loss of $1.24M a year earlier
Diluted EPS: -$0.16; compared with -$0.37 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 January 31, 2023 and April 30, 2022	1
	Condensed Statements of Operations for the three and nine months ended January 31, 2023 and 2022	2
	Condensed Statements of Stockholders' Equity (Deficit) for the three months ended January 31, 2023 and 2022	3
	Condensed Statements of Stockholders' Equity (Deficit) for the nine months ended January 31, 2023 and 2022	4
	Condensed Statements of Cash Flows for the nine months ended January 31, 2023 and 2022	5
	Notes to the Condensed Unaudited Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24
Item 4.	Controls and Procedures	25

PART II.	OTHER INFORMATION	26

Item 1.	Legal Proceedings	26
Item 1A.	Risk Factors	26
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	26
Item 3.	Defaults Upon Senior Securities	26
Item 4.	Mine Safety Disclosures	26
Item 5.	Other Information	26
Item 6.	Exhibits	27
Signatures		28


	January 31,			April 30,
	2023			2022
	(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	1,930,952		$	918,260
Accounts receivable		—			2,321
Inventory		676,909			674,139
Prepaid expenses		222,200			49,383
Other current assets		40,374			40,374
Deferred offering costs		—			246,400
Total current assets		2,870,435			1,930,877

Property and equipment, net		60,661			70,035
Right-of-use assets, net		549,227			88,535
TOTAL ASSETS	$	3,480,323		$	2,089,447

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable	$	1,040,687		$	694,745
Accrued expenses		644,610			1,053,636
Operating lease liabilities, current portion		—			90,968
Current portion of notes payable		130,000			1,630,000
Other current liabilities		170,133			1,220
Total current liabilities		1,985,430			3,470,569

LONG-TERM LIABILITIES
Notes payable		1,000,000			4,441,807
Accrued expenses		203,578			232,868
Operating lease liabilities, long-term portion		549,227			—
Total long-term liabilities		1,752,805			4,674,675
TOTAL LIABILITIES		3,738,235			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 January 31, 2023 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; 8,349,859 shares issued and outstanding as of January 31, 2023 and 3,323,942 shares issued and outstanding as of April 30, 2022.		8,349			3,323
Additional paid-in capital		58,858,173			48,343,305
Accumulated deficit		(59,124,837	)		(54,402,908	)
TOTAL STOCKHOLDERS EQUITY (DEFICIT)		(257,912	)		(6,055,797	)
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)	$	3,480,323		$	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 January 31,						Nine months ended January 31,
	2023			2022			2023			2022

Revenue	$	1,950		$	2,740		$	5,150		$	10,224

Cost of sales		760			854			2,796			6,610

Gross margin		1,190			1,886			2,354			3,614

Operating expenses:
Research and development		643,258			699,015			1,926,432			1,645,902
Selling, general and administrative		667,235			403,158			2,590,227			1,089,301
Total operating expenses		1,310,493			1,102,173			4,516,659			2,735,203

Loss from operations		(1,309,303	)		(1,100,287	)		(4,514,305	)		(2,731,589	)

Other income (expense)
Interest expense		(32,805	)		(139,067	)		(209,217	)		(294,586	)
Gain on extinguishment of debt		—			—			—			250,200
Other expense		—			851			1,593			851
Other income		(7	)		—			—			—
Total other (expense) income		(32,812	)		(138,216	)		(207,624	)		(43,535	)

Net loss	$	(1,342,115	)	$	(1,238,503	)	$	(4,721,929	)	$	(2,775,124	)

Net loss per share, basic and diluted	$	(0.16	)	$	(0.37	)	$	(0.64	)	$	(0.84	)

Weighted average common shares outstanding, basic and diluted		8,240,798			3,323,503			7,371,764			3,317,208


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

Common Stock issued upon conversion of Series C Convertible Preferred Stock		—		—		—		—		—		—		—		—		—		—			—			—

Common Stock issued upon exercise of pre-funded warrants		—		—		—		—		—		—		—		139,356		139		(125	)		—			14

Stock based compensation - management & other employees		—		—		—		—		—		—		—		—		—		1,513			—			1,513

Net loss		—		—		—		—		—		—		—		—		—		—			(1,342,115	)		(1,342,115	)

BALANCE AT JANUARY 31, 2023		—	$	—		—	$	—		403,228	$	403	$	403		8,349,859	$	8,349	$	58,858,173		$	(59,124,837	)	$	(257,912	)



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	)

Common Stock issued to non-employees		—		—		—		—		—		—		—		10,101		10		34,990			—			35,000
																										-
Stock based compensation - management & other employees		—		—		—		—		—		—		—		—		—		80,833						80,833

Warrants issued to non-employees		—		—		—		—		—		—		—		—		—		463,058			—			463,058

Net loss		—		—		—		—		—		—		—		—		—		—			(1,238,503	)		(1,238,503	)

BALANCE AT JANUARY 31, 2022		10,000	$	10		10,000	$	10		463,265	$	463		483		3,323,942	$	3,323	$	48,244,169		$	(52,349,772	)	$	(4,101,797	)


	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 Preferred Stock to Common Stock		703,290
Conversion of Series C Preferred Stock to Common Stock		230,086
Exercise of pre-funded warrants		139,356
Common Stock issued during the nine months ended January 31, 2023		5,025,917

Summary table of Common Stock share transactions:
Balance at April 30, 2022		3,323,942
Issued in Fiscal 2023		5,025,917
Balance at January 31, 2023		8,349,859


	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
Exercised		(139,356	)	$	0.0001	$	0.0001
Cancelled		(1,365,960	)	$	5.16	$	5.16
Balance, January 31, 2023		3,589,911		$0.0001-$15.18		$	4.32


	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 - January 31, 2023		251,942		$	11.89		3.9

Non-vested at January 31, 2023		3,851		$	3.31		8.9
Vested at January 31, 2023		248,091		$	12.02		3.8


	January 31,
	2023
Right-of-use assets	$	549,227

Lease liabilities, current		—
Lease liabilities, net of current portion		549,227
Total lease liabilities	$	549,227

Weighted average remaining term (in years)		5.3
Weighted average discount rate		12	%


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		(232,539	)
Total operating lease liabilities	$	549,227


	For the three months ended January 31,												For the nine months ended January 31,
	2023			2022			$ Change			% Change			2023			2022			$ Change			% Change
	(In thousands, except percentages, unaudited)
Revenue	$	2		$	3		$	(1	)		(29	)%	$	5		$	10		$	(5	)		(50	)%
Cost of sales		1			1			—	%		—	%		3			7			(4	)		(58	)%
Gross margin		1			2			(1	)		(37	)%		2			4			(1	)		(35	)%
Operating expenses:
Research and development		643			699			(56	)		(8	)%		1,926			1,646			281			17	%
Selling, general and administrative		667			403			264			66	%		2,590			1,089			1,501			138	%
Total operating expenses		1,310			1,102			208			19	%		4,517			2,735			1,781			65	%
Loss from operations		(1,309	)		(1,100	)		(209	)		19	%		(4,514	)		(2,732	)		(1,783	)		65	%
Other income (expense)
Interest expense		(33	)		(139	)		106			(76	)%		(209	)		(295	)		85			(29	)%
Gain on extinguishment of debt		—			—			—			—	%		—			250			(250	)		(100	)%
Other income		—			1			(1	)		(100	)%		2			1			1			87	%
Other income (expense), net		(33	)		(138	)		105			(76	)%		(208	)		(44	)		(164	)		377	%
Net loss	$	(1,342	)	$	(1,239	)	$	(104	)		8	%	$	(4,722	)	$	(2,775	)	$	(1,947	)		70	%


	January 31,			April 30,
	2023			2022
Raw materials	$	359,965		$	359,965
Sub-assemblies		347,986			345,217
Work in progress		21,741			21,741
Finished goods		28,663			28,662
Reserve for obsolescence		(81,446	)		(81,446	)
Total Inventory	$	676,909		$	674,139


	January 31,			April 30,
	2023			2022
Equipment	$	390,328		$	379,612
Furniture & fixtures		102,563			102,563
Leasehold improvements		32,812			32,812
Total		525,703			514,987
Less: Accumulated depreciation		(465,042	)		(444,952	)
Property and equipment, net	$	60,661		$	70,035


	January 31,			April 30,
	2023			2022
Deferred tax assets (liabilities):

Net operating loss carryforwards	$	9,447,212		$	8,387,881
Start-up costs		960,269			1,036,080
Stock option and warrant payments		441,977			423,624
Accumulated depreciation		(2,839	)		(2,668	)
Research and development credits		255,600			255,600
Research and development warrants		21,488			21,488
Total deferred tax assets, net		11,123,707			10,122,005
Valuation Allowance		(11,123,707	)		(10,122,005	)
Net Deferred Tax Assets	$	—		$	—


	Heart Test Laboratories, Inc.

Date: March 16, 2023	By:	/s/ Andrew Simpson
	Name:	Andrew Simpson
	Title:	President, Chief Executive Officer, and Chairman of the Board of Directors (Principal Executive Officer)

Date: March 16, 2023	By:	/s/ Danielle Watson
	Name:	Danielle Watson
	Title:	Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)


	For the nine months ended January 31,
U.S. dollars, in thousands	2023			2022
	(Unaudited)
Net cash used in operating activities	$	(3,912	)	$	(2,452	)
Net cash (used in) provided by investing activities	$	(11	)	$	(2	)
Net cash provided by financing activities	$	4,935		$	3,058
Net change in cash and cash equivalents during the period	$	1,013		$	605


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)
4.1		Form of Amendment No. 2 to Warrant to Purchase Common Stock, dated February 3, 2023 (incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K filed on February 3, 2023)
4.2		Form of Amended and Restated Warrant to Purchase Common Stock, as amended through February 3, 2023 (incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K filed on February 22, 2023)
4.3		Form of Pre-Funded Warrant, issued pursuant to Amendment No. 2 to Warrants to Purchase Common Stock (incorporated by reference to Exhibit 4.2 to our Current Report on Form 8-K/A filed on March 14, 2023)
10.1		Amendment No. 4 to Loan and Security Agreement (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on January 24, 2023)
10.2		Purchase Agreement, dated March 10, 2023, by and between the Company and Lincoln Park Capital Fund, LLC (incorporated by reference to Exhibit 10.1 to our Current Report on From 8-K filed on March 13, 2023)
10.3		Registration Rights Agreement, dated March 10, 2023, by and between the Company and Lincoln Park Capital Fund, LLC (incorporated by reference to Exhibit 10.1 to our Current Report on From 8-K filed on March 13, 2023)
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
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