HeartSciences Inc 10-Q for FY2023 Q1

HeartSciences Inc. (HSCS)

10-Q 2022-09-12 For: 2022-07-31

Added on April 06, 2026

About this 10-Q

HeartSciences Inc filed this 10-Q on September 12, 2022, covering the quarter ended July 31, 2022 (FY2023 Q1).

Headline figures

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

Revenue: $3200; down 57.2% from $7484 a year earlier
Net loss: $1.57M; compared with a net loss of $501.85K a year earlier
Diluted EPS: -$0.28; compared with -$0.15 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 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


	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


☒	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 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


	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	)


	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		193,958
Issued during the three months ended July 31, 2022		4,850,433

Summary table of common stock share transactions:
Balance at April 30, 2022		3,323,942
Issued in Fiscal 2023		4,850,433
Balance at July 31, 2022		8,174,375


	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		1,969,356	$0.0001-$4.25	$	4.08
Balance, July 31, 2022		3,411,757	$0.0001-$15.18	$	6.21


	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 granted		—		—		—
Options forfeited		—		—		—
Outstanding - July 31, 2022		254,215	$	11.79		4.4

Non-vested at July 31, 2022		7,766	$	2.90		9.3
Vested at July 31, 2022		246,449	$	12.07		4.2


	July 31,
	2022
Right-of-use assets	$	59,923

Lease liabilities, current		61,546
Lease liabilities, net of current portion		—
Total lease liabilities	$	61,546

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


2023	$	63,717
Less imputed interest		(2,171	)
Total operating lease liabilities	$	61,546


	Three Months Ended July 31,
	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		434			401			33			8	%
Selling, general and administrative		997			275			722			262	%
Total operating expenses		1,431			676			755			112	%
Loss from operations		(1,430	)		(674	)		(756	)		112	%
Interest expense		(144	)		(78	)		(66	)		85	%
Gain on extinguishment of debt		—			250			(250	)		-100	%
Other income (expense), net		(144	)		173			(316	)		(183	)%
Net loss	$	(1,574	)	$	(502	)	$	(1,072	)		214	%


	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


	July 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		(451,364	)		(444,952	)
Property and equipment, net	$	70,870		$	70,035


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

Net operating loss carryforwards	$	8,679,226		$	8,387,881
Start-up costs		1,010,810			1,036,080
Stock option and warrant payments		458,037			423,624
Accumulated depreciation		(2,725	)		(2,668	)
Research and development credits		255,600			255,600
Research and development warrants		21,488			21,488
Total deferred tax assets, net		10,422,436			10,122,005
Valuation Allowance		(10,422,436	)		(10,122,005	)
Net Deferred Tax Assets	$	—		$	—


	Heart Test Laboratories, Inc.

Date: September 12, 2022	By:	/s/ Andrew Simpson
	Name:	Andrew Simpson
	Title:	President, Chief Executive Officer, and Chairman of the Board of Directors (Principal Executive Officer)

Date: September 12, 2022	By:	/s/ Danielle Watson
	Name:	Danielle Watson
	Title:	Chie Financial Officer and Treasurer (Principal Financial and Accounting Officer)


	Three Months Ended July 31,
U.S. dollars, in thousands	2022			2021
	(Unaudited)
Net cash used in operating activities	$	(1,812	)	$	(717	)
Net cash (used in) provided by investing activities	$	(7	)	$	—
Net cash provided by financing activities	$	5,173		$	—
Net change in cash and cash equivalents during the period	$	3,354		$	(717	)


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		Representative’s Warrant Agreement issued June 17, 2022 (incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K filed June 23, 2022)
4.2		Warrant Agent Agreement dated June 17, 2022 between Heart Test Laboratories, Inc. and American Stock Transfer & Trust Company, LLC (incorporated by reference to Exhibit 4.2 to our Current Report on Form 8-K filed June 23, 2022)
4.3		Form of Certificated Warrant (incorporated by reference to Exhibit 4.10 to Amendment No. 2 to our Registration Statement on Form S-1 filed June 10, 2022)
4.4		Amendment No. 1 to Warrant to Purchase Common Stock, dated September 8, 2022 (incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K filed September 9, 2022)
10.1		Form of Amendment No. 3 to the $1M Loan and Security Agreement, dated May 2022 (incorporated by reference to Exhibit 10.19 to our Registration Statement on Form S-1 filed May 17, 2022)
10.2		Form of Amendment No. 2 to the Form of $1.5M Note by and among Heart Test Laboratories, Inc. and the Requisite Noteholders, dated May 2022 (incorporated by reference to Exhibit 10.20 to our Registration Statement on Form S-1 filed May 17, 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.
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