HeartBeam, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. The unaudited statements are for a development-stage cardiovascular diagnostics company developing remote ECG and emergency-room products. Its products were not FDA-cleared for marketing. Unless noted, financial amounts below are in thousands of dollars.
Financial results and position
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | No revenue reported in the statements presented | |||
| Operating expenses | $446 | $272 | $944 | $527 |
| Operating loss | ($446) | ($272) | ($944) | ($527) |
| Interest expense | ($742) | ($63) | ($1,421) | ($210) |
| Net loss | ($1,188) | ($335) | ($2,343) | ($737) |
| Basic and diluted loss per share | ($0.32) | ($0.09) | ($0.63) | ($0.20) |
The filing’s MD&A table gives nine-month 2021 net loss as $2.365 million, while the financial statements report $2.343 million; the filing does not reconcile the difference. No meaningful revenue-based margin is available.
- Cash and liquidity: Cash was $795 at September 30, 2021, versus $24 at December 31, 2020. Nine-month operating cash use was $789, compared with $405 in 2020; financing provided $1,560, primarily from convertible notes.
- Debt: Current convertible notes, net, were $5.419 million; total current liabilities were $6.148 million. The notes carried 8% interest and a 30% conversion discount. The company recorded $1.856 million of debt discount and substantial related accretion expense during 2021.
- Balance sheet: Total assets were $961, against a $5.187 million stockholders’ deficit. Accumulated deficit was $7.139 million.
- Expenses: Nine-month G&A rose 78% to $785, primarily due to business development and public-company readiness costs. R&D rose 85% to $159, reflecting telehealth development and initial ER-product software work.
Changes, outlook, and key risks
- Net loss increased materially year over year, chiefly because interest expense rose with accretion of the convertible-note discount. Operating expenses also increased.
- After quarter-end, the company raised approximately $14.9 million net from its November 2021 IPO. The 2015 Notes’ principal and accrued interest converted into 1,497,216 common shares, settling the notes. The underwriter also exercised an over-allotment option for 412,500 warrants. These events occurred after September 30 and are not reflected in the quarter-end balance sheet.
- Management stated that cash and equivalents were expected to fund operations for the next 12 months following issuance of the statements, based on its business-plan assumptions and expected cash burn. The filing also cautions that continued operations depend on raising capital or securing strategic relationships, with no assurance of acceptable financing.
- Product plans depended on FDA 510(k) clearance. The filing described planned timing for ER and telehealth submissions and clearances, but these were targets, not guaranteed outcomes. COVID-19-related disruption could adversely affect operations and liquidity.
- Management concluded disclosure controls were ineffective as of September 30, 2021, citing material weaknesses in documentation, approvals and review, GAAP expertise for complex transactions, and staffing/segregation of duties.
- Subsequent to the quarter, the board approved one-time bonuses of $350,000 for the CEO and $40,000 for the CFO in December 2021. The filing also disclosed related-party service providers and director/officer investments in the notes.
Important facts for investors to verify
- Reconcile the $22,000 difference between the nine-month net loss in the statements and the MD&A table.
- Review IPO proceeds, use of proceeds, post-IPO cash runway, and the impact of note conversion and warrant issuance on dilution.
- Track FDA submission and clearance milestones, clinical evidence, and commercialization readiness for both products.
- Assess whether management remediates the disclosed material weaknesses in internal controls.
- Monitor cash burn, future financing needs, and the assumptions underlying management’s 12-month liquidity assessment.