Heart Test Laboratories, Inc. (HeartSciences) — Form 10-Q Summary
Reporting period: Three months ended July 31, 2023 (the company’s fiscal 2024 first quarter). The financial statements are unaudited. The registrant’s legal name is Heart Test Laboratories, Inc.; it does business as HeartSciences.
Business context and results
The company is developing the MyoVista wav ECG, a 12-lead ECG incorporating an AI-based algorithm intended to identify cardiac dysfunction. The device is not cleared for U.S. marketing. The company reported no revenue in the quarter, compared with $3,200 in the prior-year quarter.
| Metric | Three months ended July 31, 2023 | Prior-year quarter |
|---|---|---|
| Revenue | $0 | $3,200 |
| Gross margin | $0 | $1,164 |
| Research and development expense | $565,632 | $434,198 |
| Selling, general and administrative expense | $765,023 | $997,063 |
| Operating loss | $1,330,655 | $1,430,097 |
| Interest expense | $36,260 | $143,607 |
| Net loss | $1,366,855 | $1,573,303 |
| Net loss per share, basic and diluted | $0.13 | $0.28 |
The net loss narrowed 13% year over year. R&D expense increased 30%, primarily from personnel costs; SG&A declined 23%, primarily due to lower legal expenses and supplier credits. Lower interest expense reflected the absence of debt-service amortization on Bridge Notes that had converted to equity in 2022. No meaningful revenue or gross margin was recorded in the quarter.
Financial position, cash flow and financing
- At July 31, 2023, cash and cash equivalents were $575,654, down from $1,660,467 at April 30, 2023. Current assets were $2.03 million and current liabilities $1.90 million, yielding working capital of approximately $131,000.
- Operating activities used $1.40 million of cash; investing activities used $4,910; financing activities provided $324,362, mainly from common stock issued under the Lincoln Park equity line. Cash decreased by $1.08 million during the quarter.
- Total liabilities were $3.12 million. Notes payable totaled $1.0 million, split equally between current and long-term maturities; the notes bear 12% annual interest and are secured by substantially all company assets and intellectual property, subject to the disclosed technology-related security interest. Accrued interest on these notes was approximately $274,000.
- Total stockholders’ equity was a deficit of $519,702, versus positive equity of $230,557 at April 30, 2023. The accumulated deficit was $62.1 million. Common shares outstanding increased from 10.12 million to 10.67 million during the quarter.
- The company had $676,359 of inventory, largely components for MyoVista devices. It warns that further write-downs could be necessary if FDA clearance or market acceptance is not achieved.
Outlook, risks and notable developments
- Going concern and funding: Management states that current resources are insufficient to fund operations for the next 12 months after issuance of the statements, raising substantial doubt about the company’s ability to continue as a going concern. It expects to seek equity, debt or strategic financing, but gives no assurance that funding will be available on acceptable terms.
- Subsequent financing: Under the Lincoln Park equity line, the company reported approximately $1.0 million of cumulative proceeds as of September 14, 2023, including post-quarter sales. In September 2023 it also entered an unsecured drawdown note for up to $1.0 million and had drawn $250,000 as of the filing date. The note matures December 31, 2023, has no stated interest except upon default, and the initial draw was accompanied by warrants to purchase 1.0 million common shares at exercise prices of $1.00, $1.25 and $1.50. A proposed best-efforts offering of up to 8.0 million common shares had not yet been declared effective by the SEC.
- FDA and product development: The company was partway through a pivotal clinical validation study and targeted a revised FDA De Novo submission by the end of 2023, with an anticipated FDA determination in 2024 if submitted on schedule. These are targets, not assurances. The company had reduced new international distributor engagement while preparing for the submission and updating its CE Mark under EU medical-device rules.
- Nasdaq listing: Nasdaq’s panel granted continued listing subject to demonstrating compliance with the minimum stockholders’ equity requirement by November 21, 2023, and other conditions. The company also had until January 29, 2024 to regain compliance with the $1 minimum bid-price requirement.
- Controls and contingencies: Management concluded disclosure controls were not effective as of July 31, 2023, citing material weaknesses in review and approval processes, public-company accounting resources, and segregation of duties. Remediation was underway but not yet established as effective. The company reported no material pending claims or proceedings known to it; it also disclosed potential inventory obsolescence and financing risks.
- Other development: In August 2023, the company received a European Patent Office notice of allowance for a patent related to AI-based ECG quantification of echocardiographic measures.
Important facts for investors to verify
- Whether the company secures enough financing to fund operations and execute its clinical, regulatory and commercial plans; review actual cash use and subsequent financing terms.
- Progress and timing of the pivotal study and revised FDA De Novo submission, and whether the FDA ultimately clears the MyoVista.
- Compliance with Nasdaq’s stockholders’ equity and minimum bid-price requirements and any resulting listing consequences.
- Potential dilution from equity-line sales, the proposed share offering, preferred-stock conversions, outstanding warrants and the September drawdown-note warrants.
- Whether the company remediates the disclosed material weaknesses in internal control, and whether inventory remains recoverable if development, clearance or commercialization is delayed.