Heart Test Laboratories, Inc. (doing business as HeartSciences) — Form 10-K
Reporting period: Fiscal year ended April 30, 2024, compared with fiscal 2023. Although the request identifies 2023 Q4, this filing reports annual results for fiscal 2024, not a standalone quarterly period. Filed July 29, 2024.
Business context
The company is a development-stage medical technology business seeking to enhance ECG screening with AI algorithms. Its planned products are the MyoVista wav 12-lead ECG device and the hardware-agnostic MyoVista Insights Cloud Platform. Neither the device, platform, nor its AI algorithms had FDA marketing clearance as of the filing. Revenue to date was minimal and arose mainly from device and supply sales associated with international distributor relationships.
Financial results and liquidity
| Metric | Fiscal 2024 | Fiscal 2023 |
|---|---|---|
| Revenue | $18,600 | $5,150 |
| Cost of sales | $6,081 | $2,796 |
| Gross margin | $12,519 | $2,354 |
| Research and development | $2.879 million | $2.461 million |
| Selling, general and administrative | $3.440 million | $3.654 million |
| Operating loss | $6.306 million | $6.113 million |
| Interest expense | $354,080 | $243,174 |
| Net loss | $6.605 million | $6.354 million |
| Net cash used in operations | $6.070 million | $5.774 million |
| Cash and cash equivalents, at year-end | $5.808 million | $1.660 million |
Gross margin was approximately 67% of revenue in fiscal 2024, but the revenue base was very small. Research and development expense rose 17%, primarily on cloud-platform development, added personnel and FDA-submission work; SG&A declined 6%, partly due to lower insurance and prior-year IPO-related professional fees. Net loss widened approximately 4%.
Fiscal 2024 investing cash outflow was $125,271 and financing cash inflow was $10.343 million, primarily from equity issuance. Year-end working capital was $5.6 million; total liabilities were $2.186 million and stockholders’ equity was $7.317 million. The balance sheet showed $500,000 of current notes payable, in addition to accrued interest and lease obligations. The company reported an accumulated deficit of $67.4 million.
Material changes and financing
- Cash increased by approximately $4.147 million during fiscal 2024, principally because of equity financing, despite continued operating cash burn.
- The company issued 409,200 shares through its ATM facility during fiscal 2024, reporting net proceeds of about $9.2 million in the financial-statement notes. It also received about $1.1 million under its equity line. The filing reports additional ATM and equity-line proceeds after year-end.
- In November 2023, the company converted the $500,000 MSW note and approximately $585,000 due under the JQA note into common stock, and amended certain related warrant exercise prices.
- The Mount Sinai licensing transaction covered 13 AI cardiovascular algorithms, two data-science methods and three filed patents. Consideration included common shares and warrants.
- A 1-for-100 reverse stock split took effect May 17, 2024. Share and per-share figures in the financial statements were generally retrospectively adjusted.
- Nasdaq issued a delisting determination in May 2024 following a low share price. After the reverse split, the company reported that Nasdaq confirmed it regained compliance with the minimum bid-price requirement on June 3, 2024.
Outlook, risks and unusual items
- Going concern and funding: The auditor’s report and management disclosure state that recurring losses, negative operating cash flows and limited capital resources raise substantial doubt about the company’s ability to continue as a going concern. Management said forecast resources were insufficient for the 12 months following issuance of the financial statements and that additional financing would be needed. No assurance was given that financing would be available on acceptable terms.
- Regulatory milestones: Management targeted a 510(k) submission for MyoVista wav ECG in the first calendar quarter of 2025, and a submission for the cloud platform and low-ejection-fraction algorithm in mid-2025. These were targets, not assured outcomes. The company had not yet engaged the FDA regarding the cloud platform and licensed algorithms. Its prior EU CE mark had lapsed in February 2022, and it had not obtained an updated EU MDR certificate.
- Commercial uncertainty: Future revenue depends on regulatory clearance, clinical performance, physician adoption, manufacturing readiness, sales execution and reimbursement. The company had no approved third-party-payor coverage for its products.
- Debt and collateral: Substantially all company assets secure the $1 million loan and security agreement. The founder’s technology royalty obligation is also secured by a first-priority lien on covered technology; the filing warns that enforcement or foreclosure could threaten continued operations.
- Inventory exposure: Net inventory was $629,179, including an $85,575 obsolescence reserve. Further product changes, failure to obtain clearance or lack of market acceptance could require additional write-downs.
- Controls: Management concluded disclosure controls and internal control over financial reporting were ineffective at April 30, 2024 because of material weaknesses involving review and approval documentation, limited U.S. GAAP/SEC accounting resources, and insufficient staffing for segregation of duties. Remediation was underway but was not yet considered complete.
- Other matters: The company reported no material pending legal claims known to management and no cybersecurity threats that had materially affected, or were reasonably likely to materially affect, the company as of the filing. It reported no cash dividends and did not anticipate paying them in the foreseeable future.
Most important facts for investors to verify
- Current cash, monthly operating cash burn, and financing available after the April 30, 2024 balance-sheet date; reconcile the different ATM proceeds figures reported in the filing.
- Progress, timing, clinical evidence and FDA feedback for the MyoVista 510(k) submission and the separate cloud-platform/algorithm submission.
- Whether additional capital can be raised without substantial dilution, and the status and terms of ATM, equity-line and debt arrangements.
- Whether the company sustains Nasdaq listing compliance and how the reverse split, outstanding warrants, preferred stock and other potential share issuances affect dilution.
- Whether internal-control weaknesses are remediated and whether inventory reserves, secured obligations and technology royalty terms create additional financial exposure.