Heart Test Laboratories, Inc. (HeartSciences) — Form 10-Q
Reporting period: Three and nine months ended January 31, 2024 (fiscal Q3 and first nine months of fiscal 2024). Financial statements are unaudited. The company develops AI-enabled ECG technology; its MyoVista device and related algorithms are not FDA-cleared for U.S. marketing.
Financial performance and liquidity
| Metric | Three months ended Jan. 31, 2024 | Nine months ended Jan. 31, 2024 | Comparable 2023 period |
|---|---|---|---|
| Revenue | $14,700 | $18,600 | $1,950 quarterly; $5,150 nine-month |
| Gross margin | $10,139 | $12,519 | $1,190 quarterly; $2,354 nine-month |
| Operating expenses | $1.54 million | $4.44 million | $1.31 million quarterly; $4.52 million nine-month |
| Operating loss | $1.53 million | $4.43 million | $1.31 million quarterly; $4.51 million nine-month |
| Net loss | $1.64 million | $4.76 million | $1.34 million quarterly; $4.72 million nine-month |
| Operating cash used | Not presented quarterly | $4.53 million | $3.91 million nine-month |
- Quarterly revenue increased from a very low base, mainly from electrode sales and international distributor-related activity. Management expects no material commercial revenue in fiscal 2024.
- Quarterly net loss increased about 22% year over year; nine-month net loss was broadly unchanged. Quarterly R&D expense declined 21% year over year, mainly following completion of clinical-study patient enrollment. Quarterly selling, general and administrative expense rose 54%, partly due to the annual shareholder meeting, payroll, stock compensation and director fees.
- Interest expense was $118,000 for the quarter and $333,000 for the nine months, higher than in the comparable periods. Nine-month weighted-average shares increased to 25.2 million from 7.4 million, reflecting substantial equity issuance; reported basic and diluted loss per share was $0.19 for the nine months.
- At January 31, cash and cash equivalents were $7.08 million, working capital approximately $7.0 million, total assets $10.80 million and stockholders’ equity $8.63 million. At April 30, 2023, cash was $1.66 million and equity $231,000.
- Cash used in investing activities was $16,000 in the nine months. Financing activities provided $9.97 million, principally from common-stock sales and a shareholder note. Cash increased $5.42 million over the period.
- Debt was $500,000 at January 31, all classified as current; the remaining note is secured and its terms specify maturity in September 2024. The $500,000 MSW note and the JQA note and accrued interest were converted into common shares in November 2023. Lease liabilities totaled $559,000.
Material changes and notable transactions
- Common shares outstanding rose from 10.12 million at April 30, 2023 to 63.61 million at January 31, 2024; 65.56 million were outstanding as of March 14, 2024. The increase included ATM and equity-line sales, debt conversions and shares issued for Mount Sinai licensed assets.
- The company reported approximately $9.2 million net proceeds from ATM sales through January 31 and approximately $0.7 million from Lincoln Park equity-line sales during the nine months. After quarter-end through the filing date, it sold 1.4 million equity-line shares for about $165,000 and 550,000 ATM shares for about $78,000 net.
- The Mount Sinai transaction provided licenses covering 13 AI cardiovascular algorithms, two data-science methods and three filed patents. Consideration included 4.85 million common shares and warrants, including pre-funded warrants.
Outlook, risks and contingencies
- Management said current resources are insufficient to fund operations through commercialization and that continued operations depend on additional capital, debt or strategic relationships. The filing states that these sources may not be available on acceptable terms, or at all, and identifies substantial doubt about the company’s ability to continue as a going concern.
- The company is preparing a revised FDA 510(k) submission for MyoVista and targets clearance during calendar 2024. Patient recruitment and core-lab work for the validation study are complete; device and algorithm testing and updates remain. FDA clearance is uncertain and delays or denial could increase costs and constrain commercialization.
- Inventory was $670,000, mainly materials and components for MyoVista. Further hardware or software changes, failure to obtain FDA clearance, or lack of market acceptance could require additional inventory write-downs.
- Nasdaq granted an extension through July 29, 2024 to regain compliance with its minimum bid-price requirement. The company had demonstrated compliance with the minimum stockholders’ equity requirement and is subject to a Panel monitor through November 22, 2024.
- Disclosure controls were deemed ineffective as of January 31, 2024 because of material weaknesses involving approval and review documentation, insufficient U.S. GAAP/SEC reporting resources, and inadequate staffing for segregation of duties. Remediation is underway but is not yet considered complete.
- The filing reports no material pending claims known to the company and no material changes to the risk factors in its 2023 Form 10-K. Other obligations include operating lease payments and royalty arrangements tied to future MyoVista sales; the royalty obligation has a security interest in covered technology.
Important facts for investors to verify
- Whether the company can raise sufficient capital, on acceptable terms, to fund operations and commercialization, and how much additional share dilution may result.
- Progress and timing of the revised FDA 510(k) submission, including completion of remaining testing and any further FDA requirements.
- Cash burn and liquidity relative to the company’s operating plan, including the remaining availability and limitations of the ATM and equity-line facilities.
- Nasdaq bid-price compliance by July 29, 2024 and continued compliance with other listing requirements.
- Remediation and independent testing of the disclosed material weaknesses in financial reporting controls.
- Potential dilution from outstanding warrants, pre-funded warrants and convertible preferred stock; the filing reports 6.37 million common shares issuable upon conversion of Series C preferred stock at January 31, 2024.