Business context and reporting period
Heart Test Laboratories, Inc. (doing business as HeartSciences) filed this unaudited Form 10-Q for the three and nine months ended January 31, 2023, its fiscal third quarter. The early-stage medical technology company is developing the MyoVista, a 12-lead ECG designed to provide cardiac-dysfunction information alongside conventional ECG data. The device is not FDA-cleared; the company was conducting a pivotal clinical validation study and preparing a revised FDA De Novo submission, which it expected to make during 2023.
Financial performance and position
| Metric | Three months ended Jan. 31, 2023 | Nine months ended Jan. 31, 2023 |
|---|---|---|
| Revenue | $1,950 | $5,150 |
| Gross profit | $1,190 | $2,354 |
| Research and development | $643,258 | $1,926,432 |
| Selling, general and administrative | $667,235 | $2,590,227 |
| Operating loss | $1,309,303 | $4,514,305 |
| Net loss | $1,342,115 | $4,721,929 |
| Net loss per share, basic and diluted | $0.16 | $0.64 |
For the nine months, operating cash use was $3.91 million, investing cash use was $10,716, and financing provided $4.94 million. Cash and cash equivalents were $1.93 million at January 31, 2023, up from $918,260 at April 30, 2022. Working capital was approximately $0.9 million. Current liabilities were $1.99 million; notes payable totaled $1.13 million, including $130,000 current and $1.0 million long-term. The company also reported $549,227 in long-term operating lease liabilities. Stockholders’ deficit was $257,912.
Material changes versus the prior comparable period
- Nine-month revenue fell 50% to $5,150. Management attributed the decline to reducing new international distributor engagement ahead of FDA submission and updates to its European conformity certification.
- Nine-month net loss increased 70% to $4.72 million. Operating expenses rose 65% to $4.52 million, including a 138% increase in SG&A, largely reflecting public-company costs and higher payroll and stock compensation. R&D rose 17%, principally from software, hardware and clinical-study work.
- Nine-month operating cash use increased from $2.45 million to $3.91 million. The prior-year period included a $250,200 gain from forgiveness of a Paycheck Protection Program loan; there was no comparable gain in 2023.
- Financing and conversions materially changed the capital structure: the June 2022 IPO generated approximately $5.2 million net proceeds, and convertible notes converted into common stock at the IPO. Common shares outstanding rose to 8,349,859 at January 31, 2023 from 3,323,942 at April 30, 2022.
Outlook, risks and unusual items
- Going concern and funding: The company reported recurring losses, negative operating cash flows and an accumulated deficit of $59.1 million; management stated existing resources were expected to be insufficient to support operations significantly beyond the third calendar quarter of 2023. It intends to seek additional equity, debt or strategic financing, but gave no assurance financing will be available on acceptable terms.
- Subsequent financing: In February 2023, exercise of Bridge Warrants generated approximately $1.3 million, alongside issuance of 1,172,304 shares and a pre-funded warrant for 150,000 shares. In March, the company entered a discretionary equity purchase agreement for up to $15 million over 36 months; as of March 16, no amounts had been drawn, and sales were subject to conditions including an effective resale registration statement.
- Regulatory and product risks: FDA clearance is central to U.S. commercialization and is not assured. Further device changes could also lead to inventory write-downs; inventory was $676,909 at January 31, 2023, including an $81,446 obsolescence reserve.
- Listing risk: Nasdaq had notified the company that it was below the $2.5 million minimum stockholders’ equity requirement. Nasdaq granted an extension through June 19, 2023 to regain compliance; failure could lead to delisting.
- Controls: Management concluded disclosure controls were ineffective at January 31, 2023 due to material weaknesses involving accounting resources, segregation of duties and oversight, and accounting analysis of equity and inventory. Remediation efforts were underway but were not yet considered complete.
- The company entered a multi-year Rutgers collaboration to develop AI-based ECG algorithms. It also reported receiving Korean and Israeli patents for MyoVista Wavelet Technology in February 2023.
Most important facts for investors to verify
- Progress, timing, costs and outcome of the pivotal clinical study and planned FDA De Novo submission.
- Actual cash runway and whether additional funding is secured or drawn under the Lincoln Park equity facility.
- Nasdaq compliance status and the risk of delisting.
- Future operating cash burn, expense growth and any inventory obsolescence charges.
- Whether the disclosed material weaknesses are remediated and internal controls tested as effective.