# HeartSciences Inc.: Form 10-Q for the period ended Jul 31, 2023

- Company: [HeartSciences Inc.](/companies/hscs.md) (CIK 1468492)
- Form: 10-Q
- Filed: 2023-09-14
- Accepted by EDGAR: Sep 14, 2023, 16:06 ET
- Period: 2023-07-31
- Accession: 0000950170-23-048168
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1468492/000095017023048168/hscs-20230731.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1468492/000095017023048168/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-07-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Research and development | 3 months, 2023-05-01 to 2023-07-31 | $565.6k | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2023-05-01 to 2023-07-31 | $765.0k | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-05-01 to 2023-07-31 | −$1.3m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-05-01 to 2023-07-31 | $36.3k | us-gaap:InterestExpense |
| Net income | 3 months, 2023-05-01 to 2023-07-31 | −$1.4m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-05-01 to 2023-07-31 | −$0.13 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-05-01 to 2023-07-31 | −$0.13 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-05-01 to 2023-07-31 | 10,331,505 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2023-05-01 to 2023-07-31 | −$1.4m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2023-05-01 to 2023-07-31 | $4.9k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2023-07-31 | $575.7k | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-07-31 | $2.0m | us-gaap:AssetsCurrent |
| Total assets | at 2023-07-31 | $2.6m | us-gaap:Assets |
| Current liabilities | at 2023-07-31 | $1.9m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-07-31 | $3.1m | us-gaap:Liabilities |
| Shareholders' equity | at 2023-07-31 | −$519.7k | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 21,338 characters.

*The following discussion and analysis is intended as a review of significant factors affecting our financial condition and results of operations for the periods indicated. The discussion should be read in conjunction with our unaudited financial statements and the notes presented herein included in this Quarterly Report on Form 10-Q and the audited financial statements and the related notes set forth in our 2023 Annual Report on Form 10-K. The discussion below contains forward-looking statements that are based upon our current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these expectations due to inaccurate assumptions and known or unknown risks and uncertainties, including those identified in “Cautionary Note Regarding Forward-Looking Statements” and under “Risk Factors” as identified under Part 1, Item 1A of our 2023 Annual Report on Form 10-K.*

### Overview

We are a medical technology company focused on applying innovative AI-based technology to an ECG (also known as an EKG) to expand and improve an ECG’s clinical usefulness. Our objective is to make an ECG a far more valuable cardiac screening tool, particularly in frontline or point-of-care clinical settings. HeartSciences’ first product candidate for FDA clearance, the MyoVista *wav*ECG (the “MyoVista”) is a resting 12-lead ECG that is designed to provide diagnostic information related to cardiac dysfunction, as well as conventional ECG information in the same test. The cardiac dysfunction information has only traditionally been available through the use of cardiac imaging. Our business model, which involves the use of the MyoVista device and consumables for each test, is expected to be “razor-razorblade” as the electrodes used with the MyoVista are proprietary to HeartSciences, and new electrodes are required for every test performed.

Our device is not yet cleared for marketing by the FDA and our future success is dependent upon receiving FDA De Novo clearance for the MyoVista. Additional funding may be required in order to achieve FDA clearance for the MyoVista and, if clearance is achieved, would then be required to support the sales launch of the MyoVista into the U.S., provide working capital and support further research and development, or R&D.

We believe that there is currently no low-cost, front-line, medical device that is effective at screening for heart disease. As a result, we believe that frontline physicians face a significant challenge in determining if a patient has heart disease. Although many think of the ECG as the frontline heart disease test, in 2012, the United States Preventive Services Task Force, or USPSTF, conducted an evaluation of conventional ECG testing and stated: “There is no good evidence that an ECG helps physicians predict heart risks in people with no symptoms any better than traditional considerations such as current or former smoking, blood pressure and cholesterol levels.”

ECG devices record the electrical signals of a patient’s heart. The ECG is a ubiquitous, relatively low-cost, simple and quick test; it is portable and can be performed in a wide range of clinical settings by a non-specialist clinician or clinical aide. There are three basic categories of heart disease: electrical (such as an arrhythmia), structural (such as valvular disease) and ischemic (such as coronary artery disease, or CAD). Conventional resting ECGs have limited sensitivity in detecting structural and ischemic disease and are typically used for diagnosing cardiac rhythm abnormalities, such as atrial fibrillation, also known as Afib, or acute coronary syndrome, such as a myocardial infarction, which is also known as a heart attack. However, traditional ECGs have a limited role in identifying cardiac dysfunction associated with structural and ischemic disease.

HeartSciences has designed the MyoVista to help address these limitations and extend the clinical capability of an ECG in detecting cardiac dysfunction. We have been applying AI-machine learning to the signal processed electrical signal of the heart to develop a proprietary algorithm designed to detect cardiac dysfunction caused by heart disease and/or age-related cardiac dysfunction. The MyoVista has not yet received FDA clearance.

The editorial comment associated with the study titled “Prediction of Abnormal Myocardial Relaxation from Signal Processed Surface ECG” presented below discusses recent applications of machine learning to data derived from surface 12-lead ECGs in relation to cardiac dysfunction:

*“These are some of the most significant advances in electrocardiography since its inception, which has historically had a limited, if any, role in the evaluation of cardiac dysfunction. In the past, our cardiovascular community was resigned to the fact that surface ECGs are poor indicators for cardiac dysfunction.”*

Khurram Nasir, MD, MPH, MSC, Department of Cardiology, Houston Methodist DeBakey Heart & Vascular Center, Houston, Texas, et. al., *Journal of American College of Cardiology Editorial Comment Volume 76 Number 8 2020.*

Almost all forms of heart disease, including CAD and structural disease, affect heart muscle, or cardiac, function prior to symptoms. Impaired cardiac function is first observed as impaired cardiac relaxation which is an early indicator of diastolic dysfunction and usually continues to increase in severity as heart disease progresses. The diastolic phase of the cardiac cycle occurs when the heart muscle relaxes (following contraction). Diastolic dysfunction may also be related to age-related cardiac dysfunction.

If we receive FDA clearance for the MyoVista, our main target markets would be frontline healthcare environments in the U.S., such as primary care, to assist physician decision making in the cardiology referral process. Currently, cardiology referral decisions are often based on a patient’s risk factors and/or a conventional ECG test. Accordingly, many patients with heart disease are left undetected while no treatment or intervention is required for most patients referred for cardiac imaging. We believe that adding the capability to detect cardiac dysfunction to a standard 12-lead resting ECG could help improve cardiac referral pathways and be valuable for patients, physicians, health systems and third-party payors.

New Class II devices, such as the MyoVista, require FDA De Novo premarket review. The MyoVista along with its proprietary software and hardware is classified as a Class II medical device by the FDA. Premarket review and clearance by the FDA for these devices is generally accomplished through the 510(k) premarket notification process or De Novo classification request, or petition process. We previously submitted an FDA De Novo classification request in December 2019 and following feedback and communications with the FDA during and since that submission, we have been making modifications to our device, including our proprietary algorithm. We are part way through a new, pivotal clinical validation study and have been undertaking device and algorithm development and testing for a revised FDA De Novo submission, which we are targeting to be filed by the end of 2023. Assuming the submission occurs in 2023, we would anticipate a determination by the FDA in 2024 which, if successful, would provide the ability to market and sell the MyoVista in the U.S.

### Recent Developments

### Compliance with Nasdaq Listing Requirements

On December 21, 2022, we received notice from the Listing Qualifications Staff of The Nasdaq Stock Market, LLC, or Nasdaq, stating that we were not in compliance with the minimum stockholders’ equity requirement for continued listing on the Nasdaq Capital Market, under Listing Rule 5550(b)(1) (the “Minimum Stockholders’ Equity Requirement”), because our stockholders’ equity of $1,082,676 as reported in our Quarterly Report on Form 10-Q for the quarter ended October 31, 2022 was below the required minimum of $2.5 million, and because, as of October 31, 2022, we did not meet the alternative compliance standards, relating to the market value of listed securities of $35 million or net income from continuing operations of $500,000 in the most recently completed fiscal year or in two of the last three most recently completed fiscal years.

On February 3, 2023, we submitted to Nasdaq a plan to regain compliance with the Minimum Stockholders’ Equity Requirement. On February 8, 2023, Nasdaq notified us that they granted us an extension of up to 180 calendar days from December 21, 2022, or through June 19, 2023, to regain compliance. On June 20, 2023, we received a delist determination letter from Nasdaq advising us that Nasdaq determined that we did not meet the terms of the extension by the June 19, 2023 deadline.

On June 27, 2023, we submitted a hearing request to the Nasdaq Hearing Panel (the "Panel") to appeal the delisting determination. In response to our request for a hearing, on June 27, 2023, we received a letter from Nasdaq stating that its delisting action has been stayed, pending a final decision by the Panel and a hearing will be held on August 17, 2023.

On August 2, 2023, we received a letter from the Listing Qualifications staff of Nasdaq indicating that, based upon the closing bid price of the Company’s common stock for the last 30 consecutive business days, the Company no longer met the requirement to maintain a minimum bid price of $1 per share (the “Minimum Bid Price Requirement”). In accordance with Nasdaq listing rules, we have until January 29, 2024 to regain compliance with the Minimum Bid Price Requirement. In the event we do not regain compliance during this period, we may be eligible to seek an additional 180 calendar day compliance period if we meet the Nasdaq continued listing requirement for market value of publicly held shares and all other initial listing standards, with the exception of the Minimum Bid Price Requirement, and provide written notice to Nasdaq of our intent to cure the deficiency during this second compliance period.

The Company attended an August 17, 2023 hearing before the Panel, and requested the continued listing of its securities on the Nasdaq Capital Market pending its return to compliance with the Minimum Stockholder's Equity Requirement and Minimum Bid Price Requirement.

On August 28, 2023, the Company received a decision from the Panel granting the Company's request for continued listing on the Nasdaq Capital Market, subject to the Company demonstrating compliance with the Minimum Stockholders’ Equity Requirement on or before November 21, 2023, and certain other conditions. In addition, the Company has until January 29, 2024, to demonstrate compliance with the Minimum Bid Price Requirement.

### Patents

In August 2023, we were issued a notice of patent allowance from the European Patent Office covering quantification by an ECG of key echocardiographic measures of heart function using AI methods.

### MSW Note

On September 7, 2023, we entered into the MSW Note with Matthews Southwest Holdings, Inc., for an unsecured drawdown loan of up to $1,000,000, drawn in installments consisting of (i) $250,000 on or prior to September 8, 2023, (ii) $250,000 on or prior to September 20, 2023, and (iii) further drawdowns of up to $500,000 in such amounts and such times to be mutually agreed upon between the Company and Matthews Southwest Holdings, Inc. On September 7, 2027, we drew down $0.25 million pursuant to the terms of the note and issued 1,000,000 Warrants to purchase shares of Common Stock in lieu of a facility fee.

### Results of Operations

#### Revenues

Revenues, which have been minimal to date, consist mainly of sales of devices, electrodes and other supplies in the establishment of distributor relationships outside the U.S. during the approval, development and improvement of the MyoVista.

#### Cost of Sales

Cost of sales consists primarily of costs related to materials, components and subassemblies. Cost of sales also includes certain direct costs such as those incurred for shipping and freight.

### Operating Expenses

Our operating expenses have consisted solely of research and development expenses and selling, general and administrative expenses.

#### Research and Development Expenses

Our research and development activities primarily consist of clinical, regulatory, engineering and research work associated with our MyoVista device. Research and development expenses include payroll and personnel-related costs for our research and development, clinical and regulatory personnel, including expenses related to stock-based compensation for such employees, consulting services, clinical trial expenses, regulatory expenses, prototyping and testing. Research and development expenses also include costs attributable to clinical trial expenses including clinical trial design, site development and study costs, data, related travel expenses, the cost of products used for clinical activities, internal and external costs associated with regulatory compliance and patent costs. We have expensed research and development costs as they have been incurred.

#### Selling, General and Administrative Expenses

Our selling, general and administrative expenses consist of payroll and personnel-related costs for field support personnel, business development, consulting, stock-based compensation, and for administrative personnel that support our general operations such as executive management and financial accounting. Selling, general and administrative expenses also include costs attributable to professional fees for legal and accounting services, premises costs, IT, insurance, consulting, recruiting fees, travel expenses and depreciation.

#### Interest Expense

Interest expense relates to our loan facilities and convertible notes.

The following table summarizes our results of operations for the periods presented on our statement of operations data.

20

*(In thousands, except percentages, unaudited)*

|  | Three Months Ended July 31, 2023 | 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Revenue | $— | $3 | $(3) | (100)% |
| Cost of sales | — | 2 | (2) | (100)% |
| Gross margin | — | 1 | (1) | (100)% |
| Operating expenses: |  |  |  |  |
| Research and development | 566 | 434 | 131 | 30% |
| Selling, general and administrative | 765 | 997 | (232) | (23)% |
| Total operating expenses | 1,331 | 1,431 | (101) | (7)% |
| Loss from operations | (1,331) | (1,430) | 99 | (7)% |
| Interest expense | (36) | (144) | 107 | (75)% |
| Other income (expense), net | (36) | (144) | 107 | (75)% |
| Net loss | $(1,367) | $(1,574) | $207 | (13)% |

#### Summary of Statements of Operations for the three months ended July 31, 2023 compared with the three months ended July 31, 2022:

During the three months ended July 31, 2023, there were no revenues or associated cost of sales and during the three months ended July 31, 2022, revenues were $3,000 and cost of sales were $2,000. Our revenues to date have been mainly generated in the establishment of distributor relationships outside the United States as part of obtaining feedback during product development and improvement. The decrease in revenue, and related decrease in cost of sales, is due to our proactive reduction in new international distributor engagement in the run up to FDA submission and until we update our certificate of conformity, called a CE Mark, under the new European Union Medical Device Regulation regime to reflect hardware and software improvements being incorporated into the device for FDA submission.

Research and development expenses were $566,000 for the three months ended July 31, 2023, representing an increase of $131,000, or 30%, when compared to the same periods in 2022. The increase is primarily due to personnel expenses.

Selling, general, and administrative expenses were $765,000 for the three months ended July 31, 2023, representing a decrease of $232,000, or 23%, when compared to the same periods in 2022. The decrease is primarily due to reduction in legal expenses and related supplier credits.

Interest expense during the three months ended July 31, 2023, of $36,000 is related to interest on the $1M Loan and Security Agreement. Interest expense during the three months ended July 31, 2022 of $144,000 is related to interest on the $1M Loan and Security Agreement and debt service amortization related to the Bridge Notes for approximately half of the quarter ended July 31, 2022. All of the Bridge Notes and accrued interest were converted to equity upon consummation of the IPO in June 2022.

### Liquidity and Capital Resources

### Going Concern Considerations

We have incurred significant losses and have experienced negative cash flows from operations since inception. At July 31, 2023, we had an accumulated deficit of $62.1 million, stockholder's deficit of $0.5 million, and incurred a net loss of $1.4 million for the three months then ended, compared to an accumulated deficit of $55.9 million, stockholder's equity of $2.9 million, and net loss of $1.6 million for the three month period ended July 31, 2022.

During the year ended April 30, 2023, we raised approximately $5.2 million in net proceeds from the sale of Common Stock and Warrants in our IPO and raised approximately $1.3 million from warrant exercises.

On March 10, 2023, we entered into the Lincoln Park Purchase Agreement providing for the purchase, from time to time at our discretion, of up to $15.0 million of our Common Stock, over the 36-month term of the agreement. Actual sales of shares of Common Stock will depend on a variety of factors to be determined by us from time to time. The net proceeds received from these purchases will depend on the frequency and prices at which we sell shares of our Common Stock to Lincoln Park. As of September 14, 2023, we have received approximately $1.0 million from the sale of Common Stock pursuant to the Lincoln Park Purchase Agreement. We expect that any proceeds received from such sales to Lincoln Park will be used for working capital and general corporate purposes. As of the date of this Annual Report, we have begun the process of an offering with Maxim Group, for the sale of up to 8.0 million shares of our Common Stock, on a best-efforts basis. This offering has not yet been declared effective by the SEC.

In September 2023, the Company entered into the MSW Note for up to $1 million, drawn in installments consisting of (i) $0.25 million on or prior to September 8, 2023, (ii) ) $0.25 million on or prior to September 20, 2023, and (iii) further drawdowns of up to $0.5 million in such amounts and such times to be mutually agreed upon between the Company and lender. Subsequent to July 31, 2023 and as of the date of this filing, the Company has drawn $0.25 million pursuant to the terms of the note.

Our cash requirements are, and will continue to be, dependent upon a variety of factors. We expect to continue devoting significant capital resources to R&D, clinical studies and go-to-market strategies. We will need to continue to raise capital through the sale of additional equity securities, debt, or capital inflows from strategic partnerships, however we can provide no assurance that that we will be able to consummate the sale of any such securities or strategic relationships will be available on terms acceptable to us, if at all.

### Liquidity

Since our inception, we have raised capital through the public and private sale of debt and equity. As of July 31, 2023, we had cash of approximately $0.6 million and working capital of approximately $0.1 million.

The table below presents our cash flows for the periods indicated:

*U.S. dollars, in thousands*

*(Unaudited)*

|  | Three Months Ended July 31, 2023 | 2022 |
| --- | ---: | ---: |
| Net cash used in operating activities | $(1,404) | $(1,812) |
| Net cash (used in) provided by investing activities | $(5) | $(7) |
| Net cash provided by financing activities | $324 | $5,173 |
| Net change in cash and cash equivalents during the period | $(1,085) | $3,354 |

#### Operating Activities

Net cash used by our operating activities of $1.4 million during the three months ended July 31, 2023 is primarily due to our net loss of $1.4 million plus $232,000 in non-cash expenses less $269,000 of net changes in operating assets and liabilities.

Net cash used by our operating activities of $1.8 million during the three months ended July 31, 2022 is primarily due to our net loss of $1.6 million plus $132,000 in non-cash expenses less $371,000 of net changes in operating assets and liabilities.

#### Financing Activities

Net cash provided by financing activities of $0.3 million during the three months ended July 31, 2023 is primarily from the issuance of Common Stock under the Equity Line. Net cash provided by financing activities of $5.2 million during the three months ended July 31, 2022 is primarily from the issuance of Common Stock in our IPO.

### Critical Accounting Policies and Estimates

There have been no material changes to our critical accounting policies and estimates from the information provided in Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations,” included in our 2023 Annual Report on Form 10-K.

## Controls and procedures

As filed, 3,268 characters.

#### Disclosure Controls and Procedures

The Company has adopted and maintains disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in the reports filed under the Exchange Act, such as this Quarterly Report on Form 10-Q, is collected, recorded, processed, summarized and reported within the time periods specified in the rules of the SEC. The Company's disclosure controls and procedures are also designed to ensure that such information is accumulated and communicated to management to allow timely decisions regarding required disclosure. Based upon the most recent evaluation of internal controls over financial reporting, our Chief Executive Officer (our principal executive officer) and our Chief Financial Officer (our principal financial officer) determined that our disclosure controls and procedures were not effective as of July 31, 2023 as a result of identified material weaknesses in our internal control over financial reporting. The identified material weaknesses were as follows: (i) lack of proper approval processes and review processes and documentation for such reviews; (ii) we did not maintain sufficient U.S. GAAP and SEC accounting resources commensurate with those required of a public company; and (iii) insufficient number of staff to maintain optimal segregation of duties and levels of oversight. We have taken and continue to take remedial steps to improve our internal controls over financial reporting, which includes hiring additional accounting and financial reporting personnel and implementing additional policies, procedures, and controls. We cannot assure you that these measures will significantly improve or remediate the material weaknesses described above. Management is monitoring the effectiveness of these and other processes, procedures and controls and will make any further changes deemed appropriate. Management believes the foregoing actions will effectively remediate the material weaknesses, however, our material weaknesses will not be considered remediated until the above controls are in place for a period of time, the controls are tested, and management concludes that these controls are properly designed and operating effectively.

#### Changes in Internal Control Over Financial Reporting

Except as described above with respect to the remediation steps we are taking, there have been no changes in our internal control over financial reporting during the quarter ended July 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

#### CEO and CFO Certifications

Exhibits 31.1 and 31.2 to this Quarterly Report are the Certifications of our Chief Executive Officer and Interim Chief Financial Officer, respectively. These Certifications are required in accordance with Section 302 of the Sarbanes-Oxley Act (the “Section 302 Certifications”). This Item 4 of this Quarterly Report, which you are currently reading, is the information concerning the evaluation referred to above and in the Section 302 Certifications and this information should be read in conjunction with the Section 302 Certifications for a more complete understanding of the topics presented.

## Risk factors

As filed, 416 characters.

For a discussion of risk factors, please refer to Item 1A of our 2023 Annual Report on Form 10-K. There have been no material changes to the risk factors contained in Item 1A of our 2023 Annual Report on Form 10-K. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, and/or operating results.

Filed Sep 14, 2023.
Source: SEC EDGAR, the filing index for accession 0000950170-23-048168. Last ingested by Listed: Nov 2, 2026, 08:01 ET. No prices; not investment advice.