Cardio Diagnostics Holdings, Inc. quarterly report, Q1 FY2024

Cardio Diagnostics Holdings, Inc. — Q1 2024 Form 10-Q

Reporting period: Three months ended March 31, 2024. The unaudited consolidated statements cover the company and its wholly owned subsidiary. Cardio Diagnostics develops AI-driven blood tests and related products for cardiovascular disease, including Epi+Gen CHD and PrecisionCHD; it launched its HeartRisk risk-intelligence platform in February 2024.

Financial results and liquidity

Metric	Q1 2024	Q1 2023 / comparison
Revenue	$15,928	$0
Operating expenses	$4,173,976	$1,703,129
Loss from operations	$(4,158,048)	$(1,703,129)
Net loss	$(4,163,584)	$(1,032,618)
Basic and diluted loss per share	$(0.20)	$(0.11)
Net cash used in operating activities	$(1,233,050)	$(1,649,067)

Revenue remained nominal. The filing does not provide a clear gross profit or gross margin value.
G&A expense rose to $4.12 million from $1.56 million, primarily due to $2.52 million of stock-based compensation, plus higher personnel, rent, office and software costs. Sales and marketing fell to $34,402 from $49,551; R&D fell to $10,840 from $86,665.
Q1 2023’s other income included a $5.69 million favorable change in fair value of derivative liabilities, offset in part by interest expense. No derivative liability remained at March 31, 2024, and Q1 2024 other expense was $5,536.
Cash was $1.56 million at March 31, up from $1.28 million at year-end. Total current assets were $2.59 million and current liabilities were $685,672. Total assets were $4.33 million; total liabilities were $1.29 million.
Current debt includes a $233,750 insurance-premium finance payable. Operating lease liabilities totaled $832,293; future minimum lease payments were $899,830. The Yorkville convertible debenture had been fully converted in 2023, and the related financing agreement was terminated January 4, 2024 with no outstanding borrowings.
Financing activities provided $1.58 million, including $1.88 million from common-stock sales, offset by finance-agreement payments and placement-agent fees. Investing activities used $69,941. The company reported an accumulated deficit of $18.53 million.

Changes, financing and outlook

Net loss increased $3.13 million year over year, principally because of higher G&A and stock compensation. Operating cash use decreased by about $416,000 year over year.
In February, the company completed a $1.0 million gross private placement of 561,793 units, each comprising one common share and one six-year warrant exercisable at $1.78. It also sold 487,083 shares through its ATM program during Q1 for $877,857 gross proceeds.
The ATM agreement permits up to $17 million of sales. As of May 15, the filing reports approximately $1.774 million gross proceeds and approximately $1.729 million net proceeds, with about $15.226 million of capacity remaining. Subsequent to quarter-end, an additional 1,056,615 shares were sold for $895,941 gross proceeds. These share sales may dilute existing holders.
Management expects operating expenses and cash needs to rise with business growth and plans to rely on existing funds and further securities issuances. It expects the ATM to be a primary funding source for the remainder of 2024 if market conditions permit, but gives no revenue or earnings guidance. Management expects losses and negative operating cash flow to continue for the foreseeable future.
The company states that available working capital and anticipated cash flow are expected to fund operations over the next 12 months, but also says additional capital is needed to continue as a going concern beyond that period. The financial statements and risk disclosures identify substantial doubt about the company’s ability to continue as a going concern. Additional financing may be unavailable or cause significant dilution; there are no bank credit facilities.

Management commentary, risks and unusual items

Management cites long sales and partnership cycles, sometimes as long as 14 months. Its strategy includes expanding adoption through health systems and employers, building evidence, leveraging new CPT PLA codes, scaling operations and developing additional disease tests.
The company reported a nationwide telehealth agreement with Navierre and noted that its two CPT PLA codes became effective April 1, 2024. It also cited a peer-reviewed economics study estimating potential annual payer savings exceeding $113 million; these are company-reported developments, not reported Q1 revenue.
The FDA published a final rule on May 6, 2024 addressing laboratory-developed tests (LDTs). Cardio believes its Epi+Gen CHD and PrecisionCHD tests are LDTs. The rule phases in medical-device requirements beginning in 2025 and may require substantial compliance expense, studies, premarket authorization or changes to test offerings; enforcement discretion may apply to some tests.
Nasdaq listing is a risk: as of May 14, the common stock had failed to meet the $1 minimum bid price for 18 consecutive business days. The company anticipated a possible deficiency notice absent a qualifying price by May 31 and noted that shareholders had authorized a reverse split range of 1-for-5 to 1-for-40.
Management concluded disclosure controls and procedures were not effective at quarter-end. It said additional analysis was performed and the statements fairly present the company’s results in all material respects; no material change in internal control over financial reporting was reported during the quarter.
Potential claims include disputed fee or right-of-first-refusal matters involving Boustead Securities and Benchmark, a prior securities-demand/mootness-fee matter, and a Northland fee claim of approximately $150,000 that another Northland representative reportedly said would not be pursued. The company disputes or is evaluating these matters and reports no material litigation as of quarter-end.
Q1 stock-based compensation was unusually significant at $2.52 million, including $2.46 million recognized for vested options granted in January. As of March 31, 8.53 million warrants and 3.77 million options were outstanding and excluded from diluted loss per share as anti-dilutive.

Important facts for investors to verify

Cash runway assumptions and the company’s ability to obtain additional funding without excessive dilution; confirm the proceeds and remaining capacity under the ATM after the reported subsequent sales.
Whether revenue and test volumes grow meaningfully beyond the Q1 level, and whether the long sales cycles convert into recurring customer activity.
The costs, timing and applicability of FDA LDT requirements to the company’s tests, including any necessary studies, authorizations or changes to commercialization.
Nasdaq bid-price compliance, any deficiency notice, and the potential use and effects of a reverse stock split.
Remediation of ineffective disclosure controls and the status or financial exposure of the disputed claims.
Share-count and dilution impacts from ATM sales, private-placement warrants, outstanding options and warrants, and any future financing.