Cardio Diagnostics Holdings, Inc. — Q3 2023 Form 10-Q
Business context and reporting period. This unaudited quarterly report covers the three and nine months ended September 30, 2023. Cardio Diagnostics develops AI-driven genetic and epigenetic blood tests for cardiovascular disease, including Epi+Gen CHD and PrecisionCHD. Its October 2022 business combination with Mana was accounted for as a reverse recapitalization.
Financial performance and liquidity
| Metric | Three months ended September 30 | Nine months ended September 30 |
|---|---|---|
| Revenue | 2023: $10,030; 2022: $0 | 2023: $11,755; 2022: $0 |
| Operating expenses | 2023: $1.45 million; 2022: $1.15 million | 2023: $5.71 million; 2022: $2.17 million |
| Net loss | 2023: $1.93 million; 2022: $1.15 million | 2023: $6.99 million; 2022: $2.28 million |
| Loss per share | 2023: $0.16; 2022: $0.17 | 2023: $0.66; 2022: $0.42 |
| Net cash used in operating activities | Nine months 2023: $3.99 million; 2022: $1.97 million |
- Cash was $3.63 million at September 30, down from $4.12 million at December 31, 2022. Total current assets were $4.52 million and current liabilities $2.96 million, implying working capital of approximately $1.57 million.
- Nine-month investing cash outflow was $227,343; financing cash inflow was $3.73 million, including $4.5 million net proceeds from a Yorkville convertible debenture and $390,000 from warrant exercises.
- At September 30, total liabilities were $3.68 million, including $967,184 of convertible notes, net of discount, and a $1.19 million derivative liability. Lease liabilities totaled approximately $899,000. The filing reports no bank credit line.
- Gross profit and gross margin are not separately presented; revenue was nominal relative to operating costs.
Material changes versus the prior comparable period
- Nine-month net loss widened by $4.70 million. General and administrative expense rose $3.36 million, reflecting public-company costs, personnel, transaction-related legal and accounting expense, and stock-based compensation.
- Interest expense for the first nine months was $6.64 million, largely noncash debt discount and derivative-related charges. A $5.60 million noncash gain from the change in derivative fair value partly offset expenses; total other expense was $1.29 million.
- Research and development expense increased to $137,690 from $9,361, which management attributed to laboratory runs for PrecisionCHD and pipeline products. Sales and marketing expense increased to $115,226 from $65,573.
- Operating cash use roughly doubled year over year, while cash declined by $488,000 during the nine-month period.
Outlook, risks, contingencies and unusual items
- Management expects substantive income from contracts beginning in Q1 2024, but gives no quantified revenue guidance and says additional financing will still be needed. It states existing working capital, further advances and anticipated cash flow are expected to fund operations over the next 12 months.
- The planned $6.2 million second Yorkville debenture closing was deferred to December 29, 2023. Its conversion price floor was reduced to $0.20. The company warned that it might lack enough shares to satisfy conversions without further stockholder approval; a share-authorization proposal was scheduled for December 4, 2023.
- After quarter-end, Yorkville converted the remaining $1.7 million principal of the first debenture into 7,386,353 shares; the initial $5 million debenture was fully converted by the filing date. The company reported 20,516,940 common shares issued and outstanding as of November 13, 2023, versus 13,117,325 at September 30.
- The remaining $435,000 of assumed merger-related liabilities was paid after quarter-end. The company had already paid the other reported assumed investment-banker liabilities.
- Nasdaq notified the company that its bid price had been below $1 for 30 consecutive business days. It had until March 19, 2024 to regain compliance; a reverse stock split was mentioned as a possible remedy if required.
- A proposed FDA rule would phase in regulation of laboratory-developed tests as medical devices. Management warned that, if adopted, compliance could add significant costs and affect product timelines.
- Reported contingencies include disputed potential fees claimed by Boustead Securities, a Benchmark claim alleging breach of a right of first refusal in connection with the Yorkville financing, and a demand letter seeking a possible mootness fee. No related lawsuits had been filed as of the report; the company disputes the claims.
- Management concluded disclosure controls and procedures were not effective at period-end. It reported no material change in internal control over financial reporting during the quarter or nine-month period.
Most important facts for investors to verify
- Whether the company generated the anticipated 2024 contract revenue and whether that revenue is sufficient to reduce operating cash burn.
- Current cash runway, financing availability, and the status and terms of any second Yorkville debenture or other capital raise, including resulting dilution and conversion-share capacity.
- Whether Nasdaq bid-price compliance was regained by the deadline and whether the company remains eligible for continued listing.
- The final FDA rule and its applicability, compliance costs, and effect on test commercialization.
- Progress remediating ineffective disclosure controls and the status or resolution of the disclosed fee and demand-letter claims.