Cardio Diagnostics Holdings, Inc. annual report, FY2023

Cardio Diagnostics Holdings, Inc. — FY2023 Form 10-K

Reporting period: Fiscal year ended December 31, 2023; comparison is with FY2022. This is an annual report, not a standalone fourth-quarter results filing. The company develops genetic- and epigenetic-based cardiovascular diagnostic tests and related software. Its financial statements received an unqualified audit opinion, but the auditor highlighted substantial doubt about the company’s ability to continue as a going concern.

Financial results and liquidity

Metric	FY2023 / Dec. 31, 2023	FY2022 / Dec. 31, 2022
Revenue	$17,065	$950
Operating expenses	$7,259,524	$4,549,401
Loss from operations	$7,242,459	$4,548,451
Net loss	$8,376,834	$4,660,985
Net cash used in operating activities	$5,672,175	$5,090,968
Cash at year-end	$1,283,523	$4,117,521

• Revenue increased substantially from a very small base but remained nominal; the filing reports no meaningful gross-margin measure. Net loss per share was $0.66 in 2023 versus $1.51 in 2022.
• General and administrative expense rose to $6.94 million from $4.40 million, primarily due to higher stock compensation, rent, personnel, and office and laboratory setup costs. FY2023 stock-based compensation was $1.28 million in the cash-flow reconciliation.
• FY2023 other expense included $6.74 million of interest expense, partly offset by a $5.41 million gain from a change in fair value of the derivative liability and a $193,350 gain on debt extinguishment. These noncash financing-related items significantly affected reported net loss.
• At year-end, total current assets were $2.77 million and current liabilities were $841,142. The balance sheet included $374,000 payable under a financing agreement and $887,028 in operating lease liabilities, including current and long-term portions. The Yorkville convertible debenture had been fully converted during 2023; no convertible debt remained outstanding at year-end.
• Cash used in investing activities was $794,291, including $575,663 for property and equipment and $197,276 for patent and trademark costs. Financing activities provided $3.63 million, principally from $4.5 million of convertible-note proceeds and $390,000 from warrant exercises, offset by financing and placement costs.

Material changes and business developments

• The company shifted its commercial focus from telemedicine and smaller practices toward larger providers, health systems, group purchasing organizations, employers, and payors. Management says sales and partnership cycles can extend to 14 months or longer.
• FY2023 products and initiatives included PrecisionCHD, launched in March for CHD detection, and CardioInnovate360, a research-use-only offering. HeartRisk, a cardiovascular risk intelligence platform, was announced in February 2024, after the reporting year.
• In 2023, the company received an Innovative Technology Contract from Vizient and announced an agreement with Family Medicine Specialists to implement Epi+Gen CHD for at least 1,200 patients. The AMA assigned PLA codes to Epi+Gen CHD and PrecisionCHD.
• The company reported revenue across telemedicine, provider organizations, and employers. It is developing an internal CLIA laboratory and fulfillment hub to expand capacity and potentially reduce costs; management said completion could extend into 2025.
• The Yorkville financing agreement was terminated by mutual consent effective January 4, 2024, after the first $5 million debenture was fully converted. A contemplated second debenture was not issued.
• After year-end, the company completed a $1 million private placement in February 2024 and began an at-the-market offering of up to $17 million. As of April 1, 2024, it had sold 487,083 ATM shares for approximately $877,869 gross proceeds, with up to approximately $16.1 million remaining under the program.

Outlook, risks, and unusual items

• Going concern and funding: The company reported an accumulated deficit of $14.37 million and stated that recurring losses and nominal revenue raise substantial doubt about its ability to continue as a going concern. Management expects existing working capital, financing, and anticipated cash flows to fund operations for 12 months, but says additional capital and revenue growth are needed. Future equity or convertible financing could dilute shareholders; financing may not be available on acceptable terms.
• Regulation and reimbursement: The company believes its tests are laboratory-developed tests and had not obtained FDA premarket authorization. The filing described the FDA’s proposed 2023 rule to phase out enforcement discretion for LDTs, with potential premarket, quality-system, and post-market requirements. Broad third-party coverage and reimbursement had not been obtained, and management cautioned that achieving it could take years or may not occur.
• Commercial execution: Adoption of the tests and HeartRisk, conversion of channel relationships into recurring sales, market acceptance, and pricing remain uncertain. Competitors may have greater resources, and the company depends on a small workforce and a limited supplier base, including a single contract high-complexity CLIA laboratory at the time of filing.
• Controls: Management concluded disclosure controls and procedures were not effective as of December 31, 2023. The company performed additional analysis to support the financial statements; it did not include management’s assessment or an auditor attestation on internal control over financial reporting.
• Contingencies: The filing describes disputed potential fee claims involving Boustead Securities and Benchmark, as well as a prior securities-demand letter. No lawsuits had been filed in these matters as of the report date; management did not expect a material adverse financial effect. Northland raised a possible fee claim in January 2024 but later indicated it would not pursue it.
• Shareholder dilution and listing: The filing notes substantial registered shares available for resale, outstanding warrants and options, and potential additional equity issuance. Nasdaq deficiency notices relating to bid price and stockholders’ equity were cured in 2023, but continued compliance is not assured.

Most important facts for investors to verify

• Whether post-year-end ATM and private-placement proceeds, together with cash burn, provide adequate runway—and the status of further financing plans.
• Whether Vizient, Family Medicine Specialists, and other channel relationships translate into completed tests, repeat orders, and material revenue.
• Progress and cost of the internal CLIA laboratory, and any change in the FDA’s LDT rules or the company’s regulatory strategy.
• Whether the tests obtain meaningful payor coverage and reimbursement, beyond assignment of CPT PLA codes.
• Remediation of ineffective disclosure controls and any subsequent changes to internal-control conclusions.
• Potential dilution from the ATM, outstanding warrants and options, equity-plan awards, and any remaining resale registrations; also confirm current Nasdaq listing compliance.
• Developments or financial exposure related to the disputed placement-agent and securities-related claims.