Cardio Diagnostics Holdings, Inc.: Form 10-Q for the period ended Mar 31, 2025

The following discussion and analysis provide information that Cardio’s management believes is relevant to an assessment and understanding of Cardio’s results of operations and financial condition. You should read the following discussion and analysis of Cardio’s results of operations and financial condition together with its unaudited condensed consolidated financial statements and related notes to those statements included elsewhere in this Quarterly Report on Form 10-Q, and its audited consolidated financial statements and related notes to those statements included in the Company’s 2024 Annual Report on Form 10-K that was filed on March 20, 2025 (the “2024 Form 10-K”). In addition to historical financial information, this discussion contains forward-looking statements based upon Cardio’s current expectations that involve risks and uncertainties, including those described in the section titled, “Special Note About Forward-Looking Statements,” above. Cardio’s actual results could differ materially from such forward-looking statements as a result of various factors, including those set forth under “Risk Factors” in the 2024 Form 10-K (Item 1A therein). Our historical results are not necessarily indicative of the results that may be expected for any period in the future.

Unless the context requires otherwise, references to “Cardio,” the “Company,” “we,” “us” and “our” refer to Cardio Diagnostics Holdings, Inc., a Delaware corporation, together with its consolidated subsidiary.

Overview

Cardio was formed to further develop and commercialize a series of products for major types of cardiovascular disease and associated co-morbidities, including coronary heart disease (“CHD”), stroke, heart failure and diabetes, by leveraging our Artificial Intelligence (“AI”)-driven Integrated Genetic-Epigenetic Engine™. As a company, we aspire to give every American adult insight into their unique risk for various cardiovascular diseases. Cardio aims to become one of the leading medical technology companies for enabling improved prevention, early detection and treatment of cardiovascular disease. Cardio is transforming the approach to cardiovascular disease from reactive to proactive and hope to accelerate the adoption of Precision Medicine for all. We believe that incorporating Cardio’s solutions into routine practice in primary care and prevention efforts can help alter the trajectory that nearly one in two Americans is expected to develop some form of cardiovascular disease by 2035.

Cardio believes that it is the first company to develop and commercialize epigenetics-based clinical tests for cardiovascular disease that have clear value propositions for multiple stakeholders including (1) patients, (2) clinicians, (3) hospitals/health systems, (4) employers and (5) payors. According to the CDC, epigenetics is the study of how a person’s behaviors and environment can cause changes that affect the way a person’s genes work. Unlike genetic changes, epigenetic changes are reversible and do not change one’s DNA sequence, but they can change how a person’s body reads a DNA sequence.

Cardio launched its first clinical test, Epi+Gen CHD™, a three-year symptomatic CHD risk assessment clinical blood test targeting CHD events, including heart attacks, in 2021 during the Covid-19 pandemic. As a result, the initial strategy for commercialization involved launching the test via telemedicine and in smaller provider practices such as concierge medicine practices. The volume of tests through these channels were minimal, and as the circumstances around Covid-19 pandemic improved, management re-vamped the Company’s go-to-market strategy to include other healthcare verticals and stakeholders beyond patients and small providers, including larger provider organizations, group purchasing organizations, employers, payors and life insurers. This new approach allowed Cardio to expand the reach of our solutions beyond the initial focus areas. Beyond the launch of Epi+Gen CHD, in March 2023, we announced the launch of our second product, PrecisionCHD™, an integrated epigenetic-genetic clinical blood test for the detection of coronary heart disease. The Epi+Gen CHD™ and PrecisionCHD™ tests are coupled to Actionable Clinical Intelligence (“ACI”), a platform that offers new epigenetic and genetic insights to clinicians prescribing the to personalize patient management and help improve chronic care management. In May 2023, we launched CardioInnovate360™, a research-use-only (“RUO”) solution to support the discovery, development and validation of novel biopharmaceuticals for the assessment and management of cardiovascular diseases. In February 2024, we announced the launch of HeartRisk™, a cardiovascular disease risk intelligence platform. We believe that our Epi+Gen CHD™ and PrecisionCHD™ tests are categorized as laboratory-developed tests, or “LDTs.” The new go-to-market strategy is also being implemented for these products. Despite long partnership and sales cycles, in some instance as long as 14 months, Cardio was able to increase the reach of its solutions in 2024, generating revenue from provider organizations and has continued the development of a more robust sales and partnership pipeline. To further increase reach and potentially accelerate partnerships and sales cycles, more seasoned sales personnel in the provider and employer verticals were hired in late 2024. In Q1 2025, the focus of the Company remained in driving adoption of our clinical solutions, predominantly among providers, channel partners and employers. In addition, the Company participated and presented findings at the American College of Cardiology annual conference, and made progress in setting up our laboratory facility.

Cardio expects that sales and partnership cycles will continue to be long. Our ongoing strategy for expanding our business operations and increasing revenue generation include the following:

• Develop additional products, including clinical tests for stroke, congestive heart failure and diabetes;
• Expand clinical and health economics evidence portfolio to continue to demonstrate value of products and increase reach;
• Leverage our newly awarded CPT PLA codes;
• Expand the adoption of our products across key channels, including health systems and self-insured employers, including for HeartRisk, Cardio’s SaaS product;
• Scale our internal operations capabilities with a focus on improving efficiency and reducing our cost of goods sold; and
• Pursue potential strategic partnership(s) and acquisition(s) of one or more synergistic companies.

Recent Developments

Reverse Stock Split

The Company held its 2024 annual meeting of stockholders on November 15, 2024, where the Company’s stockholders approved a reverse stock split at a ratio within a range of 1-for-5 and 1-for-40 and granted the Company’s Board of Directors the discretion to determine the timing and ratio of the split within such range. This approval is valid through November 15, 2025.

On April 10, 2025, the Company’s Board of Directors determined to effect the reverse stock split of the common stock at a 1-for-30 ratio (the “Reverse Stock Split”) and approved the filing of a Certificate of Amendment (the “Certificate of Amendment”) to the Third Amended and Restated Certificate of Incorporation of the Company to effect the Reverse Stock Split.

On May 12, 2025, the Company filed the Certificate of Amendment with the Delaware Secretary of State to effect the Reverse Stock Split, effective immediately after the close of trading on Nasdaq on May 12, 2025 (the "Effective Time”). At the Effective Time, every 30 shares of issued and outstanding common stock automatically combined into one issued share of common stock, with no change in par value. No fractional shares were issued as a result of the Reverse Stock Split. Instead of issuing fractional shares, the Company rounded shares up or down to the nearest whole number as determined by DTC at the participant level. The Reverse Stock Split did not modify any voting rights or other terms of the common stock. The Company’s common stock began trading on a Reverse Stock Split-adjusted basis on The Nasdaq Capital Market at the opening of the markets on May 13, 2025. The Reverse Stock Split was implemented for the purpose of regaining compliance with the minimum bid price requirement for continued listing of the Company’s common stock on the Nasdaq Capital Market.

As a result of the Reverse Stock Split, the number of shares of common stock outstanding was reduced from 52,160,487 shares to 1,738,683 shares, exclusive of 27 whole shares issued for rounding up fractional shares (which was issued in May 2025), and the number of authorized shares of common stock remains 300 million shares.

At the Market Sales Agreement

On January 26, 2024, the Company entered into the Sales Agreement with Craig-Hallum. Pursuant to the Sales Agreement, the Company may sell, at its option, shares of its Common Stock through Craig-Hallum, as sales agent. Sales of the Common Stock were made pursuant to the Sales Agreement initially up to an aggregate of $17 million under the Company’s Registration Statement on Form S-3 filed on January 26, 2024 (File No. 333-276725), and declared effective by the SEC on February 1, 2024 (the “Initial Registration Statement”). Additional sales may be made pursuant to the Sales Agreement up to an aggregate of $9,476,508 under the Company’s Registration Statement on Form S-3 filed on February 7, 2025 (File No. 333-284775), declared effective by the SEC on February 14, 2025 (the “Additional Registration Statement”) and its accompanying Prospectus Supplement dated February 14, 2025. Subject to the terms and conditions of the Sales Agreement, Craig-Hallum may sell the shares, if any, only by methods deemed to be an “at the market” offering as defined in Rule 415 promulgated under the Securities Act. The Company has agreed to pay Craig-Hallum a sales commission of 2.5% of the gross proceeds for sales under the Sales Agreement and to provide Craig-Hallum with customary indemnification and contribution rights, including for liabilities under the Securities Act. In addition, the Company is required to reimburse Craig-Hallum for certain specified expenses in connection with entering into the Sales Agreement.

As of May 15, 2025, the Company sold 1,031,981 (30,959,434 prior to the Reverse Stock Split) shares of its Common Stock under the Sales Agreement resulting in proceeds to the Company of $14,681,556, net of offering costs. The Company has paid Craig-Hallum $376,450 in sales commissions. As of May 15, 2025, the Company has not sold any additional shares of Common Stock under the Additional Registration Statement.

Recent Regulatory and Judicial Developments Regarding LDTs

On May 6, 2024, FDA published a final rule amending the definition of an in vitro diagnostic (“IVD”) device to include tests manufactured by a clinical laboratory. Pursuant to the rule, laboratory developed tests (“LDTs”), i.e., tests designed, manufactured, and used within a single CLIA-certified high complexity laboratory, are medical devices subject to FDA regulation under the Federal Food, Drug, and Cosmetic Act. The final rule also announced FDA’s intention to apply its medical device requirements to LDTs. Under the final rule, all LDTs, unless subject to a specific exemption, will be subject to premarket authorization requirements (510(k), de novo classification, or PMA) for each LDT performed by the laboratory, and to postmarket registration and listing, medical device reporting, correction, removal, and recall, complaint handling, labeling, investigational device, and quality system requirements. FDA intends to phase in these requirements beginning May 6, 2025. The final rule states that certain categories of LDTs will be subject to enforcement discretion with respect to some or all of these requirements. For example, FDA will apply enforcement discretion to currently marketed LDTs that were first offered prior to May 6, 2024, with respect to most quality system requirements and the requirement for premarket authorization if they are not modified or modified in only limited ways. Laboratories performing these tests are subject to other requirements, including the requirement to submit the labeling for the LDT to FDA for review. FDA will similarly exercise enforcement discretion with respect to premarket authorization for LDTs approved by the New York State Clinical Laboratory Evaluation Program (“NYS-CLEP”).

On March 31, 2025, a federal district court vacated the FDA final rule, thereby cancelling the rulemaking’s associated requirements. The court held that laboratory developed tests do not meet the definition of a medical device under the Federal Food, Drug, and Cosmetic (“FD&C”) Act and the FDA therefore lacks jurisdiction to regulate them. Laboratories no longer need to comply with the regulatory changes that were set to take effect on May 6, 2025, or with the rulemaking’s other requirements. The federal government did not seek a stay of the district court’s opinion and no appeal has been made to date.

Results of Operations

The results of operations presented below should be reviewed in conjunction with the consolidated financial statements and notes included elsewhere in this Quarterly Report on Form 10-Q. The following table sets forth Cardio’s results of operations data for the periods presented:

Comparisons for the three months ended March 31, 2025 and 2024:

The following table presents summary of consolidated operating results for the three-month periods indicated:

Net Loss

Cardio’s net loss for the three months ended March 31, 2025 was $1,635,064 as compared to $4,163,584 for the three months ended March 31, 2024, a decrease of $2,528,520. The decrease in net loss was primarily the result of a decrease in General and Administrative expenses, associated with stock compensation issued in 2024.

Revenue

Cardio had $940 and $15,928 in revenue for the three months ended March 31, 2025 and 2024, respectively.

Sales and Marketing

Expenses related to sales and marketing for the three months ended March 31, 2025 were $41,820 as compared to $34,402 for the three months ended March 31, 2024, an increase of $7,418. The overall increase was due to an increase in sales and marketing efforts in the first quarter of 2025.

Research and Development

Research and development expense for the three months ended March 31, 2025 was $2,200 as compared to $10,840 for the three months ended March 31, 2024, a decrease of $8,640. The decrease was attributable to the decrease in laboratory runs performed in the 2025 period on new product offerings in the pipeline as compared to laboratory runs performed in the same period in 2024.

General and Administrative Expenses

General and administrative expenses for the three months ended March 31, 2025, were $1,542,042 as compared to $4,123,941 for the three months ended March 31, 2024, a decrease of $2,581,899. The overall decrease is primarily due to stock compensation expenses of $2,519,404 in the first quarter of 2024 as compared to $30,612 in the current period of 2025.

General and Administrative expense for the three months ended March 31, 2025 included payroll and related costs of $601,046 (including stock compensation expenses of $30,612), rent and other facility costs of $66,393, legal and professional fees of $301,520, consulting and contractor fees of $160,802, insurance expense of $156,567, filing fees of $20,131, transfer agent fees of $6,382, software and web computing expenses of $78,591, board compensation of $49,612 and general corporate overhead expenses of $100,998.

General and Administrative expense for the three months ended March 31, 2024 included payroll and related costs of $2,935,775 (including stock compensation expenses of $2,519,404), rent and other facility costs of $41,555, legal and professional fees of $349,737, consulting and contractor fees of $222,778, insurance expense of $181,737, filing fees of $75,153, transfer agent fees of $13,566, software and web computing expenses of $72,213, board compensation of $50,000 and general corporate overhead expenses of $181,427.

We expect our general corporate overhead to remain relatively flat. However, we expect an increase in payroll and related costs and other facility costs, including furnishing the facility, capital expenditure of laboratory equipment, and other laboratory materials, as we prepare to put a company laboratory into operation in 2025. Additionally, as a public company, we expect to have to comply with changing legal and exchange requirements, including as to regulations of the SEC and the continued listing requirements of the Nasdaq Capital Market. We incur additional annual expenses related to these matters and, among other things, additional directors’ and officers’ liability insurance, directors’ fees, reporting requirements of the SEC, transfer agent fees, increased auditing and legal fees and similar expenses.

Amortization

Amortization expense for the three months ended March 31, 2025, was $45,438 as compared to $4,793 for the three months ended March 31, 2024. The total amortization expense for the three months ended March 31, 2025 is for intangible assets of $4,000 and patent costs of $41,438 respectively. The total amortization expense for the three months ended March 31, 2024 is for intangible assets of $4,000 and patent costs of $793 respectively.

Other income (expenses)

Total other expense for the three months ended March 31, 2025, was $(4,504) as compared to $(5,536) for the three months ended March 31, 2024. The total other expenses for the three months ended March 31, 2025, consists of interest expense of $4,691, net of interest income of $187. The total other expenses for the three months ended March 31, 2024, consists of interest expense of $5,817, net of interest income of $281.

Liquidity and Capital Resources

Liquidity describes the ability of a company to generate sufficient cash flows in the short- and long-term to meet the cash requirements of its business operations, including working capital needs, debt service, acquisitions and investments, and other commitments and contractual obligations. We consider liquidity in terms of cash flows from operations and other sources, and their sufficiency to fund our operations. Historically, our principal sources of liquidity have been proceeds from the issuance of equity.

On January 26, 2024, we entered into the Sales Agreement with Craig-Hallum. Pursuant to the Sales Agreement, we may sell, at our option, shares of our Common Stock through Craig-Hallum, as sales agent. Sales of our Common Stock were made pursuant to the Sales Agreement initially up to an aggregate of $17 million under the Initial Registration Statement and will be made pursuant to the Sales Agreement up to an aggregate of $9,476,508 under the Additional Registration Statement.

As of May 15, 2025, we sold 1,031,981 (30,959,434 prior to the Reverse Stock Split) shares of our Common Stock under the Sales Agreement resulting in proceeds to us of $14,681,556, net of offering costs. The Company has paid Craig-Hallum $376,450 in sales commissions. As of May 15, 2025, the Company has not sold any additional shares of Common Stock under the Additional Registration Statement.

On February 2, 2024, we closed a private placement with seven accredited investors, whereby we issued a total of 18,727 (561,793 prior to the Reverse Stock Split) units (“Units”), with each Unit consisting of (i) one share of our Common Stock and (ii) one six-year Common Stock purchase warrant having an exercise price of $53.40 ($1.78 prior to the Reverse Stock Split) per share, subject to adjustment (the "Private Placement”). The Private Placement resulted in the issuance to investors of 18,727 (561,793 prior to the Reverse Stock Split) shares of Common Stock and 18,727 (561,793 prior to the Reverse Stock Split) warrants in an unregistered offering of securities. The purchase price of the securities was $53.40 ($1.78 prior to the Reverse Stock Split) Unit, resulting in gross proceeds to the Company of $1,000,000, before deducting placement agent fees (10% or $100,000) and other offering expenses. We used the net proceeds from the Private Placement for working capital and general corporate purposes. We have subsequently registered the Private Placement Common Stock and the Common Stock issuable upon the exercise of the Private Placement Warrants on a registration statement on Form S-1 that was declared effective by the SEC on December 3, 2024.

We have had, and expect that we will continue to have, an ongoing need to raise additional cash from outside sources to fund our operations and grow our business. We expect that our primary cash needs in 2025 and for the foreseeable future will be for funding day-to-day operations and working capital requirements, funding our growth strategy, paying the setup expenses of our internal laboratory and paying expenses incurred in connection with our ongoing FDA submission activities. We explore our financing options on an ongoing basis. However, given recent stock prices and the extreme volatility of our stock, it continues to be challenging to balance cash that could be raised and the dilution that might be required to close a particular transaction. We expect that for the remainder of 2025, we will rely primarily on the ongoing ATM Offering, provided that market conditions are favorable.

At our annual stockholders meetings in December 2023 and November 2024, we obtained stockholder approval to offer and sell up to $10,000,000 in securities (up to 50,000,000 shares of Common Stock, subject to adjustment for stock splits, reverse stock splits and other similar recapitalization events) in a transaction or series of transactions not involving a public offering for a three-month period together with the potential to obtain Nasdaq’s consent, which we cannot guarantee, for an additional three-month period thereafter, resulting in a possible six-month period to conduct a financing within the parameters of the stockholder authority, if granted. We currently have no specific plans for such an offering but believed having that option available provided our Board of Directors with added flexibility in meeting the Company’s liquidity needs.

Our long-term future capital requirements will depend on many factors, including revenue growth rate, the timing and the amount of cash received from customers, the expansion of sales and marketing activities, the timing and extent of spending to support investments, including research and development efforts, and the continuing market adoption of our products. In each fiscal year since our inception, we have incurred losses from operations and generated negative cash flows from operating activities. We expect this trend to continue in future periods for the foreseeable future.

Unless we are able to generate significant cash flows from operations, which we do not foresee happening in the near term, we will need to finance our operations through the issuance of additional equity and/or convertible debt securities. Looking forward, we expect we will need to raise additional capital and generate revenues to meet long-term operating requirements. If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our equity holders could be significantly diluted, particularly at current stock price levels, and these newly-issued securities may have rights, preferences or privileges senior to those of existing equity holders. If we raise additional funds by obtaining loans from third parties, the terms of those financing arrangements may include negative covenants or other restrictions on our business that could impair our operating flexibility and also require us to incur interest expense.

Working capital requirements are expected to increase in line with the growth of the business. We have no lines of credit or other bank financing arrangements. We anticipate that our principal sources of liquidity, including existing funds and issuances of equity and/or debt, will be sufficient to fund our activities over the next 12 months. In order to have sufficient cash to fund our operations beyond the next 12 months and grow our business, we will need to raise additional funds through the issuance of equity and/or debt. We cannot provide any assurance that we will be successful in doing so.

If we are unable to raise additional capital when desired, our business, financial condition and results of operations would be harmed. Successful transition to attaining profitable operations depends upon achieving a level of revenue adequate to support our business plan, balanced against ongoing expenses. There is no assurance that we will be successful in reaching and sustaining profitability.

The exercise prices of our currently outstanding warrants range from a high of $345 to a low of $53.40 (a high of $11.50 to a low of $1.78 before the Reverse Stock Split) (subject to adjustment) per share of Common Stock. The likelihood that warrant holders will exercise their warrants, and therefore the amount of cash proceeds that we might receive, is dependent upon the trading price of our Common Stock, the last reported sales price for which was $4.53 on May 14, 2025. If the trading price of our Common Stock is less than the respective exercise prices of our outstanding warrants, which has been the case for a substantial period of time, we believe holders of any of our warrants will be unlikely to exercise their warrants. There is no guarantee that the warrants will be in the money prior to their respective expiration dates, and as such, the warrants may expire worthless, and we may receive no proceeds from the exercise of warrants. Given the current differential between the trading price of our Common Stock and the Warrant exercise prices and the volatility of our stock price, we are not making strategic business decisions based on an expectation that we will receive any cash from the exercise of warrants. However, we will use any cash proceeds received from the exercise of warrants for general corporate and working capital purposes, which would increase our liquidity. We will continue to evaluate the probability of warrant exercises and the merit of including potential cash proceeds from the exercise of the warrants in our future liquidity projections.

Cash at March 31, 2025 totaled $9,688,719 as compared to $7,827,487 at December 31, 2024, an increase of $1,861,232. The following table shows Cardio’s cash flows from operating activities, investing activities and financing activities for the stated periods.

25

Cash Used in Operating Activities

Cash used in operating activities for the three months ended March 31, 2025 was $1,400,101 as compared to $1,233,050 for the three months ended March 31, 2024. The cash used in operations during the three months ended March 31, 2025 is a function of net loss of $1,635,064 adjusted for the following non-cash operating items: depreciation of $37,656, amortization of $87,664, $30,612 in stock-based compensation, a decrease of $9,060 in accounts receivable, a decrease of $107,461 in prepaid expenses and other current assets, an increase of $20,520 in accounts payable and accrued expenses and a decrease in lease liability of $58,010.

The cash used in operations during the three months ended March 31, 2024 was a function of net loss of $4,163,584 adjusted for the following non-cash operating items: depreciation of $3,587, amortization of $24,750, $2,519,404 in stock-based compensation, an increase of $14,028 in accounts receivable, a decrease of $470,050 in prepaid expenses and other current assets, a decrease of $18,494 in accounts payable and accrued expenses and a decrease in lease liability of $54,735.

Cash Used in Investing Activities

Cash used in investing activities for the three months ended March 31, 2025 was $47,415 compared to $69,941 for the three months ended March 31, 2024. The cash used in investing activities for the three months ended March 31, 2025 and March 31, 2024 was due to purchases of property and equipment and patent costs incurred.

Cash Provided by Financing Activities

Cash provided by financing activities for the three months ended March 31, 2025 was $3,308,748 as compared to $1,582,607 for the three months ended March 31, 2024. Cash provided by financing activities for the three months ended March 31, 2025 was due to $3,423,784 in net proceeds from the sale of common stock offset by $115,036 in payments of finance agreement. Cash provided by financing activities for the three months ended March 31, 2024 was due to $1,722,857 in net proceeds from the sale of common stock and warrants offset by $140,250 in payments pursuant to a finance agreement.

Off-Balance Sheet Financing Arrangements

We did not have any off-balance sheet arrangements as of March 31, 2025.

Contractual Obligations

As of March 31, 2025, we do not have any ongoing contractual obligations that would have a negative impact on liquidity and cash flows. However, if one or more of the following potential claims that arise from contracts we have entered into were pursued against us, there is the potential that we could see a negative impact on liquidity and cash flows, depending on the outcome.

Prior Relationships of Cardio with Boustead Securities, LLC

At the commencement of efforts to pursue what ultimately ended in the terminated business acquisition, Legacy Cardio entered into a Placement Agent and Advisory Services Agreement (the “Placement Agent Agreement”), dated April 12, 2021, with Boustead Securities, LLC (“Boustead Securities”). This agreement was terminated in April 2022, when Legacy Cardio terminated the underlying agreement and plan of merger and the accompanying escrow agreement relating to that proposed business acquisition after efforts to complete the transaction failed, despite several extensions of the closing deadline.

Under the terminated Placement Agent Agreement, Legacy Cardio agreed to certain future rights in favor of Boustead Securities, including (i) a two-year tail period during which Boustead Securities would be entitled to compensation if Cardio were to close on a transaction (as defined in the Placement Agent Agreement) with any party that was introduced to Legacy Cardio by Boustead Securities; and (ii) a right of first refusal to act as the Company’s exclusive placement agent for 24-months from the end of the term of the Placement Agent Agreement (the “right of first refusal”). Cardio has taken the position that due to Boustead Securities’ failure to perform as contemplated by the Placement Agent Agreement, these provisions purporting to provide future rights are null and void.

Boustead Securities responded to the termination of the Placement Agent Agreement by disputing Legacy Cardio’s contention that it had not performed under the Placement Agent Agreement because, among other things, Boustead Securities had never sought out prospective investors. In its response, Boustead Securities included a list of funds that they had supposedly contacted on Legacy Cardio’s behalf. While Boustead Securities’ contention appears to contradict earlier communications from Boustead Securities in which they indicated that they had not made any such contacts or introductions, Boustead Securities is currently contending that they are due success fees for two years following the termination of the Placement Agent Agreement on any transaction with any person on the list of supposed contacts or introductions. Legacy Cardio strongly disputes this position. Notwithstanding the foregoing, the Company has not consummated any transaction, as defined, with any potential party that purportedly was a contact of Boustead Securities in connection with the Placement Agent Agreement and has no plans to do so at any time during the tail period. No legal proceedings have been instigated by either party, and Cardio believes that the final outcome will not have a material adverse impact on its financial condition.

The Benchmark Company, LLC Right of First Refusal

The Company completed a business combination with Mana on October 25, 2022. In connection with the proposed business combination, by agreement dated May 13, 2022, Mana engaged The Benchmark Company, LLC (“Benchmark”) as its M&A advisor. Upon closing of the business combination, Legacy Cardio assumed the contractual engagement entered into by Mana. On November 14, 2022, Cardio and Benchmark entered into Amendment No. 1 Engagement Letter (the “Amendment Engagement”). Pursuant to the Amendment Engagement, Benchmark has been granted a right of first refusal to act as lead or joint-lead investment banker, lead or joint-lead book-runner and/or lead or joint-lead placement agent for all future public and private equity and debt offerings through October 25, 2023. Based on the right of first refusal, Benchmark alleges that it is owed damages because the Company entered into the Yorkville Convertible Debenture Transaction without first offering Benchmark the right to serve as the lead or joint-lead placement agent for the transaction. The Company is evaluating the claim. No legal proceedings have been instigated.

Demand Letter and Potential Mootness Fee Claim

On June 25, 2022, a plaintiffs’ securities law firm sent a demand letter to the Company alleging that the Company’s Registration Statement on Form S-4 filed (the “S-4 Registration Statement”) with the Securities and Exchange Commission (“SEC”) on May 31, 2022 omitted material information with respect to the Business Combination and demanding that the Company and its Board of Directors immediately provide corrective disclosures in an amendment or supplement to the Registration Statement. Subsequent thereto, the Company filed amendments to the S- 4 Registration Statement on July 27, 2022, August 23, 2022, September 15, 2022, October 4, 2022 and October 5, 2022 in which it responded to various comments of the SEC staff and otherwise updated its disclosure. In October 2022, the SEC completed its review and declared the S-4 registration statement effective on October 6, 2022. On February 23, 2023 and February 27, 2023, plaintiffs’ securities law firm contacted the Company’s counsel asking who will be negotiating a mootness fee relating to the purported claims set forth in the June 25, 2022 demand letter. The Company vigorously denies that the S-4 Registration Statement, as amended and declared effective, is deficient in any respect and believes that no additional supplemental disclosures are material or required. The Company believes that the claims asserted in the Demand Letter are without merit and that no further disclosure was required to supplement the S-4 Registration Statement under applicable laws. As of the date of filing of this Quarterly Report on Form 10-Q, no lawsuit has been filed against the Company by that firm. The firm has indicated its willingness to litigate the matter if a mutually satisfactory resolution cannot be agreed upon; however, Cardio believes that the final outcome will not have a material adverse impact on its financial condition.

Northland Securities, Inc.

In January 2024, following the Company’s termination of its agreement with Yorkville and in connection with the Company’s recent at the market offering and/or its February 2024 private placement, a managing director of Northland Securities, Inc. (“Northland”) contacted the Company claiming the right to be paid a fee of approximately $150,000 pursuant to the agreement of March 1, 2023 between the Company and Northland regarding the Yorkville financing. Subsequently, the Company has been advised by another representative of Northland that Northland would not proceed with any such claim. The Company does not believe that it owes Northland any sum based on the termination of the Yorkville Securities Purchase Agreement and the subsequent financing transactions.

The Company cannot preclude the possibility that claims or lawsuits brought relating to any alleged securities law violations or breaches of fiduciary duty could potentially require significant time and resources to defend and/or settle and distract its management and board of directors from focusing on its business.

Directors and Officers Insurance

In connection with the Company’s various contractual obligations arising in the ordinary course of business, the Company is required to maintain insurance coverage for claims against its directors and officers.

Notice of Non-Compliance with Nasdaq Listing Requirements

On June 3, 2024, Cardio Diagnostics Holdings, Inc. (the “Company”) received a letter (the “First Nasdaq Bid Price Letter”) from The Nasdaq Stock Market LLC (“Nasdaq”) indicating that the Company is no longer in compliance with Nasdaq Listing Rule 5550(a)(2), because the minimum bid price of the Company’s common stock (the “Common Stock”) had closed below the minimum $1.00 per share requirement for continued listing on The Nasdaq Capital Market under Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Requirement”). In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company was provided an initial period of 180 calendar days, or until December 2, 2024, to regain compliance. On December 4, 2024 (the “Second Nasdaq Bid Price Letter”), Nasdaq notified the Company that Nasdaq’s Staff has determined that the Company is eligible for an additional 180 calendar day period, or until June 2, 2025, to regain compliance (the "Second Compliance Period”). The determination was based on the Company’s meeting the continued listing requirement for market value of publicly held shares and all other applicable requirements for initial listing on The Nasdaq Capital Market with the exception of the Minimum Bid Price Requirement, and the Company’s written notice of its intention to cure the deficiency during the Second Compliance Period by effecting a reverse stock split, if necessary. The Company effected a 1-for-30 reverse stock split and began trading on a post-reverse split basis on May 13, 2025 in order to regain compliance with Nasdaq’s minimum bid requirement within the extended cure period. If we fail to regain compliance with the minimum bid requirement within the cure period (or extended cure period) or if we fail to continue to meet all applicable continued listing requirements for Nasdaq in the future, Nasdaq could delist our securities.

The University of Iowa Research Foundation Exclusive License Agreement

The Company has a worldwide exclusive license agreement with the University of Iowa Research Foundation (UIRF) relating to its patent and patent-pending technology (the “Exclusive License Agreement”). Under the terms of the Exclusive License Agreement, the Company will have to pay each of: (1) 1% of either the: (i) aggregate consideration (and trailing consideration, if any) for a liquidation event; or (ii) pre-money valuation for an initial public offering, (the “Equity Rights”) (2) 2% of annual net sales, and (3) 15% of non-royalty fees paid to licensee if it enters into one or more sublicensing agreements. Upon the Closing of the Business Combination, the Company issued 3,639 (109,170 prior to the Reverse Stock Split) Shares of Common Stock to UIRF in accordance with the Equity Rights under the Exclusive License Agreement. The Company has had minimal sales of $54,746 to date and has paid 2% or $1,294 in total royalty fees to UIRF under the exclusive license.

The Exclusive License Agreement entered into with UIRF and those licenses granted under that license agreement terminate on the expiration of the patent rights licensed under the license agreement, unless certain proprietary, non-patented technical information is still being used by the Company, in which case the license agreement will not terminate until the date of termination of such use. The licenses under the license agreement could terminate prior to the expiration of the licensed patent rights if the Company materially breaches its obligations under the license agreement, including failing to pay the applicable license fees and any interest on such fees, and failing to fully remedy such breach within the period specified in the license agreement, or if the Company enters liquidation, has a receiver or administrator appointed over any assets related to the license agreement, ceases to carry on business, files for bankruptcy or if an involuntary bankruptcy petition is filed against the Company.

Critical Accounting Policies and Significant Judgments and Estimates

Cardio’s consolidated financial statements are prepared in accordance with GAAP in the United States. The preparation of its consolidated financial statements and related disclosures requires it to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and the disclosure of contingent assets and liabilities in Cardio’s financial statements. Cardio bases its estimates on historical experience, known trends and events and various other factors that it believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Cardio evaluates its estimates and assumptions on an ongoing basis. Cardio’s actual results may differ from these estimates under different assumptions or conditions.

Our senior management has reviewed the critical accounting policies and estimates with the Audit Committee of our Board of Directors. For a description of the Company’s critical accounting policies and estimates, refer to “Part II—Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in our most recent Annual Report on Form 10-K for the year ended December 31, 2024, which was filed with the SEC on March 20, 2025. Critical accounting policies are those that are most important to the portrayal of our financial condition, results of operations and cash flows and require management’s most difficult, subjective and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. If actual results were to differ significantly from estimates made, the reported results could be materially affected. There were no significant changes to our critical accounting policies and estimates during the three months ended March 31, 2025.

Pursuant to Item 305(e) of Regulation S-K, the Company is not required to provide the information required by this Item as it is a “smaller reporting company.”

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive officer and principal financial and accounting officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures s such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this Quarterly Report.. Based on this evaluation, our principal executive officer and principal financial and accounting officer have concluded that during the period covered by this Report, our disclosure controls and procedures were not effective. As a result, we performed additional analysis as deemed necessary to ensure that our financial statements were prepared in accordance with U.S. generally accepted accounting principles. Based on such additional analysis,, management believes that the financial statements included in this Form 10-Q present fairly in all material respects our financial position, results of operations and cash flows for the period presented.

Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

We do not expect that our disclosure controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Further, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and the benefits must be considered relative to their costs. Because of the inherent limitations in all disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all our control deficiencies and instances of fraud, if any. The design of disclosure controls and procedures also is based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Management’s Report on Internal Controls Over Financial Reporting

Management identified the following material weakness in our internal control over financial reporting: inadequate segregation of duties within the financial reporting process due to our limited staff resources, which increases the risk of errors or unauthorized transactions. This weakness was identified in our assessment during the period ended March 31, 2025.

Remediation Plans. This material weakness did not result in a material misstatement of the Company’s consolidated financial statements for the periods presented.

To address the material weakness related to inadequate segregation of duties, we are exploring the following remediation measures during the three months ended March 31, 2025:

• Implementation of Approval Matrices: We are developing a formalized approval matrix requiring dual authorization for significant financial transactions, such as payments above a specified threshold or changes to the general ledger, to enhance oversight despite staffing constraints.
• Automation of Key Processes: We are exploring and deploying accounting software with built-in controls to automate certain financial processes, reducing reliance on manual interventions and minimizing error risks.

These remediation efforts are in progress and have not yet been fully implemented or tested for effectiveness as of March 31, 2025.

While we believe that these efforts will continue to improve our internal control over financial reporting, our remediation efforts are ongoing and will require validation. The actions that we are taking are subject to ongoing senior management review. We will not be able to conclude whether the steps we are taking will fully remediate the remaining material weakness in our internal control over financial reporting until we have completed our remediation efforts and subsequent evaluation of their effectiveness. We may also conclude that additional measures may be required to remediate the material weakness in our internal control over financial reporting.

Changes in Internal Control over Financial Reporting

There has not been any change in our internal control over financial reporting that occurred during the three months ended March 31, 2025 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

There have been no material changes to the risk factors previously described in Item 1A of Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 2024. These risk factors, collectively, describe some of the assumptions, risks, uncertainties and other factors that could adversely affect our business or that could otherwise result in changes that differ materially from our expectations. We may disclose changes to such risk factors or disclose additional risk factors from time to time in our future filings with the SEC, including as set forth below. 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 or future results.