Cardio Diagnostics Holdings, Inc. 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations As a result of the closing of the Business Combination, which was accounted for as a reverse recapitalization in accordance with U.S. GAAP as discussed in Note 2 – Merger Agreement and Reverse Recapitalization, the consolidated financial statements of Cardio Diagnostics, Inc., a Delaware corporation and our wholly owned subsidiary, are now the financial statements of the Company. You should read the following discussion and analysis of our financial condition and results of operations together with our audited consolidated financial statements as of December 31, 2024 and 2023 and for each of the two years in the period ended December 31, 2024 and the related notes included in Part II, Item 8 of this Annual Report. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report, including information with respect to our plans, estimates and strategy for our business, includes forward-looking statements based upon current expectations that involve risks and uncertainties. You should read the sections titled “Risk Factors” and “Cautionary Note Regarding Forward Looking Statements” for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. 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 addition to increased revenue and number of tests in 2024 compared to 2023, other key developments in 2024 and recently, include: · Recommended pricing for our two Current Procedural Terminology (“CPT”) Proprietary Laboratory Analysis (“PLA”) codes from the American Medical Association, 0440U for PrecisionCHD™ and 0439U for Epi+Gen CHD™, at the Centers for Medicare and Medicaid Services’ (“CMS”) Clinical Laboratory Fee Schedule (CLFS) annual meeting; · Expanded the availability of our Epi+Gen CHD™ test to Family Medicine Specialists’ retail clinical location at Meijer Supercenter; · Received Medicare pricing determination from Centers for Medicare and Medicaid Services (CMS) for PrecisionCHD™ and Epi+Gen CHD™; and · We have entered into partnerships with seven new provider organizations. The new partners include specialized practices in Michigan, Illinois, Texas, Florida, California, and Connecticut, representing various medical specialties including concierge medicine, primary care, and precision medicine. 58 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 new 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 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), declared effective by the SEC on February 1, 2024 (the “Initial Registration Statement”), and will 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”). 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 March 20, 2025, the Company sold 30,959,434 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 March 20, 2025, the Company has not sold any additional shares of Common Stock under the Additional Registration Statement. Recent Regulatory Developments 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”). 59 Unless overturned by a court or Congress, or stayed or withdrawn by the new Administration, the final rule will substantially increase costs and regulatory burdens for many clinical laboratories in ways that may adversely affect their ability to develop, perform, and offer LDTs. Two lawsuits challenging FDA’s authority to regulate LDTs have been filed in federal court: the American Clinical Laboratory Association filed a lawsuit against FDA on May 29, 2024 in the Eastern District of Texas, while the Association for Molecular Pathology filed a lawsuit on August 19, 2024 in the Southern District of Texas. The ultimate success of these lawsuits, which were subsequently consolidated, or any future lawsuits that may be brought against the FDA challenging the LDT rule, is uncertain. It is also unclear whether a court would delay the implementation of the final rule while the litigation is ongoing, which means we may need to initiate steps to comply with the final rule even if it is ultimately overturned. Legislative proposals addressing the FDA’s oversight of LDTs have been previously introduced. In June 2021, Congress introduced the VALID Act, which would have established a new risk-based regulatory framework for in vitro clinical tests (“IVCTs”), a category which would have included IVDs, LDTs, collection devices and instruments used with such tests. FDA’s new LDT final rule may renew attention to the VALID Act or other legislation and may lead to the introduction of new proposals to limit the FDA’s regulatory authority. On July 12, 2024, the House Appropriations Committee issued a Report accompanying a FY 2025 appropriations bill in which it directed the FDA to suspend efforts to implement the LDT final rule and to continue working with Congress to modernize the regulatory approach for LDTs. This directive is not binding on the FDA. The change in Administration and in Congress could significantly affect FDA’s ability to implement the final rule or to otherwise regulate LDTs. For example, the Department of Health and Human Services, which oversees FDA, could stay enforcement of the rule or seek to rescind the final rule, or could direct FDA to not regulate LDTs as medical devices. Separately, Congress could enact legislation aimed at preventing FDA from regulating LDTs and/or assigning oversight of LDTs to a different agency. 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 Annual Report on Form 10-K. The following table sets forth Cardio’s results of operations data for the periods presented: Comparisons for the years ended December 31, 2024 and 2023: Years Ended December 31, Revenue 2024 2023 Revenue $ 34,890 $ 17,065 Operating Expenses Sales and marketing 182,446 158,514 Research and development 29,125 145,182 General and administrative expenses 8,169,458 6,936,646 Amortization 19,738 19,182 Total operating expenses (8,400,767 ) (7,259,524 ) Other (expense) income (17,576 ) (1,134,375 ) Net (loss) $ (8,383,453 ) $ (8,376,834 ) Cardio’s net loss for the year ended December 31, 2024, was $8,383,453 as compared to $8,376,834 for the year ended December 31, 2023, an increase of $6,619 primarily as a result of an increase in General and Administrative expenses. Revenue Cardio has earned only nominal revenue since inception. Revenue for the year ended December 31, 2024, was $34,890 compared to $17,065 for the year ended December 31, 2023. Sales and Marketing Expenses related to sales and marketing for the year ended December 31, 2024, were $182,446 as compared to $ 158,514 for the year ended December 31, 2023, an increase of $23,932. The overall increase was due to an increase in sales and marketing activity in 2024 due to tradeshow attendance. 60 Research and Development Research and development expense for the year ended December 31, 2024, was $29,125 as compared to $145,182 for the year ended December 31, 2023, a decrease of $116,057. The decrease was attributable to the decrease in laboratory runs performed in 2024 on new product offerings in the pipeline as compared to laboratory runs performed in 2023. General and Administrative Expenses General and administrative expenses for the year ended December 31, 2024, were $8,169,458 as compared to $ $6,936,646 for the year ended December 31, 2023, an increase of $1,232,812. The overall increase is primarily due to an increase in stock compensation expenses (mainly as a result of new stock options issued in the first quarter of 2024), offset by the decrease in D&O insurance expense. Amortization Amortization expense for the year ended December 31, 2024, was $19,738, as compared to $19,182 for the year ended December 31, 2023. The total amortization expense for the year ended December 31, 2024 includes the amortization of intangible assets of $16,000 and patent costs of $3,738, respectively, as compared to $16,000 for intangible assets and $3,182 for patent costs for the year ended December 31, 2023. Other income (expenses) Total other expenses for the year ended December 31, 2024, was $(17,576) as compared to $(1,134,375) for the year ended December 31, 2023. The total other expenses for the year ended December 31, 2024 consists of interest expense of $18,640 net of interest income of $1,064. The total other expenses for the year ended December 31, 2023 consists of interest expense of $6,735,013 offset by gain on extinguishment of debt of $193,350, change in fair value of derivative liability of $5,406,220 and interest income of $1,068. 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 operating and investing activities. 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 March 20, 2025, we sold 30,959,434 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 March 20, 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 561,793 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 $1.78 per share, subject to adjustment (the "Private Placement”). The Private Placement resulted in the issuance to investors of 561,793 shares of Common Stock and 561,793 warrants in an unregistered offering of securities. The purchase price of the securities was $1.78 per 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. 61 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 $11.50 to a low of $1.78 (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 $0.4630 on March 17, 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. 62 Cash at December 31, 2024 totaled $7,827,487 as compared to $1,283,523 at December 31, 2023, a n in crease of $6,543,964. The following table shows our cash flows from operating activities, investing activities and financing activities for the stated periods: 2024 2023 Net cash used in operating activities $ 4,993,104 $ 5,672,175 Net cash used in investing activities 404,190 794,291 Net cash provided by financing activities 11,941,258 3,632,468 Cash Used in Operating Activities Cash used in operating activities for the year ended December 31, 2024, was $4,993,104, as compared to $5,672,175 for the year ended December 31, 2023. The cash used in operations during the year ended December 31, 2024, is a function of net loss of $8,383,453, adjusted for the following non-cash operating items: depreciation of $113,777, amortization of $162,568, and stock based compensation of $2,591,168. Operating assets and liabilities fluctuated as follows: an increase in accounts receivable of $13,652, a decrease of $915,969 in prepaid expenses and other current assets, a decrease of $155,552 in accounts payable and accrued expenses and a decrease in lease liability of $223,929. The cash used in operations during the year ended December 31, 2023, is a function of net loss of $8,376,834, adjusted for the following non-cash operating items: depreciation of $3,790, amortization of $107,830, stock based compensation of $1,279,273, and non-cash interest expense of $6,704,522, offset by a change in fair value of derivative liability of $5,406,220, and a gain on extinguishment of debt of $193,350. Operating assets and liabilities fluctuated as follows: an increase in accounts receivable of $4,960, a decrease of $758,669 in prepaid expenses and other current assets, an increase in deposits of $7,900, a decrease of $781,500 in accounts payable and accrued expenses and an increase in lease liability of $244,505. Cash Used in Investing Activities Cash used in investing activities for the year ended December 31, 2024, was $404,190 compared to $794,291 for the year ended December 31, 2023. The cash used in investing activities for the year ended December 31, 2024, was due to $214,765 for purchase of property and equipment and $189,425 in patent costs incurred. The cash used in investing activities for the year ended December 31, 2023, was due to $575,663 for purchase of property and equipment, $21,352 payments for right of use asset and $197,276 in patent and trademark costs incurred. Cash Provided by Financing Activities Cash provided by financing activities for the year ended December 31, 2024, was $11,941,258 as compared to $3,632,468 for the year ended December 31, 2023. This change was due to $12,546,949 in proceeds from the sale of common stock and warrants offset by $450,691 in payments pursuant to a finance agreement, and $155,000 in payments of placement agent fees during the year ended December 31, 2024. Cash provided by financing activities for the year ended December 31, 2023 was due to $4,500,000 in proceeds from convertible notes payable, net of original issue discount of $500,000, $390,000 in proceeds from exercise of warrants, offset by $942,532 in payments of finance agreement and $315,000 in payments of placement agent fees during the year ended December 31, 2023. Off-Balance Sheet Financing Arrangements We did not have any off-balance sheet arrangements as of December 31, 2024. 63 Contractual Obligations As of December 31, 2024, 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 As noted in Note 1, 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 (see Note 11 to Notes to Consolidated Financial Statements) 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 is required to supplement the S-4 Registration Statement under applicable laws. As of the date of filing of this Annual Report on Form 10-K, 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. 64 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 is 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. If the Company chooses to implement a reverse stock split, it must complete the split no later than ten business days prior to the end of the Second Compliance Period in order to timely regain compliance. As of the date of this report the Common Stock has not regained compliance with the Minimum Bid Price Requirement. 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. Critical Accounting Policies 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. The SEC requested that all registrants list their most “critical accounting polices” in the Management Discussion and Analysis. The SEC indicated that a “critical accounting policy” is one which is both important to the portrayal of a company’s financial condition and results, and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. While Cardio’s significant accounting policies are described in more detail in Note 3 to its consolidated financial statements, Cardio believes that the following accounting policies are those most critical to the judgments and estimates used in the preparation of its consolidated financial statements. Stock-Based Compensation Cardio accounts for its stock-based awards granted under its employee compensation plan in accordance with ASC Topic No. 718-20, Awards Classified as Equity, which requires the measurement of compensation expense for all share-based compensation granted to employees and non-employee directors at fair value on the date of grant and recognition of compensation expense over the related service period for awards expected to vest. The Company uses the Black-Scholes option pricing model to estimate the fair value of its stock options and warrants. The Black-Scholes option pricing model requires the input of highly subjective assumptions including the expected stock price volatility of the Company’s common stock, the risk-free interest rate at the date of grant, the expected vesting term of the grant, expected dividends, and an assumption related to forfeitures of such grants. Changes in these subjective input assumptions can materially affect the fair value estimate of the Company’s stock options and warrants. 65 Item 7A. Quantitative and Qualitative Disclosures About Market Risk As of December 31, 2024, we were not subject to any market or interest rate risk.