Cardio Diagnostics (US:CDIO)2024-04-01 21:15PART I Business Overview Cardio Diagnostics develops AI-driven genetic-epigenetic tests for proactive cardiovascular disease management - Cardio Diagnostics was founded in 2017 to develop and commercialize AI-driven DNA biomarker testing technology for cardiovascular diseases, aiming to transform care from reactive to proactive107108332 - The company's core technology, the AI-driven Integrated Genetic-Epigenetic Engine™, enables rapid development of diagnostic solutions by identifying robust genetic and epigenetic biomarkers108131132 - Key products include Epi+Gen CHD™ (three-year symptomatic CHD risk assessment), PrecisionCHD™ (early detection of coronary heart disease), and HeartRisk™ (a cardiovascular risk intelligence platform)119133146 - Cardio's strategy involves building compelling evidence, engaging experts and stakeholders, prioritizing strategic acquisitions, pursuing payor coverage, and evaluating FDA pathways110 - The company has secured an Innovative Technology Contract from Vizient, Inc., covering over 60% of U.S. hospitals, and an agreement with Family Medicine Specialists to test at least 1,200 patients119183 - Cardio holds five patent families, including issued patents in multiple countries and numerous pending applications, protecting methods and compositions for detecting cardiovascular disease and diabetes biomarkers202209215 Company Overview Industry Background Our Strategy Our Technology Our Products and Services Our Market Opportunity Go-To-Market Strategy for Epi+Gen CHD™ and PrecisionCHD™ Our Competitive Strengths Competition Intellectual Property Government Regulation Employees and Human Capital Resources Corporation Information Emerging Growth Status Available Information Risk Factors Cardio Diagnostics faces risks from its limited operating history, unproven business model, intense competition, and regulatory changes - The company has a limited operating history, generated nominal revenue ($17,065 in 2023), and incurred significant net losses ($8,376,834 in 2023), raising substantial doubt about its ability to continue as a going concern85299342 - The market for epigenetic tests is new and unproven, and the company's business model is unproven, making future growth and profitability uncertain353354355 - Cardio relies on a limited number of suppliers, contract manufacturers, and a single CLIA laboratory, posing risks of supply chain interruptions and delays373378 - The FDA is considering reclassifying Laboratory-Developed Tests (LDTs) as medical devices, which could subject Cardio's tests to stringent premarket clearance/approval and post-market controls, incurring substantial costs and delays34257236 - Obtaining adequate coverage and reimbursement from third-party payors for its tests is a challenging, time-consuming, and costly process, which is critical for commercial success and widespread adoption263283284 - The company's intellectual property, including core technology licensed from UIRF, could be subject to termination if obligations are breached or if unaffiliated third parties gain access to technical information for competitive products2325419452 - Compliance with federal and state privacy and security regulations (e.g., HIPAA, CCPA, CPRA) for personally identifiable and protected health information is critical, with potential for significant liability and reputational harm from breaches or non-compliance449461474 Risk Factor Summary Risks Related to Our Limited Operating History and Early Stage of Growth Risks Related to Our Business and Industry Risks Related to Our Business Operations Risks Related to Our Intellectual Property Risks Related to Government Regulation Risks Related to Customer Privacy, Cybersecurity and Data General Risks Affecting Our Company Risks Related to Our Securities Unresolved Staff Comments The company has no unresolved staff comments to report - The company states that Item 1B is not applicable, indicating no unresolved staff comments541 Cybersecurity Cardio Diagnostics' cybersecurity program, governed by SOC2 and HIPAA, integrates risk management and incident response - Cardio's cybersecurity program is governed by SOC2 and HIPAA frameworks, focusing on identifying, assessing, responding to, and managing cybersecurity risks532542 - Key components of the program include skilled information security personnel, external service providers, employee training, periodic policy reviews, and an incident response plan543544 - The company has not identified any material risks from known cybersecurity threats that have impacted or are reasonably likely to impact its business545 - The Board of Directors oversees cybersecurity risk, with management providing periodic reports on material threats546547 Risk Management and Strategy Governance Properties Cardio Diagnostics leases its principal executive offices in Chicago and a laboratory in Iowa City under multi-year agreements - The company leases its principal executive offices in Chicago, IL, for approximately $13,000 per month, with a three-year term commencing December 1, 2023550 - A laboratory is leased in Iowa City, IA, for approximately $8,505 per month, with a five-year term also commencing December 1, 2023550 Legal Proceedings Cardio Diagnostics is not currently a party to any material litigation or other legal proceedings - The company is not currently involved in any material litigation or legal proceedings551 Mine Safety Disclosures The company has no disclosures related to mine safety - Item 4 is not applicable to the company's operations557 PART II Market for Common Equity and Stockholder Matters Cardio Diagnostics' common stock and warrants are listed on Nasdaq, with no cash dividends anticipated as earnings are reinvested - Common Stock and Warrants are listed on the Nasdaq Capital Market under symbols 'CDIO' and 'CDIOW' respectively574 - As of April 1, 2024, there were 37 record holders of common stock and 8,528,766 warrants outstanding558560 - The company has never paid dividends on its common stock and does not anticipate paying any cash dividends in the foreseeable future, intending to retain earnings for business operations and expansion114502559 Market Information Dividends Warrants Securities Authorized for Issuance Under Equity Compensation Plans Sales of Unregistered Securities Issuer Purchases of Equity Securities Reserved This item is reserved and contains no information Management's Discussion and Analysis Cardio Diagnostics, an early-stage medical technology company, reported nominal revenue and increased net losses in 2023, relying on external financing - Cardio's strategy involves leveraging CPT PLA codes, developing additional products (stroke, heart failure, diabetes tests), expanding clinical evidence, increasing adoption across key channels (health systems, self-insured employers), scaling internal operations, and pursuing strategic partnerships/acquisitions588 - The company recently launched HeartRisk™, a cardiovascular risk intelligence platform, and secured an Innovative Technology Contract from Vizient, Inc572586 Key Financial Highlights (Years Ended December 31) | Metric | 2023 | 2022 | | :---------------------------------- | :----------- | :----------- | | Revenue | $17,065 | $950 | | Sales and marketing expenses | $158,514 | $92,700 | | Research and development expenses | $145,182 | $40,448 | | General and administrative expenses | $6,936,646 | $4,400,253 | | Net loss | $(8,376,834) | $(4,660,985) | - Net loss increased by $3,715,849 in 2023 compared to 2022, primarily due to a $2,536,393 increase in General and Administrative expenses, including $1,035,273 in stock compensation443596 - The company's continuation as a going concern is dependent on obtaining necessary equity financing and generating revenues, as it has incurred significant losses and accumulated a deficit of $14,368,380 at December 31, 2023299342601 - In 2023, the company received $4.5 million from a convertible debenture (fully converted to 10,622,119 common shares) and $855,922 (net) from an At-the-Market offering, with $16.1 million still available583590611 Overview Recent Developments Results of Operations Liquidity and Capital Resources Off-Balance Sheet Financing Arrangements Contractual Obligations Critical Accounting Policies and Significant Judgments and Estimates Quantitative and Qualitative Disclosures About Market Risk As of December 31, 2023, Cardio Diagnostics was not subject to any material market or interest rate risk - The company reported no exposure to market or interest rate risk as of December 31, 2023472 Financial Statements and Supplemental Data This section presents Cardio Diagnostics' audited consolidated financial statements for 2023 and 2022, including balance sheets, statements of operations, cash flows, and notes - The independent auditor, Prager Metis CPA's LLC, issued an opinion stating that the consolidated financial statements for 2023 and 2022 present fairly the company's financial position and cash flows, but noted a 'going concern' uncertainty due to nominal revenue and accumulated deficits298299 Consolidated Balance Sheet Highlights (December 31) | Metric | 2023 | 2022 | | :---------------------------------- | :----------- | :----------- | | Cash | $1,283,523 | $4,117,521 | | Total current assets | $2,765,680 | $5,885,887 | | Total assets | $4,462,365 | $6,249,478 | | Total current liabilities | $841,142 | $1,947,770 | | Total liabilities | $1,504,241 | $1,947,770 | | Total stockholders' equity | $2,958,124 | $4,301,708 | | Accumulated deficit | $(14,368,380) | $(5,991,546) | Consolidated Statements of Cash Flows Highlights (Years Ended December 31) | Cash Flow Activity | 2023 | 2022 | | :---------------------------------- | :----------- | :----------- | | Net cash used in operating activities | $(5,672,175) | $(5,090,968) | | Net cash used in investing activities | $(794,291) | $(368,001) | | Net cash provided by financing activities | $3,632,468 | $9,063,723 | | Net increase (decrease) in cash | $(2,833,998) | $3,604,754 | | Cash – End of Year | $1,283,523 | $4,117,521 | - Cash decreased by $2,833,998 in 2023, primarily due to significant cash used in operating activities ($5.67 million) and investing activities ($0.79 million), partially offset by cash from financing activities ($3.63 million)614598600 Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets Consolidated Statements of Operations Consolidated Statements of Changes in Stockholders' Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements Changes in and Disagreements with Accountants The company reported no changes in or disagreements with accountants on accounting and financial disclosure - The company reported no changes in or disagreements with accountants on accounting and financial disclosure793 Controls and Procedures Cardio Diagnostics' disclosure controls were ineffective as of December 31, 2023, though financial statements are fairly presented, with no material changes in internal control - As of December 31, 2023, the company's disclosure controls and procedures were deemed not effective752 - Despite the ineffectiveness of disclosure controls, management believes the financial statements fairly present the company's financial position, results of operations, and cash flows752 - No material changes in internal control over financial reporting occurred during the period ended December 31, 2023771 Evaluation of Disclosure Controls and Procedures Changes in Internal Control over Financial Reporting Other Information The company reported no other information for this item - The company stated that Item 9B is not applicable796 Disclosure Regarding Foreign Jurisdictions that Prevent Inspections The company reported no disclosures regarding foreign jurisdictions that prevent inspections - The company reported no disclosures regarding foreign jurisdictions that prevent inspections772 PART III Directors, Executive Officers and Corporate Governance Cardio Diagnostics' corporate governance includes a seven-member Board with independent directors, key executive officers, and policies for ethics and related party transactions - The Board of Directors consists of seven members, with Paul Burton, James Intrater, Stanley K. Lau, MD, and Oded Levy identified as independent directors782783 - Key executive officers include Meeshanthini V. Dogan (CEO), Robert Philibert (CMO), Elisa Luqman (CFO), Timur Dogan (CTO), and Khullani Abdullahi (VP of Revenue and Strategy)798799 - The company has an Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee, all with independent director representation808826831 - A written code of business conduct and ethics applies to all employees and directors, and a policy for reviewing and approving related party transactions is in place624879 - The company provides indemnification agreements to its directors and executive officers, which may be broader than statutory provisions, to attract and retain qualified individuals627815 Executive Officers Non-Employee Members of the Board of Directors Family Relationships Corporate Governance Board Committees Guidelines for Selecting Director Nominees Code of Ethics Conflicts of Interest Limitation on Liability and Indemnification of Officers and Directors Section 16(a) Beneficial Ownership Reporting Compliance Executive Compensation Cardio Diagnostics' 2023 executive compensation included base salaries and significant equity awards, with no cash bonuses, and non-employee directors received RSU awards 2023 Summary Compensation Table for Named Executive Officers | Name | Position | 2023 Salary ($) | 2023 Bonus ($) | 2023 Option Awards ($) | 2023 All Other Compensation ($) | 2023 Total ($) | | :---------------------- | :-------------------------------- | :-------------- | :------------- | :--------------------- | :------------------------------ | :------------- | | Meeshanthini V. Dogan | CEO | 300,000 | 0 | 341,640 | 7,253 | 648,893 | | Warren Hosseinion | Non-executive Chairman | 300,000 | 0 | 155,291 | 0 | 455,291 | | Elisa Luqman | CFO | 275,000 | 0 | 72,469 | 0 | 347,469 | - No annual cash bonuses were awarded to NEOs in 2023, though employment agreements provide for eligibility based on performance866 - In January 2024, 1,187,826 options were granted to management under the 2022 Equity Incentive Plan, with most vesting immediately768 - Non-employee directors received $12,500 in RSU awards quarterly in 2023, vesting and settling on the grant date, and similar awards are planned for 2024664849 - Employment agreements for the CEO and CFO include annual base salaries ($300,000 and $275,000 respectively), eligibility for cash bonuses and long-term incentives, and severance benefits under specific termination conditions955961962 Overview 2023 Summary Compensation Table Narrative to the Summary Compensation Table 2023 Base Salary Annual Bonuses Equity Compensation Retirement Plan Employee Benefits and Perquisites Outstanding Equity Awards at Fiscal Year-End Table Agreements with Our Executive Officers and Non-Executive Chairman of the Board Director Compensation Security Ownership of Certain Beneficial Owners and Management This section details beneficial ownership of Cardio Diagnostics' common stock as of April 1, 2024, with executive officers and directors owning 22.50% as a group Beneficial Ownership of Common Stock (April 1, 2024) | Name | Amount and Nature of Beneficial Ownership | Approximate Percentage of Outstanding Shares | | :---------------------------------- | :---------------------------------------- | :------------------------------------------- | | Meeshanthini V. Dogan | 3,020,422 | 9.04% | | Robert Philibert | 2,455,257 | 7.35% | | Warren Hosseinion | 618,248 | 1.85% | | Elisa Luqman | 322,772 | 0.97% | | James Intrater | 62,793 | — | | Stanley K. Lau | 91,522 | — | | Oded Levy | 62,793 | — | | Paul Burton | — | — | | Timur Dogan | 563,812 | 1.69% | | Khullani Abdullahi | 318,682 | 0.95% | | All Executive Officers and Directors as a Group (10 individuals) | 7,516,301 | 22.50% | - Percentage ownership is based on 21,591,119 shares of Common Stock outstanding as of April 1, 20244876 - Beneficial ownership includes shares subject to options or warrants exercisable within 60 days665 Beneficial Ownership Table Certain Relationships and Related Transactions, and Director Independence Cardio Diagnostics has a policy for reviewing and approving related party transactions, including an exclusive patent license from UIRF and employment of the CEO's spouse - The company has a policy for reviewing and approving 'related party transactions' exceeding $120,000 or 1% of average total assets, involving directors, executive officers, or 5%+ beneficial owners879 - The audit committee is responsible for considering the facts and circumstances of each related party transaction, including comparability to arm's-length dealings879 - Cardio has an exclusive, worldwide patent license from the University of Iowa Research Foundation (UIRF), and co-founders Meeshanthini Dogan and Robert Philibert are entitled to 25% of income from earnings from their inventions under UIRF's policy667878 - Timur Dogan, spouse of CEO Meeshanthini Dogan, is a full-time employee of the company878 Related Party Policy Exclusive License Agreement with UIRF Invention and Non-Disclosure Agreements Principal Accounting Fees and Services This section details fees paid to Prager Metis CPA's LLC for audit services in 2023 and 2022, with no other services provided, and an audit committee pre-approval policy Fees Paid to Prager Metis CPA's LLC (Years Ended December 31) | Fee Type | 2023 ($) | 2022 ($) | | :------------------ | :------- | :------- | | Audit Fees | 85,500 | 84,000 | | Audit-Related Fees | — | — | | Tax Fees | — | — | | All Other Fees | — | — | | Total Fees | 85,500 | 84,000 | - The audit committee has a policy for pre-approving all auditing services and permitted non-audit services647882 - No other professional services were provided by Prager Metis in 2023 that would require considering their compatibility with auditor independence856 Fees Paid to the Independent Registered Public Accounting Firm Auditor Independence Pre-Approval Policy PART IV Exhibits, Financial Statement Schedules This section lists all exhibits and financial statement schedules filed as part of the Annual Report on Form 10-K, including key agreements and certifications - All schedules are omitted if not applicable or if the required information is shown in the Financial Statements or notes858 - The consolidated financial statements are listed in the accompanying Index to Financial Statements on page F-1884 - The exhibit index includes key documents such as the Agreement and Plan of Merger, the 2022 Equity Incentive Plan, employment agreements, and certifications of principal executive and financial officers885 Financial Statements Exhibit Index Form 10-K Summary The company states that there is no Form 10-K Summary - The company states that there is no Form 10-K Summary859