10-Q: Cardio Diagnostics Reports Q3 Loss Amid Revenue Decline

Cardio Diagnostics Holdings, Inc. reported a significant revenue decrease and continued net losses for Q3 2025, alongside an identified material weakness in internal controls.

Summary

• Revenue for the three months ended September 30, 2025, decreased to $2,855 from $6,580 in the prior year period.
• Revenue for the nine months ended September 30, 2025, decreased to $11,270 from $30,378 in the prior year period.
• Net loss for the three months ended September 30, 2025, increased to $(1,714,536) from $(1,412,566) in the prior year period.
• Net loss for the nine months ended September 30, 2025, decreased to $(5,032,799) from $(6,864,145) in the prior year period, primarily due to lower stock compensation expenses in 2025.
• Cash and cash equivalents decreased to $6,355,218 as of September 30, 2025, from $7,827,487 as of December 31, 2024.
• Cash used in operating activities for the nine months ended September 30, 2025, increased to $(4,364,984) from $(3,600,809) in the prior year period.
• The company completed a 1-for-30 reverse stock split effective May 12, 2025, to regain compliance with Nasdaq's minimum bid price requirement.
• A material weakness in internal control over financial reporting was identified due to inadequate segregation of duties.
• The company continues to develop and commercialize AI-driven DNA biomarker testing technology for cardiovascular disease, including products like Epi+Gen CHD, PrecisionCHD, and HeartRisk.
• The FDA's final rule to regulate laboratory-developed tests (LDTs) was vacated by a federal district court on March 31, 2025, meaning LDTs are not considered medical devices under the FD&C Act, which is favorable for the company.

Sentiment

Score: 3

Explanation: The company faces significant financial headwinds, including substantial revenue decline and increased operating cash burn, indicating a challenging operational environment. While the year-over-year net loss decreased due to lower stock compensation, the quarterly net loss increased. The identified material weakness in internal controls is a governance concern. However, the vacating of the FDA's LDT rule is a positive regulatory development, and the company is actively pursuing strategic growth initiatives and market expansion, preventing a lower score.

Positives

• Net loss for the nine months ended September 30, 2025, decreased by $1,831,346 compared to the same period in 2024, primarily due to a significant reduction in stock compensation expenses.
• The federal district court vacated the FDA's final rule to regulate laboratory-developed tests (LDTs) on March 31, 2025, removing a potential regulatory burden for the company's products.
• The company is actively expanding its go-to-market strategy to include larger provider organizations, group purchasing organizations, employers, payors, and life insurers.
• Progress has been made in expanding to additional markets such as the VA and international, and a partnership with the YMCA of East Tennessee has been established.
• The company is setting up its internal laboratory facility, expected to be operational in the fourth quarter of 2025, which could improve efficiency and reduce cost of goods sold.

Negatives

• Revenue significantly decreased by 56.76% for the three months ended September 30, 2025, and by 62.94% for the nine months ended September 30, 2025, compared to the prior year periods.
• Net loss for the three months ended September 30, 2025, increased by $301,970 compared to the prior year period.
• Cash used in operating activities for the nine months ended September 30, 2025, increased by $764,175 compared to the prior year period, indicating a higher cash burn.
• The company has an ongoing need to raise additional cash from outside sources to fund operations and growth, expecting continued losses and negative cash flows for the foreseeable future.
• The current stock price ($3.86 on November 10, 2025) is significantly below the exercise prices of outstanding warrants ($53.40 to $345), making warrant exercise unlikely and limiting potential cash proceeds from them.
• A material weakness in internal control over financial reporting was identified due to inadequate segregation of duties, increasing the risk of errors or unauthorized transactions.

Risks

• The company expects to incur losses from operations and generate negative cash flows from operating activities for the foreseeable future, requiring ongoing capital raises.
• Raising additional funds through equity or convertible debt securities could significantly dilute the percentage ownership of existing equity holders, particularly at current stock price levels.
• Long sales and partnership cycles, especially with current economic uncertainty, may hinder revenue growth and product adoption.
• The identified material weakness in internal control over financial reporting due to inadequate segregation of duties increases the risk of financial misstatements.
• Potential legal claims from Boustead Securities, LLC and The Benchmark Company, LLC, although currently disputed or under evaluation, could require significant time and resources to defend and/or settle.
• The company's ability to maintain its Nasdaq listing is dependent on meeting minimum bid price requirements, which necessitated a reverse stock split.
• The company is exposed to credit risk in financial institutions where cash deposits exceed FDIC insured limits (approximately $6.0 million in excess as of September 30, 2025).

Future Outlook

The company expects to continue incurring losses from operations and generating negative cash flows for the foreseeable future, necessitating ongoing capital raises. Primary cash needs for the remainder of 2025 and beyond include funding day-to-day operations, growth strategy, internal laboratory setup, and FDA submission activities. The company plans to rely primarily on its At-the-Market (ATM) Offering for the remainder of 2025, provided market conditions are favorable. Strategic initiatives include developing additional products, offering laboratory services, expanding clinical evidence, leveraging CPT PLA codes for reimbursement, and exploring new market opportunities.

Management Comments

• "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 Cardios 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."
• "Despite long partnership and sales cycles, in some instance as long as 14 months, Cardio has been able to increase the number of provider organizations offering its tests and has continued the development of a more robust sales and partnership pipeline."
• "Cardio expects that sales and partnership cycles will continue to be long, especially with the current economic uncertainty."
• "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."
• "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."
• "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."

Industry Context

Cardio Diagnostics operates in the medical technology sector, focusing on AI-driven DNA biomarker testing for cardiovascular disease, aiming to shift the paradigm from reactive to proactive care. The company's strategy aligns with the growing trend of precision medicine and early disease detection. A significant industry development is the recent vacating of the FDA's final rule to regulate laboratory-developed tests (LDTs), which directly impacts the company's core products, classifying them outside the FDA's medical device jurisdiction for now. The company acknowledges long sales cycles typical in the healthcare industry, especially for new diagnostic technologies, and is expanding its market reach to various healthcare stakeholders.

Comparison to Industry Standards

• NA

Corporate Governance

Legal Proceedings

• Boustead Securities, LLC is contending they are due success fees for two years following the termination of a Placement Agent Agreement, which Cardio Diagnostics strongly disputes. No legal proceedings have been instigated.
• The Benchmark Company, LLC alleges damages because the company entered into a convertible debenture transaction without first offering Benchmark the right of first refusal. The company is evaluating the claim, and no legal proceedings have been instigated.
• A plaintiffs securities law firm sent a demand letter alleging material omissions in the company's S-4 Registration Statement and is asking for a mootness fee. The company denies the claims, believes they are without merit, and no lawsuit has been filed.
• Northland Securities, Inc. initially claimed a fee of approximately $150,000 related to a terminated financing agreement, but subsequently advised the company that they would not proceed with such a claim. The company does not believe it owes Northland any sum.

Related Party Transactions

• In connection with a private placement, the company entered into a Placement Agent Agreement with Altitude Capital Group, LLC. The company's Non-Executive Chairman of the Board owns 10% of Altitude Capital. Altitude Capital was paid a cash commission equal to 10% of gross proceeds ($100,000) and received 20% warrant coverage (right to purchase 3,745 shares) for its services.

Stakeholder Impact

• Shareholders face significant dilution risk from ongoing and future equity issuances, especially given the current low stock price and the company's continuous need for capital.
• Employees and management are impacted by increased payroll and related costs, as well as stock-based compensation.
• Customers (provider organizations, employers, payors) benefit from the availability of new AI-driven cardiovascular disease diagnostic tests, but long sales cycles may affect adoption rates.
• Creditors may face uncertainty due to the company's ongoing net losses and cash burn, although the company believes current legal claims will not have a material adverse impact on its financial condition.
• The University of Iowa Research Foundation (UIRF) receives royalties (2% of annual net sales) and equity rights (1% of liquidation event/IPO pre-money valuation) from the exclusive license agreement for the company's core technology.

Next Steps

• Develop additional products, including clinical tests for stroke, congestive heart failure, and diabetes.
• Offer laboratory services once the internal laboratory setup is complete (expected in Q4 2025).
• Expand clinical and health economics evidence portfolio to demonstrate product value and increase reach.
• Leverage CPT PLA codes and expand reimbursement efforts.
• Expand the adoption of products across key channels, including health systems and self-insured employers.
• Explore additional market opportunities in the US and internationally.
• Scale internal operations capabilities with a focus on improving efficiency and reducing cost of goods sold.
• Pursue potential strategic partnership(s) and acquisition(s) of synergistic companies.
• Continue remediation efforts for the material weakness in internal control over financial reporting.

Key Dates

Recommendation

The company's financial performance is concerning, marked by a substantial decline in revenue (over 50% year-over-year for both quarterly and nine-month periods) and an increased cash burn from operating activities. While the nine-month net loss decreased, this was primarily due to reduced stock compensation, not improved operational profitability, and the quarterly net loss actually worsened. The explicit statement of an ongoing need for additional capital, coupled with the current low stock price, signals a high likelihood of significant future dilution for existing shareholders. Furthermore, the identified material weakness in internal controls raises governance and financial reporting reliability concerns. Despite strategic initiatives and a favorable regulatory development regarding LDTs, the fundamental financial health and liquidity outlook are weak, making the stock a high-risk investment with limited near-term upside for a seasoned investor.

Keywords

Cardio Diagnostics, CDIO, SEC Filing, 10-Q, Cardiovascular Disease, AI-driven Diagnostics, DNA Biomarker, Epigenetics, Precision Medicine, Medical Technology, LDTs, Laboratory Developed Tests, Financial Results, Net Loss, Revenue Decline, Cash Flow, Liquidity, Reverse Stock Split, Internal Controls, Capital Raise, Nasdaq