Cardio Diagnostics Holdings, Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Unless the context requires otherwise, references to the “Company,” “we,” “us,” “our,” and “Mana”, refer specifically to Mana Capital Acquisition Corp. and its consolidated subsidiaries. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and the notes thereto contained elsewhere in this Report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties. Special Note Regarding Forward-Looking Statements This Quarterly Report on Form 10-Q (“Report”), including the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements, within the meaning of the federal securities laws, including the Private Securities Litigation Reform Act of 1995, regarding future events and the future results of the Company that are based on current expectations, estimates, forecasts, and projections about the industry in which the Company operates and the beliefs and assumptions of the management of the Company. Words such as “expects,” “anticipates,” “targets,” “goals,” “projects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” variations of such words, and similar expressions are intended to identify such forward-looking statements. These forward-looking statements are only predictions and are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed elsewhere in this Report, including under “Risk Factors”, and in other reports the Company files with the Securities and Exchange Commission (“SEC”), which can be accessed on the EDGAR section of the U.S. Securities and Exchange Commission’s website at www.sec.gov, including the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (under the heading “Risk Factors” and in other parts of that report) and in the Company’ Registration Statement on Form S-4, filed on May 31, 2022 and as amended on July 27, 2022. The following discussion is based upon our unaudited Financial Statements included elsewhere in this Report, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingencies. Actual results may differ from these estimates under different assumptions or conditions. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Report, and in other reports we file with the SEC, and in our most recent Annual Report on Form 10-K. All references to years relate to the fiscal year ended December 31 of the particular year. All forward-looking statements speak only at the date of the filing of this Report. The reader should not place undue reliance on these forward-looking statements. Although we believe that our plans, intentions and expectations reflected in or suggested by the forward-looking statements we make in this Report are reasonable, we provide no assurance that these plans, intentions or expectations will be achieved. We disclose important factors that could cause our actual results to differ materially from our expectations under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Report. These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf. We do not undertake any obligation to update or revise publicly any forward-looking statements except as required by law. 18 Overview We were formed on May 19, 2021 for the purpose of engaging in a merger, stock exchange, asset acquisition, stock purchase, recapitalization, reorganization or other similar business combination, which we refer to throughout this report as our initial business combination or our “Business Combination”, with one or more businesses or entities with one or more target businesses. Our efforts to identify a prospective target business will not be limited to a particular industry or geographic region. We intend to utilize cash derived from the proceeds of our initial public offering and contemporaneous private placement and our securities, debt or a combination of cash, securities and debt, in effecting a Business Combination. The issuance of additional shares of common stock or preferred stock: • may significantly reduce the equity interest of our stockholders; • may subordinate the rights of holders of shares of common stock if we issue shares of preferred stock with rights senior to those afforded to our shares of common stock; • will likely cause a change in control if a substantial number of our shares of common stock are issued, which may affect, among other things, our ability to use our net operating loss carry forwards, if any, and most likely will also result in the resignation or removal of our present officers and directors; and • may adversely affect prevailing market prices for our securities. Similarly, if we issue debt securities, it could result in: • default and foreclosure on our assets if our operating revenues after a Business Combination are insufficient to pay our debt obligations; • acceleration of our obligations to repay the indebtedness even if we have made all principal and interest payments when due if the debt security contains covenants that required the maintenance of certain financial ratios or reserves and we breach any such covenant without a waiver or renegotiation of that covenant; • our immediate payment of all principal and accrued interest, if any, if the debt security is payable on demand; • our inability to obtain additional financing, if necessary, if the debt security contains covenants restricting our ability to obtain additional financing while such security is outstanding; • our inability to pay dividends on our common stock; • using a substantial portion of our cash flow to pay principal and interest on our debt, which will reduce the funds available for dividends on our common stock if declared, expenses, capital expenditures, acquisitions and other general corporate purposes; • limitations on our flexibility in planning for and reacting to changes in our business and in the industry in which we operate; • increased vulnerability to adverse changes in general economic, industry and competitive conditions and adverse changes in government regulation; and • limitations on our ability to borrow additional amounts for expenses, capital expenditures, acquisitions, debt service requirements, execution of our strategy and other purposes and other disadvantages compared to our competitors who have less debt. 19 We have neither engaged in any operations nor generated any revenues to date. We expect to continue to incur significant costs in the pursuit of our acquisition plans. We cannot assure you that our plans to complete a Business Combination will be successful. We are an emerging growth company as defined in the JOBS Act. As an emerging growth company, we have elected to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. As such, our financial statements may not be comparable to companies that comply with public company effective dates. Initial Business Combination On May 27, 2022, the Company entered into a Merger Agreement and Plan of Reorganization (the “Merger Agreement”) with Mana Merger Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of Mana (“Merger Sub”), Cardio Diagnostics, Inc., a Delaware corporation (“Cardio”) and Meeshanthini (Meesha) Dogan, in her capacity as the representative of the Cardio shareholders. Pursuant to the terms of the Merger Agreement, and subject to the satisfaction or waiver of certain conditions set forth therein, (i) Merger Sub will merge with and into Cardio (the “Merger”), with Cardio surviving the merger in accordance with the Delaware General Corporation Law as a wholly-owned subsidiary of Mana Capital; and (ii) Mana Capital will change its name to Cardio Diagnostics Holdings Inc. (the transactions contemplated by the Merger Agreement and the related ancillary agreements, the “Business Combination”). The aggregate consideration payable at the closing of the Business Combination (the “ Closing ”) to the stockholders of Cardio will be the issuance of such number of shares of Mana Capital Common Stock, par value $0.00001 per share (the “ Common Stock ”) as shall be determined by dividing the “Aggregate Closing Merger Consideration Value” by $10.00, which represents the agreed valuation of one share of Mana Capital Common Stock. Of the shares of Mana Capital Common Stock to be delivered at Closing, the holders of Cardio common stock will receive, in exchange for the Cardio shares owned by such persons, such number of shares of Common Stock of Mana Capital equal to the product obtained by multiplying the number of shares of Cardio common stock of held by such stockholders by the exchange ratio (as determined in accordance with the Merger Agreement). The Company has filed with the Securities and Exchange Commission (the “SEC”) a registration statement on Form S-4 including proxy materials in the form of a proxy statement (as amended or supplemented from time to time, the “Form S-4”) for the purpose of soliciting proxies from the stockholders of the Company to vote in favor of the Merger Agreement and the other proposals set forth below at a special meeting of the stockholders of the Company (the “Special Meeting”) and to register certain securities of the Company with the SEC. The Merger Agreement contains customary representations, warranties and covenants by the parties thereto. The Closing will be on a date to be specified by the Company and Cardio, but in no event later than three business days following the satisfaction or waiver of all of the closing conditions. Subject to the conditions as further described in the Merger Agreement, it is expected that the Closing will occur in the third quarter or fourth quarter of 2022. The Merger Agreement includes an outside Closing date of December 23, 2022. Results of Operations We have neither engaged in any operations nor generated any revenues to date. Our only activities from inception through June 30, 2022 were organizational activities, those necessary to prepare for our initial public offering, described below, and subsequently identifying a target business for a business combination, conducting due diligence on Cardio, negotiating the terms of the Merger Agreement and undertaking other activities in connection with the proposed Business Combination . We do not expect to generate any operating revenues until after the completion of our Business Combination. We generate non-operating income in the form of interest income on marketable securities held in the trust account with Continental Stock Transfer & Trust Company (the “Trust Account”) after the initial public offering. For the three months ended June 30, 2022, we had a net loss of $492,651 which consisted of operating expenses of $448,577 and a provision for franchise tax of $50,000, which was offset by interest income from our operating bank account of $95 and interest income on marketable securities held in the Trust Account of $5,831. For the six months ended June 30, 2022, we had a net loss of $715,314 which consisted of operating expenses of $625,671 and a provision for franchise tax of $100,000, which was offset by interest income in our operating bank account of $107 and interest income on marketable securities held in the Trust Account of $10,250. 20 Liquidity and Capital Resources On November 26, 2021, we consummated the initial public offering of 6,200,000 units at a price of $10.00 per unit, generating gross proceeds of $62,000,000. Simultaneously with the closing of the initial public offering, we consummated the sale of an aggregate of 2,500,000 private warrants for a total purchase price of $2,500,000 in a private placement to our sponsor. On November 30, 2021, we sold an additional 300,000 units to the underwriter pursuant to the partial exercise of the over-allotment option at an offering price of $10.00 per unit, generating additional gross proceeds to the Company of $3,000,000, or $65,000,000 in total. Following the initial public offering and the sale of the private placement warrants, a total of $65,000,000 was placed in the Trust Account located in the United States and we had $900,000 of cash held outside of the Trust Account, after payment of costs related to the Initial Public Offering, and available for working capital purposes. We incurred $1,697,431 in transaction costs, including $1,300,000 of underwriting fees and $397,431 of other costs. For the six months ended June 30, 2022, cash used in operating activities was $481,038. Net loss of $715,314 was affected by interest earned on marketable securities held in the trust account of $10,250 and changes in operating assets and liabilities, which provided $481,038 of cash used in operating activities. For the period from May 19, 2021(inception) through June 30, 2021, we incurred a net loss of $397 from formation and organization cost. Cash provided from financing activities was $34,250, which consisted of proceeds from the issuance of common stock to our sponsor of $25,000 and proceeds from a note payable of $45,000, which was offset by the payment of offering costs of $35,750. As of June 30, 2022, we had cash and marketable securities of $65,010,733 held in the trust account. We intend to use substantially all of the funds held in the trust account, including any amounts representing interest earned on the trust account primarily to identify and evaluate prospective acquisition candidates, perform business due diligence on prospective target businesses, travel to and from the offices, plants or similar locations of prospective target businesses, review corporate documents and material agreements of prospective target businesses, select the target business to acquire and structure, negotiate and consummate a Business Combination. We may withdraw interest to pay taxes. During the period ended June 30, 2022 we did not withdraw any interest earned on the trust account. To the extent that our capital stock or debt is used, in whole or in part, as consideration to complete our business combination, the remaining proceeds held in the trust account will be used as working capital to finance the operations of the target business or businesses, make other acquisitions and pursue our growth strategies. As of June 30, 2022, we had cash held outside of the Trust Account of $45,587. We intend to use the funds held outside the Trust Account primarily to identify and evaluate prospective acquisition candidates, perform business due diligence on prospective target businesses, travel to and from the offices, plants or similar locations of prospective target businesses, review corporate documents and material agreements of prospective target businesses, select the target business to acquire and structure, negotiate and complete a Business Combination. In order to fund working capital deficiencies or finance transaction costs in connection with an intended initial Business Combination, our founders, officers and directors and their affiliates may, but are not obligated to, loan us funds as may be required. If we complete our initial Business Combination, we may repay such loaned amounts out of the proceeds of the Trust Account released to us. In the event that our initial Business Combination does not close, we may use a portion of the working capital held outside the Trust Account to repay such loaned amounts but no proceeds from our Trust Account would be used for such repayment. Up to $2,400,000 of such loans may be convertible into working capital warrants at a price of $1.00 per warrant at the option of the lender. The warrants would be identical to the private placement warrants issued to our initial stockholders. The terms of such loans by our founders, officers and directors and their affiliates if any, have not been determined and no written agreements exist with respect to such loans. Prior to the completion of our Business Combination, we do not expect to seek loans from parties other than our founders, officers and directors and their affiliates if any, as we do not believe third parties will be willing to loan such funds and provide a waiver against any and all rights to seek access to funds in our Trust Account. We do not believe we will need to raise additional funds in order to meet the expenditures required for operating our business. If our estimates of the costs of undertaking in-depth due diligence and negotiating an initial Business Combination is less than the actual amount necessary to do so, or we earn less interest on the funds held in the Trust Account than anticipated, we may have insufficient funds available to operate our business prior to our initial Business Combination. Moreover, we may need to obtain additional financing either to consummate our initial Business Combination or because we become obligated to redeem a significant number of our public shares upon consummation of our initial Business Combination, in which case we may issue additional securities or incur debt in connection with such Business Combination. We do not have a maximum debt leverage ratio or a policy with respect to how much debt we may incur. The amount of debt we will be willing to incur will depend on the facts and circumstances of the proposed Business Combination and market conditions at the time of the potential Business Combination. At this time, we are not party to any arrangement or understanding with any third party with respect to raising additional funds through the sale of our securities or the incurrence of debt. Subject to compliance with applicable securities laws, we would only consummate such financing simultaneously with the consummation of our initial Business Combination. In the current economic environment, it has become especially difficult to obtain acquisition financing. If we are unable to complete our Business Combination because we do not have sufficient funds available to us, we will be forced to cease operations and liquidate the Trust Account. In addition, following our Business Combination, if cash on hand is insufficient, we may need to obtain additional financing in order to meet our obligations. 21 Off-balance sheet financing arrangements We have no obligations, assets or liabilities, which would be considered off-balance sheet arrangements as of June 30, 2022. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements. We have not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or purchased any non-financial assets. Contractual obligations We do not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities. Pursuant to a Business Combination Marketing Agreement, we have engaged Ladenburg Thalmann & Co. and I-Bankers Securities, Inc. as advisors in connection with our Business Combination to assist us in holding meetings with our stockholders to discuss the potential Business Combination and the target business’s attributes, introduce us to potential investors that are interested in purchasing our securities in connection with the potential Business Combination, provide financial advisory services to assist us in our efforts to obtain any stockholder approval for the Business Combination and assist us with our press releases and public filings in connection with the Business Combination. This agreement will provide that we will pay Ladenburg Thalmann and I-Bankers Securities, Inc. the marketing fee for such services upon the consummation of our initial Business Combination in an amount equal to, in the aggregate, 2.5% of the gross proceeds of our initial public offering. As a result, Ladenburg Thalmann and I-Bankers Securities, Inc. will not be entitled to such fee unless we consummate our initial Business Combination. Critical Accounting Policies The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and income and expenses during the periods reported. Actual results could materially differ from those estimates. We have identified the following critical accounting policies: Shares subject to redemption We account for our shares of common stock subject to possible conversion in accordance with the guidance in Accounting Standards Codification (“ASC”) Topic 480 “ Distinguishing Liabilities from Equity .” Shares subject to mandatory redemption are classified as a liability instrument and are measured at fair value. Conditionally redeemable shares (including shares that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within our control) are classified as temporary equity. At all other times, shares are classified as shareholders’ equity. Our shares feature certain redemption rights that are considered to be outside of our control and subject to occurrence of uncertain future events. Accordingly, shares subject to possible redemption are presented at redemption value as temporary equity, outside of the shareholders’ equity section of our balance sheets. Recent accounting pronouncements Management does not believe that any other recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on our financial statements. Recently Issued Accounting Standards For more information on recently issued accounting standards, see “Note 2— Significant Accounting Policies”, to the Notes to Consolidated Financial Statements included herein under “ Part I – Item 1. Financial Statements ”. 22 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 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”.