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 Cardio Diagnostics Holdings, Inc. (formerly known as 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 SEC’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’s Registration Statement on Form S-4, filed on May 31, 2022 and as amended on July 27, 2022, August 23, 2022, September 15, 2022, October 4, 2022 and October 5, 2022, and that was declared effective by the SEC on October 6, 2022 (the “S-4 Registration Statement”). 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 and the S-4 Registration Statement. 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. Overview We were a blank check company incorporated on May 19, 2021 as a Delaware corporation for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses or entities. 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. 18 The registration statement for the Initial Public Offering of units (the “Units”) was declared effective on November 22, 2021. Each Unit consisted of one share of the Company’s common stock, one-half of one redeemable warrant and one right entitling the holder thereof to receive one-seventh of a share of common stock upon consummation of the initial business combination. Each whole Public Warrant entitles the holder to purchase one share of Common stock at a price of $11.50 per share, subject to adjustment (see Note 8 in the accompanying condensed consolidated financial statements). The Public Warrants will become exercisable on the later of 30 days after the completion of the Company’s initial Business Combination or 12 months from the closing of the Initial Public Offering and will expire five years after the completion of the Company’s initial Business Combination or earlier upon redemption or liquidation. On November 26, 2021, we consummated our Initial Public Offering of 6,200,000 Units at $10.00 per Unit, generating gross proceeds of $62,000,000. The underwriters were granted a 45-day option from the date of the final prospectus relating to the Initial Public Offering to purchase up to 930,000 additional Units to cover over-allotments, if any, at $10.00 per Unit (the “Option Units”). On November 30, 2021, the underwriters purchased 300,000 Option Units pursuant to the partial exercise of the Over-Allotment Option. The sale of the Option Units generated additional gross proceeds to the Company of $3,000,000. The common stock sold in our Initial Public Offering is subject to redemption Simultaneously with the closing of the Initial Public Offering, we consummated the private placement (the “Private Placement”) of 2,500,000 warrants (each, a “Private Placement Warrant” and collectively, the “Private Placement Warrants”), at a price of $1.00 per Private Placement Warrant with our Sponsor, Mana Capital, LLC, a Delaware limited liability company (the “Sponsor”), generating gross proceeds of $3,000,000. (See Note 4 in the accompanying condensed consolidated financial statements). Upon the closing of the Initial Public Offering and the Private Placement, the net proceeds of the sale of the Units in the Initial Public Offering and the Private Placement were placed in a trust account (“Trust Account”) with Continental Stock Transfer & Trust Company acting as trustee and invested in United States “government securities” within the meaning of Section 2(a)(16) of the Investment Company Act having a maturity of 185 days or less or in money market funds meeting certain conditions under Rule 2a-7 promulgated under the Investment Company Act which invest only in direct U.S. government treasury obligations, as determined by us, until the earlier of: (i) the completion of a business combination and (ii) the distribution of the Trust Account as described below. If we are unable to consummate our initial business combination within nine months from the closing of the Initial Public Offering, or August 26, 2022 (unless extended up to as additional 12 months as provided in our Amended and Restated Certificate of Incorporation) , we will distribute the aggregate amount then on deposit in the Trust Account, including interest earned on the funds held in the Trust Account (net of taxes payable), pro rata to our public stockholders, by way of redemption of their shares, and thereafter cease operations except for the purpose of winding up our affairs, as further described herein. Our management has had broad discretion with respect to the specific application of the net proceeds of its Initial Public Offering and the sale of the Private Placement Warrants, although substantially all of the net proceeds are intended to be applied generally toward consummating a business combination. Our initial business combination must be with one or more operating businesses or assets with a fair market value equal to at least 80% of the net assets held in the Trust Account (excluding the deferred underwriting commissions and taxes payable on the interest earned on the Trust Account) at the time we sign a definitive agreement in connection with the initial business combination. However, we will only complete a business combination if the post-transaction company owns or acquires 50% or more of the outstanding voting securities of the target or otherwise acquires a controlling interest in the target sufficient for it not to be required to register as an investment company under the Investment Company Act 1940, as amended, or the Investment Company Act. 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. Business Combination On May 27, 2022, Mana Capital Acquisition Corp., a Delaware corporation (“Mana”), and Mana Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary of Mana (“Merger Sub”), entered into an Agreement and Plan of Merger, as amended by Amendment No. 1 to the Agreement, dated September 15, 2022 (the “Business Combination Agreement”), with Cardio Diagnostics, Inc., a Delaware corporation (“Legacy Cardio”), and Meeshanthini Dogan, PhD, as the “Shareholders’ Representative.” On October 25, 2022, Mana held a special meeting of its stockholders at which Mana’s stockholders voted to approve the proposals outlined in the final prospectus and definitive proxy statement, filed with the Securities and Exchange Commission (the “SEC”) on October 7, 2022 (the “Proxy Statement/Prospectus”), including, among other things, the adoption of the Business Combination Agreement. On October 25, 2022 (the “Closing Date”), as contemplated by the Business Combination Agreement and described in the section of the Proxy Statement/Prospectus entitled “Proposal No. 1 – The Business Combination Proposal” beginning on the page 70 of the Proxy Statement/Prospectus, Mana consummated the transactions contemplated by the Business Combination Agreement, whereby Merger Sub merged with and into Legacy Cardio, with Legacy Cardio continuing as the surviving corporation, resulting in Legacy Cardio becoming a wholly-owned subsidiary of the Company (the “Merger” and, together with the other transactions contemplated by the Business Combination Agreement, the “Business Combination”). 19 In connection with the Special Meeting and the Business Combination, the holders of 6,465,452 shares of Mana Common Stock exercised their right to redeem their shares for cash at a redemption price of approximately $10.10 per share, for an aggregate redemption amount of $65,310,892. Immediately after giving effect to the Business Combination, there were 9,514,743 issued and outstanding shares of the Company’s Common Stock. Following the Closing, the Legacy Cardio Stockholders hold approximately 72.80% of the outstanding shares of the Company (excluding the contingent right to acquire “Earnout Shares,”), and Legacy Cardio became a wholly-owned subsidiary of the Company. The Company changed its name to Cardio Diagnostics Holdings, Inc. Results of Operations We have neither engaged in any operations nor generated any revenues to date. Our only activities from inception through September 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 Legacy 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 after the Initial Public Offering. For the three months ended September 30, 2022, we had a net income of $202,269, which consisted of operating expenses of $165,291 and a provision for franchise tax of $50,000, which was offset by interest income from our operating bank account of $173 and interest income on marketable securities held in the Trust Account of $367,387. For the nine months ended September 30, 2022, we had a net loss of $513,045, which consisted of operating expenses of $890,962 and a provision for franchise tax of $150,000, which was offset by interest income in our operating bank account of $280 and interest income on marketable securities held in the Trust Account of $377,637. 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 Placement 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 nine months ended September 30, 2022, cash used in operating activities was $587,016. Net loss of $513,045 was affected by interest earned on marketable securities held in the Trust Account of $377,637 and changes in operating assets and liabilities of $303,666, which provided $587,016 of cash used in operating activities. For the period from May 19, 2021(inception) through September 30, 2021, we incurred a net loss of $721 from formation and organization costs. Cash provided from financing activities was $9,855, 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 $60,145. As of September 30, 2022, we had cash and marketable securities of $65,573,383 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 September 30, 2022, we did withdraw $238,072 from the interest earned on the Trust Account to pay taxes. 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. 20 As of September 30, 2022, we had cash held outside of the Trust Account of $177,681. 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 Sponsor. 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. In addition, on August 23, 2022, an aggregate of $216,667 (the “First Extension Payment”) was deposited by into the Trust Account of the Company in order to extend the time available to it to consummate the initial business combination for a period of one (1) month from August 26, 2022 to September 26, 2022. On September 23, 2022, an aggregate of $216,667 (the “Second Extension Payment”) was deposited by into the Trust Account of the Company in order to extend the time available to it to consummate the initial Business Combination for a period of one (1) month from September 26, 2022 to October 26, 2022. As of September 30, 2022, the Company had an outstanding loan balance of $433,334. Legacy Cardio loaned the Extension Payments to the Company in order to support the Extension and caused the Extension Payments to be deposited in the Company’s Trust Account for the benefit of its public stockholders. On August 23, 2022 and September 23, 2022, the Company issued to Legacy Cardio promissory notes in the aggregate principal amount equal to the Extension Payments. The promissory notes were non-interest bearing and payable on the earlier of (a) the date that the Company consummates the Business Combination or (b) the termination of the Merger Agreement. Upon consummation of the Business Combination, the principal amount of the notes shall be converted into common stock of the Company at a conversion price of $10.00 per share and will be issuable upon conversion of such notes proportionately to Legacy Cardio stockholders at Closing. 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. Off-balance sheet financing arrangements We have no obligations, assets or liabilities, which would be considered off-balance sheet arrangements as of September 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. 21 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 provides 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. The Company did not identify any critical accounting policies. 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 Financial Statements included herein under “Part I – Item 1. Financial Statements.” 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.”