Cardio Diagnostics Holdings, Inc. 10-K

Item 8. Financial Statements and Supplemental Data INDEX TO FINANCIAL STATEMENTS Page Report Independent Public Accounting Firm (PCAOB ID 273 ) F-1 Consolidated Balance Sheets as of December 31, 2022 and 2021 F-2 Consolidated Statements of Operations for the Years Ended December 31, 2022 and 2021 F-3 Consolidated Statements of Changes in Stockholders Equity (Deficiency) for the Years Ended December 31, 2022 and 2021 F-4 Consolidated Statements of Cash Flows for the Years Ended December 31, 2022 and 2021 F-5 Notes to Consolidated Financial Statements F-6 79 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Cardio Diagnostics Holdings, Inc. Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Cardio Diagnostics Holdings, Inc. (the Company) as of December 31, 2022 and 2021, and the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ Prager Metis CPA’s LLC We have served as the Company’s auditor since 2021 Hackensack, New Jersey March 31, 2023 F- 1 CARDIO DIAGNOSTICS HOLDINGS, INC. CONSOLIDATED BALANCE SHEETS DECEMBER 31, December 31, 2022 Assets Current assets: Cash $ 4,117,521 $ 512,767 Deposit for acquisition — 250,000 Accounts receivable — 901 Prepaid expenses and other current assets 1,768,366 39,839 Total current assets 5,885,887 803,507 Long-term assets Intangible assets, net 37,333 53,333 Deposits 4,950 — Patent costs 321,308 245,154 Total assets $ 6,249,478 $ 1,101,994 Liabilities and Shareholders’ Equity Current liabilities: Accounts payable and accrued expenses $ 1,098,738 $ 33,885 Finance agreement payable $ 849,032 — Total liabilities 1,947,770 33,885 Stockholder’s equity Preferred stock, $ 0.00001 par value; authorized - 100,000,000 shares; 0 shares issued and outstanding as of December 31, 2022 and 2021, respectively — — Common stock, $ 0.00001 par value; authorized - 300,000,000 shares; 9,514,743 and 1,232,324 shares issued and outstanding as of December 31, 2022 and 2021, respectively 95 Additional paid-in capital 10,293,159 2,398,547 Accumulated deficit ( 5,991,546 ) ( 1,330,561 ) Total stockholders’ equity 4,301,708 1,068,109 Total liabilities and stockholders’ equity $ 6,249,478 $ 1,101,994 See accompanying notes to the consolidated financial statements. F- 2 CARDIO DIAGNOSTICS HOLDINGS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 2022 2021 Revenue $ 950 $ 901 Operating expenses Sales and marketing 92,700 103,318 Research and development 40,448 31,468 General and administrative expenses 4,400,253 470,563 Amortization 16,000 16,000 Total operating expenses 4,549,401 621,349 Loss from operations ( 4,548,451 ) ( 620,448 ) Other expenses Acquisition related expense ( 112,534 ) — Loss fom operations before provision for income taxes ( 4,660,985 ) ( 620,448 ) Provision for income taxes — — Net loss $ ( 4,660,985 ) $ ( 620,448 ) Basic and fully diluted income (loss) per common share: Net loss per common share $ ( 1.51 ) $ ( .53 ) Weighted average common shares outstanding - basic and fully diluted 3,087,683 1,163,222 See accompanying notes to the consolidated financial statements. F- 3 CARDIO DIAGNOSTICS HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 2022 AND 2021 Additional Common stock Paid-in Accumulated Shares Amount Capital Deficit Totals Balances, December 31, 2020 3,599,712 $ 36 $ 770,442 $ ( 710,113 ) $ 60,365 Common stock issued for cash 314,489 3 1,224,997 — 1,225,000 Placement agent fee — — ( 105,000 ) — ( 105,000 ) Stock-based compensation 172,905 2 59,998 — 60,000 SAFE agreements converted to common stock 136,388 1 451,470 — 451,471 Adjustment to patent deposits contributed by shareholders — — ( 3,279 ) — ( 3,279 ) Net loss ( 620,448 ) ( 620,448 ) Balances, December 31, 2021 4,223,494 42 2,398,628 ( 1,330,561 ) 1,068,109 Common stock and warrants issued for cash 2,484,872 25 11,986,011 — 11,986,036 Placement agent fee — — ( 1,198,604 ) — ( 1,198,604 ) Recapitalization transaction costs — — ( 1,535,035 ) — ( 1,535,035 ) Warrants converted to common stock 66,465 1 ( 1 ) — — Common stock issued in merger with Mana Capital Acquisition Corp. 2,696,578 27 ( 27 ) — — Note receivable converted to common stock in merger 43,334 — ( 433,334 ) ( 433,334 ) Cash acquired in merger with Mana Capital Acquisition Corp. — — 4,021 — 4,021 Liabilities assumed in merger with Mana Capital Acquisition Corp. — — ( 928,500 ) — ( 928,500 ) Net loss ( 4,660,985 ) ( 4,660,985 ) Balances, December 31, 2022 9,514,743 $ 95 $ 10,293,159 $ ( 5,991,546 ) $ 4,301,708 See accompanying notes to the consolidated financial statements. F- 4 CARDIO DIAGNOSTICS HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31. 2022 2021 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ ( 4,660,985 ) $ ( 620,448 ) Adjustments to reconcile net loss to net cash used in operating activities Amortization 16,000 16,000 Acquisition related expense 112,534 — Stock-based compensation expense — 60,000 Adjustment to patent deposits contributed by shareholders — ( 3,279 ) Changes in operating assets and liabilities: Accounts receivable 901 ( 901 ) Prepaid expenses and other current assets ( 690,821 ) ( 31,009 ) Deposits ( 4,950 ) — Accounts payable and accrued expenses 136,353 ( 5,654 ) NET CASH USED IN OPERATING ACTIVITIES ( 5,090,968 ) ( 585,291 ) CASH FLOWS FROM INVESTING ACTIVITIES: Deposit for acquisition — ( 250,000 ) Cash acquired from acquisition 4,021 — Repayment of deposit for acquisition 137,466 — Payments for notes receivable ( 433,334 ) — Patent costs incurred ( 76,154 ) ( 114,029 ) NET CASH USED IN INVESTING ACTIVITIES ( 368,001 ) ( 364,029 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from sale of common stock 11,986,037 1,120,000 Proceeds from stock to be issued — 105,000 Payments of finance agreement ( 188,674 ) — Payments of recapitalization transaction costs ( 1,535,035 ) — Payments of placement agent fee ( 1,198,604 ) — NET CASH PROVIDED BY FINANCING ACTIVITIES 9,063,723 1,225,000 NET INCREASE IN CASH 3,604,755 275,680 CASH - BEGINNING OF YEAR 512,767 237,087 CASH - END OF YEAR $ 4,117,521 $ 512,767 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year for: Interest $ 5,829 $ — Non-cash investing and financing activities: Common stock issued for acquisition $ 754 $ — Liabilities assumed in acquisition $ 928,500 — Financing agreement entered into for prepaid insurance 1,037,706 Common stock issued for SAFE agreements — 451,471 F- 5 CARDIO DIAGNOSTICS HOLDINGS, INC. Notes to Consolidated Financial Statements Years Ended December 31, 2022 and 2021 Note 1 - Organization and Basis of Presentation The consolidated financial statements presented are those of Cardio Diagnostics Holdings, Inc., (the “Company”) and its wholly-owned subsidiary, Cardio Diagnostics, Inc. (“Legacy Cardio”). The Company was incorporated as Mana Capital Acquisition Corp. under the laws of the state of Delaware on May 19, 2021 and Legacy Cardio was formed on January 16, 2017 as an Iowa limited liability company (Cardio Diagnostics, LLC) and was subsequently incorporated as a Delaware C-Corp on September 6, 2019. The Company was formed to develop and commercialize a patent-pending Artificial Intelligence (“AI”)-driven DNA biomarker testing technology (“Core Technology”) for cardiovascular disease invented at the University of Iowa by the Founders, with the goal of becoming one of the leading medical technology companies for enabling precision prevention, early detection and treatment of cardiovascular disease. The Company is transforming the approach to cardiovascular disease from reactive to proactive. The Core Technology is being incorporated into a series of products for major types of cardiovascular disease and associated co-morbidities including coronary heart disease (CHD), stroke, heart failure and diabetes. Business Combination On October 25, 2022, pursuant to a Merger Agreement, Mana Capital Acquisition Corp. (“Mana”), a special purpose acquisition company incorporated under the laws of the state of Delaware merged with and into the Company, with the Company surviving the merger as a wholly-owned subsidiary of Mana Capital. Subsequent to the merger, Mana changed its name to Cardio Diagnostics Holdings Inc. Note 2 – Merger Agreement and Reverse Recapitalization As discussed in Note 1, on October 25, 2022, the Company and Mana entered into the Merger Agreement, which has been accounted for as a reverse recapitalization in accordance with GAAP. Pursuant to the Merger Agreement, the Company acquired cash of $ 4,021 and assumed liabilities of $ 928,500 from Mana. The liabilities assumed of $928,500 are payable to two investment bankers and due on October 25, 2023. Mana’s common stock had a redemption right in connection with the business combination. Mana’s stockholders exercised their right to redeem 6,465,452 shares of common stock, which constituted approximately 99.5 % of the shares with redemption rights, for cash at a redemption price of approximately $ 10.10 per share, for an aggregate redemption amount of $ 65,310,892 . In accounting for the reverse recapitalization, the Company’s legacy issued and outstanding 1,976,749 common shares were reversed and the Mana common shares totaling 9,514,743 were recorded, as described in Note 7. Transactions costs incurred in connection with the recapitalization totaled $ 1,535,035 and were recorded as a reduction to additional paid in capital. As additional consideration for the transaction, Cardio will issue to each holder who was entitled to merger consideration at the Closing, its pro rata proportion of up to 1,000,000 shares of our authorized but unissued common stock (the “Earnout Shares” or “Contingently Issuable Common Stock”), if on or prior to the fourth anniversary of the Closing Date (the “Earnout Period”), the VWAP of the Company’s Common Stock equals or exceeds four different price triggers for 30 of any 40 consecutive trading days, as follows: (i) one-quarter of the Earnout Shares will be issued if the VWAP equals or exceeds $12.50 per share for the stated period; (ii) one-quarter of the Earnout Shares will be issued if the VWAP equals or exceeds $15.00 per share for the stated period; (iii) one-quarter of the Earnout Shares will be issued if the VWAP equals or exceeds $17.50 for the stated period; and (iv) one-quarter of the Earnout Shares will be issued if the VWAP equals or exceeds $20.00 for the stated period. In evaluating the accounting treatment for the earnout, we have concluded that the earnout is not a liability under Accounting Standards Codification (“ASC”) 480, Distinguishing Liabilities from Equity, is not subject to the accounting guidance under ASC 718, Compensation—Stock Compensation, and is not subject to derivative accounting under ASC 815, Derivative and Hedging. As such, the earnout is recognized in equity at fair value upon the closing of the Business Combination. As of the date of filing of this Annual Report on Form 10-K, the Company’s common stock did not trade at equal to or greater than $12.50 for a period of at least 30 trading days out of 40 consecutive trading days and the Company has not issued any Earnout Shares. F- 6 Note 3 – Summary of Significant Accounting Policies Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary Cardio Diagnostics, LLC. All intercompany accounts and transactions have been eliminated. Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. Fair Value Measurements The Company adopted the provisions of ASC Topic 820, Fair Value Measurements and Disclosures, which defines fair value as used in numerous accounting pronouncements, establishes a framework for measuring fair value and expands disclosure of fair value measurements. The estimated fair value of certain financial instruments, including cash and cash equivalents, accounts payable and accrued expenses are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments. The carrying amounts of our short- and long-term credit obligations approximate fair value because the effective yields on these obligations, which include contractual interest rates taken together with other features such as concurrent issuances of warrants and/or embedded conversion options, are comparable to rates of returns for instruments of similar credit risk. ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value: Level 1 – quoted prices in active markets for identical assets or liabilities Level 2 – quoted prices for similar assets and liabilities in active markets or inputs that are observable Level 3 – inputs that are unobservable (for example cash flow modeling inputs based on assumptions) Revenue Recognition The Company will host its product, Epi+Gen CHD™ on InTeleLab’s Elicity platform (“the Lab”). The Lab collects payments from patients upon completion of eligibility screening. Patients then send their samples to MOgene, a high complexity CLIA lab, which perform the biomarker assessments. Upon receipt of the raw biomarker data from MOgene, the Company performs all quality control, analytical assessments and report generation and shares test reports with the Elicity healthcare provider via the Elicity platform. Revenue is recognized upon receipt of payments from the Lab for each test at the end of each month. The Company will account for revenue under (“ASU”) 2014-09, “Revenue from Contracts with Customers (Topic 606)”, using the modified retrospective method. The modified retrospective adoption used by the Company did not result in a material cumulative effect adjustment to the opening balance of accumulated deficit. The Company determines the measurement of revenue and the timing of revenue recognition utilizing the following core principles: 1. Identifying the contract with a customer; 2. Identifying the performance obligations in the contract; 3. Determining the transaction price; 4. Allocating the transaction price to the performance obligations in the contract; and 5. Recognizing revenue when (or as) the Company satisfies its performance obligations. F- 7 Research and Development Research and development costs are expensed as incurred. Research and development costs charged to operations for the years ended December 31, 2022 and 2021 were $ 40,448 and $ 31,468 , respectively. Advertising Costs The Company expenses advertising costs as incurred. Advertising costs of $ 92,700 and $ 103,318 were charged to operations for the years ended December 31, 2022 and 2021, respectively. Cash and Cash Equivalents Cash and cash equivalents are comprised of cash and highly liquid investments with original maturities of 90 days or less at the date of purchase. The Company does no t have any cash equivalents as of December 31, 2022 and 2021. Cash is maintained at a major financial institution. Accounts held at U.S. financial institutions are insured by the FDIC up to $ 250,000 . The Company is exposed to credit risk in the event of default by the financial institutions or the issuers of these investments to the extent the amounts on deposit or invested are in excess of amounts that are insured. Patent Costs The Company accounts for patents in accordance with ASC 350-30, General Intangibles Other than Goodwill . The Company capitalizes patent costs representing legal fees associated with filing patent applications and amortize them on a straight-line basis. The Company are in the process of evaluating its patents' estimated useful life and will begin amortizing the patents when they are brought to the market or otherwise commercialized. Long-Lived Assets The Company assesses the valuation of components of its property and equipment and other long-lived assets whenever events or circumstances dictate that the carrying value might not be recoverable. The Company bases its evaluation on indicators such as the nature of the assets, the future economic benefit of the assets, any historical or future profitability measurements and other external market conditions or factors that may be present. If such factors indicate that the carrying amount of an asset or asset group may not be recoverable, the Company determines whether an impairment has occurred by analyzing an estimate of undiscounted future cash flows at the lowest level for which identifiable cash flows exist. If the estimate of undiscounted cash flows during the estimated useful life of the asset is less than the carrying value of the asset, the Company recognizes a loss for the difference between the carrying value of the asset and its estimated fair value, generally measured by the present value of the estimated cash flows. Stock-Based Compensation The Company 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. F- 8 Income Taxes The Company accounts for income taxes using the asset and liability method in accordance with ASC Topic No. 740, Income Taxes . Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities, and are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. The Company applies the provisions of ASC Topic No. 740 for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in the Company’s financial statements . In accordance with this provision, tax positions must meet a more-likely-than-not recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position. Recent Accounting Pronouncements We have reviewed other recent accounting pronouncements and concluded they are either not applicable to the business, or no material effect is expected on the condensed consolidated financial statements as a result of future adoption. Note 4 – Intangible Assets The following tables provide detail associated with the Company’s acquired identifiable intangible assets: Schedule of intangible assets As of December 31, 2022 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Weighted Average Useful Life (in years) Amortized intangible assets: Know-how license $ 80.000 $ ( 42,667 ) $ 37,333 5 Total $ 80.000 $ ( 42,667 ) $ 37,333 Amortization expense charged to operations was $ 16,000 for the years ended December 31, 2022 and 2021, respectively. Note 5 – Patent Costs As of December 31, 2022, the Company has three pending patent applications. The initial patent applications consist of a US patent and international patents filed in six countries. The US patent was granted on August 16, 2022. The EU patent was granted on March 31, 2021. The validation of the EU patent in each of the six countries is pending. Legal fees associated with the patents totaled $ 321,308 and $ 245,154 as of December 31, 2022 and 2021, respectively and are presented in the balance sheet as patent costs. F- 9 Note 6 – Finance Agreement Payable On October 31, 2022, the Company entered into an agreement with a premium financing company to finance its Directors and Officers insurance premiums for 12-month policies effective October 25, 2022. The amount financed of $ 1,037,706 is payable in 11 monthly installments plus interest at a rate of 6.216 % through September 28, 2023 . Finance agreement payable was $ 849,032 at December 31, 2022. $ 926,658 has been recorded in prepaid expenses and is being amortized over the life of the policy. Note 7 – Earnings (Loss) Per Common Share The Company calculates net income (loss) per common share in accordance with ASC 260 “ Earnings Per Share ” (“ASC 260”). Basic and diluted net earnings (loss) per common share was determined by dividing net earnings (loss) applicable to common stockholders by the weighted average number of common shares outstanding during the period. The Company’s potentially dilutive shares, which include outstanding common stock options, common stock warrants, and convertible debt have not been included in the computation of diluted net loss per share for the years ended December 31, 2022 and 2021 as the result would be anti-dilutive. Schedule of anti dilutive earning per share Years Ended December 31, 2022 2021 Stock warrants 7,954,620 114,924 Stock options 3,256,383 — Total shares excluded from calculation 11,211,003 114,924 Note 8 – Stockholders’ Equity Stock Transactions Pursuant to the Business Combination Agreement on October 25, 2022, the Company issued the following securities: Holders of conversion rights issued as a component of units in Mana’s initial public offering (the “Public Rights”) were issued an aggregate of 928,571 shares of the Company’s common stock; Holders of existing shares of common stock of Legacy Cardio and the holder of equity rights of Legacy Cardio (together, the “Legacy Cardio Stockholders”) received an aggregate of 6,883,306 shares of the Company’s Common Stock, calculated based on the exchange ratio of 3.427259 pursuant to the Merger Agreement (the “Exchange Ratio”) for each share of Legacy Cardio Common Stock held or, in the case of the equity rights holder, that number of shares of the Company’s Common Stock equal to 1% of the Aggregate Closing Merger Consideration, as defined in the Merger Agreement; The Legacy Cardio Stockholders received, in addition, an aggregate of 43,334 shares of the Company’s Common Stock (“Conversion Shares”) upon conversion of an aggregate of $ 433,334 in principal amount of promissory notes issued by Mana to Legacy Cardio in connection with its loan of such amount in order to extend Mana’s duration through October 26, 2022 (the “Extension Notes”), which Conversion Shares were distributed to the Legacy Cardio Stockholders in proportion to their respective interest in Legacy Cardio. Mana public stockholders (excluding Mana Capital, LLC, the SPAC sponsor (the “Sponsor”), and Mana’s former officers and directors) own 34,548 shares of the Company’s Common Stock and the Sponsor, Mana’s former officers and directors and certain permitted transferees own 1,625,000 shares of the Company’s Common Stock. Immediately after giving effect to the Business Combination, there were 9,514,743 issued and outstanding shares of the Company’s Common Stock. F- 10 On October 25, 2022, in connection with the approval of the Business Combination, the Company’s stockholders approved the Cardio Diagnostics Holdings, Inc. 2022 Equity Incentive Plan (the “2022 Plan”). The purpose of the 2022 Plan is to promote the interests of the Company and its stockholders by providing eligible employees, officers, directors and consultants with additional incentives to remain with the Company and its subsidiaries, to increase their efforts to make the Company more successful, to reward such persons by providing an opportunity to acquire shares of Common Stock on favorable terms and to attract and retain the best available personnel to participate in the ongoing business operations of the Company. The 2022 Plan permits the grant of Incentive Stock Options, Nonstatutory Stock Options, Restricted Stock, Restricted Stock Units, Stock Appreciation Rights, Performance Units and Performance Shares. The 2022 Plan, as approved, permits the issuance of up to 3,256,383 shares of Common Stock (the “Share Reserve”) upon exercise or conversion of grants and awards made from time to time to officers, directors, employees and consultants, however that the Share Reserve will increase on January 1st of each calendar year and ending on and including January 1, 2027 (each, an “Evergreen Date”), in an amount equal to the lesser of (i) 7% of the total number of shares of Common Stock outstanding on the December 31st immediately preceding the applicable Evergreen Date and (ii) such lesser number of shares of Common Stock as determined to be appropriate by the Compensation Committee, which administers the 2022 Plan, in its sole discretion. There was no increase in the Share Reserve on January 1, 2023. Common Stock Issued The Company sold 744,425 common shares to various investors for proceeds totaling $ 11,986,036 during the year ended December 31, 2022. The Company paid the placement agent $ 1,198,604 in cash and issued 214,998 warrants. In connection with a private offering memorandum that the Company issued through a placement agent on April 12, 2021, the Company sold 91,761 common shares valued at $13.35 per share to various investors for proceeds totaling $ 1,225,000 during the year ended December 31, 2021. The Company paid the placement agent $ 105,000 in cash and issued 23,596 warrants. On March 10, 2021, the Company issued 50,450 common shares to various consultants for services, valued at $ 60,000 . On March 15, 2021, the investors converted their SAFE agreements to 39,786 common shares, valued at $ 451,471 . Warrants On October 1, 2019, the Company issued warrants to a seed funding firm equivalent to 2% of the fully-diluted equity of the Company, or 22,500 common shares at the time of issuance. The warrant is exercisable on the earlier of the closing date of the next Qualified Equity Financing occurring after the issuance of the warrant, and immediately before a Change of Control. The exercise price is the price per share of the shares sold to investors in the next Qualified Equity Financing, or if the warrant becomes exercisable in connection with a Change in Control before the next Qualified Equity Financing, the greater of the quotient obtained by dividing $ 150,000 by the Pre-financing Capitalization, and the price per share paid by investors in the then-most recent Qualified Equity Financing, if any. The warrant will expire upon the earlier of the consummation of any Change of Control, or 15 years after the issuance of the warrant. In April and May 2022, the Company issued fully vested warrants to investors as part of private placement subscription agreements pursuant to which the Company issued common stock. Each shareholder received warrants to purchase 50% of the common stock issued at an exercise price of $ 3.90 per share with an expiration date of June 30, 2027 . From May 23, 2022 through September 2022, the Company issued fully vested warrants to investors as part of an additional private placement subscription agreements pursuant to which the Company issued common stock. Each shareholder received warrants to purchase 50% of the common stock issued at an exercise price of $ 6.21 per share with an expiration date of five years from the date of issue. F- 11 Warrant activity during the years ended December 31, 2022 and 2021 follows: Schedule of warrant activity Weighted Average Remaining Warrants Outstanding Average Exercise Price Contractual Life (Years) Warrants outstanding at December 31, 2020 52,000 $ 13.35 13.76 Warrants granted 62,924 13.35 Warrants outstanding at December 31, 2021 114,924 13.35 5.90 Warrants granted 1,988,973 4.84 Warrants received in merger 5,749,993 11.50 Merger adjustment to prior year 152,730 3.90 Warrants exercised ( 52,000 ) 13.35 Warrants outstanding at December 31, 2022 7,954,620 $ 9.63 4.46 Options In May 2022, the Legacy Cardio granted 513,413 stock options to officers, directors and employees pursuant to the Cardio Diagnostics, Inc. 2022 Equity Incentive Plan. All of the options granted under this legacy plan were exchanged for options under the 2022 Plan adopted by the Company’s stockholders on October 25, 2022, and based on the exchange ratio for the merger, resulted in a total of 1,759,599 options issued upon closing. Each exchanged option has an exercise price of $ 3.90 per share with an expiration date of May 6, 2032 . The exchanged options fully vested upon the merger with Mana. Note 9 - Income Taxes The reconciliation between income tax expense computed by applying the federal statutory corporate tax rate and actual income tax expense (benefit) for the year ended December 31, 2022 is as follows: Schedule of effective income tax rate reconciliation Statutory U.S. federal income tax rate ( 21.0 )% Change in Valuation Allowance 21.0 % Effective tax rate 0.0 % F- 12 At December 31, the significant components of the deferred tax assets (liabilities) are summarized below: Schedule of deferred income tax assets 2022 2021 Deferred Tax Assets: Net Operating Losses $ 1,611,487 $ 146,578 Other 1,962 — Stock-based compensation 186,611 197,895 Total deferred tax assets 1,800,060 344,473 Deferred Tax Liabilities — — Valuation Allowance ( 1,800,060 ) ( 344,473 ) Net deferred tax assets $ — $ — As of December 31, 2022, the Company had federal net operating loss carryforwards of approximately $ 5.3 million which may be carried forward indefinitely, and state net operating loss carryforwards of approximately $ 5.3 million which expire at various dates from 2040 through 2042. These net operating loss carryforwards may be used to offset future taxable income and thereby reduce the Company’s U.S. federal income taxes. The net operating losses may be subject to limitation under Internal Revenue Code Section 382 should there be a greater than 50 % change in ownership as determined under the regulations. In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based on the assessment, management has established a full valuation allowance against all of the deferred tax assets for every period because it is more likely than not that all of the deferred tax assets will not be realized. In accordance with ASC 740, a valuation allowance must be established if it is more likely than not that the deferred tax assets will not be realized. This assessment is based upon consideration of available positive and negative evidence, which includes, among other things, the Company’s most recent results of operations and expected future profitability. Based on the Company’s cumulative losses in recent years, a full valuation allowance against the Company’s deferred tax assets as of December 31, 2022 has been established as Management believes that the Company will not more likely than not realize the benefit of those deferred tax assets. Therefore, no tax provision has been recorded for the year ended December 31, 2022. The Company complies with the provisions of ASC 740-10 in accounting for its uncertain tax positions. ASC 740-10 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC 740-10, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely that not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. Management has determined that the Company has no significant uncertain tax positions requiring recognition under ASC 740-10. The Company is subject to income tax in the U.S., and certain state jurisdictions. The Company has not been audited by the U.S. Internal Revenue Service, or any states in connection with income taxes. The Company’s tax years generally remain open to examination for all federal and state income tax matters until its net operating loss carryforwards are utilized and the applicable statutes of limitation have expired. The federal and state tax authorities can generally reduce a net operating loss (but not create taxable income) for a period outside the statute of limitations in order to determine the correct amount of net operating loss which may be allowed as a deduction against income for a period within the statute of limitations. F- 13 The Company recognizes interest and penalties related to unrecognized tax benefits, if incurred, as a component of income tax expense. No interest or penalties have been recorded for the years ended December 31, 2022 and 2021, respectively. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, permits NOL carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021. In addition, the CARES Act allows NOL’s incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. The Company is currently evaluating the impact of the CARES Act, but at present does not expect that the NOL carryback provision of the CARES Act would result in a material cash benefit to us. Note 10 – Commitments and Contingencies Deposit For Acquisition On April 14, 2021, the Company deposited $ 250,000 with an escrow agent in connection with a planned business acquisition. The Company subsequently decided to terminate the acquisition and recorded expenses of $ 112,534 in connection with the termination and is presented as other expenses in the consolidated statements of operations. The remaining escrow balance of $ 137,466 was returned to the Company on July 26, 2022. Prior Relationship of Cardio with Boustead Securities, LLC At the commencement of efforts to pursue what ultimately ended in the terminated business acquisition referred to above under “Deposit for 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. F- 14 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, 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. In this regard, the Company and Benchmark are in discussions regarding the convertible debenture financing the Company entered into in March 2023 whether Benchmark might have any rights arising from the Company having entered into the convertible debenture financing in March 2023. No legal proceedings have been instigated, and the parties are continuing to discuss a resolution to this matter. 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 2023, the SEC completed its review and declared the S-4 registration statement 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. 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. 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. F- 15 Note 11 - Related Party Transactions The Company reimburses Behavioral Diagnostic, LLC (“BDLLC”), a company owned by its Chief Medical Officer for salaries of the Company’s CEO and its senior data scientist, who is the husband of the CEO. Payments to BDLLC for salaries totaled $ 0 and $ 79,920 for the years ended December 31, 2022 and 2021, respectively. Note 12 – Subsequent Events The Company evaluated its December 31, 2022 consolidated financial statements for subsequent events through the date the consolidated financial statements were issued. Securities Issued On March 2, 2023, a stockholder exercised warrants for 100,000 common shares for total proceeds of $ 390,000 . On March 8, 2023, the Company entered into a securities purchase agreement (“Securities Purchase Agreement”) with YA II PN, Ltd., an investment fund managed by Yorkville Advisors Global, LP (“Yorkville”) under which the Company agreed to sell and issue to Yorkville convertible debentures (“Convertible Debentures”) in a gross aggregate principal amount of up to $ 11.2 million (“Subscription Amount”). The Convertible Debentures are convertible into common shares of the Company and are subject to various contingencies being satisfied as set forth in the Securities Purchase Agreement. The Company received 90 % of the proceeds, with a $ 5 million convertible debenture being entered into at the initial closing of which the Company received $ 4.5 million. Prepayment of Deferred Contractual Obligation On March 27, 2023, the Company accepted an early pay discount offered by one of its investment bankers with respect to a deferred payment obligation incurred by Mana in connection with its initial public offering and paid that investment banker the net balance due and payable of $ 419,475 . F- 16 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.