Cardio Diagnostics (CDIO) - 2023 Q1 - Quarterly Report

Part I Part I — Financial Information This section presents the unaudited financial statements, management's discussion and analysis, and disclosures on controls and market risks for the reporting period Financial Statements (unaudited) The company presents its unaudited condensed consolidated financial statements for the quarter ended March 31, 2023, reflecting a net loss of $1.03 million and a cash position of $6.7 million Condensed Consolidated Balance Sheets The condensed consolidated balance sheets present the company's financial position, showing total assets of $8.55 million and total liabilities of $5.13 million as of March 31, 2023 Condensed Consolidated Balance Sheet Summary (unaudited) | Account | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash | $6,707,770 | $4,117,521 | | Total current assets | $8,138,031 | $5,885,887 | | Total assets | $8,551,611 | $6,249,478 | | Liabilities & Equity | | | | Total liabilities | $5,129,496 | $1,947,770 | | Total stockholders' equity | $3,422,115 | $4,301,708 | | Total liabilities and stockholders' equity | $8,551,611 | $6,249,478 | Condensed Consolidated Statements of Operations The condensed consolidated statements of operations report a net loss of $1.03 million for the three months ended March 31, 2023, with no revenue generated Condensed Consolidated Statement of Operations (unaudited) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Revenue | $0 | $0 | | Total operating expenses | $1,703,129 | $232,555 | | Net loss | $(1,032,618) | $(290,055) | | Net loss per common share | $(0.11) | $(0.07) | | Weighted average common shares outstanding | 9,547,177 | 4,223,494 | Condensed Consolidated Statements of Cash Flows The condensed consolidated statements of cash flows show a net increase in cash of $2.59 million for the three months ended March 31, 2023, primarily from financing activities Condensed Consolidated Statement of Cash Flows Summary (unaudited) | Cash Flow Activity | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | $(1,649,067) | $(186,090) | | Net cash used in investing activities | $(52,674) | $(16,436) | | Net cash provided by financing activities | $4,291,990 | $0 | | Net increase (decrease) in cash | $2,590,249 | $(202,526) | | Cash - End of period | $6,707,770 | $310,241 | Notes to Financial Statements The notes provide detailed information on significant accounting policies, recent business combinations, convertible debenture financing, and various commitments and contingencies - The company completed a business combination with Mana Capital Acquisition Corp. on October 25, 2022, accounted for as a reverse recapitalization, with Legacy Cardio as the accounting acquirer[54][55] - On March 8, 2023, the company issued a convertible debenture to Yorkville (YA II PN, Ltd.) for a principal amount of $5.0 million, yielding $4.5 million in net proceeds after a $500,000 original issue discount[100][102] - The convertible note's conversion feature was bifurcated and recorded as a derivative liability at a fair value of $9.19 million at inception, with the $4.69 million excess over face value recognized as interest expense[104][63] - The company faces several commitments and contingencies, including a right of first refusal for future offerings, a dispute with a former placement agent, and a demand letter regarding S-4 Registration Statement disclosures[108][110][112] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance, highlighting a net loss of $1.03 million for Q1 2023, primarily due to increased general and administrative expenses, with liquidity boosted by a $4.5 million convertible debenture financing Overview and Strategy Cardio's primary objective is to develop and commercialize AI-driven, epigenetics-based clinical tests for cardiovascular diseases, supported by a growth strategy focused on new products and market expansion - Cardio's primary objective is to develop and commercialize AI-driven, epigenetics-based clinical tests for cardiovascular diseases such as coronary heart disease, stroke, and heart failure[119] - The company's growth strategy focuses on developing new products, building clinical evidence for payer reimbursement, expanding its laboratory network, and pursuing synergistic acquisitions[126] Results of Operations The results of operations show a net loss of $1.03 million for Q1 2023, primarily driven by increased general and administrative expenses and partially offset by a non-cash gain from derivative liability Results of Operations Comparison (Q1 2023 vs Q1 2022) | Line Item | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Revenue | $0 | $0 | | Sales and marketing | $49,551 | $22,398 | | Research and development | $86,665 | $1,130 | | General and administrative | $1,562,128 | $205,027 | | Net Loss | $(1,032,618) | $(290,055) | - General and administrative expenses increased by $1.36 million year-over-year, mainly due to higher personnel, legal, and accounting costs as a public company and for financing activities[136] - Total other income was $670,511, primarily from a $5.69 million non-cash gain on derivative liability fair value change, partially offset by $5.02 million in mostly non-cash interest expense[138] Liquidity and Capital Resources The company's liquidity was primarily boosted by a $4.5 million convertible debenture, but it faces an ongoing need for additional capital due to minimal proceeds from the business combination and expected low warrant exercise cash - The company's principal liquidity source was a $5.0 million convertible debenture, yielding $4.5 million in cash, with an additional $6.2 million debenture planned for Q2 2023 pending approval[141] - The Business Combination yielded only $4,021 in cash due to a ~99.5% redemption rate, delaying growth and acquisition strategies[123][145] - The company has an ongoing need to raise additional capital to fund operations and expansion, having incurred losses since inception[147][149] - Management does not expect significant cash proceeds from warrant exercises, as the current stock price is well below the $3.90 to $11.50 per share exercise prices[150] Critical Accounting Policies The company's critical accounting policies involve significant judgments and estimates in areas such as fair value measurements, revenue recognition, patent costs, and stock-based compensation - The company's critical accounting policies involve significant judgments and estimates, particularly in Fair Value Measurements, Revenue Recognition, Patent Costs, and Stock-Based Compensation[171][174][178][180] Quantitative and Qualitative Disclosures About Market Risk The company is not required to provide quantitative and qualitative disclosures about market risk as it qualifies as a "smaller reporting company" - The company is not required to provide quantitative and qualitative disclosures about market risk as it qualifies as a "smaller reporting company" under SEC rules[182] Controls and Procedures Management concluded that the company's disclosure controls and procedures were not effective as of the end of the quarter, with no material changes to internal control over financial reporting - Based on an evaluation as of the end of the quarter, the company's principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were not effective[182] - There were no changes in the company's internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[185] Part II Part II — Other Information This section covers legal proceedings, risk factors, unregistered sales of equity, defaults, other information, and a list of exhibits Legal Proceedings As of March 31, 2023, the company is not involved in any material legal proceedings impacting its ongoing operations - As of March 31, 2023, the company is not involved in any material legal proceedings[188] Risk Factors The company highlights significant risks of potential dilution from future issuance of a large number of common shares, including those from warrants, options, and convertible debentures, which could depress stock price - Future sales of a large number of common shares in the public market, or the perception thereof, could cause the stock price to decline, with several effective registration statements covering millions of shares for resale and warrant exercise[190][191][193] - A significant number of shares are subject to issuance upon the exercise of outstanding warrants and options, and the conversion of convertible debentures, potentially causing substantial dilution to existing security holders[1][5] Outstanding Dilutive Securities | Security Type | Number of Shares/Units | Exercise/Conversion Price Range | | :--- | :--- | :--- | | Public Warrants | 3,249,993 | $11.50 | | Sponsor Warrants | 2,500,000 | $11.50 | | Exchanged Options | 1,759,600 | $3.90 | | Legacy Private Placement Warrants | 2,104,627 | $3.90 - $6.21 | | Convertible Debentures (Principal) | $11.2 million (potential total) | Variable, based on stock price | Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities or use of proceeds during the reporting period - No unregistered sales of equity securities or use of proceeds were reported[7] Defaults upon Senior Securities The company reported no defaults upon senior securities during the period - No defaults upon senior securities were reported[8] Other Information The company reported no other material information for the period - No other information was reported[8] Exhibits This section lists exhibits filed with the Quarterly Report, including the Agreement and Plan of Merger, corporate governance documents, warrant agreements, and convertible debenture financing agreements - The report includes a list of exhibits filed or incorporated by reference, such as the Agreement and Plan of Merger, corporate governance documents, warrant agreements, convertible debenture agreements, and Officer Certifications[10][6]