Cardio Diagnostics Holdings, Inc. — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual report, not a standalone fourth-quarter report. The company completed its merger with Mana Capital Acquisition Corp. on October 25, 2022; the transaction was accounted for as a reverse recapitalization.
Business context
Cardio Diagnostics is an early-stage diagnostics company developing AI-driven genetic and epigenetic tests. Its Epi+Gen CHD test assesses three-year coronary heart disease risk; its second test, PrecisionCHD, for early CHD detection was launched in March 2023, after year-end. The company reported only nominal sales through a telemedicine platform in 2022. It says it shifted focus toward longer-cycle partnerships with health systems, employers, providers and payors.
Financial results and liquidity
| Metric | 2022 | 2021 |
|---|---|---|
| Revenue | $950 | $901 |
| Operating expenses | $4.549 million | $621,349 |
| Net loss | $4.661 million | $620,448 |
| Cash used in operating activities | $5.091 million | $585,291 |
| Cash used in investing activities | $368,001 | $364,029 |
| Cash provided by financing activities | $9.064 million | $1.225 million |
- Revenue remained immaterial; the filing does not provide a meaningful gross margin. Net loss per share was $1.51 in 2022 versus $0.53 in 2021.
- General and administrative expense rose to $4.400 million from $470,563, primarily due to personnel, legal and accounting costs related to financing, the merger and public-company operations. Sales and marketing expense decreased to $92,700; research and development expense increased to $40,448.
- At year-end, cash was $4.118 million, current assets were $5.886 million, current liabilities were $1.948 million, and stockholders’ equity was $4.302 million. The balance sheet therefore shows positive working capital of approximately $3.938 million.
- Year-end liabilities included an $849,032 insurance-premium finance agreement payable. The company also assumed $928,500 of deferred banker obligations in the merger; after year-end, it paid Ladenburg $419,475 under an early-pay discount, while $435,000 owed to Benchmark remained payable October 25, 2023.
- After year-end, the company issued a $5.0 million Yorkville convertible debenture for $4.5 million in proceeds. A further $6.2 million debenture, for $5.58 million in proceeds, was subject to conditions. Conversion terms create potential substantial dilution, including a stated floor price of $0.55 per share.
Material changes, outlook and risks
- Loss increased by $4.041 million year over year, principally reflecting higher general and administrative expenses. Operating cash use also increased substantially.
- Mana public stockholders redeemed approximately 99.5% of shares with redemption rights, for approximately $65.311 million. Cardio received only $4,021 in cash from the trust account at closing after redemptions and transaction expenses, materially below the transaction projections. The company said reduced funding could delay or limit acquisitions and product expansion.
- Management said available cash, further financing and anticipated cash flow were expected to fund operations for at least the next 12 months, while also stating the company would continue to need outside capital. It warned 2023 revenue was likely to fall short of prior projections. No reliable quantified revenue or profit guidance is provided.
- Management plans to pursue payor coverage, strategic channel partnerships, possible laboratory acquisition and additional tests. Pipeline launch dates cited were 2023 for heart failure and stroke tests and 2024 for diabetes; these are plans, not assured outcomes. Broad coverage and reimbursement may take several years or may not be obtained.
- The company currently relies on a single high-complexity CLIA laboratory for testing. It believes its tests are laboratory-developed tests and reports that FDA premarket authorization has not been obtained; FDA oversight and potential changes to LDT regulation remain risks.
- Other key risks include limited commercial adoption, an unproven business model, continuing losses and financing needs, competition, supplier and laboratory concentration, reimbursement uncertainty, privacy and cybersecurity exposure, and potential dilution from warrants, options and convertible debt.
- Contingencies include a disputed claim by Boustead Securities for possible future fees, Benchmark’s asserted right of first refusal and discussions about its possible rights relating to the Yorkville financing, and a demand letter alleging deficient merger disclosures. No lawsuit had been filed on the demand letter as of the filing; management disputed the claims and did not expect a material financial impact.
- Management concluded disclosure controls and procedures were not effective as of December 31, 2022. The auditor issued an unqualified opinion on the financial statements but did not audit or opine on internal control effectiveness; management’s ICFR report was not included under the newly public company transition relief.
Important facts for investors to verify
- Reconcile the filing’s statement that it had negative working capital and stockholders’ deficit with the year-end balance sheet, which reports positive working capital and $4.302 million of equity.
- Confirm cash available after year-end financing, debenture conditions and repayments, and assess the resulting cash runway and conversion-related dilution.
- Track test volumes, customer and channel agreements, pricing, reimbursement progress, and evidence supporting commercial adoption and clinical claims.
- Monitor FDA and state regulatory developments, laboratory capacity and compliance, and progress toward any FDA pathway or broader payor coverage.
- Review remediation of ineffective disclosure controls and subsequent ICFR reporting, and follow developments in the disputed fees and merger-related demand letter.