UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

☒     Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended June 30, 2024

 

OR

 

☐     Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Commission File No. 001-38677

 

Catheter Precision, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware

 

38-3661826

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

 

 

 

1670 Highway 160 West, Suite 205

Fort Mill, South Carolina

 

29708

(Address of principal executive offices)

 

(Zip Code)

 

(973) 691-2000

(Registrant’s telephone number, including area code)

 

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

Securities Registered under Section 12(b) of the Act:

 

Title of each class:

 

Trading Symbol(s)

 

Name of each exchange on

which registered:

Common stock, par value $0.0001 per share

 

VTAK

 

NYSE American

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days Yes ☒     No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒     No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated Filer

☒

Smaller reporting company

☒

 

 

Emerging growth company

☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act). Yes ☐    No ☒

 

As of the close of business on August 9, 2024, the registrant had 988,752 shares of common stock, par value $0.0001 per share, outstanding.

 

 

 

 

CATHETER PRECISION, INC.

QUARTERLY REPORT ON FORM 10-Q

 

TABLE OF CONTENTS

 

 

 

Page(s)

 

 

 

 

PART I. FINANCIAL INFORMATION.

 

 

 

 

 

 

ITEM 1.

FINANCIAL STATEMENTS.

 

3

 

 

Condensed Consolidated Balance Sheets as of June 30, 2024 (Unaudited) and December 31, 2023

 

3

 

 

Condensed Consolidated Statements of Operations (Unaudited) for the Six Months Ended June 30, 2024 and 2023

 

4

 

 

Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) for the Six Months Ended June 30, 2024 and 2023

 

5

 

 

Condensed Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 2024 and 2023

 

6

 

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

7

 

 

 

 

 

 

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

35

 

 

 

 

 

 

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

48

 

 

 

 

 

 

ITEM 4.

CONTROLS AND PROCEDURES.

 

48

 

 

 

 

 

 

PART II. OTHER INFORMATION.

 

 

 

 

 

 

ITEM 1.  

LEGAL PROCEEDINGS.

 

50

 

 

 

 

 

 

ITEM 1A .

RISK FACTORS

 

50

 

 

 

 

 

 

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

 

50

 

 

 

 

 

 

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES.

 

50

 

 

 

 

 

 

ITEM 4.

MINE SAFETY DISCLOSURES.

 

50

 

 

 

 

 

 

ITEM 5.

OTHER INFORMATION.

 

50

 

 

 

 

 

 

ITEM 6.

EXHIBITS.

 

51

 

 

 

 

 

 

 

SIGNATURES

 

54

 

 

 
2

Table of Contents

 

PART I. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

CATHETER PRECISION, INC.

Condensed Consolidated Balance Sheets

(in thousands, except share data)

 

 

 

 

June 30, 2024

 

 

December 31, 2023

 

 

 

(Unaudited)

 

 

 

ASSETS

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

Cash and cash equivalents

 

$16

 

 

$3,565

 

Accounts receivable

 

 

105

 

 

 

137

 

Inventories

 

 

63

 

 

 

44

 

Prepaid expenses and other current assets

 

 

204

 

 

 

415

 

Total current assets

 

 

388

 

 

 

4,161

 

Property and equipment, net

 

 

111

 

 

 

70

 

Lease right-of-use assets

 

 

149

 

 

 

179

 

Intangible assets, net

 

 

25,296

 

 

 

26,318

 

Deferred financing costs

 

 

 309

 

 

 

 —

 

Other non-current assets

 

 

8

 

 

 

8

 

TOTAL ASSETS

 

$26,261

 

 

$30,736

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$827

 

 

$464

 

Accrued expenses

 

 

1,734

 

 

 

1,733

 

Notes payable

 

 

—

 

 

 

184

 

Notes payable due to related parties

 

 

650

 

 

 

—

 

Interest payable to related parties

 

 

4

 

 

 

—

 

     Current portion of royalties payable

 

 

 7

 

 

 

—

 

Current portion of operating lease liabilities

 

 

96

 

 

 

91

 

Total current liabilities

 

 

3,318

 

 

 

2,472

 

Royalties payable

 

 

8,564

 

 

 

6,974

 

Operating lease liabilities

 

 

62

 

 

 

97

 

Total liabilities

 

 

11,944

 

 

 

9,543

 

Commitments and contingencies (see Note 17)

 

 

 

 

 

 

 

 

Stockholders' Equity

 

 

 

 

 

 

 

 

Preferred Stock, $0.0001 par value, 10,000,000 shares authorized

 

 

 

 

 

 

 

 

Series A Convertible Preferred Stock, $0.0001 par value, 7,203 shares designated; 3,703 and 4,578 shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively

 

 

—

 

 

 

—

 

Series X Convertible Preferred Stock, $0.0001 par value, 15,404 shares designated; 12,656 shares issued and outstanding as of June 30, 2024 and December 31, 2023

 

 

—

 

 

 

—

 

Common stock, $0.0001 par value, 30,000,000 shares authorized; 757,340 and 702,662 shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively

 

 

—

 

 

 

—

 

Additional paid-in capital

 

 

296,921

 

 

 

296,902

 

Accumulated deficit

 

 

(282,604)

 

 

(275,709)

Total stockholders' equity

 

 

14,317

 

 

 

21,193

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$26,261

 

 

$30,736

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 
3

Table of Contents

 

CATHETER PRECISION, INC.  

Condensed Consolidated Statements of Operations

(in thousands, except shares and per share data)

(Unaudited)

 

 

 

For the Three Months Ended June 30,

 

 

For the Six Months Ended June 30,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Revenue

 

$93

 

 

$96

 

 

$175

 

 

$181

 

Cost of revenues

 

 

16

 

 

 

7

 

 

 

21

 

 

 

17

 

Gross profit

 

 

77

 

 

 

89

 

 

 

154

 

 

 

164

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss on impairment of goodwill

 

 

—

 

 

 

4,848

 

 

 

—

 

 

 

60,934

 

Selling, general and administrative

 

 

2,713

 

 

 

1,415

 

 

 

5,369

 

 

 

11,648

 

Research and development

 

 

81

 

 

 

134

 

 

 

118

 

 

 

374

 

Total operating expenses

 

 

2,794

 

 

 

6,397

 

 

 

5,487

 

 

 

72,956

 

Operating loss

 

 

(2,717)

 

 

(6,308)

 

 

(5,333)

 

 

(72,792)

Other income (expense), net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

2

 

 

 

119

 

 

 

32

 

 

 

188

 

Other income (expense), net

 

 

(1)

 

 

(4)

 

 

(4)

 

 

11

 

Change in fair value of royalties payable

 

 

(1,504)

 

 

4,617

 

 

 

(1,590)

 

 

4,617

 

Total other income (expense), net

 

 

(1,503)

 

 

4,732

 

 

 

(1,562)

 

 

4,816

 

Net loss

 

$(4,220)

 

$(1,576)

 

$(6,895)

 

$(67,976)

Deemed dividend - warrant inducement offer

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(800)

Net loss attributable to common stockholders

 

$(4,220)

 

$(1,576)

 

$(6,895)

 

$(68,776)

Net loss per share attributable to common stockholders, basic and diluted

 

$(5.57)

 

$(2.94)

 

$(9.19)

 

$(169.70)

Weighted average common shares used in computing net loss per share, basic and diluted

 

 

757,340

 

 

 

536,438

 

 

 

750,130

 

 

 

405,270

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 
4

Table of Contents

 

CATHETER PRECISION, INC.

Condensed Consolidated Statements of Stockholders' Equity

(in thousands, except share data)

(Unaudited)

 

 

 

Series A Convertible

Preferred Stock

 

 

Series X Convertible

Preferred Stock

 

 

Common Stock

 

 

Additional Paid-In

 

 

Accumulated

 

 

Total Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

 Deficit

 

 

Equity

 

Balance at December 31, 2023

 

 

4,578

 

 

$—

 

 

 

12,656

 

 

$—

 

 

 

702,662

 

 

$—

 

 

$296,902

 

 

$(275,709)

 

$21,193

 

Stock-based compensation

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

6

 

 

 

—

 

 

 

6

 

Conversion of Series A Convertible Preferred Stock

 

 

(875)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

54,678

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Net loss

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(2,675)

 

 

(2,675)

Balance at March 31, 2024

 

 

3,703

 

 

 

—

 

 

 

12,656

 

 

 

—

 

 

 

757,340

 

 

 

—

 

 

 

296,908

 

 

 

(278,384)

 

 

18,524

 

Stock-based compensation

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

13

 

 

 

—

 

 

 

13

 

Net loss

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(4,220)

 

 

(4,220)

Balance at June 30, 2024

 

 

3,703

 

 

$—

 

 

 

12,656

 

 

$—

 

 

 

757,340

 

 

$—

 

 

$296,921

 

 

$(282,604)

 

$14,317

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Series A Convertible

Preferred Stock

 

 

Series X Convertible

Preferred Stock

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

 

 

Total Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

 Deficit

 

 

Equity

 

Balance at December 31, 2022

 

 

—

 

 

$—

 

 

 

—

 

 

$—

 

 

 

216,127

 

 

$—

 

 

$214,397

 

 

$(205,137)

 

$9,260

 

Common stock issued upon the exercise of options

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

30,175

 

 

 

—

 

 

 

179

 

 

 

—

 

 

 

179

 

Restricted stock awards cancelled or vested

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(36)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Stock-based compensation

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

1,394

 

 

 

—

 

 

 

1,394

 

Issuance of Series X Convertible Preferred Stock in merger

 

 

—

 

 

 

—

 

 

 

14,650

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

82,925

 

 

 

—

 

 

 

82,925

 

Conversion of Series X Convertible Preferred Stock

 

 

—

 

 

 

—

 

 

 

(1,975)

 

 

—

 

 

 

197,491

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Issuance of Series A Convertible Preferred Stock in connection with private placement, net

 

 

7,203

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

49,791

 

 

 

—

 

 

 

7,360

 

 

 

—

 

 

 

7,360

 

Warrants exercised (see Note 13)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

33,161

 

 

 

—

 

 

 

1,145

 

 

 

—

 

 

 

1,145

 

Deemed dividend - warrant inducement offer

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Net loss

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(66,400)

 

 

(66,400)

Balance at March 31, 2023

 

 

7,203

 

 

 

—

 

 

 

12,675

 

 

 

—

 

 

 

526,709

 

 

 

—

 

 

 

307,400

 

 

 

(271,537)

 

 

35,863

 

Common stock issued upon the exercise of options

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

10,058

 

 

 

—

 

 

 

59

 

 

 

—

 

 

 

59

 

Adjustment of fair value of Series X Convertible Preferred Stock in merger

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(10,381)

 

 

—

 

 

 

(10,381)

Adjustment of fair value of Stock-based compensation related to merger

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(174)

 

 

—

 

 

 

(174)

Net loss

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(1,576)

 

 

(1,576)

Balance at June 30, 2023

 

 

7,203

 

 

$—

 

 

 

12,675

 

 

$—

 

 

 

536,767

 

 

$—

 

 

$296,904

 

 

$(273,113)

 

$23,791

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 
5

Table of Contents

 

CATHETER PRECISION, INC.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

 

 

 

For the Six Months Ended June 30,

 

 

 

2024

 

 

2023

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

Net loss

 

$(6,895)

 

$(67,976)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Loss on impairment of goodwill

 

 

—

 

 

 

60,934

 

Depreciation and amortization

 

 

1,048

 

 

 

1,038

 

Stock-based compensation

 

 

19

 

 

 

1,220

 

Change in fair value of royalties payable

 

 

1,590

 

 

 

(4,617)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

32

 

 

 

(48)

Inventories

 

 

(19)

 

 

(7)

Prepaid expenses and other assets

 

 

211

 

 

680

 

Lease right-of-use assets and lease liabilities

 

 

—

 

 

 

4

 

Current portion of royalties payable

 

 

7

 

 

 

—

 

Accounts payable

 

 

363

 

 

 

(921)

Accrued expenses

 

 

1

 

 

 

(7,009)

Accrued interest - related parties

 

 

4

 

 

 

(198)

Net cash used in operating activities

 

 

(3,639)

 

 

(16,900)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(67)

 

 

(57)

Cash acquired as part of business combination

 

 

—

 

 

 

15

 

Net cash used in investing activities

 

 

(67)

 

 

(42)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock and warrants

 

 

—

 

 

 

238

 

Proceeds from notes payable due to related parties

 

 

650

 

 

 

—

 

Payments on note payable

 

 

(184)

 

 

—

 

     Payments on deferred financing costs

 

 

 (309

) 

 

 

 -

 

Proceeds from exercise of warrants

 

 

—

 

 

 

1,326

 

Payments of costs related to exercise of warrants

 

 

—

 

 

 

(181)

Payments of convertible promissory notes

 

 

—

 

 

 

(250)

Proceeds from the private placement of securities

 

 

—

 

 

 

8,000

 

Payments of offering costs related to the private placement of securities

 

 

—

 

 

 

(640)

Net cash provided by financing activities

 

 

157

 

 

 

8,493

 

NET CHANGE IN CASH AND CASH EQUIVALENTS

 

 

(3,549)

 

 

(8,449)

CASH AND CASH EQUIVALENTS, beginning of period

 

 

3,565

 

 

 

15,859

 

CASH AND CASH EQUIVALENTS, end of period

 

$16

 

 

$7,410

 

SUPPLEMENTAL CASH FLOW INFORMATION

 

 

 

 

 

 

 

 

Non-cash consideration for Catheter acquisition

 

$—

 

 

$72,544

 

Cash payments for interest

 

$4

 

 

$198

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 
6

Table of Contents

 

CATHETER PRECISION, INC.

Notes to Condensed Consolidated Financial Statements

(in thousands, except share data)

(Unaudited)

 

Note 1. Organization and Nature of Operations

 

The Company

 

Catheter Precision, Inc. ("Catheter" or the "Company or "Legacy RA Medical") was incorporated in California on September 4, 2002, and reincorporated in Delaware in July 2018. Catheter was initially formed to develop, commercialize and market its advanced excimer laser-based platform for use in the treatment of vascular and dermatological immune-mediated inflammatory diseases.

 

On January 9, 2023, Catheter entered into the Amended and Restated Agreement and Plan of Merger, or the "Merger Agreement", with Catheter Precision, Inc., or “Old Catheter”, a privately-held Delaware corporation. Under the terms of the Merger Agreement, Old Catheter became a wholly owned subsidiary of Catheter, together referred to as the Company, in a stock-for-stock merger transaction, or the "Merger".

 

Prior to the Merger, Catheter developed an advanced excimer laser-based platform for use in the treatment of vascular immune-mediated inflammatory diseases designed to be used as a tool in the treatment of Peripheral Artery Disease which commonly occurs in the legs. After the Merger and looking forward, this legacy Destruction of Arteriosclerotic Blockages by laser Radiation Ablation laser and single-use catheter, together referred to as "DABRA", and related assets were no longer used, the Company ceased operations and marketing with respect to DABRA, and Catheter’s legacy lines of business were discontinued. Instead, the Company has shifted the focus of its operations to Old Catheter’s product lines. Accordingly, the Company’s current activities primarily relate to Old Catheter’s historical business which comprises the design, manufacture and sale of new and innovative medical technologies focused in the field of cardiac electrophysiology, or EP.

 

One of the Company’s two primary products is the VIVO System, which is an acronym for View into Ventricular Onset (“VIVO” or “VIVO System”). VIVO is a non-invasive imaging system that offers 3D cardiac mapping to help with localizing the sites of origin of idiopathic ventricular arrhythmias in patients with structurally normal hearts prior to EP procedures. The VIVO System is commercially available in the European Union and has been placed at several hospitals in Europe. United States Food and Drug Administration ("FDA") 510(k) clearance was received and the Company began a limited commercial release of VIVO in 2021 in the United States.

 

The Company’s newest product, LockeT, is a suture retention device indicated for wound healing by distributing suture tension over a larger area in the patient in conjunction with a figure of eight suture closure and is intended to temporarily secure sutures and aid clinicians in locating and removing sutures efficiently. In addition, LockeT is a sterile, Class I product that was registered with the FDA in February 2023, at which time initial shipments began to distributors. Clinical studies for LockeT began during the year ended December 31, 2023. These studies are planned to show the product’s effectiveness and benefits, including faster wound closure, earlier ambulation, potentially leading to early hospital discharge, and cost benefits. This information is intended to provide crucial data for marketing.

 

The Company’s product portfolio also includes the Amigo® Remote Catheter System (the "AMIGO" or "AMIGO System"), a robotic arm that serves as a catheter control device. Prior to 2018, Old Catheter marketed Amigo. The Company owns the intellectual property related to Amigo, and this product is under consideration for future research and development of a generation 2 product.

 

Reverse Stock Split

 

On July 3, 2024, at the annual meeting of stockholders of the Company, the stockholders approved an amendment to the Amended and Restated Certificate of Incorporation of the Company (the “Amendment”) which included a decrease in the authorized common stock and authorization for the Board, in its discretion, to effect a reverse stock split within specified parameters.  The Amendment was effective July 15, 2024, reducing the authorized common stock to 30 million shares and effecting a reverse stock split in which each ten (10) shares of the Company’s common stock, par value $0.0001 per share, issued and outstanding immediately prior to the effective time automatically combined into one (1) validly issued, fully paid and non-assessable share of common stock, par value $0.0001 per share. 

 

 
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No fractional shares were issued as a result of the Reverse Stock Split. Stockholders who would otherwise have been entitled to receive a fractional share were entitled to receive their pro rata portion of the net proceeds obtained from the aggregation and sale by the exchange agent of the fractional shares resulting from the reverse stock split (reduced by any customary brokerage fees, commissions and other expenses). The financial statements have been retrospectively adjusted to reflect the Reverse Stock Split of the Company’s common stock for all periods presented.

 

Going Concern

 

As of June 30, 2024, the Company had cash and cash equivalents of approximately $16 thousand. For the six months ended June 30, 2024, the Company used $3.6 million in cash for operating activities. The Company has incurred recurring net losses from operations and negative cash flows from operating activities since inception. As of June 30, 2024, the Company had an accumulated deficit of approximately $282.6 million.

 

Management expects operating losses and negative cash flows to continue for the foreseeable future as the Company invests in its commercial capabilities. These negative cash flows and additional costs associated with the Merger paid during the year ended December 31, 2023, have substantially depleted the Company’s cash. Following the Merger with Old Catheter, management further reduced costs while assuming the operating costs of Old Catheter. Management will continue to monitor its operating costs and seek to reduce its current liabilities. Such actions may impair its ability to proceed with certain strategic activities. As of June 30, 2024, the Company had $16 thousand of cash and cash equivalents. This amount will not be sufficient to fund the Company's operations through the end of August 2025. Because expected revenues are not adequate to fund planned expenditures and anticipated operating costs beyond such point, the Company has obtained an additional $850 thousand in bridge loans subsequent to June 30, 2024 and is currently evaluating potential means of raising cash through future capital transactions and additional bridge loans. If unable to do so, the Company will be required to reduce its spending rate to align with expected revenue levels and cash reserves, although there can be no guarantee that it will be successful in doing so. Accordingly, the Company will likely be required to raise additional cash through debt or equity transactions and bridge loans to continue operations. It may not be able to secure financing in a timely manner or on favorable terms, if at all.

 

As a result of these factors, management has concluded that there is substantial doubt about the Company’s ability to continue as a going concern for a period of one year after the date the unaudited condensed consolidated financial statements are issued. The Company’s unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Note 2. Summary of Significant Accounting Policies

 

Principles of Consolidation

 

The unaudited condensed consolidated financial statements of the Company include the accounts of the Company and Old Catheter. All intercompany transactions have been eliminated in consolidation.

 

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP").  The Financial Accounting Standards Board (“FASB”) establishes these principles to ensure financial condition, results of operations, and cash flows are consistently reported. Any reference in these notes to applicable accounting guidance is meant to refer to the authoritative nongovernmental GAAP as found in the FASB Accounting Standards Codification ("ASC").  Certain footnotes and other financial information normally required by U.S. GAAP have been condensed or omitted in accordance with instructions to Form 10-Q and Article 8 of Regulation S-X. In the opinion of management, such statements include all adjustments which are considered necessary for a fair presentation of the unaudited condensed consolidated financial statements of the Company. The operating results presented herein are not necessarily an indication of the results that may be expected for the year. The unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited Consolidated Financial Statements included in its Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the Securities and Exchange Commission (“SEC”) on April 1, 2024.

 

 
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Use of Estimates

 

The preparation of the unaudited condensed consolidated financial statements 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 unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. The Company’s unaudited condensed consolidated financial statements are based upon a number of estimates including, but not limited to, the accounting for the Old Catheter business combination (see Note 3, Business Combination), allowance for credit losses, evaluation of impairment of long-lived assets and goodwill, valuation of long-lived assets and their associated estimated useful lives, reserves for warranty costs, fair value of royalties payable, evaluation of probable loss contingencies, fair value of preferred stock and warrants issued, and the fair value of equity awards granted.

 

Concentrations of Credit Risk

 

The Company's financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. Cash equivalents represent short-term, highly liquid investments with maturities of 90 days or less at the date of purchase. Credit risk related to cash and cash equivalents is based on the creditworthiness of the financial institutions at which these funds are held. The Company has cash balances at financial institutions which from time to time may exceed the federally insured limit of $250,000. Any loss incurred or a lack of access to such funds could have a significant adverse impact on the Company's financial condition, results of operations, and cash flows. To reduce its risk associated with the failure of any such financial institution, the Company evaluates the rating of the financial institution in which it holds deposits. Any material loss that the Company may experience in the future could have an adverse effect on its ability to pay its operational expenses or make other payments and may require the Company to move its cash to other high quality financial institutions. Currently, the Company is reviewing its bank relationships in order to mitigate its risk to ensure that its exposure is limited or reduced to the Federal Deposit Insurance Corporation protection limits.

 

The Company extends credit to customers in the normal course of business. Concentrations of credit risk with respect to accounts receivable exist to the full extent of amounts presented in the condensed consolidated financial statements. The Company does not require collateral from its customers to secure accounts receivable.

 

The Company had three and five customers that represented 92% and 88%, of the Company's consolidated revenue for the three and six  months ended June 30, 2024, respectively; and three and four customers that represented 76% and 84% of the Company's consolidated revenue for the three and six months ended June 30, 2023, respectively.

 

The Company has no significant off-balance sheet risk such as foreign exchange contracts, option contracts, or other hedging arrangements.

 

Segment Reporting

 

The Company operates in one business segment, which is the marketing, sales and development of medical technologies focused in the field of cardiac electrophysiology.

 

Cash and Cash Equivalents 

 

Cash equivalents primarily represent funds invested in readily available checking and money market accounts. The Company did not maintain deposits in financial institutions in excess of federally insured limits of $250,000 at June 30, 2024.

 

Fair Value Measurements

 

Fair value represents the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants and is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. A three-tier fair value hierarchy is used to identify inputs used in measuring fair value as follows:

 

Level 1 - Observable inputs that reflect quoted market prices (unadjusted) for identical assets or liabilities in active markets;

 

 
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Level 2 - Inputs other than the quoted prices in active markets that are observable either directly or indirectly in the marketplace for identical or similar assets and liabilities; and

 

Level 3 - Unobservable inputs that are supported by little or no market data, which require the Company to develop its own assumptions.

 

Cash equivalents, prepaid expenses, trade accounts receivable, accounts payable, and accrued expenses are reported on the condensed consolidated balance sheets at carrying value which approximates fair value due to the short-term maturities of these instruments.

 

The royalties payable have unobservable inputs that are not supported by any market data. As such the Company developed its own assumptions and identified the inputs as Level 3. The revenue adjusted discount rate (“RADR”) was calculated using a weighted average cost of capital (“WACC”) approach for the level 3 measurement. The RADR considers the WACC from the Company’s impairment analysis and adjusts certain inputs to represent the risk profile of the revenue. Under the cost of equity section, the risk-free rate has changed to be commensurate with the royalties payable term. Additionally, the Beta and Company Specific Risk Premium have been adjusted to Revenue Beta and Revenue Specific Risk Premium, respectively. This adjustment was calculated by multiplying the respective metric by the quotient of equity volatility over revenue volatility. The remaining inputs from the Impairment WACC have remained unchanged. 

 

The following table details the fair value measurements within the fair value hierarchy of the Company’s financial instruments:

 

 

 

Fair value at June 30, 2024

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Cash Equivalents

 

 

 

 

 

 

 

 

 

 

 

 

Mutual Fund

 

$—

 

 

$—

 

 

$—

 

 

$—

 

Money Market fund

 

 

1

 

 

 

1

 

 

 

—

 

 

 

—

 

Total assets

 

$1

 

 

$1

 

 

$—

 

 

$—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Royalties payable

 

$8,571

 

 

$—

 

 

$—

 

 

$8,571

 

Total liabilities

 

$8,571

 

 

$—

 

 

$—

 

 

$8,571

 

 

 
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Fair value at December 31, 2023

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Cash Equivalents

 

 

 

 

 

 

 

 

 

 

 

 

Mutual Fund

 

$3,397

 

 

$3,397

 

 

$—

 

 

$—

 

Money Market fund

 

 

10

 

 

 

10

 

 

 

—

 

 

 

—

 

Total assets

 

$3,407

 

 

$3,407

 

 

$—

 

 

$—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Royalties payable

 

$6,974

 

 

$—

 

 

$—

 

 

$6,974

 

Total liabilities

 

$6,974

 

 

$—

 

 

$—

 

 

$6,974

 

 

Accounts Receivable and Allowances for Credit Losses

 

Under the Current Expected Credit Loss (“CECL”) impairment model, the Company develops and documents its allowance for credit losses on its trade receivables based on three portfolio segments:  Hospitals – United States, Hospitals – Europe, and Distributors.  The determination of portfolio segments is based primarily on the customers’ industry and geographical location.

 

Trade accounts receivable are recorded at invoiced amounts, net of allowance for credit losses, if applicable, and are unsecured and do not bear interest.

 

The allowance for credit losses is based on the probability of future collection under the CECL impairment model in which the Company determines its allowance by applying the method based on an aging schedule. The Company also considers reasonable and supportable current information in determining its estimated loss rates, such as external forecasts, macroeconomic trends or other factors including customers’ credit risk and historical loss experience. The adequacy of the allowance is evaluated on a regular basis. Account balances are written off after all means of collection are exhausted and the balance is deemed uncollectible. Subsequent recoveries are credited to the allowance. Changes in the allowance are recorded as adjustments to bad debt expense in the period incurred.

 

As of June 30, 2024 and December 31, 2023 there is no reserve for expected credit losses within accounts receivable.

 

Inventories

 

Inventories are stated at the lower of cost (first-in, first-out method) or net realizable value. Cost includes materials, labor and manufacturing overhead related to the purchase and production of inventories. The Company reduces the carrying value of inventories for those items that were potentially excess, obsolete or slow-moving based on changes in customer demand, technological developments or other economic factors.

 

 
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Property and Equipment

 

Property and equipment are recorded at cost and depreciated on a straight-line basis over their estimated useful lives as follows: 

 

Machinery and equipment

 

2-5 years

Computer hardware and software

 

2-5 years

VIVO DEMO/Clinical Systems

 

2 years

Furniture and fixtures

 

5 years

 

Leasehold improvements are depreciated over the shorter of the useful life of the leasehold improvement or the term of the underlying property’s lease.

 

The Company periodically reviews the residual values and estimated useful lives of each class of its property and equipment for ongoing reasonableness, considering long-term views on its intended use of each class of property and equipment and the planned level of improvements to maintain and enhance assets within those classes.

 

When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the account balances and any resulting gain or loss is recognized in income for the period. The cost of repairs and maintenance is expensed as incurred, whereas significant betterments are capitalized.

 

Impairment of Long-Lived Assets

 

In accordance with ASC 360, Impairment and Disposals of Long-lived Assets, the Company periodically reviews its long-lived assets for impairment when certain events or changes in circumstances indicate that the carrying value of the long-lived assets may not be recoverable. Should the sum of the undiscounted expected future net cash flows be less than the carrying value, the Company would recognize an impairment loss at that date.

 

The recurring negative cash flows and losses from operating activities indicates a triggering event.  The Company assesses its long-lived assets for impairment. To determine whether the carrying amount of the long-lived asset group is recoverable, the Company determined the estimated future cash flows of the group for a period consistent with that of the primary assets of the group. The sum of the undiscounted cash flows was then compared to the carrying amount of the long-lived assets, as of June 30, 2024. The Company concluded there was no impairment as of June 30, 2024.

 

 

Goodwill

 

In accordance with ASC 350, Intangibles – Goodwill and Other, goodwill is calculated as the difference between the acquisition date fair value of the consideration transferred and the fair value of net assets acquired. Goodwill, which represents the excess of purchase price of Old Catheter over the fair value of net assets acquired, is carried at cost. Goodwill is not amortized; rather, it is subject to a periodic assessment for impairment by applying a fair value-based test. The Company reviews goodwill for possible impairment annually during the fourth quarter, or whenever events or circumstances indicate that the carrying amount may not be recoverable.

 

To determine whether goodwill is impaired, annually or more frequently if needed, the Company performs a multi-step impairment test. The Company first has the option to assess qualitative factors to determine if it is more likely than not that the carrying value of a reporting unit exceeds its estimated fair value. The Company may also elect to skip the qualitative testing and proceed directly to the quantitative testing. When performing quantitative testing, the Company first estimates the fair values of its reporting units using a combination of an income and market approach. To determine fair values, the Company is required to make assumptions about a wide variety of internal and external factors. Significant assumptions used in the impairment analysis include financial projections of free cash flow (including significant assumptions about operations including the rate of future revenue growth, capital requirements, and income taxes), long-term growth rates for determining terminal value and discount rates. Comparative market multiples are used to corroborate the results of the discounted cash flow test. These assumptions require significant judgment. Pursuant to ASU 2017-04, Simplifying the Test for Goodwill Impairment, the single step is to determine the estimated fair value of the reporting unit and compare it to the carrying value of the reporting unit, including goodwill. To the extent the carrying amount of goodwill exceeds the implied goodwill, the difference is the amount of the goodwill impairment. The Company also completes a reconciliation between the implied equity valuation prepared and the Company’s market capitalization. The majority of the inputs used in the discounted cash flow model are unobservable and thus are considered to be Level 3 inputs. The inputs for the market capitalization calculation are considered Level 1 inputs. There were impairment charges of $4.8 and $60.9 million  recognized during the three and six months ended June 30, 2023, see Note 3, Business Combination and Note 7, Goodwill, for additional details. As of December 31, 2023, goodwill was fully impaired.

 

 
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Royalties Payable

 

The Company is obligated to pay royalties under various royalty agreements Old Catheter had entered into. On January 9, 2023, prior to the consummation of the Merger, Old Catheter entered in an agreement with its Convertible Promissory Noteholders (“Noteholders”), which substantially consisted of amounts due to David A. Jenkins, previously Old Catheter's Chairman of the Board of Directors prior to the Merger, and, currently, the Company’s Executive Chairman of the Board of Directors and Chief Executive Officer, to forgive all accrued interest and future interest expense in exchange for a future royalty right. The Company will pay to the Noteholders a total royalty equal to approximately 12% of net sales of LockeT, commencing upon the first commercial sale, through December 31, 2035 (see Note 10, Royalties Payable).

 

Catheter recognizes a liability for future payments to the Noteholders pursuant to the Royalty Right at fair value (the “Royalty Payable”). The value of the Royalty Payable is an estimate, as future sales of the LockeT product are unknown, and is calculated as Management’s projected sales for LockeT through the end of 2035, multiplied by the royalty rate of 11.82%, then discounting that amount back to present value.

 

At each reporting date, the fair value of the Royalty Payable is re-measured in connection with any changes to Management’s projections as a change in estimate.

 

Product Warranty

 

The Company’s current products are warrantied against defects in material and workmanship when properly used for their intended purpose and properly maintained.

 

Warranty expenses are included in cost of revenues in the accompanying unaudited condensed consolidated statements of operations. Changes in estimates to previously established warranty accruals resulted from current period updates to assumptions regarding repair and product recall costs and are included in current period warranty expense. As of June 30, 2024 and December 31, 2023, there was no accrued warranty balance.

 

Distinguishing Liabilities from Equity

 

The Company relies on the guidance provided by ASC Topic 480, Distinguishing Liabilities from Equity, to classify certain redeemable and/or convertible instruments. The Company first determines whether a financial instrument should be classified as a liability. The Company will determine the liability classification if the financial instrument is mandatorily redeemable, or if the financial instrument, other than outstanding shares, embodies a conditional obligation that the Company must or may settle by issuing a variable number of its equity shares.

 

Once the Company determines that a financial instrument should not be classified as a liability, the Company determines whether the financial instrument should be presented between the liability section and the equity section of the balance sheets. The Company will determine temporary equity classification if the redemption of the financial instrument is outside the control of the Company (i.e. at the option of the holder). Otherwise, the Company accounts for the financial instrument as permanent equity.

 

Revenue Recognition

 

The Company applies the provisions of FASB ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”), and all related appropriate guidance. The core principle of this standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services.

 

 
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The Company measures revenue based upon the consideration specified in the client arrangement, and revenue is recognized when the performance obligations in the client arrangement are satisfied. A performance obligation is a promise in a contract to transfer a distinct service to the customer. The transaction price of a contract is allocated to each distinct performance obligation. Under ASC 606, revenue is recognized when a customer obtains control of promised goods. To achieve this core principle, the Company applies the following five steps:

 

Step 1: Identify the contract with the customer

 

Step 2: Identify the performance obligations in the contract

 

Step 3: Determine the transaction price

 

Step 4: Allocate the transaction price to the performance obligations in the contract

 

Step 5: Recognize revenue when the Company satisfies a performance obligation

 

One of the Company’s two primary products in 2024 is the VIVO System. The VIVO System offers 3D cardiac mapping to help with localizing the sites of origin of idiopathic ventricular arrhythmias in patients with structurally normal hearts prior to electrophysiology studies. In addition to the VIVO System, customers are provided with VIVO Positioning Patch Sets, which are custom patches, that are used in conjunction with the VIVO System to complete the intended output of the VIVO System. The delivery of the VIVO System, including the VIVO Positioning Patch Sets represents the Company’s primary performance obligation. The Company recognizes revenue upon the delivery of the VIVO system. The Company also provides customers with the option to pay for software upgrades in advance at the time of the contract's inception. Software upgrades are stand-ready services, whereby the Company will provide software upgrade services to the customer when and as upgrades are available. Terms of the period covered by the payment of software upgrades in advance can range from one year to multiple years. Customers have the option to renew terms covered by software upgrades at the end of each term. The stand-ready software upgrades represent the Company's second separate performance obligation and revenue is recognized over the term of the period.

 

The Company invoices the customers after physical possession and control of the VIVO System is transferred to the customer and recognizes revenue upon delivery. The timing of payment for the corresponding invoices is dependent upon the credit terms identified in each contract. The Company invoices customers who pay for software upgrades in advance in conjunction with the invoice for the delivery of the VIVO System, and subsequent renewals of software upgrades are invoiced at the inception of the term. Revenue for these stand-ready services is recognized evenly over the term of the upgrade period, consistently with similar stand-ready services under ASC 606. Similar to the delivery of the VIVO System, the timing of payment for the corresponding invoices is dependent upon the credit terms identified in each contract.  The Company has elected the practical expedient to expense costs to obtain a contract, as incurred, as opposed to recognizing the cost as an asset upon occurrence. Revenue is recognized at the point in time that the product is delivered to the customer.

 

Disaggregation of Revenue

 

The following table summarizes disaggregated product sales by geographic area ($ in thousands):

 

 

 

For the Three Months Ended June 30,

 

 

For the Six Months Ended June 30,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Product Sales

 

 

 

 

 

 

 

 

 

 

 

 

US

 

$60

 

 

$73

 

 

$67

 

 

$131

 

Europe

 

 

33

 

 

 

23

 

 

 

108

 

 

 

50

 

 

 

$93

 

 

$96

 

 

$175

 

 

$181

 

 

Shipping and Handling Costs

 

Shipping and handling costs charged to customers are included in net product sales, while all other shipping and handling costs are included in selling, general and administrative expenses in the accompanying unaudited condensed consolidated statements of operations.

 

 
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Advertising and Marketing

 

Advertising costs are expensed as incurred and included in selling, general and administrative expenses. Advertising costs were $48 thousand and $96 thousand during the three and six months ended June 30, 2024, respectively. Advertising costs were $41 thousand and $58 thousand during the three and six months ended June 30, 2023, respectively.

 

Patents

 

The Company expenses patent costs, including related legal costs, as incurred and records such costs as selling, general and administrative expenses in the accompanying unaudited condensed consolidated statements of operations.

 

Research and Development

 

Major components of research and development costs include consulting, research grants, supplies and clinical trial expenses. Research and development expenses are charged to operations in the period incurred.

 

Stock-Based Compensation

 

The Company records stock-based compensation expense associated with stock options, restricted stock awards (“RSAs”) and restricted stock units (“RSUs”) issued to employees, members of the Company’s board of directors and consultants in accordance with the authoritative guidance for stock-based compensation. The Company evaluates whether an award should be classified and accounted for as a liability award or equity award for all stock-based compensation awards granted. The cost of an award of an equity instrument that is a stock option is measured at the grant date, based on the estimated fair value of the award using the Black-Scholes option pricing valuation model (“Black-Scholes model”) which incorporates various assumptions including expected term, volatility and risk-free interest rate, and is recognized as expense on a straight-line basis over the requisite service period of the award, which is generally the vesting period of the respective award. Share-based compensation for an award with a performance condition is recognized when the achievement of such performance condition is determined to be probable. If the outcome of such performance condition is not determined to be probable or is not met, no compensation expense is recognized, and any previously recognized compensation expense is reversed. Forfeitures are recognized as a reduction of stock-based compensation expense as they occur.

 

As a result of the Merger, all unvested Old Catheter stock options were subject to accelerated vesting and therefore became fully vested, as of the closing date of the business combination. The Company recognized the fair value of the replacement options as included in consideration transferred to the extent they do not exceed the fair value of the equivalent Old Catheter options. Any incremental fair value was recognized in compensation expense in the post-combination period, with this recognized as a Day 1 expense due to the Old Catheter options becoming fully vested concurrent with the closing of the business combination.

 

Income Taxes

 

The Company accounts for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and are measured using enacted tax rates and laws that are expected to be in effect when the differences reverse. Any resulting net deferred tax assets are evaluated for recoverability and, accordingly, a valuation allowance is provided when it is more likely than not that all or some portion of the deferred tax  asset will not be realized.

 

The Company accounts for uncertainty in income taxes using a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining whether it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement. An uncertain tax position is considered effectively settled on completion of an examination by a taxing authority if certain other conditions are satisfied. Should the Company incur interest and penalties relating to tax uncertainties, such amounts would be classified as a component of interest expense and other expense, respectively.

 

 
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Basic and Diluted Net Loss per Share of Common Stock

 

The Company calculates basic net loss per share by dividing net loss by the weighted average number of common shares outstanding during the reporting period. A net loss cannot be diluted so when the Company is in a net loss position, basic and diluted loss per common share are the same. If in the future the Company achieves profitability, the denominator of a diluted earnings per common share calculation will include both the weighted average number of shares outstanding and the number of common stock equivalents, if the inclusion of such common stock equivalents would be dilutive. Anti-dilutive common stock equivalents excluded from the computation of diluted net loss per share include warrants, stock options, non-vested restricted stock awards, restricted stock units, Series A Convertible Preferred Stock, and Series X Convertible Preferred (see Note 12, Net Loss per Share).

 

Net loss attributable to common stockholders consists of net income or loss, as adjusted for actual and deemed dividends declared. The Company recorded a deemed dividend for the modification of existing warrants and issuance of new warrants during the three and six months ended June 30, 2023 of $0 and $0.8 million, respectively. The deemed dividend is added to the net loss in determining the net loss available to common stockholders for the six  months ended June 30, 2023. There was no deemed dividend for the three months ended June 30, 3023 or for the three and six months ended June 30, 2024.

 

Recently Announced Accounting Pronouncements

 

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The amendments in ASU 2023-07 require disclosure of significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”) and included within each reported measure of segment profit or loss, an amount and description of its composition for other segment items to reconcile to segment profit or loss, and the title and position of the entity’s CODM. The amendments in this update also expand the interim segment disclosure requirements. These amendments do not change how a public entity identifies its operating segments, aggregates those operating segments, or applies the quantitative thresholds to determine its reportable segments. The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted and the amendments in this update are required to be applied on a retrospective basis. The Company is currently reviewing the impact that the adoption of ASU 2023-07 may have on our consolidated financial statements and disclosures.

 

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires public entities to disclose consistent categories and greater disaggregation of information in the rate reconciliation and for income taxes paid. It also includes certain other amendments to improve the effectiveness of income tax disclosures. The guidance is effective for financial statements issued for annual periods beginning after December 15, 2024, with early adoption permitted. The Company is required to adopt this standard prospectively in fiscal year 2025 for the annual reporting period ending December 31, 2025. The Company does not believe the impact of the new guidance and related codification improvements will have material impact to its financial position, results of operations and cash flows.

 

Note 3. Business Combination

 

On January 9, 2023, the Company completed the acquisition of Old Catheter for the purpose of acquiring Old Catheter’s existing and developing product lines based on unique electrophysiology technology.

 

Pursuant to the Merger Agreement, all Old Catheter common stock shares issued and outstanding and convertible promissory notes, representing an aggregate principal of $25.2 million, were converted into a right to receive 14,649.592 shares of a new class of the Company’s preferred stock, designated Series X Convertible Preferred Stock. Additionally, all outstanding stock options to purchase Old Catheter common stock were assumed and converted into options to purchase approximately 75,367 shares of the Company's common stock.

 

The total purchase consideration for the Merger was $72.5 million which represents the sum of the (i) estimated fair value of the 14,649.592 Series X Convertible Preferred Stock issued and (ii) the portion of the estimated fair value of $3.4 million representing the Company stock options issued in replacement of Old Catheter share-based payment awards as required under FASB Topic 805, Business Combinations ("Topic 805").

 

 
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The fair value of the Series X Convertible Preferred Stock includes certain discounts applied to the closing stock price of the Company, on January 9, 2023, of $60.90 per share.

 

The following table summarizes the fair value of the consideration associated with the Merger ($ in thousands):

 

Description

 

Fair Value as of January 9, 2023

 

Fair value of 14,649.592 Series X convertible preferred stock issued

 

$69,140

 

Fair value of Old Catheter’s fully vested stock options

 

 

3,404

 

Total Purchase Price

 

$72,544

 

 

The Merger was accounted for as a business combination in accordance with Topic 805, and the Company has been determined to be the accounting acquirer.  The Company allocated the purchase price to the assets acquired and liabilities assumed at fair value. The purchase price allocation reflects various fair value estimates and analyses, including certain tangible assets acquired and liabilities assumed, the valuation of intangible assets acquired, liabilities assumed, and goodwill, which were subject to change within the measurement period as valuations were being finalized (generally one year from the acquisition date). Measurement period adjustments were recorded in the reporting period in which the estimates are finalized, and adjustment amounts were determined. During the three months ended June 30, 2023, the Company recorded measurement period adjustments based on changes to certain estimates and assumptions and their related impact to the purchase price allocation. Developed technology was revised from $35.1 million to $27.0 million; trademarks were revised from $1.7 million to $1.3 million; customer relationships were revised from $220 thousand to $62 thousand; goodwill was revised from $56.0 million to $60.9 million; and royalties payable were revised from $7.6 million to $14.2 million.

 

 
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The following table summarizes the final purchase price allocations relating to the Merger ($ in thousands): 

 

Description

 

Fair Value

 

Assets acquired:

 

 

 

Cash and cash equivalents

 

$15

 

Accounts receivable

 

 

71

 

Inventories

 

 

52

 

Prepaid expenses and other current assets

 

 

23

 

Property and equipment, net

 

 

26

 

Lease right-of-use assets

 

 

119

 

Other assets

 

 

8

 

Developed technology

 

 

27,014

 

Customer relationships

 

 

62

 

Trademarks

 

 

1,285

 

Goodwill

 

 

60,934

 

Total assets acquired

 

$89,609

 

 

 

 

 

 

Liabilities assumed:

 

 

 

 

Accounts payable

 

$922

 

Accrued expenses

 

 

1,389

 

Lease liability

 

 

124

 

Interest payable

 

 

198

 

Convertible promissory notes

 

 

250

 

Royalties payable

 

 

14,182

 

Total liabilities assumed

 

 

17,065

 

Total purchase price

 

$72,544

 

 

All intangible assets acquired are subject to amortization and their associated acquisition date fair values and useful lives are as follows:

 

Intangible Assets

 

Fair Value

 

 

Useful Life

 

Developed technology- VIVO

 

$8,244

 

 

 

15

 

Developed technology- LockeT

 

 

18,770

 

 

 

14

 

Customer relationships

 

 

62

 

 

 

6

 

Trademark- VIVO

 

 

876

 

 

 

9

 

Trademark- LockeT

 

 

409

 

 

 

9

 

 

 

$28,361

 

 

 

 

 

 

Notwithstanding the above, as described in Note 7, management determined that there were indicators of asset impairment during the period ended June 30, 2023, and assessed the carrying values of the Company’s intangible assets and goodwill. As a result, the Company recorded an impairment charge relating to goodwill of $4.8 million during the three months ended June 30, 2023, resulting in a goodwill balance of $0 as of June 30, 2023 and a total impairment charge of $60.9 million for the six months ended June 30, 2023. This amount represented the purchase price amount ascribed to goodwill.

 

Transaction costs incurred in connection with this business combination amounted to approximately $0 and $1.7 million during the three and six months ended June 30, 2023, respectively.

 

 
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Pro Forma Financial Information

 

The following table represents the revenue, net loss and net loss per share effect of the acquired company, as reported on a pro forma basis as if the acquisition occurred on January 1, 2023. These pro forma results are not necessarily indicative of the results that would have occurred if the acquisition had occurred on the first day of the period presented, nor does the pro forma financial information purport to represent the results of operations for future periods. The following information for the three and six  months ended June 30, 2023 is presented in thousands except for the per share data ($ in thousands, except per share data):

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2023

 

 

2023

 

Revenues

 

$96

 

 

$184

 

Net loss

 

$(1,576)

 

$(68,146)

Net loss attributable to common stockholders

 

$(1,576)

 

$(68,946)

Basic and diluted net loss per share – on a pro forma basis

 

$(2.94)

 

$(168.15)

 

Note 4. Inventories

 

Inventories consisted of the following ($ in thousands):

 

 

 

June 30, 2024

 

 

December 31, 2023

 

Raw materials

 

$35

 

 

$27

 

Finished goods

 

 

28

 

 

 

17

 

Inventories

 

$63

 

 

$44

 

 

There were no charges for inventory obsolescence or allowance recorded during the three and six  months ended June 30, 2024 and 2023.

 

Note 5. Property and Equipment

 

Property and equipment, net consisted of the following ($ in thousands):

 

 

 

June 30, 2024

 

 

December 31, 2023

 

Machinery and equipment

 

$28

 

 

$16

 

Computer hardware and software

 

 

29

 

 

 

17

 

LockeT Animation video

 

 

29

 

 

 

—

 

VIVO DEMO/Clinical Systems

 

 

83

 

 

 

69

 

Property and equipment, gross

 

 

169

 

 

 

102

 

Accumulated depreciation

 

 

(58)

 

 

(32)

Property and equipment, net

 

$111

 

 

$70

 

 

Depreciation expense was $15 thousand and $26 thousand for the three and six  months ended June 30, 2024, respectively. Depreciation expense was $9 thousand and $15 thousand for the three and six  months ended June 30, 2023, respectively.

 

 
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Note 6. Intangible Assets

 

The following table summarizes the Company’s intangible assets as of June 30, 2024 ($ in thousands):

 

 

 

Estimated Useful Life in Years

 

 

Gross Carrying Amount at January 9, 2023

 

 

Accumulated Amortization

 

 

Net Book Value at June 30, 2024

 

Developed technology ‐ VIVO

 

 

15

 

 

$8,244

 

 

$(825)

 

$7,419

 

Developed technology ‐ LockeT

 

 

14

 

 

 

18,770

 

 

 

(2,011)

 

 

16,759

 

Customer relationships

 

 

6

 

 

 

62

 

 

 

(15)

 

 

47

 

Trademarks/trade names ‐ VIVO

 

 

9

 

 

 

876

 

 

 

(146)

 

 

730

 

Trademarks/trade names ‐ LockeT

 

 

9

 

 

 

409

 

 

 

(68)

 

 

341

 

 

 

 

 

 

 

$28,361

 

 

$(3,065)

 

$25,296

 

 

The following table summarizes the Company’s intangible assets as of December 31, 2023 ($ in thousands):

 

 

 

Estimated Useful Life in Years

 

 

Gross Carrying Amount at January 9, 2023

 

 

Accumulated Amortization

 

 

Net Book Value at December 31, 2023

 

Developed technology ‐ VIVO

 

 

15

 

 

$8,244

 

 

$(550)

 

$7,694

 

Developed technology ‐ LockeT

 

 

14

 

 

 

18,770

 

 

 

(1,341)

 

 

17,429

 

Customer relationships

 

 

6

 

 

 

62

 

 

 

(10)

 

 

52

 

Trademarks/trade names ‐ VIVO

 

 

9

 

 

 

876

 

 

 

(97)

 

 

779

 

Trademarks/trade names ‐ LockeT

 

 

9

 

 

 

409

 

 

 

(45)

 

 

364

 

 

 

 

 

 

 

$28,361

 

 

$(2,043)

 

$26,318

 

 

The estimated future amortization expense for the next five years and thereafter is as follows ($ in thousands):

 

Years ending December 31,

 

Future Amortization Expense

 

Remainder of 2024

 

$1,021

 

2025

 

 

2,043

 

2026

 

 

2,043

 

2027

 

 

2,043

 

2028

 

 

2,043

 

Thereafter

 

 

16,103

 

Total

 

$25,296

 

 

The Company uses the straight-line method to determine the amortization expense for its definite lived intangible assets. Amortization expense, included within selling, general and administrative expenses, relating to the Company's intangible assets was $0.5 million and $1.0 million for the three and six months ended June 30, 2024, respectively, and $0.5 million and $1.0 million for the three and six months ended June 30, 2023, respectively.

  

The weighted average remaining amortization period for the Company’s intangible assets as of June 30, 2024, is 12.57 years.

 

 
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Note 7. Goodwill

 

In connection with the Merger, the excess of the purchase price over the estimated fair value of the net assets assumed of $60.9 million was recognized as goodwill. The Merger was accounted for as a business combination in accordance with Topic 805, and the Company has been determined to be the accounting acquirer.  The Company allocated the purchase price to the assets acquired and liabilities assumed at fair value. During the three months ended June 30, 2023, the Company recorded measurement period adjustments based on changes to certain estimates and assumptions and their related impact to the purchase price allocation. As a result, goodwill was revised from $56.0 million to $60.9 million.

 

The Company tests Goodwill for impairment at the reporting unit level annually in the fourth quarter or more frequently if a change in circumstances or the occurrence of events indicates that potential impairment exists. Due to a sustained decrease in the Company’s share price during the quarter ended March 31, 2023, the Company concluded that, in accordance with ASC 350, a triggering event occurred indicating that potential impairment exists and required the Company to assess if impairment exists as of March 31, 2023. In accordance with ASC 350, the Company performed a quantitative goodwill impairment test, which resulted in the carrying amount of the reporting unit exceeding the estimated fair value of the reporting unit, indicating that the goodwill of the reporting unit was impaired. The Company utilized a combination of an income and market approach to assess the fair value of the reporting unit. The income approach considered the discounted cash flow model, considering projected future cash flows (including timing and profitability), discount rate reflecting the risk inherent in future cash flows, perpetual growth rate, and projected future economic and market conditions. The guideline public company market approach considered marketplace earnings multiples from within a peer public company group. As of December 31, 2023, cumulative goodwill impairment charges of $60.9 million were incurred related to the Company’s single reporting unit and no goodwill remained as of this date.

 

Note 8. Accrued Expenses

 

Accrued expenses consisted of the following ($ in thousands):

 

 

 

June 30, 2024

 

 

December 31, 2023

 

Legal expenses

 

$231

 

 

$102

 

Offering costs

 

 

1,387

 

 

 

1,356

 

Compensation and related benefits

 

 

20

 

 

 

43

 

Other accrued expenses

 

 

96

 

 

 

232

 

Accrued expenses

 

$1,734

 

 

$1,733

 

 

The product warranty accrual related to the voluntary recall of DABRA catheters was initiated in September 2019. The recall was closed by the FDA in July 2023 and no claims have been submitted in approximately 2 years. As such, the Company derecognized the warranty liability of $192 thousand as of December 31, 2023. As of June 30, 2024 and December 31, 2023, there is no accrued warranty balance.

 

Note 9. Notes Payable

 

Note Payable - Director & Officer Liability Insurance

 

The Company purchased director and officer liability insurance coverage on October 16, 2023 for $447 thousand. A down payment of $157 thousand was made and the remaining balance of $291 thousand was financed over 8 months through a short-term financing arrangement with its insurance carrier. The interest rate on the loan is 8.990%. Interest expense on this loan was $1 thousand and $4 thousand for the three and six months ended June 30, 2024, respectively. The loan balance was $184 thousand as of as December 31, 2023. The loan balance was paid off in May of 2024 and therefore there is no balance as of June 30, 2024.

 

 
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8% Short Term Promissory Notes  (collectively, the “Related Party Notes”)

 

On May 30, 2024, David A. Jenkins, Executive Chair and Chief Executive Officer, loaned $500,000 to the Company in exchange for a short term promissory note (the "May Related Party Note").

 

On June 25, 2024, an entity controlled by Mr. Jenkins loaned $150,000 to the Company in exchange for a short term promissory note (the "June Related Party Note").

 

The Related Party Notes have a maturity date of August 30, 2024, and bear interest at the rate of 8% per annum.

 

The Related Party Notes and the debt evidenced thereby, including all principal and interest, accelerate and become immediately due and payable upon the occurrence of certain customary events of default, including failure to pay amounts owing when due, material breach of representations or warranties by the Company (unless waived by the holder of the Related Party Note or cured within 10 days following notice) and/or certain events involving a discontinuation of the Company’s business or certain types of proceedings involving insolvency, bankruptcy, receivership and the like.

 

Interest expense on the Related Party Notes was $4 thousand for the three and six months ended June 30, 2024. The balance of the Related Party Notes and accrued interest was $654 thousand as of June 30, 2024, $4 thousand of which is related to the Interest payable to related parties on the condensed consolidated balance sheets.

 

See Note 19, Related Parties, for additional details.

 

Note 10. Royalties Payable

 

LockeT Royalty

 

On January 9, 2023 Old Catheter entered into an agreement with the Noteholders to forgive all accrued interest and future interest expense in exchange for a future royalty right. Under these agreements, the Company is obligated to pay the Noteholders a total royalty equal to approximately 12% of net sales of its LockeT device, commencing upon the first commercial sale, through December 31, 2035.

 

An additional royalty will be paid to the inventor of the LockeT device as detailed in the Royalty Agreement. In exchange for the assignment and all rights to LockeT, the Company will pay a 5% royalty on net sales up to $1.0 million in royalties, payable annually in arrears, starting with the year ending December 31, 2022. After $1.0 million has been paid, and if, and only if, a US patent is granted by the United States Patent and Trademark Office, the Company will continue to pay a royalty at a rate of 2% of net sales, until total cumulative royalties of $10.0 million have been paid. The royalty payments will apply to revenues through December 31, 2033, then will terminate regardless of whether the full $10.0 million has been paid.

 

The LockeT device had sales during the three and six  months ended June 30, 2024, and as such the Company owes the first royalty payment in relation to the Royalty Agreement. As of June 30, 2024, the Company owes $6 thousand in relation to LockeT sales.

 

AMIGO System Royalty

 

During 2006 and 2007, Old Catheter entered into two investment grant agreements with a non-profit foundation for the purpose of funding the initial development of Old Catheter's AMIGO System, receiving a total of $1.6 million from the foundation.

 

The agreement calls for the payment of the following sales-based royalties, by Old Catheter, to the foundation, upon successful commercialization of the AMIGO System:

 

Royalty Percentage

 

 

Until Royalty Payment Reaches a Total of

 

 

4%

 

$1,589,500

 

 

2%

 

$3,179,000

 

 

1%

 

In perpetuity

 

 

 
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The Company is not actively marketing and selling the AMIGO System.  There was no royalty expense recorded for the three and six  months ended June 30, 2024 and 2023 in relation to the AMIGO System. The AMIGO System royalty has been earned and payment has been deferred to a future date.

 

The table below represents the change in fair value of level 3 royalties payable for the six months ended June 30, 2024 and 2023 ($ in thousands). See Note 2, Summary of Significant Accounting Policies, for valuation techniques.

 

 

 

2024

 

 

2023

 

Beginning Balance, January 1,

 

$6,974

 

 

$—

 

AMIGO royalty payable recognized in connection with the Merger

 

 

—

 

 

 

160

 

LockeT royalty payable recognized in connection with the Merger

 

 

—

 

 

 

14,022

 

Payments owed on royalties payable

 

 

7

 

 

 

—

 

Change in fair value of royalties payable

 

 

1,590

 

 

 

(4,617)

Ending Balance, June 30,

 

$8,571

 

 

$9,565

 

 

Note 11. Leases

 

For the three and six months ended June 30, 2024 and 2023 operating lease expense and cash paid for leases were as follows:

  

 

 

For the Three Months Ended June 30,

 

 

For the Six Months Ended June 30,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Operating lease expense

 

$28

 

 

$17

 

 

$52

 

 

$29

 

Cash paid for leases

 

$29

 

 

$21

 

 

$53

 

 

$30

 

 

The Company's lease agreements generally do not provide an implicit borrowing rate. Therefore, the Company used a benchmark approach to derive an appropriate imputed discount rate. The Company benchmarked itself against other companies with similar credit ratings and of comparable quality and derived an imputed rate, which was used in a portfolio approach to discount its real estate lease liabilities. Management used an estimated incremental borrowing rate as detailed below for each lease.

 

Lease Terms and Discount Rate

 

The table below presents certain information related to the weighted average remaining lease term and the weighted average discount rate for the Company’s operating leases, as of June 30, 2024:

 

Weighted average remaining lease term (in years) - operating leases

 

 

1.61

 

Weighted average discount rate - operating leases

 

 

8.69%

 

South Carolina Office Lease Agreement

 

On September 27, 2022, Old Catheter entered into a lease agreement for office space located in Fort Mill, South Carolina. The space is used for office and general use. The term of the lease began on October 1, 2022, is 38 months, and includes two months of free rental from the commencement date of the lease. The lease contains two separate 36 month renewal periods, which require 180 days' notice of the Company's intention to exercise. As of the date of these condensed consolidated financial statements, the Company does not intend to exercise either of the two extension options. Total rent is $3,435 per month for the first ten months following the two months of free rent, with annual increases on the anniversary of the effective date. The Company has adopted the practical expedient under Topic 842, which permits the Company to account for each separate lease component of a contract and its associated non-lease components as a single lease payment. As a result, beginning at lease inception on October 1, 2022, the Company recognized both the lease payments and associated common area maintenance payments as a single lease payment. The Company estimated an incremental borrowing rate of 11.09% for this lease agreement.

 

 
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New Jersey Office Lease Agreement

 

On December 7, 2022, Old Catheter entered into a lease agreement for office space located in Augusta, New Jersey. The space is used for office and general use. The term of the lease is 24 months and began on January 1, 2023. The lease contains one 24 month renewal period, which requires 9 months’ notice if the Company intends to exercise. In March 2024, the Company notified the landlord of its intent to extend the lease for a 12-month period.  In April 2024, a lease extension agreement was entered into extending the lease through December 31, 2025.  Total rent is $1,207 per month throughout December 31, 2024 and $1,267 for the remaining term of the extended lease. The Company estimated an incremental borrowing rate of 10% for this lease agreement.

 

Park City Office Lease Agreement

 

On March 19, 2023, the Company entered into a lease agreement for office space located in Park City, Utah.  The space is used for office and general use. The term of the lease is for 36 months and began on May 1, 2023. The lease contains one 36 month renewal period, which requires 180 days’ notice of the Company's intention to exercise. As of the date of these unaudited condensed consolidated financial statements, the Company does not intend to exercise the extension option. Total rent is $3,200 per month for the first year with an annual increase of three percent per year on the anniversary of the effective date. The Company estimated an incremental borrowing rate of 6% for this lease agreement.

 

Future lease payments for all lease obligations for the following five fiscal years and thereafter are as follows ($ in thousands):

 

Years ending December 31:

 

Operating Lease

 

Remainder of 2024

 

$49

 

2025

 

 

96

 

2026

 

 

14

 

Total minimum lease payments

 

 

159

 

Less effects of discounting

 

 

(1

) 

Present value of future minimum lease payments

 

$158

 

 

Lease right-of-use assets and lease liabilities for the Company's operating leases were recorded in the condensed consolidated balance sheets as follows ($ in thousands):

 

 

 

June 30,

 

 

December 31,

 

 

 

2024

 

 

2023

 

Assets

 

 

 

 

 

 

Lease right-of-use assets

 

$149

 

 

$179

 

Total lease assets

 

$149

 

 

$179

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Lease liabilities - current portion

 

$96

 

 

$91

 

Non-current liabilities:

 

 

 

 

 

 

 

 

Lease liabilities - net of current portion

 

 

62

 

 

 

97

 

Total lease liabilities

 

$158

 

 

$188

 

 

Note 12. Net Loss per Share

 

The Company’s outstanding warrants to purchase common stock have participation rights to any dividends that may be declared in the future and are therefore considered to be participating securities. Participating securities have the effect of diluting both basic and diluted earnings per share during periods of income. During periods of loss, no loss is allocated to the participating securities since the holders have no contractual obligation to share in the losses of the Company.

 

 
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Anti-dilutive common share equivalents excluded from the computation of diluted net loss per share at June 30, 2024, consisted of Series A convertible preferred stock of 231,412 shares, Series X Convertible Preferred Stock of 1,265,601 shares, warrants of 1,104,218, stock options of 91,456, and no restricted stock awards or restricted stock units.

 

Anti-dilutive common share equivalents excluded from the computation of diluted net loss per share at June 30, 2023, consisted of Series A convertible preferred stock of 450,123 shares, Series X convertible preferred stock of 1,267,469 shares, warrants of 1,104,217, stock options of 21,531, and restricted stock units of 2.

 

Net loss attributable to common stockholders for the six months ended June 30, 2023, consists of net loss, as adjusted for deemed dividends. The Company recorded a deemed dividend for the modification of existing warrants and issuance of the Series E warrants (see Note 13, Equity Offerings) of $0.8 million, during the six  months ended June 30, 2023.

 

Note 13. Equity Offerings

 

Warrant Inducement Offer

 

On January 9, 2023, the Company reduced the exercise price of certain existing warrants (the "Existing Warrants"), exercisable for 33,161 shares of the Company’s common stock held by a certain investor (the “Investor”), with exercise prices ranging from $140.00 to $5,265 per share to $40.00 per share (the "2023 Warrant Repricing"). In connection with the 2023 Warrant Repricing, the Company entered into a warrant inducement offer letter (the "2023 Inducement Letter"), with the Investor pursuant to which it would exercise up to all of the 33,161 Existing Warrants (the "Inducement Offer"). In consideration for exercising the Existing Warrants pursuant to the terms of the 2023 Inducement Letter, the Company received approximately $1.3 million in gross proceeds. The Company paid the placement agent aggregate cash fees of approximately $0.2 million related to the Inducement Offer which represented 8.0% of the gross proceeds received from the Inducement Offer plus other offering costs resulting in net proceeds to the Company of $1.1 million. In consideration for exercising the Existing Warrants pursuant to the terms of the 2023 Inducement Letter, the Company issued the Investor a new Series E common stock purchase warrant, or Series E Warrant (the "Series E Warrant"), to purchase 33,161 shares of common stock at an exercise price of $40.00 per share. The Series E Warrant is exercisable for five years from the date of stockholder approval. Exercise of the Series E Warrant in full was subject to approval of the Company's stockholders other than the Investor, which was obtained at a special meeting of the Company's stockholders held on March 21, 2023 (the "Stockholders' Meeting"). The incremental fair value of the repriced warrants amounted to $0.3 million and the fair value of Series E warrant totaled $1.9 million.  The relative fair value of such amounts were recorded to additional paid-in capital concurrent with the exercise of the Existing Warrants.

 

As a result of the 2023 Warrant Repricing and Inducement Offer, the Company presented a deemed dividend for the modification of Existing Warrants and issuance of the Series E Warrants of $0 and $0.8 million during the three and six months ended June 30, 2023, respectively. The deemed dividend was included in net loss attributable to common stockholders in the calculation of net loss per share in the unaudited consolidated condensed statements of operations.

 

The warrants, other than the Series E Warrants which are presented in a separate table below, were valued on the date of the 2023 Warrant Repricing using the Black-Scholes model based on the following assumptions:

 

 

 

5/22/2020 Raise

 

 

8/3/2020 Raise

 

 

Series B

 

 

Series C

 

Risk-free interest rate

 

 

4.06%

 

 

4.06%

 

 

3.60%

 

 

3.66%

Volatility

 

 

135.35%

 

 

132.55%

 

 

115.42%

 

 

127.65%

Expected dividend yield

 

 

0.00%

 

 

0.00%

 

 

0.00%

 

 

0.00%

Expected life (in years)

 

 

2.4

 

 

 

2.6

 

 

 

6.5

 

 

 

4.5

 

 

 
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The Series E warrants were also valued on the date of the 2023 Warrant Repricing at approximately $1.9 million using the Black-Scholes model based on the following assumptions:

 

Risk-free interest rate

 

 

3.66%

Volatility

 

 

124.07%

Expected dividend yield

 

 

0.00%

Expected life (in years)

 

 

5.0

 

 

Private Placement

 

On January 9, 2023, the Company entered into a Securities Purchase Agreement (“Securities Purchase Agreement”) for a private placement (“Private Placement”), with the Investor. Pursuant to the Securities Purchase Agreement, the Investor agreed to purchase, for an aggregate purchase price of approximately $8.0 million, (a) Class A units at a price that was the lower of $3.00 per unit and 90% of the 5 day volume weighted average price of the Company’s common stock immediately prior to obtainment of the approval of the Company’s stockholders of conversion of the PIPE Preferred Stock and PIPE Warrants (as each are defined below), without adjusting such price for the reverse stock split, each consisting of one tenth of one share of common stock, one tenth of one Series F common stock purchase warrant, or Series F Warrant, and one tenth of one Series G common stock purchase warrant, or Series G Warrant, and together with the Series F Warrants (the “PIPE Warrants”) and (b) Class B units at a price of $1,000 per unit, each consisting of one share of a new series of the Company’s preferred stock, designated as Series A Convertible Preferred Stock (the “PIPE Preferred Stock”), par value $0.0001, and one tenth of one Series F Warrant and one tenth of one Series G Warrant for each one-tenth of one share of the Company’s common stock underlying the PIPE Preferred Stock (each share of which is convertible into a number of shares of the Company’s common stock equal to $1,000 divided by the lower of $30.00 and 90% of the 5 day volume weighted average closing price, multiplied by ten in order to reflect the impact of the reverse stock split of the Company’s common stock immediately prior to the obtainment of the approval of the Company’s stockholders of conversion of the PIPE Preferred Stock and PIPE Warrants, or the Preferred Conversion Rate). The closing under the Securities Purchase Agreement and the sale and issuance of the Class A units and Class B units (and the issuance of any underlying common stock) were approved at the Stockholders’ Meeting. At the closing of the Private Placement, the Company issued 497,908 Class A units for proceeds of approximately $0.9 million and 7,203 Class B units for proceeds of approximately $7.1 million which contained preferred shares that were convertible into up to 450,123 shares of common stock, as well as the issuance of warrants described below.

 

The PIPE Warrants, including Series F warrants and Series G warrants, are exercisable at an exercise price of $30.00 per share, subject to adjustments as provided under the terms of the PIPE Warrants. The PIPE Warrants are exercisable at any time on or after the closing date of the Private Placement until the expiration thereof, except that the PIPE Warrants cannot be exercised if, after giving effect thereto, the purchaser would beneficially own more than 4.99%, or the Maximum Percentage, of the outstanding shares of common stock of the Company, which Maximum Percentage may be increased or decreased by the purchaser with written notice to the Company to any other percentage specified not in excess of 9.99%. The Series F Warrants have a term of two years from the date of stockholder approval, and the Series G Warrants have a term of six years from the date of stockholder approval. The Series F Warrants and Series G Warrants were approved at the Stockholders’ Meeting.

 

The Series F warrants and Series G warrants were valued, in aggregate, at approximately $5.5 million using the Black-Scholes model based on the following assumptions:

 

 

 

Series F

 

 

Series G

 

Risk-free interest rate

 

 

3.8%

 

 

3.4%

Volatility

 

 

80.0%

 

 

74.0%

Expected dividend yield

 

 

0.0%

 

 

0.0%

Expected life (in years)

 

 

2.0

 

 

 

6.0

 

 

 
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The proceeds from the Securities Purchase Agreement were allocated to the equity instruments issued based on their relative fair values and recorded in additional paid-in capital.

 

Shares of PIPE Preferred Stock, the conversion of which was approved at the Stockholders’ Meeting, convert into common stock at the option of the holder at the Preferred Conversion Rate, subject to certain ownership limitations as described below. The conversion price is subject to adjustment in the case of stock splits, stock dividends, combinations of shares and similar recapitalization transactions.

 

Subject to limited exceptions, holders of shares of PIPE Preferred Stock will not have the right to convert any portion of their Preferred Stock if the holder, together with its affiliates, would beneficially own in excess of 4.99% (or up to 9.99% at the election of the holder) of the number of shares of the Company’s common stock outstanding immediately after giving effect to its conversion.

 

Holders of PIPE Preferred Stock will be entitled to receive dividends on shares of PIPE Preferred Stock equal, on an as-if-converted-to-common stock basis, and in the same form as dividends actually paid on shares of the common stock. Except as otherwise required by law, the PIPE Preferred Stock does not have voting rights.

 

The Company also entered into a registration rights agreement with the purchasers requiring the Company to register the resale of the shares of common stock, the shares issuable upon exercise of the Warrants and the shares issuable upon the conversion of the PIPE Preferred Stock.

 

Placement Fees

 

In connection with offerings completed by the Company in 2022, (the "2022 Offerings"), the Company entered into an agreement with a placement agent that, subject to satisfaction of the requirements contained therein, called for a placement fee payable based on capital raised from certain investors for a definitive time following the expiration of the agreement. The accrued placement fee of approximately $1.4 million related to the 2022 Offerings is included in accrued expenses in the consolidated balance sheets as of June 30, 2024. Additionally, the agreement called for the issuance of warrants with the following terms:

 

Number of shares

 

Exercise Price

 

Expiration

3,300

 

$312.50

 

5 years

3,100

 

$175.00

 

5 years

 

The warrants were valued on the date of the 2022 Offerings using the Black-Scholes model based on the following assumptions:

 

Value ( $ in millions)

 

Expected Volatility

 

Risk-Free Interest Rate

 

Expected Dividend Yield

 

Expected Term (years)

$0.4

 

93.25%

 

1.81%

 

0%

 

5.0

$0.2

 

96.70%

 

2.87%

 

0%

 

5.0

 

The warrants have not been issued by the Company as of June 30, 2024.

 

Warrants

 

The following table presents the number of common stock warrants outstanding:

 

Warrants outstanding, December 31, 2022

 

 

115,070

 

Issued

 

 

1,032,979

 

Exercised

 

 

(33,161)

Expired

 

 

(10,671)

Warrants outstanding, December 31, 2023

 

 

1,104,217

 

 Issued

 

 

—

 

 Exercised

 

 

—

 

 Expired

 

 

—

 

 Warrants outstanding, June 30, 2024

 

 

 1,104,217

 

 

 
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During the three and six  months ended June 30, 2024, no warrants were issued, exercised, or expired.

 

The following table presents the number and type of common stock warrants outstanding, their exercise price, and expiration dates as of June 30,  2024:

 

Warrant Type

 

Warrants Outstanding

 

 

Exercise Price

 

 

Expiration Date

 

May 2020 Warrants

 

 

1,275

 

 

$5,625.00

 

 

5/20/2025

 

May 2020 Placement Agent Warrants

 

 

124

 

 

$7,031.25

 

 

5/20/2025

 

August 2020 Warrants

 

 

1,943

 

 

$4,375.00

 

 

8/3/2025

 

August 2020 Placement Agent Warrants

 

 

192

 

 

$5,468.75

 

 

7/30/2025

 

August 2021 Pharos Banker Warrants

 

 

148

 

 

$1,495.00

 

 

8/16/2026

 

February 2022 Series B Warrants

 

 

39,153

 

 

$140.00

 

 

2/4/2029

 

July 2022 Series C Warrants

 

 

28,403

 

 

$140.00

 

 

7/22/2027

 

January 2023 Series E Warrants

 

 

33,161

 

 

$40.00

 

 

3/21/2028

 

March 2023 Series F Warrants

 

 

499,909

 

 

$30.00

 

 

3/21/2025

 

March 2023 Series G Warrants

 

 

499,909

 

 

$30.00

 

 

3/21/2029

 

 

 

 

1,104,217

 

 

 

 

 

 

 

 

 

As of June 30, 2024, the warrants issued by the Company had a weighted average exercise price of $53.07.

 

Note 14. Preferred Stock

 

Series X Convertible Preferred Stock

 

As described in Note 3, above, pursuant to the Merger Agreement, all Old Catheter common stock shares issued and outstanding and convertible promissory notes, representing an aggregate principal of $25.2 million, were converted into a right to receive 14,649.592 shares of a new class of the Company’s preferred stock, designated Series X Convertible Preferred Stock.

 

Series X Convertible Preferred Stock has no voting rights prior to the conversion into common stock. While there are generally no voting rights of the Series X Convertible Preferred Stock, there are protective rights regarding the sales of the company, change of control, etc. No currently outstanding share of Series X Preferred may convert into common stock until on or after July 9, 2024, and then, only if the Company’s common stock has been delisted from the NYSE American or has been approved for initial listing on the NYSE  American or another stock exchange, at a rate of 100 shares of common stock for each share of Series X Convertible Preferred Stock.

 

Upon consummation of the Merger, each holder of Old Catheter convertible promissory notes received, in exchange for discharge of the principal of his or its Notes, a number of shares of the Company's Series X Convertible Preferred Stock representing a potential right to convert into the Company's common stock in an amount equal to one common share for each $32.00 of principal amount.

 

On March 21, 2023, the Company held the Stockholders' Meeting, at which the stockholders approved, among other things, the issuance of 199,359 shares of common stock upon the conversion of 1,993.581 of Series X Convertible Preferred Stock which were issued upon the closing of the Merger, see Note 3, Business Combination. On March 23, 2023, the Company issued 197,491 shares of common stock upon the conversion of 1,974.905 of Series X Convertible Preferred Stock. On October 24, 2023, the remaining 1,868 shares of common stock were issued upon the conversion of 18.676 shares of Series X Convertible Preferred Stock. The remaining 12,656.011 shares of Series X Convertible Preferred Stock are expected to remain outstanding until the Company meets the initial listing standards of the NYSE American or another national securities exchange or is delisted from the NYSE American, at which time they will convert into common stock.

 

 
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Series A Convertible Preferred Stock

 

As described in Note 13, on January 9, 2023, the Company entered into a Securities Purchase Agreement for a Private Placement with the Investor. Pursuant to the Securities Purchase Agreement, shares of Series A Convertible Preferred Stock were issued, the conversion of which was approved at the Stockholders’ Meeting. The Series A Convertible Preferred Stock converts into common stock at the option of the holder at the Preferred Conversion Rate, subject to certain ownership limitations as described below. The conversion price is subject to adjustment in the case of stock splits, stock dividends, combinations of shares and similar recapitalization transactions.

 

Subject to limited exceptions, holders of shares of Series A Convertible Preferred Stock will not have the right to convert any portion of their Series A Convertible Preferred Stock if the holder, together with its affiliates, would beneficially own in excess of 9.99% of the number of shares of the Company’s common stock outstanding immediately after giving effect to its conversion.

 

Holders of Series A Convertible Preferred Stock will be entitled to receive dividends on shares of Series A Convertible Preferred Stock equal, on an as-if-converted-to-common stock basis, and in the same form as dividends actually paid on shares of the common stock. Except as otherwise required by law, the Series A Convertible Preferred Stock does not have voting rights.

 

The Company also entered into a registration rights agreement with the purchasers requiring the Company to register the shares of common stock, issuable upon the conversion of the Series A Convertible Preferred Stock. The shares have been registered for resale on an effective registration statement on Form S-1.

 

The following conversions of Series A Convertible Preferred Stock occurred subsequent to the issuance and prior to June 30, 2024:

 

Date of Conversion

 

Series A Shares Converted

 

Common Shares Issued

July 5, 2023

 

1,750

 

109,355

July 24, 2023

 

875

 

54,678

January 24, 2024

 

875