美國
證券和交易委員會
華盛頓特區20549
表格
截至季度結束日期的財務報告
或者
委員會文件號。
（註冊人章程中規定的確切名稱） |
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（國家或其他管轄區的 公司成立或組織） | （IRS僱主 （標識號碼） | |
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(主要行政辦公室地址) |
| (郵政編碼) |
( |
(註冊人電話號碼，包括區號) |
|
N/A |
（前名稱、地址及財政年度，如果自上次報告以來有更改） |
根據法案第12（b）節註冊的證券：
每類股票名稱: |
| 交易標誌 |
| 交易所 註冊的： |
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請勾選指示：（1）在過去的12個月（或者註冊者被要求提交這些報告的較短時期）內，是否已根據1934年《證券交易法》第13條或第15條規定提交所有必須提交的報告；以及（2）註冊者在過去90天內是否一直受到此類報告要求的約束
請在以下勾選方框表示註冊人是否已在Regulation S-T Rule 405規定的前12個月(或在註冊人需要提交此類文件的較短期間內)提交了每個互動數據文件。
用複選標記指明註冊人是大型加速申報人、加速申報人、非加速申報人、小型申報公司還是新興成長型公司。參見《交易法》第12b-2條中 「大型加速申報人」、「加速申報公司」、「小型申報公司」 和 「新興成長型公司」 的定義。
大型加速報告人 | ☐ | 加速文件提交人 | ☐ |
☒ | 較小的報告公司 | ||
|
| 新興成長公司 |
如果是新興成長公司，請勾選此處表示公司選擇不使用根據《交易所法》第13(a)條規定提供的任何新的或修訂後的財務會計準則的擴展過渡期進行合規。☐
請勾選註冊者是否爲殼公司（根據交易法第12b-2條的定義）。是
截至2024年11月8日業務結束時，註冊人擁有
CATHETER PRECISION，INC。
10-Q表格季度報告
目錄
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| 目錄 |
第一部分 財務信息
項目1.基本報表
CATHETER PRECISION，INC。
彙編的綜合資產負債表
（以千計，每股數據除外）
|
| 2024年9月30日 |
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| December 31, 2023 |
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| （未經審計） |
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資產 |
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流動資產 |
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現金及現金等價物 |
| $ |
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| $ |
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應收賬款 |
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存貨 |
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預付費用及其他流動資產 |
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總流動資產 |
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物業和設備，淨額 |
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經營租賃使用權資產，淨值 |
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無形資產-淨額 |
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其他非流動資產 |
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資產總計 |
| $ |
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| $ |
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負債和股東權益 |
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流動負債 |
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應付賬款 |
| $ |
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| $ |
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應計費用 |
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應付票據 |
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應付關聯方利息 |
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應付的特許權使用費的當前部分 |
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經營租賃負債流動部分 |
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當前負債合計 |
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應付版稅 |
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應付關聯方的票據 |
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經營租賃負債 |
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總負債 |
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承諾和或有事項（見第17條） |
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股東權益 |
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優先股，$ |
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A類可轉換優先股，$ |
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系列X可轉換優先股，$ |
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普通股，每股面值爲 $0.0001； |
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其他資本公積 |
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累積赤字 |
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| ( | ) |
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股東權益總額 |
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負債和股東權益總計 |
| $ |
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| $ |
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請參見附註的未經審計的簡明合併財務報表。
| 3 |
| 目錄 |
CATHETER PRECISION，INC。
簡明的彙總操作表
（以千爲單位，除每股數據外）
（未經審計）
|
| 截至9月30日三個月的情況 |
|
| 截至9月30日九個月期間 |
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|
| 2024 |
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| 2023 |
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| 2024 |
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| 2023 |
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營業收入 |
| $ |
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| $ |
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| $ |
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| $ |
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成本支出 |
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毛利潤 |
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營業費用 |
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商譽減值損失 |
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銷售、一般和管理費用 |
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研發 |
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總營業費用 |
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營業虧損 |
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| ( | ) |
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| ( | ) |
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| ( | ) |
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其他收入（費用），淨額 |
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利息收入 |
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利息支出 |
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| ( | ) |
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其他費用，淨額 |
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| ( | ) |
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| ( | ) |
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版稅應付款公允價值變動 |
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| ( | ) |
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| ( | ) |
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其他總收益（費用），淨額 |
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| ( | ) |
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淨虧損 |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
被視爲股息-權證誘因要約 |
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歸屬於普通股股東的淨損失 |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
每股普通股股東淨虧損，基本與稀釋後 |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
用於計算每股淨虧損的加權平均普通股份，基本和稀釋 |
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請參見附註的未經審計的簡明合併財務報表。
| 4 |
| 目錄 |
CATHETER PRECISION，INC。
股東權益簡明合併報表
(以千爲單位，除每股數據外)
（未經審計）
|
| 轉換優先股A系列 |
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| X系可轉換優先股 |
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| 普通股 |
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| 股本溢價 |
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| 累計 |
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| 股東總數 |
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| 分享 |
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| 金額 |
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| 股份 |
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| 金額 |
|
| 股份 |
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| 金額 |
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| 資本 |
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| 赤字 |
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| 股本 |
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2023年12月31日的餘額 |
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| $ |
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| $ |
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| $ |
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| $ |
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| $ | ( | ) |
| $ |
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基於股票的薪酬 |
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| — |
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| — |
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| — |
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A系列可轉換優先股的轉換 |
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| — |
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淨虧損 |
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| — |
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| — |
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| — |
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| ( | ) |
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2024年3月31日結存餘額 |
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股票補償 |
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| — |
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| — |
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| — |
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淨損失 |
|
| — |
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| — |
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| — |
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| ( | ) |
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| ( | ) | ||||
2024年6月30日餘額 |
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| $ |
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| $ |
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| $ |
|
| $ |
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| $ | ( | ) |
| $ |
| ||||||||
2024年9月公開募股發行的普通股和其他股本分類合同，扣除發行成本淨額 |
|
| — |
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| — |
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根據轉讓前資金認購權行使發行普通股（請參閱註釋13） |
|
| — |
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| — |
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A系列可轉換優先股轉換 |
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| — |
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股票補償 |
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| — |
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| — |
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| — |
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淨損失 |
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| — |
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| — |
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| — |
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截至2024年9月30日的餘額 |
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| $ |
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| $ |
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| $ |
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| $ |
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| $ | ( | ) |
| $ |
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| 轉換優先股A系列 |
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| X系可轉換優先股 |
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| Common Stock |
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| 股本溢價 |
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| 積累 |
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| 股東總數 |
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| 分享 |
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| 金額 |
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| 分享 |
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| 金額 |
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| 分享 |
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| 金額 |
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| 資本 |
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| 赤字 |
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| 股權 |
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2022年12月31日的餘額 |
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| $ |
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| $ |
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| $ |
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| $ |
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| $ | ( | ) |
| $ |
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行使期權後發行的普通股 |
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| — |
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| — |
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取消的限制性股票獎勵 |
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| — |
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股票薪酬 |
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| — |
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| — |
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| — |
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在合併中發行的X系列可轉換優先股 |
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| — |
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| — |
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X系列可轉換優先股的轉換 |
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與定向增發相關的A系列可轉換優先股的發行，淨值 |
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| — |
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行使的warrants（見第13條） |
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淨損失 |
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| — |
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2023年3月31日的餘額 |
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行使期權後發行的普通股 |
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| — |
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| — |
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合併中系列X可轉換優先股公平價值的調整 |
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| — |
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| — |
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| — |
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與合併相關的股票基礎補償公平價值的調整 |
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| — |
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| — |
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| — |
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淨損失 |
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| — |
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| — |
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2023年6月30日的餘額 |
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股票薪酬 |
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| — |
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| — |
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A系列可轉換優先股轉換 |
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| — |
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淨損失 |
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| — |
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| — |
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截至2023年9月30日的餘額 |
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| $ |
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| $ |
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| $ |
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| $ |
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| $ | ( | ) |
| $ |
| ||||||||
請參見未經審計的簡明合併基本報表的附註。
| 5 |
| 內容表 |
CATHETER PRECISION, INC.
綜合現金流量表
（以千為單位）
（未經審核）
|
| 截至9月30日止九個月 |
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| 2024 |
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| 2023 |
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營業活動之現金流量： |
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淨虧損 |
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調整為使淨虧損轉化為經營活動所使用現金： |
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商譽減損損失 |
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折舊及攤銷 |
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基於股票的薪酬 |
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應付權利金的公允價值變動 |
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營運資產和負債的變化： |
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應收賬款 |
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存貨 |
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預付費用及其他資產 |
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經營租賃使用權資產和租賃負債 |
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應付款項之現行部分 |
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應付賬款 |
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應計費用 |
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優先股 - A類 - 股份授權，$ |
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經營活動所用的淨現金 |
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投資活動產生的現金流量: |
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購買不動產和設備 |
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作為業務結合一部分獲得的現金 |
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投資活動中使用的淨現金 |
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融資活動產生的現金流量: |
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普通股及warrants發行所得款項 |
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2024年9月公開發行的普通股及其他股權類合約之發行收入，扣除發行成本 |
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來自於相關方的應付票據收入 |
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應付票據的支付 |
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票據收益 |
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行使認股權憑證的收益 |
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與warrants重新定價相關的成本支付 |
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可轉換本票及應計利息的支付 |
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定向增發證券的收益 |
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與定向增發證券相關的發行費用支付 |
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籌資活動提供的淨現金 |
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現金及現金等價物的淨變動 |
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期初現金及現金等價物 |
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期末現金及現金等價物 |
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現金流資訊的補充性披露 |
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付款現金以償付利息 |
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非現金融資和投資活動的補充披露 |
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獲取導管的非現金對價 |
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已從存貨重新分類的物業及設備 |
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將A系列可轉換優先股轉換為普通股 |
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請參見未經審計的簡明合併基本報表的附註。
| 6 |
| 目錄 |
CATHETER PRECISION，INC。
簡明合併財務報表附註
（單位：千，每股資料除外）
（未經審計）
注意 1. 組織與運營性質
這家公司
Catheter Precision, Inc.（"Catheter"或"公司"）於2002年9月4日在加利福尼亞州成立，並於2018年7月在德拉瓦州重新成立。Catheter最初成立是為了開發、商業化和推廣其愛文思控股基於準分子激光的平台，以用於治療血管和皮膚免疫介導的炎症疾病。
在2023年1月9日，Catheter與Catheter Precision, Inc.（「舊Catheter」），一家私人持有的德拉瓦州公司，簽訂了修訂及重述的合併協議（「合併協議」）。根據合併協議的條款，舊Catheter成為Catheter的全資子公司，兩者合稱為公司，進行了一項以股票按照股票的合併交易（「合併」）。
在合併之前，導管公司研發了先進的凹面聚焦雷射技術平台，用於治療與外周動脈疾病治療有關的免疫介導性炎症性疾病，旨在用作周邊動脈疾病治療中的工具，該疾病常發生在腿部。合併後，展望未來，這項傳統的動脈粥樣硬化梗塞區摧毀雷射消融和一次性導管設備（簡稱"DABRA"）及相關資產不再使用。公司停止了與DABRA相關的業務運營和市場推廣，並停止了導管公司的傳統業務線。相反，公司將業務焦點轉向Old Catheter的產品線。因此，公司目前的主要活動與Old Catheter的歷史業務相關，包括設計、製造和銷售專注於心臟電生理學（"EP"）領域的新型創新醫療技術。
該公司的兩款主要產品之一是VIVO系統，這是「心室起源觀點」的縮寫（“VIVO”或“VIVO 系統”）。 VIVO是一種非侵入式影像系統，提供3D心臟定位圖以幫助在結構正常心臟患者的電生理程序之前定位特發性心室心律失常的起源點。VIVO系統在歐洲聯盟已經商業化，並已放置在歐洲的幾家醫院。美國食品和藥物管理局（"FDA"）已獲得510(k)清潔，該公司於2021年在美國開始有限量的VIVO商業發行。
公司的最新產品，LockeT® （“LockeT”）是一種縫合保持裝置，適用於傷口癒合，通過將縫合張力分配在患者身上的較大區域，並配合八字縫合閉合，旨在暫時固定縫合線，幫助臨床醫生高效定位和移除縫合線。此外，Locket是一種無菌的I類產品，已於2023年2月向FDA註冊，當時初次發貨開始給經銷商。Locket的臨床研究於截至2023年12月31日的年度內開始。這些研究計劃顯示該產品的有效性和好處，包括更快的傷口閉合、更早的活動，可能導致提前出院，及其成本效益。本信息旨在提供關鍵數據以供市場推廣使用。
公司的產品組合還包括Amigo® 遠程導管系統（"AMIGO"或"AMIGO系統"），這是一款作為導管控制裝置的機器手臂。在2018年之前，舊導管公司負責推廣Amigo。公司擁有與Amigo相關的知識產權，該產品正在考慮未來研究和開發第二代產品。
| 7 |
| 目錄 |
Reverse Stock Split
2024 年 7 月 3 日，於本公司股東週年大會上，股東通過修訂及重新修訂本公司註冊證明書的修訂（「修訂」），其中包括減少授權普通股，並授權董事會自行決定在指定參數內進行反向股份拆分。該修正案生效於 2024 年 7 月 15 日，將授權普通股減至
反向拆股未發行碎股。原本有資格獲得碎股的股東有權獲得由交易代理商因反向拆股而形成的碎股聚集及銷售所得的按比例分配份額（減去任何慣例券商費用、佣金和其他費用）。未經審計的簡明綜合財務報表中所提供的所有時期的股份和每股金額參考值已按照反向拆股予以回溯重申。所有有關持有的證券（包括但不限於掛牌認股權證和期權）下發行普通股份的權利均已調整以反映反向拆股的影響。此外，對公司授予的以公司股票為基礎的掛牌認股權證和期權進行的單股行使價和行使時可購買的普通股份數量也進行了按比例的調整，同時也調整了公司股欖激勵計劃下為未來發行而保留的普通股份數量。
經營概念
未經審計的簡明綜合基本報表是基於持續經營的假設編製的，這假設考慮到在正常業務流程中資產的實現和負債的清償，並不包括任何調整以反映這種不確定性結果可能對資產的可收回性和分類或負債的金額和分類造成的未來影響。
該公司自創立以來一直存在經常性的淨虧損及經營活動的負現金流。截至2024年9月30日，該公司的現金及現金等價物約為$
管理層預期，隨著公司對其商業能力的投資，經營虧損和負現金流在可預見的未來將持續。這些負現金流以及在截至2023年12月31日的年度中因合併而支付的額外成本，已實質上耗盡了公司的現金。在與舊導管公司合併之後，管理層進一步降低了成本，同時承擔了舊導管公司的經營成本。管理層將繼續監控其經營成本，並尋求減少其當前負債。這些行動可能會削弱其進行某些戰略活動的能力。
自2024年5月至7月，公司向相關方發行了五份總額為$的短期票據
2024年8月30日，公司與Ladenburg Thalmann & Co. Inc.代表（“代表”），在承銷協議（“承銷協議”）中載明的承銷商的名稱（“承銷商”）簽署了協議。根據承銷協議，公司於2024年9月3日完成了其證券的公開發行（“2024年9月公開發行”），並賣出了（i）
| 8 |
| 目錄 |
於2024年10月24日，公司與公司現有認股權證的某些持有人簽訂了誘因認股權證提案函（“2024誘因提議”）。完成2024誘因提議後，
管理層估計，根據公司的流動資源，對公司在未經審核的簡明綜合基本報表發出日期起12個月內能否繼續以持續經營的方式運作存在相當大的懷疑。隨附的未經審核簡明綜合基本報表是基於公司繼續以正常業務運作為基礎編製的，並未反映與其持續經營能力的重大懷疑相關的資產和負債的任何調整。
管理層持續經營的能力取決於其籌措額外資金的能力。管理層計劃透過公開或私人股權或債務籌措額外資本，以滿足自發行未經審計簡明綜合財務報表之日起至少12個月的營運和資本需求。然而，公司可能無法及時或根本無法獲得有利條件的融資。此外，如果公司發行股權證券以籌措額外資金，現有股東可能會面臨稀釋，而新的股權證券可能具有高於公司現有股東的權利、偏好和特權。
附註2。重大會計政策摘要
合併原則
公司的未經審核之簡明合併基本報表包括公司和Old Catheter的帳戶。所有公司間交易在合併時已予以消除。
報告基礎
所附的未經審核的簡明合併基本報表是根據美國通用會計原則（"U.S. GAAP"）編製的。財務會計準則委員會（"FASB"）建立這些原則，以確保財務狀況、經營成果和現金流量的一致報告。這些附註中提到的適用會計指導是指FASB會計準則編纂（"ASC"）中的權威非政府GAAP。根據10-Q表格的說明和S-X條例第8條的要求，某些通常由美國GAAP要求的註腳和其他財務信息已被簡化或省略。管理層認為，這些報表包括所有被認為對公允表達公司的未經審核的簡明合併基本報表所需的調整。此處呈現的經營結果不一定表明未來一年的結果。未經審核的簡明合併基本報表應與公司在2023年12月31日截至的年度報告中包含的經審核合併基本報表一起閱讀，該報告已於2024年4月1日提交給證券交易委員會（"SEC"）。
| 9 |
| 目錄 |
估計的使用
編製未經審核的摘要合併基本報表需要管理層做出估計和假設，影響報告資產和負債金額以及揭示未經審核的摘要合併基本報表日期當日的潛在資產和負債金額，以及報告的收入和支出金額在報告期間。實際結果可能與這些估計有實質差異。公司的未經審核的摘要合併基本報表基於許多估計，包括但不限於，舊導管業務組合的會計處理（詳見注3，業務組合）、信貸虧損準備、評估有形資產和商譽的減值、評估有形資產及其相應預估使用壽命、保固成本準備金、應支付權利使用費的公允價值、評估損失應據的可能性、優先股和認股權證的公允價值，以及授予的股權獎勵的公允價值。
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. The Company generally maintains balances in various operating accounts at financial institutions that management believes to be of high credit quality, in amounts that may exceed federally insured limits. The Company has not experienced any losses related to its cash and cash equivalents and does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships. The Company has no significant off-balance sheet risk such as foreign exchange contracts, option contracts, or other hedging arrangements.
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
Reclassifications
Certain prior year financial statement amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on our previously reported results of operations or accumulated deficit.
Segment Reporting
The Company’s Board of Directors and executive management team represents the entity’s chief operating decision makers. To date, the Company’s executive management team has viewed the Company’s operations as one segment that includes the marketing, sales, and development of medical technologies in the field of cardiac electrophysiology. As a result, the financial information disclosed materially represents all of the financial information related to the Company’s sole operating segment.
| 10 |
| Table of Contents |
Cash and Cash Equivalents
Cash equivalents primarily represent funds invested in readily available checking and money market accounts.
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;
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 following table details the fair value measurements within the fair value hierarchy of the Company’s financial instruments:
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| Fair value at September 30, 2024 |
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| Total |
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| Level 1 |
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| Level 2 |
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| Level 3 |
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Assets: |
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Cash Equivalents |
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Mutual Funds |
| $ |
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| $ |
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| $ |
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| $ |
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Money Market Funds |
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Total assets |
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| $ |
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| $ |
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| $ | — |
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Liabilities |
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Royalties payable |
| $ |
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| $ |
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| $ |
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| $ |
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Total liabilities |
| $ |
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| $ |
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| $ |
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| $ |
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| Fair value at December 31, 2023 |
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| Total |
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| Level 1 |
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| Level 2 |
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| Level 3 |
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Assets: |
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Cash Equivalents |
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Mutual Funds |
| $ |
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| $ |
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| $ |
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| $ |
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Money Market Funds |
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Total assets |
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| $ |
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| $ |
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Liabilities |
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Royalties payable |
| $ |
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| $ |
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| $ |
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| $ |
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Total liabilities |
| $ |
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| $ |
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| $ |
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| $ |
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| 11 |
| Table of Contents |
The royalties payable have significant 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 measurement of the Level 3 liability. 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 summarizes the significant unobservable inputs used in the fair value measurement of Level 3 instruments as of September 30, 2024 and December 31, 2023:
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| September 30, 2024 |
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Instrument |
| Valuation Technique |
| Unobservable Input |
| Input Range |
Royalties Payable |
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| December 31, 2023 |
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Instrument |
| Valuation Technique |
| Unobservable Input |
| Input Range |
Royalties Payable |
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|
| |||
Increases or decreases in the fair value of the royalties payable can result from updates to assumptions, such as changes in discount rates, project cash flows, among other assumptions. Judgment is used in determining these assumptions as of the initial valuation date and at each subsequent reporting period. Changes or updates to assumptions could have a material impact on the reported fair value, the change in fair value, and the results of operations in any given period.
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.
| 12 |
| Table of Contents |
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 estimated loss rates 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. Trade 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 for credit losses, if any. Changes in the allowance are recorded as adjustments to bad debt expense in the period incurred.
The allowance for credit losses within trade accounts receivable was not material as of September 30, 2024 and December 31, 2023.
Inventories
Inventories are stated at the lower of cost (determined by the 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 are potentially in excess, obsolete or slow-moving based on changes in customer demand, technological developments or other economic factors.
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 |
| |
Computer hardware and software |
| |
LockeT animation video |
| |
VIVO DEMO/Clinical Systems |
|
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 whenever events or changes in circumstances indicate that such assets might be impaired and the carrying value of the long-lived assets may not be recoverable. If events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable and the expected undiscounted future cash flows attributable to the asset are less than the carrying amount of the asset, an impairment loss equal to the excess of the assets carrying value over its fair value is recorded in the Company’s consolidated statements of operations at that date.
| 13 |
| Table of Contents |
The Company concluded there was no impairment as of September 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 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 $
Royalties Payable
The Company is obligated to pay royalties under various royalty agreements executed by Old Catheter. 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, 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 recognizes a current liability for royalty fees incurred and payable to the Noteholders based on actual sales of LockeT devices. The liability is recorded as current portion of royalties payable in the condensed consolidated balance sheet. The Company further recognizes a liability for future, estimated royalty payments to the Noteholders at fair value, which is recorded as royalties payable in the condensed consolidated balance sheet (the “Royalties Payable”). The fair value of the Royalties Payable is an estimate that is based on the projected sales of LockeT through the end of 2035. The projected sales are then multiplied by the royalty rate of
| 14 |
| Table of Contents |
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 offers product warranties against defects in material and workmanship when properly the products are 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 result from current period updates to assumptions regarding repair and product recall costs and are included in current period warranty expense. As of September 30, 2024 and December 31, 2023, there was no accrued warranty balance.
Distinguishing Liabilities from Equity
The Company evaluates equity or liability classification for freestanding financial instruments, including convertible preferred stock, warrants, and options, pursuant to the guidance under ASC Topic 480, Distinguishing Liabilities from Equity (“ASC 480”). The Company classifies as liabilities all freestanding financial instruments that are (i) mandatorily redeemable, (ii) represent an obligation to repurchase the Company’s equity shares by transferring assets, or (iii) represent an unconditional obligation (or conditional obligation if the financial instrument is not an outstanding share) to issue a variable number of shares predominantly based on a fixed monetary amount, variations in something other than the fair value of the Company’s equity shares, or variations inversely related to changes in fair value of the Company’s equity shares.
If a freestanding financial instrument does not represent an outstanding equity share and does not meet liability classification under ASC 480, the Company then assesses whether the freestanding financial instrument is indexed to its own stock and meets equity classification pursuant to ASC 815-40, Derivatives and Hedging (“ASC 815”). The Company further assesses whether the freestanding financial instruments should be classified as temporary equity. Freestanding financial instruments that are redeemable for cash or other assets at a fixed or determinable date, at the option of the holder, or upon the occurrence of an event are classified in temporary equity in accordance with ASC 480. Otherwise, the freestanding financial instruments is classified in permanent equity.
Revenue Recognition
In accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”), the Company accounts for a contract with a customer when there is a legally enforceable contract, the rights of the parties are identified, the contract has commercial substance, and collectability of the contract consideration is probable. Revenue is measured as the amount of consideration expected to be received in exchange for transferring promised goods or services. The amount of consideration to be received and revenue recognized may vary due to discounts. A performance obligation is a promise in a contract to transfer a distinct good or service. If there are multiple performance obligations in the customer contract, the Company allocates the transaction price in the contract to each performance obligation based on the relative standalone selling price. Revenue is recognized when performance obligations in the customer contract are satisfied. This generally occurs when the customer obtains control of a promised good at a point in time or when a customer receives a promised service over time.
Pursuant to ASC 606, the Company applies the following five steps to each customer contract:
Step 1: Identify the contract with the customer
Step 2: Identify the performance obligations in the contract
Step 3: Determine the transaction price in the contract
Step 4: Allocate the transaction price to the performance obligations in the contract
Step 5: Recognize revenue when the Company satisfies a performance obligation
| 15 |
| Table of Contents |
VIVO System
The VIVO System offers 3D cardiac mapping to help localize the sites of origin of idiopathic ventricular arrhythmias in patients with structurally normal hearts prior to electrophysiology studies. Customers are provided with VIVO Positioning Patch Sets, which are custom patches, that are used in conjunction with the VIVO System. The VIVO Positioning Patch Sets are integral to the functionality of the VIVO System. The VIVO System, including the VIVO Positioning Patch Sets, represents the Company’s primary performance obligation. The Company recognizes revenue when physical possession and control of the VIVO System is transferred to the customer upon delivery. The Company also offers customers software upgrades for the VIVO System, which may be purchased and paid in advance at contract inception. Software upgrades represent stand-ready services, whereby the Company promises to provide software upgrades to the customer when and as upgrades are available. Software upgrade services may be offered for initial contract terms of one to multiple years. Customers have the option to renew terms for software upgrades services at the end of each term. The software upgrade services represent the Company's second performance obligation, which is recognized evenly over time over the contract term.
The Company invoices the customer 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. Revenue is recognized at the point in time that the product is delivered to the customer.
LockeT
LockeT was launched by the Company in February 2023 and 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. LockeT is intended to temporarily secure sutures and aid clinicians in locating and removing sutures efficiently. The LockeT device represents a performance obligation in the customer contract. The Company recognizes revenue when it transfers control of the LockeT device to the customer, which happens when the Company delivers the product to the customer.
For both LockeT and VIVO System, the Company has elected the practical expedient to expense costs incurred to obtain a contract, rather than recognizing these costs as an asset at the time of occurrence.
| 16 |
| Table of Contents |
Disaggregation of Revenue
The following table summarizes disaggregated product sales by geographic area (in thousands):
|
| For the Three Months Ended September 30, |
|
| For the Nine Months Ended September 30, |
| ||||||||||
|
| 2024 |
|
| 2023 |
|
| 2024 |
|
| 2023 |
| ||||
Product Sales |
|
|
|
|
|
|
|
|
|
|
|
| ||||
US |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Europe |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
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.
Advertising and Marketing
Advertising costs are expensed as incurred and included in selling, general and administrative expenses. Advertising costs were $
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 guidance under ASC Topic 718, Compensation – Stock Compensation (“ASC 718”). 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. Stock-based compensation expense for stock options 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. Stock-based compensation expense for stock options is recognized 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 probable or is not met, no stock-based 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.
| 17 |
| Table of Contents |
As a result of the Merger, all unvested Old Catheter stock options were subject to accelerated vesting and 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 an 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.
Basic and Diluted Net Loss per Share of Common Stock
Earnings per share attributable to common stockholders is calculated using the two-class method, which is an earnings allocation formula that determines earnings per share for the holders of the Company’s common shares and participating securities. The Company’s Series A Convertible Preferred Stock, Series X Convertible Preferred Stock, and outstanding warrants contain participating rights in distributions made to common stockholders and, therefore, are participating securities. The Company did not declare nor pay any dividends nor distributions in the current period. Furthermore, the participating securities do not include a contractual obligation to share in the losses of the Company and are not included in the calculation of net loss per share in the periods that have a net loss. In addition, common stock equivalent shares (whether or not participating) are excluded from the computation of diluted earnings per share in periods in which they have an anti-dilutive effect on net loss per common share.
Diluted net loss per share is computed using the more dilutive of (a) the two-class method or (b) the if-converted method and treasury stock method, as applicable. In periods in which the Company reports a net loss attributable to common stockholders, diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders since dilutive common shares are not assumed to have been issued if their effect is anti-dilutive. Diluted net loss per share is equivalent to basic net loss per share for the periods presented herein because common stock equivalent shares from warrants, stock options, non-vested restricted stock awards, restricted stock units, Series A Convertible Preferred Stock, and Series X Convertible Preferred Stock were antidilutive (see Note 12, Net Loss per Share).
| 18 |
| Table of Contents |
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 nine months ended September 30, 2023 of $
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 $
The total purchase consideration for the Merger was $
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 $
| 19 |
| Table of Contents |
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 |
| $ |
| |
Fair value of Old Catheter’s fully vested stock options |
|
|
| |
Total Purchase Price |
| $ |
| |
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 $
| 20 |
| Table of Contents |
The following table summarizes the final purchase price allocations relating to the Merger (in thousands):
Description |
| Fair Value |
| |
Assets acquired: |
|
|
| |
Cash and cash equivalents |
| $ |
| |
Accounts receivable |
|
|
| |
Inventories |
|
|
| |
Prepaid expenses and other current assets |
|
|
| |
Property and equipment, net |
|
|
| |
Lease right-of-use assets |
|
|
| |
Other assets |
|
|
| |
Developed technology |
|
|
| |
Customer relationships |
|
|
| |
Trademarks |
|
|
| |
Goodwill |
|
|
| |
Total assets acquired |
| $ |
| |
|
|
|
|
|
Liabilities assumed: |
|
|
|
|
Accounts payable |
| $ |
| |
Accrued expenses |
|
|
| |
Lease liability |
|
|
| |
Interest payable |
|
|
| |
Convertible promissory notes |
|
|
| |
Royalties payable |
|
|
| |
Total liabilities assumed |
|
|
| |
Total purchase price |
| $ |
| |
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 |
| $ |
|
|
|
| ||
Developed technology- LockeT |
|
|
|
|
|
| ||
Customer relationships |
|
|
|
|
|
| ||
Trademark- VIVO |
|
|
|
|
|
| ||
Trademark- LockeT |
|
|
|
|
|
| ||
|
| $ |
|
|
|
|
| |
Notwithstanding the above, as described in Note 7, management determined that there were indicators of asset impairment during the nine months ended September 30, 2023, and assessed the carrying values of the Company’s intangible assets and goodwill. As a result of the impairment analysis in prior periods, the Company recorded an impairment charge of $
| 21 |
| Table of Contents |
Transaction costs incurred in connection with this business combination amounted to approximately $
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 nine months ended September 30, 2023 is presented in thousands except for the per share data (in thousands, except per share data):
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||
|
| 2023 |
|
| 2023 |
| ||
Revenues |
| $ |
|
| $ |
| ||
Net loss |
| $ | ( | ) |
| $ | ( | ) |
Net loss attributable to common stockholders |
| $ | ( | ) |
| $ | ( | ) |
Basic and diluted net loss per share – on a pro forma basis |
| $ | ( | ) |
| $ | ( | ) |
Note 4. Inventories
Inventories consisted of the following (in thousands):
|
| September 30, 2024 |
|
| December 31, 2023 |
| ||
Raw materials |
| $ |
|
| $ |
| ||
Finished goods |
|
|
|
|
|
| ||
Inventories |
| $ |
|
| $ |
| ||
There were no charges for inventory obsolescence or allowance recorded during the three and nine months ended September 30, 2024 and 2023.
Note 5. Property and Equipment, net
Property and equipment, net consisted of the following (in thousands):
|
| September 30, 2024 |
|
| December 31, 2023 |
| ||
Machinery and equipment |
| $ |
|
| $ |
| ||
Computer hardware and software |
|
|
|
|
|
| ||
LockeT Animation Video |
|
|
|
|
|
| ||
VIVO DEMO/Clinical Systems |
|
|
|
|
|
| ||
Property and equipment, gross |
|
|
|
|
|
| ||
Accumulated depreciation |
|
| ( | ) |
|
| ( | ) |
Property and equipment, net |
| $ |
|
| $ |
| ||
| 22 |
| Table of Contents |
Depreciation expense was $
Note 6. Intangible Assets
The following table summarizes the Company’s intangible assets as of September 30, 2024 (in thousands):
|
| Estimated Useful Life in Years |
|
| Gross Carrying Amount at January 9, 2024 |
|
| Accumulated Amortization |
|
| Net Book Value at September 30, 2024 |
| ||||
Developed technology ‐ VIVO |
|
|
|
| $ |
|
| $ | ( | ) |
| $ |
| |||
Developed technology ‐ LockeT |
|
|
|
|
|
|
|
| ( | ) |
|
|
| |||
Customer relationships |
|
|
|
|
|
|
|
| ( | ) |
|
|
| |||
Trademarks/trade names ‐ VIVO |
|
|
|
|
|
|
|
| ( | ) |
|
|
| |||
Trademarks/trade names ‐ LockeT |
|
|
|
|
|
|
|
| ( | ) |
|
|
| |||
|
|
|
|
|
| $ |
|
| $ | ( | ) |
| $ |
| ||
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 |
|
|
|
| $ |
|
| $ | ( | ) |
| $ |
| |||
Developed technology ‐ LockeT |
|
|
|
|
|
|
|
| ( | ) |
|
|
| |||
Customer relationships |
|
|
|
|
|
|
|
| ( | ) |
|
|
| |||
Trademarks/trade names ‐ VIVO |
|
|
|
|
|
|
|
| ( | ) |
|
|
| |||
Trademarks/trade names ‐ LockeT |
|
|
|
|
|
|
|
| ( | ) |
|
|
| |||
|
|
|
|
|
| $ |
|
| $ | ( | ) |
| $ |
| ||
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 |
| $ |
| |
2025 |
|
|
| |
2026 |
|
|
| |
2027 |
|
|
| |
2028 |
|
|
| |
Thereafter |
|
|
| |
Total |
| $ |
| |
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 $
| 23 |
| Table of Contents |
The weighted average remaining amortization period for the Company’s intangible assets as of September 30, 2024, is
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 $
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 $
Note 8. Accrued Expenses
Accrued expenses consisted of the following (in thousands):
|
| September 30, 2024 |
|
| December 31, 2023 |
| ||
Legal expenses |
| $ |
|
| $ |
| ||
Offering costs |
|
|
|
|
|
| ||
Compensation and related benefits |
|
|
|
|
|
| ||
Other accrued expenses |
|
|
|
|
|
| ||
Accrued expenses |
| $ |
|
| $ |
| ||
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 $
| 24 |
| Table of Contents |
Note 9. Notes Payable
Note Payable - Director & Officer Liability Insurance
The Company purchased director and officer liability insurance coverage on October 16, 2023 for $
The Company purchased director and officer liability insurance coverage on September 26, 2024 for $
Short Term Promissory Notes (collectively, the “Related Party Notes”)
On May 30, 2024, David A. Jenkins loaned $
On June 25, 2024, an entity controlled by Mr. Jenkins loaned $
On July 1, 2024 and July 18, 2024, the Company entered into two short-term promissory notes with an affiliate of Mr. Jenkins, where the affiliate loaned $
On July 25, 2024, the Company entered into a short-term promissory note with a Trust, of which Mr. Jenkins’ adult daughter is the trustee, where the Trust loaned $
All of these short-term promissory notes (the “Related Party Notes”) had a maturity date of
On August 23, 2024, the Company entered in the first amendment of the Related Party Notes, which extended the maturity date to January 31, 2026 and increased the interest rate to
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 $
See Note 19, Related Parties for additional details.
| 25 |
| Table of Contents |
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
An additional royalty will be paid to
The LockeT device had sales during the three and nine months ended September 30, 2024, and as such the Company owes the first royalty payment in relation to the Royalty Agreement. As of September 30, 2024, the Company owes $
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 $
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 |
| $ | ||
| $ | ||
|
|
The Company is not actively marketing and selling the AMIGO System. There was no royalty expense recorded for the three and nine months ended September 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.
| 26 |
| Table of Contents |
The table below represents the change in fair value of Level 3 royalties payable for the nine months ended September 30, 2024 and 2023 ($ in thousands). See Note 2, Summary of Significant Accounting Policies, for valuation techniques.
|
| 2024 |
|
| 2023 |
| ||
Beginning Balance, January 1, |
| $ |
|
| $ |
| ||
AMIGO royalty payable recognized in connection with the Merger |
|
|
|
|
|
| ||
LockeT royalty payable recognized in connection with the Merger |
|
|
|
|
|
| ||
Payments owed on royalties payable |
|
|
|
|
|
| ||
Change in fair value of royalties payable |
|
|
|
|
| ( | ) | |
Ending Balance, September 30, |
| $ |
|
| $ |
| ||
Note 11. Leases
For the three and nine months ended September 30, 2024 and 2023 operating lease expense and cash paid for leases were as follows:
|
| For the Three Months Ended September 30, |
|
| For the Nine Months Ended September 30, |
| ||||||||||
|
| 2024 |
|
| 2023 |
|
| 2024 |
|
| 2023 |
| ||||
Operating lease expense |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Cash paid for leases |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
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 September 30, 2024:
Weighted average remaining lease term (in years) - operating leases |
|
|
| |
Weighted average discount rate - operating leases |
|
| % |
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 rent 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 $
| 27 |
| Table of Contents |
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
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
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 |
| $ |
| |
2025 |
|
|
| |
2026 |
|
|
| |
Total minimum lease payments |
|
|
| |
Less effects of discounting |
|
| ( | ) |
Present value of future minimum lease payments |
| $ |
| |
Operating lease right-of-use assets and lease liabilities for the Company's operating leases were recorded in the condensed consolidated balance sheets as follows:
|
| September 30, |
|
| December 31, |
| ||
|
| 2024 |
|
| 2023 |
| ||
Assets |
|
|
|
|
|
| ||
Operating lease right-of-use assets, net |
| $ |
|
| $ |
| ||
Total lease assets |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Current portion of operating lease liabilities |
| $ |
|
| $ |
| ||
Non-current liabilities: |
|
|
|
|
|
|
|
|
Operating lease liabilities |
|
|
|
|
|
| ||
Total lease liabilities |
| $ |
|
| $ |
| ||
| 28 |
| Table of Contents |
Note 12. Net Loss per Share
The Company’s Series A Convertible Preferred Stock, Series X Convertible Preferred Stock and 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.
Anti-dilutive common share equivalents excluded from the computation of diluted net loss per share at September 30, 2024, consisted of Series X Convertible Preferred Stock of
Anti-dilutive common share equivalents excluded from the computation of diluted net loss per share at September 30, 2023, consisted of Series A convertible preferred stock of
Net loss attributable to common stockholders for the nine months ended September 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 $
Note 13. Equity Offerings
Warrant Inducement Offer
On January 9, 2023, the Company reduced the exercise price of all existing warrants (the "Existing Warrants"), exercisable for
As a result of the 2023 Warrant Repricing and Inducement Offer, the Company presents a deemed dividend for the modification of Existing Warrants and issuance of the Series E Warrants of $
| 29 |
| Table of Contents |
The warrants, other than the Series E Warrants that 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 |
|
| % |
|
| % |
|
| % |
|
| % | ||||
Volatility |
|
| % |
|
| % |
|
| % |
|
| % | ||||
Expected dividend yield |
|
| % |
|
| % |
|
| % |
|
| % | ||||
Expected life (in years) |
|
|
|
|
|
|
|
|
|
|
|
| ||||
The Series E warrants were also valued on the date of the 2023 Warrant Repricing at approximately $
Risk-free interest rate |
|
| % | |
Volatility |
|
| % | |
Expected dividend yield |
|
| % | |
Expected life (in years) |
|
|
|
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 $
The PIPE Warrants, including Series F warrants and Series G warrants, are exercisable at an exercise price of $
| 30 |
| Table of Contents |
The Series F warrants and Series G warrants were valued, in aggregate, at approximately $
|
| Series F |
|
| Series G |
| ||
Risk-free interest rate |
|
| % |
|
| % | ||
Volatility |
|
| % |
|
| % | ||
Expected dividend yield |
|
| % |
|
| % | ||
Expected life (in years) |
|
|
|
|
|
| ||
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
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 $
Number of shares |
| Exercise Price |
| Expiration |
| $ |
| ||
| $ |
|
| 31 |
| Table of Contents |
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) |
$ |
|
|
|
| ||||
$ |
|
|
|
|
September 2024 Public Offering
On September 3, 2024, in connection with the September Public Offering (see Note 1), the Company sold an aggregate of
Each Common Stock Unit consists of: (i) one share of the Company's Common Stock, (ii) a Series H Warrant to purchase one share of Common Stock at an exercise price of $
Each Pre-Funded Warrant Unit consists of: (i) a Pre-Funded Warrant to purchase one share of Common Stock at an exercise price of $
Pursuant to the Underwriting Agreement, the Company granted the Representative a 45-day Overallotment Option to purchase up to (i)
Furthermore, at the closing date, the Company agreed to deliver warrants to purchase an aggregate number of shares of Common Stock equal to 6% of the shares of Common Stock (i) issued in connection with the September 2024 Public Offering and (ii) issuable upon the exercise of the Pre-Funded Warrants. Therefore, the Company issued
Each Series H Warrant, Series I Warrant, Series J Warrant (collectively, the “Series Warrants”), and Pre-Funded Warrant is immediately exercisable. The exercise price of the Series Warrants and Pre-Funded Warrants is subject to appropriate adjustment in the event of recapitalization events, stock dividends, stock splits, stock combinations, reclassifications, reorganizations or similar events affecting the Company’s Common Stock. Subject to limited exceptions, a holder of the Series Warrants will not have the right to exercise any portion of its Series Warrants if the holder (together with such holder’s affiliates) would beneficially own a number of shares of common stock in excess of 4.99% of the shares of Common Stock then outstanding (the “Beneficial Ownership Limitation”). Similarly, a holder of the Pre-Funded Warrants has a Beneficial Ownership Limitation of 9.99%. At the holder’s option, the holder of the Series Warrants may increase the beneficial ownership limitation to 19.99% of the shares of Common Stock then outstanding, with any such increase becoming effective upon 61 days’ prior notice to the Company.
The Representative Warrants are exercisable after six months from the effective date of the Registration Statement filed by the Company on August 29, 2024. The Representative Warrants further have a Beneficial Ownership Limitation of
The Company assessed the Series Warrants, Pre-Funded Warrants, and Representative Warrants issued in connection with the September 2024 Public Offering (collectively, the “September 2024 Warrants”) and determined that they do not require liability classification pursuant to ASC 480. Furthermore, the September 2024 Warrants do not have any net cash settlement provisions that would preclude equity classification under ASC 815-40. Accordingly, the September 2024 Warrants were recorded to additional paid-in capital in the condensed consolidated balance sheets.
| 32 |
| Table of Contents |
Warrants
The following table presents the number of common stock warrants outstanding:
Warrants outstanding, December 31, 2023 |
|
|
| |
Issued |
|
|
| |
Exercised |
|
| ( | ) |
Expired |
|
|
| |
Warrants outstanding, September 30, 2024 |
|
|
|
| 33 |
| Table of Contents |
As of September 30, 2024, and December 31, 2024, all warrants outstanding are recorded in additional paid-in capital in the condensed consolidated balance sheets. The following table presents the number and type of common stock warrants outstanding, their exercise price, and expiration dates as of September 30, 2024:
Warrant Type |
| Warrants Outstanding |
|
| Exercise Price |
|
| Expiration Date | |||
May 2020 Warrants |
|
|
|
| $ |
|
| ||||
May 2020 Placement Agent Warrants |
|
|
|
| $ |
|
| ||||
August 2020 Warrants |
|
|
|
| $ |
|
| ||||
August 2020 Placement Agent Warrants |
|
|
|
| $ |
|
| ||||
August 2021 Pharos Banker Warrants |
|
|
|
| $ |
|
| ||||
February 2022 Series B Warrants |
|
|
|
| $ |
|
| ||||
July 2022 Series C Warrants |
|
|
|
| $ |
|
| ||||
January 2023 Series E Warrants |
|
|
|
| $ |
|
| ||||
March 2023 Series F Warrants |
|
|
|
| $ |
|
| ||||
March 2023 Series G Warrants |
|
|
|
| $ |
|
| ||||
September 2024 Pre-Funded Warrants |
|
|
|
| $ |
|
| None | |||
September 2024 Series H Warrants |
|
|
|
| $ |
|
| ||||
September 2024 Series I Warrants |
|
|
|
| $ |
|
| ||||
September 2024 Series J Warrants |
|
|
|
| $ |
|
| ||||
September 2024 Representative Warrants |
|
|
|
| $ |
|
| ||||
|
|
|
|
|
|
|
|
|
| ||
As of September 30, 2024, the warrants issued by the Company had a weighted average exercise price of $
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 $
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. Series X Preferred Stock may convert into common stock 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
Other than dividends payable in shares of Common Stock, Holders of Series X Convertible Preferred Stock will be entitled to receive dividends on shares of Series X 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 Common 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 $
| 34 |
| Table of Contents |
On March 21, 2023, the Company held the Stockholders' Meeting, at which the stockholders approved, among other things, the issuance of
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
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 September 30, 2024:
Date of Conversion |
| Series A Shares Converted |
| Common Shares Issued |
July 5, 2023 |
|
| ||
July 24, 2023 |
|
| ||
January 24, 2024 |
|
| ||
July 1, 2024 |
|
| ||
July 11, 2024 |
|
| ||
July 22, 2024 |
|
| ||
July 23, 2024 |
|
|
Each share of Series A Convertible Preferred Stock is convertible into approximately 62.5 shares of common stock. The common stock was issued pursuant to the exemption contained in Section 3(a)(9) of the Securities Act of 1933, as amended (the “Act”), which applies to transactions in which a security is exchanged by an issuer with its existing security holders exclusively where no commission or other remuneration is paid or given directly or indirectly for soliciting such exchange. The shares issued have been registered for resale on an effective registration statement on Form S-1.
| 35 |
| Table of Contents |
After the final conversion on July 23, 2024, the Company had no shares of Series A Convertible Preferred Stock outstanding.
Note 15. Stock-Based Compensation
2018 Equity Incentive Plan
In September 2018, the Company’s board of directors adopted, and the Company’s stockholders approved, the 2018 Equity Incentive Plan (the “2018 Plan”) which provided for the grant of incentive stock options, non-statutory stock options, restricted stock awards, restricted stock units, performance-based stock awards and other forms of equity compensation to the Company’s employees, directors and consultants. In July 2023, the 2018 Plan was replaced by the 2023 Equity Incentive Plan (the "2023 Plan"), as described below. As of July 2023, no additional awards could be made under the 2018 Plan and no shares of common stock were reserved for future issuance. As of September 30, 2024, there are 7 non-statutory stock options outstanding under the 2018 Plan. Three expire in June 2028 and four expire in January 2030.
2018 Employee Stock Purchase Plan
In September 2018, the Company adopted the 2018 Employee Stock Purchase Plan (the “ESPP”) which permitted eligible employees to purchase the Company’s common stock at a discount through payroll deductions during defined offering periods. Eligible employees could elect to withhold up to
In April 2024, the Company formally terminated the ESPP. For the three and nine months ended September 30, 2024 and 2023, no cash was received from the exercise of purchase rights under the ESPP in each respective period.
As of September 30, 2024, the Company had issued
As of December 31, 2023, the Company had issued
Upon termination of the ESPP in April 2024, the reserved shares were released back to the authorized pool.
2020 Inducement Equity Incentive Plan
In March 2020, the Company adopted the 2020 Inducement Equity Incentive Plan (the “2020 Plan”) for the purpose of attracting, retaining and incentivizing employees in furtherance of the Company’s success. The 2020 Plan was adopted without stockholder approval pursuant to Rule 303A.08 of the New York Stock Exchange. The 2020 Plan is used to offer equity awards as material inducements for new employees to join the Company. Upon adoption of the 2020 Plan,
| 36 |
| Table of Contents |
Stock Options Assumed in Merger (See Note 3, Business Combination)
At the closing of the Merger, each outstanding option to purchase Old Catheter common stock that had not previously been exercised prior to the closing of the Merger was assumed and converted into options to purchase
2023 Equity Incentive Plan
In July 2023, the Company’s stockholders approved, the 2023 Plan, as defined above, which provided for the grant of incentive stock options, non-statutory stock options, restricted stock awards, restricted stock units, performance-based stock awards and other forms of equity compensation to the Company’s employees, directors and consultants. Stock options granted under the 2023 Plan to employees and consultants generally will vest annually over a five-year period or as determined by the Board’s Compensation Committee, while grants to non-employee directors generally vest quarterly over a three-year period. As of September 30, 2024 and December 31, 2023,
On January 8, 2024, the Board approved the issuance of a total of
On February 26, 2024, the Board approved the issuance of a total of
On April 24, 2024, the Board approved the issuance of a total of
On July 9, 2024, the Board approved the issuance of a total of
| 37 |
| Table of Contents |
The options issued during the three and nine months ended September 30, 2024 were valued at approximately $
|
| Non-Employee Director Options Issued January 8, 2024 |
|
| Employee Options Issued January 8, 2024 |
|
| Employee Options Issued February 26, 2024 |
|
| Employee Options Issued April 24, 2024 |
|
| Employee Options Issued July 9, 2024 |
| |||||
Risk-free interest rate |
|
| % |
|
| % |
|
| % |
|
| % |
|
| % | |||||
Volatility |
|
| % |
|
| % |
|
| % |
|
| % |
|
| % | |||||
Expected dividend yield |
|
| % |
|
| % |
|
| % |
|
| % |
|
| % | |||||
Expected life (in years) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Non-Plan Options Issued
On April 24, 2024, the Board approved the issuance of a total of
The non plan options issued were valued at approximately $
|
| Non-Plan Options Issued May 1, 2024 |
| |
Risk-free interest rate |
|
| % | |
Volatility |
|
| % | |
Expected dividend yield |
|
| % | |
Expected life (in years) |
|
|
| |
The following is a summary of stock option activity for the nine months ended September 30, 2024:
|
| Stock Options |
|
| Weighted Average Exercise Price |
|
| Weighted Average Remaining Life (in years) |
|
| Aggregate Intrinsic Value (in thousands) |
| ||||
Outstanding at December 31, 2023 |
|
|
|
| $ |
|
|
|
|
| $ |
| ||||
Options exercised |
|
|
|
| $ |
|
|
| — |
|
|
| — |
| ||
Options granted |
|
|
|
| $ |
|
|
| — |
|
|
| — |
| ||
Cancelled/forfeited |
|
| ( | ) |
| $ |
|
|
| — |
|
|
| — |
| |
Outstanding at September 30, 2024 |
|
|
|
| $ |
|
|
|
|
| $ |
| ||||
Vested and expected to vest at September 30, 2024 |
|
|
|
| $ |
|
|
|
|
| $ |
| ||||
Exercisable at September 30, 2024 |
|
|
|
| $ |
|
|
|
|
| $ |
| ||||
Restricted Stock Units
All restricted stock units have been forfeited or vested as of December 31, 2023.
| 38 |
| Table of Contents |
Restricted Stock Awards
All restricted stock awards have been forfeited or vested as of December 31, 2023.
Stock-based compensation expense for the three and nine months ended September 30, 2024 was $
Total unrecognized estimated stock-based compensation expense by award type and the remaining weighted average recognition period over which such expense is expected to be recognized at September 30, 2024 was as follows:
|
| Unrecognized Expense (in thousands) |
|
| Remaining Weighted Average Recognition Period (in years) |
| ||
Stock options |
| $ |
|
|
|
| ||
Restricted stock awards |
| $ |
|
|
| — |
| |
Restricted stock units |
| $ |
|
|
| — |
| |
Note 16. Income Taxes
The provision for income taxes for interim periods is determined using an estimated annual effective tax rate. The effective tax rate may be subject to fluctuations during the year as new information is obtained, which may affect the assumptions used to estimate the annual effective tax rate, including factors such as valuation allowances against deferred tax assets, the recognition or de-recognition of tax benefits related to uncertain tax positions, if any, and changes in or the interpretation of tax laws in jurisdictions where the Company conducts business.
For the three and nine months ended September 30, 2024 and 2023, the Company did not record any federal or state income tax provision or benefit due to net losses incurred for all periods presented. The Company’s net deferred tax assets generated mainly from net operating losses are fully offset by a valuation allowance as the Company believes it is not more likely than not that the benefit will be realized. The Company will continue to assess its position in future periods to determine if it is appropriate to reduce a portion of its valuation allowance in the future.
As of September 30, 2024, the Company has an open sales and use tax audit with the California Department of Tax and Fee Administration covering the period from October 1, 2020 through March 31, 2023.
Note 17. Commitments and Contingencies
In the normal course of business, the Company is at times subject to pending and threatened legal actions. In management’s opinion, any potential loss resulting from the resolution of these matters will not have a material effect on the results of operations, financial position or cash flows of the Company.
As of September 30, 2024, the Company had no outstanding litigation.
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Note 18. Employee Benefit Plan
In January 2019, the Company established a defined contribution plan under Section 401(k) of the Internal Revenue Code (“401(k) Plan”). Under the terms of the 401(k) Plan, all full-time employees were eligible to make voluntary contributions as a percentage or defined amount of compensation. The Company made matching contributions based on
Note 19. Related Parties
Prior to the Merger, David A. Jenkins, the Company’s current Executive Chairman of the Board and Chief Executive Officer, and Old Catheter’s then Chairman of the Board of Directors, and his affiliates held approximately $
In addition to the shares described above that were issued in connection with the Notes,
In connection with the Merger (see Note 3, Business Combination), the Company assumed $
Mr. Jenkins’ daughter, the Company’s non-executive Chief Operating Officer, received options to purchase
Margrit Thomassen, the Company’s Interim Chief Financial Officer, received options to purchase
Following stockholder approval on March 21, 2023, the Company issued
On May 1, 2024, Marie-Claude Jacques, the Company’s Chief Commercial Officer, received a non-plan option to purchase
During the three months ended September 30, 2024, the Company entered into various short-term promissory notes with various related parties (the “Related Party Notes”). These Related Party Notes had a maturity date of
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The related parties and the amounts owed to each related party are summarized in the following table (in thousands):
Related Party |
| Issuance Date |
| Principal Amount |
|
| Interest Paid |
|
| Interest Accrued |
| |||
David Jenkins |
|
| $ |
|
| $ |
|
| $ |
| ||||
FatBoy Capital |
|
| $ |
|
| $ |
|
| $ |
| ||||
FatBoy Capital |
|
| $ |
|
| $ |
|
| $ |
| ||||
FatBoy Capital |
|
| $ |
|
| $ |
|
| $ |
| ||||
Jenkins Family Charitable Institute |
|
| $ |
|
| $ |
|
| $ |
| ||||
On September 3, 2024, the Jenkins Family Charitable Institute also invested approximately $
Note 20. Subsequent Events
2024 Warrant Inducement Offer
On October 24, 2024, the Company executed the 2024 Inducement Offer with certain holders of the Existing Warrants. The Existing Warrants had exercise prices ranging from $
In consideration for the immediate exercise of the Existing Warrants for cash, the Company issued unregistered new Series K Common Stock Purchase Warrants (“Series K Warrants”) to purchase up to a number of shares equal to 200% of the number of shares of Common Stock issued pursuant to the exercise of the Existing Warrants. The Series K Warrants have an exercise price of $
As additional consideration,
The Company received aggregate gross proceeds of approximately $
Prior to the repricing and execution of the 2024 Inducement Offer, the Company received additional gross proceeds of approximately $
Issuance of Securities from Warrant Exercises
Aside from the common stock issued in connection with the 2024 Warrant Inducement Offer, the Company also issued common stock in connection with the following exercises of warrants (in thousands):
Name of Warrant |
| Exercise Date |
| Issue Date |
| Shares Common Stock Issued |
|
| Number of Warrants Exercised |
|
| Proceeds |
| |||
September 2024 Pre-Funded Warrant |
|
|
|
|
|
|
|
|
| $ |
| |||||
September 2024 Pre-Funded Warrant |
|
|
|
|
|
|
|
|
| $ |
| |||||
September 2024 Pre-Funded Warrant |
|
|
|
|
|
|
|
|
| $ |
| |||||
September 2024 Series H Warrant |
|
|
|
|
|
|
|
|
| $ |
| |||||
September 2024 Series I Warrant |
|
|
|
|
|
|
|
|
| $ |
| |||||
September 2024 Pre-Funded Warrant |
|
|
|
|
|
|
|
|
| $ |
| |||||
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Special Note Regarding Forward Looking Statements
This Quarterly Report on Form 10-Q, or Quarterly Report, contains forward-looking statements that are based on our management’s beliefs and assumptions and on information currently available. This section should be read in conjunction with our unaudited condensed financial statements and related notes included in Part I, Item 1 of this report. The statements contained in this Quarterly Report that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Forward-looking statements can be identified by words such as “believe,” “anticipate,” “may,” “might,” “can,” “could,” “continue,” “depends,” “expect,” “expand,” “forecast,” “intend,” “predict,” “plan,” “rely,” “should,” “will,” “may,” “seek,” or the negative of these terms or and other similar expressions, although not all forward-looking statements contain these words. These statements include, but are not limited to, our expectations regarding CE Mark approval for LockeT. You should read these statements carefully because they discuss future expectations, contain projections of future results of operations or financial condition, or state other “forward-looking” information. These statements relate to our future plans, objectives, expectations, intentions and financial performance and the assumptions that underlie these statements.
These forward-looking statements are subject to a number of risks, uncertainties, and assumptions, including, but not limited to, those described in Item 1A. Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2023. These risks include, but are not limited to, that: our ability to obtain CE Mark approval for LockeT is subject to the discretion of EU regulators, and they may require additional information from us or that we conduct additional studies or trials that we may not be able to easily or cost effectively provide or complete, we will be required to raise additional funds to finance our operations and continue as a going concern, and we may not be able to do so when necessary, and/or the terms of any financings may not be advantageous to us, our business has a history of losses, will incur additional losses, and may never achieve profitability, we have identified material weaknesses in our internal control over financial reporting and these material weaknesses could adversely affect our ability to report our results of operations and financial condition accurately and in a timely manner, compliance with Sarbanes-Oxley Act Section 404 could have a material adverse impact on our business, we will not be able to reach profitability unless we are able to achieve our product expansion and growth goals; our VIVO launch plans require significant investment in infrastructure and sales representatives, our research and development and commercialization efforts may depend on entering into agreements with corporate collaborators, we have entered into joint marketing agreements with respect to our products, and may enter into additional joint marketing agreements, that will reduce our revenues from product sales, royalty agreements with respect to LockeT, the surgical vessel closing pressure device, will reduce any future profits from this product, if we experience significant disruptions in our information technology systems, our business may be adversely affected, litigation and other legal proceedings may adversely affect our business, if we make acquisitions or divestitures, we could encounter difficulties that harm our business, failure to attract and retain sufficient qualified personnel could also impede our growth, our revenues may depend on our customers’ receipt of adequate reimbursement from private insurers and government sponsored healthcare programs, we may be unable to compete successfully with companies in our highly competitive industry, many of whom have substantially greater resources than we do, our future operating results depend upon our ability to obtain components in sufficient quantities on commercially reasonable terms or according to schedules, prices, quality and volumes that are acceptable to us, and suppliers may fail to deliver components, or we may be unable to manage these components effectively or obtain these components on such terms, if hospitals, physicians and patients do not accept our current and future products or if the market for indications for which any product candidate is approved is smaller than expected, we may be unable to generate significant revenue, if any, a variety of risks associated with marketing our products internationally could materially adversely affect our business, the impact of the military conflicts in Ukraine and Israel, and the actions that have been and could be taken by other countries, including new and stricter sanctions and actions taken in response to such sanctions, have affected, and may continue to affect, our business and results of operations, including our supply chain, if the third parties on which we rely for the conduct of our clinical trials and results do not perform our clinical trial activities in accordance with good clinical practices and related regulatory requirements, we may be unable to obtain regulatory approval for or commercialize our product candidates, we may be adversely affected by product liability claims, unfavorable court decisions or legal settlements, our ability to use our net operating loss carryforwards may be limited, we may have to make milestone payments under the Settlement Agreement we entered into with the Department of Justice (“DOJ”), we are subject to pervasive and continuing regulation by the FDA and other regulatory agencies. Our products may be subject to additional recalls, revocations or suspensions after receiving FDA or foreign approval or clearance, which could divert managerial and financial resources, harm our reputation, and adversely affect our business, changes in trade policies among the United States (“U.S.”) and other countries, in particular the imposition of new or higher tariffs, could place pressure on our average selling prices as our customers seek to offset the impact of increased tariffs on their own products, increased tariffs or the imposition of other barriers to international trade could have a material adverse effect on our revenues and operating results, product clearances and approvals can often be denied or significantly delayed, although we have obtained regulatory clearance for our VIVO and LockeT products in the U.S. and certain non-U.S. jurisdictions, our business plans include expanding uses for our products, which will require additional clearances; and even after clearance is obtained, our products remain subject to extensive regulatory scrutiny, if we or our suppliers fail to comply with the FDA’s Quality System Regulation, or QSR, or any applicable state equivalent, our operations could be interrupted, and our potential product sales and operating results could suffer, our products may be subject to additional recalls, revocations or suspensions after receiving FDA or foreign approval or clearance, which could divert managerial and financial resources, harm our reputation, and adversely affect our business, if any of our products cause or contribute to a death or a serious injury, or malfunction in certain ways, we will be required to report under applicable medical device reporting regulations, which can result in voluntary corrective actions or agency enforcement actions, healthcare reform initiatives and other administrative and legislative proposals may adversely affect our business, financial condition, results of operations and cash flows in our key markets, and if we are unable to obtain and maintain patent protection for our products, our competitors could develop and commercialize products and technology similar or identical to ours, and our ability to successfully commercialize our existing products and any products we may develop, and our technology may be adversely affected.
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These forward-looking statements reflect our beliefs and views with respect to future events and are based on estimates and assumptions as of the date of this Quarterly Report and are subject to risks and uncertainties. Given these risks and uncertainties, you should not place undue reliance on these forward-looking statements. We qualify all of the forward-looking statements in this Quarterly Report by these cautionary statements. Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, whether as a result of new information, future events or otherwise.
This Quarterly Report also contains estimates, projections and other information concerning our industry, our business, and the markets for certain diseases, including data regarding the estimated size of those markets. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances reflected in this information. Unless otherwise expressly stated, we obtained this industry, business, market, and other data from reports, research surveys, studies, and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data, and similar sources.
References to “we”, “us”, “our” and “the Company” refer to Catheter Precision, Inc.
Overview
Catheter Precision, Inc. ("Catheter" or the "Company) 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, the Company merged with the former Catheter Precision, Inc., or “Old Catheter”, a privately-held Delaware corporation (the “Merger”), and the business of Old Catheter became a wholly owned subsidiary of the Company, which today is our only operating subsidiary. Following the Merger, we discontinued the Company’s legacy lines of business and the use of any of its DABRA-related assets. For further information about these historical lines of business, see “Item 1. Business” of the Company’s Form 10-K for the fiscal year ended December 31, 2021. Since the Merger, we have shifted the focus of our operations to Old Catheter’s product lines. Accordingly, our 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.”
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One of our two primary products is the 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.
Our 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. LockeT is intended to temporarily secure sutures and aid clinicians in locating and removing sutures efficiently.
Our product portfolio also includes the Amigo® Remote Catheter System, or Amigo, a robotic arm that serves as a catheter control device. Prior to 2018, Old Catheter marketed Amigo. We own the intellectual property related to Amigo, and this product is under consideration for future research and development of a generation 2 product.
Pre-Merger Operations
The Company owns intellectual property related to an advanced excimer laser-based platform for use in the treatment of vascular immune-mediated inflammatory diseases. The Destruction of Arteriosclerotic Blockages by laser Radiation Ablation, laser and single-use catheter, together referred to as the DABRA Excimer Laser System or DABRA, was developed as a tool in the treatment of Peripheral Artery Disease which commonly occurs in the legs. The Company also previously marketed the Pharos laser which was used to treat proliferative skin conditions. The Company completed the sale of its Pharos laser business, or Dermatology Business, to STRATA Skin Sciences, Inc. on August 16, 2021.
In June 2022, the board of directors reviewed strategic alternatives, and as a result, the Company paused all engineering activities related to DABRA in June 2022. The Company ceased marketing the DABRA Excimer Laser System and does not currently intend to commercialize the DABRA 2.0 catheter.
Post-Merger Operations
Looking forward, we do not expect to use our legacy DABRA-related assets or continue the Company's legacy lines of business, but instead have shifted the focus of our operations to Old Catheter’s product lines. Accordingly, our 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 our two primary products is the VIVO System. We are focused on the design, market development and usage adoption of our VIVO System by cardiac electrophysiologists to enhance their ability to diagnose and treat cardiac arrhythmias. We have completed development, received regulatory clearance, and initiated sales of the VIVO System in the U.S., Europe (“EU”) and the Middle East.
Our business strategy is to become a leading medical imaging company in the field of cardiac electrophysiology, and we are dedicated to developing and delivering electrophysiology products to provide patients, hospitals, and physicians with novel technologies and solutions to improve the lives of patients with cardiac arrhythmias. We aim to establish VIVO as an integral tool used by cardiac electrophysiologists during ablation treatment of ventricular arrhythmias by reducing procedure time and patient complications and increasing procedural success.
We have received FDA clearance to market and promote the VIVO System in the U.S. as a pre-procedure planning tool for patients with structurally normal hearts undergoing ablation treatment for idiopathic ventricular arrhythmias. VIVO allows for the acquisition, analysis, display and storage of cardiac electrophysiological data and maps for analysis by a physician. We began a limited commercial launch of VIVO in 2021 and to date, VIVO has been utilized in more than 1,000 procedures in the U.S. and EU by over 30 physicians, with no reported device-related complications.
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We have been cleared to label the VIVO System with the CE Mark in the EU and certain other countries. The CE Mark designation, which affirms the product’s conformity with European health, safety, and environmental protection standards, allows us to market that product in countries that are members of the EU and the European Free Trade Association. Catheter has commenced limited sales of the VIVO System in Europe and the UK through independent distributors. Catheter’s international distributors are supported by two EU based full time consultants.
In addition, our newest product is LockeT, a suture retention device. LockeT is 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 it is intended to temporarily secure sutures and aid clinicians in locating and removing sutures efficiently. LockeT is a sterile Class I product that was registered with the FDA in February 2023, at which time we began initial shipments to distributors. In May 2024, we recognized our first sale of LockeT. In May 2023, Catheter submitted LockeT for CE Mark approval. CE Mark approval is expected in March 2025, at which time initial international shipments to distributors will begin. In September 2024, we received notification of the issuance of our first LockeT patent in the country of China and we also completed a Middle East distribution agreement for LockeT.
Clinical studies for LockeT began during the year ended December 31, 2023. The three phases of the current studies are planned to show the product’s effectiveness and benefits, including faster wound closure, earlier ambulation, potentially leading to early hospital discharge, and lower costs for the healthcare provider and/or insurance payor. This data is intended to provide crucial data for marketing and to expand our indications for use with the FDA.
Recent Developments
September 2024 Public Offering
On August 30, 2024, the Company entered into an underwriting agreement to issue and sell in a public offering (i) 347,277 Common Stock Units, priced at a public offering price of $1.00 per unit, with each unit consisting of (a) one share of Common Stock, (b) one warrant to purchase one share of Common Stock at an exercise price of $1.00 per share that expires on the six month anniversary of the date of issuance (a “Series H Warrant”), (c) one warrant to purchase one share of Common Stock at an exercise price of $1.00 per share that expires on the eighteenth month anniversary of the date of issuance (a “Series I Warrant”), and (d) one warrant to purchase one share of Common Stock at an exercise price of $1.00 per share that expires on the five year anniversary of the date of issuance (a “Series J Warrant”), and (ii) 2,773,000 Pre-Funded Warrant Units, priced at a public offering price of $0.9999 per unit, with each unit consisting of (a) one pre-funded warrant to purchase one share of Common Stock at an exercise price of $0.0001 per share that has no expiration date (a “Pre-Funded Warrant”), (b) one Series H Warrant, (c) one Series I Warrant, and (d) one Series J Warrant.
In addition to the securities described above, the Company granted the underwriter a 45-day Overallotment Option to purchase up to (i) 468,041 additional shares of Common Stock, (ii) 468,041 additional Series H Warrants, (iii) 468,041 additional Series I Warrants, and/or (iv) 468,041 additional Series J Warrants, solely to cover over-allotments. On August 30, 2024, the Underwriters partially exercised the Overallotment Option to purchase an additional 458,623 shares of Common Stock, 458,623 Series H Warrants, 458,623 Series I Warrants, and 458,623 Series J Warrants.
In the aggregate, the Company issued and sold (i) 805,900 Common Stock Units, (ii) 2,773,000 Pre-Funded Warrant Units, and (iii) 214,734 warrants that were issued as part of the underwriter’s compensation, which have an exercise price of $1.55, are not exercisable until March 1, 2025 and expire on August 29, 2029. The public offering closed on September 3, 2024. The net proceeds to the Company, after deducting the underwriting discount, commissions, and management fee and offering expenses payable by the Company, were approximately $2.6 million.
Debt Modification
Between May 30, 2024 and July 25, 2024, the Company issued five short-term promissory notes to related parties totaling $1.5 million with an 8% interest rate and a maturity date of August 30, 2024. On August 23, 2024, the Company amended the promissory notes to extend the maturity date to January 31, 2026. As part of the amendment, all interest accrued as of the amendment date was repaid to the notes holders and the contractual interest rate increased to 12% per annum as of the amendment date. The modified terms and conditions were not substantially different from the original terms and conditions, and the Company applied modification accounting, which resulted in the new carrying amount of the debt being equal to the remaining principal balance of the old debt. The previously outstanding accrued interest through August 30, 2024 was repaid in accordance with the terms of the amendment.
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Issuance of Securities from Warrant Exercises
Aside from the common stock issued in connection with the 2024 Warrant Inducement Offer, the Company also issued common stock in connection with the following exercises of warrants (in thousands):
Name of Warrant |
| Exercise Date |
| Issue Date |
| Shares Common Stock Issued |
|
| Number of Warrants Exercised |
|
| Proceeds |
| |||
September 2024 Pre Funded |
| 10/3/2024 |
| 10/4/2024 |
|
| 250,000 |
|
|
| 250,000 |
|
| $ | — |
|
September 2024 Pre Funded |
| 10/16/2024 |
| 10/16/2024 |
|
| 196,000 |
|
|
| 196,000 |
|
| $ | — |
|
September 2024 Pre Funded |
| 10/18/2024 |
| 10/21/2024 |
|
| 434,000 |
|
|
| 434,000 |
|
| $ | — |
|
September 2024 Series H |
| 10/18/2024 |
| 10/21/2024 |
|
| 1,010,000 |
|
|
| 1,010,000 |
|
| $ | 1,010 |
|
September 2024 Series I |
| 10/18/2024 |
| 10/21/2024 |
|
| 175,000 |
|
|
| 175,000 |
|
| $ | 175 |
|
September 2024 Pre-Funded |
| 10/29/2024 |
| 10/29/2024 |
|
| 235,000 |
|
|
| 235,000 |
|
| $ | — |
|
Reverse Stock Split
On July 3, 2024, at the annual meeting of shareholders of the Company, the shareholders 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.
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 and all share and per share information contained in this Form 10-Q have been retrospectively adjusted to reflect the Reverse Stock Split of the Company’s common stock for all periods presented.
Expansion of Sales Force
Beginning in the first quarter of 2024, we began to rejuvenate our sales force with plans to engage a new Chief Commercial Officer ("CCO"). As of November 2024, the sales force is placed fully in service and ten sales people and three clinical support staff have been hired, along with the new CCO.
Settlement Agreements with the Department of Justice and Participating States
On December 28, 2020, the Company entered into a settlement agreement with the U.S., acting through the Department of Justice ("DOJ") and on behalf of the Office of Inspector General, and other settlement agreements with certain state attorneys general (collectively the "Settlement Agreements"), to resolve investigations and a related civil action concerning its marketing of the DABRA laser system and DABRA-related remuneration to certain physicians. Pursuant to the terms of the Settlement Agreements, if the Company was acquired or was otherwise involved in a change in control transaction (as defined in the Settlement Agreements) before the end of 2024, the Company was required to pay a settlement amount of $5.0 million. As a result of the Merger, the Company made payments of $4.7 million and $0.3 million to the DOJ and participating states, respectively, in February 2023. Additional contingent payments may be required in the future if certain revenue milestones are achieved. However, no liability has been recorded for additional payments based on the Company’s determination that additional future payments are not probable at this time.
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Warrant Inducement Offers
On January 9, 2023, we reduced the exercise price of certain 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 to $5,265 per share to $40 per share, or the Warrant Repricing. In connection with the Warrant Repricing, we entered into a warrant inducement offer letter (the “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 Inducement Letter, we received approximately $1.3 million in gross proceeds. We 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. In consideration for exercising the existing warrants pursuant to the terms of the Inducement Letter, we issued the Investor a new Series E common stock purchase warrant (“Series E Warrant”), to purchase 33,161 shares of common stock at an exercise price of $40 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 approved by the Company's stockholders at the special Stockholders’ Meeting held on March 21, 2023. 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 values of such amounts were recorded to additional paid-in capital concurrent with the exercise of the existing warrants. We registered the shares of common stock underlying the Series E Warrant for resale in February 2023.
On October 24, 2024, we entered into Warrant Inducement Offer Letters (the “2024 Inducement Offer”) with certain holders of the Company’s existing warrants. Following the closing of the 2024 Inducement Offer, such warrant holders immediately exercised up to an aggregate of (i) 33,160.8 Series E Warrants, (ii) 499,909.34 Series F Warrants, (iii) 499,909.34 Series G Warrants, (iv) 1,990,000 Series H Warrants, and (v) 2,325,000 Series I Warrants to purchase up to approximately 5.3 million shares of the Company’s Common Stock at a reduced exercise price of $0.70 per share. In consideration for the immediate exercise of the existing warrants for cash, the Company agreed to issue unregistered new Series K Common Stock Purchase Warrants (“Series K Warrants”) to purchase up to 10.7 million shares of common stock. We received aggregate gross proceeds of approximately $3.7 million in cash from the exercise of these warrants pursuant to the 2024 Inducement Offer, prior to deducting placement agent fees and offering expense of $0.4 million. Due to beneficial ownership blockers we have issued 2,251,981 shares of common stock and 3,096,000 outstanding pre-funded warrants related to the 2024 Inducement Offer as of November 1, 2024. The Series K Warrants are not exercisable unless and until we obtain stockholder approval of their exercise. In connection with the 2024 Inducement Offer, we repriced all outstanding Series H and Series I Warrants to $0.70 per share, including those that were not exercised. As partial consideration to the placement agent, we issued placement agent warrants to purchase up to 320,879 shares of common stock on substantially the same terms as the Series K warrants, except the exercise price is $1.085 per share and they have a termination date of October 28, 2029.
Securities Purchase Agreement
On January 9, 2023, we entered into a Securities Purchase Agreement (the "Securities Purchase Agreement"), for a private placement (the "Private Placement"), with the Investor. Pursuant to the Securities Purchase Agreement, on March 23, 2023, the Investor purchased, for an aggregate purchase price of approximately $8.0 million, (a) 497,908 Class A Units at a price of $1.60029 per Class A Unit, 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 Warrant, the PIPE Warrants, and (b) 4,501,060 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, par value $0.0001, or the PIPE Preferred Stock, and one tenth of one Series F Warrant and one tenth of one Series G Warrant for each share of the Company’s common stock underlying the PIPE Preferred Stock, each share of which is convertible into approximately 62.5 shares of the Company’s common stock (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) was approved at the special Stockholders’ Meeting held March 21, 2023. We paid placement agent aggregate cash fees plus other offering costs of approximately $0.2 million related to the Inducement Offer, resulting in net proceeds of $1.1 million.
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The PIPE Warrants are exercisable at an exercise price of $30 per share, subject to adjustments as provided under the terms of the PIPE Warrants. The PIPE Warrants are exercisable at any time 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% (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. Stockholder approval of the Series F Warrants and Series G Warrants was obtained at the special Stockholders’ Meeting held on March 21, 2023.
Shares of PIPE Preferred Stock, the conversion of which was approved at the special Stockholders’ Meeting held on March 21, 2023, 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 do 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 9.99% of the number of shares of the Company’s common stock outstanding immediately after giving effect to its conversion.
Holders of PIPE Preferred Stock are 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. However, as long as any shares of PIPE Preferred Stock are outstanding, the Company will not, without the affirmative vote of the holders of a majority of the then outstanding shares of the PIPE Preferred Stock, (a) alter or change adversely the powers, preferences or rights given to the PIPE Preferred Stock, (b) alter or amend the Certificate of Designation for the PIPE Preferred Stock, (c) amend its certificate of incorporation or other charter documents in any manner that adversely affects any rights of the holders of PIPE Preferred Stock, (d) increase the number of authorized shares of PIPE Preferred Stock, or (e) enter into any agreement with respect to any of the foregoing. The PIPE Preferred Stock does not have a preference upon any liquidation, dissolution or winding-up of the Company. The holders of PIPE Preferred Stock shall be entitled to receive out of the assets, whether capital or surplus, of the Company the same amount that a holder of the Company’s common stock would receive if the PIPE Preferred Stock were fully converted (disregarding for such purposes any conversion limitations) to the Company’s common stock, which amounts will be paid pari passu with all holders of the Company’s common stock.
The Company also entered into a registration rights agreement with the purchasers requiring the Company to register the resale of the shares of its common stock, the shares issuable upon exercise of the PIPE Warrants and the shares issuable upon the conversion of the PIPE Preferred Stock. These registration statements were declared effective in April 2023.
The net proceeds from the Private Placement and the Warrant Repricing have been used to advance the development and commercialization of our novel electrophysiology technologies and solutions and to support general corporate purposes.
Conversion of Series X Convertible Preferred Stock
On March 21, 2023, the Company held a special meeting of stockholders (the “Stockholders’ Meeting”), at which the stockholders approved, among other things, the issuance of 199,359 shares of common stock upon conversion of 1,993.581 shares of Series X Convertible Preferred Stock which were issued upon the closing of the Merger (see Note 3, Business Combination of our accompanying unaudited condensed consolidated financial statements). On March 23, 2023, the Company issued 197,491 shares of common stock upon the conversion of 1,974.905 shares 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. As of September 30, 2024, 12,656.011 shares of Series X Convertible Preferred Stock remain outstanding. These shares will convert up to 1,265,601 shares of common stock, only if the Company meets the initial listing standards of the NYSE American or another national securities exchange or is delisted from the NYSE American.
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Issuance of Securities upon Conversion of Series A Preferred
The following conversions of Series A Convertible Preferred Stock occurred subsequent to issuance:
Conversion Date |
| Shares Common Stock Issued |
| Shares of Series A Convertible Preferred Converted |
7/3/2023 |
| 109,355 |
| 1,750 |
7/24/2023 |
| 54,678 |
| 875 |
1/24/2024 |
| 54,678 |
| 875 |
7/1/2024 |
| 81,423 |
| 1,303 |
7/11/2024 |
| 62,489 |
| 1,000 |
7/22/2024 |
| 62,500 |
| 1,000 |
7/24/2024 |
| 25,000 |
| 400 |
Each share of Series A Convertible Preferred Stock is convertible into approximately 62.5 shares of common stock. All series A Convertible Preferred Stock has been converted and no shares are outstanding subsequent to the last conversion on July 24, 2024.
2023 Equity Incentive Plan
On July 11, 2023, we held an Annual Meeting where our stockholders approved the 2023 Equity Incentive Plan (“2023 Plan”) that authorizes us to grant options, restricted stock and other equity-based awards. No issuance of options were granted under the 2023 Plan during the year ended December 31, 2023. In July 2024, the shareholders approved an additional 200,000 shares of common stock for issuance under the plan. As of September 30, 2024, options to purchase an aggregate of 53,709 shares were outstanding and 225,085 shares remain available for grant under the 2023 Plan. The number of shares available for grant under the 2023 Plan also includes a quarterly increase commencing on September 1, 2023 by an amount equal to the lesser of (i) 10% of the number equal to the number of shares of common stock outstanding on the applicable adjustment date less the number of shares of common stock outstanding at the beginning of the fiscal quarter immediately preceding the adjustment date, but if such number is a negative number, then the increase will be zero; or (ii) such lesser number of shares as may be determined by the Board.
Components of our Results of Operations for the Three and Nine Months Ended September 30, 2024 and 2023
Revenues
Product sales revenues prior to the Merger consisted of sales of catheters for use with the DABRA laser in our atherectomy clinical trials.
After the Merger, our legacy DABRA laser is no longer in use and we have shifted the focus of our operations to Old Catheter’s product lines. Accordingly, our 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 our 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 our primary performance obligation. We recognize revenue upon the delivery of the VIVO system. We also provide 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 we 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 our second separate performance obligation and revenue is recognized over the term of the period.
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We invoice the customers after physical possession and control of the VIVO System is transferred to the customer and recognize revenue upon delivery. The timing of payment for the corresponding invoices is dependent upon the credit terms identified in each contract. We invoice 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 Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers. 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. We have elected the practical expedient to expense costs to obtain a contract, as incurred, as opposed to recognizing the cost as an asset upon occurrence.
Our second primary product is LockeT. We recognize sales of LockeT at the point in time that the product is delivered to the customer.
We are a business that has operations within multiple countries. During the three and nine months ended September 30, 2024, approximately 35% and 52%, respectively, of our sales were derived from customers outside the United States.
Cost of Revenues
Cost of revenues for product sales consisted primarily of costs of components for use in our products, the labor used to produce our products, and the manufacturing overhead that supports production.
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A"), expenses consist of employee-related costs, including salaries, benefits and stock-based compensation expenses. Other SG&A expenses include amortization of intangible assets, professional services fees, including legal, audit and tax fees, insurance costs, general corporate expenses and facility-related expenses.
Research and Development Expenses
Research and development ("R&D"), expenses are expensed as incurred and include the following: research grants paid to other parties; product development; cost of clinical studies to support new products and product enhancements, including expanded indications; supplies used for internal R&D and clinical activities; and cost of outside consultants who assist with technology development and clinical affairs.
Results of Operations for the Three and Nine Months Ended September 30, 2024 and 2023
The following table sets forth the results of the Company's operations for the periods presented ($ in thousands):
|
| Three Months Ended September 30, |
|
|
|
|
| Nine Months Ended September 30, |
|
|
|
| ||||||||||||
|
| 2024 |
|
| 2023 |
|
| Change |
|
| 2024 |
|
| 2023 |
|
| Change |
| ||||||
Revenues |
| $ | 96 |
|
| $ | 133 |
|
| $ | (37 | ) |
| $ | 271 |
|
| $ | 314 |
|
| $ | (43 | ) |
Cost of revenues |
|
| 10 |
|
|
| 6 |
|
|
| 4 |
|
|
| 31 |
|
|
| 23 |
|
|
| 8 |
|
Selling, general and administrative expenses |
|
| 2,882 |
|
|
| 2,745 |
|
|
| 137 |
|
|
| 8,251 |
|
|
| 14,393 |
|
|
| (6,142 | ) |
Research and development expenses |
|
| 63 |
|
|
| 112 |
|
|
| (49 | ) |
|
| 181 |
|
|
| 486 |
|
|
| (305 | ) |
Loss on impairment of goodwill |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 60,934 |
|
|
| (60,934 | ) |
Change in fair value of royalties payable |
|
| (1,223 | ) |
|
| 716 |
|
|
| (1,949 | ) |
|
| (2,823 | ) |
|
| 5,333 |
|
|
| (8,156 | ) |
Other income, net (1) |
|
| (28 | ) |
|
| 87 |
|
|
| (115 | ) |
|
| — |
|
|
| 286 |
|
|
| (286 | ) |
| (1) | Constitutes the operating activities within other income, net, except for the change in fair value of royalties payable component which is presented separately. |
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Revenues
The decrease in revenues of approximately $37 thousand and $43 thousand for the three and nine months ended September 30, 2024 as compared to the corresponding periods in the prior year was due to lower product sales of the VIVO System products that was partially offset by our first LockeT product sales in 2024. LockeT sales for the three and nine months ended September 30, 2024 were approximately $62 thousand and $100 thousand. The decrease in VIVO System product sales was caused mainly by on hospital, who accounted for the most VIVO disposable sales in 2023 and place a large order in late 2023. Therefore, this hospital did not need to place additional orders prior to September 30, 2024, despite regular use of the product. In October 2024, this hospital placed an order of disposable VIVO patches totaling $30 thousand.
Cost of Revenues
The increase in cost of revenues of approximately $4 thousand for the three months ended September 30, 2024 as compared to the corresponding period in the prior year was due to order fulfillment charges that are now being incurred for LockeT.
The increase in cost of revenues of approximately $8 thousand for the nine months ended September 30, 2024 as compared to the corresponding period in the prior year was due to order fulfillment charges that are now being incurred for LockeT, offset by the lower cost of revenues of the VIVO Positioning Patches. During 2024 the manufacturing process was changed from 3D printing components of the VIVO Positioning Patches to the use of a more cost effective specialized mold. This new process also allowed for larger build quantities which in turn further reduced production costs and led to a reduction in the manufacturing cost of VIVO Positioning Patches of approximately 40%.
Selling, General and Administrative Expenses
The increase in selling, general and administrative expenses of approximately $0.1 million for the three months ended September 30, 2024 as compared to the corresponding period in the prior year was due primarily to an increase in salaries and benefits of $0.6 million relating to the Company hiring additional sales force and a CCO, partially offset by a decrease in professional accounting, consulting, investor relations fees, and insurance services totaling $0.5 million.
The decrease in selling, general and administrative expenses of approximately $6.1 million for the nine months ended September 30, 2024 as compared to the corresponding period in the prior year was due primarily to a decrease in legal fees of $2.1 million and a decrease in professional accounting fees of $1.1 million that were primarily incurred in connection with the Merger in 2023. Further, there was a decrease in salaries and benefits of $1.1 million, resulting from a $1.7 million decrease in costs related to the Company's former Chief Executive Officer’s compensation, partially offset by a $0.6 increase in salaries and benefits for increasing other departmental headcount. Additionally, the decrease in selling, general and administrative expenses was impacted by a decrease in stock based compensation of $1.2 million relating to the one time stock compensation for Old Catheter stock options assumed in the Merger during 2023, an additional decrease of approximately $0.6 million in other consulting services, as a result of certain efforts being absorbed by internal employees, lower investor relations fees as a result of fewer 2024 year to date special stockholder meetings relative to the year to date 2023 period, and lower insurance premiums during the 2024 period.
Research and Development Expenses
The decrease in research and development expenses of approximately $49 thousand for the three months ended September 30, 2024 as compared to the corresponding period in the prior year was due primarily to a decrease in regulatory affairs related expenditures, product development costs, and clinical studies, as to which $89 thousand was incurred, partially offset by an increase of $40 thousand in consulting fees.
The decrease in research and development expenses of approximately $0.3 million for the nine months ended September 30, 2024 as compared to the corresponding period in the prior year was primarily due to a decrease in salaries and benefits of $0.1 million, a decrease in product development costs of $0.1 million, and a decrease in regulatory affairs related expenditures of $0.1 million, partially offset by an increase in professional fees of $0.1 million. The net decreases were primarily the result of the discontinuation of the historical products of the Company that were previously under development.
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Loss on Impairment of Goodwill
We test for goodwill impairment at the reporting level annually in the fourth quarter or more frequently if a change in circumstances or the occurrence of events indicates that potential impairment exists. As a result of the Merger with Old Catheter the Company recognized $60.9 million of goodwill. Due to a sustained decrease in our share price during 2023, we concluded that in accordance with ASC 350 a triggering event occurred indicating that potential impairment exists that required us to assess if impairment during 2023. In accordance with ASC 350 we performed a quantitative goodwill impairment test, which resulted in the carrying amount of the reporting unit exceeding its fair value, indicating that the goodwill of the reporting unit was impaired. We utilized a combination of an income and market approach to assess the fair value of the reporting unit during 2023. 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 while the guideline public company market approach considered marketplace earnings multiples from within a peer public company group.
We recorded the impairment charge of $0.0 million and $60.9 million for the three and nine months ended September 30, 2023 within loss on impairment of goodwill in the consolidated statement of operations. There was no remaining goodwill balance as of December 31, 2023.
Change in Fair Value of Royalties Payable
As of the date of the Merger, the royalties payable were calculated using a discounted cash flow method utilizing a discount rate of 24.1%. At each reporting period, the fair value of the royalties payable is calculated using the discounted cash flow method. At September 30, 2024, the discount rate was 20.0%. The change in fair value of the royalties payable for the three and nine months ended September 30, 2024 as compared to the corresponding periods in the prior year was a decrease of $1.9 million and $8.2 million, respectively. The change between the three and nine months ended September 30, 2024 and 2023 is driven by the change in fair value of the royalties payable.
Other Income, Net
The decrease in other income (expense), net of approximately $0.1 million and $0.3 million for the three and nine months ended September 30, 2024, respectively, as compared to the corresponding periods in the prior year was primarily due to a decrease in investment income.
Liquidity and Capital Resources
As of September 30, 2024, we had cash and cash equivalents of approximately $1.3 million and an accumulated deficit of approximately $286.7 million. For the nine months ended September 30, 2024, net cash used from operating activities was approximately $6.4 million. We have incurred recurring net losses from operations and negative cash flows from operating activities since inception. We received a total of $1.5 million of loans in Q2 and Q3 2024 that will become due and payable on January 31, 2026.
We expect operating losses and negative cash flows to continue for the foreseeable future as we invest in our commercial capabilities. These negative cash flows and additional costs associated with the Merger paid during the year ended December 31, 2023 have substantially depleted our cash. Following the Merger with Old Catheter, we further reduced staff and other costs while assuming the operating costs of Old Catheter. Since the first quarter of 2024, we’ve begun to rejuvenate our sales force and hired a CCO. We will continue to monitor our operating costs and seek to reduce our current liabilities. Such actions may impair our ability to proceed with certain strategic activities. We believe that our current cash on hand of $4.4 million as of November 1, 2024 will not be sufficient to fund our operations through the end of November 2025, including without limitation, to repay our outstanding short-term notes that will become due and payable on January 31, 2026. Because expected revenues are not adequate to fund our planned expenditures and anticipated operating costs and liabilities beyond such point, we are currently evaluating potential means of raising cash through future capital transactions and additional bridge loans. If we are unable to do so, we will be required to reduce our spending rate to align with expected revenue levels and cash reserves, although there can be no guarantee that we will be successful in doing so. Accordingly, we will likely be required to raise additional cash through debt or equity transactions and bridge loans to continue our operations and pay our debts as they come due, and if we are unable to do so, we will be required to suspend a portion or all of our operations and/or potentially seek relief from our creditors. We may not be able to secure financing in a timely manner or on favorable terms, if at all.
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As a result of these factors, management has concluded that there is substantial doubt about the Company’s ability to continue as a going concern for a period of one year after the date the unaudited condensed consolidated financial statements for the quarter ended September 30, 2024 are issued. The Company’s unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Cash Flows for the Nine Months Ended September 30, 2024 ($ in thousands)
|
| For the Nine Months Ended September 30, |
| |||||
Net cash provided by (used in): |
| 2024 |
|
| 2023 |
| ||
Operating activities |
| $ | (6,407 | ) |
| $ | (18,730 | ) |
Investing activities |
|
| (67 | ) |
|
| (43 | ) |
Financing activities |
|
| 4,177 |
|
|
| 8,493 |
|
Net change in cash and cash equivalents |
| $ | (2,297 | ) |
| $ | (10,280 | ) |
Net Cash Used in Operating Activities
During the nine months ended September 30, 2024, net cash used in operating activities of $6.4 million primarily consisted of a net loss of $11.0 million, partially offset by depreciation and amortization of $1.6 million, a change in fair value of royalties payable of $2.8 million, and an increase in non-cash changes in operating assets and liabilities of $0.2 million.
During the nine months ended September 30, 2023, net cash used in operating activities of $18.7 million primarily consisted of a net loss of $69.9 million, a decrease in non-cash changes in operating assets and liabilities of $7.2 million, partially offset by non-cash expenses of $58.5 million, consisting primarily of a loss on impairment of goodwill of $60.9 million, non-cash stock-based compensation of $1.2 million, depreciation and amortization of $1.6 million, offset by a change in fair value of royalties payable of 5.3 million.
Net Cash Used in Investing Activities
During the nine months ended September 30, 2024, net cash used in investing activities of $67 thousand consisted of purchases of property and equipment.
During the nine months ended September 30, 2023, net cash used in investing activities of $43 thousand consisted of purchases of property and equipment of approximately $58 thousand, offset by proceeds from cash acquired as part of the Merger of approximately $15 thousand.
Net Cash Provided by Financing Activities
During the nine months ended September 30, 2024, net cash provided by financing activities of $4.2 million primarily consisting of proceeds from issuance of common stock and warrants of $2.6 million, proceeds from notes payable from related parties of $1.5 million, proceeds from notes payable of $0.3 million, partially offset by payments on notes payable of $0.2 million.
The Recent Developments section describes our material financing activities that have occurred subsequent to September 30, 2024.
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During the nine months ended September 30, 2023, net cash provided by financing activities of $8.5 million, consisted of cash proceeds from the private placement of $8.0 million, proceeds from issuance of common stock and warrants of $0.2 million and proceeds from the exercise of warrants of $1.3 million, offset by the payment of offering costs of $0.6 million, the payment of costs related to the warrant repricing of $0.2 million and the payment of convertible promissory notes of $0.3 million.
Off-Balance Sheet Arrangements
We do not engage in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, as a part of our ongoing business. Accordingly, we did not have any off-balance sheet arrangements during any of the periods presented.
The Company’s Critical Accounting Estimates
The information set forth below relates to the Company’s critical accounting policies and estimates. The discussion and analysis of our financial position and results of operations is based on our interim unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report, which have been prepared in accordance with U.S. GAAP. We believe certain of our accounting policies are critical to understanding our financial position and results of operations.
The preparation of these unaudited consolidated financial statements requires us to make estimates and assumptions for the reported amounts of assets, liabilities, revenue, expenses and related disclosures. We regularly evaluate estimates and assumptions related to business combinations, including the determination of the purchase price and related allocations to the fair value of assets acquired and liabilities assumed, provisions for legal contingencies, income taxes, deferred income tax asset valuation allowances, valuation of warranties liabilities, royalties payable, share based compensation and revenues. Our estimates are based on current facts, historical experience and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions and any such differences may be material.
We believe the following discussion addresses our most critical accounting policies, which are those that are most important to our financial condition and results of operations and require our most difficult, subjective and complex judgments.
Accounting for Long-Lived Assets-Useful Lives
Intangible assets acquired from business combinations are initially measured at their estimated fair values and are then amortized on a straight-line basis over their estimated useful lives. Management evaluates whether events or circumstances have occurred that indicate the remaining useful life or carrying value of the amortizing intangible should be revised and adjusted, if necessary. 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.
Stock-Based Compensation
We calculate the cost of awards of equity instruments based on the grant date fair value of the option awards issued to employees, members of our board of directors and nonemployee consultants using the Black-Scholes option pricing valuation model, or Black-Scholes model, which incorporates various assumptions including volatility, expected term and risk-free interest rate. The expected term of the options is the estimated period of time until exercise and was determined using the SEC’s safe harbor rules, using an average of vesting and contractual terms, as we did not have sufficient historical experience of similar awards. Expected stock price volatility is based on historical volatilities of certain “guideline” companies, as the Company does not have sufficient historical stock price data. The risk-free interest rate is based on the implied yield available on U.S. Treasury zero-coupon issues with an equivalent term. The estimated fair value of stock-based compensation awards is amortized on a straight-line basis over the relevant vesting period, adjusted for actual forfeitures at the time they occur.
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Royalties Payable
We are obligated to pay royalties under various royalty agreements Old Cather 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, 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. We 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.
In addition, the Company finalized an Invention Assignment and Royalty Agreement (the "Royalty Agreement") that had previously been entered into by Old Catheter with the inventor of LockeT in exchange for the assignment and all rights to LockeT. Pursuant to the agreement, we will pay a 5% royalty on net sales up to $1 million in royalties. After $1 million has been paid, and if, and only if, a U.S. patent is granted by the United States Patent and Trademark Office, then we will continue to pay a royalty at a rate of 2% of LockeT net sales, until total cumulative royalties of $10 million have been paid. No further royalty payments will be due under this Royalty Agreement after December 31, 2033.
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. The agreement calls for the payment of sales-based royalties to the foundation, upon successful commercialization of the AMIGO System. We are not currently selling the AMIGO System.
New 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 accounting pronouncement is not expected to have a material impact on the Company's related disclosures.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Executive Chairman of the Board and Chief Executive Officer and Interim Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as of September 30, 2024. Our objective in designing our disclosure controls and procedures is that they provide reasonable assurance of achieving their objectives of ensuring that information we are required to disclose in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Interim Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures, and is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their desired control objectives, and management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based upon this evaluation, due to the existence of the material weaknesses found in our internal controls over financial reporting described below, our Chief Executive Officer and Interim Chief Financial Officer concluded that, as of September 30, 2024, our disclosure controls and procedures were not effective at the reasonable assurance level. As disclosed in our Form 10-K for the year ended December 31, 2023 and Forms 10-Q for the quarters ended March 31, 2024 and June 30, 2024, for the reasons set forth therein, our Chief Executive Officer and Interim Chief Financial Officer had previously concluded our disclosure controls and procedures were not effective at the reasonable assurance level.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected and corrected on a timely basis. The Company has developed a plan to remediate the internal control weaknesses that were previously identified and we continue to make progress to implement the plan. The plan includes a change in the Company’s Chief Financial Officer, hiring additional accounting staff and changing the third-party technical accounting consultants. The material weaknesses in internal control over financial reporting related to our control environment that were previously identified are described below.
Specifically, we identified material weaknesses with respect to (1) the lack of segregation of duties, (2) the lack of designed and operating review controls with respect to oversight of the financial reporting process, (3) errors with respect to the review of work performed by service providers, (4) errors in connection with accounting for the royalty obligation acquired in the merger with Old Catheter, (5) use of an incorrect discount rate in calculating the fair value of the royalty obligation, and (6) timing of revenue recognition.
Notwithstanding the identified material weaknesses, management believes that the Financial Statements and related financial information included in this Quarterly Report, its quarterly report for the quarters ended March 31, 2024 and June 30, 2024, and in its Quarterly and Annual Reports filed during and with respect to the year ended December 31, 2023, fairly present, in all material respects, our consolidated balance sheets, statements of operations, stockholders’ equity and cash flows as of and for the periods presented.
Remediation Plan
Management is in the process of implementing a remediation plan and believes significant progress has been made, including the following remediation items:
1. Segregation of duties –We have added additional professional accounting personnel and have retained a new third party technical accounting consultant. In addition, we have reviewed and updated our accounting systems descriptions for sales/accounts receivable/cash receipts and purchasing/accounts payable and cash disbursements/payroll process and general ledger process and all employees have been trained on the updated procedures.
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| Table of Contents |
2. Lack of designed and operating review controls with respect to oversight of the financial reporting process – We have recently changed our third party technical accounting consultants who assist in the financial reporting process. We believe that the new consulting group will improve our financial reporting process.
3. Errors with respect to the review of work performed by service providers – work performed by service providers is reviewed and any errors identified are sent back to service provider for resolution before being incorporated into the company’s financial reports. In addition, we have recently changed third party technical consultants, and we believe that the new consulting group will improve our financial reporting process.
4. Errors in connection with accounting for the royalty obligations acquired in the merger with Old Catheter – the initial royalty calculations did not include the royalty payable to the LockeT inventor. The process includes review by the Interim Chief Financial Officer of material contracts for any assets, liabilities or disclosures that would need to be recorded.
5. Use of an incorrect discount rate in calculating the fair value of the royalty obligation in the draft financial statements (which were corrected prior to release) – Calculations are reviewed by management to ensure inputs are reasonable prior to incorporating the calculations into the Company’s financial reports. We have recently changed third party technical consultants, and we believe that the new consulting group will improve our financial reporting process.
6. Timing of revenue recognition – Revenue is recognized when product is delivered to the customer. We have implemented a tracking spreadsheet for all shipments which contains delivery date, and invoicing/recognition of revenue is then dated to match the delivery date. This is reviewed at month end by the Interim Chief Financial Officer to ensure revenue is recognized in the proper period.
The material weaknesses will not be considered remediated until management designs and implements effective controls that operate for a sufficient period of time and management has concluded, through testing, that these controls are effective. The Company will monitor the effectiveness of its remediation plans and will make changes management determines to be appropriate. Additional anticipated remediation measures include continuing assessment of the need to expand the Company’s current accounting and financial reporting teams to include individuals with requisite experience to meet the requirements associated with the increasing operations of a publicly traded company, establishment of policies and procedures to ensure full review and sign offs with respect to the inputs sent to third-party service providers as well as the reports and documentation upon the completion of their work prior to any adjustments being made to the financial statements, establishment of policies and procedures related to the review of all contracts the Company enters into to ensure any terms or conditions are evaluated for any accounting required or accounting treatment or disclosure, and establishment of policies and procedures to review the inputs to royalties payable and other fair value calculations as well as the outputs impacting the balance at each reporting period.
Changes in Internal Control over Financial Reporting
Except as noted above, there have been no changes in the Company’s internal control over financial reporting during the quarter ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Management recognizes that a control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud or error, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
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PART II. — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to the information disclosed under Item 3 — "Legal Proceedings" in the Fiscal 2023 10-K.
ITEM 1A. RISK FACTORS
There have been no material changes from the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 and Quarterly Report on Form 10-Q filed for the period ended June 30, 2024.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Previously Reported.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
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ITEM 6. EXHIBITS
Exhibit |
|
| Incorporated by Reference | |||||||
Number | Description | Form |
| File No. |
| Exhibit |
| Filing Date | ||
|
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|
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|
|
|
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|
|
| Amended and Restated Certificate of Incorporation of the Registrant. |
| 8-K |
| 001-38677 |
| 3.1 |
| 10/1/2018 | |
|
|
|
|
|
|
|
|
|
|
|
|
| 8-K |
| 001-38677 |
| 3.1 |
| 11/17/2020 | ||
|
|
|
|
|
|
|
|
|
|
|
|
| 8-K |
| 001-38677 |
| 3.1 |
| 9/20/2022 | ||
|
|
|
|
|
|
|
|
|
|
|
|
| 8-K |
| 001-38677 |
| 3.1 |
| 8/4/2023 | ||
|
|
|
|
|
|
|
|
|
|
|
|
| 8-K |
| 001-38677 |
| 3.1 |
| 7/12/2024 | ||
|
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|
|
|
|
|
|
|
|
|
| Certificate of Designation of Series X Convertible Preferred Stock. |
| 8-K |
| 001-38677 |
| 3.1 |
| 1/13/2023 | |
|
|
|
|
|
|
|
|
|
|
|
|
| 8-K |
| 001-38677 |
| 3.2 |
| 1/13/2023 | ||
|
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|
|
|
|
|
|
|
| 8-K |
| 001-38677 |
| 3.2 |
| 10/1/2018 | ||
|
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|
|
|
|
| 8-K |
| 001-38677 |
| 3.1 |
| 8/17/2022 | ||
|
|
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|
|
|
|
|
|
|
| S-1 |
| 333-226191 |
| 4.1 |
| 7/16/2018 | ||
|
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|
|
|
|
|
|
|
|
| [omitted.] |
|
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| |
|
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|
|
|
| 8-K |
| 001-38677 |
| 4.1 |
| 5/22/2020 | ||
|
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|
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|
|
|
| 8-K |
| 001-38677 |
| 4.2 |
| 5/22/2020 | ||
|
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|
|
|
|
| 8-K |
| 001-38677 |
| 4.3 |
| 5/22/2020 | ||
| 59 |
| Table of Contents |
|
| S-1 |
| 333-239887 |
| 4.3 |
| 7/16/2020 | ||
|
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|
| S-1 |
| 333-239887 |
| 4.4 |
| 7/16/2020 | ||
|
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|
| S-1 |
| 333-239887 |
| 4.5 |
| 7/16/2020 | ||
|
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4.9 |
| [omitted.] |
|
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| S-1/A |
| 333-262195 |
| 4.9 |
| 2/3/2022 | ||
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4.11 |
| [omitted.] |
|
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| ||||
|
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|
| 8-K |
| 001-38677 |
| 4.4 |
| 2/9/2022 | ||
|
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|
| 10-Q |
| 001-38677 |
| 4.7 |
| 8/15/2022 | ||
|
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| 8-K |
| 001-38677 |
| 4.1 |
| 1/13/2023 | ||
|
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|
|
| 8-K |
| 001-38677 |
| 4.2 |
| 1/13/2023 | ||
|
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|
|
|
| 8-K |
| 001-38677 |
| 4.3 |
| 1/13/2023 | ||
|
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|
| 8-K |
| 001-38677 |
| 4.1 |
| 9/6/2024 | ||
|
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|
|
| 8-K |
| 001-38677 |
| 4.2 |
| 9/6/2024 | ||
|
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| 8-K |
| 001-38677 |
| 4.3 |
| 9/6/2024 | ||
|
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| Form of Pre-Funded Common Stock Purchase Warrant issued September 2024 |
| 8-K |
| 001-38677 |
| 4.4 |
| 9/6/2024 | |
|
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| 8-K |
| 001-38677 |
| 4.1 |
| 10/25/2024 | ||
|
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| 8-K/A |
| 001-38677 |
| 4.2 |
| 11/4/2024 |
| First Amendment to 8% Short Term Promissory Notes Payable to FatBoy Capital, L.P. |
| 8-K |
| 001-38677 |
| 10.1 |
| 8/27/2024 | |
|
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| First Amendment to 8% Short Term Promissory Note Payable to David A. Jenkins |
| 8-K |
| 001-38677 |
| 10.2 |
| 8/27/2024 | |
|
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| First Amendment to 8% Short Term Promissory Note Payable to Jenkins Family Charitable Institute |
| 8-K |
| 001-38677 |
| 10.3 |
| 8/27/2024 | |
|
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|
| 8-K |
| 001-38677 |
| 4.5 |
| 9/6/2024 | ||
|
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|
|
|
|
| 8-K/A |
| 001-38677 |
| 10.2 |
| 11/4/2024 |
| 60 |
| Table of Contents |
| ||
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| ||
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| ||
|
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|
101.INS* |
| Inline XBRL Instance Document |
|
|
|
101.SCH* |
| Inline XBRL Taxonomy Extension Schema Document |
|
|
|
101.CAL* |
| Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
101.DEF* |
| Inline XBRL Taxonomy Extension Definition Linkbase Document |
|
|
|
101.LAB* |
| Inline XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
101.PRE* |
| Inline XBRL Taxonomy Extension Presentation Linkbase Document |
|
|
|
104* |
| Cover Page Interactive Data File (embedded within the Inline XBRL document). |
* | Filed herewith. |
|
|
@ | The information in this exhibit is furnished and deemed not filed with the Securities and Exchange Commission for purposes of section 18 of the Exchange Act of 1934, as amended (Exchange Act), and is not to be incorporated by reference into any filing of Catheter Precision, Inc. under the Securities Act of 1933, as amended (Securities Act), or the Exchange Act, whether made before or after the date hereof, regardless of any general incorporation language in such filing. |
| 61 |
| Table of Contents |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| CATHETER PRECISION, INC.
(Registrant) | ||
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Date: November 13, 2024 | By: | /s/ David A. Jenkins |
|
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| David A. Jenkins Executive Chairman of the Board and Chief Executive Officer (Principal Executive Officer) |
|
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Date: November 13, 2024 | By: | /s/ Margrit Thomassen | |
|
| Margrit Thomassen |
|
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| Interim Chief Financial Officer |
|
|
| (Principal Financial and Accounting Officer) |
|
| 62 |