Catheter Precision, Inc. 10-K

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and related notes thereto included elsewhere in this Annual Report on Form 10-K for the period ended December 31, 2024 (this "Annual Report"). The following discussion and analysis of our financial condition and results of operations contain forward-looking statements that involve a number of risks, uncertainties and assumptions. Actual events or results may differ materially from our expectations. Important factors that could cause actual results to differ materially from those stated or implied by our forward-looking statements include, but are not limited to, those set forth in Item 1A. Risk Factors of this Annual Report, many of which are outside of our control. All forward-looking statements included in this Annual Report are based on information available to us as of the time we file and, except as required by law, we undertake no obligation to update publicly or revise any forward-looking statements. Overview On January 9, 2023, the Company merged with the former Catheter Precision, Inc. (“Old Catheter”), a privately held Delaware corporation (the “Merger”), which became a wholly owned subsidiary of the Company. Following the Merger, we discontinued the Company’s legacy lines of business and the use of any of its DABRA-related assets. We 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 (EP). One of our two primary products is the View into Ventricular Onset (“VIVO” or “VIVO System”), which 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® (“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. 53 Table of Contents Our business strategy is to become a leading medical device 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. 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 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. 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 first half of 2026, 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. 54 Table of Contents Clinical studies for LockeT began during the year ended December 31, 2023. 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. These clinical studies are intended to provide crucial data for marketing and to expand our indications for use with the FDA. For more information about our clinical studies, refer to Item 1, Business. Recent Developments October 2024 Warrant Inducement Offer On October 25, 2024, the Company executed the Warrant Inducement Offer Letters with certain holders of the Company’s existing warrants. Pursuant to the terms and conditions of the Warrant Inducement Offer Letters, the holders immediately exercised 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 (collectively, the “2024 Existing Warrants”) to purchase 5,347,981 shares of the Company’s common stock at a reduced exercise price of $0.70 per share of common stock. In consideration for the immediate exercise of the 2024 Existing Warrants for cash, the Company agreed to issue unregistered new Series K Common Stock Purchase Warrants (“Series K Warrants”) to purchase up to 10,695,962 shares of common stock. The Series K Warrants have an exercise price of $0.70 per share of common stock, are not exercisable until stockholders' approval is obtained (“Stockholder Approval”), and have a term of 5.5 years following Stockholder Approval. In addition to the Series K Warrants, the Company also issued 320,879 Placement Agent Warrants to the Placement Agent as part of their compensation. The Placement Agent Warrants have the same terms as the Series K Warrants, except that the exercise price is $1.085 per share and the warrants are exercisable six months after the date of issuance. Pursuant to the terms of the Warrant Inducement Offer Letters, in the event that the exercise of the 2024 Existing Warrants would cause a holder to exceed the beneficial ownership limitations included therein, the Company issued the number of shares of common stock that would not cause a holder to exceed such beneficial ownership limitations and held the remaining balance of shares of common stock in abeyance. Accordingly, the Company held an aggregate of 3,096,000 shares of common stock in abeyance (the “Abeyance Shares”) as of December 31, 2024. The Abeyance Shares are evidenced through the holder’s existing warrants and will be held by the Company until the holder sends notice that the remaining balance of shares of common stock may be issued without surpassing the beneficial ownership limitations. Until such time, the Abeyance Shares are evidenced through the holder’s existing warrants and deemed to be prepaid. The Company received aggregate gross proceeds of $3.7 million in cash, prior to deducting placement agent fees and offering expenses of $0.4 million, resulting in net proceeds of $3.3 million. The Company further recorded a deemed dividend of $5.2 million in connection with the modification of the 2024 Existing Warrants as well as the issuance of the Series K Warrants. 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 underwriter 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 Representative Warrants that were issued as part of the underwriter’s compensation. The Representative Warrants 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, management fee and offering expenses payable by the Company, were approximately $2.6 million. The net proceeds from the financing transactions summarized above have been used to advance the development and commercialization of our novel electrophysiology technologies and solutions and to support general corporate purposes. Components of our results of operations for the years ended December 31, 2024 and 2023 Revenues Prior to the Merger, product revenues consisted of sales of catheters for use with the DABRA laser in our atherectomy clinical trials. After the Merger, we shifted the focus of our operations to Old Catheter’s product lines, such that our legacy DABRA laser is no longer in use. 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. We had two primary products in 2024: the VIVO System and the LockeT device. We did not recognize any revenues from LockeT during 2023. 55 Table of Contents We invoice the customer for the VIVO System and related software upgrade services after physical possession and control of the VIVO System has been transferred. Subsequent renewals for software upgrade services are invoiced at inception of the renewed term. The timing of payment for the corresponding invoices depends on the credit terms identified in each contract. We recognize revenues for VIVO System at the point in time that the product is delivered to the customer. We recognize revenues for software upgrade services evenly over time over the term of the contract. We did not recognize any revenues for software upgrade services during 2024 and 2023. 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 years ended December 31, 2024 and 2023, approximately 34% and 25% of our sales were derived from customers outside the United States, respectively. Cost of revenues Cost of revenues for product sales consists primarily of costs of components, labor costs, and manufacturing overhead incurred to produce our products and support 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 years ended December 31, 2024 and 2023 The following table sets forth the results of the Company's operations for the periods presented (in thousands): For the Year Ended December 31, 2024 2023 Change Revenue $ 420 $ 442 $ (22 ) Cost of revenues 42 30 12 Selling, general and administrative expenses 11,349 17,122 (5,773 ) Research and development expenses 272 475 (203 ) Loss on impairment of goodwill — 60,934 (60,934 ) Change in fair value of royalties payable (2,239 ) 7,208 (9,447 ) Other income (expense), net (1) (20 ) 339 (359 ) Income tax provision 3,141 — 3,141 (1) Constitutes the operating activities within other income (expense), net in the consolidated statements of operations, except for the change in fair value of royalties payable that is presented separately in the table above. 56 Table of Contents Revenues The decrease in revenues of approximately $22 thousand for the year ended December 31, 2024 as compared to the prior year was due to lower product sales of the VIVO System that was partially offset by our first sales of LockeT in 2024. VIVO System product sales decreased by $214 thousand from $442 thousand for the year ended December 31, 2023 to $228 thousand for the year ended December 31, 2024. LockeT sales increased by $191 thousand from $0 for the year ended December 31, 2023 to $191 thousand for the year ended December 31, 2024 . The decrease in VIVO System product sales primarily relates to two customer accounts that accounted for 53% of VIVO System sales in 2023 and placed large, one-time orders for disposable VIVO patches in 2023. In October 2024, one of the two customer accounts placed an order for disposable VIVO patches totaling $30 thousand. The order for disposable VIVO patches was fulfilled and recognized as revenues during the year ended December 31, 2024. Cost of revenues The increase in cost of revenues of approximately $12 thousand for the year ended December 31, 2024 as compared to the prior year was due to order fulfillment charges that are now being incurred for LockeT, partially offset by lower cost of revenues for the VIVO Positioning Patches. During 2023, the VIVO 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 allows 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%. Accordingly, the VIVO Positioning Patches manufactured under the new process and sold in 2024 had lower costs per unit than those manufactured under the old process and sold in 2023. Selling, general and administrative expenses The decrease in selling, general and administrative expenses of approximately $5.8 million for the year ended December 31, 2024 as compared to the prior year was primarily due to a decrease in legal f ees of $2.0 million and a decrease in professional accounting fees of $1.4 million that were primarily incurred in connection with the Merger in 2023. Furthermore, the decrease in selling, general and administrative expenses was impacted by a decrease in stock-based compensation expense of $1.2 million, which primarily related to the one-time, stock compensation expense incurred for Old Catheter stock options that were assumed in connection with the Merger in 2023. In addition, there was a decrease in salaries and benefit s of $0.5 millio n, resulting f rom a $2.1 mi llion decrease in costs related to the Company's former Chief Executive Officer’s and Chief Financial Officer's compensation, partially offset by a $1.6 million incre ase in salaries and benefits due to an increased departmental headcount. The remaining balance of the decrease in selling, general and administrative expenses of $0.7 million relates to other consulting services as a result of internalizing certain services, investor relations and SEC fees due to fewer stockholder meetings in 2024 relative to 2023, and insurance expense due to lower insurance premiums in 2024 relative to 2023. Research and development expenses The decrease in research and development expenses of approximately $0.2 million for the year ended December 31, 2024 as compared to the prior year was primarily due to a decrease in product development costs of $0.1 million, and a decrease in regulatory affairs related expenditures 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 developme nt. 57 Table of Contents 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 a triggering event occurred indicating that potential impairment existed that required us to assess if goodwill was impaired during 2023. In accordance with ASC 350, Intangibles - Goodwill and Other , 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-based 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-based approach considered marketplace earnings multiples from within a peer public company group. We recorded the impairment charge of $60.9 million for the year ended December 31, 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 was 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. The discount rate was 22.5% and 28.0% as of December 31, 2024 and 2023, respectively. The change in fair value of the royalties payable for the year ended December 31, 2024 as compared to the prior year was a decrease of $9.4 million, which is primarily driven by the change in forecasted royalty payments and discount rates used to estimate the fair value of royalties payable. Other income, net The decrease in other income (expense), net of approximately $0.4 million for the year ended December 31, 2024, respectively, as compared to the prior year was primarily due to a decrease in investment income. Income Tax Provision. We recorded an income tax provision of $3.1 million in 2024, as compared to zero in 2023. This increase in our income tax provision was primarily attributable to a nonrecurring adjustment resulting from an ownership change as defined under Section 382 of the Internal Revenue Code. Liquidity and capital resources As of December 31, 2024, we had cash and cash equivalents of approximately $2.9 million and an accumulated deficit of approximately $292 million. For the year ended December 31, 2024, net cash used from operating activities was approximately $9.3 million. We have incurred recurring net losses from operations and negative cash flows from operating activities since inception. We issued a total of $1.5 million of related party notes payable in Q2 and Q3 2024 that will become due and payable on January 31, 2026. 58 Table of Contents 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 Chief Commercial Officer. 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 expect operating losses and negative cash flows to continue for the foreseeable future as we invest in our commercial capabilities. We expect that our operating expenses may increase significantly as we maintain and protect our intellectual property portfolio, hire additional personnel, expand our markets, implement new commercial and marketing strategies, and enhance our existing products. We believe that our current cash on hand of $787 thousand as of Ma rch 14, 2 025 will not be sufficient to fund our current operations, including without limitation, to repay our outstanding short-term notes that will become due and payable on January 31, 2026. We expect the need to complete an additional financing sometime in the next three to six months. 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. 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 consolidated financial statements for the year ended December 31, 2024 are issued. The Company’s consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Cash flows for the years ended December 31, 2024 and 2023 (in thousands) For the Year Ended December 31, 2024 2023 Net cash provided by (used in): Operating activities $ (9,271 ) $ (20,619 ) Investing activities (67 ) (61 ) Financing activities 8,646 8,386 Net change in cash and cash equivalents $ (692 ) $ (12,294 ) Net cash used in operating activities During the year ended December 31, 2024, net cash used in operating activities of $9.3 million primarily consisted of a net loss of $16.6 million, partially offset by non-cash adjustments related to depreciation and amortization of $2.1 million, an increase in deferred income tax provision of $3.1 million, and change in fair value of royalties payable of $2.2 million. During the year ended December 31, 2023, net cash used in operating activities of $20.6 million consisted of a net loss of $70.6 million, a change in fair value of royalties payable of $7.2 million, and a decrease in operating assets and liabilities of $7.1 million, partially offset by non-cash adjustments related to loss on impairment of goodwill of $60.9 million, stock-based compensation of $1.2 million, and depreciation and amortization of $2.1 million. 59 Table of Contents Net cash used in investing activities During the year ended December 31, 2024, net cash used in investing activities of $67 thousand consisted of purchases of property and equipment. During the year ended December 31, 2023, net cash used in investing activities of $61 thousand consisted of purchases of property and equipment of $76 thousand, offset by proceeds from cash acquired as part of the Merger of $15 thousand. Net cash provided by financing activities During the year ended December 31, 2024, net cash provided by financing activities of $8.6 million primarily consisted of net cash proceeds from the issuance of common stock and warrants of $7.3 million, the issuance of notes payable to related parties of $1.5 million, and the exercise of warrants of $1.2 million, partially offset by the payment of offering costs of $1.4 million. During the year ended December 31, 2023, net cash provided by financing activities of $8.4 million primarily consisted of net cash proceeds from the private placement of securities of $8.0 million and proceeds from the exercise of warrants of $1.3 million, partially offset by the payment of offering costs of $0.6 million and payment of convertible promissory notes and accrued interest of $0.3 million. Off-balance sheet arrangements Subsequent to the Merger, we have not engaged 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 consolidated financial statements included elsewhere in this Annual 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 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 due to related parties, share based compensation, evaluation of impairment of long-lived assets and goodwill, valuation of long-lived assets and their associated estimated useful lives, 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. 60 Table of Contents 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 - estimated 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. Accounting for impairment 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. 61 Table of Contents 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 ("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. 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, and certain of his affiliates, 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, which commenced upon the first commercial sale in 2024, 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 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 See Note 2 in the consolidated financial statements included elsewhere in this Annual Report for a description of new accounting pronouncements, including the expected dates of adoption and estimated effects on our results of operations, financial position, and cash flows as applicable. 62 Table of Contents ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Our financial statements and supplementary data required by this item are set forth at the pages indicated in Item 15. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There were no such disagreements or events during the specified periods.