Catheter Precision, Inc. 10-Q

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 and other similar expressions, although not all forward-looking statements contain these words. These statements include, but are not limited to, our expectations with respect to our timing and need for future financings. 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, 2024. These risks include, but are not limited to, that: 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, and we may require additional funds sooner than our current expectations; 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; the recent coronavirus outbreak (“COVID-19”) adversely affected our financial condition and results of operations and we cannot provide any certainty as to whether there will be future impacts from COVID-19 or another pandemic; 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; 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; 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. 32 Table of Contents 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. (“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 on 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. 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. 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. 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. 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 2023, Catheter submitted LockeT for CE Mark approval. CE Mark approval was received in April 2025. We are in discussion with multiple international distributors to sell LockeT in countries which require CE Mark before marketing can begin. In May 2024, we recognized our first sale of LockeT. 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. In April 2025, we received notification of the issuance of our first LockeT patent in the United States by the United States Patent and Trademark Office. 33 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 in our Form 10-K. 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. Recent Developments PeriKard Asset Acquisition On January 14, 2025, we entered into a Membership Interest Purchase Agreement (“the Agreement”) with Cardiofront, LLC (“Seller”) to purchase the issued and outstanding membership interests of PeriKard, LLC, a wholly-owned subsidiary of Seller. The primary purpose was to purchase patented technology for commercialization within the broader cardiac treatment and electrophysiology industry. Pursuant to the Agreement, we issued 275,000 shares of our common stock valued at $113 thousand to the Seller in exchange for 100% of the membership interests of PeriKard, LLC (“Acquisition”). Furthermore, we may be obligated to make royalty payments equal to 10% of net sales of the pericardial access kit for five years following the closing date. This transaction closed on January 24, 2025. The Acquisition was accounted for as an asset acquisition consisting primarily of a single patent for pericardial access technology. The patent was determined to be in-process research and development ("IPR&D") with no alternative future use, and accordingly, we recognized $119 thousand, consisting of $113 thousand of stock consideration and $6 thousand of direct transaction costs, as acquired in-process research and development in the condensed consolidated statements of operations for the three months ended March 31, 2025. As of March 31, 2025, we have not recognized a liability for the contingent royalty payments because they are currently not probable or reasonably estimable. Cardionomic Asset Acquisition In February 2025, we formed a new subsidiary, Cardionomix, Inc. (“Cardionomix”), in order to pursue the potential acquisition of certain assets previously owned by Cardionomic, Inc. We own 82% of Cardionomix's issued and outstanding common stock. Our Chief Executive Officer and Chairman of the Board and certain of his affiliates own 12%. The remaining 6% is held by certain business associates of our Chief Executive Officer. On April 22, 2025, Cardionomix entered into an asset purchase agreement with Cardionomic, LLC (“Seller”), the assignor of Cardionomic, to purchase these assets, which relate to late-stage treatment in development for acute decompensated heart failure (the “Purchased Assets”). On May 5, 2025, the transaction closed. At closing of the transaction, the Purchased Assets were acquired by Cardionomix, as is, in exchange for the issuance of 1,000,000 restricted shares of the Company’s $0.0001 par value common stock. Additionally, Cardionomix issued the Seller a promissory note (the "Note”) in the amount of $1.5 million, with simple interest accruing at 4% per annum on the principal thereof and no interest or principal payable until the maturity date of the Note, which will be three years following issuance of the Note. The accounting for the acquisition is incomplete due to the proximity of the closing date of the Acquisition to the date of this filing. As a result, we are unable to disclose provisional fair value estimates of the identifiable net assets acquired. We will recognize and provide additional disclosures regarding the acquisition within our second quarter Quarterly Report on Form 10-Q. October 2024 Warrant Inducement Offer In connection with the October 2024 Warrant Inducement Offer, in the event that the exercise of the 2024 Existing Warrants would cause a holder to exceed the beneficial ownership limitations included therein, we 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. These Abeyance Shares are held as Pre-Funded Warrants until notice is received from the holder that the balance, or portion thereof, may be issued in compliance with the beneficial ownership limitations. Accordingly, we held an aggregate of 2,157,000 shares of common stock in abeyance (the “Abeyance Shares”) as of March 31, 2025. During the three months ended March 31, 2025, we released and issued 939,000 Abeyance Shares and subsequently, on April 24, 2025, we released and issued an additional 732,000 Abeyance Shares. 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. In January 2025, the shareholders approved an additional 1.5 million shares of common stock for issuance under the plan. As of March 31, 2025, options to purchase an aggregate of 1,624,750 shares were outstanding and 880,365 shares of common stock were reserved for issuance pursuant to future awards 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 Months Ended March 31, 2025 and 2024 Revenues Our current activities primarily relate to the design, manufacture and sale of new and innovative medical technologies in the field of cardiac electrophysiology. Our two primary products are (i) the VIVO System and (ii) the LockeT device. 34 Table of Contents The VIVO System provides 3D cardiac mapping to aid with localizing the sites of origin of idiopathic ventricular arrhythmias in patients with structurally normal hearts prior to electrophysiology studies. Customers also have the option to purchase software upgrades in advance at contract inception. We invoice the customer for VIVO System and related software upgrade services after physical possession and control of 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 for the three months ended March 31, 2025 and 2024. 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. 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 months ended March 31, 2025 and 2024, approximately 6% and 90% of our sales were derived from customers outside the United States, respectively. Cost of revenues Cost of revenues for product sales consists primarily of component costs, 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, depreciation of fixed assets, professional services fees, including legal, audit and tax fees, insurance fees, general corporate expenses and facility-related expenses. Research and development expenses Research and development (“R&D”) expenses are expensed as incurred and include research grants paid to other parties, product development, costs of clinical studies to support new products and product enhancements, including expanded indications, supplies used for internal R&D and clinical activities, and costs for outside consultants who assist with technology development and clinical affairs. Acquired in-process research and development expenses Assets that are acquired in an asset acquisition for use in research and development activities that have an alternative future use are capitalized as IPR&D. Acquired IPR&D that has no alternative future use as of the acquisition date is recognized as research and development expense as of the acquisition date. Results of Operations for the Three Months Ended March 31, 2025 and 2024 The following table sets forth the results of the Company's operations for the periods presented (in thousands): Three Months Ended March 31, 2025 2024 Change Revenue $ 143 $ 82 $ 61 Cost of revenues 11 5 6 Selling, general and administrative expenses 3,485 2,656 829 Research and development expenses 103 37 66 Acquired in-process research and development 119 — 119 Change in fair value of royalties payable due to related parties (1,163 ) (86 ) (1,077 ) Other income (expense), net (1) (31 ) 27 (58 ) Income tax benefit (724 ) — (724 ) (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 due to related parties that is presented separately in the table above. 35 Table of Contents Revenues The increase in revenues of approximately $61 thousand for the three months ended March 31, 2025 as compared to the corresponding period in the prior year was due to an increase in LockeT sales that was partially offset by lower product sales of the VIVO System. LockeT sales increased by $128 thousand from $0 for the three months ended March 31, 2024, to $128 thousand for the three months ended March 31, 2025. VIVO System product sales decreased by $67 thousand from $82 thousand for the three months ended March 31, 2024 to $15 thousand for three months ended March 31, 2025. The decrease in VIVO System product sales was primarily driven by a reduction in VIVO patch sales in the European Union ("EU"), which accounted for the majority of product sales in 2024. This decline was primarily attributable to reduced sales efforts resulting from changes in commercial leadership and the prolonged medical leave of a key EU-based sales consultant. The consultant returned to full-time work late in the fourth quarter of 2024. Cost of revenues The increase in cost of revenues of approximately $6 thousand for the three months ended March 31, 2025 as compared to the corresponding period in the prior year was primarily due to a higher volume of products sold. Selling, general and administrative expenses The increase in selling, general and administrative expenses of approximately $0.8 million for the three months ended March 31, 2025 as compared to the corresponding period in the prior year was primarily due to an increase in salaries and benefits of $0.7 million and an increase in stock-based compensation expense of $0.1 million . The increase in salaries and benefits was primarily due to an increase in headcount from 15 employees for the three months ended March 31, 2024 to 22 employees for the corresponding period in 2025. Additionally, 3 employees who departed in the first quarter of 2024 were subsequently replaced with new hires with higher annual salaries who worked for the Company for the entirety of the first quarter of 2025. The increase in stock-based compensation expense was primarily due to 1,627,500 options granted to certain employees and non-employees under the 2023 Plan on January 29, 2025, and 500,000 non-plan options granted to an employee on January 3, 2025 as compared to 435,000 options granted to certain employees under the 2023 Plan during the first quarter of 2024. Research and development expenses The increase in research and development expenses of approximately $0.1 million for the three months ended March 31, 2025 as compared to the corresponding period in the prior year was primarily due to hiring a full-time employee in January 2025 who is tasked with research and development activities which resulted in an increase in salaries and benefits of $0.1 million . 36 Table of Contents Acquired in-process research and development The increase in acquired in-process research development of approximately $0.1 million for the three months ended March 31, 2025 as compared the corresponding period in the prior year primarily relates to the asset acquisition completed on January 24, 2025. The Company acquired 100% of the membership interests of Perikard, LLC, which was accounted for as an asset acquisition consisting primarily of a single patent for pericardial access technology. The patent was determined to be IPR&D with no alternative future use, and accordingly, we recognized $119 thousand, consisting of $113 thousand of stock consideration and $6 thousand of direct transaction costs, as acquired in-process research and development in the condensed consolidated statements of operations for the three months ended March 31, 2025. Change in fair value of royalties payable due to related parties At each reporting period, the fair value of the royalties payable due to related parties is calculated using the discounted cash flow method. The decrease in the change in fair value of royalties payable due to related parties primarily relates to a decrease in the discount rate used in the discounted cash flow method. The discount rate decreased by 8% from 29% at March 31, 2024 to 21.0% at March 31, 2025, which led to a decrease of $1.1 million in the change in fair value of royalties payable due to related parties period over period. Other income (expense), net The decrease in other income (expense), net of approximately $58 thousand for the three months ended March 31, 2025 as compared to the corresponding period in the prior year was due to an increase in interest expense of $46 thousand primarily related to the Related Party Notes (see Note 7, Notes Payable included elsewhere in our Quarterly Report) and a decrease in interest income of $15 thousand primarily related to a decrease in short term investments recognized as cash equivalents in the condensed consolidated balance sheets period over period. Income tax benefit The increase in income tax benefit of approximately $724 thousand for the three months ended March 31, 2025 as compared to the corresponding period in the prior year relates to an increase in net operating losses that are not subject to limitations under Section 382 of the Internal Revenue Code. Liquidity and capital resources As of March 31, 2025, we had cash and cash equivalents of $0.5 million and an accumulated deficit of $296.4 million. For the three months ended March 31, 2025, net cash used by operating activities was $2.3 million. We have incurred recurring net losses from operations and negative cash flows from operating activities since inception. 37 Table of Contents We expect operating losses and negative cash flows to continue for the foreseeable future until our sales and gross profit increase sufficiently to cover our operating expenses. We expect our current operating expenses to remain relatively fixed. We believe that our current cash on hand of $1.5 million as of May 12 , 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. Because expected revenues are not adequate to fund our anticipated operating costs and liabilities beyond such point, we expect the need for additional financing sometime in the next month. We are currently evaluating potential means of raising cash through future debt and equity financing transactions to fund our operations and pay our debts as they come due, including a proposed at the market offering registered with the Securities and Exchange Commission as well as private placements of our securities, including our common stock and other securities convertible into or exchangeable for our common stock, such as convertible preferred stock and warrants. 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. 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 condensed consolidated financial statements for the quarter ended March 31, 2025 are issued. The Company’s condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Cash Flows for the Three Months Ended March 31, 2025 and 2024 (in thousands) Three Months Ended March 31, 2025 2024 Net cash used in: Operating activities $ (2,338 ) $ (1,942 ) Investing activities (10 ) (22 ) Financing activities (75 ) (110 ) Net change in cash and cash equivalents $ (2,423 ) $ (2,074 ) Net cash used in operating activities During the three months ended March 31, 2025, net cash used in operating activities of $2.3 million primarily consisted of net loss of $4.0 million and non-cash adjustments related to deferred income tax benefits of $0.7 million. This was partially offset by an increase in operating assets and liabilities of $0.5 million and non-cash adjustments related to depreciation and amortization of $0.5 million and change in fair value of royalties payable due to related parties of $1.2 million. During the three months ended March 31, 2024, net cash used in operating activities of $1.9 million consisted of a net loss of $2.7 million, partially offset by an increase in operating assets and liabilities of $0.1 million and non-cash adjustments of $0.6 million, consisting primarily of depreciation and amortization of $0.5 million and a change in fair value of royalties payable due to related parties of $0.1 million. 38 Table of Contents Net cash used in investing activities During the three months ended March 31, 2025, net cash used in investing activities of $10 thousand consisted of purchases of property and equipment. During the three months ended March 31, 2024, net cash used in investing activities of $22 thousand consisted of purchases of property and equipment. Net cash provided by financing activities During the three months ended March 31, 2025, net cash used in financing activities of $0.1 million consisted of payments on notes payable. During the three months ended March 31, 2024, net cash used in financing activities of $0.1 million consisted of payments on notes payable. Off-balance sheet arrangements 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 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 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 asset acquisitions, including the determination of the consideration transferred and related allocations to the fair value of assets acquired, provisions for legal contingencies, income taxes, deferred income tax asset valuation allowances, royalties payable due to related parties, share based compensation, evaluation of impairment of long-lived assets, 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. 39 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. 40 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 non-employee 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 executed by Old Cather. 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 Quarterly 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. 41 Table of Contents ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable.