What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-08-11 compared with 2025-05-14 · 154 added, 97 removed, 162 unchanged (61% of the section changed)

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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.

These statements include, but are not limited to, our expectations with respect to our timing and need for future financing, including our ability to increase the availability under our at-the-market offering, expectations regarding Cardionomix clinical trials and FDA approval, and our expectations with respect to developing the products that may be offered by our Cardionomix and KardioNav subsidiaries.

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.

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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;

we will be unable to develop the assets acquired in by KardioNav and Cardionomix unless we are able to obtain additional financing, which may not be available on acceptable terms or at all, the results of anticipated trials may not turn out as we currently expect and future trials may not occur on the time tables we expect or may be more costly than anticipated, 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;

our ability to increase our at-the-market offering availability is subject to obtaining necessary approvals, certifications, legal opinions and accounting comfort letters, and there is no guaranty that we can do so successfully, 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;

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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;

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(“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).

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).

On February 17, 2025, the Company formed a new subsidiary, Cardionomix, Inc.

("Cardionomix"), to acquire certain assets previously held by Cardionomic, Inc.

("Cardionomic"), a third party entity that had ceased operations.

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%, while the remaining 6% of the outstanding common stock was issued to certain third parties as finder's fees for the asset acquisition (see Note 14, Asset Acquisition in the consolidated financial statements included elsewhere in this Quarterly Report).

On May 5, 2025, Cardionomix acquired certain assets primarily related to the Cardiac Pulmonary Nerve Stimulation ("CPNS") System previously held by Cardionomic (see Note 14, Asset Acquisition in the consolidated financial statements included elsewhere in this Quarterly Report).

The CPNS System represents a novel technology for the late-stage treatment of acute decompensated heart failure by stimulating the autonomic cardiac nerves to restore autonomic balance.

The CPNS System is in development and has yet to obtain regulatory approval.

Cardionomix plans to complete the pivotal clinical trial for the CPNS System and obtain necessary regulatory approvals from the FDA for use and commercialization.

On June 20, 2025, the Company formed a new subsidiary, KardioNav, Inc.

("KardioNav"), to pursue the advancement, development, and commercialization of certain intellectual property assigned to KardioNav.

The Company transferred certain intellectual property related to the VIVO System to KardioNav, which is not currently being developed by the Company, while Chelak, an unrelated third party, transferred certain patents related to a medical device designed to interface with implanted cardiac devices to KardioNav.

KardioNav intends to integrate the VIVO mapping intellectual property with Chelak's assigned patents to develop a system that interfaces with implanted cardiac devices to enable improved pre-ablation mapping and more precise localization of arrhythmogenic tissue.

Research and development activities are in the planning phase for this medical device.

The Company owns 57% of the subsidiary's issued and outstanding common stock, while Chelak owns 33% of the subsidiary’s issued and outstanding common stock.

The Company's Chief Executive Officer and Chairman of the Board of Directors and certain of his affiliates own the remaining 10% of the subsidiary’s issued and outstanding common stock.

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.

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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.

Our second and newest primary 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.

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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.

The current studies are planned to show the product’s effectiveness and benefits, including faster wound closure and patient ambulation/discharge, potentially resulting in higher procedural volumes 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.

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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 aim to establish both LockeT and VIVO as integral tools used by cardiac electrophysiologists and their colleagues during ablation treatment of ventricular arrhythmias by reducing procedure time, patient complications and increasing procedural success.

Recent Developments

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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.

The PeriKard pericardial access kit is a medical procedure kit and method for draining fluid from an organ.

The technology is in development and has not been commercialized.

This transaction closed on January 24, 2025.

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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.

As of June 30, 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

On May 5, 2025, Cardionomix acquired the CPNS System.

As consideration to Cardionomic, we issued 1,000,000 shares of our restricted common stock valued at $0.3 million, and Cardionomix issued a promissory note valued at $1.3 million (the “Note Payable”).

The Note Payable was issued with a principal balance of $1.5 million and stated interest of 4% per annum with no interest or principal payable until the maturity date, which is three years following the date of issuance.

The acquisition was accounted for as an asset acquisition consisting primarily of the CPNS System, which was deemed to be an IPR&D Asset with no alternative future use.

Accordingly, we recognized the consideration transferred of $1.9 million, consisting of $0.3 million in stock consideration, $1.3 million in note payable, and $0.3 million in direct transaction costs, as acquired research and development expense in the condensed consolidated statement of operations for the three and six month period ended June 30, 2025.

The minority equity interest holders are presented as non-controlling interests in the accompanying condensed consolidated balance sheets, statements of operations, and statements of stockholders’ equity.

May 2025 PIPE Financing

On May 12, 2025, we entered into a Securities Purchase Agreement (“Securities Purchase Agreement”) for a private placement with three institutional investors ( “May 2025 PIPE Financing”).

Pursuant to the Securities Purchase Agreement, we sold an aggregate of (i) 1,500 PIPE Units and (ii) 1,500 additional shares of a new series of preferred stock, designated Series B Convertible Preferred Stock, par value $0.0001 per share.

Each PIPE Unit consists of:

(i) one share of Series B Convertible Preferred Stock and (ii) Series L common stock purchase warrants ("Series L Warrants") to purchase approximately 2,858 shares of common stock at an exercise price of $0.50 per share.

As consideration for the PIPE Units and Series B Convertible Preferred Stock, we collected gross proceeds of $1.5 million in cash and QHSLab Notes previously held by one of the investors, and valued at $864 thousand as of May 12, 2025, before deducting placement agent fees and offering expenses of $0.4 million (collectively, the “Placement Agent Fees”).

The Series L Warrants are currently exercisable and expire on January 25, 2031.

Each Series L Warrant is exercisable into one share of common stock and may be cashless exercised under certain circumstances.

The exercise price of the Series L Warrants is subject to appropriate adjustment in the event of recapitalization events, stock dividends, stock splits, stock combinations, reclassifications, reorganizations or similar events affecting common stock.

The Series L Warrants are callable for $0.01 per share, if the volume‑weighted average price of the Company’s common stock for 20 consecutive trading days exceeds $1.50 per share and the Series L Warrants have not been exercised.

Stockholder approval of the exercise of the Series L Warrants was obtained on July 25, 2025.

In connection with the May 2025 PIPE Financing, we also issued Placement Agent Warrants to purchase an aggregate of 257,143 shares of common stock at an exercise price of $0.5425 per share to the Placement Agent.

The Placement Agent Warrants terminate 5 years from the date of issuance.

The Placement Agent Warrants are not callable.

Except for the exercise price, contract term, call option and change in control provision, the Placement Agent Warrants have the same terms and conditions as the Series L Warrants.

We assessed the Series L Warrants and Placement Agent Warrants issued in connection with the May 2025 PIPE Financing and determined that they do not require liability classification pursuant to ASC 480.

Furthermore, the Series L Warrants and Placement Agent Warrants do not have any net cash settlement provisions that would preclude equity classification under ASC 815-40.

Accordingly, the Series L Warrants and Placement Agent Warrants were recorded to additional paid-in capital in the condensed consolidated balance sheets.

See Note 11, Equity Offerings in the condensed consolidated financial statements included elsewhere in this Quarterly Report for additional information on the provisions for the Series L and Placement Agent Warrants.

See Note 12, Preferred Stock in the condensed consolidated financial statements included elsewhere in this Quarterly Report for additional information on the Series B Convertible Preferred Stock issued in connection with the May 2025 PIPE Financing.

In addition, we entered into a registration rights agreement with the investors requiring the registration for resale the shares of common stock issuable upon the conversion of the Series B Convertible Preferred Stock and Series L Warrants.

The registration statement became effective on May 30, 2025.

Subject to specified exceptions, failure to maintain the registration shall lead to an obligation to pay to the investors cash liquidated damages equal to 2% of each investor’s subscription amount for then outstanding securities for every 30-day period the lapse continues, with unpaid amounts accruing interest at 18% per annum after a specified grace period.

During the three and six months ended June 30, 2025, we issued 2,202,357 shares of common stock in connection with the conversion of 771 shares of its Series B Convertible Preferred Stock.

At the Market Offering Agreement

On May 19, 2025, we entered into an At Market Offering Agreement (the “ATM Agreement”) with Ladenburg.

Based on the most recent prospectus supplement filed by the Company, under the ATM Agreement, we may currently offer and sell up to an aggregate of approximately $3.2 million of shares of common stock, par value $0.0001 per share, through Ladenburg.

The ATM shares are issued pursuant to previously filed and effective Registration Statement on Form S-3 (File No.

333-284217), which was initially filed with the Securities and Exchange Commission on January 10, 2025 and declared effective on January 22, 2025.

We have currently sold $2.73 million of shares pursuant to the ATM Agreement.

We have no obligation to sell, and Ladenburg is not obligated to buy or sell, any of the Shares under the ATM Agreement and may at any time suspend offers under the ATM Agreement.

The ATM Agreement will terminate upon the earlier of (i) the issuance and sale of all of the shares through Ladenburg on the terms and subject to the conditions set forth in the ATM Agreement or (ii) termination of the ATM Agreement as otherwise permitted thereby.

The ATM Agreement may be terminated at any time by either party upon five (5) business days’ prior notice, or by Ladenburg at any time in certain circumstances, including the occurrence of a material adverse effect on the Company.

The Company has agreed to pay Ladenburg a commission equal to 3.0% of the aggregate gross proceeds from sale of its shares of common stock.

June 30, 2025,

4,183,589 shares of common stock had been sold under the ATM agreement for gross proceeds of

$1.7 million before deduction of commission and offering expenses of

$0.2 million.

On June 20, 2025, the Company formed KardioNav to pursue the advancement, development, and commercialization of certain intellectual property assigned to KardioNav.

Research and development activities are in the planning phase for this medical device.

The Company owns 57% of the subsidiary's issued and outstanding common stock, while Chelak owns 33% of the subsidiary’s issued and outstanding common stock.

The Company's Chief Executive Officer and Chairman of the Board of Directors and certain of his affiliates own the remaining 10% of the subsidiary’s issued and outstanding common stock.

See Note 2, Summary of Significant Accounting Policies in the condensed consolidated financial statements included elsewhere in this Quarterly Report for additional information.

Components of our Results of Operations for the Three and Six Months Ended June 30, 2025 and 2024

Our current activities primarily relate to the design, manufacture and sale of new and innovative medical technologies in the field of cardiac electrophysiology.

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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.

We did not recognize any revenues for software upgrade services for the three and six months ended June 30, 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.

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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.

During the three and six months ended June 30, 2025, approximately 18% and 13%, respectively, of our sales were derived from customers outside of the United States.

During the three and six months ended June 30, 2024, approximately 35% and 62%, respectively, of our sales were derived from customers outside the United States.

Cost of revenues

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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

Results of Operations for the Three and Six Months Ended June 30, 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,

Three Months Ended June 30,

Six Months Ended June 30,

Cost of revenues

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Change in fair value of royalties payable due to related parties

Other income (expense), net (1)

Other (expense) income, net (1)

Income tax benefit

(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.

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.

The increase in revenues of approximately $119 thousand for the three months ended June 30, 2025 as compared to the corresponding period in the prior year was due to an increase of $102 thousand and $17 thousand in LockeT and VIVO System sales, respectively.

The increase in revenues of approximately $180 thousand for the six months ended June 30, 2025 as compared to the corresponding period in the prior year was due to an increase of $230 thousand in LockeT sales, partially offset by a $50 thousand decrease in VIVO System sales.

The decrease in VIVO System sales was primarily driven by an overall 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 throughout 2024 and during the six months ended June 30, 2025.

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.

The decrease in cost of revenues of approximately $2 thousand for the three months ended June 30, 2025, as compared to the corresponding period in the prior year was primarily due to higher volume-based, supplier discounts for LockeT.

We submitted larger consolidated purchase orders, received larger volume-based discounts, and achieved a higher product margin for LockeT devices for the three months ended June 30, 2025 as compared to the corresponding period in the prior year.

The increase in cost of revenues of $4 thousand for the six months ended June 30, 2025, as compared to the corresponding period in the prior year was primarily due to an increase in sales, partially offset for higher product margins for LockeT devices.

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.

The increase in selling, general and administrative expenses of approximately $0.2 million for the three months ended June 30, 2025 as compared to the corresponding period in the prior year was primarily due to an increase in salaries and benefits of $0.2 million The increase in selling, general and administrative expenses of approximately $1.0 million for the six months ended June 30, 2025 as compared to the corresponding period in the prior year was primarily due to an increase in salaries and benefits of $0.9 million and an increase in stock-based compensation expense of $0.2 million, partially offset by a decrease in consulting fees of $0.1 million .

The increase in salaries and benefits for the three and six months ended June 30, 2025 as compared to the corresponding periods in the prior year was primarily due to an increase in headcount from 15 employees as of June 30, 2024 to 21 employees as of June 30, 2025, including the CFO position that had been vacant since January 2024, and was filled in January 2025.

Additionally, 3 employees that departed in the first quarter of 2024 were subsequently replaced with new hires with higher annual salaries.

The increase in stock-based compensation expense for the three and six months ended June 30, 2025 was primarily due to the grant of 2,127,500 plan options and 500,000 non-plan options to certain employees during the six months ended June 30, 2025, as compared to 56,000 plan options and 25,000 non-plan options granted to certain employees during the six months ended June 30, 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 .

The increase in research and development expenses of approximately $0.1 million for both the three and six months ended June 30, 2025 as compared to the corresponding periods in the prior year was primarily due to hiring a full-time employee in January 2025 who is tasked with research and development activities and therefore contributed to an increase in salaries and benefits under research and development expenses of $0.1 million .

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 increase in acquired in-process research development of approximately $1.8 million and $2.0 million for the three and six months ended June 30, 2025 as compared the corresponding periods in the prior year primarily relates to the two asset acquisitions completed in 2025.

On January 24, 2025, we 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.

On May 5, 2025, we acquired certain assets primarily related to Cardionomic’s CPNS System, which were deemed to be IPR&D assets with no alternative future use.

Accordingly, we recognized $1.9 million, consisting of $0.3 million in stock consideration, $1.3 million in note payable, and $0.3 million in direct transaction costs, as acquired in-process research and development in the condensed consolidated statements of operations for the three and six months ended June 30, 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.

The increase of $0.2 million and $1.2 million in the change in fair value of royalties payable due to related parties for the three and six months ended June 30, 2025, respectively, as compared to the corresponding periods in the prior year, is primarily due to additional future estimated royalty payments of $0.9 million related to sales of the LockeT device.

Since the United States Patent and Trademark Office approved a US patent for the LockeT device in April 2025, in line with the Royalty Agreement, the Company is obligated to pay an additional royalty equal to 2% of net sales of LockeT devices.

This increase is partially offset by a decrease in the discount rate used in the discounted cash flow method, which decreased by 5.5% from 26.0% at June 30, 2024 to 20.5% at June 30, 2025.

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.

The decrease in other income (expense), net of $56 thousand for the three months ended June 30, 2025, as compared to the corresponding period in the prior year primarily relates to an increase in interest expense of $62 thousand partially offset by the change in fair value of trading debt securities of $10 thousand.

During the three months ended June 30, 2025, we incurred interest expense of $19 thousand in connection with the note payable issued by Cardionomix on May 5, 2025, and $45 thousand in connection with the Related Party Notes issued by us throughout June and July 2024.

During the three months ended June 30, 2024, we only incurred $4 thousand in interest expense in connection with the Related Party Notes.

The change in fair value of trading debt securities relates to the QHSLab Notes, which were received as consideration for the Series B Convertible Preferred Stock and Series L Warrants issued on May 12, 2025.

The decrease in other income (expense), net of $114 thousand for the six months ended June 30, 2025, as compared to the corresponding period in the prior year primarily relates to an increase in interest expense of $108 thousand and a decrease in interest income of $19 thousand, partially offset by an increase of $10 thousand in change in fair value of trading debt securities.

The increase in interest expense primarily relates to the note payable issued by Cardionomix and the Related Party Notes, which incurred $19 thousand and $90 thousand in interest expense during the six months ended June 30, 2025 as compared to $0 and $4 thousand in the corresponding period in the prior year.

The decrease in interest income primarily relates to lower gains in marketable securities recorded under cash and cash equivalents in the condensed consolidated balance sheets.

As noted above, the change in fair value of trading debt securities relates to financial instruments acquired during the six months ended June 30, 2025, which did not exist in the corresponding period in the prior year.

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.

The increase in income tax benefit of approximately $1.0 million and $1.7 million for the three and six months ended June 30, 2025 as compared to the corresponding periods 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.

As of June 30, 2025, we had cash and cash equivalents of $0.8 million and an accumulated deficit of $301.5 million.

For the six months ended June 30, 2025, net cash used by operating activities was $4.6 million.

We have incurred recurring net losses from operations and negative cash flows from operating activities since inception.

On May 12, 2025, we raised gross proceeds of $1.5 million in cash and acquired $0.9 million in trading debt securities, before deducting placement agent fees and offering expenses of $0.4 million, in connection with the May 2025 PIPE Financing.

Through June 30, 2025, we raised gross proceeds of $1.7 million, before deduction of commissions and offering expenses of $0.2 million, in connection with the ATM.

See Note 11, Equity Offerings in the condensed consolidated financial statements included elsewhere in this Quarterly Report for additional information on the financing events.

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.

We believe that our current cash on hand of $978 thousand as of August 5, 2025 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 prior to the end of the current quarter.

We are currently evaluating potential means of raising cash, including the continuation of our at the market offering registered with the Securities and Exchange Commission, as well as through future debt and equity financing transactions to fund our operations and pay our debts as they come due.

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.

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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.

On August 7, 2025, we filed a prospectus supplement that will allow us to sell up to $1.5 million additional shares in our ATM offering;

however, there is no guarantee that market conditions will allow us to sell enough common stock to raise this amount at prices that we consider adequate.

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,

Net cash used in:

Cash Flows for the Six Months Ended June 30, 2025 and 2024 (in thousands)

Six Months Ended June 30,

Net cash provided by (used in):

Operating activities

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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.

During the six months ended June 30, 2025, net cash used in operating activities of $4.6 million primarily related to the net loss of $9.5 million.

This was partially offset by non-cash adjustments related to change in fair value of royalties payable due to related parties of $2.8 million, acquired in-process research and development of $2.0 million, and depreciation and amortization of $1.1 million.

During the six months ended June 30, 2024, net cash used in operating activities of $3.6 million related to the net loss of $6.9 million, partially offset by an increase in operating assets and liabilities of $0.6 million and non-cash adjustments primarily consisting of change in fair value of royalties due to related parties of $1.6 million and depreciation and amortization of $1.0 million.

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.

During the six months ended June 30, 2025, net cash used in investing activities of $23 thousand consisted of purchases of property and equipment of $17 thousand, and purchases of acquired in-process research and development of $6 thousand.

During the six months ended June 30, 2024, net cash used in investing activities of $67 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.

During the six months ended June 30, 2025, net cash used in financing activities of $2.6 million consisted of net proceeds from issuance of common stock and other equity-classified instruments, partially offset by $0.1 million in payments on notes payable.

During the six months ended June 30, 2024, net cash used in financing activities of $0.2 million primarily consisted of proceeds from notes payable due to related parties of $0.7 million, partially offset by payments on deferred financing costs of $0.3 million and payments on notes payable of $0.2 million.

Off-balance sheet arrangements

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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.

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.

We regularly evaluate estimates and assumptions related to asset acquisitions, including the provisions for legal contingencies, income taxes, deferred income tax asset valuation allowances, royalties payable due to related parties, trading debt securities, 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.

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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.

Management evaluates whether events or circumstances have occurred that indicate the remaining useful life or carrying value of the amortizing intangible assets should be revised and adjusted, if necessary.

Accounting for impairment of long-lived assets

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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.

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.

Trading Debt Securities

The Company holds Level 3 trading debt securities that are measured at fair value with changes in fair value recognized in earnings.

Because there is no observable market for these notes and their fair value depends on multiple, significant unobservable inputs, determining fair value requires significant judgment and could materially affect the Company’s results of operations.

The fair value of the trading debt securities is determined using a probability weighted expected return model (“PWER model”) that values the trading debt securities based on the discounted cash flows of two potential settlement outcomes:

(i) the trading debt securities will be converted into and settled in shares of common stock of QHSLab, Inc.

and (ii) the trading debt securities’ principal and accrued interest will be paid.

Aside from the probability of the two potential settlement outcomes, the fair value measurement incorporates several significant unobservable inputs, including the recovery rate, simulated conversion price, credit-risk adjusted discount rate, expected equity volatility, and expected term.

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.

The Company is obligated to pay royalties related to the sales of LockeT and AMIGO System under various royalty agreements executed by Old Catheter.

The Company recognizes a liability for royalty fees incurred and payable based on actual sales of products under current portion of royalties payable due to related parties in the condensed consolidated balance sheets.

The Company recognizes a liability for future, estimated royalty payments at fair value under current portion of royalties payable due to related parties and royalties payable due to related parties in the condensed consolidated balance sheets.

The royalties payable due to related parties is remeasured at each reporting period.

The fair value measurement of royalties payable due to related parties includes significant unobservable inputs that are not supported by any market data.

Royalties payable due to related parties equals the present value of estimated future royalty payments.

The Company applies an internally developed, revenue adjusted discount rate (“RADR”) to discount back the forecasted royalty payments.

The RADR is based on the Company’s weighted average cost of capital (“WACC”) adjusted for the product revenue’s risk profile.

The risk-free rate used to determine the cost of equity for the RADR is adjusted to be commensurate with the term of the royalty agreements.

Furthermore, the Beta and Risk Premium used to determine the cost of equity are also adjusted to reflect the product revenue's volatility.

All other inputs for the RADR and the Company’s WACC are the same.

New Accounting Pronouncements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis