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 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. 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 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; 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; 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 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. 33 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. 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. 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 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. 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. 34 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 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. 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 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 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. 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. 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 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 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. As of 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. KardioNav On June 20, 2025, the Company formed 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. 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 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. 35 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 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. We recognize sales of LockeT at the point in time that the product is delivered to the customer. We are a business that has operations within multiple countries. During the three and 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 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 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 June 30, Six Months Ended June 30, 2025 2024 Change 2025 2024 Change Revenue $ 212 $ 93 $ 119 $ 355 $ 175 $ 180 Cost of revenues 14 16 (2 ) 25 21 4 Selling, general and administrative expenses 2,881 2,713 168 6,366 5,369 997 Research and development expenses 155 81 74 258 118 140 Acquired in-process research and development 1,848 — 1,848 1,967 — 1,967 Change in fair value of royalties payable due to related parties (1,667 ) (1,504 ) (163 ) (2,830 ) (1,590 ) (1,240 ) Other (expense) income, net (1) (55 ) 1 (56 ) (86 ) 28 (114 ) Income tax benefit (950 ) — (950 ) (1,674 ) — (1,674 ) (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. 36 Table of Contents Revenues 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 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 $0.2 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 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 . 37 Table of Contents Acquired in-process research and development 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 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 $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 $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 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. 38 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 $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. 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. 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. 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 June 30, 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 Six Months Ended June 30, 2025 and 2024 (in thousands) Six Months Ended June 30, 2025 2024 Net cash provided by (used in): Operating activities $ (4,601 ) $ (3,639 ) Investing activities (23 ) (67 ) Financing activities 2,589 157 Net change in cash and cash equivalents $ (2,035 ) $ (3,549 ) Net cash used in operating activities 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. 39 Table of Contents Net cash used in investing activities 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 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 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. 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 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. Actual results may differ from these estimates under different assumptions or conditions and any such differences may be material. 40 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 assets should be revised and adjusted, if necessary. 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. 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. 41 Table of Contents Royalties payable 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 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. 42 Table of Contents ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable.