What changed in this filing

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Item 1. Financial Statements

2024-08-14 compared with 2024-05-06 · 226 added, 147 removed, 682 unchanged (35% of the section changed)

3 unchanged sentences

(in thousands, except share data)

June 30, 2024

December 31, 2023

Current Assets

6 unchanged sentences

Intangible assets, net

Deferred financing costs

Other non-current assets

4 unchanged sentences

Notes payable

Notes payable due to related parties

Interest payable to related parties

Current portion of royalties payable

Current portion of operating lease liabilities

7 unchanged sentences

Series A Convertible Preferred Stock, $ 0.0001 par value, 7,203 shares designated;

3,703 and 4,578 shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively

3,703 and 4,578 shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively

Series X Convertible Preferred Stock, $ 0.0001 par value, 15,404 shares designated;

12,656 shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively

12,656 shares issued and outstanding as of June 30, 2024 and December 31, 2023

Common stock, $ 0.0001 par value, 30,000,000 shares authorized;

7,573,403 and 7,026,627 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively

757,340 and 702,662 shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively

Additional paid-in capital

5 unchanged sentences

Condensed Consolidated Statements of Operations

(in thousands, except per share data)

For the Three Months

Ended March 31,

(in thousands, except shares and per share data)

For the Three Months Ended June 30,

For the Six Months Ended June 30,

Cost of revenues

18 unchanged sentences

(in thousands, except share data)

Series A Convertible

Preferred Stock

Series X Convertible

Preferred Stock

6 unchanged sentences

Balance at March 31, 2024

Stock-based compensation

Balance at June 30, 2024

$ ( 282,604 )

Series A Convertible

Preferred Stock

Series X Convertible

Preferred Stock

Additional Paid-In

Total Stockholders'

10 unchanged sentences

Balance at March 31, 2023

Common stock issued upon the exercise of options

Adjustment of fair value of Series X Convertible Preferred Stock in merger

Adjustment of fair value of Stock-based compensation related to merger

Balance at June 30, 2023

$ ( 273,113 )

3 unchanged sentences

(in thousands)

For the Three Months

Ended March 31,

For the Six Months Ended June 30,

CASH FLOWS FROM OPERATING ACTIVITIES:

4 unchanged sentences

Change in fair value of royalties payable

Accretion of royalties payable

Changes in operating assets and liabilities:

2 unchanged sentences

Lease right-of-use assets and lease liabilities

Current portion of royalties payable

Accounts payable

1 unchanged sentence

Accrued interest - related parties

Other non-current assets

Net cash used in operating activities

5 unchanged sentences

Proceeds from issuance of common stock and warrants

Proceeds from notes payable due to related parties

Payments on note payable

Payments on deferred financing costs

Proceeds from exercise of warrants

3 unchanged sentences

Payments of offering costs related to the private placement of securities

Net cash (used in) provided by financing activities

Net cash provided by financing activities

NET CHANGE IN CASH AND CASH EQUIVALENTS

5 unchanged sentences

See accompanying notes to unaudited condensed consolidated financial statements.

CATHETER PRECISION, INC.

Notes to Condensed Consolidated Financial Statements

(in thousands, except share data)

Organization and Nature of Operations

Catheter Precision, Inc.

("Catheter" or the "Company or "Legacy RA Medical"), was incorporated in Delaware in July 2018.

("Catheter" or the "Company or "Legacy RA Medical") 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.

1 unchanged sentence

Under the terms of the Merger Agreement, Old Catheter became a wholly owned subsidiary of Catheter, together referred to as the Company, in a stock-for-stock merger transaction, or the "Merger".

After the Merger and looking forward, the legacy Destruction of Arteriosclerotic Blockages by laser Radiation Ablation laser and single-use catheter, together referred to as "DABRA", and related assets were no longer used and Catheter’s legacy lines of business were discontinued, but instead the Company has shifted the focus of its operations to Old Catheter’s product lines.

Accordingly, the Company’s current activities primarily relate to Old Catheter’s historical business which comprises the design, manufacture and sale of new and innovative medical technologies primarily focused in the field of cardiac electrophysiology, or EP.

The Company’s primary product is the VIVO System, which is an acronym for View into Ventricular Onset System (“VIVO” or “VIVO System”), 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.

The VIVO System has achieved a CE Mark allowing it to be commercialized in the European Union and has been placed at several hospitals in Europe.

United States Food and Drug Administration ("FDA") 510(K) clearance in the United States was received and the Company began a limited commercial release of VIVO in 2021.

The Company’s newest product, Surgical Vessel Closing Pressure Device ("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 and is intended to temporarily secure sutures and aid clinicians in locating and removing sutures efficiently.

Prior to the Merger, Catheter developed an advanced excimer laser-based platform for use in the treatment of vascular immune-mediated inflammatory diseases designed to be used as a tool in the treatment of Peripheral Artery Disease which commonly occurs in the legs.

After the Merger and looking forward, this legacy Destruction of Arteriosclerotic Blockages by laser Radiation Ablation laser and single-use catheter, together referred to as "DABRA", and related assets were no longer used, the Company ceased operations and marketing with respect to DABRA, and Catheter’s legacy lines of business were discontinued.

Instead, the Company has shifted the focus of its operations to Old Catheter’s product lines.

Accordingly, the Company’s current activities primarily relate to Old Catheter’s historical business which comprises the design, manufacture and sale of new and innovative medical technologies focused in the field of cardiac electrophysiology, or EP.

One of the Company’s two primary products is the VIVO System, which is an acronym for View into Ventricular Onset (“VIVO” or “VIVO System”).

VIVO is a non-invasive imaging system that offers 3D cardiac mapping to help with localizing the sites of origin of idiopathic ventricular arrhythmias in patients with structurally normal hearts prior to EP procedures.

The VIVO System is commercially available in the European Union and has been placed at several hospitals in Europe.

United States Food and Drug Administration ("FDA") 510(k) clearance was received and the Company began a limited commercial release of VIVO in 2021 in the United States.

The Company’s newest product, LockeT, is a suture retention device indicated for wound healing by distributing suture tension over a larger area in the patient in conjunction with a figure of eight suture closure and is intended to temporarily secure sutures and aid clinicians in locating and removing sutures efficiently.

In addition, LockeT is a sterile, Class I product that was registered with the FDA in February 2023, at which time initial shipments began to distributors.

1 unchanged sentence

These studies are planned to show the product’s effectiveness and benefits, including faster wound closure, earlier ambulation, potentially leading to early hospital discharge, and cost benefits.

This information is intended to provide crucial data for marketing and to expand the Company's indications for use with the FDA.

This information is intended to provide crucial data for marketing.

The Company’s product portfolio also includes the Amigo ® Remote Catheter System (the "AMIGO" or "AMIGO System"), a robotic arm that serves as a catheter control device.

1 unchanged sentence

The Company owns the intellectual property related to Amigo, and this product is under consideration for future research and development of a generation 2 product.

Prior to the Merger, Catheter developed an advanced excimer laser-based platform for use in the treatment of vascular immune-mediated inflammatory diseases.

DABRA was developed as a tool in the treatment of Peripheral Artery Disease which commonly occurs in the legs.

The Company has ceased marketing and operations related to DABRA.

Reverse Stock Split

On July 3, 2024, at the annual meeting of stockholders of the Company, the stockholders approved an amendment to the Amended and Restated Certificate of Incorporation of the Company (the “Amendment”) which included a decrease in the authorized common stock and authorization for the Board, in its discretion, to effect a reverse stock split within specified parameters.

The Amendment was effective July 15, 2024, reducing the authorized common stock to 30 million shares and effecting a reverse stock split in which each ten ( 10 ) shares of the Company’s common stock, par value $ 0.0001 per share, issued and outstanding immediately prior to the effective time automatically combined into one (1) validly issued, fully paid and non-assessable share of common stock, par value $ 0.0001 per share.

No fractional shares were issued as a result of the Reverse Stock Split.

Stockholders who would otherwise have been entitled to receive a fractional share were entitled to receive their pro rata portion of the net proceeds obtained from the aggregation and sale by the exchange agent of the fractional shares resulting from the reverse stock split (reduced by any customary brokerage fees, commissions and other expenses).

The financial statements have been retrospectively adjusted to reflect the Reverse Stock Split of the Company’s common stock for all periods presented.

Going Concern

As of March 31, 2024, the Company had cash and cash equivalents of approximately $ 1.5 million.

For the three months ended March 31, 2024, the Company used $ 1.9 million in cash for operating activities.

As of June 30, 2024, the Company had cash and cash equivalents of approximately $ 16 thousand.

For the six months ended June 30, 2024, the Company used $ 3.6 million in cash for operating activities.

The Company has incurred recurring net losses from operations and negative cash flows from operating activities since inception.

As of March 31, 2024, the Company had an accumulated deficit of approximately $ 278.4 million.

As of June 30, 2024, the Company had an accumulated deficit of approximately $ 282.6 million.

Management expects operating losses and negative cash flows to continue for the foreseeable future as the Company invests in its commercial capabilities.

These negative cash flows and additional costs associated with the Merger paid during the year ended December 31, 2023, have substantially depleted the Company’s cash.

Following the Merger with Old Catheter, management further reduced staff and other costs while assuming the operating costs of Old Catheter.

Following the Merger with Old Catheter, management further reduced costs while assuming the operating costs of Old Catheter.

Management will continue to monitor its operating costs and seek to reduce its current liabilities.

Such actions may impair its ability to proceed with certain strategic activities.

As of March 31, 2024, the Company had $ 1.5 million of cash and cash equivalents.

This amount will not be sufficient to fund the Company's operations through the end of May 2025.

Because expected revenues are not adequate to fund planned expenditures and anticipated operating costs beyond such point, the Company is currently evaluating potential means of raising cash through future capital transactions and/or bridge loans.

As of June 30, 2024, the Company had $ 16 thousand of cash and cash equivalents.

This amount will not be sufficient to fund the Company's operations through the end of August 2025.

Because expected revenues are not adequate to fund planned expenditures and anticipated operating costs beyond such point, the Company has obtained an additional $ 850 thousand in bridge loans subsequent to June 30, 2024 and is currently evaluating potential means of raising cash through future capital transactions and additional bridge loans.

If unable to do so, the Company will be required to reduce its spending rate to align with expected revenue levels and cash reserves, although there can be no guarantee that it will be successful in doing so.

Accordingly, the Company will likely be required to raise additional cash through debt or equity transactions and/or bridge loans to continue operations.

Accordingly, the Company will likely be required to raise additional cash through debt or equity transactions and bridge loans to continue operations.

It 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 are issued.

The Company’s condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

As a result of these factors, management has concluded that there is substantial doubt about the Company’s ability to continue as a going concern for a period of one year after the date the unaudited condensed consolidated financial statements are issued.

The Company’s unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Summary of Significant Accounting Policies

19 unchanged sentences

Credit risk related to cash and cash equivalents is based on the creditworthiness of the financial institutions at which these funds are held.

The Company has cash balances at financial institutions which throughout the year may exceed the federally insured limit of $250,000.

The Company has cash balances at financial institutions which from time to time may exceed the federally insured limit of $250,000 .

Any loss incurred or a lack of access to such funds could have a significant adverse impact on the Company's financial condition, results of operations, and cash flows.

5 unchanged sentences

The Company does not require collateral from its customers to secure accounts receivable.

The Company had three customers that represented more than 90% of the Companies consolidated revenue for the three months ended March 31, 2024 and three customers that represented more than 79% of the Company's consolidated revenue for the three months ended March 31, 2023.

The Company had three and five customers that represented 92 % and 88 %, of the Company's consolidated revenue for the three and six months ended June 30, 2024, respectively;

and three and four customers that represented 76 % and 84 % of the Company's consolidated revenue for the three and six months ended June 30, 2023, respectively.

The Company has no significant off-balance sheet risk such as foreign exchange contracts, option contracts, or other hedging arrangements.

3 unchanged sentences

Cash equivalents primarily represent funds invested in readily available checking and money market accounts.

The Company maintains deposits in financial institutions in excess of federally insured limits of $250,000, in the amount of $ 1.2 million at March 31, 2024.

The Company did not maintain deposits in financial institutions in excess of federally insured limits of $250,000 at June 30, 2024.

Fair Value Measurements

14 unchanged sentences

The following table details the fair value measurements within the fair value hierarchy of the Company’s financial instruments:

Fair value at March 31, 2024

Fair value at June 30, 2024

Cash Equivalents

7 unchanged sentences

Total liabilities

Financial Instruments — Credit Losses (ASU 2016-13)

Accounts Receivable and Allowances for Credit Losses

Under the Current Expected Credit Loss (“CECL”) impairment model, the Company develops and documents its allowance for credit losses on its trade receivables based on three portfolio segments:

1 unchanged sentence

The determination of portfolio segments is based primarily on the customers’ industry and geographical location.

Our quantitative allowance for credit loss estimates under CECL was determined using the method that uses an aging schedule.

The Company also considers qualitative adjustments that may relate to unique risks, changes in current economic conditions that may not be reflected in quantitatively derived results, or other relevant factors to further inform our estimate of the allowance for credit losses.

Accounts Receivable and Allowances for Credit Losses

Trade accounts receivable are recorded at invoiced amounts, net of allowance for credit losses, if applicable, and are unsecured and do not bear interest.

5 unchanged sentences

Changes in the allowance are recorded as adjustments to bad debt expense in the period incurred.

As of March 31, 2024 and December 31, 2023 there is no reserve for expected credit losses within accounts receivable.

As of June 30, 2024 and December 31, 2023 there is no reserve for expected credit losses within accounts receivable.

Inventories are stated at the lower of cost (first-in, first-out method) or net realizable value.

14 unchanged sentences

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.

As a result of the sustained decline of the Company's stock price from the date of the Merger, the Company assesses its long-lived assets for impairment.

The recurring negative cash flows and losses from operating activities indicates a triggering event.

The Company assesses its long-lived assets for impairment.

To determine whether the carrying amount of the long-lived asset group is recoverable, the Company determined the estimated future cash flows of the group for a period consistent with that of the primary assets of the group.

The sum of the undiscounted cash flows was then compared to the carrying amount of the long-lived assets, as of March 31, 2024.

The Company concluded there was no impairment as of March 31, 2024.

The sum of the undiscounted cash flows was then compared to the carrying amount of the long-lived assets, as of June 30, 2024.

The Company concluded there was no impairment as of June 30, 2024.

In accordance with ASC 350, Intangibles – Goodwill and Other , goodwill is calculated as the difference between the acquisition date fair value of the consideration transferred and the fair value of net assets acquired.

16 unchanged sentences

The inputs for the market capitalization calculation are considered Level 1 inputs.

There were impairment charges of $ 0 and $ 56.1 million recognized during the three months ended March 31, 2024 and 2023, see Note 3, Business Combination and Note 7, Goodwill, for additional details.

There were impairment charges of $ 4.8 and $ 60.9 million recognized during the three and six months ended June 30, 2023, see Note 3, Business Combination and Note 7, Goodwill, for additional details.

As of December 31, 2023, goodwill was fully impaired.

Royalties Payable

The Company is obligated to pay royalties under various royalty agreements Old Cather had entered into.

The Company is obligated to pay royalties under various royalty agreements Old Catheter had entered into.

On January 9, 2023, prior to the consummation of the Merger, Old Catheter entered in an agreement with its Convertible Promissory Noteholders (“Noteholders”), which substantially consisted of amounts due to David A.

1 unchanged sentence

The Company will pay to the Noteholders a total royalty equal to approximately 12% of net sales of LockeT, commencing upon the first commercial sale, through December 31, 2035 (see Note 10, Royalties Payable).

In addition, Old Catheter had entered into an agreement with the inventor of LockeT in exchange for the assignment and all rights to LockeT.

Pursuant to the agreement, the Company 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 the Company 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 (see Note 10, Royalties Payable).

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 to the foundation, upon successful commercialization of the AMIGO System (see Note 10, Royalties Payable).

As of the date of the Merger, the royalties payable had an estimated fair value of approximately $ 14.2 million.

As of March 31, 2024 and December 31, 2023 the royalties payable had an estimated fair value of $ 7.0 million and $ 7.0 million, respectively.

At each reporting period, the fair value is calculated using a discounted cash flow method utilizing a RADR which was 24.1 % as of January 9, 2023, 28.0 % as of December 31, 2023 and 29.0 % as of March 31, 2024.

Catheter recognizes a liability for future payments to the Noteholders pursuant to the Royalty Right at fair value (the “Royalty Payable”).

The value of the Royalty Payable is an estimate, as future sales of the LockeT product are unknown, and is calculated as Management’s projected sales for LockeT through the end of 2035, multiplied by the royalty rate of 11.82 %, then discounting that amount back to present value.

At each reporting date, the fair value of the Royalty Payable is re-measured in connection with any changes to Management’s projections as a change in estimate.

Product Warranty

The Company’s current products are warrantied against defects in material and workmanship when properly used for their intended purpose and properly maintained.

Similarly, the DABRA products were warrantied against defects in material and workmanship when properly used for their intended purpose and appropriately maintained.

Accordingly, the Company generally replaced catheters that kinked or failed to calibrate.

The product warranty liability was determined based on historical information such as past experience, product failure rates or number of units repaired, estimated cost of material and labor.

The product warranty liability also includes the estimated costs of a product recall.

Warranty expenses are included in cost of revenues in the accompanying unaudited condensed consolidated statements of operations.

Changes in estimates to previously established warranty accruals resulted from current period updates to assumptions regarding repair and product recall costs and are included in current period warranty expense.

As of March 31, 2024 and December 31, 2023, there was no accrued warranty balance.

As of June 30, 2024 and December 31, 2023, there was no accrued warranty balance.

Distinguishing Liabilities from Equity

2 unchanged sentences

The Company will determine the liability classification if the financial instrument is mandatorily redeemable, or if the financial instrument, other than outstanding shares, embodies a conditional obligation that the Company must or may settle by issuing a variable number of its equity shares.

Once the Company determines that a financial instrument should not be classified as a liability, the Company determines whether the financial instrument should be presented between the liability section and the equity section of the balance sheet.

The Company will determine temporary equity classification if the redemption of the financial instrument is outside the control of the Company (i.e.

8 unchanged sentences

Under ASC 606, revenue is recognized when a customer obtains control of promised goods.

To achieve this core principal, the Company applies the following five steps:

To achieve this core principle, the Company applies the following five steps:

Identify the contract with the customer

3 unchanged sentences

Recognize revenue when the Company satisfies a performance obligation

The Company’s primary product in 2024 is the VIVO System.

One of the Company’s two primary products in 2024 is the VIVO System.

The VIVO System offers 3D cardiac mapping to help with localizing the sites of origin of idiopathic ventricular arrhythmias in patients with structurally normal hearts prior to electrophysiology studies.

13 unchanged sentences

The Company has elected the practical expedient to expense costs to obtain a contract, as incurred, as opposed to recognizing the cost as an asset upon occurrence.

Revenue is recognized at the point in time that the product is delivered to the customer.

Disaggregation of Revenue

The following table summarizes disaggregated product sales by geographic area ($ in thousands):

For the Three Months

Ended March 31,

For the Three Months Ended June 30,

For the Six Months Ended June 30,

Product Sales

3 unchanged sentences

Advertising costs are expensed as incurred and included in selling, general and administrative expenses.

Advertising costs were $ 49 thousand and $ 18 thousand during the three months ended March 31, 2024 and 2023.

Advertising costs were $ 48 thousand and $ 96 thousand during the three and six months ended June 30, 2024, respectively.

Advertising costs were $ 41 thousand and $ 58 thousand during the three and six months ended June 30, 2023, respectively.

The Company expenses patent costs, including related legal costs, as incurred and records such costs as selling, general and administrative expenses in the accompanying unaudited condensed consolidated statements of operations.

5 unchanged sentences

The Company evaluates whether an award should be classified and accounted for as a liability award or equity award for all stock-based compensation awards granted.

The cost of an award of an equity instrument is measured at the grant date, based on the estimated fair value of the award using the Black-Scholes option pricing valuation model (“Black-Scholes model”) which incorporates various assumptions including expected term, volatility and risk-free interest rate, and is recognized as expense on a straight-line basis over the requisite service period of the award, which is generally the vesting period of the respective award.

The cost of an award of an equity instrument that is a stock option is measured at the grant date, based on the estimated fair value of the award using the Black-Scholes option pricing valuation model (“Black-Scholes model”) which incorporates various assumptions including expected term, volatility and risk-free interest rate, and is recognized as expense on a straight-line basis over the requisite service period of the award, which is generally the vesting period of the respective award.

Share-based compensation for an award with a performance condition is recognized when the achievement of such performance condition is determined to be probable.

18 unchanged sentences

Net loss attributable to common stockholders consists of net income or loss, as adjusted for actual and deemed dividends declared.

The Company recorded a deemed dividend for the modification of existing warrants and issuance of new warrants during the three months ended March 31, 2023 of $ 0.8 million.

The deemed dividend is added to the net loss in determining the net loss available to common stockholders for the three months ended March 31, 2023.

The Company recorded a deemed dividend for the modification of existing warrants and issuance of new warrants during the three and six months ended June 30, 2023 of $ 0 and $ 0.8 million, respectively.

The deemed dividend is added to the net loss in determining the net loss available to common stockholders for the six months ended June 30, 2023.

There was no deemed dividend for the three months ended June 30, 3023 or for the three and six months ended June 30, 2024.

Recently Announced Accounting Pronouncements

12 unchanged sentences

The Company is required to adopt this standard prospectively in fiscal year 2025 for the annual reporting period ending December 31, 2025.

The Company is currently reviewing the impact that the adoption of ASU 2023-09 may have on our consolidated financial statements and disclosures.

The Company does not believe the impact of the new guidance and related codification improvements will have material impact to its financial position, results of operations and cash flows.

Business Combination

5 unchanged sentences

The following table summarizes the fair value of the consideration associated with the Merger ($ in thousands):

Fair Value as of

January 9, 2023

Fair Value as of January 9, 2023

Fair value of 14,649.592 Series X convertible preferred stock issued

3 unchanged sentences

The Company allocated the purchase price to the assets acquired and liabilities assumed at fair value.

The preliminary purchase price allocation reflects various preliminary fair value estimates and analyses, including certain tangible assets acquired and liabilities assumed, the valuation of intangible assets acquired, liabilities assumed, and goodwill, which were subject to change within the measurement period as preliminary valuations were being finalized (generally one year from the acquisition date).

The purchase price allocation reflects various fair value estimates and analyses, including certain tangible assets acquired and liabilities assumed, the valuation of intangible assets acquired, liabilities assumed, and goodwill, which were subject to change within the measurement period as valuations were being finalized (generally one year from the acquisition date).

Measurement period adjustments were recorded in the reporting period in which the estimates are finalized, and adjustment amounts were determined.

31 unchanged sentences

Trademark- LockeT

Notwithstanding the above, as described in Note 7, management determined that there were indicators of asset impairment during the three months ended March 31, 2023, and assessed the carrying values of the Company’s intangible assets and goodwill.

As a result, the Company recorded an impairment charge relating to goodwill of $ 56.1 million during the three months ended March 31, 2023.

This amount represented the preliminary purchase price amount ascribed to goodwill.

Transaction costs incurred in connection with this business combination amounted to approximately $ 1.7 million during the three months ended March 31, 2023.

Notwithstanding the above, as described in Note 7, management determined that there were indicators of asset impairment during the period ended June 30, 2023, and assessed the carrying values of the Company’s intangible assets and goodwill.

As a result, the Company recorded an impairment charge relating to goodwill of $ 4.8 million during the three months ended June 30, 2023, resulting in a goodwill balance of $ 0 as of June 30, 2023 and a total impairment charge of $ 60.9 million for the six months ended June 30, 2023.

This amount represented the purchase price amount ascribed to goodwill.

Transaction costs incurred in connection with this business combination amounted to approximately $ 0 and $ 1.7 million during the three and six months ended June 30, 2023, respectively.

Pro Forma Financial Information

1 unchanged sentence

These pro forma results are not necessarily indicative of the results that would have occurred if the acquisition had occurred on the first day of the period presented, nor does the pro forma financial information purport to represent the results of operations for future periods.

The following information for the three months ended March 31, 2023 is presented in thousands except for the per share data ($ in thousands, except per share data):

The following information for the three and six months ended June 30, 2023 is presented in thousands except for the per share data ($ in thousands, except per share data):

Three Months Ended June 30,

Six Months Ended June 30,

Net loss attributable to common stockholders

1 unchanged sentence

Inventories consisted of the following ($ in thousands):

June 30, 2024

December 31, 2023

Raw materials

Finished goods

There were no charges for inventory obsolescence or allowance recorded during the three months ended March 31, 2024 and 2023.

There were no charges for inventory obsolescence or allowance recorded during the three and six months ended June 30, 2024 and 2023.

Property and Equipment

Property and equipment, net consisted of the following ($ in thousands):

June 30, 2024

December 31, 2023

Machinery and equipment

Computer hardware and software

LockeT Animation video

VIVO DEMO/Clinical Systems

2 unchanged sentences

Property and equipment, net

Depreciation expense was $ 11 thousand and $ 7 thousand for the three months ended March 31, 2024 and 2023, respectively.

Depreciation expense was $ 15 thousand and $ 26 thousand for the three and six months ended June 30, 2024, respectively.

Depreciation expense was $ 9 thousand and $ 15 thousand for the three and six months ended June 30, 2023, respectively.

Intangible Assets

The following table summarizes the Company’s intangible assets as of March 31, 2024 ($ in thousands):

Gross Carrying Amount at

January 9, 2023

The following table summarizes the Company’s intangible assets as of June 30, 2024 ($ in thousands):

Estimated Useful Life in Years

Gross Carrying Amount at January 9, 2023

Accumulated Amortization

Net Book Value

Net Book Value at June 30, 2024

Developed technology ‐ VIVO

4 unchanged sentences

The following table summarizes the Company’s intangible assets as of December 31, 2023 ($ in thousands):

Gross Carrying Amount at

January 9, 2023

Estimated Useful Life in Years

Gross Carrying Amount at January 9, 2023

Accumulated Amortization

Net Book Value

at December 31,

Net Book Value at December 31, 2023

Developed technology ‐ VIVO

8 unchanged sentences

The Company uses the straight-line method to determine the amortization expense for its definite lived intangible assets.

Amortization expense, included within selling, general and administrative expenses, relating to the Company's intangible assets was $ 0.5 million and $ 1.4 million for the three months ended March 31, 2024 and 2023, respectively.

The weighted average remaining amortization period for the Company’s intangible assets as of March 31, 2024, is 12.81 years.

Amortization expense, included within selling, general and administrative expenses, relating to the Company's intangible assets was $ 0.5 million and $ 1.0 million for the three and six months ended June 30, 2024, respectively, and $ 0.5 million and $ 1.0 million for the three and six months ended June 30, 2023, respectively.

The weighted average remaining amortization period for the Company’s intangible assets as of June 30, 2024, is 12.57 years.

In connection with the Merger, the excess of the purchase price over the estimated fair value of the net assets assumed of $ 60.9 million was recognized as goodwill.

12 unchanged sentences

Accrued expenses consisted of the following ($ in thousands):

June 30, 2024

December 31, 2023

Legal expenses

6 unchanged sentences

As such, the Company derecognized the warranty liability of $ 192 thousand as of December 31, 2023.

As of March 31, 2024 and December 31, 2023, there is no accrued warranty balance.

As of June 30, 2024 and December 31, 2023, there is no accrued warranty balance.

Notes Payable

Note Payable - Director & Officer Liability Insurance

The Company purchased director and officer liability insurance coverage on October 16, 2023 for $ 447 thousand.

1 unchanged sentence

The interest rate on the loan is 8.990 %.

Interest expense on this loan was $ 3 thousand and $ 0 for the three months ended March 31, 2024 and 2023, respectively.

The loan balance was $ 74 thousand and $ 184 thousand as of March 31, 2024 and December 31, 2023, respectively.

Interest expense on this loan was $ 1 thousand and $ 4 thousand for the three and six months ended June 30, 2024, respectively.

The loan balance was $ 184 thousand as of as December 31, 2023.

The loan balance was paid off in May of 2024 and therefore there is no balance as of June 30, 2024.

8% Short Term Promissory Notes (collectively, the “Related Party Notes”)

On May 30, 2024, David A.

Jenkins, Executive Chair and Chief Executive Officer, loaned $ 500,000 to the Company in exchange for a short term promissory note (the "May Related Party Note").

On June 25, 2024, an entity controlled by Mr.

Jenkins loaned $ 150,000 to the Company in exchange for a short term promissory note (the "June Related Party Note").

The Related Party Notes have a maturity date of August 30, 2024 , and bear interest at the rate of 8 % per annum.

The Related Party Notes and the debt evidenced thereby, including all principal and interest, accelerate and become immediately due and payable upon the occurrence of certain customary events of default, including failure to pay amounts owing when due, material breach of representations or warranties by the Company (unless waived by the holder of the Related Party Note or cured within 10 days following notice) and/or certain events involving a discontinuation of the Company’s business or certain types of proceedings involving insolvency, bankruptcy, receivership and the like.

Interest expense on the Related Party Notes was $ 4 thousand for the three and six months ended June 30, 2024.

The balance of the Related Party Notes and accrued interest was $ 654 thousand as of June 30, 2024, $ 4 thousand of which is related to the Interest payable to related parties on the condensed consolidated balance sheets.

See Note 19, Related Parties, for additional details.

Royalties Payable

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Under these agreements, the Company is obligated to pay the Noteholders a total royalty equal to approximately 12 % of net sales of its LockeT device, commencing upon the first commercial sale, through December 31, 2035.

An additional royalty will be paid to the inventor of the LockeT device.

An additional royalty will be paid to the inventor of the LockeT device as detailed in the Royalty Agreement.

In exchange for the assignment and all rights to LockeT, the Company will pay a 5% royalty on net sales up to $1.0 million in royalties , payable annually in arrears, starting with the year ending December 31, 2022.

After $1.0 million has been paid, and if, and only if, a US patent is granted by the United States Patent and Trademark Office, the Company will continue to pay a royalty at a rate of 2 % of net sales, until total cumulative royalties of $ 10.0 million have been paid.

The royalty payments will apply to revenues through February 29, 2032 , then will terminate regardless of whether the full $ 10.0 million has been paid.

The royalty payments will apply to revenues through December 31, 2033 , then will terminate regardless of whether the full $ 10.0 million has been paid.

The LockeT device had sales during the three and six months ended June 30, 2024, and as such the Company owes the first royalty payment in relation to the Royalty Agreement.

As of June 30, 2024, the Company owes $ 6 thousand in relation to LockeT sales.

AMIGO System Royalty

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The Company is not actively marketing and selling the AMIGO System.

There was no royalty expense recorded for the three months ended March 31, 2024 and 2023 in relation to the AMIGO System.

There was no royalty expense recorded for the three and six months ended June 30, 2024 and 2023 in relation to the AMIGO System.

The AMIGO System royalty has been earned and payment has been deferred to a future date.

The table below represents the change in fair value of level 3 royalties payable for the three months ended March 31, 2024 and 2023 ($ in thousands).

The table below represents the change in fair value of level 3 royalties payable for the six months ended June 30, 2024 and 2023 ($ in thousands).

See Note 2, Summary of Significant Accounting Policies, for valuation techniques.

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LockeT royalty payable recognized in connection with the Merger

Accretion of LockeT royalty payable

Payments owed on royalties payable

Change in fair value of royalties payable

Ending Balance, March 31,

For the three months ended March 31, 2024 and 2023, operating lease expense was $ 24 thousand and $ 15 thousand, respectively, and cash paid was $ 24 thousand and $ 16 thousand, respectively.

Variable costs were insignificant for the three months ended March 31, 2024 and 2023.

Ending Balance, June 30,

For the three and six months ended June 30, 2024 and 2023 operating lease expense and cash paid for leases were as follows:

For the Three Months Ended June 30,

For the Six Months Ended June 30,

Operating lease expense

Cash paid for leases

The Company's lease agreements generally do not provide an implicit borrowing rate.

3 unchanged sentences

Lease Terms and Discount Rate

The table below presents certain information related to the weighted average remaining lease term and the weighted average discount rate for the Company’s operating leases, as of March 31, 2024:

The table below presents certain information related to the weighted average remaining lease term and the weighted average discount rate for the Company’s operating leases, as of June 30, 2024:

Weighted average remaining lease term (in years) - operating leases

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During periods of loss, no loss is allocated to the participating securities since the holders have no contractual obligation to share in the losses of the Company.

Anti-dilutive common share equivalents excluded from the computation of diluted net loss per share at March 31, 2024 consisted of Series A convertible preferred stock of 2,313,956 shares, Series X Convertible Preferred Stock of 12,656,011 shares, warrants of 11,042,137 , stock options of 614,593 , and no restricted stock awards or restricted stock units.

Anti-dilutive common share equivalents excluded from the computation of diluted net loss per share at March 31, 2023 consisted of Series A convertible preferred stock of 4,501,060 shares, Series X convertible preferred stock of 12,656,011 shares, warrants of 11,148,858 , stock options of 452,908 , restricted stock awards of 556 , and restricted stock units of 26 .

Net loss attributable to common stockholders for the three months ended March 31, 2023, consists of net loss, as adjusted for deemed dividends.

The Company recorded a deemed dividend for the modification of existing warrants and issuance of the Series E warrants (see Note 13, Equity Offerings) of $ 0.8 million, during the three months ended March 31, 2023.

Anti-dilutive common share equivalents excluded from the computation of diluted net loss per share at June 30, 2024, consisted of Series A convertible preferred stock of 231,412 shares, Series X Convertible Preferred Stock of 1,265,601 shares, warrants of 1,104,218 , stock options of 91,456 , and no restricted stock awards or restricted stock units.

Anti-dilutive common share equivalents excluded from the computation of diluted net loss per share at June 30, 2023, consisted of Series A convertible preferred stock of 450,123 shares, Series X convertible preferred stock of 1,267,469 shares, warrants of 1,104,217 , stock options of 21,531 , and restricted stock units of 2 .

Net loss attributable to common stockholders for the six months ended June 30, 2023, consists of net loss, as adjusted for deemed dividends.

Equity Offerings

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The relative fair value of such amounts were recorded to additional paid-in capital concurrent with the exercise of the Existing Warrants.

As a result of the 2023 Warrant Repricing and Inducement Offer, the Company presents a deemed dividend for the modification of Existing Warrants and issuance of the Series E Warrants of $ 0.8 million during the three months ended March 31, 2023.

As a result of the 2023 Warrant Repricing and Inducement Offer, the Company presented a deemed dividend for the modification of Existing Warrants and issuance of the Series E Warrants of $ 0 and $ 0.8 million during the three and six months ended June 30, 2023, respectively.

The deemed dividend was included in net loss attributable to common stockholders in the calculation of net loss per share in the unaudited consolidated condensed statements of operations.

1 unchanged sentence

5/22/2020 Raise

8/3/2020 Raise

Risk-free interest rate

7 unchanged sentences

On January 9, 2023, the Company entered into a Securities Purchase Agreement (“Securities Purchase Agreement”) for a private placement (“Private Placement”), with the Investor.

Pursuant to the Securities Purchase Agreement, the Investor agreed to purchase, for an aggregate purchase price of approximately $ 8.0 million, (a) Class A units at a price that was the lower of $ 3.00 per unit and 90% of the 5 day volume weighted average price of the Company’s common stock immediately prior to obtainment of the approval of the Company’s stockholders of conversion of the PIPE Preferred Stock and PIPE Warrants (as each are defined below), each consisting of one share of common stock, one Series F common stock purchase warrant, or Series F Warrant, and one Series G common stock purchase warrant, or Series G Warrant, and together with the Series F Warrants (the “PIPE Warrants”) and (b) Class B units at a price of $ 1,000 per unit, each consisting of one share of a new series of the Company’s preferred stock, designated as Series A Convertible Preferred Stock (the “PIPE Preferred Stock”), par value $ 0.0001 , and one Series F Warrant and one Series G Warrant for each share of the Company’s common stock underlying the PIPE Preferred Stock (each share of which is convertible into a number of shares of the Company’s common stock equal to $ 1,000 divided by the lower of $ 3.00 and 90% of the 5 day volume weighted average closing price of the Company’s common stock immediately prior to the obtainment of the approval of the Company’s stockholders of conversion of the PIPE Preferred Stock and PIPE Warrants, or the Preferred Conversion Rate).

Pursuant to the Securities Purchase Agreement, the Investor agreed to purchase, for an aggregate purchase price of approximately $ 8.0 million, (a) Class A units at a price that was the lower of $ 3.00 per unit and 90% of the 5 day volume weighted average price of the Company’s common stock immediately prior to obtainment of the approval of the Company’s stockholders of conversion of the PIPE Preferred Stock and PIPE Warrants (as each are defined below), without adjusting such price for the reverse stock split, each consisting of one tenth of one share of common stock, one tenth of one Series F common stock purchase warrant, or Series F Warrant, and one tenth of one Series G common stock purchase warrant, or Series G Warrant, and together with the Series F Warrants (the “PIPE Warrants”) and (b) Class B units at a price of $ 1,000 per unit, each consisting of one share of a new series of the Company’s preferred stock, designated as Series A Convertible Preferred Stock (the “PIPE Preferred Stock”), par value $0.0001, and one tenth of one Series F Warrant and one tenth of one Series G Warrant for each one-tenth of one share of the Company’s common stock underlying the PIPE Preferred Stock (each share of which is convertible into a number of shares of the Company’s common stock equal to $ 1,000 divided by the lower of $ 30.00 and 90% of the 5 day volume weighted average closing price, multiplied by ten in order to reflect the impact of the reverse stock split of the Company’s common stock immediately prior to the obtainment of the approval of the Company’s stockholders of conversion of the PIPE Preferred Stock and PIPE Warrants, or the Preferred Conversion Rate).

The closing under the Securities Purchase Agreement and the sale and issuance of the Class A units and Class B units (and the issuance of any underlying common stock) were approved at the Stockholders’ Meeting.

At the closing of the Private Placement, the Company issued 497,908 Class A units for proceeds of approximately $ 0.9 million and 7,203 Class B units for proceeds of approximately $ 7.1 million which were convertible into up to 4,501,060 shares of common stock, as well as the issuance of warrants described below.

At the closing of the Private Placement, the Company issued 497,908 Class A units for proceeds of approximately $ 0.9 million and 7,203 Class B units for proceeds of approximately $ 7.1 million which contained preferred shares that were convertible into up to 450,123 shares of common stock, as well as the issuance of warrants described below.

The PIPE Warrants, including Series F warrants and Series G warrants, are exercisable at an exercise price of $ 30.00 per share, subject to adjustments as provided under the terms of the PIPE Warrants.

15 unchanged sentences

In connection with offerings completed by the Company in 2022, (the "2022 Offerings"), the Company entered into an agreement with a placement agent that, subject to satisfaction of the requirements contained therein, called for a placement fee payable based on capital raised from certain investors for a definitive time following the expiration of the agreement.

The accrued placement fee of approximately $ 1.4 million related to the 2022 Offerings is included in accrued expenses in the consolidated balance sheet as of March 31, 2024.

The accrued placement fee of approximately $ 1.4 million related to the 2022 Offerings is included in accrued expenses in the consolidated balance sheets as of June 30, 2024.

Additionally, the agreement called for the issuance of warrants with the following terms:

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The warrants were valued on the date of the 2022 Offerings using the Black-Scholes model based on the following assumptions:

Value ( $ in millions)

Expected Volatility

Risk-Free Interest

Expected Dividend

Expected Term

The warrants have not been issued by the Company as of March 31, 2024.

Risk-Free Interest Rate

Expected Dividend Yield

Expected Term (years)

The warrants have not been issued by the Company as of June 30, 2024.

The following table presents the number of common stock warrants outstanding:

1 unchanged sentence

Warrants outstanding, December 31, 2023

Warrants outstanding, March 31, 2024

The following table presents the number and type of common stock warrants outstanding, their exercise price, and expiration dates as of March 31, 2024:

Warrants outstanding, June 30, 2024

During the three and six months ended June 30, 2024, no warrants were issued, exercised, or expired.

The following table presents the number and type of common stock warrants outstanding, their exercise price, and expiration dates as of June 30, 2024:

Warrants Outstanding

11 unchanged sentences

March 2023 Series G Warrants

As of March 31, 2024, the warrants issued by the Company had a weighted average exercise price of $ 5.31 .

As of June 30, 2024, the warrants issued by the Company had a weighted average exercise price of $ 53.07 .

Preferred Stock

8 unchanged sentences

On October 24, 2023, the remaining 1,868 shares of common stock were issued upon the conversion of 18 .676 shares of Series X Convertible Preferred Stock.

The remaining 12,656.011 shares of Series X Convertible Preferred Stock are expected to remain outstanding until at least July 9, 2024, and will convert thereafter up to 12,656,011 shares of common stock , only if the Company meets the initial listing standards of the NYSE American or another national securities exchange or is delisted from the NYSE American.

The remaining 12,656.011 shares of Series X Convertible Preferred Stock are expected to remain outstanding until the Company meets the initial listing standards of the NYSE American or another national securities exchange or is delisted from the NYSE American, at which time they will convert into common stock .

Series A Convertible Preferred Stock

8 unchanged sentences

The shares have been registered for resale on an effective registration statement on Form S-1.

The following conversions of Series A Convertible Preferred Stock occurred subsequent to the issuance:

The following conversions of Series A Convertible Preferred Stock occurred subsequent to the issuance and prior to June 30, 2024:

Date of Conversion

9 unchanged sentences

In September 2018, the Company’s board of directors adopted, and the Company’s stockholders approved, the 2018 Equity Incentive Plan (the “2018 Plan”) which provided for the grant of incentive stock options, non-statutory stock options, restricted stock awards, restricted stock units, performance-based stock awards and other forms of equity compensation to the Company’s employees, directors and consultants.

Stock options granted under the 2018 Plan generally vest one-fourth on the first anniversary of the vesting commencement date with the balance vesting monthly over the remaining three years.

Restricted stock units granted under the 2018 Plan generally vest one third on the first anniversary of the vesting commencement date and one sixth every six months thereafter such that the award will be fully vested on the third anniversary of the vesting commencement date.

In July 2023, the 2018 Plan was replaced by the 2023 Equity Incentive Plan (the "2023 Plan"), as described below.

5 unchanged sentences

The Company paused the ESPP in May 2022 and in April 2024, the Company formally terminated the ESPP.

For the three months ended March 31, 2024 and 2023, no cash was received from the exercise of purchase rights under the ESPP.

As of March 31, 2024, the Company had issued 950 shares of common stock since inception of the ESPP, and 26 shares were reserved for future issuance.

For the three and six months ended June 30, 2024 and 2023, no cash was received from the exercise of purchase rights under the ESPP in each respective period.

As of June 30, 2024, the Company had issued 95 shares of common stock since inception of the ESPP, and no shares were reserved for future issuance.

As of December 31, 2023, the Company had issued 95 shares of common stock since inception of the ESPP, and 2 shares were reserved for future issuance.

Upon termination of the ESPP in April 2024, the reserved shares were released back to the authorized pool.

4 unchanged sentences

Upon adoption of the 2020 Plan, 64 shares of common stock were reserved for the granting of inducement stock options, restricted stock awards, restricted stock units and other forms of equity awards.

As of March 31, 2024 and December 31, 2023, 540 shares of common stock were reserved for future issuance under the 2020 Plan.

As of June 30, 2024 and December 31, 2023, zero and 54 shares of common stock were reserved for future issuance under the 2020 Plan.

In April 2024, the Company terminated the 2020 Plan at which time the reserved shares were released back to the authorized pool.

7 unchanged sentences

Stock options granted under the 2023 Plan to employees and consultants generally will vest annually over a five-year period or as determined by the Board’s Compensation Committee, while grants to non-employee directors generally vest quarterly over a three-year period.

As of March 31, 2024 and December 31, 2023, 146,546 and 501,868 shares of common stock were reserved for future issuance pursuant to the 2023 Plan.

As of June 30, 2024 and December 31, 2023, 9,653 and 50,186 shares of common stock were reserved for future issuance pursuant to the 2023 Plan.

The number of shares available for issuance 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;

5 unchanged sentences

All options were issued to employees and vest at 20% per year for 5 years with an exercise price of $4.20 and expiration date of February 26, 2034 .

The options issued during the quarter ended March 31, 2024 were valued at approximately $ 170 thousand using the Black-Scholes model based on the following assumptions on the date of issue:

On April 24, 2024, the Board approved the issuance of a total of 12,500 incentive stock options under the 2023 Plan.

All options were issued to employees and vest at 20% per year for 5 years with an exercise price of $4.60 and expiration date of April 24, 2034 .

The 2023 Plan options issued during the six months ended June 30, 2024 were valued at approximately $ 227 thousand using the Black-Scholes model based on the following assumptions on the date of issue:

Non-Employee Director Options Issued January 8, 2024

1 unchanged sentence

Employee Options Issued February 26, 2024

Employee Options Issued April 24, 2024

Risk-free interest rate

1 unchanged sentence

Expected life (in years)

See Note 20, Subsequent Events, for additional options issued under the 2023 Plan in April 2024 and non-Plan options issued in May 2024.

The following is a summary of stock option activity for the three months ended March 31, 2024:

Non-Plan Options Issued

On April 24, 2024, the Board approved the issuance of a total of 25,000 Non-Plan Options as an employment incentive for the position of Chief Commercial Officer.

The options were issued on May 1, 2024, the first day of employment and vest at 20% per year for 5 years with an exercise price of $5.321 and an expiration date of May 1, 2034 .

The non-plan options issued during the quarter ended June 30, 2024 were valued at approximately $ 131 thousand using the Black-Scholes model based on the following assumptions on the date of issue:

Non-Plan Options Issued May 1, 2024

Risk-free interest rate

Expected dividend yield

Expected life (in years)

The following is a summary of stock option activity for the six months ended June 30, 2024:

Stock Options

6 unchanged sentences

Canceled/forfeited

Outstanding at March 31, 2024

Vested and expected to vest at March 31, 2024

Exercisable at March 31, 2024

Outstanding at June 30, 2024

Vested and expected to vest at June 30, 2024

Exercisable at June 30, 2024

Restricted Stock Units

2 unchanged sentences

All restricted stock awards have been forfeited or vested as of December 31, 2023.

Stock-based compensation expense for the three months ended March 31, 2024 and 2023 was $ 6 thousand and $ 1,394 thousand, which was recorded in selling, general and administrative expense in the Company's condensed consolidated statements of operations.

Total unrecognized estimated stock-based compensation expense by award type and the remaining weighted average recognition period over which such expense is expected to be recognized at March 31, 2024 was as follows:

Stock-based compensation expense for the three and six months ended June 30, 2024 was $ 13 thousand and $ 19 thousand respectively, in the Company's condensed consolidated statements of operations.

Stock-based compensation expense for the three and six months ended June 30, 2023 was $( 174 ) thousand and $ 1.2 million respectively, in the Company's condensed consolidated statements of operations.

Unrecognized Expense (in thousands)

3 unchanged sentences

Restricted stock units

The Company recorded no provision or benefit for income tax expense for the three months ended March 31, 2024 and 2023, respectively.

The Company recorded no provision or benefit for income tax expense for the three and six months ended June 30, 2024 and 2023.

For all periods presented, the pretax losses incurred by the Company received no corresponding tax benefit because the Company concluded that it is more likely than not that the Company will be unable to realize the value of any resulting deferred tax assets.

The Company will continue to assess its position in future periods to determine if it is appropriate to reduce a portion of its valuation allowance in the future.

The Company has no open tax audits with any taxing authority as of March 31, 2024, except for the California Department of Tax and Fee Administration sales and use tax audit.

The period covered by the audit is October 1, 2020 through March 31, 2023.

As of June 30, 2024, the Company has an open sales and use tax audit with California Department of Tax and Fee Administration covering the period from October 1, 2020 through March 31, 2023.

Commitments and Contingencies

1 unchanged sentence

In management’s opinion, any potential loss resulting from the resolution of these matters will not have a material effect on the results of operations, financial position or cash flows of the Company.

As of March 31, 2024, the Company had no outstanding litigation.

As of June 30, 2024, the Company had no outstanding litigation.

Employee Benefit Plan

3 unchanged sentences

The Company cancelled the 401(k) Plan effective March 10, 2023 and distributed all assets held by the 401(k) Plan to the participants.

The Company had no expenses related to the matching contributions for the three months ended March 31, 2024 and 2023.

The Company had no expenses related to the matching contributions for the three and six months ended June 30, 2024 and 2023.

Related Parties

15 unchanged sentences

Following stockholder approval on March 21, 2023, the Company issued 99,182 shares of common stock to Mr.

Jenkins and affiliates upon conversion of 991.828 shares of Series X Convertible Preferred Stock, and 235,320 shares of common stock to his adult children upon conversion of 235.320 shares of Series X Convertible Preferred S tock.

Jenkins and affiliates upon conversion of 991.828 shares of Series X Convertible Preferred Stock, and 23,532 shares of common stock to his adult children upon conversion of 235.320 shares of Series X Convertible Preferred Stock .

On May 1, 2024, Marie-Claude Jacques, the Company’s Chief Commercial Officer, received a non-plan option to purchase 25,000 shares of the Company’s common stock.

The options have an exercise price of $ 5.321 per share, vest at 20 % per year for 5 years and expire in May 2034.

On May 30, 2024, the Company entered into the May Related Party Note (see Note 9, Notes Payable) with Mr.

Jenkins, where Mr.

Jenkins loaned $ 500,000 to the Company in exchange for the Note.

The May Related Party Note has a maturity date of August 30, 2024, and bears interest at the rate of 8 % per annum.

On June 25, 2024, the Company entered into the June Related Party Note (see Note 9, Notes Payable) with an affiliate of Mr.

Jenkins, where the affiliate loaned $ 150,000 to the Company in exchange for the Note.

The June Related Party Note has a maturity date of August 30, 2024 and bears interest at a rate of 8 % per annum.

Subsequent Events

Options Issued Under the 2023 Equity Incentive Plan

On April 24, 2024, the Board approved the issuance of a total of 125,000 incentive stock options under the 2023 Equity Incentive Plan.

All options were issued to employees and vest at 20% per year for 5 years with an exercise price of $ 0.46 and expiration date of April 24, 2034 .

Non-Plan Options Issued

On April 24, 2024, the Board approved the issuance of a total of 250,000 Non-Plan Options as an employment incentive for the position of Chief Commercial Officer.

The options will be issued as of the first day of employment and vest at 20% per year for 5 years with an exercise price to be the closing market price of the Company’s common stock on the day immediately preceding the issuance date of the options .

The options will expire 10 years from the issuance date.

2023 Equity Incentive Plan

On July 3, 2024, at the annual meeting of stockholders of the Company, the stockholders of the Company approved an additional 200,000 shares of common stock for issuance pursuant to the Company’s 2023 Equity Incentive Plan.

On July 9, 2024, the Board approved the issuance of a total of 10,000 incentive stock options under the 2023 Plan.

All options were issued to employees and vest at 20% per year for 5 years with an exercise price of $3.50 and expiration date of July 9, 2034 .

Amendment to the Amended and Restated Certificate of Incorporation

The Amendment was effective July 15, 2024, reducing the authorized common stock to 30 million shares and effecting a reverse stock split in which each ten (10) shares of the Company’s common stock , par value $0.0001 per share, issued and outstanding immediately prior to the effective time automatically combined into one (1) validly issued, fully paid and non-assessable share of common stock, par value $ 0.0001 per share.

The financial statements have been retrospectively adjusted to reflect the reverse stock split of the Company’s common stock for all periods presented.

Issuance of Securities in Private Placement

The Company issued common stock in connection with the following conversions of its Series A Convertible Preferred Stock:

Conversion Date

Shares Common Stock Issued

Shares of Series A Convertible Preferred Converted

Each share of Series A Convertible Preferred Stock was convertible into approximately 62.5 shares of common stock.

The common stock was issued pursuant to the exemption contained in Section 3(a)(9) of the Securities Act of 1933, as amended, which applies to transactions in which a security is exchanged by an issuer with its existing security holders exclusively where no commission or other remuneration is paid or given directly or indirectly for soliciting such exchange.

The shares issued have been registered for resale on an effective registration statement on Form S-1.

After the final conversion on July 23, 2024, the Company had no shares of Series A Convertible Preferred Stock outstanding.

8% Short Term Promissory Notes (collectively, the " Quarter Three Related Party Notes")

On July 1, 2024 and July 18, 2024, the Company entered into two Short-Term Promissory Notes (the “First July Related Party Note" and the "Second July Related Party Note”) with an affiliate of Mr.

Jenkins, where the affiliate loaned $ 250,000 and $ 100,000 , respectively, to the Company in exchange for the Notes.

The Notes have a maturity date of August 30, 2024 and bear interest at a rate of 8 % per annum.

On July 25, 2024, the Company entered into a Short-Term Promissory Note (the “Third July Related Party Note”) with a Trust, of which Mr.

Jenkins’ adult daughter is the trustee, where the Trust loaned $ 500,000 to the Company in exchange for the Note.

The Note has a maturity date of August 30, 2024 and bears interest at a rate of 8 % per annum.

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 1. Financial Statements