| Summary of Significant Accounting Policies | Note 2. Summary of Significant Accounting Policies Principles of Consolidation The unaudited condensed consolidated financial statements of the Company include the accounts of the Company and Old Catheter. All intercompany transactions have been eliminated in consolidation. Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP"). The Financial Accounting Standards Board (“FASB”) establishes these principles to ensure financial condition, results of operations, and cash flows are consistently reported. Any reference in these notes to applicable accounting guidance is meant to refer to the authoritative nongovernmental GAAP as found in the FASB Accounting Standards Codification ("ASC"). Certain footnotes and other financial information normally required by U.S. GAAP have been condensed or omitted in accordance with instructions to Form 10-Q and Article 8 of Regulation S-X. In the opinion of management, such statements include all adjustments which are considered necessary for a fair presentation of the unaudited condensed consolidated financial statements of the Company. The operating results presented herein are not necessarily an indication of the results that may be expected for the year. The unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited Consolidated Financial Statements included in its Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the Securities and Exchange Commission (“SEC”) on April 1, 2024. Use of Estimates The preparation of the unaudited condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. The Company’s unaudited condensed consolidated financial statements are based upon a number of estimates including, but not limited to, the accounting for the Old Catheter business combination (see Note 3, Business Combination), allowance for credit losses, evaluation of impairment of long-lived assets and goodwill, valuation of long-lived assets and their associated estimated useful lives, reserves for warranty costs, fair value of royalties payable, evaluation of probable loss contingencies, fair value of preferred stock and warrants issued, and the fair value of equity awards granted. Concentrations of Credit Risk The Company's financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. Cash equivalents represent short-term, highly liquid investments with maturities of 90 days or less at the date of purchase. 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 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. To reduce its risk associated with the failure of any such financial institution, the Company evaluates the rating of the financial institution in which it holds deposits. Any material loss that the Company may experience in the future could have an adverse effect on its ability to pay its operational expenses or make other payments and may require the Company to move its cash to other high quality financial institutions. Currently, the Company is reviewing its bank relationships in order to mitigate its risk to ensure that its exposure is limited or reduced to the Federal Deposit Insurance Corporation protection limits. The Company extends credit to customers in the normal course of business. Concentrations of credit risk with respect to accounts receivable exist to the full extent of amounts presented in the condensed consolidated financial statements. The Company does not require collateral from its customers to secure accounts receivable. 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. Segment Reporting The Company operates in one business segment, which is the marketing, sales and development of medical technologies focused in the field of cardiac electrophysiology. Cash and Cash Equivalents Cash equivalents primarily represent funds invested in readily available checking and money market accounts. 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 Fair value represents the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants and is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. A three-tier fair value hierarchy is used to identify inputs used in measuring fair value as follows: Level 1 - Observable inputs that reflect quoted market prices (unadjusted) for identical assets or liabilities in active markets; Level 2 - Inputs other than the quoted prices in active markets that are observable either directly or indirectly in the marketplace for identical or similar assets and liabilities; and Level 3 - Unobservable inputs that are supported by little or no market data, which require the Company to develop its own assumptions. Cash equivalents, prepaid expenses, trade accounts receivable, accounts payable, and accrued expenses are reported on the condensed consolidated balance sheets at carrying value which approximates fair value due to the short-term maturities of these instruments. The royalties payable have unobservable inputs that are not supported by any market data. As such the Company developed its own assumptions and identified the inputs as Level 3. The revenue adjusted discount rate (“RADR”) was calculated using a weighted average cost of capital (“WACC”) approach for the level 3 measurement. The RADR considers the WACC from the Company’s impairment analysis and adjusts certain inputs to represent the risk profile of the revenue. Under the cost of equity section, the risk-free rate has changed to be commensurate with the royalties payable term. Additionally, the Beta and Company Specific Risk Premium have been adjusted to Revenue Beta and Revenue Specific Risk Premium, respectively. This adjustment was calculated by multiplying the respective metric by the quotient of equity volatility over revenue volatility. The remaining inputs from the Impairment WACC have remained unchanged. The following table details the fair value measurements within the fair value hierarchy of the Company’s financial instruments: Fair value at June 30, 2024 Total Level 1 Level 2 Level 3 Assets: Cash Equivalents Mutual Fund $ — $ — $ — $ — Money Market fund 1 1 — — Total assets $ 1 $ 1 $ — $ — Liabilities Royalties payable $ 8,571 $ — $ — $ 8,571 Total liabilities $ 8,571 $ — $ — $ 8,571 Fair value at December 31, 2023 Total Level 1 Level 2 Level 3 Assets: Cash Equivalents Mutual Fund $ 3,397 $ 3,397 $ — $ — Money Market fund 10 10 — — Total assets $ 3,407 $ 3,407 $ — $ — Liabilities Royalties payable $ 6,974 $ — $ — $ 6,974 Total liabilities $ 6,974 $ — $ — $ 6,974 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: Hospitals – United States, Hospitals – Europe, and Distributors. The determination of portfolio segments is based primarily on the customers’ industry and geographical location. Trade accounts receivable are recorded at invoiced amounts, net of allowance for credit losses, if applicable, and are unsecured and do not bear interest. The allowance for credit losses is based on the probability of future collection under the CECL impairment model in which the Company determines its allowance by applying the method based on an aging schedule. The Company also considers reasonable and supportable current information in determining its estimated loss rates, such as external forecasts, macroeconomic trends or other factors including customers’ credit risk and historical loss experience. The adequacy of the allowance is evaluated on a regular basis. Account balances are written off after all means of collection are exhausted and the balance is deemed uncollectible. Subsequent recoveries are credited to the allowance. Changes in the allowance are recorded as adjustments to bad debt expense in the period incurred. As of June 30, 2024 and December 31, 2023 there is no reserve for expected credit losses within accounts receivable. Inventories Inventories are stated at the lower of cost (first-in, first-out method) or net realizable value. Cost includes materials, labor and manufacturing overhead related to the purchase and production of inventories. The Company reduces the carrying value of inventories for those items that were potentially excess, obsolete or slow-moving based on changes in customer demand, technological developments or other economic factors. Property and Equipment Property and equipment are recorded at cost and depreciated on a straight-line basis over their estimated useful lives as follows: Machinery and equipment 2-5 years Computer hardware and software 2-5 years VIVO DEMO/Clinical Systems 2 years Furniture and fixtures 5 years Leasehold improvements are depreciated over the shorter of the useful life of the leasehold improvement or the term of the underlying property’s lease. The Company periodically reviews the residual values and estimated useful lives of each class of its property and equipment for ongoing reasonableness, considering long-term views on its intended use of each class of property and equipment and the planned level of improvements to maintain and enhance assets within those classes. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the account balances and any resulting gain or loss is recognized in income for the period. The cost of repairs and maintenance is expensed as incurred, whereas significant betterments are capitalized. Impairment of Long-Lived Assets In accordance with ASC 360, Impairment and Disposals of Long-lived Assets 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 June 30, 2024. The Company concluded there was no impairment as of June 30, 2024. Goodwill In accordance with ASC 350, Intangibles – Goodwill and Other To determine whether goodwill is impaired, annually or more frequently if needed, the Company performs a multi-step impairment test. The Company first has the option to assess qualitative factors to determine if it is more likely than not that the carrying value of a reporting unit exceeds its estimated fair value. The Company may also elect to skip the qualitative testing and proceed directly to the quantitative testing. When performing quantitative testing, the Company first estimates the fair values of its reporting units using a combination of an income and market approach. To determine fair values, the Company is required to make assumptions about a wide variety of internal and external factors. Significant assumptions used in the impairment analysis include financial projections of free cash flow (including significant assumptions about operations including the rate of future revenue growth, capital requirements, and income taxes), long-term growth rates for determining terminal value and discount rates. Comparative market multiples are used to corroborate the results of the discounted cash flow test. These assumptions require significant judgment. Pursuant to ASU 2017-04, Simplifying the Test for Goodwill Impairment Royalties Payable 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. Jenkins, previously Old Catheter's Chairman of the Board of Directors prior to the Merger, and, currently, the Company’s Executive Chairman of the Board of Directors and Chief Executive Officer, to forgive all accrued interest and future interest expense in exchange for a future royalty right. 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). 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. 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 June 30, 2024 and December 31, 2023, there was no accrued warranty balance. Distinguishing Liabilities from Equity The Company relies on the guidance provided by ASC Topic 480, Distinguishing Liabilities from Equity 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 sheets. The Company will determine temporary equity classification if the redemption of the financial instrument is outside the control of the Company (i.e. at the option of the holder). Otherwise, the Company accounts for the financial instrument as permanent equity. Revenue Recognition The Company applies the provisions of FASB ASC Topic 606, Revenue from Contracts with Customers The Company measures revenue based upon the consideration specified in the client arrangement, and revenue is recognized when the performance obligations in the client arrangement are satisfied. A performance obligation is a promise in a contract to transfer a distinct service to the customer. The transaction price of a contract is allocated to each distinct performance obligation. Under ASC 606, revenue is recognized when a customer obtains control of promised goods. To achieve this core principle, the Company applies the following five steps: Step 1: Identify the contract with the customer Step 2: Identify the performance obligations in the contract Step 3: Determine the transaction price Step 4: Allocate the transaction price to the performance obligations in the contract Step 5: Recognize revenue when the Company satisfies a performance obligation 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. In addition to the VIVO System, customers are provided with VIVO Positioning Patch Sets, which are custom patches, that are used in conjunction with the VIVO System to complete the intended output of the VIVO System. The delivery of the VIVO System, including the VIVO Positioning Patch Sets represents the Company’s primary performance obligation. The Company recognizes revenue upon the delivery of the VIVO system. The Company also provides customers with the option to pay for software upgrades in advance at the time of the contract's inception. Software upgrades are stand-ready services, whereby the Company will provide software upgrade services to the customer when and as upgrades are available. Terms of the period covered by the payment of software upgrades in advance can range from one year to multiple years. Customers have the option to renew terms covered by software upgrades at the end of each term. The stand-ready software upgrades represent the Company's second separate performance obligation and revenue is recognized over the term of the period. The Company invoices the customers after physical possession and control of the VIVO System is transferred to the customer and recognizes revenue upon delivery. The timing of payment for the corresponding invoices is dependent upon the credit terms identified in each contract. The Company invoices customers who pay for software upgrades in advance in conjunction with the invoice for the delivery of the VIVO System, and subsequent renewals of software upgrades are invoiced at the inception of the term. Revenue for these stand-ready services is recognized evenly over the term of the upgrade period, consistently with similar stand-ready services under ASC 606. Similar to the delivery of the VIVO System, the timing of payment for the corresponding invoices is dependent upon the credit terms identified in each contract. 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 June 30, For the Six Months Ended June 30, 2024 2023 2024 2023 Product Sales US $ 60 $ 73 $ 67 $ 131 Europe 33 23 108 50 $ 93 $ 96 $ 175 $ 181 Shipping and Handling Costs Shipping and handling costs charged to customers are included in net product sales, while all other shipping and handling costs are included in selling, general and administrative expenses in the accompanying unaudited condensed consolidated statements of operations. Advertising and Marketing Advertising costs are expensed as incurred and included in selling, general and administrative expenses. 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. Patents 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. Research and Development Major components of research and development costs include consulting, research grants, supplies and clinical trial expenses. Research and development expenses are charged to operations in the period incurred. Stock-Based Compensation The Company records stock-based compensation expense associated with stock options, restricted stock awards (“RSAs”) and restricted stock units (“RSUs”) issued to employees, members of the Company’s board of directors and consultants in accordance with the authoritative guidance for stock-based compensation. 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 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. If the outcome of such performance condition is not determined to be probable or is not met, no compensation expense is recognized, and any previously recognized compensation expense is reversed. Forfeitures are recognized as a reduction of stock-based compensation expense as they occur. As a result of the Merger, all unvested Old Catheter stock options were subject to accelerated vesting and therefore became fully vested, as of the closing date of the business combination. The Company recognized the fair value of the replacement options as included in consideration transferred to the extent they do not exceed the fair value of the equivalent Old Catheter options. Any incremental fair value was recognized in compensation expense in the post-combination period, with this recognized as a Day 1 expense due to the Old Catheter options becoming fully vested concurrent with the closing of the business combination. Income Taxes The Company accounts for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and are measured using enacted tax rates and laws that are expected to be in effect when the differences reverse. Any resulting net deferred tax assets are evaluated for recoverability and, accordingly, a valuation allowance is provided when it is more likely than not that all or some portion of the deferred tax asset will not be realized. The Company accounts for uncertainty in income taxes using a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining whether it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement. An uncertain tax position is considered effectively settled on completion of an examination by a taxing authority if certain other conditions are satisfied. Should the Company incur interest and penalties relating to tax uncertainties, such amounts would be classified as a component of interest expense and other expense, respectively. Basic and Diluted Net Loss per Share of Common Stock The Company calculates basic net loss per share by dividing net loss by the weighted average number of common shares outstanding during the reporting period. A net loss cannot be diluted so when the Company is in a net loss position, basic and diluted loss per common share are the same. If in the future the Company achieves profitability, the denominator of a diluted earnings per common share calculation will include both the weighted average number of shares outstanding and the number of common stock equivalents, if the inclusion of such common stock equivalents would be dilutive. Anti-dilutive common stock equivalents excluded from the computation of diluted net loss per share include warrants, stock options, non-vested restricted stock awards, restricted stock units, Series A Convertible Preferred Stock, and Series X Convertible Preferred (see Note 12, Net Loss per Share). 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 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 In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures |
