Leases

6 Months Ended

Jun. 30, 2023

Leases

Leases

Note 10. Leases

For the three and six months ended June 30, 2023 operating lease expense was $16,713 and $28,796, respectively.  For the three and six months ended June 30, 2022, operating lease expense was $110,057 and $220,113, respectively.  Variable costs were insignificant for the three and six months ended June 30, 2023 and 2022.

The Company’s lease agreements generally do not provide an implicit borrowing rate. Therefore, the Company used a benchmark approach to derive an appropriate imputed discount rate. The Company benchmarked itself against other companies of similar credit ratings and comparable quality and derived an imputed rate, which was used in a portfolio approach to discount its real estate lease liabilities. Management used an estimated incremental borrowing rate of 11.09% for all leases that commenced prior to January 1, 2023.

Lease Terms and Discount Rate

The following table 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, 2023:

Weighted average remaining lease term (in years) – operating leases	2.52
Weighted average discount rate – operating leases	8.78	%

California Operating Lease

The Company had an operating lease for office and manufacturing space which required it to pay base rent and certain utilities. Monthly rent expense was recognized on a straight-line basis over the term of the lease which expires in 2027. At June 30, 2022, the remaining lease term was 5.5 years. The operating lease was included on the condensed consolidated balance sheets at the present value of the lease payments at a 7% discount rate which approximates the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term and amount equal to the lease payments in a similar economic environment, as the lease did not provide an implicit rate.

On October 24, 2022, the Company entered into a lease termination agreement (the “Lease Termination Agreement”) with the landlord, pursuant to which it terminated the lease agreement for its office and manufacturing space in Carlsbad, California, effective October 28, 2022. In accordance with the terms of the Lease Termination Agreement, the Company agreed to (i) release its right to the security deposit of approximately $36 thousand previously paid to the landlord and (ii) pay a $0.3 million lease termination fee to the landlord. As a result of the Lease Termination Agreement, the Company wrote off its operating lease right-of-use asset, operating lease liability and security deposit, resulting in a non-cash gain of approximately $0.1 million. The lease termination fee of $0.3 million was paid on October 31, 2022.

South Carolina Office Lease Agreement

On September 27, 2022, Old Catheter entered into a lease agreement for office space located in Fort Mill, South Carolina. The space is used for office and general use. The term of the lease began on October 1, 2022, is 38 for months and includes two months of free rental from the commencement date of the lease. The lease contains two separate 36 month renewal periods, which require 180 days’ notice of the Company’s intention to exercise. As of the date of these unaudited condensed consolidated financial statements, the Company does not intend to exercise either of the two extension options. Total rent is $3,435 per month for the first ten months following the two months of free rental, with annual increases on the anniversary of the effective date. The Company has adopted the practical expedient under Topic 842, which permits the Company to account for each separate lease component of a contract and its associated non-lease components as a single lease payment. As a result, beginning at lease inception on October 1, 2022, the Company will recognize both the lease payments and associated common area maintenance payments as a single lease payment. The Company estimated an incremental borrowing rate of 11.09% for this lease agreement.

New Jersey Office Lease Agreement

On December 7, 2022, Old Catheter entered into a lease agreement for office space located in Augusta, New Jersey. The space is used for office and general use. The term of the lease is 24 months and began on January 1, 2023. The lease contains one 24 month renewal period, which requires 9 months’ notice if the Company intends to exercise. As of the date of these unaudited condensed consolidated financial statements, the Company does not intend to exercise the extension option. Total rent is $1,207 per month throughout the term of the lease agreement. The Company estimated an incremental borrowing rate of 10% for this lease agreement.

Park City Office Lease Agreement

On March 19, 2023, the Company entered into a lease agreement for office space located in Park City, Utah.  The space is used for office and general use.  The term of the lease is for 36 months and began on May 1, 2023.  The lease contains one 36 month renewal period, which require 180 days’ notice of the Company’s intention to exercise.  As of the date of these unaudited condensed consolidated financial statements, the Company does not intend to exercise the extension option. Total rent is $3,200 per month for the first year with an annual increase of three percent per year on the anniversary of the effective date.  As of the date of these unaudited condensed consolidated financial statements, the Company does not intend to exercise extension option. The Company estimated an incremental borrowing rate of 6% for this lease agreement.

Future lease payments for all lease obligations for the following four fiscal years and thereafter are as follows:

	Operating Lease
Remainder of 2023	$	47
2024		96
2025		81
2026		14
Total minimum lease payments		238
Less: effects of discounting		(8	)
Present value of future minimum lease payments	$	230

Right-of-use lease assets and lease liabilities for the Company’s operating leases were recorded in the condensed consolidated balance sheets as follows:

	As of June 30, 2023		As of December 31, 2022
Assets
Lease right-of-use assets	$	220	$	-
Total lease assets	$	220	$	-
Liabilities
Current liabilities:
Lease liabilities – current portion	$	86	$	-
Non-current liabilities
Lease liabilities – net of current portion		144		-
Total lease liabilities	$	230	$	-