Business Context and Reporting Period
This Form 10-Q was filed by Ra Medical Systems, Inc. for the quarter and nine months ended September 30, 2022. The filing is relevant to Catheter Precision, Inc. because Ra Medical entered into a proposed stock-for-stock reverse merger with Catheter Precision on September 9, 2022. If completed, Catheter Precision would become a wholly owned subsidiary and the combined public company would focus on cardiac electrophysiology.
Ra Medical’s legacy business owns the DABRA excimer laser and catheter system for peripheral artery disease. The company suspended DABRA sales, manufacturing, engineering activities and clinical-trial enrollment in 2022 while pursuing strategic alternatives and the proposed merger.
Financial Results and Key Metrics
| Metric | Three Months Ended September 30 | Nine Months Ended September 30 |
|---|---|---|
| Revenue | $0 million in 2022 versus $5 thousand in 2021 | $14 thousand in 2022 versus $17 thousand in 2021 |
| Gross loss | $0 in 2022 versus $241 thousand in 2021 | $147 thousand in 2022 versus $1.196 million in 2021 |
| Operating loss | $4.783 million versus $7.394 million | $18.746 million versus $21.002 million |
| Loss from continuing operations | $4.763 million versus $7.378 million | $18.706 million versus $18.974 million |
| Net loss | $4.763 million versus $4.298 million | $18.706 million versus $16.783 million |
| Adjusted EBITDA | $(4.091) million versus $(6.945) million | $(13.873) million versus $(18.615) million |
| Basic and diluted loss per share | $(4.36) versus $(33.58) | $(28.00) versus $(186.48) |
Gross margin was not meaningful because revenue was negligible or zero. Operating expenses declined principally because of the reduction in force and reduced research and development activity. Restructuring and impairment charges were $542 thousand in the third quarter and $4.069 million for the nine-month period.
At September 30, 2022, cash and cash equivalents were $13.657 million, compared with $15.045 million at December 31, 2021. Total current assets were $15.542 million and current liabilities were $3.215 million. Total liabilities were $4.961 million, consisting primarily of accounts payable, accrued expenses and operating lease liabilities; the filing does not report outstanding borrowings or other material funded debt. Stockholders’ equity was $12.510 million, compared with $13.673 million at year-end 2021, and accumulated deficit was $196.978 million.
Cash used in operating activities was $19.543 million for the first nine months of 2022, compared with $21.914 million in the prior-year period. Investing cash flow was zero in 2022 versus $3.803 million provided in 2021, primarily from the sale of the Dermatology Business. Financing activities provided $18.155 million in 2022, including $13.614 million from common stock and warrant issuances and $5.704 million from warrant exercises. The filing also refers to total 2022 net financing proceeds of approximately $23.5 million in its liquidity discussion; the components of this broader figure should be reconciled to the statement of cash flows.
Material Changes Versus the Prior Comparable Period
- Revenue effectively ceased after the company stopped manufacturing activities in June 2022.
- Approximately 85% of full-time employees were terminated through the June, August and September 2022 reduction-in-force actions.
- Research and development expense declined 27% for the nine-month period, to $6.238 million, and SG&A expense declined 27%, to $8.292 million.
- The company stopped enrollment in its atherectomy clinical study at 108 subjects, although follow-up activities were expected to continue into late 2022 or early 2023.
- Substantially all inventory and property and equipment were disposed of or written down. The company reported $1.0 million of inventory obsolescence and $1.548 million of property and equipment impairment charges.
- A 1-for-50 reverse stock split became effective in October 2022. Historical share and per-share information was retrospectively adjusted.
- Shares outstanding increased from 140 thousand at December 31, 2021 to 1.423 million at September 30, 2022 after giving effect to the reverse split, reflecting substantial equity issuance and warrant exercises.
Guidance, Outlook, Risks and Unusual Items
Management provided no conventional revenue or earnings guidance. The proposed Catheter Precision merger was expected to close by the end of 2022 or early 2023, subject to shareholder approval and other closing conditions. Ra Medical stated that it expected to raise an additional $2 million to $3 million to satisfy the merger’s $8 million net-cash closing requirement and NYSE American listing requirements. A subsequent October 7, 2022 ATM offering generated approximately $7.4 million of net proceeds from the sale of approximately 1.1 million shares.
Management concluded that substantial doubt exists about the company’s ability to continue as a going concern for at least 12 months from issuance of the financial statements. If the merger is not completed or additional financing is unavailable, the company may need to pursue another transaction, liquidate assets or dissolve. Even if the merger closes, management cautioned that the combined company may not have sufficient cash to fund operations for the following year.
- The merger requires minimum stock-price conditions, including a $4.50 closing price and five-day average price, and approval of the combined company’s initial NYSE American listing application.
- Catheter stakeholders were expected to own approximately 79.3% of the post-merger company, while existing Ra Medical stockholders were expected to own approximately 20.63% on a fully diluted pro forma basis, subject to adjustments.
- Ra Medical received an NYSE American deficiency letter concerning its low share price. The company believed the reverse split cured the deficiency, but had not received confirmation as of the filing date. The filing states that delisting proceedings could begin if compliance was not regained by February 28, 2023.
- The company repriced certain warrants from $25 to $14 per share and received approximately $4.9 million of net proceeds from related Series A warrant exercises. The repricing also increased the estimated fair value of certain warrants by approximately $2.3 million.
- A $10 million securities class-action settlement received final court approval in September 2022. Ra Medical paid approximately $0.6 million, with insurers paying the remainder. A shareholder complaint challenging the merger remained pending as of the filing date, and the company could not estimate any potential loss.
- Under prior Department of Justice and state settlement agreements, additional payments may be required if revenue exceeds specified thresholds or upon a change in control. A change-in-control payment could include $5 million plus 4% of transaction value above $100 million, subject to a $28 million cap.
- COVID-19 continued to create uncertainty regarding clinical-trial follow-up. The filing also identifies risks from regulatory compliance, product performance, litigation, financing and dilution, supply chains, cybersecurity, geopolitical conditions and the company’s limited remaining workforce.
Important Facts for Investors to Verify
- Whether the Catheter Precision merger was completed, amended or terminated, and the final ownership and exchange-ratio terms.
- Whether the company raised the required additional financing and satisfied the $8 million net-cash and NYSE American listing conditions.
- The reconciliation between the $18.155 million of financing cash flow reported for the nine months and management’s reference to approximately $23.5 million of total 2022 net financing proceeds.
- Current cash balances, operating cash burn and the post-merger company’s ability to fund at least the next 12 months.
- The status of NYSE American compliance and the risk of delisting.
- The final outcome and potential cost of the shareholder lawsuit relating to the merger and any indemnification or advancement obligations.
- Whether DABRA operations, manufacturing, sales or clinical development will resume, and whether the atherectomy study will support a future FDA indication.
- The extent of dilution from the October ATM offering, outstanding warrants, stock options and the proposed merger.