Catheter Precision, Inc. quarterly report, Q1 FY2022

Business Context and Reporting Period

Ra Medical Systems, Inc. filed this unaudited Form 10-Q for the quarter ended March 31, 2022. The company is a medical-device developer focused on its DABRA excimer laser and catheter system for peripheral artery disease. The filing identifies the registrant as Ra Medical Systems, Inc.; the provided metadata identifies Catheter Precision, Inc.

The company completed the sale of its Pharos dermatology business in August 2021. Accordingly, prior-year dermatology results are presented as discontinued operations, while current operations focus on DABRA, engineering development and an atherectomy clinical trial.

Key Financial Metrics

Metric	Three months ended March 31, 2022	Three months ended March 31, 2021
Product sales	$9 thousand	$4 thousand
Total cost of revenues	$95 thousand	$447 thousand
Gross loss	$86 thousand	$443 thousand
SG&A expense	$2.302 million	$3.677 million
R&D expense	$3.115 million	$2.750 million
Operating loss	$5.503 million	$6.870 million
Loss from continuing operations	$5.495 million	$6.877 million
Net loss	$5.495 million	$7.236 million
Basic and diluted loss per share	$0.27	$2.48
Adjusted EBITDA	$(5.112) million	$(5.965) million
Net cash used in operating activities	$8.569 million	$8.078 million

At March 31, 2022, cash and cash equivalents were $17.652 million, including approximately $9.4 million in money-market funds. Total current assets were $20.014 million, compared with current liabilities of $3.735 million. Total liabilities were $5.639 million, consisting primarily of operating lease liabilities and current obligations; the filing does not report outstanding bank debt at quarter-end. Stockholders’ equity was $18.108 million, and accumulated deficit was $183.767 million.

The company’s operating lease liabilities totaled $2.195 million, including a current portion of $291 thousand. The company used no cash for capital expenditures during the quarter.

Material Changes Versus the Prior Comparable Period

Revenue increased by $5 thousand, primarily from catheter sales to atherectomy clinical-trial sites. Commercial catheter sales remained paused.
Cost of revenues decreased by $352 thousand due mainly to lower labor and overhead costs following cost-reduction initiatives.
SG&A declined by $1.375 million, reflecting lower stock-based compensation, legal costs and personnel costs, partly offset by the absence of a prior-year gain on asset sales.
R&D increased by $365 thousand because of higher supplies, clinical-study costs and engineering work on next-generation catheters.
Net loss improved by $1.741 million, although operating cash use increased by $491 thousand.
Cash increased by $2.607 million during the quarter because $11.176 million of financing cash inflows, primarily from the February 2022 offering, exceeded $8.569 million of operating cash use.
Shares outstanding increased from 7.010 million at December 31, 2021 to 32.301 million at March 31, 2022, principally from the February equity offering and warrant exercises.

Financing, Liquidity and Going Concern

In February 2022, the company issued common stock, Series A and Series B warrants and pre-funded warrants. Net proceeds were approximately $9.7 million after offering costs. The company also received approximately $25 thousand from warrant exercises during the quarter. At March 31, 2022, approximately 56.3 million shares were reserved for issuance under outstanding warrants, with a weighted-average exercise price of $0.89.

Management stated that current cash resources were not sufficient to fund operations at the expected level beyond the fourth quarter of 2022 and concluded that substantial doubt exists regarding the company’s ability to continue as a going concern for at least 12 months from issuance of the financial statements. Management expects continuing losses and negative operating cash flow and plans to seek additional equity or debt financing and evaluate strategic alternatives. The filing warns that financing may be unavailable or unfavorable and could substantially dilute existing stockholders.

The former placement agent terminated the company’s ATM agreement in January 2022. The company remains subject to the Form S-3 “Baby Shelf” limitation, restricting primary public offerings to one-third of the aggregate market value of non-affiliate-held common equity until the public float exceeds $75 million.

Guidance, Outlook, Commentary and Unusual Items

The company expects near-term revenue to remain limited because it is selling catheters primarily to clinical-trial sites and has not resumed commercial sales.
The atherectomy study was expanded from 100 to 125 approved subjects. As of May 11, 2022, 107 subjects had been enrolled and eight sites were cleared to enroll. Management aimed to complete enrollment in the third quarter of 2022 and six-month follow-up in early 2023, but stated that timing could not be estimated reliably because of COVID-19.
The company submitted an improved, more kink-resistant catheter design to the FDA in February 2022 and expected to finalize a guidewire-compatible catheter design by mid-2022, followed by validation and a planned FDA submission.
The company is also evaluating a lithotripsy application for its laser technology and reviewing strategic alternatives, including additional financing, a business combination, asset sale, licensing transaction or a refocused strategy.
COVID-19 continued to affect clinical-trial enrollment, parts availability and hiring and retention. The company also cited supply-chain risks and potential effects from the Russia-Ukraine conflict.
A proposed $10.0 million securities class-action settlement received preliminary court approval. The company paid approximately $0.6 million for its self-insured retention, with insurers funding the remainder; final court approval was pending at the filing date.
The company has contingent obligations under its DOJ and participating-state settlement agreements. Additional payments may be required if annual revenue exceeds $10 million, upon a change in control, or if obligations are avoided through bankruptcy.
The Chief Financial Officer notified the company on May 10, 2022 of his resignation effective May 25, 2022. Separation terms had not been finalized.
Management reported that disclosure controls and procedures were effective as of March 31, 2022 and that no material changes occurred in internal control over financial reporting during the quarter.

Principal Risks and Contingencies

Insufficient liquidity, continuing losses and dependence on additional financing create substantial going-concern risk.
Outstanding warrants and future financings could materially dilute current stockholders.
DABRA commercial sales remain paused because of prior catheter shelf-life, calibration and performance issues, including kinking concerns.
The company has not obtained FDA clearance for an atherectomy indication; clinical-trial delays or unfavorable results could materially impair commercialization prospects.
FDA, DOJ, OIG and other regulatory requirements remain extensive, including obligations under a five-year Corporate Integrity Agreement.
Product recalls, quality issues, product liability claims, reimbursement limitations and competition from larger medical-device companies could adversely affect revenue.
The company relies on third-party suppliers and a single Carlsbad manufacturing facility and has experienced component-shipment delays.
The proposed securities settlement, derivative litigation, government settlement obligations and related legal costs remain material considerations.
The company may be required to downsize, materially alter its strategy, pursue a strategic transaction or liquidate if financing cannot be obtained.

Facts Investors Should Verify

Whether the registrant in the filing corresponds to the requested company name and whether a subsequent corporate name change occurred.
Cash-burn rates, available liquidity and the timing and terms of any financing needed after the fourth quarter of 2022.
Final approval and funding status of the $10.0 million securities class-action settlement.
Actual atherectomy-trial enrollment, completion timing, follow-up results and the probability of obtaining FDA clearance.
Whether and when commercial DABRA catheter sales resume, including validated shelf life and calibration performance.
The dilution potential from approximately 56.3 million outstanding warrant shares and any additional placement-agent warrants.
Compliance costs and contingent payment obligations under the DOJ settlement and Corporate Integrity Agreement.
The outcome of the strategic-alternatives review and the impact of the CFO resignation on operations and financing efforts.