Catheter Precision, Inc. — Form 10-Q Summary
Business context and reporting period
Unaudited quarterly report for the three and six months ended June 30, 2023. The company, formerly Ra Medical Systems, completed its acquisition of Old Catheter on January 9, 2023 and shifted its focus from the discontinued DABRA business to cardiac electrophysiology technologies, primarily the VIVO cardiac mapping system and LockeT surgical vessel-closing device. The company changed its name to Catheter Precision, Inc. in August 2023.
Financial condition and performance
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Revenue | $0.1 million, versus $0.005 million | $0.2 million, versus $0.014 million |
| Gross profit | $0.089 million, versus $(0.061) million | $0.164 million, versus $(0.147) million |
| Gross margin | Approximately 93%, versus negative margin in 2022 | Approximately 91%, versus negative margin in 2022 |
| Operating loss | $(6.3) million, versus $(8.5) million | $(72.8) million, versus $(14.0) million |
| Net loss | $(1.6) million, versus $(8.4) million | $(68.0) million, versus $(13.9) million |
| Net loss attributable to common stockholders | $(1.6) million | $(68.8) million, including an $0.8 million deemed dividend |
| Loss per share | $(0.29), versus $(13.07) | $(16.97), versus $(0.03) |
- Cash and cash equivalents were $7.4 million at June 30, 2023, down from $15.9 million at December 31, 2022.
- Net cash used in operating activities was $16.9 million for the six months, compared with $14.6 million in the prior-year period. Approximately $5.0 million related to payments under the 2020 government settlement and other merger-related obligations.
- Net cash provided by financing activities was $8.5 million, including $8.0 million of gross private-placement proceeds and $1.3 million from warrant exercises, partially offset by offering costs and other payments.
- Total assets were $35.5 million, including $27.3 million of net acquired intangible assets. Total liabilities were $11.8 million, including $9.6 million of royalty liabilities and $0.2 million of lease liabilities.
- The company had no reported income-tax provision because its deferred tax assets remain subject to a full or substantial valuation allowance.
Material changes versus the prior comparable period
- Revenue increased primarily because the 2023 results include post-merger VIVO product sales; legacy DABRA sales were discontinued.
- Gross profit improved because VIVO product costs were substantially lower than the prior-year costs associated with legacy Ra Medical products.
- Six-month SG&A increased by approximately $6.9 million, driven by merger-related professional fees, severance, stock-based compensation, and amortization of acquired intangible assets. Second-quarter SG&A decreased by approximately $1.1 million year over year.
- R&D expense declined by approximately $2.3 million in the quarter and $5.1 million for the six months because legacy DABRA development and clinical activities were discontinued.
- The company recorded $60.9 million of goodwill impairment for the six months, including $56.1 million in the first quarter and $4.8 million in the second quarter. Goodwill was reduced to zero.
- The company recorded $4.6 million of other income from the reduction in the fair value of the acquired royalty liability, primarily due to an increase in the discount rate to 30.0%.
- Common shares outstanding increased from approximately 2.2 million at December 31, 2022 to 5.4 million at June 30, 2023. The filing also disclosed substantial additional potential dilution from preferred-stock conversions, warrants and options.
Guidance, outlook, risks and unusual items
- Management expects operating losses and negative operating cash flow to continue as it invests in commercialization and has concluded that substantial doubt exists regarding the company’s ability to continue as a going concern for one year after issuance of the financial statements.
- Additional financing may be required through debt or equity transactions. Management stated that financing may not be available on timely or favorable terms.
- VIVO has U.S. FDA clearance and European CE Mark authorization, but commercialization remains limited. LockeT began initial distributor shipments after FDA registration in February 2023, and clinical studies were planned for the second half of 2023.
- The company does not currently plan to commercialize DABRA 2.0 or pursue the legacy DABRA atherectomy indication.
- Royalty obligations include approximately 12% of LockeT net sales through December 31, 2035 for certain noteholders, plus additional LockeT royalties subject to specified conditions. The royalty liability was $9.6 million at June 30, 2023.
- Subsequent to quarter-end, the company issued approximately 1.6 million common shares upon conversion of Series A Convertible Preferred Stock. The Series A Preferred Stock issued in the private placement was convertible into up to approximately 4.5 million common shares under the disclosed terms.
- Management reported ineffective disclosure controls and material weaknesses involving financial-reporting oversight, review of service-provider work, accounting for the acquired royalty obligation and the discount rate used in its valuation. Old Catheter also had previously identified control weaknesses related to segregation of duties and revenue recognition.
- The company remains exposed to regulatory, commercialization, product-development, financing, dilution, liquidity, royalty-valuation and potential financial-reporting risks.
Important facts for investors to verify
- Verify the company’s near-term cash runway against its $16.9 million first-half operating cash burn and substantial-doubt going-concern disclosure.
- Assess the sustainability and scale of VIVO and LockeT revenue, given reported first-half revenue of only $0.2 million.
- Review the terms and potential dilution from Series A and Series X preferred stock, approximately 11.0 million warrant shares, and outstanding stock options.
- Reconcile the $60.9 million goodwill impairment and the valuation assumptions used for acquired intangible assets and royalty liabilities.
- Monitor remediation of the disclosed material weaknesses and determine whether future filings could contain additional adjustments or restatements.
- Confirm post-quarter-end share issuances, the company’s August 2023 name change, and subsequent financing or capital-raising activity.