Catheter Precision, Inc. — Form 10-Q Summary
Business Context and Reporting Period
This quarterly report covers the three and nine months ended September 30, 2023. Catheter Precision, 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.
The principal products are the VIVO non-invasive cardiac mapping system and LockeT, a Class I surgical vessel closing pressure device. VIVO has U.S. FDA clearance and CE Mark authorization; LockeT received FDA registration in February 2023 and began initial distributor shipments. LockeT clinical studies began during the third quarter.
Financial Results and Key Metrics
| Metric | Three Months Ended September 30 | Nine Months Ended September 30 |
|---|---|---|
| Revenue | $0.133 million, versus $0 | $0.314 million, versus $0.014 million |
| Gross profit (loss) | $0.127 million, versus $0 | $0.291 million, versus $(0.147) million |
| Operating loss | $(2.730) million, versus $(4.783) million | $(75.522) million, versus $(18.746) million |
| Net loss | $(1.927) million, versus $(4.763) million | $(69.903) million, versus $(18.706) million |
| Net loss attributable to common stockholders | $(1.927) million | $(70.703) million, including a $0.8 million deemed dividend |
| Basic and diluted loss per share | $(0.28), versus $(4.36) | $(14.20), versus $(28.00) |
Third-quarter gross margin was approximately 95.5%; nine-month gross margin was approximately 92.7%. These margins are not representative of a mature commercial operation because revenue remains minimal.
- Operating expenses: Third-quarter SG&A was $2.745 million and R&D was $0.112 million. Nine-month SG&A was $14.393 million and R&D was $0.486 million.
- Impairment: The Company recorded a $60.934 million goodwill impairment charge during the nine months, consisting of $56.1 million in the first quarter and $4.8 million in the second quarter. Goodwill was reduced to zero.
- Cash flow: Net cash used in operating activities was $18.730 million for the nine months, compared with $19.543 million in the prior-year period. Investing cash use was $0.043 million; financing activities provided $8.493 million.
- Liquidity: Cash and cash equivalents were $5.579 million at September 30, 2023, down from $15.859 million at December 31, 2022. Approximately $5.1 million was held in excess of FDIC insurance limits.
- Liabilities: Total liabilities were $11.004 million, including $8.848 million of royalties payable and $0.210 million of operating lease liabilities. The filing does not report conventional bank debt at September 30, 2023.
- Equity and dilution: Common shares outstanding increased to 7.008 million from 2.162 million at December 31, 2022. In addition, 11.042 million shares were reserved for warrants, and Series A and Series X preferred stock remained outstanding.
Material Changes Versus the Prior Comparable Period
- Revenue increased because the post-merger company began reporting VIVO product sales; legacy DABRA sales and manufacturing activities remained discontinued.
- Third-quarter SG&A declined $0.769 million year over year, while nine-month SG&A increased $6.101 million due primarily to merger-related professional fees, compensation, stock-based compensation and amortization.
- R&D declined $0.615 million in the quarter and $5.752 million for the nine months, reflecting the discontinuation of the legacy DABRA development program and related clinical activities.
- The Company raised gross proceeds of approximately $1.3 million from a warrant repricing in January and $8.0 million from a private placement in March 2023.
- Series X preferred stock conversions resulted in approximately 1.975 million common shares issued in March. Series A preferred stock conversions resulted in approximately 1.641 million common shares issued in July.
- Accrued expenses declined to $1.781 million from $7.484 million, primarily after payment of approximately $5.0 million in merger-related settlement costs, including $4.7 million to the Department of Justice and $0.3 million to participating states.
Guidance, Outlook, Risks and Unusual Items
The Company provides no specific revenue, earnings or cash-burn guidance. Management expects operating losses and negative operating cash flows to continue while it invests in commercial capabilities. Management states that additional financing will likely be required and that financing may not be available on timely or favorable terms.
Management concluded that substantial doubt exists about the Company’s ability to continue as a going concern for one year after issuance of the financial statements. The financial statements contain no adjustments related to this uncertainty.
- LockeT clinical studies are intended to support marketing claims and potentially expand FDA indications, but the filing does not provide expected completion dates or commercialization targets.
- The Company has an $8.848 million Level 3 royalties payable balance. LockeT royalties include approximately 12% of net sales payable to noteholders through December 31, 2035, plus additional royalties to the inventor under specified conditions.
- The Company recorded a $5.333 million gain from the decrease in the fair value of royalties payable for the nine months, based partly on an increase in the discount rate to 31.0%. This was a non-cash item.
- Disclosure controls and procedures were ineffective because of material weaknesses involving financial-reporting oversight, review of service-provider work, accounting for the merger-related royalty obligation and the discount rate used in its valuation. Management has begun, but has not completed, remediation.
- Old Catheter’s historical material weaknesses related to segregation of duties and revenue-recognition controls had not yet been fully remediated as of September 30, 2023. The derivative-liability weakness was no longer applicable after the merger.
- Key risks include limited revenue history, dependence on successful adoption of VIVO and LockeT, regulatory and clinical execution, substantial dilution from preferred stock and warrants, cash shortfalls, royalty obligations, and potential errors or restatements arising from ineffective controls.
Important Facts for Investors to Verify
- Whether current cash resources and any subsequent financing are sufficient to fund operations beyond the near term.
- The pace, size and geographic mix of VIVO sales, placements, recurring software revenue and LockeT shipments.
- The status, design, results and regulatory use of LockeT clinical studies.
- The potential dilution from 11.042 million warrants, approximately 12,675 Series X preferred shares and remaining Series A preferred shares.
- The terms, valuation assumptions and payment obligations associated with the $8.848 million royalties payable balance.
- Progress in remediating the identified material weaknesses and whether future filings require corrections or restatements.
- The Company’s ability to raise additional capital and remain listed on the NYSE American.