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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE

SECURITIES EXCHANGE ACT OF 1934

(Amendment No. 1)

 

 

Filed by the Registrant  ☒

Filed by a Party other than the Registrant  ☐

Check the appropriate box:

 

Preliminary Proxy Statement

 

Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

 

Definitive Proxy Statement

 

Definitive Additional Materials

 

Soliciting Material under §240.14a-12

Ra Medical Systems, Inc.

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

 

No fee required.

 

Fee paid previously with preliminary materials.

 

Fee computed on table in exhibit required by Item 25(b) per Exchange Act Rules 14a -6(i)(1) and 0 -11.

 

 

 


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PRELIMINARY PROXY STATEMENT DATED NOVEMBER 3, 2022 – SUBJECT TO COMPLETION

 

LOGO

Dear Stockholders of Ra Medical Systems, Inc.:

You are cordially invited to attend the special meeting of the stockholders (including any adjournment or postponement thereof, the “special meeting”) of Ra Medical Systems, Inc., a Delaware corporation (“we”, “our”, the “Company”, “Ra” or “Ra Medical”) which will be held at [•] a.m. Pacific Time, on [•], [•], 2022 (the “special meeting”). The special meeting will be a virtual stockholder meeting, conducted solely by audio webcast. Instructions for attending the meeting are in the attached notice of special meeting and proxy statement. This is an important special meeting that affects your investment in Ra Medical.

On September 9, 2022, Ra Medical and Catheter Precision, Inc., a privately-held Delaware corporation (“Catheter”) entered into an Agreement and Plan of Merger, as may be amended from time to time (the “merger agreement”), by and among Ra Medical, Catheter, Rapid Merger Sub 1, Inc., a newly-created wholly-owned subsidiary of Ra Medical (“First Merger Sub”), and Rapid Merger Sub 2, LLC, a newly-created wholly owned subsidiary of Ra Medical (“Second Merger Sub” and together with First Merger Sub, the “Merger Subs”), pursuant to which, subject to the satisfaction or waiver of the conditions set forth in the merger agreement, the First Merger Sub will merge with and into Catheter, with Catheter being the surviving corporation (the “First Merger Surviving Company”) and a wholly-owned subsidiary of Ra Medical (the “First Effective Time”), and then, immediately following the First Effective Time, and as part of the same overall transaction, the First Merger Surviving Company will merge with and into the Second Merger Sub (the “Second Effective Time”), with the Second Merger Sub being the surviving limited liability company (the “Second Merger Surviving Company”) (such transactions collectively, the “merger”, with Ra Medical following the merger being referred to herein as the “combined company”). The board of directors of each of Ra Medical and Catheter have approved the merger. Catheter stockholders have not yet approved the merger. The conditions to closing include that (i) Ra Medical must have Net Cash (as defined and further described in the merger agreement) of at least $8,000,000 at closing and (ii) as of the closing date, each of (x) the last closing sale price per share of Ra Medical common stock, par value $0.0001 per share (“Ra Medical common stock”), on the last trading day prior to the closing date and (y) the average closing sales price for Ra Medical common stock prior to 4:00 p.m. (New York City time) on each of the five consecutive full trading days ending on the last trading day immediately prior to the closing date must have been equal to or greater than $4.50.

Immediately upon the First Effective Time, each share of Catheter common stock issued and outstanding immediately prior to the First Effective Time (subject to certain exclusions set forth in the merger agreement) will be converted into and represent the right to receive, a number of shares of the Ra Medical common stock equal to an exchange ratio such that the Catheter stockholders, the Catheter Notes (as defined below) holders and the Catheter Options (as defined below) holders will be allocated approximately 79.37% of the economic value of the combined company immediately after the closing of the merger, subject to downwards adjustment as provided in the merger agreement to the extent that, and by the amount in which, Ra Medical delivers Net Cash greater than $8,000,000, as further discussed below. The exchange ratio will be determined following the conversion of certain Catheter indebtedness (consisting of certain convertible promissory notes (the “Catheter Notes”) representing an aggregate principal amount of $25,465,000, of which Catheter’s President and CEO, Mr. David Jenkins, and his affiliates own approximately 98.8%) pursuant to the Debt Settlement Agreements (as defined in the merger agreement) into shares of Ra Medical common stock, at a conversion price equal to seventy five percent (75%) of the lower of the following: (x) the last closing sale price per share for Ra Medical common stock prior to 4:00 p.m. (New York City time) on the last trading day prior to the closing date of the merger, as reported by Bloomberg; or (y) the average of the last closing sale price per share for Ra Medical common stock prior to 4:00 p.m. (New York City time) on each of the five (5) consecutive full trading days ending on the last trading day immediately prior to such closing date, and the assumption of Catheter Options (as defined below). Because the conversion price of the Catheter Notes depends upon future stock prices for Ra Medical common stock, and because the merger consideration will be used to pay down the Catheter Notes prior to any distribution to Catheter equity holders, the amount of merger consideration that will become payable to Catheter stockholders, if any, is not yet known. In exchange for the forgiveness of the interest accrued but remaining unpaid under the Catheter Notes, under the terms of the Debt Settlement Agreements the holders of Catheter Notes would also be entitled to receive certain royalty rights which would equal, in aggregate, 12% per year on net sales, if any, of Catheter’s surgical vessel closing pressure device, which is currently under development by Catheter. For a more complete description of the Debt Settlement Agreements, please see the section entitled “Agreements Related to the Merger—Debt Settlement Agreements” beginning on page 150 of this proxy statement.

 

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The exchange ratio is subject to adjustment based on Ra Medical’s Net Cash at closing, as discussed below. Giving effect to the Reverse Stock Split, and assuming (i) no exercise of outstanding options to purchase shares of Ra Medical common stock or Catheter common stock prior to the closing of the merger, (ii) 2,828,073 shares of Ra Medical common stock outstanding immediately pre-closing, which includes an assumed 666,667 shares issued in financings between November 1, 2022 and the closing (representing $3,000,000 worth of shares of Ra Medical common stock sold and issued at $4.50 per share, which is an assumed per share offering price equal to the minimum share price that is a condition to the closing of the merger), (iii) $8,000,000 of Net Cash at the closing of the merger, and 10,096,055 shares of Catheter common stock outstanding, not including shares underlying the Catheter Notes, (iv) a conversion price for the Catheter Notes of $3.375 per share, and (v) that no convertible securities of Ra Medical will be in-the-money at the closing of the merger, the exchange ratio is estimated to be approximately 0.2966 shares of Ra Medical common stock for each share of Catheter common stock, and (A) the Catheter stockholders, the Catheter Notes holders and the Catheter Options (as defined below) holders would be allocated approximately 79.37% of the economic value of the combined company immediately after the closing of the merger and (B) Ra Medical’s stockholders (together with the holders of any convertible instruments including options and warrants that may be in the money at the time of closing) immediately prior to the merger would own approximately 20.63% of the combined company. For a more complete description of the exchange ratio, please see the section entitled “The Merger Agreement—Merger Consideration; Exchange and Payment” beginning on page 142 of this proxy statement. All other assumptions equal to those set forth above except that Ra Medical has 3,272,517 shares outstanding at closing, Ra Medical is assumed to issue 1,111,111 shares in financings between November 1, 2022 and the closing (representing $5,000,000 worth of shares of Ra Medical common stock sold and issued at $4.50 per share, which is an assumed per share offering price equal to the minimum share price that is a condition to the closing of the merger), if Ra Medical were to deliver $10,000,000 Net Cash instead of $8,000,000, the exchange ratio would be estimated to be approximately 0.2993 shares of Ra Medical common stock for each share of Catheter common stock, and (A) the Catheter stockholders, the Catheter Notes (as defined below) holders and the Catheter Options (as defined below) holders would be allocated approximately 76.92% of the economic value of the combined company immediately after the closing of the merger and (B) Ra Medical’s stockholders (together with the holders of any convertible instruments including options and warrants that may be in the money at the time of closing) immediately prior to the merger would own approximately 23.08% of the combined company.

As a result of the merger, (i) Catheter would merge into Second Merger Sub and become a wholly-owned subsidiary of Ra Medical; (ii) upon closing of the merger, (A) stakeholders in Catheter immediately prior to the merger, including Catheter stockholders, the Catheter Notes holders and Catheter Option holders, would, immediately following closing, own approximately 79.37% of the economic value of the combined company, subject to downwards adjustment as provided in the merger agreement to the extent that, and by the amount in which, Ra Medical delivers Net Cash greater than $8,000,000; and (B) Ra Medical’s stockholders (together with the holders of any convertible instruments including options and warrants that may be in the money at the time of closing) immediately prior to the merger would own approximately 20.63% of the combined company as of such time, subject to upwards adjustment as provided in the merger agreement to the extent that, and by the amount in which, Ra Medical delivers Net Cash greater than $8,000,000; and (iii) the Second Merger Sub, to be renamed Catheter Precision LLC and which will be wholly-owned by the combined company, will assume all of Catheter’s assets and liabilities and be the operating entity focused on the current business of Catheter going forward. The merger is intended to qualify for federal income tax purposes as a tax-free reorganization under the provisions of Section 368(a) of the Internal Revenue Code of 1986, as amended. The merger will be treated by Ra Medical as a reverse merger under the acquisition method of accounting in accordance with accounting principles generally accepted in the United States. For accounting purposes, Catheter is considered to be acquiring Ra Medical in this transaction, and its historical financial statements will be those of the combined company following the merger. Catheter has informed us that the combined company is expected to discontinue the current business of Ra Medical following the closing.

In connection with the merger, Ra Medical would assume all outstanding options to purchase Catheter Common Stock (“Catheter Options”) whereby immediately prior to the First Effective Time, Catheter Options would cease to represent a right to acquire shares of Catheter common stock and would be assumed and converted, at the First Effective Time, into options to purchase shares of Ra Medical common stock (such options once assumed and converted, the “Assumed Options”).

 

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Certain indebtedness of Catheter that is not converted into shares of Ra Medical common stock as a result of the merger will instead be assumed by Ra Medical in connection with the merger, and is expected to be repaid at or shortly following Closing (the “Advances”). For a more complete description of the Additional Debt, please see the section entitled “Catheters Managements Discussion and Analysis of Financial Condition and Results of Operations” beginning on page 196 of this proxy statement.

Upon consummation of the merger and subject to certain assumptions and estimates, it is expected that Mr. Jenkins, and his affiliates will own approximately 60.2% of the combined company’s common stock as a result of Catheter shares, Catheter Notes and Catheter Options held by Mr. Jenkins and his affiliates. For a more complete description of Mr. Jenkins and his affiliates interest in the transaction, please see the section entitled “Interests of Catheters Directors and Executive Officers in the Merger” beginning on page 135 of this proxy statement. If, as anticipated, upon the consummation of the merger, Mr. Jenkins and his affiliates beneficially own more than 50% of the voting power of the combined company’s outstanding capital stock, the combined company will be a “controlled company” as defined in Section 801 of the NYSE American Company Guide. As a result, if it so elects, the combined company would not be required to comply with Sections 802(a), 804 or 805 of the NYSE American Company Guide, which sections relate to the following requirements, among others: (i) for a majority of the Board to be independent directors, (ii) directors must be nominated or recommended by a Nominating Committee comprised solely of independent directors or a majority of the independent directors, together with a Nominating Committee charter or board resolutions addressing the nominations process, and (iii) executive compensation must be determined by or recommended to the Board by a Compensation Committee comprised of independent directors or a majority of the independent directors, together with certain independence requirements relating to the members of the Compensation Committee or all of the Board’s independent directors. Accordingly, if the Company qualifies as a controlled company, it is currently expected that it will elect to be treated as such and its stockholders will not be afforded the same protections generally as stockholders of other NYSE American-listed companies, and it will be considered “controlled” for other purposes under the Delaware General Corporation Law including Section 203, for so long as any stockholder controls more than 50% of Ra’s voting power and the Company relies upon such exemptions.

Upon consummation of the merger, the combined company’s headquarters is expected to move to New Jersey. The combined company is not expected to use Ra Medical’s legacy assets or continue its legacy lines of business, but will shift the focus of its operations to Catheter’s product lines. For further information about Catheter’s products, see “Catheters Business” beginning on page 176 of this proxy statement.

Except as specifically indicated, the information contained in this proxy statement gives effect to a reverse stock split of Ra Medical’s common stock, as approved by Ra Medical’s stockholders at a special meeting on September 20, 2022, at a ratio of one new share for every 50 shares outstanding as determined by Ra Medical’s Board on September 20, 2022, which was effective at 4:01 p.m. Eastern time on September 30, 2022 (the “Reverse Stock Split”).

At the special meeting, Ra Medical will ask its stockholders:

 

   

To approve the merger, the merger agreement and the transactions contemplated thereby, including the issuance of Ra Medical common stock pursuant to the merger agreement, which approval is necessary to complete the transactions contemplated by the merger agreement. Pursuant to the rules of the NYSE American (the “NYSE American rules”), the issuance of Ra Medical common stock in the merger also requires the approval of Ra Medical’s stockholders because it exceeds 20% of the number of shares of Ra Medical’s common stock outstanding prior to the issuance. Furthermore, the issuance of the shares requires the approval of Ra Medical’s stockholders under the NYSE American rules because it will result in a “change of control” of Ra Medical (the “merger proposal” or “Proposal 1”);

 

   

To approve an amendment to Ra Medical’s 2018 Equity Incentive Plan (the “2018 Plan”) to (i) increase the number of shares of Ra Medical common stock reserved for issuance thereunder by 2,500,000 shares, (ii) modify the “evergreen” provision by removing the cap on the number of shares that may be reserved for issuance, so that on January 1st of each year, commencing on January 1, 2023, the number of shares reserved for issuance under such plan will increase by 5% of the number of outstanding shares of Ra Medical common stock on such date or such lesser amount as the Board may determine, and (iii) to extend the term of the plan until September 22, 2032, which is the 10 year anniversary of the date this amendment to the 2018 Plan was approved by the Board (the “plan increase proposal” or “Proposal 2”);

 

   

To ratify the appointment of Haskell & White LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2022, if the merger is not consummated (the “auditor ratification proposal” or “Proposal 3”); and

 

   

To approve an adjournment of the special meeting for the purpose of soliciting additional proxies to approve Proposals 1 and 2 (the “adjournment proposal” or “Proposal 4”).

 

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After careful consideration, the board of directors of Ra Medical “the Ra Medical Board”) has approved the merger agreement and the proposals referred to above, and has determined that they are advisable, fair and in the best interests of Ra Medical’s stockholders. Accordingly, the Ra Medical Board unanimously recommends that stockholders vote “FOR” the merger proposal, “FOR” the plan increase proposal, “FOR” the auditor ratification proposal and “FOR” the adjournment proposal.

Shares of Ra Medical common stock are currently listed on the NYSE American under the symbol “RMED.” After completion of the merger, it is expected that Ra Medical common stock will continue to trade on the NYSE American under the symbol “RMED”. However, the combined company will be required to meet the initial listing standards of the NYSE American in order to remain listed. While we currently expect that the combined company will be able to meet those standards, there can be no guarantee that this will occur or that it will occur on the timetable we anticipate. See also “Risk Factors—Risks Related to Ownership of Our Common Stock” beginning on page 82 of this proxy statement for risks pertaining to Ra Medical’s listing.

More information about Ra Medical, Catheter and the proposed transactions are contained in the accompanying proxy statement. Ra Medical urges you to read the proxy statement carefully and in its entirety. IN PARTICULAR, YOU SHOULD CAREFULLY CONSIDER THE MATTERS DISCUSSED UNDER “RISK FACTORS” BEGINNING ON PAGE 32.

Your vote is important. Whether or not you expect to attend the virtual special meeting, please complete, date, sign and promptly return the accompanying proxy card in the enclosed postage paid envelope to ensure that your shares will be represented and voted at the special meeting. If you are a stockholder of record, you can also vote your shares via the internet or by telephone as provided in the instructions set forth in the enclosed proxy card. If you hold your shares in “street name” through a broker, bank or other nominee, you will receive voting instructions from your broker, bank or other nominee, and should follow the procedures provided.

Ra Medical is excited about the opportunities the merger brings to its stockholders, and we thank you for your consideration and continued support.

 

Yours sincerely,
 
Jonathan Will McGuire
Chief Executive Officer

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved the merger described in this proxy statement or the Ra Medical common stock to be issued in connection with the merger or determined if this proxy statement is accurate or adequate. Any representation to the contrary is a criminal offense.

 

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PRELIMINARY PROXY STATEMENT DATED NOVEMBER 3, 2022 – SUBJECT TO COMPLETION

LOGO

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON [], 2022.

To the Stockholders of Ra Medical Systems, Inc.:

Notice is hereby given that a special meeting of stockholders of Ra Medical Systems, Inc. (“Ra Medical” or the “Company”) will be held virtually, via live audio webcast at [•] Pacific Time, on [•], [•], 2022, to consider and act upon the following matters:

 

  1.

To approve the merger, the merger agreement and the transactions contemplated thereby, including the issuance of Ra Medical common stock pursuant to the Agreement and Plan of Merger, dated as of September 9, 2022 (the “merger agreement”), by and among Ra Medical, Rapid Merger Sub 1, Inc. (“First Merger Sub”), a Delaware corporation and wholly-owned subsidiary of Ra Medical, Rapid Merger Sub 2, LLC (“Second Merger Sub”), a Delaware limited liability company and wholly-owned subsidiary of Ra Medical, and Catheter Precision Inc. (“Catheter”), and the issuance of Ra Medical common stock pursuant to the merger agreement and the resulting issuance of more than 20% of outstanding Ra Medical’s common stock and the change of control of Ra Medical pursuant to the NYSE American rules (the “merger proposal” or “Proposal 1”);

 

  2.

To approve an amendment to Ra Medical’s 2018 Equity Incentive Plan (the “2018 Plan”) to (i) increase the number of shares of Ra Medical common stock reserved for issuance thereunder by 2,500,000 shares, (ii) modify the “evergreen” provision by removing the cap on the number of shares that may be reserved for issuance, so that on January 1st of each year, commencing on January 1, 2023, the number of shares reserved for issuance under such plan will increase by 5% of the number of outstanding shares of Ra Medical common stock on such date or such lesser amount as the Ra Medical board of directors (The “Ra Medical Board”) may determine, and (iii) to extend the term of the plan until September 22, 2032, which is the 10 year anniversary of the date this amendment to the 2018 Plan was approved by the Ra Medical Board (the “plan increase proposal” or “Proposal 2”);

 

  3.

To ratify the appointment of Haskell & White LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2022, if the merger is not consummated (the “auditor ratification proposal” or “Proposal 3”); and

 

  4.

To approve an adjournment of the special meeting for the purpose of soliciting additional proxies to approve Proposals 1 and/or 2 (the “adjournment proposal” or “Proposal 4”).

If Ra Medical is to complete the merger with Catheter, stockholders must approve Proposal 1. The approvals of Proposals 2 through 4 are not conditions to the completion of the merger with Catheter.

Ra Medical common stock is the only type of security entitled to vote at the special meeting. The Ra Medical Board has fixed October 31, 2022 as the record date for the determination of stockholders entitled to notice of, and to vote at, the special meeting. Only holders of record of shares of Ra Medical common stock at the close of business on the record date are entitled to notice of, and to vote at, the special meeting. At the close of business on the record date, Ra Medical had 2,161,406 shares of common stock outstanding and entitled to vote at the special meeting. Each holder of record of shares of common stock on the record date will be entitled to one vote for each share held on all matters to be voted upon at the special meeting.

The special meeting will be held in virtual only format. In order to attend the meeting, you must first register at www.viewproxy.com/RMEDSM/2022 by 8:59 p.m. Pacific time on [•], 2022. If you hold your shares through a bank, broker or other nominee, you must obtain a legal proxy from that entity and submit it when you register. After registering you will receive an e-mail containing a unique link and password that will enable you to attend the meeting and vote.

Your vote is important. The affirmative vote of a majority of the shares of Ra Medical common stock present in person or represented by proxy at the special meeting and casting votes affirmatively or negatively on each such proposal is required for the respective approvals of each of Proposals 1, 2, 3 and 4.

 

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Whether or not you plan to attend the special meeting virtually, if you are a stockholder of record, please submit your proxy promptly by telephone or via the internet in accordance with the instructions on the enclosed proxy card or complete, date, sign and promptly return the accompanying proxy card in the enclosed postage paid envelope to ensure that your shares will be represented and voted at the special meeting. If you date, sign and return your proxy card without indicating how you wish to vote, your proxy will be voted in favor of each of Proposals 1 through 4. If you hold your shares in “street name” through a broker, bank or other nominee, you should follow the procedures provided by your broker, bank or other nominee.

 

By Order of the Board of Directors of Ra Medical Systems, Inc.
 

Jonathan Will McGuire

Chief Executive Officer

[•], 2022

Carlsbad, California

THE RA MEDICAL BOARD HAS DETERMINED AND BELIEVES THAT EACH OF THE PROPOSALS OUTLINED ABOVE IS ADVISABLE, FAIR AND IN THE BEST INTERESTS OF RA MEDICAL AND ITS STOCKHOLDERS AND HAS APPROVED EACH SUCH PROPOSAL. THE RA MEDICAL BOARD RECOMMENDS THAT RA MEDICAL’S STOCKHOLDERS VOTE “FOR” EACH OF PROPOSALS 1 THROUGH 4.

REFERENCES TO ADDITIONAL INFORMATION

This proxy statement under Section 14(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the rules thereunder, contains a notice of meeting with respect to the special meeting of stockholders at which Ra Medical’s stockholders will consider and vote on the proposals to approve (i) the merger, the merger agreement and the transactions contemplated thereunder, including the issuance of Ra Medical common stock issuable to the holders of Catheter’s common stock pursuant to the merger agreement described in this proxy statement and the resulting issuance of more than 20% of outstanding Ra Medical common stock and “change of control” of Ra Medical under the NYSE American rules, (ii) an amendment to the 2018 Plan to increase the share reserve, remove the cap on the “evergreen” provision and extend the term of the plan by 10 years, (iii) to ratify the appointment of Haskell & White LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2022, if the merger is not consummated and (iv) an adjournment of the special meeting to solicit additional proxies if there are not sufficient votes in favor of Proposals 1 or 2.

Additional business and financial information about Ra Medical can be found in documents previously filed by Ra Medical with the U.S. Securities and Exchange Commission (the “SEC”). This information is available to you without charge on the SEC’s website (www.sec.gov). Ra Medical stockholders will also be able to obtain the proxy statement, free of charge, from Ra Medical by requesting copies in writing using the following contact information:

Ra Medical Systems, Inc.

Attn: Corporate Secretary

5857 Owens Drive, Suite 300

Carlsbad, CA 92009

Tel: (760) 804-1648

You may also request additional copies from Ra Medical’s proxy solicitor, Alliance Advisors, LLC, using the following contact information:

Alliance Advisors, LLC

200 Broadacres Drive, 3rd Floor

Bloomfield, New Jersey 07003

Tel: 833-945-2699

To ensure timely delivery of these documents, any request should be made no later than [•], 2022 to receive them before the special meeting. See “Where You Can Find Additional Information” beginning on page 241 of this proxy statement.

 

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TABLE OF CONTENTS

 

     Page  

QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER

     11  

SUMMARY

     20  

The Companies

     20  

The Combined Company; Summary of the Merger

     21  

Ra Medical’s Reasons for the Merger

     22  

Additional Factors and Risks Considered by the Ra Medical Board

     23  

Catheter’s Reasons for the Merger

     24  

Opinion of Objective

     24  

Overview of the Merger Agreement

     25  

Support Agreements

     28  

Lock-up Agreements

     28  

Debt Settlement Agreements

     28  

Management Following the Merger

     28  

The Board of Directors and Executive Officers Following the Merger

     28  

Interests of Ra Medical’s Directors and Executive Officers in the Merger

     28  

Interests of Catheter’s Directors and Executive Officers in the Merger

     29  

Federal Securities Law Consequences; Resale Restrictions

     30  

Material U.S. Federal Income Tax Consequences of the Merger

     30  

Regulatory Approvals

     30  

Anticipated Accounting Treatment

     30  

Appraisal Rights

     30  

MARKET PRICE AND DIVIDEND INFORMATION

     31  

RISK FACTORS

     32  

Risks Related to Our Merger with Catheter

     32  

Risks Related to Our Evaluation of Strategic Alternatives for our Legacy Assets

     38  

Risks Related to Ra Medical

     39  

Risks Related to the Ongoing Business of Catheter

     90  

CAUTIONARY INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

     111  

THE MERGER

     112  

Background of the Merger

     112  

Ra Medical’s Reasons for the Merger; Additional Factors and Risks Considered by the Ra Medical Board; Recommendations of the Ra Medical Board of Directors

     120  

Catheter’s Reasons for the Merger

     122  

Certain Ra Medical Management Unaudited Prospective Financial Information

     124  

Opinion of Objective

     127  

 

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Interests of Ra Medical’s Directors and Executive Officers in the Merger

     132  

Interests of Catheter’s Directors and Executive Officers in the Merger

     135  

Federal Securities Law Consequences; Resale Restrictions

     136  

Material U.S. Federal Income Tax Consequences of the Merger

     137  

THE SPECIAL MEETING

     139  

THE MERGER AGREEMENT

     142  

Form of the Merger; Effectiveness of the Merger

     142  

Merger Consideration; Exchange and Payment

     142  

Treatment of Options and Other Equity-Based Awards

     144  

Treatment of Catheter Notes

     144  

Regulatory Approvals

     145  

Conditions to the Completion of the Merger

     145  

Representations and Warranties

     146  

NYSE American Listing

     147  

Meeting of Ra Medical’s Stockholders

     147  

Indemnification and Insurance

     147  

Registration Statements

     148  

Closing Net Cash

     148  

Compliance with Government Agreements

     148  

Termination

     148  

No Third Party Beneficiaries

     149  

Amendments and Waivers

     149  

Specific Performance

     149  

Governing Law

     149  

AGREEMENTS RELATED TO THE MERGER

     150  

Support Agreements

     150  

Lock-Up Agreements

     150  

Debt Settlement Agreements

     150  

MATTERS BEING SUBMITTED TO A VOTE OF RA MEDICAL’S STOCKHOLDERS

     151  

Proposal 1: Approval of the Merger Proposal

     151  

Proposal 2: Approval of the Plan Increase Proposal

     152  

Proposal 3: Approval of Auditor Ratification Proposal

     159  

Proposal 4: Approval of Adjournment Proposal

     161  

RA MEDICAL’S BUSINESS

     162  

CATHETER’S BUSINESS

     176  

 

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RA MEDICAL’S MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     186  

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT RA MEDICAL’S MARKET RISK

     196  

CATHETER’S MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     196  

UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION AND ACCOMPANYING NOTES

     215  

EXECUTIVE OFFICERS AND DIRECTORS FOLLOWING THE MERGER

     223  

DESCRIPTION OF RA MEDICAL’S CAPITAL STOCK

     227  

PRINCIPAL STOCKHOLDERS OF RA MEDICAL

     236  

PRINCIPAL STOCKHOLDERS OF CATHETER

     238  

PRINCIPAL STOCKHOLDERS OF THE COMBINED COMPANY

     239  

WHERE YOU CAN FIND ADDITIONAL INFORMATION

     241  

HOUSEHOLDING

     241  

FUTURE STOCKHOLDER PROPOSALS

     241  

INFORMATION INCORPORATED BY REFERENCE

     242  

RA MEDICAL’S FINANCIAL STATEMENTS

     F-1  

RA MEDICAL’S UNAUDITED FINANCIAL STATEMENTS

     F-29  

CATHETER’S FINANCIAL STATEMENTS

     F-44  

CATHETER’S UNAUDITED FINANCIAL STATEMENTS

     F-73  

ANNEX A—MERGER AGREEMENT

ANNEX B—OPINION OF OBJECTIVE

ANNEX C—2018 PLAN, AS AMENDED BY PROPOSAL 2

 

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QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER

Except as specifically indicated, the following information and all other information contained in this proxy statement gives effect to a reverse stock split of Ra Medical’s common stock, as approved by Ra Medical’s stockholders at a special meeting on September 20, 2022, at a ratio of one new share for every 50 shares outstanding as determined by Ra Medical’s Board on September 20, 2022, which was effective at 4:01 p.m. Eastern time on September 30, 2022 (the “Reverse Stock Split”). The following section provides answers to frequently asked questions about the special meeting of stockholders and the merger. This section, however, only provides summary information. These questions and answers may not address all issues that may be important to you as a stockholder. For a more complete response to these questions and for additional information, please refer to the cross-referenced pages below. You should carefully read this entire proxy statement, including each of the annexes.

 

Q:

What is the merger?

 

A:

On September 9, 2022, Ra Medical and Catheter Precision, Inc., a privately-owned Delaware corporation (“Catheter”), entered into an Agreement and Plan of Merger, as may be amended from time to time (the “merger agreement”), by and among Ra Medical, Catheter, Rapid Merger Sub 1, Inc., a newly-created wholly-owned subsidiary of Ra Medical (“First Merger Sub”), and Rapid Merger Sub 2, LLC, a newly-created wholly owned subsidiary of Ra Medical (“Second Merger Sub” and together with First Merger Sub, the “Merger Subs”), pursuant to which, subject to the satisfaction or waiver of the conditions set forth in the merger agreement, the First Merger Sub will merge with and into Catheter, with Catheter being the surviving corporation (the “First Merger Surviving Company”) and a wholly-owned subsidiary of Ra Medical (the “First Effective Time”), and then, immediately following the First Effective Time, and as part of the same overall transaction, the First Merger Surviving Company will merge with and into the Second Merger Sub (the “Second Effective Time”), with the Second Merger Sub being the surviving limited liability company (the “Second Merger Surviving Company”) (such transactions collectively, the “merger”, with Ra Medical following the merger being referred to herein as the “combined company”).

As a result of the merger, (i) Catheter would merge into Second Merger Sub and become a wholly-owned subsidiary of Ra Medical; (ii) upon closing of the merger, (A) stakeholders in Catheter immediately prior to the merger, including Catheter stockholders, the Catheter Notes holders and Catheter Option holders, would, immediately following the closing of the merger, own approximately 79.37% of the economic value of the combined company, subject to downwards adjustment as provided in the merger agreement to the extent that, and by the amount in which, Ra Medical delivers Net Cash (as defined in the merger agreement) greater than $8,000,000; and (B) Ra Medical’s stockholders (together with the holders of any convertible instruments including options and warrants that may be in the money at the time of closing) immediately prior to the merger would own approximately 20.63% of the combined company as of such time, subject to upwards adjustment as provided in the merger agreement to the extent that, and by the amount in which, Ra Medical delivers Net Cash greater than $8,000,000; and (iii) the Second Merger Sub, to be renamed Catheter Precision LLC and which will be wholly-owned by the combined company, will assume all of Catheter’s assets and liabilities and be the operating entity focused on the current business of Catheter going forward.

Upon consummation of the merger, the combined company’s headquarters is expected to move to New Jersey. The combined company is not expected to use Ra Medical’s legacy assets or continue its legacy lines of business, but will shift the focus of its operations to Catheter’s product lines. For further information about Catheter’s products, see “Catheters Business” beginning on page 176 of this proxy statement.

 

Q:

What will happen to Ra Medical if, for any reason, the merger with Catheter does not close?

 

A:

Ra Medical has invested significant time and incurred, and expects to continue to incur, significant expenses related to the proposed merger with Catheter. In the event the merger does not close, Ra Medical will have a limited ability to continue its current operations without obtaining additional financing. Although the Ra Medical Board may elect, among other things, to attempt to complete another strategic transaction if the merger with Catheter does not close, the Ra Medical Board may instead divest all or a portion of Ra Medical’s business or take steps necessary to liquidate or dissolve Ra Medical’s business and assets if a viable alternative strategic transaction is not available. If the Ra Medical Board decides to dissolve and liquidate Ra Medical’s assets, Ra Medical would be required to pay all of its contractual obligations, and to set aside certain reserves for potential future claims, and there can be no assurance as to the amount or the timing of such a liquidation and distribution of available cash left to distribute to stockholders after paying the obligations of Ra Medical and setting aside funds for reserves.

 

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Q:

Why is Ra Medical proposing to merge with Catheter?

 

A:

The Ra Medical Board considered a number of factors that supported its decision to approve the merger agreement. In the course of its deliberations, the Ra Medical Board also considered a variety of risks and other countervailing factors related to entering into the merger agreement.

For a more complete discussion of Ra Medical’s reasons for the merger, please see the section entitled “The Merger—Ra Medicals Reasons for the Merger; Additional Factors and Risks Considered by the Ra Medical Board; Recommendations of the Ra Medical Board of Directors” beginning on page 120 of this proxy statement.

 

Q:

What is required to consummate the merger?

 

A:

The consummation of the proposed merger with Catheter is subject to a number of closing and other conditions, including that Ra Medical’s stockholders approve the merger, the merger agreement and the transactions contemplated thereunder, which requires the affirmative vote of a majority of the shares of Ra Medical common stock present in person or represented by proxy at the special meeting and casting votes affirmatively or negatively on the subject matter.

For a more complete description of the closing and other conditions under the merger agreement, please see the section entitled “The Merger Agreement—Conditions to the Completion of the Merger” beginning on page 145 of this proxy statement.

 

Q:

Are there any federal or state regulatory requirements that must be complied with or federal or state regulatory approvals or clearances that must be obtained in connection with the merger?

 

A

Neither Ra Medical nor Catheter is required to make any filings or to obtain any approvals or clearances from any antitrust regulatory authorities in the United States or other countries to consummate the merger. In the United States, Ra Medical must comply with applicable federal and state securities laws and the NYSE American rules in connection with the issuance of shares of Ra Medical common stock in the merger, including the filing with the SEC of this proxy statement and the required stockholder approval for the resulting issuance of more than 20% of outstanding Ra Medical common stock and the “change of control” of Ra Medical under the NYSE American rules. Prior to consummation of the merger, Ra Medical intends to file an initial listing application with NYSE American pursuant to NYSE American’s “reverse merger” rules and to effect the initial listing of Ra Medical common stock issuable in connection with the merger. In addition, proposed financings in connection with raising sufficient funds to meet the Net Cash at closing requirements may also require SEC filings, and in certain instances, action by the SEC before the financings can proceed.

For a more complete description of the closing and other conditions under the merger agreement, please see the section entitled “The Merger Agreement—Conditions to the Completion of the Merger” beginning on page 145 of this proxy statement.

 

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Q:

What will Catheter’s stockholders receive in the merger?

 

A:

Immediately upon the First Effective Time, each share of Catheter common stock issued and outstanding immediately prior to the First Effective Time (subject to certain exclusions set forth in the merger agreement) will be converted into and represent the right to receive a number of shares of the Ra Medical common stock equal to the exchange ratio such that the Catheter stockholders, the Catheter Notes holders and the Catheter Options holders will be allocated approximately 79.37% of the economic value of the combined company immediately after the closing of the merger, subject to downwards adjustment as provided in the merger agreement to the extent that, and by the amount in which, Ra Medical delivers Net Cash greater than $8,000,000, as further discussed below. The exchange ratio will be determined, following the conversion of certain Catheter indebtedness (consisting of certain convertible promissory notes (the “Catheter Notes”) representing an aggregate principal amount of $25,465,000) pursuant to the Debt Settlement Agreements (as defined in the merger agreement) into shares of Ra Medical common stock, at a conversion price equal to seventy five percent (75%) of the lower of the following: (x) the last closing sale price per share for Ra Medical common stock prior to 4:00 p.m. (New York City time) on the last trading day prior to the closing date of the merger, as reported by Bloomberg; or (y) the average of the last closing sale price per share for Ra Medical common stock prior to 4:00 p.m. (New York City time) on each of the five (5) consecutive full trading days ending on the last trading day immediately prior to such closing date, and the assumption of Catheter Options (as defined below). Because the conversion price of the Catheter Notes depends upon future stock prices for Ra Medical common stock, and because the merger consideration will be used to pay down the Catheter Notes prior to any distribution to Catheter equityholders, the amount of merger consideration that will become payable to Catheter stockholders, if any, is not yet known. In exchange for the forgiveness of the interest accrued but remaining unpaid under the Catheter Notes, under the terms of the Debt Settlement Agreements the holders of Catheter Notes would also be entitled to receive certain royalty rights which would equal, in aggregate, 12% per year on net sales, if any, of Catheter’s surgical vessel closing pressure device, which is currently under development by Catheter. For a more complete description of the Debt Settlement Agreements, please see the section entitled “Agreements Related to the Merger—Debt Settlement Agreements” beginning on page 150 of this proxy statement.

Giving effect to the Reverse Stock Split, and assuming (i) no exercise of outstanding options to purchase shares of Ra Medical common stock or Catheter common stock prior to the closing of the merger, (ii) 2,828,073 shares of Ra Medical common stock outstanding immediately pre-closing, which includes an assumed 666,667 shares issued in financings between November 1, 2022 and the closing (representing $3,000,000 worth of shares of Ra Medical common stock sold and issued at $4.50 per share, which is an assumed per share offering price equal to the minimum share price that is a condition to the closing of the merger), (iii) $8,000,000 of Net Cash at the closing of the merger, and 10,096,055 shares of Catheter common stock outstanding, not including shares underlying the Catheter Notes, (iv) a conversion price for the Catheter Notes of $3.375 per share, and (v) that no convertible securities of Ra Medical will be in-the-money at the closing of the merger, the exchange ratio is estimated to be approximately 0.2966 shares of Ra Medical common stock for each share of Catheter common stock, and (A) the Catheter stockholders, the Catheter Notes holders and the Catheter Options (as defined below) holders would be allocated approximately 79.37% of the economic value of the combined company immediately after the closing of the merger and (B) Ra Medical’s stockholders (together with the holders of any convertible instruments including options and warrants that may be in the money at the time of closing) immediately prior to the merger would own approximately 20.63% of the combined company. For a more complete description of the exchange ratio, please see the section entitled “The Merger Agreement—Merger Consideration; Exchange and Payment” beginning on page 142 of this proxy statement.

 

Q:

What will Ra Medical’s stockholders receive in the merger?

 

A:

Ra Medical’s stockholders will continue to own and hold their existing shares of Ra Medical common stock. Any equity grants will remain unchanged in accordance with their current terms.

 

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Q:

Will Ra Medical need to raise additional financing in order to consummate the potential merger with Catheter?

 

A:

Ra Medical expects that it will need to raise additional financing in an amount of between $2,000,0000 and $3,000,000 in order to consummate the potential merger with Catheter, including in order to meet the $8 million “Net Cash” closing requirement under the merger agreement and additional original listing requirements of the NYSE American. Ra Medical’s stockholders should carefully read the section of this proxy statement entitled “Risk Factors – We anticipate needing to raise additional funds in order to consummate the merger with Catheter. Future sales and issuances of a substantial number of shares of our common stock or rights to purchase common stock by our stockholders in the public market are likely to result in additional dilution of the percentage ownership of our stockholders and could cause our stock price to fall. Such financings may have terms or rights superior to those of our shares of common stock and may not be on favorable terms to us, which could adversely affect the market price of our shares of common stock and our business or the rights of our stockholders.” beginning on page 34, which sets forth certain risks and uncertainties related to a potential financing.

 

Q:

What are the material U.S. federal income tax consequences of the merger to Ra Medical stockholders?

 

A:

The merger is intended to qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”). Ra Medical stockholders will not sell, exchange or dispose of any shares of Ra Medical common stock as a result of the merger. Thus, there will be no material U.S. federal income tax consequences to Ra Medical stockholders as a result of the merger. For a more complete description of the material U.S. federal income tax consequences of the merger, please see the section entitled “The Merger—Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 137 of this proxy statement.

 

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Q:

Why is Ra Medical seeking stockholder approval of the merger, the merger agreement and the transactions contemplated thereunder, including the issuance of shares of Ra Medical common stock to existing stockholders of Catheter in the merger?

 

A:

Because Ra Medical common stock is listed on NYSE American, we are subject to the NYSE American rules. NYSE American Company Guide Section 712(b) requires stockholder approval in connection with the acquisition of another company if the NYSE American-listed company will issue more than 20% of its outstanding common stock, and NYSE American Company Guide Section 713(b) requires stockholder approval when the issuance or potential issuance of additional shares will result in a change of control of the issuer, including, but not limited to, those issuances that constitute a “reverse merger” under the NYSE American rules. Upon closing of the merger, (A) stakeholders in Catheter immediately prior to the merger, including Catheter stockholders, the Catheter Notes holders and Catheter Option holders, would, immediately following closing, own approximately 79.37% of the economic value of the combined company, subject to downwards adjustment as provided in the merger agreement to the extent that, and by the amount in which, Ra Medical delivers Net Cash (as defined in the merger agreement) greater than $8,000,000; and (B) Ra Medical’s stockholders (together with the holders of any convertible instruments including options and warrants that may be in the money at the time of closing) immediately prior to the merger would own approximately 20.63% of the combined company as of such time, subject to upwards adjustment as provided in the merger agreement to the extent that, and by the amount in which, Ra Medical delivers Net Cash greater than $8,000,000. Accordingly, Ra Medical is seeking stockholder approval of the merger, the merger agreement and the transactions contemplated thereunder, including the issuance of common stock pursuant to the merger agreement under the NYSE American rules.

 

Q:

Why am I receiving this proxy statement?

 

A:

You are receiving this proxy statement because you have been identified as a stockholder of Ra Medical as of the record date, and thus you are entitled to vote at Ra Medical’s special meeting. This document contains important information about the merger and the special meeting of Ra Medical and serves as a proxy statement of Ra Medical used to solicit proxies for the special meeting, and you should read it carefully.

 

Q:

How does Ra Medical’s board of directors recommend that Ra Medical’s stockholders vote?

 

A:

After careful consideration, the Ra Medical Board recommends that Ra Medical’s stockholders vote:

 

   

FOR Proposal 1 to approve of the merger, the merger agreement and the transactions contemplated thereunder, including the issuance of Ra Medical common stock pursuant to the merger agreement and the resulting issuance of more than 20% of its outstanding common stock and the change of control of Ra Medical pursuant to the NYSE American rules;

 

   

FOR Proposal 2 to approve the amendment to the 2018 Plan;

 

   

FOR Proposal 3 to ratify the appointment of Haskell & White LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2022, if the merger is not consummated; and

 

   

FOR Proposal 4 to approve an adjournment of the special meeting to solicit additional proxies if there are not sufficient votes in favor of Proposals 1 and/or 2.

 

Q:

What risks should Ra Medical’s stockholders consider in deciding whether to vote in favor of the merger?

 

A:

Ra Medical’s stockholders should carefully read the section of this proxy statement entitled “Risk Factors” beginning on page 32, which sets forth certain risks and uncertainties related to the merger, risks and uncertainties to which the combined company’s business will be subject, risks and uncertainties to which Ra Medical, as an independent company, is subject and risks and uncertainties to which Catheter, as an independent company, is subject.

 

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Q:

When do you expect the merger to be consummated?

 

A:

The consummation of the merger will occur as promptly as practicable after the special meeting and following satisfaction or waiver of all closing conditions. Ra Medical and Catheter anticipate that the consummation of the merger will occur in the fourth quarter of 2022. However, the exact timing of the consummation of the merger is not yet known. For a more complete description of the closing conditions under the merger agreement, please see the section entitled “The Merger Agreement—Conditions to the Completion of the Merger” beginning on page 145 of this proxy statement.

 

Q:

What happens if Ra Medical’s stockholders do not approve the merger proposal, or any of the other proposals set forth in this proxy statement?

 

A:

In the event that Ra Medical’s stockholders do not approve the merger proposal (Proposal 1), per the terms of the merger agreement, Ra Medical will use commercially reasonable efforts to call a stockholder meeting every ninety (90) days to seek stockholder approval of the merger proposal until stockholder approval of the merger proposal is obtained, unless the merger agreement is terminated. While the approval of Proposal 2 is not a necessary condition to the completion of the merger, the Ra Medical Board believes that the approval of Proposal 2 is in the best interest of Ra Medical and its stockholders, and accordingly Ra Medical plans to call a stockholder meeting every ninety (90) days to seek stockholder approval of Proposal 2 until stockholder approval is obtained or the Ra Medical Board determines that it should abandon Proposal 2. If Proposal 3 is not approved by our stockholders, Ra Medical’s audit committee may reconsider whether it should appoint another independent registered public accounting firm, but stockholder approval of Proposal 3 is not required to appoint Haskell & White as the Company’s independent registered public accounting firm under Ra Medical’s bylaws or other applicable legal requirements. If Ra Medical fails to receive a sufficient number of votes to approve Proposal 1 or Proposal 2, Ra Medical may propose to adjourn the special meeting (Proposal 4). Ra Medical currently does not intend to propose adjournment at the special meeting if there are sufficient votes to approve Proposals 1 and 2.

 

Q:

What constitutes a quorum for purposes of the special meeting?

 

A:

A quorum is the minimum number of shares required to be present or represented at the special meeting for the meeting to be properly held under our bylaws and Delaware law. Holders of one-third of the voting power of our issued and outstanding Common Stock as of the record date and entitled to vote at the special meeting must be present in person or represented by proxy to hold and transact business at the special meeting. On the record date, there were 2,161,406 shares outstanding and entitled to vote. Thus, the holders of at least 720,469 shares must be present in person or represented by proxy at the special meeting to have a quorum.

Abstentions and “broker non-votes” are counted as present and entitled to vote for purposes of determining a quorum. If there is no quorum, the chairman of the meeting or the holders of a majority of the voting power present in person or represented by proxy at the special meeting and casting votes affirmatively or negatively may adjourn the meeting to another date.

 

Q:

What are broker non-votes?

 

A:

Broker non-votes occur when a beneficial owner of shares held in “street name” does not give instructions to the broker holding the shares as to how to vote on matters deemed “non-routine” and there is at least one “routine” matter to be voted upon at the meeting. Generally, if shares are held in street name, the beneficial owner of the shares is entitled to give voting instructions to the broker holding the shares. If the beneficial owner does not provide voting instructions, the broker can still vote the shares with respect to matters that are considered to be “routine,” but not with respect to “non-routine” matters. In the event that a broker votes shares on the “routine” matters, but does not vote shares on the “non-routine” matters, those shares will be treated as broker non-votes with respect to the “non-routine” proposals. Accordingly, if you own shares through a nominee, such as a broker or bank, please be sure to instruct your nominee how to vote to ensure that your vote is counted on each of the proposals.

 

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Q:

What matters are considered “routine” and “non-routine”?

 

A:

The auditor ratification proposal (Proposal 3) and the adjournment proposal (Proposal 4) are expected to be considered “routine” matters. The merger proposal (Proposal 1) and the plan increase proposal (Proposal 2) are expected to be considered “non-routine.”

 

Q:

What are the effects of abstentions and broker non-votes?

 

A:

An abstention represents a stockholder’s affirmative choice to decline to vote on a proposal. If a stockholder indicates on its proxy card that it wishes to abstain from voting its shares, or if a broker, bank or other nominee holding its customers’ shares of record causes abstentions to be recorded for shares, these shares will be considered present and entitled to vote at the special meeting. As a result, abstentions will be counted for purposes of determining the presence or absence of a quorum but will not be counted as votes against a proposal in cases where approval of the proposal requires the affirmative vote of a majority of the shares present in person or represented by proxy at the special meeting and casting votes affirmatively or negatively on the subject matter (e.g., Proposals 1 through 4). Therefore, abstentions will make a quorum more readily attainable but will not otherwise affect the outcome of the vote on those proposals.

Broker non-votes will be counted for purposes of calculating whether a quorum is present at the special meeting but will not be counted as votes against a proposal in cases where approval of the proposal requires the affirmative vote of a majority of the shares of Ra Medical common stock present in person or represented by proxy at the special meeting and casting votes affirmatively or negatively on the subject matter (e.g., Proposals 1 through 4). Therefore, a broker non-vote will make a quorum more readily attainable but will not otherwise affect the outcome of the vote on those proposals.

 

Q:

What vote of our stockholders is required to approve each of the proposals?

 

A:

The approval of the merger proposal requires the affirmative vote of a majority of the shares of Ra Medical common stock present in person or represented by proxy at the special meeting and casting votes affirmatively or negatively on this proposal. You may vote “FOR,” “AGAINST,” or “ABSTAIN” on this proposal. Broker non-votes and abstentions have the same effect by making a quorum more readily attainable but will not otherwise affect the outcome of the vote on this proposal.

The approval of the plan increase proposal requires the affirmative vote of a majority of the shares of Ra Medical common stock present in person or represented by proxy at the special meeting and casting votes affirmatively or negatively on this proposal. You may vote “FOR,” “AGAINST,” or “ABSTAIN” on this proposal. Broker non-votes and abstentions have the same effect by making a quorum more readily attainable but will not otherwise affect the outcome of the vote on this proposal.

The approval of the auditor ratification proposal requires the affirmative vote of a majority of the shares of Ra Medical common stock present in person or represented by proxy at the special meeting and casting votes affirmatively or negatively on this proposal. You may vote “FOR,” “AGAINST,” or “ABSTAIN” on this proposal. Broker non-votes and abstentions have the same effect by making a quorum more readily attainable but will not otherwise affect the outcome of the vote on this proposal.

The approval of the adjournment proposal requires the affirmative vote of a majority of the shares of Ra Medical common stock present in person or represented by proxy at the special meeting and casting votes affirmatively or negatively on this proposal. You may vote “FOR,” “AGAINST,” or “ABSTAIN” on this proposal. Broker non-votes and abstentions have the same effect by making a quorum more readily attainable but will not otherwise affect the outcome of the vote on this proposal.

 

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Q:

What do I need to do now?

 

A:

You are urged to read this proxy statement carefully, including each of the annexes, and to consider how the merger affects you. If your shares are registered directly in your name, you may submit your proxy by telephone or via the internet in accordance with the instructions on the enclosed proxy card or complete, date and sign the enclosed proxy card and mail return it in the enclosed postage-paid envelope. If your shares of Ra Medical common stock are held by a bank, broker or other nominee, you are considered the beneficial owner of shares held in “street name,” and the proxy materials are being forwarded to you together with a voting instruction card by your bank, broker or other nominee. Beneficial owners can vote by following the instructions provided by their bank, broker or other nominee. Alternatively, stockholders can vote online during the special meeting. The special meeting will be held by audio webcast. In order to attend the special meeting and vote, you must first register at www.viewproxy.com/RMEDSM/2022 by 8:59 p.m. Pacific time on [•], 2022. If you are a beneficial owner, you must first obtain a legal proxy from your bank, broker or other nominee and submit it when you register. After registering you will receive an e-mail containing a unique link and password that will enable you to attend the meeting and vote.

 

Q:

What happens if I do not return a proxy card or otherwise fail to provide proxy instructions?

 

A:

For shareholders of record, the failure to return your proxy card, failure to provide proxy instructions by telephone or via the internet, or failure to vote your shares live during the meeting via the internet will cause your shares to not be counted as votes cast either affirmatively or negatively, or abstaining from the vote, on any proposals being submitted for stockholder approval at the special meeting and will cause your shares to not be counted for purposes of determining whether a quorum is present at the special meeting.

For beneficial owners of shares held in “street name”, if you fail to provide timely instructions on how to vote, your broker, bank or other nominee has the discretion to vote your shares on the auditor ratification proposal (Proposal 3) and the adjournment proposal (Proposal 4), which are the only “routine” matters, which shares will be counted as present and entitled to vote for purposes of determining a quorum.

 

Q:

May I vote in person?

 

A:

Ra Medical is hosting the special meeting virtually. There will be no physical location for stockholders to attend. Follow the instructions above to attend the special meeting virtually and vote online.

 

Q:

May I change my vote after I have submitted a proxy by telephone or via the internet or mailed my signed proxy card?

 

A:

Any Ra Medical stockholder of record voting by proxy, other than those Ra Medical stockholders who have executed a support agreement, has the right to revoke the proxy at any time before the polls close at the special meeting by delivery of a written notice stating that he, she or it would like to revoke his, her or its proxy to Ra Medical’s Secretary, by providing a duly executed proxy card bearing a later date than the proxy being revoked, by submitting a proxy on a later date by telephone or via the internet (only your last telephone or internet proxy will be counted), before 8:59 p.m. Pacific Time on [•], 2022 or by attending the special meeting via the Internet and voting during the special meeting. Attendance alone at the special meeting will not revoke a proxy. If a stockholder of Ra Medical has instructed a broker to vote its shares of Ra Medical common stock that are held in “street name,” the stockholder must follow directions received from its broker to change those instructions.

 

Q:

Who will count the vote?

 

A:

Votes will be counted by the inspector of elections appointed for the special meeting, who will separately count “FOR” and “AGAINST” votes and abstentions.

 

Q:

Am I entitled to appraisal rights?

 

A:

Ra Medical’s stockholders are not entitled to appraisal rights in connection with the merger or any of the proposals to be voted on at the special meeting.

 

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Q:

Have Catheter’s stockholders agreed to adopt the merger agreement?

 

A:

No, Catheter stockholders have not yet approved the merger and related transactions.

 

Q:

Have any of Ra Medical’s stockholders agreed to vote in favor of the issuance of the shares in the merger?

 

A:

Yes. In connection with the execution of the merger agreement, holders of approximately 0.5% of the outstanding shares of Ra Medical common stock as of the record date have entered into support agreements, as further described in the section entitled “Agreements Related To The Merger” beginning on page 150 of this proxy statement, with Ra Medical and Catheter that provide, among other things, that the stockholders subject to these agreements will vote in favor of the issuance of shares of Ra Medical common stock in the merger and grant to Catheter an irrevocable proxy to vote all of such stockholders’ shares of Ra Medical common stock in favor of the approval of the issuance of the shares of Ra Medical common stock in the merger and against any proposal made in opposition to, or in competition with, the issuance of shares of Ra Medical common stock in the merger.

For a more complete discussion of the support agreements, please see the section entitled “Agreements Related to the Merger—Support Agreements” beginning on page 150 of this proxy statement.

Q: Who is paying for this proxy solicitation?

A: Ra Medical will bear the cost of soliciting proxies, including the printing, mailing and filing of this proxy statement, the proxy card and any additional information furnished to Ra Medical’s stockholders. You will need to obtain your own internet access if you choose to access the proxy materials and/or vote over the internet. Ra Medical and Catheter may use the services of their directors, officers and other employees to solicit proxies from Ra Medical’s stockholders without additional compensation. In addition, Ra Medical has engaged Alliance Advisors, LLC, a proxy solicitation firm, to assist in the solicitation of proxies and provide related advice and informational support, for a services fee and the reimbursement of customary disbursements, which are not expected to exceed $80,000 in the aggregate. Arrangements will also be made with banks, brokers, nominees, custodians and fiduciaries who are record holders of Ra Medical common stock for the forwarding of solicitation materials to the beneficial owners of Ra Medical common stock. Ra Medical will reimburse these banks, brokers, nominees, custodians and fiduciaries for the reasonable out-of-pocket expenses they incur in connection with the forwarding of solicitation materials.

Q: Who can provide me with additional information and help answer my questions?

A: If you would like additional copies, free of charge, of this proxy statement or if you have questions about the merger and the other proposals being considered at the special meeting, including the procedures for voting your shares, you should contact Alliance Advisors, LLC, Ra Medical’s proxy solicitor, by telephone at 833-945-2699.

 

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SUMMARY

This summary highlights selected information from this proxy statement and may not contain all of the information that is important to you. To better understand the merger and the other proposals being considered at the special meeting, you should read this entire proxy statement carefully, including the materials attached as annexes, as well as other documents referred to or incorporated by reference herein. You may obtain the information incorporated by reference into this proxy statement without charge by following the instructions under the section of this proxy statement entitled “Where You Can Find Additional Information”.

The Companies

Ra Medical Systems, Inc.

5857 Owens Drive, Suite 300

Carlsbad, CA 92009

Tel: (760) 804-1648

Ra Medical Systems, Inc. is a medical device company that owns intellectual property related to an advanced excimer laser-based platform for use in the treatment of vascular immune-mediated inflammatory diseases. Its excimer laser and single-use catheter system, together referred to as the DABRA Excimer Laser System, is used as a tool in the treatment of peripheral artery disease.

Rapid Merger Sub 1, Inc.

5857 Owens Drive, Suite 300

Carlsbad, CA 92009

Tel: (760) 804-1648

The merger subsidiary is a wholly-owned subsidiary of Ra Medical that was recently incorporated in Delaware for the purpose of the merger. It does not conduct any business and has no material assets.

Rapid Merger Sub 2, LLC

5857 Owens Drive, Suite 300

Carlsbad, CA 92009

Tel: (760) 804-1648

The merger subsidiary is a wholly-owned subsidiary of Ra Medical that was recently formed in Delaware for the purpose of the merger. It does not conduct any business and has no material assets.

Catheter Precision, Inc.

500 International Drive, Suite 255

Mt. Olive, NJ 07828

(973) 691-2000

Catheter Precision, Inc. is a U.S.-based medical device company bringing new solutions to market to improve the treatment of cardiac arrhythmias. It is focused on developing technology for electrophysiology procedures by collaborating with physicians and continuously advancing its products. Catheter Precision’s leadership team is led by founder and CEO David Jenkins, who has extensive experience growing medical device start-ups.

 

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The Combined Company; Summary of the Merger

Pursuant to the merger agreement and subject to the satisfaction or waiver of the conditions set forth in the merger agreement, the First Merger Sub will merge with and into Catheter, with Catheter being the surviving corporation (the “First Merger Surviving Company”) and a wholly-owned subsidiary of Ra Medical (the “First Effective Time”), and then, immediately following the First Effective Time, and as part of the same overall transaction, the First Merger Surviving Company will merge with and into the Second Merger Sub (the “Second Effective Time”), with the Second Merger Sub being the surviving limited liability company (the “Second Merger Surviving Company”) (such transactions collectively, the “merger”, with Ra Medical following the merger being referred to herein as the “combined company”). The principal executive office of the combined company will be located at 500 International Drive, Suite 255, Mt. Olive, NJ 07828.

Immediately upon the First Effective Time, each share of Catheter common stock issued and outstanding immediately prior to the First Effective Time (subject to certain exclusions set forth in the merger agreement) will be converted into and represent the right to receive, a number of shares of the Ra Medical common stock, equal to the exchange ratio, which is determined following the conversion of certain Catheter indebtedness (consisting of certain convertible promissory notes (the “Catheter Notes”) representing an aggregate principal amount of $25,465,000) pursuant to the Debt Settlement Agreements (as defined in the merger agreement) into shares of Ra Medical common stock, at a conversion price equal to seventy five percent (75%) of the lower of the following: (x) the last closing sale price per share for Ra Medical common stock prior to 4:00 p.m. (New York City time) on the last trading day prior to the closing date of the merger, as reported by Bloomberg; or (y) the average of the last closing sale price per share for Ra Medical common stock prior to 4:00 p.m. (New York City time) on each of the five (5) consecutive full trading days ending on the last trading day immediately prior to such closing date, and the assumption of Catheter Options (as defined below). Because the conversion price of the Catheter Notes depends upon future stock prices for Ra Medical common stock, and because the merger consideration will be used to pay down the Catheter Notes prior to any distribution to Catheter equityholders, the amount of merger consideration that will become payable to Catheter stockholders, if any, is not yet known. In exchange for the forgiveness of the interest accrued but remaining unpaid under the Catheter Notes, under the terms of the Debt Settlement Agreements, the holders of Catheter Notes would also be entitled to receive certain royalty rights which would equal, in aggregate, 12% per year on net sales, if any, of Catheter’s surgical vessel closing pressure device, which is currently under development by Catheter. For a more complete description of the Debt Settlement Agreements, please see the section entitled “Agreements Related to the Merger—Debt Settlement Agreements” beginning on page 150 of this proxy statement.

The exchange ratio is subject to adjustment based on Net Cash at closing, as described below. For a more complete description of the exchange ratio, please see the section entitled “The Merger Agreement—Merger Consideration; Exchange and Payment” beginning on page 142 of this proxy statement.

As a result of the merger, (i) Catheter would merge into Second Merger Sub and become a wholly-owned subsidiary of Ra Medical; (ii) upon closing of the merger, (A) stakeholders in Catheter immediately prior to the merger, including Catheter stockholders, the Catheter Notes holders and Catheter Option holders, would, immediately following closing, own approximately 79.37% of the economic value of the combined company, subject to downwards adjustment as provided in the merger agreement to the extent that, and by the amount in which, Ra Medical delivers Net Cash (as defined in the merger agreement) greater than $8,000,000; and (B) Ra Medical’s stockholders (together with the holders of any convertible instruments including options and warrants that may be in the money at the time of closing) immediately prior to the merger would own approximately 20.63% of the combined company as of such time, subject to upwards adjustment as provided in the merger agreement to the extent that, and by the amount in which, Ra Medical delivers Net Cash greater than $8,000,000; and (iii) the Second Merger Sub, to be renamed Catheter Precision LLC and which will be wholly-owned by the combined company, will assume all of Catheter’s assets and liabilities and be the operating entity focused on the current business of Catheter going forward. The merger is intended to qualify for federal income tax purposes as a tax-free reorganization under the provisions of Section 368(a) of the Internal Revenue Code of 1986, as amended. The merger will be treated by Ra Medical as a reverse merger under the acquisition method of accounting in accordance with accounting principles generally accepted in the United States. For accounting purposes, Catheter is considered to be acquiring Ra Medical in this transaction, and its historical financial statements will be those of the combined company following the merger.

In connection with the merger, Ra Medical would assume all outstanding options to purchase Catheter Common Stock (“Catheter Options”) whereby immediately prior to the First Effective Time, Catheter Options would cease to represent a right to acquire shares of Catheter common stock and would be assumed and converted, at the First Effective Time, into an option to purchase shares of Ra Medical common stock (such options once assumed and converted, the “Assumed Options”).

 

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The Advances will not be converted into shares of Ra Medical common stock as a result of the merger but will instead be assumed by Ra Medical in connection with the merger, and are expected to be repaid at or shortly following the closing of the merger. For a more complete description of the Additional Debt, please see the section entitled “Catheters Managements Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” beginning on page 207 of this proxy statement.

Ra Medical’s Reasons for the Merger

The Ra Medical Board considered various reasons for the merger, including, among others, the following factors:

 

   

Ra Medical’s business, financial performance (both past and prospective) and its financial condition, results of operation (both past and prospective), business and strategic objectives, the amount of capital that would need to be raised as well as the potential cost of the capital, the impact on current shareholders and the impact on the ability to raise capital in the future, as well as the risks of accomplishing those objectives;

 

   

Ra Medical’s business and financial prospects if it were to remain an independent company and the Ra Medical Board’s determination in March 2022 that there was substantial doubt regarding Ra Medical’s ability to continue as a going concern until commercialization or licensing of its technologies and that Ra Medical needed to enter into an agreement with a strategic partner for many reasons including to enhance the possibility of continued funding and to support Ra Medical to a point where its technology and assets could be commercialized or licensed, or otherwise sold;

 

   

the possible alternatives to the merger, the range of possible benefits and risks to the Ra Medical stockholders of those alternatives and the timing and the likelihood of accomplishing the goal of any of such alternatives and the Ra Medical Board’s assessment that the merger presented a superior opportunity to such alternatives for Ra Medical stockholders, including (i) continuing to focus Ra Medical’s resources on the Ra Medical’s legacy DABRA laser and single use catheter, or the DABRA system, and its pursuit of an atherectomy indication for use for the DABRA system, (ii) downsize Ra Medical and focus solely on the company’s lithotripsy efforts and (iii) a liquidation of Ra Medical and the distribution of any available cash;

 

   

the possibility that the combined company would be able to take advantage of the potential benefits resulting from the combination of Ra Medical’s public company structure with Catheter’s business to raise additional funds in the future, if necessary;

 

   

the ability of Ra Medical stockholders to participate in the future growth potential of the combined company following the merger, which will be focused on developing and commercializing novel technologies and solutions to improve the lives of patients with cardiac arrhythmias under the leadership of a world-class team with decades of medical device industry experience and a history of leading medical device companies to a point of commercialization and acquisition;

 

   

the process undertaken by the Ra Medical Board in connection with pursuing a strategic transaction, the results of discussions with third parties relating to a variety of strategic transactions and the terms and conditions of the proposed merger, in each case considering the current market dynamics;

 

   

current financial market conditions, including the impact of the novel coronavirus 2019 pandemic (“COVID-19”) on global financial markets, and historical market prices, volatility and trading information with respect to Ra Medical common stock;

 

   

the potential for obtaining a superior offer from an alternative purchaser considering the other potential strategic buyers previously identified and contacted by or on behalf of Ra Medical and the risk of losing the proposed transaction with Catheter;

 

   

the terms of the merger agreement, including the parties’ representations, warranties and covenants and the conditions to their respective obligations;

 

   

the negotiated right of Ra Medical to sell certain legacy assets prior to the closing of the merger and have the proceeds added to Ra Medical’s enterprise value;

 

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the financial analysis presented by Objective Valuation, LLC (“Objective”) to the Ra Medical Board on September 8, 2022 and Objective’s opinion, dated September 8, 2022, to the Ra Medical Board that, as of such date, based upon and subject to the various assumptions made, procedures followed, matters considered, and qualifications and limitations outlined in such opinion, the merger consideration was fair from a financial point of view, to the holders of Ra Medical common stock (as more fully described in the section titled “—Opinion of Objective”);

 

   

the risks and delays associated with, and uncertain value and costs to Ra Medical stockholders of, liquidating Ra Medical, including, without limitation, the uncertainties of continuing cash burn while contingent liabilities are resolved and uncertainty of the timing of the release of cash until contingent liabilities are resolved;

 

   

the fact that the liquidation of Ra Medical would result in a payment of between $3.50 and $4.00 per share of Ra Medical common stock (taking into account the right of those outstanding warrants which have a right to participate in any distribution by the Company to its stockholders), representing between $4.00 and $3.50 less per share than the value of the equity split on a per share basis at close on September 6, 2022, estimated on Ra Medical’s projected liabilities and cash burn rate through the applicable liquidation date, meaning that the closing of the proposed merger with Catheter had a greater likelihood of resulting in a higher value and near-term return for Ra Medical stockholders as opposed to a potentially drawn-out winddown and liquidation of the Company;

 

   

Ra Medical’s potential inability to maintain its listing on NYSE American without completing the merger due to the likelihood that the Company would be unable to meet the continued listing standards of the exchange in the absence of significant capital on acceptable economic terms, and that there was a high likelihood that sufficient capital would not be available on acceptable terms; and

 

   

the likelihood that the merger would be consummated.

Additional Factors and Risks Considered by the Ra Medical Board

In the course of its deliberations, the Ra Medical Board also considered, among other things, the following additional factors and risks:

 

   

the possibility that the merger will not be consummated and the potential negative effect of the public announcement of the merger on Ra Medical’s business and stock price;

 

   

the challenges inherent in the combination of the two divergent businesses of the size and scope of Ra Medical and Catheter;

 

   

the substantial fees and expenses associated with completing the merger, including the costs associated with any related litigation; and

 

   

the risk that the merger may not be completed despite the parties’ efforts or that the closing may be unduly delayed and the effects on Ra Medical as a standalone company because of such failure or delay, and that a more limited range of alternative strategic transactions may be available to Ra Medical in such an event and its likely inability to raise additional capital through the public or private sale of equity securities.

Although this discussion of the information and factors considered by the Ra Medical Board is believed to include the material factors considered by the Ra Medical Board, it is not intended to be exhaustive. In light of the variety of factors considered in connection with their evaluation of the merger and the complexity of these matters, the Ra Medical Board did not find it practicable to and did not quantify or attempt to assign any relative or specific weights to the various factors that it considered in reaching its determination that the merger and the merger agreement are advisable and in best interests of Ra Medical and Ra Medical stockholders. In addition, the Ra Medical Board did not undertake to make any specific determination as to whether any particular factor, or any aspect of any particular factor, was favorable or unfavorable to the ultimate determination of the Ra Medical Board, but rather the Ra Medical Board conducted an overall analysis of the factors described above, including discussions with and questioning of Ra Medical management, Wilson Sonsini Goodrich & Rosati, P.C., outside counsel to Ra Medical, Objective Valuation, LLC and Ladenburg Thalmann & Co. Inc., financial advisor to Ra Medical.

 

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For more information on the Ra Medical Board’s reasons for the transaction, see the section entitled “The Merger—Ra Medicals Reasons for the Merger; Additional Factors and Risks Considered by the Ra Medical Board; Recommendations of the Ra Medical Board of Directors” beginning on page 120 of this proxy statement.

Catheter’s Reasons for the Merger

The board of directors of Catheter (the “Catheter Board”) considered various reasons for the merger, including, among others, the following factors:

 

   

Catheter’s need for capital to support the development of its products and proposed products and the potential to access public market capital, including sources of capital from a broader range of investors than it could otherwise obtain if it continued to operate as a privately-held company;

 

   

the value offered to Catheter’s stockholders pursuant to the merger would be more favorable to Catheter’s stockholders than the potential value that might reasonably be expected to result from remaining as an independent company or attempting to seek a different strategic transaction;

 

   

Catheter’s recurring losses and net capital deficiency that raise substantial doubt regarding Catheter’s ability to continue as a going concern, requiring Catheter to raise additional capital to continue to support its operations at its current cash expenditure levels;

 

   

providing opportunities for potential future buy-and-build strategic acquisitions and partnerships that would not be available to Catheter as a standalone company;

 

   

the potential for the combined company’s larger market capitalization to attract additional institutional investors and increase visibility to analysts and generally offer the ability to attract heightened investor attention, which would then have a favorable impact on stockholder liquidity and stock value;

 

   

the potential to provide its current stockholders with greater liquidity by owning stock in a public company;

 

   

the willingness of holders of Secured Convertible Promissory Notes issued by Catheter (the “Catheter Notes”) to convert their notes into shares of Ra Medical common stock pursuant to the terms described in the merger agreement;

 

   

the expectation that the merger would be a more time- and cost-effective means to access capital than other options considered;

 

   

the availability of appraisal rights under the DGCL to holders of Catheter’s capital stock who comply with the required procedures under the DGCL, which allow such holders to seek appraisal of the fair value of their shares of Catheter capital stock as determined by the Delaware Court of Chancery; and

 

   

the terms and conditions of the merger agreement, including, without limitation, the following:

 

   

the expectation that the merger will qualify as a transaction described under Section 368(a) of the Code for U.S. federal income tax purposes, with the result that Catheter’s stockholders will generally not recognize taxable gain or loss for U.S. federal income tax purposes upon the exchange of Catheter common stock for Ra Medical common stock pursuant to the merger; and

 

   

the belief that the other terms of the merger agreement, including the parties’ representations, warranties and covenants, and the conditions to their respective obligations, were reasonable in light of the entire transaction.

For more information on the Catheter Board’s reasons for the transaction, see the section entitled “The Merger—Catheters Reasons for the Merger” beginning on page 122 of this proxy statement.

Opinion of Objective

Pursuant to an engagement letter dated July 12, 2022, the Ra Medical Board engaged Objective Valuation, LLC (“Objective”) to render an opinion, as to the fairness, from a financial point of view, to the Company of the Aggregate Consideration (as defined in Objective’s opinion) to be paid by the Company in the proposed merger with Catheter.

 

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On September 8, 2022, Objective orally rendered its opinion to the Ra Medical Board, (which was subsequently confirmed in writing by delivery of Objective’s written opinion to the Board on September 8, 2022) as to the fairness, from a financial point of view to the Company of the Aggregate Consideration to be paid by the Company in the merger pursuant to the merger agreement.

Objective’s opinion was directed to the Ra Medical Board (in its capacity as such) and only addressed the fairness, from a financial point of view to the Company of the Aggregate Consideration to be issued by the Company in the merger pursuant to the merger agreement and did not address any other aspect or implication of the merger or any other agreement, arrangement or understanding. The summary of Objective’s opinion in this proxy statement is qualified in its entirety by reference to the full text of its written opinion, which is attached as Annex B and describes the procedures followed, assumptions made, qualifications, and limitations on the review undertaken and other matters considered by Objective in connection with the preparation of its opinion. However, neither Objective’s opinion, nor the summary of the opinion and the related analyses set forth in this proxy statement, constitute advice or a recommendation to the Ra Medical Board, any security holder or any other person as to how to act of vote or make any election with respect to any matter relating to the merger or otherwise.

Analysis and Inquiries

In connection with its opinion, Objective made such reviews, analyses, and inquiries as it deemed necessary and appropriate under the circumstances. Among other things, Objective performed the following:

 

   

reviewed a draft of the merger agreement and discussed its terms with the Ra Medical Board;

 

   

reviewed certain information relating to the historical, current and projected future operations, financial condition and prospects of the Company and Catheter made available by the Company and Catheter, and, in connection therewith, reviewed the financial and operating performance of companies with publicly traded equity securities that Objective deemed to be relevant;

 

   

reviewed the Company’s and Catheter’s audited financial statements for the years ended December 31, 2019, 2020, and 2021;

 

   

reviewed the Company’s and Catheter’s unaudited draft interim financial statements for the period ended June 30, 2022;

 

   

reviewed Catheter’s five and ten-year projections through December 31, 2032, prepared by management of the Catheter (the “Projections”);

 

   

reviewed the current economic conditions in general and for the Company’s and Catheter’s industry sector(s), based on discussions with the Company and Catheter, industry research, and certain research provided to Objective by the Company and Catheter;

 

   

compared the financial terms of the transaction with the financial terms of certain other precedent transactions that Objective deemed relevant; and

 

   

reviewed certain other publicly available financial data and historical trading prices for certain companies that Objective believed to be similar to the Company and Catheter.

Overview of the Merger Agreement

Effective Time; Merger Consideration

At the effective time of the merger:

 

   

any shares of Catheter common stock held as treasury stock immediately prior to the effective time of the merger shall be canceled and retired and shall cease to exist with no consideration delivered in exchange;

 

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each share of Catheter common stock outstanding immediately prior to the effective time of the merger (excluding shares of Catheter common stock held as treasury stock or held by a holder who is entitled to demand and who properly demands appraisal of such shares in accordance with Delaware law) shall be converted solely into the right to receive a number of shares of Ra Medical common stock equal to the exchange ratio, subject to adjustment to the extent that, and by the amount in which, Ra Medical delivers Net Cash (as defined in the merger agreement) greater than $8,000,000; and

 

   

no fractional shares of Ra Medical common stock will be issuable to Catheter stockholders pursuant to the merger, and any fractional shares of Ra Medical common stock that a holder of shares of Catheter Common Stock or Catheter Notes is entitled to receive upon the conversion of shares of Catheter Common Stock or Catheter Notes shall be rounded up to the nearest share; any fractional shares that a Catheter holder is entitled to receive shall be aggregated together prior to rounding such holder’s shares of Ra Medical common stock up to the nearest share.

Treatment of Options and Other Equity-Based Awards

At the effective time of the merger, each outstanding option to purchase shares of Catheter common stock (the “Catheter Options”) granted under Catheter’s Amended and Restated 2009 Equity Incentive Plan (the “Catheter Plan”), whether vested or unvested, shall cease to represent a right to acquire shares of Catheter common stock and shall immediately vest, if not already vested, and be assumed and converted into an option to purchase shares of Ra Medical common stock (an “Assumed Option”), on the same terms and conditions (including any forfeiture and post-termination exercise provisions as were applicable to such Catheter Options as of immediately prior to the effective time). The number of shares of Ra Medical common stock subject to each Assumed Option shall be determined by multiplying (A) the number of shares of Catheter common stock that were subject to such Catheter Option, as in effect immediately prior to the effective time of the merger, by (B) the exchange ratio, and rounding the resulting number up to the nearest whole number of shares of Ra Medical common stock, (iii) the per share exercise price for the Ra Medical common stock issuable upon exercise of each Assumed Option shall be determined by dividing (A) the per share exercise price of Catheter common stock subject to such Catheter Option, as in effect immediately prior to the effective time of the merger, rounded up to the nearest whole cent by (B) the exchange ratio. Ra Medical will use commercially reasonable efforts to ensure that, as of the effective time of the merger, no holder or former holder of a Catheter Option or a participant in the Catheter Plan will have any rights to acquire, or other rights in respect of, the capital stock of Catheter.

Treatment of Catheter Notes and Advances

Pursuant to the Debt Settlement Agreements (as defined in the merger agreement), at the effective time of the merger, certain Catheter indebtedness (consisting of certain convertible promissory notes (the “Catheter Notes”) representing an aggregate principal amount of $25,465,000) shall convert into shares of Ra Medical common stock, at a conversion price equal to seventy five percent (75%) of the lower of the following: (x) the last closing sale price per share for Ra Medical common stock prior to 4:00 p.m. (New York City time) on the last trading day prior to the closing date of the merger, as reported by Bloomberg; or (y) the average of the last closing sale price per share for Ra Medical common stock prior to 4:00 p.m. (New York City time) on each of the five (5) consecutive full trading days ending on the last trading day immediately prior to such closing date, and the assumption of Catheter Options (as defined below).

In exchange for the forgiveness of the interest accrued but remaining unpaid under the Catheter Notes, under the terms of the Debt Settlement Agreements, the holders of Catheter Notes would also be entitled to receive certain royalty rights which would equal, in aggregate, 12% per year on net sales, if any, of Catheter’s surgical vessel closing pressure device, which is currently under development by Catheter. For a more complete description of the Debt Settlement Agreements, please see the section entitled “Agreements Related to the Merger—Debt Settlement Agreements” beginning on page 150 of this proxy statement.

As of the date hereof, Catheter has incurred additional debt in the form of short-term, interest-free Advances from Mr. Jenkins in the principal amount of $825,000, and expects that additional Advances will be required prior to consummating the merger in order for Catheter to continue operations. The Advances are not included in the Debt Settlement Agreements and will not be so discharged. The Advances are expected to be repaid at or shortly following closing of the merger. See “Catheters Managements Discussion and Analysis – Liquidity and Capital Resources” beginning on page 207 of this proxy statement.

Closing Conditions

Each party’s obligation to effect the merger is subject to the satisfaction or waiver by each of the parties, at or prior to the effective time of the merger, of various conditions, which include the following:

 

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Catheter shall have delivered the PPM/Joint Information Statement (as defined in the merger agreement) to any Catheter securityholders anticipated to receive shares of Ra Medical common stock pursuant to the merger or who are entitled to receive notice that the Catheter stockholders have acted by written consent in lieu of a meeting to approve the merger and the transactions contemplated by the merger agreement, if and when such approval is obtained, and informing all Catheter stockholders that any stockholder who has not approved the merger is entitled to appraisal rights pursuant to Section 262(d)(2) of the Delaware General Corporate Law;

 

   

Ra Medical shall have entered into an exchange agent agreement with the exchange agent pertaining to the exchange of shares of Catheter common stock for shares of Ra Medical common stock;

 

   

no law or order preventing the closing of the merger and the related transactions;

 

   

the HHS Confirmation (as defined in the merger agreement) shall continue to be in effect and certain requirements regarding outstanding litigation shall be satisfied;

 

   

Ra Medical furnishing Net Cash (as defined in the merger agreement) greater than $8,000,000;

 

   

at the effective time of the merger, the Ra Medical Board shall have five (5) members, including David Jenkins who shall be appointed to the Ra Medical Board as Executive Chairman;

 

   

the entry into the Executive Chairman Agreement (as defined in the merger agreement) pursuant to which David Jenkins shall be appointed to the Ra Medical Board and shall be paid an annual salary of $300,000;

 

   

the last closing sale price of Ra Medical common stock prior to 4:00 p.m. (New York City time) on the last trading day prior to the closing is equal to or greater than $4.50, and the average of the last closing sale price of Ra Medical common stock prior to 4:00 p.m. (New York City time) on each of the five (5) consecutive full trading days prior to the closing is equal to or greater than $4.50;

 

   

other than the letter dated August 31, 2022 from the NYSE American LLC, Ra Medical shall not have received correspondence from the NYSE American or the staff thereof relating to the delisting, or maintenance of listing, of Ra Medical’s Common Stock on the NYSE American, and Catheter shall have received assurance in form and substance satisfactory to Catheter that the transactions contemplated by the merger agreement will not cause Ra Medical to be delisted from the NYSE American;

 

   

Catheter shall have entered into a Debt Settlement Agreement with each of the holders of Catheter Notes;

 

   

lock-up agreements have been entered into by and among Ra Medical, Catheter, and certain persons who are directors, officers and/or significant stockholders of Ra Medical;

 

   

Ra Medical shall have sublet or terminated the lease with respect to its corporate headquarters and manufacturing facility;

 

   

Catheter and Ra Medical shall have received the approval from their respective stockholders necessary to approve the merger and the transactions contemplated by the merger agreement;

 

   

that Ra Medical has entered into release agreements with certain of its officers and employees relating to existing change of control and severance agreements; and

 

   

each of the representations and warranties of Ra Medical and Catheter set forth in the merger agreement shall have been true as of the date of the merger agreement and as of the closing date as though made on and as of the closing date (except to the extent such representations and warranties are specifically made as of a particular date, in which case such representations and warranties shall be true and correct as of such date), in each case, except where the failure to be true and correct, individually or in the aggregate, has not had, and is not reasonably likely to have a Parent Material Adverse Effect (as defined in the merger agreement) with respect to Ra Medical, or a Material Adverse Effect (as defined in the merger agreement) with respect to Catheter.

Termination of the Merger Agreement

 

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Either Ra Medical or Catheter can terminate the merger agreement under specified circumstances, which would prevent the merger from being consummated. See “The Merger AgreementTermination” beginning on page 148 of this proxy statement.

Support Agreements

In connection with the execution of the merger agreement, Ra Medical entered into Support Agreements with the Company’s directors, officers and certain stockholders of Ra Medical owning in the aggregate approximately 0.5% of the outstanding shares of Ra Medical common stock. The Support Agreements provide that, among other things, each of the stockholders has agreed to vote or cause to be voted all of the shares of Ra Medical common stock owned by such stockholder in favor of the merger, and the issuance of the shares of Ra Medical common stock pursuant to the terms of the merger agreement.

Lock-up Agreements

As a condition to closing, each of the directors and officers of Ra Medical and Catheter, and certain stockholders of Ra Medical and Catheter shall have entered into Lock-Up Agreements that are continuing in effect upon the closing of the merger, pursuant to which such officers, directors and stockholders accepted certain restrictions on transfers of any shares of Ra Medical common stock or any securities convertible into or exercisable or exchangeable for Ra Medical common stock held by such officer, director or stockholder during the period commencing upon (i) with respect to Ra Medical stockholders, officers and directors, the execution and delivery of the merger agreement, and (ii) with respect to Catheter stockholders, officers and directors, the closing of the merger, and ending on the date that is 180 days after the date of closing of the merger.

Debt Settlement Agreements

In addition to the conversion of outstanding principal into Ra Medical common stock, if the merger closes, additional royalty rights with respect to the surgical vessel closing pressure device, which is currently under development by Catheter, are expected to be granted to the holders of Catheter’s currently outstanding convertible promissory notes (the “Catheter Notes”) in exchange for forgiveness of the interest that has accrued under those notes but remains unpaid, pursuant to the terms of certain Debt Settlement Agreements entered into in connection with the merger. The agreements provide for the Catheter Notes holders to receive, in the aggregate, 12% of the Net Sales (as defined in the merger agreement), if any, of the surgical vessel closing pressure device.

Management Following the Merger

At the effective time of the merger, the executive management team of the combined company is expected to include the following individuals:

 

Name

  

Position with the Combined Company

  

Current Position

David Jenkins    Executive Chairman and Chief Executive Officer    Chief Executive Officer of Catheter

The Board of Directors and Executive Officers Following the Merger

The merger agreement provides that the board of directors of the combined company will consist of David Jenkins and four other directors. Immediately following, and contingent upon the merger, David Jenkins will be Executive Chairman and Chief Executive Officer of the combined company. Although a search for a Chief Financial Officer is underway, the position has not yet been filled with a permanent replacement. The current Interim Chief Financial Officer, Brian Conn, has agreed to provide transition services as Head of Finance and perform substantially the same day-to-day duties as his current role, including oversight of financial controls, risk management, financial analysis and preparation of financial reports following the closing of the merger, and is currently not expected to remain as the Company’s interim Chief Financial Officer or principal accounting officer/principal financial officer following the closing of the merger. If the Chief Financial Officer position has not been filled at the time of the closing of the merger, David Jenkins will serve temporarily as the combined company’s principal financial officer and, accordingly will assume the requisite authority and responsibility.

Interests of Ra Medical’s Directors and Executive Officers in the Merger

Ra Medical’s directors and executive officers have economic interests in the merger that are different from, or in addition to, those of Ra Medical stockholders generally. These interests include:

 

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Ra Medical’s directors and executive officers hold Ra Medical options, restricted stock awards, and restricted stock unit awards, which will be continued following the merger. All outstanding equity awards held by Ra Medical’s non-employee directors will accelerate and vest in connection with the merger under the Outside Director Compensation Policy.

 

   

Ra Medical’s Chief Executive Officer, Jonathan Will McGuire, is party to a change in control and severance agreement that provides for certain severance payments and other benefits in connection with his resignation from Ra Medical, which is expected to occur effective at the closing of the merger; and

 

   

Ra Medical’s directors and executive officers are entitled to continued indemnification and insurance coverage under indemnification agreements and the merger agreement.

These interests are discussed in more detail in the section entitled “The Merger—Interests of Ra Medicals Directors and Executive Officers in the Merger” beginning on page 132. The Ra Medical Board was aware of and considered these interests, among other matters, in reaching its decision to approve and declare advisable the merger agreement, the merger and the other transactions contemplated by the merger agreement.

Interests of Catheter’s Directors and Executive Officers in the Merger

Catheter’s directors and executive officers have economic interests in the merger that are different from, or in addition to, those of Catheter’s stockholders generally. These interests include:

 

   

David Jenkins, the President and CEO of Catheter, and a member of its board of directors, is expected to become the Executive Chairman and CEO of the combined company immediately following the merger at an annual salary of $300,000. As an officer of the combined company, Mr. Jenkins will receive compensation from it that the other Catheter shareholders will not receive.

 

   

Mr. Jenkins and his affiliates hold approximately 98.8% of Catheter’s Secured Convertible Promissory Notes (the “Catheter Notes”), representing combined principal debt owing by Catheter of $25,140,000, as of the date of this proxy statement, and a trust (the “Stanzione Trust”) established by Dr. Daniel C. Stanzione, a member of the Catheter Board, holds Catheter Notes in a principal amount of $75,000. Upon consummation of the merger, each holder of Catheter Notes, in exchange for discharge of the principal of the Catheter Notes, will become entitled to a number of shares of Ra Medical common stock determined in accordance with a formula which will vary with the then-current trading price for Ra Medical’s common stock, plus a right to receive royalties in an aggregate amount of 12% of future sales of the surgical vessel closing pressure device in consideration for forgiving the interest accrued but remaining unpaid under the Catheter Notes. David A. Jenkins, Catheter’s Chairman of the Board and Chief Executive Officer, and his affiliates will receive 11.77%, and the Stanzione Trust will receive 0.05%. After taking into account the conversion feature of the Catheter Notes and giving effect to the Reverse Stock Split, and assuming (i) no exercise of outstanding options to purchase shares of Ra Medical common stock or Catheter common stock prior to the closing of the merger, (ii) approximately 2,828,073 shares of Ra Medical common stock outstanding immediately pre-closing, which includes an assumed 666,667 shares issued between November 1, 2022 and the closing (representing $3,000,000 worth of shares of Ra Medical common stock sold and issued at $4.50 per share, which is an assumed per share offering price equal to the minimum share price that is a condition to the closing of the merger), and 10,096,055 shares of Catheter common stock outstanding, not including shares underlying the Catheter Notes, (iii) an exchange ratio of approximately 0.2966 shares of Ra Medical common stock for each share of Catheter common stock, (iv) $8 million of Net Cash at the closing of the merger, (v) a conversion price for the Catheter Notes of $3.375 per share, based on an assumed stock price for Ra Medical of approximately $4.50 per share, and (vi) that no convertible securities of Ra Medical will be in-the-money at the closing of the merger, there will be a total of 13,367,478 shares of combined company common stock outstanding upon the closing of the merger, and Mr. Jenkins and his affiliates will be expected to beneficially own approximately 60.2% of Ra Medical common stock.

 

   

Mr. Jenkins has made additional Advances to Catheter in the amount of approximately $825,000 and is expected to continue to make Advances through the closing, although he is under no obligations to do so. The Advances do not bear interest and will not be converted with the Catheter Notes but are expected to be repaid at or shortly after closing of the merger.

 

   

Mr. Jenkins’ daughter, Missiaen Huck, is currently Catheter’s non-executive chief operating officer. She is expected to continue in that role following the closing of the merger at an annual salary of $165,000.

 

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All of Catheter’s directors and executive officers also have options to purchase Catheter common stock (the “Catheter Options”). Under the terms of the option agreements, all of the Catheter Options will accelerate upon the closing of the merger, to the extent not previously vested. Under the merger agreement, the Catheter Options are expected to convert into options to acquire Ra Medical common stock.

 

   

Catheter’s directors and executive officers are entitled to continued indemnification and insurance coverage under the merger agreement.

These interests are discussed in more detail in the section entitled “The Merger—Interests of Catheters Directors and Executive Officers in the Merger” beginning on page 135 of this proxy statement. The Catheter Board was aware of and considered these interests, among other matters, in reaching its decision to approve and declare advisable the merger agreement, the merger and the other transactions contemplated by the merger agreement.

Federal Securities Law Consequences; Resale Restrictions

The issuance of Ra Medical common stock in the merger to Catheter’s stockholders will be effected by means of a private placement, which is exempt from registration under the Securities Act, in reliance on Section 4(a)(2) of the Securities Act and such shares will be “restricted securities.” The shares issued in connection with the merger will not be registered under the Securities Act upon issuance and will not be freely transferable. Holders of such shares may not sell their respective shares unless the shares are registered under the Securities Act or an exemption is available under the Securities Act. Additionally, the shares of Ra Medical common stock issued in the merger to Catheter’s stockholders will be subject to the resale restrictions under the lock-up agreements, as further described in the section entitled “Agreements Related To The Merger” beginning on page 150 of this proxy statement.

Pursuant to the merger agreement, Ra Medical shall use commercially reasonable efforts to file a registration statement covering the resale of the shares of Ra Medical common stock issued in the merger, or issuable upon the exercise of the Assumed Options, no later than sixty (60) days following the closing date of the merger and cause the registration statement to become effective no later than ninety (90) days after the filing of such registration statement, and use its reasonable best efforts to keep such registration statement effective until the date by which all such shares have been sold.

Material U.S. Federal Income Tax Consequences of the Merger

The merger is intended to qualify as a reorganization within the meaning of Section 368(a) of the Code. Ra Medical stockholders will not sell, exchange or dispose of any shares of Ra Medical common stock as a result of the merger. Thus, there will be no material U.S. federal income tax consequences to U.S. Holders (as defined later in this proxy statement) as a result of the merger.

For a more complete description of the material U.S. federal income tax consequences of the merger, please see the section entitled “The Merger—Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 137 of this proxy statement.

Regulatory Approvals

Neither Ra Medical nor Catheter is required to make any filings or to obtain approvals or clearances from any antitrust regulatory authorities in the United States or other countries to consummate the merger. In the United States, Ra Medical must comply with applicable federal and state securities laws and the NYSE American rules in connection with the issuance of shares of Ra Medical common stock in the merger, including the filing with the SEC of this proxy statement. In addition, proposed financings in connection with raising sufficient funds to meet the Net Cash at closing requirements may also require SEC filings, and in certain instances, action by the SEC before the financings can proceed.

Anticipated Accounting Treatment

The merger will be treated by Ra Medical as a reverse acquisition under the acquisition method of accounting in accordance with U.S. generally accepted accounting principles (“GAAP”). For accounting purposes, Catheter is considered to be the accounting acquirer in this transaction.

Appraisal Rights

Ra Medical’s stockholders are not entitled to appraisal rights in connection with the merger.

 

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MARKET PRICE AND DIVIDEND INFORMATION

Ra Medical common stock is traded on the NYSE American under the symbol “RMED”.

Catheter is a private company and its common stock is not publicly traded. As of October 31, 2022, there were approximately 57 holders of record of Catheter common stock.

On September 9, 2022, the final trading day prior to the public announcement of the proposed merger on September 12, 2022, the closing price per share of Ra Medical common stock as reported on NYSE American was $7.50 per share. On [•], 2022, the last practicable date before the printing of this proxy statement, the closing price per share of Ra Medical common stock as reported on NYSE American was $[•] per share.

Following the consummation of the merger, and subject to successful application for initial listing with NYSE American, Ra Medical common stock is expected to continue to be listed on NYSE American under the symbol “RMED”. See also “Risk Factors—Risks Related to Ownership of Our Common Stock” beginning on page 82 of this proxy statement for risks pertaining to Ra Medical’s listing.

As of the record date, Ra Medical had approximately 56 stockholders of record.

Ra Medical has never declared or paid cash dividends on Ra Medical common stock. Ra Medical currently anticipates that all of its earnings in the foreseeable future will be used for the operation and growth of its business and does not expect to pay any cash dividends to Ra Medical stockholders. Payment of future dividends, if any, will be at the discretion of the Ra Medical Board.

 

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RISK FACTORS

In evaluating whether to approve the merger, the merger agreement and the transactions contemplated thereunder, including the issuance of shares of Ra Medical common stock in the merger and the resulting issuance of more than 20% of outstanding Ra Medical common stock and the “change of control” of Ra Medical under the NYSE American rules, you should consider the following factors. These factors should be considered in conjunction with the other information included or incorporated by reference by Ra Medical in this proxy statement.

Risks Related to Our Merger with Catheter

Failure to complete, or delays in completing, the potential merger with Catheter could materially and adversely affect our results of operations, business, financial results and/or stock price.

On September 9, 2022, we entered into an Agreement and Plan of Merger (the “merger agreement”) with Catheter, Rapid Merger Sub 1, Inc., a newly-created wholly-owned subsidiary of the Company (“First Merger Sub”), and Rapid Merger Sub 2, LLC, a newly-created wholly-owned subsidiary of the Company (“Second Merger Sub”), pursuant to which, subject to the satisfaction or waiver of the conditions set forth in the merger agreement, the First Merger Sub will merge with and into Catheter, with Catheter being the surviving corporation (the “Post-Merger Surviving Company”) and a wholly-owned subsidiary of the Company (the “First Effective Time”), and then, immediately following the First Effective Time, and as part of the same overall transaction, the Post-Merger Surviving Company will merge with and into the Second Merger Sub (the “Second Effective Time”), with the Second Merger Sub being the surviving limited liability company (the “Post-Merger Combined Company”) (such transactions collectively, the “merger”). Consummation of the merger is subject to certain closing conditions, a number of which are not within our control. Any failure to satisfy these required conditions to closing may prevent, delay or otherwise materially adversely affect the completion of the transaction. We cannot predict with certainty whether or when any of the required closing conditions will be satisfied or if another uncertainty may arise and cannot assure you that we will be able to successfully consummate the proposed merger as currently contemplated under the merger agreement or at all.

Our efforts to complete the merger could cause substantial disruptions in, and create uncertainty surrounding, our business, which may materially adversely affect our results of operation and our business. Uncertainty as to whether the merger will be completed may affect our ability to recruit prospective employees or to retain and motivate existing employees. Employee retention may be particularly challenging while the transaction is pending because employees may experience uncertainty about their roles following the transaction. Uncertainty as to our future could adversely affect our business and our relationship with collaborators, suppliers, vendors, regulators and other business partners. For example, vendors, collaborators and other counterparties may defer decisions about working with us or seek to change existing business relationships with us. Changes to, or termination of, existing business relationships could adversely affect our results of operations and financial condition, as well as the market price of our common stock. The adverse effects of the pendency of the transaction could be exacerbated by any delays in completion of the transaction or termination of the merger agreement.

Risks related to the failure of the proposed merger to be consummated include, but are not limited to, the following:

 

   

we would not realize any or all of the potential benefits of the merger, including any synergies that could result from combining our financial resources with those of Catheter, which could have a negative effect on our stock price;

 

   

we will remain liable for significant transaction costs, including legal, accounting, financial advisory and other costs relating to the merger regardless of whether the merger is consummated;

 

   

the trading price of our common stock may decline to the extent that the current market price for our stock reflects a market assumption that the merger will be completed;

 

   

the attention of our management and employees may have been diverted to the merger rather than to our own operations and the pursuit of other opportunities that could have been beneficial to us;

 

   

we could be subject to litigation related to any failure to complete the merger;

 

   

the potential loss of key personnel during the pendency of the merger as employees and other service providers may experience uncertainty about their future roles with us following completion of the merger; and

 

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under the merger agreement, we are subject to certain restrictions on the conduct of our business prior to completing the merger, which restrictions could adversely affect our ability to conduct our business as we otherwise would have done if we were not subject to these restrictions.

The occurrence of any of these events individually or in combination could materially and adversely affect our results of operations, business, and our stock price.

We cannot be sure if or when the merger will be completed.

The consummation of the merger is subject to the satisfaction or waiver of various conditions, including the authorization of the merger and/or related transactions by our shareholders and Catheter’s shareholders. In addition, in connection with the merger agreement and as a condition to closing, we are required to furnish to Catheter Net Cash (as defined in the merger agreement) greater than $8,000,000, which will require us to raise additional capital in the public markets through the sale of our securities. We cannot guarantee that the closing conditions set forth in the merger agreement will be satisfied. If we are unable to satisfy the closing conditions in Catheter’s favor or if other mutual closing conditions are not satisfied, Catheter will not be obligated to complete the merger. We anticipate that we will have to raise an additional $2,000,000 to $3,000,000 in order to meet the $8,000,000 Net Cash requirement under the merger agreement and additional original listing requirements of the NYSE American. We currently intend to raise these funds through public sales or private sales that will carry registration rights and will result in the issuance of shares that will be freely tradeable either upon or shortly after issuance. There is no guarantee that we can raise these funds in a timely manner or on acceptable terms.

If the merger is not completed, our board of directors, in discharging its fiduciary obligations to our shareholders, will evaluate other strategic alternatives or financing options that may be available, which alternatives may not be as favorable to our shareholders as the merger. Any future sale or merger, financing or other transaction may be subject to further shareholder approval. We may also be unable to find, evaluate or complete other strategic alternatives, which may have a materially adverse effect our business.

Our efforts to complete the merger could cause substantial disruptions in, and create uncertainty surrounding, our business, which may materially adversely affect our results of operation and our business. Uncertainty as to whether the merger will be completed may affect our ability to recruit prospective employees or to retain and motivate existing employees. Employee retention may be particularly challenging while the transaction is pending because employees may experience uncertainty about their roles following the transaction. A substantial amount of our management’s and employees’ attention is being directed toward the completion of the transaction and thus is being diverted from our day-to-day operations. Uncertainty as to our future could adversely affect our business and our relationship with collaborators, suppliers, vendors, regulators and other business partners. For example, vendors, collaborators and other counterparties may defer decisions concerning working with us, or seek to change existing business relationships with us. Changes to, or termination of, existing business relationships could adversely affect our results of operations and financial condition, as well as the market price of our common stock. The adverse effects of the pendency of the transaction could be exacerbated by any delays in completion of the transaction or termination of the merger agreement.

Until the merger is completed, the merger agreement restricts Catheter and us from taking specified actions without the consent of the other party, and, in regards to us, except as expressly permitted by the merger agreement or by applicable laws, requires us to carry on our business in accordance with good commercial practice and in substantially the same manner as heretofore conducted. These restrictions may prevent Catheter and us from making appropriate changes to our respective businesses or pursuing attractive business opportunities that may arise prior to the completion of the merger.

Because the merger agreement provides for the issuance to Catheter stakeholders of Ra Medical shares representing a fixed percentage of the combined company, subject to limited adjustments, we may face risks as a result of changes in our stock price during the pendency of the merger.

The merger agreement provides for Catheter stakeholders to receive Ra Medical shares representing a fixed percentage of the combined company, with only limited adjustments. If the public trading value of shares of our common stock changes over the period of time required to satisfy the merger’s closing conditions, including but not limited to as a result of the impact of our financings needed to satisfy the Net Cash condition, the consideration to be issued to Catheter’s shareholders at the time of the merger may be different from the public trading value of shares of our common stock when we entered into the merger agreement.

 

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Because the merger agreement requires that each of (x) the last closing sale price of Ra Medical common stock prior to 4:00 p.m. (New York City time) on the last trading day prior to the closing is equal to or greater than $4.50, and (y) the average of the last closing sale price of Ra Medical common stock prior to 4:00 p.m. (New York City time) on each of the five (5) consecutive full trading days prior to the closing is equal to or greater than $4.50, then we may be unable to consummate the merger should our closing sale price be or continue to be below $4.50, and we may seek to take additional action in order to address the closing sale price of our stock.

The merger agreement requires that each of (x) the last closing sale price of Ra Medical common stock prior to 4:00 p.m. (New York City time) on the last trading day prior to the closing is equal to or greater than $4.50, and (y) the average of the last closing sale price of Ra Medical common stock prior to 4:00 p.m. (New York City time) on each of the five (5) consecutive full trading days prior to the closing is equal to or greater than $4.50. If our stock is trading or continues to trade at or below $4.50, then we will not be able to consummate the potential merger with Catheter without taking additional action, such as, but not limited to, seeking a waiver from Catheter for this closing condition, having Catheter amend the terms of its Debt Settlement Agreement, and/or amending the merger agreement. In each of these situations, Ra Medical and its stockholders could be asked in exchange to approve, among other terms, a modification to the merger consideration under the merger agreement in order to increase the consideration to be paid to Catheter securityholders, which would reduce the equity ownership of Ra Medical stockholders in the combined entity.

We anticipate needing to raise additional funds in order to consummate the merger with Catheter. Future sales and issuances of a substantial number of shares of our common stock or rights to purchase common stock by our stockholders in the public market are likely to result in additional dilution of the percentage ownership of our stockholders and could cause our stock price to fall. Such financings may have terms or rights superior to those of our shares of common stock and may not be on favorable terms to us, which could adversely affect the market price of our shares of common stock and our business or the rights of our stockholders.

We anticipate needing to raise additional funds of between $2,000,000 to $3,000,000 in order to consummate the merger with Catheter. Future sales and issuances of a substantial number of shares of our common stock or rights to purchase common stock by our stockholders in the public market are likely to result in additional dilution of the percentage ownership of our stockholders and could cause our stock price to fall. To raise capital, we may sell common stock, convertible securities or other equity securities in one or more transactions at prices and in a manner, we determine from time to time, which may be at substantial discounts to the current trading price of our common stock. If we sell common stock, convertible securities or other equity securities, our stockholders are expected to be diluted by subsequent sales, and such dilution may be material to our existing stockholders.

We may not be able to obtain financing on favorable terms, if at all. If we raise additional funds by issuing equity securities, the percentage ownership of our then-current shareholders will be reduced. Further, we may have to offer new investors in our equity securities rights that are superior to the holders of common stock, which could adversely affect the market price and the voting power of shares of our common stock, or affect the distribution amount that our stockholders would be able to receive in the event that we do not consummate a merger with Catheter and decide to liquidate the company and could cause our stock price to fall.

We are substantially dependent on our remaining employees to facilitate the consummation of the merger.

As of October 31, 2022, we had only six full-time employees. Our ability to successfully complete the merger depends in large part on our ability to retain certain remaining personnel. Despite our efforts to retain these employees, one or more may terminate their employment with us on short notice. The loss of the services of certain employees could potentially harm our ability to consummate the merger and to run our day-to-day business operations, as well as to fulfill our reporting obligations as a public company.

If we do not successfully consummate a strategic transaction with Catheter or otherwise, our board of directors may decide to pursue a dissolution and liquidation of our company. In such an event, the amount of cash available for distribution to our stockholders will depend heavily on the timing of such liquidation as well as the amount of cash that will need to be reserved for commitments and contingent liabilities.

 

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There can be no assurance that our agreement with Catheter will result in a successfully consummated transaction. If the merger is not completed, our board of directors, in discharging its fiduciary obligations to our shareholders, will evaluate other strategic alternatives or financing options that may be available. There is no guarantee that we will achieve any such alternatives. If no transaction is completed, our board of directors may decide to pursue a dissolution and liquidation of our Company. In such an event, the amount of cash available for distribution to our shareholders will depend heavily on the timing of such decision and, ultimately, such liquidation, since the amount of cash available for distribution continues to decrease as we fund our operations while we evaluate our strategic alternatives. In addition, if our board of directors were to approve and recommend, and our shareholders were to approve, a dissolution and liquidation of our Company, we would be required under Delaware corporate law to pay our outstanding obligations, as well as to make reasonable provision for contingent and unknown obligations, prior to making any distributions in liquidation to our shareholders. Our commitments and contingent liabilities may include (i) obligations under our employment and related agreements with certain employees that provide for severance and other payments following a termination of employment occurring for various reasons, including a change in control of our Company; (ii) potential litigation against us, and other various claims and legal actions arising in the ordinary course of business; and (iii) non-cancelable facility lease obligations. As a result of this requirement, a portion of our assets may need to be reserved pending the resolution of such obligations. In addition, we may be subject to litigation or other claims related to a dissolution and liquidation of our Company. If a dissolution and liquidation were pursued, our board of directors, in consultation with its advisors, would need to evaluate these matters and make a determination about a reasonable amount to reserve. Accordingly, holders of our common stock could lose all or a significant portion of their investment in the event of a liquidation, dissolution or winding up of our company.

The market price of our common stock following the merger may decline as a result of the merger.

The market price of our common stock may decline as a result of the merger for a number of reasons including, but not limited to, if:

 

   

investors react negatively to the prospects of the post-merger public company’s business and prospects from the merger;

 

   

the effect of the merger on the post-merger public company’s business and prospects is not consistent with the expectations of financial or industry analysts;

 

   

the post-merger public company does not achieve the perceived benefits of the merger as rapidly or to the extent anticipated by financial or industry analysts; or

 

   

Catheter is a private company and there is no readily determinable market value for its shares; thus, valuation of the company is inherently difficult and as a result the value ascribed to Catheter may differ from its value if there was a ready market.

Shareholder lawsuits challenging the Merger and our disclosures concerning the Merger have been filed, and may continue to be filed, that could result in substantial costs and may delay or prevent the Merger from being completed.

Shareholder lawsuits are often brought against public companies that have entered into merger agreements. As of the date of this filing, there is one pending lawsuit challenging the Merger, as set forth in the section entitled “Legal Matters” beginning on page 164 of this proxy statement. However, shareholders may file additional lawsuits challenging the Merger. We also have received letters from purported shareholders alleging disclosure deficiencies in the Preliminary Proxy Statement that the shareholders claim should be corrected before our shareholders vote on the Merger. The outcome of any current or future litigation is uncertain. Even if the lawsuits are without merit, defending against these claims can result in substantial costs and divert management time and resources. An adverse judgment could result in monetary damages, which could have a negative impact on our liquidity and financial condition. In addition, if a plaintiff is successful in obtaining an injunction prohibiting completion of the Merger, then that injunction may delay or prevent the Merger from being completed, or from being completed within the expected timeframe, which may adversely affect our and Catheter’s respective businesses, financial positions and results of operation.

Litigation against us and Catheter, or the members of the board of directors of the Company or Catheter, could prevent or delay the completion of the merger or result in the payment of damages following completion of the merger.

While we and Catheter believe that any claims that have been asserted and may be asserted by purported shareholder or stockholder plaintiffs related to the merger are and would be without merit, the results of any such potential legal proceedings are difficult to predict and could delay or prevent the merger from becoming effective in a timely manner. The existence of litigation related to the merger could affect the likelihood of obtaining any approvals that are required from our stockholders or Catheter’s stockholders. Moreover, any litigation could be time consuming and expensive, could divert our and Catheter’s management’s attention away from their regular business and, if any lawsuit is adversely resolved against either us, Catheter or members of the respective board of directors of the Company or Catheter (each of whom we or Catheter are respectively required to indemnify pursuant to indemnification agreements), could have a material adverse effect on our or Catheter’s financial condition.

 

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Our and Catheter’s equity holders may not realize a benefit from the merger commensurate with the ownership dilution they will experience in connection with the merger.

The post-merger public company may not be able to realize the full strategic and financial benefits currently anticipated from the merger and if such benefits are not fully realized as a result of the merger, then our and Catheter’s equity holders will have experienced dilution of their ownership interests in their respective companies without receiving any commensurate benefit, or only receiving part of the commensurate benefit to the extent the post-merger public company does so.

Some of our and Catheter’s executive officers and directors have interests in the merger that are different from yours and that may influence them to support or approve the merger without regard to your interests.

Some of our and Catheter’s officers and directors are parties to arrangements that provide them with interests in the merger that are different from the respective stockholders of the Company and Catheter, including, among others, service as an officer or director of the post-merger public company following the closing of the merger, severance and retention benefits, the acceleration of equity award vesting, the conversion of debt instruments at a preferential price, and continued indemnification. These interests are discussed in more detail in the sections entitled “The Merger—Interests of Ra Medicals Directors and Executive Officers in the Merger” beginning on page 132 and “The Merger—Interests of Catheters Directors and Executive Officers in the Merger” beginning on page 135.

The ownership of the post-merger public company’s common stock will be highly concentrated, and it may prevent you and other stockholders from influencing significant corporate decisions and may result in conflicts of interest that could cause the company stock price to decline.

Executive officers and directors of the post-merger public company and their affiliates and persons that are related to such officers and directors are expected to beneficially own or control, in the aggregate, in excess of 50% of the outstanding shares of common stock of the post-merger public company following the completion of the merger. Accordingly, these executive officers, directors and their affiliates, acting as a group, will have substantial influence over the outcome of corporate actions requiring stockholder approval, including the election of directors, any merger, consolidation or sale of all or substantially all of the post-merger public company assets or any other significant corporate transactions. These stockholders may also delay or prevent a change of control of the post-merger public company, even if such a change of control would benefit the other stockholders of the post-merger public company. The significant concentration of stock ownership may adversely affect the trading price of the post-merger public company’s common stock due to investors’ perception that conflicts of interest may exist or arise, and may adversely affect the liquidity of the post-merger public company’s common stock. As a result, it is possible that the post-merger combined company will satisfy the controlled company provisions of the New York Stock Exchange American, in which case the combined company would not be required to satisfy all of the corporate governance requirements of the Exchange, including without limitation, requirements that a majority of the board of directors be independent and that the combined company have independent compensation and nominating committees. See “—Upon the consummation of the merger, the Company is likely to be a controlled company within the meaning of NYSE American rules and, as a result, the Company may qualify for, and may choose to rely on, exemptions from certain corporate governance requirements” beginning on page 38 of this proxy statement.

Our and Catheter’s security holders will have a reduced ownership and voting interest in, and will exercise less influence over the management of, the post-merger public company following the closing of the merger as compared to their current ownership and voting interest in the respective companies.

 

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After the completion of the merger, the current security holders of the Company and Catheter will own a smaller percentage of the post-merger public company than their ownership in their respective companies prior to the merger. Immediately after the merger, it is currently estimated that Catheter stockholders, option holders and noteholders as of immediately prior to the merger will own approximately 79.37% of the common stock of the post-merger public company (including the assumption of Catheter options), with our stockholders as of immediately prior to the merger, whose shares of our Common Stock will remain outstanding after the merger, owning approximately 20.63% of the common stock of the post-merger public company, with each such percentage calculated on a fully-diluted pro forma basis using the treasury stock method. These estimates are based on the anticipated Exchange Ratio and are subject to adjustment as provided in the merger agreement, including a downwards adjustment for the Catheter stockholders, option holders and noteholders and an upwards adjustment for our stockholders, each to the extent that, and by the amount in which, we deliver Net Cash (as defined in the merger agreement) greater than $8,000,000.

In addition, it is a condition to the closing of the merger that David Jenkins be appointed to our Board of Directors and also as our Executive Chair and Chief Executive Officer. Upon the effective time of the merger, Will McGuire will be resigning from his position as our current Chief Executive Officer and one to-be-determined current board member will resign from our Board of Directors, such that our Board of Directors will be David Jenkins and four other directors. Consequently, security holders of the Company and Catheter will be able to exercise less influence over the management, the board of directors and policies of the post-merger public company following the closing of the merger than they currently exercise over the management, the board of directors and policies of their respective companies.

Because the merger will likely result in an ownership change under Section 382 of the Code for the Company, the Company’s pre-merger net operating loss carryforwards and certain other tax attributes will be subject to limitation. The net operating loss carryforwards and certain other tax attributes of the post-merger public company may also be subject to limitations as a result of ownership changes.

If a corporation undergoes an “ownership change” within the meaning of Section 382 of the Code, the Company’s net operating loss carryforwards and certain other tax attributes arising from before the ownership change are subject to limitations on use after the ownership change. In general, an ownership change occurs if there is a cumulative change in the corporation’s equity ownership by certain stockholders that exceeds fifty percentage points over a rolling three-year period. Similar rules may apply under state tax laws. The Merger will likely result in an ownership change for the Company and, accordingly, the Company’s net operating loss carryforwards and certain other tax attributes will be subject to limitations on their use after the merger. Additional ownership changes in the future could result in additional limitations on the Company’s and the post-merger public company’s net operating loss carryforwards. Consequently, even if the post-merger public company achieves profitability, it may not be able to utilize a material portion of the Company’s or the post-merger public company’s net operating loss carryforwards and other tax attributes, which could have a material adverse effect on cash flow and results of operations.

The initial listing application to be filed with the NYSE American in order to continue the listing of the shares of common stock of the combined company on the NYSE American may not be approved if the combined company does not meet the initial listing standards.

In order to continue the listing of the shares of common stock of the combined company on the NYSE American, the combined company must meet the NYSE American’s initial listing standards and the NYSE American must approve an initial listing application that the Company will file with the NYSE American.

The NYSE American initial listing standards require that issuers meet one of the following tests: (1) $750,000 of pre-tax income (in either the last fiscal year or two of the three most recent years), $3 million of public float, $4 million of stockholders’ equity and a minimum share price of $3 per share; (2) $15 million of public float, $4 million of stockholders’ equity, a $3 per share price and 2 years of operating history; (3) a $50 million market cap; $15 million of public float, $4 million of stockholders’ equity, and a $2 per share price; (4) a $75 million market cap; $20 million of public float and a $3 per share price; or (5) $75 million in total assets and total revenue (in either the last fiscal year or two of the three most recent years); $20 million of public float and a $3 per share price, plus in each case either (a) 800 public stockholders and 500,000 shares of total public float; (b) 400 public stockholders and 1,000,000 shares of total public float; or (c) 400 public stockholders, 500,000 shares of total public float and a 2,000 share daily trading volume (over the past six months). In addition, the NYSE American may impose any other requirements that it deems appropriate, including without limitation, requirements as to the projected liquidity and cash flow of the combined company.

 

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Although no assurances can be given that the combined company will meet such initial listing standards or that the NYSE American will approve such application, the Company intends for the combined company to meet the initial listing standard of the NYSE American that requires that the Company have $15 million of public float, $4 million of stockholders’ equity, a $3 per share price and 2 years of operating history. If any initial listing standard or other NYSE American requirement is not met, the NYSE American will not approve the initial listing application and the shares of common stock of the combined company will not be listed on the NYSE American upon consummation of the merger. The Reverse Stock Split was approved by Ra Medical’s stockholders at a special meeting on September 20, 2022, at a ratio of one new share for every 50 shares outstanding as determined by Ra Medical’s Board on September 20, 2022, which was effective at 4:01 p.m. Eastern time on September 30, 2022. As a result of the Reverse Stock Split, Ra Medical’s common stock is currently trading above $3 per share, although there can be no guarantee that it will continue to do so.

If the NYSE American does not approve the initial listing application upon consummation of the merger, the failure of the common stock of the combined company to be listed on a national securities exchange could have a material adverse effect on the combined company and its stockholders. The common stock of the combined company would be expected to trade on an over-the-counter market, which could, among other things, substantially impair the ability of the combined company to raise additional capital, result in a loss of institutional investor interest and fewer financing opportunities for the combined company, materially impair the ability of stockholders to buy and sell shares of the common stock of the combined company, and could have an adverse effect on the market price of, and the efficiency of the trading market for, the common stock of the combined company.

Upon the consummation of the merger, the Company is likely to be a “controlled company” within the meaning of NYSE American rules and, as a result, the Company may qualify for, and may choose to rely on, exemptions from certain corporate governance requirements.

Upon the consummation of the merger, it is anticipated that David Jenkins, including his affiliates and affiliated entities will beneficially own more than 50% of the voting power of all of the Company’s outstanding capital stock. If such stockholder maintains that beneficial ownership, the Company will be a “controlled company” as defined in Section 801 of the NYSE American Company Guide. Under the NYSE American rules, a company of which more than 50% of the voting power is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain NYSE American corporate governance requirements, including:

 

   

the requirement that a majority of the Company’s board of directors consists of independent directors;

 

   

the requirement that the Company’s directors must be nominated by a Nominating Committee composed by a majority of independent directors; and

 

   

the requirement that executive compensation must be determined, or recommended to the Company’s board of directors for determination, by a Compensation Committee comprised of independent directors or by a majority of the independent directors on the Company’s board.

Accordingly, if the Company qualifies as a controlled company, it is currently expected that it will elect to be treated as such and its stockholders will not be afforded the same protections generally as stockholders of other NYSE American-listed companies, and will be considered “controlled” for other purposes under the Delaware General Corporation Law including Section 203, for so long as any stockholder controls more than 50% of Ra’s voting power and the Company relies upon such exemptions.

Risks Related to Our Evaluation of Strategic Alternatives for our Legacy Assets

We cannot assure you that our exploration of strategic alternatives for our legacy assets will result in a transaction or that any such transaction would be successful, and the process of exploring strategic alternatives or its conclusion could adversely impact our business and our stock price.

In March 2022, we engaged Ladenburg Thalmann & Co. Inc. to assist us in identifying and evaluating a range of potential strategic alternatives, including an acquisition, company sale, merger, business combination, asset sale, in-license, out-license or other strategic transaction. On September 9, 2022, we entered into a definitive agreement for a merger transaction with Catheter as described in our Current Report on Form 8-K, filed with the SEC on September 9, 2022. However, we are continuing to explore strategic options for our legacy assets. There can be no assurance that this exploration of strategic alternatives will result in us entering or completing any transaction with respect to those assets or that any resulting plans or transactions will yield additional value for shareholders. Any potential transaction would be dependent on a number of factors that may be beyond our control, including, among other things, market conditions, industry trends, the interest of third parties in a potential transaction with us and the availability of financing to potential buyers on reasonable terms.

 

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The process of exploring strategic alternatives could adversely impact our business, financial condition and results of operations. We could incur substantial expenses associated with identifying and evaluating potential strategic alternatives, including those related to equity compensation, severance pay and legal, accounting and financial advisory fees. In addition, the process may be time consuming and disruptive to our business operations, could divert the attention of management and the Board of Directors from our business, could negatively impact our ability to attract, retain and motivate key employees, and could expose us to potential litigation in connection with this process or any resulting transaction. Further, speculation regarding any developments related to the review of strategic alternatives and perceived uncertainties related to the future of the Company could cause our stock price to fluctuate significantly.

If we do not complete the merger transaction with Catheter, we will continue to face risks related to our legacy business as described in our most recent Quarterly Report on Form 10-Q for the period ended June 30, 2022, filed with the SEC on August 15, 2022. There can be no assurance that we will succeed in such activities.

Risks Related to Ra Medical

The risks set forth below related to Ra Medical are with respect to Ra Medical as a standalone company and the operation of its legacy business. Should the merger be effected, some of these risks may also apply to the combined company.

Risks Related to Our Financial Position and Need for Additional Capital

We require additional capital to finance our operations, which may not be available to us on acceptable terms or at all.

Although management believes the Company has adequate resources to operate as a going concern, our current cash resources may not ultimately be sufficient to fund operations at the expected level of activity beyond the twelve months from the date of this proxy statement. We will need additional capital to continue operations at the current level and to continue our atherectomy indication trial and resume engineering efforts.

Our operations have consumed substantial amounts of cash since inception, primarily due to our research and development and commercialization efforts. As of June 30, 2022, we had cash and cash equivalents of $11.1 million and an accumulated deficit of $192.2 million. For the six months ended June 30, 2022, we used cash of $14.6 million in operating activities. We have experienced recurring net losses from operations, negative cash flows from operating activities, and a significant accumulated deficit and expect to continue to incur net losses into the foreseeable future. As a result, our financial statements include explanatory disclosures expressing substantial doubt about our ability to continue as a going concern.

In the near term, we expect our recurring operational costs to decrease as a result of our cost savings initiatives. On June 6, 2022, we initiated a reduction in force (a “RIF”), in which approximately 65% of our full-time employees were immediately terminated and the non-terminated employees were offered conditional retention arrangements pursuant to which it was expected that they would continue to provide services into the third quarter of 2022. On September 2, 2022, we completed the RIF, pursuant to which an additional 20% of our employees were terminated, with effective dates ranging from August 1, 2022 to September 2, 2022. We have suspended sales of DABRA catheters. We sold or disposed of most of our inventories and property and equipment, including lasers. As a further cost savings initiative, in late October 2022, we terminated the lease at our premises on 2070 Las Palmas Drive, Carlsbad, California 92011, and entered into a lease for a smaller space located at 5857 Owens Drive, Suite 300, Carlsbad, CA 92009. Although we are continuing the follow-up for our atherectomy clinical trial, we stopped enrollment in June 2022. We have decreased or deferred capital expenditures, development and engineering activities and implemented further operating expense reduction measures. Such measures are likely to impair our ability to invest in developing, marketing and selling new and existing products. Until we are able to generate sufficient revenue to support our level of operating expenses, we will continue to incur operating and net losses and negative cash flow from operations. Additionally, we anticipate additional legal and other costs related to the securities class action and derivative lawsuits, as well as compliance with, and payments under, the terms of our Settlement Agreement and Corporate Integrity Agreement associated with our settlements with the Department of Justice (the “DOJ”) and the participating states. Because of the numerous risks and uncertainties associated with our commercialization efforts and future product development and these lawsuits and the government investigation, we are unable to predict when we will become profitable, and we may never become profitable.

 

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The amount and timing of any expenditures needed to implement our commercial strategy will depend on numerous factors, including:

 

   

our ability to restart engineering efforts and resume manufacturing operations;

 

   

our ability to develop a larger diameter catheter to facilitate treatment of larger vessels more commonly seen in above-the-knee procedures;

 

   

the timing for completing follow-up in our clinical trial for an atherectomy indication for use;

 

   

our ability to achieve sufficient market acceptance, the ability for our customers to get coverage and adequate reimbursement from third-party payors and our ability to achieve acceptable market share for DABRA;

 

   

the cost to establish, maintain, expand, and defend the scope of our intellectual property portfolio, as well as any other action required in connection with licensing, preparing, filing, prosecuting, defending, and enforcing any patents or other intellectual property rights;

 

   

the emergence of competing technologies and other adverse market developments;

 

   

the costs associated with manufacturing, selling, and marketing DABRA for its cleared or approved indications or any other indications for use for which we receive regulatory clearance or approval, including the cost and timing of expanding our manufacturing capabilities, as well as establishing our sales and marketing capabilities;

 

   

our ability to establish and maintain strategic licensing or other arrangements and the financial terms of such agreements;

 

   

the timing, receipt, and amount of license fees and sales of, or royalties on, our future products or future improvements on our existing products, if any; and

 

   

the time and cost necessary to complete post-marketing studies that could be required by regulatory authorities or other studies required to obtain clearance for additional indications.

If we raise additional capital or develop and/or commercialize our products with third parties through marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements, we may have to develop our products on a slower timeline or relinquish certain valuable rights to our products, technologies, future revenue streams or research programs or grant licenses on terms that may not be favorable to us. If we raise additional capital through public or private equity offerings, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our stockholders’ rights. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt or making capital expenditures. If we are unable to obtain adequate financing on commercially reasonable terms when needed, we may have to continue to delay, reduce the scope of our future sales and marketing efforts, which would have a material adverse effect on our business, financial condition, and results of operations. We also expect the continuing economic uncertainty resulting from the effects of the COVID-19 pandemic and Russia’s invasion of Ukraine to have a negative impact on our ability to secure additional financing in a timely manner or on favorable terms, if at all.

 

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We have determined that there is substantial doubt about our ability to continue as a going concern, and we will need to develop a business plan for the combined company to execute following the merger, should it be consummated. We may require additional capital in order to execute the business plan and fund the operations of the combined company or, if the merger is not consummated, in order to continue the operations of our current business as a standalone company. We may not be able to obtain such funding on a timely basis, or on commercially reasonable terms, or at all. Any capital-raising transaction we are able to complete may result in substantial dilution to our existing stockholders, require us to relinquish significant rights, or restrict our operations.

We do not yet generate sufficient revenues from our operations to fund our activities and are therefore dependent upon external sources for financing our operations. We have concluded and disclosed in the footnotes to our condensed financial statements for the three and six months ended March 31, 2022 and June 30, 2022, respectively as well as the twelve months ended December 31, 2021 and 2020 that are included elsewhere within this proxy statement, that we do not have sufficient cash to fund our operations through 12 months from the date of issuance of the most recent financial statements. As a result, our financial statements include disclosures expressing substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustments that might result from the outcome of the uncertainty regarding our ability to continue as a going concern. This disclosure with respect to our ability to continue as a going concern could materially limit our ability to raise additional funds through the issuance of equity or debt securities or otherwise. If we do not consummate the merger and are unable to successfully raise additional funds, then we may have to refocus or rebuild around a different core or strategic technology, consummate another strategic transaction or be required to liquidate our assets and dissolve the Company. Future reports on our financial statements may continue to include such disclosures. If we cannot continue as a going concern, our stockholders may lose their entire investment in our common stock.

We are developing a business plan for the combined company to execute should we consummate the merger. Management currently believes that it will be necessary for us to raise additional funding in the form of an equity financing from the sale of common stock or the issuance of debt or to pursue and consummate one or more strategic transactions, whether related or unrelated. There can be no guarantee that we will successfully raise all the funding we require or be able to consummate any strategic transaction and, even if so, that we would be able to continue as a going concern. However, substantial doubt about a company’s ability to continue as a going concern is generally viewed unfavorably by current and prospective investors, as well as by analysts and creditors. As a result, it may be more difficult for us to raise the additional financing necessary to continue to operate our business, and we may be forced to significantly alter our business strategy, substantially curtail our current operations, or liquidate and cease operations altogether.

If our board of directors decides to dissolve the Company and liquidate its assets, we would be required to pay all of our debts and contractual obligations, and to set aside certain reserves for potential future claims, and there can be no assurance as to the amount or timing of available cash left to distribute to our stockholders after paying our debts and other obligations and setting aside funds for potential future claims.

Risks Related to Our Business and Products as a Standalone Company

Our ability to continue as a standalone company and to successfully conduct our business is highly dependent upon us attracting and retaining highly qualified personnel, and if we are not successful in attracting and retaining highly qualified personnel, we may not be able to successfully implement our business strategy.

Our ability to compete in the highly competitive medical devices industry depends upon our ability to attract and retain highly qualified managerial, scientific, sales and medical personnel. Our success as a standalone company and to successfully conduct our current business is highly dependent on attracting and retaining a highly qualified management team. Will McGuire, our Chief Executive Officer, has been diagnosed with a serious illness not caused by COVID-19 and has been undergoing treatment for his illness. He continues to fulfill all of his duties and responsibilities and has stated his desire to continue in such roles. We do not expect our Chief Executive Officer to relinquish any of his responsibilities or duties in the short term as a result of this diagnosis, however, his condition may change and prevent him from doing so. The Board has discussed a plan of succession and will continue to evaluate and monitor our options on an ongoing basis should Mr. McGuire need to relinquish any of his responsibilities or duties at any time as a result of his illness or otherwise.

 

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We face intense competition for executive-level talent from a variety of sources, including from current and potential competitors in the medical device and healthcare industries. Our continued success is dependent, in part, upon our ability to attract and retain superior executive officers.

Competition for skilled personnel in our market is intense and may limit our ability to hire and retain highly qualified personnel on acceptable terms or at all. To induce valuable employees to remain at our company, in addition to salary and cash incentives, we have issued stock options and restricted stock units that vest over time. The value to employees of stock options and restricted stock units that vest over time may be significantly affected by movements in our stock price that are beyond our control and may at any time be insufficient to counteract more lucrative offers from other companies. The decline in our stock price may create additional challenges by reducing the retention value of our equity awards to these employees. Members of our management, scientific and development teams have and may continue to terminate their employment with us, either as a result of further reductions in force initiated by us or voluntarily on their own. Although we have employment agreements with our key employees, these employment agreements provide for at-will employment, which means that any of our employees could leave, and have left, our employment at any time, with or without notice. We do not maintain “key man” insurance policies on the lives of these individuals or the lives of any of our other employees. Our success also depends on our ability to continue to attract, retain and motivate highly skilled junior, mid-level and senior managers as well as junior, mid-level and senior scientific and medical personnel. If we are not successful in attracting and retaining highly qualified personnel, it would have a material adverse effect on our business, financial condition, and results of operations.

We may be unable to successfully achieve market acceptance of DABRA or achieve revenue growth.

Our ability to grow our revenue in future periods will depend on our ability to successfully penetrate our target markets and increase sales of our products and any new product indications that we introduce, which will, in turn, depend in part on our success in growing our installed unit base and driving continued use of our systems, including long-term adoption by physicians. In addition, new product indications will also need to be approved or cleared by the FDA and comparable non-U.S. regulatory agencies to help drive revenue growth. If we cannot achieve revenue growth, it would have a material adverse effect on our business, financial condition, and results of operations.

If we are to continue as a standalone company, our success will depend in large part on DABRA. If we are unable to successfully manufacture, market and sell DABRA, our business prospects will be significantly harmed.

If we are to continue as a standalone company, our future financial success will depend substantially on our ability to effectively and profitably manufacture, market and sell DABRA. We have recently significantly reduced the component of our workforce that was responsible for the manufacturing, marketing and sales of DABRA. The commercial success of DABRA will depend on a number of factors, including the following:

 

   

our ability to hire and attract highly qualified manufacturing, marketing and sales personnel;

 

   

our ability to further enhance our DABRA catheter performance with an improved design to make the catheter more kink-resistant when navigating tortuous anatomy;

 

   

our ability to develop a guidewire-compatible version of our DABRA catheter designed to allow physicians to navigate the vasculature more easily;

 

   

our ability to develop a larger diameter catheter to facilitate treatment of larger vessels more commonly seen in above-the-knee procedures;

 

   

our ability to upgrade the DABRA laser’s functionality and user interface and maintain necessary regulatory clearances;

 

   

our ability to continue commercializing DABRA for its cleared indications for use with a smaller sales force;

 

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our ability to complete our atherectomy trial follow-up in a timely manner or at all, which may be affected by reductions in voluntary medical procedures during the ongoing COVID-19 pandemic;

 

   

our ability to receive FDA clearance for an atherectomy indication for use;

 

   

our ability to receive regulatory clearance or approval for, and timely introduce, enhancements to the DABRA catheter design;

 

   

the effectiveness of our and our distributors’ marketing and sales efforts in the U.S. and abroad, including our efforts to build out and properly train our sales team;

 

   

our ability to attract, motivate, train and retain experienced and qualified sales personnel;

 

   

the availability, perceived advantages, relative cost, relative safety, and relative efficacy of alternative and competing treatments, including the time and expertise needed for training to effectively use the DABRA system as compared to competing treatments;

 

   

our ability to properly support DABRA usage with our own qualified personnel or our ability to properly train and support our customers to use the DABRA system effectively on their own;

 

   

the availability of coverage and adequate levels of reimbursement under private and governmental health insurance plans for DABRA-based procedures;

 

   

our ability to obtain, maintain, and enforce our intellectual property rights in and to DABRA;

 

   

our ability to achieve and maintain compliance with regulatory requirements applicable to DABRA;

 

   

our ability to continue to develop, validate and maintain a commercially viable manufacturing process that is compliant with current Good Manufacturing Practices, or cGMP;

 

   

whether we are required by the FDA or comparable non-U.S. regulatory authorities to conduct additional clinical trials for future or current indications; and

 

   

our ability to restart engineering efforts and resume manufacturing operations.

If we fail to successfully market, manufacture and sell DABRA, we may not be able to achieve or maintain profitability, which will have a material adverse effect on our business, financial condition, and results of operations.

Our ability to successfully complete our atherectomy trial may continue to be hindered or delayed by the effects of the COVID-19 pandemic.

The effects of the COVID-19 pandemic and the DABRA catheter performance limitations have impacted our ability to complete our atherectomy study in a timely manner. For example, follow up with our atherectomy clinical trial, and patients’ completion of our atherectomy trial, may be further delayed or slowed by any increases in COVID-19 cases or other effects of the COVID-19 pandemic, as patients elect, or are asked, to postpone voluntary treatments and physicians’ offices are either closed or only performing procedures on patients with a more advanced disease state. Accordingly, we cannot predict whether or when we will be able to successfully complete our atherectomy indication trial follow-up. Any inability to complete our atherectomy indication trial could have an adverse impact on our ability to successfully manufacture, market and sell DABRA, which in turn could adversely impact our business, financial condition and results of operations.

 

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We are required to devote significant resources to complying with the terms and conditions of our Corporate Integrity Agreement and, if we fail to comply, we could be subject to penalties or, under certain circumstances, excluded from government healthcare programs, which would materially adversely affect our business.

On December 28, 2020, we entered into a five-year Corporate Integrity Agreement with the Office of Inspector General, or OIG. The Corporate Integrity Agreement requires that we maintain our existing compliance programs, as well as expanding compliance-related requirements during the term of the Corporate Integrity Agreement. The Corporate Integrity Agreement requires us to establish specific procedures and requirements regarding consulting activities, marketing activities and other interactions with healthcare professionals and healthcare institutions and the sale and marketing of our products; ongoing monitoring, reporting, certification and training obligations; and the engagement of an independent review organization to perform certain auditing and reviews and prepare certain reports regarding our compliance with federal health care programs. Developing and maintaining these processes, policies and procedures necessary to comply with the Corporate Integrity Agreement will require a significant portion of management’s attention and the application of significant resources. In addition, while we have developed and instituted a corporate compliance program, we cannot guarantee that we, our employees, our consultants or our contractors are or will be in compliance with all potentially applicable U.S. federal and state regulations and/or laws, all potentially applicable foreign regulations and/or laws and/or all requirements of the Corporate Integrity Agreement. If we breach the Corporate Integrity Agreement, we could become liable for payment of certain stipulated penalties or could be excluded from participation in federal health care programs. The costs associated with compliance with the Corporate Integrity Agreement, or any liability or consequences associated with its breach, could have an adverse effect on our business or any potential strategic transaction, such as a sale of one or more of our assets, a license to our technology, a business combination or other partnership transaction.

Physicians and staff may not commit enough time to sufficiently learn how to use our products.

In order for physicians and staff to learn to use our products and familiarize themselves with our technology, we encourage physicians to attend structured training sessions. There are many nuances to successfully using our products. Physicians and their staff must utilize the technology on a regular basis to ensure they maintain the skill set necessary to use our products. This will depend on their willingness to attend training sessions or sufficiently familiarize themselves with DABRA. An inability to train a sufficient number of physicians to generate adequate demand for our products could have a material adverse effect on our business, financial condition, and results of operations.

Our products may not gain or maintain market acceptance among physicians and patients and others in the medical community.

Our success will depend, in part, on the acceptance of our products as safe, useful and, with respect to physicians, cost effective and easy to use. We cannot predict how quickly, if at all, catheterization laboratories and physicians will accept our products or, if accepted, how frequently they will be used. Patients and their care providers must believe our products offer benefits over alternative treatment methods. Additional factors that will influence whether our products gain and maintain market acceptance, include:

 

   

whether physicians, catheterization laboratory owners and operators, patients, and others in the medical community consider our products to be safe, effective, and cost-effective treatment methods;

 

   

our ability to further enhance our DABRA catheter performance with an improved design to reduce kinking when navigating tortuous anatomy;

 

   

our ability to develop a guidewire-compatible version of our DABRA catheter designed to allow physicians to navigate the vasculature more easily;

 

   

our ability to upgrade the DABRA laser’s functionality and user interface, and maintain necessary regulatory clearances;

 

   

whether we are able to receive FDA clearance for an atherectomy indication for use;

 

   

the potential and perceived advantages of our products over alternative treatment methods;

 

   

the convenience, amount of training required, and ease of use of DABRA relative to alternative treatment methods;

 

   

matters arising out of the pending securities class action and derivative lawsuit, including the impact of any settlement or adverse judgment;

 

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the prevalence and severity of any side effects associated with using our products;

 

   

product labeling or product insert requirements of the FDA or other regulatory authorities;

 

   

limitations or warnings contained in the labeling cleared or approved by the FDA or other authorities;

 

   

the cost of treatment in relation to alternative treatments methods;

 

   

pricing pressure, including from group purchasing organizations, or GPOs, seeking to obtain discounts on DABRA based on the collective buying power of the GPO members;

 

   

the availability of adequate coverage, reimbursement and pricing by third-party payors, including government authorities;

 

   

the willingness of patients to pay out-of-pocket in the absence of coverage by third-party payors, including government authorities;

 

   

our ability to provide incremental clinical and economic data that shows the safety and clinical efficacy and cost effectiveness of, and patient benefits from, our products; and

 

   

the effectiveness of our sales and marketing efforts for DABRA.

If we do not adequately educate physicians about PAD and the existence and proper use of our products, DABRA may not gain market acceptance, as many physicians do not routinely screen for PAD while screening for coronary artery disease, or CAD. Additionally, even if our products achieve market acceptance, they may not maintain that market acceptance over time if competing products or technologies are introduced that are received more favorably or are more cost effective. Failure to achieve or maintain market acceptance and/or market share would limit our ability to generate revenue and would have a material adverse effect on our business, financial condition, and results of operations.

The continuing development of our products depends upon our developing and maintaining strong working relationships with physicians.

The research, development, marketing and sale of our current products and any potential new and improved products or future product indications for which we receive regulatory clearance or approval will depend upon our maintaining working relationships with physicians. These professionals are relied upon to provide us with considerable knowledge and experience regarding the development, marketing and sale of our products. Physicians assist us as researchers, marketing and product consultants and public speakers. If we cannot maintain our strong working relationships with these professionals and continue to receive their advice and input, the development and marketing of our products could suffer, which could have a material adverse effect on our business, financial condition, and results of operations. At the same time, companies in the medical device industry are under continued scrutiny by the OIG and the DOJ, for improper relationships with physicians. For example, on December 28, 2020, we entered into a Settlement Agreement and a related Corporate Integrity Agreement related to a resolution of a DOJ civil investigation concerning, among other things, whether we paid improper remuneration to physicians and other healthcare providers in violation of the Anti-Kickback Statute, 42 U.S.C. §1320a-7b. Our failure to comply with the Corporate Integrity Agreement or requirements governing the industry’s relationships with physicians, including the reporting of certain payments to physicians under the National Physician Payment Transparency Program (Open Payments) or the reputational harm or negative publicity resulting from the settlement of the government investigation could impact physicians’ willingness to conduct business with us, which would have a material adverse effect on our business, financial condition, and results of operations.

 

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We have incurred losses in recent periods and may be unable to achieve profitability in the future.

We incurred losses from continuing operations of $8.4 million and $13.9 million for the three and six months ended June 30, 2022, respectively. As of June 30, 2022, we had an accumulated deficit of $192.2 million. We expect to continue to incur significant manufacturing, product development, regulatory and other expenses to obtain regulatory clearances or approvals for our products in additional jurisdictions and for additional indications, to develop new products or add new features to our existing products, and to defend, cooperate and resolve pending lawsuits and government investigation, as applicable. In addition, our general and administrative expenses have increased due to legal proceedings, and we expect these costs to continue due to the additional costs associated with being a public company. The losses that we incur may fluctuate significantly from period to period. We will need to generate significant additional revenue in order to achieve and sustain profitability and, even if we achieve profitability, we cannot be sure that we will remain profitable for an extended period of time. Our failure to achieve or maintain profitability would have a material adverse effect on our business, financial condition, and results of operations and could negatively impact the value of our common stock.

If we restart manufacturing operations and our manufacturing facilities become damaged or inoperable, or we are required to vacate the facilities, our ability to manufacture and sell our products and to pursue our research and development efforts may be jeopardized.

Our facilities and equipment, or those of our suppliers, in each case should we restart our manufacturing operations, could be harmed or rendered inoperable by natural or man-made disasters, including earthquakes, fires, power shortages, telecommunications failures, water shortages, floods, hurricanes, typhoons, extreme weather conditions, medical epidemics, and other natural or man-made disasters, pandemics, epidemics, or other business interruptions, for which we are predominantly self-insured. Any of these may render it difficult or impossible for us to manufacture products for an extended period of time. If our facility is inoperable for even a short period of time should we restart our manufacturing operations, the inability to manufacture any current products, and the interruption in research and development of any future products, may result in harm to our reputation, increased costs, lower revenue and the loss of customers, which would have a material adverse effect on our business, financial condition, and results of operations. Furthermore, it could be costly and time-consuming to repair or replace our facility should we restart our manufacturing operations and the equipment we use to perform our research and development work and manufacture our products. We would also rely on third-party component suppliers should we restart our manufacturing operations, and our ability to obtain commercial supplies of our products could be disrupted if the operations of these suppliers are affected by a man-made or natural disaster or other business interruption, which would have a material adverse effect on our business, financial condition, and results of operations.

The emergence and effects related to a pandemic, epidemic or outbreak of an infectious disease, including the recent COVID-19 pandemic could adversely affect our operations.

If a disaster such as a pandemic, epidemic, outbreak of an infectious disease or other public health crisis were to occur in an area in which we operate, our operations could be adversely affected. For example, COVID-19 was characterized as a global pandemic and how long and how extensive the economic effects will last, has not been determined. The extent to which the effects of COVID-19 impact our business will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge regarding COVID-19 and the actions to contain it or treat its impact, among others. We have experienced delays in receiving shipments of parts which has had an impact on the timing of our key engineering efforts but has not affected our ability to support our atherectomy indication clinical trial. The effects of the pandemic could also adversely affect our ability to secure additional financing in a timely manner or on favorable terms, if at all.

If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit or halt the marketing and sale of our products and could result in recalls, delayed shipments and rejection of our products and damage to our reputation and could expose us to regulatory or other legal action.

We face an inherent risk of product liability as a result of the marketing and sale of our products. For example, we may be sued if our products cause or are perceived to cause injury or are found to be otherwise unsuitable during manufacturing, marketing or sale. For example, in connection with the review of our performance inconsistencies, our catheters were found to occasionally overheat. Any product liability claim may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability or breach of warranty. In addition, we may be subject to claims against us even if the apparent injury is due to the actions of others or the pre-existing health of the patient. For example, we rely on physicians in connection with the use of our products on patients. If these physicians are not properly trained, including on the intended use, or are negligent, the capabilities of our products may be diminished, or the patient may suffer critical injury. We may also be subject to claims that are caused by the activities of our suppliers, such as those who provide us with components and sub-assemblies.

 

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There can be no assurance that we will be able to detect, remedy and report all defects in the products that we sell, including successfully remedying the issues with our catheters’ performance. These issues with performance could result in the rejection of our products by physicians, damage to our reputation, lost sales, diverted development resources and increased customer service and support costs and warranty claims. Individuals could sustain injuries from our products, and we may be subject to claims or lawsuits resulting from such injuries. There is a risk that these claims or liabilities may exceed, or fall outside the scope of, our insurance coverage. Moreover, we may not be able to retain adequate liability insurance in the future.

If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit, delay or halt commercialization of our products. Even successful defense would require significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may result in:

 

   

decreased demand for our products;

 

   

harm to our reputation;

 

   

initiation of investigations by regulators;

 

   

costs to defend the related litigation;

 

   

diversion of management’s time and our resources;

 

   

monetary awards to trial participants or patients;

 

   

product recalls, withdrawals or labeling, marketing or promotional restrictions;

 

   

loss of revenue;

 

   

exhaustion of any available insurance and our capital resources;

 

   

inability to market and sell our products; and

 

   

a resulting decline in the price of our common stock.

We believe our product liability insurance is customary for similarly situated companies, but it may not be adequate to cover all liabilities that we may incur. We may not be able to maintain or obtain insurance at a reasonable cost or in an amount adequate to satisfy any liability that may arise, if at all. Our insurance policy contains various exclusions, and we may be subject to a product liability claim for which we have no coverage. The potential inability to obtain sufficient product liability insurance at an acceptable cost to protect against product liability claims could prevent or inhibit the marketing and sale of products we develop. We may have to pay any amounts awarded by a court or negotiated in a settlement that exceed our coverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts, which would have a material adverse effect on our business, financial condition, and results of operations.

We face substantial competition, which may result in others discovering, developing or commercializing products more successfully than us.

The medical device industry is intensely competitive and subject to rapid and significant technological change. Many of our competitors have significantly greater financial, technical and human resources. Smaller and early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies.

Our competitors may also develop products that are more effective, more convenient, more widely used, less costly, have higher reimbursement coverage or have a better safety profile than our products and these competitors may also be more successful than us in manufacturing and marketing their products.

 

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Our competitors also compete with us in recruiting and retaining qualified scientific, management and commercial personnel, as well as in acquiring technologies complementary to, or necessary for, our programs. Competition for these people in the medical device industry is intense and we may face challenges in retaining and recruiting such individuals if, for example, other companies may provide more generous compensation and benefits, more diverse opportunities, and better chances for career advancement than we do. Some of these advantages may be more appealing to high-quality candidates and employees than those we have to offer. In addition, the decline in our stock price has created additional challenges by reducing the retention value of our equity awards. Because of the complex and technical nature of our systems and the dynamic market in which we compete, any failure to attract and retain a sufficient number of qualified employees could materially harm our ability to develop and commercialize our technology, which would have a material adverse effect on our business, financial condition, and results of operations.

We may be unable to compete successfully with companies in our highly competitive industry, many of whom have substantially greater resources than we do.

The healthcare industry is highly competitive. There are numerous approved products for treating vascular diseases in the indications in which we have received clearance or approval and those that we may pursue in the future. Many of these cleared or approved products are well-established and are widely accepted by physicians, patients and third-party payors. Insurers and other third-party payors may encourage the use of competitors’ products. In addition, many companies are developing products, and we cannot predict what the standard of care will be in the future.

Our primary competitors for DABRA include Medtronic plc, Cardiovascular Systems Inc., Boston Scientific Corp., Avinger, Inc., Koninklijke Philips N.V., including Volcano Corporation and Spectranetics Corporation, Becton Dickinson and Company, including products from the C.R. Bard acquisition, AngioDynamics and Abbott Laboratories. These companies are manufacturers of products used in competing therapies within the peripheral arterial disease market such as:

 

   

atherectomy, using mechanical and laser ablation methods to remove vascular blockages;

 

   

balloon angioplasty and stents;

 

   

specialty balloon angioplasty, such as scoring balloons, pillowing balloons, cutting balloons and drug-coated balloons; and

 

   

amputation.

We also face competition from pharmaceutical companies that produce drugs which aim to destroy plaque or remove blockages in the bloodstream.

Many of our competitors have substantially greater financial, manufacturing, commercial, and technical resources than we do. There has been consolidation in the industry, and we expect that to continue. Larger competitors may have substantially larger sales and marketing operations than we do. This may allow those competitors to spend more time with current and potential customers and to focus on a larger number of current and potential customers, which gives them a significant advantage over our sales and marketing team and our international distributors in making sales. In addition, we are often selling to customers who already utilize our competitors’ products and who have established relationships with our competitors’ sales representatives and familiarity with our competitors’ products.

Larger competitors may also have broader product lines, which enables them to offer customers bundled purchase contracts and quantity discounts. These competitors may have more experience than we have in research and development, marketing, manufacturing, preclinical testing, conducting clinical trials, obtaining FDA and non-U.S. regulatory clearances or approvals and marketing cleared or approved products. Our competitors may discover technologies and techniques, or enter into partnerships and collaborations, to develop competing products that are more effective or less costly than our products or the products we may develop. For example, our competitors with laser-based products may develop upgrades to their lasers that make them easier to use, more efficient or more functional and they may more quickly obtain necessary FDA and non-U.S. regulatory clearances and approvals for such improvements. This may render our technology or products obsolete or noncompetitive. Our competitors may also be better equipped than we are to respond to competitive pressures. If we are unable to compete successfully in our industry, it would have a material adverse effect on our business, financial condition, and results of operations.

 

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If we renew our legacy business and DABRA is not cleared or approved for new indications, our commercial opportunity will be limited.

As part of our legacy business, we marketed and sold DABRA for use as a tool in the treatment of vascular blockages resulting from lower extremity vascular disease. Although physicians, in the practice of medicine, may prescribe or use marketed products for uncleared or unapproved indications, manufacturers may promote their products only for the cleared or approved indications and in accordance with the provisions of the cleared or approved label. However, if we renew our legacy business, one of our strategies in the future may be to pursue additional vascular indications for DABRA. Submitting the required applications for additional indications will require substantial additional funding beyond our cash and cash equivalents as of June 30, 2022. We cannot assure you that we will be able to successfully obtain clearance or approval for any of these additional product indications through the application process or that a premarket FDA submission may not be necessary.

Even if we obtain FDA clearance or approval to market our products for additional indications in the U.S., we cannot assure you that any such indications will be successfully commercialized, widely accepted in the marketplace or more effective than other commercially available alternatives. If we are unable to successfully develop our products for additional indications, our commercial opportunity will be limited, which would have a material adverse effect on our business, financial condition, and results of operations.

If we make acquisitions or divestitures, we could encounter difficulties that harm our business.

To date, the growth of our business has been organic, and we have no experience in acquiring other businesses, products or technologies. We may acquire companies, products or technologies that we believe to be complementary to the present or future direction of our business, or may be of a strategic nature with a focus on a new direction focused on the combined company and the business that we may acquire. If we engage in such acquisitions, we may have difficulty integrating the acquired personnel, financials, operations, products or technologies. Acquisitions may dilute our earnings per share, disrupt our ongoing business, distract our management and employees, increase our expenses, subject us to liabilities, and increase our risk of litigation, all of which could harm our business. If we use cash to acquire companies, products or technologies, it may divert resources otherwise available for other purposes. If we use our common stock to acquire companies, products or technologies, our stockholders may experience substantial dilution.

Technological change may adversely affect sales of our products and may cause our products to become obsolete.

The medical device market is characterized by extensive research and development and rapid technological change. Technological progress or new developments in our industry could adversely affect sales of our products. Our products could be rendered obsolete because of future innovations by our competitors or others in the treatment of vascular diseases, which would have a material adverse effect on our business, financial condition, and results of operations.

Consolidation in the medical device industry could have an adverse effect on our revenue and results of operations.

Many medical device industry companies are consolidating to create new companies with greater market power. As the medical device industry consolidates, competition to provide goods and services to industry participants will become more intense. These industry participants may try to use their market power to negotiate price concessions or reductions for medical devices that incorporate components produced by us. If we reduce our prices because of consolidation in the healthcare industry, our revenue would decrease and our earnings, financial condition, or cash flows would suffer, which would have a material adverse effect on our business, financial condition, and results of operations.

 

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We may be subject to enforcement actions, competitor lawsuits, or other claims if we engage or are found to have engaged in the off-label promotion of our products.

Our promotional materials and training methods must comply with FDA regulations and other applicable laws, including restraints and prohibitions on the promotion of off-label, or uncleared use, of our products. Physicians may use our products for off-label use without regard to these prohibitions, as FDA regulations do not restrict or regulate a physician’s choice of treatment within the practice of medicine. Although our policy is to follow published FDA guidance in order to avoid promoting our products improperly, the FDA or other regulatory agencies or third parties could disagree and conclude that we have engaged in off-label promotion. For example, our DABRA Laser System has been cleared by the FDA for crossing chronic total occlusions in patients with symptomatic infrainguinal lower extremity vascular disease and has an intended use for ablating a channel in occlusive peripheral vascular disease. We have not received FDA clearance or approval to market DABRA for an atherectomy indication, and we may not promote DABRA for an atherectomy indication. Without admitting any liability or wrongdoing, on December 28, 2020, we entered into a Settlement Agreement with the DOJ, other settlement agreements with certain state attorneys general and a related Corporate Integrity Agreement that resolved civil investigations and a related civil lawsuit. Our pivotal clinical study of the DABRA Laser System completed in 2017 would not be sufficient to expand our FDA-cleared indication for use to an atherectomy indication for use, which the FDA currently defines to include a prespecified improvement in luminal patency, or prespecified increase in the openness of the artery at a pre-defined time point, such as nine months following a DABRA procedure, using a consistent assessment tool. As discussed above, we are currently conducting a clinical study intended to support our FDA regulatory application for the atherectomy indication for use.

We cannot predict the extent to which our competitors may be successful in dissuading physicians from using the DABRA system out of concerns regarding reimbursement. Furthermore, we may incur additional liability from claims initiated under the Lanham Act or other federal and state unfair competition laws with respect to how our products have been marketed and promoted.

In addition, we operate in an industry characterized by extensive litigation. However, the scope of potential liability with respect to any such claims, enforcement actions, or lawsuits is uncertain, and we cannot assure you that we will not receive claims from competitors or other third parties or be subject to enforcement actions in the future from regulatory agencies. For example, the FDA, FTC, the Office of the Inspector General of the Department of Health and Human Services, or HHS, the DOJ and various state attorneys general actively enforce laws and regulations that prohibit the promotion of off-label uses. As disclosed above, on December 28, 2020, we entered into a Settlement Agreement and the related Corporate Integrity Agreement to resolve a DOJ civil investigation into, among other things, whether we marketed and promoted DABRA devices for unapproved uses that were not covered by federal healthcare programs, and in connection with the Settlement Agreement, we also have reached agreements with certain state attorneys general.

The False Claims Act prohibits, among other things, making a fraudulent claim for payment of federal funds, causing such a fraudulent claim to be made, or making a false statement to get a false claim paid. The government may assert that a claim resulting from a violation of the federal anti-kickback statute constitutes a false or fraudulent claim under the False Claims Act. Many companies have faced government investigations or lawsuits by whistleblowers who bring a qui tam action under the False Claims Act on behalf of themselves and the government for a variety of alleged improper marketing activities, including providing free product to customers expecting that the customers would bill federal programs for the product, providing consulting fees, grants, free travel and other benefits to physicians to induce them to prescribe the company’s products, and inflating prices reported to private price publication services, which are used to set drug reimbursement rates under government healthcare programs. In addition, the government and private whistleblowers have pursued False Claims Act cases against medical device companies for causing false claims to be submitted as a result of the marketing of their products for unapproved uses. Medical device and other healthcare companies also are subject to other federal false claim laws, including federal criminal healthcare fraud and false statement statutes that extend to non-government health benefit programs. If we are found to have improperly promoted off-label uses, we may be subject to significant liability, including civil fines, criminal fines and penalties, civil damages, exclusion from federal funded healthcare programs and potential liability under the federal False Claims Act and any applicable state false claims act. Due to the Settlement Agreement and the Corporate Integrity Agreement and the previously disclosed and concluded SEC investigation, we have incurred, and will continue to incur, substantial legal costs, including settlement costs, costs of compliance with such agreements, and payments made pursuant to such agreements, and business disruption, including from ongoing and future compliance with such agreements. In the future, if we are found to have violated the False Claims Act, it may result in significant financial penalties, on a per claim or statement basis, treble damages and exclusion from participation in federal health care programs. In addition, if the FDA determines that our promotional materials or training constitutes promotion of an off-label use, it could request that we modify our training or promotional materials, which could negatively impact our marketing and decrease demand for our products. Conduct giving rise to such liability could also form the basis for private civil litigation by third-party payers, competitors, or other persons claiming to be harmed by such conduct.

 

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The FDA, HHS, DOJ, and/or state attorneys general, competitors, and other third parties may take the position that we have violated or are not in compliance with such guidelines, and if such non-compliance is proven, it could harm our reputation, financial condition or divert financial and management resources from our core business and would have a material adverse effect on our business, financial condition and results of operations. Moreover, threatened or actual government enforcement actions or lawsuits by third parties have and could continue to generate adverse publicity, which could decrease demand for our products and require that we devote substantial resources that could be used productively on other aspects of our business.

Regardless of whether actions are commenced, if we were to settle with one or more government agencies, such settlements could include an agreement to pay civil or criminal damages, injunctions, cease and desist orders, deferred prosecution agreements, or other equitable remedies, exclusion from governmental health care programs, and the curtailment or restructuring of our operations, any of which would have a material adverse effect on our business, financial condition and results of operations for years after any settlement is reached. Whether actions will be commenced, whether an investigation can be settled before or after actions are commenced, and the terms on which any investigation can be resolved is not certain.

Litigation and other legal matters may adversely affect our business.

From time to time we are involved in and may become involved in legal matters relating to patent and other intellectual property matters, product liability claims, employee claims, tort or contract claims, federal regulatory investigations, securities class action, and other legal proceedings or investigations, which could have an adverse impact on our reputation, business and financial condition and divert the attention of our management from the operation of our business. For example, we are currently a party to securities class action and shareholder derivative litigation and other litigation as set forth in Legal Matters. Litigation is inherently unpredictable and can result in excessive or unanticipated verdicts and/or injunctive relief that affect how we operate our business. We could incur judgments or enter into settlements of claims for monetary damages or for agreements to change the way we operate our business, or both. There may be an increase in the scope of these matters or there may be additional lawsuits, claims, proceedings or investigations in the future, which could have a material adverse effect on our business, financial condition, and results of operations. Adverse publicity about regulatory or legal action against us could damage our reputation and brand image, undermine our customers’ confidence and reduce long-term demand for our products, even if the regulatory or legal action is unfounded or not material to our operations.

We must indemnify or advance reasonable legal expenses for officers and directors, including, in certain circumstances, former employees and directors, in their defense against legal proceedings, unless certain conditions apply. A prolonged uninsured expense and indemnification obligation could have a material adverse effect on our business, financial condition, and results of operations.

We are subject to numerous laws and regulations related to healthcare fraud and abuse, false claims, anti-bribery and anti-corruption laws, such as the U.S. Anti-Kickback Statute and Foreign Corrupt Practices Act of 1977, in which violations of these laws could result in substantial penalties, exclusion and prosecution.

In the U.S., we are subject to various state and federal fraud and abuse laws, including, without limitation, the federal Anti-Kickback Statute and federal False Claims Act. There are similar laws in other countries. These laws may impact, among other things, the sales, marketing and education programs for our products. The federal Anti-Kickback Statute prohibits persons from knowingly and willingly soliciting, offering, receiving or providing remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual, or the furnishing or arranging for a good or service, for which payment may be made under a federal healthcare program. The federal False Claims Act prohibits persons from knowingly filing, or causing to be filed, a false claim to, or the knowing use of false statements to obtain payment from the federal government. Any allegation, investigation, or violation of domestic healthcare fraud and abuse laws could result in government or internal investigations, significant diversion of resources, exclusion from government healthcare programs and the curtailment or restructuring of our operations, significant fines, penalties, or other financial consequences, any of which may ultimately have a material adverse effect on our business, financial condition, and results of operations.

 

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For our sales and operations outside the U.S., we are similarly subject to various heavily enforced anti-bribery and anti-corruption laws, such as the U.S. Foreign Corrupt Practices Act of 1977, as amended, or FCPA, U.K. Bribery Act, and similar laws around the world. These laws generally prohibit U.S. companies and their employees and intermediaries from offering, promising, authorizing or making improper payments to foreign government officials for the purpose of obtaining or retaining business or gaining any advantage. We face significant risks if we, which includes our third parties, fail to comply with the FCPA and other anti-corruption and anti-bribery laws.

We leverage various third parties to sell our products and conduct our business abroad, including to government owned universities and hospitals. We, our distributors and channel partners, and our other third-party intermediaries may have direct or indirect interactions with officials and employees of government agencies or state-owned or affiliated entities (such as in the context of obtaining government approvals, registrations, or licenses or sales to government owned or controlled healthcare facilities, universities, institutes, clinics, etc.) and may be held liable for the corrupt or other illegal activities of these third-party business partners and intermediaries, our employees, representatives, contractors, partners, and agents, even if we do not explicitly authorize such activities. In many foreign countries, particularly in countries with developing economies, it may be a local custom that businesses engage in practices that are prohibited by the FCPA or other applicable laws and regulations. To that end, while we have adopted and implemented internal control policies and procedures and employee training and compliance programs to deter prohibited practices, such compliance measures ultimately may not be effective in prohibiting our employees, contractors, third parties, intermediaries or agents from violating or circumventing our policies and/or the law.

Responding to any enforcement action or related investigation may result in a materially significant diversion of management’s attention and resources and significant defense costs and other professional fees. Any violation of the FCPA, other applicable anti-bribery, anti-corruption laws, healthcare laws, and anti-money laundering laws could result in whistleblower complaints, adverse media coverage, investigations, loss of export privileges, severe criminal or civil sanctions and, in the case of the FCPA, suspension or debarment from U.S. government contracts, which could have a material and adverse effect on our reputation, business, financial condition, and results of operations for years after these investigations are resolved.

Governmental export or import controls could limit our ability to compete in foreign markets and subject us to liability if we violate them.

Our products may be subject to U.S. export controls. Governmental regulation of the import or export of our products, or our failure to obtain any required import or export authorization for our products, when applicable, could harm our international sales and adversely affect our revenue. Compliance with applicable regulatory requirements regarding the export of our products may create delays in the introduction of our products in international markets or, in some cases, prevent the export of our products to some countries altogether. Furthermore, U.S. export control laws and economic sanctions prohibit the shipment of certain products and services to countries, governments, and persons targeted by U.S. sanctions. If we fail to comply with export and import regulations and such economic sanctions, we may be fined or other penalties could be imposed, including a denial of certain export privileges. Moreover, any new export or import restrictions, new legislation or shifting approaches in the enforcement or scope of existing regulations, or in the countries, persons, or technologies targeted by such regulations, could result in decreased use of our products by, or in our decreased ability to export our products to existing or potential customers with international operations. Any decreased use of our products or limitation on our ability to export or sell access to our products would likely materially and adversely affect our business, financial condition, and results of operations.

A variety of risks associated with marketing our products internationally could materially adversely affect our business.

In addition to selling our products in the U.S., we have sold DABRA outside of the U.S. in the past. We are subject to additional risks related to operating in foreign countries, including:

 

   

differing regulatory requirements in foreign countries;

 

   

differing reimbursement regimes in foreign countries, including price controls and lower payment;

 

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unexpected changes in tariffs, trade barriers, price and exchange controls and other regulatory requirements;

 

   

economic weakness, including inflation, or political instability in particular foreign economies and markets;

 

   

compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;

 

   

foreign taxes, including withholding of payroll taxes;

 

   

foreign currency fluctuations, which could result in increased operating expenses and reduced revenue, and other obligations incident to doing business in another country;

 

   

difficulties staffing and managing foreign operations;

 

   

workforce uncertainty in countries where labor unrest is more common than in the U.S.;

 

   

potential liability under the FCPA or comparable foreign regulations;

 

   

challenges enforcing our contractual and intellectual property rights, especially in those foreign countries that do not respect and protect intellectual property rights to the same extent as the U.S.;

 

   

product shortages resulting from any events affecting raw material or finished good supply or distribution or manufacturing capabilities abroad;

 

   

the impact of the current situation relating to trade with China and tariffs and other trade barriers that may be implemented by governmental authorities;

 

   

the impact of public health epidemics on the global economy, such as the new coronavirus currently impacting the U.S., Europe, China and elsewhere; and

 

   

business interruptions resulting from geo-political actions, including war and terrorism.

These and other risks associated with our international operations may materially adversely affect our ability to attain or maintain profitable operations, which would have a material adverse effect on our business, financial condition, and results of operations.

The impact of the military action in Ukraine, and the actions that have been and could be taken by other countries, including new and stricter sanctions and actions taken in response to such sanctions, have affected, and may continue to affect, our business and results of operations, including our supply chain.

On February 24, 2022, Russian forces launched significant military action against Ukraine, and sustained conflict and disruption in the region is possible. The impact to Ukraine, as well as actions taken by other countries, including new and stricter sanctions imposed by Canada, the United Kingdom, the European Union, the U.S. and other countries and companies and organizations against officials, individuals, regions and industries in Russia and Ukraine, and actions taken by Russia in response to such sanctions, and each country’s potential response to such sanctions, tensions and military actions could have a material adverse effect on our operations. Any such material adverse effect from the conflict and enhanced sanctions activity may disrupt our supply chains and affect the delivery of our products and services or impair our ability to complete financial or banking transactions.

We also cannot predict the impact of any heightened geopolitical instability or the results that may follow, including reductions in consumer confidence, heightened inflation, cyber disruptions or attacks, higher natural gas costs, higher manufacturing costs and higher supply chain costs. The impact of Russia’s invasion of Ukraine could cause our results to differ materially from the outlook presented in this proxy statement.

 

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Changes in trade policies among the U.S. and other countries, in particular the imposition of new or higher tariffs, could place pressure on our average selling prices as our customers seek to offset the impact of increased tariffs on their own products. Increased tariffs or the imposition of other barriers to international trade could have a material adverse effect on our revenues and operating results.

In addition to current and proposed economic sanctions on Russia, which may increase or continue for an indefinite period of time as a result of Russia’s invasion of Ukraine, the U.S. has imposed or proposed new or higher tariffs on certain products exported by a number of U.S. trading partners, including China, Europe, Canada, and Mexico. In response, many of those trading partners, including China, have imposed or proposed new or higher tariffs on American products. Continuing changes in government trade policies create a heightened risk of further increased tariffs that impose barriers to international trade.

Tariffs on our customers’ products may adversely affect our gross profit margins in the future due to the potential for increased pressure on our selling prices by customers seeking to offset the impact of tariffs on their own products. We believe that increases in tariffs on imported goods or the failure to resolve current international trade disputes could have a material adverse effect on our business and operating results.

If we experience significant disruptions in our information technology systems, our business may be adversely affected.

We depend on our information technology systems for the efficient functioning of our business, including, historically, the manufacture, distribution and maintenance of DABRA, as well as for accounting, financial reporting, data storage, compliance, purchasing and inventory management. We do not have redundant information technology systems at this time. Our information technology systems may be subject to computer viruses, ransomware or other malware, attacks by computer hackers, failures during the process of upgrading or replacing software, databases or components thereof, power outages, hardware failures, telecommunication failures and user errors, among other malfunctions. In addition, a variety of our software systems are cloud-based data management applications hosted by third-party service providers whose security and information technology systems are subject to similar risks. Technological interruptions would impact our business operations would disrupt our operations, including our ability to timely ship and track product orders, project inventory requirements, manage our supply chain and otherwise adequately service our customers or disrupt our customers’ ability use our products for treatments. In the event we experience significant disruptions, we may be unable to repair our systems in an efficient and timely manner. Accordingly, such events may disrupt or reduce the efficiency of our entire operation and have a material adverse effect on our business, financial condition, and results of operations. Currently, we carry business interruption coverage to mitigate certain potential losses, but this insurance is limited in amount, subject to deductibles, and we cannot be certain that such potential losses will not exceed our policy limits. We are increasingly dependent on complex information technology to manage our infrastructure. Our information systems require an ongoing commitment of significant resources to maintain, protect and enhance our existing systems. Failure to maintain or protect our information systems and data integrity effectively could have a material adverse effect on our business, financial condition, and results of operations.

Failure to maintain effective internal controls could cause our investors to lose confidence in us and adversely affect the market price of our common stock. If our internal controls are not effective, we may not be able to accurately report our financial results or prevent fraud.

We are required, pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting. As an “emerging growth company,” we will avail ourselves of the exemption from the requirement that our independent registered public accounting firm attest to the effectiveness of our internal control over financial reporting under Section 404. However, we may no longer avail ourselves of this exemption when we cease to be an “emerging growth company” unless at that time we are still a “smaller reporting company.” When our independent registered public accounting firm is required to undertake an assessment of our internal control over financial reporting, the cost of our compliance with Section 404 will correspondingly increase. Our compliance with applicable provisions of Section 404 will require that we incur substantial accounting expense and expend significant management time on compliance-related issues as we implement additional corporate governance practices and comply with reporting requirements. Moreover, if we are not able to comply with the requirements of Section 404 applicable to us in a timely manner, or if we or our independent registered public accounting firm identifies deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, the market price of our stock could decline and we could be subject to sanctions or investigations by the SEC or other regulatory authorities, which would require additional financial and management resources.

 

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As previously disclosed, in 2019, we identified material weaknesses in our internal control over financial reporting. A material weakness is a significant deficiency, or a combination of significant deficiencies, in internal control over financial reporting such that it is reasonably possible that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. The material weaknesses that we identified related to the aggregation of control deficiencies in our control environment, in particular an inappropriate “tone at the top” set by certain members of senior management, a failure to promote adherence to our Code of Ethics and Conduct, and the lack of sufficient competent resources in key roles at the organization.

The material weaknesses discussed were remediated as of December 31, 2019. We incurred significant costs to remediate those weaknesses, primarily personnel costs, external consulting and legal fees, system implementation costs, and related indirect costs including the use of facilities and technology. However, completion of remediation does not provide assurance that our controls will operate properly or that our financial statements will be free from error, which may undermine our ability to provide accurate, timely and reliable reports on our financial and operating results. There may be additional undetected material weaknesses in our internal control over financial reporting, as a result of which we may not detect financial statement errors on a timely basis. Further, to the extent we identify additional material weaknesses, we will not be able to fully assess whether corrective measures will remediate the material weakness in our internal control over financial reporting until we have completed our implementation efforts and sufficient time passes in order to evaluate their effectiveness. In addition, if we identify additional errors that result in material weaknesses in our internal control over financial reporting, we may not detect errors on a timely basis and our financial statements may be materially misstated. Moreover, in the future we may engage in business transactions, such as acquisitions, reorganizations or implementation of new information systems that could negatively affect our internal control over financial reporting and result in material weaknesses.

If we identify additional material weaknesses in our internal control over financial reporting, if we are unable to comply with the requirements of Section 404 in a timely manner, if we are unable to assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting, we may be late with the filing of our periodic reports, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock could be negatively affected. As a result of such failures, we could also become subject to investigations by the stock exchange on which our securities are listed, the SEC, or other regulatory authorities, and become subject to litigation from investors and stockholders, which could harm our reputation, financial condition or divert financial and management resources from our core business and would have a material adverse effect on our business, financial condition and results of operations.

If we pursue our legacy business, in order to increase our revenue over the longer term, we will need to grow the size of our organization, and we may experience difficulties in managing this growth.

At June 30, 2022, we had 22 full-time employees, and as of the date hereof we have six employees. In the second quarter of 2022, we initiated a RIF, in which approximately 65% of our full-time employees were immediately terminated and the non-terminated employees were offered conditional retention arrangements pursuant to which it was expected that they would continue to provide services through the third quarter of 2022. On September 2, 2022, we completed the RIF, pursuant to which an additional 20% of our employees were terminated, with effective dates ranging from August 1, 2022 to September 2, 2022.

The future financial performance of our legacy business and our ability to successfully market and sell our products depends, in part, on our ability to hire and retain qualified personnel and to effectively manage any future growth, and our management may also have to divert a disproportionate amount of its attention away from day-to-day activities in order to devote a substantial amount of time to managing these growth activities.

If we are not able to effectively expand our organization by hiring new employees and expanding our groups of consultants and contractors, we may not be able to successfully implement the tasks necessary to further develop and commercialize our products and, accordingly, may not achieve our research, sales and marketing goals, which would have a material adverse effect on our business, financial condition, and results of operations.

 

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Employment of social media as part of our marketing strategy could give rise to regulatory violations, liability, fines, breaches of data security or reputational damage.

Despite our efforts to monitor evolving social media communication guidelines and comply with applicable rules, there is risk that the use of social media by us, our employees or our customers to communicate about our products or business may cause us to be found in violation of applicable requirements, including requirements of regulatory bodies such as the FDA and Federal Trade Commission. For example, promotional communications and endorsements on social media that, among other things, promote our products for uses or in patient populations that are not described in the product’s approved labeling (known as “off-label uses”), do not contain a fair balance of information about risks associated with using our products, make comparative or other claims about our products that are not supported by sufficient evidence, and/or do not contain required disclosures could result in an enforcement actions against us. In addition, adverse events, product complaints, off-label usage by physicians, unapproved marketing or other unintended messages posted on social media could require an active response from us, which may not be completed in a timely manner and could result in regulatory action by a governing body. Further, our employees may knowingly or inadvertently make use of social media in ways that may not comply with our corporate policies or other legal or contractual requirements, which may give rise to liability, lead to the loss of trade secrets or other intellectual property or result in public exposure of personal information of our employees, clinical trial patients, customers and others. Furthermore, negative posts or comments about us or our products in social media could seriously damage our reputation, brand image and goodwill, which would have a material adverse effect on our business, financial condition, and results of operations.

Security breaches, loss of data and other disruptions could compromise sensitive information related to our business or prevent us from accessing critical information and expose us to liability, which could adversely affect our business and our reputation.

In the ordinary course of our business, we may become exposed to, or collect and store sensitive data, including procedure-based information and legally protected health information, credit card, and other financial information, insurance information, and other potentially personally identifiable information. We also store sensitive intellectual property and other proprietary business information. Although we take measures to protect sensitive information from unauthorized access or disclosure, our information technology, or IT, and infrastructure, and that of our third-party billing and collections provider and other technology partners, may be vulnerable to cyber-attacks by hackers or viruses or breached due to employee error, malfeasance or other disruptions. We rely extensively on IT systems, networks and services, including internet sites, data hosting and processing facilities and tools, physical security systems and other hardware, software and technical applications and platforms, some of which are managed, hosted, provided and/or used by third-parties or their vendors, to assist in conducting our business. A significant breakdown, invasion, corruption, destruction or interruption of critical information technology systems or infrastructure, by our workforce, others with authorized access to our systems or unauthorized persons could negatively impact operations. The ever-increasing use and evolution of technology, including cloud-based computing, creates opportunities for the unintentional dissemination or intentional destruction of confidential information stored in our or our third-party providers’ systems, portable media or storage devices. We could also experience a business interruption, theft of confidential information or reputational damage from industrial espionage attacks, malware or other cyber-attacks, which may compromise our system infrastructure or lead to data leakage, either internally or at our third-party providers. Although the aggregate impact on our operations and financial condition has not been material to date, we have been the target of events of this nature and expect them to continue as cybersecurity threats have been rapidly evolving in sophistication and becoming more prevalent in the industry. We are investing in protections and monitoring practices of our data and IT to reduce these risks and continue to monitor our systems on an ongoing basis for any current or potential threats. There can be no assurance, however, that our efforts will prevent breakdowns or breaches to our or our third-party providers’ databases or systems that could adversely affect our business.

 

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Risks Related to Government Regulation and our Industry for our Legacy Business

Regulatory compliance is expensive, complex and uncertain, and a failure to comply could lead to enforcement actions against us and other negative consequences for our business.

The FDA and similar agencies regulate our products as medical devices. Complying with these regulations is costly, time consuming, complex and uncertain. FDA regulations and regulations of similar agencies are wide-ranging and include, among other things, oversight of:

 

   

product design, development, manufacture (including suppliers) and testing;

 

   

pre-clinical and clinical studies;

 

   

product safety and effectiveness;

 

   

product labeling;

 

   

product storage and shipping;

 

   

record keeping;

 

   

pre-market clearance or approval;

 

   

marketing, advertising and promotion;

 

   

product sales and distribution;

 

   

product changes;

 

   

product recalls; and

 

   

post-market surveillance and reporting of deaths or serious injuries and certain malfunctions.

Our current products are subject to extensive regulation by the FDA and non-U.S. regulatory agencies. Further, all of our potential products and improvements of our current products will be subject to extensive regulation and will likely require permission from regulatory agencies and ethics boards to conduct clinical trials, and clearance or approval from the FDA and non-U.S. regulatory agencies prior to commercial sale and distribution. Failure to comply with applicable U.S. requirements may subject us to a variety of administrative or judicial actions and sanctions, such as Form 483 observations, warning letters, untitled letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, civil penalties, and criminal prosecution. The FDA can also refuse to clear or approve pending applications. Any enforcement action by the FDA and other comparable non-U.S. regulatory agencies could have a material adverse effect on our business, financial condition, and results of operations.

Our medical device operations are subject to pervasive and continuing FDA regulatory requirements.

Medical devices regulated by the FDA are subject to “general controls” which include:

 

   

registration with the FDA; listing commercially distributed products with the FDA;

 

   

complying with applicable cGMPs under the Quality System Regulations, or QSR;

 

   

filing reports with the FDA of and keeping records relative to certain types of adverse events associated with devices under the medical device reporting regulation;

 

   

assuring that device labeling complies with device labeling requirements;

 

   

reporting recalls and certain device field removals and corrections to the FDA; and

 

   

obtaining premarket notification 510(k) clearance for devices prior to marketing.

 

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As disclosed above, we have entered into the Settlement Agreement, and the agreements with the participating states, resolving a DOJ civil investigation concerning certain Covered Conduct (as defined in the Settlement Agreement), and the OIG has agreed, conditioned upon our full payment of amounts owed in the Settlement Agreement, and in consideration of our obligations under a Corporate Integrity Agreement, to release our permissive exclusion rights and refrain from instituting any administrative action seeking to exclude us from participating in Medicare, Medicaid, or other federal health care programs as a result of the Covered Conduct. The Corporate Integrity Agreement has a five-year term and imposes monitoring, reporting, certification, documentation, oversight, screening, and training obligations on us, including the hiring of a compliance officer and independent review organization.

Some devices known as “510(k)-exempt” devices can be marketed without prior marketing clearance or approval from the FDA. In addition to the “general controls,” Class II medical devices are also subject to “special controls,” including, in many cases, adherence to a particular guidance document and compliance with the performance standard. As Class II, 510(k)-cleared devices, our products are subject to both general and special controls. Instead of obtaining 510(k) clearance, most Class III devices are subject to premarket approval, or PMA. We do not believe any of our current products are Class III devices, but future products could be, which would subject them to the PMA process.

Many medical devices, such as medical lasers, are also regulated by the FDA as “electronic products.” In general, manufacturers and marketers of “electronic products” are subject to certain FDA regulatory requirements intended to ensure the radiological safety of the products. These requirements include, but are not limited to, filing certain reports with the FDA about the products and defects/safety issues related to the products as well as complying with radiological performance standards.

In addition, we may be required to conduct costly post-market testing and surveillance to monitor the safety or effectiveness of our products, and we must comply with medical device reporting, or MDR, requirements, including the reporting of adverse events and malfunctions related to our products. We are required to file MDRs if our products may have caused or contributed to a serious injury or death or malfunctioned in a way that could likely cause or contribute to a serious injury or death if it were to recur. Any such MDR that reports a significant adverse event could result in negative publicity, which could harm our reputation and future sales. Later discovery of previously unknown problems with our products, including unanticipated adverse events or adverse events of unanticipated severity or frequency, manufacturing problems, or failure to comply with regulatory requirements may result in changes to labeling, restrictions on such products or manufacturing processes, withdrawal of the products from the market, voluntary or mandatory recalls, a requirement to repair, replace or refund the cost of any medical device we manufacture or distribute, fines, suspension of regulatory clearances or approvals, product seizures, injunctions or the imposition of civil or criminal penalties which may have a material adverse effect on our business, financial condition, and results of operations.

The medical device industry is now experiencing greater scrutiny and regulation by federal, state and foreign governmental authorities. Companies in our industry are subject to more frequent and more intensive reviews and investigations, often involving the marketing, business practices, and product quality management. For example, as discussed above, on December 28, 2020, we entered into a Settlement Agreement with the DOJ to resolve a civil False Claims Act investigation and related civil action, and in connection with the Settlement Agreement, we also have reached agreements that resolve previously disclosed related investigations conducted by certain state attorneys general. Under the Settlement Agreement, and the agreements with the participating states, we are required to make an initial payment of $2.5 million, of which we paid $2.4 million in December 2020 and $0.1 million in April 2021. We also may be required to make additional payments in the future upon the achievement of revenue targets or consummating a change-in-control transaction, such as the merger with Catheter. If within any of the four full fiscal years after the effective date of the Settlement Agreement (2021, 2022, 2023, and 2024) our fiscal year revenues exceed $10 million, we will be obligated to pay the United States and Medicaid Participating States an additional: (i) $500,000 for 2021, (ii) $750,000 for 2022, (iii) $1,000,000 for 2023, and (iv) $1,250,000 for 2024, for each corresponding fiscal year where our revenue exceeds $10 million. If a change-in-control transaction closes on or before the fourth anniversary of the effective date of the Settlement Agreement, we are required to pay to the United States and Medicaid Participating States, within 30 calendar days, (i) a total of $5 million and (ii) an additional 4% of the value attributed to us in the change-in-control transaction if the value attributable to us is in excess of $100 million, such total payment not to exceed $28 million. We also entered into a 5-year Corporate Integrity Agreement with the OIG. The Settlement Agreement does not include a release for any conduct other than the Covered Conduct or any criminal liability related to the Covered Conduct. This settlement and our ongoing obligations under the Corporate Integrity Agreement may result in greater and continuing governmental scrutiny of our business in the future.

 

 

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Additionally, federal, state and foreign governments and entities have enacted laws and issued regulations and other standards requiring increased visibility and transparency of our interactions with healthcare providers. For example, the U.S. Physician Payment Sunshine Act, now known as Open Payments, requires us to report to the Centers for Medicare & Medicaid Services, or CMS, payments and other transfers of value to all U.S. physicians and U.S. teaching hospitals, with the reported information made publicly available on a searchable website. On December 28, 2020, we entered into the Settlement Agreement with the DOJ relating to claims under the civil False Claims Act investigation concerning, among other things, whether we marketed and promoted DABRA devices for unapproved uses that were not covered by federal healthcare programs, and whether we paid improper remuneration to physicians and other healthcare providers in violation of the Anti-Kickback Statute. Effective January 2022, we are also required to collect and report information on payments or transfers of value to physician assistants, nurse practitioners, clinical nurse specialists, certified registered nurse anesthetists, and certified nurse-midwives. Failure to comply with these legal and regulatory requirements could impact our business, and we have had and will continue to spend substantial time and financial resources to develop and implement enhanced structures, policies, systems and processes to comply with these legal and regulatory requirements, which may also impact our business and which could have a material adverse effect on our business, financial condition, and results of operations for years after any resolution of these investigations and any resulting claims are resolved.

Product clearances and approvals can often be denied or significantly delayed.

Under FDA regulations, unless exempt, a new medical device may only be commercially distributed after it has received 510(k) clearance, is authorized through the de novo classification process, or is the subject of an approved PMA. The FDA will clear marketing of a medical device through the 510(k) process if it is demonstrated that the new product is substantially equivalent to another legally marketed product not subject to a PMA. Sometimes, a 510(k) clearance must be supported by preclinical and clinical data. Our ability to enroll patients in clinical trials, including our atherectomy indication trial, could be impacted by the COVID-19 outbreak, as many patients are electing or being asked to delay procedures at this time.

The PMA process typically is more costly, lengthy and stringent than the 510(k) process. Unlike a 510(k) review which determines “substantial equivalence,” a PMA requires that the applicant demonstrate reasonable assurance that the device is safe and effective by producing valid scientific evidence, including data from preclinical studies and human clinical trials. Therefore, to obtain regulatory clearance or approvals, we typically must, among other requirements, provide the FDA and similar foreign regulatory authorities with preclinical and clinical data that demonstrate to their satisfaction that our products satisfy the criteria for approval. Preclinical testing and clinical trials must comply with the regulations of the FDA and other government authorities in the U.S. and similar agencies in other countries.

We may be required to obtain PMAs, PMA supplements or additional 510(k) premarket clearances to market modifications to our existing products. The FDA requires device manufacturers to make and document a determination of whether a device modification requires approval or clearance; however, the FDA can review a manufacturer’s decision. The FDA may not agree with our decisions not to seek approvals or clearances for particular device modifications. If the FDA requires us to obtain PMAs, PMA supplements or premarket clearances for any modification to a previously cleared or approved device, we may be required to cease manufacturing and marketing the modified device and perhaps also to recall such modified device until we obtain FDA clearance or approval. We may also be subject to significant regulatory fines or penalties.

The FDA may not approve future PMA applications or supplements or clear our 510(k) applications on a timely basis or at all. For example, the COVID-19 outbreak could affect the FDA’s ability to review applications or supplements. Such delays or refusals could have a material adverse effect on our business, financial condition, and results of operations.

The FDA may also change its clearance and approval policies, adopt additional regulations or revise existing regulations, or take other actions which may prevent or delay approval or clearance of our products under development or impact our ability to modify our currently approved or cleared products on a timely basis. Any of these actions could have a material adverse effect on our business, financial condition, and results of operations.

 

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International regulatory approval processes may take more or less time than the FDA clearance or approval process. If we fail to comply with applicable FDA and comparable non-U.S. regulatory requirements, we may not receive regulatory clearances or approvals or may be subject to FDA or comparable non-U.S. enforcement actions. We may be unable to obtain future regulatory clearance or approval in a timely manner, or at all, especially if existing regulations are changed or new regulations are adopted. For example, the FDA clearance or approval process can take longer than anticipated due to requests for additional clinical data and changes in regulatory requirements. A failure or delay in obtaining necessary regulatory clearances or approvals would materially adversely affect our business, financial condition, and results of operations.

Although we have obtained regulatory clearance for our products in the U.S. and certain non-U.S. jurisdictions, they will remain subject to extensive regulatory scrutiny.

Although our products have obtained regulatory clearance in the U.S. and certain non-U.S. jurisdictions, they will be subject to ongoing regulatory requirements for manufacturing, labeling, packaging, storage, advertising, promotion, sampling, record-keeping, conduct of post-marketing studies, and submission of safety, effectiveness, and other post-market information, including both federal and state requirements in the U.S. and requirements of comparable non-U.S. regulatory authorities.

Our manufacturing facility is required to comply with extensive requirements imposed by the FDA and comparable foreign regulatory authorities, including ensuring that quality control and manufacturing procedures conform to the QSR or similar regulations set by foreign regulatory authorities. Following our voluntary recalls, we have a heightened potential for an FDA inspection. As such, we will be subject to continual review and inspections to assess compliance with the QSR and adherence to commitments made in any 510(k) application. Accordingly, we continue to expend time, money, and effort in all areas of regulatory compliance, including manufacturing, production and quality control.

Any regulatory clearances or approvals that we have received for our products will be subject to limitations on the cleared or approved indicated uses for which the product may be marketed and promoted or to the conditions of approval or contain requirements for potentially costly post-marketing testing. We are required to report certain adverse events and production problems, if any, to the FDA and comparable foreign regulatory authorities. Any new legislation addressing product safety issues could result in increased costs to assure compliance. The FDA and other agencies, including the DOJ, closely regulate and monitor the post-clearance or approval marketing and promotion of products to ensure that they are marketed and distributed only for the cleared or approved indications and in accordance with the provisions of the cleared or approved labeling.

Promotional communications with respect to devices are subject to a variety of legal and regulatory restrictions and must be consistent with the information in the product’s cleared or approved labeling. As such, we may not promote our products for indications or uses for which they do not have clearance or approval. However, physicians can use their independent and professional judgment and use our products for off-label purposes, as FDA regulations do not restrict a physician’s choice of treatment with the practice of medicine. Prior to making certain changes to a cleared product, including certain changes to product labeling, the holder of a cleared 510(k) application may be required to submit a new premarket application and obtain clearance or approval.

If a regulatory agency discovers previously unknown problems with our products, such as adverse events of unanticipated severity or frequency, or problems with our facility where the product is manufactured, or disagrees with the promotion, marketing or labeling of our products, such regulatory agency or enforcement authority may impose restrictions on that product or us, including requiring withdrawal of the product from the market. In addition to this type of penalty for failing to comply with applicable regulatory requirements, a regulatory agency or enforcement authority may, among other things:

 

   

subject our manufacturing facility to an adverse inspectional finding or Form 483, or other compliance or enforcement notice, communication, or correspondence;

 

   

issue warning or untitled letters that would result in adverse publicity or may require corrective advertising;

 

   

impose civil or criminal penalties;

 

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suspend or withdraw regulatory clearances or approvals;

 

   

refuse to clear or approve pending applications or supplements to approved applications submitted by us;

 

   

impose restrictions on our operations, including closing our sub-assembly suppliers’ facilities;

 

   

seize or detain products; or

 

   

require a product recall.

In addition, violations of the Federal Food, Drug, and Cosmetic Act, or FDCA, relating to the promotion of approved products may lead to investigations alleging violations of federal and state healthcare fraud and abuse and other laws, as well as state consumer protection laws. As disclosed previously, we settled a DOJ civil False Claims Act investigation concerning, among other things, whether we marketed and promoted DABRA devices for unapproved uses that were not covered by federal healthcare programs.

Any government adverse finding, regulatory sanction or investigation of alleged violations of law could require us to expend significant time and resources in response and could generate negative publicity. Any failure to comply with ongoing regulatory requirements may significantly and adversely affect our ability to commercialize and generate revenue from our products. If regulatory sanctions are applied or if regulatory clearance or approval is withdrawn, it would have a material adverse effect on our business, financial condition, and results of operations.

Our products may be subject to additional recalls, revocations or suspensions after receiving FDA or foreign approval or clearance, which could divert managerial and financial resources, harm our reputation, and adversely affect our business.

The FDA and similar foreign governmental authorities have the authority to order the recall of our products because of any failure to comply with applicable laws and regulations, or defects in design or manufacture. A government mandated or voluntary product recall by us could occur because of, for example, component failures, device malfunctions, or other adverse events, such as serious injuries or deaths, or quality-related issues such as manufacturing errors or design or labeling defects.

For example, we have conducted four recent recalls related to our DABRA product. In September 2019, we initiated a voluntary recall of our DABRA catheters to replace 12-month shelf life labeled catheters with two-month shelf life labeled catheters, which we believe will significantly reduce the number of catheters that fail to calibrate. We submitted a request for termination to the FDA in February 2020, and as of July 2020, 98% of the affected product has been returned to us. A voluntary recall of DABRA lasers was initiated in January 2020 to correct a software issue that could result in user or patient injury or may adversely impact laser performance. This recall was classified as a Class II recall by the FDA. The FDA terminated this recall on November 1, 2021. In addition, in July 2020 we initiated a voluntary recall of our DABRA lasers to replace the wheels with lower profile wheels that were cleared by the FDA in the DABRA 510(k). We formally notified the FDA of this recall in accordance with applicable law. This field correction was completed in March 2021. The Company considers this recall complete and submitted to the FDA a final status report in March 2021 requesting termination of this field correction. In October 2020 we initiated a voluntary recall of our DABRA lasers to replace the footswitch with a footswitch that meets specification for protection from ingress of solids or liquids. We formally notified the FDA of this recall in accordance with applicable law. This recall was classified as a Class II recall by the FDA. This field correction was completed in October 2021, and the Company received notice in February 2022 that the FDA has terminated this field correction. Any government-mandated recall or additional voluntary recall by us could occur as a result of component failures, manufacturing errors, design or labeling defects or other issues. These voluntary recalls and any future recalls of our products could divert managerial and financial resources, harm our reputation and adversely affect our business.

In addition, the FDA conducted an unannounced facility inspection in December 2019. The FDA issued to us a Form 483 that included observations that schedules for the adjustment, cleaning, and other maintenance of equipment have not been adequately established, a device master record index was not current, and document control procedures have not been fully established. We responded to the FDA with the corrective measures we are taking and to address the issued identified in the Form 483 and based on this information, the FDA issued to us an Establishment Inspection Report, or EIR, closing out the inspection. All actions are complete, and the final Form 483 report was sent to the FDA on September 25, 2020.

 

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Also, we have been engaged in additional shelf life testing at the FDA’s request as part of a special 510(k). Due to recent variations noted in the shelf life of the catheter during our testing procedures, we have paused commercial sales of DABRA catheters not being used for the atherectomy clinical trial. We submitted additional test data in March 2021 related to the DABRA catheter shelf life in a traditional 510(k), which was cleared by the FDA in July 2021.

Depending on the corrective action we take to address a product’s deficiencies or defects, the FDA may require, or we may voluntarily decide, that we will need to seek and obtain new approvals or clearances for the device before we may market or distribute the corrected device. Seeking such approvals or clearances may delay our ability to replace the recalled devices in a timely manner. Moreover, if we do not adequately address problems associated with our devices, we may face additional regulatory enforcement action, including adverse inspection findings, FDA warning letters, product seizure, injunctions, administrative penalties, or civil or criminal fines. We may also be required to bear other costs or take other actions that may have a negative impact on our sales as well as face significant adverse publicity or regulatory consequences, which could harm our business, including our ability to market our products in the future.

As part of our investigation into the DABRA device performance, we conducted an internal audit of the clinical study that was used to support the device’s 510(k) application. The audit consisted of review of clinical study documentation that was retained by the study sponsor and found adequate evidence to support the safety and efficacy reported in the clinical study report submitted with the 510(k) application. The other observations identified by the audit were found to not have a major impact on the reported results of the study. If FDA were to disagree with the outcome of the audit and take the position that the issues with the clinical trial were reportable to the FDA, we could be required to issue a safety alert to our customers or initiate a recall, we could incur product liability and other costs, product clearances or approvals could be delayed, suspended or revoked, enforcement action could be initiated by regulatory authorities, we could be required to cease commercialization of DABRA and our business could otherwise be adversely affected.

In addition, we are subject to medical device reporting regulations that require us to report to the FDA or similar foreign governmental authorities if one of our products may have caused or contributed to a death or serious injury or if we become aware that it has malfunctioned in a way that would be likely to cause or contribute to a death or serious injury if the malfunction recurred. After a May 2018 inspection, the FDA issued to us a Form 483 that included observations for failure to properly evaluate whether certain complaints related to DABRA that we have received rose to a level required to be reported to the FDA. At that time, in response, we informed the FDA that we have modified our complaint review procedures and we completed a retrospective evaluation and have not found any complaints which require a submission to the FDA. We have not requested, and the FDA has not issued, an EIR related to this inspection.

The failure by us to properly identify reportable events or to file timely reports with the FDA can subject us to sanctions and penalties, including warning letters and recalls. Physicians, hospitals and other healthcare providers may make similar reports to regulatory authorities. Any such reports may trigger an investigation by the FDA or similar foreign regulatory bodies, which could divert managerial and financial resources, harm our reputation and have a material adverse effect on our business, financial condition, and results of operations.

 

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Material modifications to our devices may require new 510(k) clearances or premarket approvals or may require us to recall or cease marketing our devices until clearances or approvals are obtained.

Material modifications to the intended use or technological characteristics of our devices will require new 510(k) clearances or premarket approvals or require us to recall or cease marketing the modified devices until these clearances or approvals are obtained. Based on FDA published guidelines, the FDA requires device manufacturers to initially make and document a determination of whether or not a modification requires a new approval, supplement, or clearance; however, the FDA can review a manufacturer’s decision. Any modification to an FDA-cleared device that would significantly affect its safety or efficacy or that would constitute a major change in its intended use would constitute a material modification and would require a new 510(k) clearance or possibly a premarket approval. If required, we may not be able to obtain additional 510(k) clearances or premarket approvals for new devices or for modifications to, or additional indications for, our devices in a timely fashion, or at all. Delays in obtaining required future clearances would harm our ability to introduce new or enhanced devices in a timely manner, which in turn would harm our future growth. We have made modifications to our devices in the past and will make additional modifications in the future that we believe do not or will not require additional clearances or approvals. If the FDA disagrees and requires new clearances or approvals for the modifications, we may be required to recall and to stop selling or marketing our devices as modified, which could harm our operating results and require us to redesign our platform devices. In these circumstances, we may also be subject to significant enforcement actions such as significant regulatory fines or penalties. Furthermore, the FDA’s ongoing review of the 510(k) program may make it more difficult for us to modify our previously cleared products, either by imposing stricter requirements on when a new 510(k) for a modification to a previously cleared product must be submitted or applying more onerous review criteria to such submissions.

If we or our suppliers fail to comply with the FDA’s Quality System Regulation or any applicable state equivalent, our operations could be interrupted, and our potential product sales and operating results could suffer.

We and our suppliers are required to comply with the FDA’s QSR, which delineates, among other things, the design controls, document controls, purchasing controls, identification and traceability, production and process controls, acceptance activities, nonconforming product requirements, corrective and preventive action requirements, labeling and packaging controls, handling, storage, distribution and installation requirements, complaint handling, records requirements, servicing requirements, and statistical techniques potentially applicable to the production of our medical devices. We and our suppliers are also subject to the regulations of foreign jurisdictions regarding the manufacturing process if we market products overseas. The FDA enforces the QSR through periodic and announced or unannounced inspections of manufacturing facilities. Our facility has been inspected by the FDA and other regulatory authorities, and we anticipate that we and certain of our third-party component suppliers will be subject to additional future inspections. If our facility or manufacturing processes or our suppliers’ facilities or manufacturing processes are found to be in non-compliance or fail to take satisfactory corrective action in response to adverse QSR inspectional findings, the FDA could take legal or regulatory enforcement actions against us and/or our products, including but not limited to the cessation of sales or the initiation of a recall of distributed products, which could impair our ability to produce our products in a cost-effective and timely manner in order to meet our customers’ demands. We may also be required to bear other costs or take other actions that may have a negative impact on our future sales and our ability to generate profits.

Current regulations depend heavily on administrative interpretation. If the FDA does not believe that we are in compliance with applicable FDA regulations, the agency could take legal or regulatory enforcement actions against us and/or our products. We are also subject to periodic inspections by the FDA, other governmental regulatory agencies, as well as certain third-party regulatory groups. Future interpretations made by the FDA or other regulatory bodies made during the course of these inspections may vary from current interpretations and may adversely affect our business and prospects. The FDA’s and other comparable non-U.S. regulatory agencies’ statutes, regulations, or policies may change, and additional government regulation or statutes may be enacted, which could increase post-approval regulatory requirements, or delay, suspend, prevent marketing of any cleared or approved products or necessitate the recall of distributed products. We cannot predict the likelihood, nature or extent of adverse governmental regulation that might arise from future legislative or administrative action, either in the U.S. or abroad.

The medical device industry has been under heightened FDA scrutiny as the subject of government investigations and enforcement actions. If our operations and activities are found to be in violation of any FDA laws or any other governmental regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines and other legal and/or agency enforcement actions. Any penalties, damages, fines, or curtailment or restructuring of our operations or activities could adversely affect our ability to operate our business and our financial results. The risk of us being found in violation of FDA laws is increased by the fact that many of these laws are broad and their provisions are open to a variety of interpretations. Any action against us for violation of these laws, even if we successfully defend ourselves against that action and its underlying allegations, could cause us to incur significant legal expenses and divert management’s attention from the operation of our business. Where there is a dispute with a federal or state governmental agency that cannot be resolved to the mutual satisfaction of all relevant parties, we may determine that the costs, both real and contingent, are not justified by the commercial returns to us from maintaining the dispute or the product.

 

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Various claims, design features or performance characteristics of our medical devices, that we regarded as permitted by the FDA without new marketing clearance or approval, may be challenged by the FDA or state or foreign regulators. The FDA or state or foreign regulatory authorities may find that certain claims, design features or performance characteristics, in order to be made or included in the products, may have to be supported by further clinical studies and marketing clearances or approvals, which could be lengthy, costly and possibly unobtainable.

If any of our products cause or contribute to a death or a serious injury, or malfunction in certain ways, we will be required to report under applicable medical device reporting regulations, which can result in voluntary corrective actions or agency enforcement actions.

Under the FDA medical device reporting regulations, or MDR regulations, medical device manufacturers are required to report to the FDA information that a device has or may have caused or contributed to a death or serious injury or has malfunctioned in a way that would likely cause or contribute to death or serious injury if the malfunction of the device or one of our similar devices were to recur. For example, for DABRA the most frequent complication reported to us as a result of post-market surveillance is clinically non-significant vessel perforation. In connection with an internal audit of our regulatory reporting systems, we have revised and continue to monitor our internal operating procedures for complaint handling and adverse event classifications. We reviewed all adverse medical events that have been reported to us and retrospectively filed three MDRs with the FDA.

If we fail to report events required to be reported to the FDA within the required timeframes, or at all, the FDA could take enforcement action against us. Any such adverse event involving our products also could result in future voluntary corrective actions, such as recalls or customer notifications, or agency action, such as inspection or enforcement action. Any corrective action, whether voluntary or involuntary, as well as defending ourselves in a lawsuit, will require our time and capital, distract management from operating our business, and may harm our reputation and have a material adverse effect on our business, financial condition, and results of operations.

Healthcare reform initiatives and other administrative and legislative proposals may adversely affect our business, financial condition, results of operations and cash flows in our key markets.

There have been and continue to be proposals by the federal government, state governments, regulators and third-party payors to control or manage the increasing costs of healthcare and, more generally, to reform the U.S. healthcare system.

Certain of these proposals could limit the prices we are able to charge for our products or the coverage and reimbursement available for our products and could limit the acceptance and availability of our products on the market. The adoption of proposals to control costs could have a material adverse effect on our business, financial condition, and results of operations.

For example, in the U.S., in March 2010, the PPACA was passed. The PPACA was intended to make significant changes to the way healthcare is financed by both federal and state governments and private insurers, with direct impacts to the medical device industry. Among other provisions, the PPACA imposed, with limited exceptions, a deductible excise tax of 2.3% on sales of medical devices by entities, including us, that manufacture or import certain medical devices offered for sale in the U.S., including many of our products. The Consolidated Appropriations Act, 2016 (Pub. L. 114-113), signed into law in December 2015, included a two-year moratorium on the medical device excise tax. A second two-year moratorium on the medical device excise tax was signed into law in January 2018 as part of the Extension of Continuing Appropriations Act, 2018 (Pub. L. 115-120), extending the moratorium through December 31, 2019. On December 20, 2019, President Trump signed into law a permanent repeal of the medical device tax under the PPACA, but there is no guarantee that Congress or the President will not reverse course in the future. If such an excise tax on sales of certain of our products in the U.S. is enacted, it could have a material adverse effect on our business, financial condition, and results of operations.

 

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In addition, the PPACA and the Medicare Access and CHIP Reauthorization Act of 2015 substantially changed the way healthcare is delivered and financed by both governmental and private insurers. These changes included the creation of demonstration programs and other value-based purchasing initiatives that provide financial incentives for physicians and hospitals to reduce costs, including incentives for furnishing low-cost therapies for chronic wounds even if those therapies are less effective than our products. Under the Trump Administration, there were ongoing efforts to modify or repeal all or part of PPACA or take executive action that affects its implementation. Tax reform legislation was passed that includes provisions that impact healthcare insurance coverage and payment such as the elimination of the tax penalty for individuals who do not maintain health insurance coverage (the so-calledindividual mandate”). Such actions or similar actions could have a negative effect on the utilization of our products.

On December 18, 2019, the U.S. Court of Appeals for the Fifth Circuit upheld a lower court’s determination in Texas v. Azar, 4:18-cv-00167, that the individual mandate was unconstitutional and remanded the case to the lower court for further analysis as to whether PPACA as a whole is unconstitutional because the individual mandate is not severable from other provisions of the law. In June 2021, the U.S. Supreme Court held that Texas and other challengers had no legal standing to challenge the PPACA, dismissing the case on procedural grounds without specifically ruling on the constitutionality of the PPACA. Thus, the PPACA will remain in effect in its current form. Further, legislative and regulatory changes under the PPACA remain possible, although the new federal administration under President Biden has signaled that it plans to build on the PPACA and expand the number of people who are eligible for health insurance under it. It is unclear how future litigation and healthcare measures promulgated by the Biden administration will impact the implementation of the PPACA and our business, financial condition and results of operations. Complying with any new legislation or reversing changes implemented under the PPACA could be time-intensive and expensive, resulting in a material adverse effect on our business.

Other healthcare reform legislative changes have also been proposed and adopted in the U.S. since the PPACA was enacted. In August 2011, the Budget Control Act of 2011, among other things, led to aggregate reductions of Medicare payments to providers of 2% per fiscal year. These reductions went into effect in April 2013, which, due to subsequent legislative amendments, will stay in effect through 2031, with the exception of a temporary suspension implemented under various COVID-19 relief legislation from May 1, 2020 through March 31, 2022, unless additional congressional action is taken. Under current legislation, the actual reduction in Medicare payments will vary from 1% in 2022 to up to 4% in the final fiscal year of the sequester. In January 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, further reduced Medicare payments to several types of providers, including hospitals, imaging centers and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years.

Further, recently there has been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products, which has resulted in several U.S. Congressional inquiries and proposed, and enacted federal legislation designed to bring transparency to product pricing and reduce the cost of products and services under government healthcare programs. As a result of reform of the U.S. healthcare system, changes in reimbursement policies or healthcare cost containment initiatives may limit or restrict coverage and reimbursement for procedures using our products and cause our revenue to decline. Additionally, individual states in the U.S. have also become increasingly active in passing legislation and implementing regulations designed to control product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures. Moreover, Medicare, regional healthcare authorities and individual hospitals are increasingly using bidding procedures to determine what products to purchase, and which suppliers will be included in their healthcare programs. Adoption of price controls and other cost-containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures may prevent or limit our ability to generate revenue, attain profitability.

Various new healthcare reform proposals are emerging at the federal and state level. Any new federal and state healthcare initiatives that may be adopted could limit the amounts that federal and state governments will pay for healthcare products and services and could have a material adverse effect on our business, financial condition, and results of operations.

Healthcare cost containment pressures and legislative or administrative reforms resulting in restrictive coverage and reimbursement practices of third-party payors could decrease the demand for our products and the number of procedures performed using our devices, which could have an adverse effect on our business.

Our products are purchased principally by physician office-based labs, which typically bill various third-party payors, including governmental programs, such as Medicare and Medicaid, private insurance plans and managed care plans, for the healthcare services provided to their patients. The ability of our customers to obtain reimbursement for procedures that are performed using our products from government and private third-party payors is critical to our success. The availability of coverage and reimbursement for procedures performed using our products affects which products customers purchase and the prices they are able to pay to us.

 

 

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Reimbursement can vary based on geographical location, type of provider/customer, and third-party payor and can significantly influence the acceptance of new products and services. Third-party payors may view some procedures performed using our products as experimental and may not provide coverage. Third-party payors may not cover and reimburse our customers for certain procedures performed using our products in whole or in part in the future, or payment rates may decline and not be adequate, or both. Further, coverage and reimbursement by third-party payors to our customers is also related to billing codes to describe procedures performed using our products. Hospitals and physicians use several billing codes to bill for such procedures. Third-party payors may not continue to recognize the current procedural technology, or CPT, codes available for use by our customers. The CPT codes may change undermining our customer’s ability to use those codes and reimbursement may be interrupted. Furthermore, some payors may not accept these new or revised codes for payment. If payors do not cover atherectomy, physicians may not perform as many DABRA treatments as they otherwise would perform. Consequently, we may not be able to sell as many catheters for DABRA treatments as projected.

Reimbursement rates are unpredictable, and we cannot project how our business may be affected by future legislative and regulatory developments. Future legislation or regulation, or changing payment methodologies, may have a material adverse effect on our business, financial condition, and results of operations, and reimbursement may not be adequate for all customers. From time to time, typically on an annual basis, payment amounts are updated and revised by third-party payors. Because the cost of our products generally is recovered by the healthcare provider as part of the payment for performing a procedure and not separately reimbursed, these updates, especially lower payments could directly impact the demand for our products. For example, in July 2013, the Centers for Medicare and Medicaid Services, or CMS, proposed reimbursement changes that would have decreased reimbursement for procedures in an outpatient-based facility, such as a catheterization lab. Although CMS chose not to implement those changes in 2013, we cannot assure you that CMS will not take similar actions in the future.

After we develop new products or seek to market our products for new approved or cleared indications, we may find limited demand for the product unless government and private third-party payors provide adequate coverage and reimbursement to our customers. Obtaining codes and reimbursement for new products may require an extended, multi-year effort. Even with reimbursement approval and coverage by government and private payors, providers submitting reimbursement claims for new products or existing products with new approved or cleared indications may face delay in payment if there is confusion by providers or payors regarding the appropriate codes to use in seeking reimbursement. Such delays may create an unfavorable impression within the marketplace regarding the level of reimbursement or coverage available for our products.

Demand for our products or new approved indications for our existing products may fluctuate over time if federal or state legislative or administrative policy changes affect coverage or reimbursement levels for our products or the services related to our products. In the U.S., there have been, and we expect there will continue to be legislative and regulatory proposals to change the healthcare system, such as the potential repeal of the PPACA, some of which could significantly affect our business. It is uncertain what impact the current U.S. presidential administration will have on healthcare spending. If enacted and implemented, any measures to restrict healthcare spending could result in decreased revenue from the sale of our products and decreased potential returns from our research and development initiatives. Other legislative or administrative reforms to the U.S. or international reimbursement systems in a manner that significantly reduces reimbursement for procedures performed using our products or denies coverage for those procedures could have a material adverse effect on our business, financial condition, and results of operations.

Our sales into foreign markets expose us to risks associated with international sales and operations.

We have historically sold into foreign markets and plan to continue to do so if we re-commercialize DABRA. Conducting international operations subjects us to risks that could be different than those faced by us in the U.S. The sale and shipment of our products across international borders, as well as the purchase of components and products from international sources, subject us to extensive U.S. and foreign governmental trade, import and export and customs regulations and laws, including but not limited to, the Export Administration Regulations and trade sanctions against embargoed countries, which are administered by the Office of Foreign Assets Control within the Department of the Treasury, as well as the laws and regulations administered by the Department of Commerce. These regulations limit our ability to market, sell, distribute or otherwise transfer our products or technology to prohibited countries or persons.

 

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Compliance with these regulations and laws is costly, and failure to comply with applicable legal and regulatory obligations could adversely affect us in a variety of ways that include, but are not limited to, significant criminal, civil and administrative penalties, including imprisonment of individuals, fines and penalties, denial of export privileges, seizure of shipments and restrictions on certain business activities. Also, the failure to comply with applicable legal and regulatory obligations could result in the disruption of our distribution and sales activities.

These risks may limit or disrupt our expansion, restrict the movement of funds or result in the deprivation of contractual rights or the taking of property by nationalization or expropriation without fair compensation. Operating in international markets also requires significant management attention and financial resources.

Our employees, independent contractors, consultants, commercial partners, distributors, and vendors may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements.

We are exposed to the risk that our employees, independent contractors, consultants, commercial partners, distributors, and vendors and other individuals or entities with whom we have arrangements may engage in fraudulent or illegal activity. Misconduct by these parties could include intentional, reckless and/or negligent conduct or disclosure of unauthorized activities to us that violates: (i) the laws of the FDA and other similar foreign regulatory bodies, including those laws requiring the reporting of true, complete and accurate information to such regulators; (ii) manufacturing standards; (iii) healthcare fraud and abuse laws in the U.S. and similar foreign fraudulent misconduct laws; or (iv) laws that require the true, complete and accurate reporting of financial information or data. These laws may impact, among other things, future sales, marketing, and education programs. In particular, the promotion, sales and marketing of healthcare items and services, as well as certain business arrangements in the healthcare industry, are subject to extensive laws designed to prevent fraud, waste, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, structuring and commissions, certain customer incentive programs and other business arrangements generally. Activities subject to these laws also involve the improper use of information obtained in the course of patient recruitment for clinical trials.

We have adopted a code of ethics and business conduct, but it is not always possible to identify and deter misconduct by our employees and other third parties, and the precautions we take to detect and prevent these activities may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. For example, as discussed above, we entered into to a Settlement Agreement with the DOJ to resolve a civil investigation and related civil action, and in connection with the Settlement Agreement, entered into a 5-year Corporate Integrity Agreement with the OIG. We have incurred, and will continue to incur, costs related to compliance under, and payments made pursuant to, the Settlement Agreement and Corporate Integrity Agreement. These expenses and the diversion of the attention of the management team that has occurred, and is expected to continue, has adversely affected, and could continue to adversely affect, our business, financial condition, and results of operations. If such actions are instituted against us and we are not successful in defending ourselves or asserting our rights, those actions could result in government investigations, civil and criminal proceedings, the imposition of significant fines or other sanctions, including the imposition of civil, criminal and administrative penalties, damages, monetary fines, additional integrity reporting and oversight obligations, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings and curtailment of operations, any of which could adversely affect our ability to operate our business and our results of operations. In the future, whether or not we are successful in defending against such further actions or investigations, we could incur substantial costs, including legal fees, and divert the attention of management in defending ourselves against any of these claims or investigations, which could have a material adverse effect on our business, financial condition, and results of operations.

 

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Environmental and health safety laws may result in liabilities, expenses and restrictions on our operations.

Federal, state, local and foreign laws regarding environmental protection, hazardous substances and human health and safety may adversely affect our business. Using hazardous substances in our operations exposes us to the risk of accidental injury, contamination or other liability from the use, storage, importation, handling, or disposal of hazardous materials. If our or our suppliers’ operations result in the contamination of the environment or expose individuals to hazardous substances, we could be liable for damages and fines, and any liability could significantly exceed our insurance coverage and have a material adverse effect on our on our business, financial condition, and results of operations. Future changes to environmental and health and safety laws could cause us to incur additional expenses or restrict our operations, which could have a material adverse effect on our business, financial condition, and results of operations.

Our operations and relationships with customers and third-party payors are subject to applicable anti-kickback, fraud and abuse and other healthcare laws and regulations, which could expose us to penalties including criminal sanctions, civil penalties, contractual damages, reputational harm and diminished profits and future earnings.

Healthcare providers and third-party payors play a primary role in the recommendation of our cleared devices and any future cleared or approved devices. Our current and future arrangements with providers, third-party payors and customers may be materially limited because of broadly applicable fraud and abuse and other healthcare laws and regulations. The business or financial arrangements and relationships through which we market, sell and distribute our cleared devices could also be constrained.

Restrictions under applicable U.S. federal and state healthcare laws and regulations may include the following:

 

   

the federal Anti-Kickback Statute prohibits, among other things, persons and entities from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made under federal healthcare programs such as Medicare and Medicaid. A person or entity does not need to have actual knowledge of the federal Anti-Kickback Statute or specific intent to violate it in order to have committed a violation. In addition, the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal False Claims Act;

 

   

federal false claims laws, including the federal False Claims Act, imposes criminal and civil penalties, including through civil whistleblower or qui tam actions, against individuals or entities for knowingly presenting, or causing to be presented, to the federal government, claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government. Persons and entities can be held liable under these laws if they are deemed to “cause” the submission of false or fraudulent claims by, for example, providing inaccurate billing or coding information to customers or promoting a product off-label;

 

   

the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, established new statutes imposing criminal healthcare fraud liability and increased civil monetary penalties for, among other things, knowingly and willfully executing or attempting to execute a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters. A person or entity does not need to have actual knowledge of the healthcare fraud statutes HIPAA established or specific intent to violate them in order to have a liability;

 

   

HIPAA, as amended by the Health Information Technology for Economic and Clinical Health, or HITECH, Act and its implementing regulations, also imposes obligations, including mandatory contractual terms, on covered entities subject to the rule, such as health plans, healthcare clearinghouses and certain healthcare providers, as well as their business associates that perform certain services for or on their behalf involving the use or disclosure of individually identifiable health information with respect to safeguarding the privacy, security and transmission of individually identifiable health information. We believe we are not a covered entity for purposes of HIPAA, and we believe that we generally do not conduct our business in a manner that would cause us to be a business associate under HIPAA;

 

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the U.S. Physician Payments Sunshine Act, which requires applicable manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report annually to the government information related to payments or other “transfers of value” made to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors) to non-physician healthcare professionals (defined to include physician assistants, nurse practitioners, clinical nurse specialists, certified registered nurse anesthetists and anesthesiologist assistants, and certified nurse-midwives) and teaching hospitals, as well as information regarding ownership and investment interests held by the physicians described above and their immediate family members; and

 

   

analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers.

Some state laws require medical device companies to comply with the medical device industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government and may require medical device manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures. In addition, we may be subject to state and non-U.S. laws governing the privacy and security of health information in some circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.

We have undertaken efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations. Such efforts may involve substantial costs. As disclosed above, we entered into a Settlement Agreement with the DOJ to resolve a civil investigation and related civil complaint concerning Covered Conduct. It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, imprisonment, exclusion of product candidates from government-funded healthcare programs, such as Medicare and Medicaid, disgorgement, contractual damages, reputational harm, diminished profits and future earnings, and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations. Defending against any such actions can be costly, time-consuming and may require significant financial and personnel resources. Therefore, even if we are successful in defending against any such actions that may be brought against us, our business may be impaired. If any of the above occurs, it could adversely affect our ability to operate our business and our results of operations. If any of the physicians or other healthcare providers or entities with whom we expect to do business is found to be not in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government-funded healthcare programs, which could have a material adverse effect on our business, financial condition, and results of operations.

If a breach of our measures protecting personal data covered by HIPAA, the HITECH Act, or the CCPA occurs, we may incur significant liabilities.

HIPAA, as amended by the HITECH Act, and the regulations that have been issued under it, impose certain obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of protected health information. The requirements and restrictions apply to “covered entities” (which include health care providers and insurers) as well as to their business associates that receive protected health information from them in order to provide services to or perform certain activities on their behalf. The statute and regulations also impose notification obligations on covered entities and their business associates in the event of a breach of the privacy or security of protected health information. We occasionally receive protected health information from our customers in the course of our business. As such, we believe that we are business associates and therefore subject to HIPAA’s requirements and restrictions with respect to handling such protected health information and have executed business associate agreements with certain customers.

 

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In addition, California has enacted the California Consumer Privacy Act, or CCPA, which came into effect on January 1, 2020. Pursuant to the CCPA, certain businesses are required, among other things, to make certain enhanced disclosures related to California residents regarding the use or disclosure of their personal information, allow California residents to opt-out of certain uses and disclosures of their personal information without penalty, provide Californians with other choices related to personal data in our possession, and obtain opt-in consent before engaging in certain uses of personal information relating to Californians under the age of 16. The California Attorney General may seek substantial monetary penalties and injunctive relief in the event of our non-compliance with the CCPA. The CCPA also allows for private lawsuits from Californians in the event of certain data breaches. Aspects of the CCPA remain uncertain, and we may be required to make modifications to our policies or practices in order to comply.

It is possible the data protection laws may be interpreted and applied in a manner that is inconsistent with our practices. If so, this could result in government-imposed fines or orders requiring that we change our practices, which could adversely affect our business. In addition, these privacy regulations may differ from country to country and state to state and may vary based on whether testing is performed in the U.S. or in the local country. Complying with these various laws and regulations could cause us to incur substantial costs or require us to change our business practices and compliance procedures in a manner adverse to our business. Further, compliance with data protection laws and regulations could require us to take on more onerous obligations in our contracts, restrict our ability to collect, use and disclose data, or in some cases, impact our ability to operate in certain jurisdictions. We can provide no assurance that we are or will remain in compliance with diverse privacy and security requirements in all of the jurisdictions in which we do business. If we fail to comply or are deemed to have failed to comply with applicable privacy protection laws and regulations such failure could result in government enforcement actions and create liability for us, which could include substantial civil and/or criminal penalties, as well as private litigation and/or adverse publicity that could negatively affect our operating results and business.

Risks Related to our Intellectual Property for our Legacy Business

If we are unable to obtain and maintain patent protection for our products, our competitors could develop and commercialize products and technology similar or identical to ours, and our ability to successfully commercialize our existing products and any products we may develop, and our technology may be adversely affected.

As with other medical device companies, our ability to maintain and solidify a proprietary position for our products will depend upon our success in obtaining effective patent claims that cover such products, their manufacturing processes and their intended methods of use, and enforcing those claims once granted. Furthermore, in some cases, we may not be able to obtain issued claims covering DABRA, as well as other technologies that are important to our business, which are sufficient to prevent third parties, such as our competitors, from utilizing our technology. Any failure to obtain or maintain patent protection with respect to DABRA could have a material adverse effect on our business, financial condition, and results of operations.

Changes in either the patent laws or their interpretation in the U.S. and other countries may diminish our ability to protect our inventions, obtain, maintain, and enforce our intellectual property rights and, more generally, could affect the value of our intellectual property or narrow the scope of our issued patents. Additionally, we cannot predict whether the patent applications we are currently pursuing will issue as patents in any particular jurisdiction or whether the claims of any issued patents will provide sufficient protection from competitors or other third parties.

 

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The patent prosecution process is expensive, time-consuming, and complex, and we may not be able to file, prosecute, maintain, enforce, or license all necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that we will fail to identify patentable aspects of our research and development output in time to obtain patent protection. Although we enter into non-disclosure and confidentiality agreements with parties who have access to confidential or patentable aspects of our research and development output, such as our employees, corporate collaborators, outside scientific collaborators, suppliers, consultants, advisors and other third parties, any of these parties may breach the agreements and disclose such output before a patent application is filed, thereby jeopardizing our ability to seek patent protection. In addition, our ability to obtain and maintain valid and enforceable patents depends on whether the differences between our inventions and the prior art allow our inventions to be patentable over the prior art. Furthermore, publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the U.S. and other jurisdictions are typically not published until 18 months after filing, or in some cases not at all. Therefore, we cannot be certain that we were the first to make the inventions claimed in any of our pending patent applications, or that we were the first to file for patent protection of such inventions. Moreover, in some circumstances, we may not have the right to control the preparation, filing and prosecution of patent applications, or to maintain the patents, covering technology that we license from or license to third parties and are therefore reliant on our licensors or licensees. Therefore, these and any of our patents and applications may not be prosecuted and enforced in a manner consistent with the best interests of our business. Defects of form in the preparation or filing of our patents or patent applications may exist, or may arise in the future, for example, with respect to proper priority claims, inventorship, and the like, although we are unaware of any such defects that we believe are of material importance. If we or any future licensors or licensees, fail to establish, maintain or protect such patents and other intellectual property rights, such rights may be reduced or eliminated. If any future licensors or licensees are not fully cooperative or disagree with us as to the prosecution, maintenance or enforcement of any patent rights, such patent rights could be compromised. If there are material defects in the form, preparation or prosecution of our patents or patent applications, such patents or applications may be invalid and unenforceable. Any of these outcomes could impair our ability to prevent competition from third parties, which may have an adverse impact on our business.

In addition, if any patents are issued in the future, they may not provide us with any competitive advantages, or may be successfully challenged by third parties. Agreement terms that address non-competition are difficult to enforce in many jurisdictions and may not be enforceable in any particular case. To the extent that our intellectual property and other proprietary rights are not adequately protected, third parties might gain access to our proprietary information, develop and market products or services similar to ours, or use trademarks similar to ours, each of which could materially harm our business. Existing U.S. federal and state intellectual property laws offer only limited protection. Moreover, the laws of other countries in which we now, or may in the future, conduct operations or contract for services may afford little or no effective protection of our intellectual property. The failure to adequately protect our intellectual property and other proprietary rights could materially harm our business.

The strength of patent rights involves complex legal and scientific questions and can be uncertain. This uncertainty includes changes to the patent laws through either legislative action to change statutory patent law or court action that may reinterpret existing law or rules in ways affecting the scope or validity of issued patents. The patent applications that we own may fail to result in issued patents in the U.S. or foreign countries with claims that cover our products or services. Even if patents do successfully issue from the patent applications that we own, third parties may challenge the validity, enforceability or scope of such patents, which may result in such patents being narrowed, invalidated or held unenforceable. Any successful challenge to our patents could deprive us of exclusive rights necessary for the successful commercialization of our products and services. Furthermore, even if they are unchallenged, our patents may not adequately protect our products and services, provide exclusivity for our products and services, or prevent others from designing around our claims. If the breadth or strength of protection provided by the patents we hold or pursue with respect to our products and services is challenged, it could dissuade companies from collaborating with us to develop, or threaten our ability to commercialize, our products and services.

Patents have a limited lifespan. In the U.S., the natural expiration of a utility patent is generally 20 years after its effective filing date and the natural expiration of a design patent is generally 14 years after its issue date, unless the filing date occurred on or after May 13, 2015, in which case the natural expiration of a design patent is generally 15 years after its issue date. Various extensions may be available; however, the life of a patent, and the protection it affords, is limited. Without patent protection for our products and services, we may be open to competition. Further, if we encounter delays in our development efforts, the period of time during which we could market our products and services under patent protection would be reduced.

In addition to the protection afforded by patents, we also rely on trade secret protection to protect proprietary know-how that may not be patentable or that we elect not to patent, processes for which patents may be difficult to obtain or enforce, and any other elements of our products and services that involve proprietary know-how, information or technology that is not covered by patents. However, trade secrets can be difficult to protect. If the steps taken to maintain our trade secrets are deemed inadequate, we may have insufficient recourse against third parties for misappropriating any trade secrets. Misappropriation or unauthorized disclosure of our trade secrets could significantly affect our competitive position and may have a material adverse effect on our business. Furthermore, trade secret protection does not prevent competitors from independently developing substantially equivalent.

 

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If the scope of any patent protection we obtain is not sufficiently broad, or if we lose any of our patent protection, our ability to prevent our competitors from commercializing similar or identical technology and products would be adversely affected.

The patent position of medical device companies generally is highly uncertain, involves complex legal and factual questions, and has been the subject of much litigation in recent years. As a result, the issuance, scope, validity, enforceability, and commercial value of our patent rights are highly uncertain. Our pending and future patent applications may not result in patents being issued which protect our products or which effectively prevent others from commercializing competitive technologies and products.

Moreover, the coverage claimed in a patent application can be significantly reduced before the patent is issued, and its scope can be reinterpreted after issuance. Even if patent applications we license or own currently or in the future issue as patents, they may not issue in a form that will provide us with any meaningful protection, prevent competitors or other third parties from competing with us, or otherwise provide us with any competitive advantage. Any patents that we own may be challenged, narrowed, circumvented, or invalidated by third parties. Consequently, we do not know whether DABRA will be protectable or remain protected by valid and enforceable patents. Our competitors or other third parties may be able to circumvent our patents by developing similar or alternative technologies or products in a non-infringing manner which could materially adversely affect our business, financial condition, results of operations and prospects.

The issuance of a patent is not conclusive as to its inventorship, scope, validity, or enforceability, and our patents may be challenged in the courts or patent offices in the U.S. and abroad. We may be subject to a third-party preissuance submission of prior art to the U.S. Patent and Trademark Office, or USPTO, or become involved in opposition, derivation, revocation, reexamination, post-grant and inter partes review, or interference proceedings or other similar proceedings challenging our patent rights. An adverse determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate or render unenforceable, our patent rights, allow third parties to commercialize our products and compete directly with us, without payment to us, or result in our inability to manufacture or commercialize products without infringing third-party patent rights. Moreover, we may have to participate in interference proceedings declared by the USPTO to determine priority of invention or in post-grant challenge proceedings, such as oppositions in a foreign patent office, that challenge our priority of invention or other features of patentability with respect to our patents and patent applications. Such challenges may result in loss of patent rights, loss of exclusivity, or in patent claims being narrowed, invalidated, or held unenforceable, which could limit our ability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection of DABRA. Such proceedings also may result in substantial cost and require significant time from our scientists and management, even if the eventual outcome is favorable to us, which would have a material adverse effect on our business, financial condition, and results of operations.

Obtaining and maintaining our patent protection depends on compliance with various procedural measures, document submissions, fee payments and other requirements imposed by government patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.

Periodic maintenance fees, renewal fees, annuity fees and various other government fees on patents and applications will be due to be paid to the USPTO and various government patent agencies outside of the U.S. over the lifetime of our patents and applications. The USPTO and various non-U.S. government agencies require compliance with several procedural, documentary, fee payment and other similar provisions during the patent application process. In some cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with the applicable rules. There are situations, however, in which non-compliance can result in abandonment or lapse of the patent or patent application, resulting in a partial or complete loss of patent rights in the relevant jurisdiction. In such an event, potential competitors might be able to enter the market with similar or identical products or technology, which could have a material adverse effect on our business, financial condition, and results of operations.

We may not be able to protect our intellectual property and proprietary rights throughout the world.

Third parties may attempt to commercialize competitive products or services in foreign countries where we do not have any patents or patent applications where legal recourse may be limited. This may have a significant commercial impact on our foreign business operations.

 

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Filing, prosecuting, and defending patents on our products in all countries throughout the world would be prohibitively expensive, and the laws of foreign countries may not protect our rights to the same extent as the laws of the U.S. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the U.S., or from selling or importing products made using our inventions in and into the U.S. or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories where we have patent protection, but enforcement is not as strong as that in the U.S. These products may compete with our products, and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.

Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets, and other intellectual property protection, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our intellectual property and proprietary rights generally. Proceedings to enforce our intellectual property and proprietary rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly, could put our patent applications at risk of not issuing, and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate, and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property and proprietary rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.

Many countries have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In addition, many countries limit the enforceability of patents against government agencies or government contractors. In these countries, the patent owner may have limited remedies, which could materially diminish the value of such patent. If we are forced to grant a license to third parties with respect to any patents relevant to our business, our competitive position may be impaired, and our business, financial condition, results of operations and prospects may be adversely affected.

Changes in U.S. patent law could diminish the value of patents in general, thereby impairing our ability to protect our products.

Changes in either the patent laws or interpretation of the patent laws in the U.S. could increase the uncertainties and costs surrounding the prosecution of patent applications and the enforcement or defense of issued patents. Assuming that other requirements for patentability are met, prior to March 2013, in the U.S., the first to invent the claimed invention was entitled to the patent, while outside the U.S., the first to file a patent application was entitled to the patent. After March 2013, under the Leahy-Smith America Invents Act, or the America Invents Act, enacted in September 2011, the U.S. transitioned to a first inventor to file system in which, assuming that other requirements for patentability are met, the first inventor to file a patent application will be entitled to the patent on an invention regardless of whether a third party was the first to invent the claimed invention. A third party that files a patent application in the USPTO after March 2013, but before us could therefore be awarded a patent covering an invention of ours even if we had made the invention before it was made by such third party. This will require us to be cognizant going forward of the time from invention to filing of a patent application. Since patent applications in the U.S. and most other countries are confidential for a period of time after filing or until issuance, we cannot be certain that we were the first to either (i) file any patent application related to our products or (ii) invent any of the inventions claimed in our patents or patent applications.

The America Invents Act also includes a number of significant changes that affect the way patent applications will be prosecuted and also may affect patent litigation. These include allowing third-party submission of prior art to the USPTO during patent prosecution and additional procedures to attack the validity of a patent by USPTO administered post-grant proceedings, including post-grant review, inter partes review, and derivation proceedings. Because of a lower evidentiary standard in USPTO proceedings compared to the evidentiary standard in U.S. federal courts necessary to invalidate a patent claim, a third party could potentially provide evidence in a USPTO proceeding sufficient for the USPTO to hold a claim invalid even though the same evidence would be insufficient to invalidate the claim if first presented in a district court action. Accordingly, a third party may attempt to use the USPTO procedures to invalidate our patent claims that would not have been invalidated if first challenged by the third party as a defendant in a district court action. Therefore, the America Invents Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could have a material adverse effect on our business, financial condition, and results of operations.

 

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Issued patents covering our products could be found invalid or unenforceable if challenged in court or before administrative bodies in the U.S. or abroad.

If we initiated legal proceedings against a third party to enforce a patent covering our products, the defendant could counterclaim that such patent is invalid or unenforceable. In patent litigation in the U.S., defendant counterclaims alleging invalidity or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness, or non-enablement. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant information from the USPTO, or made a misleading statement, during prosecution. Third parties may raise claims challenging the validity or enforceability of our patents before administrative bodies in the U.S. or abroad, even outside the context of litigation. Such mechanisms include re-examination, post-grant review, inter partes review, interference proceedings, derivation proceedings, and equivalent proceedings in foreign jurisdictions (e.g., opposition proceedings). Such proceedings could result in the revocation of, cancellation of, or amendment to our patents in such a way that they no longer cover our products. The outcome following legal assertions of invalidity and unenforceability is unpredictable. With respect to the validity question, for example, we cannot be certain that there is no invalidating prior art, of which we and the patent examiner were unaware during prosecution. If a third party were to prevail on a legal assertion of invalidity or unenforceability, we would lose at least part, and perhaps all, of the patent protection on our products. Such a loss of patent protection would have a material adverse effect on our business, financial condition, and results of operations.

If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.

In addition to seeking patents for our products, we rely upon unpatented trade secrets, know-how and continuing technological innovation to develop and maintain a competitive position. We seek to protect our proprietary information, in part, through confidentiality agreements with our employees, collaborators, contractors, advisors, consultants, and other third parties, and invention assignment agreements with our employees. We also have agreements with some of our consultants that require them to assign to us any inventions created as a result of their working with us. The confidentiality agreements are designed to protect our proprietary information and, in the case of agreements or clauses requiring invention assignment, to grant us ownership of technologies that are developed through a relationship with a third party.

Despite these efforts, any of these parties may breach the agreements and disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive, and time-consuming, and the outcome is unpredictable. In addition, some courts inside and outside the U.S. are less willing or unwilling to protect trade secrets. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor or other third party, we would have no right to prevent them from using that technology or information to compete with us. If any of our trade secrets were to be disclosed to or independently developed by a competitor or other third party, our competitive position would be materially and adversely harmed. Furthermore, we expect these trade secrets, know-how and proprietary information to over time be disseminated within the industry through independent development, the publication of journal articles describing the methodology, and the movement of personnel from academic to industry scientific positions.

We also seek to preserve the integrity and confidentiality of our data and trade secrets by maintaining physical security of our premises and physical and electronic security of our information technology systems. While we have confidence in these individuals, organizations and systems, agreements or security measures may be breached, and we may not have adequate remedies for any breach. In addition, our trade secrets may otherwise become known or be independently discovered by competitors. To the extent that our consultants, contractors or collaborators use intellectual property owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions, which could have a material adverse effect on our business, financial condition, and results of operations.

 

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We may be subject to claims challenging the inventorship of our patents and other intellectual property.

We may be subject to claims that former employees, collaborators or other third parties have an interest in our patents, trade secrets, or other intellectual property as an inventor or co-inventor. For example, we may have inventorship disputes arise from conflicting obligations of employees, consultants or others who are involved in developing our products. Litigation may be necessary to defend against these and other claims challenging inventorship or our patents, trade secrets or other intellectual property. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, intellectual property that is important to our products. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees. Any of the foregoing could have a material adverse effect on our business, financial condition, and results of operations.

We may become involved in intellectual property litigation either due to claims by others that we are infringing their intellectual property rights or due to our own assertions that others are infringing upon our intellectual property rights.

The medical device industry in general has been characterized by extensive litigation and administrative proceedings regarding patent infringement and intellectual property rights. Our competitors hold a significant number of patents relating to medical laser technology. From time to time, we may commence litigation to enforce our intellectual property rights. An adverse decision in these actions or in any other legal action could limit our ability to assert our intellectual property rights, limit the value of our technology or otherwise negatively impact our business, financial condition and results of operations.

Monitoring unauthorized use of our intellectual property is difficult and costly. Unauthorized use of our intellectual property may have occurred or may occur in the future. Although we have taken steps to minimize the risk of this occurring, any such failure to identify unauthorized use and otherwise adequately protect our intellectual property would adversely affect our business. Moreover, if we are required to commence litigation, whether as a plaintiff or defendant, not only will this be time-consuming, but we will also be forced to incur significant costs and divert our attention and efforts of our employees, which could, in turn, result in lower revenue and higher expenses.

We cannot provide assurance that our products or methods do not infringe the patents or other intellectual property rights of third parties. Additionally, if our business is successful, the possibility may increase that others will assert infringement claims against us.

Determining whether a product infringes a patent involves complex legal and factual issues, and the outcome of a patent litigation action is often uncertain. We have not conducted an extensive search of patents issued or assigned to other parties, including our competitors, and no assurance can be given that patents containing claims covering our products, parts of our products, technology or methods do not exist, have not been filed or could not be filed or issued. Because of the number of patents issued and patent applications filed in our technical areas, our competitors or other parties may assert that our products and the methods we employ in the use of our products are covered by U.S. or foreign patents held by them. In addition, because patent applications can take many years to issue and because publication schedules for pending applications vary by jurisdiction, there may be applications now pending of which we are unaware, and which may result in issued patents which our current or future products infringe. Also, because the claims of published patent applications can change between publication and patent grant, there may be published patent applications that may ultimately issue with claims that we infringe. There could also be existing patents that one or more of our products or parts may infringe and of which we are unaware. As the number of competitors in the market for medical lasers and as the number of patents issued in this area grows, the possibility of patent infringement claims against us increases. In certain situations, we may determine that it is in our best interests or their best interests to voluntarily challenge a party’s products or patents in litigation or other proceedings, including patent interferences or re-examinations. As a result, we may become involved in unwanted litigation that could be costly, result in diversion of management’s attention, require us to pay damages and force us to discontinue selling our products.

 

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Infringement and other intellectual property claims and proceedings brought against us, whether successful or not, could result in substantial costs and harm to our reputation. Such claims and proceedings can also distract and divert management and key personnel from other tasks important to the success of the business. We cannot be certain that we will successfully defend against allegations of infringement of patents and intellectual property rights of others. In the event that we become subject to a patent infringement or other intellectual property lawsuit and if the other party’s patents or other intellectual property were upheld as valid and enforceable and we were found to infringe the other party’s patents or violate the terms of a license to which we are a party, we could be required to do one or more of the following:

 

   

cease selling or using any of our products that incorporate the asserted intellectual property, which would adversely affect our revenue;

 

   

pay substantial damages for past use of the asserted intellectual property;

 

   

obtain a license from the holder of the asserted intellectual property, which license may not be available on reasonable terms, if at all, and which could reduce profitability; and

 

   

redesign or rename, in the case of trademark claims, our products to avoid violating or infringing the intellectual property rights of third parties, which may not be possible and could be costly and time-consuming if it is possible to do so.

Third-party claims of intellectual property infringement, misappropriation or other violation against us or our collaborators may prevent or delay the sale and marketing of our products.

The medical devices industry is highly competitive and dynamic. Due to the focused research and development that is taking place by several companies, including us and our competitors, in this field, the intellectual property landscape is in flux, and it may remain uncertain in the future. As such, there may be significant intellectual property related litigation and proceedings relating to our, and other third party, intellectual property, and proprietary rights in the future.

Our commercial success depends in part on our and any potential future collaborators’ ability to avoid infringing, misappropriating and otherwise violating the patents and other intellectual property rights of third parties. It is uncertain whether the issuance of any third-party patent would require us or any licensee to alter our development or commercial strategies, obtain licenses, or cease certain activities. The medical device industry is characterized by extensive litigation regarding patents and other intellectual property rights, as well as administrative proceedings for challenging patents, including interference, derivation and reexamination proceedings before the USPTO or oppositions and other comparable proceedings in foreign jurisdictions. As discussed above, recently, due to changes in U.S. law referred to as patent reform, new procedures including inter partes review and post-grant review have been implemented. As stated above, this reform adds uncertainty to the possibility of challenge to our patents in the future.

Third parties may currently have patents or obtain patents in the future and claim that the manufacture, use or sale of our products infringes upon these patents. In the event that any third-party claims that we infringe their patents or that we are otherwise employing their proprietary technology without authorization and initiates litigation against us, even if we believe such claims are without merit, a court of competent jurisdiction could hold that such patents are valid, enforceable and infringed by our products. In this case, the holders of such patents may be able to block our ability to commercialize the applicable products or technology unless we obtain a license under the applicable patents, or until such patents expire or are finally determined to be held invalid or unenforceable. Such a license may not be available on commercially reasonable terms or at all. Even if we are able to obtain a license, the license would likely obligate us to pay license fees or royalties or both, and the rights granted to us might be nonexclusive, which could result in our competitors gaining access to the same intellectual property. If we are unable to obtain a necessary license to a third-party patent on commercially reasonable terms, we may be unable to commercialize our products, or such commercialization efforts may be significantly delayed, which could in turn significantly harm our business.

 

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For example, in December 2017, we were contacted by a third party suggesting that we should consider licensing three U.S. patents directed to the treatment of vitiligo, U.S. Pat. No. 6,979,327, or the ’327 patent, U.S. Pat. No. 7,261,729, or the ’729 patent, and U.S. Pat. No. 8,387,621, or the ’621 patent. In addition, we were also previously contacted in 2006 by the same third party suggesting that we should consider licensing the ’327 patent as well as the then pending application that became the ’729 patent. We believe that we will be meritorious if a claim of infringement of the ’327 patent, the ’729 patent, or the ’621 patent is asserted against us in a legal proceeding by this or any other third party. However, although we believe that we do not infringe the claims of the ’327 patent, the ’729 patent, or the ’621 patent, nor do we believe that we need a license to the ’327 patent, the ’729 patent, or the ’621 patent in order to freely commercialize our products, there is a possibility that a suit claiming infringement of the ’327 patent, the ’729 patent, or the ’621 patent will be brought against us, and we cannot assure that a court or an administrative agency will agree with our assessment with regard to non-infringement of the ’327 patent, the ’729 patent, or the ’621 patent. If it was necessary to obtain a license to the ’327 patent, the ’729 patent, or the ’621 patent and a license was not available on commercially reasonable terms or available at all, that could affect our ability to commercialize our products and materially and adversely affect our business.

If a third party commences a patent infringement action against us it could consume significant financial and management resources, regardless of the merit of the claims or the outcome of the litigation. Defense of infringement claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of management and other employee resources from our business, and may impact our reputation. In the event of a successful claim of infringement against us, we may be enjoined from further developing or commercializing our infringing products. In addition, we may have to pay substantial damages, including treble damages and attorneys’ fees for willful infringement, obtain one or more licenses from third parties, pay royalties and/or redesign our infringing products or technologies, which may be impossible or require substantial time and monetary expenditure. In that event, we would be unable to further develop and commercialize our products, which could harm our business significantly.

Engaging in litigation to defend against third parties alleging that we have infringed their patents or other intellectual property rights is very expensive, particularly for a company of our size, and time-consuming. Some of our competitors may be able to sustain the costs of litigation or administrative proceedings more effectively than we can because they may have greater financial resources. Patent litigation and other proceedings may also consume significant management time. Uncertainties resulting from the initiation or continuation of patent litigation or other proceedings against us could impair our ability to compete in the marketplace. The occurrence of any of the foregoing could have a material adverse effect on our business, financial condition or results of operations.

We may become involved in lawsuits to protect or enforce our patents and other intellectual property rights, which could be expensive, time consuming and unsuccessful.

Competitors may infringe our patents, or we may be required to defend against claims of infringement. In addition, our patents also may become involved in inventorship, priority or validity disputes. To counter or defend against such claims can be expensive and time consuming. In an infringement proceeding, a court may decide that a patent owned by us is invalid or unenforceable or may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any litigation proceeding could put one or more of our patents at risk of being invalidated or interpreted narrowly. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation.

Even if resolved in our favor, litigation or other legal proceedings relating to intellectual property claims may cause us to incur significant expenses and could distract our personnel from their normal responsibilities. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments, and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on our common stock price. Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for development activities or any future sales, marketing or distribution activities. We may not have sufficient financial or other resources to conduct such litigation or proceedings adequately. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources and more mature and developed intellectual property portfolios. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace.

 

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We may be subject to claims that our employees, consultants or advisors have wrongfully used or disclosed alleged trade secrets of their current or former employers or claims asserting ownership of what we regard as our own intellectual property.

Many of our employees, consultants and scientific advisors are currently or were previously employed at universities or healthcare companies, including our competitors and potential competitors. Although we try to ensure that our employees, consultants and advisors do not use the proprietary information or know-how of others in their work for us, we have been and may in the future become subject to claims that we or these individuals have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such individual’s current or former employer. If we fail in defending any such claims, it could have a material adverse effect on our business, financial condition, and results of operations. Even if we are successful in defending against such claims, litigation could result in substantial costs to us and be a distraction to management.

In addition, while it is our policy to require our employees and contractors who may be involved in the conception or development of intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who, in fact, conceives or develops intellectual property that we regard as our own. The assignment of intellectual property rights may not be self-executing, or the assignment agreements may be breached, and we may be forced to bring claims against third parties, or defend claims that they may bring against us, to determine the ownership of what we regard as our intellectual property. Such claims could have a material adverse effect on our business, financial condition, and results of operations.

If our trademarks and trade names are not adequately protected, then we may not be able to build name recognition in our markets of interest and our business may be adversely affected.

Our trademarks or trade names may be challenged, infringed, circumvented or declared generic or determined to be violating or infringing on other marks. We may not be able to protect our rights to these trademarks and trade names, which we need to build name recognition among potential partners or customers in our markets of interest. At times, competitors or other third parties may adopt trade names or trademarks similar to ours, thereby impeding our ability to build brand identity and possibly leading to market confusion. In addition, there could be potential trade name or trademark infringement or dilution claims brought by owners of other trademarks. Over the long term, if we are unable to establish name recognition based on our trademarks and trade names, then we may not be able to compete effectively, and our business may be adversely affected. Our efforts to enforce or protect our proprietary rights related to trademarks, trade secrets, domain names, copyrights or other intellectual property may be ineffective and could result in substantial costs and diversion of resources and could adversely affect our business, financial condition, and results of operations.

Intellectual property rights do not necessarily address all potential threats.

The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations and may not adequately protect our business or permit us to maintain our competitive advantage. For example:

 

   

others may be able to make products that are similar to our products or utilize similar technology but that are not covered by the claims of the patents that we may own or that incorporate certain technology in our products that is in the public domain;

 

   

we, or our future licensors or collaborators, might not have been the first to make the inventions covered by the issued patent or pending patent application that we own now or in the future;

 

   

we, or our future licensors or collaborators, might not have been the first to file patent applications covering certain of our or their inventions;

 

   

others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights;

 

   

it is possible that our current or future pending patent applications will not lead to issued patents;

 

   

issued patents that we hold rights to may be held invalid or unenforceable, including as a result of legal challenges by our competitors or other third parties;

 

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our competitors or other third parties might conduct research and development activities in countries where we do not have patent rights and then use the information learned from such activities to develop competitive products for sale in our major commercial markets;

 

   

we may not develop additional proprietary technologies that are patentable;

 

   

the patents of others may harm our business; and

 

   

we may choose not to file a patent in order to maintain certain trade secrets or know-how, and a third party may subsequently file a patent covering such intellectual property.

Should any of these events occur, they could have a material adverse effect on our business, financial condition, and results of operations.

Risks Related to Our Reliance on Third Parties for our Legacy Business

We depend on third-party suppliers for key components and sub-assemblies used in our manufacturing processes, and the loss of these third-party suppliers or their inability to supply us with adequate components and sub-assemblies could harm our business.

We have experienced inconsistencies in our DABRA catheter performance, as more fully described in the risk factor titled We have experienced inconsistencies in our DABRA catheter performance. This and any other development or manufacturing problems or delays could limit the potential growth of our revenue or increase our losses. In addition to the inconsistencies and risks described in the foregoing risk factor, we may encounter unforeseen situations that would result in delays or shortfalls in manufacturing, including as a result of the ongoing military conflict between Russia and Ukraine. Key components and sub-assemblies of DABRA would be provided by a limited number of suppliers, and we may not maintain large inventory levels of these components and sub-assemblies. For example, we would rely on a limited number of suppliers for the Thyratron used to manufacture our lasers. If we experience a shortage in any of these components or sub-assemblies, we would need to identify and qualify new supply sources, which could increase our costs, result in manufacturing delays, and cause delays in the delivery of our products.

We also depend on limited source suppliers for some of our product components and sub-assemblies, and if any of those suppliers are unable or unwilling to produce these components or sub-assemblies or supply them in the quantities that we need, and at acceptable prices, we would experience manufacturing delays and may not be able to deliver our products on a timely or cost-effective basis to our customers, or at all, which could reduce our product sales, increase our costs, and harm our business. While we believe that we could obtain replacement components from alternative suppliers, we may be unable to do so. Losing any of these suppliers could cause a disruption in our production. Our suppliers may encounter problems during manufacturing due to a variety of reasons, including failure to follow specific protocols and procedures, failure to comply with applicable regulations, equipment malfunction and environmental factors. Establishing additional or replacement suppliers for these materials may take significant time, as certain of these suppliers must be approved by regulatory authorities, which could disrupt our production. As a result, we could experience significant delays in manufacturing and delivering our products to customers. We cannot assure you we can continue obtaining required materials, components, and sub-assemblies that are in short supply within the time frames we require at an affordable cost, if at all. If we cannot secure on a timely basis sufficient quantities of the materials we depend on to manufacture our products, if we encounter delays or contractual or other difficulties in our relationships with these suppliers, or if we cannot find replacement suppliers at an acceptable cost, then manufacturing our products may be disrupted, which could increase our costs, prevent or impair our development or commercialization efforts, and have a material adverse effect on our business, financial condition, and results of operations.

 

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Our future operating results depend upon our ability to obtain components in sufficient quantities on commercially reasonable terms or according to schedules, prices, quality and volumes that are acceptable to us, and suppliers may fail to deliver components, or we may be unable to manage these components effectively or obtain these components on such terms.

Because we have historically obtained certain components globally, some of which are uniquely customized, from limited sources, we are subject to significant supply and pricing risks and exposed to multiple potential sources of component shortages. Many components, including those that are available from multiple sources, are at times subject to industry-wide shortages and significant commodity pricing fluctuations that could materially adversely affect our financial condition and operating results. We have sourced alternative parts to mitigate the challenges caused by these shortages, but there is no guarantee we may be able to continually do so as we scale production to meet our growth targets. The unavailability of any component or supplier could result in production delays, idle manufacturing facilities, product design changes and loss of access to important technology and tools for producing and supporting our products, as well as impact our capacity production. Our suppliers may not be willing or able to sustainably meet our timelines or our cost, quality and volume needs, or to do so may cost us more, which may require us to replace them with other sources. If our supply of components for a new or existing product continues to be delayed or constrained for any reason, including if an outsourcing partner delayed shipments of completed products to us or additional time is required to obtain sufficient quantities from the original source, or if we have to identify and obtain sufficient quantities from an alternative source, then our financial condition and operating results could be materially adversely affected. In addition, the continued availability of these components at acceptable prices, or at all, can be affected for any number of reasons, including if suppliers decide to concentrate on the production of common components or components for other customers instead of components customized to meet our requirements. While we have entered into agreements for the supply of many components, there can be no assurance that we will be able to extend or renew these agreements on similar terms, or at all. Component suppliers may suffer from poor financial conditions, which can lead to business failure for the supplier or consolidation within a particular industry, further limiting our ability to obtain sufficient quantities of components on commercially reasonable terms. While we believe that we will be able to secure additional or alternate sources or develop our own replacements for most of our components, there is no assurance that we will be able to do so quickly or at all. Additionally, we may be unsuccessful in our continuous efforts to negotiate with existing suppliers to obtain cost reductions and avoid unfavorable changes to terms, source less expensive suppliers for certain parts and redesign certain parts to make them less expensive to produce. Any of these occurrences may harm our business, prospects, financial condition and operating results.

We and our component suppliers may not meet regulatory quality standards applicable to our manufacturing processes, which could have an adverse effect on our business, financial condition, and results of operations.

As a medical device manufacturer, we must register with the FDA and non-U.S. regulatory agencies, and we are subject to periodic inspection by the FDA and foreign regulatory agencies, for compliance with certain good manufacturing practices, including design controls, product validation and verification, in process testing, quality control and documentation procedures. Compliance with applicable regulatory requirements is subject to continual review and is rigorously monitored through periodic inspections by the FDA and foreign regulatory agencies. Our component suppliers are also required to meet certain standards applicable to their manufacturing processes.

We cannot assure you that we or our component suppliers comply or can continue to comply with all regulatory requirements. A failure by us or one of our component suppliers to achieve or maintain compliance with these requirements or quality standards may disrupt our ability to supply products sufficient to meet demand until compliance is achieved or, with a component supplier, until a new supplier has been identified and evaluated. Our or any of our component suppliers’ failure to comply with applicable regulations could cause sanctions to be imposed on us, including warning letters, fines, injunctions, civil penalties, failure of regulatory authorities to grant marketing approval of our products, delays, suspension or withdrawal of approvals or clearances, license revocation, seizures or recalls of products, operating restrictions and criminal prosecutions, which could harm our business. We cannot assure you that if we need to engage new suppliers to satisfy our business requirements, we will be able to locate new suppliers in compliance with regulatory requirements at a reasonable cost and in an acceptable timeframe. Our failure to do so could have a material adverse effect on our business, financial condition, and results of operations.

In the European Union, we must maintain certain International Organization for Standardization, or ISO, certifications to sell our products and must undergo periodic inspections by notified bodies, including the British Standards Institution, to obtain and maintain these certifications. If we fail these inspections or fail to meet these regulatory standards, it could have a material adverse effect on our business, financial condition, and results of operations.

 

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We may form or seek strategic alliances or enter into licensing arrangements in the future, and we may not realize the benefits or costs of such alliances or licensing arrangements.

We may form or seek strategic alliances, create joint ventures or collaborations or enter into additional licensing arrangements with third parties that we believe will complement or augment our sales and marketing efforts with respect to our products and any future product candidates that we may develop. Any of these relationships may require us to incur non-recurring and other charges, increase our near and long-term expenditures, issue securities that dilute our existing stockholders or disrupt our management and business. In addition, we face significant competition in seeking appropriate strategic partners and the negotiation process is time-consuming and complex. Moreover, we may not be successful in our efforts to establish a strategic partnership or other alternative arrangements for our products. If we license products or businesses, we may not be able to realize the benefit of such transactions if we are unable to successfully integrate them with our existing operations and company culture. We cannot be certain that, following a strategic transaction or license, we will achieve the revenue or specific net income that justifies such transaction. Any delays in entering into new strategic partnership agreements related to our products could delay the commercialization of our products in certain geographies for certain indications, which would harm our business prospects, financial condition and results of operations.

We rely on third parties to conduct our clinical trials and those third parties may not perform satisfactorily, including failing to meet deadlines for the completion of such trials, research and studies, or failing to comply with regulatory requirements.

We do not have the ability to independently conduct our clinical trials. We currently rely on third parties, such as CROs, clinical data management organizations, medical institutions and clinical investigators, to conduct clinical trials and we would expect to continue to rely upon third parties to conduct clinical trials of our investigational products. Third parties have a significant role in the conduct of our clinical trials and the subsequent collection and analysis of data. These third parties are not our employees, and except for remedies available to us under our agreements with such third parties, we have limited ability to control the amount or timing of resources that any such third party will devote to our clinical trials. The third parties we rely on for these services may also have relationships with other entities, some of which may be our competitors. Some of these third parties may terminate their engagements with us at any time. If we need to enter into alternative arrangements with a third party, it would delay our development activities.

Our reliance on these third parties for such medical device development activities will reduce our control over these activities but will not relieve us of our regulatory responsibilities. For example, we will remain responsible for ensuring that each of our clinical trials is conducted in accordance with the general investigational plan and protocols for the trial. Moreover, the FDA requires us to comply with GCP standards, regulations for conducting, recording and reporting the results of clinical trials to assure that data and reported results are reliable and accurate and that the rights, integrity and confidentiality of trial participants are protected. If we or any of our CROs fail to comply with applicable GCP requirements, the clinical data generated in our clinical trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. We cannot assure you that upon inspection by a given regulatory authority, such regulatory authority will determine that any of our clinical trials substantially comply with GCP regulations. In addition, our clinical trials must be conducted with product produced under current cGMP or quality system regulations. Our failure to comply with these regulations may require us to repeat clinical trials, which would delay the marketing authorization process.

Misconduct by our CROs or other third-party contractors could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. It is not always possible to identify and deter misconduct by third parties we contract with, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant penalties, damages, reputational harm, and the curtailment or restructuring of our operations, among others.

 

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Risks Related to Ownership of Our Common Stock

The price of our stock may be volatile, which could result in substantial losses for investors. Further, an active, liquid and orderly trading market for our common stock may not be sustained and we do not know what the market price of our common stock will be, and as a result it may be difficult for you to sell your shares of our common stock.

Prior to our listing on the New York Stock Exchange in September 2018, there was no public market for shares of our common stock. Although our common stock is listed on the NYSE American, the market for our shares has demonstrated varying levels of trading activity. Furthermore, an active trading market for our shares may not be sustained in the future. You may not be able to sell your shares quickly or at the market price if trading in shares of our common stock is not active. Further, an inactive market may also impair our ability to raise capital by selling shares of our common stock and may impair our ability to enter into strategic partnerships or acquire companies or products by using shares of our common stock as consideration, which could have a material adverse effect on our business, financial condition, and results of operations. In addition, the trading price of our common stock is likely to be highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control, including limited trading volume. In addition to the factors discussed in this “Risk Factors” section and elsewhere in this proxy statement, these factors include:

 

   

increased expenses from remedying the performance issues of our catheters;

 

   

our failure to increase the sales of our products and remedy the performance issues associated with our DABRA catheters or other products;

 

   

the failure by our customers to obtain adequate reimbursements or reimbursement levels that would be sufficient to support product sales to our customers and pricing of our products to support revenue projections;

 

   

unanticipated serious safety concerns related to the use of our products;

 

   

changes in our organization;

 

   

introduction of new products or services offered by us or our competitors;

 

   

announcements of significant acquisitions, strategic partnerships, joint ventures or capital commitments by us or our competitors;

 

   

our ability to effectively manage our future growth;

 

   

the size and growth of our target markets;

 

   

actual or anticipated variations in quarterly operating results;

 

   

disputes or other developments relating to proprietary rights, including patents, litigation matters and our ability to obtain patent protection for our technologies;

 

   

significant lawsuits, including shareholder litigation, government actions or litigation related to intellectual property;

 

   

our cash position;

 

   

our failure to meet the estimates and projections of the investment community or that we may otherwise provide to the public;

 

   

publication of research reports about us or our industry, or positive or negative recommendations or withdrawal of research coverage by securities analysts;

 

   

any delay in any regulatory filings for our future products and any adverse development or perceived adverse development with respect to the applicable regulatory authority’s review of such products;

 

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adverse regulatory decisions, including failure to receive regulatory approval of our future products, failure to maintain regulatory approval for our existing products or failure to obtain regulatory approval for additional indications for our existing products;

 

   

changes in laws or regulations applicable to our products;

 

   

adverse developments concerning our suppliers or distributors;

 

   

our inability to obtain adequate supplies and components for our products or inability to do so at acceptable prices;

 

   

our inability to establish and maintain collaborations if needed;

 

   

changes in the market valuations of similar companies;

 

   

overall performance of the equity markets;

 

   

sales of large blocks of our common stock including sales by our executive officers and directors;

 

   

trading volume of our common stock;

 

   

limited “public float” in the hands of a small number of persons whose sales or lack of sales of our common stock could result in positive or negative pricing pressure on the market price for our common stock;

 

   

additions or departures of key scientific or management personnel;

 

   

changes in accounting practices;

 

   

ineffectiveness of our internal controls;

 

   

general political and economic conditions; and

 

   

other events or factors, many of which are beyond our control.

In addition, the stock market in general, and medical device companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Broad market and industry factors may negatively affect the market price of our common stock, regardless of our actual operating performance. In the past, securities class action litigation has often been instituted against companies following periods of volatility in the market price of a company’s securities. This type of litigation, if instituted, could result in substantial costs and a diversion of management’s attention and resources, which could have a material adverse effect on our business, financial condition, and results of operations.

Our operating results may fluctuate significantly, which makes our future operating results difficult to predict and could cause our operating results to fall below expectations or our guidance.

Our quarterly and annual operating results may fluctuate significantly in the future, which makes it difficult for us to predict our future operating results. Our operating results may fluctuate due to a variety of factors, many of which are outside of our control and may be difficult to predict, including the following:

 

   

increased expenses from remedying the performance of our catheters or other products;

 

   

the timing and cost of, and level of investment in, research and development activities relating to our current and any future products, which will change from time to time;

 

   

the cost of manufacturing our current and any future products, which may vary depending on FDA guidelines and requirements, the quantity of production and the terms of our agreements with suppliers;

 

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the degree and rate of market acceptance for DABRA or other products, including the ability of our customers to receive adequate reimbursement for procedures performed using our products;

 

   

expenditures that we will or may incur to acquire or develop additional products and technologies;

 

   

competition from existing and potential future products that compete with our products, and changes in the competitive landscape of our industry, including consolidation among our competitors or partners;

 

   

the level of demand for our current and future products, if approved, which may fluctuate significantly and be difficult to predict;

 

   

the risk/benefit profile, cost and reimbursement policies with respect to our products, and existing and potential future products that compete with our products;

 

   

our ability to commercialize additional products, if approved, inside and outside of the U.S., either independently or working with third parties;

 

   

our ability to establish and maintain collaborations, licensing, or other arrangements;

 

   

our ability to adequately support future growth;

 

   

potential unforeseen business disruptions that increase our costs or expenses;

 

   

changes in FDA regulations and comparable foreign regulations;

 

   

future accounting pronouncements or changes in our accounting policies; and

 

   

the changing and volatile global economic environment.

In addition, we measure compensation cost for stock-based awards made to employees at the grant date of the award, based on the fair value of the award, and recognize the cost as an expense over the employee’s requisite service period. As the variables that we use as a basis for valuing these awards change over time, including our underlying stock price and stock price volatility, the magnitude of the expense that we must recognize may vary significantly.

The cumulative effect of these factors could result in large fluctuations and unpredictability in our quarterly and annual operating results. As a result, comparing our operating results on a period-to-period basis may not be meaningful. Investors should not rely on our past results as an indication of our future performance. This variability and unpredictability could also result in our failing to meet the expectations of industry or financial analysts or investors for any period. If our revenue or operating results fall below the expectations of analysts or investors or below any forecasts we may provide to the market, or if the forecasts we provide to the market are below the expectations of analysts or investors, the price of our common stock could decline substantially. Such a stock price decline could occur even when we have met any previously publicly stated revenue and/or earnings guidance we may provide.

 

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Our ability to use our net operating loss carryforwards may be limited.

As of December 31, 2021, we had net operating loss carryforwards, or NOLs, of approximately $39.2 million for federal income tax purposes, and $41.2 million for state income tax purposes. Utilization of these NOLs depends on many factors, including our future income, which cannot be assured. These NOLs could expire unused and be unavailable to offset our future income tax liabilities. In addition, under Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, and corresponding provisions of state law, if a corporation undergoes an “ownership change,” which is generally defined as a greater than 50% change, by value, in its equity ownership by 5% stockholders over a three-year period, the corporation’s ability to use its pre-change NOLs and other pre-change tax attributes to offset its post-change income may be limited. We have completed an IRC Section 382 analysis regarding the limitation of net operating losses through December 31, 2020 and determined that an ownership change occurred in May 2020. The effect of the ownership change is reflected in the NOL balances as of December 31, 2020. The Company calculated the limitation on net operating losses and other tax attributes and reduced the value of the deferred tax assets resulting in a tax expense impact of $20.8 million. The tax expense was offset by a tax benefit recorded on the reduction in valuation allowance recorded for the deferred tax assets for the year ended December 31, 2020. We may experience ownership changes in the future as a result of subsequent changes in our stock ownership, some of which may be outside of our control. Ownership changes that materially limit our use of our historical NOLs could harm our future operating results by effectively increasing our future U.S federal income tax and state income tax obligations. In addition, as a result of the Tax Cuts and Jobs Act of 2017, as modified by the Coronavirus Aid, Relief, and Economic Security Act of 2020, or CARES Act, federal NOLs incurred in 2018 and in future years may be carried forward indefinitely, however, the deductibility of our federal NOLs generated in such years will be limited to 80% of taxable income if utilized in taxable years beginning after December 31, 2020. Federal net operating losses incurred in years beginning before January 1, 2018 are subject to a twenty-year carryforward but are not limited to 80% of taxable income. See “Risk FactorsBecause the merger will likely result in an ownership change under Section 382 of the Code for the Company, the Companys pre-merger net operating loss carryforwards and certain other tax attributes will be subject to limitation. The net operating loss carryforwards and certain other tax attributes of the post-merger public company may also be subject to limitations as a result of ownership changes” beginning on page 37 of this proxy statement.

We are an emerging growth company and a smaller reporting company, and we cannot be certain if the reduced reporting requirements applicable to emerging growth companies and smaller reporting companies will make our common stock less attractive to investors.

We are an emerging growth company, as defined in the JOBS Act. For as long as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding nonbinding advisory votes on executive compensation and stockholder approval of any golden parachute payments not previously approved. We could be an emerging growth company for up to five years following the year in which we completed our IPO, although circumstances could cause us to lose that status earlier. We will remain an emerging growth company until the earlier of (i) the last day of the fiscal year (a) following the fifth anniversary of the completion of our IPO, (b) in which we have total annual gross revenue of at least $1.235 billion or (c) in which we are deemed to be a large accelerated filer, which requires the market value of our common stock that is held by non-affiliates to exceed $700.0 million as of the prior June 30th, and (ii) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.

Even after we no longer qualify as an emerging growth company, we may still qualify as a “smaller reporting company” which may allow us to take advantage of many of the same exemptions from disclosure requirements including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act and reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock, and our stock price may be more volatile.

Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have elected to avail ourselves of this exemption and, therefore, we are not subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. As a result, changes in rules of U.S. generally accepted accounting principles, or GAAP, or their interpretation, the adoption of new guidance or the application of existing guidance to changes in our business could significantly affect our financial position and results of operations.

 

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We have incurred and will continue to incur significant costs as a result of operating as a public company, and our management has devoted and will continue to devote substantial time to new compliance initiatives, including maintaining an effective system of internal controls over financing reporting.

As a public company, we have incurred and will continue to incur significant legal, accounting, insurance, and other expenses that we did not incur as a private company. We are subject to the reporting requirements of the Exchange Act, which require, among other things, that we file with the SEC, annual, quarterly and current reports with respect to our business and financial condition. In addition, the Sarbanes-Oxley Act, as well as rules subsequently adopted by the SEC and the NYSE American to implement provisions of the Sarbanes-Oxley Act, impose significant requirements on public companies, including requiring establishment and maintenance of effective disclosure and financial controls and changes in corporate governance practices. Further, in July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), was enacted. There are significant corporate governance and executive compensation related provisions in the Dodd-Frank Act that require the SEC to adopt additional rules and regulations in these areas such as “say on pay” and proxy access. Emerging growth companies are permitted to implement many of these requirements over a longer period and up to five years from the completion of our IPO. We intend to take advantage of this legislation but cannot guarantee that we will not be required to implement these requirements sooner than anticipated or planned and thereby incur unexpected expenses. Stockholder activism, the current political environment and the current high level of government intervention and regulatory reform may lead to substantial new regulations and disclosure obligations, which may lead to additional compliance costs and impact the manner in which we operate our business in ways we cannot currently anticipate.

These rules and regulations applicable to public companies have increased and will continue to substantially increase our legal and financial compliance costs and to make some activities more time consuming and costly. If these requirements divert the attention of our management and personnel from other business concerns, they could have a material adverse effect on our business, financial condition, and results of operations. The increased costs will decrease our net income or increase our net loss and may require us to reduce costs in other areas of our business or increase the prices of our products or services. We cannot predict or estimate the amount or timing of additional costs we may incur to respond to these requirements. The impact of these requirements could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as executive officers.

Future sales and issuances of a substantial number of shares of our common stock or rights to purchase common stock by us and our stockholders in the public market could result in additional dilution of the percentage ownership of our stockholders and cause our stock price to fall.

If our stockholders sell, or indicate an intention to sell, substantial amounts of our common stock in the public market, the trading price of our common stock could decline. As of October 31, 2022, we had outstanding 2,161,406 shares of our common stock.

In connection with our February 2022 equity offering, our 2020 equity offerings and our August 2022 warrant repricing, we issued warrants to investors and our placement agents and, in connection with the sale of the Dermatology Business in 2021, we issued a warrant to the broker. We had an aggregate 1,152,477 warrants outstanding as of June 30, 2022. We have an effective shelf registration statement and had an effective ATM offering thereunder until January 18, 2022 and a second effective ATM offering thereunder until October 7, 2022. During the year ended December 31, 2021, we sold 76,223 shares of common stock under the first ATM offering. No shares were sold under the first ATM offering during 2022. As of October 7, 2022, we sold 1,071,246 shares of common stock under the second ATM offering for net proceeds of $7.4 million, after deducting sales commissions. We anticipate that we will have to raise an additional $2,000,000 to $3,000,000 in order to meet the $8,000,000 Net Cash requirement under the merger agreement and additional original listing requirements of the NYSE American. We currently intend to raise these funds through public sales or private sales that will carry registration rights and will result in the issuance of shares that will be freely tradeable either upon or shortly after issuance. In addition, pursuant to our 2018 Equity Incentive Plan, or 2018 Plan, equity incentive awards representing up to an aggregate of 353,868 shares of our common stock were available for issuance to our employees, directors and consultants as of June 30, 2022. The 2018 Plan includes an annual increase in the number of shares available for future grant each year pursuant to the “evergreen” provision of our 2018 Plan. Additionally, pursuant to our 2018 Employee Stock Purchase Plan, or ESPP, no shares were available for sale under our ESPP as of June 30, 2022. As such, the ESPP was paused after the end of the contribution period in May 2022. The ESPP includes an annual increase in the number of shares available for sale under our ESPP each year pursuant to the “evergreen” provision of our ESPP. In addition to the increase in shares available to grant in 2022 due to the “evergreen” provisions contained in the 2018 Plan and the ESPP, in the first quarter of 2020 we adopted the 2020 Inducement Equity Incentive Plan for the purpose of attracting, retaining and incentivizing employees in furtherance of our success. On adoption, 640 shares of common stock were reserved solely for the granting of inducement stock options, restricted stock, restricted stock units and other awards and 180 shares were available for issuance as of June 30, 2022. If these additional shares of common stock are issued and sold, or if it is perceived that they will be sold, in the public market, this could result in additional dilution and the trading price of our common stock could decline.

 

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On July 22, 2022, Ra Medical issued warrants in connection with the repricing of the warrants issued in its February 2022 offering, as further described in our Current Report on Form 8-K filed with the SEC on July 22, 2022.

Further, SEC regulations limit the amount of funds we can raise during any 12-month period pursuant to our shelf registration statement on Form S-3. We are currently subject to General Instruction I.B.6 to Form S-3, or the Baby Shelf Rule, and the amount of funds we can raise through primary public offerings of securities in any 12-month period using our registration statement on Form S-3 is limited to one-third of the aggregate market value of the voting and non-voting common equity held by non-affiliates. We are currently limited by the Baby Shelf Rule as of the filing of this proxy statement, until such time as our public float exceeds $75 million. If we are required to file a new registration statement on another form, we may incur additional costs and be subject to delays due to review by SEC staff.

Further, additional capital may be needed in the future to continue our planned operations, including commercialization efforts, expanded research and development activities and costs associated with operating a public company. To raise capital, we may sell common stock, convertible securities or other equity securities in one or more transactions at prices and in a manner, we determine from time to time. If we sell common stock, convertible securities or other equity securities, investors may be materially diluted by subsequent sales. Such sales may also result in material dilution to our existing stockholders, and new investors could gain rights, preferences and privileges senior to the holders of our common stock.

If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.

The trading market for our common stock depends in part on the research and reports that securities or industry analysts publish about us or our business.

If one or more of the analysts covering us downgrades our stock or publishes inaccurate or unfavorable research about our business, our stock price may decline. In addition, if one or more of these analysts ceases coverage of our company or fails to publish reports on us regularly, demand for our stock could decrease, which might cause our stock price and trading volume to decline.

Anti-takeover provisions under our charter documents and Delaware law could delay or prevent a change of control which could limit the market price of our common stock and may prevent or frustrate attempts by our stockholders to replace or remove members of our board of directors or our current management and may adversely affect the market price of our common stock.

Our certificate of incorporation and bylaws contain provisions that could delay or prevent a change of control of our company or changes in our board of directors that our stockholders might consider favorable. Some of these provisions include:

 

   

our board of directors is divided into three classes serving staggered three-year terms, such that not all members of the board is elected at one time, which could delay the ability of stockholders to change the membership of a majority of our board of directors;

 

   

the ability of our board of directors to issue shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer;

 

   

the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of our board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors;

 

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a prohibition on stockholder action through written consent, which requires that all stockholder actions be taken at an annual or special meeting of our stockholders;

 

   

a requirement that special meetings of stockholders be called only by the chairperson of the board of directors, the chief executive officer or president (in the absence of a chief executive officer) or a majority vote of our board of directors, which could delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors;

 

   

the requirement for the affirmative vote of holders of at least 66 2/3% of the voting power of all of the then outstanding shares of the voting stock, voting together as a single class, to amend the provisions of our certificate of incorporation relating to the issuance of preferred stock and management of our business or our bylaws, which may inhibit the ability of an acquirer to affect such amendments to facilitate an unsolicited takeover attempt;

 

   

the ability of our board of directors, by majority vote, to amend our bylaws, which may allow our board of directors to take additional actions to prevent an unsolicited takeover and inhibit the ability of an acquirer to amend our bylaws to facilitate an unsolicited takeover attempt; and

 

   

advance notice procedures with which stockholders must comply to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of us.

In addition, because we are now incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporate Law, which may prohibit certain business combinations with stockholders owning 15% or more of our outstanding voting stock. These anti-takeover provisions and other provisions in our certificate of incorporation and bylaws could make it more difficult for stockholders or potential acquirers to obtain control of our board of directors or initiate actions that are opposed by the then-current board of directors and could also delay or impede a merger, tender offer or proxy contest involving our company. These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing or cause us to take other corporate actions you desire. Any delay or prevention of a change of control transaction or changes in our board of directors could cause the market price of our common stock to decline.

Our certificate of incorporation provides that the Court of Chancery of the State of Delaware and the federal district courts of the U.S. are the exclusive forums for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees or increase our stockholders’ costs in bringing claims.

Our certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for any derivative action or proceeding brought on our behalf; any action asserting a breach of fiduciary duty; any action asserting a claim against us arising under the Delaware General Corporation Law, our certificate of incorporation or our bylaws; any action to interpret, apply, enforce or determine the validity of our certificate of incorporation or our bylaws; and any action asserting a claim against us that is governed by the internal affairs doctrine. This provision would not apply to suits brought to enforce a duty or liability created by the Exchange Act or any other claim for which the U.S. federal courts have exclusive jurisdiction.

Our certificate of incorporation further provides that the federal district courts of the U.S. is the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act. The enforceability of similar exclusive federal forum provisions in other companies’ organizational documents has been challenged in legal proceedings, and while the Delaware Supreme Court has ruled that this type of exclusive federal forum provision is facially valid under Delaware law, there is uncertainty as to whether other courts would enforce such provisions and that investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder.

 

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These exclusive forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and other employees. Additionally, such exclusive forum provisions may increase a stockholder’s costs of bringing claims, which could have the effect of limiting a stockholder’s ability to bring a claim. Alternatively, if a court were to find either exclusive forum provision in our certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could have a material adverse effect on our business, financial condition, and results of operations.

We are subject to the continued listing requirements of the NYSE American. If we are unable to comply with such requirements, our common stock would be delisted from the NYSE American, which would limit investors’ ability to effect transactions in our common stock and subject us to additional trading restrictions.

Shares of our common stock are currently listed on the NYSE American. In order to maintain our listing, we must maintain certain share prices, financial and share distribution targets, including maintaining a minimum amount of stockholders’ equity and a minimum number of public stockholders. In addition to these objective standards, the NYSE American may delist the securities of any issuer if, in its opinion, the issuer’s financial condition and/or operating results appear unsatisfactory; if it appears that the extent of public distribution or the aggregate market value of the security has become so reduced as to make continued listing on the NYSE American inadvisable; if the issuer sells or disposes of principal operating assets or ceases to be an operating company; if an issuer fails to comply with the NYSE American’s listing requirements; if an issuer’s common stock sells at what the NYSE American considers a “low selling price” (generally trading below $0.20 per share for an extended period of time); or if any other event occurs or any condition exists which makes continued listing on the NYSE American, in its opinion, inadvisable. On August 31, 2022, we received a deficiency letter from the NYSE American indicating that we are not in compliance with Section 1003(f)(v) of the NYSE American Company Guide, because shares of our common stock have been selling for a low price per share for a substantial period time. If we fail to regain compliance with the NYSE American continued listing standards by February 28, 2023, the NYSE American will commence delisting proceedings.

If the NYSE American delists our shares of common stock from trading on its exchange and we are not able to list our securities on another national securities exchange, we expect our common stock would qualify to be quoted on an over-the-counter market. If this were to occur, we could face significant material adverse consequences, including:

 

   

a limited availability of market quotations for our securities;

 

   

reduced liquidity for our securities;

 

   

a determination that our common stock is a “penny stock” which will require brokers trading in our common stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our securities;

 

   

a limited amount of news and analyst coverage; and

 

   

a decreased ability to issue additional securities or obtain additional financing in the future.

The National Securities Markets Improvement Act of 1996, which is a federal statute, prevents or preempts the states from regulating the sale of certain securities, which are referred to as “covered securities.” Because our shares of common stock are listed on the NYSE American, our shares of common stock qualify as covered securities under such statute. Although the states are preempted from regulating the sale of our securities, the federal statute does allow the states to investigate companies if there is a suspicion of fraud, and, if there is a finding of fraudulent activity, then the states can regulate or bar the sale of covered securities in a particular case. If we were no longer listed on the NYSE American, our securities would not be covered securities and we would be subject to regulation in each state in which we offer our securities.

 

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We may be required to raise additional financing by issuing new securities, which may have terms or rights superior to those of our shares of common stock, which could adversely affect the market price of our shares of common stock and our business.

We will require additional financing to fund research, development and commercialization of our technology, to obtain and maintain patents and other intellectual property rights in our technology, and for working capital and other purposes. We may not be able to obtain financing on favorable terms, if at all. If we raise additional funds by issuing equity securities, the percentage ownership of our then-current shareholders will be reduced. Further, we may have to offer new investors in our equity securities rights that are superior to the holders of common stock, which could adversely affect the market price and the voting power of shares of our common stock. If we raise additional funds by issuing debt securities, the holders of these debt securities would similarly have some rights senior to those of the holders of shares of common stock, and the terms of these debt securities could impose restrictions on operations and create a significant interest expense for us which could have a materially adverse effect on our business.

We have not paid dividends in the past and have no immediate plans to pay dividends.

We plan to reinvest all of our earnings, to the extent we have earnings, in order to market our products and to cover operating costs and to otherwise become and remain competitive. We do not plan to pay any cash dividends with respect to our securities in the foreseeable future. We cannot assure you that we would, at any time, generate sufficient surplus cash that would be available for distribution to the holders of our common stock as a dividend.

Risks Related to the Ongoing Business of Catheter

Set forth below are a number of material risks attendant to the ongoing business of Catheter, which Catheter would face as a stand-alone company if the merger is not consummated. Because the combined company is not expected to use Ra Medical’s legacy assets or continue its legacy lines of business but is instead expected to shift the focus of its operations to Catheter’s product lines, many of these risks will continue to be faced by the combined company following the merger, and you should carefully read this section together with the rest of these “Risk Factors.”

Catheter will be required to raise additional funds to finance Catheter’s operations and remain a going concern; Catheter may not be able to do so when necessary, and/or the terms of any financings may not be advantageous to Catheter.

Catheter’s operations to date have consumed substantial amounts of cash and Catheter has sustained negative cash flows from Catheter’s operations for the last several years. Catheter will require future additional capital infusions including public or private financing, strategic partnerships or other arrangements with organizations that have capabilities and/or products that are complementary to Catheter’s own capabilities and/or products, in order to execute Catheter’s strategic vision. However, there can be no assurances that Catheter will complete any financings, strategic alliances or collaborative development agreements, and the terms of such arrangements may not be advantageous to us. Catheter’s auditors have indicated in their audit opinion that there is substantial doubt about Catheter’s ability to continue as a going concern, which will affect Catheter’s ability to raise capital or borrow money. In addition, any additional equity financing will be dilutive to Catheter’s current stockholders, and debt financing, if available, may involve restrictive covenants. If Catheter raises funds through collaborative or licensing arrangements, Catheter may be required to relinquish, on terms that are not favorable to Catheter, rights to some of Catheter’s technologies or product candidates that Catheter would otherwise seek to develop or commercialize. Catheter’s failure to raise capital when needed could materially harm Catheter’s business, financial condition, and results of operations.

Catheter has a history of losses, will incur additional losses, and may never achieve profitability.

Historically, Catheter has been a clinical development company with a limited line of medical services and products in the markets. Catheter currently derives revenues from the View into Ventricular Onset System or VIVO System (“VIVO” or “VIVO System”). In the past, Catheter generated revenue from the sales of the Amigo® Remote Catheter System (“Amigo”), the business line of which Catheter discontinued in 2017. This product is currently in the research and development phase for a generation 2 product. While Catheter does generate revenue, Catheter is still operating at a loss, and there is no guarantee that Catheter will be able to grow the revenues enough to offset Catheter’s costs to realize profitability.

 

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To date, Catheter has not been profitable and Catheter’s accumulated deficit was approximately $114,384,138, $110,547,532 and $101,929,180 at June 30, 2022, December 31, 2021 and December 31, 2020, respectively. Catheter’s losses have resulted principally from costs incurred in research and development, and from general and administrative costs associated with Catheter’s operations. In order to commercialize Catheter’s assets, Catheter will need to conduct substantial additional research, development and clinical trials. Catheter will also need to receive necessary regulatory clearances in the United States and obtain meaningful patent protection for and establish freedom to commercialize Catheter’s product candidates. Catheter must also complete further clinical trials and seek regulatory approvals for any new product candidates Catheter discovers, licenses or acquires. Catheter cannot be sure whether and when Catheter will obtain required regulatory approvals, or successfully research, develop, commercialize, manufacture and market any other product candidates. Catheter expects that these activities, together with future general and administrative activities, will result in significant expenses for the foreseeable future. Catheter may never achieve profitability.

Catheter’s research and development and commercialization efforts may depend on entering into agreements with corporate collaborators.

Because Catheter has limited resources, Catheter has sought to enter into collaboration agreements with other companies that will assist us in developing, testing, obtaining governmental approval for and commercializing products. Catheter may be unable to achieve commercialization of any product candidate until Catheter obtains a large partner to assist in such commercialization efforts.

Moving forward, Catheter may need seek out additional collaborations in order to commercialize Catheter’s products. Catheter will continue to seek research collaborations, co-development and marketing agreements, and licensing deals for Catheter’s products in development; however, there is no guarantee that Catheter will be successful in Catheter’s efforts. Any collaborator with whom Catheter may enter into such collaboration agreements may not support fully Catheter’s research and commercial interests since Catheter’s program may compete for time, attention and resources with such collaborator’s internal programs. Therefore, these future collaborators may not commit sufficient resources to Catheter’s program to move it forward effectively, or the program may not advance as rapidly as it might if Catheter had retained complete control of all research, development, regulatory and commercialization decisions.

Catheter may not be able to unlock the intrinsic value of Vivo, Amigo or any other property in development, because Catheter may encounter difficulties in financing and operating Catheter’s marketing activities and commercial development programs successfully.

As Catheter advances Catheter’s product candidates through clinical trials, Catheter will need to expand Catheter’s development, regulatory, manufacturing, marketing and sales capabilities, and may need to further contract with third parties to provide these capabilities. As Catheter’s operations expand, Catheter likely will need to manage additional relationships with such third parties, as well as additional collaborators, distributors, marketers, and suppliers.

Maintaining third party relationships for these purposes will impose significant added responsibilities on members of Catheter’s management and other personnel. Catheter must be able to: manage Catheter’s development efforts effectively; recruit and train sales and marketing personnel; manage Catheter’s participation in the clinical trials in which Catheter’s product candidates are involved effectively; and improve Catheter’s managerial, development, operational and finance systems, all of which may impose a strain on Catheter’s administrative and operational infrastructure.

If Catheter enter into arrangements with third parties to perform sales, marketing, or distribution services, any product revenues that Catheter receives, or the profitability of these product revenues to us, are likely to be lower than if Catheter were to market and sell any products that Catheter develops without the involvement of these third parties. In addition, Catheter may not be successful in entering into arrangements with third parties to sell and market Catheter’s products or in doing so on terms that are favorable to us. Catheter likely will have little control over such third parties, and any of them may fail to devote the necessary resources and attention to sell and market Catheter’s products effectively. If Catheter does not establish sales and marketing capabilities successfully, either on Catheter’s own or in collaboration with third parties, Catheter will not be successful in commercializing Catheter’s products or expanding the user base for them.

 

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Regulatory actions may affect Catheter’s ability to operate.

Catheter operates in a field that is highly regulated by the U.S. Food and Drug Administration (“FDA”). During FDA’s clearance and approval process, Catheter will be subject to extensive regulations by FDA under the Federal Food, Drug, and Cosmetic Act and/or the Public Health Service Act, as well as by other regulatory bodies. Adverse decisions by FDA or other applicable regulatory bodies could materially and adversely affect Catheter’s ability to continue and grow the development of future products. Failure to comply with the applicable FDA regulations could result in, among other things, warning letters, civil penalties, delays in approving or refusal to approve a product, product recall, product seizure, interruption of production, operating restrictions, suspension or withdrawal of product approval, injunctions, or criminal prosecution.

If the statutes and regulations in Catheter’s industry change, Catheter’s business could be adversely affected.

The U.S. healthcare industry has undergone significant changes designed to improve patient safety, improve clinical outcomes, and increase access to medical care. These changes include enactments and repeals of various healthcare related laws and regulation. Catheter’s operations and economic viability may be adversely affected by the changes in such regulations, including: (i) federal and state fraud and abuse laws; (ii) federal and state anti-kickback statutes; (iii) federal and state false claims laws; (iv) federal and state self-referral laws; (v) state restrictions on fee splitting; (vi) laws regarding the privacy and confidentiality of patient information; and (vii) other laws and government regulations. If there are changes in laws, regulations, or administrative or judicial interpretations, Catheter may have to change Catheter’s business practices, or Catheter’s existing business practices could be challenged as unlawful, which could have a material adverse effect on Catheter’s business, financial condition, and results of operations.

Catheter may encounter difficulties in managing Catheter’s growth, and the nature of Catheter’s business and rapid changes in the healthcare industry makes it difficult to reliably predict future growth and operating results.

Catheter may not be able to successfully grow and expand. Successful implementation of Catheter’s business plan will require management of growth, including potentially rapid and substantial growth, which could result in an increase in the level of responsibility for management personnel and strain on Catheter’s human and capital resources. To manage growth effectively, Catheter will be required, among other things, to continue to implement and improve Catheter’s operating and financial systems, procedures and controls and to expand, train and manage Catheter’s employee base. If Catheter is unable to implement and scale improvements to Catheter’s existing systems and controls in an efficient and timely manner or if Catheter encounters deficiencies, Catheter will not be able to successfully execute Catheter’s business plans.

Failure to attract and retain sufficient numbers of qualified personnel could also impede Catheter’s growth.

If Catheter is unable to manage Catheter’s growth effectively, it will have a material adverse effect on Catheter’s business, results of operations and financial condition. The evolving nature of Catheter’s business and rapid changes in the healthcare industry make it difficult to anticipate the nature and amount of medical reimbursements, third-party private payments, and participation in certain government programs and thus to reliably predict Catheter’s future growth and operating results. Catheter’s growth strategy may incur significant costs, which could adversely affect Catheter’s financial condition. Catheter’s growth by strategic transactions strategy involves significant costs, including financial advisory, legal and accounting fees, and may include additional costs for items such as fairness opinions and severance payments. These costs could put a strain on Catheter’s cash flows, which in turn could adversely affect Catheter’s overall financial condition.

Catheter is regulated by federal Anti-Kickback Statutes.

The Federal Anti-Kickback Statute is a provision of the Social Security Act of 1972 that prohibits as a felony offense the knowing and willful offer, payment, solicitation or receipt of any form of remuneration in return for, or to induce, (1) the referral of a patient for items or services for which payment may be made in whole or part under Medicare, Medicaid, or other federal healthcare programs, (2) the furnishing or arranging for the furnishing of items or services reimbursable under Medicare, Medicaid, or other federal healthcare programs or (3) the purchase, lease, or order or arranging or recommending the purchasing, leasing or ordering of any item or service reimbursable under Medicare, Medicaid or other federal healthcare programs. The Patient Protection and Affordable Care Act (“ACA”) amended section 1128B of the Social Security Act to make it clear that a person need not have actual knowledge of the statute, or specific intent to violate the statute, as a predicate for a violation. The Office of Inspector General (“OIG”), which has the authority to impose administrative sanctions for violation of the statute, has adopted as its standard for review a judicial interpretation which concludes that the statute prohibits any arrangement where even one purpose of the remuneration is to induce or reward referrals. A violation of the Anti-Kickback Statute is a felony punishable by imprisonment, criminal fines of up to $25,000, civil fines of up to $50,000 per violation, and three times the amount of the unlawful remuneration. A violation also can result in exclusion from Medicare, Medicaid or other federal healthcare programs. In addition, pursuant to the changes of the ACA, a claim that includes items or services resulting from a violation of the Anti-Kickback Statute is a false claim for purposes of the False Claims Act.

 

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Catheter cannot assure that the applicable regulatory authorities will not determine that some of Catheter’s arrangements with hospitals or physicians violate the federal Anti-Kickback Statute or other applicable laws. An adverse determination could subject us to different liabilities, including criminal penalties, civil monetary penalties and exclusion from participation in Medicare, Medicaid or other health care programs, any of which could have a material adverse effect on Catheter’s business, financial condition or results of operations.

Catheter is regulated by the federal Stark Law.

The federal Stark Law, 42 U.S.C. 1395nn, also known as the physician self-referral law, generally prohibits a physician from referring Medicare and Medicaid patients to an entity (including hospitals) providing ‘designated health services,’ if the physician or a member of the physician’s immediate family has a ‘financial relationship’ with the entity, unless a specific exception applies. Designated health services include, among other services, inpatient hospital services, outpatient prescription drug services, clinical laboratory services, certain imaging services (e.g., MRI, CT, ultrasound), and other services that Catheter’s affiliated hospitals may order for their patients. The prohibition applies regardless of the reasons for the financial relationship and the referral. Like the Anti-Kickback Statute, the Stark Law contains statutory and regulatory exceptions intended to protect certain types of transactions and arrangements. Unlike safe harbors under the Anti-Kickback Statute with which compliance is voluntary, an arrangement must comply with every requirement of a Stark Law exception or the arrangement is in violation of the Stark Law.

Because the Stark Law and implementing regulations continue to evolve and are detailed and complex, while Catheter attempts to structure its relationships to meet an exception to the Stark Law, there can be no assurance that the arrangements entered into by us with affiliated hospitals will be found to be in compliance with the Stark Law, as it ultimately may be implemented or interpreted. The penalties for violating the Stark Law can include the denial of payment for services ordered in violation of the statute, mandatory refunds of any sums paid for such services, and civil penalties of up to $15,000 for each violation, double damages, and possible exclusion from future participation in the governmental healthcare programs. A person who engages in a scheme to circumvent the Stark Law’s prohibitions may be fined up to $100,000 for each applicable arrangement or scheme.

Some states have enacted statutes and regulations against self-referral arrangements similar to the federal Stark Law, but which may be applicable to the referral of patients regardless of their payer source and which may apply to different types of services. These state laws may contain statutory and regulatory exceptions that are different from those of the federal law and that may vary from state to state. An adverse determination under these state laws and/or the federal Stark Law could subject us to different liabilities, including criminal penalties, civil monetary penalties and exclusion from participation in Medicare, Medicaid or other health care programs, any of which could have a material adverse effect on Catheter’s business, financial condition or results of operations.

Catheter must comply with Health Information Privacy and Security Standards.

The privacy regulations HIPPA contains detailed requirements concerning the use and disclosure of individually identifiable patient health information by various healthcare providers, such as medical groups. HIPAA covered entities must implement certain administrative, physical, and technical security standards to protect the integrity, confidentiality and availability of certain electronic health information received, maintained, or transmitted. HIPAA also implemented standard transaction code sets and standard identifiers that covered entities must use when submitting or receiving certain electronic healthcare transactions, including billing and claim collection activities. Violations of the HIPAA privacy and security rules may result in civil and criminal penalties, including a tiered system of civil money penalties that range from $100 to $50,000 per violation, with a cap of $1.5 million per year for identical violations. A HIPAA covered entity must also promptly notify affected individuals where a breach affects more than 500 individuals and report breaches affecting fewer than 500 individuals annually. State attorneys general may bring civil actions on behalf of state residents for violations of the HIPAA privacy and security rules, obtain damages on behalf of state residents, and enjoin further violations.

 

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Many states also have laws that protect the privacy and security of confidential, personal information, which may be similar to or even more stringent than HIPAA. Some of these state laws may impose fines and penalties on violators and may afford private rights of action to individuals who believe their personal information has been misused. Catheter expect increased federal and state privacy and security enforcement efforts.

A cyber security incident could cause a violation of HIPAA, breach of customer and patient privacy, or other negative impacts.

Catheter relies extensively on Catheter’s information technology (or IT) systems to manage scheduling and financial data, communicate with hospitals and their patients, vendors, and other third parties, and summarize and analyze operating results. In addition, Catheter has made significant investments in technology, including the engagement of a third-party IT provider. A cyber-attack that bypasses Catheter’s IT security systems could cause an IT security breach, a loss of protected health information, or other data subject to privacy laws, a loss of proprietary business information, or a material disruption of Catheter’s IT business systems. This in turn could have a material adverse impact on Catheter’s business and result of operations. In addition, Catheter’s future results of operations, as well as Catheter’s reputation, could be adversely impacted by theft, destruction, loss, or misappropriation of public health information, other confidential data, or proprietary business information.

Computer malware, viruses, and hacking and phishing attacks by third parties have become more prevalent in Catheter’s industry and may occur on Catheter’s systems in the future. Because techniques used to obtain unauthorized access to or sabotage systems change frequently and generally are not recognized until successfully launched against a target, Catheter may be unable to anticipate these techniques or to implement adequate preventative measures. As cyber-security threats develop and grow, it may be necessary to make significant further investments to protect data and infrastructure. If an actual or perceived breach of Catheter’s security occurs, (i) Catheter could suffer severe reputational damage adversely affecting customer or investor confidence, (ii) the market perception of the effectiveness of Catheter’s security measures could be harmed, (iii) Catheter could lose potential sales and existing customers, Catheter’s ability to deliver Catheter’s services or operate Catheter’s business may be impaired, (iv) Catheter may be subject to litigation or regulatory investigations or orders, and (v) Catheter may incur significant liabilities. Catheter’s insurance coverage may not be adequate to cover the potentially significant losses that may result from security breaches.

Catheter must comply with Environmental and Occupational Safety and Health Administration Regulations.

Catheter is subject to federal, state and local regulations governing the storage, use and disposal of waste materials and products. Although Catheter believes that Catheter’s safety procedures for storing, handling and disposing of these materials and products comply with the standards prescribed by law and regulation, Catheter cannot eliminate the risk of accidental contamination or injury from those hazardous materials. In the event of an accident, Catheter could be held liable for any damages that result and any liability could exceed the limits or fall outside the coverage of Catheter’s insurance coverage, which Catheter may not be able to maintain on acceptable terms, or at all. Catheter could incur significant costs and attention of Catheter’s management could be diverted to comply with current or future environmental laws and regulations. Federal regulations promulgated by the Occupational Safety and Health Administration impose additional requirements on us, including those protecting employees from exposure to elements such as blood-borne pathogens. Catheter cannot predict the frequency of compliance, monitoring, or enforcement actions to which Catheter may be subject as those regulations are being implemented, which could adversely affect Catheter’s operations.

 

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Catheter must comply with a range of other Federal and State Healthcare Laws.

Catheter is also subject to other federal and state healthcare laws that could have a material adverse effect on Catheter’s business, financial condition or results of operations. The Health Care Fraud Statute prohibits any person from knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, which can be either a government or private payer plan. Violation of this statute, even in the absence of actual knowledge of or specific intent to violate the statute, may be charged as a felony offense and may result in fines, imprisonment, or both. The Health Care False Statement Statute prohibits, in any matter involving a federal health care program, anyone from knowingly and willfully falsifying, concealing or covering up, by any trick, scheme or device, a material fact, or making any materially false, fictitious or fraudulent statement or representation, or making or using any materially false writing or document knowing that it contains a materially false or fraudulent statement. A violation of this statute may be charged as a felony offense and may result in fines, imprisonment or both. Under the Civil Monetary Penalties Law of the Social Security Act, a person (including an organization) is prohibited from knowingly presenting or causing to be presented to any United States officer, employee, agent, or department, or any state agency, a claim for payment for medical or other items or services where the person knows or should know (a) the items or services were not provided as described in the coding of the claim, (b) the claim is a false or fraudulent claim, (c) the claim is for a service furnished by an unlicensed physician, (d) the claim is for medical or other items or service furnished by a person or an entity that is in a period of exclusion from the program, or (e) the items or services are medically unnecessary items or services. Violations of the law may result in penalties of up to $10,000 per claim, treble damages, and exclusion from federal healthcare programs.

In addition, the OIG may impose civil monetary penalties against any physician who knowingly accepts payment from a hospital (as well as against the hospital making the payment) as an inducement to reduce or limit medically necessary services provided to Medicare or Medicaid program beneficiaries. Further, except as permitted under the Civil Monetary Penalties Law, a person who offers or transfers to a Medicare or Medicaid beneficiary any remuneration that the person knows or should know is likely to influence the beneficiary’s selection of a particular provider of Medicare or Medicaid payable items or services may be liable for civil money penalties of up to $10,000 for each wrongful act.

In addition to the state laws previously described, Catheter may also be subject to other state fraud and abuse statutes and regulations if Catheter expand Catheter’s operations nationally. Many states have adopted a form of anti-kickback law, self-referral prohibition, and false claims and insurance fraud prohibition. The scope of these laws and the interpretations of them vary from state to state and are enforced by state courts and regulatory authorities, each with broad discretion. Generally, state laws reach to all healthcare services and not just those covered under a governmental healthcare program. A determination of liability under any of these laws could result in fines and penalties and restrictions on Catheter’s ability to operate in these states. Catheter cannot assure that Catheter’s arrangements or business practices will not be subject to government scrutiny or be found to violate applicable fraud and abuse laws.

Changes in healthcare laws could create an uncertain environment and materially impact Catheter.

Catheter cannot predict the effect that the ACA (also known as Obamacare) and its implementation, amendment, or repeal and replacement, may have on Catheter’s business, results of operations or financial condition. Any changes in healthcare laws or regulations that reduce, curtail or eliminate payments, government-subsidized programs, government-sponsored programs, and/or the expansion of Medicare or Medicaid, among other actions, could have a material adverse effect on Catheter’s business, results of operations and financial condition. For example, the ACA dramatically changed how healthcare services are covered, delivered, and reimbursed. The ACA requires insurers to accept all applicants, regardless of pre-existing conditions, cover an extensive list of conditions and treatments, and charge the same rates, regardless of pre-existing condition or gender. The ACA and the Health Care and Education Reconciliation Act of 2010 also mandated changes specific to home health and hospice benefits under Medicare. In 2012, the U.S. Supreme Court upheld the constitutionality of the ACA, including the “individual mandate” provisions of the ACA that generally require all individuals to obtain healthcare insurance or pay a penalty. However, the U.S. Supreme Court also held that the provision of the ACA that authorized the Secretary of the U.S. Department of Health and Human Services to penalize states that choose not to participate in the expansion of the Medicaid program by removing all of its existing Medicaid funding was unconstitutional. In response to the ruling, a number of state governors opposed its state’s participation in the expanded Medicaid program, which resulted in the ACA not providing coverage to some low-income persons in those states. In addition, several bills have been, and are continuing to be, introduced in U.S. Congress to amend all or significant provisions of the ACA, or repeal and replace the ACA with another law. In December 2017, the individual mandate was repealed via the Tax Cuts and Jobs Act of 2017. Afterwards, legal and political challenges as to the constitutionality of the remaining provisions of the ACA resumed.

 

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Product and service pricing may be subject to regulatory control.

The pricing and profitability of the products and services Catheter sells may be subject to control by third-party payers. As of the date of this document, Catheter does not receive reimbursements from insurance companies for Catheter’s products but Catheter may in the future. In that case, the continuing efforts of governmental and other third-party payers to contain or reduce the cost of healthcare through various means may adversely affect Catheter’s ability to successfully commercialize Catheter’s products and services. Catheter anticipates that there will continue to be federal and state proposals to implement similar governmental control, although it is unclear which proposals will ultimately become law, if any. Direct or indirect changes in prices, including any mandated pricing, could impact Catheter’s revenues, profitability, and financial performance in the future if and when Catheter receives reimbursements from third party payer.

Catheter’s revenues may depend on Catheter’s customers’ receipt of adequate reimbursement from private insurers and government sponsored healthcare programs.

Political, economic, and regulatory influences continue to change the healthcare industry in the United States. If and when Catheter starts receiving reimbursements from third parties, the ability of hospitals to pay fees for Catheter’s products will partially depend on the extent to which reimbursement for the costs of such materials and related treatments will continue to be available from private health coverage insurers and other similar organizations. Catheter may have difficulty gaining market acceptance for the products Catheter sells if third-party payers do not provide adequate coverage and reimbursement to hospitals.

Major third-party payers of hospitals, such as private healthcare insurers, periodically revise their payment methodologies based, in part, upon changes in government sponsored healthcare programs. Catheter cannot predict these periodic revisions with certainty, and such revisions may result in stricter standards for reimbursement of hospital charges for certain specified products, potentially adversely impacting Catheter’s business, results of operations, and financial conditions when Catheter starts receiving reimbursement from third party payers.

If Catheter starts receiving reimbursement from third party payers, the sales of Catheter’s products and services will depend in part on the availability of reimbursement by third-party payers, such as government health administration authorities, private health insurers and other organizations. Third-party payers often challenge the price and cost-effectiveness of medical treatments and services. Governmental approval of health care products does not guarantee that these third-party payers will pay for the products. Even if third-party payers do accept Catheter’s products and services, the amounts they pay may not be adequate to enable us to realize a profit. Legislation and regulations affecting the pricing of therapies may change before Catheter’s products and services are approved for marketing, and any such changes could further limit reimbursement, if any.

Future regulatory action remains uncertain.

Catheter operates in a highly regulated and evolving environment with rigorous regulatory enforcement. Any legal or regulatory action could be time-consuming and costly. If Catheter fails to comply with all applicable laws, standards, and regulations, action by FDA or other regulatory agencies could result in significant restrictions, including restrictions on the marketing or use of the products Catheter sells or the withdrawal of the products Catheter sells from the market. Any such restrictions or withdrawals could materially affect Catheter’s reputation, business and operations.

Catheter’s product candidates will remain subject to ongoing regulatory review even after they receive marketing approval, and if Catheter fails to comply with continuing regulations, Catheter could lose these approvals and the sale of any of Catheter’s approved commercial products could be suspended.

Even as Catheter receive regulatory approval to market a particular product candidate, the manufacturing, labeling, packaging, adverse event reporting, storage, advertising, promotion, and record keeping related to the product will remain subject to extensive regulatory requirements. If Catheter fails to comply with the regulatory requirements of FDA and other applicable domestic and foreign regulatory authorities or discovers any previously unknown problems with any approved product, manufacturer, or manufacturing process, Catheter could be subject to administrative or judicially imposed sanctions, including:

 

   

restrictions on the products, manufacturers, or manufacturing processes;

 

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warning letters;

 

   

civil or criminal penalties;

 

   

fines;

 

   

injunctions;

 

   

product seizures or detentions;

 

   

pressure to initiate voluntary product recalls;

 

   

suspension or withdrawal of regulatory approvals; and

 

   

refusal to approve pending applications for marketing approval of new products or supplements to approved applications.

If hospitals, physicians and patients do not accept Catheter’s current and future products or if the market for indications for which any product candidate is approved is smaller than expected, Catheter may be unable to generate significant revenue, if any.

Even when any of Catheter’s product candidates obtain regulatory approval, they may not gain market acceptance among hospitals, physicians, patients, and third-party payers. Physicians may decide not to recommend Catheter’s treatments for a variety of reasons including:

 

   

timing of market introduction of competitive products;

 

   

demonstration of clinical safety and efficacy compared to other products;

 

   

cost-effectiveness;

 

   

limited or no coverage by third-party payers;

 

   

convenience and ease of administration;

 

   

prevalence and severity of adverse side effects;

 

   

restrictions in the label of the drug;

 

   

other potential advantages of alternative treatment methods; and

 

   

ineffective marketing and distribution support of its products.

If any of Catheter’s product candidates are approved but fail to achieve market acceptance or such market is smaller than anticipated, Catheter may not be able to generate significant revenue and Catheter’s business would suffer.

Intellectual property litigation and infringement claims could cause Catheter to incur significant expenses or prevent Catheter from selling certain of its products.

The medical device and pharmaceutical industries are characterized by extensive intellectual property litigation and, from time to time, Catheter may become the subject of claims of infringement or misappropriation. Regardless of outcome, such claims are expensive to defend and divert management and operating personnel from other business issues. A successful claim or claims of patent or other intellectual property infringement against us could result in payment of significant monetary damages and/or royalty payments or negatively impact Catheter’s ability to sell current or future products in the affected category.

Catheter may continue to file for patents regarding various aspects of Catheter’s products, services and technologies at a later date depending on the costs and timing associated with such filings. Catheter may make investments to further strengthen Catheter’s copyright protection going forward, although no assurances can be given that it will be successful in such patent and trademark protection endeavors. Catheter seeks to limit disclosure of Catheter’s intellectual property by requiring employees, consultants, and partners with access to Catheter’s proprietary information to execute confidentiality agreements and non-competition agreements (when applicable) and by restricting access to Catheter’s proprietary information. Due to rapid technological change, Catheter believes that establishing and maintaining an industry and technology advantage in factors such as the expertise and technological and creative skills of Catheter’s personnel, as well as new services and enhancements to Catheter’s existing services, are more important to Catheter’s business and profitability than other available legal protections.

 

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Despite Catheter’s efforts to protect Catheter’s proprietary rights, unauthorized parties may attempt to copy aspects of Catheter’s services or to obtain and use information that Catheter regards as proprietary. The laws of many countries do not protect proprietary rights to the same extent as the laws of the U.S. Litigation may be necessary in the future to enforce Catheter’s intellectual property rights, to protect Catheter’s trade secrets, to determine the validity and scope of the proprietary rights of others or to defend against claims of infringement. Any such litigation could result in substantial costs and diversion of resources and could have a material adverse effect on Catheter’s business, operating results and financial condition. There can be no assurance that Catheter’s means of protecting Catheter’s proprietary rights will be adequate or that Catheter’s competitors will not independently develop similar services or products. Any failure by us to adequately protect Catheter’s intellectual property could have a material adverse effect on Catheter’s business, operating results and financial condition.

Disputes may also arise between us and Catheter’s current and future licensors regarding intellectual property subject to a license agreement, including those related to:

 

   

the scope of rights granted under the license agreement and other interpretation-related issues;

 

   

whether and the extent to which Catheter’s technology and processes infringe on intellectual property of the licensor that is not subject to the licensing agreement;

 

   

Catheter’s right to sublicense patent and other rights to third parties under collaborative development relationships;

 

   

Catheter’s diligence obligations with respect to the use of the licensed technology in relation to Catheter’s development and commercialization of Catheter’s therapeutic candidates, and what activities satisfy those diligence obligations; and

 

   

the ownership of inventions and know-how resulting from the joint creation or use of intellectual property by Catheter’s licensors and Catheter and Catheter’s partners.

If disputes over intellectual property that Catheter has licensed, or may license in the future, prevent or impair Catheter’s ability to maintain Catheter’s licensing arrangements on acceptable terms, Catheter may be unable to successfully develop and commercialize the affected therapeutic candidates.

Catheter is generally also subject to all of the same risks with respect to protection of intellectual property that Catheter licenses, as it is for intellectual property that Catheter owns, which are described below. If Catheter or Catheter’s current and future licensors fail to adequately protect this intellectual property, Catheter’s ability to commercialize products could suffer.

Catheter depends extensively on Catheter’s patents and proprietary technology and the patents and proprietary technology Catheter license from others, and Catheter must protect those assets in order to preserve Catheter’s business.

Although Catheter expects to seek patent protection for any compounds, devices, biologics, systems, and processes Catheter discovers and/or for any specific use Catheter discovers for new or previously known compounds, devices, biologics, systems, or processes, any or all of which may not be subject to effective patent protection. In addition, Catheter’s issued patents may be declared invalid, or Catheter’s competitors may find ways to avoid the claims in the patents. Catheter’s success will depend, in part, on Catheter’s ability to obtain patents, protect Catheter’s trade secrets and proprietary knowledge and operate without infringing on the proprietary rights of others. The patent position of pharmaceutical and biotechnology firms like us is generally highly uncertain and involves complex legal and factual questions, resulting in both an apparent inconsistency regarding the breadth of claims allowed in United States patents and general uncertainty as to their legal interpretation and enforceability. Accordingly, patent applications assigned or exclusively licensed to us may not result in patents being issued, any issued patents assigned or exclusively licensed to us may not provide us with competitive protection or may be challenged by others, and the current or future granted patents of others may have an adverse effect on Catheter’s ability to do business and achieve profitability.

 

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Due in part to Catheter’s limited financial resources, Catheter may fail to select or capitalize on the most scientifically, clinically or commercially promising or profitable indications or therapeutic areas for Catheter’s product candidates and/or Catheter may be unable to pursue the clinical trials that Catheter would like to pursue.

Catheter has limited technical, managerial, and financial resources to determine the indications on which Catheter should focus the development efforts related to Catheter’s product candidates. Due to Catheter’s limited available financial resources, Catheter may have curtailed clinical development programs and activities that might otherwise have led to more rapid progress of Catheter’s product candidates through the regulatory and development processes.

Catheter may make incorrect determinations with regard to the indications and clinical trials on which to focus the available resources that Catheter does have. Furthermore, Catheter cannot assure you that Catheter will be able to retain adequate staffing levels to run Catheter’s operations and/or to accomplish all of the objectives that Catheter otherwise would seek to accomplish. Catheter’s decisions to allocate Catheter’s research, management, and financial resources toward particular indications or therapeutic areas for Catheter’s product candidates may not lead to the development of viable commercial products and may divert resources from better opportunities. Similarly, Catheter’s decisions to delay or terminate product development programs may also cause us to miss valuable opportunities.

If the third parties on which Catheter rely for the conduct of Catheter’s clinical trials and results do not perform Catheter’s clinical trial activities in accordance with good clinical practices and related regulatory requirements, Catheter may be unable to obtain regulatory approval for or commercialize Catheter’s product candidates.

Catheter may use independent clinical investigators and other third-party service providers to conduct and/or oversee the clinical trials of Catheter’s product candidates.

FDA requires us and Catheter’s clinical investigators to comply with regulations and standards, commonly referred to as good clinical practices, for conducting, recording, and reporting the results of clinical trials to assure that data and reported results are credible and accurate, and that the trial participants are adequately protected. Catheter’s reliance on third parties that Catheter do not control does not relieve us of these responsibilities and requirements. Third parties may not complete activities on schedule or may not conduct Catheter’s clinical trials in accordance with regulatory requirements or the respective trial plans and protocols. The failure of these third parties to carry out their obligations could delay or prevent the development, approval, and commercialization of Catheter’s product candidates or result in enforcement action against us.

Catheter may be adversely affected by product liability claims, unfavorable court decisions or legal settlements.

Catheter is exposed to potential product liability risks inherent in the design, manufacturing, and marketing of its products. These matters are subject to many uncertainties and outcomes are not predictable. In addition, Catheter may incur significant legal expenses regardless of whether Catheter is found to be liable.

While Catheter maintains product liability insurance, there can be no assurance that such coverage is sufficient to cover all product liabilities that Catheter may incur. Catheter is not currently subject to any product liability proceedings, and Catheter has no reserves for product liability disbursements. However, Catheter may incur material liabilities relating to product liability claims in the future, including product liability claims arising out of the usage and delivery of Catheter’s products. Should Catheter incur product-related liabilities exceeding Catheter’s insurance coverage, Catheter would be required to use available cash or raise additional cash to cover such liabilities.

Catheter may not have sufficient resources to effectively introduce and market Catheter’s products, which could materially harm Catheter’s operating results.

Introducing and achieving market acceptance for Catheter’s products will require substantial marketing efforts and will require us and/or Catheter’s contract partners, sales agents, and/or distributors to make significant expenditures of time and money. In some instances, Catheter will be significantly or totally reliant on the marketing efforts and expenditures of Catheter’s contract partners, sales agents, and/or distributors. If they do not have or commit the expertise and resources to effectively market the products that Catheter manufacture, Catheter’s operating results will be materially harmed.

 

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In addition to the market success of Catheter’s products, the success of Catheter’s business depends on Catheter’s ability to raise additional capital through the sale of debt or equity or through borrowing, and Catheter may not be able to raise capital or borrow funds on attractive terms and/or in amounts necessary to continue Catheter’s business, or at all.

Even if Catheter completes the necessary preclinical studies and clinical trials, the regulatory approval process is expensive, time-consuming and uncertain and may prevent us or any future collaborators from obtaining approvals for the commercialization of some or all of Catheter’s products. As a result, Catheter cannot predict when or if, and in which territories, we, or any future collaborators, will obtain marketing approval to commercialize a product candidate.

Catheter’s products and the activities associated with their development and commercialization, including their design, research, testing, manufacture, safety, efficacy, quality control, recordkeeping, labelling, packaging, storage, approval, advertising, promotion, sale, distribution, import, export, and reporting of safety and other post-market information, are subject to comprehensive regulation by FDA and other foreign regulatory agencies including the National Medical Products Association. Failure to obtain marketing approval for a product candidate will prevent us from commercializing the product candidate. Securing marketing approval in the United States from FDA requires the submission of extensive preclinical and clinical data and supporting information to regulatory authorities for each therapeutic indication to establish the product candidate’s safety and efficacy. Securing marketing approval also requires the submission of information about the product manufacturing process to, and inspection of manufacturing facilities by, the regulatory authorities. Catheter’s products may not be effective, may be only moderately effective or may prove to have undesirable or unintended side effects, toxicities or other characteristics that may preclude Catheter’s obtaining marketing approval or prevent or limit commercial use.

In addition, changes in marketing approval policies during the development period, changes in or the enactment of additional statutes or regulations or changes in regulatory review for each submitted product application may cause delays in the approval or rejection of an application. Regulatory authorities have substantial discretion in the approval process and may refuse to accept any application or may decide that Catheter’s data is insufficient for approval and require additional preclinical, clinical, or other studies. In addition, varying interpretations of the data obtained from preclinical and clinical testing could delay, limit, or prevent marketing approval of a product candidate. Any marketing approval Catheter ultimately obtains may be limited or subject to restrictions or post-approval commitments that render the approved product not commercially viable.

If Catheter experiences delays in obtaining approval or if Catheter fails to obtain approval of Catheter’s products, the commercial prospects for Catheter’s products may be harmed and Catheter’s ability to generate revenues will be impaired.

Failure to obtain marketing approval in foreign jurisdictions would prevent Catheter’s products from being marketed in these territories. Any approval Catheter is granted for Catheter’s products in the United States would not assure approval of Catheter’s products in foreign jurisdictions.

To market and sell Catheter’s products in foreign countries and any other jurisdictions, Catheter must obtain separate marketing approvals and comply with numerous and varying regulatory requirements. The approval procedure varies among countries and can involve additional testing. The time required to obtain approval may differ substantially from that required to obtain approval from FDA in the United States. The regulatory approval process outside the United States generally includes all the risks associated with obtaining approval from FDA. In addition, in many countries outside the United States, it is required that the product be approved for reimbursement before the product can be approved for sale in that country. Catheter may not obtain approvals from regulatory authorities outside the United States on a timely basis, if at all. Approval by FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one regulatory authority outside the United States does not ensure approval by regulatory authorities in other countries or jurisdictions or by FDA. However, failure to obtain approval in one jurisdiction may impact Catheter’s ability to obtain approval elsewhere. Catheter may not be able to file for marketing approvals and may not receive necessary approvals to commercialize Catheter’s products in any market.

 

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Even if Catheter obtains marketing approvals for Catheter’s products, the terms of approvals and ongoing regulation of Catheter’s products may limit how Catheter manufactures and markets Catheter’s products, and compliance with such requirements may involve substantial resources, which could materially impair Catheter’s ability to generate revenue.

Even if marketing approval of a product candidate is granted, an approved product and its manufacturer and marketer are subject to ongoing review and extensive regulation, including the potential requirements to implement a risk evaluation and mitigation strategy or to conduct costly post-marketing studies or clinical trials and surveillance to monitor the safety or efficacy of the product. Catheter must also comply with requirements concerning advertising and promotion for any of Catheter’s products for which Catheter obtains marketing approval. Promotional communications are subject to a variety of legal and regulatory restrictions and must be consistent with the information in the product’s approved labelling. Thus, Catheter will not be able to promote any products Catheter develops for indications or uses for which they are not approved. In addition, manufacturers of approved products and those manufacturers’ facilities are required to comply with extensive FDA requirements including ensuring quality control and manufacturing procedures, which include requirements relating to quality control and quality assurance as well as the corresponding maintenance of records and documentation and reporting requirements. Catheter and Catheter’s contract manufacturers could be subject to periodic unannounced inspections by FDA to monitor and ensure compliance.

Catheter’s employees, independent contractors, principal investigators, consultants, commercial partners and vendors may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements.

Catheter is exposed to the risk of employee fraud or other misconduct or failure to comply with applicable regulatory requirements. Misconduct by employees and independent contractors, such as principal investigators, consultants, commercial partners and vendors, could include failures to comply with regulations of FDA and other comparable regulatory authorities, to provide accurate information to such regulators, to comply with manufacturing standards Catheter has established, to comply with healthcare fraud and abuse laws, to report financial information or data accurately or to disclose unauthorized activities to us. In particular, sales, marketing and other business arrangements in the healthcare industry are subject to extensive laws intended to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws may restrict or prohibit a wide range of business activities, including, but not limited to, research, manufacturing, distribution, pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Employee and independent contractor misconduct could also involve the improper use of individually identifiable information, including, without limitation, information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to Catheter’s reputation. In addition, federal procurement laws impose substantial penalties for misconduct in connection with government contracts and require certain contractors to maintain a code of business ethics and conduct. It is not always possible to identify and deter employee and independent contractor misconduct, and any precautions Catheter takes to detect and prevent improper activities may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with such laws. If any such actions are instituted against us, those actions could have a significant impact on Catheter’s business, including the imposition of civil, criminal and administrative penalties, damages, monetary fines, disgorgement, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings, additional reporting or oversight obligations if Catheter becomes subject to a corporate integrity agreement or other agreement to resolve allegations of non-compliance with the law and curtailment or restructuring of Catheter’s operations, any of which could adversely affect Catheter’s ability to operate.

 

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The recent coronavirus outbreak (“COVID-19”) has adversely affected Catheter’s financial condition and results of operations and Catheter cannot provide any certainty when and whether Catheter’s operations will reach the normal level prior to the COVID-19 pandemic.

The coronavirus outbreak (“COVID-19”) has adversely affected Catheter’s financial condition and results of operations. The impact of the outbreak of COVID-19 on the businesses and the economy in the United States and the rest of the world is and is expected to continue to be significant. The extent to which COVID-19 outbreak will continue to impact business and the economy is highly uncertain and cannot be predicted. Accordingly, Catheter cannot predict the extent to which its financial condition and results of operation will be affected.

On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency caused by a new strain of the coronavirus and advised of the risks to the international community as the virus spread globally. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic based on the rapid increase in exposure globally. The spread of COVID-19 coronavirus has caused public health officials to recommend precautions to mitigate the spread of the virus, especially as to travel and congregating in large numbers. In addition, certain states and municipalities have enacted quarantining regulations which severely limit the ability of people to move and travel.

In addition, Catheter is uncertain of the full effect the pandemic will have on it for the longer term since the scope and duration of the pandemic is unknown, and evolving factors such as the level and timing of the distribution of efficacious vaccines across the world and the extent of any resurgences of the virus or emergence of new variants of the virus, such as the Delta variant and the Omicron variant, will impact the stability of economic recovery and growth. Catheter may experience long-term disruptions to its operations resulting from changes in government policy or guidance; quarantines of employees, customers and suppliers in areas affected by the pandemic; and closures of businesses or manufacturing facilities critical to its business.

General economic conditions may adversely affect demand for Catheter’s products and services.

Poor or deteriorating economic conditions in the U.S. could adversely affect the demand for healthcare services and consequently, the demand for Catheter’s products and services. Poor economic conditions also could lead Catheter’s suppliers to offer less favorable terms of purchase, and continuing inflation is likely to continue to increase the cost of our raw materials and other required purchases, each of which would negatively affect Catheter’s cash flows and profitability. These and other possible consequences of financial and economic decline and inflation could have material adverse effect on Catheter’s business, results of operations, and financial condition.

Catheter operates Catheter’s business in regions subject to natural disasters and other catastrophic events, and any disruption to Catheter’s business resulting from natural disasters would adversely affect Catheter’s revenue and results of operations.

Catheter operates Catheter’s business in regions subject to severe weather and natural disasters, including hurricanes, floods, fires, earthquakes, and other catastrophic events. Any natural disaster could adversely affect Catheter’s ability to conduct business and provide products and services to Catheter’s customers, and the insurance Catheter maintain may not be adequate to cover Catheter’s losses resulting from any business interruption resulting from a natural disaster or other catastrophic event.

Catheter depends heavily on Catheter’s executive officers, directors, and principal consultants and the loss of their services would materially harm Catheter’s business.

Catheter believes that Catheter’s success depends, and will likely continue to depend, upon Catheter’s ability to retain the services of Catheter’s current executive officers, directors, principal consultants, and others. In addition, Catheter has established relationships with universities, hospitals, and research institutions, which have historically provided, and continue to provide, us with access to research laboratories, clinical trials, facilities, and patients. The loss of the services of any of these individuals or institutions would have a material adverse effect on Catheter’s business.

 

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Risks Related to the Combined Company

In determining whether you should vote to approve the proposals contained in this proxy statement, you should carefully read the following risk factors in addition to the risks described above. Because the combined company is not expected to use Ra Medical’s legacy assets or continue its legacy lines of business but is instead expected to shift the focus of its operations to Catheter’s product lines, many of the risks set forth above under “Risks of the Continuing Business of Catheter” are also to apply to the combined company.

The combined company will incur losses for the foreseeable future and might never achieve profitability.

The combined company may never become profitable, even if the combined company is able to complete clinical development for one or more product candidates and eventually commercialize such product candidates. The combined company will need to successfully complete significant research, development, testing and regulatory compliance activities that, together with projected general and administrative expenses, is expected to result in substantial increased operating losses for at least the next several years. Even if the combined company does achieve profitability, it may not be able to sustain or increase profitability on a quarterly or annual basis.

The combined company will need to raise additional financing in the future to fund its operations, which may not be available to it on favorable terms or at all.

The combined company will require substantial additional funds to conduct the costly and time-consuming clinical efficacy trials necessary to pursue regulatory approval of each potential product candidate and to continue the development of VIVO and future product candidates. The combined company’s future capital requirements will depend upon a number of factors, including: the number and timing of future product candidates in the pipeline; progress with and results from preclinical testing and clinical trials; the ability to manufacture sufficient drug supplies to complete preclinical and clinical trials; the costs involved in preparing, filing, acquiring, prosecuting, maintaining and enforcing patent and other intellectual property claims; and the time and costs involved in obtaining regulatory approvals and favorable reimbursement. Raising additional capital may be costly or difficult to obtain and could significantly dilute stockholders’ ownership interests or inhibit the combined company’s ability to achieve its business objectives. If the combined company raises additional funds through public or private equity offerings, the terms of these securities may include liquidation or other preferences that adversely affect the rights of its common stockholders. Further, to the extent that the combined company raises additional capital through the sale of common stock or securities convertible or exchangeable into common stock, its stockholders’ ownership interest in the combined company will be diluted. In addition, any debt financing may subject the combined company to fixed payment obligations and covenants limiting or restricting its ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If the combined company raises additional capital through marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties, the combined company may have to relinquish certain valuable intellectual property or other rights to its product candidates, technologies, future revenue streams or research programs or grant licenses on terms that may not be favorable to it. Even if the combined company were to obtain sufficient funding, there can be no assurance that it will be available on terms acceptable to the combined company or its stockholders.

The combined company’s stock price is expected to be volatile, and the market price of its common stock may drop following the merger.

The market price of the combined company’s common stock following the merger could be subject to significant fluctuations. Market prices for securities of early-stage medical device, pharmaceutical, biotechnology, and other life sciences companies have historically been particularly volatile. Some of the factors that may cause the market price of the combined company’s common stock to fluctuate following the merger include:

 

   

the ability of the combined company to obtain regulatory approvals for product candidates, and delays or failures to obtain such approvals;

 

   

the failure of any of the combined company’s product candidates, if approved for marketing and commercialization, to achieve commercial success;

 

   

any inability to obtain adequate supply of the combined company’s product candidates or the inability to do so at acceptable prices;

 

   

the entry into, or termination of, key agreements, including key licensing, supply or collaboration agreements;

 

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the initiation of material developments in, or conclusion of, disputes or litigation to enforce or defend any of the combined company’s intellectual property rights or defend against the intellectual property rights of others;

 

   

changes in laws or regulations applicable to the combined company’s product candidates;

 

   

the results of current, and any future, nonclinical or clinical trials of the combined company’s product candidates;

 

   

announcements by commercial partners or competitors of new commercial products, clinical progress (or the lack thereof), significant contracts, commercial relationships, or capital commitments;

 

   

failure to meet or exceed financial and development projections the combined company may provide to the public;

 

   

failure to meet or exceed the financial and development projections of the investment community;

 

   

adverse publicity relating to the combined company’s markets, including with respect to other products and potential products in such markets;

 

   

the introduction of technological innovations competing with potential products of the combined company;

 

   

announcements of significant acquisitions, strategic collaborations, joint ventures or capital commitments by the combined company or its competitors;

 

   

disputes or other developments relating to proprietary rights, including patents, litigation matters, and the combined company’s ability to obtain patent protection for its technologies;

 

   

the loss of key employees;

 

   

significant lawsuits, including patent or stockholder litigation;

 

   

if securities or industry analysts do not publish research or reports about the combined company’s business, or if they issue an adverse or misleading opinion regarding its business and stock;

 

   

changes in the market valuations of similar companies;

 

   

general and industry-specific economic conditions potentially affecting the combined company’s research and development expenditures;

   

sales of its common stock by the combined company or its stockholders in the future;

 

   

trading volume of the combined company’s common stock;

 

   

changes in the structure of health care payment systems;

 

   

adverse regulatory decisions;

 

   

trading volume of the combined company’s common stock; and

 

   

period-to-period fluctuations in the combined company’s financial results.

Moreover, the stock markets in general have experienced substantial volatility that has often been unrelated to the operating performance of individual companies or the medical device sector. These broad market fluctuations may also adversely affect the trading price of the combined company’s common stock.

In the past, following periods of volatility in the market price of a company’s securities, stockholders have often instituted class action securities litigation against those companies. Regardless of the merits or the ultimate results of such litigation, if instituted, such litigation could result in substantial costs and diversion of management’s attention and resources, which could significantly harm the combined company’s profitability and reputation. Litigation has been instituted with respect to the merger. For more information see “Ra Medical’s Business - Legal Matters” beginning on page 164 of this proxy statement.

 

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Additionally, a decrease in the stock price of the combined company may cause the combined company’s common stock to no longer satisfy the continued listing standards of the NYSE American. If the combined company is not able to maintain the requirements for listing on the NYSE American, it could be delisted, which could have a materially adverse effect on its ability to raise additional funds as well as the price and liquidity of its common stock.

Financial reporting obligations of being a public company in the United States are expensive and time-consuming, and the combined company’s management will be required to devote substantial time to compliance matters.

As a publicly-traded company, the combined company will incur significant additional legal, accounting and other expenses that Catheter did not incur as a privately-held company, including costs associated with public company reporting requirements. The obligations of being a public company in the United States require significant expenditures and will place significant demands on the combined company’s management and other personnel, including costs resulting from public company reporting obligations under the Exchange Act and the rules and regulations regarding corporate governance practices, including those under the Sarbanes-Oxley Act, the Dodd-Frank Act and the listing requirements of the stock exchange on which the combined company’s securities are listed. These rules require the establishment and maintenance of effective disclosure and financial controls and procedures, internal control over financial reporting and changes in corporate governance practices, among many other complex rules that are often difficult to implement, monitor and maintain compliance with. In addition, the combined company expects these rules and regulations to make it more difficult and more expensive for the combined company to obtain director and officer liability insurance and the combined company may be required to incur substantial costs to maintain the same or similar coverage that Catheter had as a privately-held company. The combined company’s management and other personnel will need to devote a substantial amount of time to ensure that the combined company complies with all of these requirements and to keep pace with new regulations, otherwise the combined company may fall out of compliance and risk becoming subject to litigation or being delisted, among other potential problems.

The sale or availability for sale of a substantial number of shares of common stock of the combined company after the merger and after expiration of applicable lock-up periods could adversely affect the market price of such shares after the merger.

Sales of a substantial number of shares of common stock of the combined company in the public market after the merger or if existing stockholders of Ra Medical and Catheter sell, or indicate an intention to sell, substantial amounts of the combined company’s common stock in the public market after expiration of applicable lock-up periods and other legal restrictions on resale, or the perception that these sales could occur, could adversely affect the market price of such shares and could materially impair the combined company’s ability to raise capital through equity offerings in the future. Ra Medical and Catheter are unable to predict what effect, if any, market sales of securities held by significant stockholders, directors or officers of the combined company or the availability of these securities for future sale will have on the market price of the combined company’s common stock after the merger.

Ownership of the combined company’s common stock is expected to be highly concentrated, and it may prevent other stockholders from influencing significant corporate decisions.

Upon completion of the merger, it is currently estimated that Catheter stockholders, option holders and noteholders will hold approximately 79.37% of the economic value of the combined company immediately after the closing of the merger, subject to downwards adjustment as provided in the to the extent that, and by the amount in which, Ra Medical delivers Net Cash (as defined in the merger agreement) greater than $8,000,000 and that Mr. David Jenkins and his affiliates will hold approximately 60.2% of the outstanding capital stock of the combined company. Accordingly, Catheter’s securityholders will have substantial influence over the outcome of any corporate action of the combined company requiring stockholder approval, including the election of directors, any merger, consolidation or sale of all or substantially all of the combined company’s assets or any other significant corporate transaction. These securityholders also may exert influence in delaying or preventing a change in control of the combined company, even if such change in control would benefit the other stockholders of the combined company.

 

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The combined company will continue to be a smaller reporting company immediately following the merger for an indefinite period of time. The combined company cannot be certain whether the reduced disclosure requirements applicable to smaller reporting companies will make the combined company’s common stock less attractive to investors or otherwise limit the combined company’s ability to raise additional funds.

Ra Medical is currently, and the combined company will continue to be upon completion of the merger, a “smaller reporting company” under applicable securities regulations. A smaller reporting company is a company that, as of the last business day of its most recently completed second fiscal quarter, has an aggregate market value of the company’s voting stock held by non-affiliates, or public float, of less than $250 million, or has at least $100 million in revenue and at least $700 million in public float. SEC rules provide that companies with a non-affiliate public float of less than $75 million may only sell shares under a Form S-3 shelf registration statement, during any 12-month period, in an amount less than or equal to one-third of the public float. If the combined company does not meet this public float requirement, any offering by the combined company under a Form S-3 will be limited to raising an aggregate of one-third of the combined company’s public float in any 12-month period. In addition, a smaller reporting company is able to provide simplified executive compensation disclosures in its filings, is exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act requiring that an independent registered public accounting firm provide an attestation report on the effectiveness of internal control over financial reporting if its public float is less than $75 million, and has certain other reduced disclosure obligations in their SEC filings, including, among other things, only being required to provide two years of audited financial statements in annual reports. Reduced disclosure in the combined company’s SEC filings due to its status as a smaller reporting company may make it harder for investors to analyze its results of operations and financial prospects.

Ra Medical and Catheter do not anticipate that the combined company will pay any cash dividends in the foreseeable future.

The current expectation is the combined company will retain its future earnings, if any, to fund the development and growth of the combined company’s business. As a result, capital appreciation, if any, of the combined company’s common stock will be stockholders’ sole source of gain, if any, for the foreseeable future.

An active trading market for the combined company’s common stock may not develop and its stockholders may not be able to resell their shares of common stock for a profit, if at all.

Prior to the merger, there had been no public market for Catheter’s common stock. An active trading market for the combined company’s shares of common stock may never develop or be sustained. If an active market for its common stock does not develop or is not sustained, it may be difficult for its stockholders to sell their shares at an attractive price or at all.

If equity research analysts do not publish research or reports, or publish unfavorable research or reports, about the combined company, its business or its market, its stock price and trading volume could decline.

The trading market for the combined company’s common stock will be influenced by the research and reports that industry or equity research analysts publish about it and its business. Equity research analysts may elect not to provide research coverage of the combined company’s common stock after the completion of the merger, and such lack of research coverage may adversely affect the market price of its common stock. In the event it does have equity research analyst coverage, the combined company will not have any control over the analysts, or the content and opinions included in their reports. The price of the combined company’s common stock could decline if one or more equity research analysts downgrade its stock or issue other unfavorable commentary or research. If one or more equity research analysts ceases coverage of the combined company or fails to publish reports on it regularly, demand for its common stock could decrease, which in turn could cause its stock price or trading volume to decline.

 

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The combined company must maintain effective internal controls over financial reporting, and if the combined company is unable to do so, the accuracy and timeliness of the combined company’s financial reporting may be adversely affected, which could have a material adverse effect on the combined company’s business and stock price.

Immediately following the merger, the combined company is expected to continue to be an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act, and therefore will be able to take advantage of certain exemptions from various reporting requirements that are applicable to other companies that are not “emerging growth companies” including not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act. It is expected that the combined company will remain an emerging growth company until the earlier of (i) the last day of the fiscal year (a) following the fifth anniversary of the completion of Ra Medical’s IPO, (b) in which the combined company has total annual gross revenue of at least $1.235 billion or (c) in which the combined company is deemed to be a large accelerated filer, which requires the market value of our common stock that is held by non-affiliates to exceed $700.0 million as of the prior June 30th, and (ii) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period

The combined company must maintain effective internal control over financial reporting in order to accurately and timely report its results of operations and financial condition. In addition, as a public company, the Sarbanes-Oxley Act requires, among other things, that the combined company assess the effectiveness of its disclosure controls and procedures quarterly and the effectiveness of the combined company’s internal control over financial reporting at the end of each fiscal year.

The rules governing the standards that must be met for the combined company management to assess the combined company’s internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act are complex and require significant documentation, testing and possible remediation. These stringent standards require that the combined company’s audit committee be advised and regularly updated on management’s review of internal control over financial reporting. The combined company’s management may not be able to effectively and timely implement controls and procedures that adequately respond to the increased regulatory compliance and reporting requirements that are applicable to the combined company as a public company. If the combined company fails to staff the combined company’s accounting, finance and information technology functions adequately or maintain internal control over financial reporting adequate to meet the demands that will be placed upon the combined company as a public company, including the requirements of the Sarbanes-Oxley Act, the combined company’s business and reputation may be harmed and its stock price may decline. Furthermore, investor perceptions of the combined company may be adversely affected, which could cause a decline in the market price of its common stock.

If the combined company fails to attract and retain management and other key personnel, it may be unable to continue to successfully develop or commercialize its product candidates or otherwise implement its business plan.

The combined company’s ability to compete in the highly competitive medical device industry depends on its ability to attract and retain highly qualified managerial, scientific, medical, legal, sales and marketing and other personnel. The combined company will be highly dependent on its management and scientific personnel. The loss of the services of any of these individuals could impede, delay or prevent the successful development of the combined company’s product pipeline, completion of its planned clinical trials, commercialization of its product candidates or in-licensing or acquisition of new assets and could impact negatively its ability to implement successfully its business plan. If the combined company loses the services of any of these individuals, it might not be able to find suitable replacements on a timely basis or at all, and its business could be harmed as a result. The combined company might not be able to attract or retain qualified management and other key personnel in the future due to the intense competition for qualified personnel among medical device, biotechnology, pharmaceutical and other businesses.

Anti-takeover provisions under the combined company’s charter documents and Delaware law could delay or prevent a change of control which could limit the market price of the combined company’s common stock and may prevent or frustrate attempts by the combined company’s stockholders to replace or remove members of the combined company’s board of directors or the combined company’s management and may adversely affect the market price of the combined company’s common stock.

 

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The amended and restated certificate of incorporation and bylaws of the combined company will contain provisions that could delay or prevent a change of control of the combined company or changes in the combined company’s board of directors that the combined company’s stockholders might consider favorable. Some of these provisions include:

 

   

The combined company’s board of directors will be divided into three classes serving staggered three-year terms, such that not all members of the board is elected at one time, which could delay the ability of stockholders to change the membership of a majority of the combined company’s board of directors;

 

   

the ability of the combined company’s board of directors to issue shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer;

 

   

the exclusive right of the combined company’s board of directors to elect a director to fill a vacancy created by the expansion of our board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors;

 

   

a prohibition on stockholder action through written consent, which requires that all stockholder actions be taken at an annual or special meeting of the combined company’s stockholders;

 

   

a requirement that a special meetings of stockholders of the combined company be called only by the chairperson of the board of directors, the chief executive officer or president (in the absence of a chief executive officer) or a majority vote of the combined company’s board of directors, which could delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors;

 

   

the requirement for the affirmative vote of holders of at least 66 2/3% of the voting power of all of the then outstanding shares of the voting stock, voting together as a single class, to amend the provisions of the combined company’s amended and restated certificate of incorporation relating to the issuance of preferred stock and management of the combined company’s business or the combined company’s bylaws, which may inhibit the ability of an acquirer to affect such amendments to facilitate an unsolicited takeover attempt;

 

   

the ability of the combined company’s board of directors, by majority vote, to amend the combined company’s bylaws, which may allow the combined company’s board of directors to take additional actions to prevent an unsolicited takeover and inhibit the ability of an acquirer to amend the combined company’s bylaws to facilitate an unsolicited takeover attempt; and

 

   

advance notice procedures with which stockholders must comply to nominate candidates to the combined company’s board of directors or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of the combined company.

In addition, because the combined company will be incorporated in Delaware, it will be governed by the provisions of Section 203 of the Delaware General Corporate Law, which may prohibit certain business combinations with stockholders owning 15% or more of our outstanding voting stock. These anti-takeover provisions and other provisions in the combined company’s amended and restated certificate of incorporation and bylaws could make it more difficult for stockholders or potential acquirers to obtain control of the combined company’s board of directors or initiate actions that are opposed by the then-current board of directors and could also delay or impede a merger, tender offer or proxy contest involving the combined company. These provisions could also discourage proxy contests and make it more difficult for the combined company’s stockholders to elect directors of their choosing or cause the combined company to take other corporate actions they desire. Any delay or prevention of a change of control transaction or changes in the combined company’s board of directors could cause the market price of the combined common stock to decline.

 

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The amended and restated certificate of incorporation of the combined company will provide that the Court of Chancery of the State of Delaware and the federal district courts of the U.S. are the exclusive forums for substantially all disputes between us and our stockholders, which could limit the combined company’s stockholders’ ability to obtain a favorable judicial forum for disputes with the combined company or the combined company’s directors, officers or employees or increase the combined company’s stockholders’ costs in bringing claims.

The amended and restated certificate of incorporation of the combined company will provide that the Court of Chancery of the State of Delaware is the exclusive forum for any derivative action or proceeding brought on the combined company’s behalf; any action asserting a breach of fiduciary duty; any action asserting a claim against the combined company arising under the Delaware General Corporation Law, the combined company’s amended and restated certificate of incorporation or bylaws; any action to interpret, apply, enforce or determine the validity of the combined company’s amended and restated certificate of incorporation or bylaws; and any action asserting a claim against the combined company that is governed by the internal affairs doctrine. This provision would not apply to suits brought to enforce a duty or liability created by the Exchange Act or any other claim for which the U.S. federal courts have exclusive jurisdiction.

The amended and restated certificate of incorporation of the combined company will further provides that the federal district courts of the U.S. are the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act. The enforceability of similar exclusive federal forum provisions in other companies’ organizational documents has been challenged in legal proceedings, and while the Delaware Supreme Court has ruled that this type of exclusive federal forum provision is facially valid under Delaware law, there is uncertainty as to whether other courts would enforce such provisions as well as provisions preventing investors from waiving compliance with the federal securities laws and the rules and regulations thereunder.

These exclusive forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against the combined company and the combined company’s directors, officers and other employees. Additionally, such exclusive forum provisions may increase a stockholder’s costs of bringing claims, which could have the effect of limiting a stockholder’s ability to bring a claim. Alternatively, if a court were to find either exclusive forum provision in our certificate of incorporation to be inapplicable or unenforceable in an action, the combined company may incur additional costs associated with resolving such action in other jurisdictions, which could have a material adverse effect on the combined company’s business, financial condition, and results of operations.

The combined company’s employees may engage in misconduct or other improper activities, including violating applicable regulatory standards and requirements or engaging in insider trading, which could significantly harm the combined company’s business.

The combined company is exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply with the regulations of the FDA and applicable non-U.S. regulators, provide accurate information to the FDA and applicable non-U.S. regulators, comply with healthcare fraud and abuse laws and regulations in the United States and abroad, report financial information or data accurately or disclose unauthorized activities to the combined company. Employees may also unintentionally or willfully disclose the combined company’s proprietary and/or confidential information to competitors. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Employee misconduct could also involve the improper use of, including trading on, information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to the combined company’s reputation. The combined company is expected to adopt a code of conduct, but it is not always possible to identify and deter employee misconduct, and the precautions the combined company takes to detect and prevent this activity may be ineffective in controlling unknown or unmanaged risks or losses or in protecting the combined company from governmental investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations. If any such actions are instituted against the combined company, and the combined company is not successful in defending itself or asserting its rights, those actions could have a significant impact on the combined company’s business, including the imposition of significant fines or other sanctions.

 

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Unfavorable global economic conditions could adversely affect the combined company’s business, financial condition or results of operations.

The combined company’s results of operations could be adversely affected by general conditions in the global economy and in the global financial markets. A severe or prolonged economic downturn could result in a variety of risks to the combined company’s business, including, weakened demand for the combined company’s product candidates and the combined company’s ability to raise additional capital when needed on acceptable terms, if at all. A weak or declining economy could also strain the combined company’s suppliers, possibly resulting in supply disruption, or cause the combined company’s customers to delay making payments for its services. Any of the foregoing could harm the combined company’s business and the combined company cannot anticipate all of the ways in which the current economic climate and financial market conditions could adversely impact its business.

 

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CAUTIONARY INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

This proxy statement, and the documents incorporated by reference into this proxy statement, contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including, but not limited to, statements regarding: the ability of the parties to consummate the merger; satisfaction of closing conditions precedent to the consummation of the merger; potential delays in consummating the merger and the ability of Ra Medical to timely and successfully achieve the anticipated benefits of the merger; projected cash runways; future performance, business prospects, events and product development plans; and stockholder approval of the merger proposal and the plan increase proposal. The use of words such as, but not limited to, “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will,” or “would” and similar words expressions are intended to identify forward-looking statements. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, our clinical results and other future conditions. New risks and uncertainties may emerge from time to time, and it is not possible to predict all risks and uncertainties. No representations or warranties (expressed or implied) are made about the accuracy of any such forward-looking statements. We may not actually achieve the forecasts disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Such forward-looking statements are subject to a number of material risks and uncertainties including but not limited to those set forth under the caption “Risk Factors” in this proxy statement, in our Annual Report on Form 10-K for year ended December 31, 2021 filed with the SEC and in our Quarterly Reports on Form 10-Q filed with the SEC subsequent to the filing of the most recent Annual Report on Form 10-K, as updated by Exhibits 99.7 and 99.8 to Ra Medical’s Current Report on Form 8-K, filed with the SEC on September 12, 2022, as well as discussions of potential risks, uncertainties, and other important factors in our subsequent filings with the SEC. Any forward-looking statement speaks only as of the date on which it was made. Neither we, nor our affiliates, advisors or representatives, undertake any obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by law. These forward-looking statements should not be relied upon as representing our views as of any date subsequent to the date hereof.

 

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THE MERGER

This section and the section entitled “The Merger Agreement” beginning on page 142 of this proxy statement describe the material aspects of the merger, including the merger agreement. While Ra Medical believes that this description covers the material terms of the merger and the merger agreement, it may not contain all of the information that is important to you. You should read carefully this entire proxy statement, including the merger agreement, which is attached as Annex A to this proxy statement, and the other documents to which Ra Medical has referred or incorporated by reference herein. For a more detailed description of where you can find those other documents, please see the section entitled “Where You Can Find Additional Information” beginning on page 241 of this proxy statement.

Background of the Merger

The following chronology summarizes the key meetings and events that led to the signing of the merger agreement. The following chronology does not purport to catalogue every conversation among the Ra Medical Board, members of Ra Medical management or Ra Medical’s representatives and other parties.

In March 2022, Ra Medical’s management concluded that, although Ra Medical had consummated an underwritten public offering in February 2022 which resulted in net proceeds to Ra Medical of approximately $9.7 million, based on the Company’s recurring net losses from operations and negative cash flows from operating activities, the Company’s significant accumulated deficit and management’s expectations that operating losses and negative cash flows would continue for the foreseeable future due to (i) the Company’s reduced commercial footprint, (ii) the Company continuing to incur costs related to its atherectomy clinical trial, engineering efforts to improve the shelf life of its catheters and develop next generation products and legal costs and (iii) the negative impacts of the COVID-19 pandemic, there was substantial doubt regarding Ra Medical’s ability as an independent standalone company to continue as a going concern for a period of at least 12 months. The Ra Medical Board and management discussed the significant dilution associated with the February 2022 offering resulting from the decline in the stock price once an offering was announced, the discounted price to market once the financing was priced, the double warrant coverage, and other terms of such warrants, which had durations of up to a 7-years, included in the offering. The Ra Medical Board and management also discussed whether the Company would be able to raise sufficient capital in the future on acceptable terms in order to fund the Company’s overhead and research and development to a point where either one or more products would be ready for commercialization or licensing and potentially be of value to an acquiror or that would enable the Company to raise more money on acceptable terms to fund the development of a sales team and pipeline seeking to ultimately generate positive operating income. The Ra Medical Board and management also discussed the merits of pursuing an alternative strategic transaction in lieu of continuing to raise the amount of capital necessary to pursue its existing business plan and that future financings would likely continue to be significantly dilutive and contain terms that could potentially further limit the company’s ability to raise future capital or generate a return for existing shareholders such as warrants with ratchet provisions. A strategic transaction could potentially reduce the amount of capital that needed to be raised and thereby potentially minimize or reduce stockholder dilution or the necessity of entering into one or more future financing arrangements that contained terms which would disadvantage the Company’s stockholders or limit the Company’s ability to raise money in the future. The Ra Medical Board also factored into its analysis the ongoing health of the Company’s Chief Executive Officer and the diagnosis of his serious illness, which was originally disclosed in January 2022, and the impact that such a health condition, including any worsening of such condition, could potentially have on the Company’s ability to fundraise or on its long-term ability to achieve its future goals, notwithstanding Mr. McGuire’s ability at the time to currently fulfill all his duties and responsibilities in the near-term future.

 

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In light of the Company’s financial condition and the Company’s limited capital resources and the other foregoing factors, the Company’s Board of Directors and its management began conducting a review of strategic alternatives. In March 2022, the Board of Directors initiated a process to explore strategic options intended to maximize stockholder value, and in this respect, engaged Ladenburg Thalmann & Co. Inc. (“Ladenburg”), who previously acted as the Company’s financial advisor and underwriter for the Company’ public offering in February 2022, to be its financial advisor to assist in the review and evaluation of all strategic options, including a company sale, merger, asset sale, in-license, out-license, or other business combination transaction. The strategic process also involved one additional interested party with whom Ra Medical had an existing confidentiality agreement and which inquiries were handled separately and independently by Ra Medical and not through Ladenburg. The preliminary discussions with this interested party began in September 2021 with the intention to create a combined company with an enhanced opportunity to create value deriving from the complementary and synergistic nature of the companies’ technologies. However, the exploratory conversations did not progress to a material inflection point primarily due to issues internal to the interested party itself that were unrelated to the evaluation of Ra Medical’s business. Specifically, on March 4, 2022, representatives of Ladenburg presented a proposal in which Ladenburg would engage with Ra Medical to evaluate strategic alternatives to generate shareholder value. At a meeting of the Ra Medical Board held on March 18, 2022, the Ra Medical Board discussed Ra Medical’s financial position, the current and expected future condition of the financial markets and potential strategic transactions, including bank selection to explore whether it was possible and at what cost to raise additional capital as well as other possibilities for strategic transactions. At a subsequent meeting of the Ra Medical Board held on March 25, 2022, the Ra Medical Board discussed whether to engage Ladenburg or a second investment bank to be Ra Medical’s financial advisor for a strategic transaction, and approved engaging Ladenburg to act as Ra Medical’s advisor for a strategic transaction in addition to continuing to act as its financial advisor for financing transactions. Ladenburg began outreach in early April 2022 with a focus on strategically aligned companies which included larger medical technology companies that may be interested in acquiring the Company as a whole and/or its assets, as well as counterparties interested in a reverse merger placing a premium on the Company’s public listing and assets.

The Ra Medical Board met on April 11, 2022. Members of management presented an update on the Ladenburg engagement including the current timeline and companies targeted for outreach. Members of management also reviewed potential costs at the closing of a transaction under various assumptions and reviewed forecasted month-end cash balances for 2022.

The Ra Medical Board met on April 15, 2022. Members of management provided the Ra Medical Board with updates on Ladenburg’s outreach process, including potential strategic interest and timeline. Management also discussed strategic alternatives and challenges associated with the Company’s ability to raise capital.

The Ra Medical Board met on April 22, 2022. Members of management provided the Ra Medical Board with further updates on Ladenburg’s outreach process, including potential strategic interest, timing, and preliminary negotiations and diligence. Management also discussed anticipated cash burn and other decision points for implementing strategic options.

The Ra Medical Board met on April 28, 2022. Members of management provided the Ra Medical Board with further updates on Ladenburg’s outreach process, including feedback from potential partners. Management also discussed a potential refocusing of the Company on its nascent lithotripsy asset including a preliminary review of the potential operational modifications and changes to its business model. And the Ra Medical Board discussed potential scenarios in the event that a strategic transaction could not be consummated in a timely manner.

The Ra Medical Board met on May 10, 2022. The Ladenburg team joined the meeting to provide an update on their outreach efforts, including feedback to the strategic outreach and potential partners and levels of interest, as well as a discussion of next steps. Members of Ladenburg provided an estimated cash at closing analysis in order to consummate a proposed merger under various circumstances, including available cash on a month-by-month basis through the closing of a potential transaction. Members of Ladenburg also discussed the differences in available cash requirements and timeline for a traditional reverse merger versus a simultaneous sign and close transaction, as well as related transaction expenses and assumptions. Members of Ladenburg also provided an in-depth review regarding the key advantages and challenges of a simultaneous sign and close transaction, including a review of the structure and process and other relevant criteria that would be required to enable such transaction to be consummated. Potential key advantages of a simultaneous sign and close transaction considered by the Board included speed to close a transaction, lower deal execution risk compared to a standard reverse merger, and likelihood of available capital. Ladenburg also answered questions and reviewed financing recommendations, including the warrant repricing and an additional subsequent financing. The warrant repricing discussion included a review of the necessary steps for a warrant repricing/inducement transaction.

On May 10, 2022, Andrew Jackson notified Ra Medical that he was resigning as the Company’s Chief Financial Officer and Secretary, effective May 25, 2022. Mr. Jackson’s resignation was not the result of any disagreement with Ra Medical or the Ra Medical Board or any matter relating to Ra Medical’s operations, policies, or practices.

 

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On May 16, 2022, Ra Medical announced that the Ra Medical Board was conducting a review of strategic alternatives and that the company had engaged an investment bank as a part of this process with the goal of maximizing shareholder value. Ra Medical began reporting in its SEC filings, including its Quarterly Reports on Form 10-Q and its Current Reports on Form 8-K, that it and its Board were currently reviewing strategic alternatives that could result in changes to Ra Medical’s business strategy and future operations and was reviewing alternatives with the goal of maximizing stockholder value. Included in Ra Medical’s disclosure was that Ra Medical could undertake a business combination including a company sale, merger, asset sale, in-license, out-license, or other business transaction.

The Ra Medical Board met on May 26, 2022. Management provided the Ra Medical Board with updates on the Ladenburg process, including the status of a partner for a simultaneous sign and close transaction (as further described above and below), and reduction of cash burn to facilitate any strategic transaction. Management also discussed critical cash and financing items.

The Ra Medical Board met on June 3, 2022. Management provided the Ra Medical Board with updates on the Ladenburg process, including on potential partners for a strategic transaction and potential financing pathways. The Ra Medical Board also discussed and approved a reduction in force in order to preserve capital with the goal of maximizing the opportunities available to the Company during the Ra Medical Board’s review of strategic alternatives.

On June 6, 2022, the Ra Medical Board initiated a plan to reduce operating costs and better align its workforce with the needs of its ongoing business, reducing its workforce by immediately terminating approximately 65% of its full-time employees. The purpose of the reduction in force was to preserve capital with the goal of maximizing the opportunities available to Ra Medical during its Board’s review of strategic alternatives. Ra Medical also announced that it was continuing to review strategic alternatives with the goal of maximizing shareholder value and optimizing Ra Medical’s path forward.

As a result of the process to explore strategic options, Ladenburg contacted 48 companies regarding a potential transaction. Of the 48 companies originally targeted, 24 consisted of strategically aligned companies that could be potential acquirors or strategic partners of Ra Medical, and the remaining 24 parties were private medical technology companies that were potential reverse merger partners. Of the 48 counterparties, 27 were unresponsive to Ladenburg’s initial outreach and 13 parties formally passed on the opportunity to pursue further discussions at this stage. The majority of the strategically aligned counterparties who passed on the opportunity informed Ladenburg that they were not interested in bidding for Ra Medical’s assets until the company was at a commercial stage.

Ladenburg sent the remaining eight companies, including Catheter, process letters formally inviting them to bid on Ra Medical. The Company ultimately entered into confidentiality agreements with each of the eight companies, one of which was Catheter, on June 15, 2022. The confidentiality agreements contained a standstill provision of up to 18 months and other customary provisions intended to protect Ra Medical’s confidential information and market integrity. Four of these eight companies became unresponsive following execution of a confidentiality agreement and receipt of the process letter. The four other companies, including Catheter, as well as the one additional interested party that Ra Medical was separately and independently engaged in discussions with that did not involve Ladenburg, expressed potential interest in either acquiring Ra Medical or some or all if its assets or pursuing a reverse merger, one of which ultimately submitted a draft proposal. The Board of Directors, through Ladenburg and/or Ra Medical management, conducted preliminary discussions with these interested parties, though such discussions with the interested parties other than Catheter did not advance further for a variety of reasons, including: the desire for results from the ongoing atherectomy clinical trial prior to offering a term sheet; issues internal to the interested party itself that were unrelated to the evaluation of Ra Medical’s business; concerns around the costs and timeline associated with regulatory approvals and commercialization for Ra Medical’s products; the early stage developmental nature of Ra Medical’s lithotripsy asset; and the financial limitations of the interested party who submitted the proposal to negotiate and consummate a transaction with Ra Medical or to fund Ra Medical’s pipeline. After reviewing the relative merits of each of these potential strategic alternatives and given that Catheter was the only viable interested party that resulted from the strategic process, the Board of Directors determined that a potential transaction with Catheter offered the most likely and greatest opportunity from the strategic review process for the Company to enhance stockholder value. Following this determination by the Company’s Board of Directors, the Company’s senior management and its financial advisors engaged in expanded and more detailed discussions with Catheter.

 

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On June 9, 2022, Ra Medical, through Ladenburg, received an initial proposed term sheet from Catheter, which, among other matters, included: structuring the transaction as a simultaneous sign-and-close reverse merger transaction; contemplated the issuance of non-voting convertible Preferred Stock to the securityholders of Catheter as the proposed merger consideration which feature, based on prior simultaneous sign and close transactions negotiated by Ladenburg and guidance from outside advisors, was required in order to permit a simultaneous sign and close; provided that the combined company board of directors consist of such number of members to be agreed upon by the parties, in compliance with NYSE American requirements, but that Ra Medical board members retain the majority of the pro-forma combined company board positions in order to permit a simultaneous sign and close merger transaction; allocated relative valuations between Catheter and Ra Medical of $60 million, which value roughly equaled Catheter’s last post-money valuation following its last round of equity financing, and $12 million, which value roughly approximated Ra Medical’s market capitalization as of such time, respectively, such that Catheter securityholders and existing Ra Medical stockholders would respectively hold approximately 83.3% and 16.7% of the combined company following the proposed merger (calculated via the treasury stock method); provided for Ra Medical’s valuation to be increased in an amount equal to any proceeds received from the sale of legacy Ra Medical assets prior to the closing of the proposed merger as Catheter did not intend to, nor did it want to, retain any portion of Ra Medical’s existing business (provided that the Ra Medical Board intended to continue to maintain its existing intellectual property rights and regulatory clearances as an alternative to the proposed merger); a minimum net cash closing condition of $1 million; and for Ra Medical to obtain financing of at least $10 million through a public follow on offering. On June 12, 2022, representatives of Ra Medical and Catheter had an initial call regarding a proposed merger between the parties.

At a meeting of the Ra Medical Board held on June 14, 2022, with members of management and representatives of Ladenburg and Wilson Sonsini Goodrich & Rosati, P.C. (“WSGR”), outside counsel to Ra Medical, present, the Ra Medical Board discussed the draft term sheet received from Catheter. The Ra Medical Board also discussed the strategic, financial and operational challenges of operating Ra Medical’s business given the company’s financial position and overall current and expected future financial market conditions. The Ra Medical Board also discussed the risks and challenges facing Ra Medical as a result of its cash burn levels and declining cash position. In addition, the Ra Medical Board also discussed and reviewed the wind down and liquidation scenarios as well as other strategic alternatives that they may be available to Ra Medical, including alternatives to a winddown and liquidation scenario, such as entering into a business combination transaction with Catheter or another company, each with a view towards seeking the best alternative for enhancing value for Ra Medical stockholders. Following discussion, the Ra Medical Board concluded that it was in the best interests of stockholders for Ra Medical to explore pursuing a proposed merger with Catheter and instructed management to renegotiate certain provisions of the term sheet, including a reduction in the enterprise valuation of Catheter, removing the $10 million financing condition, and retaining the upwards adjustment to Ra Medical’s valuation in the event of a sale of the legacy assets prior to closing of the proposed merger. The Ra Medical Board directed Ra Medical management to negotiate the requested revisions with Catheter and to execute the term sheet thereafter. On June 14, 2022, Catheter and Ra Medical entered into a Confidentiality Agreement. On June 15, 2022, Ra Medical and Ladenburg discussed needed revisions to the Catheter term sheet. On June 17, 2022, Catheter, through Ladenburg, delivered a revised term sheet to Ra Medical, which included removing the $10 million follow on financing condition, as well as increasing the net cash closing condition from $1 million to $5 million and correspondingly reducing the valuations for Catheter and Ra Medical to $50 million for Catheter, which value roughly approximated a discounted value to Catheter’s last post-money valuation following its last round of equity financing, and $10 million for Ra Medical, which value was reduced in exchange for the modification or elimination of certain closing conditions of the proposed merger, such as the financing condition, respectively, such that Catheter securityholders and existing Ra Medical stockholders would respectively hold approximately 83.3% and 16.7% of the combined company following the proposed merger (calculated via the treasury stock method). On June 18, 2022, Ra Medical and Catheter entered into the Summary of Proposed Terms (the “Term Sheet”) providing, among other terms, that Ra and Catheter would exchange information confidentially regarding a potential strategic transaction and a preliminary outline of the terms of the proposed merger, and that the parties would negotiate a potential strategic transaction exclusively for a 30-day period following the execution of the Term Sheet, dated June 18, 2022. The terms of exclusivity were determined to be standard for a transaction of this nature and therefore acceptable to Ra Medical in light of both the absence of any other interested party resulting from the strategic process conducted by Ladenburg as well as the ability for Ra Medical to sell or license its legacy assets while under exclusivity.

 

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On June 22, 2022, Ra Medical, Catheter, and representatives of each of Ladenburg, Arnall Golden Gregory LLP (“AGG”), outside counsel to Catheter, and WSGR attended an introductory call regarding the proposed merger. On June 28, 2022, Ra Medical received initial diligence materials from Catheter, including its organizational documents, its historical financial statements, and a current capitalization table.

On June 24, 2022, the Ra Medical Board met to discuss the status of the proposed merger with Catheter and the proposed warrant repricing being proposed by Ladenburg in order to increase the likelihood that Ra Medical had sufficient cash to meet the proposed merger closing conditions set forth in the Term Sheet . At the meeting, the Ra Medical Board reviewed the proposed terms of a warrant repricing financing and the progress of the proposed merger with Catheter. The Ra Medical Board directed management to finalize and execute an engagement letter with Ladenburg relating to a warrant repricing offering and to continue negotiating the proposed merger with Catheter.

On June 29, 2022, Ra Medical management began discussions with Objective Valuation, LLC (“Objective”) regarding engaging Objective to be its financial advisor solely with respect to providing to the Ra Medical Board an opinion regarding the fairness to Ra Medical, from a financial point of view, of the potential merger. The Ra Medical Board agreed with Ra Medical management’s decision to engage Objective to prepare the fairness opinion instead of Ladenburg due to the significant reduction in cost to deliver the fairness opinion as well as potential conflicts of Ladenburg that could impact its independence in providing a fairness opinion such as its engagements and potential fees related to multiple financing transactions and brokering the merger transaction with Catheter.

On July 4, 2022, WSGR provided an initial draft of the merger agreement to Catheter and AGG.

On July 5, 2022, David Jenkins of Catheter provided an update on Catheter and its technologies to the Ra Medical Board. The presentation was followed by a Q&A session. Also on July 5, 2022, Ra Medical announced that it had received U.S. Food and Drug Administration 510(k) clearance for its DABRA 2.0 catheter as part of the DABRA Excimer Laser System, and that the Ra Medical Board was still evaluating its strategic alternatives to optimize Ra Medical’s paths forward. The Ra Medical Board and its management continued to pursue a sale or license of Ra Medical’s legacy assets as permitted under the Term Sheet and in light of Catheter’s continued disinterest in the legacy business or legacy assets, since the regulatory clearance to market and sell the DABRA 2.0 catheter would be expected to provide additional value, and were important for purposes of maintaining an alternative to the merger transaction.

On July 8, 2022, the Ra Medical Board met to discuss the status of the proposed merger with Catheter, including the current timeline, ongoing workstreams, conversations with the NYSE American exchange regarding the proposed simultaneous sign and close merger structure, status of the draft merger agreement and related matters. The Ra Medical Board also discussed the status of a potential warrant repricing offering and the impact that the financing would have on consummating the proposed merger with Catheter.

On July 12, 2022, AGG provided a revised draft of the merger agreement to Ra Medical and WSGR. The revised draft proposed that the board of directors of the combined company remain at five directors with David Jenkins being appointed to the board of directors as its Executive Chairman at closing with four current Ra Medical directors remaining so that Ra Medical board members would retain a majority of the pro-forma combined company board positions, which was required in order to permit a simultaneous sign and close under NYSE American rules. Also, on July 12, 2022, Ra Medical management engaged Objective to be Ra Medical’s financial advisor solely with respect to providing an opinion to the Board regarding the fairness to Ra Medical, from a financial point of view, of the potential merger. Ra Medical’s management decision to retain Objective was driven in part by Objective being able to deliver the fairness opinion at a significantly reduced cost compared to Ladenburg, which would reduce transaction expenses and therefore increase the available “net cash” available to satisfy the then existing net cash closing condition; and also to have the fairness opinion delivered by an independent party who did not have a financial interest in the Company as Ladenburg had due to fees that it had received and would be entitled to receive as a result of being the financial advisor for multiple financing transactions and brokering the merger transaction with Catheter.

 

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On July 13, 2022, Ra Medical, through Hogan Lovells US LLP (“Hogan Lovells”), its outside counsel with respect to the Settlement Agreement (the “Settlement Agreement”)5 and Corporate Integrity Agreement (“Corporate Integrity Agreement”) associated with Ra Medical’s settlements with the United States Department of Justice, the Office of the Inspector General (“OIG”) of the Department of Health and Human Services and the participating states, contacted OIG regarding the proposed merger with Catheter and requested from DOJ a reduction or waiver of the change of control fees in the Settlement Agreement, and requested a determination by OIG that Catheter would not be subject to the requirements of the Corporate Integrity Agreement as a result of the proposed merger transaction. For more details regarding the Settlement Agreement see the section of or Quarterly Report on Form 10-Q filed with the SEC on August 15, 2022 entitled “Legal Proceedings – Settlement Agreements with the Department of Justice and Participating States” and for more details on the Corporate Integrity Agreement, see the risk factor entitled “We are required to devote significant resources to complying with the terms and conditions of our Corporate Integrity Agreement and, if we fail to comply, we could be subject to penalties or, under certain circumstances, excluded from government healthcare programs, which would materially adversely affect our business. located on page 44 of this proxy statement.

During July 15 through August 9, 2022, representatives of WSGR, with input from the Ra Medical Board and Ra Medical management, and Catheter’s representatives and its outside counsel AGG, exchanged drafts and participated in discussions regarding the terms of the draft merger agreement and related documents. The items negotiated with respect to the draft merger agreement and related documents included, among other things: the representations and warranties to be made by the parties; conditions precedent to closing, including resolution of the outstanding putative securities class action complaint previously disclosed, amendments to the Settlement Agreement and Corporate Integrity Agreement, including any potential payment obligations that may arise as a result of the proposed merger, the definitions of material adverse effect; the conditions to completion of the proposed merger; the determination of Ra Medical’s net cash balance at closing; the manner by which Ra Medical would issue shares of Ra Medical common stock to Ra Medical’s equityholders as consideration for the proposed merger; the composition of the board of directors and executive management team of the post-closing company; the remedies available to each party under the draft merger agreement; and which equityholders of each of the parties would be required to execute support agreements and lock-up agreements concurrent with the execution of a definitive merger agreement.

On July 18, 2022, Ra Medical announced that it had hired Brian Conn as interim Chief Financial Officer in order to assist the Ra Medical Board in continuing to assess strategic alternatives with the goal of maximizing value for Ra Medical’s stockholders.

On July 19, 2022, the Ra Medical Board met to discuss the status of the proposed merger and the need to obtain additional financing for the company. The Ra Medical Board discussed in depth the terms of a proposed warrant repricing that would provide additional cash for the company in order to increase the likelihood that Ra Medical would have sufficient cash to meet the proposed merger closing conditions set forth in the Term Sheet and progress the proposed merger negotiations with Catheter.

On July 22, 2022, Ra Medical issued a press release announcing the Term Sheet. Ra Medical also announced that it had consummated a warrant repricing transaction (the “Warrant Offering”) pursuant to which it raised approximately $6.2 million in proceeds, in anticipation of enabling Ra Medical to consummate the proposed merger transaction with Catheter.

During the week of July 25, 2022, Ra Medical and a counsel for OIG had a call regarding the Catheter merger transaction and Ra Medical’s request for a determination that Catheter would not be subject to the requirements of the Corporate Integrity Agreement as a result of the proposed merger transaction.

On August 1, 2022, the Ra Medical Board met and was provided a status update regarding the conditions precedent to signing and closing the proposed merger with Catheter.

 

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On August 2, 2022, representatives of Ra Medical began discussions with Ladenburg regarding a potential “at-the-market” offering that would, in addition to the warrant repricing, provide additional cash for Ra Medical in order to enable Ra Medical to consummate the proposed merger with Catheter.

On August 8, 2022, the Ra Medical Board, including representatives of Objective, met to discuss the proposed merger and the related draft merger agreement. Representatives of WSGR discussed the terms of the proposed merger, including the Board’s fiduciary duty considerations, and updated terms and conditions to consummation of the proposed merger. Representatives of Objective discussed the fairness of the proposed merger transaction and the applicable considerations and assumptions, qualifications, limitations and other matters underlying the fairness opinion being delivered to the Ra Medical Board in respect of the proposed merger transaction, including projected recovery and timing thereof to equity holders if Ra Medical wound down its operations. The Ra Medical Board continued its discussion of the proposed merger transaction and the relevant benefits and challenges with respect to maintaining the current proposed merger structure and timing or switching to an alternative structure and timeline.

On August 9, 2022, Ra Medical became aware that it was unlikely to satisfy certain conditions precedent to closing of the proposed merger which had been negotiated with Catheter, including the execution of an amendment to the Settlement Agreement with the United States Department of Justice and the participating states intended to reduce a payment that would become payable upon a change of control, which would cause the net cash closing condition and the initial listing standards with the NYSE American to be unsatisfied at the closing of the proposed merger. On the same day, Ra Medical notified Catheter regarding the recent developments related to the inability to satisfy the conditions precedent to closing of the proposed merger.

On August 11, 2022, the Ra Medical Board met in the morning to discuss the latest communications relating to revising the Settlement Agreement. The Ra Medical Board discussed several alternative paths for Ra Medical, either as potential revisions to the proposed merger structure with Catheter, as well as options distinct from the proposed Catheter merger, and the potential stockholder value that could result from the various alternatives. The Ra Medical Board held a second meeting on the evening of August 11, 2022, to discuss the ongoing negotiations with Catheter in order to provide a path forward for a proposed merger under revised terms in light of the inability to modify the terms of the Settlement Agreement. Ra Medical continued to negotiate with Catheter during this period.

From August 9, 2022 through August 14, 2022, Ra Medical consulted with its outside counsel at Hogan Lovells US LLP, as well as representatives of WSGR, regarding the recent feedback from the United States Department of Justice and the participating states regarding modification of the Settlement Agreement. The Ra Medical Board met on August 14, 2022 to discuss the implications, based on feedback from legal counsel, for proceeding under the current terms of the proposed merger with Catheter and potential revisions to the proposed merger terms, including the possibility of attempting to raise funds, in order to satisfy a revised net cash closing condition and the initial listing standards with the NYSE American.

On August 12, 2022, OIG sent a letter to Ra Medical to inform Ra Medical that based on the information provided to the OIG, and conditioned on the transaction occurring as represented to the OIG, the OIG had determined that Catheter would not be subject to the requirements of the Corporate Integrity Agreement following the closing of the merger transaction.

On August 16, 2022, the Ra Medical Board met to discuss and approve a proposed reverse stock split intended to maintain its listing on the NYSE American following the proposed merger transaction and to enable Ra Medical to satisfy the proposed merger closing conditions or make Ra Medical more attractive for future strategic transactions. The Ra Medical Board also discussed, and thereafter approved (based on recommendations from outside advisors) amending Ra Medical’s bylaws to reduce the quorum requirement from a majority of the voting power of the Ra Medical stock issued and outstanding and entitled to vote, present in person or represented by proxy, to one third (1/3) of the voting power of the shares present in person or represented by proxy, and also to reduce the stockholder approval threshold for proposals subject to stockholder approval from an affirmative vote of a majority of the voting power of the shares present in person or represented by proxy at the meeting and entitled to vote on the subject matter to an affirmative vote of a majority of the voting power of the shares present in person or represented by proxy at the meeting and casting votes affirmatively or negatively on the subject matter, which was approved by the Ra Medical Board in order to address the voting complexities associated with having a larger retail stockholder base. On August 17, 2022, Ra Medical filed a Current Report on Form 8-K disclosing the amendments to the bylaws.

 

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On August 19, 2022, the Ra Medical Board filed a preliminary proxy statement seeking stockholder approval to issue the shares underlying the warrants issued in the Warrant Offering and to effect a reverse stock split.

On August 26, 2022, Ra Medical and Ladenburg entered into a formal engagement letter regarding an at-the-market offering.

On August 27, 2022, representatives of Ra Medical, Catheter, Ladenburg and their respective outside counsels attended a meeting to discuss a revised proposed merger timeline, structure, closing conditions and economic terms.

On August 29, 2022, the Ra Medical Board, with David Jenkins of Catheter and representatives of Ladenburg and WSGR present, reviewed a presentation by Catheter and Ladenburg regarding potential revised terms to the proposed merger transaction (including revisions to: the merger structure, the type of merger consideration, the economic terms and the closing conditions (such as the net cash closing requirement)), the plans for the go forward combined company, and a comparison of stockholder value generated or retained in respect of the proposed Catheter merger versus other alternatives, including a liquidation of the company. The parties also discussed how revising the merger structure from a simultaneous sign and close transaction to a sign and then close transaction with an interim pre-closing period would provide Ra Medical with an opportunity to seek a solution to address the unmodified change of control payment associated with the Settlement Agreement, such as fundraising, during the interim pre-closing period following entry into the merger agreement. The parties also discussed changing the type of merger consideration to be issued to Catheter securityholders from non-voting convertible preferred stock to voting common in order to facilitate the revised merger structure as there was no compelling reason to issue the merger consideration in the form of non-voting convertible Preferred Stock instead of shares of standard common stock under a traditional reverse merger structure. The parties also reviewed the impact that a change in the type of merger consideration would have on the accounting treatment for the transaction such that Catheter would be deemed to be the accounting acquiror at the closing of the merger instead of Ra Medical and that, as a result, the previously negotiated $5 million “net cash” condition at the closing of the merger would not satisfy the applicable listing standards under the NYSE American necessary for the reverse merger transaction to be approved. Accordingly, the parties discussed increasing the “net cash” closing condition to be at least $8 million in order to satisfy the applicable listing standards. The parties further reviewed a potential financing strategy to address the increased “net cash” closing condition and also to pay the change of control payment under the Settlement Agreement in which Ra Medical would raise at least $9 million in new capital through one or more financings. Ra Medical further sought an increase to its enterprise valuation from $10 million to $13 million to reflect that it was raising sufficient funds to address and pay the change of control payment and meet the increased “net cash” closing condition. On the same day, Ra Medical filed a definitive proxy statement seeking stockholder approval to issue the shares underlying the warrants issued in the Warrant Offering and to effect a reverse stock split.

On August 30, 2022, Ra Medical received informal notice from the NYSE American that the exchange would be issuing a low price deficiency letter. On the same day, Ra Medical, Ladenburg, and their respective outside counsels attended an organizational meeting for the at-the-market offering. On August 31, 2022, Ra Medical received formal notice from the exchange in the form of a deficiency letter indicating that Ra Medical was not in compliance with the NYSE American continued listing standards because its shares of common stock have been selling for a substantial period of time at a low price per share.

On September 1, 2022, WSGR provided a revised draft of the merger agreement to Catheter and its outside legal counsel, AGG. The revised merger agreement reflected, among other changes: revision of the structure from a simultaneous “sign and close” to a transaction providing for an interim period between signing and closing in which the conditions to closing needed to be satisfied in order to consummate the proposed merger; the issuance of Ra Medical voting common stock as the entire proposed merger consideration to Catheter securityholders in lieu of the issuance of any non-voting convertible Preferred Stock; an increase to Ra Medical’s net cash closing condition from $5 million to $8 million; and the modification of closing conditions related to the Settlement Agreement and Corporate Integrity Agreement. The modifications to the draft merger agreement were consistent with the revised merger terms previously discussed between the parties that were primarily intended to provide Ra Medical with the opportunity to find a solution to address the unadjusted change of control payment under the Settlement Agreement.

 

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On September 2, 2022, representatives of Ra Medical, Catheter, Ladenburg and their respective outside counsels attended a meeting regarding status of the draft merger agreement and timeline to sign. Later on the same day, the Ra Medical Board met to discuss, review and approve commencing an at-the-market offering in order to provide additional cash for Ra Medical to satisfy the increased net cash closing condition. Following approval by the Ra Medical Board, Ra Medical and Ladenburg, as sales agent, entered into an At Market Sales Issuance Agreement and filed a prospectus supplement enabling Ra Medical to sell up to $7.6 million worth of securities. On the same day, Ra Medical disclosed that: it had entered into the At Market Sales Issuance Agreement; received the price deficiency letter from NYSE American; and that it had completed its reduction in force on September 2, whereby an additional 20% of Ra Medical’s employees were terminated, with the purpose of the reduction being to preserve capital with the goal of maximizing the opportunities available to Ra Medical in furtherance of the Board’s review of strategic alternatives.

During the period from September 3, 2022 through September 8, 2022, Ra Medical, Catheter, and their respective counsels reviewed and negotiated the draft merger agreement, which resulted, among other changes, in Ra Medical receiving an upwards adjustment in its valuation to the extent that net cash at closing exceeded $8 million.

On September 8, 2022, the Ra Medical Board, with Ra Medical management and representatives of Objective and WSGR, as outside counsel, in attendance, met to review, discuss and approve the definitive merger agreement. Representatives of WSGR provided an overview of the fiduciary duties owed by the directors to the stockholders of Ra Medical in connection with the contemplated proposed merger. The Ra Medical Board also received an overview of the transaction structure and discussed the key terms of the transaction, including the exchange ratio, closing conditions, termination rights, net cash requirements and other significant terms, as well as material changes from the last significant iteration of the merger agreement and recent developments relating to Ra Medical. Representatives of Objective then gave a presentation to the Ra Medical Board regarding the financial analysis of the proposed transaction conducted by Objective, including the analyses and inquiries conducted by Objective regarding the valuation of Ra Medical, Catheter and the combined company. Representatives of Objective then rendered the oral opinion of Objective, which was confirmed by the delivery of a written opinion dated September 8, 2022, to the Ra Medical Board that Ra Medical’s issuance of its common stock in connection with the proposed merger to the debt and equity holders of Catheter, which in the aggregate represented approximately 80.0% of the voting and economic interests of Ra Medical, was fair to Ra Medical from a financial point of view (as more fully described in the section entitled “—Opinion of Objective” beginning on page 127 of this proxy statement). The Ra Medical Board then further reviewed and discussed the proposed merger transaction and thereafter approved the definitive merger agreement and Ra Medical’s entry into the merger agreement.

On September 9, 2022, the parties executed the merger agreement, the stockholder support agreements and the lock-up agreements.

On the morning of September 12, 2022, prior to the opening of trading on the NYSE American market, Ra Medical and Catheter issued a joint press release announcing entry into the merger agreement. Ra Medical filed a Current Report on Form 8-K disclosing the merger agreement.

On October 17, 2022, Ra Medical completed the at-the-market offering, raising net proceeds of approximately $7.4 million after deducting sales commissions.

Ra Medical expects that it will need to raise $2,000,000 to $3,000,000 in additional funds to meet the current $8,000,000 “net cash” closing condition.

Ra Medical’s Reasons for the Merger; Additional Factors and Risks Considered by the Ra Medical Board; Recommendations of the Ra Medical Board of Directors

In the course of its evaluation of the merger, the merger agreement and related agreements, the Ra Medical Board held numerous meetings, consulted with Ra Medical management, its legal counsel and its financial advisors and reviewed a significant amount of information and, in reaching its decision to approve the merger and the merger agreement, the Ra Medical Board considered a number of factors, including, among others, the following factors:

 

   

Ra Medical’s business, financial performance (both past and prospective) and its financial condition, results of operation (both past and prospective), business and strategic objectives, the amount of capital that would need to be raised as well as the potential cost of that capital, the impact on current shareholders and the impact on the ability to raise capital in the future, as well as the risks of accomplishing those objectives;

 

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Ra Medical’s business and financial prospects if it were to remain an independent company and the Ra Medical Board’s determination in March 2022 that there was substantial doubt regarding Ra Medical’s ability to continue as a going concern until commercialization or licensing of its technologies and that Ra Medical needed to enter into an agreement with a strategic partner for many reasons including to enhance the possibility of continued funding and to support Ra Medical to a point where its technology and assets could be commercialized or licensed, or otherwise sold;

 

   

the possible alternatives to the merger, the range of possible benefits and risks to the Ra Medical stockholders of those alternatives and the timing and the likelihood of accomplishing the goal of any of such alternatives and the Ra Medical Board’s assessment that the merger presented a superior opportunity to such alternatives for Ra Medical stockholders, including (i) continuing to focus Ra Medical’s resources on the Ra Medical’s legacy DABRA laser and single use catheter, or the DABRA system, and its pursuit of an atherectomy indication for use for the DABRA system, (ii) downsize Ra Medical and focus solely on the company’s lithotripsy efforts and (iii) a liquidation of Ra Medical and the distribution of any available cash;

 

   

the possibility that the combined company would be able to take advantage of the potential benefits resulting from the combination of Ra Medical’s public company structure with Catheter’s business to raise additional funds in the future, if necessary;

 

   

the ability of Ra Medical stockholders to participate in the future growth potential of the combined company following the merger, which will be focused on developing and commercializing novel technologies and solutions to improve the lives of patients with cardiac arrhythmias under the leadership of a world-class team with decades of medical device industry experience and a history of leading medical device companies to a point of commercialization and acquisition;

 

   

the process undertaken by the Ra Medical Board in connection with pursuing a strategic transaction, the results of discussions with third parties relating to a variety of strategic transactions and the terms and conditions of the proposed merger, in each case considering the current market dynamics;

 

   

current financial market conditions, including the impact of the novel coronavirus 2019 pandemic (“COVID-19”) on global financial markets, and historical market prices, volatility and trading information with respect to Ra Medical common stock;

 

   

the potential for obtaining a superior offer from an alternative purchaser considering the other potential strategic buyers previously identified and contacted by or on behalf of Ra Medical and the risk of losing the proposed transaction with Catheter;

 

   

the terms of the merger agreement, including the parties’ representations, warranties and covenants and the conditions to their respective obligations;

 

   

the negotiated right of Ra Medical to sell certain legacy assets prior to the closing of the merger and have the proceeds added to Ra Medical’s enterprise value;

 

   

the financial analysis presented by Objective to the Ra Medical Board on September 8, 2022 and Objective’s opinion, dated September 8, 2022, to the Ra Medical Board that, as of such date, based upon and subject to the various assumptions made, procedures followed, matters considered, and qualifications and limitations outlined in such opinion, the merger consideration was fair from a financial point of view, to the holders of Ra Medical common stock (as more fully described in the section titled “—Opinion of Objective”);

 

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the risks and delays associated with, and uncertain value and costs to Ra Medical stockholders of, liquidating Ra Medical, including, without limitation, the uncertainties of continuing cash burn while contingent liabilities are resolved and uncertainty of the timing of the release of cash until contingent liabilities are resolved;

 

   

the fact that the liquidation of Ra Medical would result in a payment of between $3.50 and $4.00 per share of Ra Medical common stock (taking into account the right of those outstanding warrants which have a right to participate in any distribution by the Company to its stockholders), representing between $4.00 and $3.50 less per share than the value of the equity split on a per share basis at close on September 6, 2022, estimated on Ra Medical’s projected liabilities and cash burn rate through the applicable liquidation date, meaning that the closing of the proposed merger with Catheter had a greater likelihood of resulting in a higher value and near-term return for Ra Medical stockholders as opposed to a potentially drawn-out winddown and liquidation of the Company;

 

   

Ra Medical’s potential inability to maintain its listing on NYSE American without completing the merger due to the likelihood that the Company would be unable to meet the continued listing standards of the exchange in the absence of significant capital on acceptable economic terms, and that there was a high likelihood that sufficient capital would not be available on acceptable terms; and

 

   

the likelihood that the merger would be consummated.

In the course of its deliberations, the Ra Medical Board also considered, among other things, the following additional factors:

 

   

the possibility that the merger will not be consummated and the potential negative effect of the public announcement of the merger on Ra Medical’s business and stock price;

 

   

the challenges inherent in the combination of the two divergent businesses of the size and scope of Ra Medical and Catheter;

 

   

the substantial fees and expenses associated with completing the merger, including the costs associated with any related litigation; and

 

   

the risk that the merger may not be completed despite the parties’ efforts or that the closing may be unduly delayed and the effects on Ra Medical as a standalone company because of such failure or delay, and that a more limited range of alternative strategic transactions may be available to Ra Medical in such an event and its likely inability to raise additional capital through the public or private sale of equity securities.

Although this discussion of the information and factors considered by the Ra Medical Board is believed to include the material factors considered by the Ra Medical Board, it is not intended to be exhaustive. In light of the variety of factors considered in connection with their evaluation of the merger and the complexity of these matters, the Ra Medical Board did not find it practicable to and did not quantify or attempt to assign any relative or specific weights to the various factors that it considered in reaching its determination that the merger and the merger agreement are advisable and in best interests of Ra Medical and Ra Medical stockholders. In addition, the Ra Medical Board did not undertake to make any specific determination as to whether any particular factor, or any aspect of any particular factor, was favorable or unfavorable to the ultimate determination of the Ra Medical Board, but rather the Ra Medical Board conducted an overall analysis of the factors described above, including discussions with and questioning of Ra Medical management, WSGR, Objective, and Ladenburg.

Catheter’s Reasons for the Merger

In the course of reaching its decision to approve the merger, the Catheter Board consulted with its senior management, advisors and legal counsel, reviewed a significant amount of information and considered numerous reasons and factors:

 

   

Catheter’s need for capital to support the development of its products and proposed products and the potential to access public market capital, including sources of capital from a broader range of investors than it could otherwise obtain if it continued to operate as a privately-held company;

 

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the value offered to Catheter’s stockholders pursuant to the merger would be more favorable to Catheter’s stockholders than the potential value that might reasonably be expected to result from remaining as an independent company or attempting to seek a different strategic transaction;

 

   

Catheter’s recurring losses and net capital deficiency that raise substantial doubt regarding Catheter’s ability to continue as a going concern, requiring Catheter to raise additional capital to continue to support its operations at its current cash expenditure levels;

 

   

providing opportunities for potential future buy-and-build strategic acquisitions and partnerships that would not be available to Catheter as a standalone company;

 

   

the potential for the combined company’s larger market capitalization to attract additional institutional investors and increase visibility to analysts and generally offer the ability to attract heightened investor attention, which would then have a favorable impact on stockholder liquidity and stock value;

 

   

the potential to provide its current stockholders with greater liquidity by owning stock in a public company;

 

   

the willingness of holders of Secured Convertible Promissory Notes issued by Catheter (the “Catheter Notes”) to convert their notes into shares of Ra Medical common stock pursuant to the terms described in the merger agreement;

 

   

the expectation that the merger would be a more time- and cost-effective means to access capital than other options considered;

 

   

the availability of appraisal rights under the DGCL to holders of Catheter’s capital stock who comply with the required procedures under the DGCL, which allow such holders to seek appraisal of the fair value of their shares of Catheter capital stock as determined by the Delaware Court of Chancery;

 

   

the terms and conditions of the merger agreement, including, without limitation, the following:

 

   

the expectation that the merger will qualify as a transaction described under Section 368(a) of the Code for U.S. federal income tax purposes, with the result that Catheter’s stockholders will generally not recognize taxable gain or loss for U.S. federal income tax purposes upon the exchange of Catheter common stock for Ra Medical common stock pursuant to the merger; and

 

   

the belief that the other terms of the merger agreement, including the parties’ representations, warranties and covenants, and the conditions to their respective obligations, were reasonable in light of the entire transaction.

The Catheter Board also considered a number of uncertainties and risks in deliberations concerning the merger and the related contemplated transactions, including the following:

 

   

the risk that the merger might not be completed in a timely manner, or at all, and the potential adverse effect of the failure to complete the merger on the ability of Catheter to obtain financing in the future;

 

   

the additional public company expenses and obligations that Catheter’s business will be subject to following the merger to which it has not been previously subject;

 

   

the potential risk of liabilities that may arise post-closing;

 

   

the risk that the combined company may not be able to realize fully, or at all, the potential benefits of the combination;

 

   

the highly competitive nature of the companies’ industry, expected budgetary restrictions and difficult economic conditions, which heighten the potential risks of failure of a successful integration of the two businesses, or expected cost reductions;

 

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the risk of market confusion and potential delay or loss of orders;

 

   

the risk of potential management and employee disruption;

 

   

the adverse impact of non-cash charges for the amortization of good will and other intangibles as a result of the merger;

 

   

the substantial charges to be incurred in connection with the merger, including transaction expenses and the costs of integrating the two businesses; and

 

   

various other risks associated with Catheter and the merger, including the risks described in the section entitled “Risk Factors” beginning on page 32 of this proxy statement.

The foregoing reasons and factors considered by the Catheter Board are not intended to be exhaustive but are believed to include all of the material reasons and factors considered by the Catheter Board. In view of the wide variety of reasons and factors considered in connection with its evaluation of the merger and the complexity of these matters, the Catheter Board did not find it useful, and did not attempt, to quantify, rank or otherwise assign relative weights to these reasons and factors. In considering the reasons and factors described above, individual members of the Catheter Board may have given different weight to different reasons and factors. The Catheter Board conducted an overall analysis of the reasons and factors described above, including thorough discussions with, and questioning of, Catheter’s management and Catheter’s legal advisors, and considered the reasons and factors overall to be favorable to, and to support, its determination.

Certain Ra Medical Management Unaudited Prospective Financial Information

As a matter of course, Ra Medical does not publicly disclose long-term projections of future financial results due to the inherent unpredictability and subjectivity of underlying assumptions and estimates. However, in connection with its evaluation of the merger, Catheter provided Ra Medical certain unaudited, non-public financial projections for the years ending 2022 to 2032, which had been prepared by Catheter management. The projections were provided to Ra Medical management, the Ra Medical Board and Ra Medical’s financial advisor, Objective. Ra Medical’s management, with the assistance of Objective, then revised those models based on sensitivity analyses and on discussions with and materials provided by Catheter to Ra Medical management (the “Ra Medical management Catheter projections”). While Catheter provided the base model and information regarding the assumptions underlying the projections, the Ra Medical management Catheter Projections were ultimately prepared and finalized by Ra Medical’s management without Catheter’s input or assistance. A summary of the Ra Medical management Catheter projections is set forth below. The Ra Medical management Projections constitute forward looking statements. See “Cautionary Information Regarding Forward-Looking Statements” beginning on page 111 of this proxy statement.

The inclusion of the Ra Medical management Catheter projections should not be deemed an admission or representation by Ra Medical, Objective or any of their respective officers, directors, affiliates, advisors, or other representatives with respect to such projections. The Ra Medical management Catheter projections are not included to influence your views on the merger but solely to provide stockholders access to certain non-public information prepared by Ra Medical management that was provided to the Ra Medical Board in connection with its evaluation of the merger and to Objective to assist with its financial analyses as described in the section titled “The Merger—Opinion of Objective” The information from the Ra Medical management Catheter projections should be evaluated, if at all, in conjunction with the historical financial statements and other information regarding Ra Medical and Catheter included or incorporated by reference in this proxy statement.

The unaudited prospective financial information included in this document has been prepared by, and is the responsibility of, Ra Medical management. The unaudited prospective financial information was not prepared with a view toward public disclosure, nor was it prepared with a view toward compliance with published guidelines of the SEC, the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information, or GAAP. Neither Haskell & White LLP, Ra Medical’s auditor, nor WithumSmith+Brown, PC, Catheter’s auditor, has audited, reviewed, examined, compiled nor applied agreed-upon procedures with respect to the accompanying unaudited prospective financial information and, accordingly, neither Haskell & White LLP nor WithumSmith+Brown, PC expresses an opinion or any other form of assurance with respect thereto. The Haskell & White LLP report incorporated by reference in this proxy statement relates to Ra Medical’s previously issued financial statements. The report of Haskell & White LLP does not extend to the unaudited prospective financial information contained in the Ra Medical management Catheter projections and should not be read to do so.

 

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The Ra Medical management Catheter projections were prepared solely for internal use and in connection with Objective’s work and are subjective in many respects. As a result, these Ra Medical management Catheter projections are susceptible to multiple interpretations and periodic revisions based on actual experience and business developments. Although Ra Medical believes its assumptions about Catheter to be reasonable, all financial projections are inherently uncertain, and Ra Medical expects that differences will exist between actual and projected results. Although presented with numerical specificity, the Ra Medical management Catheter projections reflect numerous variables, estimates, and assumptions made by Ra Medical management at the time they were prepared, and also reflect general business, economic, market, and financial conditions and other matters, all of which are difficult to predict and many of which are beyond Ra Medical’s control. In addition, the Ra Medical management Catheter projections cover multiple years, and this information by its nature becomes subject to greater uncertainty with each successive year. Accordingly, there can be no assurance that the estimates and assumptions made in preparing the Ra Medical management Catheter projections will prove accurate or that any of the Ra Medical management Catheter projections will be realized.

The Ra Medical management Catheter projections included certain assumptions relating to, among other things, Ra Medical’s expectations, which may not prove to be accurate, based on information provided by Catheter relating to expected growth rates and net income (loss) for the Catheter business.

The Ra Medical management Catheter projections are subject to many risks and uncertainties and you are urged to review the section titled “Risk Factors” beginning on page 32 of this proxy statement for a description of risk factors relating to the merger and Catheter’s business. You should also read the section titled “Cautionary Information Regarding Forward-Looking Statements” beginning on page 111 of this proxy statement for additional information regarding the risks inherent in forward-looking information such as the Ra Medical management Catheter projections. Ra Medical management Catheter projections that were derived or extrapolated from projections provided by Catheter’s management were not reviewed or passed upon by Catheter management, its board of directors or its advisors.

The inclusion of the Ra Medical management Catheter projections herein should not be regarded as an indication that Ra Medical, Objective or any of their respective affiliates or representatives considered or consider the Ra Medical management Catheter projections to be necessarily indicative of actual future events, and Ra Medical management Catheter projections should not be relied upon as such. The Ra Medical management Catheter projections do not take into account any circumstances or events occurring after the date they were prepared. Ra Medical does not intend to, and disclaims any obligation to, update, correct, or otherwise revise the Ra Medical management Catheter projections to reflect circumstances existing or arising after the date the Ra Medical management Catheter projections were generated or to reflect the occurrence of future events, even in the event that any or all of the assumptions or other information underlying the Ra Medical management Catheter projections are shown to be in error. Furthermore, the Ra Medical management Catheter projections do not take into account the effect of any failure of the merger to be consummated and should not be viewed as accurate or continuing in that context. The statements set forth in this and the foregoing six paragraphs are “financial projection statements”.

In light of the foregoing factors and the uncertainties inherent in financial projections, stockholders are cautioned not to place undue reliance, if any, on the Ra Medical management Catheter projections.

The following table, which is subject to the financial projection statements above, presents a selected summary of the unadjusted Ra Medical management Catheter projections that were made available to the Ra Medical Board and Objective, and do not take into account any post-merger impacts, including any payments that may be owed to DOJ in the future upon the achievement of revenue targets or consummation of a change-in-control transaction.

The revenue projections originally provided by Catheter to Ra Medical assumed that sales would only be made in the EU and US markets over the next ten years. Industry growth data, specifically, Markets and Markets’ “Electrophysiology Market Global Forecast to 2027” Report Code: MD 3273, was used in first estimating total annual procedures in which the Vivo System can be used, as discussed at “Catheter’s Business-- Electrophysiology Market.” The growth rates for Catheter’s revenue projections with respect to the initial sales of the Vivo System were based on management’s experience in the industry. Using that experience, those sales were assumed to double from year to year. Currently there are no plans by management to enter markets other than the EU and US.

The projections also assumed that Vivo Systems will be sold evenly throughout each year, with a sales price of $40,000 in the US and $30,000 in the EU, and 75% of sales occurring in the US and 25% of sales in the EU. Once a Vivo System is sold, disposable revenue will also be generated with each procedure the Vivo System is used for. It is estimated that the Vivo System will initially be used four times per month starting the month following placement and then increase to five times per month beginning in 2024 and generate $1,500 per procedure in the US and $750 per procedure in the EU. In addition to the Vivo Systems and disposable revenue, Catheter will also be selling annual license fees for software upgrades of the Vivo Systems. The revenue projections include annual license fees for each Vivo System sold of $8,000 in the US and $4,000 in the EU beginning in the year after each system is sold. Also considered in the projections were the passage of time and how each VIVO system sold will allow for future sales of Catheter’s single-use disposable patches. For example, each VIVO System, once sold, is estimated to be used four times per month starting the month following placement, generating revenue for months and years into the future.

Catheter has assumed that it will redesign and update components of Amigo and receive FDA approval for it by 2028. The projections include revenues from Amigo beginning in 2028. The Amigo sales price is estimated to be $500,000, and it is estimated that it will be used in additional procedures resulting in additional disposable sales of $1,000 per procedure. In 2028, it is estimated that three Amigo units will be sold, with five units the following year, increasing gradually to 30 units in 2032.

The determination that the Closure Device in development would generate revenues of $1,500,000 in 2023 was based on regulatory personnel projections that the Closure Device’s regulatory approval is expected in 2nd quarter of 2023, with sales included in the projections beginning in 3rd quarter of 2023. Industry sources for market size, specifically, Market and Markets, as referenced above, estimate that the number of catheter ablations will reach 1,455,000 by 2022. This estimate was used to determine the projected growth rate for Closure Device sales of 100% annually through 2026 once regulatory approval is received, since each of these procedures is an opportunity for the Closure Device to be utilized. Projected revenue of the Closure Device for 2023 was based upon an estimated twenty hospitals using between 500 and 1000 units each. Each unit was assumed to sell at $150. For 2027 and beyond it is estimated that 60-80 additional hospitals will be contracted annually.

Catheter currently projects total 2022 revenue of $230,000 to $270,000. There are no assumptions for future acquisitions contained in the projections and no additional assumptions for regulatory approvals.

Catheter management provided Objective with three sets of financial projections, with varying scenarios in terms of product launches and timelines. Based on discussions with Catheter management, Objective used a five year projection model for years 2022 through 2026 that provided a conservative view of projected financial results, consistent with management’s plans in terms of product launches and timing. Objective adjusted the model for 2022 to include an estimated $1.5 million of non-recurring expenses that would be incurred post-closing as part of the transaction. The projections for the periods from 2023 to 2026 were provided by Catheter and were not modified by Objective.

For the purposes of the income approach, Objective extended management’s projections for the periods from 2027 to 2031 in order to obtain a ten year projection period and an estimate of normalized long term earnings. Objective then performed sensitivity analysis on these extended projections with varying growth rates and margins (high, base and low) with the base case receiving the most weighting. The results of operations and profits resulting from this extended model for 2027 to 2031 were then compared with, and found to be consistent, with Catheter management’s expectations at the time the valuation was prepared.

Catheter’s revenue projections for 2022 have been revised to be in the range of $230,000 to $270,000. Objective has informally confirmed that because the valuation under both the market and income approaches is substantially dependent on results over future years (which did not change), the difference between the projections used by Objective for 2022 and Catheter’s revised projections would have had a de minimis impact on the valuation analysis.

 

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Catheter Precision Inc.

Income Statement Projections (in thousands)

 

     2022     2023     2024     2025     2026     2027     2028     2029     2030     2031  

Revenue

   $ 3,030     $ 5,472     $ 12,890     $ 23,180     $ 34,770     $ 46,940     $ 56,327     $ 64,777     $ 71,254     $ 73,392  

Cost of revenue

     141       257       498       858       1,286       1,737       2,084       2,397       2,636       2,715  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     2,889       5,215       12,392       22,322       33,484       45,203       54,243       62,380       68,618       70,677  

Gross margin

     95     95     96     96     96     96     96     96     96     96

Operating expenses:

                    

General and administrative

     615       780       920       995       1,760       2,376       2,851       3,279       3,606       3,715  

Research and development

     1,936       1,537       1,767       2,032       3,867       5,220       6,264       7,204       7,924       8,162  

Sales and marketing

     2,200       2,985       5,036       7,976       9,675       13,061       15,673       18,024       19,826       20,421  

Estimated one-time costs

     1,500       —         —         —         —         —         —         —         —         —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     6,251       5,302       7,723       11,003       15,302       20,657       24,788       28,507       31,356       32,298  

EBIT

     (3,362     (87     4,669       11,319       18,182       24,546       29,455       33,873       37,262       38,379  

EBIT margin

     -111     -2     36     49     52     52     52     52     52     52

Add: Depreciation and amortization

     116       171       314       466       579       664       1,051       1,468       1,870       2,189  

EBITDA

     (3,246     84       4,983       11,785       18,761       25,210       30,506       35,341       39,132       40,568  

EBITDA margin

     -107     2     39     51     54     54     54     55     55     55

Ra Medical Management Liquidation Analysis

At the direction of the Ra Medical Board, Ra Medical management considered the difference in value between the merger value per share versus a liquidation value on a per share basis. With regards to a liquidation value, Ra Medical management considered an appropriate measure of the implied equity value of Ra Medical common stock to be the amount of cash available for distribution to Ra Medical stockholders in an orderly liquidation of Ra Medical. Ra Medical management utilized the value ascribed to Ra Medical in the Catheter transaction of $12 million, calculated as $8 million in net cash expected at closing plus a $4 million premium or $5 per share and compared it to a liquidation value estimated by Ra Medical management of $8 million, assuming an orderly liquidation occurring in September 2022, or $3.50 per share. The difference between the merger value of $5 per share and the liquidation value per share of $3.50 represented a $1.50 per share difference. Ra Medical management’s analysis assumed a liquidation date of September 9, 2022 and that all wind-down costs would be paid in full, all remaining licenses would be terminated, employees would be retained to facilitate wind-down until liquidation date, all employee-related costs would be paid in full, and, to be conservative, that no funds would be retained in reserve for unknown or contingent liabilities. With the Ra Medical Board’s consent, Ra Medical management provided its liquidation analysis to Objective.

 

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Opinion of Objective

Pursuant to an engagement letter dated July 12, 2022, the Board engaged Objective Valuation, LLC (“Objective”) to render an opinion, as to the fairness, from a financial point of view, to the Company of the Aggregate Consideration (as defined in the Opinion of Objective (as defined below)) to be paid by the Company in the proposed merger with Catheter.

On September 8, 2022, Objective orally rendered its opinion to the Board (which was subsequently confirmed in writing by delivery of Objective’s written opinion to the Board on September 8, 2022 (the “Opinion of Objective”)) as to the fairness, from a financial point of view to the Company of the Aggregate Consideration to be paid by the Company in the merger pursuant to the merger agreement.

Objective’s opinion was directed to the Board (in its capacity as such) and only addressed the fairness, from a financial point of view to the Company of the Aggregate Consideration to be issued by the Company in the merger pursuant to the merger agreement and did not address any other aspect or implication of the merger or any other agreement, arrangement or understanding. The summary of Objective’s opinion in this proxy statement is qualified in its entirety by reference to the full text of its written opinion, which is attached as Annex B and describes the procedures followed, assumptions made, qualifications, and limitations on the review undertaken and other matters considered by Objective in connection with the preparation of its opinion. However, neither Objective’s opinion, nor the summary of the opinion and the related analyses set forth in this proxy statement, constitute advice or a recommendation to the Board, any security holder or any other person as to how to act of vote or make any election with respect to any matter relating to the merger or otherwise.

Analysis and Inquiries

In connection with its opinion, Objective made such reviews, analyses, and inquiries as it deemed necessary and appropriate under the circumstances. Among other things, Objective performed the following:

 

   

reviewed a draft of the merger agreement and discussed its terms with the Board;