rmed-10q_20220331.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2022

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From to

Commission file number: 001-38677

Ra Medical Systems, Inc.

(Exact name of Registrant as specified in its charter)

Delaware		38-3661826
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

2070 Las Palmas Drive Carlsbad, California		92011
(Address of principal executive offices)		(Zip Code)

(760) 804-1648

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.0001 per share

RMED

NYSE American

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of the close of business on May 10, 2022, the registrant had 32,300,052 shares of common stock, par value $0.0001 per share, outstanding.

RA MEDICAL SYSTEMS, INC.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION		Page
Item 1.	Financial Statements:	3
	Condensed Balance Sheets (Unaudited)	3
	Condensed Statements of Operations (Unaudited)	4
	Condensed Statements of Cash Flows (Unaudited)	5
	Condensed Statements of Stockholders’ Equity (Unaudited)	6
	Notes to Unaudited Condensed Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	23
Item 4.	Controls and Procedures	24
PART II. OTHER INFORMATION		25
Item 1.	Legal Proceedings	25
Item 1A.	Risk Factors	26
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	76
Item 3.	Defaults Upon Senior Securities	76
Item 4.	Mine Safety Disclosures	76
Item 5.	Other Information	76
Item 6.	Exhibits	77
SIGNATURES		78

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

RA MEDICAL SYSTEMS, INC.

Condensed Balance Sheets

(in thousands, except par value data)

(Unaudited)

	March 31, 2022			December 31, 2021
ASSETS
Current Assets
Cash and cash equivalents	$	17,652		$	15,045
Accounts receivable, net		26			21
Inventories		1,059			986
Prepaid expenses and other current assets		1,277			1,037
Total current assets		20,014			17,089
Property and equipment, net		1,658			1,809
Operating lease right-of-use assets		2,039			2,110
Other long-term assets		36			36
TOTAL ASSETS	$	23,747		$	21,044
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable	$	1,171		$	988
Accrued expenses		2,273			4,119
Current portion of operating lease liabilities		291			283
Total current liabilities		3,735			5,390
Operating lease liabilities		1,904			1,981
Total liabilities		5,639			7,371
Stockholders’ Equity
Preferred stock, $0.0001 par value; 10,000 shares authorized; no shares issued		—			—
Common stock, $0.0001 par value; 300,000 shares authorized; 32,301 and 7,010 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively		10			8
Additional paid-in capital		201,865			191,937
Accumulated deficit		(183,767	)		(178,272	)
Total stockholders’ equity		18,108			13,673
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	23,747		$	21,044

See accompanying notes to unaudited condensed financial statements.

RA MEDICAL SYSTEMS, INC.

Condensed Statements of Operations

(in thousands, except per share data)

(Unaudited)

	Three Months Ended March 31,
	2022			2021
Revenues
Product sales	$	9		$	4
Cost of revenues
Product sales		31			264
Service and other		64			183
Total cost of revenues		95			447
Gross loss		(86	)		(443	)
Operating expenses
Selling, general and administrative		2,302			3,677
Research and development		3,115			2,750
Total operating expenses		5,417			6,427
Operating loss		(5,503	)		(6,870	)
Other income (expense), net		8			(7	)
Loss from continuing operations before income taxes		(5,495	)		(6,877	)
Income taxes		—			—
Loss from continuing operations		(5,495	)		(6,877	)
Discontinued operations
Loss from discontinued operations before income taxes		—			(359	)
Income taxes		—			—
Loss from discontinued operations		—			(359	)
Net loss	$	(5,495	)	$	(7,236	)
Net loss per share, basic and diluted
Continuing operations	$	(0.27	)	$	(2.36	)
Discontinued operations		—			(0.12	)
Total net loss per share, basic and diluted	$	(0.27	)	$	(2.48	)

Weighted average number of shares used in computing net loss per share, basic and diluted		20,037			2,917

See accompanying notes to unaudited condensed financial statements.

RA MEDICAL SYSTEMS, INC.

Condensed Statements of Cash Flows

(in thousands)

(Unaudited)

	Three Months Ended March 31,
	2022			2021
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(5,495	)	$	(7,236	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		186			455
Stock-based compensation		165			1,169
Loss (gain) on sales and disposals of property and equipment		36			(501	)
Changes in operating assets and liabilities:
Accounts receivable		(5	)		78
Inventories		(73	)		(14	)
Prepaid expenses and other assets		(240	)		(83	)
Accounts payable		(256	)		406
Accrued expenses		(2,822	)		(2,172	)
Deferred revenue		—			(93	)
Other liabilities		(65	)		(87	)
Net cash used in operating activities		(8,569	)		(8,078	)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of property and equipment		—			309
Purchases of property and equipment		—			(20	)
Net cash provided by investing activities		—			289
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock and warrants		12,670			300
Payments of offering costs related to the issuance of common stock and warrants		(1,519	)		(198	)
Proceeds from exercise of warrants		25			—
Payments on equipment financing		—			(265	)
Net cash provided by (used in) financing activities		11,176			(163	)
NET CHANGE IN CASH AND CASH EQUIVALENTS		2,607			(7,952	)
CASH AND CASH EQUIVALENTS, beginning of period		15,045			23,906
CASH AND CASH EQUIVALENTS, end of period	$	17,652		$	15,954

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Unpaid offering costs	$	1,411		$	37
Receivable from sale of property and equipment	$	—		$	222

See accompanying notes to unaudited condensed financial statements.

RA MEDICAL SYSTEMS, INC.

Condensed Statements of Stockholders’ Equity

(in thousands)

(Unaudited)

						Additional					Total
	Common Stock					Paid-In		Accumulated			Stockholders'
	Shares			Amount		Capital		Deficit			Equity
Balances at December 31, 2021		7,010		$	8	$	191,937	$	(178,272	)	$	13,673
Common stock and warrants issued, net		25,248			2		9,738		—			9,740
Warrants exercised		50			—		25		—			25
Restricted stock awards cancelled		(7	)		—		—		—			—
Stock-based compensation		—			—		165		—			165
Net loss		—			—		—		(5,495	)		(5,495	)
Balances at March 31, 2022		32,301		$	10	$	201,865	$	(183,767	)	$	18,108

					Additional					Total
	Common Stock				Paid-In		Accumulated			Stockholders'
	Shares		Amount		Capital		Deficit			Equity
Balances at December 31, 2020		3,189	$	7	$	174,342	$	(153,202	)	$	21,147
Common stock issued, net		35		—		65		—			65
Stock-based compensation		35		—		1,169		—			1,169
Net loss		—		—		—		(7,236	)		(7,236	)
Balances at March 31, 2021		3,259	$	7	$	175,576	$	(160,438	)	$	15,145

See accompanying notes to unaudited condensed financial statements.

RA MEDICAL SYSTEMS, INC.

Notes to Unaudited Condensed Financial Statements

Note 1. Organization

The Company

Ra Medical Systems, Inc. (the “Company”) is a medical device company leveraging its 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 “DABRA”, is used as a tool in the treatment of peripheral artery disease (“PAD”). The Company was formed on September 4, 2002 in the state of California and reincorporated in Delaware on July 14, 2018.

On August 16, 2021, the Company completed the sale of its Pharos dermatology business (the “Dermatology Business”). As a result, the Company has reported the operating results of the Dermatology Business as discontinued operations in the condensed statement of operations for the three months ended March 31, 2021. Unless otherwise noted, discussion within these notes to the unaudited condensed financial statements relates to continuing operations. See Note 3. Discontinued Operations for additional information.

COVID-19 and Market Conditions

The global effects of the novel coronavirus (“COVID-19”) have created significant volatility, uncertainty and economic disruption. Although restrictions have been recently eased around the world, COVID-19 pandemic is still ongoing, and the ultimate effects of COVID-19 on the Company’s business, operations and financial condition are unknown at this time. The Company expects that enrollment in its atherectomy clinical trial will continue to be affected by the uncertainty relating to COVID-19, as patients may continue to elect to postpone voluntary treatments and physicians’ offices may intermittently close or operate at a reduced capacity in response to COVID-19. The Company’s manufacturing facility located in Carlsbad, California is currently operational. The Company has experienced delays in receiving shipments of parts which has had an impact on the timing of its key engineering efforts but has not affected its ability to support its atherectomy clinical study. However, the extent to which COVID-19 impacts its business will depend on future developments which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the actions to contain it or treat its impact, among others.

The Company, like many companies, is also experiencing increased difficulty in attracting and retaining key personnel due to a tight labor market.

Going Concern

The Company has experienced recurring net losses from operations and negative cash flows from operating activities, has a significant accumulated deficit and expects to continue to incur net losses into the foreseeable future. The Company had an accumulated deficit of $183.8 million at March 31, 2022. For the three months ended March 31, 2022, the Company used cash of $8.6 million in operating activities. As of March 31, 2022, the Company had cash and cash equivalents of $17.7 million.

Management expects operating losses and negative cash flows to continue for the foreseeable future with the Company’s reduced commercial footprint, and as the Company continues 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. In September 2020, the Company paused commercial sales of the DABRA catheter not being used for the atherectomy clinical trial while it conducted further studies on the stability of its shelf life. The Company submitted additional test data with respect to the DABRA catheter shelf life in March 2021, which was cleared by the U.S. Food and Drug Administration (“FDA”) in July 2021. Although eligible, the Company has not resumed commercial sales and is evaluating its commercial catheter strategy. The Company also expects the COVID-19 pandemic to have a continued negative impact on the timing of enrollment in its atherectomy clinical trial as well as the Company’s ability to secure additional financing in a timely manner or on favorable terms, if at all.

Management believes that, based on the Company’s liquidity resources, there is substantial doubt about the Company’s ability to continue as a going concern for a period of at least 12 months from the date of issuance of the financial statements.

Although the Company bolstered its liquidity resources through an equity financing in February 2022, resulting in net proceeds of $9.7 million, has an effective shelf registration statement and may receive additional funds from the exercise of its warrants depending on market conditions, management has concluded that the aforementioned conditions, including the ongoing uncertainty related to the negative impacts of the COVID-19 pandemic, continue to raise substantial doubt about the Company’s ability to continue as a going concern for a period of at least 12 months from the date of issuance of the financial statements. Management plans to address this uncertainty by raising additional funds, if necessary, through public or private equity or debt financings as well as by engaging in regular and ongoing reviews of its business model and strategic options to help ensure that the Company is focusing its cash resources on advancing its key corporate initiatives. However, the Company may not be able to secure such financing in a timely manner or on favorable terms, if at all. Furthermore, if the Company issues equity securities to raise additional funds, its existing stockholders may experience dilution, and the new equity securities may have rights, preferences and privileges senior to those of the Company’s existing stockholders.

The Company may be forced to downsize or reduce its personnel and development costs, significantly alter its business strategy, substantially curtail its current operations, refocus or rebuild around a different core or strategic technology, consummate another strategic transaction such as a company sale, merger, asset sale, in-license, out-license, or other business transaction, or be required to liquidate its assets and dissolve the Company. Consistent with the actions the Company has taken in the past, it will execute the appropriate steps to enable the continued operation of the business and preservation of the value of its assets, including but not limited to actions such as reduced personnel-related costs, delay or curtailment of the Company’s research and development activities, and other discretionary expenses that are within the Company’s control. These initiatives, if required, may have an adverse impact on the Company’s ability to achieve certain of its planned objectives as it seeks strategic alternatives.

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and settlement of liabilities in the normal course of business, and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or amounts and classification of liabilities that may result from the outcome of this uncertainty.

Note 2. Significant Accounting Policies

Basis of Presentation

The unaudited interim condensed financial statements have been prepared on the same basis as the annual financial statements and reflect all adjustments of a normal and recurring nature that are necessary for the fair presentation of the Company’s condensed balance sheets, results of operations, cash flows and statements of stockholders’ equity for the periods presented. The results of operations for the three months ended March 31, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022 or for any other future annual or interim period. The balance sheet as of December 31, 2021 included herein was derived from the audited financial statements as of that date. These unaudited condensed financial statements should be read in conjunction with the Company’s audited financial statements included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 24, 2022.

Use of Estimates

The preparation of interim unaudited condensed financial statements in accordance with generally accepted accounting principles in the United States (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the interim unaudited condensed financial statements and accompanying notes. The amounts reports could differ under different estimates and assumptions. On an ongoing basis, management evaluates its estimates and judgments, which are based on historical and anticipated results and trends and on various other assumptions that management believes to be reasonable under the circumstances. By their nature, estimates are subject to an inherent degree of uncertainty and, as such, actual results may differ from management’s estimates.

Reclassifications

Certain prior period amounts have been reclassified to conform to the current period presentation in order to reflect the Dermatology Business as discontinued operations.

Fair Value Measurements

Fair value represents the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants and is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. A three-tier value hierarchy is used to identify inputs used in measuring fair value as follows:

Level 1 – Observable inputs that reflect quoted market prices (unadjusted) for identical assets or liabilities in active markets;

Level 2 – Inputs other than the quoted prices in active markets that are observable either directly or indirectly in the marketplace for identical or similar assets and liabilities; and

Level 3 – Unobservable inputs that are supported by little or no market data, which require the Company to develop its own assumptions.

The hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. The Company measures its cash and cash equivalents at fair value.

Fair value of financial instruments

Cash and cash equivalents, trade accounts receivable, accounts payable, accrued expenses and other current assets and liabilities are reported on the balance sheets at carrying value which approximates fair value due to the short-term maturities of these instruments.

Inventories

Inventories are stated at the lower of cost or net realizable value. Cost is determined on a first-in, first-out basis. Cost includes materials, labor and manufacturing overhead related to the purchase and production of inventories. The Company reduces the carrying value of inventories for those items that are potentially excess or obsolete based on changes in customer demand, technological developments or other economic factors. Although inventories are classified as current assets in the accompanying condensed balance sheets, the Company anticipates that such inventories will be utilized beyond twelve months from March 31, 2022.

Catheters are manufactured in-house, and each catheter is tested at various stages of the manufacturing process for adherence to quality standards. Catheters that do not meet functionality specification at each test point are destroyed and immediately written off, with the expense recorded in cost of revenue in the condensed statements of operations. Once manufactured, completed catheters that pass quality assurance are sent to a third-party for sterilization and sealed in a sterile container. Upon return from the third-party sterilizer, a sample of catheters from each batch are re-tested. If the sample tests are successful, the batch is accepted into finished goods inventory. If the sample tests are unsuccessful, the entire batch is written off with the expense recorded in cost of revenue in the condensed statements of operations.

Segment Information

The Company operates its business in one segment, which includes all activities related to the research, development and manufacture of the DABRA system. The chief operating decision-maker reviews the operating results on an aggregate basis and manages the operations as a single operating segment.

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board or other standard setting bodies that the Company adopts as of the specified effective date. The Company has evaluated recently issued accounting pronouncements and, based on its preliminary assessment, does not believe any will have a material impact on the condensed financial statements or related footnote disclosures.

Note 3. Discontinued Operations

The Company completed the sale of its Dermatology Business to STRATA Skin Sciences, Inc. (“Strata”) on August 16, 2021 for net proceeds of $3.7 million, resulting in a gain on the sale of the Dermatology Business of $3.5 million which was included as a component of income (loss) from discontinued operations in the statement of operations for the year December 31, 2021. The Dermatology Business was previously disclosed as a separate reportable segment of the Company.

The results of the Dermatology Business is reported as loss from discontinued operations in the condensed statement of operations for the three months ended March 31, 2021. Certain overhead costs previously allocated to the Dermatology Business for segment reporting purposes did not qualify for classification as discontinued operations and have been reallocated to continuing operations for the three months ended March 31, 2021.

The following table summarizes the loss from discontinued operations in the condensed statement of operations for the three months ended March 31, 2021 (in thousands):

Net revenues	$	1,113
Cost of net revenues		927
Gross income		186
Operating expenses		502
Operating loss from discontinued operations		(316	)
Other income (expense), net		(43	)
Net loss from discontinued operations	$	(359	)

Depreciation expense for the Dermatology Business was $0.1 million for the three months ended March 31, 2021. There were no capital expenditures for the Dermatology Business during the three months ended March 31, 2021.

Stock-based compensation expense for the Dermatology Business was approximately $19,000 for the three months ended March 31, 2021. Stock-based compensation expense of approximately $38,000 was capitalized to inventory and property and equipment during the three months ended March 31, 2021.

Note 4. Fair Value Measurements

As of March 31, 2022 and December 31, 2021, cash equivalents of approximately $9.4 million were categorized as Level 1 and consisted of money market funds that were measured at fair value on a recurring basis.

Note 5. Inventories

Inventories consisted of the following (in thousands):

	March 31, 2022		December 31, 2021
Raw materials	$	959	$	911
Work in process		93		70
Finished goods		7		5
Total inventories	$	1,059	$	986

Note 6. Property and Equipment

Property and equipment consisted of the following (in thousands):

	March 31, 2022			December 31, 2021
Lasers	$	2,998		$	3,085
Machinery and equipment		890			858
Computer hardware and software		353			353
Construction in progress		138			169
Leasehold improvements		145			145
Furniture and fixtures		48			48
Property and equipment, gross		4,572			4,658
Accumulated depreciation		(2,914	)		(2,849	)
Total property and equipment, net	$	1,658		$	1,809

Depreciation expense was $0.1 million and $0.4 million for the three months ended March 31, 2022 and 2021, respectively.

Note 7. Accrued Expenses

Accrued expenses consisted of the following (in thousands):

	March 31, 2022		December 31, 2021
Offering costs	$	974	$	—
Compensation and related benefits		419		2,004
Consulting fees		255		273
Warranty expenses		192		195
Legal expenses		104		1,345
Other accrued expenses		329		302
Total accrued expenses	$	2,273	$	4,119

Note 8. Leases

The Company has an operating lease for office and manufacturing space which requires it to pay base rent and certain utilities. Monthly rent expense is recognized on a straight-line basis over the term of the lease which expires in 2027. At March 31, 2022, the remaining lease term was 5.75 years. The operating lease is included in the condensed balance sheets at the present value of the lease payments at a 7% discount rate which approximates the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term and amount equal to the lease payments in a similar economic environment, as the lease does not provide an implicit rate. For each of the three months ended March 31, 2022 and 2021, operating lease expense and cash paid for leases was $0.1 million. Amortization of operating lease right-of-use assets was also $0.1 million for each of the three months ended March 31, 2022 and 2021. Variable costs were de minimis.

Maturities of operating lease liabilities as of March 31, 2022 (in thousands):

Years Ending December 31,
2022 (remaining nine months)	$	324
2023		445
2024		459
2025		472
2026		486
Thereafter		501
Total operating lease payments		2,687
Less: imputed interest		(492	)
Total operating lease liabilities	$	2,195

Note 9. Net Loss per Share

Basic net loss per share is calculated by dividing the net loss by the weighted average number of common shares outstanding during the reporting period. A net loss cannot be diluted, so when the Company is in a net loss position, basic and diluted loss per common share are the same. If in the future the Company achieves profitability, the denominator of a diluted earnings per common share calculation will include both the weighted average number of shares outstanding and the number of common stock equivalents, if the inclusion of such common stock equivalents would be dilutive. Dilutive common stock equivalents include warrants, stock options, non-vested restricted stock units and employee stock purchase plan rights.

The Company’s outstanding warrants to purchase common stock have participation rights to any dividends that may be declared in the future and are therefore considered to be participating securities. Participating securities have the effect of diluting both basic and diluted earnings per share during periods of income. During periods of loss, no loss is allocated to the participating securities since the holders have no contractual obligation to share in the losses of the Company.

Anti-dilutive share equivalents excluded from the computation of diluted net loss per share at March 31, 2022 consisted of warrants of 56,329,950, stock options of 106,380, restricted stock awards of 164,879, restricted stock units of 49,636 and Employee Stock Purchase Plan shares of 16,634.

Anti-dilutive share equivalents excluded from the computation of diluted net loss per share at March 31, 2021 consisted of warrants of 2,345,033, stock options of 136,033, restricted stock awards of 325,429, restricted stock units of 38,922 and Employee Stock Purchase Plan shares of 3,200.

Note 10. Equity Offerings

On February 8, 2022, the Company completed a public offering (the “Offering”) in which it issued and sold (i) 9,535,000 shares of common stock, (ii) 24,002,893 warrants to purchase one share of common stock at an exercise price of $0.50 that were immediately exercisable and expire one year from the date of issuance, or Series A Warrants, and (iii) 24,002,893 warrants to purchase one share of common stock at an exercise price of $0.50 that were immediately exercisable and expire seven years from the date of issuance, or Series B Warrants, and (iv) 14,467,893 pre-funded warrants to purchase one share of common stock at an exercise price of $0.0001 per share that were immediately exercisable and expire twenty years from the date of issuance, or Pre-Funded Warrants. In addition, the Company granted the underwriters of the Offering a 45-day option, or Overallotment Option, to purchase up to (i) 3,600,000 additional shares of common stock, (ii) 3,600,000 additional Series A Warrants and/or (iii) 3,600,000 additional Series B Warrants, solely to cover overallotments.

The Series A Warrants and Series B Warrants were valued at approximately $7.0 million using the Black-Scholes option pricing model based on the following assumptions:

	Series A			Series B
Risk-free interest rate		0.59	%		1.70	%
Volatility		95.81	%		103.29	%
Expected dividend yield		0.00	%		0.00	%
Expected life (in years)		0.5			3.5

On February 10, 2022, the Company issued 1,245,116 shares of common stock pursuant to the partial exercise of the Overallotment Option, resulting in cash proceeds of approximately $0.5 million, net of underwriting discounts. On various dates in February 2022 and March 2022, the Company issued 14,467,893 shares of common stock upon the exercise of all of the Pre-Funded Warrants issued in the Offering. In addition, in March 2022, the Company issued 50,000 shares of common stock in connection with the exercise of 25,000 Series A Warrants and 25,000 Series B Warrants issued in the Offering.

Net proceeds from the Offering were approximately $9.7 million, after deducting underwriter commissions and fees and other offering fees paid or payable by the Company as of March 31, 2022.

At March 31, 2022, the Company had 56,329,950 shares of common stock reserved for issuance pursuant to the warrants issued by the Company at a weighted average exercise price of $0.89.

The Company is contractually obligated to pay a former placement agent a tail fee equal to 7.5% cash compensation for the gross proceeds raised and issue warrants equal to 7% of the number of shares of common stock sold in the Offering to any investor contacted by the former placement agent during the term of its engagement with the Company. Thus, the Company is obligated to pay such placement agent a cash fee which it estimates to be approximately $0.9 million and to issue approximately 1.7 million warrants to purchase common stock at an exercise price of $0.625 per share, which represents 125% of the exercise price in the Offering. Such warrants would be immediately exercisable and expire five years from the date of issuance. These warrants were valued at approximately $0.3 million on February 8, 2022, using the Black-Scholes option pricing model based on the following assumptions: expected volatility of 109.9%, risk-free interest rate of 1.47%, expected dividend yield of 0% and an expected term of 2.5 years. The cash fees of $0.9 million are included in accrued expenses in the balance sheet as of March 31, 2022. The warrants had not been issued by the Company as of March 31, 2022.

Note 11. Stock-Based Compensation

A summary of the activity under the 2018 Equity Inventive Plan and the 2020 Inducement Equity Incentive Plan (collectively, the “Plans”) for the three months ended March 31, 2022 is set forth below:

Stock Options

	Stock Options			Weighted Average Exercise Price		Weighted Average Remaining Life (in years)		Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2021		108,448		$	345.54
Forfeited		(2,068	)	$	231.56
Outstanding at March 31, 2022		106,380		$	347.75		5.31	$	—
Exercisable at March 31, 2022		89,209		$	409.27		4.83	$	—
Vested and expected to vest at March 31, 2022		106,380		$	347.75		5.31	$	—

Restricted Stock Units

	Restricted Stock Units			Weighted Average Grant Date Fair Value
Outstanding at December 31, 2021		70,025		$	4.37
Vested		(1,334	)	$	6.66
Forfeited		(19,055	)	$	3.24
Outstanding at March 31, 2022		49,636		$	4.75

Restricted Stock Awards

	Restricted Stock Awards			Weighted Average Grant Date Fair Value
Outstanding at December 31, 2021		179,334		$	4.71
Vested		(6,667	)	$	7.11
Forfeited		(7,788	)	$	4.75
Outstanding at March 31, 2022		164,879		$	4.61

The following table summarizes stock-based compensation expense for the Plans included in operating expenses (in thousands):

	Three Months Ended March 31,
	2022		2021
Selling, general and administrative	$	113	$	943
Research and development		49		129
Stock-based compensation in operating expenses	$	162	$	1,072

Stock-based compensation expense of approximately $3,000 and $40,000 was capitalized to inventory and property and equipment during the three months ended March 31, 2022 and 2021, respectively.

Unrecognized stock-based compensation expense by award type and the remaining weighted average recognition period over which such expense is expected to be recognized as of March 31, 2022 was as follows:

	Unrecognized Expense (in thousands)		Remaining Weighted Average Recognition Period (in years)
Stock options	$	251		1.6
Restricted stock awards	$	503		1.9
Restricted stock units	$	172		1.8

Note 12. Commitments and Contingencies

Securities Class Action and Shareholder Derivative Litigation Update

On June 7, 2019, a putative securities class action complaint captioned Derr v. Ra Medical Systems, Inc., et al, (Civil Action no. 19CV1079 LAB NLS) was filed in the U.S. District Court for the Southern District of California against the Company, certain current and former officers and directors, and certain underwriters of the Company’s initial public offering. Following the appointment of a lead plaintiff and the filing of a subsequent amended complaint, the lawsuit alleges that the defendants made material misstatements or omissions in the Company’s registration statement in violation of Sections 11 and 15 of the Securities Act of 1933 (the “Securities Act”) and between September 27, 2018 and November 27, 2019, inclusive, in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”). On March 11, 2020, lead plaintiffs voluntarily dismissed the underwriter defendants without prejudice. On March 13, 2020, defendants filed a motion to dismiss the amended complaint. On March 24, 2021, the court issued an order granting defendants’ motion to dismiss claims under the Securities Act in full and certain claims under the Exchange Act and denying defendants’ motion to dismiss certain Exchange Act claims. Plaintiffs filed their second amended complaint on April 19, 2021, realleging the Securities Act claims and certain of the previously dismissed Exchange Act claims. On June 10, 2021, defendants moved to dismiss the second amended complaint. On November 12, 2021, following a private settlement mediation with the lead plaintiffs, the parties executed a stipulation of settlement that resolved the claims asserted in the securities class action. The settlement provides for a payment to the plaintiff class of $10.0 million. On March 18, 2022, the Company paid approximately $0.6 million towards the settlement to satisfy its self-insured retention/deductible. The Company’s insurers paid the remainder of the settlement. The proposed settlement requires both preliminary and final approval by the court. On February 11, 2022, the court granted preliminary approval of the settlement, scheduled a hearing on final approval of the settlement for June 13, 2022, and denied the pending motion to dismiss without prejudice. On May 2, 2022, plaintiffs filed a motion for final approval of the settlement and plan of allocation, and lead counsel filed a motion for an award of attorneys’ fees and reimbursement of litigation expenses. Should the court not provide final approval of the proposed settlement or if the proposed settlement otherwise does not become final, the parties will be returned to their litigation postures prior to the execution of the stipulation of settlement. Should the Company ultimately be found liable, the liability could have a material adverse effect on the Company’s financial condition and its results of operations for the period or periods in which such determination is made.

On October 1, 2019, a shareholder derivative complaint captioned Noel Borg v. Dean Irwin, et al (Civil Action no. 1:99-cm-09999) was filed in the U.S. District Court for the District of Delaware against certain current and former officers and directors, purportedly on behalf of the Company, which is named as a nominal defendant in the action. The complaint alleges breaches of fiduciary duty, unjust enrichment, waste, and violations of Section 14(a) of the Securities Exchange Act of 1934. On October 21, 2019, pursuant to the parties’ stipulation, the court stayed the derivative lawsuit until the related class action is resolved. While the Company has obligations to indemnify and/or advance the defendants’ legal fees and costs in connection with this lawsuit, any monetary recovery from the defendants would be to the benefit of the Company. The Company is unable to predict the ultimate outcome and is unable to make a meaningful estimate of the amount or range of loss, if any, that could result from any unfavorable outcome.

Settlement Agreements with the Department of Justice and Participating States

As previously announced on December 28, 2020, the Company entered into a Settlement Agreement with the U.S., acting through the Department of Justice and on behalf of the Office of Inspector General, and other settlement agreements with certain state attorneys general to resolve investigations and a related civil action concerning its marketing of the DABRA laser system and DABRA-related remuneration to certain physicians.

Pursuant to the terms of the Settlement Agreement and the agreements with the participating states, (a) if the Company’s revenue exceeds $10 million in any of fiscal years 2021-2024, the Company also is required to pay for the corresponding year: $500,000 for 2021, $750,000 for 2022, $1 million for 2023, and $1.25 million for 2024; (b) if the Company is acquired or is otherwise involved in a change in control transaction before the end of 2024, the Company is required to pay an additional settlement amount of $5 million, plus 4% of the value attributed to the Company in the transaction, so long as the attributed value is in excess of $100 million, with the total change in control payment never to exceed $28 million; and (c) if the Company’s obligations under the Settlement Agreement are avoided by bankruptcy, the U.S. may rescind the releases and bring an action against the Company in which the Company agrees is not subject to an automatic stay, is not subject to any statute of limitations, estoppel or laches defense, and is a valid claim in the amount of $56 million, minus any prior change in control payments.

Other Litigation

In the normal course of business, the Company is at times subject to pending and threatened legal actions. In management’s opinion, any potential loss resulting from the resolution of these matters will not have a material effect on the results of operations, financial position or cash flows of the Company.

Note 13. Subsequent Event

On May 10, 2022, the Company’s Chief Financial Officer notified the Company that he will resign as the Company’s Chief Financial Officer and Secretary, effective May 25, 2022. This resignation is not the result of any disagreement with the Company or its board of directors or any matter relating to the Company’s operations, policies or practices. The Company expects to enter into a separation agreement with the Chief Financial Officer, the terms of which have not yet been finalized.

ITEM 2.

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

Special Note Regarding Forward Looking Statements

This Quarterly Report on Form 10-Q, or Quarterly Report, contains forward-looking statements that are based on our management’s beliefs and assumptions and on information currently available. This section should be read in conjunction with our unaudited condensed financial statements and related notes included in Part I, Item 1 of this report. The statements contained in this Quarterly Report that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.

Forward-looking statements can be identified by words such as “believe,” “anticipate,” “may,” “might,” “can,” “could,” “continue,” “depends,” “expect,” “expand,” “forecast,” “intend,” “predict,” “plan,” “rely,” “should,” “will,” “may,” “seek,” or the negative of these terms or and other similar expressions, although not all forward-looking statements contain these words. You should read these statements carefully because they discuss future expectations, contain projections of future results of operations or financial condition, or state other “forward-looking” information. These statements relate to our future plans, objectives, expectations, intentions and financial performance and the assumptions that underlie these statements.

These forward-looking statements are subject to a number of risks, uncertainties, and assumptions, including, but not limited to, those described in “Risk Factors”. These forward-looking statements reflect our beliefs and views with respect to future events and are based on estimates and assumptions as of the date of this Quarterly Report and are subject to risks and uncertainties. We discuss many of these risks in greater detail in the section entitled “Risk Factors” included in Part II, Item 1A and elsewhere in this Quarterly Report. Given these uncertainties, you should not place undue reliance on these forward-looking statements. We qualify all of the forward-looking statements in this Quarterly Report by these cautionary statements. Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, whether as a result of new information, future events or otherwise.

This Quarterly Report also contains estimates, projections and other information concerning our industry, our business, and the markets for certain diseases, including data regarding the estimated size of those markets. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances reflected in this information. Unless otherwise expressly stated, we obtained this industry, business, market, and other data from reports, research surveys, studies, and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data, and similar sources.

References to “we”, “us”, “our” and “the Company” refer to Ra Medical Systems, Inc.

Overview

Ra Medical Systems, Inc. is a medical device company leveraging its advanced excimer laser-based platform for use in the treatment of vascular immune-mediated inflammatory diseases. We believe our products enhance patients’ quality of life by restoring blood flow in arteries.

Consistent with our business strategy to continue focusing on the peripheral artery disease, or PAD, market, we completed the sale of our Pharos laser business, or Dermatology Business, to STRATA Sciences, Inc., or Strata, on August 16, 2021. Accordingly, the results of the Dermatology Business are included in discontinued operations for the three months ended March 31, 2021. See Note 3. Discontinued Operations to our unaudited condensed financial statements for additional information. Unless otherwise noted, amounts for all periods discussed below reflect the results of operations and financial condition for our continuing operations.

The DABRA laser and single-use catheter, together referred to as DABRA, is used as a tool in the treatment of peripheral artery disease, or PAD, which commonly occurs in the legs. DABRA is cleared by the U.S. Food and Drug Administration, or FDA, as a device for crossing chronic total occlusions in patients with symptomatic infrainguinal lower extremity vascular disease and with an intended use for ablating a channel in occlusive peripheral vascular disease. DABRA was also granted CE mark approval in Europe in September 2016 for the endovascular treatment of infrainguinal arteries via atherectomy and for crossing total occlusions.

Our business strategy is focused on multiple engineering efforts to improve our catheter offering and explore new markets, as well as conducting a clinical study to obtain an atherectomy “indication for use” in the United States, or U.S. Key catheter engineering efforts currently underway include projects to:

•

Extend our catheter’s shelf life. During 2020, we identified the factors limiting our shelf life, including the introduction of unwanted elements in the catheter’s fluid core and the degradation of the coating on the inner diameter, and we are currently implementing multiple remediations to address these issues. Our internal real time aging test data supports shelf life for our catheter of at least six months;

•

Increase the robustness of our catheter via a braided overjacket, or a similar design, to make the catheter more kink-resistant when navigating tortuous anatomy. We completed the engineering work for this catheter and subsequently submitted to the FDA for clearance in February 2022; and

•

Develop a version of the DABRA catheter that is compatible with a standard guidewire. We selected a design in December 2021 based on physician evaluation in a preclinical model. We expect to finalize the design for this catheter by mid-year 2022. Engineering validation and verification will follow design freeze, and we will subsequently submit to the FDA for clearance.

As stated, we are currently pursuing an atherectomy indication for use, which the FDA defines to include a prespecified improvement in luminal patency. To satisfy the FDA’s data requirements to support an atherectomy indication, we are performing a pivotal study designed to allow the FDA to evaluate the use of DABRA in atherectomy procedures. We received an Investigational Device Exemption, or IDE, approval in January 2020, and the study is approved for up to 10 clinical sites and 100 subjects. In January 2022, primarily due to subject fallout for follow-up visits due to COVID-19, we filed a protocol amendment with the FDA to add an additional 25 subjects to the study. The protocol amendment was approved by the FDA in February 2022, increasing the total number of approved subjects from 100 to 125.

We enrolled the first subject in February 2020. Throughout much of 2021 and 2020, the COVID-19 pandemic substantially impacted our ability to activate new sites and enroll additional subjects. Many sites or potential sites have been or are currently operating at a reduced capacity, and some have been closed from time to time. In addition, potential study subjects may voluntarily opt to postpone their procedures due to COVID-19 concerns. As of May 11, 2022, we had enrolled 107 subjects and eight sites had been cleared to enroll subjects. Due to the unpredictable impact the COVID-19 pandemic has had and will continue to have on enrollment in this study, we currently cannot estimate when enrollment will be completed, although we aim to complete enrollment in the third quarter of 2022 and to complete the six-month follow-up in early 2023.

We are continuing to supply catheters to those sites involved in our atherectomy clinical study. We paused shipments of catheters to commercial sites while we conducted further studies on the stability of their shelf life. We submitted additional test data with respect to the DABRA catheter shelf life in a traditional 510(k) in March 2021, which was cleared by the FDA in July 2021. Although eligible, we have not resumed commercial sales as we continue evaluating our commercial catheter strategy.

Finally, we are conducting research to prove the feasibility of using a DABRA-derived catheter technology to fracture calcium in arteries in a procedure known as lithotripsy. Preliminary research work has demonstrated that the DABRA laser system can be utilized to create shockwaves of sufficient magnitude to fracture calcium in arteries. Fracturing calcium in coronary or peripheral arteries can help make the arteries less rigid, thus making subsequent procedures easier and/or safer to perform. We have fabricated a prototype system and intend to conduct a preclinical study in the next few months to confirm our initial benchtop results.

We and our board of directors are currently reviewing strategic alternatives that could result in changes to our business strategy and future operations. As part of this process, which is being conducted in parallel with a review of the development and commercialization options, as well as associated costs, for our core and strategic technologies, our board of directors is also reviewing alternatives with the goal of maximizing stockholder value. Such options may result in a financing to continue our atherectomy indication trial and development of our catheter or refocusing and rebuilding the Company around our lithotripsy asset, or a business combination including a company sale, merger, asset sale, in-license, out-license, or other business transaction.

We cannot provide any commitment as to the timing of our determination or the strategy we may adopt and may be required to liquidate our assets and dissolve the Company if we are unable to secure additional financing or consummate one or more strategic transactions. If we determine to continue our atherectomy indication trial and the development of our catheter or refocusing and rebuilding the Company around the lithotripsy asset, we will need to obtain substantial additional funding. Because of the significant uncertainty regarding our future plans, we are not able to accurately predict the impact of a potential change in our business strategy and future funding requirements.

As of the date of this Quarterly Report, we concluded that there is substantial doubt regarding our ability to continue as a going concern for the twelve months from the date of filing of this report. 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 and potential strategic partners. As a result, it may be more difficult for us to consummate any strategic transactions and/or raise the additional financing necessary to continue to operate our business. We may be forced to downsize or reduce our personnel and development costs, significantly alter our business strategy, substantially curtail our current operations, refocus or rebuild around a different core or strategic technology, consummate another strategic transaction such as a company sale, merger, asset sale, in-license, out-license, or other business transaction, or be required to liquidate our assets and dissolve the Company.

Recent Developments

Effects of COVID-19 and Market Conditions

The global effects of COVID-19 have created significant volatility, uncertainty and economic disruption. Although restrictions have been recently eased around the world, the COVID-19 pandemic is still ongoing, and the ultimate effects of COVID-19 on our business, operations and financial condition are unknown at this time. We expect that enrollment in our atherectomy clinical trial will continue to be affected by the uncertainty relating to COVID-19, as patients may continue to elect to postpone voluntary treatments and physicians’ offices may intermittently close or operate at a reduced capacity in response to COVID-19. Our manufacturing facility located in Carlsbad, California is currently operational. 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 clinical study. However, the extent to which COVID-19 impacts our business will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the actions to contain it or treat its impact, among others.

We, like many companies, are also experiencing increased difficulty in attracting and retaining key personnel due to a tight labor market.

Components of our Results of Operations

Net Revenue

Product sales consist of the sales of catheters for use with the DABRA laser. We are currently not selling commercial product and are only selling catheters for use in our atherectomy clinical trial.

We have historically used distributors outside the U.S. in markets where we have received regulatory approval. We expect to continue to seek regulatory approvals for our product in additional strategic markets.

Cost of Revenue

Cost of revenue for product sales consists primarily of costs of components for use in our products, the labor that is used to produce our products, and the manufacturing overhead that support production. Cost of revenue for service and other consists primarily of depreciation on the lasers we own.

Gross Profit (Loss)

We calculate gross profit (loss) as revenue less cost of revenue. Our gross profit (loss) has been and will continue to be affected by a variety of factors, primarily production volumes, the cost of direct materials, manufacturing costs, product yields, headcount and cost-reduction strategies. Our gross loss would be reduced if our production volume increased, and certain costs remain fixed or increased at a slower rate. We intend to use our design, engineering and manufacturing capabilities to further advance and improve the efficiency of our manufacturing processes, which we believe will reduce costs.

Selling, General and Administrative Expenses

Selling, general and administrative, or SG&A, expenses primarily consist of employee-related expenses, including salaries, benefits and stock-based compensation expense. Other SG&A expenses include professional services fees, including legal, audit and tax fees, insurance costs, general corporate expenses and facility related expenses. We expect continued legal costs associated with ongoing litigation.

Research and Development Expenses

Research and development, or R&D, expenses include:

•

certain employee-related expenses, including salaries, benefits and stock-based compensation expense;

•

cost of clinical studies to support new products and product enhancements, including expanded indications;

•

supplies used for internal R&D and clinical activities; and

•

cost of outside consultants who assist with technology development and clinical affairs.

We expense R&D costs as incurred. In the future, we expect R&D expenses to increase if we continue to develop new products, enhance existing products and technologies or perform activities related to obtaining additional regulatory approval. However, we expect R&D expenses as a percentage of total expenses to vary over time, depending on the level and timing of our new product development efforts, as well as our clinical development, clinical trials and studies and other related activities.

Results of Continuing Operations

The following table sets forth our results of continuing operations for the periods presented (in thousands):

Three Months Ended March 31,