UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended
OR
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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:
(Exact name of Registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
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(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
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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.
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).
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.
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Large accelerated filer |
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Accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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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
As of the close of business on August 10, 2022, the registrant had
RA MEDICAL SYSTEMS, INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
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Item 1. |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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Item 1. |
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Item 1A. |
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Item 2. |
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78 |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RA MEDICAL SYSTEMS, INC.
Condensed Balance Sheets
(in thousands, except par value data)
(Unaudited)
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June 30, 2022 |
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December 31, 2021 |
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ASSETS |
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Current Assets |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable, net |
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Inventories |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Operating lease right-of-use assets |
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Other long-term assets |
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TOTAL ASSETS |
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$ |
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$ |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current Liabilities |
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Accounts payable |
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$ |
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$ |
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Accrued expenses |
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Current portion of operating lease liability |
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Total current liabilities |
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Operating lease liability |
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Total liabilities |
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Commitments and contingencies (Notes 12-14) |
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Stockholders’ Equity |
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Preferred stock, $ |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
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Total stockholders’ equity |
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TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |
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$ |
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$ |
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See accompanying notes to unaudited condensed financial statements.
3
RA MEDICAL SYSTEMS, INC.
Condensed Statements of Operations
(in thousands, except per share data)
(Unaudited)
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Three Months Ended June 30, |
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Six Months Ended June 30, |
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2022 |
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2021 |
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2022 |
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2021 |
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Revenues |
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Product sales |
$ |
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$ |
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$ |
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$ |
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Cost of revenues |
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Product sales |
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Service and other |
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Total cost of revenues |
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Gross loss |
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Operating expenses |
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Selling, general and administrative |
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Research and development |
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Restructuring and impairment (Note 13) |
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— |
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— |
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Total operating expenses |
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Operating loss |
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Other income, net |
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Loss from continuing operations before income taxes |
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Income taxes |
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— |
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— |
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— |
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— |
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Loss from continuing operations |
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Discontinued operations |
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Loss from discontinued operations before income taxes |
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— |
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— |
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Income taxes |
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— |
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— |
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— |
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— |
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Loss from discontinued operations |
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— |
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— |
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Net loss |
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$ |
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$ |
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$ |
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Net loss per share, basic and diluted |
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Continuing operations |
$ |
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$ |
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$ |
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$ |
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Discontinued operations |
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— |
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— |
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Total net loss per share, basic and diluted |
$ |
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$ |
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$ |
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$ |
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Weighted average number of shares used in computing net loss per share, basic and diluted |
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See accompanying notes to unaudited condensed financial statements.
4
RA MEDICAL SYSTEMS, INC.
Condensed Statements of Cash Flows
(in thousands)
(Unaudited)
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Six Months Ended June 30, |
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2022 |
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2021 |
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CASH FLOWS FROM OPERATING ACTIVITIES |
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Net loss |
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$ |
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$ |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Non-cash restructuring and impairment |
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— |
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Depreciation and amortization |
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Stock-based compensation |
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Loss (gain) on sales and disposals of property and equipment |
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Gain on extinguishment of promissory note |
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— |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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Inventories |
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( |
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( |
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Prepaid expenses and other assets |
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( |
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( |
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Accounts payable |
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( |
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Accrued expenses |
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( |
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( |
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Other liabilities |
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( |
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( |
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Deferred revenue |
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— |
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( |
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Net cash used in operating activities |
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( |
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CASH FLOWS FROM INVESTING ACTIVITIES |
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Proceeds from sales of property and equipment |
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— |
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Purchases of property and equipment |
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— |
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Net cash provided by investing activities |
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— |
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CASH FLOWS FROM FINANCING ACTIVITIES |
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Proceeds from issuance of common stock and warrants |
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Payments of offering costs related to the issuance of common stock and warrants |
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Proceeds from exercise of warrants |
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— |
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Proceeds from issuance of common stock in connection with the employee stock purchase plan |
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Payments on equipment financing |
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— |
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Net cash provided by financing activities |
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NET CHANGE IN CASH AND CASH EQUIVALENTS |
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CASH AND CASH EQUIVALENTS, beginning of period |
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CASH AND CASH EQUIVALENTS, end of period |
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$ |
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$ |
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SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: |
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Unpaid offering costs |
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$ |
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$ |
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Unpaid property and equipment |
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$ |
— |
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$ |
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Transfer of lasers from inventories to property and equipment |
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$ |
— |
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$ |
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SUPPLEMENTAL CASH FLOW INFORMATION: |
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Cash payments for interest |
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$ |
— |
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$ |
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Cash payments for income taxes |
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$ |
— |
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$ |
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See accompanying notes to unaudited condensed financial statements.
5
RA MEDICAL SYSTEMS, INC.
Condensed Statements of Stockholders’ Equity
(in thousands)
(Unaudited)
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Additional |
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Total |
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Common Stock |
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Paid-In |
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Accumulated |
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Stockholders' |
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Shares |
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Amount |
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Capital |
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Deficit |
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Equity |
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Balances at December 31, 2021 |
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$ |
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$ |
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$ |
( |
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$ |
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Common stock and warrants issued, net |
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— |
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Warrants exercised |
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— |
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— |
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Restricted stock awards cancelled |
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( |
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— |
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— |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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( |
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( |
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Balances at March 31, 2022 |
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( |
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Common stock issued pursuant to the vesting of restricted stock units and purchases under the employee stock purchase plan |
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— |
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— |
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Restricted stock awards cancelled |
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( |
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— |
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— |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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( |
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( |
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Balances at June 30, 2022 |
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$ |
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$ |
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$ |
( |
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$ |
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Additional |
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Total |
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Common Stock |
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Paid-In |
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Accumulated |
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Stockholders' |
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Shares |
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Amount |
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Capital |
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Deficit |
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Equity |
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Balances at December 31, 2020 |
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$ |
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$ |
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$ |
( |
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$ |
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Common stock issued, net |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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( |
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( |
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Balances at March 31, 2021 |
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( |
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Common stock issued, net |
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— |
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— |
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Common stock issued pursuant to the vesting of restricted stock units and purchases under the employee stock purchase plan |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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( |
) |
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( |
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Balances at June 30, 2021 |
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$ |
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$ |
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$ |
( |
) |
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$ |
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See accompanying notes to unaudited condensed financial statements.
6
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 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, (“DABRA”), is used as a tool in the treatment of peripheral artery disease. The Company was formed on September 4, 2002 in the state of California and reincorporated in Delaware on July 14, 2018.
Reduction in Force
The Company previously disclosed that its board of directors was reviewing strategic alternatives with the goal of maximizing shareholder value. This review was triggered by the deteriorating macroeconomic environment and concerns regarding the Company’s ability to continue funding its clinical and engineering programs at levels consistent with the past few years. In conjunction with this review, on June 3, 2022, the board of directors approved a reduction in force (“RIF”) to preserve capital with the goal of maximizing the opportunities available to the Company during the board of directors’ review of strategic alternatives. See further discussion in Note 13. Restructuring and Impairment Charges.
Proposed Merger
On June 18, 2022, the Company signed a non-binding summary of proposed terms (the “Term Sheet”) with Catheter Precision, Inc. (“Catheter Precision”) to acquire
Going Concern
The Company has incurred recurring net losses from operations and negative cash flows from operating activities since inception. As of June 30, 2022, the Company had an accumulated deficit of $
Management will continue to monitor operating costs and seek to reduce the Company’s current liabilities. Such actions may impair the Company’s ability to proceed with certain strategic activities, and the Company may be unsuccessful at negotiating existing liabilities, including its operating lease liability, to the Company’s benefit. If these efforts are unsuccessful or the Merger is not completed, the Company’s cash position could be negatively impacted and the Company may, among other things, be required to seek other sources of financing, consummate another strategic transaction or be required to liquidate its assets and dissolve the Company. Because of the significant uncertainty regarding the Company’s future plans, the Company is not able to accurately predict the impact of a potential change in its business strategy and future funding requirements.
Management believes that, based on the Company’s liquidity resources and the significant uncertainty regarding its future plans, 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. The Company’s independent registered public accounting firm expressed substantial doubt regarding the Company’s ability to continue as a going concern in its report on the Company’s financial statements as of and for the year ended December 31, 2021.
Although the Company improved its liquidity resources through a private placement in July 2022, resulting in net proceeds of $
7
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 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 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.
COVID-19
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 the Company’s business, operations and financial condition are unknown at this time. The Company expects that patient follow-up 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 follow-up visits and physicians’ offices may intermittently close or operate at a reduced capacity in response to COVID-19. The Company’s facility located in Carlsbad, California is currently open. 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.
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 and six months ended June 30, 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 on March 24, 2022, and as amended on July 13, 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 reported 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.
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;
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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.
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.
Prior to June 6, 2022, catheters were manufactured in-house, and each catheter was tested at various stages of the manufacturing process for adherence to quality standards. Catheters that did not meet functionality specification at each test point were destroyed and immediately written off. Once manufactured, completed catheters that passed quality assurance were 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 was re-tested. If the sample tests were successful, the batch was accepted into finished goods inventory. If the sample tests were unsuccessful, the entire batch was written off.
Impairment of Long-Lived Assets
The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. If such circumstances are determined to exist, an estimate of undiscounted future cash flows produced by the long-lived assets, including its eventual residual values, is compared to the carrying value to determine whether impairment exists. In the event that such cash flows are not expected to be sufficient to recover the carrying amount of the assets, the assets are written down to their estimated fair values.
Segment Information
The Company operates its business in
Recent Accounting Pronouncements
In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”). The new guidance eliminates the beneficial conversion and cash conversion accounting models for convertible instruments. It also amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives because of specific settlement provisions. In addition, the new guidance requires that the if-converted method is used in computing diluted earnings per share for all convertible instruments. The update is effective for annual reporting periods, including interim periods, beginning after December 15, 2021. The Company adopted ASU 2020-06 on
Note 3. Discontinued Operations
The Company completed the sale of its Pharos dermatology business (the “Dermatology Business”) to STRATA Skin Sciences, Inc. (“Strata”) on August 16, 2021 for net proceeds of $
9
The results of the Dermatology Business are reported as loss from discontinued operations in the condensed statements of operations for the three and six months ended June 30, 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 and six months ended June 30, 2021.
The following table summarizes the loss from discontinued operations in the condensed statements of operations for the periods presented (in thousands):
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Three Months Ended |
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Six Months Ended |
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June 30, 2021 |
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Revenues |
$ |
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$ |
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Cost of revenues |
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Gross income |
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Operating expenses |
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Operating loss from discontinued operations |
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( |
) |
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( |
) |
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Other expense, net |
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( |
) |
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( |
) |
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Net loss from discontinued operations |
$ |
( |
) |
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$ |
( |
) |
Depreciation expense for the Dermatology Business was $
Stock-based compensation expense for the Dermatology Business was approximately $
Note 4. Fair Value Measurements
As of June 30, 2022 and December 31, 2021, cash equivalents of approximately $
Note 5. Inventories
Inventories consisted of the following (in thousands):
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June 30, 2022 |
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December 31, 2021 |
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Raw materials |
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$ |
— |
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$ |
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Work in process |
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— |
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Finished goods |
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Total inventories |
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$ |
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$ |
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Due to the RIF and the Company’s decision to discontinue enrollment of patients in its clinical trial, the Company ceased manufacturing activities and disposed of substantially all inventories in July 2022, resulting in a write-down of $
10
Note 6. Property and Equipment
Property and equipment consisted of the following (in thousands):
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June 30, 2022 |
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December 31, 2021 |
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Furniture and fixtures |
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$ |
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$ |
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Machinery and equipment |
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Lasers |
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— |
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Computer hardware and software |
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— |
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Construction in progress |
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— |
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Leasehold improvements |
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— |
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Property and equipment, gross |
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Accumulated depreciation |
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— |
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( |
) |
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Total property and equipment, net |
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$ |
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$ |
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Depreciation expense was $
Due to the Company’s decision to discontinue enrollment of patients in its clinical trial and the RIF, the Company has ceased manufacturing activities. The Company’s property and equipment was determined to be impaired as of June 30, 2022, resulting in an impairment charge of $
Note 7. Accrued Expenses
Accrued expenses consisted of the following (in thousands):
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June 30, 2022 |
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December 31, 2021 |
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Offering costs |
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$ |
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$ |
— |
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Compensation and related benefits |
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Warranty expenses |
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Restructuring charges |
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— |
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