Catheter Precision(VTAK) - 2020 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements Ra Medical Systems reported a reduced net loss of $7.7 million in Q1 2020, but faces going concern doubts and legal challenges Condensed Balance Sheets Condensed Balance Sheet Highlights (in thousands) | Account | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $18,437 | $14,584 | | Short-term investments | $5,003 | $15,993 | | Total current assets | $28,689 | $36,000 | | Total Assets | $36,300 | $44,081 | | Liabilities & Equity | | | | Total current liabilities | $6,022 | $6,814 | | Total Liabilities | $9,826 | $10,931 | | Accumulated deficit | $(124,858) | $(117,157) | | Total Stockholders' Equity | $26,474 | $33,150 | Condensed Statements of Operations Condensed Statement of Operations (in thousands, except per share data) | Account | Three Months Ended Mar 31, 2020 | Three Months Ended Mar 31, 2019 | | :--- | :--- | :--- | | Total net revenue | $1,374 | $1,748 | | Gross loss | $(210) | $(194) | | Selling, general and administrative | $6,285 | $13,229 | | Research and development | $1,295 | $1,531 | | Operating loss | $(7,790) | $(14,954) | | Net loss | $(7,701) | $(14,674) | | Basic and diluted net loss per share | $(0.56) | $(1.16) | Condensed Statements of Cash Flows Condensed Statement of Cash Flows (in thousands) | Activity | Three Months Ended Mar 31, 2020 | Three Months Ended Mar 31, 2019 | | :--- | :--- | :--- | | Net cash used in operating activities | $(7,043) | $(8,944) | | Net cash provided by (used in) investing activities | $10,972 | $(165) | | Net cash used in financing activities | $(76) | $(77) | | Net change in cash and cash equivalents | $3,853 | $(9,186) | | Cash and cash equivalents, end of period | $18,437 | $55,129 | Notes to Condensed Financial Statements - The company expects COVID-19 to adversely impact revenue and delay its atherectomy clinical trial enrollment as patients postpone voluntary treatments[27] - Management has substantial doubt about the company's ability to continue as a going concern for the next 12 months due to recurring net losses, negative cash flows, and a significant accumulated deficit of $124.9 million as of March 31, 2020 The company's continuation is dependent on raising additional funding[29][30][31] - The company is subject to a securities class action lawsuit, a shareholder derivative complaint, and investigations by the SEC and the Department of Justice (DOJ) The DOJ investigation includes a Civil Investigative Demand related to the False Claims Act and a separate criminal investigation[71][75][76] Segment Performance (in thousands) | Segment | Net Revenue Q1 2020 | Net Revenue Q1 2019 | Gross (Loss)/Profit Q1 2020 | Gross (Loss)/Profit Q1 2019 | | :--- | :--- | :--- | :--- | :--- | | Vascular | $113 | $461 | $(548) | $(706) | | Dermatology | $1,261 | $1,287 | $338 | $512 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 21% revenue decrease to vascular product issues and reduced operating expenses, while addressing going concern doubts and COVID-19 impacts Overview and Recent Developments - The company's vascular business strategy is focused on servicing core U.S. accounts while working on key initiatives to relaunch its DABRA product These initiatives include achieving a longer shelf life, developing a braided overjacket to reduce kinking, creating a rapid exchange version, and obtaining an atherectomy indication[91][99] - The COVID-19 pandemic is expected to adversely impact revenue and slow enrollment in the atherectomy clinical trial To mitigate financial pressures, the company entered into a $2.0 million Paycheck Protection Program (PPP) loan in May 2020[96][97] Results of Operations Results of Operations Comparison (in thousands) | Account | Q1 2020 | Q1 2019 | Change $ | | :--- | :--- | :--- | :--- | | Total net revenue | $1,374 | $1,748 | $(374) | | Gross loss | $(210) | $(194) | $(16) | | Selling, general and administrative | $6,285 | $13,229 | $(6,944) | | Research and development | $1,295 | $1,531 | $(236) | | Operating loss | $(7,790) | $(14,954) | $7,164 | - Vascular net revenue decreased by $0.4 million year-over-year due to lower catheter unit sales, a result of the company's reduced sales force and focus on fixing catheter performance issues[109] - Selling, general and administrative (SG&A) expenses decreased by $6.9 million, primarily due to a $5.5 million reduction in stock-based compensation and a $1.8 million decrease in personnel-related costs from sales force reductions This was partially offset by a $1.4 million increase in legal expenses[119] Liquidity and Capital Resources - As of March 31, 2020, the company had $23.4 million in cash, cash equivalents, and short-term investments, with an accumulated deficit of $124.9 million[127] - Management expects operating losses and negative cash flows to continue due to its reduced commercial footprint, costs for its atherectomy clinical trial, product development efforts, and ongoing litigation[129] - Management has concluded there is substantial doubt about the company's ability to continue as a going concern and plans to raise additional capital through equity or debt financings to fund operations for at least the next 12 months[132][133] Quantitative and Qualitative Disclosures about Market Risk The company reports no material exposure to market risks from interest rate changes, foreign currency fluctuations, or inflation due to its short-term investments - The company believes it does not have material exposure to changes in fair value from interest rate fluctuations due to the short-term nature of its cash and cash equivalents[146] - As revenue is denominated in U.S. dollars and expenses are primarily in the U.S., the effect of a 10% adverse change in foreign currency exchange rates would not have been material for the periods presented[147] Controls and Procedures Management concluded disclosure controls were effective as of March 31, 2020, with no material changes to internal control over financial reporting - Management, including the CEO and CFO, concluded that as of March 31, 2020, the company's disclosure controls and procedures were effective at the reasonable assurance level[150] - There were no changes in internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[151] PART II. OTHER INFORMATION Legal Proceedings The company faces significant legal challenges, including a securities class action and ongoing SEC and DOJ investigations into marketing practices and 510(k) clearance - A putative securities class action lawsuit alleges material misstatements in the company's IPO registration statement and subsequent public statements A motion to dismiss was filed by the defendants in March 2020[153] - The company is cooperating with an active SEC investigation that began in November 2019 following the company's voluntary disclosure of an internal Audit Committee investigation[156] - The Department of Justice (DOJ) is conducting a False Claims Act investigation and a separate criminal investigation The civil probe concerns whether the company fraudulently obtained 510(k) clearance, promoted its DABRA device for unapproved uses, and made improper payments to physicians[158][159] Risk Factors The company faces critical risks including going concern doubts, DABRA product performance issues, significant legal and regulatory investigations, and potential NYSE delisting Financial and Operational Risks - The company has determined there is substantial doubt about its ability to continue as a going concern and is dependent on raising additional external financing to fund operations[166][167] - The company's future success depends substantially on its DABRA product It may be unable to successfully remedy performance, shelf life, and calibration issues, which have previously led to customer dissatisfaction and a voluntary recall[169][170] - The company has a history of significant net losses, with an accumulated deficit of $124.9 million as of March 31, 2020, and may be unable to achieve profitability in the future[188] Legal and Regulatory Risks - The company faces significant risk from active and ongoing government investigations (SEC, DOJ) and litigation related to findings from its Audit Committee investigation, which could result in civil or criminal penalties, fines, and exclusion from governmental healthcare programs[189][190] - The company is subject to enforcement actions if it is found to have engaged in off-label promotion of its products The DOJ is investigating whether the company marketed its DABRA device for unapproved uses[216][218] - The company is subject to numerous healthcare fraud and abuse laws, such as the Anti-Kickback Statute The DOJ is investigating whether the company paid improper remuneration to physicians[225][226][227] Stock and Corporate Risks - The company is not in compliance with NYSE continued listing requirements for minimum market capitalization and faces the risk of delisting, which could negatively impact stock liquidity and price[375][376] - The company's stock price may be highly volatile due to factors such as operating results, regulatory developments, and limited trading volume[378] - As of March 31, 2020, executive officers, directors, and 10% stockholders owned approximately 38% of the company's common stock, allowing them to exert significant control over matters subject to stockholder approval[389] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales and shifted IPO proceeds from sales force expansion to remedying DABRA issues and general corporate purposes - The company received net proceeds of approximately $67.3 million from its IPO in October 2018[411] - The intended use of IPO proceeds has shifted from sales force expansion to focusing on remedying DABRA catheter performance issues and other general corporate purposes, including clinical studies[413] Other Items (Defaults, Mine Safety, Other Info, Exhibits) The company reports no defaults on senior securities, no mine safety disclosures, and no other material information for the period - The company reports no defaults on senior securities, no mine safety disclosures, and no other material information for the period[414][415][416]