Catheter Precision(VTAK) - 2020 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements The company's Q3 2020 financial statements reflect significant revenue decline, continued net losses, and increased cash from financing, with substantial doubt about its going concern status Condensed Balance Sheets As of September 30, 2020, cash significantly increased to $33.6 million due to financing, while total assets slightly decreased and accumulated deficit grew to $142.8 million Condensed Balance Sheet Highlights (in thousands) | Balance Sheet Item | Sep 30, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $33,646 | $14,584 | | Total current assets | $37,179 | $36,000 | | TOTAL ASSETS | $43,454 | $44,081 | | Liabilities & Equity | | | | Total current liabilities | $8,039 | $6,814 | | Total liabilities | $12,916 | $10,931 | | Accumulated deficit | ($142,758) | ($117,157) | | Total stockholders' equity | $30,538 | $33,150 | | TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $43,454 | $44,081 | Condensed Statements of Operations Q3 2020 net revenue decreased 52% to $0.9 million due to lower product sales, resulting in a $7.8 million net loss despite reduced operating expenses Statement of Operations Summary (in thousands, except per share data) | Metric | Q3 2020 | Q3 2019 | Nine Months 2020 | Nine Months 2019 | | :--- | :--- | :--- | :--- | :--- | | Total net revenue | $914 | $1,908 | $3,188 | $5,809 | | Gross loss | ($504) | ($517) | ($981) | ($1,291) | | Selling, general and administrative | $4,933 | $15,889 | $19,114 | $42,907 | | Research and development | $2,332 | $1,182 | $5,580 | $3,692 | | Operating loss | ($7,769) | ($17,588) | ($25,675) | ($47,890) | | Net loss | ($7,779) | ($17,418) | ($25,601) | ($47,214) | | Basic and diluted net loss per share | ($0.13) | ($1.30) | ($0.79) | ($3.63) | Condensed Statements of Cash Flows For the nine months ended September 30, 2020, net cash used in operations improved, while $22.0 million from financing activities led to a $19.1 million net increase in cash Cash Flow Summary for Nine Months Ended Sep 30 (in thousands) | Cash Flow Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net cash used in operating activities | ($18,890) | ($23,601) | | Net cash provided by (used in) investing activities | $15,928 | ($25,984) | | Net cash provided by (used in) financing activities | $22,024 | ($218) | | Net change in cash and cash equivalents | $19,062 | ($49,803) | Notes to Condensed Financial Statements Notes highlight substantial doubt about going concern, COVID-19 impact, $19.1 million raised from public offerings, and ongoing SEC/DOJ investigations with a $2.7 million accrual - The company's ability to continue as a going concern is in substantial doubt due to recurring net losses, negative cash flows, and ongoing COVID-19 uncertainty[25][29] - The COVID-19 pandemic is expected to continue adversely impacting revenue and delaying enrollment in the company's atherectomy clinical trial[23][27] - The company is subject to active investigations by the SEC and DOJ regarding potential violations, with a $2.7 million accrual for the DOJ False Claims Act investigation[84][85] - In May and August 2020, the company completed public offerings, raising aggregate net proceeds of approximately $19.1 million[69][72] - In May 2020, the company received a $2.0 million loan under the Paycheck Protection Program (PPP), potentially forgivable if used for eligible purposes[59] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses DABRA catheter improvements, COVID-19 clinical trial delays, Q3 2020 revenue decline, reduced operating expenses, bolstered liquidity, and ongoing going concern doubts Overview and Recent Developments Ra Medical focuses on improving DABRA catheter and advancing its atherectomy clinical trial, which faces COVID-19 delays, while commercial shipments are paused until Q1 2021 - The company's vascular strategy focuses on engineering efforts to improve the DABRA catheter's shelf life, robustness, and guidewire compatibility[106][112] - The company is conducting a pivotal IDE clinical study for an atherectomy indication, but enrollment is substantially delayed by the COVID-19 pandemic[107][108] - Commercial shipments of DABRA catheters are paused due to shelf-life stability issues, with resolution and FDA approval expected in Q1 2021[109] Results of Operations Q3 2020 net revenue decreased 52% to $0.9 million across both segments, while SG&A expenses significantly declined, and R&D expenses increased, leading to improved Adjusted EBITDA Net Revenue by Segment (in thousands) | Segment | Q3 2020 | Q3 2019 | Change $ | | :--- | :--- | :--- | :--- | | Vascular | $68 | $226 | ($158) | | Dermatology | $846 | $1,682 | ($836) | | Total net revenue | $914 | $1,908 | ($994) | - SG&A expenses for Q3 2020 decreased by $11.0 million year-over-year, primarily due to lower stock-based compensation, legal expenses, and personnel costs[139] - R&D expenses for Q3 2020 increased by $1.1 million year-over-year, driven by higher personnel, consulting, and supply costs for catheter improvement initiatives[141] Reconciliation of Net Loss to Adjusted EBITDA (in thousands) | Metric | Q3 2020 | Q3 2019 | | :--- | :--- | :--- | | Net loss | ($7,779) | ($17,418) | | Depreciation and amortization | 631 | 460 | | Interest income | (4) | (245) | | Interest expense | 14 | 72 | | Income tax expense | — | 3 | | Stock-based compensation | 964 | 7,277 | | Adjusted EBITDA | ($6,174) | ($9,851) | Liquidity and Capital Resources As of September 30, 2020, the company had $33.6 million in cash, bolstered by $19.1 million from offerings and a $2.0 million PPP loan, but substantial doubt about going concern persists - As of September 30, 2020, the company had cash and cash equivalents of $33.6 million and an accumulated deficit of $142.8 million[150] - The company raised net proceeds of $19.1 million from public offerings in 2020 and received a $2.0 million PPP loan[150][151] - Cost-saving initiatives included reducing the DABRA sales force from 34 employees to five clinical specialists[152] - Management concluded that substantial doubt exists about the company's ability to continue as a going concern within 12 months from the financial statements' issuance[155] Item 3. Quantitative and Qualitative Disclosures about Market Risk The company reports minimal material exposure to market risks, including interest rate and foreign currency exchange risks, due to its short-term cash and U.S. dollar denominated revenues - The company believes it has no material exposure to changes in fair value from interest rate changes due to the short-term nature of its cash and cash equivalents[170] - Foreign currency exchange risk is not considered material as revenues are denominated in U.S. dollars and international operations are limited[171] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2020, with no material changes in internal control over financial reporting - Management concluded that as of September 30, 2020, the company's disclosure controls and procedures were effective at the reasonable assurance level[175] - No material changes in internal control over financial reporting occurred during the three months ended September 30, 2020[176] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company faces significant legal challenges, including a securities class action lawsuit and multiple ongoing government investigations by the SEC and DOJ, with a $2.7 million accrual - The company is defending against a securities class action lawsuit alleging material misstatements in its IPO registration statement and disclosures[179] - The company is subject to an SEC investigation and separate civil and criminal investigations by the DOJ[182][184][185] - The DOJ's civil investigation concerns potential False Claims Act violations, with a $2.7 million accrual for this matter[184] Item 1A. Risk Factors The company faces high risks including substantial doubt about going concern, DABRA product issues, intense competition, regulatory compliance, ongoing government investigations, and potential NYSE delisting - There is substantial doubt about the company's ability to continue as a going concern, requiring additional financing[196] - The company's success is highly dependent on the DABRA catheter, which faces unresolved performance, shelf life, and calibration issues leading to paused commercial sales[198][199] - The company is subject to active and ongoing government investigations (DOJ, SEC) and litigation that may adversely affect its business[219][220] - The company must comply with NYSE's continued listing requirements, including minimum share price and market capitalization, to avoid delisting[407] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered equity sales occurred; remaining IPO proceeds will fund the atherectomy clinical trial, DABRA catheter improvements, and general corporate purposes - There were no unregistered sales of equity securities in the reported period[440] - The company intends to use remaining IPO proceeds for its atherectomy clinical trial, DABRA catheter improvements, and general corporate purposes[443] Item 5. Other Information Jeffrey Kraws, the company's President, provided notice of his resignation effective January 15, 2021 - Jeffrey Kraws, the Company's President, announced his resignation effective January 15, 2021[447]