Catheter Precision, Inc. 10-Q

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 Item 1A. Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2022. 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. Given these risks and 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., or Ra Medical, was reincorporated in Delaware in July 2018. Ra Medical was initially formed to develop, commercialize and market its advanced excimer laser-based platform for use in the treatment of vascular and dermatological immune-mediated inflammatory diseases. On January 9, 2023, Ra Medical completed its acquisition of Catheter Precision, Inc., (“Catheter”), a privately held Delaware corporation pursuant to an Amended and Restated Agreement and Plan of Merger, or the Merger Agreement. Under the terms of the Merger Agreement, Catheter merged into a wholly owned subsidiary of Ra Medical, in a stock-for-stock and notes payable merger transaction, or the Merger (we refer to the post-merger combined company as the “Company”). The total estimated purchase consideration for the Merger was $82.9 million which represents the sum of the (i) estimated fair value of the 14,649.591 Series X Convertible Preferred Stock issued and (ii) portion of the estimated fair value of the $3.1 million representing the Company stock options issued as replacement of Cather share-based payment awards. The Company’s primary business focus now relates to Catheter’s historical business and products. Catheter’s primary product is the View into Ventricular Onset or VIVO TM , (“VIVO” or “VIVO System”). VIVO is a non-invasive imaging system that offers 3D cardiac mapping to help with localizing the sites of origin of idiopathic ventricular arrhythmias in patients with structurally normal hearts prior to electrophysiology studies. The VIVO system has achieved a CE Mark allowing it to be commercialized in the European Union and has been placed at several hospitals in Europe. FDA 510(K) clearance in the United States was received, and the Company began a limited commercial release of VIVO in 2021. 36 Table of Contents Pre-Merger Operations Ra Medical owns intellectual property related to an advanced excimer laser-based platform for use in the treatment of vascular immune-mediated inflammatory diseases. The Destruction of Arteriosclerotic Blockages by laser Radiation Ablation, or DABRA, laser and single-use catheter, together referred to as the DABRA Excimer Laser System or DABRA, was developed as a tool in the treatment of Peripheral Artery Disease which commonly occurs in the legs. Ra Medical also previously marketed the Pharos laser which was used to treat proliferative skin conditions. Ra Medical completed the sale of its Pharos laser business, or Dermatology Business, to STRATA Skin Sciences, Inc. on August 16, 2021. As previously reported, the board of directors approved a reduction in force, or RIF, effective June 6, 2022, under which approximately 65% of Ra Medical’s full-time employees were immediately terminated and provided one-time severance payments totaling approximately $0.6 million. In August and September 2022, an additional 20% of Ra Medical’s employees were terminated and provided one-time severance payments totaling approximately $0.3 million. The purpose of the RIF was to preserve capital with the goal of maximizing the opportunities available to Ra Medical during the board of directors’ review of strategic alternatives. As a result of the RIF and the board of directors’ review of strategic alternatives, Ra Medical paused all engineering activities in June 2022. On July 5, 2022, Ra Medical announced the receipt of FDA 510(k) clearance for the DABRA 2.0 catheter as part of the DABRA Excimer Laser System. This catheter includes a braided over jacket to make the catheter more robust and more kink-resistant when navigating tortuous anatomy. This catheter also has a six-month shelf life as a result of multiple design and manufacturing remediations implemented to address prior limitations. Ra Medical has ceased marketing the DABRA Excimer Laser System and does not currently intend to commercialize the DABRA 2.0 catheter. As previously reported, Ra Medical’s strategy was to pursue an atherectomy indication for use, which the FDA defines to include a prespecified improvement in luminal patency. Ra Medical received an Investigational Device Exemption, or IDE, approval in January 2020, and the study was approved for up to 10 clinical sites and 100 subjects. In February 2022, the FDA approved a protocol amendment, raising the enrollment limit from a maximum of 100 subjects to 125 subjects. On June 6, 2022, Ra Medical ceased enrollment in the atherectomy clinical study at 108 subjects, with the intent to satisfy the FDA’s data requirements to support an atherectomy indication by completing the six-month follow-up by the end of 2022 or early 2023. However, due to the Merger, Ra Medical closed all clinical sites subsequent to the Merger in January 2023, and it has no plans to pursue the atherectomy indication with the FDA. Post-Merger Operations Looking forward, we do not expect to use our legacy DABRA-related assets or continue Ra Medical’s legacy lines of business, but instead expect to shift the focus of our operations to Catheter’s product lines. Accordingly, our current activities primarily relate to Catheter’s historical business, which comprises the design, manufacture and sale of new and innovative medical technologies focused in the field of cardiac electrophysiology, or EP. Our primary product is the VIVO™ System. We are focused on the design, market development and usage adoption of our VIVO System by cardiac electrophysiologists to enhance their ability to diagnose and treat cardiac arrhythmias. We have completed development, received regulatory clearance, and initiated sales of the VIVO System in the U.S. and Europe. 37 Table of Contents Our business strategy is to become the leading medical imaging company in the field of cardiac electrophysiology, and we are dedicated to developing and delivering electrophysiology products to provide patients, hospitals, and physicians with novel technologies and solutions to improve the lives of patients with cardiac arrhythmias. We aim to establish VIVO as an integral tool used by cardiac electrophysiologists during ablation treatment of ventricular arrhythmias by reducing procedure time and patient complications and increasing procedural success. We have received United States Food and Drug Administration, or FDA, clearance to market and promote the VIVO System in the United States as a pre-procedure planning tool for patients with structurally normal hearts undergoing ablation treatment for idiopathic ventricular arrhythmias. VIVO allows for the acquisition, analysis, display and storage of cardiac electrophysiological data and maps for analysis by a physician. We began a limited commercial launch of VIVO in 2021 and to date, VIVO has been utilized in more than 850 procedures in the U.S. and EU by over 30 physicians, with no reported device-related complications. We have been cleared to label the VIVO System with the CE Mark in the EU and certain other countries. The CE Mark designation, which affirms the product’s conformity with European health, safety, and environmental protection standards, allows us to market that product in countries that are members of the EU and the European Free Trade Association. Catheter has commenced limited sales of the VIVO System in Europe and the UK through independent distributors. Catheter’s international distributors are supported by two EU based full time and one part time employee. In addition, our LockeT, a suture retention device, is a sterile, Class I product that was registered with the FDA in February 2023, at which time we began initial shipments to distributors. LockeT is indicated for wound healing by distributing suture tension over a larger area in the patient in conjunction with a figure of eight suture closure, and it is intended to temporarily secure sutures and aid clinicians in locating and removing sutures efficiently. Clinical studies for LockeT are planned to begin during 2023. These studies are planned to show the product’s effectiveness and benefits, including faster wound closure, earlier ambulation, potentially leading to early hospital discharge, and cost analysis. This data is intended to provide crucial data for marketing and to expand our indications for use with the FDA. Prior to 2018, Catheter marketed the AMIGO® Remote Catheter System, or the AMIGO or AMIGO System, which provides for accurate positioning, manipulation, and stable control of catheters for use by electrophysiologists in the diagnosis and treatment of abnormal heart rhythms known as cardiac arrhythmias. Amigo was designed for use during the ablation procedure, to allow the physician to remotely navigate standard commercially available catheters, with stability and precision, and maintains catheter locations within the heart while decreasing radiation exposure and avoiding long periods standing bedside in heavy protective lead aprons. AMIGO has been used in over 2,000 procedures in the U.S. and Europe and has been well received by leading experts in the field of EP. We own the intellectual property related to AMIGO, and this product is under consideration for future research and development of a generation 2 product. Recent Developments Settlement Agreements with the Department of Justice and Participating States On December 28, 2020, Ra Medical entered into a settlement agreement with the U.S., acting through the DOJ and on behalf of the OIG, and other settlement agreements with certain state attorneys general, collectively the Settlement Agreements, 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 Agreements, if Ra Medical was acquired or was otherwise involved in a change in control transaction (as defined in the Settlement Agreements) before the end of 2024, Ra Medical was required to pay a settlement amount of $5.0 million. As a result of the Merger, Ra Medical made payments of $4.7 million and $0.3 million to the DOJ and participating states, respectively, in February 2023. Such amounts were included in accrued expenses in the balance sheet at December 31, 2022. 38 Table of Contents Warrant Inducement Offer On January 9, 2023, we reduced the exercise price of certain existing warrants, or the Existing Warrants, exercisable for 331,608 shares of Ra Medical common stock held by a certain investor (the “Investor”), with exercise prices ranging from $14.00 to $526.50 per share to $4.00 per share, or the Warrant Repricing. In connection with the Warrant Repricing, we entered into a warrant inducement offer letter, or the Inducement Letter, with the Investor pursuant to which it would exercise up to all of the 331,608 Existing Warrants, or the Inducement Offer. In consideration for exercising the Existing Warrants pursuant to the terms of the Inducement Letter, we received approximately $1.3 million in gross proceeds. We paid the placement agent aggregate cash fees of approximately $0.2 million related to the Inducement Offer which represented 8.0% of the gross proceeds received from the Inducement Offer plus other offering costs. In consideration for exercising the Existing Warrants pursuant to the terms of the Inducement Letter, we issued the Investor a new Series E common stock purchase warrant, or Series E Warrant, to purchase 331,608 shares of common stock at an exercise price of $4.00 per share. The Series E Warrant is exercisable for five years from the date of stockholder approval. Exercise of the Series E Warrant in full was approved by Ra Medical’s stockholders at the special Stockholders’ Meeting held on March 21, 2023. The incremental fair value of the repriced warrants amounted to $0.3 million and the fair value of Series E warrant totaled $1.9 million. The relative fair values of such amounts were recorded to additional paid-in capital concurrent with the exercise of the Existing Warrants. Securities Purchase Agreement On January 9, 2023, we entered into a Securities Purchase Agreement, or the Securities Purchase Agreement, for a private placement, or the Private Placement, with the Investor. Pursuant to the Securities Purchase Agreement, the Investor agreed to purchase, for an aggregate purchase price of approximately $8.0 million, (a) Class A Units at a price that was the lower of $3.00 per unit and 90% of the 5 day volume weighted average price of our common stock immediately prior to obtainment of the approval of the Company’s stockholders of conversion of the PIPE Preferred Stock and PIPE Warrants (as each are defined below), each consisting of one share of common stock, one Series F Common Stock Purchase Warrant, or Series F Warrant, and one Series G Common Stock Purchase Warrant, or Series G Warrant, and together with the Series F Warrant the PIPE Warrants, and (b) Class B Units at a price of $1,000 per unit, each consisting of one share of a new series of the Company’s preferred stock, designated as Series A Convertible Preferred Stock, par value $0.0001, or the PIPE Preferred Stock, and one Series F Warrant and one Series G Warrant for each share of the Company’s common stock underlying the PIPE Preferred Stock, each share of which is convertible into a number of shares of the Company’s common stock equal to $1,000 divided by the lower of $3.00 and 90% of the 5 day volume weighted average closing price of the Company’s common stock immediately prior to the obtainment of the approval of the Company’s stockholders of conversion of the PIPE Preferred Stock and PIPE Warrants, or the Preferred Conversion Rate. The closing under the Securities Purchase Agreement and the sale and issuance of the Class A Units and Class B Units (and the issuance of any underlying common stock) was approved at the special Stockholders’ Meeting held March 21, 2023. At the closing of the Private Placement, we issued 497,908 Class A Units for proceeds of approximately $0.9 million and 4,501,060 Class B Units for proceeds of approximately $7.1 million. 39 Table of Contents The PIPE Warrants are exercisable at an exercise price of $3.00 per share, subject to adjustments as provided under the terms of the PIPE Warrants. The PIPE Warrants are exercisable at any time on or after the closing date of the Private Placement until the expiration thereof, except that the PIPE Warrants cannot be exercised if, after giving effect thereto, the purchaser would beneficially own more than 4.99%, or the Maximum Percentage, of the outstanding shares of common stock of the Company, which Maximum Percentage may be increased or decreased by the purchaser with written notice to the Company to any other percentage specified not in excess of 9.99%. The Series F Warrants have a term of two years from the date of stockholder approval, and the Series G Warrants have a term of six years from the date of stockholder approval. Stockholder approval of the Series F Warrants and Series G Warrants was obtained at the special Stockholders’ Meeting held on March 21, 2023. Shares of PIPE Preferred Stock, the conversion of which was approved at the special Stockholders’ Meeting held on March 21, 2023, convert into common stock at the option of the holder at the Preferred Conversion Rate, subject to certain ownership limitations as described below. The conversion price is subject to adjustment in the case of stock splits, stock dividends, combinations of shares and similar recapitalization transactions. Subject to limited exceptions, holders of shares of PIPE Preferred Stock will not have the right to convert any portion of their Preferred Stock if the holder, together with its affiliates, would beneficially own in excess of 9.99% of the number of shares of the Company’s common stock outstanding immediately after giving effect to its conversion. Holders of PIPE Preferred Stock will be entitled to receive dividends on shares of PIPE Preferred Stock equal, on an as-if-converted-to-common stock basis, and in the same form as dividends actually paid on shares of the common stock. Except as otherwise required by law, the PIPE Preferred Stock does not have voting rights. However, as long as any shares of PIPE Preferred Stock are outstanding, the Company will not, without the affirmative vote of the holders of a majority of the then outstanding shares of the PIPE Preferred Stock, (a) alter or change adversely the powers, preferences or rights given to the PIPE Preferred Stock, (b) alter or amend the Certificate of Designation for the PIPE Preferred Stock, (c) amend its certificate of incorporation or other charter documents in any manner that adversely affects any rights of the holders of PIPE Preferred Stock, (d) increase the number of authorized shares of PIPE Preferred Stock, or (e) enter into any agreement with respect to any of the foregoing. The PIPE Preferred Stock does not have a preference upon any liquidation, dissolution or winding-up of the Company. The holders of PIPE Preferred Stock shall be entitled to receive out of the assets, whether capital or surplus, of the Company the same amount that a holder of the Company’s common stock would receive if the PIPE Preferred Stock were fully converted (disregarding for such purposes any conversion limitations) to the Company’s common stock, which amounts will be paid pari passu with all holders of the Company’s common stock. The Company also entered into a registration rights agreement with the purchasers requiring the Company to register the resale of the shares of its common stock, the shares issuable upon exercise of the PIPE Warrants and the shares issuable upon the conversion of the PIPE Preferred Stock. This registration statement was declared effective in April 2023. We intend to use the net proceeds from the Private Placement to advance the development and commercialization of our novel electrophysiology technologies and solutions and to support general corporate purposes. 40 Table of Contents Conversion of Series X Preferred Stock On March 21, 2023, we held a special meeting of stockholders, or Stockholders’ Meeting, at which the stockholders approved, among other things, the issuance of 1,974,905 shares of our common stock upon the conversion of 1,974.905 of our Series X Preferred Stock which were issued upon the closing of the Merger. The remaining 12,674.687 shares of Series X Preferred Stock are expected to remain outstanding until at least July 9, 2024 and will convert thereafter into up to 12,674,687 shares of common stock, only if we meet the initial listing standards of the NYSE American or another national securities exchange or are delisted from the NYSE American. Components of our Results of Operations for the Three Months Ended March 31, 2023 and 2022 Net Revenues Product sales revenues prior to the Merger consisted of sales of catheters for use with the DABRA laser in our atherectomy clinical trials. After the Merger, our legacy DABRA laser is no longer in use and we have shifted the focus of our operations to Catheter’s product lines. Accordingly, our current activities primarily relate to Catheter’s historical business which comprises the design, manufacture and sale of new and innovative medical technologies focused in the field of cardiac electrophysiology, or EP. Our revenues post-Merger primarily consist of the VIVO which is a non-invasive imaging system that offers 3D cardiac mapping to help with localizing the sites of origin of idiopathic ventricular arrhythmias in patients with structurally normal hearts prior to EP procedures. In addition to the VIVO System, customers are provided with VIVO Positioning Patch Sets, which are custom patches, that are used in conjunction with the VIVO System to complete the intended output of the VIVO System. The delivery of the VIVO System, including the VIVO Positioning Patch Sets represents the Company’s primary performance obligation. The Company recognizes revenue upon the delivery of the VIVO system. The Company also provides customers with the option to pay for software upgrades in advance at the time of the contract's inception. Software upgrades are stand-ready services, whereby the Company will provide software upgrade services to the customer when and as upgrades are available. Terms of the period covered by the payment of software upgrades in advance can range from one year to multiple years. Customers have the option to renew terms covered by software upgrades at the end of each term. The stand-ready software upgrades represent the Company's second separate performance obligation and revenue is recognized over the term of the period. Cost of Revenues Cost of revenues for product sales consisted primarily of costs of components for use in our products, the labor used to produce our products, and the manufacturing overhead that supports production. Selling, General and Administrative Expenses Selling, general and administrative, or SG&A, expenses consist of employee-related costs, including salaries, benefits and stock-based compensation expenses. Other SG&A expenses include amortization of intangible assets and accretion of royalties payable acquired in the Merger, professional services fees, including legal, audit and tax fees, insurance costs, general corporate expenses and facility-related expenses. Research and Development Expenses Research and development, or R&D, expenses are expensed as incurred and include the following: product development, certain employee-related expenses, including salaries, benefits and an allocated portion of 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. 41 Table of Contents Results of Operations for the Three Months Ended March 31, 2023 and 2022 The following table sets forth the results of Ra Medical’s operations for the periods presented (in thousands): Three Months Ended March 31, 2023 2022 Change Net revenues $ 85 $ 9 $ 76 Cost of revenues 10 95 (85 ) Selling, general and administrative expenses 10,233 2,302 7,931 Research and development expenses 240 3,115 (2,874 ) Loss on impairment of goodwill 56,086 - 56,086 Other income (expense), net 84 8 76 Net Revenues The increase in net revenues of approximately $76 thousand for the three months ended March 31, 2023 as compared to the corresponding period in the prior year was due to product sales of the VIVO System, as a result of the Merger that took place in January 2023. Cost of Revenues The decrease in cost of revenues of approximately $85 thousand for the three months ended March 31, 2023 as compared to the corresponding period in the prior year was due to the cost of sales of the VIVO System, as a result of the Business Combination that took place in January 2023. Selling, General and Administrative Expenses The increase in SG&A expenses of approximately $7.9 million for the three months ended March 31, 2023 as compared to the corresponding period in the prior year was due primarily to the increase in professional fees of approximately $2.5 million, of which, $1.7 million was incurred in connection with the Merger, an increase in severance related charges of $2.1 million, of which $1.75 million related to Ra Medical’s former Chief Executive Officer, an increase in stock compensation of approximately $1.3 million, of which $1.4 million was related to the one time stock compensation for Catheter stock options assumed in the Merger offset by a partial decrease in stock compensation expenses due to the reduction in force in fiscal year 2022. Additionally, SG&A increased as a result of an increase in depreciation and amortization of approximately $1.9 million that resulted from intangible assets acquired in the Merger, and increase in other selling, general, and administrative expenses of $0.6 million, and was partially offset by a decrease in salaries and benefits of approximately $0.5 million. Research and Development Expenses The decrease in R&D expenses of approximately $2.9 million for the three months ended March 31, 2023 as compared to the corresponding period in the prior year was primarily due to a decrease in R&D salaries and benefits expenses of approximately $0.9 million, a decrease in R&D facilities allocation expenses of $0.9 million, a decrease in R&D professional fees of $0.3 million, a decrease in R&D supplies and materials of $0.4 million and a decrease in clinical study costs of $0.2 million. 42 Table of Contents Loss on Impairment of Goodwill Due to a sustained decrease in our share price during the three months ended March 31, 2023, we concluded that in accordance with ASC 350 a triggering event occurred indicating that potential impairment exists that required us to assess if impairment existed as of March 31, 2023. In accordance with ASC 350, we performed a quantitative goodwill impairment test, which resulted in the carrying amount of the reporting unit exceeding the fair value of the reporting unit, indicating that the goodwill of the reporting unit was impaired. We recorded an impairment charge of $56.1 million related to goodwill for the three months ended March 31, 2023. We utilized a combination of an income and market approach to assess the fair value of the reporting unit as of March 31, 2023. The income approach considered the discounted cash flow model, considering projected future cash flows (including timing and profitability), discount rate reflecting the risk inherent in future cash flows, perpetual growth rate, and projected future economic and market conditions while the guideline public company market approach considered marketplace earnings multiples from within a peer public company group. We recorded the impairment charge of $56.1 million within Loss on impairment of goodwill in the condensed consolidated statement of operations. As of March 31, 2023, cumulative goodwill impairment charges of $56.1 million were incurred related to our single reporting unit. In accordance with ASC Topic 805-10-25-15, the acquirer in a business combination has a period of time, referred to as the measurement period, to finalize the accounting for a business combination. The measurement period provides companies with a reasonable period of time to determine the value of identifiable tangible and intangible assets acquired, liabilities assumed, and the consideration transferred for the acquiree. In accordance with ASC Topic 805-10-25-14, the measurement period ends when the acquirer receives all necessary information about the facts and circumstances that existed as of the acquisition date for the provisional amounts (or otherwise learns that more information is not obtainable); however, the measurement period cannot exceed one year from the acquisition date. As of the date of this Quarterly Report, management is still in the process of evaluating the estimated fair value of the consideration transferred in the Merger. In addition, management is still evaluating the allocation of the acquisition purchase price to the tangible and intangible assets acquired, liabilities assumed, and the resulting goodwill. Management’s analysis of these items has not yet been completed because of the inherent complexities of estimating fair values of (1) the Company’s Series X Preferred Stock, for which no readily determinable fair value exists, issued in the Merger, and (2) assets and technologies developed by Catheter, an early-stage company with limited commercial history. Therefore, the business combination amounts presented in Note 3 were determined by management based on its consideration all currently available information; however, management has not fully completed its business combination analysis and such amounts must be considered provisional amounts. Notwithstanding the above, as described more fully in Note 8, management determined that there were indicators of asset impairment during the quarterly period ended March 31, 2023, and assessed the carrying values of the Company’s intangible assets and goodwill. Other Income (Expense), Net The increase in other income (expense), net of approximately $0.1 million for the three months ended March 31, 2023 as compared to the corresponding period in the prior year was primarily due to an increase in interest income of approximately $69 thousand and an increase in dividend income of approximately $15 thousand. Liquidity and Capital Resources As of March 31, 2023, we had cash and cash equivalents of approximately $12.2 million and an accumulated deficit of approximately $271.5 million. For the three months ended March 31, 2023, net cash used from operating activities was approximately $12.1 million. The Company has incurred recurring net losses from operations and negative cash flows from operating activities since inception. We expect operating losses and negative cash flows to continue for the foreseeable future as we invest in our commercial capabilities. Additional costs associated with the Merger paid during the year ended December 31, 2022 and during the three months ended March 31, 2023 have substantially depleted our cash. Following the Merger with Catheter, we further reduced staff and other costs while assuming the operating costs of Catheter. Of the Company’s cash flows used in operating activities of $12.1 million, much of these cash outflows are related to the Merger and are non-recurring in nature. Specifically, we paid approximately $5.0 million in settlement costs that had been accrued as of December 31, 2022. See Note 9, Accrued Expenses. We will continue to monitor our operating costs and seek to reduce our current liabilities. Such actions may impair our ability to proceed with certain strategic activities, and we may be unsuccessful at negotiating existing liabilities to the Company’s benefit. In January 2023, we raised gross proceeds of $1.3 million from a Warrant Repricing and, in March 2023, we completed a Private Placement and raised gross proceeds of $8.0 million. See Note 12, Equity Offerings, of our accompanying condensed consolidated financial statements. If expected revenues are not adequate to fund our planned expenditures, or we are unsuccessful at raising cash through future capital transactions, we may be required to reduce our spending rate to align with expected revenue levels and cash reserves, although there can be no guarantee that we will be successful in doing so. Accordingly, we may be required to raise additional cash through debt or equity transactions. We may not be able to secure financing in a timely manner or on favorable terms, if at all. We believe our current cash reserves will be sufficient to fund our operations for the next twelve months, beginning May 30, 2023. The unaudited condensed consolidated financial statements have been prepared assuming that we will continue as a going concern and do not include any adjustments that might result from the outcome of this uncertainty. Cash Flows for the Three Months Ended March 31, 2023 and 2022 The following information reflects Ra Medical’s cash flows for operations for the periods presented (in thousands): Three Months Ended March 31, 2023 2022 Net cash provided by (used in): Operating activities $ (12,053 ) $ (8,569 ) Investing activities $ (22 ) $ — Financing activities $ 8,434 $ 11,176 Net change in cash and cash equivalents $ (3,641 ) $ 2,607 43 Table of Contents Net Cash Used in Operating Activities During the three months ended March 31, 2023, net cash used in operating activities of $12.1 million consisted of a net loss of $66.4 million, a decrease in operating assets and liabilities of $5.1 million, partially offset by non-cash expenses of $59.4 million, consisting primarily of a loss on impairment of goodwill of $56.1 million, non-cash stock-based compensation of $1.4 million, depreciation and amortization of $1.4 million and accretion of royalties payable of $0.5 million. During the three months ended March 31, 2022, net cash used in operating activities of $8.6 million consisted of a net loss of $5.5 million, a decrease in net operating assets and liabilities of $3.5 million and non-cash adjustments to net loss of $0.4 million, consisting primarily of stock-based compensation and depreciation and amortization of $0.2 million each. Net Cash Used in Investing Activities During the three months ended March 31, 2023, net cash used in investing activities of $22.0 thousand consisted of purchases of property and equipment of approximately $37.0 thousand, offset by proceeds from cash acquired as part of business combination of approximately $15.0 thousand. Net Cash Provided by Financing Activities During the three months ended March 31, 2023, net cash provided by financing activities of $8.4 million, primarily consisted of cash proceeds from the private placement of $8.0 million and proceeds from the exercise of warrants of $1.3 million, offset by the payment of offering costs of $0.6 million. During the three months ended March 31, 2022, net cash provided by financing activities of $11.2 million primarily consisted of net cash proceeds from the February 2022 public offering. Off-Balance Sheet Arrangements We do not engage in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, as a part of our ongoing business. Accordingly, we did not have any off-balance sheet arrangements during any of the periods presented. Ra Medical ’s Critical Accounting Policies and Estimates The information set forth below relates to Ra Medical’s critical accounting policies and estimates. The discussion and analysis of our financial position and results of operations is based on our interim unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report, which have been prepared in accordance with U.S. GAAP. We believe certain of our accounting policies are critical to understanding our financial position and results of operations. Management’s discussion and analysis of Ra Medical’s financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions for the reported amounts of assets, liabilities, revenue, expenses and related disclosures. We regularly evaluate estimates and assumptions related to business combinations, including the determination of the purchase price and related allocations to the fair value of assets acquired and liabilities assumed, provisions for legal contingencies, income taxes, deferred income tax, asset valuation allowances, valuation of warrant liabilities, share based compensation and revenues. Our estimates are based on current facts, historical experience and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions and any such differences may be material. 44 Table of Contents We believe the following discussion addresses our most critical accounting policies, which are those that are most important to our financial condition and results of operations and require our most difficult, subjective and complex judgments. Business Combinations We account for business combinations under the provisions of Accounting Standards Codification (“ASC”) Topic 805-10, Business Combinations (“ASC 805-10”), which requires that the purchase method of accounting be used for all business combinations. Assets acquired and liabilities assumed, including non-controlling interests, are recorded at the date of acquisition at their respective fair values. These values have currently been prepared based on preliminary estimates of the fair value of the consideration paid, assets acquired and liabilities assumed. Differences between these preliminary estimates and the final acquisition accounting may occur and these differences could be material. ASC 805-10 also specifies criteria that intangible assets acquired in a business combination must meet to be recognized and reported apart from goodwill. Goodwill represents the excess purchase price over the fair value of the tangible net assets and intangible assets acquired in a business combination. Acquisition-related expenses are recognized separately from the business combinations and are expensed as incurred. Accounting for Long-Lived Assets-Useful Lives Intangible assets acquired from business combinations are initially measured at their estimated fair values and are then amortized on a straight-line basis over their estimated useful lives. Management evaluates whether events or circumstances have occurred that indicate the remaining useful life or carrying value of the amortizing intangible should be revised and adjusted, if necessary. Should the sum of the undiscounted expected future net cash flows be less than the carrying value, the Company would recognize an impairment loss at that date. Goodwill Goodwill, which represents the excess of purchase price of Catheter over the fair value of net assets acquired, is carried at cost. Goodwill is not amortized; rather, it is subject to a periodic assessment for impairment by applying a fair value-based test. We review goodwill for possible impairment annually during the fourth quarter, or whenever events or circumstances indicate that the carrying amount may not be recoverable. To determine whether goodwill is impaired, annually or more frequently if needed, the Company performs a multi-step impairment test. The Company first has the option to assess qualitative factors to determine if it is more likely than not that the carrying value of a reporting unit exceeds its estimated fair value. The Company may also elect to skip the qualitative testing and proceed directly to the quantitative testing. When performing quantitative testing, the Company first estimates the fair values of its reporting units using a combination of an income and market approach. To determine fair values, the Company is required to make assumptions about a wide variety of internal and external factors. Significant assumptions used in the impairment analysis include financial projections of free cash flow (including significant assumptions about operations including the rate of future revenue growth, capital requirements, and income taxes), long-term growth rates for determining terminal value and discount rates. Comparative market multiples are used to corroborate the results of the discounted cash flow test. These assumptions require significant judgement. Pursuant to ASU 2017-04, Simplifying the Test for Goodwill Impairment, the single step is to determine the estimated fair value of the reporting unit and compare it to the carrying value of the reporting unit, including goodwill. To the extent the carrying amount of goodwill exceeds the implied goodwill, the difference is the amount of the goodwill impairment. The Company also completes a reconciliation between the implied equity valuation prepared and the Company’s market capitalization. The majority of the inputs used in the discounted cash flow model are unobservable and thus are considered to be Level 3 inputs. The inputs for the market capitalization calculation are considered Level 1 inputs. 45 Table of Contents Research and Development Expenses We make estimates of our accrued expenses as of each balance sheet date in our condensed consolidated financial statements based on facts and circumstances known to us at that time. If the actual timing of the performance of services or the level of effort varies from the estimate, we adjust the accrual accordingly. Services related to research and development projects are expensed as research and development costs at the time such costs are incurred. Clinical Trial Costs and Accruals We accrue clinical trial costs based on work performed. In determining the amount to accrue, we rely on estimates of total costs incurred based on enrollment, the completion of clinical trials and other events. We follow this method because we believe reasonable dependable estimates of the costs applicable to various stages of a clinical trial can be made. However, the actual costs and timing of clinical trials are highly uncertain, subject to risks and may change depending on a number of factors. Differences between the actual clinical trial costs and the estimated clinical trial costs that we have accrued in any prior period are recognized in the subsequent period in which the actual costs become known. Historically, our estimated accrued expenses have approximated actual expenses incurred; however, material differences could occur in the future. Stock-Based Compensation We calculate the cost of awards of equity instruments based on the grant date fair value of the awards issued to employees, members of our board of directors and nonemployee consultants using the Black-Scholes option pricing valuation model, or Black-Scholes model, which incorporates various assumptions including volatility, expected term and risk-free interest rate. The expected term of the options is the estimated period of time until exercise and was determined using the SEC’s safe harbor rules, using an average of vesting and contractual terms, as we did not have sufficient historical experience of similar awards. Expected stock price volatility is based on historical volatilities of certain “guideline” companies, as the Company does not have sufficient historical stock price data. The risk-free interest rate is based on the implied yield available on U.S. Treasury zero-coupon issues with an equivalent term. The estimated fair value of stock-based compensation awards is amortized on a straight-line basis over the relevant vesting period, adjusted for actual forfeitures at the time they occur. Jobs Act Accounting Election An emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to avail ourselves of this exemption and, therefore, we are not subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. 46 Table of Contents ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable.