rmed-10qa_20190331.htm

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

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

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

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

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

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

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

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

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

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.0001 per share

RMED

New York Stock Exchange

As of May 10, 2019, the registrant had 12,928,773 shares of common stock, par value $0.0001, outstanding.

Ra Medical Systems, Inc. (the “Company”) is filing this Amendment No. 1 to its Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2019 (the “Amended Form 10-Q”), which was originally filed with the SEC on May 14, 2019, (the “Original Filing”) to amend Part I, Item 4- Controls and Procedures to address management's re-evaluation of disclosure controls and procedures and reflect the identification of material weaknesses in internal control over financial reporting.

Part II, Item 6-Exhibits also has been amended to include currently dated certifications from the Company’s Principal Executive and Principal Financial Officer as required by sections 302 and 906 of the Sarbanes Oxley Act of 2002. The certifications are attached to this Amended Form 10-Q as Exhibits 31 and 32.

This Amended Form 10-Q does not modify, amend, or update in any way the consolidated financial statements set forth in the Original Filing and there have been no changes to the XBRL data filed in Exhibit 101 of the Original Filing.

This Amended Form 10-Q has not been updated for other events or information subsequent to the date of the filing of the Original Filing, except as noted above, and should be read in conjunction with the Original Filing and our other filings with the SEC.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, had previously evaluated the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as of March 31, 2019. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives of ensuring that information we are required to disclose in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures, and is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.

Based upon our evaluation as of May 14, 2019, our Chief Executive Officer and Chief Financial Officer had previously concluded that, as of March 31, 2019, our disclosure controls and procedures were effective at the reasonable assurance level. Subsequent to that evaluation, our Chief Financial Officer who is also serving as our Interim Chief Executive Officer, concluded that, as of March 31, 2019, our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses in internal control over financial reporting that are described below.

In reviewing the allegations and findings from an Audit Committee investigation related to an initially anonymous complaint, as well as additional matters discovered during the course of the investigation, we have identified certain deficiencies in our internal controls which have been considered material weaknesses. Although no material misstatements or omissions in our financial statements or disclosures were identified, the material weaknesses in internal controls could have resulted in material misstatements or omissions to our financial statements or disclosures.

We identified certain deficiencies in our internal controls, which aggregated to a material weakness in the control environment component of the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control - Integrated Framework (the “COSO Framework). The material weakness results from the aggregation of control deficiencies in the Company’s control environment, in particular an inappropriate “tone at the top” set by certain members of senior management, including a failure to promote adherence to our Code of Ethics and Conduct, and the lack of sufficient competent resources in key roles at the organization. The ineffective control environment resulted in the following:

•

behavior that was inconsistent with our Code of Ethics and Conduct and related policies involving certain former executive officers and employees of the Company;

•

explanations regarding the issues that had an impact on our fourth quarter 2018 and first quarter 2019 sales created a risk of confusion because the explanations did not explicitly reference the effect of inconsistent catheter performance and catheter failures;

•

engagement in systematic efforts to replace product held by customers, which constituted product recalls, were not documented as such;

•

lack of documentation of sufficient detail and specificity to support certain payments to physicians, ostensibly for training and consulting services, to three physicians did not accurately reflect the purpose and nature of approximately $300,000 of payments, which could be perceived as an improper attempt to obtain business or to gain special advantage;

•

while the indication for use in the 510(k) clearance we obtained for the DABRA system is not for atherectomy, our salespeople were instructed to characterize DABRA as performing atherectomy and to encourage doctors to seek reimbursement using atherectomy codes;

•

determinations to direct potentially valuable benefits and opportunities to doctors were informed in part by sales prospects.

The ineffective control environment contributed significantly to the material weakness described below.

We have identified a deficiency in the information and communication component of the COSO Framework that resulted in a material weakness. This deficiency related to the ineffective design of internal communication of information, including objectives and responsibilities for internal control, necessary to support the functioning of internal control. The deficiency resulted in the receipt of complaints regarding regulatory or compliance concerns that, because the complaints implicated executive officers, should have been brought to the attention of the board of directors or the Audit Committee, but were not.

We commenced measures to remediate the identified material weaknesses in the third quarter of 2019. Management, with the participation and input of the Audit Committee and the board of directors, is engaged in remedial activities to address the material weaknesses described above. The remedial activities we are taking include separation of certain employees, hiring qualified personnel including a VP Quality, Regulatory and Clinical, implementing additional and enhanced policies and training, including with respect to our Code of Business Ethics and Conduct, strengthening our quality and regulatory systems, bolstering documentation requirements for certain third-party consulting, advisory and training agreements, and adopting certain enhanced controls related to the matters investigated by the Audit Committee.

We are committed to maintaining a strong internal control environment, and we believe we are making progress toward achieving the effectiveness of our internal controls and disclosure controls. The actions that we are taking are subject to ongoing senior management review, as well as Audit Committee oversight. We will not be able to conclude whether the steps we are taking will fully remediate the material weaknesses in our internal control over financial reporting until we have completed our remediation efforts and subsequent evaluation of their effectiveness. We may also conclude that additional measures may be required to remediate the material weaknesses in our internal control over financial reporting, which may necessitate additional implementation and evaluation time. We will continue to assess the effectiveness of our internal control over financial reporting and take steps to remediate the known material weaknesses expeditiously.

Other than the remediation steps taken above, there were no additional changes in our internal control over financial reporting during the three months ended March 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Management recognizes that a control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud or error, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

(*)

In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release No. 33-8238 and 34-47986, Final Rule: Management’s Reports on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports, the certifications furnished pursuant to this item will not be deemed “filed” for purposes of Section 18 of the Exchange Act (15 U.S.C. 78r), or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: November 27, 2019	By:	/s/ Andrew Jackson
		Andrew Jackson
		Chief Financial Officer and Interim Chief Executive Officer

Exhibit Number		Exhibit Title

31		Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32(*)		Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.