You are currently viewing RA MEDICAL SYSTEMS, INC.  MANAGEMENT REPORT AND ANALYSIS OF FINANCIAL POSITION AND OPERATING RESULTS (Form 10-Q)

RA MEDICAL SYSTEMS, INC. MANAGEMENT REPORT AND ANALYSIS OF FINANCIAL POSITION AND OPERATING RESULTS (Form 10-Q)

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 Risk Factors. 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. We
discuss many of these risks in greater detail in the section entitled "Risk
Factors" included in Part II, Item 1A and elsewhere in this Quarterly Report.
Given these 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”, “Ra” and “the Company” refer to Ra Medical Systems, Inc.

Insight

Ra Medical Systems, Inc. is a medical device company that owns the intellectual property related to an advanced excimer laser-based platform for use in the treatment of immune-mediated vascular inflammatory diseases. We believe our products improve patients’ quality of life by restoring blood flow to the arteries.


The DABRA laser and single-use catheter, together referred to as the DABRA
Excimer Laser System, or DABRA, is used as a tool in the treatment of peripheral
artery disease, or PAD, which commonly occurs in the legs. DABRA is cleared by
the U.S. Food and Drug Administration, or FDA, as a device for crossing chronic
total occlusions in patients with symptomatic infrainguinal lower extremity
vascular disease and with an intended use for ablating a channel in occlusive
peripheral vascular disease. DABRA was also granted CE mark approval in Europe
in September 2016 for the endovascular treatment of infrainguinal arteries via
atherectomy and for crossing total occlusions.

Our commercial strategy focused on improving our catheter offering and exploring new markets, as well as conducting a clinical study to obtain an “indication for use” of atherectomy in United States.

Strength reduction


We previously disclosed that our 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
our ability to continue funding our 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, or RIF, under which
approximately 65%

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of our full-time employees were terminated, effective June 6, 2022, and provided
one-time severance payments of $0.6 million. Non-terminated employees were
offered conditional retention arrangements for a period of approximately 60-120
days to allow for evaluation and monitoring of our near-term personnel needs
based in part on our financial status and the board of directors' review of
strategic alternatives. The purpose of the RIF was to preserve capital with the
goal of maximizing the opportunities available to us during the board of
directors' review of strategic alternatives.

As a result of the RIF and the board of directors' review of strategic
alternatives, we have paused all engineering activities, including the
development of a version of the DABRA catheter that is compatible with a
standard interventional guidewire as well as research to prove the feasibility
of using a DABRA-derived catheter technology to fracture calcium in arteries in
a procedure known as lithotripsy. On July 5, 2022, we 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. We
currently have no plans to commercialize the DABRA 2.0.

As stated, we are currently pursuing an atherectomy indication for use, which
the FDA defines to include a prespecified improvement in luminal patency. We
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
January 2022, primarily due to subject fallout for follow-up visits due to
COVID-19, we filed a protocol amendment with the FDA to add up to an additional
25 subjects to the study. The protocol amendment was approved by the FDA in
February 2022, raising the enrollment limit from a maximum of 100 subjects to
125 subjects.

We enrolled the first subject in the atherectomy clinical study in February 2020. For much of 2021 and 2020, the COVID-19 pandemic had a significant impact on our ability to activate new sites and enroll additional topics. Many sites or potential sites have operated or are currently operating at reduced capacity, and some have been closed from time to time.


On June 6, 2022, we made the decision to stop enrollment at 108 subjects in the
atherectomy clinical study, and we believe we have enough subjects to eventually
satisfy the FDA's data requirements to support an atherectomy indication.
Although the COVID-19 pandemic has had and will continue to have an
unpredictable impact on subject follow-up in this study, we currently aim to
complete the six-month follow-up in early 2023.

Due to the halt in clinical study recruitment, the previously discussed RIF, and the Board’s ongoing review of strategic alternatives, we have ceased our manufacturing operations and are no longer supplying catheters to any site. .

Merger project


On June 18, 2022, we signed a non-binding summary of proposed terms, or the Term
Sheet, with Catheter Precision, Inc., or Catheter Precision, to acquire 100% of
the outstanding equity interests of Catheter Precision, or the Merger. Pursuant
to the Term Sheet, we would acquire Catheter Precision in exchange for shares of
the Company. The Merger would give our shareholders exposure to Catheter
Precision's innovative devices that are designed to improve treatment of cardiac
arrhythmias, while allowing the combined company the ability to explore funding
its strategic initiatives for the Catheter Precision devices through the public
capital markets.

As of the date of this Quarterly Report, the terms of the Merger with Catheter
Precision are under negotiation. We cannot provide any assurance that we will
effect the Merger or, if we are able to consummate such a Merger, that the terms
of any such Merger will be on the terms set forth in the Term Sheet or that the
intended benefits of the Merger will be fully realized. The consummation of the
Merger will also be subject to specified conditions precedent to closing that
must be satisfied or waived, including certain conditions to closing that are
subject to the approval or consent of third parties. We cannot provide any
assurance that all of the conditions to closing will be satisfied or waived or
that we will receive any of the third party consents or approvals or be able to
satisfy or waive all the conditions precedent to closing necessary to consummate
the Merger. If the conditions precedent to closing are not satisfied or waived
in a timely manner or at all, the Merger may not occur or may be delayed, and we
may lose some or all of the intended benefits of the Merger with Catheter
Precision.

Although consummating the Merger with Catheter Precision is our strategic
priority, our board of directors continues to review strategic alternatives that
could result in changes to our business strategy and future operations with a
goal of maximizing shareholder value.

We cannot provide any commitment as to the timing of our determination or the
strategy we may adopt if we are unable to consummate the Merger and may be
required to dissolve the Company or pursue other strategic transactions. Because
of the

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significant uncertainty about our future plans, we are unable to accurately predict the impact of a potential change in our business strategy and our future financing needs.

Warrant Repricing


On July 22, 2022, we reduced the exercise price of all outstanding warrants,
consisting of Series A and Series B warrants that were issued in the February
2022 public offering, from $0.50 per share to $0.28 per share, or the Warrant
Repricing. Following the Warrant Repricing, we entered into warrant inducement
offer letters, or the Inducement Letters, with certain investors to immediately
exercise all of the Series A and Series B warrants held by such investors. In
response to the Inducement Letters, investors exercised approximately 22.2
million Series A warrants and no Series B warrants. Investors who exercised
their Series A warrants received Series C warrants to purchase 100% of the
shares exercised pursuant to the Series A warrants with an exercise price of
$0.28 per share and a term of five years. We received net proceeds of
approximately $5.5 million, after issuance costs of $0.7 million, from the
exercises of the Series A warrants. The Series C warrants and the shares
underlying the Series C warrants are unregistered and were issued in a private
placement pursuant to Section 4(a)(2) of the Securities Act of 1933, or the
Securities Act.

The Warrant Repricing resulted in an immediate and incremental increase of
approximately $2.3 million in the estimated fair value of the Series A warrants
and Series B warrants. Based on the Black-Scholes valuation model, we estimated
the fair value of the Series C warrants issued to be approximately $2.3 million.

We may be obligated to pay a former placement agent tail fees on the proceeds
received from the Series A warrant exercises and the issuance of the Series C
warrants. The tail fees are comprised of cash tail fees equal to 7.5% cash
compensation for the gross proceeds raised in the exercises of the Series A
warrants in response to the Inducement Letters and the issuance of warrants
equal to 7% of the number of shares of common stock issued, or the Tail Fees, to
any investor contacted by the former placement agent during the term of its
engagement with us. Therefore, the Tail Fees we may be obligated to pay related
to the exercises of the Series A warrants in response to the Inducement Letters
are comprised of a cash fee of approximately $0.5 million and the issuance of
approximately 1.6 million warrants to purchase common stock at an exercise price
of $0.35 per share which represents 125% of the exercise price of the Series C
warrants. The warrants were valued at approximately $0.2 million on the issuance
date of the Series C warrants and would be immediately exercisable and expire
five years from their issuance date. These warrants had not been issued by the
Company as of the date of this Quarterly Report.

Continuity of exploitation


As of the date of this Quarterly Report, we concluded that there is substantial
doubt regarding our ability to continue as a going concern for the twelve months
from the date of filing of this Quarterly Report. Substantial doubt about a
company's ability to continue as a going concern is generally viewed unfavorably
by current and prospective investors, as well as by analysts and creditors and
potential strategic partners. As a result, it may be more difficult for us to
consummate any strategic transactions and/or raise the additional financing
necessary to continue to operate our business. If the Merger is not consummated,
we may be forced to refocus or rebuild around a different core or strategic
technology, consummate another strategic transaction or be required to liquidate
our assets and dissolve the Company.

COVID-19[feminine]


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 our business, operations and financial condition are unknown at this
time. We expect that patient follow-up in our 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.
However, the extent to which COVID-19 impacts our 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.

Components of our operating results

Net revenue


Product sales consist of the sales of catheters for use with the DABRA laser. We
are currently not selling commercial product and are only selling catheters for
use in our atherectomy clinical trial.

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Revenue cost


Cost of revenue for product sales consists primarily of costs of components for
use in our products, the labor that is used to produce our products, and the
manufacturing overhead that support production. Cost of revenue for service and
other consists primarily of depreciation on the lasers we own.

Selling, general and administrative expenses


Selling, general and administrative, or SG&A, expenses primarily consist of
employee-related expenses, including salaries, benefits and stock-based
compensation expense. Other SG&A expenses include professional services fees,
including legal, audit and tax fees, insurance costs, general corporate expenses
and facility related expenses.

Research and development costs


Research and development, or R&D, expenses primarily consist of employee-related
expenses, including salaries, benefits and stock-based compensation expense.
Other R&D expenses include the cost of clinical studies and trials, supplies
used for internal R&D and clinical activities and the cost of outside
consultants who assist with technology development and clinical affairs.

Results from continuing operations

The following table presents our results from continuing operations for the periods presented (in thousands):


                                   Three Months Ended June 30,                          Six Months Ended June 30,
                                    2022                2021           Change            2022               2021          Change
Net revenue                     $           5       $           9     $     (4 )     $         14       $         13     $      1
Cost of revenue                            66                 520         (454 )              161                967         (806 )
Selling, general and
administrative expenses                 2,476               3,398         (922 )            4,778              7,075       (2,297 )
Research and development
expenses                                2,396               2,829         (433 )            5,511              5,579          (68 )
Restructuring and impairment
charges                                 3,527                   -        3,527              3,527                  -        3,527
Other income, net                          12               2,019       (2,007 )               20              2,012       (1,992 )



Net Revenue

Net revenue was relatively flat for the three and six months ended June 30, 2022
as compared to the corresponding periods in the prior year since we were only
selling catheters to clinical trial sites while we focused our efforts on
remedying the inconsistencies in our DABRA catheter performance and obtaining an
atherectomy indication.

Cost of Revenue

The decreases in cost of revenue of $0.5 million and $0.8 million for the three
and six months ended June 30, 2022, respectively, as compared to the
corresponding periods in the prior year were primarily due to decreases in labor
and overhead costs as a result of certain cost savings initiatives implemented
in mid-2021, including a reduction in headcount, and the Company directing its
resources to focus on engineering efforts and clinical trial initiatives.

Selling, general and administrative expenses


The decrease in SG&A expenses of $0.9 million for the three months ended June
30, 2022 as compared to the corresponding period in the prior year was due to
decreases of $0.5 million in stock-based compensation expense, $0.1 million in
legal expenses, $0.2 million in personnel expenses and $0.1 million in other
costs.

The decrease in SG&A expenses of $2.3 million for the six months ended June 30,
2022 as compared to the corresponding period in the prior year was due to
decreases of $1.3 million in stock-based compensation expense, $0.9 million in
legal expenses, $0.4 million in personnel expenses and $0.2 million in other
costs, partially offset by a decrease in gain on sale of assets of $0.5 million.

Research and development costs


The decrease in R&D expenses of $0.4 million for the three months ended June 30,
2022 as compared to the corresponding period in the prior year was primarily due
to the decrease in personnel and consulting expenses of $0.5 million

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due to lower research and development activity in the three months June 30, 2022 compared to the corresponding period of the previous year.


The decrease in R&D expenses of $0.1 million for the six months ended June 30,
2022 as compared to the corresponding period in the prior year was primarily due
to decreases of $0.5 million in personnel costs and $0.2 million in stock-based
compensation expense, partially offset by increases of $0.2 million in R&D
supplies, $0.2 million in clinical study expenses and $0.2 million in other
expenses due to engineering efforts on our next-generation catheters and
progress on the atherectomy clinical study.

Restructuring and impairment charges


Restructuring and impairment charges of $3.5 million for the three and six
months ended June 30, 2022 represent the expenses incurred in June 2022 due to
the RIF, resulting in one-time severance payments, and our decision to
discontinue enrollment of patients in our clinical trial, cease manufacturing
activities, sell or dispose of substantially all of our property and equipment,
inventories and R&D supplies, resulting in impairment of property and equipment,
inventory obsolescence charges and the write-off of R&D supplies.

Other income, net


The decrease in other income, net of $2.0 million for the three and six months
ended June 30, 2022 as compared to the corresponding periods in the prior year
was primarily due to the forgiveness of the Paycheck Protection Plan promissory
note in 2021.

Non-GAAP Measures

EBITDA and Adjusted EBITDA are performance measures that provide supplemental
information we believe is useful to analysts and investors to evaluate our
ongoing results of operations, when considered alongside other GAAP measures.
These non-GAAP measures exclude the financial impact of items management does
not consider in assessing our ongoing operating performance, and thereby
facilitate review of our operating performance on a period-to-period basis.

We believe that non-GAAP financial information, when taken collectively, may be
helpful to investors because it provides consistency and comparability with past
financial performance. However, non-GAAP financial information is presented for
supplemental informational purposes only, has limitations as an analytical tool
and should not be considered in isolation or as a substitute for financial
information presented in accordance with GAAP. Some of these limitations are
that:

• EBITDA excludes certain recurring non-cash charges, such as amortization

and depreciation of long-lived assets, although these non-cash charges are

for assets that may need to be replaced in the future; and

• Adjusted EBITDA further excludes stock-based compensation expense which

has been a significant recurring expense in our business and an important

as part of our compensation strategy.

In addition, other companies, including companies in our industry, may calculate non-GAAP measures with the same title differently or use other measures to evaluate their performance, which could reduce the usefulness of our measures. non-GAAP financial statements as tools of comparison.


A reconciliation for each non-GAAP financial measure to the most directly
comparable financial measure stated in accordance with GAAP is included below.
Investors are encouraged to review the related GAAP financial measures and the
reconciliation of these non-GAAP financial measures to their most directly
comparable GAAP financial measures, and not to rely on any single financial
measure to evaluate our business. We define Adjusted EBITDA as our GAAP loss
from continuing operations as adjusted to exclude depreciation and amortization,
interest income, interest expense, income tax expense, stock-based compensation,
gain on extinguishment of promissory note, restructuring and impairment charges
and loss (gain) on sales and disposals of property and equipment.

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The following is a reconciliation of loss from continuing operations to Adjusted
EBITDA (in thousands):

                                     Three Months Ended June 30,            Six Months Ended June 30,
                                      2022                 2021              2022                2021

Loss from continuing operations ($8,448) ($4,719) $

    (13,943 )     $    (11,596 )
Depreciation and amortization               136                  321               322                655
Interest income                             (16 )                (18 )             (17 )              (19 )
Interest expense                              -                   (1 )               -                  7
EBITDA                                   (8,328 )             (4,417 )         (13,638 )          (10,953 )
Stock-based compensation                    123                  625               285              1,697
Restructuring and impairment              3,527                    -             3,527                  -
Loss (gain) on sales and
disposals of property and
equipment                                     8                    8                44               (493 )
Gain on extinguishment of
promissory note                               -               (2,023 )               -             (2,023 )
Adjusted EBITDA                  $       (4,670 )     $       (5,807 )   $      (9,782 )     $    (11,772 )



The decreases in negative Adjusted EBITDA of $1.1 million and $2.0 million for
the three and six months ended June 30, 2022, respectively, as compared to the
corresponding periods in the prior year were primarily due to the decreases in
SG&A expenses due to lower legal expenses related to the securities litigation
and prior investigation and lower personnel expenses.

Cash and capital resources


As of June 30, 2022, we had cash and cash equivalents of $11.1 million. 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, including our operating lease liability, to our benefit. If these
efforts are unsuccessful or the Merger is not completed, our cash position could
be negatively impacted and we may, among other things, be required to seek other
sources of financing, consummate another strategic transaction or be required to
liquidate our assets and dissolve the Company. Because of the significant
uncertainty regarding our future plans, we are not able to accurately predict
the impact of a potential change in our 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 we improved our liquidity resources through a private placement in July
2022, resulting in net proceeds of $5.5 million and may receive additional funds
from the exercise of its warrants depending on market conditions, management has
concluded that the aforementioned conditions, including the ongoing uncertainty
related to the negative 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.

Further, SEC regulations limit the amount of funds we can raise during any
12-month period pursuant to our effective shelf registration statement on Form
S-3. We are currently subject to General Instruction I.B.6 to Form S-3, or the
Baby Shelf Rule, and the amount of funds we can raise through primary public
offerings of securities in any 12-month period using our registration statement
on Form S-3 is limited to one-third of the aggregate market value of the voting
and non-voting common equity held by non-affiliates. We are currently limited by
the Baby Shelf Rule as of the filing of this Quarterly Report, until such time
as our public float exceeds $75 million.

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Cash flow

The following information reflects the cash flows from continuing operations and discontinued operations for the periods presented (in thousands):


                                              Six Months Ended June 30,
                                                2022               2021

Net cash used in operating activities ($14,577) ($14,699)
Net cash provided by investing activities

               -              458
Net cash provided by financing activities          10,660           10,555



Net cash used in operating activities


Net cash used in operating activities of $14.6 million for the six months ended
June 30, 2022 consisted of a net loss of $13.9 million and non-cash adjustments
of $3.6 million, consisting primarily of non-cash restructuring and impairment
charges of $2.9 million and stock-based compensation and depreciation and
amortization of $0.3 million each. In addition, we experienced changes in
operating assets and liabilities of $4.3 million.

Net cash used in operating activities of $14.7 million for the six months ended
June 30, 2021 consisted of a net loss of $12.5 million and non-cash adjustments
of $0.2 million, consisting of gain on extinguishment of promissory note of $2.0
million, stock-based compensation of $1.9 million, depreciation and amortization
of $0.9 million and gain on sale of property and equipment of $0.5 million. In
addition, we experienced changes in operating assets and liabilities of $2.4
million

Net cash provided by investing activities


We did not have any cash flows related to investing activities for the six
months ended June 30, 2022. Net cash provided by investing activities of $0.5
million for the six months ended June 30, 2021 consisted primarily of proceeds
from sales of property and equipment.

Net cash provided by financing activities


Net cash provided by financing activities of $10.7 million for the six months
ended June 30, 2022 primarily consisted of net cash proceeds from the February
2022 public offering.

Net cash provided by financing activities of $10.6 million for the six months ended June 30, 2021 consisted primarily of the net proceeds of our ATM financing.

Significant Accounting Policies and Estimates


The discussion and analysis of our financial position and results of operations
is based on our interim unaudited condensed financial statements included
elsewhere in this Quarterly Report, which have been prepared in accordance with
accounting principles generally accepted in the U.S., or GAAP. We believe
certain of our accounting policies are critical to understanding our financial
position and results of operations. There have been no significant changes to
our critical accounting judgments, policies and estimates as described in our
Annual Report on Form 10-K for the year ended December 31, 2021 filed with the
Securities and Exchange Commission, or SEC, on March 24, 2022, or Annual Report,
and as amended on July 13, 2022, other than the change in the estimated useful
life of our lasers which was changed to eight years effective January 1, 2022,
as more fully described in Note 2. Summary of Significant Accounting Policies in
our Annual Report.

The preparation of these financial statements requires us to make estimates and
assumptions for the reported amounts of assets, liabilities, revenue, expenses
and related disclosures. Our estimates are based on our historical experience
and on 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.


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