MRI Interventions, Inc. (ClearPoint Neuro) — Q2 2016 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2016. The filing registrant is MRI Interventions, Inc.; its commercial product is the ClearPoint system. Financial statements are unaudited.
Business context and financial results
The company develops and commercializes MRI-guided minimally invasive surgical technology. ClearPoint is cleared for U.S. neurological procedures and is the principal source of product revenue. ClearTrace, intended for cardiac procedures, remained under development but was suspended in 2015 so resources could focus on ClearPoint.
| Metric | Q2 2016 | Q2 2015 | Six months 2016 | Six months 2015 |
|---|---|---|---|---|
| Total revenue | $1.104 million | $0.826 million | $2.498 million | $1.836 million |
| Operating loss | $(2.055) million | $(2.683) million | $(3.989) million | $(5.627) million |
| Net loss | $(1.782) million | $(3.060) million | $(3.826) million | $(7.005) million |
| Net loss per share | $(0.90) | $(2.08) | $(1.66) | $(4.73) |
| Operating cash used | — | $(3.292) million | $(5.717) million |
Q2 revenue increased 34% year over year; six-month revenue rose 36%. Growth was mainly from ClearPoint disposable sales, attributed to more procedures at a larger installed base. Product gross margin was 51% in Q2 versus 49%; for the first six months it was 50% versus 55%. Management attributed the six-month decline mainly to product mix and manufacturing cost allocations. Q2 research and development expense rose 76% to $750,000, while selling, general and administrative expense fell 14% to $1.888 million. No restructuring charges were recorded in 2016; the comparable 2015 periods included restructuring costs.
Liquidity, debt, and material changes
- Cash and cash equivalents were $2.016 million at June 30, down from $5.409 million at December 31, 2015. Six-month investing cash use was $100,000; there were no financing cash flows. Working capital was approximately $1.048 million, based on current assets of $4.689 million and current liabilities of $3.641 million.
- Total liabilities were $10.408 million and stockholders’ deficit was $3.965 million. Notes payable were reported at $6.052 million net of unamortized discounts and financing costs, with $715,000 of accrued interest. Contractual scheduled principal payments totaled $8.725 million: $2.0 million in 2018, $3.725 million in 2019, and $3.0 million in 2020.
- In April, Brainlab’s senior secured note was restructured: principal was reduced by approximately $2.3 million, including through a software license and equity units, and replaced with a $2.0 million secured note due December 31, 2018. The company paid approximately $740,000 of accrued interest. The statements report a $121,000 net debt-restructuring gain for the six-month period; the filing describes a $941,000 gain from the April transaction and an approximately $820,000 loss from June amendments.
- June amendments provide for $2.0 million of specified note principal plus related accrued interest to convert in a qualified public offering and reduce certain warrant exercise prices. Resulting derivative liabilities were $1.085 million at June 30; the fair-value gain recognized for the six-month period was $424,000. These valuations use Level 3 inputs.
- A 1-for-40 reverse stock split was approved after quarter-end and effected July 26, 2016; share and per-share data in the filing were retrospectively adjusted.
Outlook, risks, and contingencies
Management expected ClearPoint revenue to grow through greater utilization at existing sites and installation at new sites, while recurring operating costs were expected to remain near historical levels. The company nevertheless expected to continue using cash for at least the next twelve months and stated that additional financing would be necessary. It warned that financing might not be available on commercially reasonable terms or in time, and disclosed substantial doubt about its ability to continue as a going concern. The financial statements contain no adjustments that might be required if the company cannot continue as a going concern.
- ClearTrace development was suspended; the company had not met a June 2016 release milestone under its Siemens agreement, and Siemens could terminate certain exclusivity provisions.
- Additional financing through equity or debt, a credit facility, or a strategic collaboration could be dilutive or unavailable. Failure to obtain funding could impair operations and its ability to meet obligations.
- Product adoption, procedure volumes, regulatory requirements, competition, and customer concentration may affect results. One customer accounted for 12% of Q2 product revenue and 13% of receivables at June 30.
- The company reported no legal proceedings and no material changes to its previously disclosed risk factors apart from the ClearTrace-related updates. Management concluded disclosure controls were effective as of June 30.
Important facts for investors to verify
- Cash runway, near-term obligations, and the timing, amount, and terms of any required financing.
- ClearPoint installation growth, procedure utilization, recurring disposable sales, and the trajectory of product margins.
- Debt repayment and conversion terms, collateral priorities, warrant repricing provisions, and potential dilution from securities and the reverse split.
- Whether Siemens exercises its right to terminate ClearTrace exclusivity and whether ClearTrace development or collaboration resumes.
- The effect of Level 3 derivative remeasurement and debt-restructuring accounting on reported earnings versus underlying cash performance.