Business context and reporting period
MRI Interventions, Inc. (the registrant named in this 2016 filing; the request identifies Clearpoint Neuro, Inc.) filed this unaudited Form 10-Q for the quarter and nine months ended September 30, 2016. Its commercial business centered on the ClearPoint system for MRI-guided minimally invasive brain procedures. ClearTrace, a cardiac product candidate, remained suspended and was not approved for commercial sale.
Financial performance and liquidity
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Total revenue | $1.62 million | $1.25 million | $4.11 million | $3.08 million |
| Operating loss | $1.71 million | $1.93 million | $5.70 million | $7.55 million |
| Net loss | $2.56 million | $0.25 million | $6.39 million | $7.25 million |
| Gross margin on product revenue | 53% | 54% | 51% | 55% |
Q3 revenue increased 30% year over year, primarily from greater ClearPoint disposable-product sales and a larger installed base. Nine-month revenue increased approximately 33%; product and other service revenue rose 35%, while development-services revenue was zero. Q3 net loss widened substantially, in part because of a $933,000 debt-restructuring loss and a smaller derivative fair-value gain than in the prior-year quarter. Nine-month net loss improved 12% year over year; 2015 included $1.25 million of restructuring charges.
For the nine months, operating cash use was $4.71 million, versus $7.32 million a year earlier; investing cash use was $100,000. Financing provided $3.83 million net, principally from the September private placement. Cash fell from $5.41 million at year-end 2015 to $4.43 million at September 30, 2016. Current assets were $7.60 million and current liabilities $3.39 million. Stockholders’ equity was $575,000, versus a $1.98 million deficit at year-end.
At September 30, reported note carrying amounts were $2.00 million on the senior secured Brainlab note, $1.76 million on the 2014 junior secured notes and $626,000 on the 2010 junior secured notes; accrued interest was $657,000. Scheduled principal maturities were $2.00 million in 2018, $1.98 million in 2019 and $3.00 million in 2020. The company raised approximately $4.25 million gross in the September 2016 PIPE, incurred about $418,000 of offering costs and converted $1.75 million of junior-note principal into PIPE units.
Material changes, outlook and risks
- Brainlab’s debt was restructured in April: the new senior secured note has $2.0 million principal and matures December 31, 2018. The transaction also cancelled debt in exchange for a software license and equity units.
- The September PIPE issued 851,000 units, each comprising one common share and a warrant for 0.90 share; the converted debt produced a further 350,000 units. Warrants and the company’s 1-for-40 reverse split are relevant to dilution and per-share comparisons. Common shares outstanding were 3,610,524 on November 1, 2016.
- Management anticipated revenue growth from increased use at existing ClearPoint sites and new installations, with operating expenses expected to remain broadly at historical levels. No quantified earnings or revenue guidance was provided. Management expected continuing operating cash consumption for at least the next 12 months and stated additional financing would be needed; failure to obtain it could impair the company’s ability to meet obligations. The filing states there is substantial doubt about the company’s ability to continue as a going concern.
- ClearPoint gross margin declined year over year, reflecting higher component costs, production scrap/write-offs and increased manufacturing overhead allocation. Customer concentration is notable: one customer represented 20% of accounts receivable at quarter-end.
- ClearTrace development was suspended, and the company had not met a Siemens agreement milestone; Siemens terminated the agreement’s exclusivity provisions. Further development, regulatory clearance and commercialization remain uncertain.
- Other unusual items include derivative liabilities valued using Level 3 inputs and gains/losses from their remeasurement, as well as a net nine-month debt-restructuring loss of $812,000. The company reported no legal proceedings, no defaults upon senior securities, effective disclosure controls and no material change in internal control over financial reporting.
Important facts for investors to verify
- Confirm the reporting entity and its subsequent corporate name or status, given that this filing is for MRI Interventions, Inc.
- Review cash burn, available financing and debt service requirements against the going-concern warning; the filing gives no clear numerical cash-runway estimate.
- Examine the PIPE, debt conversions, warrants and registration-rights terms for potential dilution and any related obligations or damages.
- Assess whether ClearPoint site growth and recurring disposable sales can sustain revenue growth and improve margins, and monitor customer concentration.
- Verify the status of ClearTrace, Siemens-related rights and any future development or regulatory plans.