Business context and reporting period
MRI Interventions, Inc. (the registrant named in this filing; its commercial platform is ClearPoint) filed this unaudited Form 10-Q for the quarter and nine months ended September 30, 2014. The company develops MRI-guided minimally invasive procedure systems. ClearPoint was cleared for general neurological procedures in the United States and had EU CE marking; ClearTrace, intended for cardiac procedures, remained under development and was not cleared for commercial sale.
Financial performance and condition
| Metric | Three months ended September 30, 2014 | Nine months ended September 30, 2014 |
|---|---|---|
| Total revenue | $633,204 | $2,644,640 |
| Operating loss | $2,618,323 | $2,641,882 |
| Net loss | $3,647,222 | $2,609,920 |
| Net loss per share, basic and diluted | $0.06 | $0.04 |
| Cash used in operating activities | Not presented by quarter | $5,256,287 |
- Revenue mix: Q3 product revenue was $588,343 and other service revenue was $44,861; no development or license revenue was recorded. For nine months, product revenue was $2,456,171, development services $103,846, and other services $84,623.
- Margins: Cost of product revenue was $315,852 in Q3 and $1,243,472 for nine months. Revenue less product costs was approximately $317,000 (50% of total revenue) and $1.40 million (53%), respectively; these are indicative calculations, not reported gross margins, as product costs do not correspond solely to total revenue.
- Liquidity: Cash was $1,894,681 at September 30, down from $3,516,244 at year-end 2013. Current assets were $4.75 million versus current liabilities of $6.04 million, a working-capital deficit of approximately $1.29 million. Total assets were $6.50 million and stockholders’ deficit was $7.93 million.
- Debt and liabilities: Balance-sheet carrying values included $3.97 million on the senior note payable, $288,204 on 2010 junior secured notes, and $3.34 million on 2014 junior secured notes. Derivative warrant liabilities were $3.17 million. The 2014 notes carry 12% interest, mature in 2019, and are secured junior to the Brainlab note.
Material changes versus prior comparable periods
- Q3 revenue declined 32% from $927,457 in 2013. Disposable product sales rose 23% to $577,000, but reusable product revenue fell from $380,000 to approximately $11,000; management noted reusable-system sales can vary substantially between quarters.
- Nine-month revenue declined 4% from $2,754,145. Product and other service revenue rose 38%, but this was offset by the absence of $650,000 of prior-year license revenue and lower development-service revenue. Disposable sales increased 56%; reusable product revenue decreased.
- Q3 net loss widened 14% year over year, as higher research and development, selling and administrative, and interest costs outweighed lower warrant fair-value losses. Nine-month net loss narrowed from $5.37 million to $2.61 million, primarily reflecting a $4.34 million gain on intellectual property sold to Boston Scientific and the prior-year $1.36 million loan-modification loss.
- Nine-month operating cash use improved to $5.26 million from $6.26 million; financing provided $3.65 million, principally from the March 2014 debt offering. Cash nevertheless declined by $1.62 million.
Outlook, commentary, risks and unusual items
- Management estimated September 30 cash, together with expected product-sale cash generation, would fund anticipated requirements only into the first quarter of 2015. The company was seeking additional financing or a strategic or collaborative partner; funding was not assured and equity or convertible financing could materially dilute shareholders. The filing describes substantial doubt risk if sufficient funding cannot be secured.
- Management expected continuing losses at least through 2014 while commercializing ClearPoint and developing ClearTrace. ClearPoint revenue growth, broader adoption, and ClearTrace development and regulatory clearance remain uncertain; management could not reliably estimate ClearTrace commercialization costs.
- In March 2014, Boston Scientific acquired certain intellectual property for $4.34 million by cancelling related-party notes of the same amount. The company gave up potential future milestone payments and royalties under amended agreements, while retaining a specified license to the transferred IP for other fields of use. The filing says the transaction did not affect ClearPoint commercialization or ClearTrace development.
- The March 2014 financing raised $3.725 million gross ($3.503 million net) through 12% second-priority secured notes and warrants. The company also reported a $20,000 settlement payment resolving a placement-agent arbitration in July 2014.
- September employment agreements provided for retention bonuses totaling $166,667 at December 31, 2014 and $333,333 at July 31, 2015, subject to continued employment. Subsequent to quarter-end, an executive received an option for 2.4 million shares at $1.13 per share, vesting over three years.
- Key risks include ongoing losses and near-term funding needs, market acceptance and customer concentration, reimbursement and competition, single-source suppliers and manufacturing capacity, and ClearTrace development and regulatory risks. UCSF and Emory represented 15% and 11%, respectively, of ClearPoint disposable-product revenue for the first nine months.
- Management concluded disclosure controls were effective as of September 30, 2014; no material change in internal control over financial reporting was reported for the quarter.
Most important facts for investors to verify
- Whether the company obtained financing after the stated cash runway into Q1 2015, and on what terms.
- Subsequent cash burn, collections, inventory requirements, and ability to fund operations without material dilution.
- ClearPoint installation, disposable-product sales, customer concentration, and recurring-revenue trends.
- ClearTrace development milestones, regulatory pathway, costs, and timing, none of which were assured.
- Debt service and security terms, warrant-related derivative valuation, and the impact of the Boston Scientific agreement on future collaboration economics.