UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One) | |
☑ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended | |
Or | |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period | |
Commission file number: 001-34822 |
ClearPoint Neuro, Inc. |
(Exact Name of Registrant as Specified in Its Charter) |
Delaware | 58-2394628 |
(State or Other Jurisdiction | (IRS Employer |
of Incorporation or Organization) | Identification Number) |
(Address of Principal Executive Offices) | (Zip Code) |
|
(949) 900-6833
(Registrant’s Telephone Number, Including Area Code)
5 Musick
Irvine, California 92618
(Former name, former address and former fiscal year, if change since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, $0.01 par value per share | CLPT | Nasdaq Capital Market |
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
As of November 10, 2020,May 7, 2021, there were 16,869,52820,761,486 shares of common stock outstanding.
1
CLEARPOINT NEURO, INC.
TABLE OF CONTENTS
Trademarks, Trade Names and Service Marks
ClearPoint Neuro®, ClearPoint®, ClearTrace®, SmartFlow®, Inflexion™ and ClearPoint NeuroMRI Interventions® are trademarks of ClearPoint Neuro, Inc. Any other trademarks, trade names or service marks referred to in this Quarterly Report on Form 10-Q (this “Quarterly Report”) are the property of their respective owners.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report contains “forward-looking statements” as defined under the United States federal securities laws. The forward-looking statements are contained principally in the section of this Quarterly Report entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements, expressed or implied by the forward-looking statements. Forward-looking statements include, but are not limited to, statements about:
● | the effects of the COVID-19 pandemic and measures taken or that may be taken by federal, state and local governmental authorities to combat the spread of the disease; |
● | future |
● | our ability to market, commercialize and achieve broader market acceptance for our ClearPoint system |
In some cases, you can identify forward-looking statements by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would,” and similar expressions intended to identify forward-looking statements, although not all forward-looking statements contain these words. Although we believe that we have a reasonable basis for each forward-looking statement contained in this Quarterly Report, we caution you that these statements are based on a combination of facts and factors currently known by us and our projections of the future, about which we cannot be certain.
You should refer to the section titled “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019,2020, which we filed with the SECUnited States Securities and Exchange Commission (“SEC”) on March 27, 202022, 2021 (the “2019“2020 Form 10-K”) and in this Quarterly Report, for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by the forward-looking statements contained in this Quarterly Report. As a result of these factors, we cannot assure you that the forward-looking statements in this Quarterly Report will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all. We do not undertake to update any of the forward-looking statements after the date of this Quarterly Report, except to the extent required by applicable securities laws.
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CLEARPOINT NEURO, INC.
(formerly MRI Interventions, Inc.)
Condensed Consolidated Balance Sheets
(Dollars in thousands, except for per share data)
September 30, | December 31, 2019 | March 31, (Unaudited) | December 31, 2020 | |||||||||||||
ASSETS | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | $ | 14,665,597 | $ | 5,695,722 | $ | 64,858 | $ | 20,099 | ||||||||
Accounts receivable, net | 1,449,333 | 1,089,917 | 2,004 | 1,881 | ||||||||||||
Inventory, net | 3,534,643 | 3,240,218 | 3,266 | 3,238 | ||||||||||||
Prepaid expenses and other current assets | 492,886 | 357,227 | 254 | 244 | ||||||||||||
Total current assets | 20,142,459 | 10,383,084 | 70,382 | 25,462 | ||||||||||||
Property and equipment, net | 327,055 | 447,162 | 292 | 319 | ||||||||||||
Operating lease rights of use | 294,583 | 374,218 | 2,613 | 2,736 | ||||||||||||
Software license inventory | 571,800 | 504,400 | 589 | 589 | ||||||||||||
Licensing rights | 487,640 | 135,000 | 331 | 353 | ||||||||||||
Other assets | 23,380 | 82,573 | 56 | 59 | ||||||||||||
Total assets | $ | 21,846,917 | $ | 11,926,437 | $ | 74,263 | $ | 29,518 | ||||||||
�� | ||||||||||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Accounts payable | $ | 1,064,121 | $ | 965,783 | $ | 727 | $ | 300 | ||||||||
Accrued compensation | 1,210,356 | 1,408,292 | 990 | 1,595 | ||||||||||||
Other accrued liabilities | 487,768 | 328,460 | 473 | 349 | ||||||||||||
Operating lease liabilities, current portion | 108,923 | 113,520 | 430 | 394 | ||||||||||||
Deferred product and service revenue | 767,969 | 1,016,892 | 501 | 562 | ||||||||||||
Paycheck Protection Program loan payable, current portion | 73,985 | — | ||||||||||||||
Total current liabilities | 3,713,122 | 3,832,947 | 3,121 | 3,200 | ||||||||||||
Accrued interest | — | 959,659 | ||||||||||||||
Operating lease liabilities, net of current portion | 205,468 | 276,669 | 2,327 | 2,446 | ||||||||||||
Deferred product and service revenue, net of current portion | 108,816 | 197,862 | 318 | 215 | ||||||||||||
2020 senior secured convertible notes payable, net | 16,848,396 | — | 24,515 | 21,280 | ||||||||||||
2010 junior secured notes payable, net | — | 2,072,583 | ||||||||||||||
Paycheck Protection Program loan payable, net of current portion | 822,015 | — | ||||||||||||||
Total liabilities | 21,697,817 | 7,339,720 | 30,281 | 27,141 | ||||||||||||
Commitments and contingencies | ||||||||||||||||
Stockholders’ equity: | ||||||||||||||||
Preferred stock, $0.01 par value; 25,000,000 shares authorized; none issued and outstanding at September 30, 2020 and December 31, 2019 | — | — | ||||||||||||||
Common stock, $0.01 par value; 200,000,000 shares authorized; 15,881,404 shares issued and outstanding at September 30, 2020; and 15,235,308 issued and outstanding at December 31, 2019 | 158,814 | 152,353 | ||||||||||||||
Preferred stock, $0.01 par value; 25,000,000 shares authorized; none issued and outstanding at March 31, 2021 and December 31, 2020 | — | — | ||||||||||||||
Common stock, $0.01 par value; 200,000,000 shares authorized; 20,678,280 shares issued and outstanding at March 31, 2021; and 17,047,584 issued and outstanding at December 31, 2020 | 207 | 170 | ||||||||||||||
Additional paid-in capital | 117,930,011 | 117,173,984 | 165,835 | 121,729 | ||||||||||||
Accumulated deficit | (117,939,725 | ) | (112,739,620 | ) | (122,060 | ) | (119,522 | ) | ||||||||
Total stockholders’ equity | 149,100 | 4,586,717 | 43,982 | 2,377 | ||||||||||||
Total liabilities and stockholders’ equity | $ | 21,846,917 | $ | 11,926,437 | $ | 74,263 | $ | 29,518 |
See accompanying notes to Condensed Consolidated Financial Statements.
4
CLEARPOINT NEURO, INC.
(formerly MRI Interventions, Inc.)
Condensed Consolidated Statements of Operations
(Unaudited)
(Dollars in thousands, except for per share data)
For The Three Months Ended | ||||||||
2020 | 2019 | |||||||
Revenues: | ||||||||
Product revenues | $ | 2,333,550 | $ | 2,594,428 | ||||
Service and other revenues | 1,185,637 | 333,038 | ||||||
Total revenues | 3,519,187 | 2,927,466 | ||||||
Cost of revenues | 718,787 | 983,042 | ||||||
Research and development costs | 1,209,048 | 761,881 | ||||||
Sales and marketing expenses | 1,492,948 | 1,063,143 | ||||||
General and administrative expenses | 1,369,900 | 1,029,929 | ||||||
Operating loss | (1,271,496 | ) | (910,529 | ) | ||||
Other income (expense): | ||||||||
Other (expense) income, net | (11,491 | ) | 728 | |||||
Interest expense, net | (201,245 | ) | (213,167 | ) | ||||
Net loss | $ | (1,484,232 | ) | $ | (1,122,968 | ) | ||
Net loss per share attributable to common stockholders: | ||||||||
Basic and diluted | $ | (0.09 | ) | $ | (0.08 | ) | ||
Weighted average shares outstanding: | ||||||||
Basic and diluted | 15,724,401 | 14,053,508 |
For The Three Months Ended March 31, | ||||||||
2021 | 2020 | |||||||
Revenue: | ||||||||
Product revenue | $ | 3,162 | $ | 2,179 | ||||
Service and other revenue | 868 | 937 | ||||||
Total revenue | 4,030 | 3,116 | ||||||
Cost of revenue | 1,416 | 932 | ||||||
Research and development costs | 1,563 | 818 | ||||||
Sales and marketing expenses | 1,575 | 1,299 | ||||||
General and administrative expenses | 1,657 | 1,276 | ||||||
Operating loss | (2,181 | ) | (1,209 | ) | ||||
Other expense: | ||||||||
Other expense, net | (25 | ) | (4 | ) | ||||
Interest expense, net | (332 | ) | (842 | ) | ||||
Net loss | $ | (2,538 | ) | $ | (2,055 | ) | ||
Net loss per share attributable to common stockholders: | ||||||||
Basic and diluted | $ | (0.13 | ) | $ | (0.13 | ) | ||
Weighted average shares outstanding: | ||||||||
Basic and diluted | 18,852,828 | 15,438,276 |
See accompanying notes to Condensed Consolidated Financial Statements.
5
CLEARPOINT NEURO, INC.(formerly MRI Interventions, Inc.)
Condensed Consolidated Statements of OperationsStockholders’ Equity
(Unaudited)
(Dollars in thousands)
For The | ||||||||
2020 | 2019 | |||||||
Revenues: | ||||||||
Product revenues | $ | 6,030,005 | $ | 6,952,575 | ||||
Service and other revenues | 3,082,558 | 1,053,807 | ||||||
Total revenues | 9,112,563 | 8,006,382 | ||||||
Cost of revenues | 2,276,927 | 2,899,837 | ||||||
Research and development costs | 2,860,877 | 2,044,224 | ||||||
Sales and marketing expenses | 3,915,920 | 3,246,912 | ||||||
General and administrative expenses | 4,013,493 | 2,991,305 | ||||||
Operating loss | (3,954,654 | ) | (3,175,896 | ) | ||||
Other income (expense): | ||||||||
Other (expense) income, net | (5,360 | ) | 8,100 | |||||
Interest expense, net | (1,240,091 | ) | (726,292 | ) | ||||
Net loss | $ | (5,200,105 | ) | $ | (3,894,088 | ) | ||
Net loss per share attributable to common stockholders: | ||||||||
Basic and diluted | $ | (0.33 | ) | $ | (0.31 | ) | ||
Weighted average shares outstanding: | ||||||||
Basic and diluted | 15,556,231 | 12,477,790 |
For The Three Months Ended March 31, 2021 | ||||||||||||||||||||
Additional | ||||||||||||||||||||
Common Stock | Paid-in | Accumulated | ||||||||||||||||||
Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
Balances, January 1, 2021 | 17,047,584 | $ | 170 | $ | 121,729 | $ | (119,522 | ) | $ | 2,377 | ||||||||||
Adoption of ASU 2020-06 (Note 2) | — | — | (3,107 | ) | — | (3,107 | ) | |||||||||||||
Issuances of common stock: | ||||||||||||||||||||
Public offering of common stock | 2,127,660 | 21 | 46,764 | — | 46,785 | |||||||||||||||
Share-based compensation | 20,709 | 1 | 319 | — | 320 | |||||||||||||||
Warrant and option exercises (cash and cashless) | 1,482,327 | 15 | 130 | — | 145 | |||||||||||||||
Net loss for the period | — | — | — | (2,538 | ) | (2,538 | ) | |||||||||||||
Balances, March 31, 2021 | 20,678,280 | $ | 207 | $ | 165,835 | $ | (122,060 | ) | $ | 43,982 |
For The Three Months Ended March 31, 2020 | ||||||||||||||||||||
Additional | ||||||||||||||||||||
Common Stock | Paid-in | Accumulated | ||||||||||||||||||
Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
Balances, January 1, 2020 | 15,235,308 | $ | 152 | $ | 117,174 | $ | (112,740 | ) | $ | 4,586 | ||||||||||
Issuances of common stock: | ||||||||||||||||||||
Share-based compensation | 9,696 | — | 228 | — | 228 | |||||||||||||||
Warrant exercises (cashless) | 262,145 | 3 | (3 | ) | — | — | ||||||||||||||
Net loss for the period | — | — | — | (2,055 | ) | (2,055 | ) | |||||||||||||
Balances, March 31, 2020 | 15,507,149 | $ | 155 | $ | 117,399 | $ | (114,795 | ) | $ | 2,759 |
See accompanying notes to Condensed Consolidated Financial Statements.
6
CLEARPOINT NEURO, INC.(formerly MRI Interventions, Inc.)
Condensed Consolidated Statements of Stockholders’ EquityCash Flows
(Unaudited)
(Dollars in thousands)
For The Nine Months Ended September 30, 2020 | ||||||||||||||||||||
Additional | ||||||||||||||||||||
Common Stock | Paid-in | Accumulated | ||||||||||||||||||
Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
Balances, January 1, 2020 | 15,235,308 | $ | 152,353 | $ | 117,173,984 | $ | (112,739,620 | ) | $ | 4,586,717 | ||||||||||
Issuances of common stock: | ||||||||||||||||||||
Share-based compensation | 9,696 | 97 | 227,871 | — | 227,968 | |||||||||||||||
Warrant exercises (cashless) | 262,145 | 2,621 | (2,621 | ) | — | — | ||||||||||||||
Net loss for the period | — | — | — | (2,054,825 | ) | (2,054,825 | ) | |||||||||||||
Balances, March 31, 2020 | 15,507,149 | 155,071 | 117,399,234 | (114,794,445 | ) | 2,759,860 | ||||||||||||||
Issuances of common stock: | ||||||||||||||||||||
Share-based compensation | 5,538 | 56 | 240,961 | — | 241,017 | |||||||||||||||
Net loss for the period | — | — | — | (1,661,048 | ) | (1,661,048 | ) | |||||||||||||
Balances, June 30, 2020 | 15,512,687 | 155,127 | 117,640,195 | (116,455,493 | ) | 1,339,829 | ||||||||||||||
Issuances of common stock: | ||||||||||||||||||||
Share-based compensation | 248,637 | 2,486 | 291,017 | — | 293,503 | |||||||||||||||
Warrant exercises (cashless) | 120,080 | 1,201 | (1,201 | ) | — | — | ||||||||||||||
Net loss for the period | (1,484,232 | ) | (1,484,232 | ) | ||||||||||||||||
Balances, September 30, 2020 | 15,881,404 | $ | 158,814 | $ | 117,930,011 | $ | (117,939,725 | ) | $ | 149,100 |
For The Nine Months Ended September 30, 2019 | ||||||||||||||||||||
Additional | ||||||||||||||||||||
Common Stock | Paid-in | Accumulated | ||||||||||||||||||
Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
Balances, January 1, 2019 | 11,018,364 | $ | 110,183 | $ | 108,600,405 | $ | (107,199,586 | ) | $ | 1,511,002 | ||||||||||
Cumulative adjustment for adoption of new accounting standard | — | — | — | (244 | ) | (244 | ) | |||||||||||||
Issuances of common stock: | ||||||||||||||||||||
Share-based compensation | 28,462 | 285 | 152,301 | — | 152,586 | |||||||||||||||
Cashless warrant exercises | 20,381 | 204 | (204 | ) | — | — | ||||||||||||||
Net loss for the period | — | — | — | (1,220,725 | ) | (1,220,725 | ) | |||||||||||||
Balances, March 31, 2019 | 11,067,207 | 110,672 | 108,752,502 | (108,420,555 | ) | 442,619 | ||||||||||||||
Issuances of common stock: | ||||||||||||||||||||
Share-based compensation | 3,251 | 32 | 203,962 | — | 203,994 | |||||||||||||||
Warrant exercises | 189,407 | 1,894 | 381,182 | — | 383,076 | |||||||||||||||
May 2019 private placement, net of offering costs of $94,162 | 2,426,455 | 24,265 | 7,403,583 | — | 7,427,848 | |||||||||||||||
Net loss for the period | — | — | — | (1,550,395 | ) | (1,550,395 | ) | |||||||||||||
Balances, June 30, 2019 | 13,686,320 | 136,863 | 116,741,229 | (109,970,950 | ) | 6,907,142 | ||||||||||||||
Issuances of common stock: | ||||||||||||||||||||
Share-based compensation | 157,169 | 1,571 | 217,861 | — | 219,432 | |||||||||||||||
Cashless warrant exercises | 1,145,903 | 11,459 | (11,459 | ) | — | — | ||||||||||||||
Stock option exercise | 2,500 | 25 | 4,325 | — | 4,350 | |||||||||||||||
Net loss for the period | — | — | — | (1,122,968 | ) | (1,122,968 | ) | |||||||||||||
Balances, September 30, 2019 | 14,991,892 | $ | 149,918 | $ | 116,951,956 | $ | (111,093,918 | ) | $ | 6,007,956 |
For The Three Months Ended March 31, | ||||||||
2021 | 2020 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (2,538 | ) | $ | (2,055 | ) | ||
Adjustments to reconcile net loss to net cash flows from operating activities: | ||||||||
Depreciation and amortization | 15 | 58 | ||||||
Share-based compensation | 320 | 228 | ||||||
Payment-in-kind interest | 94 | — | ||||||
Amortization of debt issuance costs and original issue discounts | 35 | 787 | ||||||
Amortization of lease rights of use, net of accretion in lease liabilities | 133 | 25 | ||||||
Increase (decrease) in cash resulting from changes in: | ||||||||
Accounts receivable | (123 | ) | 105 | |||||
Inventory, net | 47 | (365 | ) | |||||
Prepaid expenses and other current assets | (10 | ) | 169 | |||||
Other assets | 3 | 70 | ||||||
Accounts payable and accrued expenses | (54 | ) | (161 | ) | ||||
Accrued interest | — | (960 | ) | |||||
Lease liabilities | (94 | ) | (23 | ) | ||||
Deferred revenue | 41 | (209 | ) | |||||
Net cash flows from operating activities | (2,131 | ) | (2,331 | ) | ||||
Cash flows from investing activities: | ||||||||
Purchases of property and equipment | (40 | ) | — | |||||
Acquisition of licensing rights | — | (441 | ) | |||||
Net cash flows from investing activities | (40 | ) | (441 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from issuance of 2020 senior secured convertible notes, net of financing costs and discount | — | 16,890 | ||||||
Proceeds from public offering of common stock, net of offering costs | 46,785 | — | ||||||
Proceeds from stock option and warrant exercises | 145 | — | ||||||
Repayment of notes payable | — | (2,838 | ) | |||||
Net cash flows from financing activities | 46,930 | 14,052 | ||||||
Net change in cash and cash equivalents | 44,759 | 11,280 | ||||||
Cash and cash equivalents, beginning of period | 20,099 | 5,696 | ||||||
Cash and cash equivalents, end of period | $ | 64,858 | $ | 16,976 | ||||
SUPPLEMENTAL CASH FLOW INFORMATION | ||||||||
Cash paid for: | ||||||||
Income taxes | $ | — | $ | — | ||||
Interest | $ | 214 | $ | 1,043 |
NON-CASH TRANSACTIONS:
· | During the three months ended March 31, 2021 and 2020, the Company recorded net transfers of ClearPoint reusable components having an aggregate net book value of $0.06 million and $0.03 million, respectively, from loaned systems, which are included in property and equipment in the accompanying condensed consolidated balance sheets, to inventory. |
· | In connection with its issuance of the 2020 Secured Notes (see Note 1), the Company incurred financing costs of $0.1 million that were included in accounts payable at March 31, 2020. |
· | As discussed in Note 2, on January 1, 2021, the Company adopted the provisions of Topic 470-20 within the Accounting Standards Codification, which resulted in the elimination of a previously recorded discount in connection with the issuance of the 2020 Secured Notes and a corresponding reduction of additional paid-in capital, each in the amount of $3.1 million. |
See accompanying notes to Condensed Consolidated Financial Statements.
7
CLEARPOINT NEURO, INC.
(formerly MRI Interventions, Inc.)
Condensed Consolidated Statements of Cash Flows(Unaudited)
For The Nine Months Ended September 30, | ||||||||
2020 | 2019 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (5,200,105 | ) | $ | (3,894,088 | ) | ||
Adjustments to reconcile net loss to net cash flows from operating activities: | ||||||||
Depreciation and amortization | 170,057 | 105,310 | ||||||
Share-based compensation | 762,488 | 576,012 | ||||||
Amortization of debt issuance costs and original issue discounts | 855,598 | 523,969 | ||||||
Amortization of lease rights of use, net of accretion in lease liabilities | 74,734 | 76,871 | ||||||
Increase (decrease) in cash resulting from changes in: | ||||||||
Accounts receivable | (359,416 | ) | (895,189 | ) | ||||
Inventory, net | (323,075 | ) | (908,413 | ) | ||||
Prepaid expenses and other current assets | (135,658 | ) | (150,589 | ) | ||||
Other assets | 59,193 | 11,899 | ||||||
Accounts payable and accrued expenses | 59,711 | 1,506,279 | ||||||
Accrued interest | (959,661 | ) | — | |||||
Lease liabilities | (70,896 | ) | (82,448 | ) | ||||
Deferred revenue | (337,969 | ) | 746,682 | |||||
Net cash flows from operating activities | (5,404,999 | ) | (2,383,705 | ) | ||||
Cash flows from investing activities: | ||||||||
Purchases of property and equipment | — | (10,190 | ) | |||||
Acquisition of licensing rights | (441,341 | ) | (150,000 | ) | ||||
Net cash flows from investing activities | (441,341 | ) | (160,190 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from issuance of 2020 senior secured convertible notes, net of financing costs and discount | 16,757,871 | — | ||||||
Proceeds from issuance of Paycheck Protection Program loan | 896,000 | — | ||||||
Proceeds from private placement of common stock, net of offering costs | — | 7,427,848 | ||||||
Proceeds from stock option and warrant exercises | — | 387,426 | ||||||
Repayment of notes payable | (2,837,656 | ) | (2,137,344 | ) | ||||
Net cash flows from financing activities | 14,816,215 | 5,677,930 | ||||||
Net change in cash and cash equivalents | 8,969,875 | 3,134,035 | ||||||
Cash and cash equivalents, beginning of period | 5,695,722 | 3,101,133 | ||||||
Cash and cash equivalents, end of period | $ | 14,665,597 | $ | 6,235,168 | ||||
SUPPLEMENTAL CASH FLOW INFORMATION | ||||||||
Cash paid for: | ||||||||
Income taxes | $ | — | $ | — | ||||
Interest | $ | 1,399,182 | $ | 82,621 |
NON-CASH TRANSACTIONS:
See accompanying notes to Condensed Consolidated Financial Statements.
8
ClearPoint Neuro, Inc.
(formerly MRI Interventions, Inc.)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. | Description of the Business and Financial Condition |
ClearPoint Neuro, Inc. (the “Company”) is a medical device company focused on the development and commercialization of technology that enables physicians to see inside the brain and heart using direct, intra-procedural magnetic resonance imaging (“MRI”) guidance while performing minimally invasive surgical procedures.
The Company’s ClearPoint® system, an integrated system comprised of capital equipment and disposable products, is designed to allow minimally invasive procedures in the brain to be performed in an MRI suite. The Company received 510(k) clearance from the U.S. Food and Drug Administration (“FDA”) in 2010 to market the ClearPoint system in the United States for general neurological interventional procedures. The Company’s ClearTrace® system is a product candidate that is designed to allow catheter-based minimally invasive procedures in the heart to be performed in an MRI suite. Although still a product candidate, the Company has reduced its efforts to commercialize the ClearTrace system.
On February 12, 2020, the Company changed its corporate name from MRI Interventions, Inc. to ClearPoint Neuro, Inc., pursuant to a Certificate of Amendment to the Company’s Amended and Restated Certificate of Incorporation filed with the Secretary of State of the State of Delaware. In addition, effective as of February 12, 2020, the Company’s Board of Directors adopted the Second and Amended Restated Bylaws, to reflect the name change of the Company. No other changes were made to the Company’s certificate of incorporation or bylaws. In connection with the Company’s name change, effective as of the opening of trading on February 12, 2020, the Company’s shares of common stock commenced trading on the Nasdaq Capital Market under the symbol “CLPT”.
COVID-19
On March 11, 2020, the World Health Organization characterized the spread of a novel strain of coronavirus (“COVID-19”) as a global pandemic, and on March 13, 2020, the President of the United States proclaimed that the COVID-19 outbreak in the United States constituted a national emergency. Continued widespread infection in the United States is a possibility. Extraordinary actions have been taken by federal, state and local governmental authorities to combat the spread of COVID-19, including issuance of “stay-at-home” directives and similar mandates for many individuals to substantially restrict daily activities and for many businesses to curtail or cease normal operations. These measures, while intended to protect human life, have led to reduced economic activity, including the postponement or cancellation of elective surgical procedures, which historically have represented approximately 80% of the number of surgical procedures using the Company’s ClearPoint system.
Furthermore, the recessionary conditions on the financial markets and global economy caused by the COVID-19 pandemic could have a material adverse effect on the Company’s business, as hospitals postpone or reduce capital purchases and overall spending. Although muchmost segments of the United States economy hashave reopened, the effects of the COVID-19 pandemic is intensifyingremain intense in mostmany areas of the country, and many public health experts anticipate a COVID-19 surge incontinue to warn of the coming weeks and monthspotential for future surges of fall and winter. ReinstatementCOVID-19. Accordingly, reinstatement of directives and mandates requiring businesses to again curtail or cease normal operations, including the postponement or cancellation of elective surgeries, remains a possibility, just as some jurisdictions rolled back reopening plans in the summer of 2020.possibility. The continuing uncertainty as to whether the federal government will address the resulting fiscal condition in both the near term and long-termlong term with measures such as additional fiscal stimulus, as well as other geopolitical issues relating to the global economic slowdown, has increased domestic and global instability. The rapid development and fluidity of the situation precludespreclude any prediction as to the ultimate impact COVID-19 will have on the Company’s business, financial condition, results of operation and cash flows, which will depend largely on future developments directly or indirectly relating to the duration and scope of the COVID-19 outbreak in the United States.
Liquidity
The Company has incurred net losses since its inception, which has resulted in a cumulative deficit at September 30, 2020March 31, 2021 of $118$122 million. In addition, the Company’s use of cash from operations amounted to $5.4$2.1 million for the ninethree months ended September 30, 2020March 31, 2021 and $2.8$7.8 million for the year ended December 31, 2019.2020. Since its inception, the Company has financed its operations principally from the sale of equity securities, the issuance of notes payable, product and service contracts and license arrangements.
ClearPoint Neuro, Inc.
(formerly MRI Interventions, Inc.)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
As discussed in Note 7, in May 2019, the Company entered into a Securities Purchase Agreement with certain accredited investors under which such investors purchased 2,426,455 shares of the Company’s common stock at $3.10 per share (the “2019 PIPE), resulting in proceeds of approximately $7.5 million, before deducting offering expenses aggregating approximately $94,000.
In addition, as discussed in Note 5, in January 2020, the Company entered into a Securities Purchase Agreement (the “SPA”) with two investors (the “2020 Convertible Noteholders”) under which the Company issued to such investors an aggregate principal amount of $17.5 million of floating rate secured convertible notes (the “2020 Secured“First Closing Notes”), resulting in proceeds, net of financing costs, paid and payable, and a commitment fee paid to one of the investors,2020 Convertible Noteholders, of approximately $16.8 million. From the net proceeds received from the issuance of the 2020 SecuredFirst Closing Notes, which have a five-year term, the Company repaid and retired the 2010 Junior Secured Notes Payable (the “2010 Secured Notes”) that otherwise would have matured in October and November 2020.
ClearPoint Neuro, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Also, as discussedThe SPA also gave the Company the right, but not the obligation, to request one of the 2020 Noteholders to purchase an additional $5.0 million in principal amount of a note (the “Second Closing Note”, and, together with the First Closing Note, 5,the “2020 Secured Notes”). On December 29, 2020, under the terms of an amendment to the SPA which, among other provisions, increased the principal amount of the Second Closing Note, the Company issued the Second Closing Note to the 2020 Convertible Noteholder in the principal amount of $7.5 million.
In April 2020, the Company received $896,000$0.9 million in proceeds through a loan funded under the Payroll Protection Program as part of the CARES Act. As of September 30,Act (the “PPP Loan”). In November 2020, the Company has retained and expanded its employee base and has usedwas notified by the funds forU.S. Small Business Administration that the purposes describedloan had been forgiven under the termsprovision of the loan. CARES Act.
See Note 5 for additional information with respect to the 2020 Secured Notes and the PPP Loan.
As a result,discussed in Note 7, on February 23, 2021, the Company has submitted an application requesting that allcompleted a public offering of 2,127,660 shares of its common stock. Net proceeds from the loan be forgiven. However, there is no assurance thatoffering were approximately $46.8 million after deducting the Company will be successful in obtaining such forgiveness.underwriting discounts and commissions and other estimated offering expenses payable by the Company.
Based on the foregoing, in management’s opinion, cash and cash equivalent balances at September 30, 2020, when combined with the proceeds from issuance of the 2020 Secured Notes (after repayment of the 2010 Secured Notes) and receipt of the proceeds from the loan funded under the Payroll Protection Program,March 31, 2021, are sufficient to support the Company’s operations and meet its obligations for at least the next twelve months.
2. | Basis of Presentation and Summary of Significant Accounting Policies |
Basis of Presentation and Use of Estimates
In the opinion of management, the accompanying unaudited condensed consolidated financial statements have been prepared on a basis consistent with the Company’s December 31, 20192020 audited consolidated financial statements, and include all adjustments, consisting of only normal recurring adjustments, necessary to fairly state the information set forth therein. These condensed consolidated financial statements have been prepared in accordance with United States Securities and Exchange Commission (“SEC”)SEC rules for interim financial information, and, therefore, omit certain information and footnote disclosures necessary to present such statements in accordance with generally accepted accounting principles in the U.S. (“GAAP”). The preparation of these condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues,revenue, expenses and the related disclosures at the date of the financial statements and during the reporting period. Actual results could materially differ from these estimates. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s 20192020 Form 10-K. The accompanying condensed consolidated balance sheet as of December 31, 20192020 has been derived from the audited consolidated financial statements at that date but does not include all information and footnotes required by GAAP for a complete set of financial statements. The results of operations for the three and nine months ended September 30, 2020March 31, 2021 may not be indicative of the results to be expected for the entire year or any future periods.
Inventory
Inventory is carried at the lower of cost (first-in, first-out method) or net realizable value. Items in inventory relate predominantly to the Company’s ClearPoint system. Software license inventory related to ClearPoint systems undergoing on-site customer evaluation is included in inventory in the accompanying condensed consolidated balance sheets. All other software license inventory is classified as a non-current asset. The Company periodically reviews its inventory for obsolete items and provides a reserve upon identification of potential obsolete items.
10
ClearPoint Neuro, Inc.
(formerly MRI Interventions, Inc.)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Intangible Assets
In 2020 and 2019, theThe Company entered intois a party to certain license agreements that provide rights to the Company for the development and commercialization of products in the functional neurosurgery field. Under the terms of those certain license agreements, the Company paid an aggregate $591,341made payments to the licensors upon execution of the license agreements for access to the underlying technologies and will make future payments based on the achievement of regulatory and commercialization milestones as defined in the license agreements.
9
ClearPoint Neuro, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
In conformity with Accounting Standards Codification Section 350, “Intangibles – Goodwill and Other,” the Company amortizes its investment in the license rights described above over an expected useful life of five years. In addition, the Company periodically evaluates the recoverability of its investment in the license rights and records an impairment charge in the event such evaluation indicates that the Company’s investment is not likely of being recovered.
Revenue Recognition
The Company’s revenues arerevenue is comprised primarily of: (1) product revenuesrevenue resulting from the sale of functional neurosurgery, navigation, therapy, and biologics and drug delivery disposable products; (2) product revenuesrevenue resulting from the sale of ClearPoint capital equipment and software; (3) revenuesrevenue resulting from the service, installation, training and shipping related to ClearPoint capital equipment and software; and (4) clinical case support revenuesrevenue in connection with customer-sponsored clinical trials. The Company recognizes revenue when control of the Company’s products and services is transferred to its customers in an amount that reflects the consideration the Company expects to receive from its customers in exchange for those products and services, in a process that involves identifying the contract with a customer, determining the performance obligations in the contract, determining the contract price, allocating the contract price to the distinct performance obligations in the contract, and recognizing revenue when the performance obligations have been satisfied. A performance obligation is considered distinct from other obligations in a contract when it provides a benefit to the customer either on its own or together with other resources that are readily available to the customer and is separately identified in the contract. When a contract calls for the satisfaction of multiple performance obligations for a single contract price, the Company allocates the contract price among the performance obligations based on the relative stand-alone prices for each such performance obligation customarily charged by the Company. The Company considers a performance obligation satisfied once it has transferred control of a good or service to the customer, meaning the customer has the ability to use and obtain the benefit of the good or service. The Company recognizes revenue for satisfied performance obligations only when it determines there are no uncertainties regarding payment terms or transfer of control.
Lines of Business; Timing of Revenue Recognition
· | Functional neurosurgery navigation product, biologics and drug delivery systems product, and therapy product sales: |
· | Capital equipment and software sales |
o | Capital equipment and software sales preceded by evaluation periods: The predominance of capital equipment and software sales (consisting of integrated computer hardware and software that are integral components of the Company’s ClearPoint system) are preceded by customer evaluation periods of generally 90 days. During these evaluation periods, installation of, and training of customer personnel on, the systems have been completed and the systems have been in operation. Accordingly, revenue from capital equipment and software sales following such evaluation periods is recognized at the point in time the Company is in receipt of an executed purchase agreement or purchase order. |
11
ClearPoint Neuro, Inc.
(formerly MRI Interventions, Inc.)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
o | Capital equipment and software sales not preceded by evaluation periods: Revenue from sales of capital equipment and software not having been preceded by an evaluation period is recognized at the point in time that the equipment has been delivered to the customer. |
ClearPoint Neuro, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
For both types of capital equipment and software sales described above, the Company’s determination of the point in time at which to recognize revenue represents that point at which the customer has legal title, physical possession, and the risks and rewards of ownership, and the Company has a present right to payment.
· | Therapy services: The Company recognizes revenue for such services at the point in time that the performance obligation has been satisfied. |
· | Biologics and drug delivery |
Service Access Fees: For contracts in which the Company receives a periodic fixed fee, irrespective of the number of cases attended by Company personnel during such periods, revenue is recognized ratably over the period covered by such fees. A time-elapsed output method is used for such fees because the Company transfers control evenly by providing a stand-ready service. |
Procedure-Based |
· | Capital equipment-related services: |
o | Equipment service: Revenue from service of ClearPoint capital equipment and software previously sold to customers is based on agreements with terms ranging from one to three years and revenue is recognized ratably on a monthly basis over the term of the service agreement. A time-elapsed output method is used for |
o | Installation, training and shipping: Consistent with the Company’s recognition of revenue for capital equipment and software sales as described above, fees for installation, training and shipping in connection with sales of capital equipment and software that have been preceded by customer evaluation periods are recognized as revenue at the point in time the Company is in receipt of an executed purchase order for the equipment and software. Installation, training and shipping fees related to capital equipment and software sales not having been preceded by an evaluation period are recognized as revenue at the point in time that the related services are performed. |
The Company operates in one industry segment, and substantially all its sales are to U.S.-based customers.
Payment terms under contracts with customers generally are in a range of 30-60 days after the customers’ receipt of the Company’s invoices.
ClearPoint Neuro, Inc.
(formerly MRI Interventions, Inc.)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The Company provides a one-year warranty on its functional neurosurgery navigation products, biologics and drug delivery products, and capital equipment and software products that are not otherwise covered by a third-party manufacturer’s warranty. The Company’s contracts with customers do not provide for a right of return other than for product defects.
See Note 3 for additional information regarding revenue recognition.
Net Loss Per Share
The Company computes net loss per share using the weighted-average number of common shares outstanding during the period. Basic and diluted net loss per share are the same because the conversion, exercise or issuance of all potential common stock equivalents, which comprise the entire amount of the Company’s outstanding common stock options and warrants, as described in Note 7, and the potential conversion of the 2020 Secured Notes and the Second Closing Note, as described in Note 5, would be anti-dilutive.
11
ClearPoint Neuro, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Concentration Risks and Other Risks and Uncertainties
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. The Company holds substantially all its cash and cash equivalents on deposit with financial institutions in the U.S. insured by the Federal Deposit Insurance Corporation. At September 30, 2020,March 31, 2021, the Company had approximately $7.9$60 million in bank balances that were in excess of the insured limits.
Information with respect to accounts receivable from those customers who comprised more than 10%One customer accounted for 14% of accounts receivable at September 30, 2020March 31, 2021, and one customer accounted for 11% of accounts receivable at December 31, 2019 is as follows:2020.
September 30, 2020 | December 31, 2019 | |||||||||
Customer – 1 | 12% | 12% |
Information with respect to customers thatOne customer, a related party as discussed in Note 3, accounted for sales in excess of 10%17% and 28% of total sales in the three-month periods ended September 30,March 31, 2021 and 2020, and 2019 is as follows:respectively.
September 30, | ||||||||||
2020 | 2019 | |||||||||
Customer – 1 | 15% | — |
Information with respect to customers that accounted for sales in excess of 10% of total sales in the nine-month periods ended September 30, 2020 and 2019 is as follows:
September 30, | ||||||||||
2020 | 2019 | |||||||||
Customer – 1 | 18% | — |
Prior to granting credit, the Company performs credit evaluations of its customers’ financial condition, and generally does not require collateral from its customers. The Company will provide an allowance for doubtful accounts when collections become doubtful. The allowance for doubtful accounts at September 30, 2020each of March 31, 2021 and December 31, 20192020 was approximately $43,000 and $29,000, respectively.$0.06 million.
The Company is subject to risks common to emerging companies in the medical device industry, including, but not limited to: new technological innovations; acceptance and competitiveness of its products; dependence on key personnel; dependence on key suppliers; changes in general economic conditions and interest rates; protection of proprietary technology; compliance with changing government regulations; uncertainty of widespread market acceptance of products; access to credit for capital purchases by customers; and product liability claims. Certain components used in manufacturing have relatively few alternative sources of supply and establishing additional or replacement suppliers for such components cannot be accomplished quickly. The inability of any of these suppliers to fulfill the Company’s supply requirements may negatively impact future operating results.
Adoption of New Accounting Standard
Effective January 1, 2021, the Company adopted, on a modified retrospective method of transition, the provisions of Accounting Standards Update No. 2020-06, “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40) – Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (the “ASU”). The ASU is effective for public companies, other than smaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2021, and for smaller reporting companies, which is the Company’s current classification, for fiscal years beginning after December 31, 2023. However, the ASU permits early adoption no earlier than for fiscal years beginning after December 31, 2020, and the Company elected such early adoption. The ASU amends prior authoritative literature to reduce the number of accounting models for, among others, convertible debt instruments for which the embedded conversion features of such instruments had previously been required to be separated from the host contract. The Company determined that the conversion feature embedded in the Second Closing Note (see Note 5) was within the scope of the ASU. Accordingly, the discount originally recorded in connection with the issuance of the Second Closing Note and a corresponding amount recorded in additional paid-in capital, each in the amount of approximately $3.1 million at the date of issuance of the Second Closing Note, were reversed as of the date of adoption of the ASU.
Reclassifications
The accompanying consolidated statement of operations for the three months ended March 31, 2021 contains: (a) certain items formerly classified as service revenue that that have been reclassified to product revenue; (b) certain items formerly classified as general and administrative expenses, research and development expenses, and sales and marketing expenses that have been reclassified to cost of revenue; and (c) an item formerly classified as interest expense that has been reclassified as other expense. The accompanying condensed consolidated statement of operations for the three months ended March 31, 2020 has been conformed to the 2021 presentation.
13
ClearPoint Neuro, Inc.
(formerly MRI Interventions, Inc.)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
3. | Revenue Recognition |
Revenue by Service Line
Three Months Ended September 30, | ||||||||
2020 | 2019 | |||||||
Functional neurosurgery navigation | ||||||||
Disposable products | $ | 1,840,060 | $ | 1,854,251 | ||||
Therapy | ||||||||
Disposable products | — | 64,095 | ||||||
Services | — | 50,000 | ||||||
Subtotal – therapy revenue | — | 114,095 | ||||||
Biologics and drug delivery | ||||||||
Disposable products | 419,946 | 491,257 | ||||||
Services | 1,054,622 | 72,500 | ||||||
Subtotal – biologics and drug delivery revenue | 1,474,568 | 563,757 | ||||||
Capital equipment and software | ||||||||
Systems and software products | 73,544 | 184,825 | ||||||
Services | 131,015 | 210,538 | ||||||
Subtotal – capital equipment and software revenue | 204,559 | 395,363 | ||||||
Total revenue | $ | 3,519,187 | $ | 2,927,466 |
Nine Months Ended September 30, | ||||||||
2020 | 2019 | |||||||
Functional neurosurgery navigation | ||||||||
Disposable products | $ | 4,573,484 | $ | 5,212,460 | ||||
Therapy | ||||||||
Disposable products | 78,800 | 81,925 | ||||||
Services | 25,000 | 200,000 | ||||||
Subtotal – therapy revenue | 103,800 | 281,925 | ||||||
Biologics and drug delivery | ||||||||
Disposable products | 1,000,276 | 957,673 | ||||||
Services | 2,646,050 | 338,112 | ||||||
Subtotal – biologics and drug delivery revenue | 3,646,326 | 1,295,785 | ||||||
Capital equipment and software | ||||||||
Systems and software products | 377,445 | 700,517 | ||||||
Services | 411,508 | 515,695 | ||||||
Subtotal – capital equipment and software revenue | 788,953 | 1,216,212 | ||||||
Total revenue | $ | 9,112,563 | $ | 8,006,382 |
ClearPoint Neuro, Inc.
(formerly MRI Interventions, Inc.)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Three Months Ended March 31, | ||||||||
(in thousands) | 2021 | 2020 | ||||||
Functional neurosurgery navigation and therapy | ||||||||
Disposable products | $ | 1,917 | $ | 1,742 | ||||
Biologics and drug delivery | ||||||||
Disposable products | 914 | 173 | ||||||
Services | 746 | 856 | ||||||
Subtotal – biologics and drug delivery revenue | 1,660 | 1,029 | ||||||
Capital equipment and software | ||||||||
Systems and software products | 331 | 264 | ||||||
Services | 122 | 81 | ||||||
Subtotal – capital equipment and software revenue | 453 | 345 | ||||||
Total revenue | $ | 4,030 | $ | 3,116 |
Contract Balances
· | Contract assets – Substantially all the Company’s contracts with customers are based on customer-issued purchase orders for distinct products or services. Customers are billed upon delivery of such products or services, and the related contract assets comprise the accounts receivable balances included in the accompanying condensed consolidated balance sheets. |
· | Contract liabilities – The Company generally bills and collects capital equipment and software-related service fees at the inception of the service agreements, which have terms ranging from one to three years. The unearned portion of such service fees |
During the three and nine months ended September 30, 2020,March 31, 2021, the Company recognized capital equipment and software-related service revenue of approximately $69,000 and $283,000, respectively,$0.1 million, which was previously included in deferred revenue in the accompanying condensed consolidated balance sheet at December 31, 2019.2020.
In September 2019, the Company entered into a Development Services Agreement with a customer under which the Company was entitled to bill the customer for an upfront payment of $127,600,$0.13 million, of which approximately $83,000 and $102,000 are$0.06 million is included in deferred revenue in each of the accompanying September 30, 2020March 31, 2021 and December 31, 20192020 condensed consolidated balance sheets, respectively.sheets.
Also,Commencing in September 2019, the Company entered intowas a party to a Letter of Intent followed byand a related Statement of Work (together with the Letter of Intent, the “Project Documents”) in November 2019, with a customer whichwho is a stockholder and whose then Chief Operating Officer wasa noteholder (see Note 5), and an officer of whom is a member of the Company’s Board of Directors, (and was subsequently replaced with the customer’s Chief Development Officer), to commence a product development project. Under the terms of the Project Documents, the Company was entitled to bill the customer for: (a) an upfront, nonrefundable payment of $500,000;$0.5 million which was received in 2019; and (b) quarterly service fees of $500,000 commencing in the fourth quarter of 2019.$0.5 million. In February 2020, the Company entered into a Supply Agreement and a Statement of Work (the “European SOW”) with a European affiliate of the customer. Under the terms of the European SOW, the Company was entitled to bill the customer on a quarterly basis, commencing in the first quarter of 2020, for service fees of $250,000.$0.25 million. During the nine months ended September 30, 2020, the clinical trials contemplated by the Project Documents and the European SOW were delayed as a result of the COVID-19 pandemic. As a result, the Company agreed to reduce such quarterly service fees by an aggregate of $50,000 and $250,000 during the three and nine months ended$0.25 million through September 30, 2020. In November 2020, respectively.the Company entered into an addendum to the Project Documents and the European SOW that, among other provisions, set the customer’s aggregate at $0.7 million per quarter, effective October 1, 2020. The Company recognizesrecognized as revenue each of the upfront paymentspayment described in this paragraph in proportional relationshipratably over the initial two years of the term of the Project Documents, corresponding to the transaction prices ofestimated period in which the related performance obligations contained in the related agreements,were expected to be satisfied, and recognizes as revenue the quarterly service fees described in this paragraph as stand-by services beginning in the quarter such services commenced. Based on the foregoing,foregoing: (a) the Company recognized revenue of approximately $268,000$0.7 million for each of the three months ended March 31, 2021 and $625,0002020; (b) there was no accounts receivable balance from the customer at March 31, 2021; accounts receivable from the customer at December 31, 2020 amounted to approximately $0.1 million; and (c) approximately $0.07 million and $0.1 million of the aggregate amount of all the payments described in this paragraph were included in deferred revenue in the accompanying condensed consolidated balance sheets at September 30, 2020March 31, 2021 and December 31, 2019,2020, respectively.
13
ClearPoint Neuro, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The Company offers an upgraded version of its software at no additional charge to customers purchasing a three-year systems service agreement. The transaction prices of the software and the service agreement are determined through an allocation of the service agreement price based on the standalone prices of the software and the service agreements.agreements customarily charged by the Company. The transaction price of the software is recognized as revenue upon its installation and comprised approximately $66,000 and $172,000$0.1 million of unbilled accounts receivable at September 30, 2020each of March 31, 2021 and December 31, 2019, respectively.2020.
Remaining Performance Obligations
The Company’s contracts with customers, other than capital equipment and software-related service agreements discussed below, are predominantly of terms less than one year. Accordingly, the transaction priceprices of remaining performance obligations related to such contracts at September 30, 2020March 31, 2021 are not material.
Revenue with respect to remaining performance obligations related to capital equipment and software-related service agreements with original terms in excess of one year and the upfront payments discussed under the heading “Contract Balances” above amounted to approximately $383,000$0.6 million at September 30, 2020.March 31, 2021. The Company expects to recognize this revenue within the next three years.
15
ClearPoint Neuro, Inc.
(formerly MRI Interventions, Inc.)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
4. | Inventory |
Inventory consists of the following as of:
September 30, 2020 | December 31, 2019 | |||||||||||||||
(in thousands) | March 31, 2021 | December 31, 2020 | ||||||||||||||
Raw materials and work in process | $ | 1,724,106 | $ | 1,495,190 | $ | 1,630 | $ | 1,485 | ||||||||
Software licenses | 227,500 | 332,500 | 175 | 193 | ||||||||||||
Finished goods | 1,583,037 | 1,412,528 | 1,461 | 1,560 | ||||||||||||
Inventory, net, included in current assets | 3,534,643 | 3,240,218 | 3,266 | 3,238 | ||||||||||||
Software licenses – non-current | 571,800 | 504,400 | 589 | 589 | ||||||||||||
Total | $ | 4,106,443 | $ | 3,744,618 | $ | 3,855 | $ | 3,827 |
5. | Notes Payable |
2020 Secured Notes
On January 29, 2020 (the “Closing Date”), the Company completed a financing transaction (the “2020 Financing Transaction”) with two investors (the “2020the 2020 Convertible Noteholders”),Noteholders, whereby the Company issued an aggregate principal amount of $17,500,000 of the 2020 SecuredFirst Closing Notes pursuant to a Securities Purchase Agreement (the “SPA”)the SPA dated January 11, 2020. Unless earlier converted or redeemed, the 2020 SecuredFirst Closing Notes will mature on the fifth anniversary of the Closing Date, and bear interest at a rate equal to the sum of (i) the greater of (x)(a) the three (3)-month London Interbank Offered Rate (“LIBOR”) and (y)(b) two percent (2%), plus (ii) a margin of 2% on the outstanding balance of the 2020 SecuredFirst Closing Notes, payable quarterly on the first business day of each calendar quarter. The 2020 SecuredFirst Closing Notes may be converted at a price of $6.00 per share, subject to certain adjustments set forth in the SPA, and may not be pre-paid without the consent of the noteholder, provided that the Company must offer to pre-pay such other noteholder on the same terms and conditions. Prior to maturity,
At the 2020 Convertible Noteholders will haveClosing Date, the SPA gave the Company the right, but not the obligation, to convert all or any portion of the outstanding balance of their notes, including any accrued but unpaid interest, into shares of the Company’s common stock at a conversion price of $6.00 per share, subject to certain adjustments as set forth in the 2020 Secured Notes. The 2020 Secured Notes are secured by all the assets of the Company.
Pursuant to the terms and subject to the conditions of the SPA,request at any time on or prior to January 11, 2022, the Company shall have the right, but not the obligation, to request that one of the 2020 Convertible Noteholders purchase an additional $5,000,000$5.0 million in aggregate principal amount of Second Closing Notes (as defined in the SPA)Note and an additional $10,000,000$10.0 million in aggregate principal amount of additional Third Closing NotesNote (as defined in the SPA) (together,SPA; together, with the Second Closing Note, the “Additional Convertible Notes”), provided that such 2020 Convertible Noteholder has the right, but not the obligation, to purchase such notes. As of September 30, 2020, the Company had made no requests of the 2020 Convertible Noteholder to purchase any of the Additional Convertible Notes. The terms of the Additional Convertible Notes are the same as the terms of the 2020 Secured Notes, except that: (a) the Additional Convertible Notes would bear interest at a rate equalalso mature on the fifth anniversary of the Closing Date.
ClearPoint Neuro, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
On December 29, 2020, the Company and the 2020 Convertible Noteholders entered into an amendment to the sumSPA (the “Amendment”), the terms of (i)which, among other provisions, provided for: (a) an increase in the greater of (x) the three (3)-month LIBOR and (y) 2%, plus (ii) a margin of 7% on their outstanding balance; and (b) only 70%principal amount of the Additional Convertible Notes’ principal amount outstanding would be convertible into sharesSecond Closing Note to $7.5 million; (b) a revision of the Company’s common stock.interest rate to be borne by the Second Closing Note to consist of: (i) cash interest of 2% per annum, payable quarterly; and (ii) payment-in-kind interest of 5% per annum, accruable quarterly as an addition to the unpaid principal balance of the Second Closing Note; and (c) an increase in the conversion price of the Second Closing Notes to $10.14 per share, subject to certain adjustments set forth in the SPA. Upon execution of the Amendment, the Company issued the Second Closing Note.
The aggregate carrying amount of the 2020 SecuredFirst Closing Notes in the accompanying September 30,March 31, 2021 and December 31, 2020 condensed consolidated balance sheetsheets is presented net of: (a) financing costs, comprised of commissions and legal expenses, having an unamortized balance of $388,000;$0.3 million and $0.4 million at those respective dates; and (b) a discount, comprised of a commitment fee paid to one of the 2020 Convertible Noteholders, having an unamortized balance amounting to $263,000$0.2 million at that date.each of those respective dates. The unamortized balance of the financing costs and the discount are charged to interest expense over the term of the 2020 SecuredFirst Closing Notes under the effective interest method.
ClearPoint Neuro, Inc.
(formerly MRI Interventions, Inc.)
The carrying amount of the Second Closing Note in the accompanying December 31, 2020 consolidated balance sheet is presented net of a discount, amounting to approximately $3.1 million at December 31, 2020, and representing the value of the deemed beneficial conversion feature embedded in the Second Closing Note. A beneficial conversion feature is deemed to be beneficial when the conversion price, discussed above, is lower than the closing price per share of the Company’s common stock, which was $14.34 on the date of issuance of the Second Closing Note. Under GAAP in existence at the date of issuance of the Second Closing Note, the resulting discount was calculated as the product of (i) the number of shares into which the Second Closing Note could be converted, multiplied by (ii) the difference between the closing price per share and the conversion price. Upon recordation of the discount, a corresponding amount was added to additional paid-in capital. As discussed in Note 2, effective January 1, 2021, the Company adopted the provisions of the ASU that no longer required such beneficial conversion features to be separately accounted for as previously described in this paragraph. As a result, the accompanying March 31, 2021 condensed consolidated balance sheet reflects the elimination of both the discount and the corresponding increase to additional paid-in capital previously described in this paragraph.
Under the terms of the SPA, as amended, the Company retains the right, but not the obligation, to request the 2020 Convertible Noteholder to purchase the Third Closing Note, and the 2020 Convertible Noteholder has the right, but not the obligation, to purchase such note. As of March 31, 2021, the Company had not made such a request.
The 2020 Secured Notes to Condensed Consolidated Financial Statements
(Unaudited)are secured by all the assets of the Company.
An executive officer of one of the 2020 Convertible Noteholders is a member of the Company’s Board of Directors, and, pursuant to the terms of the SPA and a Board Observer Agreement entered into by the other 2020 Convertible Noteholder and the Company, the other 2020 Convertible Noteholder appointed an individuala representative to attend and observe meetings of the Company’s Board of Directors. On February 25, 2021, such 2020 Convertible Noteholder terminated the Board Observer Agreement, thus precluding its representative from attending future meetings of the Company’s Board of Directors.
On January 27, 2020, as a condition to completion of the 2020 Financing Transaction, the Company entered into the Fourth Omnibus Amendment to notes the 2010 Secured Notes, whereby the 2010 Secured Notes were subordinated to the Company’s obligations under the terms of the 2020 Secured Notes and the Additional Convertible Notes, as applicable. During its first fiscal quarter ofthe three months ended March 31, 2020, the Company repaid in full the aggregate outstanding principal amount of the 2010 Secured Notes, amounting to approximately $2.8 million, which, along with the Company’s payment of accrued interest amounting to approximately $920,000,$0.9 million, resulted in the full retirement of the 2010 Secured Notes.
Payroll Protection Program Loan
In April 2020, the Company received $896,000 in proceeds through an unsecured loan funded under the Payroll Protection Program as part of the CARES Act, which was enacted by the U.S. Congress in response to the COVID-19 pandemic. The loan has a term through August 2023, bears interest at 1% per annum, and is payable monthly beginning in August 2021. During the period in which the loan has been outstanding, the Company has retained its employee base and has submitted an application for the loan to be forgiven in conformity with the loan’s terms. However, there is no assurance that the Company will be successful in obtaining approval for such forgiveness from the U.S. Small Business Administration. Accordingly, until and unless the Company obtains such approval, the note is presented as a note payable in conformity with its payment terms in the accompanying consolidated balance sheets.
2010 Secured Notes
The indebtedness outstanding under the 2010 Secured Notes at December 31, 2019 was $2.8 million. As discussed above, during the first fiscal quarter of 2020, the Company repaid in full the aggregate outstanding principal amount of the 2010 Secured Notes, together with accrued interest. The Company’s Chairman of its Board of Directors and one of the Company’s officers held 2010 Secured Notes purchased at the date of original issuance having an aggregate principal balance of $197,000.
The carrying amount of the 2010 Secured Notes in the accompanying December 31, 2019 condensed consolidated balance sheet is presented net of a discount, having an unamortized balance amounting to $765,073 at that date, arising from shares issued to the noteholders at issuance of the 2010 Secured Notes. During the nine months ended September 30, 2020, the unamortized balance of this discount was charged to interest expense upon the Company’s repayment of the 2010 Secured Notes.
Scheduled Notes Payable Maturities
Scheduled principal payments as of September 30, 2020March 31, 2021 with respect to notes payable are summarized as follows:
Years ending December 31, | ||||
2020 | $ | — | ||
2021 | 185,192 | |||
2022 | 447,621 | |||
2023 | 263,187 | |||
2024 | — | |||
Thereafter | 17,500,000 | |||
Total scheduled principal payments | 18,396,000 | |||
Less: Unamortized financing costs and discount | (651,604 | ) | ||
Total | $ | 17,744,396 |
Years ending December 31, | (in thousands) | |||
2025 | $ | 25,097 | ||
Total scheduled principal payments | 25,097 | |||
Less: Unamortized financing costs and discount | (582 | ) | ||
Total | $ | 24,515 |
1715
ClearPoint Neuro, Inc.
(formerly MRI Interventions, Inc.)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
6. | Leases |
The Company leases office space in Irvine, California that houses its headquartersoffice space and manufacturing facility under a non-cancellable operating lease. The lease term commenced on October 1, 2018 and expires in September 2023. The Company has the option to renew the lease for two additional periods of five years each. The Company also leases office space in Mississauga, Ontario, Canada forSolana Beach, California that houses certain management, and research and development personnel, and now serves as its software development personnel.corporate headquarters. The lease term commenced on August 1, 2018,December 15, 2020, is set to expire on December 31, 2026, and is renewable for an additional five-year period, at the CompanyCompany’s option, provided that the Company’s landlord has entered into an agreement withextension of its lease for the landlord to terminateoffice space that encompasses the lease in November 2020.Company’s office space for at least five years. Both office leases are classified as operating leases in conformity with the provisions of Topic 842.GAAP.
The lease costscost, included in general and administrative expenses were $31,252expense, was $0.1 million and $27,468$0.03 million for the three months ended September 30,March 31, 2021 and 2020, and 2019, respectively, and were $87,690 and $82,405 for the nine months ended September 30, 2020 and 2019, respectively.
7. | Stockholders’ Equity |
2019 Private Placement2021 Public Offering
On May 9, 2019,February 23, 2021, the Company entered intocompleted a Securities Purchase Agreement (the “Purchase Agreement”) with certain accredited investors (collectively, the “Investors”) for the private placementpublic offering of 2,426,4552,127,660 shares of the Company’sits common stock, composed of 1,850,140 shares of common stock initially offered at $3.10a public offering price of $23.50 per share and an additional 277,520 shares of common stock sold pursuant to the exercise of the underwriters’ option to purchase additional shares at the price of $22.09 per share. The Company received aggregate gross
Net proceeds offrom the offering totaled approximately $7.5$46.8 million beforeafter deducting underwriting discounts and commissions, and other offering expenses aggregating approximately $94,000.paid by the Company.
The Purchase Agreement alsounderwriting agreement contains representations, warranties, agreements and warrantiesindemnification obligations by the Company and the Investors and covenants of the Company and the Investors (including indemnification from the Company in the event of breaches of its representations and warranties), certain information rights and other rights, obligations and restrictions, which the Company believesthat are customary for transactionsthis type of this type.transaction.
Issuance of Common Stock in Lieu of Cash Payments
Under the terms of the Amended and Restated Non-Employee Director Compensation Plan, each compensated non-employee member of the Company’s Board of Directors may elect to receive all or part of his or her director fees in shares of the Company’s common stock. Director fees, whether paid in cash or in shares of common stock, are payable quarterly on the last day of each fiscal quarter. The number of shares of common stock issued to directors is determined by dividing the product of: (i)(a) the fees otherwise payable to each director in cash, times (b) the percentage of fees the director elected to receive in shares of common stock, by (ii) the volume weighted average price per share of common stock over the last five trading days of the quarter. The following is information regardingDuring the number ofthree months ended March 31, 2021 and 2020, 2,009 shares and 9,731 shares, respectively, were issued to directors as payment for director fees amounting to $0.04 million in lieueach of cash for the threethree-month periods ended March 31, 2021 and nine months ended September 30, 2020 and 2019:2020.
Three Months Ended September 30, | ||||||
2020 | 2019 | |||||
6,141 | 5,720 |
Nine Months Ended September 30, | ||||||
2020 | 2019 | |||||
25,704 | 23,459 |
Stock Incentive Plans
The Company has various share-based compensation plans and share-based compensatory contracts (collectively, the “Plans”) under which it has granted share-based awards, such as stock grants, and incentive and non-qualified stock options, to employees, directors, consultants and advisors. Awards may be subject to a vesting schedule as set forth in individual award agreements. Certain of the Plans also have provided for cash-based performance bonus awards.
ClearPoint Neuro, Inc.
(formerly MRI Interventions, Inc.)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
From October 2017 until June 2020, the Company granted share-based awards under the Company’s Second Amended and Restated 2013 Incentive Compensation Plan (the “Second Amended Plan”). On June 2, 2020, the Company’s stockholders approved the Company’s Third Amended and Restated 2013 Incentive Compensation Plan (the “Third Amended Plan” and, together with the Second Amended Plan, the “2013 Plan”), under which 11.0 million shares of the Company’s common stock were made available for future issuances under the 2013 Plan, resulting in a total of 2,956,250 shares of the Company’s common stock being reserved for issuance under the 2013 Plan. Of this amount, stock grants of 652,157681,192 shares have been awarded and option grants, net of options terminated, expired or forfeited, of 1,260,4471,269,947 shares were outstanding as of September 30, 2020.March 31, 2021. Accordingly, 1,043,6461,005,111 shares remained available for grants under the 2013 Plan as of that date.
16
ClearPoint Neuro, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Stock option activity under all of the Company’s Plans during the ninethree months ended September 30, 2020March 31, 2021 is summarized below:
Shares | Weighted- average Exercise price per share | Intrinsic Value(1) | |||||||||||
Outstanding at January 1, 2020 | 1,639,167 | $ | 9.87 | $ | 2,892,027 | ||||||||
Granted | 255,213 | 4.34 | 321,965 | ||||||||||
Exercised | (833 | ) | 1.74 | ||||||||||
Outstanding at September 30, 2020 | 1,893,547 | $ | 9.59 | $ | 4,103,901 |
Shares | Weighted- average Exercise price per share | Intrinsic Value(1) (in thousands) | ||||||||||
Outstanding at January 1, 2021 | 1,806,092 | $ | 7.12 | $ | 20,760 | |||||||
Exercised | (416,900 | ) | 2.60 | |||||||||
Outstanding at March 31, 2021 | 1,389,192 | $ | 8.46 | $ | 21,516 |
(1) | Intrinsic value is calculated as the estimated fair value of the Company’s stock at the end of the related period less the option exercise price of in-the-money options. |
As of September 30, 2020,March 31, 2021, there was unrecognized compensation expense of approximately $1.3$1.8 million related to outstanding stock options and shares of restricted stock, which is expected to be recognized over a weighted average period of 2.112.16 years.
Warrants
Warrants have generally been issued in connection with financing transactions and for terms of up to five years. Common stock warrant activity for the ninethree months ended September 30, 2020March 31, 2021 was as follows:
Shares | Weighted- average Exercise price per share | Intrinsic Value(1) | |||||||||||
Outstanding at January 1, 2020 | 5,532,267 | $ | 4.00 | $ | 10,470,008 | ||||||||
Exercised | (625,407 | ) | 2.20 | ||||||||||
Outstanding at September 30, 2020 | 4,906,860 | $ | 4.23 | $ | 11,091,657 |
Shares | Weighted- average Exercise price per share | Intrinsic Value(1) (in thousands) | ||||||||||
Outstanding at January 1, 2021 | 3,082,987 | $ | 3.82 | $ | 37,379 | |||||||
Exercised | (1,150,647 | ) | 2.31 | |||||||||
Outstanding at March 31, 2021 | 1,932,340 | $ | 4.72 | $ | 31,778 |
(1) | Intrinsic value is calculated as the estimated fair value of the Company’s stock at the end of the related period less the option exercise price of in-the-money options. |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion and analysis of our financial condition and results of operations should be read together with our unaudited condensed consolidated financial statements and the related notes thereto appearing in Part I, Item 1 of this Quarterly Report. This discussion and analysis contains forward-looking statements that are based upon current expectations and involve risks, assumptions and uncertainties. You should review the section titled “Risk Factors” appearing in our 20192020 Form 10-K and in Part II, Item 1.A of this Quarterly Report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements described in the following discussion and analysis. In addition, historical results and trends that might appear in this Quarterly Report should not be interpreted as being indicative of future operations.
Overview
We are a medical device company that develops and commercializes innovative platforms for performing minimally invasive surgical procedures in the brain under direct, intra-procedural MRI guidance. Our principal product platform is our ClearPoint system, which is in commercial use and is used to perform minimally invasive surgical procedures in the brain. The ClearPoint system utilizes intra-procedural MRI to guide the procedures and is designed to work in a hospital’s existing MRI suite. We believe that this product platform delivers better patient outcomes, enhances revenue potential for both physicians and hospitals, and reduces costs to the healthcare system.
In 2010, we received regulatory clearance from the FDA to market our ClearPoint system in the U.S. for general neurologicalneurosurgery procedures. In addition, in 2011, we also obtained CE marking approval for our ClearPoint system, which enables us to sell our ClearPoint system in the European Union. The majority ofSubstantially all our product revenuesrevenue for the three and nine months ended September 30,March 31, 2021 and 2020 relaterelates to sales of our ClearPoint system products.products and related services. We have financed our operations and internal growth primarily through the sale of equity securities, the issuance of convertible and other secured notes, and license arrangements. We have incurred significant losses since our inception in 1998 as we have devoted substantial efforts to research and development. As of September 30, 2020,March 31, 2021, we had accumulated losses of approximately $118$122 million. We may continue to incur operating losses as we expand our ClearPoint system platform and our business generally.
Factors Which May Influence Future Results of Operations
The following is a description of factors that may influence our future results of operations, and that we believe are important to an understanding of our business and results of operations.
COVID-19
On March 11, 2020, the World Health Organization characterized the spread of COVID-19 as a global pandemic, and on March 13, 2020, the President of the United States proclaimed that the COVID-19 outbreak in the United States constituted a national emergency. Continued widespread infection in the United States is a possibility. Extraordinary actions have been taken by federal, state and local governmental authorities to combat the spread of COVID-19, including issuance of “stay-at-home” directives and similar mandates for many individuals to substantially restrict daily activities and for many businesses to curtail or cease normal operations. These measures, while intended to protect human life, have led to reduced economic activity, including the postponement or cancellation of elective surgical procedures, which historically have represented approximately 80% of the number of surgical procedures using the Company’s ClearPoint system.
Furthermore, the recessionary conditions on the financial markets and global economy caused by the COVID-19 pandemic could have a material adverse effect on the Company’s business, as hospitals postpone or deducereduce capital purchases and overall spending. Although muchmost segments of the United States economy hashave reopened, the effects of the COVID-19 pandemic is intensifyingremain intense in mostmany areas of the country, and many public health experts anticipate a COVID-19 surge incontinue to warn of the coming weeks and monthspotential for future surges of fall and winter. ReinstatementCOVID-19. Accordingly, reinstatement of directives and mandates requiring businesses to again curtail or cease normal operations, including the postponement or cancellation of elective surgeries, remains a possibility, just as some jurisdictions rolled back reopening plans in the summer of 2020.possibility. The continuing uncertainty as to whether the federal government will address the resulting fiscal condition in both the near term and long-termlong term with measures such as additional fiscal stimulus, as well as other geopolitical issues relating to the global economic slowdown, has increased domestic and global instability. The rapid development and the fluidity of the situation precludespreclude any prediction as to the ultimate impact COVID-19 will have on the Company’s business, financial condition, results of operation and cash flows, which will depend largely on future developments directly or indirectly relating to the duration and scope of the COVID-19 outbreak in the United States.
2018
Key Performance Indicators
The key performance indicators we utilize on a tactical basis are integrated into our longer-term strategic plan within the following categories:
· | Functional neurosurgery navigation |
o | Case volume – Underlying the revenue from sales of our functional |
o | Number of “Active |
· | Biologics and drug delivery |
o | Number of “Partners” – Underlying the revenue from sales of products and services to our biologics and drug delivery customers is the number of customers, or “Partners.” Our Partners consist of pharmaceutical and biotech companies that are developing methods to deliver a wide variety of molecules, genes or proteins to targeted brain tissue or structures that would need to bypass the blood-brain barrier for the treatment of a variety of disorders. This is a novel area in which commercialization must be preceded by FDA-mandated clinical trials, which are expensive and time consuming to conduct, and for which the commercial success is uncertain, pending, in part, the outcome of those trials. While our |
· | Therapy products – We do not expect meaningful revenue from therapy products in 2021 insofar as we are targeting a limited market release of such products in 2022. As a result, our milestones in the therapy space are focused on refining the product and obtaining regulatory clearance. Should we be successful in achieving these milestones, we believe our initial performance indicators will focus on case volume and number of Active Surgery Centers, as are currently used in measuring our performance in functional neurosurgery navigation. |
· | Global scale and efficiency – We have been cautious in setting our goals for operations beyond the U.S. so as to conserve our resources and not establish a foreign presence in advance of being assured of a corresponding revenue stream. In late 2020 we took the first steps in leveraging the CE Marks we have for our ClearPoint system and SmartFlow cannula by establishing an initial presence in Europe for product sales and clinical advisory services. From this initial presence, we believe that future global key performance indicators will be similar to those described above for our U.S. business: case volume, number of Active Surgery Centers and number of biologics and drug delivery Partners. |
19
RevenuesRevenue
In 2010, we received 510(k) clearance from the FDA to market our ClearPoint system in the U.S. for general neurological procedures.neurosurgery procedures; in February 2011 and May 2018, we also obtained CE marketing approval for our ClearPoint system and SmartFlow cannula, respectively; and in June 2020 we obtained CE marking approval for version 2.0 of our ClearPoint software and our Inflexion head fixation frame. Future revenuesrevenue from sales of our ClearPoint platform products and services areis difficult to predict and may not be sufficient to offset our continuing research and development expenses and our increasing selling, general and administrative expenses.
Generating recurring revenuesrevenue from the sale of functional neurosurgery navigation products is an important part of our business model for our ClearPoint system. We anticipate that, over time, recurring revenuesrevenue will constitute an increasing percentage of our total revenuesrevenue as we leverage installations of our ClearPoint system to generate recurring sales of our functional neurosurgery navigation products. Our product revenues wererevenue was approximately $2.3 million and $6.0$3.2 million for the three and nine months ended September 30, 2020, respectively,March 31, 2021 and predominantlywere almost entirely related to our ClearPoint system.
In addition, we expect that, over time, service revenuesrevenue will constitute an increasing portion of our total revenuesrevenue based on: (a) leveraging current and future installations of ClearPoint systems, as discussed above, so as to result in an increase in capital equipment and software relatedfunctional neurosurgery service revenues;revenue; and (b) increasing biologics and drug delivery service revenuesrevenue should our customers in this space be successful in expansion of their clinical trials, and should we be successful in continuing to establish relationships with new biologic and drug delivery partners. Our service revenues wererevenue was approximately $1.2 million and $3.1$0.9 million for the three and nine months ended September 30, 2020, respectively.March 31, 2021.
Our revenue recognition policies are more fully described in Note 2 to the Condensed Consolidated Financial Statements included above in Part I, Item 1 in this Quarterly Report.
Cost of RevenuesRevenue
Cost of revenuesrevenue includes the direct costs associated with the assembly and purchase of components for functional neurosurgery navigation products, biologics and drug delivery products, non-neurosurgicalnon-neurosurgery therapy products, and ClearPoint capital equipment and software which we have sold, and for which we have recognized the revenue in accordance with our revenue recognition policy. Cost of revenuesrevenue also includes the allocation of manufacturing overhead costs and depreciation of loaned systems installed under our ClearPoint placement program, as well as provisions for obsolete, impaired, or excess inventory. With the anticipated increases in the contribution to total revenuesrevenue of sales of recurring products and services, as discussed above, we expect gross margin, as a percentage of total revenue, to increase over time.
Research and Development Costs
Our research and development costs consist primarily of costs associated with the conceptualization, design, testing, and prototyping of our ClearPoint system products. Such costs include salaries, travel, and benefits for research and development personnel, including related share-based compensation; materials and laboratory supplies in research and development activities; consultant costs; and licensing costs related to technology not yet commercialized. We anticipate that, over time, our research and development costs may increase as we: (i) continue to develop enhancements to our ClearPoint system; and (ii) seek to expand the application of our technological platforms. From our inception through September 30, 2020,March 31, 2021, we have incurred approximately $59$63 million in research and development expenses.
Product development timelines, likelihood of success, and total costs can vary widely by product candidate. There are also risks inherent in the regulatory clearance and approval process. At this time, we are unable to estimate with any certainty the costs that we will incur in our efforts to expand the application of our technological platforms.
Sales and Marketing, and General and Administrative Expenses
Our sales and marketing, and general and administrative expenses consist primarily of salaries, incentive-based compensation, travel and benefits, including related share-based compensation; marketing costs; professional fees, including fees for attorneys and outside accountants; occupancy costs; insurance; and other general and administrative expenses, which include, but are not limited to, corporate licenses, director fees, hiring costs, taxes, postage, office supplies and meeting costs. Our sales and marketing expenses are expected to increase due to costs associated with the commercialization of our ClearPoint system and the increased headcount necessary to support growth in operations.
Critical Accounting Policies
There have been no significant changes in our critical accounting policies during the three or nine months ended September 30, 2020March 31, 2021 as compared to the critical accounting policies described in our 20192020 Form 10-K.
20
Results of Operations
Three Months Ended September 30, 2020March 31, 2021 Compared to the Three Months Ended September 30, 2019March 31, 2020
Three Months Ended September 30, | ||||||||||||
2020 | 2019 | Percentage Change | ||||||||||
Product revenues | $ | 2,333,550 | $ | 2,594,428 | (10 | )% | ||||||
Service and other revenues | 1,185,637 | 333,038 | 256 | % | ||||||||
Total revenues | 3,519,187 | 2,927,466 | 20 | % | ||||||||
Cost of revenues | 718,787 | 983,042 | (27 | )% | ||||||||
Research and development costs | 1,209,048 | 761,881 | 59 | % | ||||||||
Sales and marketing expenses | 1,492,948 | 1,063,143 | 40 | % | ||||||||
General and administrative expenses | 1,369,900 | 1,029,929 | 33 | % | ||||||||
Other income (expense): | ||||||||||||
Other income (expense), net | (11,491 | ) | 728 | (1678 | )% | |||||||
Interest expense, net | (201,245 | ) | (213,167 | ) | (6 | )% | ||||||
Net loss | $ | (1,484,232 | ) | $ | (1,122,968 | ) | 32 | % |
Three Months Ended March 31, | ||||||||||||
(Dollars in thousands) | 2021 | 2020 | Percentage Change | |||||||||
Product revenue | $ | 3,162 | $ | 2,179 | 45 | % | ||||||
Service and other revenue | 868 | 937 | (7 | )% | ||||||||
Total revenue | 4,030 | 3,116 | 29 | % | ||||||||
Cost of revenue | 1,416 | 932 | 52 | % | ||||||||
Research and development costs | 1,563 | 818 | 91 | % | ||||||||
Sales and marketing expenses | 1,575 | 1,299 | 21 | % | ||||||||
General and administrative expenses | 1,657 | 1,276 | 30 | % | ||||||||
Other expense: | ||||||||||||
Other expense, net | (25 | ) | (4 | ) | NM | % | ||||||
Interest expense, net | (332 | ) | (842 | ) | (61 | )% | ||||||
Net loss | $ | (2,538 | ) | $ | (2,055 | ) | 24 | % |
NM – The percentage change is not meaningful.
Revenues.
Revenue. Total revenues were $3.5revenue was $4.0 million for the three months ended September 30, 2020,March 31, 2021, and $2.9$3.1 million for the three months ended September 30, 2019,March 31, 2020, which represents an increase of $592,000,$0.9 million, or 20%29%.
Functional neurosurgery navigation revenue, which consists of disposable product commercial sales related to cases utilizing the ClearPoint system, decreased 1%increased 10% to $1.8$1.9 million for the three months ended September 30, 2020,March 31, 2021, from $1.9$1.7 million for the same period in 2019.2020. This decrease wasincrease reflects the resumption in the three months ended March 31, 2021, of elective surgical procedures, which were postponed or cancelled during the three months ended March 31, 2020, due to the effects of the COVID-19 pandemic, in which elective surgical procedures, historically representing approximately 80% of our ClearPoint system case volume, were postponed or cancelled.pandemic. Although elective surgeries have been resumed, albeit generally at reduced levels, in certain areas of the U.S., we are unable to determine the extent to which such factors as the timing, adoption or viability of such resumption will impact our revenue. Accordingly, we are unablerevenue due to the persistence of the COVID-19 pandemic and our inability to determine the length of time that the COVID-19 pandemic will adversely affect our product revenues.revenue. There were no increases in functional neurosurgery product prices during the period between the three months ended September 30, 2020March 31, 2021 and the same period in 20192020 that would be reasonably expected to affect a typical customer order.
Biologics and drug delivery revenues,revenue, which includeincludes sales of disposable products and services related to customer-sponsored clinical trials utilizing our products, increased 162%61% to $1.5$1.7 million for the three months ended September 30, 2020,March 31, 2021, from $564,000$1.0 million for the same period in 2019.2020. This increase was due to an increase, during the quarter ended September 30, 2020,March 31, 2021, relative to the same period in 2019,2020, in biologic and drug delivery product revenue of $0.7 million, partially offset by a decrease in biologic and drug delivery service revenues of $982,000. This increase in biologics and drug delivery service revenues is attributable to the establishment of additional relationships with biologic and drug delivery companies that included period-based retainers for clinical services in support of such companies’ respective clinical trials.revenue. This increase notwithstanding, our biologic and drug delivery customers are reestablishing their estimated timelines for initiation or resumption of their clinical trials, however, these timelines have not been finalized, given the uncertainties of when hospitals will be able to resume such clinical trial cases. Accordingly, depending on the length of the COVID-19 pandemic, future biologics and drug delivery revenuesrevenue could be adversely impacted. There were no increases in biologics and drug delivery product prices during the period between the three months ended September 30, 2020March 31, 2021 and the same period in 20192020 that would be reasonably expected to affect a typical customer order.
Capital equipment and software revenue, consisting of sales of ClearPoint reusable hardware and software, and of related services, decreased 48%increased 31% to $205,000$0.5 million for the three months ended September 30, 2020,March 31, 2021, from $395,000$0.3 million for the same period in 2019.2020. While revenuesrevenue from this product line historically havehas varied from quarter to quarter, we believe that many hospitals have postponedthe increase represents the partial resumption of hospitals’ capital equipment acquisition activities subsequent to such activities having been curtailed due to the COVID-19 pandemic. There were no increases in capital equipment product prices during the period between the three months ended September 30, 2020March 31, 2021 and the same period in 20192020 that would be reasonably expected to affect a typical customer order.
Cost of Revenues.Revenue. Cost of revenuesrevenue was $719,000,$1.4 million, representing a gross margin of 80%65%, for the three months ended September 30, 2020,March 31, 2021, and was $983,000,$0.9 million, representing a gross margin of 66%70%, for the three months ended September 30, 2019.March 31, 2020. This increasedecrease in gross margin was due primarily to: (a) higher production volume during the three months ended March 31, 2021, relative to the same period in 2020, resulting in a larger portion of overhead being allocated to cost of revenue; and (b) a shift in the mix of revenuesrevenue by line of business that resulted instemming from service revenues,revenue, which bear higher gross margins in comparison to other product lines, representing a greater contribution to total sales for the three months ended September 30,March 31, 2020, relative to the same period in 2019. While we believe that this factor may prevail during the period that precautionary measures are in effect2021, due to the adverse effects during the 2020 period of the COVID-19 pandemic we also believe it is likely that gross margin will erode from its current level in the event that the mixon hospitals’ purchases of revenues and overhead allocations return to historical norms.
products, as discussed above.
2321
Research and Development Costs. Research and development costs were $1.2$1.6 million for the three months ended September 30, 2020,March 31, 2021, compared to $762,000$0.8 million for the same period in 2019,2020, an increase of $447,000,$0.8 million, or 59%91%. The increase was due primarily to increases in personnel costs of $185,000$0.5 million due to increasesgrowth in headcount, and compensation, software development costs of $74,000 from the initiation ofin new projects, intellectual property costs of $55,000 and product development costs of $32,000 related$0.1 million, each increase resulting from our efforts to expand the increased product development activity, license amortization costsapplications of $22,000 resulting primarily from licensing rights acquired in 2020.our technological platforms.
Sales and Marketing Expenses. Sales and marketing expenses were $1.5$1.6 million for the three months ended September 30, 2020,March 31, 2021, compared to $1.1$1.3 million for the same period in 2019, an increase of $430,000,$0.3 million, or 40%21%. This increase was due primarily to increases in personnel costs of $466,000$0.4 million resulting from increases in headcount in our clinical specialist and compensation, and in marketing costs of $29,000 due to an increase in marketing activities.teams. These increases were partially offset by a decrease of $0.1 million due primarily to a change in travel and entertainment expensestiming of $80,000 resulting primarily from reduced activity due to the effects of the COVID-19 pandemic.our annual national sales meeting.
General and Administrative Expenses. General and administrative expenses were $1.4$1.7 million for the three months ended September 30, 2020,March 31, 2021, compared to $1.0$1.3 million for the same period in 2019,2020, an increase of $340,000,$0.4 million, or 33%30%. This increase was due primarily to an increase in share-based compensation of $120,000, a $146,000 reduction of allocation of shared departmental resources to production due to the reduced manufacturing activity as an effect of the COVID-19 pandemic, and an increaseincreases in insurance costs of $59,000 based on general market conditions for the coverages the Company deems appropriate. These increases were partially offset by a decrease$0.1 million, occupancy costs of $43,000 in professional$0.1 million, audit fees which vary from quarter to quarter.and consulting fees of $0.1 million, and incentive-based and share-based compensation of $0.05 million each.
Interest Expense. Net interest expense for the three months ended September 30, 2020March 31, 2021 was $201,000,$0.3 million, compared with $213,000$0.8 million for the same period in 2019.2020. This decrease was primarily due to a $106,000 decrease in the amortizationcharge to interest expense during the three months ended March 31, 2020 and amounting to approximately $0.8 million related to the unamortized balance of the discount associated with the 2010 Secured Notes whichthat were repaid and retiredin full during the fiscal quarterthree months ended March 31, 2020. This decrease was substantiallypartially offset by a $104,000an increase in interest expense associated with the 2020 Secured Notes issued in January 2020,during the three months ended March 31, 2021, relative to the interest incurred in 2019during the three months ended March 31, 2020 associated with the 2010 Secured Notes. Additional information with respect to the 2010 Secured Notes and the 2020 Secured Notes is in Note 5 to the Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report.
Nine Months Ended September 30, 2020 Compared to the Nine Months Ended September 30, 2019
Nine Months Ended September 30, | ||||||||||||
2020 | 2019 | Percentage Change | ||||||||||
Product revenues | $ | 6,030,005 | $ | 6,952,575 | (13 | )% | ||||||
Service and other revenues | 3,082,558 | 1,053,807 | 193 | % | ||||||||
Total revenues | 9,112,563 | 8,006,382 | 14 | % | ||||||||
Cost of revenues | 2,276,927 | 2,899,837 | (21 | )% | ||||||||
Research and development costs | 2,860,877 | 2,044,224 | 40 | % | ||||||||
Sales and marketing expenses | 3,915,920 | 3,246,912 | 21 | % | ||||||||
General and administrative expenses | 4,013,493 | 2,991,305 | 34 | % | ||||||||
Other income (expense): | ||||||||||||
Other income (expense), net | (5,360 | ) | 8,100 | (166 | )% | |||||||
Interest expense, net | (1,240,091 | ) | (726,292 | ) | (71 | )% | ||||||
Net loss | $ | (5,200,105 | ) | $ | (3,894,088 | ) | (34 | )% |
Revenues. Total revenues were $9.1 million for the nine months ended September 30, 2020, and $8.0 million for the nine months ended September 30, 2019, which represents an increase of $1.1 million, or 14%.
Functional neurosurgery navigation revenue, which consists of disposable product commercial sales related to cases utilizing the ClearPoint system, decreased 12% to $4.6 million for the nine months ended September 30, 2020, from $5.2 million for the same period in 2019. This decrease was due to the effects of the COVID-19 pandemic, in which elective surgical procedures, historically representing approximately 80% of our ClearPoint system case volume, were postponed or cancelled. Although elective surgeries have been resumed, albeit generally at reduced levels, we are unable to determine the extent to which such factors as the timing, adoption or viability of such resumption will impact our revenue. Accordingly, we are unable to determine the length of time that the COVID-19 pandemic will adversely affect our product revenues. There were no increases in functional neurosurgery navigation product prices during the period between the nine months ended September 30, 2020 and the same period in 2019 that would be reasonably expected to affect a typical customer order.
Biologics and drug delivery revenues, which include sales of disposable products and services related to customer-sponsored clinical trials utilizing our products, increased 181% to $3.6 million for the nine months ended September 30, 2020, from $1.3 million for the same period in 2019. This increase was due primarily to an increase, during the nine months ended September 30, 2020, relative to the same period in 2019, in biologics and drug delivery service revenues of $2.3 million. This increase in biologics and drug delivery service revenues is attributable to the establishment of additional relationships with biologic and drug delivery companies that included period-based retainers for clinical services in support of such companies’ respective clinical trials. This increase notwithstanding, our biologic and drug delivery customers are reestablishing their estimated timelines for initiation or resumption of their clinical trials, however, these timelines have not been finalized, given the uncertainties of when hospitals will be able to resume such clinical trial cases. Accordingly, depending on the length of the pandemic, future biologics and drug delivery revenues could be adversely impacted. There were no increases in biologics and drug delivery product prices during the period between the nine months ended September 30, 2020 and the same period in 2019 that would be reasonably expected to affect a typical customer order.
Capital equipment and software revenue, consisting of sales of ClearPoint reusable hardware and software, and related services, decreased 35% to $789,000 for the nine months ended September 30, 2020, from $1.2 million for the same period in 2019. While revenues from this product line historically have varied from quarter to quarter, we believe that many hospitals have postponed capital equipment acquisition activities due to the COVID-19 pandemic. There were no increases in capital equipment product prices during the period between the nine months ended September 30, 2020 and the same period in 2019 that would be reasonably expected to affect a typical customer order.
Cost of Revenues. Cost of revenues was $2.3 million, representing a gross margin of 75%, for the nine months ended September 30, 2020, and was $2.9 million, representing a gross margin of 64%, for the nine months ended September 30, 2019. This increase in gross margin was due primarily to a shift in the mix of revenues by line of business that resulted in service revenues, which bear higher gross margins in comparison to other product lines, representing a greater contribution to total sales for the nine months ended September 30, 2020, relative to the same period in 2019. While we believe that this factor may prevail during the period that precautionary measures are in effect due to the COVID-19 pandemic, we also believe it is likely that gross margin will erode from its current level in the event that the mix of revenues and overhead allocations return to historical norms.
Research and Development Costs. Research and development costs were $2.9 million for the nine months ended September 30, 2020, compared to $2.0 million for the same period in 2019, an increase of $817,000, or 40%. The increase was due primarily to increases in personnel costs of $403,000 due to increases in headcount and compensation, intellectual property costs of $163,000 and software development costs of $73,000 due to increased project activity, license amortization costs of $81,000 resulting primarily from licensing rights acquired in 2020, and outside consulting costs of $98,000 in connection with enhancements to the Company’s quality system.
Sales and Marketing Expenses. Sales and marketing expenses were $3.9 million for the nine months ended September 30, 2020 and $3.2 million for the same period in 2019, an increase of $669,000, or 21%. The increase was due primarily to increases in personnel costs of $778,000 resulting from increased headcount in our clinical and marketing teams as well as increased compensation, and meeting costs of $75,000. These increases were partially offset by decreases in travel and entertainment expenses of $236,000 resulting from reduced activity due to the COVID-19 pandemic.
General and Administrative Expenses. General and administrative expenses were $4.0 million for the nine months ended September 30, 2020, compared to $3.0 million for the same period in 2019, an increase of $1.0 million, or 34%. This increase was due primarily to increases in share-based compensation of $307,000, professional fees of $169,000 related primarily to new and potential biologic and drug delivery relationships, and insurance costs of $72,000. Also contributing to the increase was a $301,000 reduction in the allocation of shared departmental resources to production due to the reduced manufacturing activity caused by the COVID-19 pandemic. Partially offsetting these increases was a $51,000 reduction in licenses and miscellaneous taxes.
Interest Expense. Net interest expense for the nine months ended September 30, 2020 was $1.2 million, compared with $726,000 for the same period in 2019. This increase was primarily due to a $352,000 increase in the amortization of the discount associated with the 2010 Secured Notes, which were repaid and retired during the nine months ended September 30, 2020, and an increase in interest expense of $209,000 representing the greater amount of interest associated with the 2020 Secured Notes, as compared to the interest expense incurred in 2019 associated with the 2010 Secured Notes and the secured notes issued in 2014 and repaid in June 2019. Additional information with respect to the 2010 Secured Notes and the 2020 Secured Notes is in Note 5 to the Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report.
Liquidity and Capital Resources
We have incurred net losses since our inception which has resulted in a cumulative deficit at September 30, 2020March 31, 2021 of $118$122 million. In addition, our use of cash from operations amounted to $5.4$2.1 million for the ninethree months ended September 30, 2020March 31, 2021 and $2.8$7.8 million for the year ended December 31, 2019.2020. Since inception, we have financed our operations principally from the sale of equity securities, the issuance of notes payable, product and service contracts and license arrangements.
As discussed in Note 7 to the Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report, in May 2019,In January 2020, we entered into the 2019 PIPESPA with the 2020 Convertible Noteholders under which such investors purchased 2,426,455 shares of our common stock at $3.10 per share, resulting in proceeds of approximately $7.5 million, before deducting offering expenses aggregating approximately $94,000. In addition, as discussed in Note 5 to the Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report, in January 2020, we issued the 2020 SecuredFirst Closing Notes having an aggregate principal amount of $17.5 million, resulting in proceeds, net of financing costs, paid and payable, and a commitment fee paid to one of the investors,2020 Convertible Noteholders, of approximately $16.8 million. From the net proceeds received from the issuance of the 2020 SecuredFirst Closing Notes, which have a five-year term, we repaid and retired the 2010 Secured Notes that otherwise would have matured in October and November 2020. Also, as discussed
The SPA also gave us the right, but not the obligation, to request one of the 2020 Noteholders to purchase an additional $5.0 million in Note 5principal amount of the Second Closing Note. On December 29, 2020, under the terms of an amendment to the Condensed Consolidated Financial Statements included elsewhereSPA which, among other provisions, increased the principal amount of the Second Closing Note, we issued the Second Closing Note to the 2020 Convertible Noteholder in this Quarterly Report, inthe principal amount of $7.5 million.
In April 2020, we received $896,000$0.9 million in proceeds through a loan funded under the Payroll Protection Program as part of the CARES Act. During the period between the April 2020 receipt of proceeds and September 30, 2020, we have retained and expanded our employee base and have used the loan proceeds for the purposes described under the terms of the loan. As a result,PPP Loan. In November 2020, we have submitted an application requestingwere notified by the U.S. Small Business Administration that allthe loan had been forgiven under the provision of the loan be forgiven. However, there is no assurance thatCARES Act.
See Note 5 for additional information with respect to the 2020 Secured Notes and the PPP Loan.
As discussed in Note 7, on February 23, 2021, we will be successful in obtaining such forgiveness. completed a public offering of 2,127,660 shares of our common stock. Net proceeds from the offering were approximately $46.8 million after deducting the underwriting discounts and commissions and other estimated offering expenses payable by us.
Based on the foregoing, in management’s opinion, cash and cash equivalent balances at September 30, 2020, when combined with the proceeds from issuance of the 2020 Secured Notes (after repayment of the 2010 Secured Notes) and receipt of the proceeds from the loan funded under the Payroll Protection Program,March 31, 2021, are sufficient to support our operations and meet our obligations for at least the next twelve months.
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Cash Flows
Cash activity for the ninethree months ended September 30,March 31, 2021 and 2020 and 2019 is summarized as follows:
Nine Months Ended September 30, | Three Months Ended March 31, | |||||||||||||||
2020 | 2019 | |||||||||||||||
(in thousands) | 2021 | 2020 | ||||||||||||||
Cash used in operating activities | $ | (5,404,999 | ) | $ | (2,383,705 | ) | $ | (2,131 | ) | $ | (2,331 | ) | ||||
Cash used in investing activities | (441,341 | ) | (160,190 | ) | (40 | ) | (441 | ) | ||||||||
Cash provided by financing activities | 14,816,215 | 5,677,930 | 46,930 | 14,052 | ||||||||||||
Net change in cash and cash equivalents | $ | 8,969,875 | $ | 3,134,035 | $ | 44,759 | $ | 11,280 |
Net Cash Flows from Operating Activities. We used $5.4$2.1 million and $2.4$2.3 million of cash for operating activities during the ninethree months ended September 30,March 31, 2021 and 2020, and 2019, respectively.
During the ninethree months ended September 30, 2020,March 31, 2021, uses of cash in operating activities primarily consisted of: (i) our $5.2$2.5 million net loss; (ii) increases in accounts receivable of $359,000, inventory of $323,000,$0.1 million, and prepaid expenses and other current assets of $136,000;$0.01 million; and (iii) decreases in accounts payable and accrued interestexpenses of $960,000,$0.05 million, and lease liabilities of $71,000, and deferred revenue of $338,000.$0.1 million. These uses were partially offset by: (a) a decrease in other assetsinventory of $59,000;$0.05 million; (b) an increase in accounts payable and accrued expensesdeferred revenue of $60,000;$0.04 million; and (c) net non-cash expenses included in our net loss aggregating $1.9$0.6 million and consisting primarily of depreciation and amortization, share-based compensation, payment-in-kind interest and amortization of debt issuance costs, original issue discounts on debt and lease rights-of-use, net of accretion in lease liabilities.
During the ninethree months ended September 30, 2019,March 31, 2020, uses of cash in operating activities primarily consisted of: (i) our $3.9$2.1 million net loss; (ii) increasesan increase in inventory of $0.4 million; and (iii) decreases in accounts payable and accrued expenses of $0.2 million, accrued interest of $1.0 million, lease liabilities of $0.02 million, and deferred revenue of $0.2 million. These uses were partially offset by: (a) decreases in accounts receivable of $895,000, inventory of $908,000, and$0.1 million, prepaid expenses and other current assets of $151,000;$0.2 million, and (iii) a decrease in lease liabilities of $82,000. These uses were partially offset by: (a) a decrease in other assets of $12,000;$0.07 million; and (b) increases in accounts payable and accrued expenses of $1.5 million and in deferred revenue of $747,000; and (c) net non-cash expenses included in our net loss aggregating $1.3$1.1 million and consisting primarily of depreciation and amortization, share-based compensation, and amortization of debt issuance costs, original issue discounts on debt and lease rights-of-use, net of accretion in lease liabilities.
Net Cash Flows from Investing Activities. Net cash flows used in investing activities for the ninethree months ended September 30, 2020 and 2019March 31, 2021 were $441,000 and $160,000, respectively,$0.04 million and consisted primarily of acquisitionsequipment acquisitions.
Net cash flows used in investing activities for the three months ended March 31, 2020 were $0.4 million and consisted of an acquisition of medical device license rights.
Net Cash Flows from Financing Activities. Net cash flows from financing activities for the ninethree months ended September 30,March 31, 2021 consisted of: (a) the proceeds, net offering costs, of $46.8 million received from the public offering of our common stock; and (b) proceeds from the exercise of common stock options and warrants aggregating $0.1 million.
Net cash flows from financing activities for the three months ended March 31, 2020 consisted of the proceeds, net financing costs and discount paid as of that date, of $16.8$16.9 million received from the issuance of the 2020 Secured Notes, and the proceeds of $896,000 from the Payroll Protection Program loan. The proceeds from these activities wereFirst Closing Note, partially offset by the repayment of the 2010 Secured Notes amounting to $2.8 million. The 2020 Secured Notes, the Payroll Protection Act Loan and the repayment of the 2010 Secured Notes aremillion, both as described in Note 5 to the Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report.
Net cash flows from financing activities for the nine months ended September 30, 2019 consisted of: (a) net proceeds of $7.4 million received from the sale of shares of our common stock under the terms of the 2019 PIPE as described in Note 7 to the condensed consolidated financial statements included elsewhere in this Quarterly Report; and (b) $387,000 received from warrant exercises. These proceeds were partially offset by the $2.0 million repayment, in June 2019, of the 2014 Secured Notes, and the $162,000 repayment of certain of the 2010 Secured Notes, both as described in Note 5 to the condensed consolidated financial statements included elsewhere in this Quarterly Report.
Operating Capital and Capital Expenditure Requirements
To date, we have not achieved profitability. We could continue to incur net losses as we continue our efforts to expand the commercialization of our ClearPoint system products and pursue additional applications for our technology platforms. Our cash balances are primarily held in a variety of demand accounts with a view to liquidity and capital preservation.
Because of the numerous risks and uncertainties associated with the development and commercialization of medical devices, we are unable to estimate the exact amounts of capital outlays and operating expenditures necessary to successfully commercialize our ClearPoint system products and pursue additional applications for our technology platforms. Our future capital requirements will depend on many factors, including, but not limited to, the following:
● | the ultimate duration and impact of the COVID-19 pandemic; |
● | the timing of broader market acceptance and adoption of our ClearPoint system products; |
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● | the scope, rate of progress and cost of our ongoing product development activities relating to our ClearPoint system; |
● | the cost and timing of expanding our sales, clinical support, marketing and distribution capabilities, and other corporate infrastructure; |
● | the cost and timing of establishing inventories at levels sufficient to support our sales; |
● | the effect of competing technological and market developments; |
● | the cost of pursuing additional applications of our technology platforms under current collaborative arrangements, and the terms and timing of any future collaborative, licensing or other arrangements that we may establish; |
● | the cost and timing of any clinical trials; |
● | the cost and timing of regulatory filings, clearances and approvals; and |
● | the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights. |
Off-Balance Sheet Arrangements
We are not a party to any off-balance sheet arrangements that have, or are reasonably likely to have, a material current or future effect on our financial condition, revenuesrevenue or expenses, results of operations, liquidity, capital expenditures or capital resources.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Interest Rate Risk
Our exposure to market risk is limited primarily to interest income and expense sensitivity, which is affected by changes in the general level of U.S. interest rates, because all ourrates.
Our investments are in short-term bank deposits and institutional money market funds. The primary objective of our investment activities is to preserve principal while at the same time maximizing income we receive without significantly increasing risk. Due to the nature of our short-term investments, we believe that we are not subject to any material market risk exposure.
At March 31, 2021, we had $17.5 million of principal outstanding under the 2020 Secured Notes. A one-percent increase in one-month LIBOR would result in a net increase in interest expense of $0.175 million on an annualized basis due to the fact that the Secured Notes are subject to a LIBOR floor of 2.00% and one-month LIBOR was below the floor as of March 31, 2021.
Foreign Currency Risk
To date, we have not recorded a significant amount of sales in currencies other than U.S. dollars, and have only limited business transactions in foreign currencies. We do not currently engage in hedging or similar transactions to reduce our foreign currency risks, which at present, are not material. We believe we have no material exposure to risk from changes in foreign currency exchange rates at this time. We will continue to monitor and evaluate our internal processes relating to foreign currency exchange, including the potential use of hedging strategies.
ITEM 4. CONTROLS AND PROCEDURES.
Disclosure Controls and Procedures
We have established disclosure controls and procedures, as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”). Our disclosure controls and procedures are designed to ensure that material information relating to us is made known to our principal executive officer and principal financial officer by others within our organization. Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of September 30, 2020March 31, 2021 to ensure that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of September 30, 2020.March 31, 2021.
Changes in Internal Control Over Financial Reporting
During the quarter ended September 30, 2020,March 31, 2021, there were no changes in our internal control over financial reporting that materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
ITEM 1. | LEGAL PROCEEDINGS. |
None.
ITEM 1A. RISK FACTORS.
ITEM 1A. | RISK FACTORS. |
Except as noted below, thereThere have been no material changes to the risk factors disclosed in our 2019 Form 19-K under Item 1A. “Risk Factors.”
The COVID-19 pandemic and mitigation efforts to control the spread of the disease have and are expected to continue to materially impact our business, and our financial condition, results of operations and cash flows could be materially adversely affected by factors relating to COVID-19.
On March 11, 2020 the World Health Organization characterized COVID-19 as a pandemic, and on March 13, 2020, the President of the United States proclaimed that the COVID-19 outbreak in the United States constitutes a national emergency. Continued widespread infection in the United States is a possibility. Extraordinary actions have been taken by federal, state and local governmental authorities to combat the spread of COVID-19, including issuance of “stay-at-home” directives and similar mandates for many individuals to substantially restrict daily activities and for many businesses to curtail or cease normal operations. These measures, while intended to protect human life, have led to reduced economic activity, including the postponement or cancellation of elective surgical procedures, which historically represents approximately 80% of the procedures utilizing our products and services. Furthermore, the business shutdowns and the disruptions to financial markets caused by COVID-19 pandemic has led to recessionary conditions in the economy in the short term, which could negatively impact our business, as hospitals curtail and reduce capital and overall spending. While much of the United States economy has reopened, the pandemic is intensifying in most areas of the country, and many public health experts anticipate a COVID-19 surge in the coming weeks and months of fall and winter. Reinstatement of directives and mandates requiring businesses to again curtail or cease normal operations, including the postponement or cancellation of elective surgeries, remains a possibility, just as some jurisdictions rolled back reopening plans in the summer of 2020. The continuing uncertainty as to whether the federal government will address the resulting fiscal condition in both the near and long-term with measures such as additional fiscal stimulus, as well as other geopolitical issues relating to the global economic slowdown, has increased domestic and global instability.
The ongoing COVID-19 pandemic and restrictions intended to prevent its spread could have significant adverse impacts on our business, financial condition, results of operations and cash flows in a variety of ways that are difficult to predict. Such adverse impacts will depend on, among other factors:
The ongoing COVID-19 pandemic and the current economic, financial and capital markets environment present material risks and uncertainties for us. However, the rapid development and fluidity of the situation precludes any prediction as to the ultimate impact COVID-19 will have on our business, financial condition, results of operation and cash flows, which will depend largely on future developments directly or indirectly relating to the duration and scope of the COVID-19 outbreak in the United States. To the extent the COVID-19 pandemic adversely affects our business, financial condition, results of operation and cash flows, it may also have the effect of heightening many of the other risks described in the “Risk Factors” section of our 2019 Form 10-K.
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. |
None.
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ITEM 3. | DEFAULTS UPON SENIOR SECURITIES. |
None.
ITEM 4. | MINE SAFETY DISCLOSURES. |
None.
ITEM 5. | OTHER INFORMATION. |
None.
ITEM 6. | EXHIBITS. |
The exhibits listed below are filed, furnished or incorporated by reference as part of this Quarterly Report.
* | Filed herewith. |
+ This certification is being furnished solely to accompany this Quarterly Report pursuant to 18 U.S.C. Section 1350, and it is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934 and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
SIGNATURES
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 12, 2020May 11, 2021
CLEARPOINT NEURO, INC. | ||
By: | /s/ Joseph M. Burnett | |
Joseph M. Burnett | ||
Chief Executive Officer | ||
(Principal Executive Officer) | ||
By: | /s/ | |
Chief Financial Officer | ||
(Principal Financial Officer and Principal Accounting Officer) |