September 30, For The Three Months Ended September 30, For The Nine Months Ended September 30, procedures in the brain. From the Company’s inception in 1998, the Company deployed significant resources to fund its efforts to develop the foundational capabilities for enabling MRI-guided interventions, building an intellectual property portfolio, and identifying and building out commercial applications for the technologies it develops. In 2021, the Company’s efforts expanded beyond the MRI suite to encompass development and commercialization of new neurosurgical device products for the operating room setting, as well as consulting services for pharmaceutical and biotech companies, academic institutions, and contract research organizations. procedures; in February 2011, the Company also obtained CE marking for its ClearPoint system. In . payable. Condensed Consolidated Financial Statements See Note agreement. In Q3 2022, the Company made a payment to the licensor for the achievement of a regulatory milestone, which acts as a prepayment for future royalties. Revenue Recognition customers is based on agreements with terms ranging from to three years and is recognized ratably on a monthly basis over the term of the service agreement. A time-elapsed output method is used for service revenue because the Company transfers control evenly by providing a stand-ready service. 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 concurrent with the recognition of revenue of the related capital equipment. Concentration Risks and Other Risks and Uncertainties three years. The Company may also enter into agreements with customers that bundle the capital equipment and software-related service fees with software and hardware upgrades that are made commercially available over the term of the contract. The unearned portion of all such fees is classified as deferred revenue. 2021. agreement. one of the 2020 Convertible Noteholders. capital. Company's right expired. Maturity Intrinsic (in thousands) summarized below: were purchased at an average per share price of $9.86. Intrinsic (in thousands) In 2010, we received 510(k) clearance from the FDA to market our ClearPoint system in the U.S. for general neurosurgery procedures; in February 2011 and May 2018, we also obtained CE 2022, respectively, of which 72% and 70%, respectively, related to the biologics and drug delivery service line. and Estimates 2021 2021. $0.3 million decrease in product revenue. Research and Development Costs. initiatives. 2021 Biologics and drug delivery revenue, which includes sales of disposable products and services related to customer-sponsored clinical trials utilizing our products, increased 2021. software. revenue. platforms, as well as increases in regulatory consulting fees of $0.2 million. both attributed to increases in headcount. Interest expense was partially offset by higher interest income in the nine months ended September 30, 2022, as a result of increasing interest rates and the Company's investment in U.S. Treasury Bills. In January 2020, we entered into a Securities Purchase Agreement (the "SPA") with two investors (each, a "2020 Convertible Noteholder," and together, the Nine Months Ended September 30, 2022. 10-K, except as set forth below.(Mark One)☑þQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 20212022OrOr ☐oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from_____to _____ Delaware58-2394628Delaware 58-2394628 (State or Other Jurisdiction (IRS Employer of Incorporation or Organization) Identification Number) 120 S. Sierra Ave., Suite 100 Solana Beach, , California92075 (Address of Principal Executive Offices) (Zip Code) 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 ☑ þYes ☐o No☑ þYes ☐o No☐oAccelerated filer ☐ ☑þ☑þ☐o☐o☐o Yes ☑ þNo9, 2021,3, 2022, there were 24,554,557 shares of common stock outstanding.Page
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Number45162424252525252525252627Operations.Operations,” and relate to expectations for revenues and costs, and the adequacy of the Company's cash and cash equivalent balances and short-term investments to support the Company's operations and meet its obligations for at least the next twelve months. 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 revenue from sales of ClearPoint system products and services; and●our ability to market, commercialize and achieve broader market acceptance for our ClearPoint system products.Youofin our Annual Report on Form 10-K for the fiscal year ended December 31, 2020,2021, which we filed with the United States Securities and Exchange Commission (“SEC”) on March 22, 20219, 2022 (the “2020“2021 Form 10-K”) and in, (ii) Item 2 of this Quarterly Report, for a discussionunder the heading "Management's Discussion and Analysis of important factors that may cause our actual results to differ materially from those expressed or implied by the forward-looking statements contained inFinancial Condition and Results of Operations -- Factors Which May Influence Future Results of Operations" and (iii) Part II, Item 1.A of this Quarterly Report. As a resultDue to the nature of these risk 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.
2021
(Unaudited) December 31,
2020 ASSETS Current assets: Cash and cash equivalents $ 57,651 $ 20,099 Accounts receivable, net 2,559 1,881 Inventory, net 3,943 3,238 Prepaid expenses and other current assets 842 244 Total current assets 64,995 25,462 Property and equipment, net 450 319 Operating lease rights of use 2,365 2,736 Software license inventory 519 589 Licensing rights 287 353 Other assets 86 59 Total assets $ 68,702 $ 29,518 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 777 $ 300 Accrued compensation 1,804 1,595 Other accrued liabilities 1,081 349 Operating lease liabilities, current portion 486 394 Deferred product and service revenue 440 562 Total current liabilities 4,588 3,200 Operating lease liabilities, net of current portion 2,071 2,446 Deferred product and service revenue, net of current portion 310 215 2020 senior secured convertible notes payable, net 17,613 21,280 Total liabilities 24,582 27,141 Commitments and contingencies Stockholders’ equity: Preferred stock, $ par value; shares authorized; issued and outstanding at September 30, 2021 and December 31, 2020 — — Common stock, $ par value; shares authorized; shares issued and outstanding at September 30, 2021; and issued and outstanding at December 31, 2020 229 170 Additional paid-in capital 173,674 121,729 Accumulated deficit (129,783 ) (119,522 ) Total stockholders’ equity 44,120 2,377 Total liabilities and stockholders’ equity $ 68,702 $ 29,518 September 30,
2022December 31,
2021(Unaudited) ASSETS Current assets: Cash and cash equivalents $ 18,712 $ 54,109 Short-term investments 21,749 — Accounts receivable, net 3,411 2,337 Inventory, net 8,284 4,938 Prepaid expenses and other current assets 1,658 508 Total current assets 53,814 61,892 Property and equipment, net 629 539 Operating lease rights of use 1,866 2,241 Software license inventory 485 519 Licensing rights 850 265 Other assets 94 125 Total assets $ 57,738 $ 65,581 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 1,387 $ 427 Accrued compensation 2,187 2,604 Other accrued liabilities 1,249 537 Operating lease liabilities, current portion 537 507 Deferred product and service revenue, current portion 735 678 Total current liabilities 6,095 4,753 Operating lease liabilities, net of current portion 1,535 1,939 Deferred product and service revenue, net of current portion 351 264 2020 senior secured convertible note payable, net 9,879 9,838 Total liabilities 17,860 16,794 Commitments and contingencies Stockholders’ equity: Preferred stock, $0.01 par value; 25,000,000 shares authorized; none issued and outstanding at September 30, 2022 and December 31, 2021 — — Common stock, $0.01 par value; 200,000,000 shares authorized; 24,500,832 shares issued and outstanding at September 30, 2022; and 23,665,991 issued and outstanding at December 31, 2021 245 237 Additional paid-in capital 185,615 182,482 Accumulated deficit (145,982) (133,932) Total stockholders’ equity 39,878 48,787 Total liabilities and stockholders’ equity $ 57,738 $ 65,581 1 2021 2020 Revenue: Product revenue $ 3,338 $ 2,371 Service and other revenue 1,236 1,148 Total revenue 4,574 3,519 Cost of revenue 1,486 903 Gross profit 3,088 2,616 Research and development costs 2,630 1,143 Sales and marketing expenses 1,826 1,493 General and administrative expenses 2,436 1,252 Operating loss (3,804 ) (1,272 ) Other expense: Other income (expense), net 62 (11 ) Interest expense, net (238 ) (201 ) Net loss $ (3,980 ) $ (1,484 ) Net loss per share attributable to common stockholders: Basic and diluted $ (0.18 ) $ (0.09 ) Weighted average shares used in computing net loss per share: Basic and diluted 22,522,460 15,724,401 2021 2020 Revenues: Product revenues $ 8,863 $ 6,186 Service and other revenues 3,154 2,927 Total revenues 12,017 9,113 Cost of revenues 4,015 2,636 Gross profit 8,002 6,477 Research and development costs 6,251 2,774 Sales and marketing expenses 5,081 3,916 General and administrative expenses 6,062 3,742 Operating loss (9,392 ) (3,955 ) Other income (expense): Other (expense), net (60 ) (5 ) Interest expense, net (809 ) (1,240 ) Net loss $ (10,261 ) $ (5,200 ) Net loss per share attributable to common stockholders: Basic and diluted $ (0.50 ) $ (0.33 ) Weighted average shares used in computing net loss per share: Basic and diluted 20,545,080 15,556,231 For The Three Months Ended
September 30,2022 2021 Revenue: Product revenue $ 3,130 $ 3,338 Service and other revenue 2,016 1,236 Total revenue 5,146 4,574 Cost of revenue 1,434 1,533 Gross profit 3,712 3,041 Research and development costs 2,453 2,601 Sales and marketing expenses 2,139 1,808 General and administrative expenses 2,915 2,436 Operating loss (3,795) (3,804) Other expense: Other (expense) income, net (25) 62 Interest income (expense), net 32 (238) Net loss $ (3,788) $ (3,980) Net loss per share attributable to common stockholders: Basic and diluted $ (0.15) $ (0.18) Weighted average shares used in computing net loss per share: Basic and diluted 24,497,636 22,522,460 For The Nine Months Ended
September 30,2022 2021 Revenue: Product revenue $ 9,750 $ 8,863 Service and other revenue 5,627 3,154 Total revenue 15,377 12,017 Cost of revenue 5,162 4,078 Gross profit 10,215 7,939 Research and development costs 7,270 6,208 Sales and marketing expenses 6,171 5,061 General and administrative expenses 8,637 6,062 Operating loss (11,863) (9,392) Other expense: Other expense, net (22) (60) Interest expense, net (165) (809) Net loss $ (12,050) $ (10,261) Net loss per share attributable to common stockholders: Basic and diluted $ (0.50) $ (0.50) Weighted average shares used in computing net loss per share: Basic and diluted 24,058,205 20,545,080 For The Nine Months Ended September 30, 2021 Additional Common Stock Paid-in Accumulated Shares Amount Capital Deficit Total Balance, January 1, 2021 17,047,584 $ 170 $ 121,729 $ (119,522 ) $ 2,377 Adoption of ASU 2020-06 — — (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 ) Balance, March 31, 2021 20,678,280 $ 207 $ 165,835 $ (122,060 ) $ 43,982 Conversion of 2020 senior secured convertible note 1,256,143 13 7,118 — 7,131 Issuances of common stock: Share-based compensation 26,435 — 247 — 247 Warrant and option exercises (cash and cashless) 361,486 3 346 — 349 Net loss for the period — — — (3,743 ) (3,743 ) Balance, June 30, 2021 22,322,344 $ 223 $ 173,546 $ (125,803 ) $ 47,966 Issuances of common stock: Share-based compensation 126,805 1 585 — 586 Warrant and option exercises (cash and cashless) 435,802 5 85 — 90 Payments for taxes related to net share settlement of equity awards (29,764 ) — (542 ) (542 ) Net loss for the period — — — (3,980 ) (3,980 ) Balance, September 30, 2021 22,855,187 $ 229 $ 173,674 $ (129,783 ) $ 44,120 For The Nine Months Ended September 30, 2020 Additional Common Stock Paid-in Accumulated Shares Amount Capital Deficit Total Balance, 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 ) Balance, March 31, 2020 15,507,149 $ 155 $ 117,399 $ (114,795 ) $ 2,759 Issuances of common stock: Share-based compensation 5,538 — 241 — 241 Net loss for the period — — — (1,661 ) (1,661 ) Balance, June 30, 2020 15,512,687 $ 155 $ 117,640 $ (116,456 ) $ 1,339 Issuances of common stock: Share-based compensation 248,637 3 291 — 294 Warrant exercises (cashless) 120,080 1 (1 ) — — Net loss for the period — — — (1,484 ) (1,484 ) Balance, September 30, 2020 15,881,404 $ 159 $ 117,930 (117,940 ) $ 149 For The Nine Months Ended September 30, 2022 Common Stock Additional
Paid-in
CapitalAccumulated
DeficitTotal Shares Amount Balances, January 1, 2022 23,665,991 $ 237 $ 182,482 $ (133,932) $ 48,787 Issuances of common stock: Share-based compensation 29,916 — 899 — 899 Warrant and option exercises (cash and cashless) 12,211 — 3 — 3 Net loss for the period — — — (3,959) (3,959) Balances, March 31, 2022 23,708,118 $ 237 $ 183,384 $ (137,891) $ 45,730 Issuances of common stock: Share-based compensation 379,122 4 876 — 880 Warrant exercises (cash and cashless) 367,006 4 249 — 253 Issuance of common stock under employee stock purchase plan 26,354 — 260 — 260 Net loss for the period — — — (4,303) (4,303) Balances, June 30, 2022 24,480,600 $ 245 $ 184,769 $ (142,194) $ 42,820 Issuances of common stock: Share-based compensation 20,738 — 1,175 — 1,175 Option exercises (cash and cashless) 23,763 — 7 — 7 Payments for taxes related to net share settlement of equity awards (24,269) — (336) — (336) Net loss for the period — — — (3,788) (3,788) Balances, September 30, 2022 24,500,832 $ 245 $ 185,615 $ (145,982) $ 39,878 For The Nine Months Ended September 30, 2021 Common Stock Additional
Paid-in
CapitalAccumulated
DeficitTotal Shares Amount Balances, January 1, 2021 17,047,584 $ 170 $ 121,729 $ (119,522) $ 2,377 Adoption of ASU 2020-06 — — (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 Conversion of 2020 senior secured convertible note 1,256,143 13 7,118 — 7,131 Issuances of common stock: Share-based compensation 26,435 — 247 — 247 Warrant and option exercises (cash and cashless) 361,486 3 346 — 349 Net loss for the period — — — (3,743) (3,743) Balances, June 30, 2021 22,322,344 $ 223 $ 173,546 $ (125,803) $ 47,966 Issuances of common stock: Share-based compensation 126,805 1 585 — 586 Warrant and option exercises (cash and cashless) 435,802 5 85 — 90 Payments for taxes related to net share settlement of equity awards (29,764) — (542) — (542) Net loss for the period — — — (3,980) (3,980) Balances, September 30, 2021 22,855,187 $ 229 $ 173,674 $ (129,783) $ 44,120 3 For The Nine Months Ended
September 30, 2021 2020 Cash flows from operating activities: Net loss $ (10,261 ) $ (5,200 ) Adjustments to reconcile net loss to net cash flows from operating activities: Allowance for doubtful accounts 170 13 Depreciation and amortization 113 170 Share-based compensation 1,153 762 Payment-in-kind interest 285 — Amortization of debt issuance costs and original issue discounts 73 856 Amortization of lease rights of use, net of accretion in lease liabilities 400 75 Increase (decrease) in cash resulting from changes in: Accounts receivable (848 ) (373 ) Inventory, net (682 ) (323 ) Prepaid expenses and other current assets (599 ) (136 ) Other assets (28 ) 59 Accounts payable and accrued expenses 1,418 60 Accrued interest — (960 ) Lease liabilities (312 ) (71 ) Deferred revenue (27 ) (338 ) Net cash flows from operating activities (9,145 ) (5,406 ) Cash flows from investing activities: Purchases of property and equipment (130 ) — Acquisition of licensing rights — (441 ) Net cash flows from investing activities (130 ) (441 ) Cash flows from financing activities: Proceeds from issuance of 2020 senior secured convertible notes, net of financing costs and discount — 16,758 Proceeds from issuance of Paycheck Protection Program loan — 896 Proceeds from public offering of common stock, net of offering costs 46,785 — Proceeds from stock option and warrant exercises 584 — Payments for taxes related to net share settlement of equity awards (542 ) — Repayment of notes payable — (2,838 ) Net cash flows from financing activities 46,827 14,816 Net change in cash and cash equivalents 37,552 8,969 Cash and cash equivalents, beginning of period 20,099 5,696 Cash and cash equivalents, end of period $ 57,651 $ 14,665 SUPPLEMENTAL CASH FLOW INFORMATION Cash paid for: Income taxes $ — $ — Interest $ 495 $ 1,399 For The Nine Months Ended
September 30,2022 2021 Cash flows from operating activities: Net loss $ (12,050) $ (10,261) Adjustments to reconcile net loss to net cash flows from operating activities: Allowance for doubtful accounts (92) 170 Depreciation and amortization 224 113 Share-based compensation 2,954 1,153 Payment-in-kind interest — 285 Amortization of debt issuance costs and original issue discounts 41 73 Amortization of lease rights of use, net of accretion in lease liabilities 400 400 Accretion of discounts on short-term investments (159) — Increase (decrease) in cash resulting from changes in: Accounts receivable (982) (848) Inventory, net (3,318) (682) Prepaid expenses and other current assets (1,150) (599) Other assets 31 (28) Accounts payable and accrued expenses 1,255 1,418 Lease liabilities (400) (312) Deferred revenue 144 (27) Net cash flows from operating activities (13,102) (9,145) Cash flows from investing activities: Purchases of property and equipment (214) (130) Acquisition of licensing rights (678) — Purchase of short-term investments (21,590) — Net cash flows from investing activities (22,482) (130) Cash flows from financing activities: Proceeds from public offering of common stock, net of offering costs — 46,785 Proceeds from stock option and warrant exercises 263 584 Proceeds from issuance of common stock under employee stock purchase plan 260 — Payments for taxes related to net share settlement of equity awards (336) (542) Net cash flows from financing activities 187 46,827 Net change in cash and cash equivalents (35,397) 37,552 Cash and cash equivalents, beginning of period 54,109 20,099 Cash and cash equivalents, end of period $ 18,712 $ 57,651 SUPPLEMENTAL CASH FLOW INFORMATION Cash paid for: Income taxes $ — $ — Interest $ 351 $ 495 ·During the nine months ended September 30, 2021 and 2020, the Company recorded net transfers to inventory of ClearPoint reusable components having an aggregate net book value of $0.03 million and $0.04 million, respectively, from loaned systems, which are included in property and equipment in the accompanying condensed consolidated balance sheets.·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.·As discussed in Note 5, in May 2021, one of the 2020 Convertible Noteholders converted the entire $7.5 million principal amount of its First Closing Note, and related accrued interest amounting to approximately $0.04 million, into shares of the Company’s common stock. As a result, the discount on such First Closing Note, amounting to $0.2 million at the conversion date and representing an access fee paid to the noteholder at origination of such First Closing Note, was eliminated and a corresponding amount was charged to additional paid-in capital upon the conversion.4 1.1. Description of the Business and Financial Condition technology that enables physicians to see inside the brain using direct, intra-procedural magnetic resonance imaging (“MRI”) guidance whileinnovative platforms for performing minimally invasive surgical procedures. is designed to allow minimally invasive procedures in the brain to be performed in an MRI suite. The ClearPoint Array Neuro Navigation System and its principal disposable component, introduced in 2021, is designed to be deployed in an operating room setting while also being usable in an MRI suite. Both systems provide guidance for the placement and operation of instruments or devices during the planning and operation of neurosurgical procedures. 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 neurologicalneurosurgical interventional procedures.COVID-19March 2020,2011 and 2018, the World Health Organization characterizedCompany received 510(k) clearance and CE marking, respectively, for its SmartFlow cannula which is being used, or is under evaluation, by approximately 50 pharmaceutical and biotech companies, academic institutions, or contract research organizations having a focus on biologics and drug delivery. In September 2022 the spreadClearPoint Prisma novel strain of coronavirus (“COVID-19”)various macroeconomic trends, such as a global pandemic,economic and supply chain disruptions, geopolitical instability, labor shortages and inflationary conditions, and the Presidentcontinuing impacts of the United States later proclaimed that the COVID-19 outbreakpandemic. Changes in the United States constituted a national emergency. Extraordinary actions were taken by federal, statedomestic and local governmental authorities to combat the spread of COVID-19, including issuances of “stay-at-home” directives and similar mandates that substantially restricted daily activities and for many businesses curtailed or ceased normal operations. These measures led to reducedglobal 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. Although economic activity is returning to a normalized level, the Delta variant of COVID-19 continues to spread in the United States and across the globe. The ultimate impact of the Delta variant, and other new strains that may develop, cannot be predicted at this time, and could depend on numerous factors, including vaccination rates among the population, the effectiveness of COVID-19 vaccines against the Delta and other variants and the response by governmental bodies and regulators, which could include vaccine mandates.Furthermore, globalconditions, supply chain disruptions, labor shortages, as well as other stimulus and spending programs, have led to higher inflation, which is likely to lead to increased costs and may cause changes in fiscal and monetary policy. Impacts from inflationary pressures, such an increasing costs for research and development of our products, administrative and other costs of doing business, and our availability to access capital markets and other sources of funding in the future could adversely affect our abilitybusiness, financial condition and results of operations. Additionally, these trends could adversely affect our customers, which could impact their willingness to retainspend on our products and attract new talent, and inflationary conditions caused by the COVID-19 pandemic could have a material adverse effect on the Company’s business.services. The rapid development and fluidity of the situation precludethese situations precludes any prediction as to the ultimate impact COVID-19they will have on the Company’sour 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 and globally.20212022 of approximately $130$146.0 million. In addition, the Company’s use of cash from operations amounted to $9.1$13.1 million for the nine months ended September 30, 20212022, and $7.8$12.7 million for the year ended December 31, 2020.2021. Since its inception, the Company has financed its operations principally from the sale of equity securities and the issuance of notes payable, product and service contracts and license arrangements.$17.5 $17.5 million of floating rate secured convertible notes with a five yearfive-year term (the “First Closing Notes”), resulting in proceeds, net of financing costs and a commitment fee paid to one of the 2020 Convertible Noteholders, of approximately $16.8 $16.8 million. In the first quarter of 2020, the Company used $3.7 million from the net proceeds received from the issuance of the First Closing repay and retire the 2010 Junior Secured Notes Payable (the “2010 Secured Notes”) that otherwise would have matured in October and November 2020.Note,Notes, the “2020 Secured Notes”). On December 29, 2020, under the terms of an amendment to the SPA (the “Amendment”) which, among other provisions, increased the principal amount of the Second Closing Note, the Company issued the Second Closing Note in the principal amount of $7.5 million to $7.5 million.5 ClearPoint Neuro, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)56 for additional information with respect to the 2020 Secured Notes.In April 2020, the Company received $0.9 million in proceeds through a loan funded under the Paycheck Protection Program as part of the CARES Act (the “PPP Loan”). In November 2020, the Company was notified by the U.S. Small Business Administration that the loan had been forgiven under the provision of the CARES Act.7,8, on February 23, 2021, the Company completed a public offering of shares of its common stock. Net proceeds from the offering were approximately $46.8$46.8 million after deducting the 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, 2021, are sufficient to support the Company’s operations and meet its obligations for at least the next twelve months.2.2. Basis of Presentation and Summary of Significant Accounting Policies 20202021 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 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, 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 20202021 Form 10-K. The accompanying condensed consolidated balance sheet as of December 31, 20202021 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, 20212022 may not be indicative of the results to be expected for the entire year or any future periods.system.system and related disposables. 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 excess and obsolete items and provides a reserve upon identification of potentially excess or obsolete items.certaina license agreements that provideagreement which provides rights to the Company for the development and commercialization of products. Under the termsterm of thosethe license agreements,agreement, the Company made payments to the licensorslicensor upon execution of the license agreementsagreement for access to the underlying technologiestechnology and will make future payments based on theupon achievement of regulatory and commercialization milestones as defined in the license agreements.years.years, or as commercial sales occur for the royalty prepayment. In addition, the Company periodically evaluates the recoverability6 ClearPoint Neuro, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)·Functional neurosurgery navigation product, biologics and drug delivery systems product, and therapy product sales: Revenue from the sale of functional neurosurgery navigation products (consisting of disposable products sold commercially and related to cases utilizing the Company’s ClearPoint system), biologics and drug delivery systems (consisting primarily of disposable products related to customer-sponsored clinical trials utilizing the ClearPoint system), and therapy products (consisting primarily of disposable laser-related products used in non-neurosurgical procedures), is generally based on customer purchase orders, the predominance of which require delivery within one week of the order having been placed, and are recognized at the point in time of delivery to the customer, which is the point at which legal title, and risks and rewards of ownership, along with physical possession, transfer to the customer.·Capital equipment and software salesoCapital 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. 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.oCapital 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.·Functional neurosurgery navigation and therapy services: The Company recognizes revenue for such services at the point in time that the performance obligation has been satisfied.7 Neuro, Inc.capital equipment and software previously sold to
NotesCondensed Consolidated Financial Statements
(Unaudited)MinimumoneMaximum◦·Biologics and drug delivery services:oConsultation Services: The Company recognizes consultation revenue at the point in time such services are performed.oClinical 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.oClinical Service Procedure-Based Fees: The Company recognizes revenue at the point in time a case is attended by Company personnel.·Capital equipment-related services:oEquipment 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 service revenue because the Company transfers control evenly by providing a stand-ready service.oInstallation, 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.1one industry segment, and substantially allthe predominance of its sales are to U.S.-based customers.7,8, and the potential conversion of the First and Second Closing Notes,Note, as described in Note 5,6, would be anti-dilutive, due to the reporting of a net loss for each of the periods in the accompanying condensed consolidated statements of operations.ClearPoint Neuro, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)Accounts ReceivableCustomerSalessubstantially allthe remainder of its cash and cash equivalents on deposit with financial institutions in the U.S. insured by the Federal Deposit Insurance Corporation. At September 30, 2021,2022, the Company had approximately $52$9.9 million in bank balances that were in excess of the insured limits.2021,2022, there were notwo customers whose accounts receivable balance exceeded 10%balances represented 16% and 15% of accounts receivable at that date. At December 31, 2020,2021, one customer accounted for 11%15% of accounts receivable at that date.as discussedwho is a stockholder, a noteholder, and who has a representative on the Company's Board of Directors (see Note 6), for whom the Company provides hardware, software, clinical services and market development services in Note 3,support of the customer's clinical trials, and from whom the Company earns a quarterly fee, accounted for 18%14% and 15%18% of total sales in the three-month periods ended September 30, 20212022 and 2020,2021, respectively, and for 19%16% and 18%19% of total sales in the nine-month periods ended September 30, 2022 and 2021, and 2020, respectively.20212022 and December 31, 20202021 was $0.2$0.2 million and $0.06$0.3 million, respectively.5)6) 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$3.1 million at the date of issuance of the Second Closing Note, were reversed as of the date of adoption of the ASU.statementsstatement of operations for the three and nine months ended September 30, 2021 contain: (a)2022 contains certain items formerly classified as service revenue that that have been reclassified to product revenue; (b) certain items formerly classified as generalsales and administrativemarketing expenses and 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.revenue. The accompanying condensed consolidated statements of operations for the three and nine months ended September 30, 20202021 have been conformed to the 20212022 presentation.3. Revenue Recognition Three Months Ended September 30, (in thousands) 2022 2021 Functional neurosurgery navigation and therapy Disposable products $ 2,045 $ 2,004 Services 375 150 Subtotal – Functional neurosurgery navigation and therapy 2,420 2,154 Biologics and drug delivery Disposable products 798 1,137 Services 1,448 920 Subtotal – Biologics and drug delivery revenue 2,246 2,057 Capital equipment and software Systems and software products 287 197 Services 193 166 Subtotal – Capital equipment and software revenue 480 363 Total revenue $ 5,146 $ 4,574 3.Revenue RecognitionRevenue by Service Line Three Months Ended September 30, (in thousands) 2021 2020 Functional neurosurgery navigation and therapy Disposable products $ $ Services Subtotal – functional neurosurgery navigation and
therapy Biologics and drug delivery Disposable products 1,137 420 Services 920 1,055 Subtotal – biologics and drug delivery 2,057 1,475 Capital equipment and software Systems and software products 197 111 Services 166 93 Subtotal – capital equipment and software 363 204 Total revenue $ 4,574 $ 3,519 Nine Months Ended September 30, (in thousands) 2021 2020 Functional neurosurgery navigation and therapy Disposable products $ $ Services Subtotal – functional neurosurgery navigation and
therapy Biologics and drug delivery Disposable products 2,501 1,000 Services 2,605 2,671 Subtotal – biologics and drug delivery 5,106 3,671 Capital equipment and software Systems and software products 580 534 Services 399 256 Subtotal – capital equipment and software 979 790 Total revenue $ 12,017 $ 9,113 Nine Months Ended September 30, (in thousands) 2022 2021 Functional neurosurgery navigation and therapy Disposable products $ 5,706 $ 5,782 Services 1,125 150 Subtotal – Functional neurosurgery navigation and therapy 6,831 5,932 Biologics and drug delivery Disposable products 2,873 2,501 Services 3,935 2,605 Subtotal – Biologics and drug delivery revenue 6,808 5,106 Capital equipment and software Systems and software products 1,171 580 Services 567 399 Subtotal – Capital equipment and software revenue 1,738 979 Total revenue $ 15,377 $ 12,017 ·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 is classified as deferred revenue.ClearPoint Neuro, Inc. to
NotesCondensed Consolidated Financial Statements
(Unaudited)2021,2022, the Company recognized capital equipment and software-related service revenue of approximately $0.1$0.1 million and $0.3$0.4 million, respectively, which werewas previously included in deferred revenue in the accompanying condensed consolidated balance sheet at December 31, 2020.In 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 $0.13 million, of which approximately $0.02 million and $0.05 million are included in deferred revenue in the accompanying condensed consolidated balance sheets as of September 30, 2021 and December 31, 2020, respectively.InvestorUnbilled RevenuesCommencing in 2019, the Company was a party to a Letter of Intent and a related Statement of Work (together with the Letter of Intent, the “Project Documents”) with a customer who is a stockholder and a noteholder (see Note 5), and an officer of whom is a member of the Company’s Board of Directors, 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 $0.5 million, which was received in 2019; and (b) quarterly service fees of $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 $0.25 million. During 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 $0.25 million through September 30, 2020. In November 2020, the Company entered into an addendum to the Project Documents and the European SOW that, among other provisions, set the aggregate service fee to be billed to the customer at $0.7 million per quarter, effective October 1, 2020. The Company recognized as revenue the upfront payment described in this paragraph ratably over the initial two years of the term of the Project Documents, corresponding to the estimated period in which the related performance obligations 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: (a) the Company recognized revenue of approximately $0.7 million and $2.1 million for the three and nine months ended September 30, 2021, respectively; (b) accounts receivable from the customer amounted to approximately $0.1 million at each of September 30, 2021 and December 31, 2020; and (c) the aggregate amount of all the payments described in this paragraph that were included in deferred revenue in the accompanying condensed consolidated balance sheets at September 30, 2021 and December 31, 2020, were nil and approximately $0.1 million, respectively.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 customarily charged by the Company. The transaction price of the software is recognized as revenue upon its installation and comprised less than $0.1 million of unbilled receivable at September 30, 2021 and $0.1 million at December 31, 2020.Remaining Performance ObligationsThe Company’s contracts with customers for functional neurosurgery and therapy product sales are predominantly of terms less than one year. Accordingly, the transaction prices of remaining performance obligations related to such contracts at September 30, 2021 are not material.with original terms in excess of one year and the upfront payments discussed under the heading “Contract Balances”"Contract Balances" above amounted to approximately $0.8$0.8 million at September 30, 2021.2022. The Company expects to recognize approximately 59% of this revenue withinover the next three years.twelve months and the remainder thereafter.Revenue with respect4. Fair Value Measurement remaining performance obligations related to contracts with the Company’s biologic and drug delivery customers,measure fair value. These tiers include: Level 1, defined as observable inputs such as quoted market prices in active markets; Level 2, defined as inputs other than those contracts discussed underquoted prices included within Level 1 that are observable for the heading “Contract Balances,” predominantlyasset or liability, either directly or indirectly; and Level 3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions.contingent upon such customers’ performancederived using Level 1 inputs. The cash equivalents are comprised of clinical trials on which the Company’s performance obligations are predicated.11 4.5. Inventory of:Inventory - Schedule of Inventory, Current(in thousands) September 30,
2021 December 31,
2020 Raw materials and work in process $ 2,314 $ 1,485 Software licenses 210 193 Finished goods 1,419 1,560 Inventory, net, included in current assets 3,943 3,238 Software licenses – non-current 519 589 Total $ 4,462 $ 3,827 (in thousands) September 30,
2022December 31,
2021Raw materials and work in process $ 5,950 $ 2,718 Software licenses 210 210 Finished goods 2,124 2,010 Inventory, net, included in current assets 8,284 4,938 Software licenses – non-current 485 519 Total $ 8,769 $ 5,457 5.6. NotesNote Payable$17.5$10 million of the 2020 Secured Convertible NotesFirst Closing Note was outstanding at September 30, 2021. 2022. At the option of the holdersholder, who is a customer and has a representative on the Company's Board of Directors, at any time prior to maturity $10 million inon January 29, 2025, the principal amount of the 2020 Secured Convertible Notes, which are held by a customer who is a stockholder and has a representative on the Company’s Board of Directors, aremay be convertible to the Company’s common stock at a conversion price of $6.00, and $7.5 million in principal amount of the 2020 Secured Convertible Notes are convertible at a price of $10.14, subject in both cases to adjustments as set forth in the SPA and the note agreements. (the “Closing Date”), the Company completed a financing transaction with two investors (the “2020 Financing Transaction”) with the 2020"2020 Convertible Noteholders,Noteholders"), whereby the Company issued an aggregate principal amount of $17.5$17.5 million of First Closing Notes pursuant to the SPA, dated January 11, 2020, which, unless earlier converted or redeemed, mature on the fifth anniversary of the Closing Dateissuance and bear interest at a rate equal to the sum of (i) the greater of (a) the three (3)-month London Interbank Offered Rate (“LIBOR”) and (b) two percent (2%), plus (ii) a margin of 2% on the outstanding balance of the First Closing Notes, payable quarterly on the first business day of each calendar quarter.The First 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.$7.5$7.5 million principal amount of such Converting Noteholder’s First Closing Note, and related accrued interest, amounting to approximately $0.04$0.04 million, into shares of the Company’s common stock.Note.ClearPoint Neuro, Inc.Note to
NotesCondensed Consolidated Financial Statements
(Unaudited)amountsamount of the outstanding First Closing NotesNote in the accompanying September 30, 20212022 and December 31, 20202021 condensed consolidated balance sheets areis presented net of financing costs, comprised of commissions and legal expenses, having an unamortized balance of $0.2$0.1 million and $0.4$0.2 million at those respective dates. In addition,Prior to the aggregate carrying amountconversion of the First Closing Note inheld by the accompanying December 31, 2020 condensed consolidated balance sheet isConverting Noteholder, the aggregate carrying amount was presented net of a discount, comprised of a commitment fee paid to the Converting Noteholder, amounting to $0.2$0.2 million. Upon conversion of the related note, the discount amounting to $0.2 million at the date of conversion, was reversed, with a corresponding amount being recorded as a reduction of additional paid-in capital. The unamortized balances of the financing costs and the discount, during the period prior to the conversion of the related First Closing Note, arewere charged to interest expense over the respective terms of the First Closing Notes under the effective interest method.The carrying amountin the accompanying December 31, 2020 consolidated balance sheet iscarrying amount was presented net of a discount, amounting to approximately $3.1$3.1 million, at December 31, 2020, and representingwhich represented 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 that2020-06 which no longer required such beneficial conversion features to be separately accounted for, and as previously described in this paragraph. As a result, the accompanying September 30,December 31, 2021 condensed consolidated balance sheet reflects the elimination of both the discount and thea corresponding increase to additional paid-in capital previously described in this paragraph.retainshad the right, but not the obligation, to request one of the 2020 Convertible NoteholderNoteholders to purchase the Third Closing Note, and the 2020 Convertible Noteholder hashad the right, but not the obligation, to purchase such note. As of September 30, 2021,January 11, 2022, the Company had not made such a request.2020 Secured Notes areoutstanding First Closing Note is secured by all the assets of the Company. 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 a 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.2010 Junior Secured NotesOn January 27, 2020, as a condition to completion of the 2020 Financing Transaction, the Company entered into the Fourth Omnibus Amendment to 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 the first fiscal quarter of 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 $0.9 million, resulted in the full retirement of the 2010 Secured Notes.Scheduled Notes Payable Maturitiespaymentspayment as of September 30, 20212022 with respect to notesthe remaining note payable areis summarized as follows:Notes Payable - Schedule of Notes Payable MaturitiesYear ending December 31, (in thousands) 2025 $ 17,788 Total scheduled principal payments 17,788 Less: Unamortized financing costs (175 ) Total $ 17,613 13 Year ending December 31, (in thousands) 2025 $ 10,000 Total scheduled principal payment 10,000 Less: Unamortized financing costs (121) Total $ 9,879 ClearPoint Neuro, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)6.7. Leases office space in Irvine, California, that houses office space and a manufacturing facility under a non-cancellable operating lease. The lease term commenced on October 1, 2018, and expires in September 2023.2023. The Company has the option to renew the lease for two additional periods of five years each. The Company also leases office space inpersonnel, and serves as its corporate headquarters.personnel. The lease term commenced on December 15, 2020,, is set to expire on December 31, 2026,, and is renewable for an additional five-yearfive-year period, at the Company’s option, provided that the Company’s landlord has entered into an extension of its lease for the office space that encompasses the Company’s office space for at least five years. Both office leases are classified as operating leases in conformity with GAAP.cost,costs, included in general and administrative expense, was $0.1were $0.1 million and $0.03 million for each of the three months ended September 30, 2022 and 2021, and 2020, respectively, and was $0.4 million and $0.1$0.4 million for each of the nine months ended September 30, 20212022 and 2020, respectively.2021.7.8. Stockholders’ Equity Public Offering$$23.50 per share and an additional 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.$46.8$46.8 million after deducting underwriting discounts and commissions, and other offering expenses paid by the Company.Issuance of Common Stock in Lieu of Cash PaymentsUnder the terms of the Amended and Restated Non-Employee DirectorPlan, 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. Effective from June 25, 2021, director fees, whether paid in cash or in shares of common stock, are payable quarterlyExpensethe first business day following the end of the 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 stocka straight-line basis over the last five trading days of the quarter.related vesting period and recognizes forfeitures as they occur. The following is information regardingtable sets forth share-based compensation expense included in general and administrative expense in the numbercondensed consolidated statements of shares issued to directors as payment for director fees in lieuoperations:Three Months Ended September 30, Nine Months Ended September 30, (in thousands) (in thousands) 2022 2021 2022 2021 $1,175 $586 $2,954 $1,153 cash for the three and nine months ended September 30, 20212022, there was $1.6 million and 2020:Three Months Ended September 30, 2021 2020 — 6,141 Nine Months Ended September 30, 2021 2020 3,829 25,704 Stock Incentive PlansThe Company has various share-based$6.0 million of total unrecognized 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-qualifiedexpense related to stock options and restricted stock, respectively, which is expected to employees, directors, consultantsbe recognized over a weighted-average period of 2.0 years and advisors. Awards may be subject to a vesting schedule as set forth in individual award agreements.14 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 million shares of the Company’s common stock were made available for future issuances under the 2013 Plan, resulting in a total of shares of the Company’s common stock being reserved for issuance under the 2013 Plan. Of this amount, stock grants of shares have been awarded and option grants, net of options terminated, expired or forfeited, of shares were outstanding as of September 30, 2021. Accordingly, shares remained available for grants under the 2013 Plan as of that date.Plans and share-based compensatory contractsplans during the nine months ended September 30, 20212022 is summarized below:Stockholders’ Equity - Schedule of Stock Option Activity Option
Shares Weighted-average
Exercise price
per share
Value(1) Outstanding at January 1, 2021 1,806,092 $ 7.12 $ 20,760 Granted 121,703 18.12 Exercised (557,184 ) 2.69 Expired / terminated (18,500 ) 20.46 Outstanding at September 30, 2021 1,352,111 $ 9.75 $ 15,328 Stock Options Weighted-average
Exercise price
per shareWeighted-average
Remaining Contractual Life (in years)Outstanding at December 31, 2021 1,350,473 $ 10.10 Granted 147,723 $ 10.91 Exercised (29,000) $ 2.36 Forfeited or expired (69,723) $ 43.24 Outstanding at September 30, 2022 1,399,473 $ 8.70 6.4 $ 7,251 (1)(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 of2021, there was unrecognized compensation expense of approximately $ million related to outstanding stock options and shares of restricted stock, which2022 is expected to be recognized over a weighted average period of years.Restricted Stock Weighted - Average
Grant
Date Fair ValueOutstanding at December 31, 2021 380,105 $ 10.41 Granted 471,863 $ 11.10 Vested (169,666) $ 13.28 Forfeited (26,941) $ 13.92 Outstanding at September 30, 2022 655,361 $ 11.27 arewere made available for issuance pursuant to the terms of the ESPP. The initial six-month purchaseEach offering period is for six months, and the first offering period commenced inon July 2021, and accordingly, no1, 2021. During the six months ended June 30, 2022, 26,354 shares have been sold under the ESPP.2016, and 2017, and are generally for terms of five years.2017. These warrants contain net exercise provisions giving the holder the option of acquiring a number of shares having a value equal to the difference between the exercise price and the current stock price, in lieu of paying the exercise price to acquire the full number of stated shares. All of the warrants outstanding at September 30, 20212022 will terminate by the year endin 2023.2021 was2022 is as follows:Stockholders’ Equity - Schedule of Common Stock Warrant Activity Warrant
Shares Weighted-average
Exercise price
per share
Value(1) Outstanding at January 1, 2021 3,082,987 $ 3.82 $ 37,379 Exercised (2,023,190 ) 3.31 Terminated (390,390 ) 7.78 Outstanding at September 30, 2021 669,407 $ 2.97 $ 9,895 Warrant
SharesWeighted-average
Exercise price
per shareOutstanding at December 31, 2021 668,907 $ 2.97 Exercised (462,353) $ 2.20 Terminated (170,000) $ 2.20 Outstanding at September 30, 2022 36,554 $ 16.23 $ — (1)(1) Intrinsic value is calculated as the estimated fair value of the Company’s stock at the end of the related period less the optionwarrant exercise price of in-the-money options.warrants.8. Subsequent EventsSubsequent Events9. Subsequent Event 3, 2021,4, 2022, the holderCompany entered into a lease agreement (the “Lease Agreement”) with the Hedda Marosi Living Trust and the Stella Feder Trust (collectively, the “Lessor”) to lease an approximately 19,462 square foot industrial building located at 6349 Paseo Del Lago, Carlsbad, CA 92011 (the “Leased Premises”). The Company will use the Leased Premises as an office and manufacturing facility. The lease term commences on June 1, 2023 and ends on May 31, 2033 (the “Lease Term”). The base rent payable under the Lease Agreement is $36,977.80 per month. The base rent is subject to annual increases of 3.5% during the Second Closing Note (see Note 5) convertedLease Term. In addition to the entire $7.8 million principal amount of such note, along with related accruedbase rent, the Company is responsible for certain costs and payment-in-kind interest aggregating $0.05 million, into shares ofcharges, including insurance, operating, and tax expenses. The Company also has two options to extend the Company’s common stock.Lease Term for thirty-six months or sixty months, at the fair market rental value.20202021 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.brain under direct, intra-proceduralbrain. We have deployed significant resources to fund our efforts to develop the foundational capabilities for enabling MRI-guided interventions, building an intellectual property portfolio, and identifying and building out commercial applications for the technologies developed by our company. Beginning in 2021, our efforts have expanded beyond the MRI guidance. Our principal product platformsuite to encompass development and commercialization of new neurosurgical device products for the operating room, as well as consulting services for pharmaceutical and biotech companies, academic institutions, and contract research organizations.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 neurosurgery procedures. In 2011, we also obtained CE marking approval for our ClearPoint system, which enables us to sell our ClearPoint system in the European Union. Neuro Navigation platform.20212022 and 20202021 relates to sales of our ClearPoint system products and related services. We have financed our operations and internal growth primarily through the sale of equity securities and the issuance of convertible and other secured notes, and license arrangements.notes. We have incurred significant losses since our inception in 1998 as we have devoted substantial efforts to research and development. As of September 30, 2021,2022, we had accumulated losses of approximately $130$146.0 million. We may continue to incur operating losses as we expand our ClearPoint system platform and our business generally.COVID-19In March 2020,World Health Organization characterized the spreadimpact of a novel strain of coronavirus (“COVID-19”)various macroeconomic trends, such as a global pandemic,economic and supply chain disruptions, geopolitical instability, labor shortages and inflationary conditions, and the Presidentcontinuing impacts of the United States later proclaimed that the COVID-19 outbreakpandemic. Changes in the United States constituted a national emergency. Extraordinary actions were taken by federal, statedomestic and local governmental authorities to combat the spread of COVID-19, including issuances of “stay-at-home” directives and similar mandates that substantially restricted daily activities and for many businesses curtailed or ceased normal operations. These measures led to reducedglobal 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. Although economic activity is returning to a normalized level, the Delta variant of COVID-19 continues to spread in the United States and across the globe. The ultimate impact of the Delta variant, and other new strains that may develop, cannot be predicted at this time, and could depend on numerous factors, including vaccination rates among the population, the effectiveness of COVID-19 vaccines against the Delta and other variants and the response by governmental bodies and regulators, which could include vaccine mandates.Furthermore, globalconditions, supply chain disruptions, labor shortages, as well as other stimulus and spending programs, have led to higher inflation, which is likely to lead to increased costs and may cause changes in fiscal and monetary policy. Impacts from inflationary pressures, such an increasing costs for research and development of our products, administrative and other costs of doing business, and our availability to access capital markets and other sources of funding in the future could adversely affect our abilitybusiness, financial condition and results of operations. Additionally, these trends could adversely affect our customers, which could impact their willingness to retainspend on our products and attract new talent, and inflationary conditions caused by the COVID-19 pandemic could have a material adverse effect on the Company’s business.services. The rapid development and fluidity of the situation precludethese situations precludes any prediction as to the ultimate impact COVID-19they will have on the Company’sour 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 and globally.
RevenueKey Performance IndicatorsThe key performance indicators we utilize on a tactical basis are integrated into our longer-term strategic plan within the following categories:·Functional neurosurgery navigationoCase volume – Underlying the revenue from sales of our functional neurosurgery navigation products reflected in the accompanying Condensed Consolidated Financial Statements appearing elsewhere in this Quarterly Report are the procedures, or cases, performed in hospitals or at customer-sponsored contract research organizations utilizing one or more of our products or our clinical services. Case volume data is not influenced by variations in pricing or quantities of product used on a per case basis, and thus provide a more reliable indicator of the growth of our functional neurosurgery navigation line of business. Management analyzes case volume by hospital and by type of procedure to gain information that informs targeted sales and marketing activities. During the three and nine months ended September 30, 2021, the ClearPoint system was used in 227 and 690 cases, respectively, as compared to 200 and 507 cases during the same respective periods in 2020, representing increases of 14% for the comparative three-month periods and 36% for the comparative nine-month periods. Consistent with the discussion in the section “Results of Operations – Revenues,” we attribute these increases primarily to the reduced levels of elective neurosurgical procedures resulting from the initial onset and progression of the COVID-19 pandemic during the three-month and nine-month periods in 2020.oNumber of “Active Surgery Centers” – For purposes of analyzing this performance indicator, an Active Surgery Center is a hospital or customer-sponsored contract research organization that has purchased products from us or has performed procedures utilizing our ClearPoint system within a rolling 24-month period, and includes hospital sites having purchased the ClearPoint system, as well as sites in which the ClearPoint system is being used on an evaluation basis. The justification for including “evaluation sites” is that our disposable neurosurgery product is sold to such hospitals for their use in cases. In addition to signifying growth, the number of Active Surgery Centers, when analyzed in conjunction with case volume data, further informs targeted sales and marketing activities and confirms where these activities have led to increased penetration of our product lines. As of September 30, 2021, the ClearPoint system was used in approximately 60 Active Surgery Centers, which is comparable to the number of such centers as of the same date in 2020.·Biologics and drug deliveryoNumber 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, academic institutions, or customer-sponsored contract research organizations 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 revenue from sales of products and services to these Partners in support of their clinical trials is indicative of growth, the number of such relationships is also of importance as we recognize the possibility that some Partners’ research will reach commercial success, and others may not. To the extent our Partners achieve commercial success, our expectation is that we will share in such success through our Partners’ use of our products and services in their delivery of therapies. At September 30, 2021, we had commercial relationships with approximately 40 Partners, as compared with approximately 25 Partners as of the same date in 2020.·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.Revenuemarketing approvalmarking for our ClearPoint system and SmartFlow approval for version 2.0 of our ClearPoint software and our Inflexion head fixation frame. In January 2021, we received 510(k) clearance for the SmartFrame Array Neuro Navigation System. In September 2022 the ClearPoint Prism™ Neuro Laser Therapy System, for which we have exclusive global right to commercialize, received 510(k) clearance through our Swedish partner Clinical Laserthermia Systems (“ CLS”). The Prism laser represents the first therapy product we will commercialize. Future revenue from sales of our ClearPoint platform products and services is difficult to predict and may not be sufficient to offset our continuing research and development expenses and our increasing selling, general and administrative expenses.$3.3$3.1 million and $8.9$9.8 million for the three and nine months ended September 30, 2021,2022, respectively, and was almost entirely related to our ClearPoint system. Our service revenue was approximately $1.2$2.0 million and $3.2$5.6 million for the three and nine months ended September 30, 2021, respectively.policy.policy, as well as labor hours for the cost of providing consulting and service revenue. Cost of revenue 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.software;SmartFlow cannula; and (ii) seek to expand the application of our technological platforms. From our inception through September 30, 2021,2022, we have incurred approximately $66$77 million in research and development expenses.related share-based compensation; marketing costs; professional fees, including fees foror outside attorneys and accountants; occupancy costs; insurance; and other general and administrative expenses, which three or nine months ended September 30, 20212022, as compared to the critical accounting policies and estimates described in our 20202021 Form 10-K.18 20212022, Compared to the Three Months Ended September 30, 2020 Three Months Ended September 30, (Dollars in thousands) 2021 2020 Percentage
Change Product revenue $ 3,338 $ 2,371 41 % Service and other revenue 1,236 1,148 8 % Total revenue 4,574 3,519 30 % Cost of revenue 1,486 903 65 % Gross profit 3,088 2,616 18 % Research and development costs 2,630 1,143 130 % Sales and marketing expenses 1,826 1,493 22 % General and administrative expenses 2,436 1,252 95 % Other expense: Other income (expense), net 62 (11 ) NM % Interest expense, net (238 ) (201 ) 18 % Net loss $ (3,980 ) $ (1,484 ) 168 % Three Months Ended September 30, (Dollars in thousands) 2022 2021 Percentage
ChangeProduct revenue $ 3,130 $ 3,338 (6) % Service and other revenue 2,016 1,236 63 % Total revenue 5,146 4,574 13 % Cost of revenue 1,434 1,533 (6) % Gross profit 3,712 3,041 22 % Research and development costs 2,453 2,601 (6) % Sales and marketing expenses 2,139 1,808 18 % General and administrative expenses 2,915 2,436 20 % Other expense: Other (expense) income, net (25) 62 NM% Interest income (expense), net 32 (238) (114) % Net loss $ (3,788) $ (3,980) (5) % and $3.5 million for the three months ended September 30, 2020, which represents an increase of $1.1$0.6 million, or 30%13%.Three Months Ended September 30, (Dollars in thousands) 2022 2021 Percentage Change Functional neurosurgery navigation and therapy Disposable products $ 2,045 $ 2,004 2 % Services 375 150 150 % Subtotal – Functional neurosurgery navigation and therapy 2,420 2,154 12 % Biologics and drug delivery Disposable products 798 1,137 (30) % Services 1,448 920 57 % Subtotal – Biologics and drug delivery revenue 2,246 2,057 9 % Capital equipment and software Systems and software products 287 197 46 % Services 193 166 16 % Subtotal – Capital equipment and software revenue 480 363 32 % Total revenue $ 5,146 $ 4,574 13 % 17%12% to $2.2$2.4 million for the three months ended September 30, 2021,2022, from $1.8$2.2 million for the same period in 2020.2021. This increase reflects the increase in functional neurosurgery navigation and therapy$0.4 million of service revenue and the resumption in the three months ended September 30, 2021, of elective surgical procedures, which were postponed or cancelledrelated to development services during the three months ended September 30, 2020, due2022, compared to the effects of the COVID-19 pandemic and the contribution of$0.2 million service revenue during the quarter ended September 30, 2021. Although elective surgeries have resumed, we are unable to determine the extent to which such factors as the timing, adoption or viability of such resumption will impact our revenue 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 revenue. There were no increases in functional neurosurgery product prices during the period between the three months ended September 30, 2021 andfor the same period in 2020 that would be reasonably expected to affect a typical customer order.39%9% to $2.1$2.2 million for the three months ended September 30, 2021,2022, from $1.5$2.1 million for the same period in 2020.2021. This increase was dueis attributable to ana $0.5 million increase during the quarter ended September 30, 2021, relativein service revenue related to the same period in 2020, in biologicnew and drug delivery product revenue of $0.7 million as we increased the number of biologiccontinued partnerships with pharmaceutical and drug delivery partnersbiotech companies, academic institutions, and as pre-clinicalcontract research and clinical trial investments by our biologics and drug delivery customers resume. 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 revenue could be adversely impacted. There were no increases in biologics and drug delivery product pricesorganizations during the period between the three months ended September 30, 2021 and2022, compared to the same period in 2020 that would be reasonably expected to affect2021, partially offset by a typical customer order.of related services, increased 78%32% to $0.4$0.5 million for the three months ended September 30, 2021,2022, from $0.2$0.4 million for the same period in 2020.2021 due primarily to an increase in the placements of ClearPoint capital and software.from this product line historically has varied from quarter to quarter, and overall, we believe that hospitals’ capital equipment acquisition activities remain at a low level, relative to the acquisition activity prior to the onsetGross Profit. Cost of revenue was $1.4 million, resulting in 2020gross profit of the COVID-19 pandemic. There were no increases in capital equipment product prices during the period between$3.7 million and gross margin of 72%, for the three months ended September 30, 20212022, and the same period in 2020 that would be reasonably expected to affect a typical customer order.Cost of Revenue and Gross Profit. Cost of revenue was $1.5 million, resulting in gross profit of $3.1$3.0 million and representing a gross margin of 68%66%, for the three months ended September 30, 2021, and was $0.9 million, resulting in gross profit of $2.6 million and representing a gross margin of 74%, for the three months ended September 30, 2020. This decrease2021. The increase in gross margin was primarily due primarily to: (a) $0.1 million in additional excess & obsolete inventory reserve, (b) a decreasedto an increased contribution during the three months ended September 30, 2021 as compared to the same period in 2020, from service revenue, which carries a higher gross margin relative to our product lines, and (c) an increase in overhead costs allocated to cost of salesrevenue, during the three months ended September 30, 20212022 as compared to the same period in 2020.19 $2.6$2.5 million for the three months ended September 30, 2021,2022, compared to $1.1$2.6 million for the same period in 2020, an increase2021, a decrease of $1.5$0.1 million, or 130%6%. The increasedecrease was due primarily to increases in personnellower product development costs as a result of $0.5 million due to growth in headcount,reprioritization of certain research and product and software development of $1.0 million, both resulting from our efforts to expand the applications of our technological platforms.$1.8$2.1 million for the three months ended September 30, 2021,2022, compared to $1.5$1.8 million for the same period in 2020,2021, an increase of $0.3 million, or 22%18%. This increase was due primarily to increases inadditional personnel costs resulting from increases in headcount of $0.2 million, as well as increases in travel expenses, and marketing activities, each such increase amounting tocosts of $0.1 million.$2.4$2.9 million for the three months ended September 30, 2021,2022, compared to $1.3$2.4 million for the same period in 2020,2021, an increase of $1.2$0.5 million, or 95%20%. This increase was due primarily to increases in personnel costs of $0.3 million,increased share-based compensation of $0.3 million, and $0.5 million attributed to rent, insurance costs, the allowance for doubtful accounts, IT expenses, and professional and consulting fees, each representing an increase of approximately $0.1 million.expenseincome for each of the three months ended September 30, 2021 and 20202022 was $0.03 million, compared to $0.2 million due primarily to annet interest expense for the same period in 2021. The increase in interest expense arising from issuanceincome was due to the Company's investment in December 2020 ofU.S. Treasury Bills and the Second Closing Note, which was partially offset by a decrease inresulting higher interest expenserates, as well as lower debt principal due to the conversion of onea portion of the First Closing Notes.2020 Secured Convertible Notes in May and November 2021. Additional information with respect to the First and Second ClosingSecured Notes is in Note 56 to the Condensed Consolidated Financial Statements included elsewhereabove in Part I, Item 1 in this Quarterly Report.20212022 Compared to the Nine Months Ended September 30, 2020 Nine Months Ended September 30, (Dollars in thousands) 2021 2020 Percentage
Change Product revenue $ 8,863 $ 6,186 43 % Service and other revenue 3,154 2,927 8 % Total revenue 12,017 9,113 32 % Cost of revenue 4,015 2,636 52 % Gross profit 8,002 6,477 24 % Research and development costs 6,251 2,774 125 % Sales and marketing expenses 5,081 3,916 30 % General and administrative expenses 6,062 3,742 62 % Other expense: Other expense, net (60 ) (5 ) NM % Interest expense, net (809 ) (1,240 ) (35 )% Net loss $ (10,261 ) $ (5,200 ) 97 % Nine Months Ended September 30, (Dollars in thousands) 2022 2021 Percentage
ChangeProduct revenue $ 9,750 $ 8,863 10 % Service and other revenue 5,627 3,154 78 % Total revenue 15,377 12,017 28 % Cost of revenue 5,162 4,078 27 % Gross profit 10,215 7,939 29 % Research and development costs 7,270 6,208 17 % Sales and marketing expenses 6,171 5,061 22 % General and administrative expenses 8,637 6,062 42 % Other expense: Other expense, net (22) (60) NM% Interest expense, net (165) (809) (80) % Net loss $ (12,050) $ (10,261) 17 % and $9.1 million for the nine months ended September 30, 2020, which represents an increase of $2.9$3.4 million, or 32%28%.Nine Months Ended September 30, (in thousands) 2022 2021 Percentage Change Functional neurosurgery navigation and therapy Disposable products $ 5,706 $ 5,782 (1) % Services 1,125 150 650 % Subtotal – Functional neurosurgery navigation and therapy 6,831 5,932 15 % Biologics and drug delivery Disposable products 2,873 2,501 15 % Services 3,935 2,605 51 % Subtotal – Biologics and drug delivery revenue 6,808 5,106 33 % Capital equipment and software Systems and software products 1,171 580 102 % Services 567 399 42 % Subtotal – Capital equipment and software revenue 1,738 979 78 % Total revenue $ 15,377 $ 12,017 28 % 28%15% to $5.9$6.8 million for the nine months ended September 30, 2021,2022, from $4.7$5.9 million for the same period in 2020.2021. This increase reflects the resumption in the nine months ended September 30, 2021,$1.1 million of elective surgical procedures, which were postponed or cancelledservice revenue related to development services during the nine months ended September 30, 2020, due2022, compared to the effects of the COVID-19 pandemic. Although elective surgeries have resumed, we are unable to determine the extent to which such factors as the timing, adoption or viability of such resumption will impact our$0.2 million service revenue 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 revenue. There were no increases in functional neurosurgery product prices during the period between the nine months ended September 30, 2021 andfor the same period in 2020 that would be reasonably expected to affect2021, partially offset by a typical customer order.$0.1 million decrease in product revenue.39%33% to $5.1$6.8 million for the nine months ended September 30, 2021,2022, from $3.7$5.1 million for the same period in 2020.2021. This increase was dueis attributable to ana $1.3 million increase in service revenue as well as a $0.4 million increase in product revenue related to new and continued partnerships with2021, relative2022, compared to the same period in 2020, in biologic and drug delivery product revenue of $1.5 million as customer-sponsored pre-clinical research and customer-sponsored clinical trials resumed. 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 revenue 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, 2021 and the same period in 2020 that would be reasonably expected to affect a typical customer order.24%78% to $1.0$1.7 million for the nine months ended September 30, 2021,2022, from $0.8$1.0 million for the same period in 2020. Revenue from this product line historically has varied from quarter2021, due primarily to quarter,an increase in the placement of ClearPoint capital and overall, we believe that hospitals’ capital equipment acquisition activities remain at a low level, relative to the acquisition activity prior to the onset in 2020 of the COVID-19 pandemic. There were no increases in capital equipment product prices during the period between the nine months ended September 30, 2021 and the same period in 2020 that would be reasonably expected to affect a typical customer order.$4.0$5.2 million, resulting in gross profit of $8.0$10.2 million and gross margin of 67%66%, for the nine months ended September 30, 2021,2022, and was $2.6$4.1 million, resulting in gross profit of $6.5$7.9 million and representing a gross margin of 71%66%, for the nine months ended September 30, 2020. This decrease in gross2021. Gross margin was due primarily to an increase in overhead costs allocated to cost of salesremained consistent during the nine months ended September 30, 20212022, as compared to the same period in 2020, which reflects the higher activity level2021. This was due to an increase in the 2021 period, relative to the same period in 2020. Thisexcess and obsolete inventory reserve, which was partiallyfully offset by lower overhead expenses as well as an increased contribution of disposable products and service revenues during the nine months ended September 30, 2021 as compared to the same period in 2020,revenue, which carrycarries a higher gross margin relative to other revenue lines, and a reduced contribution during the same comparative periods in sales of capital equipment, which carry a lower gross margin relative to other product lines.$6.3$7.3 million for the nine months ended September 30, 2021,2022, compared to $2.8$6.2 million for the same period in 2020,2021, an increase of $3.5$1.1 million, or 125%17%. The increase was due primarily to increases in personnel costs of $1.6$0.4 million due to growth in headcount, and product and software development of $1.8$0.4 million, both increases resulting from our efforts to expand the applications of our technological platforms.$5.1$6.2 million for the nine months ended September 30, 2021,2022, compared to $3.9$5.1 million for the same period in 2020,2021, an increase of $1.2$1.1 million, or 30%22%. This increase was due primarily to increases inadditional personnel costs of $0.6 million resulting from increases in headcount in our clinical and marketing teams, travel expenses of $0.2$0.6 million, due to increased activity, and marketing activities of $0.2 million, and travel related costs of $0.2 million.$6.1$8.6 million for the nine months ended September 30, 2021,2022, compared to $3.7$6.1 million for the same period in 2020,2021, an increase of $2.3$2.6 million, or 62%42%. This increase was due primarily to increases in state franchise taxesincreased share-based compensation of $0.3$1.8 million and personnel costs of $0.3$0.8 million, share-based compensation of $0.4 million, occupancy costs of $0.3 million, insurance costs of $0.2 million, the allowance for doubtful accounts of $0.2 million, and professional fees of $0.2 million.20212022 was $0.8$0.2 million, compared to $1.2$0.8 million for the same period in 2020. The decrease in2021, due to lower interest expense is primarily due to the repaymentas a result of the 2010 Secured Notes in the first quarter of 2020 and the conversion of onea portion of the First Closing2020 Secured Convertible Notes in the second quarter ofMay and November 2021. The reduction in interest expense was partially offset by the additional interest expense arising from the issuance in December 2020 of the Second Closing Note. Additional information with respect to the First and Second ClosingSecured Notes is in Note 56 to the Condensed Consolidated Financial Statements included elsewhereabove in Part I, Item 1 in this Quarterly Report.20212022 of approximately $130$146.0 million. In addition, our use of cash from operations amounted to $9.1$13.1 million for the nine months ended September 30, 20212022, and $7.8$12.7 million for the year ended December 31, 2020.2021. Since inception, we have financed our operations principally from the sale of equity securities and the issuance of notes payable, product and service contracts and license arrangements.payable.SPA with the 2020"2020 Convertible NoteholdersNoteholders") under which we issued the Firstfirst term notes (the "First Closing NotesNotes") having an aggregate principal amount of $17.5 million, resulting in proceeds, net of financing costs and a commitment fee paid to one of the 2020 Convertible Noteholders, of approximately $16.8 million. From the net proceeds received from the issuance of the First 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.SecondFirst Closing Note.Notes, the "2020 Secured Notes"). On December 29, 2020, under the terms of the Amendmentan amendment to the SPA which, among other provisions, increased the principal amount of the Second Closing Note, we issued the Second Closing Note to one of the 2020 Convertible NoteholderNoteholders in the principal amount of $7.5 million.56 to the Condensed Consolidated Financial Statements included above in Part I, Item 1 in this Quarterly Report for additional information with respect to the 2020 Secured Notes.In April 2020, we received $0.9 million in proceeds under the terms of the PPP Loan. In November 2020, we were notified by the U.S. Small Business Administration that the loan had been forgiven under the provisions of the CARES Act.7,8 to the Condensed Consolidated Financial Statements included above in Part I, Item 1 in this Quarterly Report, on February 23, 2021, we 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.Basedthe foregoing, in management’s opinion,our current forecasts for revenue, expense and cash flows, our existing cash and cash equivalent balances and short-term investments at September 30, 2021,2022, are sufficient to support our operations and meet our obligations for at least the next twelve months.20212022 and 20202021 is summarized as follows: (in thousands) 2021 2020 Cash used in operating activities $ (9,145 ) $ (5,406 ) Cash used in investing activities (130 ) (441 ) Cash provided by financing activities 46,827 14,816 Net change in cash and cash equivalents $ 37,552 $ 8,969 (in thousands) 2022 2021 Cash used in operating activities (13,102) $ (9,145) Cash used in investing activities (22,482) (130) Cash provided by financing activities 187 46,827 Net change in cash and cash equivalents $ (35,397) $ 37,552 WeNet cash flows used $9.1 million and $5.4 million of cash forin operating activities duringfor the nine months ended September 30, 2021 and 2020, respectively.During2022, were $13.1 million, an increase of $4.0 million from the nine months ended September 30, 2021, uses2021. This increase consisted of a higher net loss of $1.8 million and the effects of net changes of operating assets and liabilities of $3.3 million, partially offset by a change in non-cash items of $1.3 million. The change in operating assets and liabilities is primarily due to the use of cash for the buildup of inventory stock in operating activities primarily consisted of: (i) our $10.3 million net loss; (ii)response to supply chain disruptions and the change in the non-cash items results from increases in accounts receivable of $0.8 million, inventory of $0.7 million, and prepaid expenses and other current assets of $0.6 million; and (iii) decreasesshare-based compensation.lease liabilities of $0.3 million. These uses were partially offset by: (a) an increase in accounts payable and accrued expenses of $1.4 million; and (b) net non-cash expenses included in our net loss aggregating $2.2 million and consisting primarily of changes in the allowanceinvesting activities for doubtful accounts, 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 nine months ended September 30, 2020, uses of cash in operating activities primarily consisted of: (i) our $5.2 million net loss; (ii) increases in accounts receivable of $0.4 million, inventory of $0.32022, were $22.5 million and prepaid expenses and other current assets of $0.1 million; and (iii) decreases in accrued interest of $1.0 million, lease liabilities of $0.07 million, and deferred revenue of $0.3 million. These uses were partially offset by: (a) a decrease in other assets of $0.06 million; (b) an increase in accounts payable and accrued expenses of $0.06 million; and (c) net non-cash expenses included in our net loss aggregating $1.9 million and consistingconsisted primarily of depreciationthe purchase of short-term marketable investments of $21.6 million as well as equipment acquisitions 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.licensing rights.used in investingfrom financing activities for the nine months ended September 30, 2020, were $0.4 million and2022, consisted of an acquisitionproceeds of medical device license rights.Net Cash Flows$0.6 million from Financing Activities.the exercise of common stock options and warrants and purchases made under the employee stock purchase plan, partially offset by payments of $0.3 million for taxes related to shares withheld in connection with the vesting of restricted stock awards.of: (a)of the proceeds, net offering costs, of $46.8 million received from the public offering of our common stock;stock, and (b) proceeds from the exercise of common stock options and warrants aggregating $0.6 million, which were partially offset by tax payments of $0.5 million related to shares withheld in connection with the vesting of restricted stock awards.Net cash flows from financing activities for the nine months ended September 30, 2020 consisted of the proceeds, net financing costs and discount paid as of that date, of $16.8 million received from the issuance of the 2020 Secured Notes, and the proceeds of $0.9 million from the PPP Loan. The proceeds from these activities were partially offset by the repayment of the 2010 Secured Notes amounting to $2.8 million. The 2020 Secured Notes, the PPP Loan and the repayment of the 2010 Secured Notes are described in Note 5 to the Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report.●the ultimate duration and impact of the COVID-19 pandemic;●the timing of broader market acceptance and adoption of our ClearPoint system products;●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;● 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 ArrangementsWe 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, revenue or expenses, resultswe may establish;operations, liquidity, capital expenditures or capital resources.any clinical trials;
•the cost and timing of regulatory filings, clearances and approvals; and2021,2022, we had $10.0$10 million of principal outstanding under thea First Closing Note, which is subject to interest rate fluctuations. AThe outstanding First Closing Note bears interest at a rate equal to the sum of (i) the greater of (a) the three (3)-month London Interbank Offered Rate (“LIBOR”) and (b) two percent (2%), plus (ii) a margin of 2% on the outstanding balance of the First Closing Note. At September 30, 2022, the three-month LIBOR was greater than the 2% floor as a result of rising interest rates, and the rate paid on the outstanding First Closing Note was 5.6%. If the LIBOR continues to increase, a one-percent to two-percent increase in one-month LIBOR would result in no net increase inadditional annual interest expense on an annualized basis dueof $0.3 million to the fact that the First Closing Note is subject to a LIBOR floor of 2.00% and one-month LIBOR was below$0.4 million above the floor, as of September 30, 2021.respectively. Information with respect to the outstanding First Closing Note may be found in Note 56 to the condensed consolidated financial statementsCondensed Consolidated Financial Statements included elsewhereabove in Part I, Item 1 in this Quarterly Report.20212022 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, 2021.2021,2022, 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.24 ITEM 1.LEGAL PROCEEDINGS.ITEM 1A.RISK FACTORS.20202021 Form 10-K.ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.ITEM 3.DEFAULTS UPON SENIOR SECURITIES.ITEM 4.MINE SAFETY DISCLOSURES.ITEM 5.OTHER INFORMATION.ITEM 6.EXHIBITS.Exhibit
NumberExhibit DescriptionExhibit
NumberExhibit Description 31.1*3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 3.9 10.1 31.1* 31.2* 32+ 101.INS* XBRL Instance 101.SCH* XBRL Taxonomy Extension Schema 101.CAL* XBRL Taxonomy Extension Calculation 101.DEF* XBRL Taxonomy Extension Definition 101.LAB* XBRL Taxonomy Extension Labels 101.PRE* XBRL Taxonomy Extension Presentation 104104*Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) *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.26 Date: November 9, 2021Date: November 8, 2022 CLEARPOINT NEURO, INC. By: /s/ Joseph M. Burnett Joseph M. Burnett Chief Executive Officer (Principal Executive Officer) By: /s/ Danilo D’Alessandro Danilo D’Alessandro Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) 27