UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

 

For the quarterly period ended June 30, 2019

 

 

Or

 

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

 

For the transition period from_____to _____

 

Commission file number: 001-34822

 

MRI Interventions, Inc.

(Exact Name of Registrant as Specified in Its Charter)

 

Delaware

58-2394628

(State or Other Jurisdiction

(IRS Employer

of Incorporation or Organization)

Identification Number)

 

 

5 Musick

 

Irvine, California

92618

(Address of Principal Executive Offices)

(Zip Code)

 

(949) 900-6833

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, $0.01 par value per share MRIC NYSE American

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. 

☒  Yes ☐ No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files.)

☒ Yes ☐ No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller Reporting Company

 

Emerging Growth Company

  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  ☐  Yes ☒ No

 
As of August 8, 2019, there were 13,998,130 shares of common stock outstanding. 

 

1 

 

 

MRI INTERVENTIONS, INC.

 

TABLE OF CONTENTS

 

 

 

 

Page
Number

 

 

 

 

 

PART I – FINANCIAL INFORMATION

 

 

 

 

 

 

 

Item 1.

Financial Statements (unaudited)

 

 

 

 

Condensed Consolidated Balance Sheets as of June 30, 2019 and December 31, 2018

 

4

 

 

Condensed Consolidated Statements of Operations for the three months ended June 30, 2019 and 2018

 

5

 

 

Condensed Consolidated Statements of Operations for the six months ended June 30, 2019 and 2018

 

6

 

 

Condensed Consolidated Statements of Stockholders’ Equity for the six months ended June 30, 2019 and 2018

 

7

 

 

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and 2018

 

8

 

 

Notes to Condensed Consolidated Financial Statements

 

9

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

18

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

24

 

Item 4.

Controls and Procedures

 

24

 

 

 

 

 

PART II – OTHER INFORMATION

 

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

25

 

Item 1A.

Risk Factors

 

25

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

25

 

Item 3.

Defaults Upon Senior Securities

 

25

 

Item 4.

Mine Safety Disclosures

 

25

 

Item 5.

Other Information

 

25

 

Item 6.

Exhibits

 

26

 

 

 

 

 

SIGNATURES

 

27

 

 

2 

 

 

 Trademarks, Trade Names and Service Marks

 

ClearPoint®, ClearTrace® and MRI Interventions® are trademarks of MRI Interventions, Inc. Any other trademarks, trade names or service marks referred to in this Quarterly Report on Form 10-Q (this “Quarterly Report”) are the property of their respective owners. As used in this Quarterly Report, Brainlab refers to Brainlab AG and its affiliates.

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Quarterly Report contains “forward-looking statements” as defined under the United States federal securities laws. The forward-looking statements are contained principally in the section of this Quarterly Report entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements, expressed or implied by the forward-looking statements. Forward-looking statements include, but are not limited to, statements about:

 

 

future revenues from sales of ClearPoint system products;

 

 

our ability to market, commercialize and achieve broader market acceptance for our ClearPoint system products; and

 

 

estimates regarding the sufficiency of our cash resources and our ability to obtain additional financing, to the extent necessary or advisable.

 

In some cases, you can identify forward-looking statements by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would,” and similar expressions intended to identify forward-looking statements, although not all forward-looking statements contain these words. Although we believe that we have a reasonable basis for each forward-looking statement contained in this Quarterly Report, we caution you that these statements are based on a combination of facts and factors currently known by us and our projections of the future, about which we cannot be certain.

 

You should refer to the section titled “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, which we filed with the SEC on April 1, 2019, for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by the forward-looking statements contained in this Quarterly Report. As a result of these factors, we cannot assure you that the forward-looking statements in this Quarterly Report will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all. We do not undertake to update any of the forward-looking statements after the date of this Quarterly Report, except to the extent required by applicable securities laws.

 

3 

 

 

PART I – FINANCIAL INFORMATION

 

ITEM 1.   FINANCIAL STATEMENTS

 

MRI INTERVENTIONS, INC.
Condensed Consolidated Balance Sheets

 

 

 

June 30,
2019
(Unaudited)

 

 

December 31,
2018

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

7,461,648

 

 

$

3,101,133

 

Accounts receivable, net

 

 

1,371,827

 

 

 

1,233,896

 

Inventory, net

 

 

2,529,159

 

 

 

2,105,976

 

Prepaid expenses and other current assets

 

 

430,638

 

 

 

213,684

 

Total current assets

 

 

11,793,272

 

 

 

6,654,689

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

471,427

 

 

 

377,706

 

Software license inventory

 

 

416,900

 

 

 

801,900

 

Operating lease rights of use

 

 

427,927

 

 

 

-

 

Other assets

 

 

160,010

 

 

 

22,538

 

Total assets

 

$

13,269,536

 

 

$

7,856,833

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,302,456

 

 

$

500,929

 

Accrued compensation

 

 

711,623

 

 

 

764,960

 

Operating lease liabilities, current portion

 

 

113,914

 

 

 

-

 

Other accrued liabilities

 

 

382,872

 

 

 

390,838

 

Deferred revenue

 

 

740,163

 

 

 

350,963

 

Total current liabilities

 

 

3,251,028

 

 

 

2,007,690

 

 

 

 

 

 

 

 

 

 

Accrued interest

 

 

910,000

 

 

 

857,500

 

2014 junior secured notes payable, net

 

 

-

 

 

 

1,939,850

 

Operating lease liabilities

 

 

332,261

 

 

 

-

 

2010 junior secured notes payable, net

 

 

1,869,105

 

 

 

1,540,791

 

Total liabilities

 

 

6,362,394

 

 

 

6,345,831

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.01 par value; 25,000,000 shares authorized; none issued and outstanding at June 30, 2019 and December 31, 2018

 

 

-

 

 

 

-

 

Common stock, $0.01 par value; 200,000,000 shares authorized; 13,686,320 shares issued and outstanding at June 30, 2019; and 11,018,364 issued and outstanding at December 31, 2018

 

 

 

136,863

 

 

 

110,183

 

Additional paid-in capital

 

 

116,741,229

 

 

 

108,600,405

 

Accumulated deficit

 

 

(109,970,950

)

 

 

(107,199,586

)

Total stockholders’ equity

 

 

6,907,142

 

 

 

1,511,002

 

Total liabilities and stockholders’ equity

 

$

13,269,536

 

 

$

7,856,833

 

  

See accompanying notes to Condensed Consolidated Financial Statements. 

 

4 

 

 

MRI INTERVENTIONS, INC.

Condensed Consolidated Statements of Operations

(Unaudited)

 

 

 

For The Three Months Ended
June 30,

 

 

 

2019

 

 

2018

 

Revenues:

 

 

 

 

 

 

 

 

Product revenues

 

$

2,194,194

 

 

$

1,412,599

 

Service and other revenues

 

 

412,204

 

 

 

233,736

 

Total revenues

 

 

2,606,398

 

 

 

1,646,335

 

Cost of revenues

 

 

1,030,316

 

 

 

602,236

 

Research and development costs

 

 

697,803

 

 

 

665,310

 

Sales and marketing expenses

 

 

1,143,056 

 

 

 

926,231

 

General and administrative expenses

 

 

1,028,291

 

 

 

1,088,496

 

Operating loss

 

 

(1,293,068

)

 

 

(1,635,938

)

Other income (expense):

 

 

 

 

 

 

 

 

Gain from change in fair value of derivative liabilities

 

 

-

 

 

 

7,580

 

Other income (expense), net

 

 

1,693

 

 

 

(87

)

Interest expense, net

 

 

(259,020

)

 

 

(248,091

)

Net loss

 

$

(1,550,395

)

 

$

(1,876,536

)

Net loss per share attributable to common stockholders:

 

 

 

 

 

 

 

 

Basic and diluted

 

$

(0.13

)

 

$

(0.17

)

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

Basic and diluted

 

 

12,302,667

 

 

 

10,959,532

 

 

See accompanying notes to Condensed Consolidated Financial Statements. 

 

5 

 

MRI INTERVENTIONS, INC.

Condensed Consolidated Statements of Operations

(Unaudited)

 

 

 

For The Six Months Ended
June 30,

 

 

 

2019

 

 

2018

 

Revenues:

 

 

 

 

 

 

 

 

Product revenues

 

$

4,358,148

 

 

$

2,951,198

 

Service and other revenues

 

 

720,767

 

 

 

318,504

 

Total revenues

 

 

5,078,915

 

 

 

3,269,702

 

Cost of revenues

 

 

1,916,798

 

 

 

1,191,203

 

Research and development costs

 

 

1,282,343

 

 

 

1,211,638

 

Sales and marketing expenses

 

 

2,183,769

 

 

 

1,888,445

 

General and administrative expenses

 

 

1,961,322

 

 

 

2,041,446

 

Operating loss

 

 

(2,265,317

)

 

 

(3,063,030

)

Other income (expense):

 

 

 

 

 

 

 

 

Gain from change in fair value of derivative liabilities

 

 

-

 

 

 

42,023

 

Other income (expense), net

 

 

7,322

 

 

 

(883

)

Interest expense, net

 

 

(513,125

)

 

 

(495,563

)

Net loss

 

$

(2,771,120

)

 

$

(3,517,453

)

Net loss per share attributable to common stockholders:

 

 

 

 

 

 

 

 

Basic and diluted

 

$

(0.24

)

 

$

(0.32

)

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

Basic and diluted

 

 

11,676,872

 

 

 

10,851,177

 

 

See accompanying notes to Condensed Consolidated Financial Statements.

 

6 

 

 

MRI INTERVENTIONS, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

 

For The Six Months Ended June 30, 2019
           Additional         
   Common Stock   Paid-in   Accumulated     
   Shares   Amount   Capital   Deficit   Total 
Balances, January 1, 2019   11,018,364   $110,183   $108,600,405   $(107,199,586)  $1,511,002 
Cumulative adjustment for adoption of new accounting standard   -    -    -    (244)   (244)
Issuances of common stock:                         
Share-based compensation   28,462    285    152,301    -    152,586 
Warrant exercises   20,381    204    (204)   -    - 
Net loss for the period   -    -    -    (1,220,725)   (1,220,725)
Balances, March 31, 2019   11,067,207    110,672    108,752,502    (108,420,555)   442,619 
Issuances of common stock:                         
Share-based compensation   3,251    32    203,962    -    203,994 
Warrant exercises   189,407    1,894    381,182    -    383,076 
May 2019 private placement, net of offering costs of $94,162   2,426,455    24,265    7,403,583    -    7,427,848 
Net loss for the period   -    -    -    (1,550,395)   (1,550,395)
Balances, June 30, 2019   13,686,320   $136,863   $116,741,229   $(109,970,950)  $6,907,142 

 

For The Six Months Ended June 30, 2018
           Additional         
   Common Stock   Paid-in   Accumulated     
   Shares   Amount   Capital   Deficit   Total 
Balances, January 1, 2018   10,693,851   $106,937   $106,757,920   $(101,036,117)  $5,828,740 
Issuances of common stock:                         
Share-based compensation   9,298    93    247,372    -    247,465 
Under contractual arrangements   25,000    250    77,250    -    77,500 
Warrant exercises   97,747    978    235,620    -    236,598 
Net loss for the period   -    -    -    (1,640,917)   (1,640,917)
Balances, March 31, 2018   10,825,896   $108,258   $107,318,162   $(102,677,034)  $4,749,386 
Issuances of common stock:                         
    Share-based compensation   31,977    320    359,339    -    359,659 
Warrant exercises   148,566    1,486    325,360    -    326,846 
Net loss for the period   -    -    -    (1,876,536)   (1,876,536)
Balances, June 30, 2018   11,006,439   $110,064   $108,002,861   $(104,553,570)  $3,559,355 

 
See accompanying notes to Condensed Consolidated Financial Statements.
 

 

7 

 

 

MRI INTERVENTIONS, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

For The Six Months Ended
June 30,

 

 

 

2019

 

 

2018

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(2,771,120

)

 

$

(3,517,453

)

Adjustments to reconcile net loss to net cash flows from operating activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

69,600

 

 

 

55,418

 

Share-based compensation

 

 

356,580

 

 

 

607,124

 

Expenses paid through the issuance of common stock

 

 

-

 

 

 

77,500

 

Gain from change in fair value of derivative liabilities

 

 

-

 

 

 

(42,023

)

Amortization of debt issuance costs and original issue discounts

 

 

363,465

 

 

 

272,858

 

Amortization of lease rights of use, net of accretion in lease liabilities

 

 

51,255

 

 

 

-

 

Increase (decrease) in cash resulting from changes in:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(137,931

)

 

 

178,629

 

Inventory, net

 

 

(201,503

)

 

 

(337,807

)

Prepaid expenses and other current assets

 

 

(216,953

)

 

 

(128,823

)

Other assets

 

 

11,899

 

 

 

1,001

 

Accounts payable and accrued expenses

 

 

716,222

 

 

 

(197,888

)

Lease liabilities

 

 

(50,285

)

 

 

-

 

Deferred revenue

 

 

389,201

 

 

 

(41,477

)

Net cash flows from operating activities

 

 

(1,419,570

)

 

 

(3,072,941

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

-

 

 

 

(51,497

)

Acquisition of licensing rights

 

 

(150,000

)

 

 

-

 

Net cash flows from investing activities

 

 

(150,000

)

 

 

(51,497

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from private offering

 

 

7,522,010

 

 

 

-

 

Proceeds from warrant exercises

 

 

383,075

 

 

 

531,977

 

Repayment of 2014 junior secured notes payable

 

 

(1,975,000

)

 

 

-

 

Net cash flows from financing activities

 

 

5,930,085

 

 

 

531,977

 

Net change in cash and cash equivalents

 

 

4,360,515

 

 

 

(2,592,461

)

Cash and cash equivalents, beginning of period

 

 

3,101,133

 

 

 

9,289,831

 

Cash and cash equivalents, end of period

 

$

7,461,648

 

 

$

6,697,370

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL CASH FLOW INFORMATION

 

 

 

 

 

 

 

 

Cash paid for:

 

 

 

 

 

 

 

 

Income taxes

 

$

-

 

 

$

-

 

Interest

 

$

164,157

 

 

$

146,611

 

 

NON-CASH TRANSACTIONS:

 

 

On January 1, 2019, the Company adopted the provisions of Topic 842 within the Accounting Standards Codification, which resulted in the establishment of operating lease right-of-use assets and operating lease liabilities, each in the aggregate amount of $480,395 (see Notes 2 and 6).

 

 

In connection with the 2019 PIPE (see Note 7), the Company incurred approximately $94,000 of issuance costs that were unpaid and included in accounts payable at June 30, 2019.

 

 

During the six months ended June 30, 2019 and 2018, the Company recorded net transfers of ClearPoint reusable components having an aggregate net book value of $163,321 and $25,280, respectively, from loaned systems, which are included in property and equipment in the accompanying condensed consolidated balance sheets, to inventory.

  

See accompanying notes to Condensed Consolidated Financial Statements.

 

8 

 

 

MRI Interventions, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

1. Description of the Business and Liquidity

 

MRI Interventions, Inc. (the “Company”) is a medical device company focused on the development and commercialization of technology that enables physicians to see inside the brain and heart using direct, intra-procedural magnetic resonance imaging (“MRI”) guidance while performing minimally invasive surgical procedures.

 

The Company’s ClearPoint system, an integrated system comprised of reusable and disposable products, is designed to allow minimally invasive procedures in the brain to be performed in an MRI suite. The Company received 510(k) clearance from the U.S. Food and Drug Administration (“FDA”) in 2010 to market the ClearPoint system in the United States for general neurological interventional procedures. The Company’s ClearTrace system is a product candidate that is designed to allow catheter-based minimally invasive procedures in the heart to be performed in an MRI suite. Although still a product candidate, the Company has reduced its efforts to commercialize the ClearTrace system.

 

Liquidity and Management’s Plans

 

The Company has incurred net losses since its inception which has resulted in a cumulative deficit at June 30, 2019 of $110 million. Since inception, the Company has financed its operations principally from the sale of equity securities, the issuance of notes payable and license arrangements.

 

The Company’s plans for the next twelve months reflect management’s anticipation of increases in revenues from sales of the ClearPoint System and related disposable products resulting from greater utilization at existing installed sites and the installation of the ClearPoint system at new sites. Management also anticipates that growth in operating expenses will be modest in comparison to the anticipated growth in revenues, with resulting decreases in loss from operations and in cash used in operations. There is no assurance, however, that the Company will be able to achieve its anticipated results, and even in the event such results are achieved, the Company expects to continue to consume cash in its operations over at least the next twelve months.

 

As discussed in Note 7, in May 2019, the Company entered into a Securities Purchase Agreement with certain accredited investors under which such investors purchased 2,426,455 shares of the Company’s common stock at $3.10 per share, resulting in proceeds of approximately $7.5 million, before deducting offering expenses aggregating approximately $94,000. In management’s opinion, such proceeds, when combined with the Company’s cash and cash equivalent balances at June 30, 2019, are sufficient to support the Company’s operations for at least the next twelve months.

 

2. Basis of Presentation and Summary of Significant Accounting Policies

 

Basis of Presentation and Use of Estimates

 

In the opinion of management, the accompanying unaudited condensed consolidated financial statements have been prepared on a basis consistent with the Company’s December 31, 2018 audited consolidated financial statements, and include all adjustments, consisting of only normal recurring adjustments, necessary to fairly state the information set forth therein. These condensed consolidated financial statements have been prepared in accordance with United States (“U.S.”) Securities and Exchange Commission (“SEC”) rules for interim financial information, and, therefore, omit certain information and footnote disclosures necessary to present such statements in accordance with generally accepted accounting principles in the U.S. (“GAAP”). The preparation of these condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, 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 financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, which was filed with the SEC on April 1, 2019 (the “2018 Form 10-K”). The accompanying condensed consolidated balance sheet as of December 31, 2018 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 six months ended June 30, 2019 may not be indicative of the results to be expected for the entire year or any future periods.

 

9

 

 

MRI Interventions, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Inventory

 

Inventory is carried at the lower of cost (first-in, first-out method) or net realizable value. Items in inventory relate predominantly to the Company’s ClearPoint system. Software license inventory related to ClearPoint systems undergoing on-site customer evaluation is included in inventory in the accompanying condensed consolidated balance sheets. All other software license inventory is classified as a non-current asset. The Company periodically reviews its inventory for obsolete items and provides a reserve upon identification of potential obsolete items.

 

Intangible Assets

 

In June 2019 the Company entered into an Exclusive License Agreement (the “License Agreement”) that provides exclusive rights to the Company for the development and commercialization of products in the functional neurosurgery field. Under the terms of the License Agreement, the Company paid $150,000 to the licensor upon execution of the License Agreement and will make future payments based on the achievement of regulatory and commercialization milestones as defined in the License Agreement.

 

In conformity with Accounting Standards Codification Section 350, “Intangibles – Goodwill and Other,” the Company amortizes its investment in the license rights described above over an expected useful life of 10 years.

 

Revenue Recognition

 

The Company’s revenues are comprised primarily of: (1) product revenues resulting from the sale of functional neurosurgical products, and drug delivery and biologic products; (2) product revenues resulting from the sale of ClearPoint capital equipment; (3) functional neurosurgery and related service revenues resulting from the performance of product line commercialization planning and execution for a third party; (4) clinical case support revenues in connection with customer-sponsored clinical trials; and (5) revenues resulting from the rental, service, installation, training and shipping related to ClearPoint capital equipment. The Company recognizes revenue when control of the Company’s products and services is transferred to its customers in an amount that reflects the consideration the Company expects to receive from its customers in exchange for those products and services. This process involves identifying the contract with a customer, determining the performance obligations in the contract, determining the contract price, allocating the contract price to the distinct performance obligations in the contract, and recognizing revenue when the performance obligations have been satisfied. A performance obligation is considered distinct from other obligations in a contract when it provides a benefit to the customer either on its own or together with other resources that are readily available to the customer and is separately identified in the contract. The Company considers a performance obligation satisfied once it has transferred control of a good or service to the customer, meaning the customer has the ability to use and obtain the benefit of the good or service. The Company recognizes revenue for satisfied performance obligations only when it determines there are no uncertainties regarding payment terms or transfer of control.

 

Lines of Business; Timing of Revenue Recognition

 

Functional neurosurgery product, and biologics and drug delivery systems product sales: Revenues from the sale of functional neurosurgery products (consisting of disposable products sold commercially and related to cases utilizing the Company’s ClearPoint system), and biologics and drug delivery systems (consisting primarily of disposable products related to customer-sponsored clinical trials utilizing the ClearPoint system), are generally based on customer purchase orders, the predominance of which require delivery within one week of the order having been placed, and are generally recognized at the point at which legal title, and risks and rewards of ownership, along with physical possession, transfer to the customer.

 

Capital equipment sales

 

Capital equipment sales preceded by evaluation periods: The predominance of capital equipment sales (consisting of integrated computer hardware and software that are integral components of the Company’s ClearPoint system) are preceded by customer evaluation periods of generally 90 days. During these evaluation periods, installation of, and training of customer personnel on, the systems have been completed and the systems have been in operation. Accordingly, revenue from capital equipment 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.

 

10

 

 

MRI Interventions, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Capital equipment sales not preceded by evaluation periods: Revenue from sales of capital equipment not having been preceded by an evaluation period is recognized at the point in time that the equipment has been delivered to the customer.

 

For both types of capital equipment sales described above, the Company’s determination of the point in time at which to recognize revenue represents that point at which the customer has legal title, physical possession, and the risks and rewards of ownership, and the Company has a present right to payment.

 

Functional neurosurgery and related services: Revenues from functional neurosurgery and related services are recognized over the period of time such services are rendered.

 

Biologics and drug delivery services:

 

Outsourced recruitment and/or designation of a clinical services liaison between Company and its customer: The Company recognizes revenue at the point in time that the liaison is either recruited or designated, which is the point at which the customer is able to direct, and obtain benefit from, use of the liaison. The Company made this determination based on the decision made by the customer to outsource this function to the Company, rather than to incur its own recruiting costs. Upon such recruitment or designation, the liaison becomes the customer’s outsourced clinical support services coordinator.

 

Outsourced technical clinical support of cases performed pursuant to customer-sponsored clinical trials: The Company recognizes revenue at the point in time a clinical trial case is performed based on the allocated per-case transaction price.

 

Other related services: The Company recognizes revenue for such services at the point in time that the performance obligation has been satisfied.

 

Capital equipment-related services

 

Rental and equipment service: Revenue from rental of ClearPoint capital equipment is recognized ratably on a monthly basis over the term of the rental agreement, which is less than one year. Revenue from service of ClearPoint capital equipment 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 rental and service revenues 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 sales as described above, fees for installation, training and shipping fees in connection with sales of capital equipment 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. Installation, training and shipping fees related to capital equipment sales not having been preceded by an evaluation period are recognized as revenue at the point in time that the related services are performed.

 

The Company operates in one industry segment, and substantially all its sales are to U.S.-based customers.

 

Payment terms under contracts with customers generally are in a range of 30-60 days after the customers’ receipt of the Company’s invoices.

 

The Company provides a one-year warranty on its functional neurosurgery products, biologics and drug delivery systems products, and capital equipment products that are not otherwise covered by a third-party manufacturer’s warranty. The Company’s contracts with customers do not provide for a right of return other than for product defects.

 

See Note 3 for additional information regarding revenue recognition.

 

11

 

 

MRI Interventions, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Net Loss Per Share

 

The Company computes net loss per share using the weighted-average number of common shares outstanding during the period. Basic and diluted net loss per share are the same because the conversion, exercise or issuance of all potential common stock equivalents, which comprise the entire amount of the Company’s outstanding common stock options and warrants as described in Note 7, would be anti-dilutive.

 

Concentration Risks and Other Risks and Uncertainties

 

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. The Company holds its cash and cash equivalents on deposit with financial institutions in the U.S. insured by the Federal Deposit Insurance Corporation. At June 30, 2019, the Company had $132,765 in bank balances that were in excess of the insured limits.

 

Information with respect to customers that accounted for sales in excess of 10% of total sales in the three-month periods ended June 30, 2019 and 2018 is as follows:

 

  Three Months Ended June 30,
  2019   2018
Customer – 1 -   10%
Customer – 2 -   10%

 

No customer accounted for sales in excess of 10% of total sales in either of the six-month periods ended June 30, 2019 or 2018.

 

Information with respect to accounts receivable from those customers who comprised more than 10% of accounts receivable at June 30, 2019 and December 31, 2018 is as follows:

 

  June 30, 2019   December 31, 2018
Customer – 1 14%   17%
Customer – 2 -   12%

 

 

Prior to granting credit, the Company performs credit evaluations of its customers’ financial condition, and generally does not require collateral from its customers. The Company will provide an allowance for doubtful accounts when collections become doubtful. The allowance for doubtful accounts was $42,000 at June 30, 2019 and $38,000 at December 31, 2018.

 

The Company is subject to risks common to emerging companies in the medical device industry, including, but not limited to: new technological innovations; acceptance and competitiveness of its products; dependence on key personnel; dependence on key suppliers; changes in general economic conditions and interest rates; protection of proprietary technology; compliance with changing government regulations; uncertainty of widespread market acceptance of products; access to credit for capital purchases by customers; and product liability claims. Certain components used in manufacturing have relatively few alternative sources of supply and establishing additional or replacement suppliers for such components cannot be accomplished quickly. The inability of any of these suppliers to fulfill the Company’s supply requirements may negatively impact future operating results.

 

Adoption of New Accounting Standard – Leases

 

Effective January 1, 2019, the Company adopted the provisions of Accounting Standards Update (“ASU”) 2016-02, “Leases,” which created a new Topic 842 within the Accounting Standards Codification. Topic 842 established the core principle that a lessee should recognize the assets, representing rights-of-use, and liabilities to make lease payments, that arise from leases.

 

See Note 6 for additional information regarding leases.

 

12

 

 

MRI Interventions, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

3.Revenue Recognition

 

Revenue by Service Line

 

   Three Months Ended June 30,
   2019  2018
Products:      
Disposable products:          
Functional neurosurgery  $1,690,122   $1,159,527 
Biologics and drug delivery   244,949    111,792 
Therapy   17,830    - 
Capital equipment   241,293    141,280 
Total product revenue   2,194,194    1,412,599 
Services:          
Capital equipment and other   243,954    71,736 
Biologics and drug delivery   168,250    162,000 
Total service revenue   412,204    233,736 
Total revenue  $2,606,398   $1,646,335 

 

   Six Months Ended June 30,
   2019  2018
Products:      
Disposable products:          
Functional neurosurgery  $3,294,767   $2,338,862 
Biologics and drug delivery   529,859    292,258 
Therapy   17,830    - 
Capital equipment   515,692    320,078 
Total product revenue   4,358,148    2,951,198 
Services:          
Capital equipment and other   455,156    156,504 
Biologics and drug delivery   265,611    162,000 
Total service revenue   720,767    318,504 
Total revenue  $5,078,915   $3,269,702 

 

Contract Balances

 

Contract assets – Substantially all the Company’s contracts with customers are based on customer-issued purchase orders for distinct products or services. Customers are billed upon delivery of such products or services, and the related contract assets comprise the accounts receivable balances included in the accompanying condensed consolidated balance sheets.

 

Contract liabilities – The Company generally bills and collects capital equipment-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 are classified as deferred revenue.

 

During the three and six months ended June 30, 2019, the Company recognized capital equipment-related service revenue of $66,783 and $131,012, respectively, which was previously included in deferred revenue in the accompanying condensed consolidated balance sheet at December 31, 2018.

 

Under the terms of one customer contract, the Company is entitled to bill the customer for: (a) certain products the customer ordered and is committed to purchase but which are shipped at a future date; and (b) the achievement of certain milestones set forth in the contract. At June 30, 2019, such billings amounted to $75,000, which amount is included in each of accounts receivable and deferred revenue in the accompanying condensed consolidated balance sheet.

 

13

 

 

MRI Interventions, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Remaining Performance Obligations

 

The Company’s contracts with customers, other than capital equipment-related service agreements discussed below, are predominantly of terms less than one year. Accordingly, the transaction price of remaining performance obligations related to such contracts at June 30, 2019 are not material.

 

Revenue with respect to remaining performance obligations related to capital equipment-related service agreements with original terms in excess of one year amounted to $481,598 at June 30, 2019. The Company expects to recognize this revenue within the next three years.

 

4. Inventory

 

Inventory consists of the following as of:

 

   June 30,
2019
  December 31,
2018
Raw materials and work in process  $1,247,830   $1,219,753 
Software licenses   385,000    122,500 
Finished goods   896,329    763,723 
Inventory, net, included in current assets   2,529,159    2,105,976 
Software licenses – non-current   416,900    801,900 
Total  $2,946,059   $2,907,876 

 

5. Notes Payable

 

Senior Secured Note Payable

 

On September 25, 2018, the Company repaid in full all the outstanding debt, together with accrued and unpaid interest, under the senior secured note payable to Brainlab (the “Brainlab Note”). The Brainlab Note had a maturity date of December 31, 2018, and interest was payable quarterly in arrears at an annual rate of 5.5%. In connection with the repayment, the security agreement under which the Brainlab Note had been collateralized by all the assets of the Company was terminated.

 

2014 Junior Secured Notes Payable

 

On June 6, 2019, the Company repaid in full all the outstanding principal, which, together with accrued and unpaid interest, totaled approximately $2.0 million, of its 12% Second-Priority Secured Non-Convertible Promissory Notes due 2019, as amended (the “2014 Secured Notes”). The 2014 Secured Notes had a maturity date of September 30, 2020, and interest was payable semi-annually in arrears. In connection with the repayment, the security agreement under which the 2014 Secured Note had been collateralized by all the assets of the Company was terminated.

 

2010 Junior Secured Notes Payable

 

The indebtedness outstanding under the 2010 Junior Secured Notes Payable (the “2010 Secured Notes”) at each of June 30, 2019 and December 31, 2018 was $3.0 million. The 2010 Secured Notes accrue interest at an annual rate of 3.5% and are collateralized by a security interest in all the Company’s assets, which, subsequent to the repayments of the Brainlab Notes and the 2014 Secured Notes described above, is the senior such interest. All outstanding principal and interest on the 2010 Secured Notes will be due and payable in a single payment upon maturities in October and November 2020.

 

The carrying amount of the 2010 Secured Notes in the accompanying condensed consolidated balance sheets is presented net of a discount arising from shares issued to the noteholders at issuance of the 2010 Secured Notes. The unamortized discount at June 30, 2019 and December 31, 2018 was $1,130,895 and $1,459,209, respectively. This discount is being amortized to interest expense over the term of the notes using the effective interest method.

 

At each of June 30, 2019 and December 31, 2018, the Company’s Chairman and one of the Company’s officers held 2010 Secured Notes they purchased at the date of original issuance having an aggregate principal balance of $197,000.

 

14

 

 

MRI Interventions, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

In July 2019, the Company repaid two of the 2010 Secured Notes having an aggregate principal amount of approximately $162,000, at the request of the holders of such 2010 Secured Notes.

 

Scheduled Notes Payable Maturities

 

Scheduled principal payments as of June 30, 2019 with respect to notes payable are summarized as follows:

 

Years ending December 31,    
2019  $ -
2020    3,000,000 
Total scheduled principal payments    3,000,000 
Less: Unamortized discount    (1,130,895)
Total   $1,869,105 

 

6. Leases

 

The Company leases office space in Irvine, California that houses its headquarters and manufacturing facility under a non-cancellable operating lease. The lease term commenced on October 1, 2018 and expires in September 2023. The Company has the option to renew the lease for two additional periods of five years each. The Company also leases office space in Mississauga, Ontario, Canada for its software development personnel. The lease term commenced on August 1, 2018, expires in July 2019 and automatically renews for successive one-year periods at the Company’s option. Both office leases are classified as operating leases in conformity with the provisions of Topic 842.

 

The lease cost, included in general and administrative expense, was $28,617 and $55,620 for the three and six months ended June 30, 2019, respectively.

 

At June 30, 2019, the weighted average discount rate was 6.7% and the weighted average remaining lease term was 50.22 months with respect to the leases described above.

 

The assumptions used in determining the foregoing information are as follows:

 

Lease term – Topic 842 provides that the lease term consists of: (a) the noncancelable period of the Irvine and Mississauga office leases; and (b) the period covered by the Company option to extend each office lease for which the Company is reasonably certain to do so. Based on the foregoing, management determined the lease term to extend to September 2023 for the Irvine office lease, and to July 2020 for the Mississauga office lease.

 

Discount rate – Topic 842 provides that the discount rate is the rate implicit in the lease unless that rate cannot be determined, in which case the lessee’s incremental borrowing rate shall be used. Because neither the rate implicit in the lease nor the Company’s incremental borrowing rate were determinable, discount rates were obtained with reference to published U.S. High Yield CCC corporate bond rates at the inception dates of each of the leases, which, with respect to the Irvine office lease was 6.7%, and with respect to the Mississauga office lease was 6.9%.

 

7. Stockholders’ Equity

 

2019 Private Placement

 

On May 9, 2019, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain accredited investors (collectively, the “Investors”) for the private placement of 2,426,455 shares of the Company’s common stock at $3.10 per share (the “2019 PIPE”). The Company received aggregate gross proceeds of approximately $7.5 million, before deducting offering expenses aggregating approximately $94,000.

 

The Purchase Agreement also contains representations and warranties by the Company and the Investors and covenants of the Company and the Investors (including indemnification from the Company in the event of breaches of its representations and warranties), certain information rights and other rights, obligations and restrictions, which the Company believes are customary for transactions of this type.

 

15

 

 

MRI Interventions, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Issuance of Common Stock in Lieu of Cash Payments

 

Under the terms of the Amended and Restated Non-Employee Director Compensation Plan, each non-employee member of the Company’s Board of Directors may elect to receive all or part of his or her director fees in shares of the Company’s common stock. Director fees, whether paid in cash or in shares of common stock, are payable quarterly on the last day of each fiscal quarter. The number of shares of common stock issued to directors is determined by dividing the product of: (i)(a) the fees otherwise payable to each director in cash, times (b) the percentage of fees the director elected to receive in shares of common stock, by (ii) the volume weighted average price per share of common stock over the last five trading days of the quarter. Following is information regarding the amounts of shares issued to directors as payment for director fees in lieu of cash:

 

Three Months Ended June 30,
2019  2018
8,841  13,110

 

Six Months Ended June 30,
2019  2018
17,739  22,408

 

Stock Incentive Plans

 

The Company has various share-based compensation plans and share-based compensatory contracts (collectively, the “Plans”) under which it has granted share-based awards, such as stock grants, and incentive and non-qualified stock options, to employees, directors, consultants and advisors. Awards may be subject to a vesting schedule as set forth in individual award agreements. Certain of the Plans also have provided for cash-based performance bonus awards.

 

Since October 2017, the Company has granted share-based awards under the MRI Interventions, Inc. Second Amended and Restated 2013 Incentive Compensation Plan (the “2013 Plan”). Under the 2013 Plan, a total of 1,956,250 shares of the Company’s common stock are reserved for issuance. Of this amount, stock grants of 225,216 shares have been awarded and option grants, net of options terminated, expired or forfeited, of 978,820 shares were outstanding as of June 30, 2019. Accordingly, 752,214 shares remained available for grants under the 2013 Plan as of that date.

 

Stock option activity under all of the Company’s Plans during the six months ended June 30, 2019 is summarized below:

 

   Shares   

Weighted -
Average

Exercise
Price

 

Outstanding at January 1, 2019   1,386,396   $11.09 
Granted   75,000    3.25 
Expired / forfeited   (12)   385.60 
Outstanding at June 30, 2019   1,461,384   $10.68 

 

As of June 30, 2019, there was unrecognized compensation expense of $619,230 related to outstanding stock options, which is expected to be recognized over a weighted average period of 1.5 years.

 

16

 

 

MRI Interventions, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Warrants

 

Warrants have generally been issued for terms of up to five years. Common stock warrant activity for the six months ended June 30, 2019 was as follows:

 

   Shares    Weighted -
Average
Exercise
Price
 
Outstanding at January 1, 2019   8,676,481    $4.17 
Issued   -     - 
Exercised   (315,745 )   2.20 
Expired / Terminated   (29,754 )   41.55 
Outstanding at June 30, 2019   8,330,982    $4.12 

 

8. Derivative Liabilities

 

Derivative liabilities at June 30, 2018 arose from an amendment the Company entered into with Brainlab, with respect to the Brainlab Note and related warrants (the “Brainlab warrants”), the provisions of which created: (a) a conversion feature allowing for $500,000 the principal balance of the Brainlab Note to be converted in a Qualified Public Offering, as defined in the amendment, at a public offering price that may be less than market value per share of the Company’s common stock; and (b) down round strike price protection with respect to Brainlab warrants. The conversion feature and the Brainlab warrants described herein terminated unexercised pursuant to the Company’s September 2018 repayment of the Brainlab Note as discussed in Note 5, and, accordingly, the Company had no derivative liabilities thereafter.

 

The fair values and the changes in fair values of derivative liabilities during the six months ended June 30, 2018 are as follows:

 

Balance, January 1, 2018  $95,786 
Reduction from warrant exercise   (31,468)
Gain on change in fair value for the period   (42,023)
Balance, June 30, 2018  $22,295 

 

9. Subsequent Event

 

Effective July 3, 2019, the Company’s common stock began trading on the NYSE American exchange.

 

17

 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed financial statements and the notes thereto appearing in Part I, Item 1 of this Quarterly Report. Historical results and trends that might appear in this Quarterly Report should not be interpreted as being indicative of future operations.

 

Overview

 

We are a medical device company that develops and commercializes innovative platforms for performing minimally invasive surgical procedures in the brain under direct, intra-procedural MRI guidance. We have two product platforms. Our principal product platform is our ClearPoint system, which is in commercial use and is used to perform minimally invasive surgical procedures in the brain. The ClearPoint system utilizes intra-procedural MRI to guide the procedures and is designed to work in a hospital’s existing MRI suite. We believe that this product platform will deliver better patient outcomes, enhance revenue potential for both physicians and hospitals, and reduce costs to the healthcare system. In addition, we have the ClearTrace product candidate that is designed to allow catheter-based minimally invasive procedures in the heart to be performed in an MRI suite. Although still a product candidate, the Company has reduced its efforts to commercialize the ClearTrace system.

 

In 2010, we received regulatory clearance from the FDA to market our ClearPoint system in the U.S. for general neurological procedures. In addition, in 2011, we obtained CE marking approval for our ClearPoint system, which enables us to sell our ClearPoint system in the European Union. Substantially all our product revenues for the three and six months ended June 30, 2019 relate to sales of our ClearPoint system products. We have financed our operations and internal growth primarily through the sale of equity securities, the issuance of convertible and other secured notes, and license arrangements. We have incurred significant losses since our inception in 1998 as we have devoted substantial efforts to research and development. As of June 30, 2019, we had accumulated losses of approximately $110 million. We may continue to incur operating losses as we expand our ClearPoint system platform and our business generally.

 

Factors Which May Influence Future Results of Operations

 

The following is a description of factors that may influence our future results of operations, and that we believe are important to an understanding of our business and results of operations.

 

Revenues

 

In 2010, we received 510(k) clearance from the FDA to market our ClearPoint system in the U.S. for general neurological procedures. Future revenues from sales of our ClearPoint system products are difficult to predict and may not be sufficient to offset our continuing research and development expenses and our increasing selling, general and administrative expenses.

 

Generating recurring revenues from the sale of functional neurosurgical products is an important part of our business model for our ClearPoint system. We anticipate that, over time, recurring revenues will constitute an increasing percentage of our total revenues as we leverage installations of our ClearPoint system to generate recurring sales of our functional neurosurgical products. Our product revenues were approximately $2.2 million and $4.4 million for the three and six months ended June 30, 2019, respectively, and were almost entirely related to our ClearPoint system.

  

Our revenue recognition policies are more fully described in Note 2 to the Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report.

 

Cost of Revenues

 

Cost of revenues includes the direct costs associated with the assembly and purchase of components for functional neurosurgical products, drug delivery and biologic products, and ClearPoint capital equipment which we have sold, and for which we have recognized the revenue in accordance with our revenue recognition policy. Cost of revenues 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.

 

18

 

 

Research and Development Costs

 

Our research and development costs consist primarily of costs associated with the conceptualization, design, testing, and prototyping of our ClearPoint system products. Such costs include salaries, travel, and benefits for research and development personnel, including related share-based compensation; materials and laboratory supplies in research and development activities; consultant costs; and licensing costs related to technology not yet commercialized. We anticipate that, over time, our research and development costs may increase as we: (i) continue to develop enhancements to our ClearPoint system; (ii) increase our ClearTrace system product development efforts; and (iii) seek to expand the application of our technological platforms. From our inception through June 30, 2019, we have incurred approximately $54 million in research and development expenses.

 

Product development timelines, likelihood of success, and total costs can vary widely by product candidate. There are also risks inherent in the regulatory clearance and approval process. At this time, we are unable to estimate with any certainty the costs that we will incur in either the further development of our ClearTrace system for commercialization, or in our efforts to expand the application of our technological platforms.

 

Sales and Marketing, and General and Administrative Expenses

 

Our sales and marketing, and general and administrative expenses consist primarily of salaries, incentive-based compensation, travel and benefits, including related share-based compensation; marketing costs; professional fees, including fees for attorneys and outside accountants; occupancy costs; insurance; and other general and administrative expenses, which include, but are not limited to, corporate licenses, director fees, hiring costs, taxes, postage, office supplies and meeting costs. Our sales and marketing expenses are expected to increase due to costs associated with the commercialization of our ClearPoint system and the increased headcount necessary to support growth in operations.

 

Critical Accounting Policies

 

As described in Note 2 to the Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report, effective January 1, 2019, we adopted the provisions of ASC Topic 842, “Leases.”

 

There have been no other significant changes in our critical accounting policies during the three or six months ended June 30, 2019 as compared to the critical accounting policies described in our 2018 Form 10-K.

 

Results of Operations

 

Three Months Ended June 30, 2019 Compared to the Three Months Ended June 30, 2018

 

   Three Months Ended June 30, 
   2019   2018   Percentage
Change
 
Product revenues  $2,194,194   $1,412,599    55%
Service and other revenues   412,204    233,736    76%
Total revenues   2,606,398    1,646,335    58%
Cost of revenues   1,030,316    602,236    71%
Research and development costs   697,803    665,310    5%
Sales and marketing expenses   1,143,056    926,231    23%
                
General and administrative expenses   1,028,291    1,088,496    (6)%
Other income (expense):               
Gain from change in fair value of derivative liabilities   -    7,580    (100)%
Other income (expense), net   1,693    (87)   2046%
Interest expense, net   (259,020)   (248,091)   4%
Net loss  $(1,550,395)  $(1,876,536)   (17)%

 

Revenues. Total revenues were $2.6 million for the three months ended June 30, 2019, and $1.6 million for the three months ended June 30, 2018, an increase of $960,000, or 58%.

 

19

 

 

Functional neurosurgery revenue, which consists of disposable product commercial sales related to cases utilizing the ClearPoint system, increased 46% to $1.7 million for the three months ended June 30, 2019, from $1.2 million for the same period in 2018. We believe this increase in volume is indicative of several factors, including: (a) an expanded customer base; (b) greater acceptance of the ClearPoint system; (c) more frequent and efficient utilization of MRI scanner availability by our existing customers; and (d) the resolution in late 2018 of FDA actions taken in early 2018 that adversely affected third-party providers in the laser ablation space and, by extension, adversely affected customer orders of the ClearPoint system and related disposable products. There were no increases in functional neurosurgery product prices during the period between the three months ended June 30, 2019 and the same period in 2018 that would be reasonably expected to affect a typical customer order.

 

Biologics and drug delivery revenues, which include sales of disposable products and services related to customer-sponsored clinical trials utilizing the ClearPoint system, increased 51% to $413,000 for the three months ended June 30, 2019, from $274,000 for the same period in 2018. This increase was due primarily to an increase, during the quarter ended June 30, 2019, relative to the same period in 2018, in biologic and drug delivery product revenues. There were no increases in biologics and drug delivery product prices during the period between the three months ended June 30, 2018 and the same period in 2019 that would be reasonably expected to affect a typical customer order.

 

Capital equipment revenue, consisting of sales of ClearPoint reusable hardware and software, increased 71% to $241,000 for the three months ended June 30, 2019, from $141,000 for the same period in 2018. Revenues from this product line historically have varied from quarter to quarter. This increase was due primarily to an increase from the second quarter of 2018 to the same period in 2019 in the number of ClearPoint systems sold. There were no increases in capital equipment product prices during the period between the three months ended June 30, 2019 and the same period in 2018 that would be reasonably expected to affect a typical customer order.

 

Capital equipment-related services, consisting of fees for capital equipment rental, service, installation, training and shipping, increased 240% to $244,000 for the three months ended June 30, 2019, from $72,000 for the same period in 2018. The increase was due primarily to an increase in equipment service contracts. Partially offsetting this increase was a decrease in equipment rental fees, upon the expiration during 2018 of the sole equipment rental agreement we had undertaken.

 

Cost of Revenues. Cost of revenues was $1.0 million, representing a gross margin of 60%, for the three months ended June 30, 2019, and was $602,000, representing a gross margin of 63%, for the three months ended June 30, 2018. This decrease in gross margin was due primarily to a shift in the mix of revenues by line of business that resulted in functional neurosurgery disposable products and ClearPoint system software, which bear higher gross margins in comparison to other product lines, representing a lower percentage in total sales for the three months ended June 30, 2019, relative to the same period in 2018.

 

Research and Development Costs. Research and development costs were $698,000 for the three months ended June 30, 2019, compared to $665,000 for the same period in 2018, an increase of $33,000, or 5%. The increase was due primarily to increases in employee compensation and product development costs which were partially offset by decreases in regulatory legal and intellectual property-related fees during the quarter ended June 30, 2019, as compared to the same period in 2018.

 

Sales and Marketing Expenses. Sales and marketing expenses were $1.1 million for the three months ended June 30, 2019, compared to $926,000 for the same period in 2018, an increase of $217,000, or 23%. This increase was primarily due to increases in employee compensation earned by our sales and clinical personnel, attributable to increased incentive compensation, and in travel and entertainment expenses, both increases consistent with the increase in revenues during the three months ended June 30, 2019 as compared to the same period in 2018. The increase in compensation was also attributable to an increase in clinical personnel headcount during the three months ended June 30, 2019 as compared to the same period in 2018. These increases were partially offset by a decrease in marketing exhibit and samples expense.

 

General and Administrative Expenses. General and administrative expenses were $1.0 million for the three months ended June 30, 2019, compared to $1.1 million for the same period in 2018, a decrease of $60,000, or 6%. This decrease was due primarily to: (a) decreases in stock-based compensation and professional fees; and (b) an increase in activity-based costs allocated to other departments. These factors were partially offset by increases in travel expenses, consistent with the increased activity level of the Company for the three months ended June 30, 2019 as compared to the same period in 2018, and directors’ fees.

 

Other Income (Expense). Net interest expense for the three months ended June 30, 2019 was $259,000, compared with $248,000 for the same period in 2018. The increase was due to increased amortization of the discount and deferred issuance costs associated with the 2014 Secured Notes and the 2010 Secured Notes, both as described in Note 5 to the Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report.

 

20

 

 

Six Months Ended June 30, 2019 Compared to the Six Months Ended June 30, 2018

 

   Six Months Ended June 30, 
   2019   2018   Percentage
Change
 
Product revenues  $4,358,148   $2,951,198    48%
Service and other revenues   720,767    318,504    126%
Total revenues   5,078,915    3,269,702    55%
Cost of revenues   1,916,798    1,191,203    61%
Research and development costs   1,282,343    1,211,638    6%
Sales and marketing expenses   2,183,769    1,888,445    16%
General and administrative expenses   1,961,322    2,041,446    (4)%
Other income (expense):               
Gain from change in fair value of derivative liabilities   -    42,023    (100)%
Other income (expense), net   7,322    (883)   929%
Interest expense, net   (513,125)   (495,563)   4%
Net loss  $(2,771,120)  $(3,517,453)   (21)%

 

Revenue. Total revenues were $5.1 million for the three months ended June 30, 2019, and $3.3 million for the three months ended June 30, 2018, an increase of $1.8 million, or 55%.

 

Functional neurosurgery revenue, which consists of disposable product commercial sales related to cases utilizing the ClearPoint system, increased 41% to $3.3 million for the six months ended June 30, 2019, from $2.3 million for the same period in 2018. We believe this increase in volume is indicative of several factors, including: (a) an expanded customer base; (b) greater acceptance of the ClearPoint system; (c) more efficient utilization of MRI scanner availability by our existing customers; and (d) the resolution in late 2018 of FDA actions taken in early 2018 that adversely affected third-party providers in the laser ablation space and, by extension, adversely affected customer orders of the ClearPoint system and related disposable products. There were no increases in functional neurosurgery product prices during the period between the six months ended June 30, 2019 and the same period in 2018 that would be reasonably expected to affect a typical customer order.

 

Biologics and drug delivery revenues, which include sales of disposable products and services related to customer-sponsored clinical trials utilizing the ClearPoint system, increased 75% to $795,000 for the six months ended June 30, 2019, from $454,000 for the same period in 2018. This increase was due primarily to: (a) an increase in services revenues during the six months ended June 30, 2019 as compared to the same period in 2018 due primarily to this service line not having commenced until the second fiscal quarter of 2018; (b) an increase in biologic and drug delivery product revenues resulting from such products’ use in a greater number of cases during the six months ended June 30, 2019, relative to the same period in 2018. There were no increases in biologics and drug delivery product prices during the period between the six months ended June 30, 2018 and the same period in 2019 that would be reasonably expected to affect a typical customer order.

 

Capital equipment revenue, consisting of sales of ClearPoint reusable hardware and software, increased 61% to $516,000 for the six months ended June 30, 2019, from $320,000 for the same period in 2018. Revenues from this product line historically have varied from quarter to quarter. This increase was due primarily to an increase from the six months ended June 30, 2018 to the same period in 2019 in the number of ClearPoint systems sold. There were no increases in capital equipment product prices during the period between the six months ended June 30, 2019 and the same period in 2018 that would be reasonably expected to affect a typical customer order.

 

Capital equipment-related services, consisting of fees for capital equipment rental, service, installation, training and shipping, increased 191% to $455,000 for the six months ended June 30, 2019, from $157,000 for the same period in 2018. The increase was due primarily to an increase in equipment service contracts. Partially offsetting this increase was a decrease in equipment rental fees, upon the expiration during 2018 of the sole equipment rental agreement we had undertaken.

 

Cost of Revenues. Cost of revenues was $1.9 million for the six months ended June 30, 2019, representing a gross margin of 62%, and was $1.2 million for the same period in 2018, representing gross margin of 64%. This decrease in gross margin was due primarily to a shift in the mix of revenues by line of business that resulted in functional neurosurgery disposable products and ClearPoint system software, which bear higher gross margins in comparison to other product lines, representing a lower percentage in total sales for the three months ended June 30, 2019, relative to the same period in 2018.

 

21

 

 

Research and Development Costs. Research and development costs were $1.3 million for the six months ended June 30, 2019, compared to $1.2 million for the same period in 2018, an increase of $71,000, or 6%. The increase was due primarily to increases in employee compensation and product development costs, which were partially offset by decreases in regulatory legal fees, stock-based employee compensation and intellectual property costs during the six months ended June 30, 2019, as compared to the same period in 2018.

 

Sales and Marketing Expenses. Sales and marketing expenses were $2.2 million for the six months ended June 30, 2019, compared to $1.9 million for the same period in 2018, an increase of $295,000, or 16%. This increase was primarily due to an increase in employee compensation due to increases in headcount in our sales and clinical personnel and in incentive compensation which is consistent with increases in revenue for the six months ended June 30, 2019 as compared to the same period in 2018.

 

General and Administrative Expenses. General and administrative expenses decreased 4% from the six months ended June 30, 2018 to the same period in 2019 and approximated $2.0 million for each of those periods. This decrease was due primarily to a decrease in stock-based compensation and an increase in activity-based cost allocations to other departments, which were partially offset by increases in travel costs and directors’ fees.

 

Other Income (Expense). Net interest expense for the six months ended June 30, 2019 was $513,000, compared with $496,000 for the same period in 2018. The increase was due to increased amortization of the discount and deferred issuance costs associated with the 2014 Secured Notes and the 2010 Secured Notes, both as described in Note 5 to the Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report.

 

Liquidity and Capital Resources

 

At June 30, 2019, we had cash and cash equivalent balances aggregating $7.5 million. Net cash used in operating activities was $1.4 million for the six months ended June 30, 2019.

 

Our plans for the next twelve months reflect our anticipation of increases in revenues from sales of the ClearPoint system and related disposable products resulting from greater utilization at existing installed sites and the installation of the ClearPoint system at new sites. Our plans also anticipate that growth in operating expenses will be modest in comparison to the anticipated growth in revenues, with resulting decreases in loss from operations and in cash flow used in operations. There is no assurance, however, that we will be able to achieve our anticipated results, and even in the event such results are achieved, we expect to continue to consume cash in our operations over at least the next twelve months.

 

As discussed in Note 7 to the condensed consolidated financial statements included elsewhere in this Quarterly Report, in May 2019, we entered into Securities Purchase Agreement with certain accredited investors under which such investors purchased 2,426,455 shares of our common stock at $3.10 per share, resulting in proceeds of approximately $7.5 million, before deducting offering expenses aggregating approximately $94,000. In our opinion, such proceeds, when combined with our cash and cash equivalent balances at June 30, 2019, are sufficient to support our operations for at least the next twelve months.

 

Cash Flows

 

Cash activity for the six months ended June 30, 2019 and 2018 is summarized as follows:

 

  

Six Months Ended

June 30,

 
   2019   2018 
Cash used in operating activities  $(1,419,570)  $(3,072,941)
Cash used in investing activities   (150,000)   (51,497)
Cash provided by financing activities   5,930,085    531,977 
Net change in cash and cash equivalents  $4,360,515   $(2,592,461)

 

Net Cash Flows from Operating Activities. We used $1.4 million and $3.1 million of cash for operating activities during the six months ended June 30, 2019 and 2018, respectively.

 

During the six months ended June 30, 2019, uses of cash in operating activities primarily consisted of: (i) our $2.8 million net loss; (ii) increases in accounts receivable of $138,000, inventory of $202,000, and prepaid expenses and other current assets of $217,000; and (iii) a decrease in lease liabilities of $50,000. These uses were partially offset by: (a) a decrease in other assets of $12,000; (b) increases in accounts payable and accrued expenses of $716,000 and in deferred revenue of $389,000; and (c) net non-cash expenses included in our net loss aggregating $841,000 and consisting primarily of depreciation and amortization, share-based compensation, and amortization of debt issuance costs, original issue discounts on debt and lease rights-of-use, net of accretion in lease liabilities.

 

22

 

 

During the six months ended June 30, 2018, uses of cash in operating activities primarily consisted of: (i) our $3.5 million net loss; (ii) increases in inventory of $338,000, prepaid expenses and other current assets of $129,000; and (iii) decreases in accounts payable and accrued expenses of $198,000, and deferred revenue of $41,000. These uses were partially offset by: (a) net non-cash expenses included in our net loss aggregating $971,000 and consisting primarily of depreciation and amortization, share-based compensation, expenses paid through the issuance of common stock, change in fair value of derivative liabilities and amortization of debt issuance costs and original issue discounts; and (b) decreases in accounts receivable of $179,000 and other assets of $1,000.

 

Net Cash Flows from Investing Activities. Net cash flows used in investing activities for the six months ended June 30, 2019 were $150,000 and consisted of an acquisition of medical device license rights.

 

Net cash flows used in investing activities for the six months ended June 30, 2018 were $51,000 and consisted of equipment acquisitions.

 

Net Cash Flows from Financing Activities. Net cash flows from financing activities for the six months ended June 30, 2019 consisted of proceeds from cash proceeds of: (a) $7.5 million received from the sale of shares of our common stock under the terms of the 2019 PIPE as described in Note 7 to the condensed consolidated financial statements included elsewhere in this Quarterly Report; and (b) $383,000 received from warrant exercises. These proceeds were partially offset by the $2.0 million repayment, in June 2019, of the 2014 Secured Notes as described in Note 5 to the condensed consolidated financial statements included elsewhere in this Quarterly Report.

 

Net cash flows from financing activities for the six months ended June 30, 2018 consisted of cash proceeds received from warrant exercises of $532,000.

 

Operating Capital and Capital Expenditure Requirements

 

To date, we have not achieved profitability. We could continue to incur net losses as we continue our efforts to expand the commercialization of our ClearPoint system products, develop our ClearTrace system, and pursue additional applications for our technology platforms. Our cash balances are primarily held in a variety of demand accounts with a view to liquidity and capital preservation.

 

Because of the numerous risks and uncertainties associated with the development and commercialization of medical devices, we are unable to estimate the exact amounts of capital outlays and operating expenditures necessary to successfully commercialize our ClearPoint system products, complete the development of our ClearTrace system and pursue additional applications for our technology platforms. Our future capital requirements will depend on many factors, including, but not limited to, the following:

 

the 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;
the cost of pursuing additional applications of our technology platforms under current collaborative arrangements, and the terms and timing of any future collaborative, licensing or other arrangements that we may establish;
the scope, rate of progress and cost of our research and development activities relating to our ClearTrace system;
the cost and timing of any clinical trials;
the cost and timing of regulatory filings, clearances and approvals; and
the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights.

 

Off-Balance Sheet Arrangements

 

We are not a party to any off-balance sheet arrangements that have, or are reasonably likely to have, a material current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

 

23

 

 

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

Interest Rate Risk

 

Our exposure to market risk is limited primarily to interest income sensitivity, which is affected by changes in the general level of U.S. interest rates, because all our investments are in short-term bank deposits and institutional money market funds. The primary objective of our investment activities is to preserve principal while at the same time maximizing the income we receive without significantly increasing risk. Due to the nature of our short-term investments, we believe that we are not subject to any material market risk exposure.

 

Foreign Currency Risk

 

To date, we have recorded no product sales in currencies other than U.S. dollars. We have only limited business transactions in foreign currencies. We do not currently engage in hedging or similar transactions to reduce our foreign currency risks, which at present, are not material. We believe we have no material exposure to risk from changes in foreign currency exchange rates at this time. We will continue to monitor and evaluate our internal processes relating to foreign currency exchange, including the potential use of hedging strategies.

 

ITEM 4.CONTROLS AND PROCEDURES.

 

Disclosure Controls and Procedures

 

We have established disclosure controls and procedures, as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”). Our disclosure controls and procedures are designed to ensure that material information relating to us is made known to our principal executive officer and principal financial officer by others within our organization. Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of June 30, 2019 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 June 30, 2019.

 

Changes in Internal Control Over Financial Reporting

 

During the quarter ended June 30, 2019, 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

 

 

PART II – OTHER INFORMATION

 

ITEM 1.    LEGAL PROCEEDINGS.

 

None.

 

ITEM 1A.   RISK FACTORS.

 

Our business, future financial condition and results of operations are subject to a number of factors, risks and uncertainties, which are disclosed in Item 1A, “Risk Factors,” in Part I of our 2018 Form 10-K. Additional information regarding some of those risks and uncertainties is contained in the notes to the Condensed Consolidated Financial Statements appearing in Part I, Item 1 of this Quarterly Report, and in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing in Part I, Item 2 of this Quarterly Report. The risks and uncertainties disclosed in our 2018 Form 10-K, our quarterly reports on Form 10-Q and other reports filed with the SEC are not necessarily all the risks and uncertainties that may affect our business, financial condition and results of operations in the future.

There have been no material changes to the risk factors as disclosed in our 2018 Form 10-K.

 

ITEM 2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

 

None.

 

ITEM 3.    DEFAULTS UPON SENIOR SECURITIES.

 

None.

 

ITEM 4.    MINE SAFETY DISCLOSURES.

 

None.

 

ITEM 5.    OTHER INFORMATION.

 

None.

 

25

 

 

ITEM 6.    EXHIBITS.

 

The exhibits listed below are filed, furnished or incorporated by reference as part of this Quarterly Report.

 

Exhibit
Number
  Exhibit Description
10.1   Form of Securities Purchase Agreement by and among MRI Interventions, Inc. and the investors party thereto with respect to the May 2019 private offering (incorporated by reference to Exhibit 10.1 to MRI Interventions, Inc.’s Current Report on Form 8-K (File No. 001-34822) filed with the SEC on May 9, 2019)
10.2*   MRI Interventions, Inc. 2013 Incentive Compensation Plan Form of Restricted Share Award Agreement
31.1*   Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) Under the Securities Exchange Act of 1934
31.2*   Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) Under the Securities Exchange Act of 1934
32+   Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and Section 1350 of Chapter 60 of Title 18 of the United States Code
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

 

*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

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

Date: August 12, 2019

     
  MRI INTERVENTIONS, INC.
     
  By: /s/ Joseph M. Burnett
    Joseph M. Burnett
    Chief Executive Officer
    (Principal Executive Officer)
     
  By: /s/ Harold A. Hurwitz
    Harold A. Hurwitz
    Chief Financial Officer
    (Principal Financial Officer and Principal Accounting Officer)

 

27