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MRIC > SEC Filings for MRIC > Form 10-Q on 14-Aug-2013All Recent SEC Filings

Show all filings for MRI INTERVENTIONS, INC.

Form 10-Q for MRI INTERVENTIONS, INC.


14-Aug-2013

Quarterly Report


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 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 and heart under direct, intra-procedural MRI guidance. We have two product platforms. Our ClearPoint system, which is in commercial use in the United States and Europe, is used to perform minimally invasive surgical procedures in the brain. We anticipate that the ClearTrace system, which is still in development, will be used to perform minimally invasive surgical procedures in the heart. Both systems utilize intra-procedural MRI to guide the procedures. Both systems are designed to work in a hospital's existing MRI suite. We believe that our two product platforms, subject to appropriate regulatory clearance and approval, will deliver better patient outcomes, enhance revenue potential for both physicians and hospitals, and reduce costs to the healthcare system.

In 2010, we received regulatory clearance from the FDA to market our ClearPoint system in the United States for general neurological procedures. In 2011, we also obtained CE marking approval for the ClearPoint system, which enables us to market the ClearPoint system in the European Union. Substantially all of our product revenues for 2012 and 2011 and the six months ended June 30, 2013 relate to sales of our ClearPoint system products. We do not have regulatory clearance or approval to sell our ClearTrace system, and, therefore, we have not generated revenues from sales of that product candidate. In 2008, we received licensing fees totaling $13.0 million from Boston Scientific for our MRI-safety technologies, which we used to finance our operations and internal growth. We have also financed our operations and internal growth through private placements of securities, borrowings and interest earned on the net proceeds from our private placements and the Boston Scientific licensing fees. Prior to 2008, we were a development stage enterprise. We have incurred significant losses since our inception in 1998 as we devoted substantial efforts to research and development. As of June 30, 2013, we had an accumulated deficit of $67.8 million. We expect to incur losses through at least December 31, 2013, and we may continue to incur losses thereafter, as we commercialize our ClearPoint system products, continue to develop our product candidates and expand our business generally.

Factors Which May Influence Future Results of Operations

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

Revenues

In June 2010, we received 510(k) clearance from the FDA to market our ClearPoint system in the United States 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. We cannot sell any of our product candidates until we receive regulatory clearance or approval.

The generation of recurring revenues through sales of our disposable components is an important part of our business model for our ClearPoint system. We first generated revenues through the sale of ClearPoint system disposable components in the third quarter of 2010. We anticipate that recurring revenues will constitute an increasing percentage of our total revenues as we leverage each new installation of our ClearPoint system to generate recurring sales of these disposable components.

Since inception, the most significant source of our revenues has been related to our collaborative agreements with Boston Scientific, principally from recognition of the $13.0 million of licensing fees, which we received in 2008. Revenues associated with these licensing fees were recognized on a straight-line basis over a five year period, representing our estimated period of continuing involvement in the development activities, which ended at March 31, 2013. Any additional payments related to substantive, performance-based milestones that may be received under the agreement regarding implantable cardiac leads will be recognized upon receipt. These revenue recognition policies are more fully described in the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies and Significant Judgments and Estimates" in our Annual Report on Form 10-K for the year ended December 31, 2012 which we filed with the SEC on March 11, 2013.


Cost of Product Revenues

Cost of product revenues includes the direct costs associated with the assembly and purchase of disposable and reusable components of our ClearPoint system which we have sold, and for which we have recognized the revenue in accordance with our revenue recognition policy. Cost of product revenues also includes the allocation of manufacturing overhead costs and depreciation of loaned systems installed under our ClearPoint Placement Program, as well as write-offs of obsolete, impaired or excess inventory.

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 and our product candidates. This includes: the salaries, travel and benefits of research and development personnel; materials and laboratory supplies used by our research personnel; consultant costs; sponsored contract research and product development with third parties; and licensing costs. We anticipate that, over time, our research and development expenses may increase as we: (1) continue our product development efforts for the ClearTrace system;
(2) continue to develop enhancements to our ClearPoint system; and (3) expand our research to apply our technologies to additional product applications. From our inception through June 30, 2013, we have incurred approximately $38 million in research and development expenses.

Product development timelines, likelihood of success and total costs vary widely by product candidate. At this time, given the stage of development of the ClearTrace system and due to the risks inherent in the product clearance and approval process, we are unable to estimate with any certainty the costs that we will incur in the continuing development of that product candidate for commercialization.

Selling, General and Administrative Expenses

Our selling, general and administrative expenses consist primarily of: salaries, sales incentive payments, travel and benefits; share-based compensation; professional fees, including fees for attorneys and outside accountants; occupancy costs; insurance; marketing costs; and other general and administrative expenses, which include corporate licenses, director fees, hiring costs, taxes, postage, office supplies and meeting costs. We expect our selling, general and administrative expenses to increase due to costs associated with the commercialization of our ClearPoint system, increased headcount necessary to support our continued growth in operations, and the operational and regulatory burdens and costs associated with operating as a public company.

Critical Accounting Policies

There have been no significant changes in our critical accounting policies during the six months ended June 30, 2013 as compared to the critical accounting policies described in our Annual Report on Form 10-K for the year ended December 31, 2012 which we filed with the SEC on March 11, 2013, except for the following new accounting policy:

Derivative Liability for Warrants to Purchase Common Stock

Our derivative liability for warrants represents the fair value of warrants issued in connection with private placements of shares of our common stock. These warrants are presented as liabilities based on certain exercise price reduction and net cash settlement provisions. The liability, which is recorded at fair value on our balance sheet, is calculated using the Monte Carlo simulation valuation method. The change in fair value of these warrants is recognized as other income or expense in our statement of operations.


Results of Operations



Three Months Ended June 30, 2013 Compared to the Three Months Ended June 30,
2012



                                            Three Months Ended June 30,             Percentage
($s in thousands)                           2013                  2012                Change
Revenues                               $           562       $         1,084                  (48 )%
Cost of product revenues                           296                   157                   89 %
Research and development:
Research and development costs                     742                   486                   53 %
Reversal of R&D obligations                          -                  (883 )                 NM
Selling, general and administrative
expenses                                         1,703                 1,803                   (6 )%
Other income (expense):
Other income (expense), net                        948                   (26 )                 NM %
Interest expense, net                             (121 )                 (95 )                 27 %
Net loss                                        (1,352 )                (600 )                125 %

NM= not meaningful

Revenues. Revenues were $562,000 for the three months ended June 30, 2013, and $1.1 million for the same three month period in 2012, a decrease of $522,000, or 48%. Product revenues for the three months ended June 30, 2013 were $497,000 compared to $291,000, for the same period in 2012, an increase of $206,000, or 71%. Product revenues included ClearPoint system disposable product sales for the three months ended June 30, 2013 of $404,000 compared with $204,000 for the same three month period in 2012, an increase of $200,000, or 98%. The increase in disposable product sales reflects an increasing number of ClearPoint procedures being performed as adoption of the ClearPoint system continues to increase. Approximately $93,000 of the product revenues for the three months ended June 30, 2013 related to the sale of ClearPoint system reusable components compared with $87,000 for the same three month period in 2012. License fee revenues of $650,000 recorded during the three months ended June 30, 2012 related to license fees we received in 2008 from Boston Scientific that were deferred and recognized over the period of our continued involvement with Boston Scientific's development program for the licensed technology. The period of our continued involvement ended on March 31, 2013, thus, all revenues related to the license fees we received in 2008 were recognized as of March 31, 2013. During the three months ended June 30, 2013 and 2012, we recorded development service revenues of $65,000 and $142,000, respectively, a decrease of 54%. We do not expect the development service revenues to be a long-term ongoing source of revenues.

Cost of Product Revenues. Cost of product revenues was $296,000 for the three months ended June 30, 2013, compared to $157,000 for the same three month period in 2012, an increase of 89%. The increase in cost of product revenues was greater than the increase in product revenues due primarily to inventory write-offs related to obsolete product and an increase in the purchase cost of certain assemblies for our disposable products.

Research and Development Costs. Research and development costs were $742,000 for the three months ended June 30, 2013, compared to $486,000 for the same three month period in 2012, an increase of $256,000, or 53%. The primary driver for the increase relates to sponsored research costs, which increased by $177,000. Sponsored research costs were approximately $80,000 for the three months ended June 30, 2013, compared with a credit of $97,000 recorded during the same period last year, as we negotiated with a research partner to reduce amounts previously invoiced to us, but not yet paid, in order to reflect an adjustment for work outlined in our agreement with the research partner that was not completed. Spending on development related to ClearPoint system software enhancements was $79,000 during the three months ended June 30, 2013, and no software development costs were incurred during the same period last year.

Reversal of R&D Obligation. For the three months ended June 30, 2012, we recorded a credit to expense of $883,000. This credit was recorded to reverse expenses previously accrued as research and development costs under our Key Personnel Incentive Program. The reversal occurred as a result of the program participants' voluntary and irrevocable relinquishment, in June 2012, of their rights to receive any incentive bonus payments related to performance of services under the program and our corresponding discharge from our obligations to make any and all such service-based payments. Of the amount reversed, $121,000 of the expense had been recorded during the three months ended March 31, 2012, and the remaining amounts had been accrued as research and development costs in 2010 and 2011.


Selling, General and Administrative Expenses. Selling, general and administrative expenses were $1.7 million for the three months ended June 30, 2013, compared with $1.8 million for the same three month period in 2012, a decrease of $100,000, or 6%. The decrease related to lower share-based compensation expense, as we issued common stock warrants during the three months ended June 30, 2012 to two non-employee directors, two research contributors, and a long-time financial adviser resulting in expense of $572,000, and we issued no such warrants during the three months ended June 30, 2013. However, the lower share-based compensation expense was largely offset by increases in sales and marketing expenses of $284,000, an increase in professional services of $108,000, and other increases associated with our being a public company, such as higher insurance premiums, director compensation, and investor relations expenses.

Other Income (Expense), Net. During the three months ended June 30, 2013 we recorded a $955,000 gain related to the change in the fair value of the derivative liability associated with the warrants we issued in two equity private placement transactions. The decrease in the fair value of the derivative liability between March 31, 2013 and June 30, 2013 was mostly due to the decrease in our stock price during that period and the impact the lower stock price had on the fair value computation.

Net interest expense for the three months ended June 30, 2013 was $121,000, compared with $95,000 for the same three month period in 2012. The increase relates mostly to debt discount amortization associated with debt discount arising from the loan modification we effected in March 2013.

Six Months Ended June 30, 2013 Compared to the Six Months Ended June 30, 2012



                                             Six Months Ended June 30,              Percentage
($s in thousands)                           2013                  2012                Change
Revenues                               $         1,827       $         2,064                  (11 )%
Cost of product revenues                           522                   258                  102 %
Research and development:
Research and development costs                   1,513                 1,176                   29 %
Reversal of R&D obligations                          -                  (883 )                 NM
Selling, general and administrative
expenses                                         3,337                 3,143                    6 %
Other income (expense):
Gain on change in fair value
derivative liability                             2,579                  (26)                   NM
Loss on loan modification                       (1,356 )                   -                   NM
Other income (expense), net                        367                    (1 )                 NM
Interest expense, net                             (220 )              (2,419 )                (91 )%
Net loss                                        (2,175 )              (4,074 )                (47 )%

Revenues. Revenues were $1.8 million for the six months ended June 30, 2013, and $2.1 million for the same six month period in 2012, a decrease of $237,000, or 11%. Product revenues for the six months ended June 30, 2013 were $958,000 compared to $513,000, for the same period in 2012, an increase of $445,000, or 87%. Product revenues included ClearPoint system disposable product sales for the six months ended June 30, 2013 of $752,000 compared with $426,000 for the same six month period in 2012, an increase of $326,000, or 77%. The increase in disposable product sales reflects an increasing number of ClearPoint procedures being performed as adoption of the ClearPoint system continues to increase. Approximately $206,000 of the product revenues for the six months ended June 30, 2013 related to the sale of ClearPoint system reusable components compared with $87,000 for the same six month period in 2012, an increase of $119,000, or 136%. License fee revenues of $650,000 recorded during the six months ended June 30, 2013 were down from $1.3 million recorded during the six months ended June 30, 2012 as the revenue recognition period ended in March 2013. That revenue recognition period coincided with the period of our continued involvement in Boston Scientific's development program for the licensed technology. During the six months ended June 30, 2013 and 2012, we recorded development service revenues of $219,000 and $251,000, respectively, a decrease of 13%. We do not expect the development service revenues to be a long-term ongoing source of revenues.

Cost of Product Revenues. Cost of product revenues was $522,000 for the six months ended June 30, 2013, compared to $258,000 for the same six month period in 2012, an increase of 102%. The increase in cost of product revenues was greater than the increase in product revenues due primarily to inventory write-offs related to obsolete product, an increase in the purchase cost of certain assemblies for our disposable products and the change in product mix, as margins on ClearPoint system reusable components are lower than on disposable components.


Research and Development Costs. Research and development costs were $1.5 million for the six months ended June 30, 2013, compared to $1.2 million for the same six month period in 2012, an increase of $337,000, or 29%. The primary driver for the increase relates to sponsored research costs, which increased by $257,000. Sponsored research costs were approximately $160,000 for the six months ended June 30, 2013 compared with a credit of $97,000 recorded during the same period last year as we negotiated with a research partner to reduce amounts previously invoiced to us, but not yet paid, in order to reflect an adjustment for work outlined in our agreement with the research partner that was not completed. Spending on development related to ClearPoint system software enhancements was $172,000 during the three months ended June 30, 2013 and no software development costs were incurred during the same period last year. These increases were partially offset by a decrease of $121,000 related to our Key Personnel Incentive Program.

Reversal of R&D Obligation. For the six months ended June 30, 2012, we recorded a credit to expense of $883,000. This credit was recorded to reverse expenses previously accrued as research and development costs under our Key Personnel Incentive Program. The reversal occurred as a result of the program participants' voluntary and irrevocable relinquishment, in June 2012, of their rights to receive any incentive bonus payments related to performance of services under the program, and our corresponding discharge from our obligations to make any and all such service-based payments. Of the amount reversed, $121,000 of the expense had been recorded during the three months ended March 31, 2012, and the remaining amounts had been accrued as research and development costs in 2010 and 2011.

Selling, General and Administrative Expenses. Selling, general and administrative expenses were $3.3 million for the six months ended June 30, 2013, compared with $3.1 million for the same six month period in 2012, an increase of $194,000, or 6%. The increase was related to higher sales and marketing expenses, which increased by approximately $470,000, an increase in professional services of $112,000, and other increases associated with our being a public company totaling approximately $100,000, such as higher insurance premiums, director compensation, and investor relations expenses. These increases were mostly offset by a decrease of $516,000 related to lower share-based compensation expense. The lower share-based compensation expense was primarily due to the common stock warrants we issued during the six months ended June 30, 2012 to two non-employee directors, two research contributors, and a long-time financial adviser, while we issued no such warrants during the six months ended June 30, 2013.

Other Income (Expense), Net. During the six months ended June 30, 2013, we recorded a $2.6 million gain related to the change in the fair value of the derivative liability associated with the warrants we issued in our two equity private placement transactions. The decrease in the fair value of the derivative liability was almost exclusively due to the decrease in our stock price, as our stock price is a key input to the calculation of the fair value of the derivative liability.

During the six months ended June 30, 2013 we recorded a loss of $1.4 million related to the March 2013 loan modification, which included a $1.9 million increase to the principal balance of the note, a decrease in the interest rate from 10% to 5.5%, and the elimination of the note's equity conversion feature. The $1.4 million loss we recorded represented the difference between the carrying amount of the note and related accrued interest immediately prior to the loan modification and the fair value of the note immediately following the loan modification.

Net interest expense for the six months ended June 30, 2013 was $220,000, compared with $2.4 million for the same period in 2012. Approximately $2.0 million of the interest expense during the six months ended June 30, 2012 related to the write-off of debt discounts and deferred financing costs associated with convertible notes that converted into shares of our common stock upon the effectiveness of our Form 10 registration statement in February 2012. The remainder of the decrease relates primarily to the conversion of convertible notes payable into shares of our common stock in February 2012, which notes payable were outstanding during a portion of the six month period ended June 30, 2012. The decrease in net interest expense is also attributable to a February 2012 loan modification pursuant to which the interest rate on our related party notes payable to Boston Scientific was reduced from 10% to 0%.


Liquidity and Capital Resources

For the six months ended June 30, 2013 and the year ended December 31, 2012, we incurred net losses of $2.2 million and $5.9 million, respectively, and the cumulative net loss since our inception through June 30, 2013 was $67.8 million. We expect such losses to continue through at least the year ended December 31, 2013 as we continue to commercialize our ClearPoint system and pursue research and development activities. Net cash used in operations was $4.4 million and $7.4 million for the six months ended June 30, 2013 and year ended December 31, 2012, respectively. Since inception, we have financed our activities principally from the sale of equity securities, the issuance of convertible notes and license arrangements.

Our primary financing activities during the six months ended June 30, 2013 and the year ended December 31, 2012 were:

? our January 2013 equity private placement, which resulted in net proceeds of $9.8 million;

? our July 2012 equity private placement, which resulted in net proceeds of $5.5 million; and

? the unit offering we completed in February 2012, which resulted in net proceeds of $4.9 million, $3.4 million of which we received in 2012 and $1.5 million of which we received in 2011.

While we expect to continue to use cash in operations, we believe our existing cash and cash equivalents at June 30, 2013 of $7.0 million, combined with cash generated from product and service revenues, will be sufficient to meet our anticipated cash requirements through at least March 2014. During the remainder of 2013, we plan to continue to increase our spending on sales and marketing activities as we continue the commercial rollout of our ClearPoint system, from which we expect to increase ClearPoint product revenues. Certain planned expenditures are discretionary and could be deferred if required to do so to fund critical operations. The sale of additional equity or convertible debt securities will likely result in dilution to our current stockholders. To the extent our available cash and cash equivalents are insufficient to satisfy our long-term operating requirements, we will need to seek additional sources of funds, from the sale of additional equity, debt or other securities or through a credit facility, or modify our current business plan. There can be no assurance that we will be able to obtain additional financing on commercially reasonable terms, if at all.

Cash Flows



Cash activity for the six months ended June 30, 2013 and 2012 is summarized as
follows:



                                                               Six Months Ended June 30,
($s in thousands)                                              2013                2012
Cash used in operating activities                          $      (4,430 )     $      (3,252 )
Cash used in investing activities                                    (56 )               (85 )
Cash provided by financing activities                              9,842               4,414
Net increase (decrease) in cash and cash equivalents       $       5,356       $       1,077

We used $4.4 million and $3.3 million of cash for operating activities during the six months ended June 30, 2013 and 2012, respectively. Net cash used in operating activities during the six months ended June 30, 2013 primarily reflects our $3.5 million loss from operations, reduced by $643,000 in share-based compensation and $231,000 in depreciation and amortization, but increased by the $687,000 change from year end in deferred revenue and the $1.1 million reduction in accounts payable and accrued expenses. The reductions in accounts payable and accrued expenses occurred as we paid down certain previously existing outstanding balances. Net cash used in operating activities in the six months ended June 30, 2012 primarily reflects our $1.6 million loss from operations, reduced by $1.1 million in share-based compensation and $213,000 in depreciation and amortization, but increased by the $1.3 million change from year end in deferred revenue and the $1.4 million reduction in accounts payable and accrued expenses

Net cash provided by financing activities for the six months ended June 30, 2013 . . .

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