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MRIC > SEC Filings for MRIC > Form 10-Q/A on 19-Aug-2013All Recent SEC Filings

Show all filings for MRI INTERVENTIONS, INC.

Form 10-Q/A for MRI INTERVENTIONS, INC.


19-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.

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 magnetic resonance imaging, or 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 sell the ClearPoint system in the European Union. Substantially all of our product revenues for 2012 and 2011 and the three months ended March 31, 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 March 31, 2013, we had an accumulated deficit of $66.5 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 Amendment No. 1 to our Annual Report on Form 10-K for the year ended December 31, 2012, which we filed with the SEC on August 19, 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 March 31, 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 three months ended March 31, 2013 as compared to the critical accounting policies described in Amendment No. 1 to our Annual Report on Form 10-K for the year ended December 31, 2012, which we filed with the SEC on August 19, 2013.


Results of Operations



Three Months Ended March 31, 2013 Compared to the Three Months Ended March 31,
2012



                                             Three Months Ended March 31,           Percentage
($s in thousands)                              2013                 2012              Change
Revenues                                  $        1,264       $          980                  29 %
Cost of product revenues                             226                  102                 122 %
Research and development costs                       771                  690                  12 %
Selling, general and administrative
expenses                                           1,633                1,340                  22 %
Other income (expense):
Gain on change in fair value derivative
liability                                          1,623                    -                  NM
Loss on loan modification                         (1,356 )                  -                  NM
Other income, net                                    374                    1                  NM
Interest expense, net                                (99 )             (2,323 )               (96 )%
Net loss                                            (824 )             (3,474 )               (76 )%

NM= not meaningful

Revenues. Revenues were $1.3 million for the three months ended March 31, 2013, and $980,000 for the same three month period in 2012, an increase of $284,000, or 29%. License fee revenues related to our license agreements with Boston Scientific were $650,000 during both periods. During the three months ended March 31, 2013 and 2012, we recorded development service revenues of $154,000 and $108,000, respectively, an increase of 43%. We do not expect the development service revenues to be a long-term ongoing source of revenues. Product revenues for the three months ended March 31, 2013 were $460,000 compared to $222,000, for the same period in 2012, an increase of $238,000, or 107%. Approximately $113,000 of the product revenues for the three months ended March 31, 2013 relates to the sale of ClearPoint system reusable components. ClearPoint system disposable component sales for the three months ended March 31, 2013 were $347,000 compared with $222,000 for the same three month period in 2012, an increase of $125,000, or 56%. The increase in disposable product sales reflects an increasing number of ClearPoint procedures being performed as adoption of the ClearPoint system continues to increase.

Cost of Product Revenues. Cost of product revenues was $226,000 for the three months ended March 31, 2013, compared to $102,000 for the same three month period in 2012, an increase of 122%. The increase in cost of product revenues was greater than the increase in product revenues due to product mix, as margins on ClearPoint system reusable components are lower than on disposable components. In addition, depreciation expense for loaned systems under our ClearPoint Placement Program increased by $22,000.

Research and Development Costs. Research and development costs were $771,000 for the three months ended March 31, 2013, compared to $690,000 for the same three month period in 2012, an increase of $81,000, or 12%. Spending on software development increased by $93,000 and sponsored research costs increased by $80,000. These increases were partially offset by a decrease of $121,000 related to our Key Personnel Incentive Program. In June 2012, the program participants' voluntarily and irrevocably relinquished their rights to receive incentive bonus payments related to performance of services under the program, and they correspondingly discharged us of our obligation to make any and all such service-based payments. Therefore, no related expense was recorded during the three months ended March 31, 2013.

Selling, General and Administrative Expenses. Selling, general and administrative expenses were $1.6 million for the three months ended March 31, 2013, compared with $1.3 million for the same three month period in 2012, an increase of $293,000, or 22%. Approximately $186,000 of the increase resulted from higher spending on sales and marketing activities, primarily related to additional sales and clinical support personnel. Share-based compensation was higher by $64,000, and the remainder of the increase related to costs associated with our being a public company.

Other Income (Expense), Net. During the three months ended March 31, 2013 we recorded a $1.6 million 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 was almost exclusively due to the decrease in our stock price and the impact the lower stock price had on the fair value computation.


During the three months ended March 31, 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 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 other income was $374,000 for the three months ended March 31, 2013, compared with $1,000 for the same three month period in 2012. Essentially all of the net other income for the three months ended March 31, 2013 related to negotiated reductions in amounts payable to service providers.

Net interest expense for the three months ended March 31, 2013 was $99,000, compared with $2.3 million for the same three month period in 2012.
Approximately $2.0 million of the interest expense during the three months ended March 31, 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 three month period ended March 31, 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 three months ended March 31, 2013 and the year ended December 31, 2012, we incurred net losses of $824,000 and $5.9 million, respectively, and the cumulative net loss since our inception through March 31, 2013 was $66.5 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 $2.2 million and $7.4 million for the three months ended March 31, 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 three months ended March 31, 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;

? 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 March 31, 2013 of $9.2 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 2013, we plan to increase our spending on sales and marketing activities as we complete 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 three months ended March 31, 2013 and 2012 is summarized
as follows:



                                               Three Months Ended March 31,
($s in thousands)                                2013                 2012
Cash used in operating activities           $       (2,243 )     $       (1,884 )
Cash used in investing activities                       (8 )                 (5 )
Cash provided by financing activities                9,829                3,425
Net increase in cash and cash equivalents   $        7,578       $        1,536

Net cash used in operating activities for both three month periods primarily reflects our net loss for those periods, which was reduced in part by amortization, depreciation and share-based compensation expense, but which increased by the change in deferred revenue. Net cash used in operating activities for the three months ended March 31, 2013 and 2012 also reflects a use of cash of $810,000 and $333,000, respectively, related to reductions in accounts payable and accrued expenses as we paid down certain outstanding balances.

Net cash provided by financing activities for the three months ended March 31, 2013 relates to the $9.8 million of net proceeds generated from our January 2013 private placement and the $3.4 million of net proceeds during the three months ended March 31, 2012 from our unit offering, which we concluded in February 2012.

Operating Capital and Capital Expenditure Requirements

To date, we have not achieved profitability. We could continue to incur net losses as we commercialize our ClearPoint system products, continue to develop the ClearTrace system, expand our corporate infrastructure and pursue additional applications for our technology platforms. Our cash balances are typically held in a variety of interest bearing instruments, including interest bearing demand accounts and certificates of deposit. Cash in excess of immediate requirements is invested primarily 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 products and complete the development of our product candidates. Our future capital requirements will depend on many factors, including, but not limited to, the following:

? the cost and timing of expanding our sales, clinical support, marketing and distribution capabilities and other corporate infrastructure;

? the cost of establishing inventories;

? the effect of competing technological and market developments;

? the scope, rate of progress and cost of our research and development activities;

? the achievement of milestone events under, and other matters related to, our agreements with Boston Scientific and Siemens;

? the terms and timing of any future collaborative, licensing or other arrangements that we may establish;

? the cost and timing of any clinical trials;

? the cost and timing of regulatory filings, clearances and approvals; and

? the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights.


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