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MRIC > SEC Filings for MRIC > Form 10-Q on 13-Nov-2013All Recent SEC Filings

Show all filings for MRI INTERVENTIONS, INC.

Form 10-Q for MRI INTERVENTIONS, INC.


13-Nov-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 the nine months ended September 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. 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 September 30, 2013, we had an accumulated deficit of $71.0 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 we received in 2008. Revenues associated with these licensing fees were recognized on a straight-line basis over a five year period, which represented our estimated period of continuing involvement in the development activities, and which ended at March 31, 2013. Any additional payments related to substantive, performance-based milestones that we may receive 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/A 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 September 30, 2013, we have incurred approximately $39 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 and increased headcount necessary to support our continued growth in operations.

Critical Accounting Policies

There have been no significant changes in our critical accounting policies during the nine months ended September 30, 2013 as compared to the critical accounting policies described in our Annual Report on Form 10-K/A for the year ended December 31, 2012, which we filed with the SEC on August 19, 2013


Results of Operations



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



                                                 Three Months Ended September 30,         Percentage
($s in thousands)                                   2013                  2012              Change
Product and service revenues                   $          927        $           482                92 %
License revenues                                             -                   650              (100 )%
Cost of product revenues                                   365                   133               174 %
Research and development costs                             725                   574                26 %
Selling, general and administrative expenses             1,698                 1,442                18 %
Other expense:
Other expense, net                                      (1,212 )              (1,665 )             (27 )%
Interest expense, net                                     (122 )                 (79 )              54 %
Net loss                                                (3,195 )              (2,761 )              16 %

Product and service revenues. Product and service revenues were $927,000 for the three months ended September 30, 2013, and $482,000 for the same three month period in 2012, an increase of $445,000, or 92%. Product revenues for the three months ended September 30, 2013 were $850,000 compared to $318,000, for the same period in 2012, an increase of $532,000, or 167%. Product revenues included ClearPoint system disposable product sales for the three months ended September 30, 2013 of $470,000 compared with $287,000 for the same three month period in 2012, an increase of $183,000, or 64%. That increase in disposable product sales resulted from the higher number of ClearPoint procedures that were performed during the three months ended September 30, 2013. Approximately $380,000 of the product revenues for the three months ended September 30, 2013 related to the sale of ClearPoint system reusable components, compared with $31,000 for the same three month period in 2012. During the three months ended September 30, 2013 and 2012, we recorded development service revenues of $49,000 and $163,000, respectively, a decrease of 70%. We do not expect the development service revenues to be a long-term ongoing source of revenues. Other service revenues, mostly related to installation services and a service agreement, were $28,000 for the three months ended September 30, 2013. No such revenues were recorded during the same period in 2012.

License revenues. License revenues of $650,000 recorded during the three months ended September 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.

Cost of Product Revenues. Cost of product revenues was $365,000 for the three months ended September 30, 2013, compared to $133,000 for the same three month period in 2012, an increase of 174%. The increase in cost of product revenues was primarily attributable to the 167% increase in product revenues for the same period. Gross margin on product revenues was relatively consistent for both periods.

Research and Development Costs. Research and development costs were $725,000 for the three months ended September 30, 2013, compared to $574,000 for the same three month period in 2012, an increase of $151,000, or 26%. A portion of the increase was attributable to research that we sponsored. For the three months ended September 30, 2013, we incurred sponsored research costs of $79,000, while we did not incur any such costs for the three months ended September 30, 2012. The remainder of the increase was attributable to license fee expenses incurred in the three months ended September 30, 2013 related to technologies still in the development phase.

Selling, General and Administrative Expenses. Selling, general and administrative expenses were $1.7 million for the three months ended September 30, 2013, compared with $1.4 million for the same three month period in 2012, an increase of $231,000, or 16%. The overall increase was driven by a $410,000 increase in sales and marketing expenses, which was partially offset by a $157,000 decrease in share-based compensation expense. The increase in sales and marketing expenses related mostly to costs associated with personnel additions to our sales and clinical support team. The decrease in share-based compensation reflects a lower number of common stock warrants issued to service providers in the three months ended September 30, 2013 compared with the same period in 2012.


Other Expense. During the three months ended September 30, 2013, net other expense was $1.2 million compared with $1.7 million for the same period in 2012. Substantially all of the net other expense for both periods relates to losses resulting from the change in the fair value of the derivative liability associated with the warrants we issued in equity private placement transactions. In both periods, the fair value of the warrant liability increased, primarily as a result of increases in our stock price during the related period, which resulted in our recording a loss.

Net interest expense for the three months ended September 30, 2013 was $122,000, compared with $79,000 for the same three month period in 2012. The increase relates mostly to amortization of the debt discount arising from the Brainlab loan modification we effected in March 2013.

Nine Months Ended September 30, 2013 Compared to the Nine Months Ended September 30, 2012

                                             Nine Months Ended September 30,          Percentage
($s in thousands)                              2013                  2012               Change
Product and service revenues              $         2,104       $         1,246                 69 %
License revenues                                      650                 1,950                (67 )%
Cost of product revenues                              888                   392                127 %
Research and development:
Research and development costs                      2,239                 1,749                 28 %
Reversal of R&D obligations                             -                  (883 )             (100 )%
Selling, general and administrative
expenses                                            5,035                 4,585                 10 %
Other income (expense):
Gain (loss) on change in fair value of
derivative liability                                1,328                (1,694 )               NM
Loss on loan modification                          (1,356 )                   -                 NM
Other income, net                                     408                     3              13500 %
Interest expense, net                                (342 )              (2,498 )              (86 )%
Net loss                                           (5,370 )              (6,836 )              (21 )%

NM= not meaningful

Product and service revenues. Product and service revenues were $2.1 million for the nine months ended September 30, 2013, and $1.2 million for the same period in 2012, an increase of $858,000, or 69%. Product revenues for the nine months ended September 30, 2013 were $1.8 million compared to $831,000, for the same period in 2012, an increase of $973,000, or 117%. Product revenues included ClearPoint system disposable product sales for the nine months ended September 30, 2013 of $1.2 million, compared with $713,000 for the same period in 2012, an increase of $508,000, or 71%. That increase in disposable product sales resulted from the higher number of ClearPoint procedures that were performed during the nine months ended September 30, 2013. Approximately $586,000 of the product revenues for the nine months ended September 30, 2013 related to the sale of ClearPoint system reusable components compared with $118,000 for the same nine month period in 2012, representing an increase of $467,000 or 394%. During the nine months ended September 30, 2013 and 2012, we recorded development service revenues of $268,000 and $414,000, respectively, a decrease of 35%. We do not expect the development service revenues to be a long-term ongoing source of revenues. Other service revenues, mostly related to installation services and a service agreement, were $28,000 for the nine months ended September 30, 2013. No such revenues were recorded during the same period in 2012.

License revenues. License revenues of $650,000 and $2.0 million for the nine months ended September 30, 2013, and 2012, respectively, 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.

Cost of Product Revenues. Cost of product revenues was $888,000 for the nine months ended September 30, 2013, compared to $392,000 for the same period in 2012, an increase of 127%. The increase in cost of product revenues was primarily attributable to the 117% increase in product revenues for the same period. Gross margin on product revenues was relatively consistent for both periods.


Research and Development Costs. Research and development costs were $2.2 million for the nine months ended September 30, 2013, compared to $1.7 million for the same nine month period in 2012, an increase of $489,000, or 28%. The primary driver for the increase was costs for research that we sponsored, which increased by $340,000. Sponsored research costs were approximately $243,000 for the nine months ended September 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 approximately $200,000 during the nine months ended September 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 nine months ended September 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 $5.0 million for the nine months ended September 30, 2013, compared with $4.6 million for the same nine month period in 2012, an increase of $424,000, or 9%. The increase was mostly related to higher sales and marketing expenses, which increased by approximately $880,000, and an increase in professional services of $183,000. These increases were mostly offset by a decrease of $673,000 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 nine months ended September 30, 2012 to two non-employee directors, two research contributors, a service provider and a long-time financial adviser, compared to the lower number of common stock warrants we issued to a single service provider during the nine months ended September 30, 2013.

Other Income (Expense). We recorded a $1.3 million gain and a $1.7 million loss during the nine months ended September 30, 2013 and 2012, respectively. The gain and the loss resulted from changes in the fair value of the derivative liability associated with the warrants we issued in equity private placement transactions.

During the nine months ended September 30, 2013 we recorded a loss of $1.4 million related to the March 2013 Brainlab 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 other income was $383,000 for the nine months ended September 30, 2013, compared with $3,000 for the same period in 2012. Essentially all of the net other income for the nine months ended September 30, 2013 related to negotiated reductions in amounts payable to service providers.

Net interest expense for the nine months ended September 30, 2013 was $342,000, compared with $2.5 million for the same period in 2012. Approximately $2.0 million of the interest expense during the nine months ended September 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 related 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 nine month period ended September 30, 2012. The decrease in net interest expense was 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 nine months ended September 30, 2013 and the year ended December 31, 2012, we incurred net losses of $5.4 million and $5.9 million, respectively, and the cumulative net loss from our inception through September 30, 2013 was $71.0 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 $6.3 million and $7.4 million for the nine months ended September 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 nine months ended September 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 September 30, 2013 of $5.0 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 nine months ended September 30, 2013 and 2012 is
summarized as follows:



                                               Nine Months Ended September 30,
($s in thousands)                                2013                  2012
Cash used in operating activities           $        (6,264 )     $        (5,207 )
Cash used in investing activities           $          (174 )     $           (93 )
Cash provided by financing activities       $         9,849       $         8,942
Net increase in cash and cash equivalents   $         3,411       $         3,642

We used $6.3 million and $5.2 million of cash for operating activities during the nine months ended September 30, 2013 and 2012, respectively. Net cash used in operating activities during the nine months ended September 30, 2013 primarily reflected our $5.4 million loss from operations, reduced by $988,000 in share-based compensation and $304,000 in depreciation and amortization, but increased by the $652,000 change from year end in deferred revenue and the $1.3 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 nine months ended September 30, 2012 primarily reflected our $2.6 million loss from operations, reduced by $1.7 million in share-based compensation and $309,000 in depreciation and amortization, but increased by the $2.0 million change from year end in deferred revenue, the $2.0 million reduction in accounts payable and accrued expenses, and the $883,000 reversal of an R&D obligation.

Net cash provided by financing activities for the nine months ended September 30, 2013 related to the $9.8 million of net proceeds generated from our January 2013 private placement. Net cash provided by financing activities for the nine months ended September 30, 2012 related to $3.4 million in net proceeds from the unit offering we concluded in February 2012 and the $5.5 million of net proceeds from our July 2012 private placement.


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.

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