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MRIC > SEC Filings for MRIC > Form 10-Q on 13-May-2014All Recent SEC Filings

Show all filings for MRI INTERVENTIONS, INC.

Form 10-Q for MRI INTERVENTIONS, INC.


13-May-2014

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, is used to perform minimally invasive surgical procedures in the brain. We anticipate that our 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. The vast majority of our product revenues for the three months ended March 31, 2014 and the year ended December 31, 2013 relate to sales of our ClearPoint system products. We do not have regulatory clearance or approval to sell our ClearTrace system for commercial use; however, we have had an isolated sale of certain ClearTrace system components to a research site for non-commercial use. 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 devoted substantial efforts to research and development. As of March 31, 2014, we had an accumulated deficit of $70.1 million. We may continue to incur operating losses as we commercialize our ClearPoint system products, continue to develop our ClearTrace system and expand 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 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 our ClearTrace system for commercial use until we receive regulatory clearance or approval.

Generating recurring revenues from the sale of disposable 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 each new installation of our ClearPoint system to generate recurring sales of our ClearPoint disposable products.

Our product revenues were $713,000 for the three months ended March 31, 2014, and $2.9 million for the year ended December 31, 2013. Since inception, the most significant source of our revenues has been related to our collaborative agreements with Boston Scientific, principally from recognition of $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 was the period we estimated for our continuing involvement in the development activities, and which period ended March 31, 2013.


Our revenue recognition policies are more fully described in note 2 of the condensed financial statements appearing in Part I, Item 1 of this Quarterly Report.

Cost of Product Revenues

Cost of product revenues includes the direct costs associated with the assembly and purchase of disposable products and ClearPoint reusable products 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. Cost of product revenues also includes similar, applicable costs associated with the sale of any ClearTrace system components for non-commercial use.

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 ClearTrace system components. This includes: the salaries, travel and benefits of research and development personnel, including related share-based compensation; materials and laboratory supplies in research and development activities; consultant costs; sponsored research and product development with third parties; and licensing costs related to technology not yet commercialized. 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, 2014, we incurred approximately $41 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 the continuing development of our ClearTrace system for commercialization.

Selling, General and Administrative Expenses

Our selling, general and administrative expenses consist primarily of: salaries, sales incentive payments, travel and benefits, including related share-based compensation; professional fees, including fees for attorneys and outside accountants; occupancy costs; insurance; marketing costs; medical device excise taxes; and other general and administrative expenses, which include corporate licenses, director fees, hiring costs, taxes, postage, office supplies and meeting costs. Our selling, general and administrative expenses are expected 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 three months ended March 31, 2014 from the critical accounting policies described in our Annual Report on Form 10-K for the year ended December 31, 2013, which we filed with the SEC on March 28, 2014.


Results of Operations

Three Months Ended March 31, 2014 Compared to the Three Months Ended March 31, 2013

                                                   Quarter Ended March 31,          Percentage
($s in thousands)                                  2014               2013            Change
Product and other service revenues             $        724       $        460               57 %
Development service revenues                             99                154              (36 )%
License revenues                                          -                650             (100 )%
Cost of product revenues                                351                226               55 %
Research and development costs                          818                771                6 %
Selling, general and administrative expenses          1,801              1,633               10 %
Gain on sale of intellectual property                (4,339 )                -               NM
Other income (expense):
Gain on change in fair value of derivative
liability                                               484              1,623              (70 )%
Loss on loan modification                                 -             (1,356 )             NM
Other income, net                                       103                374              (72 )%
Interest expense, net                                   149                 99               51 %
Net income (loss)                                     2,630               (824 )             NM

NM= not meaningful

Product and Other Service Revenues. Product and other service revenues were $724,000 for the three months ended March 31, 2014, and $460,000 for the same period in 2013, an increase of $264,000, or 57%. Product revenues for the three months ended March 31, 2014 were $713,000, compared to $460,000 for the same period in 2013, an increase of $253,000, or 55%. Product revenues included disposable product sales for the three months ended March 31, 2014 of $565,000, compared with $347,000 for the same period in 2013, an increase of $218,000, or 63%. The increase in disposable product sales resulted primarily from the higher number of ClearPoint procedures that were performed during the three months ended March 31, 2014 compared with the same period in 2013, as well as the sale of drug delivery catheters we manufactured on a contract basis for a third party. Approximately $92,000 of the product revenues for the three months ended March 31, 2014 related to the sale of ClearPoint system reusable products, compared with $113,000 for the same period in 2013. Due to the nature of capital product sales, ClearPoint system reusable product revenues may vary, sometimes significantly, from quarter to quarter. Product revenues for the three months ended March 31, 2014 also included $56,000 in ClearTrace system components sold to a research site for non-commercial use. Other service revenues, mostly related to installation services and ClearPoint service agreements, were $11,000 for the three months ended March 31, 2014. No such revenues were recorded during the same period in 2013.

Development Service Revenues. During the three months ended March 31, 2014 and 2013, we recorded development service revenues of $99,000 and $154,000, respectively, representing a decrease of 36%. The decrease reflects the winding down of a development project we have been performing on a contract basis. We do not expect development service revenues to be a long-term ongoing source of revenues.

License Revenues. License revenues of $650,000 recorded during the three months ended March 31, 2013 related to license fees we received in 2008 from Boston Scientific that were deferred and recognized over the period we estimated for our continued involvement with Boston Scientific's development program for the licensed technology. That period 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 $351,000 for the three months ended March 31, 2014, compared to $226,000 for the same period in 2013, an increase of 55%. The increase in cost of product revenues of 55% was consistent with the increase in product revenues for the same period.

Research and Development Costs. Research and development costs were $818,000 for the three months ended March 31, 2014, compared to $771,000 for the same period in 2013, an increase of $47,000, or 6%. The increase was driven by a $181,000 increase in expenses related to our ClearTrace program, which was mostly offset by a decrease in ClearPoint product development costs of approximately $100,000 and a $37,000 decrease in share-based compensation expense.


Selling, General and Administrative Expenses. Selling, general and administrative expenses were $1.8 million for the three months ended March 31, 2014, compared with $1.6 million for the same period in 2013, an increase of $178,000, or 10%. The overall increase was driven by a $369,000 increase in sales and marketing expenses, which was partially offset by a $102,000 decrease in share-based compensation expense and a $95,000 decrease in expenses related to patent filings and related patent prosecution costs.

Gain on Sale of Intellectual Property. During the three months ended March 31, 2014, we recorded a gain of $4.3 million related to the sale certain intellectual property to Boston Scientific. The purchase price was satisfied through the cancellation of related party convertible notes payable we previously issued to Boston Scientific in the aggregate principal amount of $4.3 million. We recorded a gain equal to the purchase price, as the assets sold had not been previously recorded on our balance sheet.

Other Income (Expense). During the three months ended March 31, 2014 and 2013, we recorded gains of $484,000 and $1.6 million, respectively, resulting from changes in the fair value of the derivative liability associated with the warrants we issued in equity private placement transactions. During the three months ended March 31, 2013, we recorded a loss of $1.4 million related to the March 2013 Brainlab loan modification, which modification 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 plus the 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 $103,000 and $374,000 for the three months ended March 31, 2014 and 2013, respectively. 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, 2014 was $149,000, compared with $99,000 for the same period in 2013. The increase relates mostly to amortization of the debt discount arising from the Brainlab loan modification effected in March 2013.

Liquidity and Capital Resources

Our cumulative net loss from inception through March 31, 2014 was $70.1 million. We expect such losses to continue through at least the year ending December 31, 2014 as we continue to commercialize our ClearPoint system and pursue research and development activities related to our ClearTrace system. Net cash used in operations was $1.4 million for the three months ended March 31, 2014 and $7.8 million for the year ended December 31, 2013. Since inception, we have financed our activities principally from the sale of equity securities, the issuance of convertible and other secured notes, and license arrangements.

Our primary financing activities during the three months ended March 31, 2014 and the year ended December 31, 2013 were a March 2014 private offering, which resulted in net proceeds of $3.5 million, and a January 2013 equity private placement, which resulted in net proceeds of $9.8 million. In addition, in March 2014, we completed a transaction with Boston Scientific that resulted in the cancellation of $4.3 million in related party convertible notes payable that were scheduled to mature in 2014. While we expect to continue to use cash in operations, we believe our cash and cash equivalents at March 31, 2014 of $5.8 million, combined with cash expected to be generated from product sales, will be sufficient to meet our anticipated cash requirements through at least March 2015.

During the remainder of 2014, we expect to increase revenues from sales of ClearPoint system products as a result of the additions we made in 2013 to our sales and clinical support team. If necessary, certain planned expenditures, including expenditures related to research and development projects, sponsored research, public and investor relations efforts, planned hires and patent filings, could be deferred or forgone if we believe it is necessary to do so in order to fund operations. In addition, if necessary, we could implement restrictions on non-essential travel, put in place a salary deferral program for certain employees, reduce utilization of outside professional service providers and implement a reduction in our workforce.


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 equity or debt securities or through a credit facility, or we will need to modify our current business plan. There can be no assurances that we will be able to obtain additional financing on commercially reasonable terms, if at all. The sale of additional equity or convertible debt securities would likely result in dilution to our current stockholders.

Cash Flows



Cash activity for the three months ended March 31, 2014 and 2013 is summarized
as follows:



                                               Three Months Ended March 31,
($s in thousands)                                2014                 2013
Cash used in operating activities           $       (1,359 )     $       (2,243 )
Cash used in investing activities                       (2 )                 (8 )
Cash provided by financing activities                3,646                9,829
Net increase in cash and cash equivalents   $        2,285       $        7,578

Net Cash Flows from Operating Activities. We used $1.4 million and $2.2 million of cash for operating activities during the three months ended March 31, 2014 and 2013, respectively. Net cash used in operating activities during the three months ended March 31, 2014 primarily reflected our $2.2 million income from operations, plus $370,000 for expenses paid through the issuance of common stock, plus a $318,000 reduction in accounts receivable and $180,000 in share-based compensation, less the gain on the sale of intellectual property of $4.3 million and a $148,000 increase in inventory. Net cash used in operating activities in the three months ended March 31, 2013 primarily reflected our $1.4 million loss from operations, plus the $810,000 reduction in accounts payable and accrued expenses and the $763,000 decrease in deferred revenue, partially offset by $318,000 in share-based compensation and $115,000 in depreciation and amortization.

Net Cash Flows from Investing Activities. Net cash flows used in investing activities for the three months ended March 31, 2014 and 2013 were $2,000 and $8,000, respectively.

Net Cash Flows from Financing Activities. Net cash provided by financing activities for the three months ended March 31, 2014 of $3.6 million related primarily to proceeds from our March 2014 private offering. Net cash provided by financing activities for the three months ended March 31, 2013 related to the $9.8 million of net proceeds generated from our January 2013 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 our 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 ClearPoint products and complete the development of our ClearTrace system. 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 scope, rate of progress and cost of our research and development activities relating to our ClearTrace 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 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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