Notes to Condensed Consolidated Financial Statements
(Unaudited)
1.
|
Description of the Business and Financial Condition
|
ClearPoint Neuro, Inc. (the “Company”)
is a medical device company focused on the development and commercialization of technology that enables physicians to see inside the brain
using direct, intra-procedural magnetic resonance imaging (“MRI”) guidance while performing minimally invasive surgical procedures.
The Company’s ClearPoint®
system, an integrated system comprised of capital equipment and disposable products, is designed to allow minimally invasive procedures
in the brain to be performed in an MRI suite. The Company received 510(k) clearance from the U.S. Food and Drug Administration (“FDA”)
in 2010 to market the ClearPoint system in the United States for general neurological interventional procedures.
COVID-19
On March 11, 2020, the World Health Organization
characterized the spread of a novel strain of coronavirus (“COVID-19”) as a global pandemic, and on March 13, 2020, the President
of the United States proclaimed that the COVID-19 outbreak in the United States constituted a national emergency. Continued widespread
infection in the United States is a possibility. Extraordinary actions have been taken by federal, state and local governmental authorities
to combat the spread of COVID-19, including issuance of “stay-at-home” directives and similar mandates for many individuals
to substantially restrict daily activities and for many businesses to curtail or cease normal operations. These measures, while intended
to protect human life, have led to reduced economic activity, including the postponement or cancellation of elective surgical procedures,
which historically have represented approximately 80% of the number of surgical procedures using the Company’s ClearPoint system.
Furthermore, the recessionary conditions on the
global economy caused by the COVID-19 pandemic could have a material adverse effect on the Company’s business, as hospitals postpone
or reduce capital purchases and overall spending. Although most segments of the United States economy have reopened, the effects of the
COVID-19 pandemic remain intense in many areas of the country, and many public health experts continue to warn of the potential for future
surges of COVID-19. Accordingly, reinstatement of directives and mandates requiring businesses to again curtail or cease normal operations,
including the postponement or cancellation of elective surgeries, remains a possibility. The continuing uncertainty as to whether the
federal government will address the resulting fiscal condition in both the near term and long term with measures such as additional fiscal
stimulus, as well as other geopolitical issues relating to the global economic slowdown, has increased domestic and global instability.
The rapid development and fluidity of the situation preclude any prediction as to the ultimate impact COVID-19 will have on the Company’s
business, financial condition, results of operation and cash flows, which will depend largely on future developments directly or indirectly
relating to the duration and scope of the COVID-19 outbreak in the United States.
Liquidity
The Company has incurred net losses since its inception,
which has resulted in a cumulative deficit at March 31, 2021 of $122 million. In addition, the Company’s use of cash from operations
amounted to $2.1 million for the three months ended March 31, 2021 and $7.8 million for the year ended December 31, 2020. Since its inception,
the Company has financed its operations principally from the sale of equity securities, the issuance of notes payable, product and service
contracts and license arrangements.
In January 2020, the Company entered into a Securities
Purchase Agreement (the “SPA”) with two investors (the “2020 Convertible Noteholders”) under which the Company
issued an aggregate principal amount of $17.5 million of floating rate secured convertible notes (the “First Closing Notes”),
resulting in proceeds, net of financing costs, and a commitment fee paid to one of the 2020 Convertible Noteholders, of approximately
$16.8 million. From the net proceeds received from the issuance of the First Closing Notes, which have a five-year term, the Company repaid
and retired the 2010 Junior Secured Notes Payable (the “2010 Secured Notes”) that otherwise would have matured in October
and November 2020.
ClearPoint Neuro, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The SPA also gave the Company the right, but not
the obligation, to request one of the 2020 Noteholders to purchase an additional $5.0 million in principal amount of a note (the “Second
Closing Note”, and, together with the First Closing Note, the “2020 Secured Notes”). On December 29, 2020, under the
terms of an amendment to the SPA which, among other provisions, increased the principal amount of the Second Closing Note, the Company
issued the Second Closing Note to the 2020 Convertible Noteholder in the principal amount of $7.5 million.
In April 2020, the Company received $0.9 million
in proceeds through a loan funded under the Payroll Protection Program as part of the CARES Act (the “PPP Loan”). In November
2020, the Company was notified by the U.S. Small Business Administration that the loan had been forgiven under the provision of the CARES
Act.
See Note 5 for additional information with respect
to the 2020 Secured Notes and the PPP Loan.
As discussed in Note 7, on February 23, 2021, the
Company completed a public offering of 2,127,660 shares of its common stock. Net proceeds from the offering were approximately $46.8 million
after deducting the underwriting discounts and commissions and other estimated offering expenses payable by the Company.
Based on the foregoing, in management’s opinion,
cash and cash equivalent balances at March 31, 2021, are sufficient to support the Company’s operations and meet its obligations
for at least the next twelve months.
2.
|
Basis of Presentation and Summary of Significant Accounting Policies
|
Basis of Presentation and Use of Estimates
In the opinion of management, the accompanying
unaudited condensed consolidated financial statements have been prepared on a basis consistent with the Company’s December 31, 2020
audited consolidated financial statements, and include all adjustments, consisting of only normal recurring adjustments, necessary to
fairly state the information set forth therein. These condensed consolidated financial statements have been prepared in accordance with
SEC rules for interim financial information, and, therefore, omit certain information and footnote disclosures necessary to present such
statements in accordance with generally accepted accounting principles in the U.S. (“GAAP”). The preparation of these condensed
consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported
amounts of assets, liabilities, revenue, expenses and the related disclosures at the date of the financial statements and during the reporting
period. Actual results could materially differ from these estimates. These condensed consolidated financial statements should be read
in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s 2020 Form 10-K. The
accompanying condensed consolidated balance sheet as of December 31, 2020 has been derived from the audited consolidated financial statements
at that date but does not include all information and footnotes required by GAAP for a complete set of financial statements. The results
of operations for the three months ended March 31, 2021 may not be indicative of the results to be expected for the entire year or any
future periods.
Inventory
Inventory is carried at the lower of cost (first-in,
first-out method) or net realizable value. Items in inventory relate predominantly to the Company’s ClearPoint system. Software
license inventory related to ClearPoint systems undergoing on-site customer evaluation is included in inventory in the accompanying condensed
consolidated balance sheets. All other software license inventory is classified as a non-current asset. The Company periodically reviews
its inventory for obsolete items and provides a reserve upon identification of potential obsolete items.
Intangible Assets
The Company is a party to certain license agreements
that provide rights to the Company for the development and commercialization of products in the functional neurosurgery field. Under the
terms of those license agreements, the Company made payments to the licensors upon execution of the license agreements for access to the
underlying technologies and will make future payments based on the achievement of regulatory and commercialization milestones as defined
in the license agreements.
ClearPoint Neuro, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
In conformity with Accounting Standards Codification
Section 350, “Intangibles – Goodwill and Other,” the Company amortizes its investment in the license rights described
above over an expected useful life of five years. In addition, the Company periodically evaluates the recoverability of its investment
in the license rights and records an impairment charge in the event such evaluation indicates that the Company’s investment is not
likely of being recovered.
Revenue Recognition
The Company’s revenue is comprised primarily
of: (1) product revenue resulting from the sale of functional neurosurgery, navigation, therapy, and biologics and drug delivery disposable
products; (2) product revenue resulting from the sale of ClearPoint capital equipment and software; (3) revenue resulting from the service,
installation, training and shipping related to ClearPoint capital equipment and software; and (4) clinical case support revenue in connection
with customer-sponsored clinical trials. The Company recognizes revenue when control of the Company’s products and services is transferred
to its customers in an amount that reflects the consideration the Company expects to receive from its customers in exchange for those
products and services, in a process that involves identifying the contract with a customer, determining the performance obligations in
the contract, determining the contract price, allocating the contract price to the distinct performance obligations in the contract, and
recognizing revenue when the performance obligations have been satisfied. A performance obligation is considered distinct from other obligations
in a contract when it provides a benefit to the customer either on its own or together with other resources that are readily available
to the customer and is separately identified in the contract. When a contract calls for the satisfaction of multiple performance obligations
for a single contract price, the Company allocates the contract price among the performance obligations based on the relative stand-alone
prices for each such performance obligation customarily charged by the Company. The Company considers a performance obligation satisfied
once it has transferred control of a good or service to the customer, meaning the customer has the ability to use and obtain the benefit
of the good or service. The Company recognizes revenue for satisfied performance obligations only when it determines there are no uncertainties
regarding payment terms or transfer of control.
Lines of Business; Timing
of Revenue Recognition
|
·
|
Functional neurosurgery navigation product, biologics and drug delivery systems product, and therapy
product sales: Revenue from the sale of functional neurosurgery navigation products (consisting of disposable products sold commercially
and related to cases utilizing the Company’s ClearPoint system), biologics and drug delivery systems (consisting primarily of disposable
products related to customer-sponsored clinical trials utilizing the ClearPoint system), and therapy products (consisting primarily of
disposable laser-related products used in non-neurosurgical procedures), is generally based on customer purchase orders, the predominance
of which require delivery within one week of the order having been placed, and are recognized at the point in time of delivery to the
customer, which is the point at which legal title, and risks and rewards of ownership, along with physical possession, transfer to the
customer.
|
|
·
|
Capital equipment and software sales
|
|
o
|
Capital equipment and software sales preceded by evaluation periods: The predominance of capital
equipment and software sales (consisting of integrated computer hardware and software that are integral components of the Company’s
ClearPoint system) are preceded by customer evaluation periods of generally 90 days. During these evaluation periods, installation of,
and training of customer personnel on, the systems have been completed and the systems have been in operation. Accordingly, revenue from
capital equipment and software sales following such evaluation periods is recognized at the point in time the Company is in receipt of
an executed purchase agreement or purchase order.
|
|
o
|
Capital equipment and software sales not preceded by evaluation periods: Revenue from sales of
capital equipment and software not having been preceded by an evaluation period is recognized at the point in time that the equipment
has been delivered to the customer.
|
ClearPoint Neuro, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
For both types of capital equipment and software sales
described above, the Company’s determination of the point in time at which to recognize revenue represents that point at which the
customer has legal title, physical possession, and the risks and rewards of ownership, and the Company has a present right to payment.
|
·
|
Therapy services: The Company recognizes revenue for such services at the point in time that the
performance obligation has been satisfied.
|
|
·
|
Biologics
and drug delivery services-Outsourced technical clinical support of cases performed pursuant to customer-sponsored clinical trials:
|
|
o
|
Service Access Fees: For contracts in which the Company receives a periodic fixed fee, irrespective
of the number of cases attended by Company personnel during such periods, revenue is recognized ratably over the period covered by such
fees. A time-elapsed output method is used for such fees because the Company transfers control evenly by providing a stand-ready service.
|
|
|
|
|
o
|
Procedure-Based Fees: The
Company recognizes revenue at the point in time a case is attended by Company personnel.
|
|
·
|
Capital equipment-related services:
|
|
o
|
Equipment service: Revenue from service of ClearPoint capital equipment and software previously
sold to customers is based on agreements with terms ranging from one to three years and revenue is recognized ratably on a monthly basis
over the term of the service agreement. A time-elapsed output method is used for service revenue because the Company transfers control
evenly by providing a stand-ready service.
|
|
o
|
Installation, training and shipping: Consistent with the Company’s recognition of revenue
for capital equipment and software sales as described above, fees for installation, training and shipping in connection with sales of
capital equipment and software that have been preceded by customer evaluation periods are recognized as revenue at the point in time the
Company is in receipt of an executed purchase order for the equipment and software. Installation, training and shipping fees related to
capital equipment and software sales not having been preceded by an evaluation period are recognized as revenue at the point in time that
the related services are performed.
|
The Company operates in one industry segment, and
substantially all its sales are to U.S.-based customers.
Payment terms under contracts with customers generally
are in a range of 30-60 days after the customers’ receipt of the Company’s invoices.
The Company provides a one-year warranty on its
functional neurosurgery navigation products, biologics and drug delivery products, and capital equipment and software products that are
not otherwise covered by a third-party manufacturer’s warranty. The Company’s contracts with customers do not provide for
a right of return other than for product defects.
See Note 3 for additional information regarding
revenue recognition.
Net Loss Per Share
The Company computes net loss per share using the
weighted-average number of common shares outstanding during the period. Basic and diluted net loss per share are the same because the
conversion, exercise or issuance of all potential common stock equivalents, which comprise the entire amount of the Company’s outstanding
common stock options and warrants, as described in Note 7, and the potential conversion of the 2020 Secured Notes and the Second Closing
Note, as described in Note 5, would be anti-dilutive.
ClearPoint Neuro, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Concentration Risks and Other Risks and Uncertainties
Financial instruments that potentially subject
the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. The Company
holds substantially all its cash and cash equivalents on deposit with financial institutions in the U.S. insured by the Federal Deposit
Insurance Corporation. At March 31, 2021, the Company had approximately $60 million in bank balances that were in excess of the insured
limits.
One customer accounted for 14% of accounts receivable
at March 31, 2021, and one customer accounted for 11% of accounts receivable at December 31, 2020.
One customer, a related party as discussed in Note
3, accounted for 17% and 28% of total sales in the three-month periods ended March 31, 2021 and 2020, respectively.
Prior to granting credit, the Company performs
credit evaluations of its customers’ financial condition, and generally does not require collateral from its customers. The Company
will provide an allowance for doubtful accounts when collections become doubtful. The allowance for doubtful accounts at each of March
31, 2021 and December 31, 2020 was $0.06 million.
The Company is subject to risks common to emerging
companies in the medical device industry, including, but not limited to: new technological innovations; acceptance and competitiveness
of its products; dependence on key personnel; dependence on key suppliers; changes in general economic conditions and interest rates;
protection of proprietary technology; compliance with changing government regulations; uncertainty of widespread market acceptance of
products; access to credit for capital purchases by customers; and product liability claims. Certain components used in manufacturing
have relatively few alternative sources of supply and establishing additional or replacement suppliers for such components cannot be accomplished
quickly. The inability of any of these suppliers to fulfill the Company’s supply requirements may negatively impact future operating
results.
Adoption of New Accounting Standard
Effective January 1, 2021, the Company adopted,
on a modified retrospective method of transition, the provisions of Accounting Standards Update No. 2020-06, “Debt – Debt
with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic
815-40) – Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (the “ASU”).
The ASU is effective for public companies, other than smaller reporting companies as defined by the SEC, for fiscal years beginning
after December 15, 2021, and for smaller reporting companies, which is the Company’s current classification, for fiscal years beginning
after December 31, 2023. However, the ASU permits early adoption no earlier than for fiscal years beginning after December 31, 2020,
and the Company elected such early adoption. The ASU amends prior authoritative literature to reduce the number of accounting models
for, among others, convertible debt instruments for which the embedded conversion features of such instruments had previously been required
to be separated from the host contract. The Company determined that the conversion feature embedded in the Second Closing Note (see Note
5) was within the scope of the ASU. Accordingly, the discount originally recorded in connection with the issuance of the Second Closing
Note and a corresponding amount recorded in additional paid-in capital, each in the amount of approximately $3.1 million at the date
of issuance of the Second Closing Note, were reversed as of the date of adoption of the ASU.
Reclassifications
The accompanying consolidated statement of operations
for the three months ended March 31, 2021 contains: (a) certain items formerly classified as service revenue that that have been reclassified
to product revenue; (b) certain items formerly classified as general and administrative expenses, research and development expenses, and
sales and marketing expenses that have been reclassified to cost of revenue; and (c) an item formerly classified as interest expense that
has been reclassified as other expense. The accompanying condensed consolidated statement of operations for the three months ended March
31, 2020 has been conformed to the 2021 presentation.
ClearPoint Neuro, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Revenue by Service Line
|
|
Three Months Ended March 31,
|
|
(in thousands)
|
|
2021
|
|
|
2020
|
|
Functional neurosurgery navigation and therapy
|
|
|
|
|
|
|
|
|
Disposable products
|
|
$
|
1,917
|
|
|
$
|
1,742
|
|
Biologics and drug delivery
|
|
|
|
|
|
|
|
|
Disposable products
|
|
|
914
|
|
|
|
173
|
|
Services
|
|
|
746
|
|
|
|
856
|
|
Subtotal – biologics and drug delivery revenue
|
|
|
1,660
|
|
|
|
1,029
|
|
Capital equipment and software
|
|
|
|
|
|
|
|
|
Systems and software products
|
|
|
331
|
|
|
|
264
|
|
Services
|
|
|
122
|
|
|
|
81
|
|
Subtotal – capital equipment and software revenue
|
|
|
453
|
|
|
|
345
|
|
Total revenue
|
|
$
|
4,030
|
|
|
$
|
3,116
|
|
Contract Balances
|
·
|
Contract assets – Substantially all the Company’s contracts with customers are based
on customer-issued purchase orders for distinct products or services. Customers are billed upon delivery of such products or services,
and the related contract assets comprise the accounts receivable balances included in the accompanying condensed consolidated balance
sheets.
|
|
·
|
Contract liabilities – The Company generally bills and collects capital equipment and software-related
service fees at the inception of the service agreements, which have terms ranging from one to three years. The unearned portion of such
service fees is classified as deferred revenue.
|
During the three months ended March 31, 2021, the
Company recognized capital equipment and software-related service revenue of approximately $0.1 million, which was previously included
in deferred revenue in the accompanying condensed consolidated balance sheet at December 31, 2020.
In 2019, the Company entered into a Development
Services Agreement with a customer under which the Company was entitled to bill the customer for an upfront payment of $0.13 million,
of which approximately $0.06 million is included in deferred revenue in each of the accompanying March 31, 2021 and December 31, 2020
condensed consolidated balance sheets.
Commencing in 2019, the Company was a party to
a Letter of Intent and a related Statement of Work (together with the Letter of Intent, the “Project Documents”) with a customer
who is a stockholder and a noteholder (see Note 5), and an officer of whom is a member of the Company’s Board of Directors, to commence
a product development project. Under the terms of the Project Documents, the Company was entitled to bill the customer for: (a) an upfront,
nonrefundable payment of $0.5 million which was received in 2019; and (b) quarterly service fees of $0.5 million. In February 2020, the
Company entered into a Supply Agreement and a Statement of Work (the “European SOW”) with a European affiliate of the customer.
Under the terms of the European SOW, the Company was entitled to bill the customer on a quarterly basis, commencing in the first quarter
of 2020, for service fees of $0.25 million. During 2020, the clinical trials contemplated by the Project Documents and the European SOW
were delayed as a result of the COVID-19 pandemic. As a result, the Company agreed to reduce such quarterly service fees by an aggregate
of $0.25 million through September 30, 2020. In November 2020, the Company entered into an addendum to the Project Documents and the European
SOW that, among other provisions, set the customer’s aggregate at $0.7 million per quarter, effective October 1, 2020. The Company
recognized as revenue the upfront payment described in this paragraph ratably over the initial two years of the term of the Project Documents,
corresponding to the estimated period in which the related performance obligations were expected to be satisfied, and recognizes as revenue
the quarterly service fees described in this paragraph as stand-by services beginning in the quarter such services commenced. Based on
the foregoing: (a) the Company recognized revenue of approximately $0.7 million for each of the three months ended March 31, 2021 and
2020; (b) there was no accounts receivable balance from the customer at March 31, 2021; accounts receivable from the customer at December
31, 2020 amounted to approximately $0.1 million; and (c) approximately $0.07 million and $0.1 million of the aggregate amount of all the
payments described in this paragraph were included in deferred revenue in the accompanying condensed consolidated balance sheets at March
31, 2021 and December 31, 2020, respectively.
ClearPoint Neuro, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The Company offers an upgraded version of its software
at no additional charge to customers purchasing a three-year systems service agreement. The transaction prices of the software and the
service agreement are determined through an allocation of the service agreement price based on the standalone prices of the software and
the service agreements customarily charged by the Company. The transaction price of the software is recognized as revenue upon its installation
and comprised approximately $0.1 million of unbilled accounts receivable at each of March 31, 2021 and December 31, 2020.
Remaining Performance Obligations
The Company’s contracts with customers, other
than capital equipment and software-related service agreements discussed below, are predominantly of terms less than one year. Accordingly,
the transaction prices of remaining performance obligations related to such contracts at March 31, 2021 are not material.
Revenue with respect to remaining performance obligations
related to capital equipment and software-related service agreements with original terms in excess of one year and the upfront payments
discussed under the heading “Contract Balances” above amounted to approximately $0.6 million at March 31, 2021. The Company
expects to recognize this revenue within the next three years.
Inventory consists of the following as of:
(in thousands)
|
|
March 31,
2021
|
|
|
December 31,
2020
|
|
Raw materials and work in process
|
|
$
|
1,630
|
|
|
$
|
1,485
|
|
Software licenses
|
|
|
175
|
|
|
|
193
|
|
Finished goods
|
|
|
1,461
|
|
|
|
1,560
|
|
Inventory, net, included in current assets
|
|
|
3,266
|
|
|
|
3,238
|
|
Software licenses – non-current
|
|
|
589
|
|
|
|
589
|
|
Total
|
|
$
|
3,855
|
|
|
$
|
3,827
|
|
On January 29, 2020 (the “Closing Date”),
the Company completed a financing transaction (the “2020 Financing Transaction”) with the 2020 Convertible Noteholders, whereby
the Company issued an aggregate principal amount of $17,500,000 of the First Closing Notes pursuant to the SPA dated January 11, 2020.
Unless earlier converted or redeemed, the First Closing Notes will mature on the fifth anniversary of the Closing Date, and bear interest
at a rate equal to the sum of (i) the greater of (a) the three (3)-month London Interbank Offered Rate (“LIBOR”) and (b) two
percent (2%), plus (ii) a margin of 2% on the outstanding balance of the First Closing Notes, payable quarterly on the first business
day of each calendar quarter. The First Closing Notes may be converted at a price of $6.00 per share, subject to certain adjustments set
forth in the SPA, and may not be pre-paid without the consent of the noteholder, provided that the Company must offer to pre-pay such
other noteholder on the same terms and conditions.
At the Closing Date, the SPA gave the Company the
right, but not the obligation, to request at any time on or prior to January 11, 2022, that one of the 2020 Convertible Noteholders purchase
an additional $5.0 million in aggregate principal amount of Second Closing Note and an additional $10.0 million in aggregate principal
amount of Third Closing Note (as defined in the SPA; together, with the Second Closing Note, the “Additional Convertible Notes”),
provided that such 2020 Convertible Noteholder has the right, but not the obligation, to purchase such notes. The Additional Convertible
Notes would also mature on the fifth anniversary of the Closing Date.
ClearPoint Neuro, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
On December 29, 2020, the Company and the 2020
Convertible Noteholders entered into an amendment to the SPA (the “Amendment”), the terms of which, among other provisions,
provided for: (a) an increase in the principal amount of the Second Closing Note to $7.5 million; (b) a revision of the interest rate
to be borne by the Second Closing Note to consist of: (i) cash interest of 2% per annum, payable quarterly; and (ii) payment-in-kind interest
of 5% per annum, accruable quarterly as an addition to the unpaid principal balance of the Second Closing Note; and (c) an increase in
the conversion price of the Second Closing Notes to $10.14 per share, subject to certain adjustments set forth in the SPA. Upon execution
of the Amendment, the Company issued the Second Closing Note.
The aggregate carrying amount of the First Closing
Notes in the accompanying March 31, 2021 and December 31, 2020 condensed consolidated balance sheets is presented net of: (a) financing
costs, comprised of commissions and legal expenses, having an unamortized balance of $0.3 million and $0.4 million at those respective
dates; and (b) a discount, comprised of a commitment fee paid to one of the 2020 Convertible Noteholders, having an unamortized balance
amounting to $0.2 million at each of those respective dates. The unamortized balance of the financing costs and the discount are charged
to interest expense over the term of the First Closing Notes under the effective interest method.
The carrying amount of the Second Closing Note
in the accompanying December 31, 2020 consolidated balance sheet is presented net of a discount, amounting to approximately $3.1 million
at December 31, 2020, and representing the value of the deemed beneficial conversion feature embedded in the Second Closing Note. A beneficial
conversion feature is deemed to be beneficial when the conversion price, discussed above, is lower than the closing price per share of
the Company’s common stock, which was $14.34 on the date of issuance of the Second Closing Note. Under GAAP in existence at the
date of issuance of the Second Closing Note, the resulting discount was calculated as the product of (i) the number of shares into which
the Second Closing Note could be converted, multiplied by (ii) the difference between the closing price per share and the conversion price.
Upon recordation of the discount, a corresponding amount was added to additional paid-in capital. As discussed in Note 2, effective January
1, 2021, the Company adopted the provisions of the ASU that no longer required such beneficial conversion features to be separately accounted
for as previously described in this paragraph. As a result, the accompanying March 31, 2021 condensed consolidated balance sheet reflects
the elimination of both the discount and the corresponding increase to additional paid-in capital previously described in this paragraph.
Under the terms of the SPA, as amended, the Company
retains the right, but not the obligation, to request the 2020 Convertible Noteholder to purchase the Third Closing Note, and the 2020
Convertible Noteholder has the right, but not the obligation, to purchase such note. As of March 31, 2021, the Company had not made such
a request.
The 2020 Secured Notes are secured by all the assets
of the Company.
An executive officer of one of the 2020 Convertible
Noteholders is a member of the Company’s Board of Directors, and, pursuant to the terms of the SPA and a Board Observer Agreement
entered into by the other 2020 Convertible Noteholder and the Company, the other 2020 Convertible Noteholder appointed a representative
to attend and observe meetings of the Company’s Board of Directors. On February 25, 2021, such 2020 Convertible Noteholder terminated
the Board Observer Agreement, thus precluding its representative from attending future meetings of the Company’s Board of Directors.
On January 27, 2020, as a condition to completion
of the 2020 Financing Transaction, the Company entered into the Fourth Omnibus Amendment to notes the 2010 Secured Notes, whereby the
2010 Secured Notes were subordinated to the Company’s obligations under the terms of the 2020 Secured Notes and the Additional Convertible
Notes, as applicable. During the three months ended March 31, 2020, the Company repaid in full the aggregate outstanding principal amount
of the 2010 Secured Notes, amounting to approximately $2.8 million, which, along with the Company’s payment of accrued interest
amounting to approximately $0.9 million, resulted in the full retirement of the 2010 Secured Notes.
Scheduled Notes Payable Maturities
Scheduled principal payments as of March 31, 2021 with respect to notes
payable are summarized as follows:
Years ending December 31,
|
|
(in thousands)
|
|
2025
|
|
$
|
25,097
|
|
Total scheduled principal payments
|
|
|
25,097
|
|
Less: Unamortized financing costs and discount
|
|
|
(582
|
)
|
Total
|
|
$
|
24,515
|
|
ClearPoint Neuro, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The Company leases office space in Irvine, California
that houses office space and manufacturing facility under a non-cancellable operating lease. The lease term commenced on October 1, 2018
and expires in September 2023. The Company has the option to renew the lease for two additional periods of five years each. The Company
also leases office space in Solana Beach, California that houses certain management, and research and development personnel, and now serves
as its corporate headquarters. The lease term commenced on December 15, 2020, is set to expire on December 31, 2026, and is renewable
for an additional five-year period, at the Company’s option, provided that the Company’s landlord has entered into an extension
of its lease for the office space that encompasses the Company’s office space for at least five years. Both office leases are classified
as operating leases in conformity with GAAP.
The lease cost, included in general and administrative
expense, was $0.1 million and $0.03 million for the three months ended March 31, 2021 and 2020, respectively.
2021 Public Offering
On February 23, 2021, the Company completed a public
offering of 2,127,660 shares of its common stock, composed of 1,850,140 shares of common stock initially offered at a public offering
price of $23.50 per share and an additional 277,520 shares of common stock sold pursuant to the exercise of the underwriters’ option
to purchase additional shares at the price of $22.09 per share.
Net proceeds from the offering totaled approximately
$46.8 million after deducting underwriting discounts and commissions, and other offering expenses paid by the Company.
The underwriting agreement contains representations,
warranties, agreements and indemnification obligations by the Company that are customary for this type of transaction.
Issuance of Common Stock in Lieu of Cash Payments
Under the terms of the Amended and Restated Non-Employee
Director Compensation Plan, each compensated non-employee member of the Company’s Board of Directors may elect to receive all or
part of his or her director fees in shares of the Company’s common stock. Director fees, whether paid in cash or in shares of common
stock, are payable quarterly on the last day of each fiscal quarter. The number of shares of common stock issued to directors is determined
by dividing the product of: (i)(a) the fees otherwise payable to each director in cash, times (b) the percentage of fees the director
elected to receive in shares of common stock, by (ii) the volume weighted average price per share of common stock over the last five trading
days of the quarter. During the three months ended March 31, 2021 and 2020, 2,009 shares and 9,731 shares, respectively, were issued to
directors as payment for director fees amounting to $0.04 million in each of the three-month periods ended March 31, 2021 and 2020.
Stock Incentive Plans
The Company has various share-based compensation
plans and share-based compensatory contracts (collectively, the “Plans”) under which it has granted share-based awards, such
as stock grants, and incentive and non-qualified stock options, to employees, directors, consultants and advisors. Awards may be subject
to a vesting schedule as set forth in individual award agreements. Certain of the Plans also have provided for cash-based performance
bonus awards.
From October 2017 until June 2020, the Company
granted share-based awards under the Company’s Second Amended and Restated 2013 Incentive Compensation Plan (the “Second
Amended Plan”). On June 2, 2020, the Company’s stockholders approved the Company’s Third Amended and Restated 2013
Incentive Compensation Plan (the “Third Amended Plan” and, together with the Second Amended Plan, the “2013 Plan”),
under which 1.0 million shares of the Company’s common stock were made available for future issuances under the 2013 Plan, resulting
in a total of 2,956,250 shares of the Company’s common stock being reserved for issuance under the 2013 Plan. Of this amount, stock
grants of 681,192 shares have been awarded and option grants, net of options terminated, expired or forfeited, of 1,269,947
shares were outstanding as of March 31, 2021. Accordingly, 1,005,111 shares remained available for grants under the 2013 Plan
as of that date.
ClearPoint Neuro, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Stock option activity under all of the Company’s
Plans during the three months ended March 31, 2021 is summarized below:
|
|
Shares
|
|
|
Weighted-
average
Exercise
price per
share
|
|
|
Intrinsic
Value(1)
(in thousands)
|
|
Outstanding at January 1, 2021
|
|
|
1,806,092
|
|
|
$
|
7.12
|
|
|
$
|
20,760
|
|
Exercised
|
|
|
(416,900
|
)
|
|
|
2.60
|
|
|
|
|
|
Outstanding at March 31, 2021
|
|
|
1,389,192
|
|
|
$
|
8.46
|
|
|
$
|
21,516
|
|
|
(1)
|
Intrinsic value is calculated as the estimated fair value of the Company’s stock at the end of the related period less the option exercise price of in-the-money options.
|
As of March 31, 2021, there was unrecognized compensation expense of
approximately $1.8 million related to outstanding stock options and shares of restricted stock, which is expected to be recognized
over a weighted average period of 2.16 years.
Warrants
Warrants have generally been issued in connection with financing transactions
and for terms of up to five years. Common stock warrant activity for the three months ended March 31, 2021 was as follows:
|
|
Shares
|
|
|
Weighted-
average
Exercise
price per
share
|
|
|
Intrinsic
Value(1)
(in thousands)
|
|
Outstanding at January 1, 2021
|
|
|
3,082,987
|
|
|
$
|
3.82
|
|
|
$
|
37,379
|
|
Exercised
|
|
|
(1,150,647
|
)
|
|
|
2.31
|
|
|
|
|
|
Outstanding at March 31, 2021
|
|
|
1,932,340
|
|
|
$
|
4.72
|
|
|
$
|
31,778
|
|
|
(1)
|
Intrinsic value is calculated as the estimated fair value of the Company’s stock at the end of the related period less the option exercise price of in-the-money options.
|