# ClearPoint Neuro, Inc.: Form 10-Q for the period ended Jun 30, 2023

- Company: [ClearPoint Neuro, Inc.](/companies/clpt.md) (CIK 1285550)
- Form: 10-Q
- Filed: 2023-08-08
- Accepted by EDGAR: Aug 8, 2023, 17:25 ET
- Period: 2023-06-30
- Accession: 0001285550-23-000097
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1285550/000128555023000097/clpt-20230630.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1285550/000128555023000097/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-04-01 to 2023-06-30 | $6.0m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 6 months, 2023-01-01 to 2023-06-30 | $11.4m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-04-01 to 2023-06-30 | $2.8m | us-gaap:CostOfRevenue |
| Cost of revenue | 6 months, 2023-01-01 to 2023-06-30 | $5.1m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2023-04-01 to 2023-06-30 | $3.1m | us-gaap:GrossProfit |
| Gross profit | 6 months, 2023-01-01 to 2023-06-30 | $6.3m | us-gaap:GrossProfit |
| Research and development | 3 months, 2023-04-01 to 2023-06-30 | $3.6m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 6 months, 2023-01-01 to 2023-06-30 | $6.6m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2023-04-01 to 2023-06-30 | $3.2m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 6 months, 2023-01-01 to 2023-06-30 | $6.1m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-04-01 to 2023-06-30 | −$7.1m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2023-01-01 to 2023-06-30 | −$12.8m | us-gaap:OperatingIncomeLoss |
| Net income | 3 months, 2023-04-01 to 2023-06-30 | −$7.1m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2023-01-01 to 2023-06-30 | −$12.7m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-04-01 to 2023-06-30 | −$0.29 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2023-01-01 to 2023-06-30 | −$0.52 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-04-01 to 2023-06-30 | −$0.29 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2023-01-01 to 2023-06-30 | −$0.52 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-04-01 to 2023-06-30 | 24,583,712 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2023-01-01 to 2023-06-30 | 24,583,439 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2023-01-01 to 2023-06-30 | −$10.8m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2023-01-01 to 2023-06-30 | $461.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2023-06-30 | $26.5m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-06-30 | $40.7m | us-gaap:AssetsCurrent |
| Total assets | at 2023-06-30 | $47.6m | us-gaap:Assets |
| Current liabilities | at 2023-06-30 | $6.2m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-06-30 | $20.2m | us-gaap:Liabilities |
| Long-term debt | at 2023-06-30 | $9.9m | us-gaap:LongTermDebt |
| Shareholders' equity | at 2023-06-30 | $27.4m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 28,798 characters.

*The following discussion and analysis of our financial condition and results of operations should be read together with our unaudited Condensed Consolidated Financial Statements and the related notes thereto appearing in Part I, Item 1 of this Quarterly Report. This discussion and analysis contains forward-looking statements that are based upon current expectations and involve risks, assumptions and uncertainties. You should review the section titled “Risk Factors” appearing in our 2022 Form 10-K and in Part II, Item 1.A of this Quarterly Report for a discussion of important risk factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements described in the following discussion and analysis. In addition, 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 commercial-stage medical device company that develops and commercializes innovative platforms for performing minimally invasive surgical procedures in the brain. We have deployed significant resources to fund our efforts to develop the foundational capabilities for enabling MRI-guided interventions, building an intellectual property portfolio, and identifying and building out commercial applications for the technologies developed by our company. Beginning in 2021, our efforts have expanded beyond the MRI suite to encompass development and commercialization of new neurosurgical device products for the operating room, as well as clinical and pre-clinical consulting services for pharmaceutical and biotech companies, academic institutions, and contract research organizations.

Since 2020, we have evolved to become a company comprised of two parts. The first foundational part is a medical device company providing medical devices for neurosurgery applications. The second part is focused on partnerships in the drug and delivery space. Currently, we have more than 50 partners who are pharmaceutical/biotech companies, academic institutions, and contract research organizations, who are evaluating or using our products and services in trials (or in a preclinical setting) to inject gene and cell therapies directly into the brain.

In 2022, we commenced the limited market commercialization of the ClearPoint Prism Neuro Laser Therapy System. The laser system was developed by CLS, and is indicated for use to necrotize or coagulate soft tissue through interstitial irradiation or thermal therapy under 3.0T magnetic resonance imaging ("MRI") guidance. We have exclusive global rights to commercialize the CLS magnetic resonance ("MR") guided laser interstitial thermal therapy ("MRgLITT") system for neuro applications.

Substantially all our product revenue for the three and six months ended June 30, 2023 and 2022 relates to sales of our ClearPoint system products and related services. We have financed our operations and internal growth primarily through the sale of equity securities and the issuance of convertible and other secured notes. We have incurred significant losses since our inception in 1998 as we have devoted substantial efforts to research and development. As of June 30, 2023, we had accumulated losses of $163.0 million. We may continue to incur operating losses as we expand our ClearPoint system platform and 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.

### Macroeconomic Trends

We continue to monitor the impact of various macroeconomic trends, such as global economic and supply chain disruptions, geopolitical instability, labor shortages, instability of financial institutions and inflationary conditions. Changes in domestic and global economic conditions, supply chain disruptions, labor shortages, as well as other stimulus and spending programs, have led to higher inflation, which is likely to lead to increased costs and may cause further changes in fiscal and monetary policy. Impacts from inflationary pressures, such an increasing costs for research and development of our products, administrative and other costs of doing business, the potential for instability of the financial institutions where we maintain our deposits or other assets, and our availability to access capital markets and other sources of funding in the future could adversely affect our business, financial condition and results of operations. Additionally, these trends could adversely affect our customers, which could impact their willingness to spend on our products and services, or their ability to make payment, which could harm the Company's collection of accounts receivable and financial results. The rapid development and fluidity of these situations precludes any prediction as to the ultimate impact they will have on our business, financial condition, results of operation and cash flows, which will depend largely on future developments.

### Revenue

In 2010, we received 510(k) clearance from the FDA to market our ClearPoint system in the U.S. for general neurosurgery procedures; in February 2011 and May 2018, we also obtained CE marking for our ClearPoint system and SmartFlow cannula, respectively; and in June 2020 we obtained CE marking for version 2.0 of our ClearPoint software and our Inflexion head fixation frame. In January 2021, we received 510(k) clearance for the SmartFrame Array Neuro Navigation System. In September 2022 the ClearPoint Prism™ Neuro Laser Therapy System, which we have exclusive global right to commercialize, received 510(k) clearance through CLS. The Prism laser represents the first therapy product we have commercialized. Future revenue from sales of our ClearPoint platform products and services is difficult to predict and may not be sufficient to offset our continuing research and development expenses and our increasing selling, general and administrative expenses.

Generating recurring revenue from the sale of products is an important part of our business model for our ClearPoint system. Our product revenue was approximately $2.3 million and $5.0 million for the three and six months ended June 30, 2023, respectively, and was almost entirely related to our ClearPoint system. Our service revenue was approximately $3.6 million and $6.4 million for the three and six months ended June 30, 2023, respectively, of which 84% and 80%, respectively, is related to the biologics and drug delivery service line.

Our revenue recognition policies are more fully described in Note 2 to the Condensed Consolidated Financial Statements included above in Part I, Item 1 in this Quarterly Report.

Underlying the revenue from sales of products and services to our biologics and drug delivery customers is the number of direct customers and end users of our products and/or services (“Partners”). Our Partners consist of pharmaceutical and biotech companies, academic institutions, or customer-sponsored contract research organizations that are developing methods to deliver a wide variety of molecules, genes or proteins to targeted brain tissue or structures that would need to bypass the blood-brain barrier for the treatment of a variety of disorders. This is a novel area in which commercialization must be preceded by FDA-mandated clinical trials, which are expensive and time consuming to conduct, and for which the commercial success is uncertain, pending, in part, on the outcome of those trials. While our revenue from sales of products and services to our biologics and drug delivery customers is indicative of growth, the number of Partner relationships is also of importance as we recognize the possibility that some Partners’ research will reach commercial success, and others may not. To the extent our Partners achieve commercial success, our expectation is that we will share in such success through our Partners’ use of our products and services in their delivery of therapies. At June 30, 2023, we had more than 50 Partners, as compared with approximately 45 Partners as of the same date in 2022.

### Cost of Revenue

Cost of revenue includes the direct costs associated with the assembly and purchase of components for functional neurosurgery navigation products, biologics and drug delivery products, non-neurosurgery therapy products, and ClearPoint capital equipment and software that we have sold, and for which we have recognized the revenue in accordance with our revenue recognition policy, as well as labor hours and materials for the cost of providing pre-clinical, consulting, and service revenue. Cost of revenue also includes the allocation of manufacturing overhead costs and depreciation of loaned systems installed under our ClearPoint placement program, as well as provisions for 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 enhancements. Such costs include salaries, travel, and benefits for research and development personnel; materials and laboratory supplies in research and development activities; outside consultant costs; and licensing costs related to technology not yet commercialized. We anticipate that, over time, our research and development costs may increase as we: (i) continue to develop enhancements to our ClearPoint system and SmartFlow cannula; and (ii) seek to expand the application of our technological platforms. From our inception through June 30, 2023, we have incurred approximately $88 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 our efforts to expand the application of our technological platforms.

### Sales and Marketing, and General and Administrative Expenses

Our sales and marketing, and general and administrative expenses consist primarily of salaries, incentive-based compensation, travel and benefits, including share-based compensation; marketing costs; professional fees, including fees for outside attorneys and accountants; occupancy costs; insurance; and other general and administrative expenses, which include, but are not limited to, corporate licenses, director fees, hiring costs, taxes, postage, office supplies, information technology and meeting costs. Our sales and marketing expenses are expected to continue to increase due to costs associated with the continued commercialization of our ClearPoint system and the increased headcount necessary to support growth in operations.

### Critical Accounting Policies and Estimates

There have been no significant changes in our critical accounting policies and estimates during the six months ended June 30, 2023, as compared to the critical accounting policies and estimates described in our 2022 Form 10-K.

### Results of Operations

### Three Months Ended June 30, 2023, Compared to the Three Months Ended June 30, 2022

*(Dollars in thousands)*

|  | Three Months Ended June 30, 2023 | 2022 | Percentage Change |
| --- | ---: | ---: | ---: |
| Product revenue | $2,337 | $3,457 | (32)% |
| Service and other revenue | 3,613 | 1,743 | 107% |
| Total revenue | 5,950 | 5,200 | 14% |
| Cost of revenue | 2,824 | 1,945 | 45% |
| Gross profit | 3,126 | 3,255 | (4)% |
| Research and development costs | 3,605 | 2,411 | 50% |
| Sales and marketing expenses | 3,474 | 2,387 | 46% |
| General and administrative expenses | 3,178 | 2,661 | 19% |
| Other expense: |  |  |  |
| Other expense, net | (2) | (8) | NM% |
| Interest income (expense), net | 81 | (91) | 190% |
| Net loss | $(7,052) | $(4,303) | 64% |

NM – The percentage change is not meaningful.

*Revenue.* Total revenue was $6.0 million for the three months ended June 30, 2023, and $5.2 million for the three months ended June 30, 2022, which represents an increase of $0.8 million, or 14%.

*(Dollars in thousands)*

| Functional neurosurgery navigation and therapy | Three Months Ended June 30, 2023 | 2022 | Percentage Change |
| --- | ---: | ---: | ---: |
| Disposable products | $1,818 | $1,798 | 1% |
| Services | 383 | 375 | 2% |
| Subtotal – Functional neurosurgery navigation and therapy | 2,201 | 2,173 | 1% |
| Biologics and drug delivery |  |  |  |
| Disposable products | 346 | 1,225 | (72)% |
| Services and license fees | 3,022 | 1,183 | 155% |
| Subtotal – Biologics and drug delivery revenue | 3,368 | 2,408 | 40% |
| Capital equipment and software |  |  |  |
| Systems and software products | 173 | 434 | (60)% |
| Services | 208 | 185 | 13% |
| Subtotal – Capital equipment and software revenue | 381 | 619 | (38)% |
| Total revenue | $5,950 | $5,200 | 14% |

Functional neurosurgery navigation and therapy revenue, which primarily consists of disposable product commercial sales related to cases utilizing the ClearPoint system, remained relatively consistent at $2.2 million for the three months ended June 30, 2023 and 2022.

Biologics and drug delivery revenue, which includes sales of disposable products and services related to customer-sponsored pre-clinical and clinical trials, increased 40% to $3.4 million for the three months ended June 30, 2023, from $2.4 million for the same period in 2022. This increase is attributable to a $1.8 million increase in service revenue related to new pre-clinical trials and consulting agreements entered into with our Partners during the three months ended June 30, 2023, compared to the same period in 2022, partially offset by a $0.9 million decrease in product revenue.

Capital equipment and software revenue, consisting of sales of ClearPoint reusable hardware and software and related services, decreased 38% to $0.4 million for the three months ended June 30, 2023, from $0.6 million for the same period in 2022 due primarily to a decrease in the placements of ClearPoint capital and software.

*Cost of Revenue and Gross Profit.* Cost of revenue was $2.8 million, resulting in gross profit of $3.1 million and gross margin of 53%, for the three months ended June 30, 2023, and was $1.9 million, resulting in gross profit of $3.3 million and representing a gross margin of 63%, for the three months ended June 30, 2022. The decrease in gross margin was primarily due to an increase in biologics and drug delivery pre-clinical services, which, to date, have had a lower margin than product sales as we launch new services and increase our presence in this space. Increased costs related to the transition to the new manufacturing facility also contributed to the decrease in gross margin.

*Research and Development Costs.* Research and development costs were $3.6 million for the three months ended June 30, 2023, compared to $2.4 million for the same period in 2022, an increase of $1.2 million, or 50%. The increase was due primarily to increases in personnel costs, including share-based compensation, of $0.8 million and increases in product development costs of $0.4 million.

*Sales and Marketing Expenses.* Sales and marketing expenses were $3.5 million for the three months ended June 30, 2023, compared to $2.4 million for the same period in 2022, an increase of $1.1 million, or 46%. This increase was due primarily to additional personnel costs, including share-based compensation, resulting from increases in headcount.

*General and Administrative Expenses*. General and administrative expenses were $3.2 million for the three months ended June 30, 2023, compared to $2.7 million for the same period in 2022, an increase of $0.5 million, or 19%. This increase was due primarily to increases in share-based compensation of $0.2 million, an increase in the allowance for credit losses of $0.2 million, and an increase of $0.1 million for professional fees.

*Interest Income (Expense).* Net interest income for the three months ended June 30, 2023 was $0.1 million, compared to $0.1 million net interest expense for the same period in 2022. The increase in interest income was due to higher interest rates and the Company's investment in U.S. Government debt securities, offset partially by the higher amount of interest paid on the 2020 Secured Convertible Note during the three months ended June 30, 2023, relative to the same period in 2022. See Note 6 to the Condensed Consolidated Financial Statements included above in Part 1, Item 1 in this Quarterly Report for additional information with respect to the 2020 secured notes.

### Six Months Ended June 30, 2023, Compared to the Six Months Ended June 30, 2022

*(Dollars in thousands)*

|  | Six Months Ended June 30, 2023 | 2022 | Percentage Change |
| --- | ---: | ---: | ---: |
| Product revenue | $4,967 | $6,620 | (25)% |
| Service and other revenue | 6,416 | 3,611 | 78% |
| Total revenue | 11,383 | 10,231 | 11% |
| Cost of revenue | 5,055 | 3,746 | 35% |
| Gross profit | 6,328 | 6,485 | (2)% |
| Research and development costs | 6,628 | 5,312 | 25% |
| Sales and marketing expenses | 6,407 | 4,404 | 45% |
| General and administrative expenses | 6,136 | 4,837 | 27% |
| Other expense: |  |  |  |
| Other (expense) income, net | (13) | 3 | NM% |
| Interest income (expense), net | 195 | (197) | 199% |
| Net loss | $(12,661) | $(8,262) | 53% |

NM – The percentage change is not meaningful.

*Revenue.* Total revenue was $11.4 million for the six months ended June 30, 2023, and $10.2 million for the six months ended June 30, 2022, which represents an increase of $1.2 million, or 11%.

*(Dollars in thousands)*

| Functional neurosurgery navigation and therapy | Six Months Ended June 30, 2023 | 2022 | Percentage Change |
| --- | ---: | ---: | ---: |
| Disposable products | $3,676 | $3,661 | —% |
| Services | 886 | 750 | 18% |
| Subtotal – Functional neurosurgery navigation and therapy | 4,562 | 4,411 | 3% |
| Biologics and drug delivery |  |  |  |
| Disposable products | 940 | 2,075 | (55)% |
| Services and license fees | 5,104 | 2,487 | 105% |
| Subtotal – Biologics and drug delivery revenue | 6,044 | 4,562 | 32% |
| Capital equipment and software |  |  |  |
| Systems and software products | 351 | 884 | (60)% |
| Services | 426 | 374 | 14% |
| Subtotal – Capital equipment and software revenue | 777 | 1,258 | (38)% |
| Total revenue | $11,383 | $10,231 | 11% |

Functional neurosurgery navigation and therapy revenue, which primarily consists of disposable product commercial sales related to cases utilizing the ClearPoint system, increased 3% to $4.6 million for the six months ended June 30, 2023, from $4.4 million for the same period in 2022. This increase reflects additional $0.1 million in service revenue related to new pre-clinical services for brain computer interface during the six months ended June 30, 2023, compared to the same period in 2022.

Biologics and drug delivery revenue, which includes sales of disposable products and services related to customer-sponsored pre-clinical and clinical trials, increased 32% to $6.0 million for the six months ended June 30, 2023, from $4.6 million for the same period in 2022. This increase is attributable to a $2.6 million increase in service revenue related to new pre-clinical trials entered into with our partners and the recognition of license fees during the six months ended June 30, 2023, compared to the same period in 2022, partially offset by a $1.1 million decrease in product revenue.

Capital equipment and software revenue, consisting of sales of ClearPoint reusable hardware and software and related services, decreased 38% to $0.8 million for the six months ended June 30, 2023, from $1.3 million for the same period in 2022 due primarily to a decrease in the placements of ClearPoint capital and software.

*Cost of Revenue and Gross Profit.* Cost of revenue was $5.1 million, resulting in gross profit of $6.3 million and gross margin of 56%, for the six months ended June 30, 2023, and was $3.7 million, resulting in gross profit of $6.5 million and representing a gross margin of 63%, for the six months ended June 30, 2022. The decrease in gross margin was primarily due to an increase in biologics and drug delivery pre-clinical services, which, to date, have had a lower margin than product sales as we launch new services and increase our presence in this space. Increased costs related to the transition to the new manufacturing facility also contributed to the decrease in gross margin.

*Research and Development Costs.* Research and development costs were $6.6 million for the six months ended June 30, 2023, compared to $5.3 million for the same period in 2022, an increase of $1.3 million, or 25%. The increase was due primarily to increases in personnel costs, including share-based compensation, of $1.1 million, and increases in product and software development costs of $0.2 million.

*Sales and Marketing Expenses.* Sales and marketing expenses were $6.4 million for the six months ended June 30, 2023, compared to $4.4 million for the same period in 2022, an increase of $2.0 million, or 45%. This increase was due primarily to additional personnel costs, including share-based compensation, resulting from increases in headcount of $1.9 million.

*General and Administrative Expenses*. General and administrative expenses were $6.1 million for the six months ended June 30, 2023, compared to $4.8 million for the same period in 2022, an increase of $1.3 million, or 27%. This increase was due primarily to increases in personnel costs, including share-based compensation of $0.6 million, an increase in the allowance for credit losses of $0.5 million, and increases in professional fees of $0.1 million.

*Interest Income (Expense).* Net interest income for the six months ended June 30, 2023 was $0.2 million, compared to $0.2 million net interest expense for the same period in 2022. The increase in interest income was due to higher interest rates and the Company's investment in U.S. Government debt securities, offset partially by the higher amount of interest paid on the 2020 Secured Convertible Note, during the six months ended June 30, 2023, relative to the same period in 2022. See Note 6 to the Condensed Consolidated Financial Statements included above in Part 1, Item 1 in this Quarterly Report for additional information with respect to the 2020 secured notes.

### Liquidity and Capital Resources

We have incurred net losses since our inception, which has resulted in a cumulative deficit at June 30, 2023 of $163.0 million. In addition, our use of cash from operations amounted to $10.8 million for the six months ended June 30, 2023, and $16.2 million for the year ended December 31, 2022.

Since inception, we have financed our operations principally from the sale of equity securities and the issuance of notes payable. In 2020, we issued secured convertible notes to two investors which raised gross proceeds of $25 million, of which $15 million has been converted to common stock and $10 million remains outstanding.

See Note 6 to the Condensed Consolidated Financial Statements included above in Part 1, Item 1 in this Quarterly Report for additional information with respect to the 2020 secured notes.

In February 2021, we completed a public offering of 2,127,660 shares of our common stock from which the net proceeds totaled approximately $46.8 million after deducting underwriting discounts and commissions, and other offering expenses paid by us.

As a result of these transactions and our business operations, our cash and cash equivalents totaled $26.5 million at June 30, 2023. In management’s opinion, based on our current forecasts for revenue, expense and cash flows, our existing cash and cash equivalent balances at June 30, 2023, are sufficient to support our operations and meet our obligations for at least the next twelve months.

### Cash Flows

Cash activity for the six months ended June 30, 2023 and 2022 is summarized as follows:

*(in thousands)*

|  | Six months ended June 30, 2023 | 2022 |
| --- | ---: | ---: |
| Cash used in operating activities | (10,755) | $(9,250) |
| Cash provided by (used in) investing activities | 9,372 | (21,851) |
| Cash provided by financing activities | 232 | 516 |
| Net change in cash and cash equivalents | $(1,151) | $(30,585) |

*Net Cash Flows from Operating Activities.* Net cash flows used in operating activities for the six months ended June 30, 2023, were $10.8 million, an increase of $1.5 million from the six months ended June 30, 2022. This increase consisted of an increase in net loss of $4.4 million, partially offset by a net decrease in operating assets and liabilities of $1.2 million and a net increase in non-cash items of $1.7 million. The change in operating assets and liabilities is primarily due to lower inventory purchases after a ramping up of inventory stock in response to supply chain disruptions over the past year, partially offset by increased use of cash to pay down accounts payables and accrued expenses. The change in the non-cash items results primarily from increases in share-based compensation and allowance for credit losses.

*Net Cash Flows from Investing Activities.* Net cash flows provided by investing activities for the six months ended June 30, 2023, were $9.4 million and consisted of proceeds from the maturities of short-term investments, partially offset primarily by equipment acquisitions related to our new manufacturing site in Carlsbad, California.

Net cash flows used in investing activities for the six months ended June 30, 2022, were $21.9 million and consisted primarily of the purchase of short-term investments as well as equipment acquisitions and licensing rights.

*Net Cash Flows from Financing Activities.* Net cash flows provided by financing activities for the six months ended June 30, 2023, consisted of proceeds from the issuance of common stock under the employee stock purchase plan, partially offset by payments for taxes related to shares withheld in connection with the vesting of restricted stock awards.

Net cash flows from financing activities for the six months ended June 30, 2022, consisted of the proceeds from the exercise of common stock options and warrants and the sale of common stock under the employee stock purchase plan.

### Operating Capital and Capital Expenditure Requirements

To date, we have not achieved profitability. We could continue to incur net losses as we continue our efforts to expand the commercialization of our ClearPoint system products and pursue additional applications for our technology platforms. Our cash balances are primarily held in a variety of demand accounts 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 continue to commercialize our ClearPoint system products and pursue additional applications for our technology platforms. Our future capital requirements will depend on many factors, including, but not limited to, the following:

- the ultimate duration and impact of macroeconomic trends, including inflationary pressures, supply chain disruptions, geopolitical instability, and instability of financial institutions;
- the timing of broader market acceptance and adoption of our products;
- the scope, rate of progress and cost of our ongoing product development activities relating to our products;
- the ability of our Partners to achieve commercial success, including their use of our products and services in their pre-clinical studies, clinical trials and delivery of therapies;
- 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 cost of pursuing additional applications of our technology platforms under current collaborative arrangements, and 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.

## Market risk

As filed, 2,413 characters.

### Interest Rate Risk

Our exposure to market risk is limited primarily to interest income and expense sensitivity, which is affected by changes in the general level of U.S. interest rates.

Our investments are in short-term bank deposits, short-term U.S. Government debt securities, and institutional money market funds. The primary objective of our investment activities is to preserve principal while at the same time maximizing income we receive without significantly increasing risk. In the event we invest in short-term investments, due to the nature of our short-term investments and the Company's intent to hold such debt securities to maturity, we believe that we are not subject to any material market risk exposure.

At June 30, 2023, we had $10 million of principal outstanding under the Outstanding First Closing Note, which is subject to interest rate fluctuations. Prior to July 1, 2023, the Outstanding First Closing Note bore interest at a rate equal to the sum of (i) the greater of (a) the three (3)-month LIBOR and (b) two percent (2%), plus (ii) a margin of 2% on the outstanding balance of the Outstanding First Closing Note. At June 30, 2023, the three-month LIBOR was greater than the 2% floor as a result of rising interest rates, and the rate paid on the Outstanding First Closing Note was 7.5%. Effective July 1, 2023, the reference to LIBOR was replaced by an interest rate benchmark based on the SOFR. If interest rates continue to increase, a one-percent to two-percent increase would result in additional annual interest expense of $0.5 million to $0.6 million above the floor, respectively. Information with respect to the Outstanding First Closing Note may be found in Note 6 to the Condensed Consolidated Financial Statements included above in Part 1, Item 1 in this Quarterly Report.

### Foreign Currency Risk

To date, we have not recorded a significant amount of sales in currencies other than U.S. dollars, and have only limited business transactions in foreign currencies. We do not currently engage in hedging or similar transactions to reduce our foreign currency risks, which at present, are not material. We do not believe we have material exposure to risk from changes in foreign currency exchange rates at this time. We will continue to monitor and evaluate our internal processes relating to foreign currency exchange, including the potential use of hedging strategies.

## Controls and procedures

As filed, 1,794 characters.

### Disclosure Controls and Procedures

We have established disclosure controls and procedures, as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”). Our disclosure controls and procedures are designed to ensure that material information relating to us is made known to our principal executive officer and principal financial officer by others within our organization. Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of June 30, 2023 to ensure that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of June 30, 2023.

### Changes in Internal Control Over Financial Reporting

During the quarter ended June 30, 2023, there were no changes in our internal control over financial reporting that materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 1,801 characters.

There have been no material changes to the risk factors disclosed in our 2022 Form 10-K, except as set forth below:

**We currently, and may in the future, have assets held at financial institutions that may exceed the insurance coverage offered by the Federal Deposit Insurance Corporation ("FDIC"), and the loss of such assets could have a negative effect on our operations and liquidity.**

On March 10, 2023, Silicon Valley Bank ("SVB") was closed by the California Department of Financial Protection and Innovation, which appointed the FDIC as receiver. On March 12, 2023, Signature Bank and Silvergate Capital Corp. were each swept into receivership. Similarly, on May 1, 2023, First Republic Bank was swept into receivership. A statement by the Department of the Treasury, the Federal Reserve and the FDIC stated that all depositors of SVB would have access to all of their money after only one business day of closure, including funds held in uninsured deposit accounts. Although we do not have any funds deposited with SVB, Signature Bank, Silvergate Capital Corp., or First Republic Bank, we currently have our cash and cash equivalents held in deposit in accounts at certain FDIC-insured financial institutions, some of which include amounts in excess of the insurance coverage offered by the FDIC. In the future, we may maintain our cash assets at financial institutions in the United States in amounts that may be in excess of the FDIC insurance limit of $250,000. In the event of a failure of any of these financial institutions where we maintain our deposits or other assets, we may incur a loss to the extent such deposits or assets exceeds the FDIC insurance limitation, which could have a material adverse effect upon our liquidity, financial condition and our results of operations.

Filed Aug 8, 2023.
Source: SEC EDGAR, the filing index for accession 0001285550-23-000097. Last ingested by Listed: Nov 3, 2026, 22:15 ET. No prices; not investment advice.