clpt-20220930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


þ			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

			For the quarterly period ended September 30, 2022

Or

o			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

			For the transition period from_____to _____

Commission file number: 001-34822

ClearPoint Neuro, Inc.

(Exact Name of Registrant as Specified in Its Charter)


Delaware			58-2394628
(State or Other Jurisdiction			(IRS Employer
of Incorporation or Organization)			Identification Number)


120 S. Sierra Ave., Suite 100
Solana Beach, California			92075
(Address of Principal Executive Offices)			(Zip Code)

(888) 287-9109

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value per share	CLPT	Nasdaq Capital Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes o No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files.) þ Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer o			Accelerated filer ☐
Non-accelerated filer þ			Smaller reporting company þ
			Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes þ No

As of November 3, 2022, there were 24,554,557 shares of common stock outstanding.

CLEARPOINT NEURO, INC.

TABLE OF CONTENTS


		Page Number
PART I – FINANCIAL INFORMATION		1

Item 1.	Financial Statements (unaudited)	1
	Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021	1
	Condensed Consolidated Statements of Operations for the three months ended September 30, 2022 and 2021	2
	Condensed Consolidated Statements of Operations for the nine months ended September 30, 2022 and 2021	2
	Condensed Consolidated Statements of Stockholders’ Equity for the nine months ended September 30, 2022 and 2021	3
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021	5
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27
Item 4.	Controls and Procedures	27

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	28
Item 1A.	Risk Factors	28
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28
Item 3.	Defaults Upon Senior Securities	28
Item 4.	Mine Safety Disclosures	28
Item 5.	Other Information	28
Item 6.	Exhibits	29

SIGNATURES		31

Trademarks, Trade Names and Service Marks

ClearPoint Neuro®, ClearPoint®, ClearTrace®, SmartFlow®, SmartFrame®, SmartGrid®, Inflexion™, SmartTwist™, SmartTip™, ClearPoint Pursuit®, ClearPoint Maestro™, ClearPoint Revolution™, SmartFrame Array™, ClearPoint Orchestra™, ClearPoint Prism™, When Your Path is Unclear, We Point The Way™ , and MRI Interventions® are all trademarks of ClearPoint Neuro, Inc. Any other trademarks, trade names or service marks referred to in this Quarterly Report on Form 10-Q (this “Quarterly Report”) are the property of their respective owners.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report contains “forward-looking statements” as defined under the United States federal securities laws. The forward-looking statements are contained principally in the section of this Quarterly Report entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and relate to expectations for revenues and costs, and the adequacy of the Company's cash and cash equivalent balances and short-term investments to support the Company's operations and meet its obligations for at least the next twelve months.

These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements, expressed or implied by the forward-looking statements.

In some cases, you can identify forward-looking statements by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would,” and similar expressions intended to identify forward-looking statements, although not all forward-looking statements contain these words. Although we believe that we have a reasonable basis for each forward-looking statement contained in this Quarterly Report, we caution you that these statements are based on a combination of facts and factors currently known by us and our projections of the future, about which we cannot be certain.

In evaluating forward-looking statements, you should refer to (i) the section titled “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, which we filed with the United States Securities and Exchange Commission (“SEC”) on March 9, 2022 (the “2021 Form 10-K”), (ii) Item 2 of this Quarterly Report, under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Factors Which May Influence Future Results of Operations" and (iii) Part II, Item 1.A of this Quarterly Report. Due to the nature of these risk factors, we cannot assure you that the forward-looking statements in this Quarterly Report will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all. We do not undertake to update any of the forward-looking statements after the date of this Quarterly Report, except to the extent required by applicable securities laws.

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CLEARPOINT NEURO, INC.

Condensed Consolidated Balance Sheets

(Dollars in thousands, except for per share data)


	September 30, 2022		December 31, 2021
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	18,712	$	54,109
Short-term investments	21,749		—
Accounts receivable, net	3,411		2,337
Inventory, net	8,284		4,938
Prepaid expenses and other current assets	1,658		508
Total current assets	53,814		61,892
Property and equipment, net	629		539
Operating lease rights of use	1,866		2,241
Software license inventory	485		519
Licensing rights	850		265
Other assets	94		125
Total assets	$	57,738	$	65,581

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,387	$	427
Accrued compensation	2,187		2,604
Other accrued liabilities	1,249		537
Operating lease liabilities, current portion	537		507
Deferred product and service revenue, current portion	735		678
Total current liabilities	6,095		4,753
Operating lease liabilities, net of current portion	1,535		1,939
Deferred product and service revenue, net of current portion	351		264
2020 senior secured convertible note payable, net	9,879		9,838
Total liabilities	17,860		16,794
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.01 par value; 25,000,000 shares authorized; none issued and outstanding at September 30, 2022 and December 31, 2021	—		—
Common stock, $0.01 par value; 200,000,000 shares authorized; 24,500,832 shares issued and outstanding at September 30, 2022; and 23,665,991 issued and outstanding at December 31, 2021	245		237
Additional paid-in capital	185,615		182,482
Accumulated deficit	(145,982)		(133,932)
Total stockholders’ equity	39,878		48,787
Total liabilities and stockholders’ equity	$	57,738	$	65,581

See accompanying notes to Condensed Consolidated Financial Statements.

CLEARPOINT NEURO, INC.

Condensed Consolidated Statements of Operations

(Unaudited)

(Dollars in thousands, except for per share data)


	For The Three Months Ended September 30,
	2022		2021
Revenue:
Product revenue	$	3,130	$	3,338
Service and other revenue	2,016		1,236
Total revenue	5,146		4,574
Cost of revenue	1,434		1,533
Gross profit	3,712		3,041
Research and development costs	2,453		2,601
Sales and marketing expenses	2,139		1,808
General and administrative expenses	2,915		2,436
Operating loss	(3,795)		(3,804)
Other expense:
Other (expense) income, net	(25)		62
Interest income (expense), net	32		(238)
Net loss	$	(3,788)	$	(3,980)
Net loss per share attributable to common stockholders:
Basic and diluted	$	(0.15)	$	(0.18)
Weighted average shares used in computing net loss per share:
Basic and diluted	24,497,636		22,522,460


	For The Nine Months Ended September 30,
	2022		2021
Revenue:
Product revenue	$	9,750	$	8,863
Service and other revenue	5,627		3,154
Total revenue	15,377		12,017
Cost of revenue	5,162		4,078
Gross profit	10,215		7,939
Research and development costs	7,270		6,208
Sales and marketing expenses	6,171		5,061
General and administrative expenses	8,637		6,062
Operating loss	(11,863)		(9,392)
Other expense:
Other expense, net	(22)		(60)
Interest expense, net	(165)		(809)
Net loss	$	(12,050)	$	(10,261)
Net loss per share attributable to common stockholders:
Basic and diluted	$	(0.50)	$	(0.50)
Weighted average shares used in computing net loss per share:
Basic and diluted	24,058,205		20,545,080

See accompanying notes to Condensed Consolidated Financial Statements.

CLEARPOINT NEURO, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

(Dollars in thousands)


For The Nine Months Ended September 30, 2022
	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Total
	Shares	Amount
Balances, January 1, 2022	23,665,991	$	237	$	182,482	$	(133,932)	$	48,787
Issuances of common stock:
Share-based compensation	29,916	—		899		—		899
Warrant and option exercises (cash and cashless)	12,211	—		3		—		3
Net loss for the period	—	—		—		(3,959)		(3,959)
Balances, March 31, 2022	23,708,118	$	237	$	183,384	$	(137,891)	$	45,730
Issuances of common stock:
Share-based compensation	379,122	4		876		—		880
Warrant exercises (cash and cashless)	367,006	4		249		—		253
Issuance of common stock under employee stock purchase plan	26,354	—		260		—		260
Net loss for the period	—	—		—		(4,303)		(4,303)
Balances, June 30, 2022	24,480,600	$	245	$	184,769	$	(142,194)	$	42,820
Issuances of common stock:
Share-based compensation	20,738	—		1,175		—		1,175
Option exercises (cash and cashless)	23,763	—		7		—		7
Payments for taxes related to net share settlement of equity awards	(24,269)	—		(336)		—		(336)
Net loss for the period	—	—		—		(3,788)		(3,788)
Balances, September 30, 2022	24,500,832	$	245	$	185,615	$	(145,982)	$	39,878


For The Nine Months Ended September 30, 2021
	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Total
	Shares	Amount
Balances, January 1, 2021	17,047,584	$	170	$	121,729	$	(119,522)	$	2,377
Adoption of ASU 2020-06	—	—		(3,107)		—		(3,107)
Issuances of common stock:
Public offering of common stock	2,127,660	21		46,764		—		46,785
Share-based compensation	20,709	1		319		—		320
Warrant and option exercises (cash and cashless)	1,482,327	15		130		—		145
Net loss for the period	—	—		—		(2,538)		(2,538)
Balances, March 31, 2021	20,678,280	$	207	$	165,835	$	(122,060)	$	43,982
Conversion of 2020 senior secured convertible note	1,256,143	13		7,118		—		7,131
Issuances of common stock:
Share-based compensation	26,435	—		247		—		247
Warrant and option exercises (cash and cashless)	361,486	3		346		—		349
Net loss for the period	—	—		—		(3,743)		(3,743)
Balances, June 30, 2021	22,322,344	$	223	$	173,546	$	(125,803)	$	47,966
Issuances of common stock:
Share-based compensation	126,805	1		585		—		586
Warrant and option exercises (cash and cashless)	435,802	5		85		—		90
Payments for taxes related to net share settlement of equity awards	(29,764)	—		(542)		—		(542)
Net loss for the period	—	—		—		(3,980)		(3,980)
Balances, September 30, 2021	22,855,187	$	229	$	173,674	$	(129,783)	$	44,120

See accompanying notes to Condensed Consolidated Financial Statements.

CLEARPOINT NEURO, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(Dollars in thousands)


	For The Nine Months Ended September 30,
	2022		2021
Cash flows from operating activities:
Net loss	$	(12,050)	$	(10,261)
Adjustments to reconcile net loss to net cash flows from operating activities:
Allowance for doubtful accounts	(92)		170
Depreciation and amortization	224		113
Share-based compensation	2,954		1,153
Payment-in-kind interest	—		285
Amortization of debt issuance costs and original issue discounts	41		73
Amortization of lease rights of use, net of accretion in lease liabilities	400		400
Accretion of discounts on short-term investments	(159)		—
Increase (decrease) in cash resulting from changes in:
Accounts receivable	(982)		(848)
Inventory, net	(3,318)		(682)
Prepaid expenses and other current assets	(1,150)		(599)
Other assets	31		(28)
Accounts payable and accrued expenses	1,255		1,418

Lease liabilities	(400)		(312)
Deferred revenue	144		(27)
Net cash flows from operating activities	(13,102)		(9,145)
Cash flows from investing activities:
Purchases of property and equipment	(214)		(130)
Acquisition of licensing rights	(678)		—
Purchase of short-term investments	(21,590)		—
Net cash flows from investing activities	(22,482)		(130)
Cash flows from financing activities:


Proceeds from public offering of common stock, net of offering costs	—		46,785
Proceeds from stock option and warrant exercises	263		584


Proceeds from issuance of common stock under employee stock purchase plan	260		—
Payments for taxes related to net share settlement of equity awards	(336)		(542)
Net cash flows from financing activities	187		46,827
Net change in cash and cash equivalents	(35,397)		37,552
Cash and cash equivalents, beginning of period	54,109		20,099
Cash and cash equivalents, end of period	$	18,712	$	57,651

SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for:
Income taxes	$	—	$	—
Interest	$	351	$	495

NON-CASH INVESTING AND FINANCING TRANSACTIONS:


•			The Company had less than $0.1 million in capital expenditures accrued but not yet paid at September 30, 2022.


•			During the nine months ended September 30, 2022 and 2021, the Company recorded net transfers of ClearPoint reusable components having an aggregate net book value of less than $0.1 million, between loaned systems, which are included in property and equipment in the accompanying condensed consolidated balance sheets, and inventory.


•			As discussed in Note 2, on January 1, 2021, the Company adopted the provisions of Topic 470-20 within the Accounting Standards Codification, which resulted in the elimination of a previously recorded discount in connection with the issuance of the 2020 Secured Notes (as defined in Note 1) and a corresponding reduction of additional paid-in capital, each in the amount of $3.1 million.


•			As discussed in Note 6, in May 2021, one of the 2020 Convertible Noteholders converted the entire $7.5 million principal amount of its First Closing Note, and related accrued interest amounting to approximately $0.04 million, into approximately 1,256,143 million shares of the Company's common stock, at a $6.00 per share price. As a result, the discount on such First Closing Note, amounting to $0.2 million at the conversion date and representing an access fee paid to the noteholder at origination of such First Closing Note, was eliminated and a corresponding amount was charged to additional paid-in capital upon the conversion.

See accompanying notes to Condensed Consolidated Financial Statements.

ClearPoint Neuro, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)


1.						Description of the Business and Financial Condition

ClearPoint Neuro, Inc. (the “Company”) is a commercial-stage medical device company focused on the development and commercialization of innovative platforms for performing minimally invasive surgical procedures in the brain. From the Company’s inception in 1998, the Company deployed significant resources to fund its 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 it develops. In 2021, the Company’s efforts expanded beyond the MRI suite to encompass development and commercialization of new neurosurgical device products for the operating room setting, as well as consulting services for pharmaceutical and biotech companies, academic institutions, and contract research organizations.

The Company’s initial product offering, the ClearPoint system, is an integrated system comprised of capital equipment and disposable products, designed to allow minimally invasive procedures in the brain to be performed in an MRI suite. The ClearPoint Array Neuro Navigation System and its principal disposable component, introduced in 2021, is designed to be deployed in an operating room setting while also being usable in an MRI suite. Both systems provide guidance for the placement and operation of instruments or devices during the planning and operation of neurosurgical procedures. 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 neurosurgical interventional procedures; in February 2011, the Company also obtained CE marking for its ClearPoint system. In 2011 and 2018, the Company received 510(k) clearance and CE marking, respectively, for its SmartFlow cannula which is being used, or is under evaluation, by approximately 50 pharmaceutical and biotech companies, academic institutions, or contract research organizations having a focus on biologics and drug delivery. In September 2022 the ClearPoint Prism™ Neuro Laser Therapy System, for which ClearPoint Neuro has exclusive global commercialization rights, received 510(k) clearance through the Company’s Swedish partner Clinical Laserthermia Systems (CLS). The Prism laser represents the first therapy product the Company will commercialize.

Macroeconomic Trends

We continue to monitor the impact of various macroeconomic trends, such as global economic and supply chain disruptions, geopolitical instability, labor shortages and inflationary conditions, and the continuing impacts of the COVID-19 pandemic. 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 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, 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. 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.

Liquidity

The Company has incurred net losses since its inception, which has resulted in a cumulative deficit at September 30, 2022 of $146.0 million. In addition, the Company’s use of cash from operations amounted to $13.1 million for the nine months ended September 30, 2022, and $12.7 million for the year ended December 31, 2021. Since its inception, the Company has financed its operations principally from the sale of equity securities and the issuance of notes payable.

In January 2020, the Company entered into a Securities Purchase Agreement (the “SPA”) with two investors (each, a “2020 Convertible Noteholder,” and together, the “2020 Convertible Noteholders”) under which the Company issued an aggregate principal amount of $17.5 million of floating rate secured convertible notes with a five-year term (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.

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 Convertible Noteholders to purchase an additional $5.0 million in principal amount of a note (the “Second Closing Note”, and, together with the First Closing Notes, the “2020 Secured Notes”). On December 29, 2020, under the terms of an amendment to the SPA (the “Amendment”) which, among other provisions, increased the principal amount of the Second Closing Note, the Company issued the Second Closing Note in the principal amount of $7.5 million to one of the 2020 Convertible Noteholders.

See Note 6 for additional information with respect to the 2020 Secured Notes.

As discussed in Note 8, 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.


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, 2021 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 2021 Form 10-K. The accompanying condensed consolidated balance sheet as of December 31, 2021 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 and nine months ended September 30, 2022 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 and related disposables. 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 excess and obsolete items and provides a reserve upon identification of potentially excess or obsolete items.

Intangible Assets

The Company is a party to a license agreement which provides rights to the Company for the development and commercialization of products. Under the term of the license agreement, the Company made payments to the licensor upon execution of the license agreement for access to the underlying technology and future payments upon achievement of regulatory and commercialization milestones as defined in the license agreement. In Q3 2022, the Company made a payment to the licensor for the achievement of a regulatory milestone, which acts as a prepayment for future royalties.

In conformity with Accounting Standards Codification Section 350, “Intangibles – Goodwill and Other,” the Company amortizes its investment in the upfront license rights described above over an expected useful life of five years, or as commercial sales occur for the royalty prepayment. In addition, the Company periodically evaluates the recoverability

ClearPoint Neuro, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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 to be 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) consultation revenue and 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 products (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), is generally based on customer purchase orders, the predominance of which require delivery within one week of the order having been placed, and are generally recognized at the point in time of shipping to the customer, which is the point at which legal title, and risks and rewards of ownership, transfer to the customer. For certain customers, legal title and risks and rewards of ownership transfer upon delivery to the customer as stated in their respective contracts, in which case revenue is recognized upon delivery.

•Capital equipment and software sales

◦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. 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.

◦Capital equipment and software sales not preceded by evaluation periods: Revenue from sales of capital equipment and software not preceded by an evaluation period is recognized upon delivery to the customer and installation. For capital equipment that does not require installation, revenue is recognized upon shipment, however, for those customers where legal title and risks and rewards of ownership transfer upon delivery, revenue is recognized at such time.

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.

•Functional neurosurgery navigation and 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:

◦Consultation Services: The Company recognizes consultation revenue at the point in time such services are performed.

◦Clinical Service Access Fees: For contracts in which the Company receives a periodic fixed fee, irrespective of the number of cases attended by Company personnel or hours of services provided to the customer 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.

◦Clinical Service Procedure-Based Fees: The Company recognizes revenue at the point in time a case is attended by Company personnel.

•Capital equipment-related services:

◦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 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.

The Company may also enter into contracts with customers who own ClearPoint capital equipment, which bundle maintenance and support services and access to software and hardware upgrades made commercially available over the term of the contract, for a single contract price, typically paid on an annual basis. The Company allocates the contract price among the performance obligations based on the relative stand-alone prices for each such performance obligation and recognizes the revenue ratably on a monthly basis. A time-elapsed output method is used as the Company is providing a stand-ready service for each of the performance obligations.

◦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 concurrent with the recognition of revenue of the related capital equipment.

The Company operates in one industry segment, and the predominance of 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’s terms and conditions do not provide for a right of return unless for: (a) product defects; or (b) other conditions subject to the Company’s approval.

See Note 3 for additional information regarding revenue recognition.

ClearPoint Neuro, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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 8, and the potential conversion of the First Closing Note, as described in Note 6, would be anti-dilutive, due to the reporting of a net loss for each of the periods in the accompanying condensed consolidated statements of operations.

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 may at times invest its excess cash in interest bearing accounts and U.S. Treasury Bills. It classifies all highly liquid investments with original stated maturities of three months or less from the date of purchase as cash equivalents and all highly liquid investments with stated maturities of greater than three months but less than twelve months as short term investments. The Company classifies the U.S. Treasury Bills as held-to-maturity in accordance with ASC 320, "Investments - Debt and Equity Securities." Held-to-maturity securities are those securities which the Company has the ability and intent to hold until maturity and are recorded at amortized cost on the accompanying condensed consolidated balance sheet, adjusted for the accretion of discounts using the interest method.

The Company holds the remainder of its cash and cash equivalents on deposit with financial institutions in the U.S. insured by the Federal Deposit Insurance Corporation. At September 30, 2022, the Company had approximately $9.9 million in bank balances that were in excess of the insured limits.

At September 30, 2022, there were two customers whose accounts receivable balances represented 16% and 15% of accounts receivable at that date. At December 31, 2021, one customer accounted for 15% of accounts receivable at that date.

One pharmaceutical customer, a related party who is a stockholder, a noteholder, and who has a representative on the Company's Board of Directors (see Note 6), for whom the Company provides hardware, software, clinical services and market development services in support of the customer's clinical trials, and from whom the Company earns a quarterly fee, accounted for 14% and 18% of total sales in the three-month periods ended September 30, 2022 and 2021, respectively, and 16% and 19% of total sales in the nine-month periods ended September 30, 2022 and 2021, 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 September 30, 2022 and December 31, 2021 was $0.2 million and $0.3 million, respectively.

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; dependence on third-party collaboration, license and joint development partners; 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

ClearPoint Neuro, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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 6) 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 and nine months ended September 30, 2022 contains certain items formerly classified as sales and marketing expenses and research and development expenses that have been reclassified to cost of revenue. The accompanying condensed consolidated statements of operations for the three and nine months ended September 30, 2021 have been conformed to the 2022 presentation.


3.						Revenue Recognition

Revenue by Service Line


			Three Months Ended September 30,