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Avinger Inc - Quarter Report: 2021 September (Form 10-Q)

avgr20210930_10q.htm
 

 



 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549 

 


 

FORM 10-Q

 


 

(Mark One)

 

 

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

 

For the quarterly period ended September 30, 2021

or

 

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

 

Commission File Number: 001-36817

 


 

AVINGER, INC.

(Exact name of registrant as specified in its charter)

 


 

Delaware

 

20-8873453

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification Number)

 

400 Chesapeake Drive

Redwood City, California 94063

(Address of principal executive offices and zip code)

 

(650) 241-7900

(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, par value $0.001 per share

 

AVGR

 

The 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. Yes ☒ 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 during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ 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 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 ☐

 

Accelerated filer ☐

   

Non-accelerated filer ☒

 

Smaller reporting company ☒

   
  

Emerging growth company ☐

 

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. ☐

 

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

 

As of November 4, 2021, the number of outstanding shares of the registrant’s common stock, par value $0.001 per share, was 95,563,955.

 



 

 

 

 

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q contains forward-looking statements concerning our business, operations and financial performance and condition, as well as our plans, objectives and expectations for our business, operations and financial performance and condition. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “anticipate,” “assume,” “believe,” “contemplate,” “continue,” “could,” “due,” “estimate,” “expect,” “goal,” “intend,” “may,” “objective,” “plan,” “predict,” “potential,” “positioned,” “seek,” “should,” “target,” “will,” “would” and other similar expressions that are predictions of or indicate future events and future trends, or the negative of these terms or other comparable terminology. These forward-looking statements include, but are not limited to, statements about:

 

 

the outcome of and expectations regarding our current clinical studies and any additional clinical studies we initiate;

 

 

our plans to modify our current products, or develop new products, to address additional indications;

 

 

our ability to obtain additional financing through future equity or debt financings;

 

 

the expected timing of 510(k) clearances by the FDA for enhanced versions of Pantheris, Ocelot and Lightbox;

 

 

the expected timing of 510(k) submission to the FDA, and associated marketing clearances by the FDA, for additional versions of Pantheris, Ocelot and Lightbox;

 

 

the expected growth in our business and our organization;

 

 

our expectations regarding government and third-party payor coverage and reimbursement, including the ability of Pantheris to qualify for reimbursement codes used by other atherectomy products;

 

 

our ability to regain and remain in compliance with the listing requirements of the Nasdaq Capital Market;

 

 

our ability to retain and recruit key personnel, including the continued development of our sales and marketing infrastructure;

 

 

our ability to obtain and maintain intellectual property protection for our products;

 

 

our estimates of our expenses, ongoing losses, future revenue, capital requirements and our needs for, or ability to obtain, additional financing;

 

 

our expectations regarding revenue, cost of revenue, gross margins, and expenses, including research and development and selling, general and administrative expenses;

 

 

our expectations of qualitative and quantitative effects of COVID-19 to the extent discussed, as well as any expectations of recovery from or forward looking short-term or long-term implications thereof;

 

 

the effects of the COVID-19 pandemic on our business and results of operations;

 

 

our ability to identify and develop new and planned products and acquire new products;

 

 

our financial performance;

 

 

our ability to remain in compliance with laws and regulations that currently apply or become applicable to our business, both in the United States and internationally; and

 

 

developments and projections relating to our competitors or our industry.

 

 

 

 

We believe that it is important to communicate our future expectations to our investors. However, there may be events in the future that we are not able to accurately predict or control and that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. These forward-looking statements are based on management’s current expectations, estimates, forecasts and projections about our business and the industry in which we operate and management’s beliefs and assumptions and are not guarantees of future performance or development and involve known and unknown risks, uncertainties and other factors that are in some cases beyond our control. As a result, any or all of our forward-looking statements in this Quarterly Report on Form 10-Q may turn out to be inaccurate. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under the “Risk Factors” section and elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 11, 2021. We urge you to consider these factors carefully in evaluating the forward-looking statements. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. We assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

 

You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. Except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this Quarterly Report on Form 10-Q to conform these statements to actual results or to changes in our expectations.

 

You should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q and have filed with the United States Securities and Exchange Commission (“SEC”) as exhibits to the Quarterly Report on Form 10-Q with the understanding that our actual future results, levels of activity, performance and events and circumstances may be materially different from what we expect.

 

 

 

 

 

AVINGER, INC.

AS OF AND FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2021

 

TABLE OF CONTENTS

 

   

Page

Part I

Financial Information

 

Item 1.

Unaudited Financial Statements

1

 

Condensed Balance Sheets

1

 

Condensed Statements of Operations and Comprehensive Loss

2

 

Condensed Statements of Stockholders’ Equity

3

 

Condensed Statements of Cash Flows

5

 

Notes to Condensed Financial Statements

6

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

18

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

28

Item 4.

Controls and Procedures

28

     

Part II

Other Information

 

Item 1.

Legal Proceedings

28

Item 1A.

Risk Factors

29

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

31

Item 3.

Defaults Upon Senior Securities

31

Item 4.

Mine Safety Disclosures

31

Item 5.

Other Information

31

Item 6.

Exhibits

32

     

Signatures

33

 

“Avinger,” “Pantheris,” “Lumivascular,” and “Tigereye” are trademarks of our company. Our logo and our other trade names, trademarks and service marks appearing in this Quarterly Report on Form 10-Q are our property. Other trade names, trademarks and service marks appearing in this Quarterly Report on Form 10-Q are the property of their respective owners. Solely for convenience, our trademarks and trade names referred to in this Quarterly Report on Form 10-Q appear without the ™ symbol, but those references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights, or the right of the applicable licensor to these trademarks and trade names.

 

 

 
 

 

 

PART I. FINANCIAL INFORMATION

 

ITEM 1.    UNAUDITED FINANCIAL STATEMENTS

 

AVINGER, INC.

CONDENSED BALANCE SHEETS

(unaudited)

(In thousands, except share and per share data)

 

  

September 30,

  

December 31,

 
  

2021

  

2020

 

Assets

        

Current assets:

        

Cash and cash equivalents

 $23,078  $22,185 

Accounts receivable, net of allowance for doubtful accounts of $6 at September 30, 2021 and $19 at December 31, 2020

  1,400   1,484 

Inventories

  4,519   3,876 

Prepaid expenses and other current assets

  668   350 

Total current assets

  29,665   27,895 
         

Right of use asset

  3,408   4,063 

Property and equipment, net

  213   727 

Other assets

  452   510 

Total assets

 $33,738  $33,195 
         

Liabilities and stockholders equity

        

Current liabilities:

        

Accounts payable

 $1,178  $694 

Accrued compensation

  1,379   1,703 

Series A preferred stock dividends payable

  3,132    

Accrued expenses and other current liabilities

  791   669 

Leasehold liability, current portion

  959   806 

Borrowings, current portion

     3,590 

Total current liabilities

  7,439   7,462 
         

Borrowings, long-term portion

  11,853   9,400 

Leasehold liability, long-term portion

  2,449   3,257 

Other long-term liabilities

  431    

Total liabilities

  22,172   20,119 
         

Commitments and contingencies (Note 7)

          
         

Stockholders equity:

        

Convertible preferred stock issuable in series, par value of $0.001; Aggregate shares authorized: 5,000,000 at September 30, 2021 and December 31, 2020; Aggregate shares issued and outstanding: 52,276 and 52,369 at September 30, 2021 and December 31, 2020, respectively; aggregate liquidation preference of $52,191 at both September 30, 2021 and December 31, 2020 (Note 8)

      

Common stock, par value of $0.001; Shares authorized: 100,000,000 at September 30, 2021 and December 31, 2020; Shares issued and outstanding: 95,562,955 and 84,926,129 at September 30, 2021 and December 31, 2020, respectively

  96   85 

Additional paid-in capital

  391,227   380,332 

Accumulated deficit

  (379,757

)

  (367,341

)

Total stockholders’ equity

  11,566   13,076 

Total liabilities and stockholders’ equity

 $33,738  $33,195 

 

See accompanying notes.

 

1

 

 

 

AVINGER, INC.

CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(unaudited)

(In thousands, except per share data)

 

   

Three Months Ended

September 30,

   

Nine Months Ended

September 30,

 
   

2021

   

2020

   

2021

   

2020

 

Revenues

  $ 2,366     $ 2,302     $ 7,727     $ 6,029  

Cost of revenues

    1,566       1,525       5,015       4,392  

Gross profit

    800       777       2,712       1,637  
                                 

Operating expenses:

                               

Research and development

    1,397       1,417       4,502       4,308  

Selling, general and administrative

    3,892       3,461       11,755       10,501  

Total operating expenses

    5,289       4,878       16,257       14,809  

Loss from operations

    (4,489

)

    (4,101

)

    (13,545

)

    (13,172

)

                                 

Interest income

          1       3       33  

Interest expense

    (419

)

    (433

)

    (1,217

)

    (1,245

)

Other (expenses) income, net

    (4

)

    8       2,343       8  

Net loss and comprehensive loss

    (4,912

)

    (4,525

)

    (12,416

)

    (14,376

)

Accretion of preferred stock dividends

    (1,044

)

    (967

)

    (3,132

)

    (2,901

)

Net loss applicable to common stockholders

  $ (5,956

)

  $ (5,492

)

  $ (15,548

)

  $ (17,277

)

                                 

Net loss per share attributable to common stockholders, basic and diluted

  $ (0.06

)

  $ (0.08

)

  $ (0.17

)

  $ (0.46

)

Weighted average common shares used to compute net loss per share, basic and diluted

    95,382       69,459       94,071       37,246  

 

See accompanying notes.

 

2

 

 

 

AVINGER, INC.

CONDENSED STATEMENTS OF STOCKHOLDERS EQUITY

(unaudited)

(In thousands, except share data)

 

   

Convertible

Preferred Stock

   

Common Stock

   

Additional Paid-in

   

Accumulated

   

Total Stockholders

 
   

Shares

   

Amount

   

Shares

   

Amount

   

Capital

   

Deficit

   

Equity

 

Balance at June 30, 2020

    48,503     $       51,339,024     $ 51     $ 365,684     $ (358,186

)

  $ 7,549  

Issuance of common stock in public offerings, net of commissions and issuance costs

                33,221,725       33       11,979             12,012  

Vesting of restricted stock units

                360,330       1                   1  

Employee stock-based compensation

                            384             384  

Accretion of Series A preferred stock dividends

                            (967

)

          (967

)

Net and comprehensive loss

                                  (4,525

)

    (4,525

)

Balance at September 30, 2020

    48,503     $       84,921,079     $ 85     $ 377,080     $ (362,711

)

  $ 14,454  

 

 

   

Convertible

Preferred Stock

   

Common Stock

   

Additional Paid-in

   

Accumulated

   

Total Stockholders

 
   

Shares

   

Amount

   

Shares

   

Amount

   

Capital

   

Deficit

   

Equity

 

Balance at June 30, 2021

    52,276     $       95,353,002     $ 95     $ 392,032     $ (374,845

)

  $ 17,282  

Issuance of common stock under officers and directors purchase plan and vesting of restricted stock units

                209,953       1                   1  

Employee stock-based compensation

                            239             239  

Accretion of Series A preferred stock dividends

                            (1,044

)

          (1,044

)

Net and comprehensive loss

                                  (4,912

)

    (4,912

)

Balance at September 30, 2021

    52,276     $       95,562,955     $ 96     $ 391,227     $ (379,757

)

  $ 11,566  

 

See accompanying notes.

 

3

 

 

AVINGER, INC.

CONDENSED STATEMENTS OF STOCKHOLDERS EQUITY (CONTINUED)

(unaudited)

(In thousands, except share data)

 

 

   

Convertible

Preferred Stock

   

Common Stock

   

Additional Paid-in

   

Accumulated

   

Total Stockholders

 
   

Shares

   

Amount

   

Shares

   

Amount

   

Capital

   

Deficit

   

Equity

 

Balance at December 31, 2019

    48,503     $       10,364,663     $ 10     $ 355,220     $ (348,335

)

  $ 6,895  

Issuance of common stock in public offerings, net of commissions and issuance costs

                74,140,297       74       23,574             23,648  

Issuance of common stock under officers and directors purchase plan and vesting of restricted stock units

                416,119       1       27             28  

Employee stock-based compensation

                            1,160             1,160  

Accretion of Series A preferred stock dividends

                            (2,901

)

          (2,901

)

Net and comprehensive loss

                                  (14,376

)

    (14,376

)

Balance at September 30, 2020

    48,503     $       84,921,079     $ 85     $ 377,080     $ (362,711

)

  $ 14,454  

 

   

Convertible

Preferred Stock

   

Common Stock

   

Additional Paid-in

   

Accumulated

   

Total Stockholders

 
   

Shares

   

Amount

   

Shares

   

Amount

   

Capital

   

Deficit

   

Equity

 

Balance at December 31, 2020

    52,369     $       84,926,129     $ 85     $ 380,332     $ (367,341

)

  $ 13,076  

Issuance of common stock in public offerings, net of commissions and issuance costs

                10,000,000       10       13,067             13,077  

Conversion of Series B preferred stock into common stock

    (93

)

          372,000                          

Issuance of common stock under officers and directors purchase plan and vesting of restricted stock units

                264,826       1                   1  

Employee stock-based compensation

                            960             960  

Accretion of Series A preferred stock dividends

                            (3,132

)

          (3,132

)

Net and comprehensive loss

                                  (12,416

)

    (12,416

)

Balance at September 30, 2021

    52,276     $       95,562,955     $ 96     $ 391,227     $ (379,757

)

  $ 11,566  

 

4

 

 

 

AVINGER, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(unaudited)

(In thousands)

 

   

Nine Months Ended September 30,

 
   

2021

   

2020

 

Cash flows from operating activities

               

Net loss

  $ (12,416

)

  $ (14,376

)

Adjustments to reconcile net loss to net cash used in operating activities:

               

Depreciation and amortization

    525       676  

Amortization of debt issuance costs and debt discount

    65       126  

Stock-based compensation

    960       1,160  

Noncash interest expense and other charges

    1,151       1,119  

Change in right of use asset

    102       129  

Provision for excess and obsolete inventories

    97       390  

Other non-cash charges

    3       (52

)

Gain on extinguishment of debt

    (2,353

)

     

Changes in operating assets and liabilities:

               

Accounts receivable

    82       142  

Inventories

    (733

)

    (464

)

Prepaid expenses and other current assets

    (318

)

    (197

)

Other assets

    (44

)

    5  

Accounts payable

    484       (31

)

Accrued compensation

    (324

)

    (327

)

Accrued expenses and other current liabilities

    122       29  

Other long-term liabilities

    431        

Net cash used in operating activities

    (12,166

)

    (11,671

)

                 

Cash flows from investing activities

               

Purchase of property and equipment

    (18

)

     

Proceeds from sale of property and equipment

          40  

Net cash (used in) provided by investing activities

    (18

)

    40  
                 

Cash flows from financing activities

               

Proceeds from borrowings, net of issuance costs

          2,330  

Proceeds from the issuance of common stock in public offerings, net

    13,077       23,648  

Proceeds from the issuance of common stock under officers’ and directors’ purchase plan

          36  

Net cash provided by financing activities

    13,077       26,014  
                 

Net change in cash and cash equivalents

    893       14,383  

Cash and cash equivalents, beginning of period

    22,185       10,943  

Cash and cash equivalents, end of period

  $ 23,078     $ 25,326  
                 

Supplemental disclosure of cash flow information

               
                 

Noncash investing and financing activities:

               

Accretion of Series A preferred stock dividends

  $ 3,132     $ 2,901  

Reclassification of right of use asset to prepaid rent

  $ (102

)

  $ (129

)

Transfers between inventory and property and equipment

  $ (7

)

  $ (7

)

 

See accompanying notes.

 

5

 

 

AVINGER, INC.

 

Notes to Condensed Financial Statements 

 

 

1. Organization

 

Organization, Nature of Business

 

Avinger, Inc. (the “Company”), a Delaware corporation, was incorporated in March 2007. The Company designs, manufactures and sells image-guided, catheter-based systems that are used by physicians to treat patients with peripheral artery disease (“PAD”). Patients with PAD have a build-up of plaque in the arteries that supply blood to areas away from the heart, particularly the pelvis and legs. The Company manufactures and sells a suite of products in the United States (“U.S.”) and in select international markets. The Company has developed its Lumivascular platform, which integrates optical coherence tomography ( “OCT”) visualization with interventional catheters and is the industry’s only system that provides real-time intravascular imaging during the treatment portion of PAD procedures. The Company’s Lumivascular platform consists of a capital component, our Lightbox console, as well as a variety of disposable catheter products. The Company’s current catheter products include its non-imaging catheters, Wildcat and Kittycat2, as well as its Lumivascular platform products, Ocelot, Ocelot PIXL, Ocelot MVRX and Tigereye, all of which are designed to allow physicians to penetrate a total blockage in an artery, known as a chronic total occlusion (“CTO”). The Company also has image-guided atherectomy solutions under its suite of Lumivascular products, Pantheris and Pantheris SV, which are designed to allow physicians to precisely remove arterial plaque in PAD patients. The Company is located in Redwood City, California.

 

Liquidity Matters

 

In the course of its activities, the Company has incurred losses and negative cash flows from operations since its inception. As of September 30, 2021, the Company had an accumulated deficit of $379.8 million. The Company expects to incur losses for the foreseeable future. The Company believes that its cash and cash equivalents of $23.1 million at September 30, 2021 and expected revenues and funds from operations will be sufficient to allow the Company to fund its current operations through 2022. The Company received net proceeds of approximately $3.9 million from the sale of its common stock in its January 2020 offering, $2.3 million of loan proceeds in April 2020 pursuant to the Paycheck Protection Program (“PPP”) under the Coronavirus Aid, Relief and Economic Security (“CARES”) Act, which was forgiven in April 2021, $3.0 million from the sale of its common stock in April and May 2020, $5.5 million from the sale of its common stock in June and July 2020, $11.3 million from the sale of its common stock in August and September 2020, and approximately $13.1 million from the sale of its common stock in February 2021. The Company does not have any immediate plans to raise additional funds through future equity or debt financings. However, the Company may decide to raise additional funds to meet its operational needs and capital requirements for product development, clinical trials and commercialization or other strategic objectives.

 

The Company can provide no assurance that it will be successful in raising funds pursuant to additional equity or debt financings or that such funds will be raised at prices that do not create substantial dilution for its existing stockholders. Given the volatility in the Company’s stock price, any financing that it may undertake in the next twelve months could cause substantial dilution to its existing stockholders, there can be no assurance that the Company will be successful in acquiring additional funding at levels sufficient to fund its various endeavors. In addition, the COVID-19 pandemic and responses thereto have resulted in reduced consumer and investor confidence, instability in the credit and financial markets, volatile corporate profits, restrictions on elective medical procedures, and reduced business and consumer spending, which could increase the cost of capital and/or limit the availability of capital to the Company. During the second quarter of 2020, the Company took certain actions to manage available cash and other resources to mitigate the effects of COVID-19 on its business, which included reduction of discretionary costs, reduction of base salaries for all of its non-manufacturing employees by 20% and reduction of hours worked by its manufacturing workers by 20%. Salaries and hours worked largely returned to prior levels by July 2020.

 

On September 22, 2021, we received a letter from Nasdaq’s Listing Qualifications Department notifying us that we were not in compliance with Nasdaq Listing Rule 5550(a)(2), as the minimum bid price for our listed securities was less than $1 for the previous 30 consecutive business days. We have a period of 180 calendar days, or until March 21, 2022, to regain compliance with the rule referred to in this paragraph. To regain compliance, the bid price of our common stock must close at $1 or more for a minimum of ten consecutive business days. The notice has no present impact on the listing of our securities on Nasdaq. If Nasdaq delists our common stock from trading on its exchange and we are not able to list our securities on another national securities exchange, we could face significant material adverse consequences including among other things, a decreased ability to issue additional securities or obtain additional financing in the future, a limited availability of market quotations for our securities, reduced liquidity for our securities.

 

6

 

If the Company is unable to raise additional capital in sufficient amounts or on terms acceptable to it, the Company may have to significantly reduce its operations or delay, scale back or discontinue the development of one or more of its products. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. The Company’s ultimate success will largely depend on its continued development of innovative medical technologies, its ability to successfully commercialize its products and its ability to raise significant additional funding. 

 

Public Offerings

 

On January 31, 2020, the Company completed a public offering of 6,428,572 shares of common stock at an offering price of $0.70 per share. As a result, the Company received net proceeds of approximately $3.9 million after underwriting discounts, commissions, legal and accounting fees, and other ancillary expenses. Due to anti-dilution provisions, the conversion price of the outstanding shares of Series B preferred stock, which was issued in our February 2018 offering, was reduced to $0.70 per share.

 

On April 30, 2020, the Company completed a public offering of 12,600,000 shares of common stock at an offering price of $0.25 per share. On May 6, 2020 the Company issued an additional 1,890,000 shares of common stock at the same offering price pursuant to the exercise in full of the underwriter’s over-allotment option in connection with the aforementioned offering. As a result, the Company received aggregate net proceeds of approximately $3.0 million after underwriting discounts, commissions, legal and accounting fees, and other ancillary expenses. Due to anti-dilution provisions, the conversion price of the outstanding shares of Series B preferred stock, which was issued in our February 2018 offering, was reduced to $0.25 per share.

 

On June 26, 2020, the Company completed a public offering of 20,000,000 shares of common stock at an offering price of $0.27 per share. On July 9, 2020 the Company issued an additional 3,000,000 shares of common stock at the same offering price pursuant to the exercise in full of the underwriter’s over-allotment option in connection with the aforementioned offering resulting in $0.7 million of additional net proceeds. As a result, the Company received aggregate net proceeds of approximately $5.5 million including the overallotment option and after underwriting discounts, commissions, legal and accounting fees, and other ancillary expenses.

 

On August 6, 2020, under our universal shelf registration statement filed on March 7, 2019 (the “Shelf Registration Statement”), the Company completed a public offering of 15,789,474 shares of common stock at an offering price of $0.38 per share. On August 11, 2020 the Company issued an additional 2,368,421 shares of common stock at the same offering price pursuant to the exercise in full of the underwriter’s over-allotment option in connection with the aforementioned offering. As a result, the Company received aggregate net proceeds of approximately $6.2 million after underwriting discounts, commissions, legal and accounting fees, and other ancillary expenses.

 

On August 25, 2020, under the Shelf Registration Statement, the Company completed a public offering of 11,063,830 shares of common stock at an offering price of $0.47 per share. On September 1, 2020 the Company issued an additional 1,000,000 shares of common stock at the same offering price pursuant to the exercise in full of the underwriter’s over-allotment option in connection with the aforementioned offering. As a result, the Company received aggregate net proceeds of approximately $5.1 million after underwriting discounts, commissions, legal and accounting fees, and other ancillary expenses.

 

On February 2, 2021, under the Shelf Registration Statement, the Company completed a bought deal offering of 10,000,000 shares of common stock at an offering price of $1.44 per share. As a result, the Company received aggregate net proceeds of approximately $13.1 million after underwriting discounts, commissions, legal and accounting fees, and other ancillary expenses.

 

7
 

 

 

2. Summary of Significant Accounting Policies

 

Basis of Presentation

 

The accompanying unaudited condensed financial statements have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) and pursuant to the rules and regulations of the SEC (“SEC”). The accompanying unaudited condensed interim financial statements have been prepared on the same basis as the annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for a fair statement of the Company’s financial information. The results for the three and nine months ended September 30, 2021 are not necessarily indicative of results to be expected for the year ending December 31, 2021, or for any other interim period or for any future year. The December 31, 2020 condensed balance sheet data has been derived from audited financial statements. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to SEC rules and regulations relating to interim financial statements. These unaudited condensed financial statements and notes should be read in conjunction with the financial statements included in the Company’s Form 10-K for the fiscal year ended December 31, 2020, which was filed with the SEC on March 11, 2021. The Company’s significant accounting policies are more fully described in Note 2 of the Notes to Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

 

Use of Estimates

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts and disclosures reported in the financial statements. Management uses significant judgment when making estimates related to its stock-based compensation, accruals related to compensation, the valuation of the common stock warrants, provisions for doubtful accounts receivable and excess and obsolete inventories, clinical trial accruals, and its reserves for sales returns and warranty costs. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Although these estimates are based on the Company’s knowledge of current events and actions it may undertake in the future, actual results may ultimately materially differ from these estimates and assumptions.

 

Concentration of Credit Risk, and Other Risks and Uncertainties

 

Financial instruments that potentially subject the Company to credit risk consist of cash and cash equivalents and accounts receivable to the extent of the amounts recorded on the balance sheets.

 

The Company’s policy is to invest in cash and cash equivalents, consisting of money market funds. These financial instruments are held in Company accounts at one financial institution. The counterparties to the agreements relating to the Company’s investments consist of financial institutions of high credit standing.

 

The Company provides for uncollectible amounts when specific credit problems arise. Management’s estimates for uncollectible amounts have been adequate, and management believes that all significant credit risks have been identified at September 30, 2021 and December 31, 2020.

 

The Company’s accounts receivable are due from a variety of healthcare organizations in the United States and select international markets. At September 30, 2021 and December 31, 2020, there was one customer that represented 11% and 14% of the Company’s accounts receivable, respectively. For the three and nine months ended September 30, 2021 and 2020, there were no customers that represented 10% or more of revenues. Disruption of sales orders or a deterioration of financial condition of its customers would have a negative impact on the Company’s financial position and results of operations.

 

Disruption of our supply chain capabilities due to trade restrictions, political instability, severe weather, natural disasters, public health crises such as the ongoing COVID-19 pandemic, terrorism, product recalls, labor supply or stoppages, the financial or operational instability of key suppliers and carriers, government restrictions or measures, or other reasons could impair our ability to distribute our products. Many industries, including our own, face supply chain challenges as a result of COVID-19 and other macroeconomic issues, including reduced freight availability and increased costs, port disruption, manufacturing facility closures, labor shortages and other supply chain disruptions. To the extent we are unable to mitigate the likelihood or potential impact of such events, there could be a material adverse effect on our operating and financial results.

 

8

 

Product Warranty Costs

 

The Company typically offers a one-year warranty on its products commencing upon the transfer of title and risk of loss to the customer. The Company accrues for the estimated cost of product warranties upon invoicing its customers, based on historical results. Warranty costs are reflected in the statement of operations and comprehensive loss as a cost of revenues. The warranty obligation is affected by product failure rates, material usage and service delivery costs incurred in correcting a product failure. Should actual product failure rates, material usage or service delivery costs differ from these estimates, revisions to the estimated warranty liability would be required. Periodically the Company assesses the adequacy of its recorded warranty liabilities and adjusts the amounts, as necessary. Warranty provisions and claims are summarized as follows (in thousands):

 

  

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

 
  

2021

  

2020

  

2021

  

2020

 

Beginning balance

 $231  $221  $193  $215 

Warranty provision

  5   13   46   124 

Usage/Release

  (40

)

  (35

)

  (43

)

  (140

)

Ending balance

 $196  $199  $196  $199 

 

Net Loss per Share Attributable to Common Stockholders

 

Basic net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period, without consideration for potential dilutive common shares. Diluted net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholder by the weighted average number of shares of common stock and dilutive potential shares of common stock outstanding during the period. Any common stock shares subject to repurchase are excluded from the calculations as the continued vesting of such shares is contingent upon the holders’ continued service to the Company. As of September 30, 2021 and 2020, there were no shares subject to repurchase. Since the Company was in a loss position for both periods presented, basic net loss per share attributable to common stockholders is the same as diluted net loss per share attributable to common stockholders as the inclusion of all potentially dilutive common shares would have been anti-dilutive.

 

Net loss per share attributable to common stockholders was determined as follows (in thousands, except per share data):

 

  

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

 
  

2021

  

2020

  

2021

  

2020

 

Net loss applicable to common stockholders

 $(5,956

)

 $(5,492

)

 $(15,548

)

 $(17,277

)

Weighted average common stock outstanding, basic and diluted

  95,382   69,459   94,071   37,246 

Net loss per share attributable to common stockholders, basic and diluted

 $(0.06

)

 $(0.08

)

 $(0.17

)

 $(0.46

)

 

The following potentially dilutive securities outstanding have been excluded from the computations of diluted weighted average shares outstanding because such securities have an anti-dilutive impact due to losses reported:

 

  

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

 
  

2021

  

2020

  

2021

  

2020

 

Common stock warrants equivalents

  2,682,185   2,753,999   2,729,798   2,753,999 

Common stock options

  6,661   6,903   6,723   7,100 

Convertible preferred stock

  52,276   48,503   52,293   48,503 

Unvested restricted stock units

  379,226   749,512   407,461   820,743 
   3,120,348   3,558,917   3,196,275   3,630,345 

 

9

 

Segment and Geographical Information

 

The Company operates and manages its business as one reportable and operating segment. The Company’s chief executive officer, who is the chief operating decision maker, reviews financial information on an aggregate basis for purposes of allocating resources and evaluating financial performance. Primarily all of the Company’s long-lived assets, which are comprised of property and equipment, are based in the United States. For each of the three months ended September 30, 2021 and 2020, 94% of the Company’s revenues were in the United States. For each of the nine months ended September 30, 2021 and 2020, 94% of the Company’s revenues were in the United States based on the shipping location of the external customer.

 

Recent Accounting Pronouncements

 

Recently adopted accounting standards

 

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which among other things, eliminates certain exceptions in the current rules regarding the approach for intraperiod tax allocations and the methodology for calculating income taxes in an interim period, and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill.  The standard was adopted by the Company on January 1, 2021. This new standard did not have a material impact on the Company’s financial statements.

 

Recent accounting standards not yet adopted

 

In August 2020, the FASB issued ASU 2020-06, DebtDebt with Conversion and Other Options (Subtopic 470-20) and Derivatives and HedgingContracts in Entitys Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entitys Own Equity, which among other things, simplifies the accounting models for the allocation of proceeds attributable to the issuance of a convertible debt instrument.  As a result, after adopting the ASU’s guidance, entities will not separately present in equity an embedded conversion feature in such debt. Instead, they will account for a convertible debt instrument wholly as debt, and for convertible preferred stock wholly as preferred stock (i.e., as a single unit of account), unless (i) a convertible instrument contains features that require bifurcation as a derivative under ASC 815 or (ii) a convertible debt instrument was issued at a substantial premium. The standard becomes effective for the Company in the first quarter of 2022 and early adoption is permitted.  This new standard is not expected to have a material impact on the Company’s financial statements.

 

 

3. Fair Value Measurements

 

The Company measures certain financial assets and liabilities at fair value on a recurring basis. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. A three-tier fair value hierarchy is established as a basis for considering such assumptions and for inputs used in the valuation methodologies in measuring fair value:

 

Level 1 — Quoted prices in active markets for identical assets or liabilities.

Level 2 — Inputs other than quoted prices included within Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

 

As of September 30, 2021 and December 31, 2020, cash equivalents were all categorized as Level 1 and consisted of money market funds. As of September 30, 2021 and December 31, 2020, there were no financial assets and liabilities categorized as Level 2 or Level 3. There were no transfers between fair value hierarchy levels during the three and nine months ended September 30, 2021.

 

10
 

 

 

4. Inventories

 

Inventories consisted of the following (in thousands):

 

   

September 30,

   

December 31,

 
   

2021

   

2020

 

Raw materials

  $ 2,188     $ 1,904  

Work-in-process

    558       180  

Finished products

    1,773       1,792  

Total inventories

  $ 4,519     $ 3,876  

 

 

5. Borrowings

 

CRG

 

On September 22, 2015, the Company entered into a Term Loan Agreement, as amended (the “Loan Agreement”) with CRG under which, subject to certain conditions, the Company had the right to borrow up to $50 million in principal amount from CRG on or before March 29, 2017. The Company borrowed $30 million on September 22, 2015. The Company borrowed an additional $10 million on June 15, 2016 under the Loan Agreement.

 

On February 14, 2018, the Company and CRG further amended the Loan Agreement concurrent with the conversion of $38 million of the principal amount of the senior secured term loan (plus $3.8 million in back-end fees and prepayment premium applicable thereto) into a newly authorized Series A convertible preferred stock (see below).

 

On March 2, 2020, the Company entered into Amendment No. 3 to the Loan Agreement to, among other things:

 

 

extend the period that the Company can make interest payments in payment in kind (“PIK”) to June 30, 2021;

 

lower the Minimum Revenue Covenants to $10 million for 2020, $12 million for 2021, and $15 million for 2022;

 

insert certain terms to clarify that all fees, including the prepayment premium, are due if the obligations are accelerated; and

 

insert a new provision to make clear that to the extent the Company divides its assets/liabilities into divisions, such assets/liabilities will be treated as transferred to a third party.

 

On May 12, 2020, the Company entered into Amendment No. 4 to the Loan Agreement to, among other things:

 

 

grant to the Company the right to optionally prepay in whole or in part the outstanding principal amount of the Loans for the Redemption Price, subject to certain conditions; and

 

waive the Company’s requirement to comply with the Minimum Revenue Covenant for 2020.

 

On January 22, 2021, the Company entered into Amendment No. 5 to the Loan Agreement to, among other things:

 

 

extend the maturity date of the Loan Agreement from June 30, 2023 to December 31, 2025;

 

extend the interest only payment period and the period that the Company can make interest payments in PIK to December 31, 2023;

 

lower the Minimum Revenue Covenants to $8 million and $10 million for 2021 and 2022, respectively and establish revenue covenants of $12 million for 2023; $14.5 million for 2024, and $17 million for 2025;

 

change the date under the on-going stand-alone representation regarding no Material Adverse Change to December 31, 2020; and

 

amend the on-going stand-alone representation and stand-alone event of default regarding “Material Adverse Change” such that any adverse change in or effect upon the revenue of the Company and its subsidiaries due to the outbreak of COVID-19 will not constitute a Material Adverse Change.

 

11

 

Under the amended Loan Agreement, no cash payments for either principal or interest are due until the first quarter of 2024. The accrued interest will be accrued and included in the debt balance based (to the extent not paid) on principal amounts outstanding at the beginning of the quarter at an interest rate of 12.5%. Beginning in the first quarter of 2024, the Company will be required to make quarterly principal payments (in addition to the interest) of $1.9 million with total principal payments of $7.5 million in 2024 and $7.5 million in 2025. The maturity date of the Loan is December 31, 2025.

 

The Company may voluntarily prepay the borrowings in full, with a prepayment premium beginning at 5.0% and declining by 1.0% annually thereafter, with no premium being payable if prepayment occurs after seven and half years of the loan. Each tranche of borrowing required the payment, on the borrowing date, of a financing fee equal to 1.5% of the borrowed loan principal, which is recorded as a discount to the debt. In addition, a facility fee equal to 15.0% of the amounts borrowed plus any payment-in-kind (“PIK”) is to be payable at the end of the term or when the borrowings are repaid in full. A long-term liability is being accreted using the effective interest method for the facility fee over the term of the Loan Agreement with a corresponding discount to the debt. The borrowings are collateralized by a security interest in substantially all of the Company’s assets.

 

The Loan Agreement requires that the Company adheres to certain affirmative and negative covenants, including financial reporting requirements, certain minimum financial covenants for pre-specified liquidity and revenue requirements and a prohibition against the incurrence of indebtedness, or creation of additional liens, other than as specifically permitted by the terms of the Loan Agreement. In particular, the covenants of the amended Loan Agreement included a covenant that the Company maintain a minimum of $3.5 million of cash and certain cash equivalents, and the Company has to achieve certain minimum revenues. If the Company fails to meet the applicable minimum revenue target in any calendar year, the Loan Agreement provides the Company with a cure right if it prepays a portion of the outstanding principal equal to 2.0 times the revenue shortfall. In addition, the Loan Agreement prohibits the payment of cash dividends on the Company’s capital stock and also places restrictions on mergers, sales of assets, investments, incurrence of liens, incurrence of indebtedness and transactions with affiliates. CRG may accelerate the payment terms of the Loan Agreement upon the occurrence of certain events of default set forth therein, which include the failure of the Company to make timely payments of amounts due under the Loan Agreement, the failure of the Company to adhere to the covenants set forth in the Loan Agreement, the insolvency of the Company or upon the occurrence of a material adverse change.

 

As of September 30, 2021, the Company was in compliance with all applicable covenants under the Loan Agreement.

 

As of September 30, 2021, principal, final facility fee and PIK payments under the Loan Agreement, which incorporates all aforementioned amendments, were as follows (in thousands):

 

Year Ending December 31,

       

2021 (remaining three months of the year)

  $  

2022

     

2023

     

2024

    9,045  

2025

    10,339  
      19,384  

Less: Amount of PIK additions and final facility fee to be incurred subsequent to September 30, 2021

    (7,177

)

Less: Amount representing debt issuance costs

    (354

)

Borrowings, long term portion, as of September 30, 2021

  $ 11,853  

 

In connection with drawdowns under the Loan Agreement, the Company recorded aggregate debt discounts of $1.3 million as contra-debt. The debt discounts are being amortized as non-cash interest expense using the effective interest method over the term of the Loan Agreement. As of September 30, 2021 and December 31, 2020, the balance of the aggregate debt discount was approximately $354,000 and $418,000, respectively. The Company’s interest expense associated with the amortization of debt discount was approximately $21,000 and $42,000 during the three months ended September 30, 2021 and 2020, respectively. The Company’s interest expense associated with the amortization of debt discount was approximately $65,000 and $127,000 during the nine months ended September 30, 2021 and 2020, respectively. For the three months ended September 30, 2021 and 2020, the Company incurred interest expense of approximately $419,000 and $427,000, respectively. For each of the nine months ended September 30, 2021 and 2020, the Company incurred interest expense of approximately $1.2 million.

 

As of September 30, 2021, all of the CRG borrowings and associated aggregate debt discount were classified as non-current.

 

12

 

Paycheck Protection Program

 

On April 23, 2020, the Company received loan proceeds of $2.3 million (the “PPP Loan”) pursuant to the PPP under the CARES Act.

 

The Loan, which was in the form of a promissory note, dated April 20, 2020 (the “Promissory Note”), between the Company and Silicon Valley Bank (“SVB”) as the lender, was set to mature on April 20, 2022 and bore interest at a fixed rate of 1% per annum, payable monthly commencing six months from the date of the Loan. The Company may voluntarily prepay the borrowings in full with no associated penalty or premium.

 

As previously disclosed, the PPP was administered by the SBA. The SBA was given the authority under the PPP to forgive loans if all employees were kept on the payroll for a required period and the loan proceeds were used for payroll, rent and utilities. The Company applied for debt forgiveness in December 2020.

 

On April 17, 2021, the Company was notified by SVB that its PPP Loan had been fully forgiven by the U.S. Small Business Administration (the “SBA”) and that there was no remaining balance on the PPP Loan. The Company recorded the forgiveness as other income in April 2021 in the amount of $2.4 million, of which approximately $23,000 was accrued interest.

 

For the three months ended September 30, 2021, the Company incurred no interest expense. For the nine months ended September 30, 2021, the Company incurred interest expense of approximately $7,000 related to the PPP Loan. For the three and nine months ended September 30, 2020, the Company recognized interest expense of approximately $4,000 and $10,000, respectively, related to the PPP Loan.

 

 

6. Leases

 

The Company’s operating lease obligations primarily consist of leased office, laboratory, and manufacturing space under a non-cancelable operating lease. In addition to the minimum future lease commitments presented below, the lease requires the Company to pay property taxes, insurance, maintenance, and repair costs. The lease includes a rent holiday concession and escalation clauses for increased rent over the lease term. Rent expense is recognized using the straight-line method over the term of the lease. The Company records deferred rent calculated as the difference between rent expense and the cash rental payments.

 

The lease will expire on November 30, 2024. The Company is obligated to pay approximately $5.8 million in base rent payments through November 2024, beginning on December 1, 2019. The weighted average remaining lease term as of September 30, 2021 is 3.2 years.

 

The operating lease is included on the balance sheet at the present value of the future base payments discounted at a 6.5% discount rate using the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term and amount equal to the lease payments in a similar economic environment as the lease does provide an implicit rate.

 

For the three months ended September 30, 2021, our operating lease expense, excluding variable maintenance fees and other expenses paid by the Company on a monthly basis, was approximately $105,000. Rent expense for both the three months ended September 30, 2021 and 2020 was approximately $314,000. Rent expense for both the nine months ended September 30, 2021 and 2020 was approximately $942,000. Operating right-of-use asset amortization for the three months ended September 30, 2021 and 2020 was approximately $256,000 and $242,000, respectively. Operating right-of-use asset amortization for the nine months ended September 30, 2021 and 2020 was approximately $758,000 and $718,000, respectively. Due to payments being made in excess of operating lease expense recognized, the Company recorded approximately $189,000 as prepaid rent included in other assets on the condensed balance sheet as of September 30, 2021.

 

The following table presents the future operating lease payments and lease liability included on the condensed balance sheet related to the Company’s operating lease as of September 30, 2021 (in thousands):

 

Year Ending December 31,

    

2021 (remaining three months of the year)

 $283 

2022

  1,162 

2023

  1,203 

2024

  1,138 
   3,786 

Less: Imputed interest

  (378

)

Leasehold liability as of September 30, 2021

 $3,408 

 

13

 

The following table shows ROU assets and lease liabilities, and the associated financial statement line items, as of September 30, 2021 and December 31, 2020 (in thousands):

 

Lease-Related Assets and Liabilities

 

Financial Statement Line

Items

 

September 30, 2021

  

December 31, 2020

 

Right of use assets:

          

Operating lease

 

Right of use asset

 $3,408  $4,063 

Total right of use assets

 $3,408  $4,063 

Lease liabilities:

          

Operating lease

 

Leasehold liability, current portion

 $959  $806 
  

Leasehold liability, long-term portion

  2,449   3,257 

Total lease liabilities

 $3,408  $4,063 

 

 

7. Commitments and Contingencies

 

Purchase Obligations

 

Purchase obligations consist of agreements to purchase goods and services entered into in the ordinary course of business. The Company had non-cancelable commitments to suppliers for purchases totaling approximately $1.6 million as of September 30, 2021.

 

Indemnification

 

In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and may provide for indemnification of the counterparty. The Company’s exposure under these agreements is unknown because it involves claims that may be made against it in the future, but have not yet been made. To date, the Company has not been subject to any claims or been required to defend any action related to its indemnification obligations.

 

The Company indemnifies each of its directors and officers for certain events or occurrences, subject to certain limits, while the director is or was serving at the Company’s request in such capacity, as permitted under Delaware law and in accordance with its certificate of incorporation and bylaws. The term of the indemnification period lasts as long as a director may be subject to any proceeding arising out of acts or omissions of such director in such capacity. The maximum amount of potential future indemnification is unlimited; however, the Company currently holds director liability insurance. This insurance allows the transfer of risk associated with the Company’s exposure and may enable it to recover a portion of any future amounts paid. The Company believes that the fair value of these indemnification obligations is minimal. Accordingly, it has not recognized any liabilities relating to these obligations for any period presented.

 

Legal Proceedings

 

The Company is not currently involved in any pending legal proceedings that it believes could have a material adverse effect on our financial condition, results of operations or cash flows. From time to time, the Company may be involved in legal proceedings or investigations, which could harm our reputation, business and financial condition and divert the attention of our management from the operation of our business.

 

14
 

 

 

8. Stockholders Equity

 

Convertible Preferred Stock

 

As of September 30, 2021, the Company’s certificate of incorporation, as amended and restated, authorizes the Company to issue up to 5,000,000 shares of convertible preferred stock with $0.001 par value per share, of which 52,276 shares were issued and outstanding.

 

Series A Convertible Preferred Stock

 

Under the terms of the Series A Purchase Agreement, the holders of Series A preferred stock are entitled to receive annual accruing dividends at a rate of 8%, payable in additional shares of Series A preferred stock or cash, at the Company’s option. The shares of Series A preferred stock have no voting rights and rank senior to all other classes and series of the Company’s equity in terms of repayment and certain other rights. In January 2019, December 2019 and December 2020, 2,945, 3,580 and 3,866 additional shares, respectively, were issued to CRG as payment of dividends accrued through December 31, 2020. As of September 30, 2021, 52,191 shares of Series A preferred stock were outstanding. The Series A preferred stock accrued additional dividends of approximately $1.0 million and $967,000 during the quarters ended September 30, 2021 and 2020, respectively and approximately $3.1 million and $2.9 million during the nine months ended September 30, 2021 and 2020, respectively.

 

Series B Convertible Preferred Stock

 

The Series B preferred stock has a liquidation preference of $0.001 per share, full ratchet price based anti-dilution protection, has no voting rights and is subject to certain ownership limitations. The Series B preferred stock is immediately convertible at the option of the holder, has no stated maturity, and does not pay regularly stated dividends or interest. During the quarter ended March 31, 2021, 93 of these shares converted into 372,000 shares of common stock. As of September 30, 2021 and December 31, 2020, 85 shares and 178 shares of Series B preferred stock remained outstanding, respectively, which are currently convertible at $0.25 per share.

 

Common Stock

 

As of September 30, 2021, the Company’s certificate of incorporation, as amended and restated, authorizes the Company to issue up to 100,000,000 shares of common stock with $0.001 par value per share, of which 95,562,955 shares were issued and outstanding.

 

Common Stock Warrants

 

As of September 30, 2021, the Company had outstanding warrants to purchase common stock as follows:

 

  

Total

Outstanding

and

Exercisable

  

Underlying

Shares of

Common

Stock

  

Exercise

Price per

Share

 

Expiration Date

Series 1 Warrants issued in February 2018 Series B financing

  8,979,000   897,900  $20.00 

February 2025

Series 2 Warrants issued in February 2018 Series B financing

  8,709,500   870,950  $20.00 

February 2025

Warrants issued in November 2018 financing

  8,768,395   876,840  $4.00 

November 2023

Total

  26,456,895   2,645,690      

 

As of September 30, 2021 and December 31, 2020, warrants to purchase an aggregate of 2,645,690 and 2,753,999 shares of common stock were outstanding, respectively. The 1,083,091 Series B financing warrants to purchase 108,309 shares of common stock expired in July 2021.

 

15

 

Stock Plans

 

In January 2015, the Board of Directors adopted and the Company’s stockholders approved the 2015 Equity Incentive Plan (“2015 Plan”). As of September 30, 2021, 167,429 shares were available for grant under the 2015 Plan.

 

Stock option activity under the Plans is set forth below:

 

  

Number of
Shares

  

Weighted

Average
Exercise

Price

  

Weighted

Average

Remaining

Contractual

Life

(in years)

  

Intrinsic

Value

(in

thousands)

 

Balance at December 31, 2020

  6,821  $1,241.59   5.81  $ 

Expired

  (165

)

  2,801.92         

Forfeited

              

Balance at September 30, 2021

  6,656  $1,202.91   5.16  $ 
                 

Exercisable at September 30, 2021

  6,656  $1,202.91   5.16  $ 
                 

Vested and expected to vest at September 30, 2021

  6,656  $1,202.91   5.16  $ 

 

There were no options granted or exercised during the nine months ended September 30, 2021 or 2020. For the three months ended September 30, 2021 and 2020, stock-based compensation expense recognized associated with stock options vesting was approximately $0 and $9,000, respectively. For the nine months ended September 30, 2021 and 2020, stock-based compensation expense recognized associated with stock options vesting was approximately $4,000 and $51,000, respectively. As of  September 30, 2021, there is no remaining unamortized stock-based compensation expense associated with unvested stock options. Because of the Company’s net operating losses, the Company did not realize any tax benefits from share-based payment arrangements for the three and nine months ended September 30, 2021 and 2020.

 

The Company measures the fair value of RSUs using the closing stock price of a share of the Company’s common stock on the grant date and is recognized as expense on a straight-line basis over the vesting period of the award. A summary of all RSU activity is presented below:

 

  

Number of

Shares

  

Weighted

Average

Grant Date

Fair Value

  

Weighted

Average

Remaining

Contractual

Term

 

Awards outstanding at December 31, 2020

  412,642  $3.84   0.98 

Awarded

  90,000  $1.61     

Released

  (265,826

)

 $5.22     

Forfeited

  (32,364

)

 $2.68     

Awards outstanding at September 30, 2021

  204,452  $1.25   0.97 

 

As of  September 30, 2021, there was approximately $0.2 million of remaining unamortized stock-based compensation expense associated with RSUs, which will be expensed over a weighted average remaining service period of approximately one year. The 204,452 outstanding non-vested and expected to vest RSUs have an aggregate fair value of approximately $0.2 million. The Company used the closing market price of $0.74 per share at September 30, 2021, to determine the aggregate fair value for the RSUs outstanding at that date. For the nine months ended September 30, 2021 and 2020, the fair value of RSUs vested was approximately $0.3 million and $0.1 million, respectively. Stock-based compensation expense recognized associated with RSUs vested for the three months ended September 30, 2021 and 2020, was $0.2 million and $0.4 million, respectively. Stock-based compensation expense recognized associated with RSUs vested for the nine months ended September 30, 2021 and 2020 was $1.0 million and $1.1 million, respectively.

 

16

 

2018 Officer and Director Share Purchase Plan

 

There was no common stock issued under the Company’s Officer and Director Share Purchase Plan (“ODPP”) during the nine months ended September 30, 2021. As of September 30, 2021, there were 92,170 shares reserved for issuance under the ODPP.

 

 

9. Stock-Based Compensation

 

Total noncash stock-based compensation expense relating to the Company’s stock options and RSUs recognized during the three and nine months ended September 30, 2021 and 2020, is as follows (in thousands):

 

   

Three Months Ended

September 30,

   

Nine Months Ended

September 30,

 
   

2021

   

2020

   

2021

   

2020

 

Cost of revenues

  $ 24     $ 36     $ 93     $ 97  

Research and development expenses

    78       116       274       354  

Selling, general and administrative expenses

    137       232       593       709  
    $ 239     $ 384     $ 960     $ 1,160  

 

17

 

 

 

ITEM 2.

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

You should read the following discussion and analysis of our financial condition and results of operations together with the unaudited financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q. This discussion and other parts of this Quarterly Report on Form 10-Q contain forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions, that are based on the beliefs of our management, as well as assumptions made by, and information currently available to, our management. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the sections of this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K filed with the SEC on March 11, 2021 titled Risk Factors.

 

Overview

 

We are a commercial-stage medical device company that designs, manufactures and sells image-guided, catheter-based systems that are used by physicians to treat patients with peripheral artery disease, or PAD. Patients with PAD have a build-up of plaque in the arteries that supply blood to areas away from the heart, particularly the pelvis and legs. Our mission is to significantly improve the treatment of vascular disease through the introduction of products based on our Lumivascular platform, the only intravascular image-guided system available in this market.

 

We design, manufacture, and sell a suite of products in the United States and select international markets. We are located in Redwood City, California. Our current Lumivascular platform consists of products include our Lightbox imaging console, the Ocelot family of catheters, which are designed to allow physicians to penetrate a total blockage in an artery, known as a chronic total occlusion, or CTO, and the Pantheris family of catheters, our image-guided atherectomy family of catheters which is designed to allow physicians to precisely remove arterial plaque in PAD patients. We received CE Marking for our original Ocelot product in September 2011 and received from the U.S. Food and Drug Administration, or FDA, 510(k) clearance in November 2012. We received 510(k) clearance from the FDA for commercialization of Pantheris in October 2015. We received an additional 510(k) clearance for an enhanced version of Pantheris in March 2016 and commenced sales of Pantheris in the United States and select European countries promptly thereafter. In May 2018, we received 510(k) clearance from the FDA for our current next-generation version of Pantheris. In April 2019, we received 510(k) clearance from the FDA for our Pantheris SV, a version of Pantheris targeting smaller vessels, and commenced sales in July 2019.

 

In September 2020, we received 510(k) clearance of Tigereye, a next-generation CTO crossing system utilizing Avinger’s proprietary image-guided technology platform. Tigereye is a product line extension of Avinger’s Ocelot family of image-guided CTO crossing catheters. Its design elements include an upgrade of the image capture rate to provide high definition, real-time intravascular imaging similar to our Pantheris image-guided atherectomy system and a user-controlled deflectable tip designed to assist in steerability within the lumen. Tigereye also features a new distal tip configuration with faster rotational speeds designed to penetrate challenging lesions. The Tigereye catheter has a working length of 140 cm and 5 French sheath compatibility for treatment of lesions in the peripheral vessels both above and below the knee. The product became available in October 2020 for first cases in the U.S on a limited basis and launched commercially in January 2021.

 

Current treatments for PAD, including bypass surgery, can be costly and may result in complications, high levels of post-surgery pain, and lengthy hospital stays and recovery times. Minimally invasive, or endovascular, treatments for PAD include stenting, angioplasty, and atherectomy, which is the use of a catheter-based device for the removal of plaque. These treatments all have limitations in their safety or efficacy profiles and frequently result in recurrence of the disease, also known as restenosis. We believe one of the main contributing factors to high restenosis rates for PAD patients treated with endovascular technologies is the amount of vascular injury that occurs during an intervention. Specifically, these treatments often disrupt the membrane between the outermost layers of the artery, which is referred to as the external elastic lamina, or EEL.

 

We believe our Lumivascular platform is the only technology that offers real-time visualization of the inside of the artery during PAD treatment through the use of optical coherence tomography, or OCT, a high resolution, light-based, radiation-free imaging technology. Our Lumivascular platform provides physicians with real-time OCT images from the inside of an artery, and we believe Ocelot and Pantheris are the first products to offer intravascular visualization during CTO crossing and atherectomy, respectively. We believe this approach will significantly improve patient outcomes by providing physicians with a clearer picture of the artery using radiation-free image guidance during treatment, enabling them to better differentiate between plaque and healthy arterial structures. Our Lumivascular platform is designed to improve patient safety by enabling physicians to direct treatment towards the plaque, while avoiding damage to healthy portions of the artery.

 

18

 

 

During the first quarter of 2015, we completed enrollment of patients in VISION, a clinical trial designed to support our August 2015 510(k) submission to the FDA for our Pantheris atherectomy device. VISION was designed to evaluate the safety and efficacy of Pantheris to perform atherectomy using intravascular imaging and successfully achieved all primary and secondary safety and efficacy endpoints. We believe the data from VISION allows us to demonstrate that avoiding damage to healthy arterial structures, and in particular disruption of the external elastic lamina, which is the membrane between the outermost layers of the artery, reduces the likelihood of restenosis, or re-narrowing, of the diseased artery. Although the original VISION study protocol was not designed to follow patients beyond six months, we worked with 18 of the VISION sites to re-solicit consent from previous clinical trial patients in order for them to evaluate patient outcomes through 12 and 24 months following initial treatment. Data collection for the remaining patients from participating sites was completed in May 2017, and we released the final 12- and 24-month results for a total of 89 patients in July 2017.

 

During the fourth quarter of 2017, we began enrolling patients in INSIGHT, a clinical trial designed to support a submission to the FDA to expand the indication for our Pantheris atherectomy device to include in-stent restenosis. Patient enrollment began in October 2017 and is expected to continue through 2021. Patient outcomes will be evaluated at thirty days, six months and one year following treatment. In July 2021, we submitted a 510(k) application with the FDA seeking a specific indication for treating in-stent restenosis with Pantheris using the data collected and analyzed from INSIGHT.

 

We have continued development efforts on the next-generation of the Lightbox imaging console, the Lightbox 3, which is being designed to provide enhanced real-time video imaging capabilities in a much smaller form factor and at a lower cost. We filed a 510(k) submission for the Lightbox 3 in August 2021.

 

We focus our direct sales force, marketing efforts and promotional activities on interventional cardiologists, vascular surgeons and interventional radiologists. We also work on developing strong relationships with physicians and hospitals that we have identified as key opinion leaders. Although our sales and marketing efforts are directed at these physicians because they are the primary users of our technology, we consider the hospitals and medical centers where the procedure is performed to be our customers, as they typically are responsible for purchasing our products. We are designing additional future products to be compatible with our Lumivascular platform, which we expect to enhance the value proposition for hospitals to invest in our technology. Pantheris qualifies for existing reimbursement codes currently utilized by other atherectomy products, further facilitating adoption of our products.

 

We have assembled a team with extensive medical device development and commercialization experience in both start-up and large, multi-national medical device companies. We assemble all of our products at our manufacturing facility but certain critical processes, such as coating and sterilization, are performed by outside vendors. We expect our current manufacturing facility in California will be sufficient through at least 2021. We generated revenues of $9.1 million in 2019 and $8.8 million in 2020. The decline in 2020 was primarily due to the adverse effects of COVID-19 on our customers as hospitals deferred elective procedures.

 

Recent Developments

 

COVID-19 Update

 

As a result of the effects of the COVID-19 pandemic, we experienced a significant decline in sales in the second quarter of 2020, particularly as individuals, as well as hospitals and other medical providers, deferred elective procedures in response to COVID-19. Starting in the third quarter of 2020, we experienced a rebound of sales as practitioners began to once again perform elective procedures. At present, a majority of jurisdictions have lifted substantially all restrictions on performing elective procedures. Some jurisdictions have experienced and continue to experience a resurgence in cases of COVID-19 and variants of the disease, which has prompted certain hospitals and other medical providers in such areas to again defer elective procedures or further prolong or reinstate existing restrictions on such procedures. If other jurisdictions experience a resurgence in COVID-19 cases, these jurisdictions may also prolong restrictions on elective procedures. This situation has created a significant amount of volatility in the medical industry which makes future developments and results difficult to predict. While sales during 2021 increased in comparison to 2020 thus far, we believe COVID-19 has had and will continue to have an adverse effect on our ability to generate sales due to the fluctuating and unpredictable levels of capacity medical providers have to perform procedures that require the use of our products. Consequently, it is unclear whether any reduction in sales from levels experienced prior to COVID-19 is temporary and whether such sales may be recoverable in the future. In addition, we have experienced disruptions in our manufacturing and supply chain, as well as delays in site initiation and patient enrollment for our clinical studies. If we are unable to successfully complete these or other clinical studies, our business and results of operations could be harmed.

 

19

 

We have undertaken actions to manage our available cash and other resources to help mitigate the effects of COVID-19 on our business, including by adjusting production to match demand for our products and reducing discretionary costs. For example, during the second quarter of 2020, we reduced base salaries for all of our non-manufacturing employees by 20% and reduction of hours worked by our manufacturing workers by 20%. Salaries and hours worked have returned to prior levels starting in the third quarter of 2020. However, the COVID-19 pandemic and responses thereto have resulted in reduced consumer and investor confidence, instability in the credit and financial markets, volatile corporate profits, and reduced business and consumer spending, which could increase the cost of capital and/or limit the availability of capital to us in the future. These and other factors could adversely affect our ability to effectively manage our available cash and other resources.

 

Nasdaq Delisting Notice

 

On September 22, 2021, we received a letter from the Listing Qualifications Department (the “Staff”) of The Nasdaq Stock Market, LLC (“Nasdaq”) notifying the Company that the Company was not in compliance with Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Requirement”), as the minimum bid price for the Company’s listed securities was less than $1.00 for the previous 30 consecutive business days. The Company has a period of 180 calendar days, or until March 21, 2022, to regain compliance with the Minimum Bid Price Requirement. To regain compliance, the bid price of our common stock must close at $1 or more for a minimum of ten consecutive business days. The notice has no present impact on the listing of our securities on Nasdaq.

 

To regain compliance, the bid price of our common stock must close at $1 or more for a minimum of ten consecutive business days. The notice has no present impact on the listing of our securities on Nasdaq. In the event that we do not regain compliance with the Nasdaq Listing Rules prior to the expiration of the compliance period, we will receive written notification that its securities are subject to delisting. At that time, we may appeal the delisting determination to a hearings panel pursuant to the procedures set forth in the applicable Nasdaq Listing Rules. We intend to actively monitor the bid price of our common stock and will consider available options to resolve the deficiency and regain compliance with the Nasdaq Listing Rules, including conducting a reverse stock split.

 

Global Supply Chain

 

We are closely monitoring the impacts of COVID-19 and general economic conditions on global supply chain, manufacturing, and logistics operations. As inflationary pressures increase, we anticipate that our production and operating costs may similarly increase, including costs and availability of materials and labor. In addition, COVID-19 and other events, including port closures or labor shortages, have resulted in manufacturing and shipping constraints generally. While we have had sufficient inventory on-hand to meet our production requirements and customer demand, we have experienced some constraints with respect to the availability of certain materials. We have also experienced some delays in shipping products to our customers. Any significant delay or interruption in our supply chain could impair our ability to meet the demands of our customers and could harm our business.

 

Financing

 

During the three and nine months ended September 30, 2021 our net loss and comprehensive net loss was $4.9 million and $12.4 million, respectively; during the years ended December 31, 2020 and 2019, it was $19.0 million and $19.5 million, respectively. We have not been profitable since inception, and as of September 30, 2021, our accumulated deficit was $379.8 million. Since inception, we have financed our operations primarily through private and public placements of our preferred and common securities and, to a lesser extent, debt financing arrangements.

 

In September 2015, we entered into a Term Loan Agreement, or Loan Agreement, with CRG Partners III L.P. and certain of its affiliated funds, collectively CRG, under which we were able to borrow up to $50.0 million on or before March 29, 2017, subject to certain terms and conditions. We borrowed $30.0 million on September 22, 2015 and an additional $10.0 million on June 15, 2016 under the Loan Agreement. Contemporaneously with the execution of the Loan Agreement, we entered into a Securities Purchase Agreement with CRG, pursuant to which CRG purchased 870 shares of our common stock on September 22, 2015 at a price of $5,596.40 per share, which represents the 10-day average of closing prices of our common stock ending on September 21, 2015. Pursuant to the Securities Purchase Agreement, we filed a registration statement covering the resale of the shares sold to CRG and must comply with certain affirmative covenants during the time that such registration statement remains in effect.

 

20

 

On February 14, 2018, we entered into a Series A preferred stock Purchase Agreement (the “Series A Purchase Agreement”) with CRG, pursuant to which it agreed to convert $38.0 million of the outstanding principal amount of its senior secured term loan (plus the back-end fee and prepayment premium applicable thereto) under the Loan Agreement into a newly authorized Series A preferred stock. As discussed in the section of this report titled “Dividend Policy,” the holders of Series A preferred stock are entitled to receive annual accruing dividends at a rate of 8%, payable in additional shares of Series A preferred stock or cash, at our option. The shares of Series A preferred stock have no voting rights and rank senior to all other classes and series of our equity in terms of repayment and certain other rights.

 

We have entered into several amendments to the Term Loan Agreement (the “Amendments”) with CRG since September 2015, the most recent of which was entered into on January 22, 2021. The Amendments, among other things: (1) extended the interest-only period through December 31, 2023; (2) extended the period during which we may elect to pay a portion of interest in payment-in-kind, or PIK, interest payments through December 31, 2023 so long as no default has occurred and is continuing; (3) permitted us to make our entire interest payments in PIK interest payments for through December 31, 2023 so long as no default has occurred and is continuing; (4) extended the maturity date to December 31, 2025; (5) reduced the minimum liquidity requirement to $3.5 million at all times; (6) eliminated the minimum revenue covenant for 2018, 2019 and 2020; (7) reduced the minimum revenue covenant to $8 million for 2021, $10 million for 2022; (8) added minimum revenue covenants for of $12 million for 2023, $14.5 million for 2024 and $17 million for 2025; (9) changed the date under the on-going stand-alone representation regarding no “Material Adverse Change” to December 31, 2020; (10) amended the on-going stand-alone representation and stand-alone event of default regarding Material Adverse Change such that any adverse change in or effect upon the revenue of us and our subsidiaries due to the outbreak of COVID-19 will not constitute a Material Adverse Change; and (11) provided CRG with board observer rights.

 

Critical Accounting Policies and Estimates

 

Management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and assumptions for the reported amounts of assets, liabilities, revenues, expenses and related disclosures of contingent assets and liabilities. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions and any such differences may be material. There have been no significant and material changes in our critical accounting policies during the nine months ended September 30, 2021, as compared to those disclosed in “Management’s Discussion and Analysis of Financial Conditions and Results of Operations - Critical Accounting Policies and Significant Judgments and Estimates” in our most recent Annual Report on Form 10-K, as filed with the SEC on March 11, 2021.

 

Components of Our Results of Operations

 

Revenues

 

All of our revenues are currently derived from sales of our various PAD catheters in the United States and select international markets, Lightbox consoles, and related services. We expect our revenues to increase in 2021 due to the availability of our Tigereye launch in late 2020 and easing of restrictions on elective procedures due to the diminishing impact of COVID-19. No single customer accounted for more than 10% of our revenues during the three and nine months ended September 30, 2021 and 2020.

 

Revenues may fluctuate from quarter to quarter due to a variety of factors including capital equipment purchasing patterns that are typically increased towards the end of the calendar year and decreased in the first quarter. In addition, during the first quarter, our results can be harmed by adverse weather and by resetting of annual patient healthcare insurance plan deductibles, both of which may cause patients to delay elective procedures. In the third quarter, the number of elective procedures nationwide is historically lower than other quarters throughout the year, which we believe is primarily attributable to the summer vacations of physicians and their patients. Additionally, we believe COVID-19 has had and will continue to have an adverse effect on our ability to generate sales due to the fluctuating and unpredictable levels of capacity medical providers have to perform procedures that require the use of our products.

 

21

 

Cost of Revenues and Gross Margin

 

Cost of revenues consists primarily of costs related to manufacturing overhead, materials and direct labor. We expense all warranty costs and inventory provisions as cost of revenues. We periodically write down inventory for estimated excess, obsolete and non-sellable inventories based on assumptions about future demand, past usage, changes to manufacturing processes and overall market conditions. A significant portion of our cost of revenues currently consists of manufacturing overhead costs. These overhead costs include the cost of quality assurance, material procurement, inventory control, facilities, equipment and operations supervision and management. We expect overhead costs as a percentage of revenues to become less significant as our production volume increases. Cost of revenues also includes depreciation expense for production equipment, depreciation and related maintenance expense for placed Lightboxes held by customers and certain direct costs such as those incurred for shipping our products.

 

We calculate gross margin as gross profit divided by revenues. Our gross margin has been and will continue to be affected by a variety of factors, primarily production volumes, manufacturing costs, product yields, headcount, charges for excess and obsolete inventories and cost-reduction strategies. We intend to use our design, engineering and manufacturing capabilities to further advance and improve the efficiency of our manufacturing processes, which we believe will reduce costs and increase our gross margin. In the future, we may seek to manufacture certain of our products outside the United States to further reduce costs. Our gross margin will likely fluctuate from quarter to quarter as we continue to introduce new products and sales channels, and as we adopt new manufacturing processes and technologies.

 

Research and Development Expenses

 

Research and development, or R&D, expenses consist primarily of engineering, product development, clinical and regulatory affairs, consulting services, materials, depreciation, and other costs associated with products and technologies in development. These expenses include employee compensation, including stock-based compensation, supplies, materials, quality assurance expenses allocated to R&D programs, consulting, related travel expenses and facilities expenses. Clinical expenses include clinical trial design, clinical site reimbursement, data management, travel expenses and the cost of manufacturing products for clinical trials. We expect R&D expenses to vary over time depending on the level and timing of our new product development efforts, as well as our clinical development, clinical trial, and other related activities.

 

Selling, General and Administrative Expenses

 

Selling, general and administrative, or SG&A, expenses consist primarily of compensation for personnel, including stock-based compensation, selling and marketing functions, physician education programs, business development, finance, information technology and human resource functions. Other SG&A expenses include commissions, training, travel expenses, educational and promotional activities, marketing initiatives, market research and analysis, conferences and trade shows, professional services fees, including legal, audit and tax fees, insurance costs and general corporate expenses. We expect SG&A expenses to increase as we expand our commercial efforts.

 

Interest Expense, net

 

Interest expense, net consists primarily of interest incurred on our outstanding indebtedness and non-cash interest related to the amortization of debt discount and issuance costs associated with our various debt agreements.

 

Other Income, net

 

Other income, net primarily consists of gains and losses resulting from the remeasurement of foreign exchange transactions and other miscellaneous income and expenses.

 

22

 

Results of Operations:

 

   

Three Months Ended

September 30,

   

Nine Months Ended

September 30,

 
   

2021

   

2020

   

2021

   

2020

 
   

(in thousands, except percentages)

 

Revenues

  $ 2,366     $ 2,302     $ 7,727     $ 6,029  

Cost of revenues

    1,566       1,525       5,015       4,392  

Gross profit

    800       777       2,712       1,637  

Gross margin

    34

%

    34

%

    35

%

    27

%

Operating expenses:

                               

Research and development

    1,397       1,417       4,502       4,308  

Selling, general and administrative

    3,892       3,461       11,755       10,501  

Total operating expenses

    5,289       4,878       16,257       14,809  

Loss from operations

    (4,489

)

    (4,101

)

    (13,545

)

    (13,172

)

Interest expense, net

    (419

)

    (432

)

    (1,214

)

    (1,212

)

Other income, net

    (4

)

    8       2,343       8  

Net loss and comprehensive loss

  $ (4,912

)

  $ (4,525

)

  $ (12,416

)

  $ (14,376

)

Accretion of preferred stock dividends

    (1,044

)

    (967

)

    (3,132

)

    (2,901

)

Net loss applicable to common stockholders

  $ (5,956

)

  $ (5,492

)

  $ (15,548

)

  $ (17,277

)

 

 

Comparison of Three Months Ended September 30, 2021 and 2020

 

Revenues.

 

For the three months ended September 30, 2021, revenue increased by approximately $0.1 million or 3% compared to the three months ended September 30, 2020. The increased revenues reflect the impact of the commercial release of our Tigereye product in January 2021 partially offset by fluctuating demand resulting from uncertainties due to COVID-19 as capacity limitations in hospitals have limited the ability of practitioners to perform elective surgical procedures using our products. We anticipate that COVID-19 could continue to impact hospital capacities, and related demand for our products, for the foreseeable future.

 

Cost of Revenues and Gross Margin.

 

For the three months ended September 30, 2021, cost of revenues increased by less than $0.1 million or 3% compared to the three months ended September 30, 2020. This increase was primarily attributable to the increase in revenues. Stock-based compensation expense within cost of revenues totaled $24,000 and $36,000 for the three months ended September 30, 2021 and 2020, respectively.

 

Gross margin for the three months ended September 30, 2021 of 34% remained flat in comparison to the three months ended September 30, 2020. The gross margin is primarily affected by economies of scale relating to fluctuating levels of production, excess and obsolete charges and customer mix shifts, which were comparable for the three months ended September 30, 2021 and 2020.

 

Research and Development Expenses (R&D).

 

R&D expense for the three months ended September 30, 2021 remained flat compared to the three months ended September 30, 2020 as there are similar compensation expenses subsequent to the cessation of cost reduction measures taken due to COVID-19 in the second quarter of 2020 and similar project spending for next generation products. Stock-based compensation expense within R&D totaled approximately $0.1 million for each of the three months ended September 30, 2021 and 2020.

 

Selling, General and Administrative Expenses (“SG&A).

 

SG&A expense for the three months ended September 30, 2021 increased by approximately $0.4 million or 12%, compared to the three months ended September 30, 2020, primarily due to increased variable compensation which include retention bonuses, increases to the salesforce and selling and marketing ancillary costs. Stock-based compensation expense within SG&A totaled approximately $0.1 million and $0.2 million for the three months ended September 30, 2021 and 2020, respectively.

 

23

 

Interest Expense, Net.

 

Interest expense, net for the three months ended September 30, 2021 decreased by less than $0.1 million or 3%, compared to the three months ended September 30, 2020, primarily due to the amendment of the CRG loan partially offset by lower interest income as compared to the prior year period, due to the decline in the money market interest rates during the period.

 

Other Income, Net. 

 

Other income, net primarily consists of gains and losses resulting from the remeasurement of foreign exchange transactions and other miscellaneous income and expenses. Other income, net for the three months ended September 30, 2021 remained flat in comparison to the three months ended September 30, 2020 as both periods consisted primarily of remeasurement gains and losses from foreign exchange transactions which are typically a small percentage of transaction volume, thus resulting in nominal changes between periods.

 

Comparison of Nine Months Ended September 30, 2021 and 2020

 

Revenues. 

 

For the nine months ended September 30, 2021, revenue increased by $1.7 million or 28% compared to the nine months ended September 30, 2020. The increased revenues reflect the impact of the commercial release of our Tigereye product in January 2021 and the rebounding of sales from COVID-19 as practitioners have once again started to perform elective surgical procedures in certain jurisdictions. As mentioned previously, we have experienced fluctuating demand resulting from uncertainties due to the impact of COVID-19 on capacity limitations in hospitals. However, the capacity limitations experienced thus far in the nine months ended September 30, 2021 are not as pervasive, and haven’t had as profound an impact on revenues, in comparison to the corresponding period in the prior fiscal year. We anticipate that COVID-19 could continue to impact hospital capacities, and related demand for our products, for the foreseeable future.

 

Cost of Revenues and Gross Margin.

 

For the nine months ended September 30, 2021, cost of revenues increased by $0.6 million or 14% compared to the nine months ended September 30, 2020. This increase was primarily attributable to the increase in revenues. Stock-based compensation expense within cost of revenues totaled $0.1 million for each of the nine months ended September 30, 2021 and 2020.

 

Gross margin for the nine months ended September 30, 2021 increased to 35%, compared to 27% in the nine months ended September 30, 2020. The increase in gross margin was primarily due to the rebound of revenues from the significant decline experienced during the three months ended June 30, 2020 due to COVID-19, the economies of scale relating to increased levels of production, lower excess and obsolete charges and favorable customer mix shift.

 

Research and Development Expenses (R&D).

 

R&D expense for the nine months ended September 30, 2021 increased by $0.2 million or 5%, compared to the nine months ended September 30, 2020 primarily due to increases in compensation expense resulting from the cessation of cost reduction measures taken due to COVID-19 in the third quarter of 2020 and higher project spending for next generation products such as the Lightbox 3. Stock-based compensation expense within R&D totaled approximately $0.3 million and $0.4 million for the nine months ended September 30, 2021 and 2020, respectively.

 

Selling, General and Administrative Expenses (“SG&A).

 

SG&A expense for the nine months ended September 30, 2021 increased by $1.3 million or 12%, compared to the nine months ended September 30, 2020, primarily due to increases in compensation expense resulting from the cessation of cost reduction measures taken due to COVID-19 in the third quarter of 2020 and increased variable compensation resulting from the rebounding of sales as practitioners have once again started to perform elective surgical procedures. Stock-based compensation expense within SG&A totaled approximately $0.6 million and $0.7 million for the nine months ended September 30, 2021 and 2020, respectively.

 

Interest Expense, Net.

 

Interest expense, net for the nine months ended September 30, 2021 remained flat compared to the nine months ended September 30, 2020 primarily due to the amendment of the CRG loan partially offset by lower interest income as compared to the prior year period, due to the decline in the money market interest rates during the period.

 

24

 

Other Income, Net.

 

Other income, net primarily consists of gains and losses resulting from the remeasurement of foreign exchange transactions and other miscellaneous income and expenses. Other income, net for the nine months ended September 30, 2021 increased $2.3 million in comparison to the nine months ended September 30, 2020 as the PPP loan was fully forgiven resulting in a gain on extinguishment of that debt. Both periods included remeasurement gains and losses from foreign exchange transactions which are typically a small percentage of transaction volume, usually resulting in nominal changes between periods.

 

Liquidity and Capital Resources

 

As of September 30, 2021, we had cash and cash equivalents of $23.1 million and an accumulated deficit of $379.8 million, compared to cash and cash equivalents of $22.2 million and an accumulated deficit of $367.3 million as of December 31, 2020. We expect to incur losses for the foreseeable future. We believe that our cash and cash equivalents of $23.1 million at September 30, 2021 and expected revenues, debt and financing activities and funds from operations will be sufficient to allow us to fund our current operations through 2022.

 

To date, we have financed our operations primarily through net proceeds from the issuance of our preferred stock and debt financings, our “at-the-market” program, our initial public offering, or IPO, our follow-on public offerings and warrant issuances. We do not know when or if our operations will generate sufficient cash to fund our ongoing operations. Additional debt financing, if available, may involve covenants restricting our operations or our ability to incur additional debt. Any additional debt financing or additional equity that we raise may contain terms that are not favorable to us or our stockholders and require significant debt service payments, which divert resources from other activities. Additional financing may not be available at all, or if available, may not be in amounts or on terms acceptable to us. If we are unable to obtain additional financing, we may be required to delay the development, commercialization and marketing of our products and we may be required to significantly scale back our business and operations.

 

In addition, the COVID-19 pandemic and responses thereto have resulted in reduced consumer and investor confidence, instability in the credit and financial markets, volatile corporate profits, restrictions on elective medical procedures, and reduced business and consumer spending, which could increase the cost of capital and/or limit the availability of capital to us. While we have taken certain actions to manage our available cash and other resources to mitigate the effects of COVID-19 on our business, there can be no assurance that such strategies will be successful in mitigating the negative impacts of the COVID-19 pandemic on our liquidity and capital resources.

 

Equity Financings

 

On January 31, 2020, we completed a public offering of 6,428,572 shares of common stock at an offering price of $0.70 per share. As a result, we received net proceeds of approximately $3.9 million after underwriting discounts, commissions, legal and accounting fees, and other ancillary expenses. Due to anti-dilution provisions, the conversion price of the outstanding shares of Series B preferred stock, which was issued in our February 2018 offering, was reduced to $0.70 per share.

 

On April 30, 2020, we completed a public offering of 12,600,000 shares of common stock at an offering price of $0.25 per share. On May 6, 2020 we issued an additional 1,890,000 shares of common stock at the same offering price pursuant to the exercise in full of the underwriter’s over-allotment option in connection with the aforementioned offering. As a result, we received aggregate net proceeds of approximately $3.0 million after underwriting discounts, commissions, legal and accounting fees, and other ancillary expenses. Due to anti-dilution provisions, the conversion price of the outstanding shares of Series B preferred stock, which was issued in our February 2018 offering, was reduced to $0.25 per share.

 

On June 26, 2020, we completed a public offering of 20,000,000 shares of common stock at an offering price of $0.27 per share. On July 9, 2020 we issued an additional 3,000,000 shares of common stock at the same offering price pursuant to the exercise in full of the underwriter’s over-allotment option in connection with the aforementioned offering resulting in $0.7 million of additional net proceeds. As a result, we received aggregate net proceeds of approximately $5.5 million including the overallotment option and after underwriting discounts, commissions, legal and accounting fees, and other ancillary expenses.

 

On August 6, 2020, under our universal shelf registration statement filed on March 7, 2019 (the “Shelf Registration Statement”), we completed a public offering of 15,789,474 shares of common stock at an offering price of $0.38 per share. On August 11, 2020 we issued an additional 2,368,421 shares of common stock at the same offering price pursuant to the exercise in full of the underwriter’s over-allotment option in connection with the aforementioned offering. As a result, we received aggregate net proceeds of approximately $6.2 million after underwriting discounts, commissions, legal and accounting fees, and other ancillary expenses.

 

25

 

On August 25, 2020, under the Shelf Registration Statement, we completed a public offering of 11,063,830 shares of common stock at an offering price of $0.47 per share. On September 1, 2020 we issued an additional 1,000,000 shares of common stock at the same offering price pursuant to the exercise in full of the underwriter’s over-allotment option in connection with the aforementioned offering. As a result, we received aggregate net proceeds of approximately $5.1 million after underwriting discounts, commissions, legal and accounting fees, and other ancillary expenses.

 

On February 2, 2021, under the Shelf Registration Statement, we completed a bought deal offering of 10,000,000 shares of common stock at an offering price of $1.44 per share. As a result, we received aggregate net proceeds of approximately $13.1 million after underwriting discounts, commissions, legal and accounting fees, and other ancillary expenses.

 

CRG Loan

 

On March 2, 2020, we and CRG further amended the Loan Agreement to change the date upon which cash payments for interest will commence from the first quarter of 2020 to the third quarter of 2021. No cash payments for principal will be made until the final two years of the loan, which matures in June 2023. On May 12, 2020, we and CRG entered into another amendment to waive the requirement that we comply with the minimum required revenue covenant for 2020 and granted us the ability to optionally prepay in whole or in part the outstanding principal amount of the Loans for the Redemption Price. The total CRG Loan amount, shown as long-term borrowings on the balance sheet as of September 30, 2021, is $11.9 million. However, upon maturity of the debt in December 2025, we will be obligated to pay $19.4 million under the CRG Loan, which includes future interest to be accrued but not paid in cash as well as a $2.2 million back-end fee to be paid in December 2025 upon maturity of the CRG Loan which is being accreted to the maturity date. Refer to Part I, Item 1 “Unaudited Financial Statements, Footnote 5. Borrowings” for additional details.

 

Cash Flows

 

   

Nine Months Ended September 30,

 
   

2021

   

2020

 
   

(in thousands)

 

Net cash (used in) provided by:

               

Operating activities

  $ (12,166

)

  $ (11,671

)

Investing activities

    (18

)

    40  

Financing activities

    13,077       26,014  

Net change in cash and cash equivalents

  $ 893     $ 14,383  

 

Net Cash Used in Operating Activities

 

Net cash used in operating activities for the nine months ended September 30, 2021 was $12.2 million, consisting primarily of a net loss of $12.4 million and an increase in net operating assets of approximately $0.3 million, and net non-cash gains of $0.6 million. We recognized a non-cash gain on extinguishment of debt due to the forgiveness of the PPP Loan of $2.4 million. This gain was partially offset by non-cash charges related to stock-based compensation of $1.0 million, non-cash interest expense of $1.2 million, and depreciation of $0.5 million. The increase in net operating assets was primarily due to the increase in inventory and prepaid expenses, and a decrease in accrued compensation; partially offset by an increase in accounts payable and other long-term liabilities.

 

Net cash used in operating activities for the nine months ended September 30, 2020 was $11.7 million, consisting primarily of a net loss of $14.4 million and an increase in net operating assets of approximately $0.8 million, partially offset by non-cash charges of $3.5 million. Non-cash charges largely related to stock-based compensation of $1.2 million, non-cash interest expense of $1.1 million, depreciation of $0.7 million and provisions for excess and obsolete inventory of $0.4 million. The increase in net operating assets was primarily due to the increase in prepaid expenses and inventory and decreases in accrued compensation; partially offset by a decrease in accounts receivable.

 

Net Cash Used in Investing Activities

 

Net cash used in investing activities during the nine months ended September 30, 2021 consisted of purchases of property and equipment.

 

Net cash provided by investing activities during the nine months ended September 30, 2020 was $40,000 resulting from the proceeds from the sale of property and equipment.

 

26

 

Net Cash (Used in) Provided by Financing Activities

 

Net cash provided by financing activities in the nine months ended September 30, 2021 of $13.1 million relates to proceeds from the issuance of common stock in our February 2021 public offering, net of various issuance costs.

 

Net cash provided by financing activities in the nine months ended September 30, 2020 of $26.0 million primarily relates to proceeds from the issuance of common stock in our public offerings, net of various issuance costs and proceeds of $2.3 million from borrowings pursuant to the PPP under the CARES Act.

 

Off-Balance Sheet Arrangements

 

We currently have no off-balance sheet arrangements, such as structured finance, special purpose entities, or variable interest entities.

 

Contractual Obligations

 

Our principal obligations consist of the operating lease for our facility, our Loan Agreement with CRG, and non-cancelable purchase commitments. The following table sets out our contractual obligations as of September 30, 2021 due by period (in thousands):

 

   

Payments Due by Period

 
   

Less Than
1 Year

   

2 - 3
Years

   

4-5 Years

   

More
Than 5
Years

   

Total

 

Operating lease obligations (1)

  $ 1,152     $ 2,427     $ 207     $     $ 3,786  

CRG Loan (2)

          6,871       12,513             19,384  

Noncancelable purchase commitments (3)

    1,610       3       29             1,642  
    $ 2,762     $ 9,301     $ 12,749     $     $ 24,812  

 

(1)

Operating lease obligations primarily consist of leased office, laboratory, and manufacturing space under a non-cancelable operating lease. In addition to the minimum future lease commitments presented above, the lease requires the Company to pay property taxes, insurance, maintenance, and repair costs. The lease will expire on November 30, 2024.

(2)

The total CRG Loan amount, shown as borrowings on the balance sheet as of September 30, 2021, is $11.9 million. The contractual obligation in the table above of $19.4 million under the CRG Loan includes future interest to be accrued but not paid in cash as well as a $2.2 million back-end fee to be paid in December 2025 upon maturity of the CRG Loan which is being accreted. For more information, see above and Part I, Item 1 “Unaudited Financial Statements, Footnote 5. Borrowings.”

(3)

Noncancelable Purchase obligations consist of agreements to purchase goods and services entered into in the ordinary course of business.

 

27

 

 

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Interest Rate Risk

 

The risk associated with fluctuating interest rates is primarily limited to our cash equivalents, which are carried at quoted market prices. Due to the short-term maturities and low risk profile of our cash equivalents, an immediate 100 basis point change in interest rates would not have a material effect on the fair value of our cash equivalents. We do not currently use or plan to use financial derivatives in our investment portfolio.

 

Credit Risk

 

As of September 30, 2021 and December 31, 2020, our cash and cash equivalents were maintained with one financial institution in the United States, and our current deposits are likely in excess of insured limits. We have reviewed the financial statements of this institution and believe it has sufficient assets and liquidity to conduct its operations in the ordinary course of business with little or no credit risk to us.

 

Our accounts receivable primarily relate to revenues from the sale of our Lumivascular platform products to hospitals and medical centers in the United States. At September 30, 2021 and December 31, 2020, there was one customer that represented 11% and 14% of the Company’s accounts receivable, respectively.

 

Foreign Currency Risk

 

Our business is primarily conducted in U.S. dollars. Any transactions that may be conducted in foreign currencies are not expected to have a material effect on our results of operations, financial position or cash flows.

 

ITEM 4.

CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended, or the Exchange Act, and the rules and regulations thereunder, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

 

As required by Rule 13a-15(b) under the Exchange Act, our management, under the supervision and with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2021. Based on such evaluation, our principal executive officer and principal financial officer have concluded that, as of September 30, 2021, our disclosure controls and procedures were effective.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal controls over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the three months ended September 30, 2021 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

PART II. 

OTHER INFORMATION

 

 

ITEM 1. 

LEGAL PROCEEDINGS

   

None.

 

28

 

 

ITEM 1A.

RISK FACTORS

 

Our business, financial condition and results of operations can be affected by a number of factors, whether currently known or unknown, including but not limited to those described in Part I, Item 1A of our annual report on Form 10-K for the year ended December 31, 2020 and Part II, Item 1A of our quarterly report on Form 10-Q for the period ended June 30, 2021 under the heading “Risk Factors.” In addition to those risk factors, the below risk factors are applicable to us. Any one or more of these risk factors could, in whole or in part, directly or indirectly, materially adversely impact our business and stock price and cause our actual financial condition and results of operations to vary materially from its past, or its anticipated future, financial condition and results of operations.

 

Nasdaq may delist our securities from its exchange, which could harm our business and limit our stockholders’ liquidity.

 

Our common stock is currently listed on the Nasdaq Capital Market (“Nasdaq”), which has qualitative and quantitative listing criteria. However, we cannot assure you that our common stock will continue to be listed on Nasdaq in the future. In order to continue listing our common stock on Nasdaq, we must maintain certain financial, distribution and stock price levels. Generally, we must maintain a minimum amount in stockholders’ equity, a minimum number of holders of our common stock and a minimum bid price.

 

On September 22, 2021, we received a letter from Nasdaq’s Listing Qualifications Department notifying us that we were not in compliance with Nasdaq Listing Rule 5550(a)(2), as the minimum bid price for our listed securities was less than $1 for the previous 30 consecutive business days. We have a period of 180 calendar days, or until March 21, 2022, to regain compliance with the rule referred to in this paragraph. To regain compliance, the bid price of our common stock must close at $1 or more for a minimum of ten consecutive business days. The notice has no present impact on the listing of our securities on Nasdaq.

 

In the event that we do not regain compliance with the Nasdaq Listing Rules prior to the expiration of the compliance period, we will receive written notification that our securities are subject to delisting. At that time, we may appeal the delisting determination to a hearings panel pursuant to the procedures set forth in the applicable Nasdaq Listing Rules. We intend to actively monitor our bid price and will consider available options to resolve the deficiency and regain compliance with the Nasdaq Listing Rules, including considering whether to conduct a reverse stock split.

 

If Nasdaq delists our common stock from trading on its exchange and we are not able to list our securities on another national securities exchange, we expect our securities could be quoted on an over-the-counter market. If this were to occur, we could face significant material adverse consequences, including:

 

 

a limited availability of market quotations for our securities;

 

 

reduced liquidity for our securities;

 

 

a determination that our common stock is a “penny stock” which will require brokers trading in our common stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our securities;

 

 

a limited amount of news and analyst coverage; and

 

 

a decreased ability to issue additional securities or obtain additional financing in the future.

 

The National Securities Markets Improvement Act of 1996, which is a federal statute, prevents or preempts the states from regulating the sale of certain securities, which are referred to as “covered securities.” If our common stock continues to be listed on Nasdaq, our common stock will be a covered security. Although the states are preempted from regulating the sale of our securities, the federal statute does allow the states to investigate companies if there is a suspicion of fraud, and, if there is a finding of fraudulent activity, then the states can regulate or bar the sale of covered securities in a particular case.

 

29

 

We depend on third-party vendors to manufacture some of our components, coating and sub-assemblies, including some single source suppliers, which could make us vulnerable to supply shortages and price fluctuations that could harm our business.

 

We currently manufacture some of our components and sub-assemblies at our Redwood City facility and rely on third-party vendors for other components and sub-assemblies used in our Lumivascular platform. For several of our components and sub-assemblies we rely on single and limited source suppliers. For example, we rely on single vendors for our optical fiber, coatings and drive cables that are key components of our catheters, and we rely on single vendors for our laser and data acquisition card that are key components of our Lightbox. These components are critical to our products and there are relatively few alternative sources of supply. Further, we do not carry a significant inventory of these components. Our reliance on third-party vendors subjects us to a number of risks that could impact our ability to manufacture our products and harm our business, including:

 

 

interruption of supply resulting from modifications to, or discontinuation of, a supplier’s operations;

   

 

 

delays in shipments resulting from slowdowns in manufacturing due to the COVID-19 pandemic or other causes, such as government restrictions on the movement of people and goods;

 

 

delays in product shipments resulting from uncorrected defects, reliability issues or a supplier’s failure to consistently produce quality components;

 

 

price fluctuations due to a lack of long-term supply arrangements with our suppliers for key components;

 

 

inability to obtain adequate supply in a timely manner or on commercially reasonable terms;

 

 

difficulty identifying and qualifying alternative or additional suppliers for components in a timely manner;

 

 

inability of the manufacturer or supplier to comply with QSR as enforced by the FDA and state regulatory authorities;

 

 

inability to control the quality of products manufactured by third parties;

 

 

production delays related to the evaluation and testing of products from alternative suppliers and corresponding regulatory qualifications; and

 

 

delays in delivery by our suppliers due to changes in demand from us or their other customers.

 

The ongoing COVID-19 pandemic and measures taken in response by governments and businesses worldwide to contain its spread, including quarantines, facility closures, travel and logistics restrictions, border controls, and shelter in place or stay at home and social distancing orders, have adversely impacted and are expected to continue to adversely impact global supply chain, manufacturing, and logistics operations. Shipping and freight delays have also been increasing as port closures, port congestion, and shipping container and ship shortages have increased over the last several months. To the extent the COVID-19 pandemic and other events result in continuation or worsening of manufacturing and shipping delays and constraints, our suppliers of raw materials and other components may have difficulty obtaining and providing the materials we require to manufacture our products, which could adversely affect our ability to acquire and maintain adequate inventory and meet demand for our products. In addition, any significant delay or interruption in the supply of components or sub-assemblies, or our inability to obtain substitute components, sub-assemblies or materials from alternate sources at acceptable prices in a timely manner, could impair our ability to meet the demand of our customers and harm our business.

 

Disruptions of our supply chain could have a material adverse effect on our operating and financial results.

 

Disruption of our supply chain capabilities due to trade restrictions, political instability, severe weather, natural disasters, public health crises such as the ongoing COVID-19 pandemic, terrorism, product recalls, labor supply or stoppages, the financial or operational instability of key suppliers and carriers, government restrictions or measures, or other reasons could impair our ability to distribute our products. Many industries, including our own, face supply chain challenges as a result of COVID-19 and other macroeconomic issues, including reduced freight availability and increased costs, port disruption, manufacturing facility closures, labor shortages and other supply chain disruptions. To the extent we are unable to mitigate the likelihood or potential impact of such events, there could be a material adverse effect on our operating and financial results.

 

30

 

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None.

 

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4.

MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5.

OTHER INFORMATION

 

None.

 

31

 

 

ITEM 6.

EXHIBITS

 

The following exhibits are being filed herewith:

 

Exhibit
Number

 

Exhibit Title

     

3.1

 

Amended and Restated Bylaws of Avinger, Inc., as amended on October 27, 2021.

     

3.2(1)

 

Amendment to the Amended and Restated Bylaws of Avinger, Inc., dated as of October 27, 2021.

     

31.1

 

Certification of the Principal Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

     

31.2

 

Certification of the Principal Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

     

32.1*

 

Certifications of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

     

101.INS

 

XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document

     

101.SCH

 

Inline XBRL Taxonomy Extension Schema Document

     

101.CAL

 

Inline XBRL Taxonomy Extension Calculation Linkbase Document

     

101.DEF

 

 Inline XBRL Taxonomy Extension Definition Linkbase Document

     

101.LAB

 

Inline XBRL Taxonomy Extension Label Linkbase Document

     

101.PRE

 

Inline XBRL Taxonomy Extension Presentation Linkbase Document

     

104

 

Cover Page Interactive Data File––the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

 


 

*

The certifications filed as Exhibits 32.1 are not deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 and are not to be incorporated by reference into any filing of the Company under the Securities Exchange Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date hereof irrespective of any general incorporation by reference language contained in any such filing, except to the extent that the registrant specifically incorporates it by reference.

(1)

Previously filed as an Exhibit to the registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 29, 2021, and incorporated by reference herein.

 

32

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

Avinger, Inc.

 

(Registrant)

   
   

Date: November 12, 2021

/s/ JEFFERY M. SOINSKI

 

Jeffrey M. Soinski

 

Chief Executive Officer

 

(Principal Executive Officer)

   

Date: November 12, 2021

/s/ MARK WEINSWIG

 

Mark Weinswig

 

Chief Financial Officer

 

(Principal Financial and Accounting Officer)

 

33