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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, 2023

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 October 23, 2023, the number of outstanding shares of the registrant’s common stock, par value $0.001 per share, was 1,370,118.

 

 


 

 

 

 

 

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:

 

 

our ability to continue as a going concern;

 

 

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

 

 

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 which may include but are not limited to additional versions of Pantheris, Ocelot, Tigereye and Lightbox;

 

 

the expected timing of 510(k) submission to the FDA, and associated marketing clearances by the FDA, which may include but are not limited to additional versions of Pantheris, Ocelot, Tigereye 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 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 ability to identify and develop new and planned products and acquire new products, including those for the coronary market;

 

 

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 16, 2023 and amended on March 17, 2023. 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, 2023

 

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

20

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

33

Item 4.

Controls and Procedures

33
     

Part II

Other Information

33

Item 1.

Legal Proceedings

33

Item 1A.

Risk Factors

34

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

38

Item 3.

Defaults Upon Senior Securities

38

Item 4.

Mine Safety Disclosures

38

Item 5.

Other Information

39

Item 6.

Exhibits

40
     

Signatures

41

 

“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,

 
   

2023

   

2022

 

Assets

               

Current assets:

               

Cash and cash equivalents

  $ 8,725     $ 14,603  

Accounts receivable, net of allowance for doubtful accounts of $24 and $73 at September 30, 2023 and December 31, 2022, respectively

    828       1,057  

Inventories, net

    5,580       4,965  

Prepaid expenses and other current assets

    550       362  

Total current assets

    15,683       20,987  
                 

Right of use asset

    1,384       2,194  

Property and equipment, net

    528       702  

Other assets

    249       312  

Total assets

  $ 17,844     $ 24,195  
                 

Liabilities and stockholders equity

               

Current liabilities:

               

Accounts payable

  $ 549     $ 631  

Accrued compensation

    1,947       1,401  

Accrued expenses and other current liabilities

    897       657  

Leasehold liability, current portion

    1,179       1,092  

Borrowings

    13,794       14,165  

Total current liabilities

    18,366       17,946  
                 

Leasehold liability, long-term portion

    205       1,102  

Other long-term liabilities

    627       1,001  

Total liabilities

    19,198       20,049  
                 

Commitments and contingencies (Note 6)

           
                 

Stockholders (deficit) equity:

               

Convertible preferred stock issuable in series, par value of $0.001;

               

Shares authorized: 5,000,000 at September 30, 2023 and December 31, 2022;

               

Shares issued and outstanding: 62,881 and 60,961 at September 30, 2023 and December 31, 2022, respectively; aggregate liquidation preference of $62,796 and $60,876 at September 30, 2023 and December 31, 2022, respectively

           

Common stock, par value of $0.001;

               

Shares authorized: 100,000,000 at September 30, 2023 and December 31, 2022;

               

Shares issued and outstanding: 1,279,928 and 522,177 at September 30, 2023 and December 31, 2022, respectively

    1       8  

Additional paid-in capital

    414,317       406,514  

Accumulated deficit

    (415,672

)

    (402,376

)

Total stockholders’ (deficit) equity

    (1,354

)

    4,146  

Total liabilities and stockholders’ (deficit) equity

  $ 17,844     $ 24,195  

 

All share and per share data reflect the impact of the reverse stock split effective September 12, 2023. 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,

 
   

2023

   

2022

   

2023

   

2022

 

Revenues

  $ 1,817     $ 2,252     $ 5,746     $ 6,272  

Cost of revenues

    1,429       1,462       4,117       4,301  

Gross profit

    388       790       1,629       1,971  
                                 

Operating expenses:

                               

Research and development

    1,044       1,086       3,388       3,244  

Selling, general and administrative

    3,377       3,384       10,261       10,862  

Total operating expenses

    4,421       4,470       13,649       14,106  

Loss from operations

    (4,033

)

    (3,680

)

    (12,020

)

    (12,135

)

                                 

Interest expense, net

    (455

)

    (407

)

    (1,292

)

    (1,286

)

Other income (expense), net

    12             16       (20

)

Net loss and comprehensive loss

    (4,476

)

    (4,087

)

    (13,296

)

    (13,441

)

Waiver (accretion) of preferred stock dividends

    2,436       (1,127

)

          (3,381

)

Deemed dividend arising from beneficial conversion feature of convertible preferred stock

                      (5,111

)

Net loss applicable to common stockholders

  $ (2,040

)

  $ (5,214

)

  $ (13,296

)

  $ (21,933

)

                                 

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

  $ (2.92

)

  $ (11.51

)

  $ (21.48

)

  $ (56.67

)

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

    698       453       619       387  

 

All share and per share data reflect the impact of the reverse stock split effective September 12, 2023. See accompanying notes.

 

2

 

 

 

AVINGER, INC.

CONDENSED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)

(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, 2022

    56,451     $       405,422     $ 6     $ 399,422     $ (394,107

)

  $ 5,321  

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

                63,943       1       4,799             4,800  

Exercise of pre-funded warrants for common stock

                25,801                          

Issuance of common stock upon vesting of restricted stock units

                544                          

Employee stock-based compensation

                            39             39  

Accretion of Series A preferred stock dividends

                            (1,127

)

          (1,127

)

Net and comprehensive loss

                                  (4,087

)

    (4,087

)

Balance at September 30, 2022

    56,451     $       495,710     $ 7     $ 403,133     $ (398,194

)

  $ 4,946  

 

 

   

Convertible

Preferred Stock

   

Common Stock

   

Additional

Paid-in

   

Accumulated

   

Total Stockholders

 
   

Shares

   

Amount

   

Shares

   

Amount

   

Capital

   

Deficit

   

Deficit

 

Balance at June 30, 2023

    60,961     $       622,578     $ 9     $ 404,597     $ (411,196

)

  $ (6,590

)

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

                600,454       1       5,136             5,137  

Conversion of CRG loan principal into Series E convertible preferred stock

    1,920                         1,920             1,920  

Employee stock-based compensation

                            219             219  

Reclassifications and adjustments due to rounding impact from reverse stock split for fractional shares

                56,896       (9

)

    9              

Waiver of Series A preferred stock dividends

                            2,436             2,436  

Net and comprehensive loss

                                  (4,476

)

    (4,476

)

Balance at September 30, 2023

    62,881     $       1,279,928     $ 1     $ 414,317     $ (415,672

)

  $ (1,354

)

 

All share and per share data reflect the impact of the reverse stock split effective September 12, 2023. See accompanying notes.

 

3

 

 

AVINGER, INC.

CONDENSED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT) (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, 2021

    56,451     $       318,551     $ 96     $ 394,380     $ (384,753

)

  $ 9,723  

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

                85,707       2       5,194             5,196  

Issuance of Series D preferred stock, net of commissions and issuance costs

    7,600                         6,721             6,721  

Conversion of Series D preferred stock into common stock

    (7,600

)

          63,333       1                   1  

Exercise of pre-funded warrants for common stock

                25,801                          

Reclassifications and adjustments due to rounding impact from reverse stock split for fractional shares

                1,745       (92

)

    92              

Issuance of common stock upon vesting of restricted stock units

                573                          

Employee stock-based compensation

                            127             127  

Accretion of Series A preferred stock dividends

                            (3,381

)

          (3,381

)

Net and comprehensive loss

                                  (13,441

)

    (13,441

)

Balance at September 30, 2022

    56,451     $       495,710     $ 7     $ 403,133     $ (398,194

)

  $ 4,946  

 

 

   

Convertible

Preferred Stock

   

Common Stock

   

Additional

Paid-in

   

Accumulated

   

Total Stockholders

Equity

 
   

Shares

   

Amount

   

Shares

   

Amount

   

Capital

   

Deficit

   

(Deficit)

 

Balance at December 31, 2022

    60,961     $       522,177     $ 8     $ 406,514     $ (402,376

)

  $ 4,146  

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

                607,236       1       5,173             5,174  

Conversion of CRG loan principal into Series E convertible preferred stock

    1,920                         1,920             1,920  

Exercise of pre-funded warrants for common stock

                91,325       1       (2

)

          (1

)

Issuance of common stock upon vesting of restricted stock units

                2,294                          

Employee stock-based compensation

                            703             703  

Reclassifications and adjustments due to rounding impact from reverse stock split for fractional shares

                56,896       (9

)

    9              

Net and comprehensive loss

                                  (13,296

)

    (13,296

)

Balance at September 30, 2023

    62,881     $       1,279,928     $ 1     $ 414,317     $ (415,672

)

  $ (1,354

)

 

All share and per share data reflect the impact of the reverse stock split effective September 12, 2023. See accompanying notes.

 

4

 

 

 

AVINGER, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(unaudited)

(In thousands)

 

   

Nine Months Ended September 30,

 
   

2023

   

2022

 
Cash flows from operating activities                

Net loss

  $ (13,296

)

  $ (13,441

)

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

               

Depreciation and amortization

    214       133  

Amortization of debt issuance costs and debt discount

    62       63  

Stock-based compensation

    703       127  

Noncash interest expense and other charges

    1,488       1,318  

Change in right of use asset

    42       72  

Provision for excess and obsolete inventories

    350       156  

Other non-cash charges

    (51

)

    37  

Changes in operating assets and liabilities:

               

Accounts receivable

    278       (198

)

Inventories

    (996

)

    (1,182

)

Prepaid expenses and other current assets

    (188

)

    (352

)

Other assets

    21       15  

Accounts payable

    (82

)

    (783

)

Accrued compensation

    (250

)

    (265

)

Accrued expenses and other current liabilities

    240       (49

)

Other long-term liabilities

    422       306  

Net cash used in operating activities

    (11,043

)

    (14,043

)

                 
Cash flows from investing activities                

Purchase of property and equipment

    (8

)

    (31

)

Net cash used in investing activities

    (8

)

    (31

)

                 
Cash flows from financing activities                

Proceeds from the issuance of convertible preferred stock, net of commissions and issuance costs

          6,721  
Proceeds from the issuance of common stock, net of commissions and issuance costs     5,173       5,198  

Net cash provided by financing activities

    5,173       11,919  
                 

Net change in cash and cash equivalents

    (5,878

)

    (2,155

)

Cash and cash equivalents, beginning of period

    14,603       19,497  

Cash and cash equivalents, end of period

  $ 8,725     $ 17,342  
                 
Supplemental disclosure of cash flow information                
Noncash investing and financing activities:                 

Accretion of Series A preferred stock dividends

  $     $ 3,381  

Conversion of CRG loan principal and accrued interest into Series E convertible preferred stock

  $ 1,920     $  

Reclassification of other long-term liabilities to accrued compensation

  $ 796     $  

Transfers between inventory and property and equipment

  $ 32     $ 580  

 

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, Lightbox consoles, as well as a variety of disposable catheter products. The Company’s current catheter products include Ocelot, Tigereye and Tigereye ST, 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 products, Pantheris, Pantheris SV and Pantheris LV, which are designed to allow physicians to precisely remove arterial plaque in PAD patients. The Company is in the process of developing next-generation CTO crossing devices to target coronary CTO markets. The Company is located in Redwood City, California.

 

Liquidity Matters

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) No. 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40) requires the Company to make certain disclosures if it concludes that there is substantial doubt about the entity’s ability to continue as a going concern within one year from the date of the issuance of these financial statements.

 

In the course of its activities, the Company has incurred losses and negative cash flows from operations since its inception. As of September 30, 2023, the Company had an accumulated deficit of $415.7 million. The Company expects to incur losses for the foreseeable future. The Company believes that its cash and cash equivalents of $8.7 million at September 30, 2023 and expected revenues and funds from operations will be sufficient to allow the Company to fund its current operations through the end of the first quarter of 2024. The Company received net proceeds of approximately $4.4 million from the sale of its common stock in August 2022, $6.5 million from the sale of its common stock under an At The Market Offering Agreement from the time of activation through the quarter ended September 30, 2023 and $6.7 million from the sale of Series D preferred stock in January 2022. The Company may seek to raise additional funds in future equity offerings 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 the Company may undertake in the next twelve months could cause substantial dilution to its existing stockholders, and there can be no assurance that the Company will be successful in acquiring additional funding at levels sufficient to fund its various endeavors. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. In addition, the macroeconomic environment has in the past resulted in and could continue to result 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 the Company.

 

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 and sale 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.

 

6

 

Additionally, due to the substantial doubt about the Company’s ability to continue operating as a going concern and the “Material Adverse Change” clause in the Loan Agreement with CRG Partners III L.P. and certain of its affiliated funds (collectively “CRG”), the entire amount of outstanding borrowings at September 30, 2023 and December 31, 2022 has been classified as current in these financial statements. CRG has not purported that an Event of Default (as defined in the Loan Agreement) has occurred due to a Material Adverse Change.

 

Currently substantially all of our cash and cash equivalents are held at a single financial institution, First Citizens Bank, which acquired our prior banking partner, Silicon Valley Bank in March 2023. On March 10, 2023, the Federal Deposit Insurance Corporation announced that Silicon Valley Bank had been closed by the California Department of Financial Protection and Innovation. While we have regained access to our accounts at Silicon Valley Bank and are evaluating our banking relationships, future disruptions of financial institutions where we bank or have credit arrangements, or disruptions of the financial services industry in general, could adversely affect our ability to access our cash and cash equivalents. If we are unable to access our cash and cash equivalents as needed, our financial position and ability to operate our business will be adversely affected.

 

Equity Offerings

 

January 2022 Offering

 

On January 14, 2022, the Company entered into a securities purchase agreement with several institutional investors pursuant to which the Company agreed to sell and issue, in a registered direct offering (“January 2022 Offering”), an aggregate of 7,600 shares of the Company’s Series D Convertible Preferred Stock, par value of $0.001 per share, at an offering price of $1,000 per share which was convertible into common stock at a conversion price of $120.00 per share. Concurrently, the Company agreed to issue to these investors warrants to purchase up to an aggregate of 53,833 shares of the Company’s common stock (the “Common Warrants”). As a result, the Company received aggregate net proceeds of approximately $6.7 million after underwriting discounts, commissions, legal and accounting fees, and other ancillary expenses.

 

The 53,833 Common Warrants have an exercise price of $144.00 per share and became exercisable beginning July 14, 2022. The Common Warrants will expire five years following the time they become exercisable, or July 14, 2027. The Company also issued to the Placement Agent or its designees warrants to purchase up to an aggregate of 4,433 shares of common stock (the “Placement Agent Warrants”). The Placement Agent Warrants are subject to the same terms as the Common Warrants, except that the Placement Agent Warrants have an exercise price of $150.00 per share and a term of five years from the commencement of the sales pursuant to the January 2022 Offering, or January 12, 2027.

 

August 2022 Offering

 

On August 4, 2022, the Company entered into a securities purchase agreement with a single institutional investor for the issuance and sale of 98,935 shares of its common stock in a registered direct offering (“Registered Direct”) at a purchase price of $26.28 per share, or pre-funded warrants in lieu thereof. In a concurrent private placement, the Company also agreed to issue and sell to the investor 91,324 shares of common stock at the same purchase price as in the registered direct offering, or pre-funded warrants in lieu thereof (“Private Placement” and together with the Registered Direct offering the “August 2022 Offering”). As a result, the Company received aggregate net proceeds of approximately $4.4 million after underwriting discounts, commissions, legal and accounting fees, and other ancillary expenses.

 

As a result, in the Registered Direct offering, the Company issued (i) 46,667 shares of common stock, (ii) and pre-funded warrants in lieu of common stock to purchase up to an aggregate of 52,268 shares of common stock (the “RD Pre-Funded Warrants”) and in the Private Placement, the Company issued pre-funded warrants to purchase up to an aggregate of 91,324 shares of common stock (the “Private Placement Pre-Funded Warrants” and together with the RD Pre-Funded Warrants the “August 2022 Pre-Funded Warrants”). As of September 30, 2023, all the Private Placement Pre-Funded Warrants were exercised leaving none outstanding.

 

In addition, the Company issued to the investor in the August 2022 Offering Series A preferred investment options to purchase up to 190,259 additional shares of the Company’s common stock and Series B preferred investment options to purchase up to 190,259 additional shares of the Company’s common stock (the “Preferred Investment Options”). The Series A preferred investment options have an exercise price of $22.53 per share, are immediately exercisable, and will expire five and one-half years from the date of issuance, or February 8, 2028, and the Series B preferred investment options also have an exercise price of $22.53 per share, are immediately exercisable, and will expire two years from the date of issuance, or August 8, 2024. The Company also issued to the Placement Agent or its designees preferred investment options to purchase up to an aggregate of 11,416 shares of common stock (the “Placement Agent Preferred Investment Options”). The Placement Agent Preferred Investment Options are subject to the same terms as the Preferred Investment Options, except that the Placement Agent Preferred Investment Options have an exercise price of $32.85 per share and a term of five years from the commencement of the sales pursuant to the August 2022 Offering, or August 3, 2027.

 

7

 

At The Market Offering Agreement

 

On May 20, 2022, the Company entered into an At The Market Offering Agreement (the “ATM Agreement”) with H.C. Wainwright & Co., LLC (the “Agent”), as sales agent, pursuant to which the Company may offer and sell shares of common stock, par value $0.001 per share (the “Shares”) up to an aggregate offering price of $7,000,000 from time to time, in an at the market public offering. Sales of the Shares are to be made at prevailing market prices at the time of sale, or as otherwise agreed with the Agent. The Agent will receive a commission from the Company of 3.0% of the gross proceeds of any Shares sold under the ATM Agreement. The Shares sold under the ATM Agreement are offered and sold pursuant to the Company’s shelf registration statement on Form S-3, which was initially filed with the SEC on March 29, 2022 and declared effective on April 7, 2022, and a prospectus supplement and the accompanying prospectus relating to the At The Market Offering filed with the SEC on May 20, 2022. During the year ended December 31, 2022, the Company sold 39,048 shares of common stock pursuant to the ATM Agreement at an average price of $25.08 per share for aggregate proceeds of $1.0 million, of which approximately $29,000 was paid in the form of commissions to the Agent. On August 3, 2022, the Company suspended sales under the ATM Agreement. On March 17, 2023, the Company reactivated the ATM Agreement. During the quarter ended September 30, 2023, the Company sold 600,454 shares of common stock pursuant to the ATM Agreement at an average price of $8.99 per share for aggregate proceeds of approximately $5.4 million, of which approximately $162,000 was paid in the form of commissions to the Agent. During the nine months ended September 30, 2023, the Company sold 607,241 shares of common stock at an average price of $9.01 per share for aggregate proceeds of approximately $5.5 million, of which approximately $164,000 was paid in the form of commissions to the Agent. While the Company may attempt additional sales in the future, there can be no assurance that the Company will be successful in acquiring additional funding through these means.

 

Other than the ATM Agreement, the Company currently does not have any commitments to obtain additional funds.

 

 

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. 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, 2023 are not necessarily indicative of results to be expected for the year ending December 31, 2023, or for any other interim period or for any future year. The December 31, 2022 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, 2022, which was filed with the SEC on March 16, 2023 and amended on March 17, 2023. 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, 2022.

 

On September 11, 2023, the Company’s Board of Directors approved an amendment to the Company’s amended and restated certificate of incorporation to effect a 1-for-15 reverse stock split of the Company’s issued and outstanding common stock. The reverse stock split became effective on September 12, 2023. The par value of the common stock was not adjusted as a result of the reverse stock split. All common stock, stock options, restricted stock units, and per share amounts in the financial statements have been retroactively adjusted for all periods presented to give effect to the reverse stock split.

 

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.

 

8

 

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, First Citizens Bank, which acquired our prior banking partner, Silicon Valley Bank, in March 2023. 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, 2023 and December 31, 2022. On March 10, 2023, the Federal Deposit Insurance Corporation announced that Silicon Valley Bank had been closed by the California Department of Financial Protection and Innovation. While we have regained access to our accounts at First Citizens Bank, formerly Silicon Valley Bank and are evaluating our banking relationships, future disruptions of financial institutions where we bank or have credit arrangements, or disruptions of the financial services industry in general, could adversely affect our ability to access our cash and cash equivalents. If we are unable to access our cash and cash equivalents as needed, our financial position and ability to operate our business will be adversely affected.

 

The Company’s accounts receivable are due from a variety of healthcare organizations in the United States and select international markets. At September 30, 2023, there was one customer that represented 19% of the Company’s accounts receivable. At December 31, 2022, there was no customer that represented 10% or more of the Company’s accounts receivable. For the three and nine months ended September 30, 2023, there was one customer that represented 22% and 17% of revenues, respectively. For the three and nine months ended September 30, 2022, there was one customer that represented 11% and 13% of revenues, respectively. Disruption of sales orders or a deterioration of financial condition of customers would have a negative impact on the Company’s financial position and results of operations.

 

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,

 
   

2023

   

2022

   

2023

   

2022

 

Beginning balance

  $ 128     $ 137     $ 109     $ 187  

Warranty provision

    18       6       52       10  

Usage/Release

    (7

)

    (34

)

    (22

)

    (88

)

Ending balance

  $ 139     $ 109     $ 139     $ 109  

 

Net Loss per Share Attributable to Common Stockholders

 

Basic net loss per share attributable to common stockholders is computed by dividing the net loss applicable 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 applicable to common stockholders 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, 2023 and 2022, there were no shares subject to repurchase. Since the Company was in a loss position for all 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.

 

9

 

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

 

   

Three Months Ended

September 30,

   

Nine Months Ended

September 30,

 
   

2023

   

2022

   

2023

   

2022

 

Net loss applicable to common stockholders

  $ (2,040

)

  $ (5,214

)

  $ (13,296

)

  $ (21,933

)

Weighted average common stock outstanding, basic and diluted

    698       453       619       387  

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

  $ (2.92

)

  $ (11.51

)

  $ (21.48

)

  $ (56.67

)

 

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,

 
   

2023

   

2022

   

2023

   

2022

 

Common stock warrants equivalents

    459,019       369,425       483,947       166,018  

Common stock options

    20       20       20       20  

Convertible preferred stock

    62,151       56,451       61,362       58,562  

Unvested restricted stock units

    91,630       482       88,585       581  
      612,820       426,378       633,914       225,181  

 

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 the three months ended September 30, 2023 and 2022, 91% and 95%, respectively, of the Company’s revenues were in the United States. For the nine months ended September 30, 2023 and 2022, 92% and 93%, respectively, of the Company’s revenues were in the United States based on the shipping location of the external customer. The remaining revenues for the three and nine months ended September 30, 2023 and 2022, were primarily derived in Germany.

 

As of September 30, 2023 and December 31, 2022, cash equivalents were all categorized as Level 1 and consisted of money market funds. As of September 30, 2023 and December 31, 2022, there were no financial assets and liabilities categorized as Level 2 or 3. There were no transfers between fair value hierarchy levels during the three or nine months ended September 30, 2023.

 

Recent Accounting Pronouncements

 

Recent accounting standards not yet adopted

 

In August 2020, the FASB issued ASU No. 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, as a smaller reporting company as defined by the SEC, in the first quarter of 2024 and early adoption is permitted.  This new standard is not expected to have a material impact on the Company’s financial statements.

 

10

 

 

3. Inventories

 

Inventories consisted of the following (in thousands):

 

   

September 30,

   

December 31,

 
   

2023

   

2022

 

Raw materials

  $ 2,897     $ 3,374  

Work-in-process

    691       17  

Finished products

    1,992       1,574  

Total inventories

  $ 5,580     $ 4,965  

 

 

4. 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 the end of the twenty-fourth (24th) month period commencing on the first Borrowing Date (as defined in the Loan Agreement). 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.

 

On August 2, 2023, the Company and CRG entered into a Securities Purchase Agreement (“SPA”) pursuant to which the Company issued 1,920 shares of a newly authorized Series E convertible preferred stock (“Series E preferred stock”) in exchange for CRG surrendering for cancellation $1.92 million of outstanding principal and accrued interest of the senior secured term loan under the Loan Agreement (the “Term Loan Agreement”). Each share of Series E preferred stock has a stated value of $1,000 per share and is convertible into 93 shares of the Company’s common stock at a conversion price of $10.725 per share, provided that the shares of Series E preferred stock cannot be converted into common stock to the extent the applicable holder would beneficially own in excess of 19.99% of the Company’s outstanding voting power, unless approved by the Company's stockholders in accordance with Nasdaq Listing Rule 5635(b).

 

The Company has entered into several amendments to the Loan Agreement (the “Amendments”) with CRG since September 2015, the most recent of which was entered into on August 10, 2022. The Amendments, among other things: (1) extended the interest-only period through December 31, 2023; (2) extended the period during which the Company may elect to pay a portion of interest in payment-in-kind, (“PIK”), interest payments through December 31, 2023 so long as no Default (as defined in the Loan Agreement) has occurred and is continuing; (3) permitted the Company to make the 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 Stated Maturity Date (as defined in the Loan Agreement) to December 31, 2025; (5) reduced the minimum liquidity covenant 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 and 2022; (8) added minimum revenue covenants of $10 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 (as defined in the Loan Agreement) 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; and (11) provided CRG with board observer rights.

 

Under the amended Loan Agreement, no cash payments for either principal or interest are required until the first quarter of 2024. The 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 (as defined in the Loan Agreement) is December 31, 2025.

 

11

 

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 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” thereunder.

 

As of September 30, 2023, the Company was in compliance with all applicable covenants under the Loan Agreement.

 

As of September 30, 2023, principal, final facility fee and PIK payments under the Loan Agreement, as amended, were as follows (in thousands):

 

Year Ending December 31,

       

2023 (remaining three months of the year)

  $  

2024

    7,827  

2025

    9,113  

Total

    16,940  

Less: Amount of PIK additions and final facility fee to be incurred subsequent to September 30, 2023

    (2,959

)

Less: Amount representing debt issuance costs

    (187

)

Borrowings, long term portion, as of September 30, 2023

  $ 13,794  

 

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, 2023 and December 31, 2022, the balance of the aggregate debt discount was approximately $187,000 and $249,000, respectively. The Company’s interest expense associated with the amortization of debt discount was approximately $21,000 during each of the three months ended September 30, 2023 and 2022, respectively. The Company’s interest expense associated with the amortization of debt discount was approximately $62,000 and $63,000 during the nine months ended September 30, 2023 and 2022, respectively. For the three months ended September 30, 2023 and 2022, the Company incurred interest expense of approximately $512,000 and $480,000, respectively. For the nine months ended September 30, 2023 and 2022, the Company incurred interest expense of approximately $1.6 million and $1.4 million, respectively.

 

While, as of the date hereof, CRG has not purported that an Event of Default has resulted due to a Material Adverse Change (as those terms defined in the Loan Agreement), due to the substantial doubt about the Company’s ability to continue operating as a going concern, the entire outstanding amount of borrowings under the Loan Agreement and associated aggregate debt discount at September 30, 2023 and December 31, 2022 were classified as current in these financial statements.

 

 

5. 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.

 

12

 

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, 2023 is 1.2 years.

 

The operating lease was 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.

 

The Company’s operating lease expense, excluding variable maintenance fees and other expenses on a monthly basis, was approximately $105,000. Rent expense for both the three months ended September 30, 2023 and 2022 was approximately $314,000. Rent expense for both the nine months ended September 30, 2023 and 2022 was approximately $942,000. The Company’s variable expenses for the three months ended September 30, 2023 and 2022 were approximately $65,000 and $63,000, respectively. The Company’s variable expenses for the nine months ended September 30, 2023 and 2022 were approximately $233,000 and $200,000, respectively. Operating right-of-use asset amortization for the three months ended September 30, 2023 and 2022 was approximately $288,000 and $271,000, respectively. Operating right-of-use asset amortization for the nine months ended September 30, 2023 and 2022 was approximately $852,000 and $802,000, respectively. Due to payments being made in excess of operating lease expense recognized, the Company recorded approximately $23,000 and $65,000 as prepaid rent included in other assets on the condensed balance sheet as of September 30, 2023 and December 31, 2022, respectively.

 

The following table presents the future operating lease payments and leasehold liability included on the balance sheet related to the Company’s operating lease as of September 30, 2023 (in thousands):

 

Year Ending December 31,

       

2023 (remaining three months of the year)

  $ 303  

2024

    1,138  

Total

    1,441  

Less: Imputed interest

    (57

)

Leasehold liability as of September 30, 2023

  $ 1,384  

 

The following table shows ROU assets and lease liabilities, and the associated financial statement line items, as of September 30, 2023 and December 31, 2022 (in thousands):

 

Lease-Related Assets and Liabilities  

Financial Statement Line

Items

   

September 30,

2023

     

December 31,

2022

 

Right of use assets:

                   

Operating lease

 

Right of use asset

  $ 1,384     $ 2,194  

Total right of use assets

  $ 1,384     $ 2,194  

Lease liabilities:

                   

Operating lease

 

Leasehold liability, current portion

  $ 1,179     $ 1,092  
   

Leasehold liability, long-term portion

    205       1,102  

Total lease liabilities

  $ 1,384     $ 2,194  

 

 

6. 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 $0.8 million as of September 30, 2023. The majority of this amount is related to commitments to purchase inventory components and services related to the manufacturing of inventory.

 

13

 

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.

 

 

7. Stockholders Equity

 

Convertible Preferred Stock

 

As of September 30, 2023 and December 31, 2022, 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. As of September 30, 2023 and December 31, 2022, 62,881 and 60,961 shares, respectively, were issued and outstanding.

 

Series A Convertible Preferred Stock

 

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 a liquidation preference of $1,000 per share and carry no voting rights. During the year ended December 31, 2022, 4,510 additional shares were issued to CRG as payment of dividends. As of September 30, 2023 and December 31, 2022, 60,876 shares of Series A preferred stock were outstanding, which are currently convertible into shares of the Company’s common stock at $6,000 per share. The Series A preferred stock accrued no additional dividends during either the three or nine months ended September 30, 2023. The Series A preferred stock accrued additional dividends of approximately $1.1 million and $3.4 million during the three and nine months ended September 30, 2022, respectively.

 

On September 29, 2023, the Company entered into a waiver agreement (the “Waiver Agreement”) with CRG, who hold all of the outstanding shares of the Company’s Series A preferred stock. Pursuant to the Waiver Agreement, CRG waived their rights to receive the Series A preferred dividend for the year ending December 31, 2023. Such waived preferred dividends are not cumulative or accrued. Consequently, the previously accrued portion of the Series A preferred stock dividends during 2023 totaling $2.4 million was reversed, thereby nullifying the accretion expenses during the nine months ended September 30, 2023.

 

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. As of September 30, 2023 and December 31, 2022, 85 shares of Series B preferred stock remained outstanding, which are currently convertible into shares of the Company’s common stock at $5.732 per share.

 

Series D Convertible Preferred Stock

 

On January 14, 2022, the Company entered into a security purchase agreement with several institutional investors, pursuant to which the Company agreed to sell and issue, in a registered direct offering (“January 2022 Offering”), an aggregate of 7,600 shares of the Company’s Series D convertible preferred stock, par value $0.001 per share at an offering price of $1,000 per share. Concurrently, the Company agreed to issue to these investors warrants to purchase up to an aggregate of 53,833 shares of the Company’s common stock (the “Common Warrants”). The shares of Series D preferred stock had a stated value of $1,000 per share and were convertible into an aggregate of 63,333 shares of common stock at a conversion price of $120.00 per share. During the year ended December 31, 2022, all 7,600 shares of Series D preferred stock were converted into a total of 63,333 shares of common stock. There are no shares of Series D preferred stock outstanding as of September 30, 2023.

 

14

 

At the time of issuance, the Company evaluated the classification of the Series D preferred stock and determined equity classification was appropriate due to no mandatory or contingently redeemable redemption features. The warrants issued to the investors were considered freestanding equity classified instruments. The Company first allocated gross proceeds from the registered direct offering between the preferred stock and the warrants issued to investors using a relative fair value approach, resulting in an initial allocation to each instrument of $4.0 million and $3.6 million, respectively. On the issuance date, the Company estimated the fair value of the Common Warrants issued to investors and warrants issued to the placement agent designees using a Black-Scholes option pricing model using the following assumptions: (i) contractual term of 5.5 years, (ii) expected volatility rate of 136.61%, (iii) risk-free interest rate of 1.51%, (iv) expected dividend rate of 0%, and (v) closing price of the Company’s common stock of the day immediately preceding the registered direct offering. The fair value of preferred stock was estimated based upon equivalent common shares that preferred stock could have been converted into at the closing price of the day immediately preceding the purchase date.

 

The embedded conversion feature was evaluated and bifurcation from the preferred stock equity host was not considered necessary. The issuance of the Series D convertible preferred stock generated a beneficial conversion feature (“BCF”) which arose as the equity security was issued with an embedded conversion option that is beneficial to the investor or in the money at inception because the conversion option has an effective conversion price that is less than the market price of the underlying stock at the commitment date. The Company recorded the BCF as a discount to the preferred stock resulting in the amount of $5.1 million based on the intrinsic value of the beneficial conversion. As the preferred stock was immediately convertible into common stock subject to the consummation of the reverse stock split on March 14, 2022, a deemed dividend related to the discount associated with the beneficial conversion feature was recorded on that date. This one-time, non-cash charge impacted net loss applicable to common stockholders and net loss per share attributable to common stockholders for the nine months ended September 30, 2022.

 

Series E Convertible Preferred Stock

 

On August 2, 2023, the Company entered into a Series E Purchase Agreement with CRG, pursuant to which it agreed to surrender $1.92 million of the outstanding principal and accrued interest of its senior secured term loan into Series E preferred stock. Each share of Series E preferred stock has a stated value of $1,000 per share and is convertible into 93 shares of the Company’s common stock at a conversion price of $10.725 per share. The Series E preferred stock is initially convertible into 178,560 shares of common stock subject to certain limitations contained in the Series E Purchase Agreement. Shares of Series E preferred stock cannot be converted into common stock to the extent the applicable holder would beneficially own in excess of 19.99% of the Company’s outstanding voting power, unless approved by the Company's stockholders in accordance with Nasdaq Listing Rule 5635(b). Under the terms of the Series E Purchase Agreement, the holders of Series E preferred stock are entitled to receive annual accruing dividends at a rate of 8%, payable in additional shares of Series E preferred stock or cash, at the Company’s option. The shares of Series E preferred stock have full voting rights, on an as-converted basis, subject to certain limitations. The Series E preferred stock rank senior to all other classes and series of the Company’s equity in terms of repayment and certain other rights. As of September 30, 2023, 1,920 shares of Series E preferred stock were outstanding.

 

On September 29, 2023, the Company entered into the Waiver Agreement with CRG, who hold all of the outstanding shares of the Company’s Series E preferred stock. Pursuant to the Waiver Agreement, CRG waived their rights to receive the Series E preferred dividend for the year ending December 31, 2023. Such waived preferred dividends are not cumulative or accrued. Consequently, no accrual for the Series E preferred stock dividend has been or will be made during the year ending December 31, 2023.

 

Common Stock

 

As of September 30, 2023, 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 1,279,928 shares were issued and outstanding.

 

15

 

Common Stock Warrants

 

As of September 30, 2023, 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 the February 2018 Series B financing

    8,979,000       2,993     $ 6,000.00  

February 2025

Series 2 Warrants issued in the February 2018 Series B financing

    8,709,500       2,903     $ 6,000.00  

February 2025

Warrants issued in the November 2018 financing

    8,768,395       2,923     $ 1,200.00  

November 2023

Placement agent warrants issued in the January 2022 financing

    1,330,000       4,433     $ 150.00  

January 2027

Warrants issued in the January 2022 financing

    16,150,000       53,833     $ 144.00  

July 2027

Series A Preferred Investment Options issued in August 2022 financing

    2,853,883       190,259     $ 22.53  

February 2028

Series B Preferred Investment Options issued in August 2022 financing

    2,853,883       190,259     $ 22.53  

August 2024

Placement agent Preferred Investment Options issued in the August 2022 financing

    171,233       11,416     $ 32.85  

August 2027

Total as of September 30, 2023

    49,815,894       459,019            

 

As of December 31, 2022, 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 the February 2018 Series B financing

    8,979,000       2,993     $ 6,000.00  

February 2025

Series 2 Warrants issued in the February 2018 Series B financing

    8,709,500       2,903     $ 6,000.00  

February 2025

Warrants issued in the November 2018 financing

    8,768,395       2,923     $ 1,200.00  

November 2023

Placement agent warrants issued in the January 2022 financing

    1,330,000       4,433     $ 150.00  

January 2027

Warrants issued in the January 2022 financing

    16,150,000       53,833     $ 144.00  

July 2027

Pre-funded warrants issued in the August 2022 financing

    91,324       91,324     $ 0.0001   n/a

Series A Preferred Investment Options issued in August 2022 financing

    2,853,883       190,259     $ 22.53  

February 2028

Series B Preferred Investment Options issued in August 2022 financing

    2,853,883       190,259     $ 22.53  

August 2024

Placement agent Preferred Investment Options issued in the August 2022 financing

    171,233       11,416     $ 32.85  

August 2027

Total as of December 31, 2022

    51,185,758       550,343            

 

16

 

January 2022 Offering

 

Pursuant to a purchase agreement entered into on January 14, 2022, the Company issued warrants to purchase up to an aggregate of 53,833 shares of the Company’s common stock at an exercise price of $144.00 per share and which became exercisable beginning July 14, 2022. The Common Warrants will expire five years following the time they become exercisable, or July 14, 2027.

 

The Company issued to the placement agent of the January 2022 Offering warrants to purchase up to an aggregate of 4,433 shares of common stock (the “Placement Agent Warrants”). The Placement Agent Warrants are subject to the same terms as the Common Warrants, except that the Placement Agent Warrants have an exercise price of $150.00 per share and a term of five years from the commencement of the sales pursuant to the January 2022 Offering, or January 12, 2027.

 

August 2022 Offering

 

Pursuant to a purchase agreement entered into on August 4, 2022, the Company issued, in a registered direct offering, Pre-Funded Warrants to purchase up to 52,268 shares of common stock (the “RD Pre-Funded Warrants”) and, in a concurrent private placement, Pre-Funded Warrants to purchase up to 91,324 shares of common stock (the “Private Placement Pre-Funded Warrants” and together with the RD Pre-Funded Warrants the “August 2022 Pre-Funded Warrants”). The August 2022 Pre-Funded Warrants have an exercise price of $0.0001 per share, are immediately exercisable, and have no expiration date. During the year ended December 31, 2022, 52,268 of shares of RD Pre-Funded Warrants were exercised into the equivalent number of the Company’s common stock. During the nine months ended September 30, 2023, all the 91,324 Private Placement Pre-Funded Warrants were exercised. Consequently, there were no August 2022 Pre-Funded Warrants outstanding as of September 30, 2023.

 

Also in the August 2022 Offering, the Company issued Series A preferred investment options to purchase up to 190,259 additional shares of the Company’s common stock and Series B preferred investment options to purchase up to 190,259 additional shares of the Company’s common stock, collectively referred to as Preferred Investment Options. The Series A preferred investment options have an exercise price of $22.53 per share, are immediately exercisable, and will expire five and one-half years from the date of issuance, or February 8, 2028, and the Series B preferred investment options have an exercise price of $22.53 per share, are immediately exercisable, and will expire two years from the date of issuance, or August 8, 2024.

 

The Company also issued to the placement agent of the August 2022 Offering preferred investment options to purchase up to 11,416 shares of common stock (the “Placement Agent Preferred Investment Options”). The Placement Agent Preferred Investment Options are subject to the same terms as the Preferred Investment Options, except that the Placement Agent Preferred Investment Options have an exercise price of $32.85 per share and a term of five years from the commencement of the sales pursuant to the August 2022 Offering, or August 3, 2027.

 

The exercise price and the number of shares of common stock issuable upon exercise of each Common Warrants, August 2022 Pre-Funded Warrants, Preferred Investment Options, and Placement Agent Preferred Investment Options are subject to appropriate adjustments in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting the common stock. In addition, in certain circumstances, upon a fundamental transaction, a holder of Common Warrants, August 2022 Pre-Funded Warrants, Preferred Investment Options, or Placement Agent Preferred Investment Options will be entitled to receive, upon exercise, the kind and amount of securities, cash or other property that such holder would have received had they exercised the Common Warrants, August 2022 Pre-Funded Warrants, Preferred Investment Options, or Placement Agent Preferred Investment Options immediately prior to the fundamental transaction.

 

The Common Warrants, August 2022 Pre-Funded Warrants, Preferred Investment Options, and Placement Agent Preferred Investment Options can be exercised at the option of the holders at any time after they become exercisable provided that shares of the Common Warrants, August 2022 Pre-Funded Warrants, Preferred Investment Options, or Placement Agent Preferred Investment Options cannot be exercised into common stock if the applicable holder would beneficially own in excess of 4.99% (or, upon election by such holder prior to the issuance of any shares of Common Warrants, Preferred Investment Options, or Placement Agent Preferred Investment Options, 9.99%) of the Company’s outstanding common stock immediately after giving effect to the exercise. A holder of the Common Warrants, August 2022 Pre-Funded Warrants, Preferred Investment Options or Placement Agent Preferred Investment Options may, upon notice to the Company, increase or decrease such beneficial ownership limitation, but not in excess of 9.99%.

 

17

 

In the event of a fundamental transaction in which the holders of our voting securities immediately prior to such fundamental transaction will not, following such fundamental transaction, directly or indirectly own more than 50% of the voting securities of the surviving entity or successor entity, and in which the Company is not the successor entity or does not continue as a reporting issuer under the Exchange Act, then, at the request of the holder, the Company or the successor entity shall purchase the unexercised portion of the Common Warrants, Preferred Investment Options, and Placement Agent Preferred Investment Options from the holder by paying to the holder an amount, in cash, equal to the fair value of the remaining unexercised portion of the Common Warrants, Preferred Investment Options, and Placement Agent Preferred Investment Options on the date of such fundamental transaction, subject to certain limitations in the event of a fundamental transaction not within our control.

 

As of September 30, 2023 and December 31, 2022, warrants and preferred investment options to purchase an aggregate of 459,019 and 550,343 shares of common stock were outstanding, respectively, all of which were classified as equity.

 

 

8. Stock-Based Compensation

 

Stock Plans

 

In January 2015, the Board of Directors adopted, and the Company’s stockholders approved the 2015 Equity Incentive Plan (“2015 Plan”). On October 14, 2022, the Company’s stockholders approved an additional 116,667 shares of common stock for issuance under the 2015 Plan. The 2015 Plan provides for the grant of incentive stock options (“ISOs”) to employees and for the grant of non-statutory stock options (“NSOs”), restricted stock, restricted stock awards (“RSAs”), restricted stock units (“RSUs”), stock appreciation rights, performance units and performance shares to employees, directors and consultants. As of September 30, 2023, 24,843 shares were available for grant under the 2015 Plan.

 

The Company’s RSUs and RSAs generally vest annually over two years in equal increments. RSAs and RSUs largely contain the same contractual terms except RSAs have the ability to vote along with common holders as an RSA is considered an outstanding security at the time of grant, subject to certain vesting and other restrictions. The Company measures the fair value of RSAs 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. As of December 31, 2022, the Company had 27 shares of RSUs and no shares of RSAs outstanding. A summary of all RSA and RSU activity is presented below:

 

   

Number of

Shares

   

Weighted

Average

Grant Date

Fair Value

   

Weighted

Average

Remaining

Contractual

Term

 

Awards outstanding at December 31, 2022

    27     $ 174.60       0.17  

Awarded

    100,189     $ 18.45        

Released

    (2,293

)

  $ 20.34        

Forfeited

    (7,733

)

  $ 18.45        

Awards outstanding at September 30, 2023

    90,190     $ 20.03       1.24  

 

As of September 30, 2023, there was $1.0 million of remaining unamortized stock-based compensation expense associated with RSAs, which will be expensed over a weighted average remaining service period of approximately 1.2 years. The outstanding non-vested and expected to vest RSAs at September 30, 2023 have an aggregate fair value of approximately $0.5 million. The Company used the closing market price of $5.39 per share at September 29, 2023, to determine the aggregate fair value for the RSAs outstanding at that date. For the nine months ended September 30, 2023 and 2022, the fair value of RSAs and RSUs vested was approximately $42,000 and $14,000, respectively. For the three months ended September 30, 2023 and 2022, stock-based compensation expense recognized associated with the vesting of RSAs and RSUs was $219,000 and $39,000, respectively. For the nine months ended September 30, 2023 and 2022, stock-based compensation expense recognized associated with the vesting of RSAs and RSUs was $0.7 million and $0.1 million, respectively.

 

18

 

Total noncash stock-based compensation expense relating to the Company’s RSAs and RSUs recognized, before taxes, during the three and nine months ended September 30, 2023 and 2022, is as follows (in thousands):

 

   

Three Months Ended

September 30,

   

Nine Months Ended

September 30,

 
   

2023

   

2022

   

2023

   

2022

 

Cost of revenues

  $ 36     $ 4     $ 99     $ 18  

Research and development expenses

    24       11       158       37  

Selling, general and administrative expenses

    159       24       446       72  
    $ 219     $ 39     $ 703     $ 127  

 

19

 

 

 

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 16, 2023 and amended on March 17, 2023, titled Risk Factors.

 

Overview

 

We are a commercial-stage medical device company that designs, manufactures, and sells real-time high-definition image-guided, minimally invasive 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. Our mission is to significantly improve the treatment of vascular disease through the introduction of products based on our Lumivascular platform, the only intravascular real-time high-definition 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 including our Lightbox imaging console, the Ocelot and Tigereye family of devices, which are image-guided devices designed to allow physicians to penetrate a total blockage in an artery, known as a chronic total occlusion (“CTO”), and the Pantheris family of catheters, our image-guided atherectomy catheters which are designed to allow physicians to precisely remove arterial plaque in PAD patients.

 

We are in the process of developing CTO crossing devices to target the coronary CTO market. However, the market for medical devices in the coronary artery disease (“CAD”) space is highly competitive, dynamic, and marked by rapid and substantial technological development and product innovation and there is no guarantee that we will be successful in developing and commercializing any new CAD product. At this stage, we are working on understanding market requirements, and initiated the development process for the new CAD product, which we anticipate will require additional expenses.

 

We obtained CE Marking for our original Ocelot product in September 2011 and received from the U.S. Food and Drug Administration (“FDA”), 510(k) clearance in November 2012. We also 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 Small Vessel (“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. In January 2022, we received 510(k) clearance from the FDA for our Lightbox 3 imaging console, an advanced version of our Lightbox that allows for easy portability and offers significant reductions in size, weight, and production cost in comparison to the incumbent version.

 

In April 2023, we received 510(k) clearance from the FDA for Tigereye Spinning Tip (“ST”), a next-generation image-guided CTO crossing system. Tigereye ST is a line extension of our Ocelot and Tigereye family of CTO crossing catheters. This new image-guided catheter incorporates design upgrades to the tip configuration and catheter shaft to increase crossing power and procedural success in challenging lesions, as well as design enhancements for ease of image interpretation during the procedure. The low-profile Tigereye ST has a working length of 140 cm and 5 French sheath. We initiated a limited launch of Tigereye ST in the second quarter of 2023 and subsequently expanded to full commercial availability within the United States during the third quarter of 2023.

 

In June 2023, we received 510(k) clearance from the FDA for Pantheris Large Vessel (“LV”), a next generation image guided atherectomy system for the treatment of larger vessels, such as the superficial femoral artery (“SFA”) and popliteal arteries. Pantheris LV is a line extension of our Pantheris and Pantheris SV family of atherectomy products. This catheter offers higher speed plaque excision for efficient removal of challenging occlusive tissue and multiple features to streamline and simplify user-operation, including enhanced tissue packing and removal, a radiopaque gauge to measure volume of plaque excised during the procedure, and enhanced guidewire management. We initiated a limited launch of the Pantheris LV during the third quarter of 2023 and expect to expand to full commercial availability within the United States in the first half of 2024.

 

20

 

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 (“EEL”).

 

We believe our Lumivascular platform is the only technology that offers radiation free, high-definition real-time visualization of the inside of the artery during PAD treatment through the use of optical coherence tomography (“OCT”), a high resolution, light-based, radiation-free imaging technology. Our Lumivascular platform provides physicians with high-definition 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.

 

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 the treatment of in-stent restenosis. Patient enrollment began in October 2017 and was completed in July 2021. Patient outcomes were evaluated at thirty days, six months and one year following treatment. In November 2021, we received 510(k) clearance from the FDA for this new clinical indication for treating in-stent restenosis with Pantheris using the data collected and analyzed from INSIGHT. We expect this will expand our addressable market for Pantheris to include a high-incidence disease state for which there are few available indicated or effective treatment options.

 

We are pursuing additional clinical data programs including a post-market study, IMAGE-BTK, that is designed to evaluate the safety and efficacy of Pantheris SV in the treatment of PAD lesions below-the-knee. We are currently enrolling patients, and we expect to complete enrollment during 2023. Patient outcomes are being evaluated at thirty days, six months and one year following treatment. We expect this will bolster the application of Pantheris SV as a primary interventional tool to address below-the-knee legions for which there are few available effective treatment options.

 

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 catheter products at our manufacturing facility but certain critical processes, such as coating and sterilization, are performed by outside vendors. Our Lightbox 3 imaging console is assembled through a qualified contract manufacturer. We expect our current manufacturing facility in California will be sufficient through at least 2023. We generated revenues of $8.8 million in 2020, $10.1 million in 2021 and $8.3 million in 2022. Revenue in 2020 was adversely affected by COVID-19 as hospitals deferred elective procedures, which among other things, created unpredictability in case volume. This unpredictability created more volatility in our revenues which continued to adversely affect our business in 2021 and 2022. The decline in revenue in 2022 was primarily attributable to the adverse effects of staffing shortages, resource constraints on our customers, and the impact of a very competitive market for talent on the retention of our commercial team.

 

21

 

Recent Developments

 

Hospital Capacity and Resource Constraints Update

 

As a result of the effects of hospital staffing shortages, we have continued to experience significant volatility in sales, particularly as individuals, as well as hospitals and other medical providers, deferred elective procedures in response to resource constraints and capacity issues. We have continued to experience fluctuating sales as practitioners in certain jurisdictions were able to perform elective procedures while other jurisdictions were continuing to experience capacity issues. Hospital staffing shortages have had and are likely to continue to have adverse impacts on our business and results of operations. This situation has created a significant amount of volatility in the medical industry which makes future developments and results difficult to predict.

 

We believe capacity issues and resource constraints and the related increased cost pressures and burdens on the hospital systems have had and may 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. 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.

 

Nasdaq Delisting Notice

 

On April 25, 2023, we received notice (the “Bid Price Deficiency Letter”) from the Listing Qualifications Department (the “Staff”) of The Nasdaq Stock Market, LLC (“Nasdaq”) notifying us that we were not in compliance with Nasdaq Listing Rule 5550(a)(2) (the “Bid Price Requirement”), as the minimum bid price for our listed securities was less than $1.00 for the previous 30 consecutive business days. We had a period of 180 calendar days, or until October 23, 2023, to regain compliance with the rule referred to in this paragraph. As part of our efforts to regain compliance with the aforementioned rule, we effected a 1-for-15 reverse stock split on September 12, 2023.

 

On September 27, 2023, we received a letter from Nasdaq notifying us that the Staff had determined that the closing bid price of our common stock had been at $1.00 per share or greater for at least 10 consecutive business days and, accordingly, that we had regained compliance with the Bid Price Requirement. While we have regained compliance with the Bid Price Requirement, there can be no assurance that we will be able to maintain compliance with the Bid Price Requirement, or other continued listing requirements of Nasdaq, in the future.

 

On May 18, 2023, we received notice (the “Stockholders’ Equity Deficiency Letter”) from the Staff that we no longer satisfy the $2.5 million stockholders’ equity requirement for continued listing on The Nasdaq Capital Market, or the alternatives to that requirements – a $35 million market value of listed securities or $500,000 in net income in the most recent fiscal year or two of the last three fiscal years – as required by Nasdaq Listing Rule 5550(b) (the “Equity Requirement”).

 

As with the Bid Price Deficiency Letter, the Stockholders’ Equity Deficiency Letter had no immediate effect on our continued listing on The Nasdaq Capital Market. In accordance with the Nasdaq Listing Rules, we were provided 45 calendar days, or until July 3, 2023, to submit a plan to regain compliance with the Equity Requirement (the “Compliance Plan”). We submitted the Compliance Plan to Nasdaq on July 3, 2023. On July 31, 2023, we received a letter from Nasdaq notifying us that the Staff had determined to grant us an extension of 180 calendar days from the date of the Staff’s notice, or November 14, 2023, to regain compliance with the Equity Requirement.

 

While the Bid Price Requirement has been resolved, there can be no guarantee that we will be able to regain compliance with the Equity Requirement. In the event we fail to regain compliance with the Equity Requirement by the required date, we will receive written notification that our securities are subject to delisting. At that time, we may appeal the delisting determination to a Nasdaq Hearings Panel (the “Panel”). The request for a hearing would stay any further action by the Staff at least pending a hearing before the Panel and the expiration of any extension period that the Panel may grant to the Company following the hearing.

 

We are actively executing on our Compliance Plan in an effort to cure our stockholders’ equity deficiency and are leveraging all available options to resolve this deficiency and regain compliance with the Nasdaq Listing Rules. We have already undertaken certain actions such as converting outstanding indebtedness into equity, issuing additional shares of capital stock and obtaining waivers of dividends to holders of certain classes of our preferred stock. We anticipate we will need to issue additional shares of capital stock through various financing transactions in order to regain compliance with the Equity Requirement. However, we may not be successful in executing such transactions on terms favorable to us, or at all. In addition, there can be no guarantee that such efforts will succeed in helping us regain compliance with the Nasdaq Listing Rules.

 

22

 

Global Supply Chain

 

We are closely monitoring the 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, port closures and labor shortages have resulted in manufacturing and shipping constraints generally. While we have had sufficient inventory on-hand to meet our current production requirements and customer demand, we have experienced some constraints with respect to the availability of certain materials and extended lead times from certain key suppliers. 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 in the future and could harm our business.

 

We may need to identify and qualify new suppliers in response to disruptions and difficulties experienced by some of our current suppliers. The process of identifying and qualifying suppliers is lengthy with no guarantee of ultimately mitigating the current issues we are experiencing. This process can include but is not limited to delays in qualification, quality issues on components, and higher costs to source these components. All of these issues may impair our ability to meet the demands of our customers in the future.

 

Reverse Stock Split

 

On March 11, 2022, our board of directors approved an amendment to our amended and restated certificate of incorporation to effect a 1-for-20 reverse stock split of our issued and outstanding common stock. The reverse stock split became effective on March 14, 2022.

 

On September 11, 2023, our board of directors approved an amendment to our amended and restated certificate of incorporation to effect a 1-for-15 reverse stock split of our issued and outstanding common stock. The reverse stock split became effective on September 12, 2023. The par value of the common stock was not adjusted as a result of the reverse stock splits. All common stock, stock options, restricted stock units, and per share amounts in the financial statements have been retroactively adjusted for all periods presented to give effect to the reverse stock splits.

 

Financing

 

During the three and nine months ended September 30, 2023, our net loss and comprehensive net loss was $4.5 million and $13.3 million, respectively; during the years ended December 31, 2022 and 2021, it was $17.6 million and $17.4 million, respectively. We have not been profitable since inception, and as of September 30, 2023, our accumulated deficit was $415.7 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 (the “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 the end of the twenty-four (24) month period commencing on the first Borrowing Date (as defined in the Loan Agreement), subject to certain terms and conditions. Under the Loan Agreement we borrowed $30.0 million on September 22, 2015 and an additional $10.0 million on June 15, 2016. Contemporaneously with the execution of the Loan Agreement, we entered into a Securities Purchase Agreement with CRG (the “Securities Purchase Agreement”), pursuant to which CRG purchased 3 shares of our common stock on September 22, 2015 at a price of $1,678,920 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.

 

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 under Item 5 in our Annual Report on Form 10-K for the year ended December 31, 2022 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 the Company’s equity in terms of repayment and certain other rights with the exception of Series E preferred stock.

 

23

 

On August 2, 2023, we entered into a Series E preferred stock Purchase Agreement (the “Series E Purchase Agreement”) with CRG, pursuant to which we issued 1,920 shares of a newly authorized Series E convertible preferred stock (“Series E preferred stock”) in exchange for CRG surrendering for cancellation $1.92 million of outstanding principal and accrued interest of the senior secured term loan. Each share of Series E preferred stock has a stated value of $1,000 per share and is convertible into 93 shares of our common stock at a conversion price of $10.725 per share. The Series E preferred stock is initially convertible into 178,560 shares of common stock subject to certain limitations contained in the Series E Purchase Agreement. Under the terms of the Series E Purchase Agreement, the holders of Series E preferred stock are entitled to receive annual accruing dividends at a rate of 8%, payable in additional shares of Series E preferred stock or cash, at our option. The shares of Series E preferred stock have full voting rights, on an as-converted basis, subject to certain limitations. The Series E preferred stock rank senior to all other classes and series of the Company’s equity in terms of repayment and certain other rights. 

 

On September 29, 2023, the Company entered into the Waiver Agreement with CRG, who hold all of the outstanding shares of the Company’s Series A and Series E preferred stock. Pursuant to the Waiver Agreement, CRG waived their rights to receive the Series A and Series E preferred dividends for the year ending December 31, 2023. Such waived preferred dividends are not cumulative or accrued.

 

We have entered into several amendments (collectively, the “Amendments”) to the Loan Agreement with CRG since September 2015, the most recent of which, was entered into on August 10, 2022. 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 (as defined in the Loan Agreement) has occurred and is continuing; (3) permitted us to make our entire interest payments in PIK interest payments through December 31, 2023 so long as no Default has occurred and is continuing; (4) extended the Stated Maturity Date (as defined in the Loan Agreement) to December 31, 2025; (5) reduced the minimum liquidity covenant 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 and 2022; (8) added minimum revenue covenants of $10 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 (as defined in the Loan Agreement) 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. GAAP. 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 three months ended September 30, 2023, 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 16, 2023 and amended on March 17, 2023.

 

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 decrease in 2023 due to reductions in sales personnel resulting from attrition, competitive labor market, and other factors, partially offset by the introduction of our Tigereye ST and Pantheris LV products, investments in sales personnel and easing conditions involving hospital resource and capacity issues. For the three and nine months ended September 30, 2023, there was one customer that represented 22% and 17% of revenues, respectively. For the three and nine months ended September 30, 2022, there was one customer that represented 11% and 13% of revenues, respectively.

 

24

 

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 and our ability to have product available in light of supply chain challenges. 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 hospital capacity and resource constraints have 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.

 

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 (“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 (“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 and additional costs related to corporate matters.

 

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 debt agreement.

 

Other (Expense) Income, Net

 

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

 

25

 

Results of Operations:

 

   

Three Months Ended

September 30,

   

Nine Months Ended

September 30,

 
   

2023

   

2022

   

2023

   

2022

 
   

(in thousands, except percentages)

 

Revenues

  $ 1,817     $ 2,252     $ 5,746     $ 6,272  

Cost of revenues

    1,429       1,462       4,117       4,301  

Gross profit

    388       790       1,629       1,971  

Gross margin

    21

%

    35

%

    28

%

    31

%

Operating expenses:

                               

Research and development

    1,044       1,086       3,388       3,244  

Selling, general and administrative

    3,377       3,384       10,261       10,862  

Total operating expenses

    4,421       4,470       13,649       14,106  

Loss from operations

    (4,033

)

    (3,680

)

    (12,020

)

    (12,135

)

Interest expense, net

    (455

)

    (407

)

    (1,292

)

    (1,286

)

Other income (expense), net

    12             16       (20

)

Net loss and comprehensive loss

  $ (4,476

)

  $ (4,087

)

  $ (13,296

)

  $ (13,441

)

 

Comparison of Three Months Ended September 30, 2023 and 2022

 

Revenues.

 

For the three months ended September 30, 2023, revenue decreased by approximately $0.4 million or 19% compared to the three months ended September 30, 2022. Our revenues reflect the fluctuating demand partially due to the adverse impacts of hospital staffing shortages as capacity limitations in hospitals have limited the ability of practitioners to perform elective surgical procedures using our products in certain jurisdictions. In addition, we have experienced and expect that we will continue to experience attrition and turnover of our sales professionals which has resulted in a less experienced sales team and limited our ability to maintain an adequate presence in some markets. The attrition and turnover are largely attributable to the increasingly competitive labor market landscape, which has had an adverse effect on our ability to generate revenues for the quarter ended September 30, 2023.

 

Cost of Revenues and Gross Margin.

 

For the three months ended September 30, 2023, cost of revenues decreased by less than $0.1 million or 2% compared to the three months ended September 30, 2022. This decrease was primarily attributable to the decrease in revenues, offset by fluctuations in labor costs and other ancillary expenditures. Stock-based compensation expense within cost of revenues totaled $36,000 and $4,000 for the three months ended September 30, 2023 and 2022, respectively.

 

Gross margin for the three months ended September 30, 2023 decreased to 21%, compared to 35% during the three months ended September 30, 2022. There are significant amounts of overhead costs, specifically in the form of labor, associated with manufacturing and production of inventory embedded in cost of revenues that will typically fluctuate due to the levels of inventory being produced, production schedule changes, lead times and other factors. The decrease in gross margin was primarily due to the decrease in revenues which resulted in a decline in economies of scale and fluctuations in the production of inventory causing there to be higher allocations of labor to cost or revenues.

 

Research and Development Expenses.

 

R&D expense for the three months ended September 30, 2023 decreased by less than $0.1 million or 4% compared to the three months ended September 30, 2022 as there were similar levels of activity being performed. During the three months ended September 30, 2022, we allocated more R&D resources to advance our next generation CTO and atherectomy product portfolios with the Tigereye ST and Pantheris LV developments, respectively, whereas our resources during the three months ended September 30, 2023 were allocated more heavily to our coronary program development. Stock-based compensation expense within R&D totaled approximately $24,000 and $11,000 for the three months ended September 30, 2023 and 2022, respectively. We expect R&D expense to fluctuate based on the ongoing product development of our coronary device.

 

26

 

Selling, General and Administrative Expenses.

 

SG&A expense for the three months ended September 30, 2023 remained flat compared to the three months ended September 30, 2022 resulting from a decrease in sales personnel costs, offset by increases of third-party professional services resulting from several corporate activities including the most recent reverse stock split. Stock-based compensation expense within SG&A totaled approximately $159,000 and $24,000 for the three months ended September 30, 2023 and 2022, respectively.

 

Interest Expense, Net.

 

Interest expense, net is comprised of interest expense net of interest income. Interest Expense, net for the three months ended September 30, 2023 increased less than $0.1 million or 12% compared to the three months ended September 30, 2022, which resulted from higher PIK interest due to a larger CRG loan balance, partially offset by an increase in interest income due to the recent rising money market interest rates.

 

Other (Expense) Income, Net.

 

Other income (expense), net primarily consists of gains and losses resulting from the remeasurement of foreign exchange transactions, which are typically a small percentage of transaction volume, and other miscellaneous income and expenses. Other income (expense), net for the three months ended September 30, 2023 increased by less $0.1 million in comparison to the three months ended September 30, 2022 as both periods consisted primarily of remeasurement gains and losses from foreign exchange transactions, resulting in nominal changes between periods.

 

Comparison of Nine Months Ended September 30, 2023 and 2022

 

Revenues.

 

For the nine months ended September 30, 2023, revenue decreased by approximately $0.5 million or 8% compared to the nine months ended September 30, 2022. Our revenues reflect the fluctuating demand partially due to the adverse impacts of hospital staffing shortages as capacity limitations in hospitals have limited the ability of practitioners to perform elective surgical procedures using our products in certain jurisdictions. In addition, we have experienced and expect that we will continue to experience attrition and turnover of our sales professionals which has resulted in a less experienced sales team and limited our ability to maintain an adequate presence in some markets. The attrition and turnover are largely attributable to the increasingly competitive labor market landscape, which has had an adverse effect on our ability to generate revenues for the nine months ended September 30, 2023.

 

Cost of Revenues and Gross Margin.

 

For the nine months ended September 30, 2023, cost of revenues decreased by less than $0.2 million or 4% compared to the nine months ended September 30, 2022. This decrease was primarily attributable to the decrease in revenues, offset by fluctuations in labor costs and other ancillary expenditures. Stock-based compensation expense within cost of revenues totaled $99,000 and $18,000 for the nine months ended September 30, 2023 and 2022, respectively.

 

Gross margin for the nine months ended September 30, 2023 decreased to 28%, compared to 31% during the nine months ended September 30, 2022. There are significant amounts of overhead costs, specifically in the form of labor, associated with manufacturing and production of inventory embedded in cost of revenues that will typically fluctuate due to the levels of inventory being produced, production schedule changes, lead times and other factors. The decrease in gross margin was primarily due to the decrease in revenues which resulted in a decline in economies of scale.

 

Research and Development Expenses.

 

R&D expense for the nine months ended September 30, 2023 increased $0.1 million or 4% compared to the nine months ended September 30, 2022 primarily due to the ongoing product development of our coronary device program, partially offset by the completion of our development efforts of Tigereye ST and Pantheris LV. Stock-based compensation expense within R&D totaled approximately $158,000 and $37,000 for the nine months ended September 30, 2023 and 2022, respectively. We expect R&D expenses to fluctuate based on the ongoing product development of our coronary device.

 

27

 

Selling, General and Administrative Expenses.

 

SG&A expense for the nine months ended September 30, 2023 decreased by $0.6 million or 6% compared to the nine months ended September 30, 2022 primarily due to decreases in sales personnel costs and decreases in third-party professional services and other ancillary expenses, partially offset by increases in certain variable compensation. Stock-based compensation expense within SG&A totaled approximately $446,000 and $72,000 for the nine months ended September 30, 2023 and 2022, respectively.

 

Interest Expense, Net.

 

Interest Expense, net for the nine months ended September 30, 2023 remained flat compared to the nine months ended September 30, 2022, which resulted from increases in interest income due to the recent rising money market interest rates, offset by the higher CRG loan balance from PIK interest being compounded.

 

Other Income (Expense), Net.

 

Other income (expense), net primarily consists of gains and losses resulting from the remeasurement of foreign exchange transactions, which are typically a small percentage of transaction volume, and other miscellaneous income and expenses. Other income (expense), net for the nine months ended September 30, 2023 remained relatively flat in comparison to the nine months ended September 30, 2022 as both periods consisted primarily of remeasurement gains and losses from foreign exchange transactions, resulting in nominal changes between periods.

 

Liquidity and Capital Resources

 

As of September 30, 2023, we had cash and cash equivalents of $8.7 million and an accumulated deficit of $415.7 million, compared to cash and cash equivalents of $14.6 million and an accumulated deficit of $402.4 million as of December 31, 2022. We expect to incur losses for the foreseeable future. We believe that our cash and cash equivalents of $8.7 million at September 30, 2023 and expected revenues, debt and financing activities and funds from operations will be sufficient to allow us to fund our current operations through the end of the first quarter of 2024.

 

To date, we have financed our operations primarily through net proceeds from the issuance of our preferred stock, common stock and debt financings, our “at-the-market” program, our initial public offering (“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. We will need to raise additional capital through future equity or debt financings in the near future to meet our operational needs and capital requirements for product development, clinical trials and commercialization, and to regain compliance with the Equity Requirement of the Nasdaq Listing Rules. 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 the event we determine that additional sources of liquidity will not be available to us or will not allow us to meet our obligations as they become due, we may need to file a voluntary petition for relief under the United States Bankruptcy Code in order to implement a restructuring plan or liquidation. Our financial statements for the three and nine months ended September 30, 2023 do not include any adjustments that might result from the outcome of this uncertainty.

 

Currently substantially all of our cash and cash equivalents are held at a single financial institution, First Citizens Bank, which acquired our prior banking partner, Silicon Valley Bank, in March 2023. On March 10, 2023, the Federal Deposit Insurance Corporation announced that Silicon Valley Bank, now a division of First Citizens Bank, had been closed by the California Department of Financial Protection and Innovation. While we have regained access to our accounts at First Citizens Bank, formerly, Silicon Valley Bank, we are evaluating our banking relationships, future disruptions of financial institutions where we bank or have credit arrangements, or disruptions of the financial services industry in general, that could adversely affect our ability to access our cash and cash equivalents. If we are unable to access our cash and cash equivalents as needed, our financial position and ability to operate our business will be adversely affected.

 

28

 

Equity Financings

 

January 2022 Offering

 

On January 14, 2022, we entered into a securities purchase agreement with several institutional investors pursuant to which we agreed to sell and issue, in a registered direct offering (“January 2022 Offering”), an aggregate of 7,600 shares of our Series D Convertible Preferred Stock, par value of $0.001 per share, at an offering price of $1,000 per share which was convertible into common stock at a conversion price of $120.00 per share. Concurrently, we agreed to issue to these investors warrants to purchase up to an aggregate of 53,833 shares of our common stock (the “Common Warrants”). As a result, we received aggregate net proceeds of approximately $6.7 million after underwriting discounts, commissions, legal and accounting fees, and other ancillary expenses. During the year ended December 31, 2022, all 7,600 shares issued of Series D preferred stock were converted into a total of 63,333 shares of common stock. There are no shares of Series D preferred stock outstanding as of September 30, 2023.

 

The 53,833 Common Warrants have an exercise price of $144.00 per share and became exercisable beginning July 14, 2022. The Common Warrants will expire five years following the time they become exercisable, or July 14, 2027. We also issued to the Placement Agent or its designees warrants to purchase up to an aggregate of 4,433 shares of common stock (the “Placement Agent Warrants”). The Placement Agent Warrants are subject to the same terms as the Common Warrants, except that the Placement Agent Warrants have an exercise price of $150.00 per share and a term of five years from the commencement of the sales pursuant to the January 2022 Offering, or January 12, 2027.

 

At The Market Offering Agreement

 

On May 20, 2022, we entered into an At The Market Offering Agreement (the “ATM Agreement”) with H.C. Wainwright & Co., LLC (the “Agent”), as sales agent, pursuant to which we may offer and sell shares of common stock, par value $0.001 per share (the “Shares”) up to an aggregate offering price of $7,000,000 from time to time, in an at the market public offering. Sales of the Shares are to be made at prevailing market prices at the time of sale, or as otherwise agreed with the Agent. The Agent will receive a commission from us of 3.0% of the gross proceeds of any Shares sold under the ATM Agreement. The Shares sold under the ATM Agreement are offered and sold pursuant to our shelf registration statement on Form S-3, which was initially filed with the SEC on March 29, 2022 and declared effective on April 7, 2022, and a prospectus supplement and the accompanying prospectus relating to the At The Market Offering filed with the SEC on May 20, 2022. During the year ended December 31, 2022, we sold 39,048 shares of common stock pursuant to the ATM Agreement at an average price of $25.08 per share for aggregate proceeds of $1.0 million, of which approximately $29,000 was paid in the form of commissions to the Agent. On August 3, 2022, we suspended sales under the ATM Agreement. On March 17, 2023, we reactivated the ATM Agreement. During the quarter ended September 30, 2023, we sold 600,454 shares of common stock pursuant to the ATM Agreement at an average price of $8.99 per share for aggregate proceeds of approximately $5.4 million, of which approximately $0.2 million was paid in the form of commissions to the Agent. During the nine months ended September 30, 2023, we sold 607,241 shares of common stock at an average price of $9.01 per share for aggregate proceeds of approximately $5.5 million, of which approximately $0.2 million was paid in the form of commissions to the Agent. While we may attempt additional sales in the future, there can be no assurance that we will be successful in acquiring additional funding through these means.

 

Other than the ATM Agreement, we currently do not have any commitment to obtain additional funds.

 

August 2022 Offering

 

On August 4, 2022, we entered into a securities purchase agreement with a single institutional investor for the issuance and sale of 98,935 shares of its common stock in a registered direct offering (“RD” or “Registered Direct”) at a purchase price of $26.28 per share, or pre-funded warrants in lieu thereof. In a concurrent private placement, we also agreed to issue and sell to the investor 91,324 shares of common stock at the same purchase price as in the registered direct offering, or pre-funded warrants in lieu thereof (“Private Placement” and together with the Registered Direct offering the “August 2022 Offering”). As a result, we received aggregate net proceeds of approximately $4.4 million after underwriting discounts, commissions, legal and accounting fees, and other ancillary expenses.

 

As a result, in the Registered Direct offering, we issued (i) 46,667 shares of common stock, (ii) and pre-funded warrants in lieu of common stock to purchase up to an aggregate of 52,268 shares of common stock (the “RD Pre-Funded Warrants”) and in the Private Placement, we issued pre-funded warrants to purchase up to an aggregate of 91,324 shares of common stock (the “Private Placement Pre-Funded Warrants” and together with the RD Pre-Funded Warrants the “August 2022 Pre-Funded Warrants”). As of September 30, 2023, all the Private Placement Pre-Funded Warrants were exercised leaving none outstanding.

 

29

 

In addition, we issued to the investor in the August 2022 Offering Series A preferred investment options to purchase up to 190,259 additional shares of our common stock and Series B preferred investment options to purchase up to 190,259 additional shares of our common stock (the “Preferred Investment Options”). The Series A preferred investment options have an exercise price of $22.53 per share, are immediately exercisable, and will expire five and one-half years from the date of issuance, or February 8, 2028, and the Series B preferred investment options have an exercise price of $22.53 per share, are immediately exercisable, and will expire two years from the date of issuance, or August 8, 2024. We also issued to the Placement Agent or its designees preferred investment options to purchase up to an aggregate of 11,416 shares of common stock (the “Placement Agent Preferred Investment Options”). The Placement Agent Preferred Investment Options are subject to the same terms as the Preferred Investment Options, except that the Placement Agent Preferred Investment Options have an exercise price of $32.85 per share and a term of five years from the commencement of the sales pursuant to the August 2022 Offering, or August 3, 2027.

 

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, as of September 30, 2023, our contractual obligations 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)

  $ 1,234     $ 207     $     $     $ 1,441  

CRG Loan (2)

    5,946       10,994                   16,940  

Noncancelable purchase commitments (3)

    636       145                   781  
    $ 7,816     $ 11,346     $     $     $ 19,162  

 

(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, 2023, is $13.8 million. The contractual obligation in the table above of $16.9 million under the CRG Loan includes future interest to be accrued but not paid in cash as well as a $2.1 million back-end fee to be paid in December 2025 upon maturity of the CRG Loan which is being accreted. For more information, see Part I, Item 1 “Unaudited Financial Statements, Footnote 4. Borrowings.”

(3)

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

 

Lease Agreements

 

Our 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 us 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 lease will expire on November 30, 2024. We are obligated to pay a total approximately $5.8 million in base rent payments through November 2024, which began on December 1, 2019. The weighted average remaining lease term as of September 30, 2023 is 1.2 years.

 

30

 

CRG Loan

 

We have entered into several amendments to the Loan Agreement (the “Amendments”) with CRG since September 2015, the most recent of which was entered into on August 10, 2022. 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 (as defined in the Loan Agreement) has occurred and is continuing; (3) permitted us to make the 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 Stated Maturity Date (as defined in the Loan Agreement) to December 31, 2025; (5) reduced the minimum liquidity covenant 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 and 2022; (8) added minimum revenue covenants of $10 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 (as defined in the Loan Agreement) regarding Material Adverse Change such that any adverse change in or effect upon our revenue 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. The total Loan amount under the Loan Agreement (the “CRG Loan”), shown as short-term borrowings on the balance sheet as of September 30, 2023, is $13.8 million. However, upon maturity of the obligations under the Loan Agreement in December 2025, we will be obligated to pay $16.9 million under the Loan Agreement, which includes future interest to be accrued but not paid in cash as well as a $2.1 million back-end fee to be paid in December 2025 upon maturity of the CRG Loan which is being accreted to the maturity date. Due to the substantial doubt about our ability to continue operating as a going concern and the “Material Adverse Change” clause under the Loan Agreement, the entire amount of outstanding borrowings at September 30, 2023 and December 31, 2022 are classified as current. CRG has not purported that any Event of Default (as defined in the Loan Agreement) has occurred as a result a “Material Adverse Change” under the Loan Agreement. Refer to Part 1, Item 1, “Unaudited Financial Statements,” Footnote 4 for additional details.

 

On August 2, 2023, we entered into the Series E Purchase Agreement with CRG, pursuant to which we issued 1,920 shares of a newly authorized Series E preferred stock in exchange for CRG surrendering for cancellation $1.92 million of outstanding principal and accrued interest of the senior secured term loan. Each share of Series E preferred stock has a stated value of $1,000 per share and is convertible into 93 shares of our common stock at a conversion price of $10.725 per share. The Series E preferred stock is initially convertible into 178,560 shares of common stock subject to certain limitations contained in the Series E Purchase Agreement. Under the terms of the Series E Purchase Agreement, the holders of Series E preferred stock are entitled to receive annual accruing dividends at a rate of 8%, payable in additional shares of Series E preferred stock or cash, at our option. The shares of Series E preferred stock have full voting rights, on an as-converted basis, subject to certain limitations. The Series E preferred stock rank senior to all other classes and series of the Company’s equity in terms of repayment and certain other rights. 

 

31

 

Cash Flows

 

   

Nine Months Ended September 30,

 
   

2023

   

2022

 
   

(in thousands)

 

Net cash (used in) provided by:

               

Operating activities

  $ (11,043

)

  $ (14,043

)

Investing activities

    (8

)

    (31

)

Financing activities

    5,173       11,919  

Net change in cash and cash equivalents