UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number:
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of |
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(Address of principal executive offices and zip code)
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(Telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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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.
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).
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.
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Large accelerated filer ☐ |
Accelerated filer ☐ |
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Smaller reporting company |
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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
As of May 3, 2024, the number of outstanding shares of the registrant’s common stock, par value $0.001 per share, was
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:
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our ability to continue as a going concern; |
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our ability to regain and remain in compliance with the listing requirements of the Nasdaq Capital Market; |
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the outcome of and expectations regarding our current clinical studies, and any additional clinical studies we initiate; |
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our plans to modify our current products, or develop new products, to address additional indications; |
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our ability to obtain additional financing through future equity or debt financings; |
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the expected timing of 510(k) clearances by the U.S. Food and Drug Administration (“FDA”) which may include but are not limited to additional versions of Pantheris, Ocelot, Tigereye and Lightbox; |
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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; |
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our ability to realize benefits from our license and collaboration agreements with Zylox-Tonbridge; |
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the expected growth in our business and our organization; |
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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; |
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our ability to retain and recruit key personnel, including the continued development of our sales and marketing infrastructure; |
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our ability to obtain and maintain intellectual property protection for our products; |
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our estimates of our expenses, ongoing losses, future revenue, capital requirements and our needs for, or ability to obtain, additional financing; |
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our expectations regarding revenue, cost of revenue, gross margins, and expenses, including research and development and selling, general and administrative expenses; |
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our ability to identify and develop new and planned products and acquire new products, including those for the coronary market; |
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our financial performance; |
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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 |
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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 20, 2024. 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 MARCH 31, 2024
TABLE OF CONTENTS
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Part I |
Financial Information |
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Item 1. |
Unaudited Financial Statements |
1 |
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Condensed Balance Sheets |
1 |
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Condensed Statements of Operations and Comprehensive Loss |
2 |
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Condensed Statements of Stockholders’ Equity |
3 |
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Condensed Statements of Cash Flows |
4 |
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Notes to Condensed Financial Statements |
5 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
18 |
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Item 3. |
Quantitative and Qualitative Disclosures About Market Risk |
31 |
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Item 4. |
Controls and Procedures |
31 |
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Part II |
Other Information |
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Item 1. |
Legal Proceedings |
31 |
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Item 1A. |
Risk Factors |
32 |
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Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
35 |
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Item 3. |
Defaults Upon Senior Securities |
35 |
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Item 4. |
Mine Safety Disclosures |
36 |
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Item 5. |
Other Information |
36 |
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Item 6. |
Exhibits |
37 |
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Signatures |
38 |
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“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)
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March 31, |
December 31, |
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2024 |
2023 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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Accounts receivable, net of allowance for doubtful accounts of $ |
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Inventories, net |
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Prepaid expenses and other current assets |
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Total current assets |
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Right of use asset |
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Property and equipment, net |
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Other assets |
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Total assets |
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Liabilities and stockholders’ deficit |
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Current liabilities: |
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Accounts payable |
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Accrued compensation |
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Preferred stock dividends payable |
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Accrued expenses and other current liabilities |
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Leasehold liability, current portion |
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Borrowings |
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Total current liabilities |
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Leasehold liability, long-term portion |
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Other long-term liabilities |
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Total liabilities |
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Commitments and contingencies (Note 6) |
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Stockholders’ deficit: |
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Convertible preferred stock issuable in series, par value of $ |
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Shares authorized: |
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Shares issued and outstanding: |
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Common stock, par value of $ |
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Shares authorized: |
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Shares issued and outstanding: |
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Additional paid-in capital |
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Accumulated deficit |
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Total stockholders’ deficit |
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Total liabilities and stockholders’ deficit |
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All share, per share data, par values, and additional paid-in-capital amounts reflect the impact of the reverse stock split effective September 12, 2023. See accompanying notes.
AVINGER, INC.
CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(unaudited)
(In thousands, except per share data)
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Three Months Ended March 31, |
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2023 |
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Revenues |
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Cost of revenues |
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Gross profit |
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Operating expenses: |
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Research and development |
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Selling, general and administrative |
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Total operating expenses |
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Loss from operations |
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Interest expense, net |
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Other (expense) income, net |
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Net loss and comprehensive loss |
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Accretion of preferred stock dividends |
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Gain on exchange of Series A for Series A-1 convertible preferred stock |
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Net loss applicable to common stockholders |
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Net loss per share attributable to common stockholders, basic and diluted |
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Weighted average common shares used to compute net loss per share, basic and diluted |
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All share and per share data reflect the impact of the reverse stock split effective September 12, 2023. See accompanying notes.
AVINGER, INC.
CONDENSED STATEMENTS OF STOCKHOLDERS’ DEFICIT
(unaudited)
(In thousands, except share data)
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Convertible Preferred Stock |
Common Stock |
Additional Paid-in |
Accumulated |
Total Stockholders’ |
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Shares |
Amount |
Shares |
Amount |
Capital |
Deficit |
Equity (Deficit) |
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Balance at December 31, 2022 |
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Issuance of common stock in public offerings, net of commissions and issuance costs |
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Exercise of pre-funded warrants for common stock |
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Issuance of common stock upon vesting of restricted stock units |
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Employee stock-based compensation |
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Accretion of Series A preferred stock dividends |
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Net and comprehensive loss |
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Balance at March 31, 2023 |
$ | — | $ | $ | $ | ( |
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$ | ( |
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Convertible Preferred Stock |
Common Stock |
Additional Paid-in |
Accumulated |
Total Stockholders’ |
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Shares |
Amount |
Shares |
Amount |
Capital |
Deficit |
Deficit |
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Balance at December 31, 2023 |
$ | $ | $ | $ | ( |
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Issuance of common stock and Series F preferred stock in a Private Placement, net of commissions and issuance costs |
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Issuance of common stock warrants in connection with the Private Placement |
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Cancellation of Series A preferred stock |
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Issuance of Series A-1 preferred stock, net of commissions and issuance costs |
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Issuance of common stock upon vesting of restricted stock awards |
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Net share settlement of restricted stock awards in satisfaction of tax obligations |
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Employee stock-based compensation |
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Accretion of preferred stock dividends |
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Net and comprehensive loss |
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Balance at March 31, 2024 |
$ | — | $ | $ | $ | ( |
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All share and per share data reflect the impact of the reverse stock split effective September 12, 2023. See accompanying notes.
AVINGER, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
(In thousands)
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Three Months Ended March 31, |
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2024 |
2023 |
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Cash flows from operating activities |
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Net loss |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation and amortization |
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Amortization of debt issuance costs and debt discount |
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Stock-based compensation |
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Noncash interest expense and other charges |
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Change in right of use asset |
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Provision for excess and obsolete inventories |
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Other |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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Inventories |
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Prepaid expenses and other current assets |
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Other assets |
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Accounts payable |
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Accrued compensation |
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Accrued expenses and other current liabilities |
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Other long-term liabilities |
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Net cash used in operating activities |
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Cash flows from investing activities |
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Investing activities |
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Net cash used in investing activities |
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Cash flows from financing activities |
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Proceeds from the issuance of common stock and convertible preferred stock, net of commissions and issuance costs |
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Net share settlement on restricted stock awards in satisfaction of tax obligations |
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Net cash (used in) provided by financing activities |
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Net change in cash and cash equivalents |
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Cash and cash equivalents, beginning of period |
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Cash and cash equivalents, end of period |
$ | $ | ||||||
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Supplemental disclosure of cash flow information |
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Noncash investing and financing activities: |
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Increase to right of use asset and leasehold liability arising from lease amendment |
$ | $ | ||||||
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Accretion of preferred stock dividends |
$ | $ | ||||||
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Reclassification of other long-term liabilities to accrued compensation |
$ | $ | ||||||
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Transfers between inventory and property and equipment |
$ | $ | ( |
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See accompanying notes.
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. On March 5, 2024, the Company entered into a financing as part of a broader strategic collaboration with Zylox-Tonbridge Medical Technology Co., Ltd. (“Zylox-Tonbridge”) in which the Company received an aggregate of $
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.
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 March 31, 2024 and December 31, 2023 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, now a division of First Citizens 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.
Public Offerings
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 $
Other than the ATM Agreement, the Company currently does not have any commitments to obtain additional funds.
Strategic Partnership and Private Placement
On March 4, 2024, the Company entered into a License and Distribution Agreement (the “License Agreement”) with Zylox-Tonbridge effective as of the Initial Closing (defined below), pursuant to which the Company will license and distribute certain of the Company’s products (including consumables) in the Greater China region, including mainland China, Hong Kong, Macao, and Taiwan (the “Territory”). Zylox-Tonbridge will lead all regulatory activities for the registration of the Avinger products in the Territory. Avinger will also license its intellectual property and know-how related to Avinger products to Zylox-Tonbridge so that Zylox-Tonbridge can manufacture the localized products in the Territory. Avinger will supply Avinger products to Zylox-Tonbridge until Zylox-Tonbridge’s manufacturing capability has been established and Zylox-Tonbridge has obtained the regulatory approval of the localized products manufactured by Zylox-Tonbridge. All sales of Avinger products locally manufactured by Zylox-Tonbridge with regulatory approval by the regulatory authorities in the Territory and commercialized in the Territory will be royalty bearing to Avinger at a rate from a mid-single to high-single digit percentage depending on the amount of gross revenue as defined in the License Agreement, with certain increases depending on the amount of product gross margin. The License Agreement has an initial term of
In connection with the License Agreement, on March 4, 2024, the Company and Zylox-Tonbridge also entered into a Strategic Cooperation and Framework Agreement in conjunction with the Initial Closing (the “Collaboration Agreement” and, together with the License Agreement, the “Strategic Collaboration”), which provides the opportunity for the Company to access certain Zylox-Tonbridge peripheral vascular products for distribution in the U.S. and Germany. The agreement also provides the option for Avinger to source finished goods inventory from Zylox-Tonbridge following registration of Zylox-Tonbridge’s manufacturing facility with the FDA.
Private Placement
On March 4, 2024, in connection with the Strategic Collaboration, the Company and Zylox-Tonbridge Medical Limited, a wholly-owned subsidiary of Zylox-Tonbridge (the “Purchaser”), entered into a Securities Purchase Agreement (the “Purchase Agreement”), pursuant to which the Purchaser agreed to purchase, in two tranches, up to an aggregate of $
Each share of Series F Preferred Stock has a stated value of $
Upon completion of the following as mutually agreed upon by the Company and the Purchaser: (i) the successful registration and listing under 21 CFR part 807 with the FDA of the Purchaser and one of its designated affiliates to manufacture Avinger’s products, and (ii) the Company achieving an aggregate of $10 million in gross revenue within any four consecutive fiscal quarters after the Initial Closing, excluding any gross revenue achieved by Avinger under the License Agreement discussed above (together, the “Milestones”), the Purchaser will invest an additional $
The Company’s obligations to (i) accept conversion of the shares of Series F Preferred Stock in excess of 19.9% of the Company’s outstanding common stock as of the date of the Purchase Agreement and (ii) issue and sell shares of Series G Preferred Stock upon completion of the Milestones are each subject to receipt of the approval of the Company’s stockholders as is necessary under the rules and regulations of Nasdaq (including, without limitation, Nasdaq Rule 5635(d)).
The Company engaged two financial advisors in connection with the Private Placement and agreed to pay them an aggregate cash fee equal to
Series A Preferred Stock Exchange
On March 5, 2024, the Company entered into a Securities Purchase Agreement (the “A-1 Securities Purchase Agreement”) with CRG to exchange all outstanding shares of Series A preferred stock for
CRG Loan Amendment
Also on March 5, 2024, the Company entered into Amendment No. 9 to Loan Agreement effective as of the Initial Closing (the “Amendment”) with CRG, which amends the Loan Agreement to, among other things:
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extend the interest-only period through December 31, 2026; |
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| - |
provide that interest payable through December 31, 2026 may be payable in kind rather than in cash; and |
|
| - |
permit the payment of dividends on the preferred stock issued or issuable to the Purchaser. |
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 months ended March 31, 2024 are not necessarily indicative of results to be expected for the year ending December 31, 2024, or for any other interim period or for any future year. The December 31, 2023 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, 2023, which was filed with the SEC on March 20, 2024. 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, 2023.
On September 8, 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.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts and disclosures reported in the financial statements. Management uses significant judgment when making estimates related to its stock-based compensation, accruals related to compensation, the valuation of the common stock warrants, provisions for doubtful accounts receivable and excess and obsolete inventories, clinical trial accruals, and its reserves for sales returns and warranty costs. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Although these estimates are based on the Company’s knowledge of current events and actions it may undertake in the future, actual results may ultimately materially differ from these estimates and assumptions.
Concentration of Credit Risk, and Other Risks and Uncertainties
Financial instruments that potentially subject the Company to credit risk consist of cash and cash equivalents and accounts receivable to the extent of the amounts recorded on the balance sheets.
The Company’s policy is to invest in cash and cash equivalents, consisting of money market funds. These financial instruments are held in Company accounts at one financial institution, 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 March 31, 2024 and December 31, 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, now a division of First Citizens 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. 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 March 31, 2024 and December 31, 2023. At March 31, 2024, there was customer that represented
Product Warranty Costs
The Company typically offers a -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 March 31, |
||||||||
|
2024 |
2023 |
|||||||
|
Beginning balance |
$ | $ | ||||||
|
Warranty provision |
||||||||
|
Usage/Release |
( |
) |
( |
) |
||||
|
Ending balance |
$ | $ | ||||||
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 March 31, 2024 and 2023, there were shares subject to repurchase. Since the Company was in a loss position for both periods presented, basic net loss per share attributable to common stockholders is the same as diluted net loss per share attributable to common stockholders as the inclusion of all potentially dilutive common shares would have been anti-dilutive.
Net loss per share applicable to common stockholders was determined as follows (in thousands, except per share data):
|
Three Months Ended March 31, |
||||||||
|
2024 |
2023 |
|||||||
|
Net loss applicable to common stockholders |
$ | ( |
) |
$ | ( |
) |
||
|
Weighted average common stock outstanding, basic and diluted |
||||||||
|
Net loss per share attributable to common stockholders, basic and diluted |
$ | ( |
) |
$ | ( |
) |
||
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 March 31, |
||||||||
|
2024 |
2023 |
|||||||
|
Common stock warrants equivalents |
||||||||
|
Common stock options |
||||||||
|
Convertible preferred stock |
||||||||
|
Unvested restricted stock awards |
||||||||
Segment and Geographical Information
The Company operates and manages its business as 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 March 31, 2024 and 2023,
Fair Value Measurements
As of March 31, 2024 and December 31, 2023, cash equivalents were all categorized as Level 1 and consisted of money market funds. As of March 31, 2024 and December 31, 2023, 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 months ended March 31, 2024.
Recent Accounting Pronouncements
Recent accounting standards adopted
In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, 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 did not have a material impact on the Company’s financial statements.
In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280) – Improvements to Reportable Segment Disclosures. This ASU requires that a public entity provide additional segment disclosures on an interim and annual basis. The amendments in this ASU should be applied retrospectively to all prior periods presented in the financial statements unless impracticable. Upon transition, the segment expense categories and amounts disclosed in the prior periods should be based on the significant segment expense categories identified and disclosed in the period of adoption. The ASU is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. This new standard did not have a material impact on the Company’s financial statements.
Recent accounting standards not yet adopted
In December 2023, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”), which will require the Company to disclose specified additional information in its income tax rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. ASU 2023-09 will also require the Company to disaggregate its income taxes paid disclosure by federal, state and foreign taxes, if any, with further disaggregation required for significant individual jurisdictions. The Company will adopt ASU 2023-09 in its first quarter of 2025. ASU 2023-09 allows for adoption using either a prospective or retrospective transition method.
3. Inventories
Inventories consisted of the following (in thousands):
|
March 31, |
December 31, |
|||||||
|
2024 |
2023 |
|||||||
|
Raw materials |
$ | $ | ||||||
|
Work-in-process |
||||||||
|
Finished products |
||||||||
|
Total inventories |
$ | $ | ||||||
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 $
On February 14, 2018, the Company and CRG further amended the Loan Agreement concurrent with the conversion of $
On August 2, 2023, the Company and CRG entered into a Securities Purchase Agreement (“SPA”) pursuant to which the Company issued
The Company has entered into several amendments to the Loan Agreement (the “Amendments”) with CRG since September 2015. The Amendments, among other things: (1) extended the interest-only period through December 31, 2026; (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, 2026 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 through December 31, 2026 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 $
On January 26, 2024, the Company entered into Amendment No. 8 to the Loan Agreement with CRG, which reduces the minimum liquidity requirement of the Loan Agreement from $
On March 5, 2024, the Company entered into Amendment No. 9 to the Loan Agreement with CRG, which (1) extended the interest-only period through December 31, 2026; (2) extended the period during which the Company may elect to pay a portion of interest in PIK interest payments through December 31, 2026 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 through December 31, 2026 so long as no Default has occurred and is continuing; and (4) permit the payment of dividends on the preferred stock issued or issuable to the Purchaser.
The Company assessed Amendments Nos. 8 and 9 to the Loan Agreement entered into during the quarter ended March 31, 2024 and determined that these represented loan modifications. As such, the unamortized portion of previous issuance costs incurred will be amortized over the modified term, and costs incurred with third parties was expensed as incurred.
Under the amended Loan Agreement, no cash payments for either principal or interest are required until the first quarter of 2027. 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
The Company may voluntarily prepay the borrowings in full, with a prepayment premium beginning at
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 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 $
As of March 31, 2024, the Company was in compliance with all applicable covenants under the Loan Agreement.
As of March 31, 2024, principal, final facility fee and PIK payments under the Loan Agreement, as amended, were as follows (in thousands):
|
Year Ending December 31, |
||||
|
2024 (remaining nine months of the year) |
$ | |||
|
2025 |
||||
|
2026 |
||||
|
2027 |
||||
|
2028 |
||||
|
Total |
||||
|
Less: Amount of PIK additions and final facility fee to be incurred subsequent to March 31, 2024 |
( |
) | ||
|
Less: Amount representing debt issuance costs |
( |
) | ||
|
Borrowings, current portion, as of March 31, 2024 |
$ |
In connection with drawdowns under the Loan Agreement, the Company recorded aggregate debt discounts of $
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 March 31, 2024 and December 31, 2023 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 most recent amendment also provides an optional one-year extension of the lease following the end of the current term on November 30, 2025, which was not included in the assessment of the lease term as it is not reasonably certain the Company will elect to exercise this option. Rent expense is recognized using the straight-line method over the term of the lease.
The current lease was to expire on November 30, 2024. On March 6, 2024, the Company entered into an amendment to the lease which extended the lease term for a period of one year, subsequent to the original expiration. As amended, the lease will expire on November 30, 2025. Under the terms of the amendment, the Company will be obligated to pay an additional $
In connection with the amendment the Company adjusted its right-of-use asset and lease liability to $
The Company’s operating lease expense, excluding variable maintenance fees and other expenses on a monthly basis, was approximately $
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 March 31, 2023 (in thousands):
|
Year Ending December 31, |
||||
|
2024 (remaining nine months of the year) |
$ | |||
|
2025 |
||||
|
Total |
||||
|
Less: Imputed interest |
( |
) |
||
|
Leasehold liability as of March 31, 2024 |
$ |
The following table shows ROU assets and lease liabilities, and the associated financial statement line items, as of March 31, 2024 and December 31, 2023 (in thousands):
| Financial Statement Line | March 31, | December 31, | ||||||||
|
Lease-Related Assets and Liabilities |
Items | 2024 | 2023 | |||||||
|
Right of use assets: |
||||||||||
|
Operating lease |
Right of use asset |
$ | $ | |||||||
|
Total right of use assets |
$ | 1,991 | $ | |||||||
|
Lease liabilities: |
||||||||||
|
Operating lease |
Leasehold liability, current portion |
$ | $ | |||||||
|
Leasehold liability, long-term portion |
||||||||||
|
Total lease liabilities |
$ | $ | ||||||||
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 $
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 March 31, 2024 and December 31, 2023, the Company’s certificate of incorporation, as amended and restated, authorizes the Company to issue up to
Series A Preferred Stock Exchange
On March 5, 2024, the Company entered into the A-1 Securities Purchase Agreement with CRG to exchange all
The exchange was accounted for as a capital transaction constituting an extinguishment of the Series A preferred stock through the issuance of Series A-1 preferred stock with no net impact to stockholders’ deficit. At the time of the exchange, the Series A preferred stock had approximately $
Series A-1 Convertible Preferred Stock
Each share of Series A-1 preferred stock has a stated value of $
Series B Convertible Preferred Stock
The Series B preferred stock has a liquidation preference of $
Series E Convertible Preferred Stock
Each share of Series E preferred stock has a stated value of $
Series F Convertible Preferred Stock
On March 4, 2024, in connection with the Purchase Agreement (see Note 1), the Company issued
Common Stock
As of March 31, 2024, the Company’s certificate of incorporation, as amended and restated, authorizes the Company to issue up to
March 2024 Offering
On March 5, 2024, in connection with the Purchase Agreement (see Note 1), the Company issued
Common Stock Warrants
As of March 31, 2024 and December 31, 2023, warrants and preferred investment options to purchase an aggregate of
As of March 31, 2024, 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 |
$ |
February 2025 |
|||||||||||
|
Series 2 Warrants issued in the February 2018 Series B financing |
$ |
February 2025 |
|||||||||||
|
Placement agent warrants issued in the January 2022 financing |
$ |
January 2027 |
|||||||||||
|
Warrants issued in the January 2022 financing |
$ |
July 2027 |
|||||||||||
|
Series A Preferred Investment Options issued in August 2022 financing |
$ |
February 2028 |
|||||||||||
|
Series B Preferred Investment Options issued in August 2022 financing |
$ |
August 2024 |
|||||||||||
|
Placement agent Preferred Investment Options issued in the August 2022 financing |
$ |
August 2027 |
|||||||||||
|
Advisor Warrants issued in the March 2024 financing |
$ |
March 2029 |
|||||||||||
|
Total as of March 31, 2024 |
|||||||||||||
As of December 31, 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 |
$ |
February 2025 |
|||||||||||
|
Series 2 Warrants issued in the February 2018 Series B financing |
$ |
February 2025 |
|||||||||||
|
Placement agent warrants issued in the January 2022 financing |
$ |
January 2027 |
|||||||||||
|
Warrants issued in the January 2022 financing |
$ |
July 2027 |
|||||||||||
|
Series A Preferred Investment Options issued in August 2022 financing |
$ |
February 2028 |
|||||||||||
|
Series B Preferred Investment Options issued in August 2022 financing |
$ |
August 2024 |
|||||||||||
|
Placement agent Preferred Investment Options issued in the August 2022 financing |
$ |
August 2027 |
|||||||||||
|
Total as of December 31, 2023 |
|||||||||||||
March 2024 Private Placement
On March 7, 2024, in connection with the closing of the Strategic Partnership and Private Placement, the Company issued warrants to financial advisors to purchase up to an aggregate of
The exercise price and the number of shares of common stock issuable upon exercise of each Advisor Warrants 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 Advisor Warrants 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 Advisor Warrants prior to the fundamental transaction.
The Advisor Warrants can be exercised at the option of the holders at any time after they become exercisable provided that shares cannot be exercised into common stock if the applicable holder would beneficially own in excess of
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 December 22, 2023, the Company’s stockholders approved an additional
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. A summary of all RSA activity is presented below:
|
Number of Shares |
Weighted Average Grant Date Fair Value |
Weighted Average Remaining Contractual Term |
||||||||||
|
Awards outstanding at December 31, 2023 |
$ | |||||||||||
|
Awarded |
$ | — | ||||||||||
|
Released |
( |
) |
$ | — | ||||||||
|
Forfeited |
$ |
— | ||||||||||
|
Awards outstanding at March 31, 2024 |
$ | |||||||||||
As of March 31, 2024, there was approximately $
Total noncash stock-based compensation expense relating to the Company’s RSAs recognized, before taxes, during the three months ended March 31, 2024 and 2023, is as follows (in thousands):
|
Three Months Ended March 31, |
||||||||
|
2024 |
2023 |
|||||||
|
Cost of revenues |
$ | $ | ||||||
|
Research and development expenses |
||||||||
|
Selling, general and administrative expenses |
||||||||
| $ | $ | |||||||
|
ITEM 2. |
MANAGEMENT’S 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 20, 2024 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 for 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 around mid-year 2024.
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 completed enrollment in 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 lesions 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 2024.
We generated revenues of $10.1 million in 2021, $8.3 million in 2022 and $7.7 million in 2023. Revenues during these years were tangentially affected by COVID-19 as hospitals continued to defer elective procedures in certain jurisdictions while increasing volume to accommodate previously deferred procedures in others, which among other things, created unpredictability in case volume. This unpredictability created more volatility in our revenues which continued to affect our business in the aforementioned years. The decline in revenue in 2022 and 2023 was primarily attributable to the adverse effects of staffing shortages, resource constraints on our customers as hospitals deferred elective procedures, and the impact of a very competitive market for talent on the retention of our commercial team.
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.
On November 21, 2023, the Staff formally notified us that the Staff had determined that we were unable to demonstrate compliance with the Equity Requirement and that our securities would be delisted at the open of business on November 30, 2023, unless we timely requested a hearing before the Nasdaq Hearings Panel (the “Panel”). On November 28, 2023, we requested and were granted a hearing before the Panel which took place on February 20, 2024. At the hearing, we presented a plan to regain and sustain compliance with the Equity Requirement and requested an extension to do so. On March 14, 2024, the results from the hearing were rendered in which we were granted an extension by the Panel. This extension stayed any further action by Nasdaq with respect to our continued listing until May 20, 2024.
We are taking definitive steps pursuant to our plan as presented to the Panel to ensure our compliance with the Equity Requirement and all other applicable criteria for continued listing on Nasdaq. 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 for the year ended December 31, 2023. In March 2024, we also entered into a securities purchase agreement as part of a larger strategic partnership and collaboration transaction representing entry into a number of financing, licensing and other agreements (“Strategic Collaboration”) in which we received gross proceeds of $7.5 million and expect to receive another $7.5 million upon the successful completion of certain milestones, discussed in more detail below. This financing transaction was an integral part of the plan presented to the Panel.
We anticipate we will need to issue additional shares of capital stock through various other 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. There can be no assurance that we will evidence compliance within the extension period that was granted by the Panel.
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. 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 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 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.
Strategic Collaboration
On March 4, 2024, we entered into a License and Distribution Agreement (the “License Agreement”) with Zylox-Tonbridge, pursuant to which we will license and distribute certain of our products (including consumables) in the Greater China region, including mainland China, Hong Kong, Macao, and Taiwan (the “Territory”). Zylox-Tonbridge will lead all regulatory activities for the registration of our products in the Territory. We will also license our intellectual property and know-how related to our products to Zylox-Tonbridge so that Zylox-Tonbridge can manufacture the localized products in the Territory. All sales of our products locally manufactured by Zylox-Tonbridge with regulatory approval by the regulatory authorities in the Territory and commercialized in the Territory will be royalty bearing to us at varying percentages depending on the amount of gross revenue and product gross margin.
In connection with the License Agreement, we also entered into a Strategic Cooperation and Framework Agreement with Zylox-Tonbridge (the “Collaboration Agreement” and, together with the License Agreement, the “Strategic Collaboration”), which provides the opportunity for us to access certain Zylox-Tonbridge peripheral vascular products for distribution in the U.S. and Germany. The agreement also provides the option for us to source finished goods inventory from Zylox-Tonbridge following registration of Zylox-Tonbridge’s manufacturing facility with the FDA.
Financing Agreements
On March 4, 2024, in connection with the Strategic Collaboration, we and Zylox-Tonbridge Medical Limited, a wholly-owned subsidiary of Zylox-Tonbridge (the “Purchaser”), entered into a Securities Purchase Agreement (the “Purchase Agreement”), pursuant to which the Purchaser agreed to purchase, in two tranches, up to an aggregate of $15 million in shares of our common stock, par value $0.001 per share (the “Common Stock”), and shares of two new series of our preferred stock (the “Private Placement”). On March 5, 2024, (the “Initial Closing”), we issued to the Purchaser 75,327 shares of the Common Stock at a purchase price per share of $3.664 (the “Purchase Price”), and 7,224 shares of a newly authorized Series F convertible preferred stock, par value $0.001 per share (the “Series F Preferred Stock”), at a purchase price per share of $1,000, for an aggregate purchase price of $7.5 million.
Each share of Series F Preferred Stock has a stated value of $1,000 and is initially convertible into approximately 273 shares of Common Stock at a conversion price equal to the Purchase Price, subject to the terms of the Certificate of Designation of Preferences, Rights, and Limitations of the Series F Preferred Stock (the “Series F Certificate of Designation”).
Upon completion of the following as mutually agreed upon by us and the Purchaser: (i) the successful registration and listing under 21 CFR part 807 with the FDA of the Purchaser and one of its designated affiliates to manufacture our products, and (ii) us achieving an aggregate of $10 million in gross revenue within any four consecutive fiscal quarters after the Initial Closing, excluding any gross revenue achieved by us under the License Agreement discussed above (together, the “Milestones”), the Purchaser will invest an additional $7.5 million (the “Milestone Closing”) to purchase shares of our new Series G convertible preferred stock, par value $0.001 per share (the “Series G Preferred Stock”). Each share of Series G Preferred Stock will have a stated value of $1,000 and will be convertible into shares of Common Stock at a conversion price of equal to the lowest of (x) the Purchase Price, (y) the closing price of the Common Stock on the date immediately preceding the Milestone Closing, and (z) the average closing price for the last five trading days preceding the Milestone Closing, provided that the conversion price will be no less than $0.20.
Our obligations to (i) accept conversion of the shares of Series F Preferred Stock in excess of 19.9% of our outstanding common stock as of the date of the Purchase Agreement and (ii) issue and sell shares of Series G Preferred Stock upon completion of the Milestones are each subject to receipt of the approval of our stockholders as is necessary under the rules and regulations of Nasdaq (including, without limitation, Nasdaq Rule 5635(d)).
Series A Preferred Stock Exchange
On March 5, 2024, we entered into a Securities Purchase Agreement (the “A-1 Securities Purchase Agreement”) to exchange all outstanding shares of Series A Preferred Stock for 10,000 shares of Series A-1 Preferred Stock (the “Exchange”). Among other things, the shares of Series A-1 Preferred Stock: (i) are convertible into an aggregate of approximately 2,729,257 shares of Common Stock at a conversion price equal to the Purchase Price, (ii) do not accrue or pay dividends payable solely on the Series A-1 Preferred Stock, (iii) will have no liquidation preference and (iv) will be junior in rank to shares of our Series E Preferred Stock, Series F Preferred Stock and Series G Preferred Stock.
CRG Loan Amendment
On March 5, 2024, we also entered into Amendment No. 9 to the Loan Agreement effective as of the Initial Closing with CRG, which amends the Loan Agreement to, among other things: (i) extend the interest-only period through December 31, 2026; (ii) provide that interest payable through December 31, 2026 may be payable in kind rather than in cash; and (iii) permit the payment of dividends on the preferred stock issued or issuable to the Purchaser.
Lease Extension
On March 6, 2024, we entered into an amendment to the lease which extended the lease term for a period of one year, subsequent to the original expiration of November 30, 2024. As amended, the lease will expire on November 30, 2025. Under the terms of the amendment, we will be obligated to pay approximately $1.3 million in base rent payments through November 2025, beginning on December 1, 2024. This amendment also provides an optional one year extension of the lease following the end of the current term, as amended.
Financing
During the three months ended March 31, 2024, our net loss and comprehensive net loss was $5.5 million; during the years ended December 31, 2023 and 2022, our net loss and comprehensive loss was $18.3 million and $17.6 million, respectively. We have not been profitable since inception, and as of March 31, 2024, our accumulated deficit was $426.2 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 newly authorized Series A-1 preferred stock. In March 2024, all outstanding shares of Series A preferred stock were cancelled in exchange for the issuance of Series A-1 preferred stock. The Series A-1 preferred stock, which is immediately convertible, carries no liquidation preference or dividend rights.
We have entered into several amendments (collectively, the “Amendments”) to the Loan Agreement with CRG since September 2015. The Amendments, among other things: (1) extended the interest-only period through December 31, 2026; (2) extended the period during which we may elect to pay a portion of interest in payment-in-kind (“PIK”), interest payments through December 31, 2026 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, 2026 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, 2028; (5) reduced the minimum liquidity covenant to $3.5 million at all times; (6) eliminated the minimum revenue covenant for all years; (7) changed the date under the on-going stand-alone representation regarding no “Material Adverse Change” to December 31, 2020; (8) 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; (9) provided CRG with board observer rights; and (10) provide that the board observer may be appointed or removed by written notice from the Majority Lenders (as defined in the Loan Agreement).
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 newly authorized Series E convertible 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 held 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 were not cumulative or accrued.
On January 26, 2024, we entered into Amendment No. 8 to the Loan Agreement with CRG, which reduced the minimum liquidity requirement of the Loan Agreement from $3.5 million to $1.0 million until April 1, 2024. Thereafter, we would be subject to the minimum liquidity requirement of $3.5 million.
As part of our Strategic Collaboration, we entered into Amendment No. 9 to the Loan Agreement with CRG, which amends the Loan Agreement to, among other things: (i) extend the interest-only period through December 31, 2026; (ii) provide that interest payable through December 31, 2026 may be payable in kind rather than in cash; and (iii) permit the payment of dividends on the preferred stock issued or issuable to the Purchaser. In addition, we completed the Private Placement for gross proceeds, before expenses, of $7.5 million.
Critical Accounting Policies and Estimates
Management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and assumptions for the reported amounts of assets, liabilities, revenues, expenses and related disclosures of contingent assets and liabilities. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions and any such differences may be material. There have been no significant and material changes in our critical accounting policies during the three months ended March 31, 2024, 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 20, 2024.
Components of Our Results of Operations
Revenues
All of our revenues are currently derived from sales of our various PAD catheters in the United States and select international markets, Lightbox consoles, and related services. We expect our revenues to increase in 2024 due to the introduction of our Tigereye ST and Pantheris LV products, investments in sales personnel and easing conditions involving hospital staffing and capacity issues. For the three months ended March 31, 2024, there was one customer that represented 17% of revenues and another that represented 10% of revenues. For the three months ended March 31, 2023, there was one customer that represented 13% of revenues.
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 staffing issues 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.
Results of Operations:
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Three Months Ended March 31, |
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|
2024 |
2023 |
|||||||
|
Revenues |
$ | 1,859 | $ | 1,888 | ||||
|
Cost of revenues |
1,516 | 1,252 | ||||||
|
Gross profit |
343 | 636 | ||||||
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Gross margin |
18 | % | 34 | % | ||||
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Operating expenses: |
||||||||
|
Research and development |
1,062 | 1,356 | ||||||
|
Selling, general and administrative |
4,370 | 3,538 | ||||||
|
Total operating expenses |
5,432 | 4,894 | ||||||
|
Loss from operations |
(5,089 | ) | (4,258 | ) | ||||
|
Interest expense, net |
(416 | ) | (392 | ) | ||||
|
Other (expense) income, net |
(12 | ) | 6 | |||||
|
Net loss and comprehensive loss |
$ | (5,517 | ) | $ | (4,644 | ) | ||
Comparison of Three Months Ended March 31, 2024 and 2023
Revenues.
Revenues during the three months ended March 31, 2024 remained flat compared to the three months ended March 31, 2023. 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 three months ended March 31, 2024.
Cost of Revenues and Gross Margin.
Cost of revenues increased $0.3 million, or 21%, to $1.5 million during the three months ended March 31, 2024 in comparison to the three months ended March 31, 2023. This increase was primarily attributable fluctuations in labor costs and inventory production, increased material costs and other ancillary expenditures. Stock-based compensation expense within cost of revenues totaled $158,000 and $28,000 for the three months ended March 31, 2024 and 2023, respectively.
Gross margin for the three months ended March 31, 2024 decreased to 18%, compared to 34% in the three months ended March 31, 2023. 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 the production levels of inventory and rising costs of materials.
Research and Development Expenses.
R&D expense for the three months ended March 31, 2024 decreased $0.3 million or 22% compared to the three months ended March 31, 2023. The decrease is primarily due to the completion of our development efforts of Tigereye ST and Pantheris LV occurring during 2023, partially offset by ongoing product development of our coronary device program. Stock-based compensation expense within R&D totaled $314,000 and $83,000 for the three months ended March 31, 2024 and 2023, respectively. We expect R&D expense to fluctuate based on the ongoing product development of our coronary device.
Selling, General and Administrative Expenses.
SG&A expense for the three months ended March 31, 2024 increased by $0.8 million or 24%, compared to the three months ended March 31, 2023. This increase was primarily attributable to increases in sales personnel costs resulting from the investments made to increase the number of sales personnel deployed in the United States, and increases in third-party professional services and other ancillary expenses related to the consummation of the Zylox-Tonbridge transaction and other corporate activities. Stock-based compensation expense within SG&A totaled $624,000 and $134,000 for the three months ended March 31, 2024 and 2023, respectively. We expect SG&A expense to fluctuate based on the number of sales personnel deployed within the United States, variable compensation related to fluctuations in revenues and other corporate activities that we undertake.
Interest Expense, Net.
Interest expense, net is comprised of interest expense net of interest income. Interest expense, net for the three months ended March 31, 2024 increased by 6% or $24,000, compared to the three months ended March 31, 2023, primarily due to decreases in interest income due a lower average cash balance, partially offset by lower interest expense resulting from a lower CRG loan balance from PIK interest being compounded.
Other (Expense) Income, Net.
Other (expense) income, 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 (expense) income, net for the three months ended March 31, 2024 remained relatively flat in comparison to the three months ended March 31, 2023 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 March 31, 2024, we had cash and cash equivalents of $7.2 million and an accumulated deficit of $426.2 million, compared to cash and cash equivalents of $5.3 million and an accumulated deficit of $420.7 million as of December 31, 2023. We expect to incur losses for the foreseeable future. We believe that our cash and cash equivalents of $7.2 million at March 31, 2024 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 second 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 months ended March 31, 2024 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 had been closed by the California Department of Financial Protection and Innovation. While we have regained access to our accounts at Silicon Valley Bank, now a division of First Citizens 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.
Equity Financings
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. On August 3, 2022, we suspended sales under the ATM Agreement. On March 17, 2023, we reactivated the ATM Agreement. During the year ended December 31, 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 $164,000 was paid in the form of commissions to the Agent. There were no sales under the ATM Agreement during the three months ended March 31, 2024. 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, we currently do not have any commitment to obtain additional funds.
March 2024 Financing
In connection with our the Strategic Collaboration, we entered into a Securities Purchase Agreement (the “Purchase Agreement”) with Zylox-Tonbridge Medical Limited, a wholly-owned subsidiary of Zylox-Tonbridge (the “Purchaser”), pursuant to which the Purchaser agreed to purchase, in two tranches, up to an aggregate of $15 million in shares of our common stock, par value $0.001 per share (the “Common Stock”), and shares of two new series of our preferred stock (the “Private Placement”). On March 5, 2024, (the “Initial Closing”), we issued to the Purchaser 75,327 shares of the Common Stock at a purchase price per share of $3.664 (the “Purchase Price”), and 7,224 shares of a newly authorized Series F convertible preferred stock, par value $0.001 per share (the “Series F Preferred Stock”), for an aggregate purchase price of $7.5 million. Each share of Series F Preferred Stock has a stated value of $1,000 and is initially convertible into approximately 273 shares of Common Stock at a conversion price equal to the Purchase Price, subject to the terms of the Certificate of Designation of Preferences, Rights, and Limitations of the Series F Preferred Stock (the “Series F Certificate of Designation”).
Upon completion of the following as mutually agreed upon by us and the Purchaser: (i) the successful registration and listing under 21 CFR part 807 with the FDA of the Purchaser and one of its designated affiliates to manufacture our products, and (ii) our achieving an aggregate of $10 million in gross revenue within any four consecutive fiscal quarters after the Initial Closing, excluding any gross revenue related to sales of our products to Zylox-Tonbridge (together, the “Milestones”), the Purchaser will invest an additional $7.5 million (the “Milestone Closing”) to purchase shares of our new Series G convertible preferred stock, par value $0.001 per share (the “Series G Preferred Stock”). Each share of Series G Preferred Stock will have a stated value of $1,000 and will be convertible into shares of Common Stock at a conversion price of equal to the lowest of (x) the Purchase Price, (y) the closing price of the Common Stock on the date immediately preceding the Milestone Closing, and (z) the average closing price for the last five trading days preceding the Milestone Closing, provided that the conversion price will be no less than $0.20. There can be no guarantee that such Milestone Closing will occur.
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 March 31, 2024, our contractual obligations due by period (in thousands):
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Payments Due by Period |
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Less Than |
2 - 3 |
4-5 Years |
More |
Total |
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Operating lease obligations (1) |
$ | 1,252 | $ | 848 | $ | — | $ | — | $ | 2,100 | ||||||||||
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CRG Loan (2) |
— | 2,949 | 21,446 | — | 24,395 | |||||||||||||||
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Non-cancelable purchase commitments (3) |
390 | 21 | — | — | 411 | |||||||||||||||
| $ | 1,642 | $ | 3,818 | $ | 21,446 | $ | — | $ | 26,906 | |||||||||||
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(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, 2025. |
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(2) |
The total CRG Loan amount, shown as borrowings on the balance sheet as of March 31, 2024, is $14.8 million. The contractual obligation in the table above of $24.4 million under the CRG Loan includes future interest to be accrued but not paid in cash as well as a $2.8 million back-end fee to be paid in December 2028 upon maturity of the CRG Loan which is being accreted. For more information, see Part I, Item 1 “Unaudited Financial Statements, Note 4. Borrowings.” |
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(3) |
Non-cancelable purchase commitments consist of agreements to purchase goods and services entered into in the ordinary course of business. |
CRG Loan
We have entered into several amendments to the Loan Agreement (the “Amendments”) with CRG since September 2015. The Amendments, among other things: (1) extended the interest-only period through December 31, 2026; (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, 2026 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 through December 31, 2026 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, 2028; (5) reduced the minimum liquidity covenant to $3.5 million at all times; (6) eliminated the minimum revenue covenant for all years; (7) changed the date under the on-going stand-alone representation regarding no “Material Adverse Change” to December 31, 2020; (8) 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; (9) provided CRG with board observer rights, and (10) provide that the board observer may be appointed or removed by written notice from the Majority Lenders (as defined in the Loan Agreement). The total Loan amount under the Loan Agreement (the “CRG Loan”), shown as short-term borrowings on the balance sheet as of March 31, 2024, is $14.8 million. However, upon maturity of the obligations under the Loan Agreement in December 2028, we will be obligated to pay $24.4 million under the Loan Agreement, which includes future interest to be accrued but not paid in cash as well as a $2.8 million back-end fee to be paid in December 2028 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 March 31, 2024 and December 31, 2023 is 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,” Note 4 for additional details.
On January 26, 2024, we entered into Amendment No. 8 to the Loan Agreement with CRG, which reduces the minimum liquidity requirement of the Loan Agreement from $3.5 million to $1.0 million until April 1, 2024. Thereafter, we will be subject to the minimum liquidity requirement of $3.5 million.
As part of our Strategic Collaboration, we entered into Amendment No. 9 to the Loan Agreement with CRG, which amends the Loan Agreement to, among other things: (i) extend the interest-only period through December 31, 2026; (ii) provide that interest payable through December 31, 2026 may be payable in kind rather than in cash; and (iii) permit the payment of dividends on the preferred stock issued or issuable to the Purchaser.
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. Rent expense is recognized using the straight-line method over the term of the lease.
The lease will expire on November 30, 2025. We are obligated to pay a total of approximately $7.1 million in base rent payments through November 2024, which began on December 1, 2019. The weighted average remaining lease term as of March 31, 2024 is 1.7 years.
On March 6, 2024, we entered into an amendment to the lease which extended the lease term for a period of one year, subsequent to the original expiration of November 30, 2024. As amended, the lease will expire on November 30, 2025. Under the terms of the amendment, we will be obligated to pay approximately $1.3 million in base rent payments through November 2025, beginning on December 1, 2024. This amendment also provides an optional one year extension of the lease following the end of the current term, as amended.
Cash Flows
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Three Months Ended March 31, |
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2024 |
2023 |
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(in thousands) |
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Net cash (used in) provided by: |
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Operating activities |
$ | (4,734 | ) | $ | (4,212 | ) | ||
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Investing activities |
— | — | ||||||
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Financing activities |
6,633 | (21 | ) | |||||
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Net change in cash and cash equivalents |
$ | 1,899 | $ | (4,233 | ) | |||
Net Cash Used in Operating Activities
Net cash used in operating activities for the three months ended March 31, 2024 was $4.7 million, consisting primarily of a net loss of $5.5 million and an increase in net operating assets of $0.9 million, partially offset by non-cash charges of $1.7 million. Non-cash charges primarily related to non-cash interest expense of $0.5 million and stock-based compensation of $1.1 million. The increase in net operating assets was primarily due to the increase in prepaid expenses and other current assets due to annual renewals of certain expenses, including insurance coming due; an increase in accounts receivable due to timing of sales occurring during the quarter and timing of payments; and a decrease in long-term liabilities relating to certain variable compensation being reclassified to accrued compensation as it became due within less than one year. These increases were partially offset by a decline in inventory which include components and labor, in an effort to optimize inventory levels in anticipation of forecasted demand in light of extended lead times and shifting product mix primarily related to new product introductions of Tigereye ST and Pantheris LV.
Net cash used in operating activities for the three months ended March 31, 2023 was $4.2 million, consisting primarily of a net loss of $4.6 million and an increase in net operating assets of $0.5 million, partially offset by non-cash charges of $1.0 million. Non-cash charges largely related to non-cash interest expense of $0.5 million and stock-based compensation of $0.2 million. The increase in net operating assets was primarily due to the increase in prepaid expenses and other current assets due to annual renewals of certain expenses, including insurance coming due; and purchases of inventory components in anticipation of forecasted demand in light of extended lead times. These increases were partially offset by the increase in other long-term liabilities as certain variable compensation continues to accrue and accrued compensation due to timing of payments.
Net Cash Used in Investing Activities
There was no cash used in investing activities during either of the three months ended March 31, 2024 or 2023.
Net Cash Provided by Financing Activities
Net cash provided by financing activities for the three months ended March 31, 2024 of $6.6 million primarily relates to proceeds, net of commissions and various issuance costs, from the issuance of preferred stock and common stock in the Private Placement in March 2024. This was partially offset by the payment of approximately $0.4 million in satisfaction of certain tax obligations related to net share settlement on restricted stock awards vesting during the quarter.
Net cash used in financing activities for the three months ended March 31, 2023 of less than $0.1 million primarily related to the costs of reactivating the ATM, partially offset by proceeds of less than $0.1 million, net of commissions and various issuance costs, from the sale of common stock pursuant to the ATM Agreement.
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ITEM 3. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Interest Rate Risk
The risk associated with fluctuating interest rates is primarily limited to our cash equivalents, which are carried at quoted market prices. Due to the short-term maturities and low risk profile of our cash equivalents, an immediate 100 basis point change in interest rates would not have a material effect on the fair value of our cash equivalents. We do not currently use or plan to use financial derivatives in our investment portfolio.
Credit Risk
As of March 31, 2024, our cash and cash equivalents were maintained largely with one financial institution in the United States, and our current deposits are in excess of insured limits. We have reviewed the financial statements of this institution and believe it has sufficient assets and liquidity to conduct its operations in the ordinary course of business with little or no credit risk to us.
Our accounts receivable primarily relate to revenues from the sale of our Lumivascular platform products to hospitals and medical centers in the United States. At March 31, 2024, there was one customer that represented 32% of the Company’s accounts receivable. At December 31, 2023, there was one customer that represented 24% of the Company’s accounts receivable. For the three months ended March 31, 2024, there was one customer that represented 17% of revenues and another that represented 10% of revenues. For the three months ended March 31, 2023, there was one customer that represented 13% of revenues.
Foreign Currency Risk
Our business is primarily conducted in U.S. dollars. Any transactions that may be conducted in foreign currencies are not expected to have a material effect on our results of operations, financial position or cash flows.
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ITEM 4. |
CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended, or the Exchange Act, and the rules and regulations thereunder, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
As required by Rule 13a-15(b) under the Exchange Act, our management, under the supervision and with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, 2024. Based on such evaluation, our principal executive officer and principal financial officer have concluded that, as of March 31, 2024, our disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
There were no changes in our internal controls over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the three months ended March 31, 2024 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. |
OTHER INFORMATION |
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ITEM 1. |
LEGAL PROCEEDINGS |
None.
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ITEM 1A. |
RISK FACTORS |
Except as described below, there have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K filed with the SEC on March 20, 2024.The disclosure of risks identified below does not imply that the risk has not already materialized.
Nasdaq may delist our securities from its exchange, which could harm our business and limit our stockholders’ liquidity.
Our common stock is currently listed on the Nasdaq Capital Market, which has qualitative and quantitative listing criteria. However, we cannot assure you that our common stock will continue to be listed on Nasdaq in the future. In order to continue listing our common stock on Nasdaq, we must maintain certain financial, distribution and stock price levels. Generally, we must maintain a minimum amount in stockholders’ equity, a minimum number of holders of our common stock and a minimum bid price.
On 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.
On November 21, 2023, the Staff formally notified us that the Staff had determined that we were unable to demonstrate compliance with the Equity Requirement and that our securities would be delisted at the open of business on November 30, 2023, unless we timely requested a hearing before the Nasdaq Hearings Panel (the “Panel”). On November 28, 2023, we requested and were granted a hearing before the Panel which took place on February 20, 2024. At the hearing, we presented a plan to regain and sustain compliance with the Equity Requirement and requested an extension to do so. On March 14, 2024, the results from the hearing were rendered in which we were granted an extension by the Panel. This extension stayed any further action by Nasdaq with respect to our continued listing until May 20, 2024.
We anticipate we will need to issue additional shares of capital stock through various other 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. There can be no assurance that we will evidence compliance within the extension period that was granted by the Panel.
If Nasdaq delists our common stock from trading on its exchange and we are not able to list our securities on another national securities exchange, we expect our securities could be quoted on an over-the-counter market. If this were to occur, we could face significant material adverse consequences, including:
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a limited availability of market quotations for our securities; |
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reduced liquidity for our securities; |
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a determination that our common stock is a “penny stock” which will require brokers trading in our common stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our securities; |
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a limited amount of news and analyst coverage; and |
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a decreased ability to issue additional securities or obtain additional financing in the future. |
The National Securities Markets Improvement Act of 1996, which is a federal statute, prevents or preempts the states from regulating the sale of certain securities, which are referred to as “covered securities.” If our common stock continues to be listed on NASDAQ, our common stock will be a covered security. Although the states are preempted from regulating the sale of our securities, the federal statute does allow the states to investigate companies if there is a suspicion of fraud, and, if there is a finding of fraudulent activity, then the states can regulate or bar the sale of covered securities in a particular case.
There is substantial doubt about our ability to continue as a going concern, and we will need additional financing to execute our business plan, to fund our operations and to continue as a going concern, and, if we are unable to obtain additional financing, may be required to pursue a reorganization proceeding under applicable bankruptcy or insolvency laws, including under Chapter 11 of the U.S. Bankruptcy Code.
Since inception, we have experienced recurring operating losses and negative cash flows and we expect to continue to generate operating losses and consume significant cash resources for the foreseeable future. There is substantial doubt regarding our ability to continue as a going concern. Our independent registered public accounting firm has expressed in its auditors’ report on our 2023 financial statements, included our Annual Report on Form 10-K filed on March 20, 2024, an emphasis of matter paragraph relating to our ability to continue as a “going concern,” meaning that our recurring losses from operations and negative cash flows from operations raise substantial doubt regarding our ability to continue as a going concern. We have prepared our financial statements on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. Our financial statements do not include any adjustment to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty, with the exception that all borrowings are classified as current on the balance sheets.
Under our Term Loan Agreement (the “Loan Agreement”) with CRG Partners III L.P. and certain of its affiliated funds (collectively “CRG”), a “Material Adverse Change” or “Material Adverse Effect” (each as defined in the Loan Agreement) is an “Event of Default” thereunder, which gives Majority Lenders (as defined in the Loan Agreement) the right to declare amounts outstanding under the Loan Agreement immediately due and payable. Due to the substantial doubt about our ability to continue operating as a going concern and the Event of Default that could result due to a Material Adverse Change under the Loan Agreement, the entire amount of borrowings at March 31, 2024 and December 31, 2023 are classified as current. In addition, we may not be able to generate sufficient liquidity or revenue to satisfy minimum liquidity and minimum revenue covenants under the Loan Agreement. If we fail to satisfy such requirements, we will be in default under the Loan Agreement and all outstanding amounts under the Loan Agreement will become immediately due.
Majority Lenders have not purported that an Event of Default has occurred as a result of a Material Adverse Change or breach of other financial covenants. However, there can be no guarantee that Majority Lenders will not invoke such Event of Default in the future, or that we will not experience other Material Adverse Changes or other Material Adverse Effects, or otherwise breach our financial or other covenants under the Loan Agreement, that could give rise to an Event of Default under the Loan Agreement.
If we are unable to generate sufficient revenue and liquidity to service our debt, we may be required to pursue a reorganization proceeding under applicable bankruptcy or insolvency laws, including protection (“Bankruptcy Protection”) under Chapters 7 or 11 of the U.S. Bankruptcy Code. Holders of our common stock will likely not receive any value or payments in a restructuring or similar scenario.
In the event we pursue Bankruptcy Protection, we will be subject to the risks and uncertainties associated with such proceedings
In the event we file for relief under the United States Bankruptcy Code, our operations, our ability to develop and execute our business plan and our continuation as a going concern will be subject to the risks and uncertainties associated with bankruptcy proceedings, including, among others: our ability to execute, confirm and consummate a plan of reorganization; the high costs of bankruptcy proceedings and related fees; our ability to obtain sufficient financing to allow us to emerge from bankruptcy and execute our business plan post-emergence, and our ability to comply with terms and conditions of that financing; our ability to continue our operations in the ordinary course; our ability to maintain our relationships with our customers, business partners, counterparties, employees and other third parties; our ability to obtain, maintain or renew contracts that are critical to our operations on reasonably acceptable terms and conditions; our ability to attract, motivate and retain key employees; the ability of third parties to use certain limited safe harbor provisions of the United States Bankruptcy Code to terminate contracts without first seeking Bankruptcy Court approval; and the actions and decisions of our stakeholders and other third parties who have interests in our bankruptcy proceedings that may be inconsistent with our operational and strategic plans. Any delays in our bankruptcy proceedings would increase the risks of our being unable to reorganize our business and emerge from bankruptcy proceedings and may increase our costs associated with the bankruptcy process or result in prolonged operational disruption for us. Also, we would need the prior approval of the bankruptcy court for transactions outside the ordinary course of business during the course of any bankruptcy proceedings, which may limit our ability to respond timely to certain events or take advantage of certain opportunities. Because of the risks and uncertainties associated with any bankruptcy proceedings, we cannot accurately predict or quantify the ultimate impact of events that could occur during any such proceedings. There can be no guarantees that if we seek Bankruptcy Protection, we will emerge from Bankruptcy Protection as a going concern or that holders of our common stock will receive any recovery from any bankruptcy proceedings.
In the event we are unable to pursue Bankruptcy Protection under Chapter 11 of the United States Bankruptcy Code, or, if pursued, successfully emerge from such proceedings, it may be necessary to pursue Bankruptcy Protection under Chapter 7 of the United States Bankruptcy Code for all or a part of our businesses.
In the event we are unable to pursue Bankruptcy Protection under Chapter 11 of the United States Bankruptcy Code, or, if pursued, successfully emerge from such proceedings, it may be necessary for us to pursue Bankruptcy Protection under Chapter 7 of the United States Bankruptcy Code for all or a part of our businesses. In such event, a Chapter 7 trustee would be appointed or elected to liquidate our assets for distribution in accordance with the priorities established by the United States Bankruptcy Code. We believe that liquidation under Chapter 7 would result in significantly smaller distributions being made to our stakeholders than those we might obtain under Chapter 11 primarily because of the likelihood that the assets would have to be sold or otherwise disposed of in a distressed fashion over a short period of time rather than in a controlled manner and as a going concern.
We may not be able to secure additional financing on favorable terms, or at all, to meet our future capital needs and our failure to obtain additional financing when needed could force us to delay, reduce or eliminate our product development programs and commercialization efforts or cause us to become insolvent.
On March 5, 2024, we entered into a financing as part of a broader strategic collaboration with Zylox-Tonbridge Medical Technology Co., Ltd. (“Zylox-Tonbridge”) in which we received an aggregate of $7.5 million before any commissions, legal and accounting fees, and other ancillary expenses. We believe that our cash and cash equivalents at March 31, 2024, together with the aforementioned financing, debt and other financing activities and expected revenues from operations, will be sufficient to satisfy our capital requirements and fund our operations through the second quarter of 2024. Even though we received net proceeds of approximately $7.0 million from the sale of our Common Stock and Series F Convertible Preferred Stock in the Private Placement in March 2024, and $6.5 million from the sale of our common stock under our at-the-market program that we entered into on May 20, 2022, we will need to raise additional funds 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 under the Nasdaq Listing Rules. We can provide no assurance that we 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 our existing stockholders. Given the volatility of our stock price, any financing that we undertake could cause substantial dilution to our existing stockholders. Macroeconomic challenges and volatility in capital markets could further limit our ability to raise capital when needed on terms favorable to us, or at all. In addition, while we have been able to raise capital from the sale of shares under our at-the-market program, the limitations under instruction I.B.6 of Form S-3, as well as possible low volume of trading in our securities, will limit our ability to continue raising funds through such program.
To date, we have financed our operations primarily through sales of our products and net proceeds from the issuance of our preferred stock and debt financings, our initial public offering (“IPO”), private offerings, strategic investment, and our follow-on public offerings of our securities. We do not know when or if our operations will generate sufficient cash to fund our ongoing operations. We cannot be certain that additional capital will be available as needed on acceptable terms, or at all. In the future, we may require additional capital in order to (i) continue to conduct research and development activities, (ii) conduct post-market clinical studies, as well as clinical trials to obtain regulatory clearances and approvals necessary to commercialize our Lumivascular platform products, (iii) expand our sales and marketing infrastructure, (iv) acquire complementary businesses technologies or products; or (v) respond to business opportunities, challenges, a decline in sales, increased regulatory obligations or unforeseen circumstances. Our future capital requirements will depend on many factors, including:
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the degree of success we experience in commercializing our Lumivascular platform products, particularly Pantheris, Ocelot, Tigereye and any future versions of such products; |
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the costs, timing and outcomes of clinical trials and regulatory reviews associated with our future products; |
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the costs and expenses of maintaining or expanding our sales and marketing infrastructure and our manufacturing operations; |
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the costs and timing of developing variations of our Lumivascular platform products and, if necessary, obtaining FDA clearance of such variations; |
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the costs and timing of developing our Coronary products, timing and outcomes of clinical trials and regulatory reviews associated with this product and eventual timing and expenses related to obtaining FDA clearance; |
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the extent to which our Lumivascular platform is adopted by hospitals for use by interventional cardiologists, vascular surgeons and interventional radiologists in the treatment of PAD; |
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the number and types of future products we develop and commercialize; |
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the costs of defending ourselves against future litigation; |
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the costs of preparing, filing and prosecuting patent applications and maintaining, enforcing and defending intellectual property-related claims; and |
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the extent and scope of our general and administrative expenses. |
We may attempt to raise additional funds in equity or debt financings or enter into credit facilities in order to access funds for our capital needs. Any debt financing obtained by us in the future would cause us to incur additional debt service expenses and could include restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and pursue business opportunities. In addition, due to our current level of debt, future equity investors may require that we convert all or a portion of our debt to equity, and our debtholders may not agree to such terms. If we raise additional funds through further issuances of equity or convertible debt securities, and/or if we convert all or a portion of our existing debt to equity, our existing stockholders could suffer significant dilution in their percentage ownership of our company, and any new equity securities we issue could have rights, preferences and privileges senior to those of holders of our common stock.
If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, we may terminate or delay the development of one or more of our products, delay clinical trials necessary to market our products, delay establishment of sales and marketing capabilities or other activities necessary to commercialize our products, and significantly scale back our operations, or we may become insolvent. In addition, as described above under the risk factor “Nasdaq may delist our securities from its exchange, which could harm our business and limit our stockholders’ liquidity,” if we are unable to raise capital in a manner accretive to our stockholders’ equity, our common stock could be delisted from Nasdaq. If this were to occur, our ability to continue to grow and support our business and to respond to business challenges could be significantly limited.
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ITEM 2. |
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
None.
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ITEM 3. |
DEFAULTS UPON SENIOR SECURITIES |
None.
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ITEM 4. |
MINE SAFETY DISCLOSURES |
Not applicable.
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ITEM 5. |
OTHER INFORMATION |
10b5-1 Trading Plans
During the first quarter of 2024, of our directors or executive officers (as defined in Rule 16a-1(f) under the Exchange Act) adopted or terminated any “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement” (as each term is defined in Item 408(a) of Regulation S-K).
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ITEM 6. |
EXHIBITS |
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q:
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Exhibit |
Exhibit Title |
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3.1 |
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3.2 |
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3.3 |
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10.1 |
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10.2 |
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10.3 |
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10.4 |
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10.5 |
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10.6 |
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10.7 |
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10.8 |
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10.9 |
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10.10*† |
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31.1 |
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31.2 |
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32.1* |
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101.INS |
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
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101.SCH |
Inline XBRL Taxonomy Extension Schema Document |
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101.CAL |
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF |
Inline XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB |
Inline XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE |
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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104 |
Cover Page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
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* |
Filed herewith. |
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† |
Certain information, schedules and exhibits to this agreement have been omitted pursuant to Item 601(b)(2) of Regulation S-K. A copy of any omitted schedule and/or exhibit will be furnished to the SEC upon request. |
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# |
The certifications filed as Exhibits 32.1 are not deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 and are not to be incorporated by reference into any filing of the Company under the Securities Exchange Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date hereof irrespective of any general incorporation by reference language contained in any such filing, except to the extent that the registrant specifically incorporates it by reference. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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Avinger, Inc. |
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(Registrant) |
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Date: May 15, 2024 |
/s/ Jeffrey M. Soinski |
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Jeffrey M. Soinski |
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Chief Executive Officer |
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(Principal Executive Officer) |
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Date: May 15, 2024 |
/s/ Nabeel Subainati |
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Nabeel Subainati |
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Vice President, Finance |
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(Principal Financial and Accounting Officer) |