UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2023
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 001-36817
AVINGER, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
20-8873453
(I.R.S. Employer
Identification Number)
400 Chesapeake Drive
Redwood City, California 94063
(Address of principal executive offices and zip code)
(650) 241-7900
(Telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class:
Common Stock, par value $0.001 per share
Trading Symbol(s):
AVGR
Name of each exchange on which registered
The Nasdaq Capital Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Table of Contents
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth
company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐
Accelerated filer ☐
Non-accelerated filer ☒
Smaller reporting company ☒
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new
or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control
over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or
issued its audit report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the
filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received
by any of the registrant’s executive officers during the relevant recovery period pursuant to § 240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant, based on the closing price of a share of the
registrant’s common stock on June 30, 2023, the last business day of the registrant’s most recently completed second fiscal quarter, as reported by the
Nasdaq Capital Market on such date, was approximately $6.8 million. This calculation does not reflect a determination that certain persons are affiliates of
the registrant for any other purpose.
As of March 8, 2024, the number of outstanding shares of the registrant’s common stock, par value $0.001 per share, was 1,702,226.
None.
DOCUMENTS INCORPORATED BY REFERENCE
AVINGER, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2023
TABLE OF CONTENTS
Table of Contents
Part I
Item 1. Business
Item 1A.Risk Factors
Item 1B. Unresolved Staff Comments
Item 1C. Cybersecurity
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
[RESERVED]
Part II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A.Controls and Procedures
Item 9B. Other Information
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Part III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accountant Fees and Services
Part IV
Item 15. Exhibits and Financial Statement Schedules
Item 16. Form 10-K Summary
Signatures
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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 Annual Report on Form 10-K are our property. Other trade names, trademarks and service marks appearing in this Annual
Report on Form 10-K are the property of their respective owners. Solely for convenience, our trademarks and trade names referred to in this Annual Report
on Form 10-K 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.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements concerning our business, operations and financial performance and
condition, as well as our plans, objectives and expectations for our business, operations and financial performance and condition. Any statements contained
herein that are not statements of historical facts may be deemed to be forward-looking statements. In some cases, you can identify forward-looking
statements by terminology such as “anticipate,” “assume,” “believe,” “contemplate,” “continue,” “could,” “due,” “estimate,” “expect,” “goal,” “intend,”
“may,” “objective,” “plan,” “predict,” “potential,” “positioned,” “seek,” “should,” “target,” “will,” “would” and other similar expressions that are
predictions of or indicate future events and future trends, or the negative of these terms or other comparable terminology. These forward-looking statements
include, but are not limited to, statements about:
● our ability to continue as a going concern;
● our ability to regain and remain in compliance with the listing requirements of the Nasdaq Capital Market;
● the outcome of and expectations regarding our current clinical studies, and any additional clinical studies we initiate;
● our plans to modify our current products, or develop new products, to address additional indications;
● our ability to obtain additional financing through future equity or debt financings;
● the expected timing of 510(k) clearances by the U.S. Food and Drug Administration (“FDA”) which may include but are not limited to
additional versions of Pantheris, Ocelot, Tigereye and Lightbox;
● the expected timing of 510(k) submission to the FDA, and associated marketing clearances by the FDA, which may include but are not
limited to additional versions of Pantheris, Ocelot, Tigereye and Lightbox;
● our ability to realize benefits from our license and collaboration agreements with Zylox-Tonbridge;
● the expected growth in our business and our organization;
● our expectations regarding government and third-party payor coverage and reimbursement, including the ability of Pantheris to qualify for
reimbursement codes used by other atherectomy products;
● our ability to retain and recruit key personnel, including the continued development of our sales and marketing infrastructure;
● our ability to obtain and maintain intellectual property protection for our products;
● our estimates of our expenses, ongoing losses, future revenue, capital requirements and our needs for, or ability to obtain, additional
financing;
● our expectations regarding revenue, cost of revenue, gross margins, and expenses, including research and development and selling, general
and administrative expenses;
● our ability to identify and develop new and planned products and acquire new products, including those for the coronary market;
● our financial performance;
● our ability to remain in compliance with laws and regulations that currently apply or become applicable to our business, both in the United
States and internationally; and
● developments and projections relating to our competitors or our industry.
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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 Annual Report on Form 10-K may turn out to be inaccurate. Factors that may cause actual results to differ materially from current
expectations include, among other things, those listed in Part I, Item 1A under the “Risk Factors” section and elsewhere in this Annual Report on Form 10-
K. 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 Annual Report on Form 10-K. 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 Annual Report on Form 10-K to conform these statements to actual results or to changes in our expectations.
You should read this Annual Report on Form 10-K and the documents that we reference in this Annual Report on Form 10-K and have filed with
the United States Securities and Exchange Commission (“SEC”) as exhibits to the Annual Report on Form 10-K with the understanding that our actual
future results, levels of activity, performance and events and circumstances may be materially different from what we expect.
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ITEM 1. BUSINESS
Overview
PART I
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 FDA 510(k) clearance in November 2012. We
received 510(k) clearance from the FDA for commercialization of Pantheris in October 2015. We also received an additional 510(k) clearance for an
enhanced version of Pantheris in March 2016 and commenced sales of Pantheris in the United States and select European countries promptly thereafter. In
May 2018, we received 510(k) clearance from the FDA for our current next-generation version of Pantheris. In April 2019, we received 510(k) clearance
from the FDA for our Pantheris Small Vessel (“SV”), a version of Pantheris targeting smaller vessels, and commenced sales in July 2019. In September
2020, we received 510(k) clearance of Tigereye, a next-generation CTO crossing system utilizing Avinger’s proprietary image-guided technology platform.
Tigereye is a product line extension of Avinger’s Ocelot family of image-guided CTO crossing catheters. In January 2022, we received 510(k) clearance
from the FDA for our Lightbox 3 imaging console, an advanced version of our Lightbox that allows for easy portability and offers significant reductions in
size, weight, and production cost in comparison to the incumbent version.
In April 2023, we received 510(k) clearance from the FDA for Tigereye Spinning Tip (“ST”), a next-generation image-guided CTO crossing
system. Tigereye ST is a line extension of our Ocelot and Tigereye family of CTO crossing catheters. This new image-guided catheter incorporates design
upgrades to the tip configuration and catheter shaft to increase crossing power and procedural success in challenging lesions, as well as design
enhancements for ease of image interpretation during the procedure. The low-profile Tigereye ST has a working length of 140 cm and 5 French sheath. We
initiated a limited launch of Tigereye ST in the second quarter of 2023 and subsequently expanded to full commercial availability within the United States
during the third quarter of 2023.
In June 2023, we received 510(k) clearance from the FDA for Pantheris Large Vessel (“LV”), a next generation image guided atherectomy system
for the treatment of larger vessels, such as the superficial femoral artery (“SFA”) and popliteal arteries. Pantheris LV is a line extension of our Pantheris and
Pantheris SV family of atherectomy products. This catheter offers higher speed plaque excision for efficient removal of challenging occlusive tissue and
multiple features to streamline and simplify user-operation, including enhanced tissue packing and removal, a radiopaque gauge to measure volume of
plaque excised during the procedure, and enhanced guidewire management. We initiated a limited launch of the Pantheris LV during the third quarter of
2023 and expect to expand to full commercial availability within the United States 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”).
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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 patient 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. Revenue in 2020 was adversely affected by COVID-19 as hospitals deferred elective procedures, which among other things,
created unpredictability in case volume. This unpredictability created more volatility in our revenues which continued to adversely affect our business in
2021 and to a lesser extent, in 2022. The decline in revenue in 2022 and 2023 was primarily attributable to the adverse effects of staffing shortages,
resource constraints on our customers, and the impact of a very competitive market for talent on the retention of our commercial team.
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Our Products
Our current products include our Lightbox imaging consoles and our various catheter-based devices used in PAD treatment. All our revenues are
currently derived from sales of our various PAD catheters and Lightbox imaging consoles and related services in the United States and select international
markets. Each of our current products is, and our future products will be, designed to address significant unmet clinical needs in the treatment of vascular
disease.
LUMIVASCULAR PRODUCTS
Name
PRODUCTS
Lightbox (1)
Lightbox 3 (2)
Pantheris SV (Small Vessel) (3)
Clinical
Indication
Size
(Length,
Diameter)
Regulatory
Status
Original
Clearance Date
OCT Imaging
N/A
OCT Imaging
Atherectomy
N/A
140cm, 6F
FDA Cleared
CE Marking
FDA Cleared
FDA Cleared
CE Marking
FDA Cleared
CE Marking
FDA Cleared
CE Marking
FDA Cleared
FDA Cleared
CE Marking
FDA Cleared
CE Marking
FDA Cleared
FDA Cleared
November 2012
September 2011
January 2022
April 2019
October 2018
May 2018
December 2017
November 2012
September 2011
December 2012
December 2012
October 2012
September 2020
December 2019
April 2023
June 2023
Pantheris (Next-Generation) (4)
Atherectomy
110cm, 7F
Ocelot (5)
Ocelot MVRX (5)
Ocelot PIXL (5)
Tigereye (5)
Tigereye ST (Spinning Tip) (5)
Pantheris LV (Large Vessel) (4)
CTO Crossing
110cm, 6F
CTO Crossing
CTO Crossing
110cm, 6F
135cm, 5F
CTO Crossing
140cm, 5F
CTO Crossing
Atherectomy
140cm, 5F
110cm, 7F
(1)
(2)
(3)
(4)
(5)
Lightbox is cleared for use with compatible Avinger products.
The Lightbox 3, intended to deliver advancements in imaging and portability, incorporates advanced features, including an advanced solid-state
laser for enhanced high-definition OCT imaging, a more powerful computing platform, and a redesigned software system with a highly intuitive
user interface that emphasizes efficiency and ease-of-use. We initiated a limited launch of Lightbox 3 in the United States in the first quarter of
2022 and expanded to a full commercial launch in the second quarter of 2022.
The Pantheris SV system is intended to remove plaque (atherectomy) from partially stenosed or occluded vessels in the peripheral vasculature
with a reference diameter of 2.0 mm to 4.0 mm, under direct real-time imaging using OCT. The system is an adjunct to fluoroscopy by providing
images of vessel lumen, wall structures and vessel morphologies. The Pantheris SV system is contraindicated for use in the iliac, coronary,
cerebral, renal or carotid vasculature.
The Pantheris system is intended to remove plaque (atherectomy) from partially stenosed or occluded vessels in the peripheral vasculature with a
reference diameter of 3.0 mm to 7.0 mm, under direct real-time imaging using OCT. The system is an adjunct to fluoroscopy by providing images
of vessel lumen, wall structures and vessel morphologies. The Pantheris system is contraindicated for use in the iliac, coronary, cerebral, renal or
carotid vasculature.
The Ocelot system is intended to facilitate the intra-luminal placement of conventional guidewires beyond stenotic lesions including subtotal and
chronic total occlusions in the peripheral vasculature prior to further percutaneous interventions using OCT-assisted orientation and imaging. The
system is an adjunct to fluoroscopy and provides images of vessel lumen, plaques and wall structures. The Ocelot system is contraindicated for use
in the iliac, coronary, cerebral, renal and carotid vasculature. Tigereye and Tigereye ST are product line extensions of our Ocelot family of CTO
crossing catheters.
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Lumivascular Platform Overview
Our Lumivascular platform integrates OCT (optical coherence tomography) visualization with interventional devices and is the industry’s only
system that provides radiation free, high definition real-time intravascular imaging simultaneously with treatment in PAD procedures. Our Lumivascular
platform consists of a capital component, Lightbox, and a variety of disposable catheter products, including the Ocelot, Tigereye and Pantheris family of
catheters.
Lightbox
Lightbox is our proprietary video imaging console, which enables the use of Lumivascular devices during PAD procedures. The console contains
an optical transceiver that transmits light into the artery through an optical fiber and displays a cross-sectional image of the vessel to the physician on a
high-definition monitor during the procedure.
Lightbox displays a cross-sectional view of the vessel, which provides physicians with detailed information about the orientation of the catheter
and the surrounding artery and plaque. Layered structures represent relatively healthy portions of the artery and non-layered structures represent the plaque
that is blocking blood flow in the artery. Navigational markers allow the physician to orient the catheter toward the treatment area, helping to avoid damage
to the healthy arterial structures during a procedure. Lightbox received FDA 510(k) clearance in November 2012 and CE Marking in Europe in September
2011.
In January 2022, we received 510(k) clearance from the FDA for our next generation Lightbox 3 imaging console, the Lightbox 3, a version of our
Lightbox that delivers important advancements in imaging, portability and capability in comparison to the incumbent version. Lightbox 3 incorporates
advanced features, including an advanced solid-state laser for enhanced high-definition OCT imaging, a more powerful computing platform, and a
redesigned software system with a highly intuitive user interface that emphasizes efficiency and ease-of-use into a significantly smaller size and weight
console. We initiated a limited launch of Lightbox 3 in the United States in the first quarter of 2022 and expanded to full commercial availability in the
subsequent quarter.
Pantheris
We believe Pantheris is the first atherectomy device to incorporate radiation free high-definition real-time OCT intravascular imaging to guide the
procedure. Pantheris may be used alone or following a CTO crossing procedure using Ocelot or other products. Pantheris is a single-use product and
provides physicians with the ability to see a cross-sectional view of the peripheral artery to guide the removal of blockages throughout the procedure. The
Pantheris device restores blood flow by shaving strips of plaque using a high-speed directional cutting mechanism that enables physicians to specifically
target the portion of the artery where the plaque resides while minimizing disruption to healthy arterial structures. The excised plaque is deposited, collected
and contained into the nosecone of the Pantheris device and removed from the artery within the device.
In October 2015, we received 510(k) clearance from the FDA for commercialization of Pantheris. We made modifications to Pantheris after the
completion of the VISION trial and commenced sales in the United States and select international markets following receipt of FDA approval for this initial
version of Pantheris in March 2016. We first received CE Marking for Pantheris in June 2015. We received CE Marking in December 2017 and 510(k)
clearance in May 2018 for a next-generation version of Pantheris, which includes new features and design improvements to the handle, shaft, balloon and
nosecone of the device. The next-generation Pantheris atherectomy device is currently available for commercial sale in the United States and select
international markets. All previous versions of Pantheris have been discontinued.
We also offer a line extension of our Pantheris image-guided atherectomy platform, Pantheris SV, a lower profile version of Pantheris. The
Pantheris SV has a smaller diameter and longer length and is designed for use in smaller vessels 2.0 to 4.0 millimeters in diameter. We received CE
Marking in October 2018 and 510(k) clearance in April 2019 for this product and commenced sales in the United States in July 2019.
Another line extension of our Pantheris platform is Pantheris LV. The Pantheris LV has a larger diameter and shorter length than the Pantheris SV
and is designed for use in larger vessels 3.0 to 7.0 millimeters in diameter. We received 510(k) clearance for this product in June 2023 and commenced a
limited commercial launch in the United States during the third quarter of 2023 and expect to expand to full commercial availability within the United
States around mid-year 2024.
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Ocelot and Tigereye
Ocelot is the first CTO crossing catheter to incorporate radiation free high-definition real-time OCT intravascular imaging, which allows
physicians to see the inside of a peripheral artery during a CTO crossing procedure. Physicians have traditionally relied solely on fluoroscopy and tactile
feedback to guide interventional catheters through complicated blockages. Ocelot allows physicians to accurately navigate through CTOs by utilizing the
OCT images to precisely guide the device through the arterial blockage, while minimizing disruption to the healthy arterial structures. A successful CTO
crossing and placement of a guidewire allows the physician to subsequently treat the vessel with a minimally invasive therapeutic device. We received CE
Marking for Ocelot in September 2011 and received FDA 510(k) clearance in November 2012.
We also offer Ocelot PIXL, a lower profile CTO crossing device for below-the-knee arteries and Ocelot MVRX, which offers a different tip design
for peripheral arteries above-the-knee. We received CE Marking for Ocelot PIXL in October 2012 and received FDA 510(k) clearance in December 2012.
We received FDA 510(k) clearance for Ocelot MVRX in December 2012.
Tigereye ST is another product line extension of our Ocelot family of image-guided CTO crossing devices. This new image-guided catheter has an
integrated outer spinning tip that pairs with the rotation of the inner tip to penetrate challenging blockages and CTO caps. Tigereye ST incorporates an
advanced shaft design for pushability and torque response and a three-marker system, similar to Ocelot's, to facilitate consistent image interpretation across
the platform. We received 510(k) clearance for Tigereye ST April 2023.
Tigereye is a product line extension of our Ocelot family of image-guided CTO crossing devices. Its design elements include an upgrade of the
image capture rate to provide high definition, real-time intravascular video imaging similar to the Pantheris image-guided atherectomy system and a user-
controlled deflectable tip designed to assist in steerability across the blockage. We received CE Marking for Tigereye in December 2019 and received FDA
510(k) clearance in September 2020. We discontinued selling this product in light of the enhancements we made to this device with the next generation,
Tigereye ST.
Clinical Development
We have conducted several clinical trials to evaluate the safety and efficacy of our products in both pre-market and post-market assessments. We
received FDA clearance for the Ocelot CTO crossing device in 2012, for the Pantheris device for atherectomy in peripheral arteries in October 2015 and
then in November 2021 for the indication for use of the Pantheris device to include treatment of in-stent restenosis following completion of clinical trials of
these devices.
CONNECT II (Ocelot)
Our clinical trial for Ocelot, known as CONNECT II, was a prospective, multi-center, non-randomized trial that evaluated the safety and efficacy
of Ocelot in crossing CTOs in arteries of the upper leg using OCT intravascular imaging. The CONNECT II trial enrolled 100 patients with CTOs at 13
centers in the United States and 2 centers in Europe. Patients were followed for 30 days post-procedure and an independent group of physicians verified the
results to confirm the primary efficacy and safety endpoints. Results from the CONNECT II trial demonstrated that Ocelot surpassed its primary efficacy
endpoint by successfully crossing the CTO in 97% of the cases following unsuccessful attempts to cross with standard guidewire techniques. Ocelot
achieved these rates with 98% freedom from major adverse events (“MAEs”).
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VISION (Pantheris)
VISION was our pivotal, non-randomized, prospective, single-arm trial to evaluate the safety and effectiveness of Pantheris across 20 sites within
the United States and Europe. The objective of the clinical trial was to demonstrate that Pantheris can be used to effectively remove plaque from diseased
lower extremity arteries while using on-board visualization as an adjunct to fluoroscopy. Two groups of patients were treated in VISION: (1) optional roll-
ins, which are typically the first two procedures at a site, and (2) the primary cohort, which are the analyzable group of patients. The data for these two
groups were reported separately in our 510(k) submission to the FDA. Based on final enrollment, the primary cohort included 130 patients. In March 2015,
we completed enrollment of patients in the VISION clinical trial and we submitted for 510(k) clearance from the FDA in August 2015. In October 2015, we
received 510(k) clearance from the FDA for commercialization of Pantheris. We made modifications to Pantheris subsequent to the completion of VISION
and received 510(k) clearance an enhanced version of Pantheris in March 2016, and received 510(k) clearance in May 2018 for a next-generation version of
Pantheris, which included new features and design improvements to the handle, shaft, balloon, and nose cone of the device as well as 510(k) clearance in
April 2019 for Pantheris SV, a lower profile Pantheris.
VISION’s primary efficacy endpoint required that at least 87% of lesions treated by physicians using Pantheris have a residual stenosis of less than
50%, as verified by an independent core laboratory. The primary safety endpoint required that less than 43% of patients experience an MAE through six-
month follow-up as adjudicated by an independent Clinical Events Committee (“CEC”). MAEs as defined in VISION included cardiovascular-related
death, unplanned major index limb amputation, clinically driven target lesion revascularization, or TLR, heart attack, clinically significant perforation,
dissection, embolus, and pseudoaneurysm. Results from the VISION trial demonstrated that Pantheris surpassed its primary efficacy and safety endpoints;
residual restenosis of less than 50% was achieved in 96.3% of lesions treated in the primary cohort, while MAEs were experienced in 16.6% of patients.
Final VISION trial data are summarized in the table below.
Patients Treated
Lesions treated
Primary Efficacy Endpoint
Lesions analyzed by core lab
Lesions meeting primary efficacy endpoint criterion of residual restenosis of less
than 50% by core lab
Primary Safety Endpoint (MAEs through 6 months)
Total MAEs Reported
Reported MAEs as a percentage of patients enrolled
Histopathology Results (Non-Endpoint Data)
Lesions with histopathology results
Average percent area of adventitia in all lesions with histopathology results
Roll-In
Cohort
Primary
Cohort
Total
28
34
34
130
164
164
100%
(34/34)
96.3%
(158/164)
3
11.5%
(3/26)
34
0.56%
22
17.6%
(22/125)
162
1.02%
158
198
198
97%
(158/164)
25
16.6%
(25/151)
196
0.94%
Although not mandated by the FDA to support the market clearance of Pantheris, the protocol for the VISION trial allowed for routine
histopathological analysis of the tissue extracted by Pantheris to be conducted. This process allowed us to determine the amount of adventitia present in the
tissue, which in turn indicated the extent to which the external elastic lamina had been disrupted during Pantheris procedures. We completed
histopathological analysis on tissue from 129 patients in the primary cohort, representing 162 lesions, and determined that the average percent area of
adventitia in the total excised tissue was only 1.0%. Research shows that a low level of arterial wall disruption correlates to lower restenosis rates and
improved long-term outcomes for patients treated with Pantheris. The results of this histopathological analysis in conjunction with the primary safety and
efficacy endpoint data from the VISION trial were published in the Journal of Endovascular Therapy in 2017.
Although the original VISION study protocol was not designed to follow patients beyond six months, in 2016 we began working with 18 of the
VISION sites to re-consent patients in order for them to be evaluated for patient outcomes through 12 and 24 months following initial treatment. Data
collection for patients from participating sites was completed in May 2017, and we released the final 12- and 24-month results for a total of 73 patients and
89 lesions in July 2017. The key metrics reported for this group were freedom from target lesion revascularization, or TLR, at 12 months and 24 months,
which were 82% and 74% by patient and 83% and 76% by lesion, respectively, based on Kaplan-Meier curve assessments.
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INSIGHT (Pantheris)
The INSIGHT Trial was a prospective, global, single-arm, multi-center trial to evaluate the safety and effectiveness of Pantheris for treating in-
stent restenosis (“ISR”) in lower extremity arteries. ISR occurs when a blocked artery previously treated with a stent becomes narrowed again, thereby
reducing blood flow. Physicians often face challenges when treating ISR both in terms of safety and efficacy. From a safety standpoint, limitations in
imaging techniques, such X-ray fluoroscopy, and the inability to control the directionality of other atherectomy devices create concerns about impacting the
integrity of the stent during the procedure. In terms of efficacy, current therapies for in-stent restenosis, such as balloon angioplasty, have high rates of
recurrent narrowing within stents.
The INSIGHT trial enrolled 97 patients at sites in the United States and Europe. Patient enrollment began in October 2017 and concluded in July
2021. Patients were evaluated at thirty days, six months and one year following treatment.
The primary safety endpoint was defined as freedom from a composite of MAEs through 30 days after the procedure, as adjudicated by an
independent CEC. The primary effectiveness endpoint was technical success, defined as the percent of target lesions that have a residual diameter stenosis ≤
50% after use of the Pantheris device alone, as assessed by an independent angiographic core laboratory. The secondary safety endpoint was absence of
new or worsening stent fracture following use of the Pantheris catheter. A secondary powered effectiveness endpoint was freedom from target lesion
revascularization (“TLR”) at 6 months following the index procedure. Additional secondary effectiveness included procedural success, defined as the
percent of target lesions that have residual diameter stenosis ≤ 30% post-Pantheris and any other adjunctive therapy, as determined by an independent core
lab, and changes in Ankle- Brachial Index (“ABI”), and Rutherford Classes at 30 days and 6 months after the procedure in relation to the measurements
prior to the procedure.
The subjects enrolled in the INSIGHT trial presented with documented symptomatic in-stent restenosis (stenosis >70% by visual estimation) and
met all eligibility criteria. The target in-stent restenotic lesion had to be located in vessels with diameters of > 3 mm and < 7 mm and were not to exceed 30
cm in length. Subjects were followed through 30 days and six months post-procedure for purposes of the FDA submission to expand the indication for use
statement. The clinical data for 97 subjects enrolled that reported for clinic visits 30 days and 85 subjects who reported for clinic visits 6 months after the
index procedure were analyzed.
The primary safety endpoint was defined as freedom from a composite of MAEs through 30 days after the procedure, as adjudicated by an
independent CEC. Only 3 subjects (accounting for 3%) experienced a MAE, with 97% of subjects free from MAEs within 30 days. With only 3% subjects
reporting an MAE and a 95% one-sided upper confidence bound of 6.5%, the primary safety performance goal of MAEs occurring in < 20% of subjects
was met.
The secondary safety endpoint was absence of new or worsening stent fracture following use of the Pantheris catheter. Only one (1) catheter
inadvertently made contact with a stent during the 97 procedures, a rate of 1%. This endpoint was not established with a sample size requirement, so this
performance goal was met not only due to its extremely low incidence rate but also by the experience that after re-training the one physician who had this
event on the use of real-time optical coherence tomography imaging during the procedure the physician completed 12 subsequent cases with no further
events.
The primary effectiveness endpoint of this study was technical success, defined as the percent of target lesions that have a residual diameter
stenosis ≤ 50% after use of the Pantheris device alone, as assessed by an independent angiographic core laboratory. In this analysis, 86 out of 97 (89%)
subjects had <50% residual stenosis following use of the Pantheris catheter alone, with a 95% one-sided upper confidence bound of 95% and a lower
confidence bound of 82%, which met the adjusted performance goal of > 79%.
A secondary powered effectiveness endpoint was freedom from TLR at 6 months following the index procedure. The freedom from TLR of the 85
subjects that have completed their 6-month follow-up visits after the index procedure was 93% (79/85), with a 95% one-sided upper confidence bound of
98% and a lower bound of 87%, which met the performance goal of > 61%.
Additional secondary effectiveness included procedural success, defined as the percent of target lesions that have residual diameter stenosis ≤ 30%
post-Pantheris and any other adjunctive therapy, as determined by an independent core lab, and changes in Ankle- Brachial Index (ABI), and Rutherford
Classes at 30 days and 6 months after the procedure in relation to the measurements prior to the procedure.
Procedural success was determined if the residual diameter stenosis was < 30% following adjunctive treatment. In this cohort 78 of the 97 subjects
(80%) were determined to have a residual stenosis < 30% following review of angiograms by the core lab, with a mean stenosis of 15% ±10.1%.
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The ABI measures improved 39% from baseline by the time of the 6-month visit and the Rutherford Classification measures improved by 71% at
the same time.
Adjunctive devices used in the procedure were primarily balloons (83%), with balloon angioplasty followed by placement of a stent occurring in
13% of the cases, and no adjunctive treatment provided in 4% of the procedures.
The results from the INSIGHT trial demonstrated that the Pantheris catheter is safe and effective when used to address in-stent restenosis. The
study endpoints achieved the effectiveness performance goals while demonstrating a strong safety profile indicating that the Pantheris catheter can be used
to safely excise tissue from occluded vascular stents with precision. The study results also demonstrate extremely low, acute device-related adverse events.
A 510(k) application to the FDA was submitted in June 2021 and we received clearance to add ISR treatment to the indication for use for the
Pantheris catheter in November 2021.
Other Studies
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. Enrollment has been completed; 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.
Sales and Marketing
We focus our sales and marketing efforts primarily on the approximately 10,000 interventional cardiologists, vascular surgeons and interventional
radiologists in the United States that are potential users of our Lumivascular platform products. Our marketing efforts are focused on developing strong
relationships with physicians and hospitals that we have identified as key opinion leaders based on their knowledge of our products, clinical expertise and
reputation. We also use continuing medical education programs and other opportunities to train interventional cardiologists, vascular surgeons, and
interventional radiologists in the use of our Lumivascular platform products and educate them as to the benefits of our products as compared to alternative
procedures such as angioplasty, stenting, bypass surgery or other atherectomy procedures. In addition, we work with physicians to help them develop their
practices and with hospitals to market themselves as centers of excellence in PAD treatment by making our products available to physicians for treating
patients.
Our sales team currently consists of a Chief Commercial Officer, Vice President, Regional Directors, Territory Sales Managers, Clinical
Specialists, and one Vice President of International Sales. Territory Sales Managers are responsible for all product sales, which include disposable devices
and sale and service of our Lightbox console, while Clinical Specialists are primarily responsible for case coverage and account support. We have an
extensive hands-on sales training program, focused on our technologies, Lumivascular image interpretation, case management, sales processes, sales tools
and implementing our sales and marketing programs and compliance with applicable federal and state laws and regulations. Our sales team is supported by
our marketing team, which focuses primarily on clinical training and education, marketing communications and product management. We have partnered
with a third-party field service firm for the installation, service and maintenance of our Lightbox consoles.
For the year ended December 31, 2023, we had one customer that represented approximately 17% of revenues. For the year ended December 31,
2022, we had one customer that represented approximately 14% of revenues.
Competition
The medical device industry is highly competitive, subject to rapid change and significantly affected by new product introductions, results of
clinical research, reimbursement dynamics, corporate combinations and other factors relating to our industry. Because of the market opportunity and the
high growth potential of the PAD treatment market, competitors and potential competitors have historically dedicated, and will continue to dedicate,
significant resources to aggressively develop and commercialize their products.
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Our products compete with a variety of products or devices for the treatment of PAD, including other CTO crossing devices, stents, balloons and
atherectomy catheters, as well as products used in vascular surgery. Large competitors in the CTO crossing, stent and balloon market segments include
Abbott Laboratories, AngioDynamics, Becton Dickinson, Boston Scientific, Cardinal Health, Cook Medical, Medtronic and Philips. Competitors in the
atherectomy market include AngioDynamics, Boston Scientific, Cardiovascular Systems, Medtronic and Philips. Some competitors have attempted to
combine intravascular imaging with atherectomy and although we are not aware of any active initiatives in this area, these and other companies may
attempt to incorporate on-board visualization into their products in the future or may have ongoing programs of which we are not aware. Other competitors
include pharmaceutical companies that manufacture drugs for the treatment of symptoms associated with mild to moderate PAD and companies that
provide products used by surgeons in peripheral and coronary bypass procedures. These competitors and other companies may introduce new products that
compete with our solution.
Many of our competitors have substantially greater financial, manufacturing, marketing and technical resources than we do. Furthermore, many of
our competitors have well-established brands, widespread distribution channels and broader product offerings, and have established stronger and deeper
relationships with target customers.
To compete effectively, we have to demonstrate that our products are attractive alternatives to other devices and treatments on the basis of:
● procedural safety and efficacy;
● acute and long-term outcomes;
● ease of use and procedure time;
● third-party reimbursement;
● size, effectiveness, and productivity of sales force;
● radiation exposure for physicians, hospital staff and patients; and
● price.
Intellectual property
In order to remain competitive, we must develop and maintain protection of the proprietary aspects of our technologies. We rely on a combination
of patents, copyrights, trademarks, trade secret laws and confidentiality and invention assignment agreements to protect our intellectual property rights.
It is our policy to require our employees, consultants, contractors, outside scientific collaborators and other advisors to execute non-disclosure and
assignment of invention agreements on commencement of their employment or engagement. Agreements with our employees also forbid them from using
the proprietary rights of third parties in their work for us. We also require confidentiality or material transfer agreements from third parties that receive our
confidential data or materials.
As of December 31, 2023, we held 64 issued and allowed U.S. patents, 1 U.S. pending provisional application, 18 U.S. utility patent applications
and 3 PCT applications pending. As of December 31, 2023, we also had 83 issued and allowed patents from outside of the United States. As of
December 31, 2023, we had 22 pending patent applications outside of the United States, including in Australia, Canada, China, Europe, India, Japan and
Mexico. As we continue to research and develop our products and technology, we intend to file additional U.S. and foreign patent applications related to the
design, manufacture and therapeutic uses of our devices. Our issued patents expire between the years 2028 and 2040.
Our patent applications may not result in issued patents and our patents may not be sufficiently broad to protect our technology. Any patents issued
to us may be challenged by third parties as being invalid, or third parties may independently develop similar or competing technology that avoids our
patents. The laws of certain foreign countries do not protect our intellectual property rights to the same extent as do the laws of the United States.
As of December 31, 2023, we held six registered U.S. trademarks. In Europe, we hold one registered trademark. In the United Kingdom, we hold
one registered trademark. In addition, we held one International Registration under the Madrid Protocol with granted extensions to China, Europe, Japan,
and Korea (reflected in the one European registrations noted above).
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Research and Development
Our ongoing research and development activities are primarily focused on improving and enhancing our Lumivascular platform, specifically our
core competency of integrating OCT intravascular imaging onto therapeutic catheters. Our research objectives target areas of unmet clinical need, increase
the utility of the Lumivascular platform and adoption of our products by healthcare providers.
● Product line improvements and extensions. We are developing improvements to our Lumivascular platform, including additional catheters for use
in different clinical applications. For example, we are developing next-generation CTO crossing devices to target both the peripheral and coronary
CTO markets.
● Additional treatment indications. We intend to seek additional regulatory clearances from FDA to expand the indications for which our products
can be marketed. This includes both expanding the marketed indications for our current products, as well as development of new products.
● Improved software and user interface. We intend to further develop our software to provide more information and control to our end users during a
procedure. We use physician and staff feedback to improve the features and user functionality of our Lumivascular platform
In addition to our internal team, we retain third-party contractors from time to time to provide us with assistance on specialized projects. We also
work closely with experts in the medical community to supplement our internal research and development resources.
Manufacturing
All of our products are manufactured in-house using components and sub-assemblies fabricated both at our facility in Redwood City, California
and by key qualified outside vendors. We assemble all of our finished catheter products at our manufacturing facility but certain critical processes such as
coating and sterilization are done by specialized outside vendors. We expect our current manufacturing facility will be sufficient through at least 2024.
Order quantities and lead times for components purchased from outside suppliers are based on our forecasts derived from historical demand and
anticipated future demand. Lead times for components may vary significantly depending on the size of the order, time required to fabricate and test the
components, specific supplier requirements and current market demand for the components and subassemblies. To date, we have experienced some delays
in obtaining some of our components and subassemblies. Any significant delay or interruption in our supply chain could impair our ability to meet the
demands of our customers and could harm our business.
We rely on single and limited source suppliers for several of our components and sub-assemblies. For example, we rely on single vendors for our
optical fiber, coating and drive cables that are key components of our catheters, and we rely on single vendors for our laser and data acquisition card that are
key components of our Lightbox, as well as assembly of our Lightbox 3. These components are critical to our products and there are relatively few
alternative sources of supply for them. Identifying and qualifying additional or replacement suppliers for any of the components used in our products could
involve significant time and cost. Any supply or service interruption from our vendors or failure to obtain additional vendors for any of the components or
services used to manufacture our products would limit our ability to manufacture our products and could therefore harm our business, financial condition
and results of operations. We assess supply chain risk on an ongoing basis and take appropriate actions as needed, including identifying & qualifying
second source suppliers.
Our manufacturing operations are subject to regulatory requirements of 21 CFR part 820 of the Federal Food, Drug and Cosmetic Act, or FFDCA;
the Quality System Regulation, or QSR, for medical devices sold in the United States, which is enforced by FDA; the Medical Devices Directive
93/42/EEC, and EU-MDD to EU-MDR Transition provisions, which are both currently required for doing business in the European Union; and applicable
requirements relating to the environment, waste management and health and safety matters, including measures relating to the release, use, storage,
treatment, transportation, discharge, disposal and remediation of hazardous substances, and the sale, labeling, collection, recycling, treatment and disposal
of products containing hazardous substances. We cannot ensure that we will not incur material costs or liability in connection with our operations, or that
our past or future operations will not result in claims by or injury to employees or the public.
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We have registered with FDA as a medical device manufacturer and have obtained a manufacturing license from the California Department of
Public Health, or CDPH. We and our component suppliers are required to manufacture our products in compliance with FDA’s QSR in 21 CFR part 820 of
the FFDCA. The QSR regulates extensively the methods and documentation of the design, testing, control, manufacturing, labeling, quality assurance,
packaging, storage and shipping of our products. FDA enforces the QSR through periodic unannounced inspections that may include the manufacturing
facilities of our subcontractors. In 2019, 2020 and 2021, BSI conducted multiple routine audits including surveillance audit, Microbiology audit, a MDSAP
re-certification audit and an unannounced audit in September 2019. Our Quality System has undergone more than 20 external audits by third parties and
regulatory authorities since 2009. We were audited in March 2022 as part of ISO 13485:2016 & MDSAP re-certification. The audit was conducted by BSI
at the behest of US-FDA. No major non-conformances were identified. Non-conformances identified in the audits have been addressed via Avinger’s CAPA
system and are being reviewed by our notified body for closure. Most recently, we were audited in January 2023 by BSI as part of our annual surveillance
for ISO 13485, EU-MDD, MDR Transitional provisions & MDSAP requirements. This audit did not identify any non-conformances.
Our failure or the failure of our component suppliers to maintain compliance with the QSR requirements could result in the shutdown of our
manufacturing operations or the recall of our products, which would harm our business. In the event that one of our suppliers fails to maintain compliance
with our or governmental quality requirements, we may have to qualify a new supplier and could experience manufacturing delays as a result. We have
opted to maintain quality assurance and quality management certifications to enable us to market our products in the member states of the European Union,
the European Free Trade Association and countries which have entered into Mutual Recognition Agreements with the European Union. Our Redwood City
facilities meet the requirements set forth by ISO 13485:2016 Medical devices—Quality management systems—Requirements for regulatory purposes,
MDD 93/42/EEC European Union Council Medical Device Directive and EU-MDR 2017/745 transitional provisions. We are actively engaged with our
notified body to obtain EU-MDR certification for our current products that were part of our application in 2021. New products we have launched in US
starting in 2021 will be submitted for review for European approval under EU-MDR once certification is complete.
Government Regulation
In general, medical device companies must navigate a challenging regulatory environment. In the United States the FDA regulates the medical
device market to ensure the safety and efficacy of these products. The FDA allows two primary pathways for a medical device to gain approval for
commercialization: (i) a pre-market notification or 510(k) submission based upon being equivalent to a device already in commercial distribution (a
predicate device) or (ii) a pre-market approval (“PMA”). A completely novel product must go through the more rigorous PMA process if it cannot receive
authorization through a 510(k) submission. The FDA has established three different classes of medical devices that indicate the level of risk associated with
using a device and consequent degree of regulatory controls needed to govern its safety and efficacy. Class I and Class II devices are considered to have
minimal risk to the user. Some Class I and almost all Class II devices gain clearance for commercial distribution following review of an application to the
FDA, generally known as the 510(k) process. The devices regarded as the highest risk by the FDA are designated Class III and generally require the
submission of a PMA application for approval prior to commercialization. Class III devices generally include life-sustaining, life-supporting, or implantable
devices or devices without a known predicate technology already approved by the FDA.
The 510(k) clearance path can be significantly less time-consuming and less arduous than the PMA path, making this route generally preferable
for a medical device company. A 510(k) application must include documentation that its device is substantially equivalent to a technology already cleared
through a 510(k) or in distribution before May 28, 1976, and for which the FDA has not required a PMA submission. The FDA has 90 days from the date
of the pre-market equivalence acceptance to authorize or decline commercial distribution of the device. However, similar to the PMA process, clearance
may take longer than this three-month window, as the FDA can request additional data to support the submission. If the FDA resolves that the product is
not substantially equivalent to a predicate device, then the device acquires a Class III designation, and a PMA must be approved before the device can be
commercialized. All of our currently marketed products have received commercial clearance and associated indications for use through the
510(k) regulatory pathway, some with the support of clinical data.
After a device receives 510(k) clearance, any modification that could significantly affect its safety or effectiveness, or that would constitute a
change in its intended use, requires an additional 510(k) submission and clearance before the modified device can be commercialized. The FDA allows
each manufacturer to make this determination initially, but the FDA can review any such decision and can disagree with the manufacturer’s determination.
If the FDA disagrees with the determination not to seek a new 510(k) clearance or PMA the FDA may retroactively require a new 510(k) clearance or pre-
market approval for the modified device. The FDA could also require a manufacturer to cease marketing and distribution of the modified device and/or
recall the modified device until 510(k) clearance or PMA approval is obtained. Also, in these circumstances, a manufacturer may be subject to significant
regulatory fines, penalties, and enforcement actions.
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A PMA application must include reasonable scientific and clinical data that demonstrates the device is safe and effective for the intended uses and
indications being sought. The application must also include preclinical testing, technical, manufacturing, and labeling information. If the FDA determines
the application can undergo substantive review, it has 180 days to review the submission, but it can typically take longer (up to several years) as this
regulatory body can request additional information or clarifications. The FDA may also impose additional regulatory hurdles for a PMA, including the
institution of an advisory panel of experts to assess the application or provide recommendations as to whether to approve the device. Although the FDA in
the end approves or disapproves the device, in nearly all cases the FDA follows the recommendation from the advisory panel. As part of this process, the
FDA will usually inspect the manufacturing facilities and operations prior to approval to verify compliance with quality control regulations. Significant
changes in the manufacturing of a device, or changes in the intended use, indications and labeling or design of a product require new PMA applications or
PMA supplements for a product originally approved under a PMA. This creates substantial regulatory risk for devices undergoing the PMA route.
Pervasive and Continuing Regulation
After a device is placed on the market, numerous regulatory requirements continue to apply. These include:
● the FDA’s quality system regulation (“QSR”) that requires manufacturers, including third-party manufacturers, to follow stringent design, testing,
control, documentation, and other quality assurance procedures during all aspects of the manufacturing process;
● labeling regulations and FDA prohibitions against the promotion of products for uncleared, unapproved or off-label uses;
● clearance or approval of product modifications that could significantly affect safety or efficacy or that would constitute a major change in intended
use;
● medical device reporting, or MDR, regulations, that require manufacturers report to the FDA if their device may have caused or contributed to a
death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if the malfunction were to recur;
and
● post-market surveillance regulations, which apply when necessary to protect the public health or to provide additional safety and effectiveness data
for the device.
We are registered with the FDA as a medical device manufacturer and have obtained a manufacturing license from the CDPH. The FDA has broad
post-market and regulatory enforcement powers. We are subject to unannounced inspections by the FDA and the Food and Drug Branch of CDPH to
determine our compliance with the QSR and other regulations, and these inspections may include the manufacturing facilities of our suppliers. Our current
facility has been inspected by the FDA in 2009, 2011 and 2013, and two, three and zero observations, respectively, were noted during those inspections. In
the latest FDA audit in 2013, there were no observations that involved a material violation of regulatory requirements, and no non-conformances were
noted. Our responses to the observations noted in 2009 and 2011 were accepted by the FDA, and we believe that we are in substantial compliance with the
QSR. BSI, our European Notified Body, inspected our facility several times between 2010 and 2015 and found zero non-conformances. BSI conducted four
external audits in 2016 and zero non-conformances were found in all except for one audit, for which four minor non-conformances were found. In 2016, we
joined the medical device-single audit program, or MDSAP that permits audits by our Notified Body to substitute for routine FDA inspections. Our
Notified Body audit performed in January 2017 resulted in zero non-conformances and an unannounced audit in September 2019, noted only two minor
non-conformances, that were addressed promptly and resolved. In 2019, 2020 and 2021, BSI conducted multiple routine audits including surveillance audit,
a Microbiology audit, a MDSAP re-certification audit and an unannounced audit in September 2019. Our quality system has undergone more than 20
external audits by third-party and regulatory authorities since 2009. Most recently, we were audited in March 2022 as part of ISO 13485:2016 & MDSAP
re-certification. The audit was conducted by BSI at the behest of the FDA. No major non-conformances were identified. Minor non-conformances
identified in the audits have been addressed via Avinger’s CAPA system and are being reviewed by our notified body for closure. As of the date of this
filing, we have no outstanding unresolved major non-conformances or findings pending with any regulatory body.
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Failure to comply with applicable regulatory requirements can result in enforcement action by FDA, which may include any of the following
sanctions:
● warning letters, adverse publicity, fines, injunctions, consent decrees and civil penalties;
● repair, replacement, refunds, recall or seizure of our products;
● operating restrictions, partial suspension or total shutdown of production;
● refusing our requests for 510(k) clearance or pre-market approval of new products, new intended uses or modifications to existing products;
● withdrawing 510(k) clearance or pre-market approvals that have already been granted; and
● criminal prosecution.
Regulatory System for Medical Devices in Europe
The system of regulating medical devices operates by way of a certification for each medical device. Each certificated device is given CE marking
that shows the device has a Certificat de Conformité. There are national bodies known as Competent Authorities in each member state in the EU that
oversee the implementation of the EU’s medical device directive, or MDD, within its jurisdiction. The means of achieving the requirements for CE marking
varies according to the nature of the device. Devices are classified in accordance with their perceived risks, similarly to the U.S. system. The class of a
product determines the requirements to be fulfilled before CE marking can be placed on a product, known as a conformity assessment. Currently
conformity assessments for our products are carried out as required by the MDD. Each member state can appoint Notified Bodies within its jurisdiction. If a
Notified Body of one member state has issued a Certificat de Conformité, the device can be distributed throughout the European Union without further
conformance tests being required by other member states.
In March 2019, we successfully transferred all current product certificates from BSI-UK to BSI-Netherlands in anticipation of the UK leaving the
European Union. Our products currently with CE marking are distributed in the EU, subject to the EU’s medical devices directive, or MDD with
certification renewed in May 2021. In May 2021, we successfully extended the validity of the MDD certificates by 3-years, which will provide certification
until we fully certify to the new EU-MDR, expected to become effective after calendar year 2027. We have made significant progress towards achieving
MDR certification, however, the certification process is ongoing and we expect to obtain certification in the near term. Until such time as we are fully
certified to EU MDR, we will be highly limited in our ability to make significant product changes to existing design and intended purposes of products (for
distribution in the EU only) and/or will be unable to launch new products in the EU. Such limitations could harm our business, financial condition, and
operating results.
Federal, State and Foreign Fraud and Abuse Laws
Because of the significant federal funding involved in Medicare and Medicaid, Congress and the states have enacted, and actively enforce, a
number of laws to eliminate fraud and abuse in federal healthcare programs. Our business is subject to compliance with these laws. In March 2010, the
Patient Protection and Affordable Care Act, as amended by the Healthcare and Education Affordability Reconciliation Act, which we refer to collectively
as the Affordable Care Act, was enacted in the United States. The provisions of the Affordable Care Act are effective on various dates. The Affordable Care
Act expands the government’s investigative and enforcement authority and increases the penalties for fraud and abuse, including amendments to both the
Anti-Kickback Statute and the False Claims Act, to make it easier to bring suit under these statutes. The Affordable Care Act also allocates additional
resources and tools for the government to police healthcare fraud, with expanded subpoena power for HHS, additional funding to investigate fraud and
abuse across the healthcare system and expanded use of recovery audit contractors for enforcement.
Anti-Kickback Statutes. The federal Anti-Kickback Statute prohibits persons from knowingly and willfully soliciting, offering, receiving or
providing remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual, or the furnishing or arranging for a good or
service, for which payment may be made under a federal healthcare program such as Medicare or Medicaid. Violation of the Anti-Kickback Statue is a
criminal felony, and can result in criminal sanctions, civil penalties, enforcement under the False Claims Act, and exclusion from federal healthcare
programs.
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The definition of “remuneration” has been broadly interpreted to include anything of value, including, for example, gifts, certain discounts, the
furnishing of free supplies, equipment or services, credit arrangements, payment of cash and waivers of payments. Several courts have interpreted the
statute’s intent requirement to mean that if any one purpose of an arrangement involving remuneration is to induce referrals of federal healthcare covered
businesses, the statute has been violated. Penalties for violations include criminal penalties and civil sanctions such as fines, imprisonment and possible
exclusion from Medicare, Medicaid and other federal healthcare programs. In addition, some kickback allegations have been claimed to violate the Federal
False Claims Act, discussed in more detail below.
The Anti-Kickback Statute is broad and prohibits many arrangements and practices that are otherwise lawful in businesses outside of the
healthcare industry. Recognizing that the Anti-Kickback Statute is broad and may technically prohibit many innocuous or beneficial arrangements,
Congress authorized the Office of Inspector General, or OIG, of HHS to issue a series of regulations known as “safe harbors.” These safe harbors set forth
provisions that, if all their applicable requirements are met, will assure healthcare providers and other parties that they will not be prosecuted under the
Anti-Kickback Statute. The failure of a transaction or arrangement to fit precisely within one or more safe harbors does not necessarily mean that it is
illegal or that prosecution will be pursued. However, conduct and business arrangements that do not fully satisfy an applicable safe harbor may result in
increased scrutiny by government enforcement authorities such as OIG.
Many states have adopted laws similar to the Anti-Kickback Statute. Some of these state prohibitions apply to referral of recipients for healthcare
items or services reimbursed by any source, not only the Medicare and Medicaid programs.
Government officials have focused their enforcement efforts on the marketing of healthcare services and products, among other activities, and
recently have brought cases against companies, and certain individual sales, marketing and executive personnel, for allegedly offering unlawful
inducements to potential or existing customers in an attempt to procure their business.
Federal False Claims Act. Another development affecting the healthcare industry is the increased use of the federal False Claims Act by federal
prosecutors, and in particular, action brought pursuant to the False Claims Act’s “whistleblower” or “qui tam” provisions. The False Claims Act imposes
liability on any person or entity that, among other things, knowingly presents, or causes to be presented, a false or fraudulent claim for payment by a federal
healthcare program. The qui tam provisions of the False Claims Act allow a private individual to bring actions on behalf of the federal government alleging
that the defendant has violated the False Claims Act and to share in any monetary recovery. In recent years, the number of suits brought against healthcare
providers by private individuals has increased substantially. In addition, various states have enacted false claims laws analogous to the False Claims Act,
and many of these state laws apply where a claim is submitted to any third-party payor and not just a federal healthcare program.
When an entity is determined to have violated the False Claims Act, it may be required to pay up to three times the actual damages sustained by
the government, plus civil penalties of between $11,665-$23,331 for each separate instance of false claim. As part of any settlement, the government may
ask the entity to enter into a corporate integrity agreement, which imposes certain compliance, certification, and reporting obligations. There are many
potential bases for liability under the False Claims Act. Liability arises, primarily, when an entity knowingly submits, or causes another to submit, a false
claim for reimbursement to the federal government. The federal government has used the False Claims Act to assert liability on the basis of inadequate
care, kickbacks and other improper referrals, and improper use of Medicare numbers when detailing the provider of services, in addition to the more
predictable allegations as to misrepresentations with respect to the services rendered. In addition, the federal government has prosecuted companies under
the False Claims Act in connection with off-label promotion of products. Our future activities relating to the reporting of wholesale or estimated retail
prices of our products, the reporting of discount and rebate information and other information affecting federal, state, and third-party reimbursement of our
products and the sale and marketing of our products may be subject to scrutiny under these laws.
While we are unaware of any current matters, we are unable to predict whether we will be subject to actions under the False Claims Act or a
similar state law, or the impact of such actions. However, the costs of defending such claims, as well as any sanctions imposed, could significantly affect
our financial performance.
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The Sunshine Act. The Physician Payment Sunshine Act, or the Sunshine Act, which was enacted as part of the Affordable Care Act, requires all
United States manufacturers of a prescription drug, device, biologic or other medical supply that has been approved or cleared by the FDA, and is available
for coverage by Medicare, Medicaid or the Children’s Health Insurance Program to report annually to the Secretary of HHS: (i) payments or other transfers
of value made by that entity, or by a third-party as directed by that entity, to physicians and teaching hospitals or to third parties on behalf of physicians or
teaching hospitals; and (ii) physician ownership and investment interests in the drug and device manufacturing entity. The payments required to be reported
include the cost of meals provided to a physician, travel reimbursements and other transfers of value, including those provided as part of contracted services
such as speaker programs, advisory boards, consultation services and clinical trial services. Failure to comply with the reporting requirements can result in
significant civil monetary penalties ranging from $1,000 to $10,000 for each payment or other transfer of value that is not reported (up to a maximum per
annual report of $150,000) and from $10,000 to $100,000 for each knowing failure to report (up to a maximum per annual report of $1,150,000).
Additionally, there are criminal penalties if an entity intentionally makes false statements in such reports. We are subject to the Sunshine Act and the
information we disclose may lead to greater scrutiny, which may result in modifications to established practices and additional costs. Additionally, similar
reporting requirements have also been enacted on the state level domestically, and an increasing number of countries worldwide either have adopted or are
considering similar laws requiring transparency of interactions with healthcare professionals.
Foreign Corrupt Practices Act. The Foreign Corrupt Practices Act, or FCPA, prohibits any United States individual or business from paying,
offering, or authorizing payment or offering of anything of value, directly or indirectly, to any foreign official, political party, or candidate for the purpose
of influencing any act or decision of the foreign entity in order to assist the individual or business in obtaining or retaining business. The FCPA also
obligates companies whose securities are listed in the United States to comply with accounting provisions requiring us to maintain books and records that
accurately and fairly reflect all transactions of the corporation, including international subsidiaries, if any, and to devise and maintain an adequate system of
internal accounting controls for international operations.
International Laws. In Europe, various countries have adopted anti-bribery laws providing for severe consequences, in the form of criminal
penalties and/or significant fines, for individuals and/or companies committing a bribery offense. Violations of these anti-bribery laws, or allegations of
such violations, could have a negative impact on our business, results of operations and reputation. For instance, in the United Kingdom, under the Bribery
Act 2010, which went into effect in July 2011, a bribery occurs when a person offers, gives, or promises to give a financial or other advantage to induce or
reward another individual to improperly perform certain functions or activities, including any function of a public nature. Bribery of foreign public officials
also falls within the scope of the Bribery Act 2010. Under the new regime, an individual found in violation of the Bribery Act of 2010, faces imprisonment
of up to 10 years. In addition, the individual can be subject to an unlimited fine, as can commercial organizations for failure to prevent bribery.
There are also international privacy laws that impose restrictions on the access, use, and disclosure of health information. All of these laws may
impact our business. Our failure to comply with these privacy laws or significant changes in the laws restricting our ability to obtain required patient
information could significantly impact our business and our future business plans.
U.S. Healthcare Reform
Changes in healthcare policy could increase our costs and subject us to additional regulatory requirements that may interrupt commercialization of
our current and future solutions. Changes in healthcare policy could increase our costs, decrease our revenues, and impact sales of and reimbursement for
our current and future solutions. The Affordable Care Act substantially changes the way healthcare is financed by both governmental and private insurers,
and significantly impacts our industry principally by moving healthcare reimbursement towards more value-based and quality-based payment
methodologies. The Act contains a number of provisions that impact our business and operations, some of which in ways we cannot currently predict,
including those governing enrollment in federal healthcare programs and reimbursement changes.
There will continue to be proposals by legislators at both the federal and state levels, regulators and third-party payors to reduce costs while
expanding individual healthcare benefits. Certain of these changes could impose additional limitations on the prices we will be able to charge for our
current and future solutions or the amounts of reimbursement available for our current and future solutions from governmental agencies or third-party
payors. Furthermore, the current presidential administration and Congress may again attempt broad sweeping changes to the current healthcare laws. We
face uncertainties that might result from modification or repeal of any of the provisions of the Affordable Care Act, including as a result of current and
future executive orders and legislative actions. The impact of those changes on us and potential effect on the medical device industry as a whole is currently
unknown. But any changes to the Affordable Care Act are likely to have an impact on our results of operations and may have a material adverse effect on
our results of operations. We cannot predict what other healthcare programs and regulations will ultimately be implemented at the federal or state level or
the effect any future legislation or regulation in the United States may have on our business.
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Third-Party Reimbursement
Payment for patient care in the United States is generally made by third-party payors, including private insurers and government insurance
programs, such as Medicare and Medicaid. The Medicare program, the largest single payor in the United States, is a federal governmental health insurance
program administered by the Centers for Medicare and Medicaid Services, or CMS, and covers certain medical care expenses for eligible elderly and
disabled individuals. Because a large percentage of the population with PAD includes Medicare beneficiaries, and private insurers may follow the coverage
and payment policies of Medicare, Medicare’s coverage and payment policies are significant to our operations.
Medicare pays PAD treatment facilities, including hospitals and physician office-based labs, pre-determined amounts for each procedure
performed. These payment amounts differ based on a variety of factors, including:
•
•
•
•
•
Type of procedure performed—angioplasty, stent or atherectomy;
Patient-specific complexities and comorbidities;
Type of facility—hospital, teaching hospital or office-based lab;
Inpatient or outpatient status; and
Geographic region.
We receive payment from the treatment facility for our products, and the Medicare reimbursement to the facility is intended to cover the overall
cost of treatment, including the cost of products used during the procedure as well as the overhead cost associated with the facility where the procedure is
performed. For procedures performed in hospitals, the physician who performs the procedure is reimbursed separately under the Medicare physician fee
schedule. Claims for PAD procedures are typically submitted by the treatment facility and physician to Medicare or other health insurers using established
billing codes. These codes identify the procedures performed and are relied upon to determine third-party payor reimbursement amounts.
Medicare reimbursement for hospital outpatient PAD procedures that include atherectomy for 2023 ranged between approximately $10,000 to
greater than $17,000. These amounts include the cost of disposable devices such as Ocelot and Pantheris. While reimbursement varies based on the type of
procedure performed (e.g., angioplasty, stent or atherectomy), additional device-specific reimbursement is not available. The amount of reimbursement can
vary substantially by geographical region and by facility. Payment rates of other third-party payors may follow Medicare rates, or they may be higher or
lower, depending on their particular reimbursement methodology. Because of the wide variability, it is not possible to identify an average rate for third-
party payors other than Medicare.
Human Capital
As of December 31, 2023, we had 72 employees, including 21 in manufacturing and operations, 28 in sales and marketing, 8 in research and
development and clinical and regulatory affairs, 5 in quality assurance and 10 in finance, general administrative and executive administration. Of these 72
employees, 4 are part time employees.
None of our employees are represented by a labor union or covered by a collective bargaining agreement. We have never experienced any
employment-related work stoppages and we consider our employee relations to be good.
We are optimistic about the potential to expand our workforce and create a more inclusive environment for all of our employees.
Diversity, Equity and Inclusion
We understand the importance of diversity in our workforce. We will continue to focus on building a pipeline of opportunities for both the hiring
and advancement of qualified individuals, including for women, persons with disabilities, and minority groups that are underrepresented in science and
engineering industries. We believe that diverse perspectives will help empower our employees, patients and industry.
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Communications and Engagement
Our success depends on employees understanding our strategic vision as well as our day-to-day objectives. To that end, we employ a mix of
communication and engagement channels, including all-hands meetings, regular leadership meetings, and quarterly updates on our progress against our
strategic goals. We have also created a cross-functional team focused on improving the employee experience and driving engagement.
A central part of our communications and engagement efforts are connecting people to purpose. To this end, we regularly share stories of
physicians and patients that have been treated with our devices with our employees. Their experiences reinforce our commitment to expand our reach into
new patient populations, geographies and markets.
Health, Safety and Wellness
We are deeply committed to the safety, health and wellness of our employees. The Avinger Environmental, Health & Safety team develops safety
practices and procedures, trains employees, and monitors compliance. Through these efforts, along with leadership commitment and investment of
resources in support of workplace safety initiatives, our total US injury rate has consistently tracked below industry averages.
Compensation
We recognize that our employees are our most valuable asset. Our total rewards package includes market competitive pay, comprehensive and
competitive benefits and retirement offerings and paid time off and family leave, among other benefits. To foster a stronger sense of ownership and align
the interests of employees with shareholders, we have offered restricted stock units and awards to eligible employees under our broad-based stock incentive
programs.
Corporate and other Information
We were incorporated in Delaware on March 8, 2007. Our principal executive offices are located at 400 Chesapeake Drive, Redwood City,
California 94063, and our telephone number is (650) 241-7900. Our website address is www.avinger.com. References to our website address do not
constitute incorporation by reference of the information contained on the website, and the information contained on the website is not part of this document.
We make available, free of charge on our corporate website, copies of our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q,
Current Reports on Form 8-K, Proxy Statements, and all amendments to these reports, as soon as reasonably practicable after such material is electronically
filed with or furnished to the Securities and Exchange Commission, or the SEC, pursuant to Section 13(a) or 15(d) of the Securities Exchange Act. We also
show detail about stock trading by corporate insiders by providing access to SEC Forms 3, 4 and 5. This information may also be obtained from the SEC’s
on-line database, which is located at www.sec.gov. Our common stock is traded on the Nasdaq Capital Market under the symbol “AVGR”.
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Item 1A. Risk Factors
Investing in our common stock involves a high degree of risk. We have identified the following risks and uncertainties that may have a material
adverse effect on our business, financial condition, results of operations and future growth prospects. Our business could be harmed by any of these risks.
The risks and uncertainties described below are not the only ones we face. If any of the risks actually occur, our business, financial condition, results of
operations, cash flows and prospects could be materially and adversely affected. The trading price of our common stock could decline due to any of these
risks, and you may lose all or part of your investment. In assessing these risks, you should also refer to the other information contained in this Annual
Report on Form 10-K, including our financial statements and related notes. Please also see “Cautionary Notes Regarding Forward-Looking Statements.”
Risk Factor Summary
The risk factors summarized and detailed below could materially harm our business, operating results and/or financial condition, impair our future
prospects and/or cause the price of our common stock to decline. These are not all of the risks we face, and other factors not presently known to us or that
we currently believe are immaterial may also affect our business if they occur. Material risks that may affect our business, operating results and financial
condition include, but are not necessarily limited to, those relating to:
Risks Related to Our Business
● significant fluctuations in our operating results, our history of net losses and ability to achieve profitability;
● our ability to continue as a going concern;
● risks and uncertainties arising from bankruptcy, if pursued
● our ability to obtain additional capital on acceptable terms or at all and our significant levels of debt;
● our ability to realize benefits from our license and collaboration agreements with Zylox-Tonbridge Medical Technology Co., Ltd. (“Zylox-
Tonbridge”) or achieve the milestones related to the Zylox-Tonbridge collaboration;
● our covenants and restrictions under and our ability to service our Loan Agreement with CRG;
● the liquidation preferences of our Series E preferred stock and Series F preferred stock;
● rights of warrant and preferred option holders in the event of a fundamental transaction,
● our reliance on a limited number of products with a limited commercial history;
● our reliance on sales professionals to market and sell our products and dependence on key employees;
● our ability to demonstrate the benefits of our Lumivascular platform to physicians, hospitals, and patients and our ability to innovate successfully;
● our competitors that have longer operating histories, more established products, and greater resources;
● the potential for disruptions at our manufacturing facility;
● our dependence on third-party vendors, including some single-source suppliers, to manufacture some of our components, coating, and sub-
assemblies;
● our intention not to devote significant resources in the near-term to market our Lumivascular platform internationally;
● the possibility that we may acquire other companies or technologies, or be the target of strategic transactions;
● Disruptions of our supply chain and operations could have a material adverse effect on our operating and financial results;
● New product development for the coronary artery disease market carries great risk;
● Adverse developments affecting the financial services industry, including events or concerns involving liquidity, defaults or non-performance by
financial institutions, could adversely affect our business, financial condition or results of operations;
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Risks Related to Our Use of Technology and Intellectual Property
● our technology infrastructure and the potential of a cybersecurity incident or data breach;
● any future intellectual property litigation or administrative proceedings;
● any failure to adequately protect our intellection property rights and the assertion of patents held by third parties against us;
Regulatory and Litigation Risks
● compliance with applicable laws and regulations and our ability to obtain necessary regulatory clearances and approvals;
● certain limitations on our ability to market our current products in the United States;
● the success and timing of our clinical trials;
● our limited long-term data regarding the safety and efficacy of our Lumivascular platform products;
● our suppliers’ compliance with the FDA’s QSR;
● any product recalls on our Lumivascular products;
● any changes in coverage and reimbursement for procedures using our Lumivascular products and any healthcare reform measures;
● compliance with healthcare regulations, environmental laws and regulations;
● regulations related to “conflict minerals” and any use, misuse, or off-label use of our products;
Risks Related to Our Organizational Structure
● the volatility of our stock price;
● our ability to meet guidance or expectations and receive coverage of our business by securities or industry analysts;
● any sales of substantial numbers of shares of our common stock in the public market;
● the possibility that Nasdaq may delist our securities from its exchange;
● anti-takeover provisions in our amended and restated certificate of incorporation, bylaws, and Delaware law;
● the forum selection clause in our amended and restated certificate of incorporation;
● CRG’s and Zylox-Tonbridge’s ability to exert significant control over certain matters relating to our business;
● the current number of authorized shares available for issuance; and
● our dependence on our board of directors.
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Risks Related to Our Business
Our quarterly and annual results may fluctuate significantly, may not fully reflect the underlying performance of our business and may result in
decreases in the price of our common stock.
Our quarterly and annual results of operations, including our revenues, profitability and cash flow, may vary significantly in the future and period-
to-period comparisons of our operating results may not be meaningful. Accordingly, the results of any one quarter or period should not be relied upon as an
indication of future performance. Our quarterly and annual financial results may fluctuate as a result of a variety of factors, many of which are outside our
control and, as a result, may not fully reflect the underlying performance of our business. Fluctuation in quarterly and annual results may decrease the value
of our common stock. Factors that may cause fluctuations in our quarterly and annual results include, without limitation:
● our ability to obtain and maintain FDA clearance and approval from foreign regulatory authorities for our products, and the timing of such
clearances and approvals, particularly with respect to current and future generations of Pantheris, Tigereye and Ocelot product families;
● market acceptance of our Lumivascular platform and products, including Pantheris, Ocelot, Tigereye and Lightbox;
● the availability of reimbursement for our Lumivascular platform products;
● our ability to attract new customers and increase the amount of business we generate from existing customers;
● results of our clinical trials;
● the timing and success of new product and feature introductions by us or our competitors or any other change in the competitive dynamics of our
industry, including consolidation among competitors, customers or strategic partners;
● the amount and timing of costs and expenses related to the maintenance and expansion of our business and operations;
● changes in our pricing policies or those of our competitors;
● general economic, political, industry and market conditions;
● the regulatory environment;
● the hiring, training and retention of key employees, including our sales team;
● the cost and potential outcomes of any litigation;
● our ability to obtain additional financing; and
● advances and trends in new technologies and industry standards.
In addition, we rely on estimates and forecasts of our expenses and revenues to provide guidance and inform our business strategies, and some of
our past estimates and forecasts have not been accurate. The evolving nature of our business makes forecasting operating results difficult. If we fail to
accurately forecast our expenses and revenues, our business, prospects, financial condition and results of operations may suffer, and the value of our
business may decline. If our estimates and forecasts prove incorrect, we may not be able to adjust our operations quickly enough to respond to lower-than-
expected sales which, for example, could result in higher than anticipated inventory levels, or higher-than-expected expenses which, for example, could be
the result of building excess capacity.
Based upon the factors above and others beyond our control, we have a limited ability to forecast our future revenue, costs and expenses. If we fail
to meet or exceed the operating results expectations of analysts and investors or if analysts and investors have estimates and forecasts of our future
performance that are unrealistic or that we do not meet, the market price of our common stock could decline. In addition, if one or more of the analysts who
cover us adversely change their recommendation regarding our stock, the market price of our common stock could decline. In the past, companies that have
experienced volatility in the market price of their stock have been subject to securities litigation. We may be the target of this type of litigation in the future,
which could result in substantial costs and divert our management’s attention from other business concerns.
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You should consider our business in light of the risks and difficulties we may encounter, as described above and elsewhere in this “Risk Factors”
section. If we fail to address the risks and difficulties that we face, our business and operating results will be adversely affected.
We have a history of net losses and we may not be able to achieve or sustain profitability.
We have incurred significant losses in each period since our inception in 2007. We incurred net losses of $18.3 million in 2023 and $17.6 million
in 2022. As of December 31, 2023, we had an accumulated deficit of approximately $420.7 million. These losses and our accumulated deficit reflect the
substantial investments we have made to develop our Lumivascular platform and acquire customers.
We expect our losses to continue for the foreseeable future as we continue to make significant future expenditures to develop and expand our
business. In addition, as a public company, we will continue to incur significant legal, accounting and other expenses. Accordingly, we cannot assure you
that we will achieve profitability in the future or that, if we do become profitable, we will sustain profitability. Our failure to achieve and sustain
profitability would negatively impact the market price of our common stock.
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 in this Annual Report on
Form 10-K, 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 December 31, 2023 and December 31, 2022 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.
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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 December 31, 2023, 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 $6.7 million from the sale of our Series D Convertible Preferred Stock in January 2022, $4.4
million from the sale of our common stock in August 2022, and $5.1 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.
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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:
● the degree of success we experience in commercializing our Lumivascular platform products, particularly Pantheris, Ocelot, Tigereye and any
future versions of such products;
● the costs, timing and outcomes of clinical trials and regulatory reviews associated with our future products;
● the costs and expenses of maintaining or expanding our sales and marketing infrastructure and our manufacturing operations;
● the costs and timing of developing variations of our Lumivascular platform products and, if necessary, obtaining FDA clearance of such
variations;
● 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;
● 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;
● the number and types of future products we develop and commercialize;
● the costs of defending ourselves against future litigation;
● the costs of preparing, filing and prosecuting patent applications and maintaining, enforcing and defending intellectual property-related claims;
and
● 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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We have entered into a license agreement and related collaboration agreement with respect to the development and commercialization of certain of our
products in the Greater China region. There can be no guarantee that such strategic partnership will be successful and we may not be able to capitalize
on the market potential of our products in the Greater China region or realize other benefits from such arrangement.
In March 2024, we entered into a license agreement and collaboration agreement with Zylox-Tonbridge, pursuant to which we agreed to license
and distribute certain of our products to Zylox-Tonbridge in the Greater China region, including mainland China, Hong Kong, Macao, and Taiwan (the
“Territory”). Zylox-Tonbridge will lead all regulatory and commercialization activities for our products in the Territory. We have limited control over the
amount and timing of resources that Zylox-Tonbridge will dedicate to such efforts and there can be no guarantee that Zylox-Tonbridge will be successful in
obtaining required regulatory approvals or commercializing such products in the Territory. As a result, we may never realize any royalty payments under
such license agreement.
In addition, as part of this strategic partnership, Zylox-Tonbridge agreed to invest $7.5 million to purchase shares of a new Series G convertible
preferred stock, provided that the following milestones are achieved: (i) the successful registration and listing under 21 CFR part 807 with the FDA of
Zylox-Tonbridge 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, excluding any gross revenue achieved under the license agreement. There can be no guarantee that such milestones
will be achieved and, therefore, we may never receive such additional investment.
Furthermore, the collaboration agreement we entered into with Zylox-Tonbridge contemplates that, after required regulatory approvals have been
obtained, Zylox-Tonbridge will manufacture our products. There can be no guarantee that such regulatory approvals will be obtained and that Zylox-
Tonbridge will be able to manufacture our products. Even if Zylox-Tonbridge is able to manufacture our products, there can be no guarantee that they will
be able to do so at costs that will be advantageous to us.
We have a significant amount of debt, which may adversely affect our ability to operate our business and our financial position and our ability to secure
additional financing in the future.
As of December 31, 2023, we had $14.3 million in principal, back-end fees and interest outstanding under the Loan Agreement, with CRG. Our
significant amount of debt may:
● increase our vulnerability to adverse changes in general economic, industry and competitive conditions;
● require us to dedicate a substantial portion of our cash flow from operations to make payments on our debt, thereby reducing the availability of our
cash flow to fund working capital, capital expenditures and other general corporate purposes;
● limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;
● restrict us from exploiting business opportunities;
● make it more difficult to satisfy our financial obligations, including payments on the Loan Agreement;
● place us at a competitive disadvantage compared to our competitors that have less debt obligations; and
● limit our ability to borrow additional funds for working capital, capital expenditures, acquisitions, debt service requirements, execution of our
business strategy or other general corporate purposes on satisfactory terms or at all.
The existence of a substantial amount of debt may make it difficult for us to run our business effectively or raise the capital we need to continue
our operations.
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Covenants under the Loan Agreement will restrict our business in many ways.
The Loan Agreement contains various covenants that limit, subject to certain exceptions, our ability to, among other things:
● incur or assume liens;
● incur additional debt or provide guarantees in respect of obligations of other persons;
● issue redeemable stock and preferred stock;
● pay dividends or make distributions on capital stock, repurchase, redeem or make payments on capital stock or repay, repurchase, redeem, retire,
defease, acquire or cancel debt prior to the stated maturity thereof;
● make loans, investments or acquisitions;
● create or permit restrictions on the ability of our subsidiaries to pay dividends or make other distributions to us or to guarantee our debt, limit our
or any of our subsidiaries ability to create liens, or make or pay intercompany loans or advances;
● enter into certain transactions with affiliates;
● sell, transfer, license, lease or dispose of our or our subsidiaries’ assets, including the capital stock of our subsidiaries; and
● dissolve, liquidate, consolidate or merge with or into, or sell substantially all of our assets to another person.
In particular, the Loan Agreement, as most recently amended in March 2024, includes a covenant that we maintain a minimum of $3.5 million of
cash and certain cash equivalents, which was temporarily reduced to a minimum of $1.0 million until April 1, 2024. Thereafter, we will be subject to the
minimum liquidity requirement of $3.5 million. There can be no assurance as to our future compliance with the covenants under the Loan Agreement, as
amended. We currently anticipate that, if we are unable to raise additional capital, our cash balance will fall below the required minimum of $3.5 million in
the second quarter of 2024. If our cash balance falls below the required minimum and we are unable to negotiate a waiver or amendment to the Loan
Agreement, we would be in default of our covenants under the Loan Agreement, which would adversely affect on our financial position and operations.
The covenants contained in the Loan Agreement could also adversely affect our ability to execute our business strategies by restricting our ability
to make capital expenditures, engage in strategic acquisitions, refinance our outstanding indebtedness, or obtain additional financing. Such restrictions may
make it difficult to plan for or react to changes in market conditions, such as future downturns in our business or the economy in general.
In addition, potential sources of equity financing may decline to invest in our company given the amount of debt and the rights that debt holders
have to get paid before equity holders. In order to facilitate equity investments, 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. The amount of debt could therefore affect our ability to finance our company and prevent
us from obtaining necessary operating capital as a result.
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We may not be able to generate sufficient cash to service our obligations under the Loan Agreement. If we default on payments or otherwise fail to
comply with our obligations under our Loan Agreement, the lenders thereunder may be able to accelerate amounts owed under the loan facility and
may foreclose upon the assets securing our obligations.
Borrowings under our Loan Agreement are secured by substantially all of our personal property, including our intellectual property. The existing
collateral pledged under the Loan Agreement may prevent us from being able to secure additional debt or equity financing on favorable terms, or at all, or
to pursue business opportunities, including potential acquisitions. Our ability to make scheduled payments, comply with our debt covenants, or to refinance
our debt obligations depends on numerous factors, including the amount of our cash reserves and our actual and projected financial and operating
performance. These amounts and our performance are subject to numerous risks, including the risks in this section, some of which may be beyond our
control. We cannot assure you that we will maintain a level of cash reserves or cash flows from operating activities sufficient to permit us to pay the
principal, premium, if any, and interest on our existing or future indebtedness. If our cash flows and capital resources are insufficient to fund our debt
service obligations, we may be forced to reduce or delay capital expenditures, sell assets or operations, seek additional capital or restructure or refinance
our indebtedness. We cannot assure you that we would be able to take any of these actions, or that these actions would permit us to meet our scheduled debt
service obligations. In addition, in the event of our breach of the Loan Agreement, we may be required to repay any outstanding amounts earlier than
anticipated. If we fail to comply with our obligations under the Loan Agreement, the lender would be able to accelerate the required repayment of amounts
due and, if they are not repaid, could foreclose upon our assets securing our obligations under the Loan Agreement.
The Series E and Series F convertible preferred stock have a liquidation preference senior to our common stock, Series A-1 convertible preferred stock
and Series B convertible preferred stock.
Our outstanding shares of Series E and Series F preferred stock have a liquidation preference that gets paid prior to any payment on our common
stock (including shares issuable upon the exercise of our outstanding warrants) , Series A-1 and Series B preferred stock. The payment of the liquidation
preferences could result in common stockholders, A-1 and Series E preferred stockholders and warrant holders not receiving any consideration if we were
to liquidate, dissolve or wind up, either voluntarily or involuntarily. This liquidation preference may increase over time based on the payment of dividends.
The existence of the liquidation preferences may reduce the value of our common stock, make it harder for us to sell shares of common stock in
offerings in the future, or prevent or delay a change of control.
We have outstanding shares of convertible preferred stock, some of which contain “full-ratchet” anti-dilution protection, which may cause significant
dilution to our stockholders.
As of December 31, 2023, we had outstanding 1,279,928 shares of common stock. As of that date we had outstanding 1,920 shares of Series E
convertible preferred stock convertible into an aggregate of 178,560 share of common stock, 85 shares of Series B convertible preferred stock convertible
into an aggregate of 14,790 shares of common stock; and subsequent to December 31, 2023, we issued 10,000 shares of Series A-1 convertible preferred
stock convertible into an aggregate of 2,729,258 shares of common stock and 7,224 shares of Series F convertible preferred stock convertible into an
aggregate of approximately 1,971,616 shares of common stock. The issuance of shares of common stock upon the conversion of such shares of preferred
stock would dilute the percentage ownership interest of all stockholders, might dilute the book value per share of our common stock and would increase the
number of our publicly traded shares, which could depress the market price of our common stock. The shares of Series B preferred stock contain a “full-
ratchet” anti-dilution provision which, subject to limited exceptions, would reduce the conversion price of the Series B preferred stock (and increase the
number of shares issuable) in the event that we in the future issue common stock, or securities convertible into or exercisable to purchase common stock, at
price per share lower than the conversion price then in effect. Our outstanding 85 shares of Series B preferred stock were convertible into 14,790 shares of
common stock at a conversion price of $5.732 per share as of December 31, 2023.
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Certain of our outstanding warrants and preferred investment options include put rights upon the occurrence of a fundamental transaction, which
could make it difficult for us to complete a fundamental transaction that would otherwise be beneficial to our stockholders.
Certain of our outstanding warrants, including the warrants issued in February 2018, November 2018, and January 2022 and the preferred
investment options issued in August 2022, include provisions that, in the event of certain fundamental transactions defined in the relevant agreements,
provide the holders of such warrants and preferred investment options with the right to require us, or the successor company in such transaction, to
repurchase any unexercised portion of such warrants or preferred investment options from the holder at their Black-Scholes value. In some circumstance
this repurchase must be made in cash. Such Black-Scholes value may be significant and the requirement to pay such amount could prevent us from
completing a transaction which would otherwise be accretive to shareholders or make such transaction more costly and reduce the value of such transaction
to holders of our common stock.
Our success depends in large part on a limited number of products, particularly the Pantheris product family, all of which have a limited commercial
history. If these products fail to gain, or lose, market acceptance, our business will suffer.
Ocelot, Ocelot PIXL, Ocelot MVRX, Tigereye, Tigereye ST, Lightbox 3, Pantheris, Pantheris SV and Pantheris LV are our only products currently
cleared for sale, and our current revenues are wholly dependent on them. In addition, the long-term viability of our company is largely dependent on the
successful commercialization and continued development of the Pantheris product family and we expect that sales of our other current and future
Lumivascular platform products in the United States will account for substantially all of our revenues for the foreseeable future. Accordingly, our success
depends on the continued and growing acceptance and use of Lumivascular platform products by the medical community.
All of our products have a limited commercial history. For example, we received 510(k) clearance from the FDA to commercialize Pantheris in
October 2015 as well as a separate FDA clearance to market enhanced versions of Pantheris in March 2016 and May 2018 and those versions of Pantheris
became commercially available in the United States and select international markets promptly thereafter. Pantheris SV launched in July 2019 after having
received FDA clearance in April 2019. Tigereye launched in October 2020 after having received FDA clearance in September 2020. Tigereye ST launched
in September 2023 after having received FDA clearance in April 2023. Pantheris LV is currently in a limited launch phase after having received FDA
clearance in June 2023.Our limited commercialization experience and number of approved products make it difficult to evaluate our current business and
predict our future prospects. We have encountered and will continue to encounter risks and difficulties frequently experienced by companies in rapidly
changing industries.
Our ability to successfully market Lumivascular platform products will also be limited due to a number of factors including regulatory restrictions
in our labeling. We cannot assure demand for Lumivascular platform products will continue to grow or that our products will significantly penetrate current
or new markets. Market demand for our Lumivascular platform products and physician adoption of these products also may be negatively impacted by
product performance issues and the need to replace certain products in accordance with our warranty policy. Utilization of our products has been less than
we anticipated historically. If demand for our Lumivascular platform products does not increase and we cannot sell our products as planned, our financial
results will be harmed. In addition, market acceptance may be hindered if physicians are not presented with compelling data from long-term studies of the
safety and efficacy of our Lumivascular platform products compared to alternative procedures, such as angioplasty, stenting, bypass surgery or other
atherectomy procedures. For example, if patients undergoing treatment with our Lumivascular platform products have retreatment rates higher than or
comparable with the retreatment rates of alternative procedures, it will be difficult to demonstrate the value of our Lumivascular platform products. Any
studies we may conduct comparing our Lumivascular platform with alternative procedures will be expensive, time consuming and may not yield positive
results. Physicians will also need to appreciate the value of real-time imaging in improving patient outcomes in order to change current methods for treating
PAD patients. In addition, demand for our Lumivascular platform products may decline or may not increase as quickly as we expect. Failure of our
Lumivascular platform products to significantly penetrate current or new markets, or our failure to successfully commercialize our products, would harm
our business, financial condition and results of operations.
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We are also aware of certain characteristics and features of our Lumivascular platform that may prevent widespread market adoption. For example,
in procedures using the current model of Pantheris, some physicians may prefer to have a technician or second physician assisting with the operation of the
catheter as well as a separate technician to operate the Lightbox, potentially making it less financially attractive for physicians and their hospitals and
medical facilities. It may take significant time and expense to modify our products to allow a single physician to operate the entire system and we can
provide no guarantee that we will be able to make such modifications or obtain any additional and necessary regulatory clearances for such modifications.
Although the OCT images created by our Lightbox may make it possible for physicians to reduce the degree to which fluoroscopy and contrast dye are used
when using our Lumivascular platform products compared to competing endovascular products, physicians are still using both fluoroscopy and contrast dye
in these procedures. As a result, risks of complications from radiation and contrast dye are still present and may limit the commercial success of our
products. Finally, it requires training of technicians and physicians to effectively operate our Lumivascular platform products, including interpreting the
OCT images created by our Lightbox, which may affect adoption of our products by physicians.
Our Lumivascular products are highly complex, and the failure of relatively minor components could result in product failure or other significant
performance issues that may not be discovered until after delivery to customers, which could give rise to claims from our customers or their patients. We
have in the past, and may in the future, become aware of performance issues with our products. For example, prior to becoming commercially available on
March 1, 2016, Pantheris had been used in clinical trials mainly in controlled situations. Since its commercialization and as more physicians have used
Pantheris, we have received additional feedback on its performance, both positive and negative. We have attempted to address certain of these concerns
with our current version of Pantheris. However, there can be no assurance that the changes and improvements will fully address the performance issues that
have been raised by earlier versions of Pantheris. Our revenue has been adversely impacted by these product performance issues. We also had to incur
additional expenses to make product changes and improvements, and to replace products in accordance with our warranty policy. If future product
performance issues are not resolved and physician concerns not addressed, our reputation could suffer, which could lead to decreased sales of our products.
We rely heavily on our sales professionals to market and sell our products. If we are unable to hire, effectively train, manage, improve the productivity
of, and retain our sales professionals, our business will be harmed, which would impair our future revenue and profitability.
Our success largely depends on our ability to hire, train, manage and improve the productivity levels of our sales professionals. Competition for
sales professionals who are familiar with and trained to sell our products continues to be strong and our larger competitors are able to offer compensation
and benefits that we are not able to. We have experienced and continue to experience significant turnover of our sales professionals. Significant turnover of
our sales professionals makes it difficult for us to maintain an adequate presence in some markets and to preserve institutional expertise among our sales
teams. While we train our new sales professionals to better understand our existing and new product technologies and how they can be positioned against
our competitors’ products, it takes time for the sales professionals to become productive following their hiring and training and there can be no assurance
that newly hired sales professionals will reach adequate levels of productivity, or that we will not continue to experience significant levels of attrition in the
future. Measures we implement to improve the productivity of our sales professionals may not be successful and may instead cause additional departures
from our sales organization. Such attrition could further reduce our revenue, profitability, and harm our business and our stock price may be adversely
impacted as a result.
In addition, the loss of any member of our sales team’s senior management could weaken our sales expertise and harm our business, and we may
not be able to find adequate replacements on a timely basis, or at all. Attrition in our senior management team over sales that have occurred over the past
several years have created and likely will continue to create instability in our sales force, which could lead to further attrition in our team of sales
professionals. If we are unable to retain experienced sales professionals, our ability to market and sell our products in our target markets will be adversely
affected, which will adversely affect our sales and results of operations.
We depend on our senior management team and the loss of one or more key employees or an inability to attract and retain highly skilled employees
could harm our business.
Our success largely depends upon the continued services of our executive management team and key employees and the loss of one or more of our
executive officers or key employees could harm us and directly impact our financial results. Our employees may terminate their employment with us at any
time. Changes in our executive management team resulting from the hiring or departure of executives could disrupt our business. For example, our Chief
Financial Officer resigned from the Company effective May 12, 2022. Nabeel Subainati, our Vice President of Finance, has been designated as Principal
Financial Officer and Principal Accounting Officer effective as of July 21, 2022. If we are unable to hire one or more replacement employees for officers
who have departed or may depart, or otherwise fill their responsibilities, our ability to effectively manage our business could be adversely affected.
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We must attract and retain highly qualified personnel. Competition for skilled personnel is intense, especially for engineers with high levels of
experience in designing and developing medical devices and for sales professionals. We have, from time to time, experienced, and we expect to continue to
experience, difficulty in hiring and retaining employees with appropriate qualifications. Many of the companies with which we compete for experienced
personnel have greater resources than we have. If we hire employees from competitors or other companies, their former employers may attempt to assert
that these employees or we have breached legal obligations, resulting in a diversion of our time and resources and, potentially, damages. In addition, job
candidates and existing employees, particularly in the San Francisco Bay Area, often consider the value of the stock awards they receive in connection with
their employment. If the perceived value of our stock awards declines or if we do not make grants of stock-based incentive awards, it may harm our ability
to recruit and retain highly skilled employees. In addition, we invest significant time and expense in training our employees, which increases their value to
competitors who may seek to recruit them. If we fail to attract new personnel or fail to retain and motivate our current personnel, our business would be
harmed.
Our ability to compete is highly dependent on demonstrating the benefits of our Lumivascular platform to physicians, hospitals and patients and our
ability to innovate new and improved products.
In order to generate sales, we must be able to clearly demonstrate that our Lumivascular platform is a more effective treatment system than the
alternatives offered by our competitors. If we are unable to convince physicians that our Lumivascular platform leads to significantly lower rates of
restenosis, or narrowing of the artery, and leads to fewer adverse events during treatment than those using competing technologies, our business will suffer.
We must convince hospitals and physicians that our Lumivascular platform results in significantly better patient outcomes at a competitive overall cost. For
example, we may need to demonstrate that the investment hospitals must make of purchasing our Lightbox and the incremental costs of having a technician
or a second individual operate Pantheris can be justified based on the benefits to patients, physicians and hospitals. If we are unable to develop robust
clinical data to support these claims, we will be unable to convince hospitals and third-party payors of these benefits and our business will suffer. In
addition, attrition among our sales professionals may make it difficult to maintain relationships with physicians and hospitals, which could adversely affect
our sales and results of operations.
Our value proposition to physicians and hospitals is largely dependent upon our contention that the rate of arterial damage when physicians are
using our imaging products is lower than with non-imaging competing products. If minimizing arterial damage does not significantly impact patient
outcomes, meaning either (i) that restenosis is often triggered without disrupting healthy arterial structures or (ii) arteries can be damaged during treatment
without triggering restenosis, then we may be unable to demonstrate our Lumivascular platform’s benefits are any different than competing technologies.
Furthermore, physicians may find our imaging system difficult to use, and we may not be able to provide physicians with adequate training to be able to
realize the benefits of our Lumivascular platform. If physicians do not value the benefits of on-board imaging and the enhanced visualization enabled by
our products during an endovascular intervention as compared to our competitors’ products, or do not believe that such benefits improve clinical outcomes,
our Lumivascular platform products may not be widely adopted.
In order to remain competitive, we must also continue to develop new product offerings and enhancements to our existing Lumivascular platform
products. The market for medical devices in general, and in the PAD market in particular, is highly competitive, dynamic, and marked by rapid and
substantial technological development and product innovation. If we are unable to innovate successfully, our Lumivascular platform products could become
obsolete, and our revenues would decline as our customers purchase our competitors’ products. In addition, our innovation efforts may not result in new
products that generate additional revenue. For example, we believe that our next-generation Pantheris, Pantheris SV, Pantheris LV and any future iterations
of these products are important to our future revenues, and we are devoting a significant portion of our resources to their continued development. However,
we do not yet know whether these or any other new offerings will be well received and broadly accepted by physicians, and if so, whether sales will be
sufficient for us to offset costs of development, implementation, support, operation, sales and marketing. Additionally, new products may subject us to
additional risks of product performance, market adoption, customer complaints and litigation. If sales of our new product offerings are lower than we
expect, fail to gain anticipated market acceptance or cause us to expend additional resources to fix unforeseen problems and develop modifications, our
revenues and results of operations may not improve, and our business will be adversely affected.
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Our ability to develop, market, and sell our products depends in part upon our working relationships with physicians, and any events that damage those
relationships, or make it more difficult to build and maintain those relationships, could harm our business.
The development, marketing, and sale of our products depends upon our ability to maintain strong working relationships with physicians. We rely
on these professionals to provide us with considerable knowledge and experience regarding the development, marketing and sale of our products.
Physicians assist us in clinical trials and as researchers, marketing and product consultants and public speakers. If we cannot maintain our strong working
relationships with these professionals and continue to receive their advice and input, the development and marketing of our products could suffer, which
could harm our business, financial condition and results of operations. The medical device industry’s relationship with physicians is under increasing
scrutiny by the Office of Inspector General, or OIG, the Department of Justice, or DOJ, state attorneys general, and other foreign and domestic government
agencies. Changes to or our failure to comply with laws, rules and regulations governing our relationships with physicians, or an investigation into our
compliance by the OIG, DOJ, state attorneys general and other government agencies, could significantly harm our business by damaging our reputation
among, or restricting our ability to work with, physicians.
In addition, we target our sales efforts to interventional cardiologists, vascular surgeons and interventional radiologists because they are often the
physicians diagnosing and treating both coronary artery disease and PAD. If these physicians are not made aware of our Lumivascular platform products,
those patients may instead be surgically treated or treated with an alternative interventional procedure. In addition, there is a significant correlation between
PAD and coronary artery disease, and many physicians do not routinely screen for PAD while screening for coronary artery disease. If we are not successful
in educating physicians about screening for PAD and about the capabilities of our Lumivascular platform products, our ability to increase our revenues may
be impaired.
We compete against companies that have longer operating histories, more established products and greater resources, which may prevent us from
achieving significant market penetration, increasing our revenues or becoming profitable.
Our products compete with a variety of products and devices for the treatment of PAD, including other CTO crossing devices, stents, balloons and
atherectomy catheters, as well as products used in vascular surgery. Large competitors in the CTO crossing, stent and balloon markets include Abbott
Laboratories, AngioDyamics, Boston Scientific, Cardinal Health, Cook Medical, Becton Dickinson and Medtronic. Competitors in the atherectomy market
include AngioDyamics, Boston Scientific, Cardiovascular Systems, Medtronic and Philips. Some competitors have previously attempted to combine
intravascular imaging with atherectomy and may have current programs underway to do so. These and other companies may attempt to incorporate on-
board visualization into their products in the future and may remain competitive with us in marketing traditional technologies. Other competitors include
pharmaceutical companies that manufacture drugs for the treatment of symptoms associated with mild to moderate PAD and companies that provide
products used by surgeons in peripheral and coronary bypass procedures. These competitors and other companies may introduce new products that compete
with our products. Many of our competitors have significantly greater financial and other resources than we do and have well-established reputations, as
well as broader product offerings and worldwide distribution channels that are significantly larger and more effective than ours. In addition, competitors
with greater financial resources than ours could acquire other companies to gain enhanced name recognition and market share, as well as new technologies
or products that could effectively compete with our existing products, which may cause our revenues to decline and would harm our business. Competition
with these companies could result in price-cutting, reduced profit margins and loss of market share, any of which would harm our business, financial
condition and results of operations.
If we are unable to effectively differentiate our products or company from those of our competitors and our business may be adversely affected.
If our manufacturing facility becomes damaged or inoperable, or we are required to vacate the facility, or our electronic systems are compromised, our
ability to manufacture and sell our Lumivascular platform products and to pursue our research and development efforts may be jeopardized.
We currently manufacture and assemble our Lumivascular platform products in-house. Our products are comprised of components sourced from a
variety of contract manufacturers, with final assembly completed at our facility in Redwood City, California. Our facility and equipment, or those of our
suppliers, could be harmed or rendered inoperable by natural or man-made disasters, including fire, earthquake, terrorism, flooding and power outages.
Further, our electronic systems may experience service interruptions, denial-of-service and other cyber-attacks, computer viruses or other events. Any of
these may render it difficult or impossible for us to manufacture products, pursue our research and development efforts or otherwise run our business for
some period of time. If our facility is inoperable for even a short period of time, the inability to manufacture our current products, and the interruption in
research and development of any future products, may result in harm to our reputation, increased costs, lower revenues and the loss of customers.
Furthermore, it could be costly and time-consuming to repair or replace our facilities and the equipment we use to perform our research and development
work and manufacture our products.
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We depend on third-party vendors to manufacture some of our components, coating and sub-assemblies, including some single source suppliers, which
could make us vulnerable to supply shortages and price fluctuations that could harm our business.
We currently manufacture some of our components and sub-assemblies at our Redwood City facility and rely on third-party vendors for other
components and sub-assemblies used in our Lumivascular platform. For several of our components and sub-assemblies we rely on single and limited source
suppliers. For example, we rely on single vendors for our optical fiber, coatings and drive cables that are key components of our catheters, and we rely on
single vendors for our laser and data acquisition card that are key components of our Lightbox. These components are critical to our products and there are
relatively few alternative sources of supply. Further, we do not carry a significant inventory of these components. If our suppliers of these materials cease
doing business, reduce their production capacity, or otherwise limit the amount of materials we can purchase, we may be unable to acquire necessary
materials on favorable terms, or at all. If we are unable to purchase required inputs for our production, our business will be adversely affected.
Our reliance on third-party vendors subjects us to a number of risks that could impact our ability to manufacture our products and harm our business.
We rely on third-party vendors to supply us with raw materials, as well as certain components and sub-assemblies used in the manufacture of our
products. Our reliance on such third parties subjects us to a number of risks that could adversely affect our operations, including:
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interruption of supply resulting from modifications to, or discontinuation of, a supplier’s operations;
delays in shipments resulting from slowdowns in manufacturing due to a pandemic or other causes, such as government restrictions on the
movement of people and goods;
delays in product shipments resulting from uncorrected defects, reliability issues or a supplier’s failure to consistently produce quality
components;
price fluctuations due to a lack of long-term supply arrangements with our suppliers for key components;
inability to obtain adequate supply in a timely manner or on commercially reasonable terms;
difficulty identifying and qualifying alternative or additional suppliers for components in a timely manner;
inability of the manufacturer or supplier to comply with QSR as enforced by the FDA and state regulatory authorities;
inability to control the quality of products manufactured by third parties;
production delays related to the evaluation and testing of products from alternative suppliers and corresponding regulatory qualifications; and
delays in delivery by our suppliers due to changes in demand from us or their other customers.
The indirect and direct effects of the COVID-19 pandemic, including subsequent variants, and measures taken in response by governments and
businesses worldwide to contain its spread, including quarantines, facility closures, travel and logistics restrictions, border controls, and shelter in place or
stay at home and social distancing orders, have historically adversely impacted and are in some ways expected to continue to adversely impact global
supply chain, manufacturing, and logistics operations. Shipping and freight delays have also been increasing in response to port closures, port congestion,
shipping container and ship shortages, and global conflicts. To the extent events such as another pandemic or other disruptive event results the worsening of
manufacturing and shipping delays and constraints, our suppliers of raw materials and other components may have difficulty obtaining and providing the
materials we require to manufacture our products, which could adversely affect our ability to acquire and maintain adequate inventory and meet demand for
our products.
Some of our suppliers have begun requiring us to provide longer-term forecasts of our supply requirements. If our assumptions about customer
demand are incorrect, the forecasts we provide to our suppliers may result in excess inventory due to reduced demand or insufficient inventory to meet
demand, which would adversely affect our business and results of operations. We also compete with other manufacturers who require the same components
as us, or inputs used in producing the components that we purchase. Other purchasers may be able to leverage stronger relationships or greater purchasing
power than we have to gain advantages over us in the supply chain.
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We do not currently intend to devote significant additional resources in the near-term to market our Lumivascular platform internationally, which will
limit our potential revenues from our Lumivascular platform products.
Marketing our Lumivascular platform outside of the United States would require substantial additional sales and marketing, regulatory and
personnel expenses. As part of our product development and regulatory strategy, we plan to expand into select international markets, but we do not
currently intend to devote significant additional resources to market our Lumivascular platform internationally in order to focus our resources and efforts on
the U.S. market. Our decision to market our products primarily in the United States in the near-term will limit our ability to reach all of our potential
markets and will limit our potential sources of revenue. In addition, our competitors will have an opportunity to further penetrate and achieve market share
outside of the United States until such time, if ever, that we devote significant additional resources to market our Lumivascular platform products or other
products internationally.
Our ability to utilize our net operating loss carryforwards may be limited.
As of December 31, 2023, we had federal and state net operating loss carryforwards, or NOLs, due to prior period losses of $357.7 million and
$218.7 million, respectively, which if not utilized will begin to expire in 2027 for federal purposes and 2024 for state purposes. Out of the total Federal net
operating loss carryforwards, $100.2 million were generated in years after December 31, 2017 and have no expiration. Subject to certain limitations, NOLs
can be used to offset taxable income for U.S. federal income tax purposes. However, Section 382 of the Internal Revenue Code of 1986, as amended, may
limit the NOLs we may use in any year for U.S. federal income tax purposes in the event of certain changes in ownership of our company. A Section 382
“ownership change” generally occurs if one or more stockholders or groups of stockholders who own at least 5% of our stock increase their ownership by
more than 50 percentage points over their lowest ownership percentage within a rolling three-year period. Similar rules may apply under state tax laws. It is
possible that prior transactions with respect to our stock may have caused, and that future issuances or sales of our stock (including certain transactions
involving our stock that are outside of our control) could cause, an “ownership change.” A number of our common and preferred stock financings over the
past year may affect our ability to use NOLs. If an “ownership change” occurs, Section 382 would impose an annual limit on the amount of pre-ownership
change NOLs and other tax attributes we can use to reduce our taxable income, potentially increasing and accelerating our liability for income taxes, and
also potentially causing those tax attributes to expire unused. Any limitation on using NOLs could (depending on the extent of such limitation and the
NOLs previously used) result in our retaining less cash after payment of U.S. federal income taxes during any year in which we have taxable income (rather
than losses) than we would be entitled to retain if such NOLs were available as an offset against such income for U.S. federal income tax reporting
purposes, which could harm our profitability.
On December 22, 2017, the Tax Cuts and Jobs Act, or Tax Act, was enacted into law with many significant changes to the U.S. tax laws. The Tax
Act limits the utilization of NOLs arising in tax years beginning after December 31, 2017 to 80% of taxable income per year. However, existing NOLs that
arose in years prior to December 31, 2017 are not affected by these provisions. Our ability to utilize NOLs arising in future tax periods may be limited by
the Tax Act.
Outbreaks of contagious diseases, such as the novel coronavirus, COVID-19, and other public health crises may impact our business and operations,
which could materially adversely affect our financial condition and results of operations.
We have historically experienced a disruption in procedures using our products and in our operations as a result of the COVID-19 outbreak. Public
health crises, including an outbreak of a contagious disease, such as COVID-19, particularly to the extent it becomes a pandemic like COVID-19, could
significantly disrupt our business. The effects of such a public health crisis are difficult to predict, but may include a decrease in procedure volumes due to
restrictions and guidelines implemented by facilities and governmental entities; reduced availability of physicians or lab space to treat patients using our
products and/or different treatment prioritizations of those physicians; increased cost pressures and burdens on the overall healthcare infrastructure that
result in reallocation of resources; changed treatment decisions by patients who may elect to defer or avoid treatment for procedures that use our products
due to concerns about the potential spread of diseases in facilities; the suspension of clinical trial activity; restrictions on the ability of our personnel and
personnel of our distribution partners and sales agents to travel and to access customers and medical facilities for sales activities, training and case support;
delays in approvals by regulatory bodies; delays in product development efforts, which will also disrupt or delay our ability to launch affected products;
reallocation of company resources from our strategic priorities; supply chain disruptions that limit, delay or prevent us from acquiring the components used
to manufacture our products or ship those products once manufactured; disruptions in our relationships with our distributors and sales agents due to the
impact of the outbreak on their operations; temporary closures of our facilities; loss of employee productivity; government requirements to “shelter at
home” or other incremental mitigation efforts that may further impact our capacity to manufacture, sell and support the use of our products; legal actions
threatened or commenced against us by employees, customers or others who allege that our actions or inactions relating to safety measures led to their
exposure to COVID-19 or other personal injury; and adverse impacts on the national and global economies.
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The extent of pandemics such as COVID-19, may be further aggravated by the spread of new, more viral or deadly variants. Public health crises
and pandemics, such as the outbreak of COVID-19, also affect the economy generally, which may affect our stock price, our ability to borrow or raise
additional capital, and the funding of health systems that purchase our products, among other potential effects. The United States and world economies
could enter into periods of sustained recession or depression, which could materially adversely affect our business. The total impact of these disruptions
could have a material adverse impact on our financial condition and results of operations, we cannot predict the specific extent, or duration, of the impact of
such an outbreak of a contagious disease or other public health crisis on our financial condition and results. Furthermore, the extent of a global impact from
a pandemic cannot fully be known or quantified. The full extent to which a public health crisis will directly or indirectly impact our business and results
will depend on future developments that are highly uncertain and difficult to predict. Finally, to the extent a public health crisis adversely affects our
business, results and prospects, it may also have the effect of heightening many of the other risks described in this section.
Disruptions of supply chains could have a material adverse effect on our operating and financial results
Disruption of supply chains due to trade restrictions, political instability, severe weather, natural disasters, public health crises such as the COVID-
19 pandemic, terrorism, product recalls, port closures, labor supply or stoppages, the financial or operational instability of key suppliers and carriers,
government restrictions or measures, or other reasons could impair our ability to distribute our products, or cause the demand for our products to decrease.
Many industries, including our own, faced and continue to face supply chain challenges resulting from COVID-19 and other macroeconomic issues,
including reduced freight availability and increased costs, port disruption, manufacturing facility closures, labor shortages and other supply chain
disruptions. For example, hospitals reported a shortage of an iodinated contract medium used in X-rays, radiography and CT scans due to Shanghai’s
lockdowns during the COVID-19 pandemic. A shortage of such products could lead to a reduced number of surgeries and decrease the demand for our
products.
In addition, we have and continue to experience supply chain challenges related to extended lead times from certain key suppliers. Should these
challenges persist or worsen, we may be unable to manufacture enough inventory to meet the current demand for our Lumivascular products and
consequently incur significant adverse effects on our operating and financial results. To the extent we are unable to mitigate the likelihood or potential
impact of such events, there could be a material adverse effect on our operating and financial results.
We may acquire other companies or technologies or be the target of strategic transactions, which could divert our management’s attention, result in
additional dilution to our stockholders and otherwise disrupt our operations and harm our operating results.
We may in the future seek to acquire or invest in businesses, applications or technologies that we believe could complement or expand our
Lumivascular platform, enhance our technical capabilities or otherwise offer growth opportunities. The pursuit of potential acquisitions may divert the
attention of management and cause us to incur various costs and expenses in identifying, investigating and pursuing suitable acquisitions, whether or not
they are consummated. We may not be able to identify desirable acquisition targets or be successful in entering into an agreement with any particular target
or obtain the expected benefits of any acquisition or investment.
To date, our technology and product development efforts have been organic, and we have no experience in acquiring other businesses. In any
acquisition, we may not be able to successfully integrate acquired personnel, operations and technologies, or effectively manage the combined business
following the acquisition. Acquisitions could also result in dilutive issuances of equity securities, the use of our available cash, or the incurrence of debt,
which could harm our operating results. In addition, if an acquired business fails to meet our expectations, our operating results, business and financial
condition may suffer.
In addition, we sometimes receive inquiries relating to potential strategic transactions, including from third parties who may seek to acquire us. We
will continue to consider and discuss such transactions as we deem appropriate. Such potential transactions may divert the attention of management, and
cause us to incur various costs and expenses in investigating and evaluating such transactions, whether or not they are consummated.
New product development for the coronary artery disease market may be challenging, expensive and carries no guarantee of an approved commercial
product.
In order to create more opportunities to grow our revenue base, we must continue to develop new product offerings and enhancements to our
existing Lumivascular platform products. The market for medical devices in general, and in the CAD market, is highly competitive, dynamic, and marked
by rapid and substantial technological development and product innovation. We believe that a Lumivascular product developed for the CAD market is
important to our future revenues, and we are beginning to devote a significant portion of our resources to its development. Consequently, we anticipate we
will need additional capital to finance this endeavor encompassing the research and development, clinical trials and eventual promotion of any new CAD
product. Even if we are able to obtain additional capital, we may not be successful in the development any new CAD product.
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Our team may not have all the necessary qualifications and experience for the development of such a product. Therefore, we may need to attract
and retain highly qualified personnel with specific experience in the coronary industry. Competition for skilled personnel is intense, especially for engineers
with high levels of experience in designing and developing these types of medical devices, and we may not be successful in hiring and retaining employees
with appropriate qualifications. Many of the companies with which we compete for experienced personnel have greater resources than we have. We may
also may not be able to complete development of such products or choose to allocate our financial and other resources elsewhere due to unforeseen
circumstances.
Should we develop a CAD product, we will need to conduct a clinical trial. Clinical development is a long, expensive, and uncertain process and is
subject to delays and the risk that this product may ultimately prove unsafe or ineffective in treating the indications for which they it will be designed.
Completion of clinical trials may take several years or more and failure of the trial can occur at any time. We cannot provide any assurance that our clinical
trials will meet their primary endpoints or that such trials or their results will be accepted by the FDA or foreign regulatory authorities. Even if we achieve
positive early or preliminary results in clinical trials, these results do not necessarily predict final results, and positive results in early trials may not indicate
success in later trials. Many companies in the medical device industry have suffered significant setbacks in late-stage clinical trials, even after receiving
promising results in earlier trials or in the preliminary results from these late-stage clinical trials.
Furthermore, we do not yet know whether any new CAD product, if developed and approved, will be well received and broadly accepted by
physicians, and if so, whether sales will be sufficient for us to offset costs of development, implementation, support, operation, sales and marketing.
Additionally, such products may subject us to additional risks of product performance, market adoption, customer complaints and litigation. If sales of this
coronary device are lower than we expect, fail to gain anticipated market acceptance or cause us to expend additional resources to fix unforeseen problems
and develop modifications, our revenues and results of operations may not improve and our business will be adversely affected.
Adverse developments affecting the financial services industry, including events or concerns involving liquidity, defaults or non-performance by
financial institutions, could adversely affect our business, financial condition or results of operations.
Actual events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions or the financial
services industry generally, or concerns or rumors about any events of these kinds or other similar risks, have in the past and may in the future adversely
affect our liquidity. For example, on March 10, 2023, the Federal Deposit Insurance Corporation (“FDIC”) announced that Silicon Valley Bank had been
closed by the California Department of Financial Protection and Innovation. At that time, all of our cash and cash equivalents were held at Silicon Valley
Bank and our access to such funds was limited until the United States Department of the Treasury announced in a joint statement with the Federal Reserve
and FDIC that depositors of Silicon Valley Bank will have access to all of their money starting March 13, 2023. While we have regained access to our funds
at Silicon Valley Bank, later acquired by First Citizens Bank, and are evaluating our banking relationships, our access to funding sources and other credit
arrangements in amounts adequate to finance or capitalize our current and projected future business operations could be significantly impaired by events
such as liquidity constraints or failures, disruptions or instability in the financial services industry or financial markets, or concerns or negative expectations
about the prospects for companies in the financial services industry. These factors may also adversely affect our ability to access our cash and cash
equivalents at affected financial institutions.
In addition, investor concerns regarding the U.S. or international financial systems could result in less favorable commercial financing terms,
including higher interest rates or costs and tighter financial and operating covenants, or systemic limitations on access to credit and liquidity sources,
thereby making it more difficult for us to acquire financing on terms favorable to us, or at all. Any decline in available funding or access to our cash and
liquidity resources could, among other things, adversely impact our ability to meet our operating expenses, financial obligations or fulfill our other
obligations, result in breaches of our contractual obligations or result in violations of federal or state wage and hour laws. Any of these impacts, or any
other impacts resulting from the factors described above or other related or similar factors not described above, could have material adverse impacts on our
liquidity and our business, financial condition or results of operations.
Risks Related to Our Use of Technology and Intellectual Property
If our technology infrastructure is compromised, damaged or interrupted by a cybersecurity incident, data security breach or other security problems,
our operating results and financial condition could be adversely affected.
We use technology in substantially all aspects of our business operations, and our ability to serve customers most effectively depends on the
reliability of our technology systems. Cybersecurity incidents can include computer viruses, computer denial-of-service attacks, worms, and other malicious
software programs or other attacks, covert introduction of malware to computers and networks, impersonation of authorized users, and efforts to discover
and exploit any design flaws, bugs, security vulnerabilities or security weaknesses, as well as intentional or unintentional acts by employees or other
insiders with access privileges, intentional acts of vandalism by third parties and sabotage.
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In addition, our technology infrastructure and systems are vulnerable to damage or interruption from natural disasters, power loss and
telecommunications failures. Any such disruption to our systems, or the technology systems of third parties on which we rely, the failure of these systems to
otherwise perform as anticipated, or the theft, destruction, loss, misappropriation, or release of sensitive and/or confidential information or intellectual
property, could require us to notify affected individuals, federal or state agencies or media outlets of the incident and could result in business disruption,
negative publicity, loss of customers, potential liability, including litigation or other legal actions against us or the imposition of penalties, fines, fees or
liabilities, which may not be covered by our insurance policies, and competitive disadvantage, any or all of which would potentially adversely affect our
customer service, decrease the volume of our business and result in increased costs and lower profits. Moreover, a cybersecurity breach could require us to
devote significant management resources to address the problems associated with the breach and to expend significant additional resources to upgrade
further the security measures we employ to protect information against cyber-attacks and other wrongful attempts to access such information, which could
result in a disruption of our operations.
While we have invested, and continue to invest, in technology security initiatives and other measures to prevent security breaches and cyber
incidents, as well as disaster recovery plans, these initiatives and measures may not be entirely effective to insulate us from technology disruption that could
result in adverse effects on our results of operations.
We may in the future be a party to intellectual property litigation or administrative proceedings that could be costly and could interfere with our ability
to sell our Lumivascular platform products.
The medical device industry has been characterized by extensive litigation regarding patents, trademarks, trade secrets, and other intellectual
property rights, and companies in the industry have used intellectual property litigation to gain a competitive advantage. It is possible that U.S. and foreign
patents and pending patent applications or trademarks controlled by third parties may be alleged to cover our products, or that we may be accused of
misappropriating third parties’ trade secrets. Additionally, our products include hardware and software components that we purchase from vendors, and
may include design components that are outside of our direct control. Our competitors, many of which have substantially greater resources and have made
substantial investments in patent portfolios, trade secrets, trademarks, and competing technologies, may have applied for or obtained or may in the future
apply for or obtain, patents or trademarks that will prevent, limit or otherwise interfere with our ability to make, use, sell and/or export our products or to
use product names. They may devote substantial resources towards obtaining claims that cover the design of our atherectomy products to prevent the
marketing and selling of competitive products. We may become a party to patent or trademark infringement or trade secret claims and litigation as a result
of these and other third-party intellectual property rights being asserted against us. The defense and prosecution of these matters are both costly and time
consuming. Vendors from whom we purchase hardware or software may not indemnify us in the event that such hardware or software is accused of
infringing a third-party’s patent or trademark or of misappropriating a third-party’s trade secret.
Further, if such patents, trademarks, or trade secrets are successfully asserted against us, this may harm our business and result in injunctions
preventing us from selling our products, license fees, damages and the payment of attorney fees and court costs. In addition, if we are found to willfully
infringe third-party patents or trademarks or to have misappropriated trade secrets, we could be required to pay treble damages in addition to other
penalties. Although patent, trademark, trade secret, and other intellectual property disputes in the medical device area have often been settled through
licensing or similar arrangements, costs associated with such arrangements may be substantial and could include ongoing royalties. We may be unable to
obtain necessary licenses on satisfactory terms, if at all. If we do not obtain necessary licenses, we may not be able to redesign our Lumivascular platform
products to avoid infringement.
Similarly, interference or derivation proceedings provoked by third parties or brought by the U.S. Patent and Trademark Office, or USPTO, may be
necessary to determine the priority of inventions or other matters of inventorship with respect to our patents or patent applications. We may also become
involved in other proceedings, such as re-examination, inter partes review, or opposition proceedings, before the USPTO or other jurisdictional body
relating to our intellectual property rights or the intellectual property rights of others. Adverse determinations in a judicial or administrative proceeding or
failure to obtain necessary licenses could prevent us from manufacturing and selling our Lumivascular platform products or using product names, which
would have a significant adverse impact on our business.
Additionally, we may need to commence proceedings against others to enforce our patents or trademarks, to protect our trade secrets or know-how,
or to determine the enforceability, scope and validity of the proprietary rights of others. These proceedings would result in substantial expense to us and
significant diversion of effort by our technical and management personnel. We may not prevail in any lawsuits that we initiate and the damages or other
remedies awarded, if any, may not be commercially meaningful. We may not be able to stop a competitor from marketing and selling products that are the
same or similar to our products or from using product names that are the same or similar to our product names, and our business may be harmed as a result.
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We are aware of patents held by third parties that may be asserted against us in litigation that could be costly and could limit our ability to sell our
Lumivascular platform products.
We are aware of patent families related to catheter positioning, optical coherence tomography, occlusion cutting and atherectomy owned by third
parties. With regard to atherectomy patents, one of our founders, Dr. John Simpson, founded FoxHollow Technologies prior to founding our company.
FoxHollow Technologies developed an atherectomy device that is currently sold by Medtronic, and Dr. Simpson and our Chief Technology Officer,
Himanshu Patel, are listed as inventors on patents covering that device that are now held by Medtronic. We are not currently aware of any claims Medtronic
has made or intends to make against us with respect to Pantheris or any other product or product under development. Because of a doctrine known as
“assignor estoppel,” if any of Dr. Simpson’s earlier patents are asserted against us by Medtronic, we may be prevented from asserting an invalidity defense
regarding those patents, and our defense may be compromised. Medtronic has significantly greater financial resources than we do to pursue patent litigation
and could assert these patent families against us at any time. Adverse determinations in any such litigation could prevent us from manufacturing or selling
Pantheris or other products or products under development, which would significantly harm our business.
Intellectual property rights may not provide adequate protection, which may permit third parties to compete against us more effectively.
In order to remain competitive, we must develop and maintain protection of the proprietary aspects of our technologies. We rely on a combination
of patents, copyrights, trademarks, trade secret laws and confidentiality and invention assignment agreements to protect our intellectual property rights. As
of December 31, 2023, we held 64 issued and allowed U.S. patents, 1 U.S. pending provisional application, 18 U.S. utility patent applications and 3 PCT
applications pending. As of December 31, 2023, we also had 83 issued and allowed patents from outside of the United States. As of December 31, 2023, we
had 22 pending patent applications outside of the United States, including in Australia, Canada, China, Europe, India, Japan and Mexico. Our patents and
patent applications include claims covering key aspects of the design, manufacture and therapeutic use of OCT imaging catheters, occlusion-crossing
catheters, atherectomy devices and our imaging console. Our patent applications may not result in issued patents and our patents may not be sufficiently
broad to protect our technology. Any patents issued to us may be challenged by third parties as being invalid, or third parties may independently develop
similar or competing technology that avoids our patents. Should such challenges be successful, competitors might be able to market products and use
manufacturing processes that are substantially similar to ours. We may not be able to prevent the unauthorized disclosure or use of our technical knowledge
or other trade secrets by consultants, vendors or former or current employees, despite the existence generally of confidentiality agreements and other
contractual restrictions. Monitoring unauthorized use and disclosure of our intellectual property is difficult, and we do not know whether the steps we have
taken to protect our intellectual property will be adequate. In addition, the laws of many foreign countries will not protect our intellectual property rights to
the same extent as the laws of the United States. Consequently, we may be unable to prevent our proprietary technology from being exploited abroad, which
could affect our ability to expand to international markets or require costly efforts to protect our technology. To the extent our intellectual property
protection is incomplete, we are exposed to a greater risk of direct competition. In addition, competitors could purchase our products and attempt to
replicate some or all of the competitive advantages we derive from our development efforts or design around our protected technology. Our failure to
secure, protect and enforce our intellectual property rights could substantially harm the value of our Lumivascular platform, brand and business.
We use certain open source software in all versions of our Lightbox. We may face claims from companies that incorporate open source software
into their products or from open source licensors, claiming ownership of, or demanding release of, the source code, the open source software or derivative
works that were developed using such software, or otherwise seeking to enforce the terms of the applicable open source license. These claims could result
in litigation and could require us to cease offering Lightbox unless and until we can re-engineer it to avoid infringement. This re-engineering process could
require significant additional research and development resources, and we may not be able to complete it successfully. These risks could be difficult to
eliminate or manage, and, if not addressed, could harm our business, financial condition and operating results.
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Regulatory and Litigation Risks
If we fail to obtain and maintain necessary regulatory clearances or approvals for our Lumivascular platform products, or if clearances or approvals
for future products and indications are delayed or not issued, our commercial operations would be harmed.
Our Lumivascular platform products are medical devices that are subject to extensive regulation by FDA in the United States and by regulatory
agencies in other countries where we do business. Government regulations specific to medical devices are wide-ranging and govern, among other things:
● product design, development and manufacture;
● laboratory, preclinical and clinical testing, labeling, packaging, storage and distribution;
● pre-marketing clearance or approval;
● record keeping;
● product marketing, promotion and advertising, sales and distribution; and
● post-marketing surveillance, including reporting of deaths or serious injuries and recalls and correction and removals.
Before a new medical device, or a new intended use for, an existing product can be marketed in the United States, a company must first submit and
receive either 510(k) clearance or pre-marketing approval from FDA, unless an exemption applies. Either process can be expensive, lengthy and
unpredictable. We may not be able to obtain the necessary clearances or approvals or may be unduly delayed in doing so, which could harm our business.
Furthermore, even if we are granted regulatory clearances or approvals, they may include significant limitations on the indicated uses for the product, which
may limit the market for the product. Although we have obtained 510(k) clearance to market our Pantheris family of catheters for atherectomy, and our
Ocelot and Tigereye family of catheters for crossing sub and total occlusions in the peripheral vasculature, our clearance can be revoked if safety or efficacy
problems develop. Delays in obtaining clearance or approval could increase our costs and harm our revenues and growth.
In addition, we are required to timely file various reports with the FDA, including medical device reports, or MDRs, if our devices may have
caused or contributed to a death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if the
malfunction were to recur. If these MDRs are not filed timely, regulators may impose sanctions and sales of our products may suffer, and we may be subject
to product liability or regulatory enforcement actions, all of which could harm our business.
If we initiate a correction or removal for one of our devices to reduce a risk to health posed by the device, we would be required to submit a
publicly available Correction and Removal report to the FDA and in many cases, similar reports to other regulatory agencies. This report could be classified
by the FDA as a device recall that could lead to increased scrutiny by the FDA, other international regulatory agencies and our customers regarding the
quality and safety of our devices. Furthermore, the submission of these reports has been and could be used by competitors against us in competitive
situations and cause customers to delay purchase decisions or cancel orders and would harm our reputation.
The FDA and the Federal Trade Commission, or FTC, also regulate the advertising and promotion of our products to ensure that the claims we
make are consistent with our regulatory clearances, that there are adequate and reasonable scientific data to substantiate the claims and that our promotional
labeling and advertising is neither false nor misleading in any respect. If the FDA or FTC determines that any of our advertising or promotional claims are
misleading, not substantiated or not permissible, we may be subject to enforcement actions, including Warning Letters, adverse publicity, and we may be
required to revise our promotional claims and make other corrections or restitutions.
The FDA and state authorities have broad enforcement powers. Our failure to comply with applicable regulatory requirements could result in
enforcement action by the FDA or state agencies, which may include, among other things, harm to our reputation; fines, injunctions, civil penalties, or
criminal prosecution; product replacements or recalls; or rejecting our requests for future 510(k) clearance or pre-market approval or withdrawal of a
previously granted 510(k) clearance. If any of these events were to occur, our business and financial condition would be harmed.
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Material modifications to our Lumivascular platform products may require new 510(k) clearances or pre-market approvals or may require us to recall
or cease marketing our Lumivascular platform products until clearances or approvals are obtained.
Material modifications to the intended use or technological characteristics of our Lumivascular platform products will require new
510(k) clearances or pre-market approvals or require us to recall or cease marketing the modified devices until these clearances or approvals are obtained if
such changes were made via the “Letter-to-File” process of internal documentation. Based on published FDA guidelines, the FDA requires device
manufacturers to initially make and document a determination of whether or not a modification requires a new approval, supplement or clearance; however,
the FDA can review a manufacturer’s decision. Any modification to an FDA-cleared device that would significantly affect its safety or efficacy or that
would constitute a major change in its intended use would require a new 510(k) clearance or possibly a pre-market approval. We may not be able to obtain
additional 510(k) clearances or pre-market approvals for new products or for modifications to, or additional indications for, our Lumivascular platform
products in a timely fashion, or at all. Delays in obtaining required future clearances would harm our ability to introduce new or enhanced products in a
timely manner, which in turn would harm our future growth. We have made modifications to our Lumivascular platform products in the past and will make
additional modifications in the future that we believe do not or will not require additional clearances or approvals. If the FDA disagrees and requires new
clearances or approvals for the modifications, we may be required to recall and to stop selling or marketing our Lumivascular platform products as
modified, which could harm our operating results and require us to redesign our Lumivascular platform products. In these circumstances, we may be
subject to significant enforcement actions. Future versions of are Lumivascular platform incorporating enhancements may require additional regulatory
clearances or approvals.
Our ability to market our current products in the United States is limited to use in peripheral vessels, and if we want to market our products for other
uses, we will need to file for FDA clearances or approvals and may need to conduct trials to support expanded use, which would be expensive, time-
consuming and may not be successful.
Our current products are cleared in the United States only for crossing sub-total and chronic total occlusions and for performing atherectomy in the
peripheral vasculature. These FFDCA clearances prohibits us from marketing or advertising our products for any other indication within the peripheral
vasculature, which restricts our ability to sell these products and could affect our growth. Additionally, our products are contraindicated for use in the
cerebral, carotid, coronary, iliac, and renal arteries. While off-label use of medical devices is common and the FDA does not regulate physicians’ choice of
treatments, the FDA does restrict a manufacturer’s communications regarding such off-label use. We are not allowed to actively promote or advertise our
products for off-label use. In addition, we cannot make comparative claims regarding the use of our products against any alternative treatments without
conducting head-to-head comparative clinical studies, which would be expensive and time consuming. If our promotional activities fail to comply with the
FDA’s regulations or guidelines, we may be subject to warnings or enforcement action by the FDA and other government agencies. In the future, if we want
to market a variation of Ocelot, Tigereye or Pantheris product families in the United States for use in other applications for which we do not currently have
clearance, such as the coronary arteries, we will need to make modifications to these products, conduct further clinical trials and obtain new clearances or
approvals from the FDA. There can be no assurance that we will successfully develop these modifications, that future clinical studies will be successful or
that the expense of these activities will be offset by additional revenues.
If our clinical trials are unsuccessful or significantly delayed, or if we do not complete our clinical trials, our business may be harmed.
Clinical development is a long, expensive, and uncertain process and is subject to delays and the risk that products may ultimately prove unsafe or
ineffective in treating the indications for which they are designed. Completion of clinical trials may take several years or more and failure of the trial can
occur at any time. We cannot provide any assurance that our clinical trials will meet their primary endpoints or that such trials or their results will be
accepted by the FDA or foreign regulatory authorities. Even if we achieve positive early or preliminary results in clinical trials, these results do not
necessarily predict final results, and positive results in early trials may not indicate success in later trials. Many companies in the medical device industry
have suffered significant setbacks in late-stage clinical trials, even after receiving promising results in earlier trials or in the preliminary results from these
late-stage clinical trials.
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We may experience numerous unforeseen events during, or because of, the clinical trial process that could delay or prevent us from receiving
regulatory clearance or approval for new products or modifications of existing products, including new indications for existing products, including:
● negative or inconclusive results that may cause us to decide, or regulators may require us, to conduct additional clinical and/or preclinical testing
which may be expensive and time consuming;
● trial results that do not meet the level of statistical significance required by the FDA or other regulatory authorities;
● findings by the FDA or similar foreign regulatory authorities that the product is not sufficiently safe for investigational use in humans;
● interpretations of data from preclinical testing and clinical testing by the FDA or similar foreign regulatory authorities that may be different from
our own;
● delays or failure to obtain approval of our clinical trial protocols from the FDA or other regulatory authorities;
● delays in obtaining institutional review board approvals or government approvals to conduct clinical trials at prospective sites;
● findings by the FDA or similar foreign regulatory authorities that our or our suppliers’ manufacturing processes or facilities are unsatisfactory;
● changes in the review policies of the FDA or similar foreign regulatory authorities or the adoption of new regulations that may negatively affect or
delay our ability to bring a product to market or receive approvals or clearances to treat new indications;
● trouble in managing multiple clinical sites;
● delays in agreeing on acceptable terms with third-party research organizations and trial sites that may help us conduct the clinical trials; and
● the suspension or termination by us, or regulators, of our clinical trials because the participating patients are being exposed to unacceptable health
risks.
Failures or perceived failures in our clinical trials will delay and may prevent our product development and regulatory approval process, damage
our business prospects and negatively affect our reputation and competitive position.
From time to time, we engage outside parties to perform services related to certain of our clinical studies and trials, and any failure of those parties to
fulfill their obligations could increase costs and cause delays.
From time to time, we engage consultants to help design, monitor, and analyze the results of certain of our clinical studies and trials. The
consultants we engage interact with clinical investigators to enroll patients in our clinical trials. We depend on these consultants and clinical investigators to
help facilitate the clinical studies and trials and monitor and analyze data from these studies and trials under the investigational plan and protocol for the
study or trial and in compliance with applicable regulations and standards, commonly referred to as good clinical practices. We may face delays in our
regulatory approval process if these parties do not perform their obligations in a timely, compliant or competent manner. If these third parties do not
successfully carry out their duties or meet expected deadlines, or if the quality, completeness or accuracy of the data they obtain is compromised due to the
failure to adhere to our clinical trial protocols or for other reasons, our clinical studies or trials may be extended, delayed or terminated or may otherwise
prove to be unsuccessful, and we may have to conduct additional studies, which would significantly increase our costs, in order to obtain the regulatory
clearances that we need to commercialize our products.
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We have limited long-term data regarding the safety and efficacy of our Lumivascular platform products. Any long-term data that is generated by
clinical trials involving our Lumivascular platform may not be positive or consistent with our short-term data, which would harm our ability to obtain
clearance to market and sell our products.
Our Lumivascular platform is a novel system, and our success depends on its acceptance by the medical community as being safe and effective,
and improving clinical outcomes. Important factors upon which the efficacy of our Lumivascular platform products, including Pantheris, will be measured
are long-term data on the rate of restenosis following our procedure, and the corresponding duration of patency, or openness of the artery, and publication of
that data in peer-reviewed journals. Another important factor that physicians will consider is the rate of reintervention, or retreatment, following the use of
our Lumivascular platform products. The long-term clinical benefits of procedures that use our Lumivascular platform products are not known.
The results of short-term clinical experience of our Lumivascular platform products do not necessarily predict long-term clinical benefit.
Restenosis rates typically increase over time. We believe that physicians will compare the rates of long-term restenosis and reintervention for procedures
using our Lumivascular platform products against alternative procedures, such as angioplasty, stenting, bypass surgery and other atherectomy procedures. If
the long-term rates of restenosis and reintervention do not meet physicians’ expectations, our Lumivascular platform products may not become widely
adopted and physicians may consider alternative treatments for their patients. Another significant factor that physicians will consider is acute safety data on
complications that occur during the use of our Lumivascular platform products. If the results obtained from any post-market studies that we conduct or
post-clearance surveillance indicate that the use of our Lumivascular platform products are not as safe or effective as other treatment options or as current
short-term data would suggest, adoption of our product may suffer and our business would be harmed. In addition, we are responsible for the costs
associated with conducting studies to obtain safety and efficacy data. If we are unable to obtain sufficient financing, whether through our operations or from
third parties, we will not be able to conduct the studies necessary to obtain long-term data regarding the safety and efficacy of our products.
Even if we believe the data collected from clinical studies or clinical experience indicate positive results, each physician’s actual experience with our
products will vary. Physicians who are technically proficient participate in our clinical trials and are high-volume users of our Lumivascular platform
products. Consequently, the results of our clinical trials and their experiences using our products may lead to better patient outcomes than those of
physicians that are less proficient, perform fewer procedures or who use our products infrequently.
If we or our suppliers fail to comply with the FDA’s QSR, our manufacturing operations could be delayed or shut down and Lumivascular platform
sales could suffer.
Our manufacturing processes and those of our third-party suppliers are required to comply with the FDA’s QSR, which covers the procedures and
documentation of the design, testing, production, control, quality assurance, labeling, packaging, storage and shipping of our Lumivascular platform
products. We are also subject to similar state requirements and licenses. In addition, we must engage in extensive recordkeeping and reporting and must
make available our manufacturing facilities and records for periodic unannounced inspections by governmental agencies, including the FDA, state
authorities and comparable agencies in other countries. If we fail a QSR inspection, our operations could be disrupted and our manufacturing interrupted.
Failure to take adequate corrective action in response to an adverse QSR inspection could result in, among other things, a shut-down of our manufacturing
operations, significant fines, suspension of marketing clearances and approvals, seizures or recalls of our device, operating restrictions and criminal
prosecutions, any of which would cause our business to suffer. Furthermore, our key component suppliers may not currently be or may not continue to be in
compliance with applicable regulatory requirements, which may result in manufacturing delays for our products and cause our revenues to decline.
We have registered with the FDA as a medical device manufacturer and have obtained a manufacturing license from the CDPH. The FDA has
broad post-market and regulatory enforcement powers. We are subject to unannounced inspections by the FDA and the Food and Drug Branch of CDPH to
determine our compliance with the QSR and other regulations, and these inspections may include the manufacturing facilities of our suppliers. We have
undergone numerous audits, inspections, and reviews by the FDA, CDPH, and BSI, our European Notified Body, in the past, some of which resulted in the
identification of instances of non-compliance which we were required to correct. We expect that we will undergo additional audits, inspections, and reviews
in the future, which could result in further corrective actions.
We can provide no assurance that we will continue to remain in substantial compliance with the QSR. If the FDA, CDPH or BSI inspect our
facility and discover major compliance problems, we may have to shut down our facility and cease manufacturing until we can take the appropriate
remedial steps to correct the audit findings. Taking corrective action may be expensive, time consuming and a distraction for management and if we
experience a shutdown or delay at our manufacturing facility, we may be unable to produce our Lumivascular platform products, which would harm our
business.
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Our Lumivascular platform products may in the future be subject to product recalls that could harm our reputation.
FDA and similar governmental authorities in other countries have the authority to require the recall of commercialized products in the event of
material regulatory deficiencies or defects in design or manufacture. A government mandated or voluntary recall by us could occur as a result of component
failures, manufacturing errors or design or labeling defects. Recalls of our Lumivascular platform products or products we commercialize in the future
would divert managerial attention, be expensive, harm our reputation with customers and harm our financial condition and results of operations. A recall
announcement would negatively affect our stock price.
Changes in coverage and reimbursement for procedures using our Lumivascular platform products could affect the adoption of our Lumivascular
platform and our future revenues.
Currently, our Lumivascular platform procedure is typically reimbursed by third-party payors, including Medicare and private healthcare insurance
companies, under existing reimbursement codes. These payors may change their coverage and reimbursement policies, as well as payment amounts, in a
way that would prevent or limit reimbursement for our products, which would significantly harm our business. Also, healthcare reform legislation or
regulation may be proposed or enacted in the future, which may adversely affect such policies and amounts. We cannot predict whether and to what extent
existing coverage and reimbursement will continue to be available. If physicians, hospitals and other providers are unable to obtain adequate coverage and
reimbursement for procedures performed using our Lumivascular platform products, they are significantly less likely to use our Lumivascular platform
products and our business would be harmed.
Healthcare reform measures could hinder or prevent our planned products’ commercial success.
In the United States, there have been, and we expect there will continue to be, a number of legislative and regulatory changes to the healthcare
system in ways that could harm our future revenues and profitability and the future revenues and profitability of our potential customers. Federal and state
lawmakers regularly propose and, at times, enact legislation that would result in significant changes to the healthcare system, some of which are intended to
contain or reduce the costs of medical products and services. The current presidential administration and Congress may continue to attempt broad sweeping
changes to the current healthcare laws. We face uncertainties that might result from modifications or repeal of any of the provisions of the Affordable Care
Act, including as a result of current and future executive orders and legislative actions. The impact of those changes on us and potential effect on the
medical device industry as a whole is currently unknown. Any changes to the Affordable Care Act are likely to have an impact on our results of operations
and may have a material adverse effect on our results of operations. We cannot predict what other healthcare programs and regulations will ultimately be
implemented at the federal or state level or the effect of any future legislation or regulation in the United States may have on our business.
The continuing efforts of the government, insurance companies, managed care organizations and other payors of healthcare services to contain or
reduce costs of healthcare may harm:
● our ability to set a price that we believe is fair for our products;
● our ability to generate revenues and achieve or maintain profitability; and
● the availability of capital.
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If we fail to comply with healthcare regulations, we could face substantial penalties and our business, operations and financial condition could be
adversely affected.
Even though we do not and will not control referrals of healthcare services or bill directly to Medicare, Medicaid or other third-party payors,
certain federal and state healthcare laws and regulations pertaining to fraud and abuse and patients’ rights are and will be applicable to our business. We are
subject to many healthcare fraud and abuse and patient privacy regulations by both the federal government and the states in which we conduct our business.
The regulations that affect how we operate include:
● the federal healthcare program Anti-Kickback Statute, which prohibits, among other things, any person from knowingly and willfully offering,
soliciting, receiving or providing remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual for, or the
purchase, order or recommendation of, any good or service for which payment may be made under federal healthcare programs, such as the
Medicare and Medicaid programs;
● the federal False Claims Act, which prohibits, among other things, individuals or entities from knowingly presenting, or causing to be presented,
false claims, or knowingly using false statements, to obtain payment from the federal government;
● federal criminal laws that prohibit executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare
matters;
● the Sunshine Act, created under the Affordable Care Act, and its implementing regulations, which require manufacturers of drugs, medical
devices, biologicals and medical supplies for which payment is available under Medicare, Medicaid, or the Children’s Health Insurance Program
to report annually to the HHS information related to payments or other transfers of value made to physicians and teaching hospitals, as well as
ownership and investment interests held by physicians and their immediate family members;
● HIPAA, as amended by the HITECH Act, which protects the security and privacy of protected health information; and
● state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services
reimbursed by any third-party payor, including commercial insurers.
The Affordable Care Act, among other things, amends the intent requirement of the Federal Anti-Kickback Statute and criminal healthcare fraud
statutes. A person or entity no longer needs to have actual knowledge of this statute or specific intent to violate it. In addition, the Affordable Care Act
provides that the government may assert that a claim including items or services resulting from a violation of the Federal Anti-Kickback Statute constitutes
a false or fraudulent claim for purposes of the False Claims Act.
Efforts to ensure that our business arrangements will comply with applicable healthcare laws may involve substantial costs. It is possible that
governmental and enforcement authorities will conclude that our business practices do not comply with current or future statutes, regulations or case law
interpreting applicable fraud and abuse or other healthcare laws and regulations. If any such actions are instituted against us, and we are not successful in
defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of civil, criminal and
administrative penalties, damages, disgorgement, monetary fines, possible exclusion from participation in Medicare, Medicaid and other federal healthcare
programs, contractual damages, reputational harm, diminished profits and future earnings, and curtailment of our operations, any of which could harm our
ability to operate our business and our results of operations. In addition, the clearance or approval and commercialization of any of our products outside the
United States will also likely subject us to foreign equivalents of the healthcare laws mentioned above, among other foreign laws.
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Compliance with environmental laws and regulations could be expensive. Failure to comply with environmental laws and regulations could subject us
to significant liability.
Our research and development and manufacturing operations involve the use of hazardous substances and are subject to a variety of federal, state,
local and foreign environmental laws and regulations relating to the safe storage, use, discharge, disposal, remediation of, and human exposure to,
hazardous substances and the sale, labeling, collection, recycling, treatment and disposal of products containing hazardous substances, such as isopropyl
alcohol and other solvents. In addition, our research and development may acquire biological waste materials, such as human and animal tissue, for the sole
use of product design testing. Upon completion of the product testing, these biological wastes are safely disposed of following all federal, state, local and
foreign environmental laws and regulations. These operations are permitted by regulatory authorities, and the resultant waste materials are disposed of in
material compliance with environmental laws and regulations. Liability under environmental laws and regulations can be joint and several and without
regard to fault or negligence. Compliance with environmental laws and regulations may be expensive and non-compliance could result in substantial
liabilities, fines and penalties, personal injury and third-party property damage claims and substantial investigation and remediation costs. Environmental
laws and regulations could become more stringent over time, imposing greater compliance costs and increasing risks and penalties associated with
violations. We cannot assure you that violations of these laws and regulations will not occur in the future or have not occurred in the past as a result of
human error, accidents, equipment failure or other causes. The expense associated with environmental regulation and remediation could harm our financial
condition and operating results.
The use, misuse or off-label use of the products in our Lumivascular platform may result in injuries that lead to product liability suits, which could be
costly to our business.
We require limited training in the use of our Lumivascular platform products because we market primarily to physicians who are experienced in
the interventional techniques required to use our device. If demand for our Lumivascular platform continues to grow, less experienced physicians will likely
use the devices, potentially leading to more injury and an increased risk of product liability claims. The use or misuse of our Lumivascular platform
products has in the past resulted, and may in the future result, in complications, including damage to the treated artery, infection, internal bleeding, and limb
loss, potentially leading to product liability claims. Our Lumivascular platform products are contraindicated for use in the carotid, cerebral, iliac, or renal
arteries. Our sales force does not promote the use of our products for off-label indications, and our U.S. instructions for use specify that our Lumivascular
platform products are not intended for use in the carotid, cerebral, coronary, iliac or renal arteries. However, we cannot prevent a physician from using our
Lumivascular platform products for these off-label applications. The application of our Lumivascular platform products to coronary arteries, as opposed to
peripheral arteries, is more likely to result in complications that have serious consequences. For example, if excised plaque were not captured properly in
our device, it could be carried by the bloodstream to a narrower location, blocking a coronary artery, leading to a heart attack, or blocking an artery to the
brain, leading to a stroke. If our Lumivascular platform products are defectively designed, manufactured or labeled, contain defective components or are
misused, we may become subject to costly litigation initiated by our customers or their patients. Product liability claims are especially prevalent in the
medical device industry and could harm our reputation, divert management’s attention from our core business, be expensive to defend and may result in
sizable damage awards against us. Although we maintain product liability insurance, the amount or breadth of our coverage may not be adequate for the
claims that are made against us.
The expense and potential unavailability of insurance coverage for liabilities resulting from our products could harm us and our ability to sell our
Lumivascular platform products.
We may not have sufficient insurance coverage for future product liability claims. We may not be able to obtain insurance in amounts or scope
sufficient to provide us with adequate coverage against all potential liabilities. Any product liability claims brought against us, with or without merit, could
increase our product liability insurance rates or prevent us from securing continuing coverage, harm our reputation in the industry, significantly increase our
expenses, and reduce product sales. Product liability claims in excess of our insurance coverage would be paid out of cash reserves, harming our financial
condition and operating results.
Some of our customers and prospective customers may have difficulty in procuring or maintaining liability insurance to cover their operations and
use of our Lumivascular platform products. Medical malpractice carriers are also withdrawing coverage in certain states or substantially increasing
premiums. If this trend continues or worsens, our customers may discontinue using our Lumivascular platform products and potential customers may opt
against purchasing our Lumivascular platform products due to the cost or inability to procure insurance coverage.
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Risks Related to Our Organizational Structure
Our stock price may be volatile, and purchasers of our common stock could incur substantial losses.
Our stock price has fluctuated significantly since our IPO and is likely to continue to fluctuate substantially. As a result of this price fluctuation,
investors may experience losses on their investments in our stock. In addition, the development stage of our operations may make it difficult for investors to
evaluate the success of our business to date and to assess our future viability. The market price for our common stock may be influenced by many factors,
including:
● sales of stock by our existing stockholders, including our affiliates;
● market acceptance of our Lumivascular platform and products;
● the results of our clinical trials;
● changes in analysts’ estimates, investors’ perceptions, recommendations by securities analysts or our failure to achieve analysts’ and our own
estimates;
● the financial projections we may provide to the public, any changes in these projections or our failure to meet these projections;
● actual or anticipated fluctuations in our financial condition and operating results;
● quarterly variations in our or our competitors’ results of operations;
● general market conditions and other factors unrelated to our operating performance or the operating performance of our competitors;
● changes in operating performance and stock market valuations of other technology companies generally, or those in the medical device industry in
particular;
● the loss of key personnel, including changes in our board of directors and management;
● legislation or regulation of our business;
● lawsuits threatened or filed against us;
● the announcement or approvals of new products or product enhancements by us or our competitors;
● announcements related to patents issued to us or our competitors and to litigation; and
● developments in our industry.
From time to time, our affiliates may sell stock for reasons due to their personal financial circumstances. These sales may be interpreted by other
stockholders as an indication of our performance and result in subsequent sales of our stock that have the effect of creating downward pressure on the
market price of our common stock. In addition, the stock prices of many companies in the medical device industry have experienced wide fluctuations that
have often been unrelated to the operating performance of those companies.
The market price and trading volume of our common stock has been volatile over the past year, and it may continue to be volatile. During the year
ended December 31, 2023, our common stock has closed as low as $2.61 and as high as $22.95 per share. We cannot predict the price at which our common
stock will trade in the future and it may decline. The price at which our common stock trades may fluctuate significantly and may be influenced by many
factors, including our financial results; developments generally affecting our industry; general economic, industry and market conditions; the depth and
liquidity of the market for our common stock; investor perceptions of our business; reports by industry analysts; announcements by other market
participants, including, among others, investors, our competitors, and our customers; regulatory action affecting our business; and the impact of other “Risk
Factors” discussed in this Annual Report. In addition, changes in the trading price of our common stock may be inconsistent with our operating results and
outlook. The volatility of the market price of our common stock may adversely affect investors’ ability to purchase or sell shares of our common stock.
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We may fail to meet our publicly announced guidance or other expectations about our business and future operating results, which would cause our
stock price to decline.
We have provided in the past and may provide guidance in the future about our business and future operating results. In developing this guidance,
our management must make certain assumptions and judgments about our future performance, including projected revenues and the timing of regulatory
approvals. Furthermore, analysts and investors may develop and publish their own projections of our business, which may form a consensus about our
future performance. Our business results may vary significantly from such guidance or that consensus due to a number of factors, many of which are
outside of our control, and which could adversely affect our operations and operating results. Furthermore, if we make downward revisions of our
previously announced guidance, or if our publicly announced guidance of future operating results fails to meet expectations of securities analysts, investors
or other interested parties, the price of our common stock would decline.
If securities or industry analysts do not publish research or reports about our business, or publish negative reports about our business, our share price
and trading volume could decline.
The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our
business, our market and our competitors. We do not have any control over these analysts. The analysts who previously published research reports on our
stock following our IPO have discontinued coverage. We do not currently have analyst coverage. If analysts do not begin regularly publishing reports on us,
we could lose visibility in the financial markets, which could cause our share price or trading volume to decline.
Sales of a substantial number of shares of our common stock in the public market, including by our existing stockholders, could cause our stock price
to fall.
Sales of a substantial number of shares of our common stock in the public market, or the perception that these sales might occur, could depress the
market price of our common stock and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict the
effect that these sales and others may have on the prevailing market price of our common stock.
We will need to raise additional funds through future equity or debt financings to meet our operational needs and capital requirements for product
development, clinical trials and commercialization. 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 our stock price, any
financing that we undertake in the future could cause substantial dilution to our existing stockholders.
On March 28, 2022, we filed a universal shelf registration statement (the “Shelf Registration Statement”) to offer up to $50.0 million of our
securities, which expires on March 29, 2025. On May 20, 2022, we entered into an “at-the-market” agreement pursuant to which we may offer and sell
shares of our common stock pursuant to the Shelf Registration Statement. Due to the SEC’s “baby shelf rules,” which prohibit companies with a public
float of less than $75 million from issuing securities under a shelf registration statement in excess of one-third of such company’s public float in a twelve-
month period, we are limited in our ability to use the Shelf Registration Statement.
Our directors and employees may sell our stock through 10b5-1 trading plans or in the market during open windows under our insider trading
policy without such plans in place. Sales of our common stock by our directors and employees could be perceived negatively by investors or cause
downward pressure on our common stock and cause a reduction in the price of our common stock as a result. We have also registered shares of our
common stock that we may issue under our employee equity incentive plans. These shares will be able to be sold freely in the public market upon issuance.
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The requirements of being a public company may strain our resources, divert management’s attention and affect our ability to attract and retain
executive management and qualified board members.
As a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, the
Sarbanes-Oxley Act, the Dodd-Frank Act, the listing requirements of Nasdaq and other applicable securities laws, rules and regulations. Compliance with
these laws, rules and regulations have increased our legal and financial compliance costs and will make some activities more difficult, time-consuming or
costly and increase demand on our systems and resources, particularly after we are no longer an “emerging growth company.” The Exchange Act requires,
among other things, that we file annual, quarterly and current reports with respect to our business and operating results. The Sarbanes-Oxley Act requires,
among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. In order to maintain and, if
required, improve our disclosure controls and procedures and internal control over financial reporting to meet this standard, significant resources and
management oversight may be required. Our management and other personnel now need to devote a substantial amount of time to these compliance
initiatives. As a result, management’s attention may be diverted from other business concerns and our costs and expenses will increase, which could harm
our business and operating results. We may need to hire more employees in the future or engage outside consultants to comply with these requirements,
which will increase our costs and expenses.
In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public
companies, increasing legal and financial compliance costs and making some activities more time consuming. These laws, regulations and standards are
subject to varying interpretations, in many cases due to their lack of specificity and, as a result, their application in practice may evolve over time as new
guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs
necessitated by ongoing revisions to disclosure and governance practices. We intend to invest resources to comply with evolving laws, regulations and
standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from
revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended
by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against
us and our business may be harmed.
We will incur additional compensation costs in the event that we decide to pay our executive officers cash compensation closer to that of executive
officers of other public medical device companies, which would increase our general and administrative expense and could harm our profitability. Any
future equity awards will also increase our compensation expense. We also expect that being a public company and compliance with applicable rules and
regulations will make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur
substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified executive officers and
members of our board of directors, particularly to serve on our audit committee and compensation committee.
As a result of disclosure of information in this Annual Report on Form 10-K and in other filings required of a public company, our business and
financial condition will become more visible, which could be advantageous to our competitors and clients and could result in threatened or actual litigation,
including by competitors and other third parties. If such claims are successful, our business and operating results could be harmed, and even if the claims
are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and harm our
business and operating results.
Nasdaq may delist our securities from its exchange, which could harm our business and limit our stockholders’ liquidity.
Our common stock is currently listed on the Nasdaq Capital Market (“Nasdaq”), which has qualitative and quantitative listing criteria. However,
we cannot assure you that our common stock will continue to be listed on Nasdaq in the future. In order to continue listing our common stock on Nasdaq,
we must maintain certain financial, distribution and stock price levels. Generally, we must maintain a minimum amount in stockholders’ equity, a minimum
number of holders of our common stock and a minimum bid price.
On 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.
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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:
● a limited availability of market quotations for our securities;
● reduced liquidity for our securities;
● a determination that our common stock is a “penny stock” which will require brokers trading in our common stock to adhere to more stringent
rules and possibly result in a reduced level of trading activity in the secondary trading market for our securities;
● a limited amount of news and analyst coverage; and
● a decreased ability to issue additional securities or obtain additional financing in the future.
The National Securities Markets Improvement Act of 1996, which is a federal statute, prevents or preempts the states from regulating the sale of
certain securities, which are referred to as “covered securities.” If our common stock continues to be listed on NASDAQ, our common stock will be a
covered security. Although the states are preempted from regulating the sale of our securities, the federal statute does allow the states to investigate
companies if there is a suspicion of fraud, and, if there is a finding of fraudulent activity, then the states can regulate or bar the sale of covered securities in
a particular case.
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Anti-takeover provisions in our amended and restated certificate of incorporation and bylaws and Delaware law could discourage a takeover.
Our amended and restated certificate of incorporation and bylaws contain provisions that might enable our management to resist a takeover. These
provisions include:
● a classified board of directors;
● advance notice requirements applicable to stockholders for matters to be brought before a meeting of stockholders and requirements as to the form
and content of a stockholder’s notice;
● a supermajority stockholder vote requirement for amending certain provisions of our amended and restated certificate of incorporation and bylaws;
● the right to issue preferred stock without stockholder approval, which could be used to dilute the stock ownership of a potential hostile acquirer;
● allowing stockholders to remove directors only for cause;
● a requirement that the authorized number of directors may be changed only by resolution of the board of directors;
● allowing all vacancies, including newly created directorships, to be filled by the affirmative vote of a majority of directors then in office, even if
less than a quorum, except as otherwise required by law;
● a requirement that our stockholders may only take action at annual or special meetings of our stockholders and not by written consent;
● limiting the forum for certain litigation against us to Delaware; and
● limiting the persons that can call special meetings of our stockholders to our board of directors, the chairperson of our board of directors, the chief
executive officer or the president (in the absence of a chief executive officer).
These provisions might discourage, delay or prevent a change in control of our company or a change in our management. The existence of these
provisions could adversely affect the voting power of holders of common stock and limit the price that investors might be willing to pay in the future for
shares of our common stock. In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware
General Corporation Law, which generally prohibits a Delaware corporation from engaging in any of a broad range of business combinations with any
“interested” stockholder for a period of three years following the date on which the stockholder became an “interested” stockholder.
Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware will be the sole and exclusive
forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for
disputes with us or our directors, officers or employees.
Our amended and restated certificate of incorporation provides that, unless we consent in writing to the selection of an alternative forum, the Court
of Chancery of the State of Delaware is the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action
asserting a claim of breach of fiduciary duty owed by any of our directors, officers or other employees to us or to our stockholders, (iii) any action asserting
a claim arising pursuant to the Delaware General Corporation Law or our certificate of incorporation or bylaws (iv) any action to interpret, apply, enforce
or determine the validity of our certificate of incorporation or bylaws, or (v) any action asserting a claim governed by the internal affairs doctrine. This
exclusive forum provision would not apply to suits brought to enforce any liability or duty created by the Securities Act or the Exchange Act or any other
claim for which the federal courts have exclusive jurisdiction. To the extent that any such claims may be based upon federal law claims, Section 27 of the
Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and
regulations thereunder. Furthermore, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to
enforce any duty or liability created by the Securities Act or the rules and regulations thereunder.
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This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or
our directors, officers or employees, which may discourage such lawsuits against us and our directors, officers or employees. If a court were to find the
choice of forum provision contained in our certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs
associated with resolving such action in other jurisdictions, which could have a material adverse effect on our business, financial condition, results of
operations and prospects.
We have not paid cash dividends in the past and do not expect to pay cash dividends in the future, and any return on investment may be limited to the
value of our stock.
We have never paid cash dividends and do not anticipate paying cash dividends in the foreseeable future. The payment of dividends will depend on
our earnings, capital requirements, financial condition, prospects and other factors our board of directors may deem relevant. In addition, our Loan
Agreement with CRG prohibits us from, among other things, paying any dividends or making any other distribution or payment on account of our common
stock. The terms of our Series A preferred stock, Series B preferred stock and Series E preferred stock provide that we may not pay dividends on our
common stock without concurrently declaring dividends on each. If we do not pay dividends, our stock may be less valuable because a return on your
investment will only occur if you sell our common stock after our stock price appreciates. For more information on restrictions governing our ability to pay
dividends, see the section titled “Dividend Policy” below.
CRG has the ability to exert significant control over matters pursuant to the protective provisions therein as well as the covenants and other restrictions
in the Loan Agreement.
Our Series E preferred stock has protective provisions that will require CRG to consent to certain significant Company events. For example,
CRG’s consent would be necessary to create additional shares of Series E preferred stock, amend our organizational documents, or approve any merger,
sale of assets, or other major corporate transaction. This consent requirement could delay or prevent any acquisition of our company on terms that other
stockholders may desire, and may adversely affect the market price of our common stock.
Zylox-Tonbridge has the ability to exert significant control over our business due to their substantial interest in us, as well as their relationship with us
through the license agreement and collaboration agreement previously entered into.
In connection with their entry into the license agreement and collaboration agreement, Zylox-Tonbridge purchased securities, including common
stock and Series F preferred stock, from us representing approximately 19.9% of our outstanding voting power. If stockholder approval is obtained relating
to the conversion of the Series F preferred stock, their ownership interest could represent up to 49.9% of our outstanding voting power. In addition, we are
subject to a number of covenants and agreements under the license agreement and collaboration agreement, which could allow Zylox-Tonbridge to exercise
influence over our business.
In addition, our Series F preferred stock has protective provisions that will require Zylox-Tonbridge to consent to certain significant Company
events. For example, Zylox-Tonbridge’s consent would be necessary to create additional shares of Series F preferred stock, amend our organizational
documents, or approve any merger, sale of assets, or other major corporate transaction. This consent requirement could delay or prevent any acquisition of
our company on terms that other stockholders may desire, and may adversely affect the market price of our common stock.
Zylox-Tonbridge’s interests may conflict with your interests as a stockholder. Zylox-Tonbridge’s ability to influence our business could make
some transactions, including mergers or other changes in control, more difficult or impossible without the support of Zylox-Tonbridge and could discourage
others from making tender offers, which could prevent stockholders from receiving a premium for their shares. As a result, the market price of our common
stock may be affected.
We depend on our board of directors and the loss of one or more or our board members or an inability to attract and retain highly qualified members
could harm our business.
Our success largely depends upon the continued services and involvement of the members of our board of directors and the loss of one or more of
our directors could adversely affect us. Additionally, changes in the composition of our board resulting from the addition or departure of members could
disrupt our business.
We must attract and retain highly qualified board members. Competition for these individuals can be intense. We have, from time to time,
experienced, and we may experience in the future, difficulty in adding and retaining members of our board with appropriate qualifications. In addition,
some states and other regulatory authorities, including Nasdaq, have adopted board diversity requirements, which mandate that companies have a minimum
number of directors who meet specified diversity criteria, or otherwise require that companies disclose board diversity information. If we are unable to
attract and retain qualified board members who meet such diversity criteria, we will be unable to comply with such requirements and could face
enforcement or other regulatory actions.
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ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 1C. CYBERSECURITY
Risk Management and Strategy
Because it is essential to our operations and business strategy that our website, technology and network infrastructure remain secure, we have
processes in place for assessing, identifying, and managing material risks from cybersecurity threats. We have integrated these processes into our
cybersecurity risk management program.
The key processes, or components, of our cybersecurity risk management include:
● conducting periodic risk assessments to assist in identifying cybersecurity threats or risks;
● cybersecurity strategic roadmap;
● security and IT infrastructure management team, responsible for managing our cybersecurity processes, implementing security applications and
protocols, monitoring and executing security or network controls, and responding to incidents or threats;
● cybersecurity training programs and cybersecurity awareness events for employees;
● incident response plan, including assessing and monitoring potential cyber threats;
● similar processes or applications to mitigate or manage cybersecurity risk from third-party service providers;
We sometimes engage external cybersecurity experts, or applications, to enhance our cybersecurity program. These serve to assist our internal
cybersecurity team in mitigating cyber threats, in addition to monitoring and responding to potential cyber incidents.
Additional information regarding risks from cybersecurity threats is discussed in Part I, Item IA, “Risk Factors,” under the heading “If our
technology infrastructure is compromised, damaged or interrupted by a cybersecurity incident, data security breach or other security problems, our
operating results and financial condition could be adversely affected,” which should be read in conjunction with the information herein.
Governance
Cybersecurity risk management is an important priority integrated into our overall governance structure. Our Board of Directors oversees risks
from cybersecurity threats and includes the involvement of the Audit Committee in the governance strategy.
Our IT security management team, led by certain key functional leaders in our organization, who reports quarterly in meetings to our Audit
Committee and periodically to our Board of Directors regarding updates to our cybersecurity program and related risks. Topics in the meetings include
discussion of the company-wide risks, protocols to mitigate such risks, and the progress of initiatives in the cybersecurity program. Specific cybersecurity
briefing areas may include topics such as security, infrastructure, cybersecurity tooling/applications, and compliance.
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ITEM 2. PROPERTIES
The Company’s operating lease obligations primarily consist of leased office, laboratory, and manufacturing space under a non-cancelable
operating lease located in Redwood City, California. In addition to the minimum future lease commitments presented below, the lease requires the
Company to pay property taxes, insurance, maintenance, and repair costs. The lease includes a rent holiday concession and escalation clauses for increased
rent over the lease term. Rent expense is recognized in accordance with the Financial Accounting Standards Board (“FASB”), Accounting Standards
Codification (“ASC”), 842, Leases, using the straight-line method over the term of the lease.
The lease will expire on November 30, 2024. The Company is obligated to pay approximately $5.8 million in base rent payments through
November 2024, beginning on December 1, 2019. The weighted average remaining lease term as of December 31, 2023 is 0.9 years.
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 of November 30, 2024. As amended, the lease will expire on November 30, 2025. Under the terms of the amendment, the Company 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.
We believe that our current facilities are adequate for our current and anticipated future needs through at least 2024.
ITEM 3. LEGAL PROCEEDINGS
We are not involved in any pending legal proceedings that we believe could have a material adverse effect on our financial condition, results of
operations or cash flows. From time to time we 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.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
Our common stock began trading on the Nasdaq Global Market on January 30, 2015 and was transferred to the Nasdaq Capital Market on
January 19, 2018, where it trades under the symbol “AVGR”.
HOLDERS OF RECORD
As of March 8, 2024, there were 1,586,434 shares of our common stock held by 128 holders of record of our common stock. The actual number of
stockholders is greater than this number of record holders, and includes stockholders who are beneficial owners, but whose shares are held in street name
by brokers and other nominees. This number of holders of record also does not include stockholders whose shares may be held in trust by other entities.
DIVIDEND POLICY
Our Series A preferred stock carried an 8% cumulative dividend, which accumulated and was compounded annually. This cumulative dividend
was payable in arrears on December 31 of each year, commencing with December 31, 2018, and at our option was payable in additional shares of Series A
preferred stock. Our Series E preferred stock carries an 8% cumulative dividend, which accumulates and is compounded annually. This cumulative
dividend is payable in arrears on December 31 of each year, commencing with December 31, 2024, and at our option is payable in additional shares of
Series E preferred stock or cash.
On September 29, 2023, the Company entered into a Waiver Agreement with CRG, who hold all of the outstanding shares of the Company’s
Series A and Series E preferred stock. Pursuant to the Waiver Agreement, CRG waived their rights to receive the Series A and Series E preferred dividends
for the year ending December 31, 2023. Such waived preferred dividends were not cumulative or accrued.
In connection with the strategic collaboration, on March 5, 2024, the Company entered into a securities purchase agreement with CRG to
exchange all outstanding shares of its Series A preferred stock for 10,000 shares of Series A-1 preferred stock. The Series A-1 preferred stock does not
accrue or pay dividends payable solely on the Series A-1 preferred stock.
On March 5, 2024, the Company entered into a stock purchase agreement which in part, resulted in the issuance of a newly authorized Series F
convertible preferred stock. Our Series F convertible preferred stock carries a 5% cumulative dividend, which accumulates and is compounded annually
until the third anniversary of their issuance date and 8% cumulative dividend, which accumulates and is compounded annually thereafter. This cumulative
dividend is payable in arrears on December 31 of each year, commencing with December 31, 2024, and at our option is payable in additional shares of
Series F convertible preferred stock or cash through the third anniversary of the issuance date and is payable in additional shares of Series F convertible
preferred stock or cash at the option of the holder thereafter.
The terms of our Series B preferred stock, Series E preferred stock and Series F convertible preferred stock provide that we may not declare
dividends on the common stock without concurrently declaring dividends on such series of preferred stock in an amount equal to that payable had they been
converted to common stock prior to the dividend. We have issued a total of 19,076 shares of Series A preferred stock to pay the preferred dividend to the
holder of Series A preferred stock through December 31, 2023. Other than the preferred dividend on Series A preferred stock, we have never declared or
paid any cash dividends on any of our capital stock.
Except with respect to the Series E and Series F preferred stock’s cumulative dividends, we do not anticipate paying any dividends in the
foreseeable future and currently intend to retain all available funds and any future earnings for use in the operation of our business and to finance the
growth and development of our business. Future determination as to the declaration and payment of dividends, if any, will be at the discretion of our board
of directors and will depend on then existing conditions, including our operating results, financial condition, contractual restrictions, capital requirements,
business prospects and other factors our board of directors may deem relevant. In addition, our Loan Agreement with CRG prohibits us from paying any
dividends or making any other distribution or payment on account of our common stock.
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RECENT SALES OF UNREGISTERED SECURITIES
There were no sales of unregistered securities during fiscal 2023 other than those transactions previously reported to the SEC on a Quarterly
Report on Form 10-Q or Current Report on Form 8-K.
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
None.
ITEM 6. [RESERVED]
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ITEM 7. 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 our financial statements
and related notes included elsewhere in this Annual Report on Form 10-K. This discussion and other parts of this Annual Report on Form 10-K 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 section of this Annual Report on Form 10-K entitled “Risk factors.”
Overview
We are a commercial-stage medical device company that designs, manufactures, and sells real-time high-definition image-guided, minimally
invasive catheter-based systems that are used by physicians to treat patients with peripheral artery disease (“PAD”). Patients with PAD have a build-up of
plaque in the arteries that supply blood to areas away from the heart, particularly the pelvis and legs. Our mission is to significantly improve the treatment
of vascular disease through the introduction of products based on our Lumivascular platform, the only intravascular real-time high-definition image-guided
system available in this market.
We design, manufacture, and sell a suite of products in the United States and select international markets. We are located in Redwood City,
California. Our current Lumivascular platform consists of products including our Lightbox imaging console, the Ocelot and Tigereye family of devices,
which are image-guided devices designed to allow physicians to penetrate a total blockage in an artery, known as a chronic total occlusion (“CTO”), and the
Pantheris family of catheters, our image-guided atherectomy catheters which are designed to allow physicians to precisely remove arterial plaque in PAD
patients.
We are in the process of developing CTO crossing devices to target the coronary CTO market. However, the market for medical devices in the
coronary artery disease (“CAD”) space is highly competitive, dynamic, and marked by rapid and substantial technological development and product
innovation and there is no guarantee that we will be successful in developing and commercializing any new CAD product. At this stage, we are working on
understanding market requirements, and initiated the development process for the new CAD product, which we anticipate will require additional expenses.
We obtained CE Marking for our original Ocelot product in September 2011 and received from the U.S. Food and Drug Administration (“FDA”),
510(k) clearance in November 2012. We also received 510(k) clearance from the FDA for commercialization of Pantheris in October 2015. We received an
additional 510(k) clearance for an enhanced version of Pantheris in March 2016 and commenced sales of Pantheris in the United States and select European
countries promptly thereafter. In May 2018, we received 510(k) clearance from the FDA for our current next-generation version of Pantheris. In April 2019,
we received 510(k) clearance from the FDA for our Pantheris Small Vessel (“SV”), a version of Pantheris targeting smaller vessels, and commenced sales
in July 2019. In September 2020, we received 510(k) clearance of Tigereye, a next-generation CTO crossing system utilizing Avinger’s proprietary image-
guided technology platform. Tigereye is a product line extension of Avinger’s Ocelot family of image-guided CTO crossing catheters. In January 2022, we
received 510(k) clearance from the FDA for our Lightbox 3 imaging console, an advanced version of our Lightbox that allows for easy portability and
offers significant reductions in size, weight, and production cost in comparison to the incumbent version.
In April 2023, we received 510(k) clearance from the FDA for Tigereye Spinning Tip (“ST”), a next-generation image-guided CTO crossing
system. Tigereye ST is a line extension of our Ocelot and Tigereye family of CTO crossing catheters. This new image-guided catheter incorporates design
upgrades to the tip configuration and catheter shaft to increase crossing power and procedural success in challenging lesions, as well as design
enhancements for ease of image interpretation during the procedure. The low-profile Tigereye ST has a working length of 140 cm and 5 French sheath. We
initiated a limited launch of Tigereye ST in the second quarter of 2023 and subsequently expanded to full commercial availability within the United States
during the third quarter of 2023.
In June 2023, we received 510(k) clearance from the FDA for Pantheris Large Vessel (“LV”), a next generation image guided atherectomy system
for the treatment of larger vessels, such as the superficial femoral artery (“SFA”) and popliteal arteries. Pantheris LV is a line extension of our Pantheris and
Pantheris SV family of atherectomy products. This catheter offers higher speed plaque excision for efficient removal of challenging occlusive tissue and
multiple features to streamline and simplify user-operation, including enhanced tissue packing and removal, a radiopaque gauge to measure volume of
plaque excised during the procedure, and enhanced guidewire management. We initiated a limited launch of the Pantheris LV during the third quarter of
2023 and expect to expand to full commercial availability within the United States around mid-year 2024.
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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 during 2023. Patient outcomes are being evaluated at thirty
days, six months and one year following treatment. We expect this will bolster the application of Pantheris SV as a primary interventional tool to address
below-the-knee 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.
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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.
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We are taking definitive steps pursuant to our plan as presented to the Panel to ensure our compliance with the Equity Rule 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 generally. While we have had sufficient inventory on-
hand to meet our current production requirements and customer demand, we have experienced some constraints with respect to the availability of certain
materials and extended lead times from certain key suppliers. We have also experienced some delays in shipping products to our customers. Any significant
delay or interruption in our supply chain could impair our ability to meet the demands of our customers in the future and could harm our business.
We may need to identify and qualify new suppliers in response to disruptions and difficulties experienced by some of our current suppliers. The
process of identifying and qualifying suppliers is lengthy with no guarantee of ultimately mitigating the current issues we are experiencing. This process
can include but is not limited to delays in qualification, quality issues on components, and higher costs to source these components. All of these issues may
impair our ability to meet the demands of our customers in the future.
Reverse Stock Split
On March 11, 2022, our board of directors approved an amendment to our amended and restated certificate of incorporation to effect a 1-for-20
reverse stock split of our issued and outstanding common stock. The reverse stock split became effective on March 14, 2022.
On September 11, 2023, our board of directors approved an amendment to our amended and restated certificate of incorporation to effect a 1-for-
15 reverse stock split of our issued and outstanding common stock. The reverse stock split became effective on September 12, 2023. The par value of the
common stock was not adjusted as a result of the reverse stock splits. All common stock, stock options, restricted stock units, and per share amounts in the
financial statements have been retroactively adjusted for all periods presented to give effect to the reverse stock splits.
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.
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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 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 of the 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 19.99% 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
In connection with the Strategic Collaboration and the Private Placement, on March 5, 2024, we entered into a Securities Purchase Agreement (the
“A-1 Securities Purchase Agreement”) to exchange all outstanding shares of its 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 the our Series E Preferred Stock, Series F Preferred Stock and Series G
Preferred Stock.
CRG Loan Amendment
In connection with the Strategic Collaboration and the Private Placement, we also agreed to enter into Amendment No. 9 to 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.
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Financing
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 December 31, 2023, our accumulated deficit was $420.7 million. Since inception, we have financed our
operations primarily through private and public placements of our preferred and common securities and, to a lesser extent, debt financing arrangements.
In September 2015, we entered into a Term Loan Agreement (the “Loan Agreement”) with CRG Partners III L.P. and certain of its affiliated funds
(collectively, “CRG”), under which we were able to borrow up to $50.0 million on or before the end of the twenty-four (24) month period commencing on
the first Borrowing Date (as defined in the Loan Agreement), subject to certain terms and conditions. Under the Loan Agreement we borrowed $30.0
million on September 22, 2015 and an additional $10.0 million on June 15, 2016. Contemporaneously with the execution of the Loan Agreement, we
entered into a Securities Purchase Agreement with CRG (the “Securities Purchase Agreement”), pursuant to which CRG purchased 3 shares of our common
stock on September 22, 2015 at a price of $1,678,920 per share, which represents the 10-day average of closing prices of our common stock ending on
September 21, 2015. Pursuant to the Securities Purchase Agreement, we filed a registration statement covering the resale of the shares sold to CRG and
must comply with certain affirmative covenants during the time that such registration statement remains in effect.
On February 14, 2018, we entered into a Series A preferred stock Purchase Agreement (the “Series A Purchase Agreement”) with CRG, pursuant
to which it agreed to convert $38.0 million of the outstanding principal amount of its senior secured term loan (plus the back-end fee and prepayment
premium applicable thereto) under the Loan Agreement into a newly authorized Series A preferred stock. As discussed in the section of this report titled
“Dividend Policy,” the holders of Series A preferred stock are entitled to receive annual accruing dividends at a rate of 8%, payable in additional shares of
Series A preferred stock or cash, at our option. The shares of Series A preferred stock have no voting rights and rank senior to all other classes and series of
the Company’s equity in terms of repayment and certain other rights with the exception of Series E 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 a newly authorized Series E convertible preferred stock (“Series E preferred stock”) in exchange for CRG surrendering for
cancellation $1.92 million of outstanding principal and accrued interest of the senior secured term loan. Each share of Series E preferred stock has a stated
value of $1,000 per share and is convertible into 93 shares of our common stock at a conversion price of $10.725 per share. The Series E preferred stock is
initially convertible into 178,560 shares of common stock subject to certain limitations contained in the Series E Purchase Agreement. Under the terms of
the Series E Purchase Agreement, the holders of Series E preferred stock are entitled to receive annual accruing dividends at a rate of 8%, payable in
additional shares of Series E preferred stock or cash, at our option. The shares of Series E preferred stock have full voting rights, on an as-converted basis,
subject to certain limitations. The Series E preferred stock rank senior to all other classes and series of the Company’s equity in terms of repayment and
certain other rights.
On September 29, 2023, the Company entered into the Waiver Agreement with CRG, who hold all of the outstanding shares of the Company’s
Series A and Series E preferred stock. Pursuant to the Waiver Agreement, CRG waived their rights to receive the Series A and Series E preferred dividends
for the year ending December 31, 2023. Such waived preferred dividends were not cumulative or accrued.
On January 26, 2024, we entered into Amendment No. 7 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.
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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.
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 years ended December 31, 2023 and 2022,
there was one customer that represented approximately 17% and 14% of revenues, respectively.
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.
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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 Income (Expense), Net
Other income (expense), net primarily consists of gains and losses resulting from the remeasurement of foreign exchange transactions and other
miscellaneous income and expenses.
Results of Operations:
(in thousands)
Revenues
Cost of revenues
Gross profit
Gross margin
Operating expenses:
Research and development
Selling, general and administrative
Total operating expenses
Loss from operations
Interest expense, net
Other income (expense), net
Net loss and comprehensive loss
Comparison of Years Ended December 31, 2023 and 2022
Revenues.
Year Ended December 31,
2022
2023
$
$
$
7,652
5,649
2,003
26%
4,540
14,098
18,638
(16,635)
(1,719)
34
(18,320) $
8,273
5,619
2,654
32%
4,390
14,221
18,611
(15,957)
(1,665)
(1)
(17,623)
Revenues decreased $0.6 million, or 8%, to $7.7 million during the year ended December 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 year ended December 31, 2023.
Revenues decreased $1.9 million, or 18%, to $8.3 million during the year ended December 31, 2022. The decrease in revenues reflects the
fluctuating demand partially due to the adverse impacts of COVID-19 and 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 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 year ended December 31, 2022.
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Cost of Revenues and Gross Margin.
Cost of revenues increased less than $0.1 million, or 1%, to $5.6 million during the year ended December 31, 2023. This increase was primarily
attributable fluctuations in labor costs and inventory production, increased material costs and other ancillary expenditures, partially offset by the decline in
revenues. Stock-based compensation expense within cost of revenues totaled $134,000 and $18,000 for the years ended December 31, 2023 and 2022,
respectively.
Gross margin for the year ended December 31, 2023 decreased to 26% compared to 32% in the prior year. There are significant amounts of
overhead costs, specifically in the form of labor, associated with manufacturing and production of inventory embedded in cost of revenues that will
typically fluctuate due to the levels of inventory being produced, production schedule changes, lead times and other factors. The decrease in gross margin
was primarily due to the decrease in revenues which resulted in a decline in economies of scale.
Research and Development Expenses.
R&D expenses increased $0.2 million or 3%, to $4.5 million during the year ended December 31, 2023. The increase is primarily due to the
ongoing product development of our coronary device program, partially offset by the completion of our development efforts of Tigereye ST and Pantheris
LV. Stock-based compensation expense within R&D totaled $200,000 and $37,000 for the years ended December 31, 2023 and 2022, 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 expenses decreased $0.1 million, or 1%, to $14.1 million during the year ended December 31, 2023. This decrease was primarily
attributable to decreases in sales personnel costs resulting from the decline in revenues, decreases in third-party professional services and other ancillary
expenses, which were partially offset by increases in certain variable compensation. Stock-based compensation expense within SG&A totaled $606,000 and
$72,000 for the years ended December 31, 2023 and 2022, respectively. We expect SG&A expense to increase during 2024 largely due to investments made
to increase the number of sales personnel deployed within the United States and increases in variable compensation related to fluctuations in revenues.
Interest Expense, Net.
Interest expense, net is comprised of interest expense net of interest income. Interest expense remained flat compared to the prior year which
resulted from increases in interest income due to the recent rising money market interest rates, offset by the higher CRG loan balance from PIK interest
being compounded.
Other Income (Expense), Net.
Other income (expense), net primarily consists of gains and losses resulting from the remeasurement of foreign exchange transactions, which are
typically a small percentage of transaction volume, and other miscellaneous income and expenses. Other income, net for the year ended December 31, 2023
remained relatively flat in comparison to the year ended December 31, 2022 as both periods consisted primarily of remeasurement gains and losses from
foreign exchange transactions, resulting in nominal changes between periods.
Liquidity and Capital Resources
As of December 31, 2023, we had cash and cash equivalents of $5.3 million and an accumulated deficit of $420.7 million, compared to cash and
cash equivalents of $14.6 million and an accumulated deficit of $402.4 million as of December 31, 2022. On March 5, 2024, we entered into a financing as
part of a broader strategic collaboration with Zylox-Tonbridge in which we received an aggregate of $7.5 million before any commissions, legal and
accounting fees, and other ancillary expenses. We expect to incur losses for the foreseeable future. We believe that our cash and cash equivalents of $5.3
million at December 31, 2023, together with proceeds from the aforementioned March 2024 financing, and expected revenues, debt and financing activities
and funds from operations will be sufficient to allow us to fund our current operations through at least the second quarter of 2024.
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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 year ended December 31, 2023 do not include any adjustments that might result from the outcome of this uncertainty.
Currently substantially all of our cash and cash equivalents are held at a single financial institution, First Citizens Bank, which acquired our prior
banking partner, Silicon Valley Bank, in March 2023. On March 10, 2023, the Federal Deposit Insurance Corporation announced that Silicon Valley Bank,
now a division of First Citizens Bank, had been closed by the California Department of Financial Protection and Innovation. While we have regained
access to our accounts at First Citizens Bank, formerly, Silicon Valley Bank, we are evaluating our banking relationships, future disruptions of financial
institutions where we bank or have credit arrangements, or disruptions of the financial services industry in general, that could adversely affect our ability to
access our cash and cash equivalents. If we are unable to access our cash and cash equivalents as needed, our financial position and ability to operate our
business will be adversely affected.
January 2022 Offering
On January 14, 2022, we entered into a securities purchase agreement with several institutional investors pursuant to which we agreed to sell and
issue, in a registered direct offering (“January 2022 Offering”), an aggregate of 7,600 shares of our Series D Convertible Preferred Stock, par value of
$0.001 per share, at an offering price of $1,000 per share which was convertible into common stock at a conversion price of $120.00 per share.
Concurrently, we agreed to issue to these investors warrants to purchase up to an aggregate of 53,833 shares of our common stock (the “Common
Warrants”). As a result, we received aggregate net proceeds of approximately $6.7 million after underwriting discounts, commissions, legal and accounting
fees, and other ancillary expenses. During the year ended December 31, 2022, all 7,600 shares issued of Series D preferred stock were converted into a total
of 63,333 shares of common stock. Consequently, there were no shares of Series D preferred stock outstanding as of December 31, 2022.
The 53,833 Common Warrants have an exercise price of $144.00 per share and became exercisable beginning July 14, 2022. The Common
Warrants will expire five years following the time they become exercisable, or July 14, 2027. We also issued to the Placement Agent or its designees
warrants to purchase up to an aggregate of 4,433 shares of common stock (the “Placement Agent Warrants”). The Placement Agent Warrants are subject to
the same terms as the Common Warrants, except that the Placement Agent Warrants have an exercise price of $150.00 per share and a term of five years
from the commencement of the sales pursuant to the January 2022 Offering, or January 12, 2027.
At The Market Offering Agreement
On May 20, 2022, we entered into an At The Market Offering Agreement (the “ATM Agreement”) with H.C. Wainwright & Co., LLC (the
“Agent”), as sales agent, pursuant to which we may offer and sell shares of common stock, par value $0.001 per share (the “Shares”) up to an aggregate
offering price of $7,000,000 from time to time, in an at the market public offering. Sales of the Shares are to be made at prevailing market prices at the time
of sale, or as otherwise agreed with the Agent. The Agent will receive a commission from us of 3.0% of the gross proceeds of any Shares sold under the
ATM Agreement. The Shares sold under the ATM Agreement are offered and sold pursuant to our shelf registration statement on Form S-3, which was
initially filed with the SEC on March 29, 2022 and declared effective on April 7, 2022, and a prospectus supplement and the accompanying prospectus
relating to the At The Market Offering filed with the SEC on May 20, 2022. During the year ended December 31, 2022, we sold 39,048 shares of common
stock pursuant to the ATM Agreement at an average price of $25.08 per share for aggregate proceeds of $1.0 million, of which approximately $29,000 was
paid in the form of commissions to the Agent. On August 3, 2022, we suspended sales under the ATM Agreement. On March 17, 2023, we reactivated the
ATM Agreement. During the 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 $0.2 million was paid in the form of commissions to the Agent. While we may attempt
additional sales in the future, there can be no assurance that we will be successful in acquiring additional funding through these means.
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Other than the ATM Agreement, we currently do not have any commitment to obtain additional funds.
August 2022 Offering
On August 4, 2022, we entered into a securities purchase agreement with a single institutional investor for the issuance and sale of 98,935 shares
of its common stock in a registered direct offering (“RD” or “Registered Direct”) at a purchase price of $26.28 per share, or pre-funded warrants in lieu
thereof. In a concurrent private placement, we also agreed to issue and sell to the investor 91,324 shares of common stock at the same purchase price as in
the registered direct offering, or pre-funded warrants in lieu thereof (“Private Placement” and together with the Registered Direct offering the “August 2022
Offering”). As a result, we received aggregate net proceeds of approximately $4.4 million after underwriting discounts, commissions, legal and accounting
fees, and other ancillary expenses.
As a result, in the Registered Direct offering, we issued (i) 46,667 shares of common stock, (ii) and pre-funded warrants in lieu of common stock
to purchase up to an aggregate of 52,268 shares of common stock (the “RD Pre-Funded Warrants”) and in the Private Placement, we issued pre-funded
warrants to purchase up to an aggregate of 91,324 shares of common stock (the “Private Placement Pre-Funded Warrants” and together with the RD Pre-
Funded Warrants the “August 2022 Pre-Funded Warrants”). As of December 31, 2023, all the Private Placement Pre-Funded Warrants were exercised
leaving none outstanding.
In addition, we issued to the investor in the August 2022 Offering Series A preferred investment options to purchase up to 190,259 additional
shares of our common stock and Series B preferred investment options to purchase up to 190,259 additional shares of our common stock (the “Preferred
Investment Options”). The Series A preferred investment options have an exercise price of $22.53 per share, are immediately exercisable, and will expire
five and one-half years from the date of issuance, or February 8, 2028, and the Series B preferred investment options have an exercise price of $22.53 per
share, are immediately exercisable, and will expire two years from the date of issuance, or August 8, 2024. We also issued to the Placement Agent or its
designees preferred investment options to purchase up to an aggregate of 11,416 shares of common stock (the “Placement Agent Preferred Investment
Options”). The Placement Agent Preferred Investment Options are subject to the same terms as the Preferred Investment Options, except that the Placement
Agent Preferred Investment Options have an exercise price of $32.85 per share and a term of five years from the commencement of the sales pursuant to
the August 2022 Offering, or August 3, 2027.
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 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 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 of the 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.
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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 December 31, 2023, our contractual obligations due by period (in thousands):
Operating lease obligations (1)
CRG Loan (2)
Noncancelable purchase commitments (3)
Payments Due by Period
Less Than
1 Year
2 - 3
Years
4-5 Years
$
$
1,138 $
7,827
349
9,314 $
— $
9,113
190
9,303 $
— $
—
—
— $
More
Than 5
Years
Total
1,138
16,940
539
18,617
— $
—
—
— $
(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. As of December 31, 2023, the lease was to expire on November 30, 2024. 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. These base payments resulting from the lease extension are not reflected in the contractual
obligations within the table above.
(2) The total CRG Loan amount, shown as borrowings on the balance sheet as of December 31, 2023, is $14.3 million. The contractual obligation in the
table above of $16.9 million under the CRG Loan includes future interest to be accrued but not paid in cash as well as a $2.1 million back-end fee to be
paid in December 2025 upon maturity of the CRG Loan which is being accreted. Refer to Item 8, Financial Statements and Supplementary Data, Note
7 for additional details. On March 4, 2024, 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 and (ii) provide that interest payable through December 31,
2026 may be payable in kind rather than in cash. The changes resulting from this amendment are not reflected in the contractual obligations within the
table above.
(3) Noncancelable 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 for 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 December
31, 2023, is $14.3 million. However, upon maturity of the obligations under the Loan Agreement in December 2025, we will be obligated to pay $16.9
million under the Loan Agreement, which includes future interest to be accrued but not paid in cash as well as a $2.1 million back-end fee to be paid in
December 2025 upon maturity of the CRG Loan which is being accreted to the maturity date. Due to the substantial doubt about our ability to continue
operating as a going concern and the “Material Adverse Change” clause under the Loan Agreement, the entire amount of outstanding borrowings at
December 31, 2023 and 2022 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 Item 8, Financial Statements and Supplementary Data, Note 7 for additional
details.
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On August 2, 2023, we entered into a Series E preferred stock Purchase Agreement (the “Series E Purchase Agreement”) with CRG, pursuant to
which we issued 1,920 shares of a newly authorized Series E convertible preferred stock (“Series E preferred stock”) in exchange for CRG surrendering for
cancellation $1.92 million of outstanding principal and accrued interest of the senior secured term loan. Each share of Series E preferred stock has a stated
value of $1,000 per share and is convertible into 93 shares of our common stock at a conversion price of $10.725 per share. The Series E preferred stock is
initially convertible into 178,560 shares of common stock subject to certain limitations contained in the Series E Purchase Agreement. Under the terms of
the Series E Purchase Agreement, the holders of Series E preferred stock are entitled to receive annual accruing dividends at a rate of 8%, payable in
additional shares of Series E preferred stock or cash, at our option. The shares of Series E preferred stock have full voting rights, on an as-converted basis,
subject to certain limitations. The Series E preferred stock rank senior to all other classes and series of the Company’s equity in terms of repayment and
certain other rights.
On January 26, 2024, we entered into Amendment No. 7 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 below, the lease requires us to pay property taxes, insurance, maintenance, and repair costs.
The lease includes a rent holiday concession and escalation clauses for increased rent over the lease term. Rent expense is recognized using the straight-line
method over the term of the lease.
The lease will expire on November 30, 2024. We are obligated to pay a total approximately $5.8 million in base rent payments through November
2024, which began on December 1, 2019. The weighted average remaining lease term as of December 31, 2023 is 0.9 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:
(in thousands)
Net cash (used in) provided by:
Operating activities
Investing activities
Financing activities
Net change in cash and cash equivalents
Net Cash Used in Operating Activities
Year Ended December 31,
2022
2023
$
$
(14,432) $
(8)
5,112
(9,328) $
(16,760)
(51)
11,917
(4,894)
Net cash used in operating activities for the year ended December 31, 2023 was $14.4 million, consisting primarily of a net loss of $18.3 million,
partially offset by non-cash charges of $3.7 million and a decrease in net operating assets of $0.2 million. Non-cash charges largely related to non-cash
interest expense of $2.0 million, excess and obsolete charges related to inventory of $0.4 million, depreciation of $0.3 million and stock-based
compensation of $0.9 million. The decrease in net operating assets was primarily due an increase in accrued compensation as certain variable compensation
continued to accrue, a large portion of which was reclassified from other long-term liabilities as it became due within less than one year. Other decreases in
net operating assets resulted from an increase in accounts payable and accrued expenses and other current liabilities due to timing of payments and timing
of the incurrence of expenditures. This was largely offset by investments in inventory, which include components and labor, in anticipation of (i) forecasted
demand in light of extended lead times and (ii) building inventory in anticipation of the commercial needs following the product launch of Tigereye ST in
the second half of 2023 and the anticipated full commercial launch of Pantheris LV around mid-year 2024.
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Net cash used in operating activities for the year ended December 31, 2022 was $16.8 million, consisting primarily of a net loss of $17.6 million
and an increase in net operating assets of $1.7 million, partially offset by non-cash charges of $2.6 million. Non-cash charges largely related to non-cash
interest expense of $1.9 million. The increase in net operating assets was primarily due to the increase in inventory of $1.4 million due to purchases of
inventory components in anticipation of forecasted demand in light of extended lead times and a decrease in accounts payable due to timing of payments
and overall, less expenditures. These increases were partially offset by the increase in other long-term liabilities as certain variable compensation continues
to accrue.
Net Cash Used in Investing Activities
Net cash used in investing activities during both the years ended December 31, 2023 and 2022 consisted of purchases of property and equipment.
Net Cash Provided by Financing Activities
Net cash provided by financing activities for the year ended December 31, 2023 of $5.1 million relates to proceeds of approximately $5.1 million
from the sale of common stock pursuant to the ATM Agreement, net of commissions and various issuance costs.
Net cash provided by financing activities for the year ended December 31, 2022 of $11.9 million primarily relates to proceeds of $6.7 million from
the issuance of preferred stock and warrants in the January 2022 Offering, net of commissions and various issuance costs, and proceeds of $4.4 million
from the issuance of common stock and preferred investment options in the August 2022 Offering. We also received approximately $0.8 million, net of
commissions and various issuance costs, from the sale of common stock pursuant to the ATM Agreement.
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.
While our significant accounting policies are more fully described in Note 2 of our financial statements included in this Annual Report on
Form 10-K, we believe the following discussion addresses our most critical accounting policies, which are those that are most important to our financial
condition and results of operations and require our most difficult, subjective and complex judgments.
Revenue Recognition
The Company’s revenues are derived from (1) sale of Lightbox consoles, (2) sale of disposables, which consist of catheters and accessories, and
(3) sale of customer service contracts and maintenance. The Company sells its products directly to hospitals and medical centers as well as through
distributors. The Company accounts for a contract with a customer when there is a legally enforceable contract between the Company and the customer, the
rights of the parties are identified, the contract has commercial substance, and collectability of the contract consideration is probable. The Company’s
revenues are measured based on consideration specified in the contract with each customer, net of any sales incentives and taxes collected from customers
that are remitted to government authorities. For all sales, the Company uses either a signed agreement, a binding purchase order or other written
documentation as evidence of an arrangement. The Company’s revenue recognition policies generally result in revenue recognition at the following points:
1.
2.
3.
Lightbox console sales: Provided all other criteria for revenue recognition have been met, the Company recognizes revenue for Lightbox
console sales directly to end customers when delivery and acceptance occurs, which is defined as receipt by the Company of an executed
form that the installation process is complete. If installation is not required, as is the case with the Lightbox 3, recognition occurs upon
the completion of delivery pursuant to the stated delivery terms.
Sales of disposables: Disposable revenues consist of sales of the Company’s catheters and accessories and are recognized when the
product has shipped, risk of loss and title has passed to the customer and collectability is reasonably assured.
Service revenue: Service contract revenue consists of preventative maintenance, upgrades, and service contracts. Service contracts are
recognized ratably over the term of the service period and maintenance contract revenue is recognized when work is completed. To date,
service revenue has been insignificant.
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The Company offers its customers the ability to purchase or lease the Lightbox console. In addition, the Company provides a Lightbox under a
limited commercial evaluation program to allow accounts to install and utilize the Lightbox for a limited trial period. When a Lightbox is placed under a
lease agreement or under a commercial evaluation program, the Company retains title to the equipment and it remains capitalized on its balance sheet under
property and equipment. Depreciation expense on these placed Lightboxes is recorded to cost of revenues on a straight-line basis. The costs to maintain
these placed Lightboxes are charged to cost of revenues as incurred.
The Company evaluates its lease and commercial evaluation program agreements and accounts for these contracts under the guidance in
Accounting Standards Codification (“ASC”) 842, Leases and ASU No. 2014 09, Revenue from Contracts with Customers (Topic 606). The guidance
requires arrangement consideration to be allocated between a lease deliverable and a non-lease deliverable based upon the relative selling-price of the
deliverables.
The Company assessed whether the embedded lease is an operating lease or sales-type lease. Based on the Company’s assessment of the guidance
and given that any payments under the lease agreements are dependent upon contingent future sales, it was determined that collectability of the minimum
lease payments is not reasonably predictable. Accordingly, the Company concluded the embedded lease did not meet the criteria of a sales-type lease and
accounts for it as an operating lease. The Company recognizes revenue allocated to the lease as the contingent disposable product purchases are delivered
and are included in revenues within the statement of operations and comprehensive loss.
For sales of disposables through distributors, the Company recognizes revenue when control of the product transfers from the Company to the
distributor. The distributors are responsible for all statutory obligations, marketing, sales, training and warranty in their respective territories. The standard
terms and conditions contained in the Company’s distribution agreements do not provide price protection or stock rotation rights to any of its distributors.
In addition, its distributor agreements do not allow the distributor to return or exchange products, and the distributor is obligated to pay the Company upon
invoice regardless of its ability to resell the product.
Inventories
Inventories are valued at the lower of cost or net realizable value. Cost is determined using the first-in, first-out method for all inventories. The
Company’s policy is to write down inventory that has expired or become obsolete, inventory that has a cost basis in excess of its expected net realizable
value, and inventory in excess of expected requirements. At each balance sheet date, management evaluates inventories for excess quantities, and
obsolescence.
Critical estimates. To the extent that management determines there are excess or obsolete inventory, management adjusts the carrying value to
estimated net realizable value. When quantities on hand exceed sales forecasts, a write-down is recorded for such excess inventories along with a
corresponding charge to cost of revenues.
Assumptions and judgment. The estimate of excess quantities is subjective and primarily dependent on the estimates of future demand for a
particular product. Specifically, the future demand is derived based on our historical experience, from discussion with users of our products and general
market conditions. This evaluation by management includes analysis of historical sales levels by product, projections of future demand, the risk of
technological or competitive obsolescence for products, general market conditions, as well as the feasibility of reworking or using excess or obsolete
products or components in the production or assembly of other products that are not obsolete or for which there are not excess quantities in inventory.
Impact if actual results differ from assumptions. Changes in assumptions of product demand could have a significant impact on the amount of
write-down recorded.
Inventory used in clinical trials is expensed at the time of production and recorded as research and development expense if the inventory is
contractually being provided at no cost to the clinical site. The cost of inventories are regularly reviewed against estimated market value and record a lower
of cost or market reserve for inventories that have a cost in excess of estimated market value, which could have a material impact on the gross margin and
inventory balances based on additional write-downs to net realizable value or a benefit from inventories previously written down.
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ITEM 7A. 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 December 31, 2023, 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 December 31, 2023, there was one customer that represented 24% of the Company’s accounts receivable, whereas at December 31, 2022,
there was no customer that represented 10% or more of the Company’s accounts receivable. For the years ended December 31, 2023 and 2022, there was
one customer that represented approximately 17% and 14% of revenues, respectively.
Foreign Currency Risk
Our business is primarily conducted in U.S. dollars. Any transactions that may be conducted in foreign currencies are not expected to have a
material effect on our results of operations, financial position or cash flows.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item appears in a separate section of this Annual Report on Form 10-K beginning on page F-1 and is incorporated
herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. 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 December 31, 2023. Based on such evaluation, our principal
executive officer and principal financial officer have concluded that, as of December 31, 2023, our disclosure controls and procedures were effective.
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Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) of
the Exchange Act. Our management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in
Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this
evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2023.
This Annual Report on Form 10-K does not include an attestation report of our registered public accounting firm on our internal control over
financial reporting We are currently a non-accelerated filer and are therefore not required to provide an attestation report on our internal control over
financial reporting until such time as we are an accelerated filer or large accelerated filer.
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 quarter ended December 31, 2023 that materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Our management, including our chief executive officer and chief financial officer, believes that our disclosure controls and procedures and internal
control over financial reporting are designed to provide reasonable assurance of achieving their objectives and are effective at the reasonable assurance
level. However, our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all
errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives
of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls
must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in
decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the
individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls also is
based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its
stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance
with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may
occur and not be detected.
ITEM 9B. OTHER INFORMATION
None.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
PART III
Directors
Our business affairs are managed under the direction of our board of directors, which is currently composed of five members. The board of
directors has determined that three of our directors are independent within the meaning of the listing standards of The Nasdaq Stock Market, or Nasdaq.
Our board of directors is divided into three staggered classes of directors. At each annual meeting of stockholders, a class of directors will be elected for a
three-year term to succeed the same class whose term is then expiring.
The following table sets forth the names, ages as of March 1, 2024 and certain other information for each of the directors with terms expiring at
the 2024 annual meeting of stockholders (the “Annual Meeting”) (who are also nominees for election as a director at the Annual Meeting) and for each of
the continuing members of our board of directors:
Directors
James G. Cullen(1)(2)(3)
Tamara N. Elias(1)(2)(3)
Jeffrey M. Soinski
James B. McElwee(1)(2)(3)
Jonathon Zhong Zhao
Class
Age
Position
III
III
I
II
II
81
52
62
72
57
Director and Chairman of the
Board of Directors
Director
President, Chief Executive Officer
and Director
Director
Director
(1) Member of our audit committee
(2) Member of our compensation committee
(3) Member of our nominating and corporate governance committee
Director
Since
Current
Term
Expires
2014
2019
2014
2011
2024
2024
2024
2025
2026
2026
Jeffrey M. Soinski has served as our President, Chief Executive Officer and a member of our Board of Directors since December 2014. From its
formation in September 2009 until the acquisition of its Unisyn business by GE Healthcare in May 2013, Mr. Soinski served as Chief Executive Officer of
Medical Imaging Holdings and its primary operating company Unisyn Medical Technologies, a national provider of technology-enabled products and
services to the medical imaging industry. Mr. Soinski was a Director of Medical Imaging Holdings and its remaining operating company Consensys
Imaging Service from September 2009 until its sale in October 2017. Mr. Soinski served periodically as a Special Venture Partner from July 2008 to June
2013 and as a Special Investment Partner since October 2016 for Galen Partners, a leading healthcare-focused private equity firm, which included Medical
Imaging Holdings as one of its portfolio companies. From 2001 until its acquisition by C.R. Bard in 2008, Mr. Soinski was President and CEO of
Specialized Health Products International, a publicly-traded manufacturer and marketer of proprietary safety medical products. He served on the board of
directors of Merriman Holdings, parent of Merriman Capital, a San Francisco-based investment banking and brokerage firm, from 2008 until March 2016.
Mr. Soinski holds a B.A. degree from Dartmouth College.
We believe Mr. Soinski is qualified to serve as a member of our board of directors because of his extensive corporate finance and business strategy
experience as well as his experience with public companies.
James G. Cullen has served as a member of our board of directors since December 2014, as our Lead Independent Director since January 2015 and
as our Non-Executive Chairman since December 2017. During the last five years, Mr. Cullen has held board and committee positions with various
companies. Mr. Cullen is currently a director of Keysight Technologies, which was spun out of Agilent Technologies, where he was previously a director.
Mr. Cullen previously served as a director and chairman of the audit committee of Johnson & Johnson and as a director and member of the investment and
finance committees of Prudential Financial. From 1993 to 2000, Mr. Cullen was President, Vice Chairman and Chief Operating Officer of Bell Atlantic
Corporation (now Verizon). From 1989 to 1993, he was President and Chief Executive Officer of Bell Atlantic-New Jersey. Mr. Cullen holds a B.A. in
Economics from Rutgers University and an M.S. in Management Science from the Massachusetts Institute of Technology.
We believe Mr. Cullen is qualified to serve as a member of our board of directors because of his extensive experience serving on the boards of
public companies as well as his financial and business expertise.
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James B. McElwee has served as a member of our board of directors since March 2011. Mr. McElwee has served as an independent venture capital
investor since 2010. Mr. McElwee served as general partner of Weston Presidio, a private equity and venture capital firm, from 1992 to 2010. During his
tenure as a general partner and member of the investment committee, Weston Presidio led the start up financing of JetBlue Airways and made investments
in Fender Musical Instruments, The Coffee Connection, Guitar Center, Mapquest, Party City, Petzazz, RE/MAX, and others.
We believe Mr. McElwee is qualified to serve as a member of our board of directors because of his substantial corporate development and business
strategy expertise gained in the venture capital industry.
Tamara N. Elias, M.D., was appointed to our board of directors in December 2019. Dr. Elias currently serves as SVP, Strategy and Business
Incubation at Nuance Communications, a Microsoft Company. Previously she served as VP, Head of Global Partnerships at Merck. From 2020 to 2022. Dr.
Elias was VP, Clinical Product Development at Aetna from 2018 to 2020. From 2015 to 2017, Dr. Elias was Vice President of Corporate Strategy and
Business Development for the $8 billion medical segment at Becton Dickinson. From 2007 to 2015, Dr. Elias was a Partner with Essex Woodlands
Healthcare Partners, a healthcare only growth equity firm founded in 1985. Earlier in her career, Dr. Elias was a management consultant at McKinsey,
advising pharmaceutical, diagnostic and device companies in R&D, product commercialization and M&A. She currently serves on the board of REVA
Medical BehaVR. Dr. Elias has previously served on the boards of several private companies, including Millennium Pharmacy Systems (sold to
PharMerica), BreatheAmerica and Influence Health (sold to Healthgrades) as well as on the public company board of ATS Medical (sold to Medtronic). Dr.
Elias holds degrees in Biology and Anthropology from Yale University, and an M.D. from The Johns Hopkins School of Medicine. She trained as a general
surgeon at Massachusetts General Hospital.
We believe Dr. Elias is qualified to serve as a member of our board of directors because of her substantial corporate development and business
strategy expertise and her experience in the healthcare industry.
Jonathon Zhong Zhao, Ph.D., has served as a member of our board of directors since March 2024. Dr. Zhao has served as Chairman and Chief
Executive Officer of Zylox-Tonbridge Medical Technology Co., Ltd. since its founding in November 2012. Dr. Zhao has 25 years of experience in the
pharmaceutical and medical device industries. Prior to founding Zylox-Tonbridge, Dr. Zhao served as a principal scientist and research fellow at Cordis
Corporation from July 2002 to August 2011, focusing on drug device combination product developments. Earlier in his career, Dr. Zhao served as an
associate director and scientist at Guilford Pharmaceuticals, Inc. Dr. Zhao holds a bachelor’s degree in polymer chemistry and synthesis from Sichuan
University in the People’s Republic of China and a Ph.D. degree in biomedical engineering from The Johns Hopkins University School of Medicine in the
United States.
We believe Dr. Zhao is qualified to serve as a member of our board of directors because of his extensive experience in the medical device and
pharmaceutical industry and his leadership of a large public medical device company.
Executive Officers
The following table identifies certain information about our executive officers as of March 1, 2024. Our executive officers are appointed by, and
serve at the discretion of, our board of directors. Each of our executive officers serves at the discretion of our board of directors and holds office until his
successor is duly elected and qualified or until his earlier resignation or removal. There are no family relationships among any of our directors or executive
officers.
Name
Jeffrey M. Soinski
Himanshu N. Patel
Nabeel Subainati
Age
62
64
40
Title
President, Chief Executive Officer and Director
Chief Technology Officer
Vice President, Finance, Principal Financial Officer and Principal Accounting
Officer
For a brief biography of Mr. Soinski, please see the section above titled “Directors.”
Himanshu N. Patel. co-founded Avinger in 2007 and has served as our Chief Technology Officer from January 2011 to November 2011 and then
since October 2013. From September 1999 to February 2007, Mr. Patel held various research and development positions, including Director of Advanced
Technologies, at FoxHollow Technologies. Mr. Patel previously held research and development positions at EndoTex Interventional Systems, General
Surgical Innovations and Ethicon, a Johnson and Johnson company. Mr. Patel holds a B.S. in Mechanical Engineering from M.S. University of Baroda,
India, and an M.S. in Mechanical Engineering from the University of Florida.
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Nabeel Subainati has served in multiple capacities since January 2020. Currently Mr. Subainati is serving as the Company’s Vice President,
Finance, formerly Mr. Subainati held the position of Vice President, Corporate Controller. He was appointed to serve as our Principal Financial Officer and
Principal Accounting Officer effective as of July 21, 2022. Prior to joining the Company, Mr. Subainati served as Controller at Crossbar, Inc., a
semiconductor memory technology provider from July 2018 until January 2020. Mr. Subainati previously served as Corporate Controller of Sigma Designs,
Inc. a Nasdaq-listed integrated system-on-chip solutions provider for home and industrial applications, from May 2014 until its acquisition by Silicon Labs,
Inc. in June 2018. Earlier in his career Mr. Subainati worked at Ernst & Young and Deloitte. He received a B.S. in business administration with an
accounting major from Santa Clara University. He earned and currently holds an active CPA designation.
Code of Business Conduct
We have adopted a code of business conduct that applies to all of our employees, officers and directors, including those officers responsible for
financial reporting. The code of business conduct is available on our website at www. investors.avinger.com/governance. Updates to or waivers of the code
will be disclosed on the same website. We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding any amendment to, or waiver
of, any provision of the code in the future by disclosing such information on our website.
Board Leadership Structure
We believe that the structure of our board of directors and its committees provides strong overall management of our company. Our board of
directors does not have a formal policy on whether the roles of Chief Executive Officer and Chairman of our board of directors should be separate.
However, Messrs. Soinski and Cullen, respectively, hold these positions at present.
Our Chief Executive Officer, Mr. Soinski, is responsible for setting the strategic direction of our company, the general management and operation
of the business and the guidance and oversight of senior management. In his capacity as Chairman of our board of directors, Mr. Cullen is also responsible
for the guidance and oversight of senior management, monitoring the content, quality and timeliness of information sent to our board of directors,
consultation with our board of directors regarding the oversight of our business affairs, presiding over meetings of our board of directors and performing
such additional duties as our Board may otherwise determine and delegate. At the end of each board meeting, the independent directors are expected to
meet in executive session, without Mr. Soinski present. Following each meeting, Mr. Cullen is expected to provide feedback to Mr. Soinski on his
performance and the performance of our employees during the meeting and to recommend new agenda items for the next meeting.
Director Independence
Our common stock is listed on The Nasdaq Capital Market. Under the Nasdaq listing standards, independent directors must comprise a majority
of a listed company’s board of directors. In addition, the Nasdaq listing standards require that, subject to specified exceptions, each member of a listed
company’s audit, compensation, and nominating and corporate governance committees be independent. Under the Nasdaq listing standards, a director will
only qualify as an “independent director” if, in the opinion of that listed company’s board of directors, that director does not have a relationship that would
interfere with the exercise of independent judgment in carrying out the responsibilities of a director.
Audit committee members must also satisfy the additional independence criteria set forth in Rule 10A-3 under the Securities Exchange Act of
1934, as amended, or the “Exchange Act, and the Nasdaq listing standards. Compensation committee members must also satisfy the additional
independence criteria set forth in Rule 10C-1 under the Exchange Act and the Nasdaq listing standards.
Our board of directors has undertaken a review of the independence of each of our directors. Based on information provided by each director
concerning his background, employment and affiliations, our board of directors has determined that Messrs. Cullen, McElwee and Dr. Elias do not have a
relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each of these directors
is “independent” as that term is defined under the Nasdaq listing standards. In making these determinations, our board of directors considered the current
and prior relationships that each non-employee director has with our company and all other facts and circumstances our board of directors deemed relevant
in determining their independence, including the beneficial ownership of our capital stock by each non-employee director, and the transactions involving
them described below under the heading “Related Person Transactions.”
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Board Meetings and Committees
During our fiscal year ended December 31, 2023, our board of directors held 8 meetings (including regularly scheduled and special meetings), and
each director attended at least 75% of the aggregate of (i) the total number of meetings of our board of directors held during the period for which he or she
has been a director and (ii) the total number of meetings held by all committees of our board of directors on which he or she served during the periods that
he or she served. All of our directors who were directors at the time attended our 2023 annual meeting of stockholders telephonically.
Although we do not have a formal policy regarding attendance by members of our board of directors at annual meetings of stockholders, we
strongly encourage our directors to attend.
Our board of directors has established an audit committee, a compensation committee and a nominating and corporate governance committee. The
composition and responsibilities of each of the committees of our board of directors are described below. Members will serve on these committees until
their resignation or until as otherwise determined by our board of directors.
Audit Committee
Messrs. McElwee, Cullen and Dr. Elias serve on our audit committee. Mr. Cullen serves as the chair of the audit committee. Our board of
directors has assessed whether all members of the audit committee meet the composition requirements of Nasdaq, including the requirements regarding
financial literacy and financial sophistication. Our board of directors found that Messrs. McElwee, Cullen and Dr. Elias have met the financial literacy and
financial sophistication requirements and that Messrs. McElwee, Cullen and Dr. Elias are independent under SEC and Nasdaq rules. In addition, our board
of directors has determined that Mr. Cullen is an audit committee financial expert within the meaning of Item 407(d) of Regulation S-K under the Securities
Act of 1933, as amended, or the Securities Act. The audit committee’s primary responsibilities include:
● appointing, approving the compensation of, and assessing the qualifications and independence of our independent registered public
accounting firm, which currently is Moss Adams LLP;
● reviewing and discussing with management and our independent registered public accounting firm our annual and quarterly financial
statements and related disclosures;
● preparing the audit committee report required by SEC rules to be included in our annual proxy statements;
● monitoring our internal control over financial reporting, disclosure controls and procedures;
● reviewing our risk management status;
● establishing policies regarding hiring employees from our independent registered public accounting firm and procedures for the receipt and
retention of accounting related complaints and concerns;
● meeting independently with our independent registered public accounting firm and management; and
● monitoring compliance with the code of business conduct and ethics for financial management.
All audit and non-audit services must be approved in advance by the audit committee. Our audit committee operates under a written charter that
satisfies the applicable rules and regulations of the SEC and Nasdaq listing standards. A copy of the charter of our audit committee is available on our
website at www.avinger.com under “Investors–Governance.” During our fiscal year ended December 31, 2023, our audit committee held five meetings.
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Compensation Committee
Messrs. Cullen, McElwee and Dr. Elias serve on our compensation committee. Mr. McElwee serves as the chair of the compensation committee.
Each member of our compensation committee meets the requirements for independence for compensation committee members under the Nasdaq listing
standards and SEC rules and regulations, including Rule 10C-1 under the Exchange Act. Each member of our compensation committee is also a non-
employee director, as defined pursuant to Rule 16b-3 promulgated under the Exchange Act, and an outside director, as defined pursuant to Section 162(m)
of the Internal Revenue Code. Our compensation committee is responsible for, among other things:
● annually reviewing and approving corporate goals and objectives relevant to compensation of our chief executive officer and our other
executive officers;
● determining the compensation of our chief executive officer and our other executive officers;
● reviewing and making recommendations to our board of directors with respect to director compensation; and
● overseeing and administering our equity incentive plans.
Our Chief Executive Officer and Principal Financial Officer make compensation recommendations for our other executive officers and initially
propose the corporate and departmental performance objectives under our Executive Incentive Compensation Plan to the compensation committee. From
time to time, the compensation committee may use outside compensation consultants to assist it in analyzing our compensation programs and in
determining appropriate levels of compensation and benefits. For example, we have periodically engaged Radford, a business unit of Aon Hewitt, to help
develop our compensation philosophy, select a group of peer companies to use for compensation benchmarking purposes and advise on cash and equity
compensation levels for our directors, executives and other employees based on current market practices. We did not use any compensation consultants
during our year ended December 31, 2022. Our compensation committee operates under a written charter that satisfies the applicable rules and regulations
of the SEC and Nasdaq listing standards. A copy of the charter of our compensation committee is available on our website at www.avinger.com under
“Investors–Governance.” During our fiscal year ended December 31, 2023, our compensation committee held four meetings.
Nominating and Corporate Governance Committee
Messrs. Cullen, McElwee and Dr. Elias serve on our nominating and corporate governance committee. Dr. Elias serves as the chair of the
nominating and corporate governance committee. Each member of our nominating and corporate governance committee meets the requirements for
independence under the Nasdaq listing standards and SEC rules and regulations. Our nominating and corporate governance committee is responsible for,
among other things:
● identifying individuals qualified to become members of our board of directors;
● recommending to our board of directors the persons to be nominated for election as directors and to each of our board’s committees;
● reviewing and making recommendations to our board of directors with respect to management succession planning;
● developing, updating and recommending to our board of directors corporate governance principles and policies; and
● overseeing the evaluation of our board of directors and committees.
Our nominating and corporate governance committee operates under a written charter that satisfies the applicable Nasdaq listing standards. A
copy of the charter of our nominating and corporate governance committee is available on our website at www.avinger.com under “Investors–Governance.”
During our fiscal year ended December 31, 2023, our nominating and corporate governance committee held one meeting.
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Considerations in Evaluating Director Nominees
Our nominating and corporate governance committee uses a variety of methods for identifying and evaluating director nominees. In its evaluation
of director candidates, our nominating and corporate governance committee will consider the current size and composition of our board of directors and the
needs of our board of directors and the respective committees of our board of directors. Some of the qualifications that our nominating and corporate
governance committee considers include, without limitation, issues of character, integrity, judgment, diversity of experience, independence, area of
expertise, corporate experience, length of service, potential conflicts of interest and other commitments. We also look for nominees who have skills and
experience that would support the short and long-term goals and strategy of the Company. Our nominating and corporate governance committee seeks to
maintain an appropriate balance of backgrounds, skills, knowledge, and experience to support current and future needs. Nominees must also have the ability
to offer advice and guidance to our Chief Executive Officer based on past experience in positions with a high degree of responsibility and be leaders in the
companies or institutions with which they are affiliated.
In the case of incumbent directors whose terms of office are set to expire, our nominating and corporate governance committee reviews these
directors’ overall service to the Company during their terms, including the number of meetings attended, level of participation, quality of performance and
any other relationships and transactions that might impair the directors’ independence.
Director candidates, including incumbent directors, must have sufficient time available in the judgment of our nominating and corporate
governance committee to perform all board of director and committee responsibilities. Members of our board of directors are expected to prepare for, attend
and participate in all board of director and applicable committee meetings. Other than the foregoing, there are no stated minimum criteria for director
nominees, although our nominating and corporate governance committee may also consider such other factors as it may deem, from time to time, are in our
and our stockholders’ best interests.
Although our board of directors does not maintain a specific policy with respect to board diversity, our board of directors believes that our board of
directors should be a diverse body, and our nominating and corporate governance committee considers a broad range of backgrounds and experiences. In
making determinations regarding nominations of directors, our nominating and corporate governance committee may take into account the benefits of
diverse viewpoints, backgrounds, and experiences. Our nominating and corporate governance committee also considers these and other factors as it
oversees the annual board of director and committee evaluations. After completing its review and evaluation of director candidates, our nominating and
corporate governance committee recommends to our full board of directors the director nominees for selection.
In addition to utilizing personal networks and relationships to identify potential candidates, our nominating and corporate governance committee
may also engage, if it deems appropriate, a professional search firm. The nominating and corporate governance committee conducts any appropriate and
necessary inquiries into the backgrounds and qualifications of possible candidates after considering the function and needs of the board. The nominating
and corporate governance committee meets to discuss and consider the candidates’ qualifications and then selects a nominee for recommendation to the
board.
Stockholder Recommendations for Nominations to the Board of Directors
Our nominating and corporate governance committee will consider candidates for director recommended by stockholders, so long as such
recommendations comply with our amended and restated certificate of incorporation, amended and restated bylaws and applicable laws, rules and
regulations, including those promulgated by the SEC. Our nominating and corporate governance committee will evaluate such recommendations in
accordance with its charter, our amended and restated bylaws, our policies and procedures for director candidates, as well as the regular director nominee
criteria described above. This process is designed to ensure that our board of directors includes members with diverse backgrounds, skills and experience,
including appropriate financial and other expertise relevant to our business. Eligible stockholders wishing to recommend a candidate for nomination should
contact our Secretary in writing. Such recommendations must include information about the candidate, a statement of support by the recommending
stockholder, evidence of the recommending stockholder’s ownership of our common stock and a signed letter from the candidate confirming willingness to
serve on our board of directors. Our nominating and corporate governance committee has discretion to decide which individuals to recommend for
nomination as directors.
Under our amended and restated bylaws, stockholders may also nominate candidates for our board of directors. Any nomination must comply with
the requirements set forth in our amended and restated bylaws and should be sent in writing to our Secretary at 400 Chesapeake Drive, Redwood City,
California 94063. To be timely for our 2024 annual meeting of stockholders, our Secretary must receive the nomination no earlier than September 13, 2024
and no later than October 13, 2024.
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ITEM 11. EXECUTIVE COMPENSATION
Processes and Procedures for Compensation Decisions
Our compensation committee is responsible for the executive compensation programs for our executive officers and reports to our board of
directors on its discussions, decisions and other actions. Our compensation committee reviews and approves corporate goals and objectives relating to the
compensation of our Chief Executive Officer, evaluates the performance of our Chief Executive Officer in light of those goals and objectives and
determines and approves the compensation of our Chief Executive Officer based on such evaluation. Our compensation committee has the sole authority to
determine our Chief Executive Officer’s compensation. In addition, our compensation committee, in consultation with our Chief Executive Officer,
reviews and approves all compensation for other officers. Our Chief Executive Officer and Chief Financial Officer also make compensation
recommendations for our other executive officers and initially propose the corporate and departmental performance objectives under our Executive
Incentive Compensation Plan to the compensation committee.
The compensation committee is authorized to retain the services of one or more executive compensation and benefits consultants or other outside
experts or advisors as it sees fit, in connection with the establishment of our compensation programs and related policies.
Summary Compensation Table
The following table presents summary information regarding the total compensation for services rendered in all capacities that was earned by our
Chief Executive Officer and our two other most highly compensated executive officers in our fiscal years ended December 31, 2023 and 2022. The
individuals listed in the table below are our named executive officers for our fiscal year ended December 31, 2023.
Name and Principal Position
Jeffrey M. Soinski
President and Chief Executive
Officer
Himanshu Patel
Chief Technology Officer
Nabeel P. Subainati
Principal Financial and
Accounting Officer
Year Salary ($) Bonus ($)
400,000
2023
-
Stock
Awards
($)(1)
307,500
Option
Awards
($)
2022
2023
2022
2023
400,000
300,000
300,000
270,000
2022
247,500
-
-
-
-
-
-
184,500
-
104,500
-
-
-
-
-
-
-
Non-Equity
Incentive Plan
Compensation
($)(2)
All Other
Compensation
($)
216,795
205,155
130,077
123,093
77,584
Total ($)
- 924,295
- 605,155
- 614,577
- 423,093
- 452,084
48,349
- 295,849
(1) The amounts reported represent the aggregate grant-date fair value of the restricted stock awards awarded to the named executive officer in 2023 and
2022, calculated in accordance with ASC Topic 718. Such grant-date fair value does not take into account any estimated forfeitures related to service-
vesting conditions. The assumptions used in calculating the grant-date fair value of the restricted stock awards reported in this column are set forth in
the section of this Annual Report on Form 10-K titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—
Critical Accounting Policies and Estimates—Stock-Based Compensation.”
(2) Non-equity incentive plan compensation includes cash awards granted at the discretion of the Compensation Committee under our Executive Incentive
Compensation Plan for achieving certain performance-based criteria.
Executive Employment Letters
Jeffrey M. Soinski
Pursuant to the employment letter, as revised on September 9, 2020, between the Company and Jeffrey M. Soinski, our President and Chief
Executive Officer, Mr. Soinski is entitled to receive as compensation (i) a base salary of $400,000, (ii) a discretionary bonus targeted at 75% of his base
salary, subject to the achievement of certain goals mutually agreed upon by him and our board of directors and payable semi-annually; and (iii) other
standard benefits provided to each of the Company’s executive officers. The letter has no specific term and provides for at-will employment.
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Pursuant to Mr. Soinski’s employment offer letter, if, within the 12-month period following a “change in control,” we terminate Mr. Soinski’s
employment without “cause,” or Mr. Soinski resigns for “good reason” (as such terms are defined in Mr. Soinski’s employment offer letter), Mr. Soinski
will receive accelerated vesting as to 100% of his outstanding unvested stock options. If we experience a change in control, and Mr. Soinski remains our
employee through such date, Mr. Soinski will receive accelerated vesting as to 50% of his outstanding unvested stock options and/or restricted stock.
If we terminate Mr. Soinski without cause at any time, he will be entitled to receive 12 months of base salary and COBRA medical and dental
insurance coverage, in each case payable in substantially equal installments in accordance with our payroll practices, as severance, in exchange for signing
and not revoking a severance agreement and general release against us and our affiliates within 60 days following his termination of employment.
401(k) Plan
We maintain a tax-qualified retirement plan that provides eligible employees with an opportunity to save for retirement on a tax advantaged basis.
We may make a discretionary matching contribution to the 401(k) plan, and may make a discretionary employer contribution to each eligible employee
each year. To date, we have not made any matching or profits sharing contributions into the 401(k) plan. All participants’ interests in our matching and
profit sharing contributions, if any, vest pursuant to a four-year graded vesting schedule from the time of contribution. Pre-tax contributions are allocated to
each participant’s individual account and are then invested in selected investment alternatives according to the participants’ directions. The 401(k) plan is
intended to qualify under Sections 401(a) and 501(a) of the Code. As a tax-qualified retirement plan, contributions to the 401(k) plan and earnings on those
contributions are not taxable to the employees until distributed from the 401(k) plan, and all contributions are deductible by us when made.
Pension Benefits and Nonqualified Deferred Compensation
We do not provide a pension plan for our employees, and none of our named executive officers participated in a nonqualified deferred
compensation plan in 2023.
Outstanding Equity Awards at Fiscal Year-End
The following table provides information regarding equity awards held by our named executive officers at December 31, 2023.
Option Awards
Number of
Securities
Underlying
Unexercised
Options (#)
Number of
Securities
Underlying
Unexercised
Options (#)
Option
Exercise
Price
($)(4)
Option
Expiration
Date
Stock Awards
Number of
Shares or
Units of
Stock That
Have Not
Vested (#)
Market
Value of
Shares or
Units of
Stock That
Have Not
Vested
($)(5)
Name
Jeffrey M. Soinski
Grant Date
12/31/2014(1)
Exercisable
(3)
Unexercisable
Himanshu Patel
(6)
1/18/2023(2)
(7)
12/31/2014(1)
(6)
1/18/2023(2)
(7)
Nabeel Subainati (8)
1/6/2020(2) (7)
4
—
1
—
—
—
540,000
12/31/2024
—
—
—
—
—
16,666
45,165
—
540,000
12/31/2024
—
—
—
—
80
—
—
—
10,000
27,100
—
417
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(1) Each of the outstanding equity awards was granted pursuant to our 2009 Stock Plan. No additional awards may be granted under the 2009 Stock Plan,
and all awards granted under the 2009 Stock Plan that are repurchased, forfeited, expired, are cancelled or otherwise not issued become available for
grant under the 2015 Plan in accordance with its terms.
(2) Each of the outstanding equity awards was granted pursuant to our 2015 Equity Incentive Plan.
(3) All of our options granted pursuant to our 2009 Stock Plan are early exercisable subject to the Company’s right to repurchase any unvested shares.
(4) This column represents the fair value of a share of our common stock on the date of grant, as determined by our board of directors.
(5) This column represents the market value of the unvested shares of our common stock underlying the RSAs as of December 31, 2023, based on the
closing price of our common stock, as reported on the Nasdaq Global Select Market, of $2.71 per share.
(6) 25% of the shares of our common stock subject to this option vested on the one year anniversary of the grant date, and the balance vests in 36
successive equal monthly installments, subject to continued service through each such vesting date.
(7) 50% of the shares of our common stock subject to this stock award vests on the one year anniversary of the grant date, and the balance vests on the
following year anniversary date, subject to continued service through each such vesting date.
(8) Mr. Subainati has been designated as Principal Financial Officer and Principal Accounting Officer effective as of July 21, 2022.
Potential Payments upon Termination or Change of Control
Jeffrey M. Soinski
In March 2018, we entered into a change of control and severance agreement with Jeffrey M. Soinski, which was subsequently amended in March
2020. Under this agreement, as amended, if, within the 18 month period following a “change of control,” we terminate Mr. Soinski’s employment other
than for “cause,” death or disability, or the employee resigns for “good reason” (as such terms are defined in the employee’s employment agreement) and,
within 60 days following the employee’s termination, the employee executes an irrevocable separation agreement and release of claims, the employee is
entitled to receive (i) continuing payments of severance pay at a rate equal to the employee’s monthly base salary and pro-rated target bonus, as then in
effect, for a period of 12 months plus one month for every year of service completed for the Company (provided that such severance shall not exceed 18
months), (ii) reimbursement of premiums to maintain group health insurance continuation benefits pursuant to “COBRA” for employee and employee’s
dependents for up to 12 months, (iii) accelerated vesting as to 100% of the employee’s outstanding unvested stock options and/or restricted stock, and (iv)
the extension of the post-termination exercise period of any options held by the employee for a period of 1 year. Additionally, if we experience a change in
control, 50% of Mr. Soinski’s outstanding unvested stock options and/or restricted stock will vest. In the event of any conflict between Mr. Soinski’s change
of control and severance agreement and his offer letter, described above under “Executive Employment Letters,” he will be entitled to the greater of the
benefits provided by either. The agreement also provides that if the employee is employed by the Company or the Company’s successor on the date that is
12 months following a change of control, then the employee will be entitled to a lump sum bonus payment in an amount equal to what the employee would
have received as a severance payment if the employee had been terminated other than for cause, death or disability.
Himanshu Patel
We previously entered into a change of control and severance agreement with Himanshu Patel, which was subsequently amended in March 2020.
Under this agreement, as amended, if, within the 18 month period following a “change of control,” we terminate Mr. Patel’s employment other than for
“cause,” death or disability, or the employee resigns for “good reason” (as such terms are defined in the employee’s employment agreement) and, within 60
days following the employee’s termination, the employee executes an irrevocable separation agreement and release of claims, the employee is entitled to
receive (i) continuing payments of severance pay at a rate equal to the employee’s monthly base salary and pro-rated target bonus, as then in effect, for a
period of 12 months plus one month for every year of service completed for the Company (provided that such severance shall not exceed 18 months), (ii)
reimbursement of premiums to maintain group health insurance continuation benefits pursuant to “COBRA” for employee and employee’s dependents for
up to 12 months, (iii) accelerated vesting as to 100% of the employee’s outstanding unvested stock options and/or restricted stock, and (iv) the extension of
the post-termination exercise period of any options held by the employee for a period of 1 year. The agreement also provides that if the employee is
employed by the Company or the Company’s successor on the date that is 12 months following a change of control, then the employee will be entitled to a
lump sum bonus payment in an amount equal to what the employee would have received as a severance payment if the employee had been terminated other
than for cause, death or disability.
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Nabeel Subainati
We previously entered into a change in control agreement with Mr. Subainati, which we subsequently amended in March 2023. Under the
agreement, as amended, we agreed that if, within the 18 month period following a “change of control,” we terminate Mr. Subainati’s employment other than
for “cause” or death or disability, or if the employee resigns for “good reason” (as such terms are defined in the employee’s employment agreement) and,
within 60 days following the employee’s termination, the employee executes an irrevocable separation agreement and release of claims, the employee is
entitled to receive (i) continuing payments of severance pay at a rate equal to the employee’s base salary and target bonus, as then in effect, for six months
plus one month for every year of service completed for the Company (provided that such severance shall not exceed 12 months), (ii) reimbursement of
premiums to maintain group health insurance continuation benefits pursuant to “COBRA” for the employee and the employee’s dependents for up to six
months, (iii) accelerated vesting as to 100% of the employee’s outstanding unvested stock options and/or restricted stock, and (iv) the extension of the post-
termination exercise period of any options held by the employee for a period of 1 year. Additionally, if we experience a change in control, 50% of Mr.
Subainati’s outstanding unvested stock options and/or restricted stock will vest. The agreement, as amended, also provides that if the employee is employed
by us or our successor on the date that is 12 months following a change of control, then the employee will be entitled to a lump sum bonus payment in an
amount equal to what the employee would have received as a severance payment if the employee had been terminated other than for cause, death or
disability.
Executive Incentive Compensation Plan
Our board of directors has adopted an Executive Incentive Compensation Plan, or the Bonus Plan, which is administered by our compensation
committee. The Bonus Plan allows our compensation committee to provide cash incentive awards to selected employees, including our named executive
officers, based upon performance goals established by our compensation committee.
Under the Bonus Plan, our compensation committee determines the performance goals applicable to any award, which goals may include, without
limitation: attainment of research and development milestones, sales bookings, business divestitures and acquisitions, cash flow, cash position, earnings
(which may include any calculation of earnings, including but not limited to earnings before interest and taxes, earnings before taxes, earnings before
interest, taxes, depreciation and amortization and net earnings), earnings per share, net income, net profit, net sales, operating cash flow, operating
expenses, operating income, operating margin, overhead or other expense reduction, product defect measures, product release timelines, productivity, profit,
return on assets, return on capital, return on equity, return on investment, return on sales, revenue, revenue growth, sales results, sales growth, stock price,
time to market, total stockholder return, working capital, and individual objectives such as peer reviews or other subjective or objective criteria.
Performance goals that include our financial results may be determined in accordance with GAAP or such financial results may consist of non-GAAP
financial measures and any actual results may be adjusted by the compensation committee for one-time items or unbudgeted or unexpected items when
performance goals that include our financial results may be determined in accordance with GAAP, or such financial results may consist of non-GAAP
financial measures, and any actual results may be adjusted by the compensation committee for one-time items or unbudgeted or unexpected items when
determining whether the performance goals have been met. The goals may be on the basis of any factors the compensation committee determines relevant,
and may be adjusted on an individual, divisional, business unit or company-wide basis. The performance goals may differ from participant to participant
and from award to award.
Our compensation committee may, in its sole discretion and at any time, increase, reduce or eliminate a participant’s actual award, and/or increase,
reduce or eliminate the amount allocated to the bonus pool for a particular performance period. The actual award may be below, at or above a participant’s
target award, in the compensation committee’s discretion. Our compensation committee may determine the amount of any reduction on the basis of such
factors as it deems relevant, and it is not required to establish any allocation or weighting with respect to the factors it considers.
Actual awards are paid in cash only after they are earned, which usually requires continued employment through the date a bonus is paid. Our
compensation committee has the authority to amend, alter, suspend or terminate the Bonus Plan provided such action does not impair the existing rights of
any participant with respect to any earned bonus.
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Retention Bonuses
On March 9, 2021, the Compensation Committee (the “Committee”) of the Board of Directors of the Company determined to provide certain
incentive payments (the “Retention Bonuses”) to certain full-time executive officers and vice presidents of the Company, including Jeffrey M. Soinski, and
Himanshu Patel, who serve as the Company’s Chief Executive Officer and Chief Technology Officer, respectively (the “Bonus Officers”), based on certain
performance goals. The Retention Bonus consists of incentive payments in an amount equal to 100% of such Bonus Officer’s annual salary as of December
31, 2023, 50% of which will be paid if such Bonus Officer is in good standing in their service at the Company on December 31, 2023, and 50% to be paid if
such Bonus Officer is in good standing in their service at the Company on December 31, 2024 (each, a “Retention Bonus Payment”). The Retention Bonus
Payments may be paid in cash or equity, or a combination of both, as determined by the Committee. In addition, the Retention Bonus Payments shall
accelerate in the event of a Change in Control, as defined in the Company’s Amended and Restated 2015 Equity Incentive Plan, provided that the Bonus
Officer remains in his or her respective position through such Change in Control. Each Retention Bonus Payment shall be increased in the event that the
price of the common stock of the Company is above $900.00 (subject to adjustment for any stock splits, reverse stock splits, or similar transactions) as of
the date of such Retention Bonus Payment, according to the schedule below:
● If the stock price is between $900.00 and $1,199.99 (subject to adjustment for any stock splits, reverse stock splits, or similar transactions) as of
the date of the Retention Bonus Payment, such Retention Bonus Payment shall be increased by 25%;
● If the stock price is between $1,200.00 and $1,499.99 (subject to adjustment for any stock splits, reverse stock splits, or similar transactions) as of
the date of the Retention Bonus Payment, such Retention Bonus Payment shall be increased by 50%; and
● If the stock price is $1,500.00 or above (subject to adjustment for any stock splits, reverse stock splits, or similar transactions) as of the date of the
Retention Bonus Payment, such Retention Bonus Payment shall be increased by 100%.
The Retention Bonuses are in addition to any other bonus to which the Bonus Officers may be entitled under the Company’s Bonus Plan.
On October 24, 2023, the Committee determined to provide the Retention Bonuses to Nabeel Subainati, the Company’s Vice President, Finance;
provided, however, that Mr. Subainati will not be eligible to receive the Retention Bonus Payment payable with respect to his continuing employment as of
December 31, 2023.
In satisfaction of these retention bonus payment obligations for a number of employees, we paid a total of $0.9 million in the form of RSAs on
January 16, 2024. Pursuant to the retention bonus terms as approved by the Committee, we may elect to pay these incentive payments in either cash or
equity, or a combination of both. On January 11, 2024, the Committee approved the aforementioned payment in the form of RSAs.
Specifically, we granted a total of 317,314 shares of RSAs which vested immediately upon grant. To satisfy all associated income and other
statutory tax obligations on behalf of the various employees, we employed a withhold-to-cover payment method. Consequently, 123,285 RSA shares were
withheld resulting in a net issuance of common shares to employees totaling 194,029. We measured the fair value of RSAs using the closing stock price of a
share of the Company’s common stock of $2.70 on the day of grant.
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Director Compensation
Our board of directors approved our Outside Director Compensation Policy in January 2015 to compensate each non-employee director for his or
her service and amended certain aspects of this policy in August 2018. Our board of directors will have the discretion to revise non-employee director
compensation as it deems necessary or appropriate. Under our Outside Director Compensation Policy, non-employee directors will receive compensation
in the form of equity and cash, as described below:
Cash Compensation. All non-employee directors will be entitled to receive the following cash compensation for their services:
● $35,000 per year for service as a board member;
● $25,000 per year additionally for service as chairman of the board;
● $20,000 per year additionally for service as chairman of the audit committee;
● $10,000 per year additionally for service as an audit committee member;
● $15,000 per year additionally for service as chairman of the compensation committee;
● $7,500 per year additionally for service as a compensation committee member;
● $10,000 per year additionally for service as chairman of the nominating and corporate governance committee; and
● $5,000 per year additionally for service as a nominating and corporate governance committee member.
All cash payments to non-employee directors, or the Retainer Cash Payments, will be paid semiannually with the first semiannual installment
payable on the date of our annual meeting of stockholders or, if no annual meeting occurs in a given year, May 1, and the second semiannual installment
payable on November 1 of each year.
Election to Receive RSUs or RSAs in Lieu of Cash Payments. All non-employee directors may elect to convert a Retainer Cash Payment into
RSUs or RSAs, or Retainer RSAs, with a grant date fair value equal to the applicable Retainer Cash Payment. Each Retainer RSA will be granted on the
date that the applicable Retainer Cash Payment was scheduled to be paid, and all of the shares underlying the Retainer RSAs will vest and become
exercisable six months from the date of grant, subject to continued service as a director through the applicable vesting date. The Retainer RSAs will be
subject to certain terms and conditions as described below under the section titled “Director Compensation—Equity Compensation.”
Elections to convert a Retainer Cash Payment into a Retainer RSA must generally be made on or prior to December 31 of the year prior to the year
in which the Retainer Cash Payment is scheduled to be paid, or such earlier deadline as is established by our board of directors or compensation
committee. A newly appointed non-employee director will be permitted to elect to convert Retainer Cash Payments payable in the same calendar year into
Retainer RSAs, provided that such election is made prior to the date the individual becomes a non-employee director.
Equity Compensation. Nondiscretionary, automatic grants of RSUs or RSAs (collectively referred to as “RSAs”) will be made to our non-
employee directors.
● Initial Grant. Generally, each person who first becomes a non-employee director will be granted RSAs having a grant date fair value equal to
$115,000, or the Initial Grant. The Initial Grant will typically be granted on the date of the first meeting of our board of directors or
compensation committee occurring on or after the date on which the individual first became a non-employee director. The Initial Grant will
vest and become exercisable as to one thirty-sixth (1/36th) of the shares subject to such Initial Grant on each monthly anniversary of the
commencement of the non-employee director’s service as a director, subject to the continued service as a director through the applicable
vesting date.
● Annual Grant. Once each calendar year, on the same date that our board of directors grants annual equity awards to our senior executives,
each non-employee director will be granted RSAs having a grant date fair value equal to $75,000, or the Annual Grant. All of the shares
underlying the Annual Grant will vest and become exercisable one year from the date of grant, subject to continued service as a director
through the applicable vesting date.
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The grant date fair value is the closing sales price for the Company’s common stock (or the closing bid, if no sales were reported) as quoted on
such exchange or system on the date such award is granted.
Any RSAs granted under our outside director compensation policy will fully vest and become exercisable in the event of a change in control, as
defined in our 2015 Plan, provided that the holder remains a director through such change in control. Further, our 2015 Plan provides that in the event of a
merger or change in control, as defined in our 2015 Plan, each outstanding equity award granted under our 2015 Plan that is held by a non-employee
director will fully vest, all restrictions on the shares subject to such award will lapse and, with respect to awards with performance-based vesting, all
performance goals or other vesting criteria will be deemed achieved at 100% of target levels, and all of the shares subject to such award will become fully
exercisable, if applicable, provided such optionee remains a director through such merger or change in control.
Compensation for Fiscal Year 2023
The following table sets forth a summary of the compensation received by our non-employee directors who received compensation during our
fiscal year ended December 31, 2023:
Name
James G. Cullen
James B. McElwee
Tamara Elias
Fees earned or
paid in cash
$
92,500 $
65,000
62,500
Option awards(1) Stock
Total
awards(2)
- $
-
-
75,000 $
75,000
75,000
167,500
140,000
137,500
(1) As of December 31, 2023, Mr. Cullen had outstanding options to purchase a total of 10 shares of our common stock.
(2) All non-employee directors that were directors at the time of grant received an Annual RSA grant on January 11, 2024 for the prior fiscal year ended
December 31, 2023.
Directors who are also our employees receive no additional compensation for their service as directors. During 2023, Jeffrey M. Soinski, our
President, Chief Executive Officer and a director, was also our employee. See the section titled “Summary Compensation Table” below for additional
information about the compensation for Mr. Soinski.
Officer and Director Share Purchase Plan
On August 22, 2018, the Board of Directors of the Company approved the adoption of an Officer and Director Share Purchase Plan (“ODPP”),
which allowed executive officers and directors to purchase shares of our common stock at fair market value in lieu of salary or, in the case of directors,
director fees. Eligible individuals were allowed voluntarily participate in the ODPP by authorizing payroll deductions or, in the case of directors, deductions
from director fees for the purpose of purchasing common stock. Elections to participate in the ODPP may only be made during open trading windows under
our insider trading policy when the participant does not otherwise possess material non-public information concerning the Company. There was no common
stock issued under the ODPP during either the year ended December 31, 2022 or 2021. On May 16, 2022, the Board of Directors of the Company
terminated the Amended and Restated Officer and Director Share Purchase Plan due to the administrative costs of maintaining such plan and the limited
amount of remaining shares. Consequently, there are no longer any shares reserved for issuance under this plan.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
Equity Compensation Plan Information
All of our equity compensation plans have been approved by our stockholders. The following table provides information as of December 31,
2023, with respect to the shares of our common stock that may be issued under our existing equity compensation plans.
(a) Number of
Securities to be
Issued Upon
Exercise of
Outstanding
Options,
Restricted
Stock Units and
Rights
(b) Weighted
Average
Exercise
Price of
Outstanding
Options,
Restricted
Stock Units and
Rights (2)
(c) Number of
Securities
Remaining
Available for
Future Issuance
Under Equity
Compensation
Plans
(Excluding
Securities
Reflected in
Column (a))
90,205 $
183,340.00
24,890
Plan Category
Equity compensation plans approved by stockholders (1)
(1) Includes the following plans: our 2009 Stock Plan and our 2015 Plan. Our 2015 Plan provides that on the first day of each fiscal year commencing in
fiscal year 2016, the number of shares authorized for issuance under the 2015 Plan is periodically increased by such number of shares that may be
determined by our board of directors and approved by our stockholders.
(2) The weighted average exercise price does not take into account outstanding restricted stock, restricted stock awards, or RSUs, which have no exercise
price.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information with respect to the beneficial ownership of our capital stock as of March 1, 2024 for:
● each person or group of affiliated persons known by us to be the beneficial owner of more than 5% of our common stock;
● each of our named executive officers;
● each of our directors and nominees for director; and
● all of our current executive officers and directors as a group.
We have determined beneficial ownership in accordance with the rules and regulations of the SEC, and the information is not necessarily
indicative of beneficial ownership for any other purpose. Except as indicated by the footnotes below, we believe, based on information furnished to us, that
the persons and entities named in the table below have sole voting and sole investment power with respect to all shares of our capital stock that they
beneficially own, subject to applicable community property laws.
Applicable percentage ownership is based on 1,511,107 shares of our common stock outstanding as of March 1, 2024. In computing the number of
shares of capital stock beneficially owned by a person and the percentage ownership of such person, we deemed to be outstanding all shares of our capital
stock subject to options, restricted stock awards (“RSAs”) or RSUs held by the person that are currently exercisable, exercisable or vests within 60 days of
March 1, 2024. However, we did not deem such shares of our capital stock outstanding for the purpose of computing the percentage ownership of any other
person.
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Unless otherwise indicated, the address of each beneficial owner listed in the table below is c/o Avinger, Inc., 400 Chesapeake Drive, Redwood
City, California 94063. The information provided in the table is based on our records, information filed with the SEC and information provided to us,
except where otherwise noted.
Name of Beneficial Owner
Named Executive Officers and Director:
Jeffrey M. Soinski(1)
Himanshu Patel(2)
Nabeel Subainati(3)
James G. Cullen(4)
James B. McElwee(5)
Tamara N. Elias(6)
All executive officers, directors and director nominees as a group (6 individuals)(7)
5% or More Beneficial Owners:
CRG Partners III L.P (8)
Shares Beneficially Owned
Number of
Shares
Percentage
58,959
49,995
4,551
29,905
29,895
29,962
203,267
3.8%
3.2%
0.3%
1.9%
1.9%
1.9%
11.9%
150,545
9.9%
* Represents ownership of less than 1%
(1) Consists of (i) 50,622 shares of common stock held of record by Mr. Soinski, (ii) 4 shares of common stock issuable upon exercise of options
exercisable within 60 days of March 1, 2024, and (iii) 8,333 shares of common stock underlying RSAs, none of which vests within 60 days of March
1, 2024, but currently include voting rights equivalent to common stock.
(2) Consists of (i) 36,277 shares of common stock held of record by Mr. Patel, (ii) warrants to purchase 17 shares of common stock, (iii) 1 share of
common stock issuable upon exercise of options exercisable within 60 days of March 1, 2024, (iv) 8,700 shares of common stock that are issuable
upon the conversion of shares of Series B preferred stock that are immediately convertible to common stock and (v) 5,000 shares of common stock
underlying RSAs, none of which vest within 60 days of March 1, 2024, but that currently include voting rights equivalent to common stock.
(3) Consists of (i) 1,718 shares of common stock held of record by Mr. Subainati and (ii) 2,833 shares of common stock underlying RSAs, none of which
vest within 60 days of March 1, 2024, but that currently include voting rights equivalent to common stock.
(4) Consists of (i) 4,298 shares of common stock held of record by 2000 James Cullen Generation Skipping Family Trust, (ii) 10 shares of common stock
issuable upon exercise of options exercisable within 60 days of March 1, 2024, and (iii) 25,597 shares of common stock underlying RSAs, none of
which vest within 60 days of March 1, 2024, but that currently include voting rights equivalent to common stock. Mr. Cullen has sole voting and
dispositive power with respect to shares held by James Cullen Generation Skipping Family Trust. Mr. Cullen does not have a pecuniary interest in the
James Cullen Generation Skipping Family Trust.
(5) Consists of (i) 4,298 shares of common stock held of record by Mr. McElwee, and (ii) 25,597 shares of common stock underlying RSAs, none of
which vest within 60 days of March 1, 2024, but that currently include voting rights equivalent to common stock.
(6) Consists of (i) 4,365 shares of common stock held of record by Mrs. Elias, and (ii) 25,597 shares of common stock underlying RSAs, none of which
vest within 60 days of March 1, 2024, but that currently include voting rights equivalent to common stock.
(7) Consists of (i) 101,578 shares of common stock, (ii) warrants to purchase 17 shares of common stock, (iii) 15 shares of common stock issuable upon
exercise of options exercisable or vesting of RSUs within 60 days of March 1, 2024, (iv) 8,700 shares of common stock that are issuable upon the
conversion of shares of Series B preferred stock that are immediately convertible to common stock and (v) 92,957 shares of common stock underlying
RSAs, none of which vest within 60 days of March 1, 2024, but that currently include voting rights equivalent to common stock.
(8) As reported in the Schedule 13G/A filed with the SEC on March 15, 2024. Consists of shares of common stock issuable upon conversion of shares of
Series A-1 Convertible Preferred Stock and Series E Convertible Preferred Stock. The share numbers above represent the maximum number of shares
of common stock issuable upon the conversion of CRG’s preferred stock pursuant to the Certificate of Designation for the Series A-1 Convertible
Preferred Stock and the Certificate of Designation for the Series E Convertible Preferred Stock as a result of the blocker provision of the Certificates of
Designation described in the following sentence. Nathan D. Hukill, CR Group L.P., CRG Partners III L.P., CRG Partners III Parallel Fund “A” L.P.,
CRG Partners III (Cayman) Unlev AIV I L.P., CRG Partners III (Cayman) Lev AIV I L.P., and CRG Partners III Parallel Fund “B” (Cayman) L.P. have
shared voting and dispositive power over the reported shares. The address of CRG is 400 Chesapeake Drive, Redwood City, CA 94063.
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Related Person Transactions
We describe below transactions and series of similar transactions, since January 1, 2022, to which we were a party or will be a party, in which:
● the amounts involved exceeded or will exceed the lesser of $120,000 or 1% of the average of our total assets at year-end for the last two
completed fiscal years; and
● any of our directors, nominees for director, executive officers or beneficial holders of more than 5% of our outstanding common stock, or any
immediate family member of, or person sharing the household with, any of these individuals or entities (each, a related person), had or will
have a direct or indirect material interest.
Employment and Indemnification Agreements
We have entered into employment and separation arrangements with certain current and former executive officers. For more information on these
employment and separation agreements, see the section titled “Executive Compensation - Executive Employment Letters” and “Executive Compensation –
Potential Payments upon Termination or Change of Control” in Item 11 above.
We have entered into indemnification agreements with our directors and executive officers. The indemnification agreements, as well as our
certificate of incorporation and bylaws, require us to indemnify our directors and executive officers to the fullest extent permitted by Delaware law.
Transactions with CRG
As described elsewhere in this Annual Report on Form 10-K, we have entered into various transactions with CRG. On August 2, 2023, CRG
became a beneficial holder of greater than 5% of our outstanding common stock. As a result, the ongoing CRG agreements and transactions entered into at
the time of the Zylox-Tonbridge private placement are considered related party transactions including the following:
On September 22, 2015, the Company entered into a Term Loan Agreement, as amended (the “Loan Agreement”) with CRG under which, subject
to certain conditions, the Company had the right to borrow up to $50 million in principal amount from CRG on or before the end of the twenty-fourth (24th)
month period commencing on the first Borrowing Date (as defined in the Loan Agreement). The Company borrowed $30 million on September 22, 2015.
The Company borrowed an additional $10 million on June 15, 2016 under the Loan Agreement.
On February 14, 2018, the Company and CRG further amended the Loan Agreement concurrent with the conversion of $38 million of the
principal amount of the senior secured term loan (plus $3.8 million in back-end fees and prepayment premium applicable thereto) into a newly authorized
Series A convertible preferred stock.
On August 2, 2023, the Company and CRG entered into a Securities Purchase Agreement (“SPA”) pursuant to which the Company issued 1,920
shares of a newly authorized Series E convertible preferred stock (“Series E preferred stock”) in exchange for CRG surrendering for cancellation $1.92
million of outstanding principal and accrued interest of the senior secured term loan under the Loan Agreement (the “Term Loan Agreement”). Each share
of Series E preferred stock has a stated value of $1,000 per share and is convertible into 93 shares of the Company’s common stock at a conversion price of
$10.725 per share, provided that the shares of Series E preferred stock cannot be converted into common stock to the extent the applicable holder would
beneficially own in excess of 19.99% of the Company’s outstanding voting power, unless approved by the Company's stockholders in accordance with
Nasdaq Listing Rule 5635(b).
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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 for 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 $3.5 million at all times; (6) eliminated the minimum revenue covenants 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 the Company and its 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 January 26, 2024, the Company entered into Amendment No. 7 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, the Company will be subject to the minimum liquidity
requirement of $3.5 million.
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 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 for 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, as defined in Footnote 14. Refer therein for details.
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 12.5%. Beginning in the first quarter of 2027, the Company will be required to make quarterly principal payments (in addition to the interest) of $2.4
million with total principal payments of $9.4 million in 2027 and $9.4 million in 2028. The maturity date of the Loan (as defined in the Loan Agreement) is
December 31, 2028.
The Company may voluntarily prepay the borrowings in full, with a prepayment premium beginning at 5.0% and declining by 1.0% annually
thereafter, with no premium being payable if prepayment occurs after seven and half years of the loan. Each tranche of borrowing required the payment, on
the borrowing date, of a financing fee equal to 1.5% of the borrowed loan principal, which is recorded as a discount to the debt. In addition, a facility fee
equal to 15.0% of the amounts borrowed plus any PIK is to be payable at the end of the term or when the borrowings are repaid in full. A long-term
liability is being accreted using the effective interest method for the facility fee over the term of the Loan Agreement with a corresponding discount to the
debt. The borrowings are collateralized by a security interest in substantially all of the Company’s assets.
The Loan Agreement requires that the Company adheres to certain affirmative and negative covenants, including financial reporting requirements,
certain minimum financial covenants for pre-specified liquidity and a prohibition against the incurrence of indebtedness, or creation of additional liens,
other than as specifically permitted by the terms of the Loan Agreement. In particular, the covenants of the amended Loan Agreement included a covenant
that the Company maintain a minimum of $3.5 million of cash and certain cash equivalents. The minimum liquidity requirement was temporarily reduced
to $1.0 million until April 1, 2024. In addition, the Loan Agreement prohibits the payment of cash dividends on the Company’s capital stock and also
places restrictions on mergers, sales of assets, investments, incurrence of liens, incurrence of indebtedness and transactions with affiliates. CRG may
accelerate the payment terms of the Loan Agreement upon the occurrence of certain “Events of Default” set forth therein, which include the failure of the
Company to make timely payments of amounts due under the Loan Agreement, the failure of the Company to adhere to the covenants set forth in the Loan
Agreement, the insolvency of the Company or upon the occurrence of a “Material Adverse Change” thereunder.
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Policies and Procedures for Related Party Transactions
Our board of directors has adopted a written policy that our executive officers, directors, nominees for election as a director, beneficial owners of
more than 5% of any class of our common stock and any members of the immediate family of any of the foregoing persons are not permitted to enter into a
related person transaction with us without the prior consent of our audit committee. Any request for us to enter into a transaction with an executive officer,
director, nominee for election as a director, beneficial owner of more than 5% of any class of our common stock or any member of the immediate family of
any of the foregoing persons in which the amount involved exceeds the lesser of $120,000 or 1% of the average of our total assets at year-end for the last
two completed fiscal years and such person would have a direct or indirect interest must first be presented to our audit committee for review, consideration
and approval. In approving or rejecting any such proposal, our audit committee is to consider the material facts of the transaction, including, but not limited
to, whether the transaction is on terms no less favorable than terms generally available to an unaffiliated third-party under the same or similar circumstances
and the extent of the related person’s interest in the transaction.
Director Independence
Information regarding the independence of directors is disclosed above under Item 10 under the heading “Director Independence” and
incorporated herein by reference.
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Table of Contents
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Fees Paid to the Independent Registered Public Accounting Firm
The following table represents aggregate fees billed to us for the years ended December 31, 2023 and 2022 by
Moss Adams, as applicable. All fees below were approved by our Audit Committee.
Year ending December 31,
Audit fees(1)(2)
Tax fees(3)
Total
2023
2022
$
$
513,950 $
34,900
548,850 $
454,515
36,250
490,765
(1) Audit fees consist of fees incurred for professional services rendered for the audit of our annual financial statements and review of the quarterly
financial statements, assistance with registration statements filed with the SEC, and services that are normally provided by our independent registered
public accounting firm in connection with regulatory filings or engagements.
(2) For the years ended December 31, 2023 and 2022, audit fees also include fees related to our public offerings and review of documents filed with the
SEC of $104,450 and $72,315, respectively.
(3) For the year ended December 31, 2023, tax fees were comprised of compilation and filing activities relating to federal and state income tax returns, and
consultations relating to general tax matters.
Auditor Independence
In our fiscal year ended December 31, 2023, there were no other professional services provided by Moss Adams that would have required our
audit committee to consider their compatibility with maintaining the independence of Moss Adams.
Audit Committee Policy on Pre-Approval of Audit and Permissible Non-Audit Services of Independent Registered Public Accounting Firm
Our audit committee has established a policy governing our use of the services of our independent registered public accounting firm. Under this
policy, our audit committee is required to pre-approve all audit and permissible non-audit services performed by our independent registered public
accounting firm in order to ensure that the provision of such services does not impair the public accountants’ independence. All fees paid to Moss Adams
for our fiscal years ended December 31, 2022 and 2021 were pre-approved by our audit committee.
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ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1) Financial Statements
PART IV
The following Financial Statements are filed as part of this Annual Report on Form 10-K:
Report of Independent Registered Public Accounting Firm (Moss Adams LLP, San Francisco, CA, PCAOB ID: 659)
Financial Statements
Balance Sheets
Statements of Operations and Comprehensive Loss
Statements of Stockholders’ (Deficit) Equity
Statements of Cash Flows
Notes to Financial Statements
F-2
F-3
F-4
F-5
F-6
F-7
(a)(2) Financial Statement Schedules
All other schedules have been omitted because the information required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto. Financial statement schedules relating to the allowance for doubtful accounts receivable and for sales returns follows (in
thousands):
Description
Allowance for doubtful accounts receivable:
Fiscal year ended 2022
Fiscal year ended 2023
Allowance for sales returns:
Fiscal year ended 2022
Fiscal year ended 2023
Balance at
Beginning
of Year
Charged to
costs and
expenses
Write offs
Balance at
End of
Year
$
$
6 $
73 $
70 $
17 $
3 $
49 $
73
41
Balance at
Beginning
of Year
Charged to
costs and
expenses
Write offs
Balance at
End of
Year
20 $
15 $
— $
1 $
5 $
— $
15
16
$
$
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(a)(3) Exhibits
The following exhibits are filed as part of, or incorporated by reference into, this Annual Report on Form 10-K.
Exhibit
Number
3.1
Exhibit Title
Amended and Restated Certificate of Incorporation of the registrant (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-
K filed on February 6, 2015).
3.2
3.3
3.4
3.5
3.6
3.7
3.8
3.9
3.10
3.11
3.12
3.13
3.14
3.15
3.16
3.17
4.1
4.2
4.3
4.4
4.5
4.6
4.7
Bylaws of the registrant (incorporated by reference to Exhibit 3.2 to our Current Report on Form 8-K filed on February 6, 2015).
Certificate of Amendment to the Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to our Current
Report on Form 8-K filed on February 2, 2018).
Avinger, Inc. Certificate of Designation of Preferences, Rights and Limitations of Series A Convertible Preferred Stock incorporated by
reference to Exhibit 3.4 to Amendment No. 2 to our Registration Statement on Form S-1 filed on February 12, 2018).
Avinger, Inc. Certificate of Designation of Preferences, Rights and Limitations of Series B Convertible Preferred Stock (incorporated by
reference to Exhibit 3.5 to Amendment No. 3 to our Registration Statement on Form S-1 filed on February 13, 2018).
Avinger, Inc. Certificate of Designation of Preferences, Rights and Limitations of Series C Convertible Preferred Stock (incorporated by
reference to Exhibit 3.2 to our Current Report on Form 8-Kfiled on November 6, 2018).
Certificate of Amendment to the Certificate of Designation of Preferences, Rights and Limitations of Series A Convertible Preferred Stock
(incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed on November 6, 2018).
Certificate of Amendment to the Restated Certificate of Incorporation of Avinger, Inc. (incorporated by reference to Exhibit 3.1 to our Current
Report on Form 8-K filed on June 21, 2019).
Amendment to the Amended and Restated Bylaws of Avinger, Inc., dated as of October 27, 2021 (incorporated by reference to Exhibit 3.2 to
our Current Report on Form 8-K filed on October 29, 2021).
Avinger, Inc. Certificate of Designation of Preferences, Rights and Limitations of Series D Convertible Preferred Stock (incorporated by
reference to Exhibit 3.1 to our Current Report on Form 8-K filed on January 18, 2022).
Certificate of Amendment to the Restated Certificate of Incorporation Avinger, Inc. dated March 11, 2022 (incorporated by reference to
Exhibit 3.1 to our Current Report on Form 8-K filed on March 14, 2022).
Certificate of Amendment to the Certificate of Designation of Preferences, Rights and Limitations of Series A Convertible Preferred Stock, as
filed on December 22, 2022 (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed on December 23, 2022).
Avinger, Inc. Certificate of Designation of Preferences, Rights, and Limitations of Series E Convertible Preferred Stock (incorporated by
reference to Exhibit 3.1 to our Current Report on Form 8-K filed on August 4, 2023).
Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Avinger, Inc., dated September 11, 2023 (incorporated
by reference to Exhibit 3.1 to our Current Report on Form 8-K filed on September 12, 2023).
Certificate of Designation of Preferences, Rights, and Limitations of Series F Convertible Preferred Stock (incorporated by reference to
Exhibit 3.1 to our Current Report on Form 8-K filed March 7, 2024).
Certificate of Designation of Preferences, Rights, and Limitations of Series A-1 Convertible Preferred Stock (incorporated by reference to
Exhibit 3.2 to our Current Report on Form 8-K filed March 7, 2024).
Certificate of Amendment to the Certificate of Designation of Preferences, Rights, and Limitations of Series E Convertible Preferred Stock
(incorporated by reference to Exhibit 3.3 to our Current Report on Form 8-K filed March 7, 2024).
Specimen Common Stock certificate of the registrant (incorporated by reference to Exhibit 4.1 to Amendment No. 1 to our Registration
Statement on Form S-1 filed on October 19, 2018).
Specimen Series 1/2 warrant of the registrant (incorporated by reference to Exhibit 4.2 to Amendment No. 3 to our Registration Statement on
Form S-1 filed on February 13, 2018).
Form of Common Stock Purchase Warrant (incorporated by reference to Exhibit 4.4 to Amendment No. 1 to our Registration Statement on
Form S-1 filed on October 19, 2018).
Description of Registrant’s Securities (incorporated by reference to Exhibit 4.5 to our Annual Report on Form 10-K filed on March 6, 2020).
Form of Common Stock Purchase Warrant (incorporated by reference to Exhibit .1 to our Current Report on Form 8-K filed on January 12,
2022).
Form of Placement Agent Warrant (incorporated by reference to Exhibit 4.2 to our Current Report on Form 8-K filed on January 12, 2022).
Form of Pre-Funded Common Stock Purchase Warrant - Registered Direct Offering (August 2022) (incorporated by reference to Exhibit 4.1 to
our Current Report on Form 8-K filed on August 8, 2022).
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Table of Contents
4.8
4.9
4.10
4.11
10.1#
10.2#
10.3#
10.5#
10.6#
10.7#
10.8#
10.9
10.10
10.11
10.12
10.14#
10.16#
10.17
10.20
10.21
10.23
10.24
10.26
10.27
10.28
Form of Pre-Funded Common Stock Purchase Warrant - Private Placement Offering (August 2022) (incorporated by reference to Exhibit 4.2 to
our Current Report on Form 8-K filed on August 8, 2022).
Form of Series A Preferred Investment Option (incorporated by reference to Exhibit 4.3 to our Current Report on Form 8-K filed on August 8,
2022).
Form of Series B Preferred Investment Option (incorporated by reference to Exhibit 4.4 to our Current Report on Form 8-K filed on August 8,
2022).
Form of Placement Agent Preferred Investment Option (incorporated by reference to Exhibit 4.5 to our Current Report on Form 8-K filed on
August 8, 2022).
Form of Indemnification Agreement for directors and executive officers (incorporated by reference to Exhibit 10.1 to Amendment No. 1 to our
Registration Statement on Form S-1 filed on January 20, 2015).
2009 Stock Plan and Form of Option Agreement thereunder (incorporated by reference to Exhibit 10.2 to our Registration Statement on Form
S-1filed on December 30, 2014).
2014 Preferred Stock Plan (incorporated by reference to Exhibit 10.3 to our Registration Statement on Form S-1 filed on December 30, 2014).
Form of Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.5 to Amendment No. 1 to our Registration
Statement on Form S-1 filed on January 20, 2015).
Form of Stock Option Agreement (incorporated by reference to Exhibit 10.6 to Amendment No. 1 to our Registration Statement on Form S-1
filed on January 20, 2015).
2015 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.7 to Amendment No. 1 to our Registration Statement on Form S-
1 filed on January 20, 2015).
Executive Incentive Compensation Plan (incorporated by reference to Exhibit 10.8 to Amendment No. 1 to our Registration Statement on
Form S-1 filed on January 20, 2015).
Amended and Restated Investors’ Rights Agreement dated September 2, 2014 by and among the registrant and certain stockholders
(incorporated by reference to Exhibit 10.6 to our Registration Statement on Form S-1 filed on December 30, 2014).
Lease Agreement, dated July 30, 2010, by and between the registrant and HCP LS Redwood City, LLC for office space located at 400 and 600
Chesapeake Drive, Redwood City, California (incorporated by reference to Exhibit 10.7 to our Registration Statement on Form S-1 filed on
December 30, 2014).
First Amendment to Lease Agreement dated September 30, 2011 by and between registrant and HCP LS Redwood City, LLC (incorporated by
reference to Exhibit 10.8 to our Registration Statement on Form S-1 filed on December 30, 2014).
Second Amendment to Lease Agreement dated March 4, 2016 by and between the registrant and HCP LS Redwood City, LLC (incorporated
by reference to Exhibit 10.12 to our Annual Report on Form 10-K filed on March 8, 2016).
Employment Letter dated December 17, 2014 by and between the registrant and Jeffrey M. Soinski (incorporated by reference to Exhibit 10.20
to our Registration Statement on Form S-1 filed on December 30, 2014).
Change of Control and Severance Agreement dated March 29, 2018 by and between the registrant and Jeffrey M. Soinski (incorporated by
reference to Exhibit 10.21 to our Annual Report on Form 10-K filed on March 30, 2018).
Registration Rights Agreement, dated as of February , 2018, by and among the registrant, CRG Partners III L.P. and certain of its affiliated
funds, as purchasers (incorporated by reference to Exhibit 10.32 to Amendment No. 3 to our Registration Statement on Form S-1 filed on
February 13, 2018).
Term Loan Agreement, dated as of September 22, 2015, by and among the registrant, certain of its subsidiaries from time to time party thereto
as guarantors and CRG Partners III L.P. and certain of its affiliated funds, as lenders (incorporated by reference to Exhibit 6.1 to our Quarterly
Report on Form 10-Q filed on November 12, 2015).
Securities Purchase Agreement, dated as of September 22, 2015, by and among the registrant, CRG Partners III L.P. and certain of its affiliated
funds, as purchasers (incorporated by reference to Exhibit 6.2 to our Quarterly Report on Form 10-Q filed on November 12, 2015).
Purchase Agreement, dated November 3, 2017, by and between the registrant and Lincoln Park Capital Fund, LLC (incorporated by reference
to Exhibit 10.1 to our Current Report on Form 8-K filed on November 6, 2017).
Registration Rights Agreement, dated as of November 3, 2017, by and between the registrant and Lincoln Park Capital Fund, LLC
(incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K filed on November 6, 2017).
Waiver and Consent, dated as of December 14, 2017, by and among the registrant and the lenders party thereto (incorporated by reference to
Exhibit 10.1 to our Current Report on Form 8-K filed on December 14, 2017).
Waiver and Consent, dated as of January 24, 2018, by and among the registrant and the lenders party thereto (incorporated by reference to
Exhibit 10.1 to our Current Report on Form 8-K filed on January 30, 2018).
Amendment No. 2 to Term Loan Agreement, dated as of February 14, 2018, by and among the registrant and the lenders party thereto
(incorporated by reference to Exhibit 10.34 to Amendment No. 2 to our Registration Statement on Form S-1 filed on February 12, 2018).
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Table of Contents
10.29
10.30
10.36#
10.37
10.41
10.42#
10.43#
10.46
10.47
10.48
10.49
10.50#
10.51
10.52
10.53#
10.54#
10.55
10.56
10.57#
10.58#
10.59#
10.60#
10.61
10.62
10.63
Form of Series A Preferred Stock Purchase Agreement by and among the registrant, CRG Partners III L.P. and certain of its affiliated funds, as
purchasers (incorporated by reference to Exhibit 10.33 to Amendment No. 2 to our Registration Statement on Form S-1 filed on February 12,
2018).
Securities Purchase Agreement, dated as of July 12, 2018, by and among the registrant and the purchasers identified on the signature pages
thereto (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on July 13, 2018).
Change of Control and Severance Agreement, dated as of October 10, 2013, between the registrant and Himanshu Patel (incorporated by
reference to Exhibit 10.36 to our Annual Report on Form 10-K filed on March 6, 2019).
Third Amendment to Lease Agreement dated April 1, 2019 by and between the registrant and HCP LS Redwood City, LLC (incorporated by
reference to Exhibit 10.1 to our Current Report on Form 8-K filed on April 5, 2019).
Amendment No. 3 to Term Loan Agreement dated as of March 2, 2020, by and among the registrant and the lenders party thereto
(incorporated by reference to Exhibit 10.41 to our Annual Report on Form 10-K filed on March 6, 2020).
Amendment No. 1 dated March 4, 2020 to the Change of Control and Severance Agreement, dated March 29, 2018, by and between the
registrant and Jeff Soinski (incorporated by reference to Exhibit 10.42 to our Annual Report on Form 10-K filed on March 6, 2020).
Amendment No. 1 dated March 4, 2020 to the Change of Control and Severance Agreement, dated October 10, 2013, by and between the
registrant and Himanshu Patel (incorporated by reference to Exhibit 10.43 to our Annual Report on Form 10-K filed on March 6, 2020).
Amendment No. 4 and Waiver to Term Loan Agreement (incorporated by reference to Exhibit 10.7 to our Quarterly Report on Form 10-Q filed
on May 13, 2020).
Amendment No. 5 to Term Loan Agreement, dated January 22, 2021, made by and among Avinger, Inc. and GRG Partners III L.P. and certain
of its affiliated funds, as lenders (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on February 1, 2021).
Form of Securities Purchase Agreement, dated January 12, 2022 by and between Avinger, Inc. and the purchasers party thereto (incorporated
by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on January 12, 2022).
At the Market Offering Agreement dated May 20, 2022, by and between Avinger Inc., and H.C. Wainwright & Co., LLC (incorporated by
reference to Exhibit 1.1 to our Current Report on Form 8-K filed on May 20, 2022)
Change of Control and Severance Agreement dated May 16, 2022, by and between Avinger Inc., Nabeel Subainati (incorporated by reference
to Exhibit 10.1 to our Current Report on Form 8-K filed on July 22, 2022)
Form of Registration Rights Agreement between the Company and the purchasers identified therein dated August 3, 2022 (incorporated by
reference to Exhibit 10.3 to our Quarterly Report on Form 10-Q filed on August 11, 2022).
Amendment No. 6 to Term Loan Agreement, dated August 10, 2022, made by and among Avinger, Inc. and GRG Partners III L.P. and certain
of its affiliated funds, as lenders (incorporated by reference to Exhibit 10.3 to our Quarterly Report on Form 10-Q filed on August 11, 2022).
Form of 2015 Equity Incentive Plan Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.6 to the Quarterly Report on
Form 10-Q filed on November 9, 2022).
Form of 2015 Equity Incentive Plan Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.7 to the Quarterly
Report on Form 10-Q filed on November 9, 2022).
Form of Registered Direct Securities Purchase Agreement (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed
on August 8, 2022).
Form of Private Placement Securities Purchase Agreement (incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K filed
on August 8, 2022).
Amended and Restated 2015 Equity Incentive Plan (previously filed as Exhibit 10.1 to our Current Report on Form 8-K filed on December 22,
2023).
Amendment No. 1 to Change in Control and Severance Agreement dated March 14, 2023 by and between the registrant and Nabeel Subainati
(incorporated by reference to Exhibit 10.58 to our Quarterly Report on Form 10-Q filed on May 10, 2023)
Form of Retention Bonus Agreement (incorporated by reference to Exhibit 10.59 to our Annual Report on Form 10-K filed on March 16,
2023).
Form of Restricted Stock Unit Award Grant Agreement (incorporated by reference to Exhibit 10.60 to our Annual Report on Form 10-K filed
on March 16, 2023).
Securities Purchase Agreement, dated August 2, 2023, by and among Avinger, Inc. and Lenders party thereto (incorporated by reference to
Exhibit 10.1 to our Current Report on Form 8-K filed on August 4, 2023).
Consent to Term Loan Agreement, dated August 2, 2023, by and between Avinger, Inc. and the Lenders (incorporated by reference to Exhibit
10.2 to our Current Report on Form 8-K filed on August 4, 2023).
Waiver Agreement, dated September 29, 2023, by and between Avinger, Inc. and the Purchasers (incorporated by reference to Exhibit 10.1 to
our Current Report on Form 8-K filed on September 29, 2023).
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Table of Contents
10.64
10.65
10.66
10.67
10.68
10.69
10.70
10.71
10.72
10.73
23.1*
24.1*
31.1*
31.2*
32.1*
97*
101.INS
Amendment No. 7 to Term Loan Agreement, dated December 27, 2023, made by and among Avinger Inc. and GRG Partners III L.P. and
certain of its affiliated funds, as lenders (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on December 29,
2023).
Amendment No. 8 to Term Loan Agreement, dated January 26, 2024, by and among Avinger Inc. and the lenders party thereto (incorporated
by reference to Exhibit 10.1 to our Current Report on Form 8-K filed January 26, 2024).
Strategic Cooperation and Framework Agreement, dated March 4, 2024, made by and between Avinger, Inc. and Zylox-Tonbridge Medical
Technology Co., Ltd (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed March 7, 2024).
Securities Purchase Agreement, dated March 4, 2024, made by and between Avinger, Inc. and Zylox-Tonbridge Medical Limited (incorporated
by reference to Exhibit 10.2 to our Current Report on Form 8-K filed March 7, 2024).
Registration Rights Agreement, dated March 5, 2024, made by and between Avinger, Inc. and Zylox-Tonbridge Medical Limited (incorporated
by reference to Exhibit 10.3 to our Current Report on Form 8-K filed March 7, 2024).
Amendment No. 9 to Term Loan Agreement, dated March 5, 2024, made by and among Avinger, Inc. and GRG Partners III L.P. and certain of
its affiliated funds, as lenders (incorporated by reference to Exhibit 10.4 to our Current Report on Form 8-K filed March 7, 2024).
Form of Common Stock Purchase Warrant of Avinger, Inc (incorporated by reference to Exhibit 10.5 to our Current Report on Form 8-K filed
March 7, 2024).
Securities Purchase Agreement, dated March 5, 2024, by and between Avinger, Inc. and the purchasers party thereto (incorporated by reference
to Exhibit 10.6 to our Current Report on Form 8-K filed March 7, 2024).
Registration Rights Agreement, dated March 5, 2024, by and between Avinger, Inc. and the holders party thereto (incorporated by reference to
Exhibit 10.7 to our Current Report on Form 8-K filed March 7, 2024).
Fourth Amendment to Lease Agreement dated March 6, 2024 by and between Avinger, Inc. and HCP LS Redwood City, LLC (Incorporated by
reference to Exhibit 10.1 to our Current Report on Form 8-K filed March 12, 2024).
Consent of Independent Registered Public Accounting Firm.
Power of Attorney (included on signature page).
Certification of the Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of the Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
Certifications of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
Incentive Compensation Recovery Policy
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its Inline XBRL tags are
embedded within the Inline XBRL document.
101.SCH Inline XBRL Taxonomy Extension Schema Document
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document
104
Cover Page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File because its Inline XBRL tags
are embedded within the Inline XBRL document.
* Filed herewith.
# Management contract or compensatory plan or arrangement.
ITEM 16. FORM 10-K SUMMARY
None.
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AVINGER, INC.
INDEX TO FINANCIAL STATEMENTS
As of December 31, 2023 and 2022, and for the
Years Ended December 31, 2023 and 2022
Report of Independent Registered Public Accounting Firm (Moss Adams LLP, San Francisco, CA, PCAOB ID: 659)
Financial Statements:
Balance Sheets
Statements of Operations and Comprehensive Loss
Statements of Stockholders’ Equity
Statements of Cash Flows
Notes to Financial Statements
F-2
F-4
F-5
F-6
F-7
F-8
F-1
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Shareholders and the Board of Directors of
Avinger, Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Avinger, Inc. (the “Company”) as of December 31, 2023 and 2022, the related statements of
operations and comprehensive loss, stockholders’ equity (deficit), and cash flows for the years then ended, and the related notes and the financial statement
schedules (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial
position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for the years then ended, in conformity with
accounting principles generally accepted in the United States of America.
Going Concern Uncertainty
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company’s recurring losses from operations and its need for additional capital raise substantial doubt about its ability to continue
as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial
statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States)
(“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules
and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor
were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of
internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over
financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and
performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in
the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements. We believe that our audits provides a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or
required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2)
involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion
on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical
audit matter or on the accounts or disclosures to which it relates.
F-2
Table of Contents
Write-down of Excess and Obsolete Inventories
As described in Note 2 and 4 to the financial statements, the Company’s inventories balance was $5.3 million as of December 31, 2023. The Company
values its inventories at lower of cost (determined using the first-in, first-out method) or net realizable value. The Company writes down inventory that has
expired or become obsolete, inventory that has a cost basis in excess of its expected net realizable value, and inventory in excess of expected requirements.
The estimate of excess quantities is subjective and primarily dependent on the estimates of future demand for a particular product. Changes in assumptions
of product demand could have a significant impact on the amount of write-down recorded. The evaluation by management includes analysis of historical
sales levels by product, projections of future demand, the risk of technological or competitive obsolescence for products, general market conditions, as well
as the feasibility of reworking or using excess or obsolete products or components in the production or assembly of other products that are not obsolete or
for which there are not excess quantities in inventory.
We identified auditing the write-down of excess and obsolete inventories, in particular the estimates for excess quantities and obsolescence, as a critical
audit matter because of the significant assumptions and subjective judgments used by management, which involved significant audit effort and the use of
especially challenging and subjective auditor judgment when performing audit procedures and evaluating the results of those procedures.
The primary procedures we performed to address the critical audit matter included:
● Evaluating management’s process and methodology for developing the estimates of excess and obsolete inventories.
● Identifying and testing significant assumptions utilized by management and evaluating the reasonableness of the significant assumptions used by:
● Evaluating sales forecasts and comparing management’s prior period sales forecasts to actual results.
● Performing inquiries with non-financial personnel, including sales and production employees, regarding obsolete or discontinued
inventory items.
● Evaluating the appropriateness of the formulaic calculation and subjective management adjustments by product type.
● Testing the completeness, accuracy, and relevance of the underlying data used in the estimate including:
● Testing the calculations related to the application of the methodology to specific inventory categories and recalculation.
● Performing inquiries as to whether inventory items without recent sales are reserved for.
● Performing analytical procedures over the excess and obsolescence reserve based on historical trends for reasonableness.
/s/ Moss Adams LLP
San Francisco, California
March 20, 2024
We have served as the Company’s auditor since 2017.
F-3
Table of Contents
Assets
Current assets:
AVINGER, INC.
BALANCE SHEETS
(In thousands, except share and per share data)
Cash and cash equivalents
Accounts receivable, net of allowance for doubtful accounts of $41 and $73 at December 31, 2023
$
and 2022, respectively
Inventories, net
Prepaid expenses and other current assets
Total current assets
Right of use asset
Property and equipment, net
Other assets
Total assets
Liabilities and stockholders’ (deficit) equity
Current liabilities:
Accounts payable
Accrued compensation
Accrued expenses and other current liabilities
Leasehold liability, current portion
Borrowings
Total current liabilities
Leasehold liability, long-term portion
Other long-term liabilities
Total liabilities
Commitments and contingencies (Note 9)
Stockholders’ (deficit) equity:
$
$
December 31,
2023
December 31,
2022
5,275 $
1,014
5,298
575
12,162
1,102
487
19
13,770 $
777 $
2,311
817
1,102
14,293
19,300
—
672
19,972
14,603
1,057
4,965
362
20,987
2,194
702
312
24,195
631
1,401
657
1,092
14,165
17,946
1,102
1,001
20,049
Convertible preferred stock issuable in series, par value of $0.001
Shares authorized: 5,000,000 at December 31, 2023 and 2022
Shares issued and outstanding: 62,881 and 60,961 at December 31, 2023 and 2022, respectively;
aggregate liquidation preference related to Series A and Series E convertible preferred stock of
$62,796 and $60,876 at December 31, 2023 and 2022, respectively
Common stock, par value of $0.001
Shares authorized: 100,000,000 at December 31, 2023 and 2022
Shares issued and outstanding: 1,279,928 and 522,177 at December 31, 2023 and 2022, respectively
Additional paid-in capital
Accumulated deficit
Total stockholders’ (deficit) equity
Total liabilities and stockholders’ (deficit) equity
—
—
1
414,493
(420,696)
(6,202)
13,770 $
8
406,514
(402,376)
4,146
24,195
$
All share, per share data, par values, and additional paid-in-capital amounts reflect the impacts of the reverse stock splits effective September 12, 2023 and
March 14, 2022. See accompanying notes.
F-4
AVINGER, INC.
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In thousands, except per share data)
Table of Contents
Revenues
Cost of revenues
Gross profit
Operating expenses:
Research and development
Selling, general and administrative
Total operating expenses
Loss from operations
$
$
$
Year Ended December 31,
2022
2023
7,652 $
5,649
2,003
4,540
14,098
18,638
(16,635)
(1,719)
34
(18,320)
—
—
(18,320) $
(23.31) $
786
8,273
5,619
2,654
4,390
14,221
18,611
(15,957)
(1,665)
(1)
(17,623)
(4,510)
(5,111)
(27,244)
(65.33)
417
Interest expense, net
Other income (expense), net
Net loss and comprehensive loss
Accretion of preferred stock dividends
Deemed dividend arising from beneficial conversion feature of convertible preferred stock
Net loss applicable to common stockholders
Net loss per share attributable to common stockholders, basic and diluted
Weighted average common shares used to compute net loss per share, basic and diluted
All share and per share data reflect the impact of the reverse stock splits effective September 12, 2023 and March 14, 2022. See accompanying notes.
F-5
Table of Contents
AVINGER, INC.
STATEMENTS OF STOCKHOLDERS’ (DEFICIT) EQUITY
(In thousands, except share data)
Convertible
Preferred Stock
Common Stock
Shares
Amount
Shares
Amount
In Capital
Additional
Paid-
Total
Stockholders’
(Deficit)
Equity
Accumulated
Deficit
Balance at December 31, 2021
56,451 $
—
318,551 $
5 $
394,471 $
(384,753) $
9,723
Issuance of common stock in public
offerings, net of commissions and
issuance costs
Issuance of Series D preferred stock, net
of commissions and issuance costs
Conversion of Series D preferred stock
into common stock
Exercise of pre-funded warrants for
common stock
Reclassifications and adjustments due to
rounding impact from reverse stock
split for fractional shares
Issuance of common stock upon vesting
of restricted stock units
Employee stock-based compensation
Issuance of Series A preferred stock to
pay dividends
Accretion of Series A preferred stock
dividends
Net and comprehensive loss
Balance at December 31, 2022
Issuance of common stock in public
offerings, net of commissions and
issuance costs
Conversion of CRG loan principal into
Series E convertible preferred stock
Exercise of pre-funded warrants for
common stock
Reclassifications and adjustments due to
rounding impact from reverse stock
split for fractional shares
Issuance of common stock upon vesting
of restricted stock units
Employee stock-based compensation
Net and comprehensive loss
Balance at December 31, 2023
—
—
85,707
1
5,195
—
5,196
7,600
—
—
—
6,721
—
6,721
(7,600)
—
63,333
—
—
52,268
—
—
—
4,510
—
—
60,961
—
1,745
573
—
—
—
—
—
—
—
1
1
—
—
—
—
—
—
—
127
—
—
—
—
—
1
1
—
—
127
—
—
4,510
—
4,510
—
—
522,177
—
—
8
(4,510)
—
406,514
—
(17,623)
(402,376)
(4,510)
(17,623)
4,146
—
—
607,236
1
5,112
—
5,113
1,920
—
—
—
1,920
—
1,920
—
—
91,325
1
(2)
—
—
—
56,896
(9)
9
—
(1)
—
—
—
—
62,881 $
2,294
—
—
—
—
—
— 1,279,928 $
—
—
—
1 $
—
940
—
414,493 $
—
—
(18,320)
(420,696) $
—
940
(18,320)
(6,202)
All share, per share data, par values, and additional paid-in-capital amounts reflect the impacts of the reverse stock splits effective September 12, 2023 and
March 14, 2022. See accompanying notes.
F-6
Table of Contents
AVINGER, INC.
STATEMENTS OF CASH FLOWS
(In thousands)
Cash flows from operating activities
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Year Ended December 31,
2022
2023
$
(18,320) $
(17,623)
Depreciation and amortization
Amortization of debt issuance costs and debt discount
Stock-based compensation
Noncash interest expense and other charges
Change in right of use asset
Provision for excess and obsolete inventories
Other non-cash charges
Changes in operating assets and liabilities:
Accounts receivable
Inventories
Prepaid expenses and other current assets
Other assets
Accounts payable
Accrued compensation
Accrued expenses and other current liabilities
Other long-term liabilities
Net cash used in operating activities
Cash flows from investing activities
Purchase of property and equipment
Net cash used in investing activities
Cash flows from financing activities
Proceeds from the issuance of convertible preferred stock, net of commissions and issuance costs
Proceeds from the issuance of common stock in public offerings, net of commissions and issuance costs
Net cash provided by financing activities
Net change in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
Supplemental disclosure of cash flow information
Noncash investing and financing activities:
Accretion of Series A preferred stock dividends
Issuance of Series A preferred stock as dividend payment
Transfers between inventory and property and equipment
Conversion of CRG loan principal and accrued interest into Series E convertible preferred stock
See accompanying notes.
F-7
$
$
$
$
$
289
83
940
1,964
53
404
(32)
75
(802)
(213)
240
146
42
160
539
(14,432)
(8)
(8)
—
5,112
5,112
(9,328)
14,603
5,275 $
— $
— $
66 $
1,920 $
196
83
127
1,795
93
272
69
269
(1,387)
(62)
15
(764)
(208)
(61)
426
(16,760)
(51)
(51)
6,721
5,196
11,917
(4,894)
19,497
14,603
4,510
4,510
751
—
Table of Contents
1. Organization
Organization, Nature of Business
AVINGER, INC.
Notes to Financial Statements
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 $7.5 million before any commissions, legal and accounting fees, and other ancillary expenses as described
more fully within Note 14, Subsequent Events. As of December 31, 2023, the Company had an accumulated deficit of $420.7 million. The Company
expects to incur losses for the foreseeable future. The Company believes that its cash and cash equivalents of $5.3 million at December 31, 2023 together
with the aforementioned March 2024 financing, together with debt and other financing activities and expected revenues from operations will be sufficient to
allow the Company to fund its current operations through the second quarter of 2024. The Company received net proceeds of approximately $4.4 million
from the sale of its common stock in August 2022, $6.5 million from the sale of its common stock under an At The Market Offering Agreement from the
time of activation through the year ended December 31, 2023 and $6.7 million from the sale of Series D preferred stock in January 2022. The Company
may seek to raise additional funds in future equity offerings to meet its operational needs and capital requirements for product development, clinical trials
and commercialization or other strategic objectives.
The Company can provide no assurance that it will be successful in raising funds pursuant to additional equity or debt financings or that such
funds will be raised at prices that do not create substantial dilution for its existing stockholders. Given the volatility in the Company’s stock price, any
financing that the Company may undertake in the next twelve months could cause substantial dilution to its existing stockholders, and there can be no
assurance that the Company will be successful in acquiring additional funding at levels sufficient to fund its various endeavors. These conditions raise
substantial doubt about the Company’s ability to continue as a going concern. In addition, the macroeconomic environment has in the past resulted in and
could continue to result in reduced consumer and investor confidence, instability in the credit and financial markets, volatile corporate profits and reduced
business and consumer spending, which could increase the cost of capital and/or limit the availability of capital to the Company.
If the Company is unable to raise additional capital in sufficient amounts or on terms acceptable to it, the Company may have to significantly
reduce its operations or delay, scale back or discontinue the development and sale of one or more of its products. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty. The Company’s ultimate success will largely depend on its continued development
of innovative medical technologies, its ability to successfully commercialize its products and its ability to raise significant additional funding.
F-8
Table of Contents
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 December 31, 2023 and 2022 has been classified as current in these financial statements. CRG has not purported that an Event of Default (as
defined in the Loan Agreement) has occurred due to a Material Adverse Change.
Currently substantially all of our cash and cash equivalents are held at a single financial institution, First Citizens Bank, which acquired our prior
banking partner, Silicon Valley Bank in March 2023. On March 10, 2023, the Federal Deposit Insurance Corporation announced that Silicon Valley Bank
had been closed by the California Department of Financial Protection and Innovation. While we have regained access to our accounts at Silicon Valley
Bank and are evaluating our banking relationships, future disruptions of financial institutions where we bank or have credit arrangements, or disruptions of
the financial services industry in general, could adversely affect our ability to access our cash and cash equivalents. If we are unable to access our cash and
cash equivalents as needed, our financial position and ability to operate our business will be adversely affected.
Equity Offerings
January 2022 Offering
On January 14, 2022, the Company entered into a securities purchase agreement with several institutional investors pursuant to which the
Company agreed to sell and issue, in a registered direct offering (“January 2022 Offering”), an aggregate of 7,600 shares of the Company’s Series D
Convertible Preferred Stock, par value of $0.001 per share, at an offering price of $1,000 per share which was convertible into common stock at a
conversion price of $120.00 per share. Concurrently, the Company agreed to issue to these investors warrants to purchase up to an aggregate of 53,833
shares of the Company’s common stock (the “Common Warrants”). As a result, the Company received aggregate net proceeds of approximately $6.7
million after underwriting discounts, commissions, legal and accounting fees, and other ancillary expenses.
The 53,833 Common Warrants have an exercise price of $144.00 per share and became exercisable beginning July 14, 2022. The Common
Warrants will expire five years following the time they become exercisable, or July 14, 2027. The Company also issued to the Placement Agent or its
designees warrants to purchase up to an aggregate of 4,433 shares of common stock (the “Placement Agent Warrants”). The Placement Agent Warrants are
subject to the same terms as the Common Warrants, except that the Placement Agent Warrants have an exercise price of $150.00 per share and a term of
five years from the commencement of the sales pursuant to the January 2022 Offering, or January 12, 2027.
August 2022 Offering
On August 4, 2022, the Company entered into a securities purchase agreement with a single institutional investor for the issuance and sale of
98,935 shares of its common stock in a registered direct offering (“RD” or “Registered Direct”) at a purchase price of $26.28 per share, or pre-funded
warrants in lieu thereof. In a concurrent private placement, the Company also agreed to issue and sell to the investor 91,324 shares of common stock at the
same purchase price as in the registered direct offering, or pre-funded warrants in lieu thereof (“Private Placement” and together with the Registered Direct
offering the “August 2022 Offering”). As a result, the Company received aggregate net proceeds of approximately $4.4 million after underwriting
discounts, commissions, legal and accounting fees, and other ancillary expenses.
As a result, in the Registered Direct offering, the Company issued (i) 46,667 shares of common stock, (ii) and pre-funded warrants in lieu of
common stock to purchase up to an aggregate of 52,268 shares of common stock (the “RD Pre-Funded Warrants”) and in the Private Placement, the
Company issued pre-funded warrants to purchase up to an aggregate of 91,324 shares of common stock (the “Private Placement Pre-Funded Warrants” and
together with the RD Pre-Funded Warrants the “August 2022 Pre-Funded Warrants”). As of December 31, 2023, all the Private Placement Pre-Funded
Warrants were exercised leaving none outstanding.
In addition, the Company issued to the investor in the August 2022 Offering Series A preferred investment options to purchase up to 190,259
additional shares of the Company’s common stock and Series B preferred investment options to purchase up to 190,259 additional shares of the Company’s
common stock (the “Preferred Investment Options”). The Series A preferred investment options have an exercise price of $22.53 per share, are immediately
exercisable, and will expire five and one-half years from the date of issuance, or February 8, 2028, and the Series B preferred investment options also have
an exercise price of $22.53 per share, are immediately exercisable, and will expire two years from the date of issuance, or August 8, 2024. The Company
also issued to the Placement Agent or its designees preferred investment options to purchase up to an aggregate of 11,416 shares of common stock (the
“Placement Agent Preferred Investment Options”). The Placement Agent Preferred Investment Options are subject to the same terms as the Preferred
Investment Options, except that the Placement Agent Preferred Investment Options have an exercise price of $32.85 per share and a term of five years from
the commencement of the sales pursuant to the August 2022 Offering, or August 3, 2027.
F-9
Table of Contents
At The Market Offering Agreement
On May 20, 2022, the Company entered into an At The Market Offering Agreement (the “ATM Agreement”) with H.C. Wainwright & Co., LLC
(the “Agent”), as sales agent, pursuant to which the Company may offer and sell shares of common stock, par value $0.001 per share (the “Shares”) up to
an aggregate offering price of $7,000,000 from time to time, in an at the market public offering. Sales of the Shares are to be made at prevailing market
prices at the time of sale, or as otherwise agreed with the Agent. The Agent will receive a commission from the Company of 3.0% of the gross proceeds of
any Shares sold under the ATM Agreement. The Shares sold under the ATM Agreement are offered and sold pursuant to the Company’s shelf registration
statement on Form S-3, which was initially filed with the Securities and Exchange Commission (the “SEC”) on March 29, 2022 and declared effective on
April 7, 2022, and a prospectus supplement and the accompanying prospectus relating to the At The Market Offering filed with the SEC on May 20, 2022.
During the year ended December 31, 2022, the Company sold 39,048 shares of common stock pursuant to the ATM Agreement at an average price of
$25.08 per share for aggregate proceeds of $1.0 million, of which approximately $29,000 was paid in the form of commissions to the Agent. On August 3,
2022, the Company suspended sales under the ATM Agreement. On March 17, 2023, the Company reactivated the ATM Agreement. During the year ended
December 31, 2023, the Company sold 607,241 shares of common stock at an average price of $9.01 per share for aggregate proceeds of approximately
$5.5 million, of which approximately $164,000 was paid in the form of commissions to the Agent. While the Company may attempt additional sales in the
future, there can be no assurance that the Company will be successful in acquiring additional funding through these means.
Other than the ATM Agreement, the Company currently does not have any commitments to obtain additional funds.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying 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 Securities and Exchange Commission (“SEC”).
On March 11, 2022, the Company’s Board of Directors approved an amendment to the Company’s amended and restated certificate of
incorporation to effect a 1-for-20 reverse stock split of the Company’s issued and outstanding common stock. The reverse stock split became effective on
March 14, 2022.
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. The par value of the common stock and preferred stock was not adjusted as a result of the reverse stock splits. All common stock,
stock options, restricted stock units, restricted stock awards and per share amounts in the financial statements have been retroactively adjusted for all
periods presented to give effect to the reverse stock splits. Additionally, the common stock at par and related additional paid-in capital amounts as of
December 31, 2022 in the balance sheet, the common stock at par and related additional paid-in capital amounts in the Statement of Stockholders’ Equity as
of December 31, 2022 and 2021, and for the year ended December 31, 2022 have also been retroactively reclassified to give effect to the reverse stock
splits.
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.
Fair Value of Financial Instruments
The Company has evaluated the estimated fair value of its financial instruments as of December 31, 2023 and 2022. Financial instruments consist
of cash and cash equivalents, accounts receivable and payable, and other current liabilities and borrowings. The carrying amounts of cash and cash
equivalents, accounts receivable and payable, and other current liabilities approximate their respective fair values because of the short-term nature of those
instruments. Based upon the borrowing terms and conditions currently available to the Company, the carrying values of the borrowings approximate their
fair value.
F-10
Table of Contents
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less at the time of purchase to be cash
equivalents. Cash equivalents are considered available-for-sale marketable securities and are recorded at fair value, based on quoted market prices. As of
December 31, 2023 and 2022, the Company’s cash equivalents are entirely comprised of investments in money market funds. Any related unrealized gains
and losses are recorded in other comprehensive income (loss) and included as a separate component of stockholders’ equity. There were no unrealized gains
and losses as of December 31, 2023 and 2022. Any realized gains and losses and interest and dividends on available-for-sale securities are included in
interest income or expense and computed using the specific identification cost method.
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 December 31, 2023 and 2022. On March 10, 2023, the Federal Deposit Insurance
Corporation announced that Silicon Valley Bank had been closed by the California Department of Financial Protection and Innovation. While we have
regained access to our accounts at First Citizens Bank, formerly Silicon Valley Bank and are evaluating our banking relationships, future disruptions of
financial institutions where we bank or have credit arrangements, or disruptions of the financial services industry in general, could adversely affect our
ability to access our cash and cash equivalents. If we are unable to access our cash and cash equivalents as needed, our financial position and ability to
operate our business will be adversely affected.
The Company’s accounts receivable are due from a variety of healthcare organizations in the United States and select international markets. 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 December 31, 2023 and 2022. At December 31, 2023, there was one
customer that represented 24% of the Company’s accounts receivable, whereas at December 31, 2022, there was no customer that represented 10% or more
of the Company’s accounts receivable. For the years ended December 31, 2023 and 2022, there was one customer that represented approximately 17% and
14% of revenues, respectively. Disruption of sales orders or a deterioration of financial condition of its customers would have a negative impact on the
Company’s financial position and results of operations.
The Company manufactures its commercial products in-house, including the Pantheris and Ocelot family of catheters. Certain of the Company’s
product components and sub-assemblies are manufactured by sole suppliers, including internally. Disruption in component or sub-assembly supply from
these manufacturers or from in-house production would have a negative impact on the Company’s financial position and results of operations.
The Company is subject to certain risks, including that its devices may not be approved or cleared for marketing by governmental authorities or be
successfully marketed. There can be no assurance that the Company’s products will achieve widespread adoption in the marketplace, nor can there be any
assurance that existing devices or any future devices can be developed or manufactured at an acceptable cost and with appropriate performance
characteristics. The Company is also subject to risks common to companies in the medical device industry, including, but not limited to, new technological
innovations, dependence upon third-party payors to provide adequate coverage and reimbursement, dependence on key personnel and suppliers, protection
of proprietary technology, product liability claims, and compliance with government regulations.
Existing or future devices developed by the Company may require approvals or clearances from the FDA or international regulatory agencies. In
addition, in order to continue the Company’s operations, compliance with various federal and state laws is required. If the Company were denied or delayed
in receiving such approvals or clearances, it may be necessary to adjust operations to align with the Company’s currently approved portfolio. If clearance
for the products in the current portfolio were withdrawn by the FDA, this may have a material adverse impact on the Company.
F-11
Table of Contents
Disruption of our supply chain capabilities due to trade restrictions, political instability, severe weather, natural disasters, public health crises,
terrorism, product recalls, labor supply or stoppages, the financial or operational instability of key suppliers and carriers, government restrictions or
measures, or other reasons could impair our ability to distribute our products. The Company believes 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 its ability to generate sales due
to the fluctuating and unpredictable levels of capacity medical providers have to perform procedures that require the use of its products. In addition, the
Company has experienced disruptions in its manufacturing and supply chain, as well as delays in site initiation and patient enrollment for its clinical
studies. If the Company is unable to successfully complete these or other clinical studies, its business and results of operations could be harmed.
The Company is closely monitoring general economic conditions on global supply chain, manufacturing, and logistics operations. As inflationary
pressures increase, the Company has experienced and further anticipates that its production and operating costs may continue to increase, including costs
and availability of materials and labor. While the Company has sufficient inventory on-hand to meet its current production requirements and customer
demand, it has experienced some constraints with respect to the availability of certain materials and extended lead times from certain key suppliers. The
Company has also experienced some delays in shipping products to its customers. Any significant delay or interruption in our supply chain could impair the
Company’s ability to meet the demands of its customers in the future and could harm its business.
We use technology in substantially all aspects of our business operations, and our ability to serve customers most effectively depends on the
reliability of our technology systems. Cybersecurity incidents can include computer viruses, computer denial-of-service attacks, worms, and other malicious
software programs or other attacks, covert introduction of malware to computers and networks, impersonation of authorized users, and efforts to discover
and exploit any design flaws, bugs, security vulnerabilities or security weaknesses, as well as intentional or unintentional acts by employees or other
insiders with access privileges, intentional acts of vandalism by third parties and sabotage.
In addition, our technology infrastructure and systems are vulnerable to damage or interruption from natural disasters, power loss and
telecommunications failures. Any such disruption to our systems, or the technology systems of third parties on which we rely, the failure of these systems to
otherwise perform as anticipated, or the theft, destruction, loss, misappropriation, or release of sensitive and/or confidential information or intellectual
property, could require us to notify affected individuals, federal or state agencies or media outlets of the incident and could result in business disruption,
negative publicity, loss of customers, potential liability, including litigation or other legal actions against us or the imposition of penalties, fines, fees or
liabilities, which may not be covered by our insurance policies, and competitive disadvantage, any or all of which would potentially adversely affect our
customer service, decrease the volume of our business and result in increased costs and lower profits. Moreover, a cybersecurity breach could require us to
devote significant management resources to address the problems associated with the breach and to expend significant additional resources to upgrade
further the security measures we employ to protect information against cyber-attacks and other wrongful attempts to access such information, which could
result in a disruption of our operations.
While we have invested, and continue to invest, in technology security initiatives and other measures to prevent security breaches and cyber
incidents, as well as disaster recovery plans, these initiatives and measures may not be entirely effective to insulate us from technology disruption that could
result in adverse effects on our results of operations.
Accounts Receivable
Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Company’s best
estimate of the amount of probable credit losses in the Company’s existing accounts receivable. The Company determines the allowance for doubtful
accounts based upon an aging of accounts receivable, historical experience, and management judgment. Accounts receivable balances are reviewed
individually for collectability. To date, the Company has not experienced significant credit-related losses.
Accounts receivable allowance for doubtful accounts provision and recoveries or write-offs are summarized as follows (in thousands):
Beginning balance
Provision
Recoveries/write-offs
Ending balance
2023
2022
73 $
17
(49)
41 $
6
70
(3)
73
$
$
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Table of Contents
Inventories
Inventories are valued at the lower of cost or net realizable value. Cost is determined using the first-in, first-out method for all inventories. The
Company’s policy is to write down inventory that has expired or become obsolete, inventory that has a cost basis in excess of its expected net realizable
value, and inventory in excess of expected requirements. At each balance sheet date, management evaluates inventories for excess quantities, and
obsolescence. This evaluation by management includes analysis of historical sales levels by product, projections of future demand, the risk of technological
or competitive obsolescence for products, general market conditions, as well as the feasibility of reworking or using excess or obsolete products or
components in the production or assembly of other products that are not obsolete or for which there are not excess quantities in inventory. To the extent that
management determines there are excess or obsolete inventory, management adjusts the carrying value to estimated net realizable value. When quantities on
hand exceed sales forecasts, a write-down is recorded for such excess inventories along with a corresponding charge to cost of revenues. The estimate of
excess quantities is subjective and primarily dependent on the estimates of future demand for a particular product. Specifically, the future demand is derived
based on our historical experience, from discussion with users of our products and general market conditions. Changes in assumptions of product demand
could have a significant impact on the amount of write-down recorded. Inventory used in clinical trials is expensed at the time of production and recorded
as research and development expense if the inventory is contractually being provided at no cost to the clinical site. The cost of inventories are regularly
reviewed against estimated market value and record a lower of cost or market reserve for inventories that have a cost in excess of estimated market value,
which could have a material impact on the gross margin and inventory balances based on additional write-downs to net realizable value or a benefit from
inventories previously written down.
Property and Equipment
Property and equipment are recorded at cost. Repairs and maintenance costs are expensed as incurred. Depreciation and amortization are
calculated using the straight-line method over the estimated useful lives of the assets of generally three to five years. Depreciation expense includes the
amortization of assets acquired under capital leases and equipment located with the Company’s sales personnel or at customer sites. Equipment held by
customers is comprised of the Lightbox consoles located at customer sites under a lease or placement agreement. Equipment held by field sales personnel is
also comprised of the Lightbox consoles in their possession. The related equipment is reclassified from inventory to the property and equipment account
either upon execution of a lease or placement agreement for customers or upon shipment to a field salesperson. Depreciation expense for equipment held by
customers or field sales personnel is recorded as a component of cost of revenues. Leasehold improvements and assets recorded under capital leases are
amortized using the straight-line method over the shorter of the lease term or estimated useful economic life of the asset.
Impairment of Long-Lived Assets
The Company reviews long-lived assets, including property and equipment, for impairment whenever events or changes in business circumstances
indicate that the carrying amount of the assets may not be fully recoverable. If indicators of impairment exist, an impairment loss would be recognized
when estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount.
Impairment, if any, is measured as the amount by which the carrying amount of the long-lived asset exceeds its fair value. The Company has not recorded
any impairment of long-lived assets since inception through December 31, 2023.
F-13
Table of Contents
Revenue Recognition
The Company’s revenues are derived from (1) sale of Lightbox consoles, (2) sale of disposables, which consist of catheters and accessories, and
(3) sale of customer service contracts and maintenance. The Company sells its products directly to hospitals and medical centers as well as through
distributors. The Company accounts for a contract with a customer when there is a legally enforceable contract between the Company and the customer, the
rights of the parties are identified, the contract has commercial substance, and collectability of the contract consideration is probable. The Company’s
revenues are measured based on consideration specified in the contract with each customer, net of any sales incentives and taxes collected from customers
that are remitted to government authorities. For all sales, the Company uses either a signed agreement, a binding purchase order or other written
documentation as evidence of an arrangement. The Company’s revenue recognition policies generally result in revenue recognition at the following points:
1.
2.
3.
Lightbox console sales: Provided all other criteria for revenue recognition have been met, the Company recognizes revenue for Lightbox
console sales directly to end customers when delivery and acceptance occurs, which is defined as receipt by the Company of an executed
form that the installation process is complete. If installation is not required, as is the case with the Lightbox 3, recognition occurs upon
the completion of delivery pursuant to the stated delivery terms.
Sales of disposables: Disposable revenues consist of sales of the Company’s catheters and accessories and are recognized when the
product has shipped, risk of loss and title has passed to the customer and collectability is reasonably assured.
Service revenue: Service contract revenue consists of preventative maintenance, upgrades, and service contracts. Service contracts are
recognized ratably over the term of the service period and maintenance contract revenue is recognized when work is completed. To date,
service revenue has been insignificant.
The Company offers its customers the ability to purchase or lease the Lightbox console. In addition, the Company provides a Lightbox under a
limited commercial evaluation program to allow accounts to install and utilize the Lightbox for a limited trial period. When a Lightbox is placed under a
lease agreement or under a commercial evaluation program, the Company retains title to the equipment and it remains capitalized on its balance sheet under
property and equipment. Depreciation expense on these placed Lightboxes is recorded to cost of revenues on a straight-line basis. The costs to maintain
these placed Lightboxes are charged to cost of revenues as incurred.
The Company evaluates its lease and commercial evaluation program agreements and accounts for these contracts under the guidance in
Accounting Standards Codification (“ASC”) 842, Leases and ASU No. 2014 09, Revenue from Contracts with Customers (Topic 606). The guidance
requires arrangement consideration to be allocated between a lease deliverable and a non-lease deliverable based upon the relative selling-price of the
deliverables.
The Company assessed whether the embedded lease is an operating lease or sales-type lease. Based on the Company’s assessment of the guidance
and given that any payments under the lease agreements are dependent upon contingent future sales, it was determined that collectability of the minimum
lease payments is not reasonably predictable. Accordingly, the Company concluded the embedded lease did not meet the criteria of a sales-type lease and
accounts for it as an operating lease. The Company recognizes revenue allocated to the lease as the contingent disposable product purchases are delivered
and are included in revenues within the statement of operations and comprehensive loss.
For sales of disposables through distributors, the Company recognizes revenue when control of the product transfers from the Company to the
distributor. The distributors are responsible for all statutory obligations, marketing, sales, training and warranty in their respective territories. The standard
terms and conditions contained in the Company’s distribution agreements do not provide price protection or stock rotation rights to any of its distributors.
In addition, its distributor agreements do not allow the distributor to return or exchange products, and the distributor is obligated to pay the Company upon
invoice regardless of its ability to resell the product.
Cost of Revenues
Cost of revenues consists primarily of manufacturing overhead costs, material costs and direct labor. A significant portion of the Company’s 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. Cost of revenues also includes depreciation expense for the Lightboxes under
lease, deployed with sales personnel and evaluation agreements, product warranty costs, product written-off due to excess or obsolescence, and certain
direct costs such as shipping costs.
F-14
Table of Contents
Product Warranty Costs
The Company typically offers a one-year warranty on its products commencing upon the transfer of title and risk of loss to the customer. The
Company accrues for the estimated cost of product warranties upon invoicing its customers, based on historical results. Warranty costs are reflected in the
statement of operations and comprehensive loss as a cost of revenues. The warranty obligation is affected by product failure rates, material usage and
service delivery costs incurred in correcting a product failure. Should actual product failure rates, material usage or service delivery costs differ from these
estimates, revisions to the estimated warranty liability would be required. Periodically the Company assesses the adequacy of its recorded warranty
liabilities and adjusts the amounts as necessary. Warranty provisions and claims are summarized as follows (in thousands):
Beginning balance
Warranty provision
Usage/Release
Ending balance
Research and Development
2023
2022
109 $
107
(23)
193 $
187
22
(100)
109
$
$
The Company expenses research and development costs as incurred. Research and development expenses include personnel and personnel-related
costs, costs associated with pre-clinical and clinical development activities, and costs for prototype products that are manufactured prior to market approval
for that prototype product, and internal and external costs associated with the Company’s regulatory compliance, including the costs of outside consultants
and contractors that assist in the process of submitting and maintaining regulatory filings, and overhead costs, including allocated facility and related
expenses.
Clinical Trials
The Company accrues and expenses costs for its clinical trial activities performed by third parties, including clinical research organizations and
other service providers, based upon estimates of the work completed over the life of the individual study in accordance with associated agreements. The
Company determines these estimates through discussion with internal personnel and outside service providers as to progress or stage of completion of trials
or services pursuant to contracts with clinical research organizations and other service providers and the agreed-upon fee to be paid for such services.
Stock-Based Compensation
Stock-based compensation for the Company includes amortization related to all stock options, restricted stock units (“RSU”), and restricted stock
awards (“RSA”) based on the grant-date estimated fair value. The fair value of stock options is estimated on the date of grant using the Black-Scholes
option pricing model and recognized as expense on a straight-line basis over the vesting period of the award. The Company has not granted any stock
options since 2017. The Company measures the fair value of RSUs and RSAs using the closing stock price of a share of the Company’s common stock on
the grant date and is recognized as expense on a straight-line basis over the vesting period of the award. As allowed under ASU No. 2016‑09,
Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, the Company accounts for forfeitures as
they occur.
Foreign Currency
The Company records net gains and losses resulting from foreign exchange transactions as a component of foreign currency exchange losses in
other income (expense), net. During the years ended December 31, 2023 and 2022, the Company recorded a net gain of $12,000 and a net loss of $12,000
of foreign currency exchange, respectively.
Income Taxes
The Company utilizes the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined
based on differences between financial reporting and tax reporting bases of assets and liabilities and are measured using enacted tax rates and laws that are
expected to be in effect when the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to
the amounts expected to be realized. The Company’s policy is to record interest and penalties on uncertain tax positions as income tax expense when they
occur. During the years ended December 31, 2023 and 2022, the Company did not recognize accrued interest or penalties related to unrecognized tax
benefits.
F-15
Table of Contents
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 December 31, 2023 and 2022, there were no shares subject to repurchase. Since the Company was in a loss position for both periods presented, basic net
loss per share attributable to common stockholders is the same as diluted net loss per share attributable to common stockholders as the inclusion of all
potentially dilutive common shares would have been anti-dilutive.
Net loss per share applicable to common stockholders was determined as follows (in thousands, except per share data):
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
Year Ended December 31,
2022
2023
$
$
(18,320) $
786
(23.31) $
(27,244)
417
(65.33)
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:
Common stock warrants equivalents
Common stock options
Convertible preferred stock
Unvested restricted stock units
Comprehensive Loss
Year Ended December 31,
2022
2023
477,182
15
61,745
123,547
662,489
267,314
15
58,080
365
325,774
For the years ended December 31, 2023 and 2022, there was no difference between comprehensive loss and the Company’s net loss.
Segment and Geographical Information
The Company operates and manages its business as one reportable and operating segment. The Company’s chief executive officer, who is the chief
operating decision maker, reviews financial information on an aggregate basis for purposes of allocating resources and evaluating financial performance.
Primarily all of the Company’s long-lived assets, which are comprised of property and equipment, are based in the United States. For the years ended
December 31, 2023 and 2022, 90% and 92% of the Company’s revenues were in the United States, based on the shipping location of the external customer.
The remaining revenues for the years ended December 31, 2023 and 2022, were primarily derived in Germany.
Recent Accounting Pronouncements
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.
F-16
Table of Contents
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 is not expected to have a material impact on the Company’s financial statements.
3. Fair Value Measurements
The Company measures certain financial assets and liabilities at fair value on a recurring basis. Fair value is an exit price, representing the amount
that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-
based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. A three-tier fair
value hierarchy is established as a basis for considering such assumptions and for inputs used in the valuation methodologies in measuring fair value:
Level 1—Quoted prices in active markets for identical assets or liabilities.
Level 2—Inputs other than quoted prices included within Level 1 that are observable, either directly or indirectly, such as quoted prices for similar
assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for
substantially the full term of the assets or liabilities.
Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
As of December 31, 2023 and 2022, the Company’s cash equivalents were all categorized as Level 1 and consisted of money market funds. As of
December 31, 2023 and 2022, there were no financial assets and liabilities categorized as Level 2 or Level 3. There were no transfers between fair value
hierarchy levels during the years ended December 31, 2023 and 2022.
4. Inventories
Inventories consisted of the following (in thousands):
Raw materials
Work-in-process
Finished products
Total inventories
December 31,
2023
2022
3,203 $
25
2,070
5,298 $
3,374
17
1,574
4,965
$
$
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Table of Contents
5. Property and Equipment, Net
Property and equipment, net, consisted of the following (in thousands):
Equipment held by customers and field sales personnel
Machinery and equipment
Computer software
Computer equipment
Furniture and fixture
Leasehold improvements
Total property and equipment, gross
Less: Accumulated depreciation and amortization
Total property and equipment, net
December 31,
2023
2022
$
$
2,495 $
1,379
122
200
78
320
4,594
(4,107)
487 $
2,566
1,372
122
200
78
320
4,658
(3,956)
702
Depreciation expense for the years ended December 31, 2023 and 2022, was approximately $289,000 and $196,000, respectively.
Property and equipment include certain equipment that is leased to customers and located at customer premises. Also, included is equipment held
by the Company’s field sales personnel for use in cases with customers. The Company retains ownership of the equipment held for evaluation by customers
and has the right to remove the equipment if it is not being utilized according to expectations. Depreciation expense relating to the leased equipment held
by customers and those held by the Company’s field sales personnel of $208,000 and $119,000 was recorded in cost of revenues during the years ended
December 31, 2023 and 2022, respectively. The net book value of this equipment was $385,000 and $527,000 at December 31, 2023 and December 31,
2022, respectively.
6. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following (in thousands):
Accrued product warranty costs
Deferred revenue
Accrued professional fees
Accrued clinical trial costs
Accrued travel and entertainment expenses
Accrued sales and use tax
Other accrued liabilities
Total accrued expenses and other current liabilities
7. Borrowings
CRG
December 31,
2023
2022
$
$
193 $
172
152
105
88
44
63
817 $
109
141
60
106
129
40
72
657
On September 22, 2015, the Company entered into a Term Loan Agreement, as amended (the “Loan Agreement”) with CRG under which, subject
to certain conditions, the Company had the right to borrow up to $50 million in principal amount from CRG on or before the end of the twenty-fourth (24th)
month period commencing on the first Borrowing Date (as defined in the Loan Agreement). The Company borrowed $30 million on September 22, 2015.
The Company borrowed an additional $10 million on June 15, 2016 under the Loan Agreement.
On February 14, 2018, the Company and CRG further amended the Loan Agreement concurrent with the conversion of $38 million of the
principal amount of the senior secured term loan (plus $3.8 million in back-end fees and prepayment premium applicable thereto) into a newly authorized
Series A convertible preferred stock.
F-18
Table of Contents
On August 2, 2023, the Company and CRG entered into a Securities Purchase Agreement (“SPA”) pursuant to which the Company issued 1,920
shares of a newly authorized Series E convertible preferred stock (“Series E preferred stock”) in exchange for CRG surrendering for cancellation $1.92
million of outstanding principal and accrued interest of the senior secured term loan under the Loan Agreement (the “Term Loan Agreement”). Each share
of Series E preferred stock has a stated value of $1,000 per share and is convertible into 93 shares of the Company’s common stock at a conversion price of
$10.725 per share, provided that the shares of Series E preferred stock cannot be converted into common stock to the extent the applicable holder would
beneficially own in excess of 19.99% of the Company’s outstanding voting power, unless approved by the Company's stockholders in accordance with
Nasdaq Listing Rule 5635(b).
The Company has entered into several amendments to the Loan Agreement (the “Amendments”) with CRG since September 2015. The
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 for 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 $3.5 million at all times; (6) eliminated the minimum revenue covenants 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 the Company and its 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 January 26, 2024, the Company entered into Amendment No. 7 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, the Company will be subject to the minimum liquidity
requirement of $3.5 million.
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 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 for 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, as defined in Note 14. Refer therein for details.
Under the amended Loan Agreement, no cash payments for either principal or interest are required until the first quarter of 2024. The interest will
be accrued and included in the debt balance based (to the extent not paid) on principal amounts outstanding at the beginning of the quarter at an interest rate
of 12.5%. Beginning in the first quarter of 2024, the Company will be required to make quarterly principal payments (in addition to the interest) of $1.6
million with total principal payments of $6.5 million in 2024 and $6.5 million in 2025. The maturity date of the Loan (as defined in the Loan Agreement) is
December 31, 2025.
The Company may voluntarily prepay the borrowings in full, with a prepayment premium beginning at 5.0% and declining by 1.0% annually
thereafter, with no premium being payable if prepayment occurs after seven and half years of the loan. Each tranche of borrowing required the payment, on
the borrowing date, of a financing fee equal to 1.5% of the borrowed loan principal, which is recorded as a discount to the debt. In addition, a facility fee
equal to 15.0% of the amounts borrowed plus any PIK is to be payable at the end of the term or when the borrowings are repaid in full. A long-term liability
is being accreted using the effective interest method for the facility fee over the term of the Loan Agreement with a corresponding discount to the debt. The
borrowings are collateralized by a security interest in substantially all of the Company’s assets.
The Loan Agreement requires that the Company adheres to certain affirmative and negative covenants, including financial reporting requirements,
certain minimum financial covenants for pre-specified liquidity and a prohibition against the incurrence of indebtedness, or creation of additional liens,
other than as specifically permitted by the terms of the Loan Agreement. In particular, the covenants of the amended Loan Agreement included a covenant
that the Company maintain a minimum of $3.5 million of cash and certain cash equivalents. The minimum liquidity requirement was temporarily reduced
to $1.0 million until April 1, 2024. In addition, the Loan Agreement prohibits the payment of cash dividends on the Company’s capital stock and also places
restrictions on mergers, sales of assets, investments, incurrence of liens, incurrence of indebtedness and transactions with affiliates. CRG may accelerate the
payment terms of the Loan Agreement upon the occurrence of certain “Events of Default” set forth therein, which include the failure of the Company to
make timely payments of amounts due under the Loan Agreement, the failure of the Company to adhere to the covenants set forth in the Loan Agreement,
the insolvency of the Company or upon the occurrence of a “Material Adverse Change” thereunder.
As of December 31, 2023, the Company was in compliance with all applicable covenants under the Loan Agreement.
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Table of Contents
As of December 31, 2023, principal, final facility fee and PIK payments under the Loan Agreement, as amended, were as follows (in thousands):
Year Ending December 31,
2024
2025
Total
Less: Amount of PIK additions and final facility fee to be incurred subsequent to December 31, 2023
Less: Amount representing debt issuance costs
Borrowings, current portion, as of December 31, 2023
$
$
7,827
9,113
16,940
(2,481)
(166)
14,293
In connection with drawdowns under the Loan Agreement, the Company recorded aggregate debt discounts of $1.3 million as contra-debt. The
debt discounts are being amortized as non-cash interest expense using the effective interest method over the term of the Loan Agreement. As of December
31, 2023 and 2022, the balance of the aggregate debt discount was approximately $166,000 and $249,000, respectively. The Company’s interest expense
associated with the amortization of debt discount was approximately $83,000 during each of the years ended December 31, 2023 and 2022. The Company
incurred total interest expense of approximately $2.0 million and $1.9 million during the years ended December 31, 2023 and 2022, respectively.
While, as of the date hereof, CRG has not purported that an Event of Default has resulted due to a Material Adverse Change (those terms as
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 December 31, 2023 were classified as current in these financial
statements.
8. Leases
The Company’s operating lease obligations primarily consist of leased office, laboratory, and manufacturing space under a non-cancelable
operating lease. In addition to the minimum future lease commitments presented below, the lease requires the Company to pay property taxes, insurance,
maintenance, and repair costs. The lease includes a rent holiday concession and escalation clauses for increased rent over the lease term. Rent expense is
recognized using the straight-line method over the term of the lease.
The lease will expire on November 30, 2024. The Company is obligated to pay approximately $5.8 million in base rent payments through
November 2024, beginning on December 1, 2019. The weighted average remaining lease term as of December 31, 2023 is 0.9 years.
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 of November 30, 2024. As amended, the lease will expire on November 30, 2025. Under the terms of the amendment, the Company 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.
The operating lease was included on the balance sheet at the present value of the future base payments discounted at a 6.5% discount rate using the
rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term and amount equal to the lease payments in a
similar economic environment as the lease does provide an implicit rate.
The Company’s operating lease expense, excluding variable maintenance fees and other expenses on a monthly basis, was approximately
$105,000. Rent expense for each of the years ended December 31, 2023 and 2022 was approximately $1.3 million. The Company’s variable expenses for
the years ended December 31, 2023 and 2022 was approximately $0.4 million and $0.3 million, respectively. Operating right-of-use asset amortization was
approximately $1.1 million for each of the years ended December 31, 2023 and 2022. Due to payments being made in excess of operating lease expense
recognized, the Company recorded approximately $13,000 and $65,000 as prepaid rent included in other assets on the balance sheet as of December 31,
2023 and 2022, respectively.
F-20
Table of Contents
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 December 31, 2023, excluding the March 2024 lease amendment (in thousands):
Year Ending December 31,
2024
Total
Less: Imputed interest
Leasehold liability as of December 31, 2023
$
$
The following table shows ROU assets and lease liabilities, and the associated financial statement line items (in thousands):
Lease-Related Assets and Liabilities
Right of use assets:
Operating lease
Total right of use assets
Lease liabilities:
Operating lease
Total lease liabilities
9. Commitments and Contingencies
Purchase Obligations
Financial Statement Line
Items
December 31,
2023
2022
Right of use asset
$
$
Leasehold liability, current portion $
Leasehold liability, long-term
portion
$
1,102 $
1,102 $
1,102 $
—
1,102 $
1,138
1,138
(36)
1,102
2,194
2,194
1,092
1,102
2,194
Purchase obligations consist of agreements to purchase goods and services entered into in the ordinary course of business. The Company had non-
cancelable commitments to suppliers for purchases totaling approximately $0.5 million as of December 31, 2023. The majority of this amount is related to
commitments to purchase inventory components and services related to the manufacturing of inventory.
Indemnification
In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and
may provide for indemnification of the counterparty. The Company’s exposure under these agreements is unknown because it involves claims that may be
made against it in the future but have not yet been made. To date, the Company has not been subject to any claims or been required to defend any action
related to its indemnification obligations.
The Company indemnifies each of its directors and officers for certain events or occurrences, subject to certain limits, while the director is or was
serving at the Company’s request in such capacity, as permitted under Delaware law and in accordance with its certificate of incorporation and bylaws. The
term of the indemnification period lasts as long as a director may be subject to any proceeding arising out of acts or omissions of such director in such
capacity. The maximum amount of potential future indemnification is unlimited; however, the Company currently holds director liability insurance. This
insurance allows the transfer of risk associated with the Company’s exposure and may enable it to recover a portion of any future amounts paid. The
Company believes that the fair value of these indemnification obligations is minimal. Accordingly, it has not recognized any liabilities relating to these
obligations for any period presented.
Legal Proceedings
The Company is not currently involved in any pending legal proceedings that it believes could have a material adverse effect on our financial
condition, results of operations or cash flows. From time to time, the Company may be involved in legal proceedings or investigations, which could harm
our reputation, business and financial condition and divert the attention of our management from the operation of our business.
F-21
Table of Contents
10. Stockholders’ Equity
Convertible Preferred Stock
As of December 31, 2023, the Company’s certificate of incorporation, as amended and restated, authorizes the Company to issue up to 5,000,000
shares of convertible preferred stock with $0.001 par value per share. As of December 31, 2023 and 2022, 62,881 and 60,961 shares, respectively, were
issued and outstanding.
Series A Convertible Preferred Stock
The holders of Series A preferred stock are entitled to receive annual accruing dividends at a rate of 8%, payable in additional shares of Series A
preferred stock or cash, at the Company’s option. The shares of Series A preferred stock have a liquidation preference of $1,000 per share and carry no
voting rights. During the year ended December 31, 2022, 4,510 of additional shares were issued to CRG as payment of dividends. As of December 31, 2023
and 2022, 60,876 and 60,876 shares of Series A preferred stock were outstanding, respectively, which are currently convertible into shares of the
Company’s common stock at $6,000 per share. The Series A preferred stock accrued no dividends during the year ended December 31, 2023 and accrued
additional dividends of approximately $4.5 million during the year ended December 31, 2022.
On September 29, 2023, the Company entered into a waiver agreement (the “Waiver Agreement”) with CRG, who hold all of the outstanding
shares of the Company’s Series A preferred stock. Pursuant to the Waiver Agreement, CRG waived their rights to receive the Series A preferred dividend
for the year ending December 31, 2023. Such waived preferred dividends are not cumulative or accrued. Consequently, there were no Series A preferred
stock dividends recorded during the year ended December 31, 2023.
Series B Convertible Preferred Stock
The Series B preferred stock has a liquidation preference of $0.001 per share, full ratchet price based anti-dilution protection, has no voting rights
and is subject to certain ownership limitations. The Series B preferred stock is immediately convertible at the option of the holder, has no stated maturity,
and does not pay regularly stated dividends or interest. As of December 31, 2023 and 2022, 85 shares of Series B preferred stock remained outstanding,
which are currently convertible into shares of the Company’s common stock at $5.732 per share.
Series D Convertible Preferred Stock
On January 14, 2022, the Company entered into a security purchase agreement with several institutional investors, pursuant to which the Company
agreed to sell and issue, in a registered direct offering (“January 2022 Offering”), an aggregate of 7,600 shares of the Company’s Series D convertible
preferred stock, par value $0.001 per share at an offering price of $1,000 per share. Concurrently, the Company agreed to issue to these investors warrants
to purchase up to an aggregate of 53,833 shares of the Company’s common stock (the “Common Warrants”).
The shares of Series D preferred stock had a stated value of $1,000 per share and were convertible into an aggregate of 63,333 shares of common
stock at a conversion price of $120.00 per share. During the year ended December 31, 2022, all 7,600 shares of Series D preferred stock were converted
into a total of 63,333 shares of common stock. There are no shares of Series D preferred stock outstanding as of December 31, 2023.
At the time of issuance, the Company evaluated the classification of the Series D preferred stock and determined equity classification was
appropriate due to no mandatory or contingently redeemable redemption features. The warrants issued to the investors were considered freestanding equity
classified instruments. The Company first allocated gross proceeds from the registered direct offering between the preferred stock and the warrants issued
to investors using a relative fair value approach, resulting in an initial allocation to each instrument of $4.0 million and $3.6 million, respectively. On the
issuance date, the Company estimated the fair value of the Common Warrants issued to investors and warrants issued to the placement agent designees
using a Black-Scholes option pricing model using the following assumptions: (i) contractual term of 5.5 years, (ii) expected volatility rate of 136.61%, (iii)
risk-free interest rate of 1.51%, (iv) expected dividend rate of 0%, and (v) closing price of the Company’s common stock of the day immediately preceding
the registered direct offering. The fair value of preferred stock was estimated based upon equivalent common shares that preferred stock could have been
converted into at the closing price of the day immediately preceding the purchase date.
F-22
Table of Contents
The embedded conversion feature was evaluated and bifurcation from the preferred stock equity host was not considered necessary. The issuance
of the Series D convertible preferred stock generated a beneficial conversion feature (“BCF”) which arose as the equity security was issued with an
embedded conversion option that is beneficial to the investor or in the money at inception because the conversion option has an effective conversion price
that is less than the market price of the underlying stock at the commitment date. The Company recorded the BCF as a discount to the preferred stock
resulting in the amount of $5.1 million based on the intrinsic value of the beneficial conversion. As the preferred stock was immediately convertible into
common stock subject to the consummation of the reverse stock split on March 14, 2022, a deemed dividend related to the discount associated with the
beneficial conversion feature was recorded on that date. This one-time, non-cash charge impacted net loss applicable to common stockholders and net loss
per share attributable to common stockholders for the year ended December 31, 2022.
Series E Convertible Preferred Stock
On August 2, 2023, the Company entered into a Series E Purchase Agreement with CRG, pursuant to which it agreed to surrender $1.92 million of
the outstanding principal and accrued interest of its senior secured term loan into Series E preferred stock. Each share of Series E preferred stock has a
stated value of $1,000 per share and is convertible into 93 shares of the Company’s common stock at a conversion price of $10.725 per share. The Series E
preferred stock is initially convertible into 178,560 shares of common stock subject to certain limitations contained in the Series E Purchase Agreement.
Shares of Series E preferred stock cannot be converted into common stock to the extent the applicable holder would beneficially own in excess of 19.99%
of the Company’s outstanding voting power, unless approved by the Company's stockholders in accordance with Nasdaq Listing Rule 5635(b). Under the
terms of the Series E Purchase Agreement, the holders of Series E preferred stock are entitled to receive annual accruing dividends at a rate of 8%, payable
in additional shares of Series E preferred stock or cash, at the Company’s option. The shares of Series E preferred stock have full voting rights, on an as-
converted basis, subject to certain limitations. The Series E preferred stock rank senior to all other classes and series of the Company’s equity in terms of
repayment and certain other rights. As of December 31, 2023, 1,920 shares of Series E preferred stock were outstanding.
On September 29, 2023, the Company entered into the Waiver Agreement with CRG, who hold all of the outstanding shares of the Company’s
Series E preferred stock. Pursuant to the Waiver Agreement, CRG waived their rights to receive the Series E preferred dividend for the year ending
December 31, 2023. Such waived preferred dividends are not cumulative or accrued. Consequently, there were no Series E preferred stock dividends
recorded during the year ending December 31, 2023.
Common Stock
At December 31, 2023, the Company’s certificate of incorporation, as amended and restated, authorizes the Company to issue up to 100,000,000
shares of common stock with $0.001 par value per share, of which 1,279,928 shares were issued and outstanding.
Common Stock Warrants
As of December 31, 2023, the Company had outstanding warrants to purchase common stock as follows:
Series 1 Warrants issued in the February 2018 Series
B financing
Series 2 Warrants issued in the February 2018 Series
B financing
Placement agent warrants issued in the January 2022
financing
Warrants issued in the January 2022 financing
Series A Preferred Investment Options issued in
August 2022 financing
Series B Preferred Investment Options issued in
August 2022 financing
Placement agent Preferred Investment Options
issued in the August 2022 financing
Total as of December 31, 2023
Total
Outstanding
and
Exercisable
Underlying
Shares of
Common
Stock
Exercise
Price per
Share
Expiration Date
8,979,000
2,993 $
6,000.00
February 2025
8,709,500
2,903 $
6,000.00
February 2025
1,330,000
16,150,000
4,433 $
53,833 $
2,853,883
190,259 $
2,853,883
190,259 $
171,233
41,047,499
11,416 $
456,096
F-23
150.00
144.00
22.53
22.53
32.85
January 2027
July 2027
February 2028
August 2024
August 2027
Table of Contents
As of December 31, 2022, the Company had outstanding warrants to purchase common stock as follows:
Series 1 Warrants issued in the February 2018 Series B financing
Series 2 Warrants issued in the February 2018 Series B financing
Warrants issued in the November 2018 financing
Placement agent warrants issued in the January 2022 financing
Warrants issued in the January 2022 financing
Pre-funded warrants issued in the August 2022 financing
Series A Preferred Investment Options issued in August 2022
financing
Series B Preferred Investment Options issued in August 2022
financing
Placement agent Preferred Investment Options issued in the August
2022 financing
Total as of December 31, 2022
January 2022 Offering
Total
Outstanding
and
Exercisable
8,979,000
8,709,500
8,768,395
1,330,000
16,150,000
91,324
Underlying
Shares of
Common
Stock
Exercise
Price per
Share
Expiration
Date
2,993 $
2,903 $
2,923 $
4,433 $
53,833 $
91,324 $
6,000.00 February 2025
6,000.00 February 2025
November
2023
January 2027
July 2027
n/a
1,200.00
150.00
144.00
0.0001
2,853,883
190,259 $
22.53 February 2028
2,853,883
190,259 $
22.53
August 2024
171,233
49,907,218
11,416 $
550,343
32.85
August 2027
Pursuant to a purchase agreement entered into on January 14, 2022, the Company issued warrants to purchase up to an aggregate of 53,833 shares
of the Company’s common stock at an exercise price of $144.00 per share and which became exercisable beginning July 14, 2022. The Common Warrants
will expire five years following the time they become exercisable, or July 14, 2027.
The Company issued to the placement agent of the January 2022 Offering warrants to purchase up to an aggregate of 4,433 shares of common
stock (the “Placement Agent Warrants”). The Placement Agent Warrants are subject to the same terms as the Common Warrants, except that the Placement
Agent Warrants have an exercise price of $150.00 per share and a term of five years from the commencement of the sales pursuant to the January 2022
Offering, or January 12, 2027.
August 2022 Offering
Pursuant to a purchase agreement entered into on August 4, 2022, the Company issued, in a registered direct offering, Pre-Funded Warrants to
purchase up to 52,268 shares of common stock (the “RD Pre-Funded Warrants”) and, in a concurrent private placement, Pre-Funded Warrants to purchase
up to 91,324 shares of common stock (the “Private Placement Pre-Funded Warrants” and together with the RD Pre-Funded Warrants the “August 2022 Pre-
Funded Warrants”). The August 2022 Pre-Funded Warrants have an exercise price of $0.0001 per share, are immediately exercisable, and have no
expiration date. During the year ended December 31, 2022, 52,268 of shares of RD Pre-Funded Warrants were exercised into the equivalent number of the
Company’s common stock. During the year ended December 31, 2023, all the remaining 91,324 Private Placement Pre-Funded Warrants were exercised.
Consequently, no August 2022 Pre-Funded Warrants remain outstanding as of December 31, 2023.
Also in the August 2022 Offering, the Company issued Series A preferred investment options to purchase up to 190,259 additional shares of the
Company’s common stock and Series B preferred investment options to purchase up to 190,259 additional shares of the Company’s common stock,
collectively referred to as Preferred Investment Options. The Series A preferred investment options have an exercise price of $22.53 per share, are
immediately exercisable, and will expire five and one-half years from the date of issuance, or February 8, 2028, and the Series B preferred investment
options have an exercise price of $22.53 per share, are immediately exercisable, and will expire two years from the date of issuance, or August 8, 2024.
The Company also issued to the placement agent of the August 2022 Offering preferred investment options to purchase up to 11,416 shares of
common stock (the “Placement Agent Preferred Investment Options”). The Placement Agent Preferred Investment Options are subject to the same terms as
the Preferred Investment Options, except that the Placement Agent Preferred Investment Options have an exercise price of $32.85 per share and a term of
five years from the commencement of the sales pursuant to the August 2022 Offering, or August 3, 2027.
F-24
Table of Contents
The exercise price and the number of shares of common stock issuable upon exercise of each Common Warrants, Preferred Investment Options,
and Placement Agent Preferred Investment Options are subject to appropriate adjustments in the event of certain stock dividends and distributions, stock
splits, stock combinations, reclassifications or similar events affecting the common stock. In addition, in certain circumstances, upon a fundamental
transaction, a holder of Common Warrants, Preferred Investment Options, or Placement Agent Preferred Investment Options will be entitled to receive,
upon exercise, the kind and amount of securities, cash or other property that such holder would have received had they exercised the Common Warrants,
Preferred Investment Options, or Placement Agent Preferred Investment Options immediately prior to the fundamental transaction.
The Common Warrants, Preferred Investment Options, and Placement Agent Preferred Investment Options can be exercised at the option of the
holders at any time after they become exercisable provided that shares of the Common Warrants, Preferred Investment Options, or Placement Agent
Preferred Investment Options cannot be exercised into common stock if the applicable holder would beneficially own in excess of 4.99% (or, upon election
by such holder prior to the issuance of any shares of Common Warrants, Preferred Investment Options, or Placement Agent Preferred Investment Options,
9.99%) of the Company’s outstanding common stock immediately after giving effect to the exercise. A holder of the Common Warrants, Preferred
Investment Options or Placement Agent Preferred Investment Options may, upon notice to the Company, increase or decrease such beneficial ownership
limitation, but not in excess of 9.99%.
In the event of a fundamental transaction in which the holders of our voting securities immediately prior to such fundamental transaction will not,
following such fundamental transaction, directly or indirectly own more than 50% of the voting securities of the surviving entity or successor entity, and in
which the Company is not the successor entity or does not continue as a reporting issuer under the Exchange Act, then, at the request of the holder, the
Company or the successor entity shall purchase the unexercised portion of the Common Warrants, Preferred Investment Options, and Placement Agent
Preferred Investment Options from the holder by paying to the holder an amount, in cash, equal to the fair value of the remaining unexercised portion of the
Common Warrants, Preferred Investment Options, and Placement Agent Preferred Investment Options on the date of such fundamental transaction, subject
to certain limitations in the event of a fundamental transaction not within our control.
As of December 31, 2023 and 2022, warrants and preferred investment options to purchase an aggregate of 456,096 and 550,343 shares of
common stock were outstanding, respectively, all of which were classified within the equity section of the respective balance sheets. During the year ended
December 31, 2023 the 8,768,395 warrants shares issued in connection with the November 2018 financing expired unexercised.
11. Stock-Based Compensation
Stock Plans
In January 2015, the Board of Directors adopted and the Company’s stockholders approved the 2015 Equity Incentive Plan (“2015 Plan”). On
October 14, 2022, the Company’s stockholders approved an additional 116,667 shares of common stock for issuance under the 2015 Plan. The following
year on December 22, 2023, the Company’s stockholders approved an additional 300,000 shares of common stock for issuance under the 2015 Plan, which
was later registered in an S-8 registration statement filed on January 10, 2024. The 2015 Plan provides for the grant of incentive stock options (“ISOs”) to
employees and for the grant of non-statutory stock options (“NSOs”), restricted stock, restricted stock awards (“RSAs”), restricted stock units (“RSUs”),
stock appreciation rights, performance units and performance shares to employees, directors and consultants. As of December 31, 2023, 24,890 shares were
available for grant under the 2015 Plan.
Pursuant to the 2015 Plan, ISOs and NSOs may be granted with exercise prices at not less than 100% of the fair value of the common stock on the
date of grant and the exercise price of ISOs granted to a stockholder, who, at the time of grant, owns stock representing more than 10% of the voting power
of all classes of the stock of the Company, shall be not less than 110% of the fair market value per share of common stock on the date of grant. The
Company’s Board of Directors determines the vesting schedule of the options.
F-25
Table of Contents
Stock option activity under the Plans is set forth below:
Balance at December 31, 2022
Balance at December 31, 2023
Exercisable at December 31, 2023
Vested and expected to vest at December 31, 2023
Number of
Shares
(in thousands)
15 $
15 $
Weighted
Average
Exercise
Price
183,340.00
183,340.00
Weighted
Average
Remaining
Contractual
Life
(in years)
Intrinsic
Value
(in thousands)
—
—
4.02 $
3.29 $
15 $
183,340.00
15 $
183,340.00
3.29 $
3.29 $
—
—
Additional information related to the Company’s stock options as of December 31, 2023 is summarized as follows:
Options Outstanding
Options Vested
Exercise
Price
Options
Outstanding
Weighted
Average
Remaining
Contractual
Life (in
years)
Weighted
Average
Exercise
Price
Number
Exercisable
Weighted
Average
Exercise
Price
$
$
5,010.00
540,000.00
10
5
15
4.44 $
1.00 $
3.29 $
5,010.00
540,000.00
183,340.00
10 $
5 $
15 $
5,010.00
540,000.00
183,340.00
There were no options granted, exercised, expired or forfeited during the years ended December 31, 2023 and 2022. For the years ended December
31, 2023 and 2022, there was no stock-based compensation expense recognized associated with stock options vesting. As of December 31, 2023, there is no
remaining unamortized stock-based compensation expense associated with unvested stock options. Because of the Company’s net operating losses, the
Company did not realize any tax benefits from share-based payment arrangements for the years ended December 31, 2023 and 2022.
The Company’s RSUs and RSAs generally vest annually over two years in equal increments. RSAs and RSUs largely contain the same contractual
terms except RSAs have the ability to vote along with common holders as an RSA is considered an outstanding security at the time of grant, subject to
certain vesting and other restrictions. The Company measures the fair value of RSAs using the closing stock price of a share of the Company’s common
stock on the grant date and is recognized as expense on a straight-line basis over the vesting period of the award. As of December 31, 2022, the Company
had 28 shares of RSUs and no shares of RSAs outstanding. A summary of all RSA and RSU activity is presented below:
Awards outstanding at December 31, 2021
Released
Forfeited
Awards outstanding at December 31, 2022
Awarded
Released
Forfeited
Awards outstanding at December 31, 2023
Weighted
Average
Grant Date
Fair Value
Weighted
Average
Remaining
Contractual
Term (in years)
363.45
372.85
362.12
174.60
18.45
20.36
18.45
18.45
0.72
0.17
1.04
Number of
Shares
668 $
(572) $
(68) $
28 $
100,189 $
(2,294) $
(7,733) $
90,190 $
F-26
Table of Contents
As of December 31, 2023, there was $0.8 million of remaining unamortized stock-based compensation expense associated with RSAs, which will
be expensed over a weighted average remaining service period of 1.0 year. The outstanding non-vested and expected to vest RSAs at December 31, 2023
have an aggregate fair value of approximately $0.2 million. The Company used the closing market price of $2.71 per share at December 29, 2023 to
determine the aggregate fair value for the RSAs outstanding at that date. For the years ended December 31, 2023 and 2022, the fair value of the RSAs and
RSUs vested was approximately $42,000 and $14,000, respectively. For the years ended December 31, 2023 and 2022, stock-based compensation expense
recognized associated with the vesting of RSAs and RSUs was approximately $0.9 million and $0.1 million, respectively.
Total noncash stock-based compensation expense relating to the Company’s RSAs and RSUs recognized, before taxes, during the years ended
December 31, 2023 and 2022, is as follows (in thousands):
Cost of revenues
Research and development expenses
Selling, general and administrative expenses
12. Income Taxes
Year Ended December 31,
2022
2023
$
$
134 $
200
606
940 $
18
37
72
127
For the years ended December 31, 2023 and 2022, the Company’s provision for income taxes consisted of zero state income tax expense. A
reconciliation of the statutory U.S. federal rate to the Company’s effective tax rate is as follows (in thousands):
Tax at federal statutory rate
State taxes, net of federal benefit
Permanent differences
Change in valuation allowance
Research credits
Nondeductible interest expense
Other
Provision for taxes
Year Ended December 31,
2022
2023
$
$
(3,847) $
59
355
3,382
(103)
154
—
— $
(3,701)
(916)
(484)
5,084
(273)
290
—
—
Significant components of the Company’s net deferred tax assets as of December 31, 2023 and 2022 consist of the following (in thousands):
Deferred tax assets:
Federal, state and foreign net operating losses
Research and other credits
Operating lease liability
Fixed assets
Accruals and other
Capitalized research and development
Total deferred tax assets
Less: Valuation allowance
Total net deferred tax assets
Deferred liabilities:
Property and equipment
Operating lease right of use asset
Total deferred tax liabilities
Net deferred tax assets (liabilities)
As of December 31,
2023
2022
$
$
87,568 $
5,546
275
517
3,842
1,888
99,636
(99,358)
278
—
(278)
(278)
— $
85,547
5,343
544
471
3,628
1,019
96,552
(95,992)
560
—)
(560)
(560)
—
The valuation allowance increased by $3.4 million and $5.1 million during the years ended December 31, 2023 and 2022, respectively.
F-27
Table of Contents
As of December 31, 2023, the Company had approximately $355.7 million of federal and $217.1 million of state net operating loss carryforwards
available to offset future taxable income. If not utilized, the federal and state net operating loss carryforwards begin to expire in 2027 and 2024,
respectively. Out of the Federal net operating loss carryforwards, $98.2 million were generated post December 31, 2017 and have no expiration.
As of December 31, 2023, the Company also had approximately $4.5 million and $4.4 million of research and development tax credit
carryforwards available to reduce future taxable income, if any, for both federal and California purposes, respectively. The federal credit carryforwards
expire beginning in 2027, and the California research credits do not expire and may be carried forward indefinitely.
The Company's ability to utilize the net operating loss and tax credit carryforwards in the future may be subject to substantial restrictions in the
event of past or future ownership changes as defined in Section 382 of the Internal Revenue Code and similar state tax laws. In the event the Company
should experience an ownership change, as defined, utilization of the Company's net operating loss carryforwards and tax credits could be limited.
The Company evaluates tax positions for recognition using a more-likely-than-not recognition threshold, and those tax positions eligible for
recognition are measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon the effective settlement with a taxing
authority that has full knowledge of all relevant information.
A reconciliation of the beginning and ending amount of the gross recognized tax benefit is as follows (in thousands):
Balance at beginning of year
Increase based on the tax positions in the current year
Increase (Decrease) for tax positions of prior year
Balance at end of year
As of December 31,
2023
2022
$
$
2,581 $
216
(118)
2,679 $
2,366
203
12
2,581
As of December 31, 2023, all unrecognized tax benefits would be subject to a full valuation allowance, if recognized, and would not affect the
Company’s tax rate.
The Company does not anticipate that the total amounts of unrecognized tax benefits will significantly increase or decrease in the next twelve
months.
The Company's policy is to include interest and penalties related to unrecognized tax benefits within its provision for income taxes. Due to the
Company's net operating loss position, the Company has not recorded an accrual for interest or penalties related to uncertain tax positions for the years
ended December 31, 2023 and 2022.
13. 401(k) Plan
The Company has a qualified retirement plan under section 401(k) of the Internal Revenue Code (“IRC”) under which participants may contribute
up to 99% of their eligible compensation, subject to maximum deferral limits specified by the IRC. The Company may make a discretionary matching
contribution to the 401(k) plan, and may make a discretionary employer contribution to each eligible employee each year. To date, the Company has made
no contributions to the 401(k) plan.
14. Subsequent Events
Restricted Stock Awards Granted
On January 11, 2024, the Company granted a total of 76,791 shares of RSAs to the Company’s non-employee directors. This granting of RSAs
represents the 2023 annual equity grants pursuant to the Company’s Outside Director Compensation Policy which entitles each non-employee director to
receive equity compensation having a grant date fair value equal to $75,000 annually. These RSAs fully vest one year from the grant date. The Company
measured the fair value of RSAs using the closing stock price of a share of the Company’s common stock of $2.93 on the day of grant. The resulting
expense will be recognized on a straight-line basis over the vesting period of the awards.
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Retention Bonus Payments and resulting Restricted Stock Award Grants
In satisfaction of certain retention bonus payment obligations for a number of employees which include among others, Jeffrey M. Soinski, Chief
Executive Officer and Himanshu Patel, Chief Technology Officer, the Company paid a total of $0.9 million in the form of RSAs on January 16, 2024.
Pursuant to the retention bonus terms as approved by the Compensation Committee (the “Committee”) of the Board of Directors on March 9, 2021, the
Company may elect to pay these incentive payments in either cash or equity, or a combination of both. On January 11, 2024, the Committee approved the
aforementioned payment in the form of RSAs.
Specifically, the Company granted a total of 317,314 shares of RSAs which vested immediately upon grant. To satisfy all associated income and
other statutory tax obligations on behalf of the employees, the Company employed a withhold-to-cover payment method. Consequently, 123,285 RSA
shares were withheld resulting in a net issuance of common shares to employees totaling 194,029. The Company measured the fair value of RSAs using the
closing stock price of a share of the Company’s common stock of $2.70 on the day of grant. The resulting expense will be offset against the reversal of the
associated accrued compensation liability thereby resulting in little to no income statement effect during the quarter ended March 31, 2024.
Strategic Partnership
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 20 years, which shall be further automatically extended for additional
20-year terms, subject to certain conditions. The License Agreement may not be terminated by either party, other than for certain uncured material breaches
or the other party’s insolvency.
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.
Financing Agreements
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 $15 million in shares of the Company’s common stock, par value $0.001 per share (the
“Common Stock”), and shares of two new series of the Company’s preferred stock (the “Private Placement”). On March 5, 2024, (the “Initial Closing”), the
Company 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”).
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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 $7.5 million (the “Milestone
Closing”) to purchase shares of the Company 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 of the closing price for the last five trading days preceding the Milestone Closing, provided that the conversion price will be no less than $0.20.
The Company’s obligations to (i) accept conversion of the shares of Series F Preferred Stock in excess of 19.99% 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)).
Series A Preferred Stock Exchange
In connection with the Strategic Collaboration and the Private Placement, 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 its 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 the Company’s Series E preferred stock,
Series F preferred stock and Series G preferred stock.
CRG Loan Amendment
In connection with the Strategic Collaboration and the Private Placement, the Company also agreed to enter 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:
-
-
-
extend the interest-only period through December 31, 2026;
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.
Lease Extension
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 of November 30, 2024. As amended, the lease will expire on November 30, 2025. Under the terms of the amendment, the Company 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.
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Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report on
Form 10-K to be signed on its behalf by the undersigned thereunto duly authorized.
Date: March 20, 2024
Date: March 20, 2024
Avinger, Inc.
(Registrant)
/s/ Jeffrey M. Soinski
Jeffrey M. Soinski
Chief Executive Officer
(Principal Executive Officer)
/s/ Nabeel Subainati
Nabeel Subainati
Vice President, Finance
(Principal Financial and Accounting Officer)
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Jeffrey Soinski and
Nabeel Subainati, jointly and severally, as his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him
or her, and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the
same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-
in-fact and agents full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises
hereby ratifying and confirming all that said attorneys-in-fact and agents, or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Annual Report on Form 10-K has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
/s/ Jeffrey M. Soinski
Jeffrey M. Soinski
/s/ Nabeel Subainati
Nabeel Subainati
/s/ James B. McElwee
James B. McElwee
/s/ James G. Cullen
James G. Cullen
/s/ Tamara Elias
Tamara Elias
/s/ Jonathon Zhong Zhao
Jonathon Zhong Zhao
Date
March 20, 2024
President and Chief Executive Officer (Principal Executive Officer);
Director
Vice President, Finance (Principal Financial and Accounting Officer)
March 20, 2024
Director
Director
Director
Director
97
March 20, 2024
March 20, 2024
March 20, 2024
March 20, 2024
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the Registration Statements on Form S-1 (Nos. 333-222517, 333-227308, 333-227689, and 333-266987),
Form S-3 (Nos. 333-263921 and 333-263922) and Form S-8 (Nos. 333-201928, 333-209364, 333-216695, 333-227072, 333-233498, 333-268296, and 333-
276464) of Avinger, Inc. (the “Company”), of our report dated March 20, 2024, relating to the financial statements and schedules of the Company (which
report expresses an unqualified opinion and includes an explanatory paragraph relating to going concern uncertainty), appearing in this Annual Report on
Form 10-K of the Company for the year ended December 31, 2023.
Exhibit 23.1
/s/ Moss Adams LLP
San Francisco, California
March 20, 2024
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
Pursuant to
Securities Exchange Act Rules 13a-14(a) and 15d-14(a),
As Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.1
I, Jeffrey Soinski, hereby certify that:
1. I have reviewed this Annual Report on Form 10-K of Avinger, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this Annual Report on Form 10-K, fairly present in
all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for
the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Annual Report on Form 10-K based on such
evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during registrant’s most recent
fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting;
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weakness in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
Dated: March 20, 2024
/s/ Jeffrey M. Soinski
Jeffrey M. Soinski
Chief Executive Officer
(Principal Executive Officer)
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
Pursuant to
Securities Exchange Act Rules 13a-14(a) and 15d-14(a),
As Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.2
I, Nabeel Subainati, hereby certify that:
1. I have reviewed this Annual Report on Form 10-K of Avinger, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects
the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for
the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting;
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weakness in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
Dated: March 20, 2024
/s/ Nabeel Subainati
Nabeel Subainati
Vice President, Finance
(Principal Financial and Accounting Officer)
CERTIFICATIONS OF CHIEF EXECUTIVE OFFICER
AND CHIEF FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the Annual Report of Avinger, Inc. (the “Company”) on Form 10-K for the period ended December 31, 2023, as filed with the Securities
and Exchange Commission (the “Report”), Jeffrey Soinski, as Chief Executive Officer of the Company, and Nabeel Subainati, Vice President, Finance of
the Company, each hereby certifies, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350), to his knowledge:
1. The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
IN WITNESS WHEREOF, the undersigned have set their hands hereto as of the 20th day of March, 2024.
/s/ Jeffrey M. Soinski
Jeffrey M. Soinski
Chief Executive Officer
(Principal Executive Officer)
/s/ Nabeel Subainati
Nabeel Subainati
Vice President, Finance
(Principal Financial and Accounting Officer)
This certification accompanies the Form 10-K to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be
incorporated by reference into any filing of the Registrant under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as
amended (whether made before or after the date of the Form 10-K), irrespective of any general incorporation language contained in such filing.
AVINGER, INC.
INCENTIVE COMPENSATION RECOVERY POLICY
Exhibit 97
1.
Introduction.
The Board of Directors of Avinger, Inc. (the “Company”) believes that it is in the best interests of the Company and its shareholders to create and maintain
a culture that emphasizes integrity and accountability and that reinforces the Company's compensation philosophy. The Board has therefore adopted this
policy, which provides for the recovery of erroneously awarded incentive compensation in the event that the Company is required to prepare an accounting
restatement due to material noncompliance of the Company with any financial reporting requirements under the federal securities laws (the “Policy”). This
Policy is designed to comply with Section 10D of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), related rules and the listing
standards of Nasdaq Stock Market or any other securities exchange on which the Company’s shares are listed in the future.
2. Administration.
This Policy shall be administered by the Board or, if so designated by the Board, the Compensation Committee (the “Committee”), in which case, all
references herein to the Board shall be deemed references to the Committee. Any determinations made by the Board shall be final and binding on all
affected individuals.
3. Covered Executives.
Unless and until the Board determines otherwise, for purposes of this Policy, the term “Covered Executive” means a current or former employee who is or
was identified by the Company as the Company’s president, principal financial officer, principal accounting officer (or if there is no such accounting
officer, the controller), any vice-president of the Company in charge of a principal business unit, division, or function (such as sales, administration, or
finance), any other officer who performs a policy-making function, or any other person (including any executive officer of the Company’s subsidiaries or
affiliates) who performs similar policy-making functions for the Company. “Policy-making function” is not intended to include policy-making functions
that are not significant. “Covered Executives” will include, at minimum, the executive officers identified by the Company pursuant to Item 401(b) of
Regulation S-K of the Exchange Act.
This Policy covers Incentive Compensation received by a person after beginning service as a Covered Executive and who served as a Covered Executive at
any time during the performance period for that Incentive Compensation.
1
4. Recovery: Accounting Restatement.
In the event the Company is required to prepare an Accounting Restatement, the Company will recover reasonably promptly any excess Incentive
Compensation received by any Covered Executive during the three completed fiscal years immediately preceding the date on which the Company is
required to prepare an Accounting Restatement, including transition periods resulting from a change in the Company’s fiscal year as provided in Rule 10D-
1 of the Exchange Act. Incentive Compensation is deemed “received” in the Company’s fiscal period during which the financial reporting measure
specified in the Incentive Compensation award is attained, even if the payment or grant of the Incentive Compensation occurs after the end of that period.
The determination of the time when the Company is “required” to prepare an Accounting Restatement shall be made in accordance with applicable SEC
and national securities exchange rules and regulations.
(a)
Definition of Accounting Restatement.
For the purposes of this Policy, an “Accounting Restatement” means the Company is required to prepare an accounting restatement of
its financial statements filed with the Securities and Exchange Commission (the “SEC”) due to the Company’s material noncompliance
with any financial reporting requirements under the federal securities laws (including any required accounting restatement to correct an
error in previously issued financial statements that is material to the previously issued financial statements, or that would result in a
material misstatement if the error were corrected in the current period or left uncorrected in the current period).
The determination of the time when the Company is “required” to prepare an Accounting Restatement shall be made in accordance with
applicable SEC and national securities exchange rules and regulations.
An Accounting Restatement does not include situations in which financial statement changes did not result from material non-compliance
with financial reporting requirements, such as, but not limited to retrospective: (i) application of a change in accounting principles; (ii)
revision to reportable segment information due to a change in the structure of the Company’s internal organization; (iii) reclassification
due to a discontinued operation; (iv) application of a change in reporting entity, such as from a reorganization of entities under common
control; (v) adjustment to provision amounts in connection with a prior business combination; and (vi) revision for stock splits, stock
dividends, reverse stock splits or other changes in capital structure.
(b)
Definition of Incentive Compensation.
For purposes of this Policy, “Incentive Compensation” means any compensation that is granted, earned, or vested based wholly or in
part upon the attainment of a “financial reporting measure” (as defined in paragraph (b) below), including, for example, bonuses or
awards under the Company’s short and long-term incentive plans, grants and awards under the Company’s equity incentive plans, and
contributions of such bonuses or awards to the Company’s deferred compensation plans or other employee benefit plans. Incentive
Compensation does not include awards which are granted, earned and vested without regard to attainment of financial reporting
measures, such as time-vesting awards, discretionary awards and awards based wholly on subjective standards, strategic measures or
operational measures.
2
(c)
Financial Reporting Measures.
Financial reporting measures are those that are determined and presented in accordance with the accounting principles used in preparing
the Company’s financial statements (including non-GAAP financial measures) and any measures derived wholly or in part from such
financial measures. For the avoidance of doubt, financial reporting measures include stock price and total shareholder return. A measure
need not be presented within the financial statements or included in a filing with the SEC to constitute a financial reporting measure for
purposes of this Policy.
(d)
Excess Incentive Compensation: Amount Subject to Recovery.
The amount(s) to be recovered from the Covered Executive will be the amount(s) by which the Covered Executive’s Incentive
Compensation for the relevant period(s) exceeded the amount(s) that the Covered Executive otherwise would have received had such
Incentive Compensation been determined based on the restated amounts contained in the Accounting Restatement. All amounts shall be
computed without regard to taxes paid.
For Incentive Compensation based on financial reporting measures such as stock price or total shareholder return, where the amount of
excess compensation is not subject to mathematical recalculation directly from the information in an Accounting Restatement, the Board
will calculate the amount to be reimbursed based on a reasonable estimate of the effect of the Accounting Restatement on such financial
reporting measure upon which the Incentive Compensation was received. The Company will maintain documentation of that reasonable
estimate and will provide such documentation to the applicable national securities exchange.
(e)
Method of Recovery.
The Board will determine, in its sole discretion, the method(s) for recovering reasonably promptly excess Incentive Compensation
hereunder. Such methods may include, without limitation:
(i)
(ii)
(iii)
requiring reimbursement of compensation previously paid;
forfeiting any compensation contribution made under the Company’s deferred compensation plans, as well as any matching
amounts and earnings thereon;
offsetting the recovered amount from any compensation that the Covered Executive may earn or be awarded in the future
(including, for the avoidance of doubt, recovering amounts earned or awarded in the future to such individual equal to
compensation paid or deferred into tax–qualified plans or plans subject to the Employee Retirement Income Security Act of
1974 (collectively, “Exempt Plans”); provided that, no such recovery will be made from amounts held in any Exempt Plan of
the Company);
(iv)
taking any other remedial and recovery action permitted by law, as determined by the Board; or
(iv)
some combination of the foregoing.
3
5. No Indemnification or Advance.
Subject to applicable law, the Company shall not indemnify, including by paying or reimbursing for premiums for any insurance policy covering any
potential losses, any Covered Executives against the loss of any erroneously awarded Incentive Compensation, nor shall the Company advance any costs or
expenses to any Covered Executives in connection with any action to recover excess Incentive Compensation.
6.
Interpretation.
The Board is authorized to interpret and construe this Policy and to make all determinations necessary, appropriate or advisable for the administration of
this Policy. It is intended that this Policy be interpreted in a manner that is consistent with the requirements of Section 10D of the Exchange Act and any
applicable rules or standards adopted by the SEC or any national securities exchange on which the Company's securities are listed.
7. Effective Date.
The effective date of this Policy is October 2, 2023 (the “Effective Date”). This Policy applies to Incentive Compensation received by Covered Executives
on or after the Effective Date that results from attainment of a financial reporting measure based on or derived from financial information for any fiscal
period ending on or after the Effective Date. In addition, this Policy is intended to be and will be incorporated as an essential term and condition of any
Incentive Compensation agreement, change-in-control plan, or any other plan or program that the Company establishes or maintains on or after the
Effective Date.
8. Amendment and Termination.
The Board may amend this Policy from time to time in its discretion and shall amend this Policy as it deems necessary to reflect changes in regulations
adopted by the SEC under Section 10D of the Exchange Act and to comply with any rules or standards adopted by the Nasdaq Stock Market or any other
securities exchange on which the Company’s shares are listed in the future.
9. Other Recovery Rights.
The Board intends that this Policy will be applied to the fullest extent of the law. Upon receipt of this Policy, each Covered Executive is required to
complete the Receipt and Acknowledgement attached as Schedule A to this Policy. The Board may require that any employment agreement or similar
agreement relating to Incentive Compensation entered into on or after the Effective Date shall, as a condition to the grant of any benefit thereunder, require
a Covered Executive to agree to abide by the terms of this Policy. Any right of recovery under this Policy is in addition to, and not in lieu of, any (i) other
remedies or rights of compensation recovery that may be available to the Company pursuant to the terms of any similar policy in any employment
agreement, or similar agreement relating to Incentive Compensation, unless any such agreement expressly prohibits such right of recovery, and (ii) any
other legal remedies available to the Company. The provisions of this Policy are in addition to (and not in lieu of) any rights to repayment the Company
may have under Section 304 of the Sarbanes-Oxley Act of 2002 and other applicable laws.
10. Impracticability.
The Company shall recover any excess Incentive Compensation in accordance with this Policy, except to the extent that certain conditions are met and the
Board has determined that such recovery would be impracticable, all in accordance with Rule 10D‑1 of the Exchange Act and the Nasdaq Stock Market or
any other securities exchange on which the Company’s shares are listed in the future.
11. Successors.
This Policy shall be binding upon and enforceable against all Covered Executives and their beneficiaries, heirs, executors, administrators or other legal
representatives.
4
Schedule A
INCENTIVE-BASED COMPENSATION CLAWBACK POLICY
RECEIPT AND ACKNOWLEDGEMENT
I, __________________________________________, hereby acknowledge that I have received and read a copy of the Incentive Compensation Recovery
Policy. As a condition of my receipt of any Incentive Compensation as defined in the Policy, I hereby agree to the terms of the Policy. I further agree that if
recovery of excess Incentive Compensation is required pursuant to the Policy, the Company shall, to the fullest extent permitted by governing laws, require
such recovery from me up to the amount by which the Incentive Compensation received by me, and amounts paid or payable pursuant or with respect
thereto, constituted excess Incentive Compensation. If any such reimbursement, reduction, cancelation, forfeiture, repurchase, recoupment, offset against
future grants or awards and/or other method of recovery does not fully satisfy the amount due, I agree to immediately pay the remaining unpaid balance to
the Company.
Signature
Date
5