avgr20240331

avgr20240331_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒

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

For the quarterly period ended March 31, 2024

☐

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

Commission File Number: 001-36817

AVINGER, INC.

(Exact name of registrant as specified in its charter)

Delaware		20-8873453
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification Number)

400 Chesapeake Drive

Redwood City, California 94063

(Address of principal executive offices and zip code)

(650) 241-7900

(Telephone number, including area code)

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

Title of each class:		Trading Symbol(s):		Name of each exchange on which registered:
Common Stock, par value $0.001 per share		AVGR		The Nasdaq Capital Market

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

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

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

Large accelerated filer ☐		Accelerated filer ☐

Non-accelerated filer ☒		Smaller reporting company ☒

		Emerging growth company ☐

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

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

As of May 3, 2024, the number of outstanding shares of the registrant’s common stock, par value $0.001 per share, was 1,702,226.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

	●	our ability to continue as a going concern;

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

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

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

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

	●	the expected timing of 510(k) clearances by the 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.

We believe that it is important to communicate our future expectations to our investors. However, there may be events in the future that we are not able to accurately predict or control and that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. These forward-looking statements are based on management’s current expectations, estimates, forecasts and projections about our business and the industry in which we operate and management’s beliefs and assumptions and are not guarantees of future performance or development and involve known and unknown risks, uncertainties and other factors that are in some cases beyond our control. As a result, any or all of our forward-looking statements in this Quarterly Report on Form 10-Q may turn out to be inaccurate. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under the “Risk Factors” section and elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 20, 2024. We urge you to consider these factors carefully in evaluating the forward-looking statements. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. We assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

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

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

AVINGER, INC.

AS OF AND FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2024

TABLE OF CONTENTS

		Page
Part I	Financial Information
Item 1.	Unaudited Financial Statements	1
	Condensed Balance Sheets	1
	Condensed Statements of Operations and Comprehensive Loss	2
	Condensed Statements of Stockholders’ Equity	3
	Condensed Statements of Cash Flows	4
	Notes to Condensed Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31
Item 4.	Controls and Procedures	31

Part II	Other Information
Item 1.	Legal Proceedings	31
Item 1A.	Risk Factors	32
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35
Item 3.	Defaults Upon Senior Securities	35
Item 4.	Mine Safety Disclosures	36
Item 5.	Other Information	36
Item 6.	Exhibits	37

Signatures		38

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

PART I. FINANCIAL INFORMATION

ITEM 1. UNAUDITED FINANCIAL STATEMENTS

AVINGER, INC.

CONDENSED BALANCE SHEETS

(unaudited)

(In thousands, except share and per share data)

	March 31,			December 31,
	2024			2023
Assets
Current assets:
Cash and cash equivalents	$	7,174		$	5,275
Accounts receivable, net of allowance for doubtful accounts of $56 and $41 at March 31, 2024 and December 31, 2023, respectively		1,377			1,014
Inventories, net		4,562			5,298
Prepaid expenses and other current assets		1,008			575
Total current assets		14,121			12,162

Right of use asset		1,991			1,102
Property and equipment, net		523			487
Other assets		225			19
Total assets	$	16,860		$	13,770

Liabilities and stockholders’ deficit
Current liabilities:
Accounts payable	$	747		$	777
Accrued compensation		2,523			2,311
Preferred stock dividends payable		65			—
Accrued expenses and other current liabilities		822			817
Leasehold liability, current portion		1,156			1,102
Borrowings		14,751			14,293
Total current liabilities		20,064			19,300

Leasehold liability, long-term portion		835			—
Other long-term liabilities		15			672
Total liabilities		20,914			19,972

Commitments and contingencies (Note 6)

Stockholders’ deficit:
Convertible preferred stock issuable in series, par value of $0.001
Shares authorized: 5,000,000 at March 31, 2024 and December 31, 2023
Shares issued and outstanding: 19,229 and 62,881 at March 31, 2024 and December 31, 2023, respectively; aggregate liquidation preference related to Series E and Series F convertible preferred stock of $7,338 at March 31, 2024 and $62,796 at December 31, 2023 related to Series A and Series E convertible preferred stock		—			—
Common stock, par value of $0.001;
Shares authorized: 100,000,000 at March 31, 2024 and December 31, 2023
Shares issued and outstanding: 1,586,434 and 1,279,928 at March 31, 2024 and December 31, 2023, respectively		2			1
Additional paid-in capital		422,157			414,493
Accumulated deficit		(426,213	)		(420,696	)
Total stockholders’ deficit		(4,054	)		(6,202	)
Total liabilities and stockholders’ deficit	$	16,860		$	13,770

All share, per share data, par values, and additional paid-in-capital amounts reflect the impact of the reverse stock split effective September 12, 2023. See accompanying notes.

AVINGER, INC.

CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(unaudited)

(In thousands, except per share data)

	Three Months Ended March 31,
	2024			2023
Revenues	$	1,859		$	1,888
Cost of revenues		1,516			1,252
Gross profit		343			636

Operating expenses:
Research and development		1,062			1,356
Selling, general and administrative		4,370			3,538
Total operating expenses		5,432			4,894
Loss from operations		(5,089	)		(4,258	)

Interest expense, net		(416	)		(392	)
Other (expense) income, net		(12	)		6
Net loss and comprehensive loss		(5,517	)		(4,644	)
Accretion of preferred stock dividends		(65	)		(1,218	)
Gain on exchange of Series A for Series A-1 convertible preferred stock		1,908			—
Net loss applicable to common stockholders	$	(3,674	)	$	(5,862	)

Net loss per share attributable to common stockholders, basic and diluted	$	(2.49	)	$	(10.70	)
Weighted average common shares used to compute net loss per share, basic and diluted		1,477			548

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

AVINGER, INC.

CONDENSED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(unaudited)

(In thousands, except share data)

	Convertible Preferred Stock				Common Stock				Additional Paid-in			Accumulated			Total Stockholders’
	Shares		Amount		Shares		Amount		Capital			Deficit			Equity (Deficit)
Balance at December 31, 2022		60,961	$	—		522,177	$	8	$	406,514		$	(402,376	)	$	4,146
Issuance of common stock in public offerings, net of commissions and issuance costs		—		—		794		—		(21	)		—			(21	)
Exercise of pre-funded warrants for common stock		—		—		49,858		1		(1	)		—			—
Issuance of common stock upon vesting of restricted stock units		—		—		2,294		—		—			—			—
Employee stock-based compensation		—		—		—		—		245			—			245
Accretion of Series A preferred stock dividends		—		—		—		—		(1,218	)		—			(1,218	)
Net and comprehensive loss		—		—		—		—		—			(4,644	)		(4,644	)
Balance at March 31, 2023		60,961	$	—		575,123	$	9	$	405,519		$	(407,020	)	$	(1,492	)

	Convertible Preferred Stock					Common Stock					Additional Paid-in			Accumulated			Total Stockholders’
	Shares			Amount		Shares			Amount		Capital			Deficit			Deficit
Balance at December 31, 2023		62,881		$	—		1,279,928		$	1	$	414,493		$	(420,696	)	$	(6,202	)
Issuance of common stock and Series F preferred stock in a Private Placement, net of commissions and issuance costs		7,224			—		75,327			—		6,880			—			6,880
Issuance of common stock warrants in connection with the Private Placement		—			—		—			—		127			—			127
Cancellation of Series A preferred stock		(60,876	)		—		—			—		—			—			—
Issuance of Series A-1 preferred stock, net of commissions and issuance costs		10,000			—		—			—		—			—			—
Issuance of common stock upon vesting of restricted stock awards		—			—		368,503			1		—			—			1
Net share settlement of restricted stock awards in satisfaction of tax obligations		—			—		(137,324	)		—		(374	)		—			(374	)
Employee stock-based compensation		—			—		—			—		1,096			—			1,096
Accretion of preferred stock dividends		—			—		—			—		(65	)		—			(65	)
Net and comprehensive loss		—			—		—			—		—			(5,517	)		(5,517	)
Balance at March 31, 2024		19,229		$	—		1,586,434		$	2	$	422,157		$	(426,213	)	$	(4,054	)

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

AVINGER, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(unaudited)

(In thousands)

	Three Months Ended March 31,
	2024			2023
Cash flows from operating activities
Net loss	$	(5,517	)	$	(4,644	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		83			72
Amortization of debt issuance costs and debt discount		16			21
Stock-based compensation		1,096			245
Noncash interest expense and other charges		442			486
Change in right of use asset		4			14
Provision for excess and obsolete inventories		34			179
Other		15			(50	)
Changes in operating assets and liabilities:
Accounts receivable		(378	)		94
Inventories		584			(469	)
Prepaid expenses and other current assets		(433	)		(616	)
Other assets		(210	)		2
Accounts payable		(30	)		(114	)
Accrued compensation		212			367
Accrued expenses and other current liabilities		5			68
Other long-term liabilities		(657	)		133
Net cash used in operating activities		(4,734	)		(4,212	)

Cash flows from investing activities
Investing activities		—			—
Net cash used in investing activities		—			—

Cash flows from financing activities
Proceeds from the issuance of common stock and convertible preferred stock, net of commissions and issuance costs		7,007			—
Net share settlement on restricted stock awards in satisfaction of tax obligations		(374	)		—
Proceeds from the issuance of common stock in public offerings, net of commissions and issuance costs		—			(21	)
Net cash (used in) provided by financing activities		6,633			(21	)

Net change in cash and cash equivalents		1,899			(4,233	)
Cash and cash equivalents, beginning of period		5,275			14,603
Cash and cash equivalents, end of period	$	7,174		$	10,370

Supplemental disclosure of cash flow information
Noncash investing and financing activities:
Increase to right of use asset and leasehold liability arising from lease amendment	$	1,177		$	—
Accretion of preferred stock dividends	$	65		$	1,218
Reclassification of other long-term liabilities to accrued compensation	$	—		$	638
Transfers between inventory and property and equipment	$	118		$	(62	)

See accompanying notes.

AVINGER, INC.

Notes to Condensed Financial Statements

1. Organization

Organization, Nature of Business

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

Liquidity Matters

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

In the course of its activities, the Company has incurred losses and negative cash flows from operations since its inception. On March 5, 2024, the Company entered into a financing as part of a broader strategic collaboration with Zylox-Tonbridge Medical Technology Co., Ltd. (“Zylox-Tonbridge”) in which the Company received an aggregate of $7.5 million before any commissions, legal and accounting fees, and other ancillary expenses as described more fully below. As of March 31, 2024, the Company had an accumulated deficit of $426.2 million. The Company expects to incur losses for the foreseeable future. The Company believes that its cash and cash equivalents of $7.2 million at March 31, 2024, 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 $6.5 million from the sale of its common stock under an At The Market Offering Agreement from the time of activation through March 31, 2024. 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.

Additionally, due to the substantial doubt about the Company’s ability to continue operating as a going concern and the “Material Adverse Change” clause in the Loan Agreement with CRG Partners III L.P. and certain of its affiliated funds (collectively “CRG”), the entire amount of outstanding borrowings at March 31, 2024 and December 31, 2023 has been classified as current in these financial statements. CRG has not purported that an Event of Default (as defined in the Loan Agreement) has occurred due to a Material Adverse Change.

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

Public Offerings

At The Market Offering Agreement

On May 20, 2022, the Company entered into an At The Market Offering Agreement (the “ATM Agreement”) with H.C. Wainwright & Co., LLC (the “Agent”), as sales agent, pursuant to which the Company may offer and sell shares of common stock, par value $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. 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. There were no sales under the ATM Agreement during the three months ended March 31, 2024. While the Company may attempt additional sales in the future, there can be no assurance that the Company will be successful in acquiring additional funding through these means.

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

Strategic Partnership and Private Placement

On March 4, 2024, the Company entered into a License and Distribution Agreement (the “License Agreement”) with Zylox-Tonbridge effective as of the Initial Closing (defined below), pursuant to which the Company will license and distribute certain of the Company’s products (including consumables) in the Greater China region, including mainland China, Hong Kong, Macao, and Taiwan (the “Territory”). Zylox-Tonbridge will lead all regulatory activities for the registration of the Avinger products in the Territory. Avinger will also license its intellectual property and know-how related to Avinger products to Zylox-Tonbridge so that Zylox-Tonbridge can manufacture the localized products in the Territory. Avinger will supply Avinger products to Zylox-Tonbridge until Zylox-Tonbridge’s manufacturing capability has been established and Zylox-Tonbridge has obtained the regulatory approval of the localized products manufactured by Zylox-Tonbridge. All sales of Avinger products locally manufactured by Zylox-Tonbridge with regulatory approval by the regulatory authorities in the Territory and commercialized in the Territory will be royalty bearing to Avinger at a rate from a mid-single to high-single digit percentage depending on the amount of gross revenue as defined in the License Agreement, with certain increases depending on the amount of product gross margin. The License Agreement has an initial term of 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 March 2024, the Company received approximately $0.2 million from Zylox-Tonbridge related to inventory consumed for regulatory approval which is recorded as a reduction to research and development expenses in the Condensed Statement of Operations and Comprehensive Loss for the three months ended March 31, 2024 which substantially offset the related expenditures associated with the inventory consumption.

In connection with the License Agreement, on March 4, 2024, the Company and Zylox-Tonbridge also entered into a Strategic Cooperation and Framework Agreement in conjunction with the Initial Closing (the “Collaboration Agreement” and, together with the License Agreement, the “Strategic Collaboration”), which provides the opportunity for the Company to access certain Zylox-Tonbridge peripheral vascular products for distribution in the U.S. and Germany. The agreement also provides the option for Avinger to source finished goods inventory from Zylox-Tonbridge following registration of Zylox-Tonbridge’s manufacturing facility with the FDA.

Private Placement

On March 4, 2024, in connection with the Strategic Collaboration, the Company and Zylox-Tonbridge Medical Limited, a wholly-owned subsidiary of Zylox-Tonbridge (the “Purchaser”), entered into a Securities Purchase Agreement (the “Purchase Agreement”), pursuant to which the Purchaser agreed to purchase, in two tranches, up to an aggregate of $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”).

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 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 Milestone Closing was determined to be a separate freestanding equity-classified instrument issued together with the common stock and Series F preferred stock, all of which are classified within equity.

The Company’s obligations to (i) accept conversion of the shares of Series F Preferred Stock in excess of 19.9% of the Company’s outstanding common stock as of the date of the Purchase Agreement and (ii) issue and sell shares of Series G Preferred Stock upon completion of the Milestones are each subject to receipt of the approval of the Company’s stockholders as is necessary under the rules and regulations of Nasdaq (including, without limitation, Nasdaq Rule 5635(d)).

The Company engaged two financial advisors in connection with the Private Placement and agreed to pay them an aggregate cash fee equal to 7% of the gross proceeds to the Company. Additionally, the Company agreed to issue to one financial advisor warrants to purchase an aggregate number of shares of common Stock equal to 2% of the gross proceeds. In connection with the Private Placement, the Company issued the financial advisor warrants (the “Advisor Warrants”) to purchase 40,938 shares of common stock. The cash fee of approximately $0.5 million and warrants with a fair value of approximately $0.1 million are considered financing costs and are recognized as a reduction of the proceeds from the Private Placement.

Series A Preferred Stock Exchange

On March 5, 2024, the Company entered into a Securities Purchase Agreement (the “A-1 Securities Purchase Agreement”) with CRG to exchange all outstanding shares of Series A preferred stock for 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. The Exchange resulted in approximately $1.9 million gain included in the net loss applicable to common holders for the three months ended March 31, 2024.

CRG Loan Amendment

Also on March 5, 2024, the Company entered into Amendment No. 9 to Loan Agreement effective as of the Initial Closing (the “Amendment”) with CRG, which amends the Loan Agreement to, among other things:

	-	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.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed financial statements have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) and pursuant to the rules and regulations of the SEC. The accompanying unaudited condensed interim financial statements have been prepared on the same basis as the annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for a fair statement of the Company’s financial information. The results for the three months ended March 31, 2024 are not necessarily indicative of results to be expected for the year ending December 31, 2024, or for any other interim period or for any future year. The December 31, 2023 condensed balance sheet data has been derived from audited financial statements. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to SEC rules and regulations relating to interim financial statements. These unaudited condensed financial statements and notes should be read in conjunction with the financial statements included in the Company’s Form 10-K for the fiscal year ended December 31, 2023, which was filed with the SEC on March 20, 2024. The Company’s significant accounting policies are more fully described in Note 2 of the Notes to Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

On September 8, 2023, the Company’s Board of Directors approved an amendment to the Company’s amended and restated certificate of incorporation to effect a 1-for-15 reverse stock split of the Company’s issued and outstanding common stock. The reverse stock split became effective on September 12, 2023.

Use of Estimates

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

Concentration of Credit Risk, and Other Risks and Uncertainties

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

The Company’s policy is to invest in cash and cash equivalents, consisting of money market funds. These financial instruments are held in Company accounts at one financial institution, First Citizens Bank, which acquired our prior banking partner, Silicon Valley Bank, in March 2023. The counterparties to the agreements relating to the Company’s investments consist of financial institutions of high credit standing. The Company provides for uncollectible amounts when specific credit problems arise. Management’s estimates for uncollectible amounts have been adequate, and management believes that all significant credit risks have been identified at March 31, 2024 and December 31, 2023. On March 10, 2023, the Federal Deposit Insurance Corporation announced that Silicon Valley Bank had been closed by the California Department of Financial Protection and Innovation. While we have regained access to our accounts at Silicon Valley Bank, now a division of First Citizens Bank, and are evaluating our banking relationships, future disruptions of financial institutions where we bank or have credit arrangements, or disruptions of the financial services industry in general, could adversely affect our ability to access our cash and cash equivalents. If we are unable to access our cash and cash equivalents as needed, our financial position and ability to operate our business will be adversely affected.

The Company’s accounts receivable are due from a variety of healthcare organizations in the United States and select international markets. The Company provides for uncollectible amounts when specific credit problems arise. Management’s estimates for uncollectible amounts have been adequate, and management believes that all significant credit risks have been identified at March 31, 2024 and December 31, 2023. At March 31, 2024, there was one customer that represented 32% of the Company’s accounts receivable. At December 31, 2023, there was one customer that represented 24% of the Company’s accounts receivable. For the three months ended March 31, 2024, there was one customer that represented 17% of revenues and another that represented 10% of revenues. For the three months ended March 31, 2023, there was one customer that represented 13% of revenues. 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.

Product Warranty Costs

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

	Three Months Ended March 31,
	2024			2023
Beginning balance	$	193		$	109
Warranty provision		15			19
Usage/Release		(26	)		(14	)
Ending balance	$	182		$	114

Net Loss per Share Attributable to Common Stockholders

Basic net loss per share attributable to common stockholders is computed by dividing the net loss applicable to common stockholders by the weighted average number of shares of common stock outstanding during the period, without consideration for potential dilutive common shares. Diluted net loss per share attributable to common stockholders is computed by dividing the net loss applicable to common stockholders by the weighted average number of shares of common stock and dilutive potential shares of common stock outstanding during the period. Any common stock shares subject to repurchase are excluded from the calculations as the continued vesting of such shares is contingent upon the holders’ continued service to the Company. As of March 31, 2024 and 2023, there were 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):

	Three Months Ended March 31,
	2024			2023
Net loss applicable to common stockholders	$	(3,674	)	$	(5,862	)
Weighted average common stock outstanding, basic and diluted		1,477			548
Net loss per share attributable to common stockholders, basic and diluted	$	(2.49	)	$	(10.70	)

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

	Three Months Ended March 31,
	2024		2023
Common stock warrants equivalents		467,343		525,415
Common stock options		15		15
Convertible preferred stock		50,409		60,961
Unvested restricted stock awards		116,916		79,408
		634,683		665,799

Segment and Geographical Information

The Company operates and manages its business as one reportable and operating segment. The Company’s chief executive officer, who is the chief operating decision maker, reviews financial information on an aggregate basis for purposes of allocating resources and evaluating financial performance. Primarily all of the Company’s long-lived assets, which are comprised of property and equipment, are based in the United States. For the three months ended March 31, 2024 and 2023, 94% 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 three months ended March 31, 2024 and 2023, were primarily derived in Germany.

Fair Value Measurements

As of March 31, 2024 and December 31, 2023, cash equivalents were all categorized as Level 1 and consisted of money market funds. As of March 31, 2024 and December 31, 2023, there were no financial assets and liabilities categorized as Level 2 or 3. There were no transfers between fair value hierarchy levels during the three months ended March 31, 2024.

Recent Accounting Pronouncements

Recent accounting standards adopted

In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which among other things, simplifies the accounting models for the allocation of proceeds attributable to the issuance of a convertible debt instrument. As a result, after adopting the ASU’s guidance, entities will not separately present in equity an embedded conversion feature in such debt. Instead, they will account for a convertible debt instrument wholly as debt, and for convertible preferred stock wholly as preferred stock (i.e., as a single unit of account), unless (i) a convertible instrument contains features that require bifurcation as a derivative under ASC 815 or (ii) a convertible debt instrument was issued at a substantial premium. The standard becomes effective for the Company, as a smaller reporting company as defined by the SEC, in the first quarter of 2024 and early adoption is permitted. This new standard did not have a material impact on the Company’s financial statements.

In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280) – Improvements to Reportable Segment Disclosures. This ASU requires that a public entity provide additional segment disclosures on an interim and annual basis. The amendments in this ASU should be applied retrospectively to all prior periods presented in the financial statements unless impracticable. Upon transition, the segment expense categories and amounts disclosed in the prior periods should be based on the significant segment expense categories identified and disclosed in the period of adoption. The ASU is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. This new standard did not have a material impact on the Company’s financial statements.

Recent accounting standards not yet adopted

In December 2023, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”), which will require the Company to disclose specified additional information in its income tax rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. ASU 2023-09 will also require the Company to disaggregate its income taxes paid disclosure by federal, state and foreign taxes, if any, with further disaggregation required for significant individual jurisdictions. The Company will adopt ASU 2023-09 in its first quarter of 2025. ASU 2023-09 allows for adoption using either a prospective or retrospective transition method.

3. Inventories

Inventories consisted of the following (in thousands):

	March 31,		December 31,
	2024		2023
Raw materials	$	2,741	$	3,203
Work-in-process		130		25
Finished products		1,691		2,070
Total inventories	$	4,562	$	5,298

4. Borrowings

CRG

On September 22, 2015, the Company entered into a Term Loan Agreement, as amended (the “Loan Agreement”) with CRG under which, subject to certain conditions, the Company had the right to borrow up to $50 million in principal amount from CRG on or before the end of the twenty-fourth (24^th) 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. 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 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. 8 to the Loan Agreement with CRG, which reduces the minimum liquidity requirement of the Loan Agreement from $3.5 million to $1.0 million until April 1, 2024. Thereafter, 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 PIK interest payments through December 31, 2026 so long as no Default (as defined in the Loan Agreement) has occurred and is continuing; (3) permitted the Company to make the entire interest payments in PIK interest payments through December 31, 2026 so long as no Default has occurred and is continuing; and (4) permit the payment of dividends on the preferred stock issued or issuable to the Purchaser.

The Company assessed Amendments Nos. 8 and 9 to the Loan Agreement entered into during the quarter ended March 31, 2024 and determined that these represented loan modifications. As such, the unamortized portion of previous issuance costs incurred will be amortized over the modified term, and costs incurred with third parties was expensed as incurred.

Under the amended Loan Agreement, no cash payments for either principal or interest are required until the first quarter of 2027. The interest will be accrued and included in the debt balance based (to the extent not paid) on principal amounts outstanding at the beginning of the quarter at an interest rate of 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. There is currently no prepayment premium payable. 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 March 31, 2024, the Company was in compliance with all applicable covenants under the Loan Agreement.

As of March 31, 2024, principal, final facility fee and PIK payments under the Loan Agreement, as amended, were as follows (in thousands):

Year Ending December 31,
2024 (remaining nine months of the year)	$	—
2025		—
2026		—
2027		11,378
2028		13,017
Total		24,395
Less: Amount of PIK additions and final facility fee to be incurred subsequent to March 31, 2024		(9,494	)
Less: Amount representing debt issuance costs		(150	)
Borrowings, current portion, as of March 31, 2024	$	14,751

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 March 31, 2024 and December 31, 2023, the balance of the aggregate debt discount was approximately $150,000 and $166,000, respectively. The Company’s interest expense associated with the amortization of debt discount was approximately $16,000 and $21,000 during the three months ended March 31, 2024 and 2023, respectively. For the three months ended March 31, 2024 and 2023, the Company incurred total interest expense of approximately $458,000 and $507,000, respectively.

While, as of the date hereof, CRG has not purported that an Event of Default has resulted due to a Material Adverse Change (as those terms defined in the Loan Agreement), due to the substantial doubt about the Company’s ability to continue operating as a going concern, the entire outstanding amount of borrowings under the Loan Agreement and associated aggregate debt discount at March 31, 2024 and December 31, 2023 were classified as current in these financial statements.

5. Leases

The Company’s operating lease obligations primarily consist of leased office, laboratory, and manufacturing space under a non-cancelable operating lease. In addition to the minimum future lease commitments presented below, the lease requires the Company to pay property taxes, insurance, maintenance, and repair costs. The most recent amendment also provides an optional one-year extension of the lease following the end of the current term on November 30, 2025, which was not included in the assessment of the lease term as it is not reasonably certain the Company will elect to exercise this option. Rent expense is recognized using the straight-line method over the term of the lease.

The current lease was to expire on November 30, 2024. On March 6, 2024, the Company entered into an amendment to the lease which extended the lease term for a period of one year, subsequent to the original expiration. As amended, the lease will expire on November 30, 2025. Under the terms of the amendment, the Company will be obligated to pay an additional $1.3 million in base rent payments through November 2025, beginning on December 1, 2024. In total, the Company is obligated to pay approximately $7.1 million in base rent payments through November 2025, which began on December 1, 2019. The weighted average remaining lease term as of March 31, 2024 is 1.7 years.

In connection with the amendment the Company adjusted its right-of-use asset and lease liability to $2.2 million. As of the date of the amendment, 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 do 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 the three months ended March 31, 2024 and 2023 was approximately$315,000 and $314,000, respectively. The Company’s variable expenses for the three months ended March 31, 2024 and 2023 were approximately $90,000 and $65,000, respectively. Operating right-of-use asset amortization for the three months ended March 31, 2024 and 2023 was approximately $292,000 and $280,000, respectively. Due to payments being made in excess of operating lease expense recognized, the Company recorded approximately $9,000 and $13,000 as prepaid rent included in other assets on the condensed balance sheet as of March 31, 2024 and December 31, 2023, respectively.

The following table presents the future operating lease payments and leasehold liability included on the balance sheet related to the Company’s operating lease as of March 31, 2023 (in thousands):

Year Ending December 31,
2024 (remaining nine months of the year)	$	934
2025		1,166
Total		2,100
Less: Imputed interest		(109	)
Leasehold liability as of March 31, 2024	$	1,991

The following table shows ROU assets and lease liabilities, and the associated financial statement line items, as of March 31, 2024 and December 31, 2023 (in thousands):

	Financial Statement Line	March 31,	December 31,
Lease-Related Assets and Liabilities	Items	2024	2023
Right of use assets:
Operating lease	Right of use asset