avgr20210331

10-Q 1 avgr20210331_10q.htm FORM 10-Q avgr20210331_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, 2021

☐

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 4, 2021, the number of outstanding shares of the registrant’s common stock, par value $0.001 per share, was 95,351,502.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

●

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

●

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

●

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

●

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

●

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

●

the expected growth in our business and our organization;

●

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

●

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

●

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

●

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

●

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

●

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

●

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

●

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

●

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

●

our financial performance;

●

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

●

developments and projections relating to our competitors or our industry.

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

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

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

AVINGER, INC.

AS OF AND FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2021

TABLE OF CONTENTS

		Page
Part I	Financial Information
Item 1.	Unaudited Financial Statements	1
	Condensed Balance Sheets	1
	Condensed Statements of Operations and Comprehensive Loss	2
	Condensed Statements of Stockholders’ Equity	3
	Condensed Statements of Cash Flows	4
	Notes to Condensed Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25
Item 4.	Controls and Procedures	26

Part II	Other Information
Item 1.	Legal Proceedings	26
Item 1A.	Risk Factors	26
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	26
Item 3.	Defaults Upon Senior Securities	26
Item 4.	Mine Safety Disclosures	26
Item 5.	Other Information	26
Item 6.	Exhibits	27

Signatures		28

“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,
	2021			2020
Assets
Current assets:
Cash and cash equivalents	$	30,448		$	22,185
Accounts receivable, net of allowance for doubtful accounts of $6 at March 31, 2021 and $19 at December 31, 2020		1,531			1,484
Inventories		3,936			3,876
Prepaid expenses and other current assets		1,318			350
Total current assets		37,233			27,895

Right of use asset		3,848			4,063
Property and equipment, net		552			727
Other assets		476			510
Total assets	$	42,109		$	33,195

Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	786		$	694
Accrued compensation		1,568			1,703
Series A preferred stock dividends payable		1,044			—
Accrued expenses and other current liabilities		856			669
Leasehold liability, current portion		909			806
Borrowings, current portion		2,072			3,590
Total current liabilities		7,235			7,462

Borrowings, long-term portion		11,316			9,400
Leasehold liability, long-term portion		2,939			3,257
Other long-term liabilities		144			—
Total liabilities		21,634			20,119

Commitments and contingencies (Note 7)

Stockholders’ equity:
Convertible preferred stock issuable in series, par value of $0.001
Shares authorized: 5,000,000 at March 31, 2021 and December 31, 2020
Shares issued and outstanding: 52,276 and 52,369 at March 31, 2021 and December 31, 2020, respectively; aggregate liquidation preference of $52,276 and $52,369 at March 31, 2021 and December 31, 2020, respectively		—			—
Common stock, par value of $0.001;
Shares authorized: 100,000,000 at March 31, 2021 and December 31, 2020
Shares issued and outstanding: 95,351,502 and 84,926,129 at March 31, 2021 and December 31, 2020, respectively		95			85
Additional paid-in capital		392,773			380,332
Accumulated deficit		(372,393	)		(367,341	)
Total stockholders’ equity		20,475			13,076
Total liabilities and stockholders’ equity	$	42,109		$	33,195

See accompanying notes.

AVINGER, INC.

CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(unaudited)

(In thousands, except per share data)

	Three Months Ended March 31,
	2021			2020
Revenues	$	2,559		$	2,261
Cost of revenues		1,665			1,760
Gross profit		894			501

Operating expenses:
Research and development		1,598			1,594
Selling, general and administrative		3,945			4,386
Total operating expenses		5,543			5,980
Loss from operations		(4,649	)		(5,479	)

Interest income		2			30
Interest expense		(398	)		(398	)
Other expense, net		(7	)		(4	)
Net loss and comprehensive loss		(5,052	)		(5,851	)
Accretion of preferred stock dividends		(1,044	)		(967	)
Net loss applicable to common stockholders	$	(6,096	)	$	(6,818	)

Net loss per share attributable to common stockholders, basic and diluted	$	(0.07	)	$	(0.47	)
Weighted average common shares used to compute net loss per share, basic and diluted		91,435			14,616

See accompanying notes.

AVINGER, INC.

CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY

(unaudited)

(In thousands, except share data)

	Convertible Preferred Stock				Common Stock				Additional Paid-in			Accumulated			Total Stockholders’
	Shares		Amount		Shares		Amount		Capital			Deficit			Equity
Balance at December 31, 2019		48,503	$	—		10,364,663	$	10	$	355,220		$	(348,335	)	$	6,895
Issuance of common stock in public offerings, net of commissions and issuance costs		—		—		6,428,572		7		3,855			—			3,862
Issuance of common stock under officers and directors purchase plan and vesting of restricted stock units		—		—		28,124		—		18			—			18
Employee stock-based compensation		—		—		—		—		451			—			451
Accretion of Series A preferred stock dividends		—		—		—		—		(967	)		—			(967	)
Net and comprehensive loss		—		—		—		—		—			(5,851	)		(5,851	)
Balance at March 31, 2020		48,503	$	—		16,821,359	$	17	$	358,577		$	(354,186	)	$	4,408

	Convertible Preferred Stock					Common Stock				Additional Paid-in			Accumulated			Total Stockholders’
	Shares			Amount		Shares		Amount		Capital			Deficit			Equity
Balance at December 31, 2020		52,369		$	—		84,926,129	$	85	$	380,332		$	(367,341	)	$	13,076
Issuance of common stock in public offerings, net of commissions and issuance costs		—			—		10,000,000		10		13,067			—			13,077
Conversion of Series B preferred stock into common stock		(93	)		—		372,000		—		—			—			—
Issuance of common stock under officers and directors purchase plan and vesting of restricted stock units		—			—		53,373		—		—			—			—
Employee stock-based compensation		—			—		—		—		418			—			418
Accretion of Series A preferred stock dividends		—			—		—		—		(1,044	)		—			(1,044	)
Net and comprehensive loss		—			—		—		—		—			(5,052	)		(5,052	)
Balance at March 31, 2021		52,276		$	—		95,351,502	$	95	$	392,773		$	(372,393	)	$	20,475

See accompanying notes.

AVINGER, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(unaudited)

(In thousands)

	Three Months Ended March 31,
	2021			2020
Cash flows from operating activities
Net loss	$	(5,052	)	$	(5,851	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		194			225
Amortization of debt issuance costs and debt discount		28			43
Stock-based compensation		418			451
Noncash interest expense and other charges		370			356
Change in right of use asset		34			43
Provision for excess and obsolete inventories		7			104
Other non-cash charges		2			(1	)
Changes in operating assets and liabilities:
Accounts receivable		(49	)		105
Inventories		(67	)		(17	)
Prepaid expenses and other current assets		(968	)		(722	)
Other assets		—			5
Accounts payable		84			722
Accrued compensation		(135	)		(476	)
Accrued expenses and other current liabilities		187			41
Other long-term liabilities		144			2
Net cash used in operating activities		(4,803	)		(4,970	)

Cash flows from investing activities
Purchase of property and equipment		(11	)		—
Net cash used in investing activities		(11	)		—

Cash flows from financing activities
Proceeds from the issuance of common stock under officers’ and directors’ purchase plan		—			27
Proceeds from the issuance of common stock in public offerings, net		13,077			3,862
Net cash provided by financing activities		13,077			3,889

Net change in cash and cash equivalents		8,263			(1,081	)
Cash and cash equivalents, beginning of period		22,185			10,943
Cash and cash equivalents, end of period	$	30,448		$	9,862

Supplemental disclosure of cash flow information
Noncash investing and financing activities:
Accretion of Series A preferred stock dividends	$	1,044		$	967
Transfers between inventory and property and equipment	$	—		$	(49	)
Reclassification of right of use asset to prepaid rent	$	(34	)	$	(43	)

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, our Lightbox console, as well as a variety of disposable catheter products. The Company’s current products include its non-imaging catheters, Wildcat and Kittycat 2, as well as its Lumivascular platform products, Ocelot, Ocelot PIXL, Ocelot MVRX and Tigereye, all of which are designed to allow physicians to penetrate a total blockage in an artery, known as a chronic total occlusion (“CTO”). The Company also has image-guided atherectomy solutions under its suite of Lumivascular products, Pantheris and Pantheris SV, which are designed to allow physicians to precisely remove arterial plaque in PAD patients. The Company is located in Redwood City, California.

Liquidity Matters

In the course of its activities, the Company has incurred losses and negative cash flows from operations since its inception. As of March 31, 2021, the Company had an accumulated deficit of $372.4 million. The Company expects to incur losses for the foreseeable future. The Company believes that its cash and cash equivalents of $30.4 million at March 31, 2021 and expected revenues and funds from operations will be sufficient to allow the Company to fund its current operations through 2022. We received net proceeds of approximately $3.9 million from the sale of our common stock in our January 2020 offering, $2.3 million of loan proceeds in April 2020 pursuant to the Paycheck Protection Program (“PPP”) under the Coronavirus Aid, Relief and Economic Security (“CARES”) Act, $3.0 million from the sale of our common stock in April and May 2020, $5.5 million from the sale of our common stock in June and July 2020, $11.3 million from the sale of our common stock in August and September 2020, and approximately $13.1 million from the sale of our common stock in February 2021. The Company does not have any immediate plans to raise additional funds through future equity or debt financings. However, the Company may decide to raise additional funds to meet its operational needs and capital requirements for product development, clinical trials and commercialization or other strategic objectives.

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

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

Public Offerings

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

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

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

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

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

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

2. Summary of Significant Accounting Policies

Basis of Presentation

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

Use of Estimates

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

Concentration of Credit Risk, and Other Risks and Uncertainties

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

The Company’s policy is to invest in cash and cash equivalents, consisting of money market funds. These financial instruments are held in Company accounts at one financial institution. The counterparties to the agreements relating to the Company’s investments consist of financial institutions of high credit standing. The Company provides for uncollectible amounts when specific credit problems arise. Management’s estimates for uncollectible amounts have been adequate, and management believes that all significant credit risks have been identified at March 31, 2021 and December 31, 2020.

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

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,
	2021			2020
Beginning balance	$	193		$	215
Warranty provision		20			61
Usage/Release		(2	)		(55	)
Ending balance	$	211		$	221

Net Loss per Share Attributable to Common Stockholders

Basic net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period, without consideration for potential dilutive common shares. Diluted net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholder by the weighted average number of shares of common stock and dilutive potential shares of common stock outstanding during the period. Any common stock shares subject to repurchase are excluded from the calculations as the continued vesting of such shares is contingent upon the holders’ continued service to the Company. As of March 31, 2021 and 2020, there were no shares subject to repurchase. Since the Company was in a loss position for both periods presented, basic net loss per share attributable to common stockholders is the same as diluted net loss per share attributable to common stockholders as the inclusion of all potentially dilutive common shares would have been anti-dilutive.

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

	Three Months Ended March 31,
	2021			2020
Net loss attributable to common stockholders	$	(6,096	)	$	(6,818	)
Weighted average common stock outstanding, basic and diluted		91,435			14,616
Net loss per share attributable to common stockholders, basic and diluted	$	(0.07	)	$	(0.47	)

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,
	2021		2020
Common stock warrants equivalents		2,753,999		2,753,999
Common stock options		6,771		7,267
Convertible preferred stock		52,328		48,503
Unvested restricted stock units		420,856		873,693
		3,233,954		3,683,462

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, 2021 and 2020, 94% and 98%, respectively, of the Company’s revenues were in the United States, based on the shipping location of the external customer.

Recent Accounting Pronouncements

Recently adopted accounting standards

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

Recent accounting standards not yet adopted

In August 2020, the FASB issued ASU 2020-06, 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 in the first quarter of 2022 and early adoption is permitted. This new standard is not expected to have a material impact on the Company’s financial statements.

3. Fair Value Measurements

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

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

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

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

As of March 31, 2021 and December 31, 2020, cash equivalents were all categorized as Level 1 and consisted of money market funds. As of March 31, 2021 and December 31, 2020, 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, 2021.

4. Inventories

Inventories consisted of the following (in thousands):

	March 31,		December 31,
	2021		2020
Raw materials	$	1,153	$	1,904
Work-in-process		914		180
Finished products		1,869		1,792
Total inventories	$	3,936	$	3,876

5. Borrowings

CRG

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

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

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

	●	extend the period that the Company can make interest payments in payment in kind (“PIK”) to June 30, 2021;
	●	lower the Minimum Revenue Covenants to $10 million for 2020, $12 million for 2021, and $15 million for 2022;
	●	insert certain terms to clarify that all fees, including the prepayment premium, are due if the obligations are accelerated; and
	●	insert a new provision to make clear that to the extent the Company divides its assets/liabilities into divisions, such assets/liabilities will be treated as transferred to a third party.

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

	●	grant to the Company the right to optionally prepay in whole or in part the outstanding principal amount of the Loans for the Redemption Price, subject to certain conditions; and
	●	waive the Company’s requirement to comply with the Minimum Revenue Covenant for 2020.

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

	●	extend the maturity date of the Loan Agreement from June 30, 2023 to December 31, 2025;
	●	extend the interest only payment period and the period that the Company can make interest payments in PIK to December 31, 2023;
	●	lower the Minimum Revenue Covenants to $8 million and $10 million for 2021 and 2022, respectively and establish revenue covenants of $12 million for 2023; $14.5 million for 2024, and $17 million for 2025;
	●	change the date under the on-going stand-alone representation regarding no Material Adverse Change to December 31, 2020;
	●	amend the on-going stand-alone representation and stand-alone event of default regarding “Material Adverse Change” such that any adverse change in or effect upon the revenue of the Company and its subsidiaries due to the outbreak of COVID-19 will not constitute a Material Adverse Change

Under the amended Loan Agreement, no cash payments for either principal or interest are due until the first quarter of 2024. The accrued interest will be accrued and included in the debt balance based (to the extent not paid) on principal amounts outstanding at the beginning of the quarter at an interest rate of 12.5%. Beginning in the first quarter of 2024, the Company will be required to make quarterly principal payments (in addition to the interest) of $1.9 million with total principal payments of $7.5 million in 2024, and $7.5 million in 2025. The maturity date of the Loan is December 31, 3025.

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

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

As of March 31, 2021, the Company was in compliance with all applicable covenants under the Loan Agreement.

As of March 31, 2021, principal, final facility fee and PIK payments under the Loan Agreement, which incorporates all aforementioned amendments, were as follows (in thousands):

Year Ending December 31,
2021 (remaining nine months of the year)	$	—
2022		—
2023		—
2024		9,045
2025		10,339
		19,384
Less: Amount of PIK additions and final facility fee to be incurred subsequent to March 31, 2021		(7,956	)
Less: Amount representing debt financing costs		(391	)
Borrowings, as of March 31, 2021	$	11,037

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, 2021 and December 31, 2020, the balance of the aggregate debt discount was approximately $391,000 and $418,000, respectively. The Company’s interest expense associated with the amortization of debt discount amounted to $38,000 and $43,000 during the three months ended March 31, 2021 and 2020, respectively. For the three months ended March 31, 2021 and 2020, the Company incurred interest expense of approximately $393,000 and $398,000, respectively.

As of March 31, 2021, all of the CRG borrowings were classified as non-current. Approximately $83,000 and $308,000 of aggregate debt discount was included in the current and non-current amounts, respectively.

Paycheck Protection Program

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

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

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

On April 17, 2021, we were notified by SVB that the Company’s PPP Loan had been fully forgiven by the U.S. Small Business Administration (the “SBA”) and that there was no remaining balance on the PPP Loan. The Company expects to record the forgiveness as other income in April 2021.

For the quarter ended March 31, 2021, the Company incurred interest expense of approximately $6,000 related to the PPP Loan. As of March 31, 2021, approximately $2.2 million of borrowings was classified as current, with the remaining $0.2 million classified as non-current.

6. Leases

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

The lease will expire on November 30, 2024. We are 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 March 31, 2021 is 3.7 years.

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

For the three months ended March 31, 2021, our operating lease expense, excluding variable maintenance fees and other expenses paid by the Company on a monthly basis, was approximately $105,000. Rent expense for both the three months ended March 31, 2021 and 2020 was approximately $314,000. Operating right-of-use asset amortization for the three months ended March 31, 2021 and 2020 was approximately $249,000 and $236,000, respectively. Due to payments being made in excess of operating lease expense recognized, the Company recorded approximately $257,000 as prepaid rent included in other assets on the condensed balance sheet as of March 31, 2021.

The following table presents the future operating lease payments and lease liability included on the balance sheet related to the Company’s operating lease as of March 31, 2021 (in thousands):

Year Ending December 31,
2021 (remaining nine months of the year)	$	843
2022		1,162
2023		1,203
2024		1,138
Total		4,346
Less: Imputed interest		(498	)
Leasehold liability as of March 31, 2021	$	3,848

7. Commitments and Contingencies

Purchase Obligations

Purchase obligations consist of agreements to purchase goods and services entered into in the ordinary course of business. The Company had non-cancelable commitments to suppliers for purchases totaling approximately $0.9 million as of March 31, 2021.

Indemnification

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

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

Legal Proceedings

We are not currently 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.

8. Stockholders’ Equity

Convertible Preferred Stock

As of March 31, 2021, the Company’s certificate of incorporation, as amended and restated, authorizes the Company to issue up to 5,000,000 shares of convertible preferred stock with $0.001 par value per share, of which 52,276 shares were issued and outstanding.

Series A Convertible Preferred Stock

On February 14, 2018, the Company entered into a 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 $3.8 million in back-end fees, accrued interest, debt discount and prepayment premium applicable thereto), totaling $41.8 million, into a newly authorized Series A convertible preferred stock (the “Series A preferred stock”). The Series A preferred stock was initially convertible into 2,090,000 shares of common stock subject to certain limitations contained in the Series A Purchase Agreement. Under the terms of the Series A Purchase Agreement, the holders of Series A preferred stock are entitled to receive annual accruing dividends at a rate of 8%, payable in additional shares of Series A preferred stock or cash, at the Company’s option. The shares of Series A preferred stock have no voting rights and rank senior to all other classes and series of the Company’s equity in terms of repayment and certain other rights. In January 2019, December 2019 and December 2020, 2,945, 3,580 and 3,866 additional shares, respectively, were issued to CRG as payment of dividends accrued through December 31, 2020. As of March 31, 2021, 52,191 shares of Series A preferred stock were outstanding. The Series A preferred stock accrued additional dividends of approximately $1.0 million and $967,000 during the quarters ended March 31, 2021 and 2020, respectively.

Series B Convertible Preferred Stock

On February 16, 2018, the Company completed a public offering of 17,979 shares of Series B convertible preferred stock (the “Series B preferred stock”). As a result, the Company received net proceeds of approximately $15.5 million after underwriting discounts, commissions, legal and accounting fees. The Series B preferred stock has a liquidation preference of $0.001 per share, full ratchet price based anti-dilution protection, has no voting rights and is subject to certain ownership limitations. The Series B preferred stock is immediately convertible at the option of the holder, has no stated maturity, and does not pay regularly stated dividends or interest. During the year ended December 31, 2019, 1,523 of these shares converted into 380,750 shares of common stock. During the quarter ended March 31, 2021, 93 of these shares converted into 372,000 shares of common stock. As of March 31, 2021 and December 31, 2020, 85 shares and 178 shares of Series B preferred stock remained outstanding, respectively, which are currently convertible at $0.25 per share.

Series C Convertible Preferred Stock

On November 1, 2018, the Company completed a public offering of 728,500 shares of common stock and 8,586 shares of Series C convertible preferred stock (the “Series C preferred stock”). As a result, we received net proceeds of approximately $10.2 million after underwriting discounts, commissions, legal and accounting fees. Upon any dissolution, liquidation or winding up, whether voluntary or involuntary, holders of Series C preferred stock will be entitled to receive distributions out of our assets, whether capital or surplus, of an amount equal to $0.001 per share of Series C preferred stock before any distributions shall be made on the common stock but after distributions shall be made on any outstanding Series A preferred stock and any of our existing or future indebtedness. The Series C preferred stock has no voting rights. During the year ended December 31, 2019, all 2,170 of these shares were converted into 542,500 shares of common stock, leaving no shares of Series C preferred stock outstanding.

Common Stock

As of March 31, 2021, the Company’s certificate of incorporation, as amended and restated, authorizes the Company to issue up to 100,000,000 shares of common stock with $0.001 par value per share, of which 95,351,502 shares were issued and outstanding.

Common Stock Warrants

As of March 31, 2021 and December 31, 2020, we had outstanding warrants to purchase common stock as follows:

	Total Outstanding and Exercisable		Underlying Shares of Common Stock		Exercise Price per Share		Expiration Date
Series 1 Warrants issued in February 2018 Series B financing		8,979,000		897,900	$	20.00	February 2025
Series 2 Warrants issued in February 2018 Series B financing		8,709,500		870,950	$	20.00	February 2025
Warrants issued in July 2018 financing		1,083,091		108,309	$	15.80	July 2021
Warrants issued in November 2018 financing		8,768,395		876,840	$	4.00	November 2023
Total		27,539,986		2,753,999

As of March 31, 2021 and December 31, 2020, warrants to purchase an aggregate of 2,753,999 shares of common stock were outstanding.

Stock Plans

In January 2015, the Board of Directors adopted and the Company’s stockholders approved the 2015 Equity Incentive Plan (“2015 Plan”). As of March 31, 2021, 135,048 shares were available for grant under the 2015 Plan.

Stock option activity under the Plans is set forth below:

	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)		Intrinsic Value (in thousands)
Balance at December 31, 2020		6,821		$	1,241.59		5.81	$	—
Granted		—			—
Exercised		—			—
Expired		(74	)		2,821.62
Forfeited		—			—
Balance at March 31, 2021		6,747		$	1,224.26		5.62	$	—

Exercisable at March 31, 2021		6,747		$	1,224.26		5.62	$	—

Vested and expected to vest at March 31, 2021		6,747		$	1,224.26		5.62	$	—

There were no options granted or exercised during the three months ended March 31, 2021 and 2020. For the three months ended March 31, 2021 and 2020, stock-based compensation expense recognized associated with stock options vesting was approximately $4,000 and $33,000, respectively. As of March 31, 2021, there is no remaining unamortized stock-based compensation expense associated with unvested stock options. Because of the Company’s net operating losses, the Company did not realize any tax benefits from share-based payment arrangements for the three months ended March 31, 2021 and 2020.

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

	Number of Shares			Weighted Average Grant Date Fair Value		Weighted Average Remaining Contractual Term
Awards outstanding at December 31, 2020		412,642		$	3.84		0.98
Awarded		90,000		$	1.61		—
Released		(53,373	)	$	2.44		—
Forfeited		—		$	—		—
Awards outstanding at March 31, 2021		449,269		$	3.56		0.86

As of March 31, 2021, there was approximately $0.8 million of remaining unamortized stock-based compensation expense associated with RSUs, which will be expensed over a weighted average remaining service period of approximately 0.9 years. The 449,269 outstanding non-vested and expected to vest RSUs have an aggregate fair value of approximately $0.7 million. The Company used the closing market price of $1.51 per share at March 31, 2021, to determine the aggregate fair value for the RSUs outstanding at that date. For the three months ended March 31, 2021 and 2020, the fair value of RSUs vested was approximately $87,000 and $38, respectively. For the three months ended March 31, 2021 and 2020, stock-based compensation expense recognized associated with RSUs vested was $0.4 million for each period.

2018 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 allows 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 may 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. The Board of Directors authorized 20,000 shares to be made available for purchase by officers and directors under the ODPP. Effective on August 28, 2019 and March 10, 2020, the Board of Directors approved an additional 40,000 and 125,000 shares, respectively, to be made available under the ODPP. There was no common stock issued under the ODPP during the three months ended March 31, 2021. As of March 31, 2021, there were 92,170 shares reserved for issuance under the ODPP.

9. Stock-Based Compensation

Total noncash stock-based compensation expense relating to the Company’s stock options and RSUs recognized during the three months ended March 31, 2021 and 2020, is as follows (in thousands):

	Three Months Ended March 31,
	2021		2020
Cost of revenues	$	34	$	34
Research and development expenses		111		132
Selling, general and administrative expenses		273		285
	$	418	$	451

10. Subsequent Events

As previously disclosed, on April 23, 2020, the Company received the PPP Loan proceeds of $2.3 million pursuant to the PPP under the CARES Act. The PPP was administered by the SBA. The SBA was given the authority under the PPP to forgive loans if all employees were kept on the payroll for a required period and the loan proceeds were used for payroll, rent and utilities. The Company applied for debt forgiveness in December 2020.

On April 17, 2021, the Company was notified by SVB, the lender on the Company’s PPP Loan, that the Company’s PPP Loan had been fully forgiven by the SBA and that there was no remaining balance on the PPP Loan.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

Overview

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

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

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

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

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

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

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

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

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

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

Recent Developments

COVID-19 Update

As a result of the effects of the COVID-19 pandemic, experienced a significant decline in sales in the second quarter of 2020, particularly as individuals, as well as hospitals and other medical providers, deferred elective procedures in response to COVID-19. Starting in the third quarter of 2020, we experienced a rebound of sales as practitioners began to once again perform elective procedures. While certain jurisdictions are easing restrictions on performing elective procedures, we cannot be certain that other jurisdictions in the United States will do so in the near future. Furthermore, some jurisdictions have experienced and continue to experience a resurgence in COVID-19 cases, which has prompted certain hospitals and other medical providers in such areas to again defer elective procedures or further prolong or reinstate existing restrictions on such procedures. If other jurisdictions experience a resurgence in COVID-19 cases, these jurisdictions may also prolong restrictions on elective procedures. This situation has created a significant amount of volatility in the medical industry which makes future developments and results difficult to predict. Consequently, it is unclear whether any reduction in sales is temporary and whether such sales may be recoverable in the future. In addition to the effects on sales, we have also experienced 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.

We have undertaken and continue to evaluate further action to manage our available cash and other resources to help mitigate the effects of COVID-19 on our business, including by adjusting production to match demand for our products and reducing discretionary costs. During the second quarter of 2020 we reduced base salaries for all of our non-manufacturing employees by 20% and reduction of hours worked by our manufacturing workers by 20%. Salaries and hours worked, have returned to prior levels. The COVID-19 pandemic and responses thereto have resulted in reduced consumer and investor confidence, instability in the credit and financial markets, volatile corporate profits, and reduced business and consumer spending, which could increase the cost of capital and/or limit the availability of capital to the Company in the future.

On March 27, 2020, the President of the United States signed the Coronavirus Aid Relief, and Economic Security (CARES) Act into law. The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property.

We applied for and, on April 23, 2020, received loan proceeds of $2.3 million (the “PPP Loan”) pursuant to the Paycheck Protection Program (“PPP”) under the CARES Act. On April 17, 2021, we were notified by Silicon Valley Bank (“SVB”), the lender on the Company’s PPP Loan, that the Company’s PPP Loan had been fully forgiven by the U.S. Small Business Administration (“SBA”) and that there was no remaining balance on the PPP Loan. (see Financing and Equity below for more details).

Nasdaq Delisting Notice

As previously reported, on March 10, 2020, Avinger, Inc. (the “Company”) received a letter from the Listing Qualifications Department (the “Staff”) of The Nasdaq Stock Market, LLC (“Nasdaq”) notifying the Company that the Company was not in compliance with Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Requirement”), as the minimum bid price for the Company’s listed securities was less than $1.00 for the previous 30 consecutive business days. The Company initially had a period of 180 calendar days, or until September 8, 2020, to regain compliance with the Minimum Bid Price Requirement.

Also as previously reported, on April 20, 2020, the Company received notification from Nasdaq indicating that Nasdaq filed an immediately effective rule change with the SEC on April 16, 2020, pursuant to which the compliance periods for bid price and market value of publicly held shares requirements were tolled through June 30, 2020. As a result, the Company had until November 20, 2020 to regain compliance with Nasdaq’s Minimum Bid Price Requirement.

The Company did not regain compliance with the Minimum Bid Price Requirement by November 20, 2020. In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company provided written notice to Nasdaq of its intent to cure the deficiency and, on November 24, 2020, the Company received notice that Nasdaq granted the Company an additional 180 calendar days, or until May 19, 2021, to regain compliance.

On January 26, 2021, the Company received a letter from Nasdaq notifying the Company that the Staff had determined that the closing bid price of the Company’s common stock had been at $1.00 per share or greater for at least 10 consecutive business days and, accordingly, that the Company had regained compliance with the Minimum Bid Price Requirement for continued listing on the Nasdaq Stock Market and that the matter is now closed. While the Company has regained compliance with the Minimum Bid Price Requirement, there can be no assurance that the Company will be able to maintain compliance with the Minimum Bid Price Requirement in the future.

Financing

During the three months ended March 31, 2021, our net loss and comprehensive net loss was $5.1 million; during the years ended December 31, 2020 and 2019, it was $19.0 million and $19.5 million, respectively. We have not been profitable since inception, and as of March 31, 2021, our accumulated deficit was $372.4 million. Since inception, we have financed our operations primarily through private and public placements of our preferred and common securities and, to a lesser extent, debt financing arrangements.

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

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.

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

On April 23, 2020, we received loan proceeds of $2.3 million pursuant to the Paycheck Protection Program under the CARES Act. The Loan, which was in the form of a promissory note, dated April 20, 2020, between the Company and SVB as the lender, matured on April 20, 2022 and bears interest at a fixed rate of 1% per annum. As previously disclosed, the PPP was administered by the SBA. The SBA was given the authority under the PPP to forgive loans if all employees were kept on the payroll for a required period and the loan proceeds were used for payroll, rent and utilities. The Company applied for debt forgiveness in December 2020. On April 17, 2021, we were notified by SVB, that the Company’s PPP Loan had been fully forgiven by the SBA and that there was no remaining balance on the PPP Loan.

Critical Accounting Policies and Estimates

Management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and assumptions for the reported amounts of assets, liabilities, revenues, expenses and related disclosures of contingent assets and liabilities. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions and any such differences may be material. There have been no significant and material changes in our critical accounting policies during the three months ended March 31, 2021, as compared to those disclosed in “Management’s Discussion and Analysis of Financial Conditions and Results of Operations - Critical Accounting Policies and Significant Judgments and Estimates” in our most recent Annual Report on Form 10-K, as filed with the SEC on March 11, 2021.

Components of Our Results of Operations

Revenues

All of our revenues are currently derived from sales of our various PAD catheters in the United States and select international markets, Lightbox consoles, as well as related services. We expect our revenues to increase in 2021 due to the availability of our Tigereye launch in late 2020 and easing of restrictions on elective procedures due to the diminishing impact of COVID-19. No single customer accounted for more than 10% of our revenues during the three months ended March 31, 2021 or 2020.

Revenues may fluctuate from quarter to quarter due to a variety of factors including capital equipment purchasing patterns that are typically increased towards the end of the calendar year and decreased in the first quarter. In addition, during the first quarter, our results can be harmed by adverse weather and by resetting of annual patient healthcare insurance plan deductibles, both of which may cause patients to delay elective procedures. In the third quarter, the number of elective procedures nationwide is historically lower than other quarters throughout the year, which we believe is primarily attributable to the summer vacations of physicians and their patients.

Cost of Revenues and Gross Margin

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

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

Research and Development Expenses

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

Selling, General and Administrative Expenses

Selling, general and administrative, or SG&A, expenses consist primarily of compensation for personnel, including stock-based compensation, selling and marketing functions, physician education programs, business development, finance, information technology and human resource functions. Other SG&A expenses include commissions, training, travel expenses, educational and promotional activities, marketing initiatives, market research and analysis, conferences and trade shows, professional services fees, including legal, audit and tax fees, insurance costs and general corporate expenses. We expect SG&A expenses to increase as we expand our commercial efforts whilst navigating through the effects of COVID-19.

Interest Expense, net

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

Other Income, net

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

Results of Operations:

	Three Months Ended March 31,
	2021			2020

Revenues	$	2,559		$	2,261
Cost of revenues		1,665			1,760
Gross profit		894			501
Gross margin		35	%		22	%
Operating expenses:
Research and development		1,598			1,594
Selling, general and administrative		3,945			4,386
Total operating expenses		5,543			5,980
Loss from operations		(4,649	)		(5,479	)
Interest expense, net		(396	)		(368	)
Other expense, net		(7	)		(4	)
Net loss and comprehensive loss	$	(5,052	)	$	(5,851	)

Comparison of Three Months Ended March 31, 2021 and 2020

Revenues.

For the three months ended March 31, 2021, revenue increased by $0.3 million or 13% compared to the three months ended March 31, 2020. The increased revenues reflect the impact of the commercial release of our Tigereye product in January 2021.

Cost of Revenues and Gross Margin.

For the three months ended March 31, 2021, cost of revenues decreased by $0.1 million or 5% compared to the three months ended March 31, 2020. This decrease was primarily attributable to the lower variable costs. Stock-based compensation expense within cost of revenues totaled $34,000 for both the three months ended March 31, 2021 and 2020.

Gross margin for the three months ended March 31, 2021 increased to 35%, compared to 22% in the three months ended March 31, 2020. The increase in gross margin was primarily due to the economies of scale relating to increased levels of production, lower excess and obsolete charges and favorable customer mix shift.

Research and Development Expenses (“R&D”).

R&D expense for the three months ended March 31, 2021 remained flat compared to the three months ended March 31, 2020. Stock-based compensation expense within R&D totaled approximately $0.1 million for both the three months ended March 31, 2020 and 2019.

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

SG&A expense for the three months ended March 31, 2021 decreased by $0.4 million or 10%, compared to the three months ended March 31, 2020 primarily due to a decrease in personnel-related expenses and professional and other ancillary expenses. Stock-based compensation expense within SG&A totaled approximately $0.3 million for both the three months ended March 31, 2021 and 2020.

Interest Expense, Net.

Interest expense, net for the three months ended March 31, 2021 increased by 8% or $28,000, compared to the three months ended March 31, 2020, primarily due to the higher CRG loan balance from interest being compounded and lower interest income as compared to the prior year period, due to the decline in the money market interest rates during the period.

Other Expense, Net.

Other expense, net primarily consists of gains and losses resulting from the remeasurement of foreign exchange transactions and other miscellaneous income and expenses. Other expense, net for the three months ended March 31, 2021 remained flat in comparison to the three months ended March 31, 2020 as both periods consisted primarily of remeasurement gains and losses from foreign exchange transactions which are typically a small percentage of transaction volume, thus resulting in nominal changes between periods.

Liquidity and Capital Resources

As of March 31, 2021, we had cash and cash equivalents of $30.4 million and an accumulated deficit of $372.4 million, compared to cash and cash equivalents of $22.2 million and an accumulated deficit of $367.3 million as of December 31, 2020. The Company expects to incur losses for the foreseeable future. The Company believes that its cash and cash equivalents of $30.4 million at March 31, 2021 and expected revenues, debt and financing activities and funds from operations will be sufficient to allow the Company to fund its current operations through 2022. We do not know when or if our operations will generate sufficient cash to fund our ongoing operations. Additional debt financing, if available, may involve covenants restricting our operations or our ability to incur additional debt. Any additional debt financing or additional equity that we raise may contain terms that are not favorable to us or our stockholders and require significant debt service payments, which divert resources from other activities. Additional financing may not be available at all, or if available, may not be in amounts or on terms acceptable to us. If we are unable to obtain additional financing, we may be required to delay the development, commercialization and marketing of our products and we may be required to significantly scale back our business and operations.

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

To date, we have financed our operations primarily through net proceeds from the issuance of our preferred stock and debt financings, our “at-the-market” program, our initial public offering, or IPO, our follow-on public offerings and warrant issuances. The warrants issued pursuant to the Series B Purchase Agreement entered into in connection with the Series B preferred stock follow-on in February 2018, or the Series B Offering, prohibited us from entering into certain transactions involving the issuance of securities for a price determined by reference to the trading price of our common stock or otherwise subject to modification following the date of issuance, in each case for a period of three years from the closing date of the Series B Offering (and excluding purchases pursuant to the Series B Purchase Agreement, which may be made on the 120 day anniversary of the closing date of the offering).

Equity Financings

On March 7, 2019, we filed a universal shelf registration statement (the “Shelf Registration Statement”) to offer up to $50.0 million of our securities. We have established, and may in the future establish, “at-the-market” programs 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 only able to issue a limited number of shares using the Shelf Registration Statement at this time. Under the Shelf Registration Statement, on August 26, 2019, we completed a public offering of 3,813,559 shares of common stock at an offering price of $1.18 per share. As a result, we received net proceeds of approximately $3.8 million after underwriting discounts, commissions, legal and accounting fees. Due to anti-dilution provisions, the conversion price of the outstanding shares of Series B preferred stock, which was issued in our February 2018 offering, was reduced to $1.18 per share.

CRG Loan

On March 2, 2020, the Company and CRG further amended the Loan Agreement to change the date upon which cash payments for interest will commence from the first quarter of 2020 to the third quarter of 2021. No cash payments for principal will be made until the final two years of the loan, which matures in June 2023. On May 12, 2020, the Company and CRG entered into another amendment to waive the Company’s requirement to comply with the minimum required revenue covenant for 2020 and granted to Company the ability to optionally prepay in whole or in part the outstanding principal amount of the Loans for the Redemption Price. The total CRG Loan amount, shown as borrowings on the balance sheet as of March 31, 2021, is $11.1 million. However, upon maturity of the debt in December 2025, the Company will be obligated to pay $19.4 million under the CRG Loan, which includes future interest to be accrued but not paid in cash as well as a $2.2 million back-end fee which is being accreted to the maturity date. Refer to Part I, Item 1 “Unaudited Financial Statements, Footnote 5. Borrowings” for additional details.

PPP Loan

On April 23, 2020, we received loan proceeds of $2.3 million pursuant to the Paycheck Protection Program under the CARES Act. The PPP Loan, which was in the form of a promissory note, dated April 20, 2020, between the Company and Silicon Valley Bank as the lender, matures on April 20, 2022 and bears interest at a fixed rate of 1% per annum, payable monthly commencing one month after the SBA delivers conclusions on the amount of the loan to be forgiven. The conclusion from the SBA will be delivered once an audit of our application for forgiveness along with ancillary materials provided has been completed. Under the terms of the PPP, the principal may be forgiven if the Loan proceeds are used for qualifying expenses as described in the CARES Act and the PPPFA, such as payroll costs, benefits mortgage interest, rent, and utilities. We submitted our application for forgiveness to the SBA in December 2020. On April 17, 2021, we were notified by SVB that the Company’s PPP Loan had been fully forgiven by the SBA and that there was no remaining balance on the PPP Loan.

We continue to evaluate and may still apply for additional programs under the CARES Act or other legislation passed into law from time to time, however, there is no guarantee that we will meet any eligibility requirements to participate in such programs or, even if we are able to participate, that such programs will provide meaningful benefit to our business.

Cash Flows

	Three Months Ended March 31,
	2021			2020
	(in thousands)
Net cash (used in) provided by:
Operating activities	$	(4,803	)	$	(4,970	)
Investing activities		(11	)		—
Financing activities		13,077			3,889
Net change in cash and cash equivalents	$	8,263		$	(1,081	)

Net Cash Used in Operating Activities

Net cash used in operating activities for the three months ended March 31, 2021 was $4.8 million, consisting primarily of a net loss of $5.1 million and an increase in net operating assets of $0.8 million, offset by non-cash charges of $1.1 million. Non-cash charges largely related to stock-based compensation of $0.4 million, non-cash interest expense of $0.4 million, and depreciation and amortization of $0.2 million. The increase in net operating assets was primarily due to the increase in prepaid expenses and other current assets due to annual renewals of certain expenses, including insurance coming due; partially offset by the increase in accrued expenses and other current liabilities due to timing of payments.

Net cash used in operating activities for the three months ended March 31, 2020 was $5.0 million, consisting primarily of a net loss of $5.9 million and an increase in net operating assets of $0.4 million, offset by non-cash charges of $1.3 million. Non-cash charges largely related to stock-based compensation of $0.5 million, non-cash interest expense of $0.4 million, and depreciation of $0.2 million. The increase in net operating assets was primarily due to the increase in prepaid expenses and decreases in accrued compensation and our leasehold liability; partially offset by the increase in accounts payable and other assets.

Net Cash Used in Investing Activities

Net cash used in investing activities during the three months ended March 31, 2021 consisted of purchases of property and equipment.

There were no investing activities during the three months ended March 31, 2020.

Net Cash Provided by Financing Activities

Net cash provided by financing activities in the three months ended March 31, 2021 of $13.1 million relates to proceeds from the issuance of common stock in our January 2021 public offering, net of various issuance costs.

Net cash provided by financing activities in the three months ended March 31, 2020 of $3.9 million primarily relates to proceeds from the issuance of common stock in our January 2020 public offering, net of various issuance costs.

Off-Balance Sheet Arrangements

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

Contractual Obligations

Our principal obligations consist of the operating lease for our facility, our Loan Agreement with CRG, our PPP Loan and non-cancelable purchase commitments. The following table sets out, as of March 31, 2021, our contractual obligations due by period (in thousands):

	Payments Due by Period
	Less Than 1 Year		2 - 3 Years		4-5 Years		More Than 5 Years		Total
Operating lease obligations	$	1,133	$	2,387	$	826	$	—	$	4,346
CRG Loan		—		2,348		17,035		—		19,383
Noncancelable purchase commitments		909		13		—		—		922
	$	2,042	$	4,748	$	17,861	$	—	$	24,651

The total CRG Loan amount, shown as borrowings on the balance sheet as of March 31, 2021, is $11.0 million. The contractual obligation in the table above of $19.4 million under the CRG Loan includes future interest to be accrued but not paid in cash as well as a $2.2 million back-end fee to be paid in December 2025 upon maturity of the CRG Loan which is being accreted. For more information, see Part I, Item 1 “Unaudited Financial Statements, Footnote 5. Borrowings.”

On April 17, 2021, we were notified by SVB, that the Company’s PPP Loan had been fully forgiven by the SBA and that there was no remaining balance on the PPP Loan. As previously disclosed, the PPP was administered by the SBA. The SBA was given the authority under the PPP to forgive loans if all employees were kept on the payroll for a required period and the loan proceeds were used for payroll, rent and utilities.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

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

Credit Risk

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

Our accounts receivable primarily relate to revenues from the sale of our Lumivascular platform products to hospitals and medical centers in the United States. None of our customers represented more than 10% of our accounts receivable as of March 31, 2021. One customer represented 14% of our accounts receivable as of December 31, 2020.

Foreign Currency Risk

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

ITEM 4.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

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

As required by Rule 13a-15(b) under the Exchange Act, our management, under the supervision and with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, 2021. Based on such evaluation, our principal executive officer and principal financial officer have concluded that, as of March 31, 2021, our disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

There were no changes in our internal controls over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the three months ended March 31, 2021 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II.

OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

None.

ITEM 1A.

RISK FACTORS

There have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 11, 2021.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

ITEM 6. EXHIBITS

The following exhibits are being filed herewith:

Exhibit Number		Exhibit Title

10.1(1)		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.

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

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

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

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

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

(1)	Previously filed as an Exhibit to the registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on January 26, 2021, and incorporated by reference herein.

SIGNATURES

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

	Avinger, Inc.
	(Registrant)


Date: May 6, 2021	/s/ JEFFERY M. SOINSKI
	Jeffrey M. Soinski
	Chief Executive Officer
	(Principal Executive Officer)

Date: May 6, 2021	/s/ MARK WEINSWIG
	Mark Weinswig
	Chief Financial Officer
	(Principal Financial and Accounting Officer)

SEC Form 10-Q filed by Avinger, Inc.