avgr20210630

avgr20210630_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 June 30, 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 July 30, 2021, the number of outstanding shares of the registrant’s common stock, par value $0.001 per share, was 95,353,002.

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 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;

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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 JUNE 30, 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	5
	Notes to Condensed Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27
Item 4.	Controls and Procedures	27

Part II	Other Information
Item 1.	Legal Proceedings	27
Item 1A.	Risk Factors	28
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28
Item 3.	Defaults Upon Senior Securities	28
Item 4.	Mine Safety Disclosures	28
Item 5.	Other Information	28
Item 6.	Exhibits	29

Signatures		30

“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)

	June 30,			December 31,
	2021			2020
Assets
Current assets:
Cash and cash equivalents	$	26,700		$	22,185
Accounts receivable, net of allowance for doubtful accounts of $6 at June 30, 2021 and $19 at December 31, 2020		1,788			1,484
Inventories		4,118			3,876
Prepaid expenses and other current assets		1,112			350
Total current assets		33,718			27,895

Right of use asset		3,630			4,063
Property and equipment, net		355			727
Other assets		486			510
Total assets	$	38,189		$	33,195

Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	1,037		$	694
Accrued compensation		1,667			1,703
Series A preferred stock dividends payable		2,088			—
Accrued expenses and other current liabilities		764			669
Leasehold liability, current portion		934			806
Borrowings, current portion		—			3,590
Total current liabilities		6,490			7,462

Borrowings, long-term portion		11,434			9,400
Leasehold liability, long-term portion		2,696			3,257
Other long-term liabilities		287			—
Total liabilities		20,907			20,119

Commitments and contingencies (Note 7)

Stockholders’ equity:
Convertible preferred stock issuable in series, par value of $0.001;
Aggregate shares authorized: 5,000,000 at June 30, 2021 and December 31, 2020;
Aggregate shares issued and outstanding: 52,276 and 52,369 at June 30, 2021 and December 31, 2020, respectively; aggregate liquidation preference of $52,191 at both June 30, 2021 and December 31, 2020 (Note 8)		—			—
Common stock, par value of $0.001;
Shares authorized: 100,000,000 at June 30, 2021 and December 31, 2020;
Shares issued and outstanding: 95,353,002 and 84,926,129 at June 30, 2021 and December 31, 2020, respectively		95			85
Additional paid-in capital		392,032			380,332
Accumulated deficit		(374,845	)		(367,341	)
Total stockholders’ equity		17,282			13,076
Total liabilities and stockholders’ equity	$	38,189		$	33,195

See accompanying notes.

AVINGER, INC.

CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(unaudited)

(In thousands, except per share data)

	Three Months Ended June 30,						Six Months Ended June 30,
	2021			2020			2021			2020
Revenues	$	2,802		$	1,466		$	5,361		$	3,727
Cost of revenues		1,784			1,107			3,449			2,867
Gross profit		1,018			359			1,912			860

Operating expenses:
Research and development		1,507			1,297			3,105			2,891
Selling, general and administrative		3,918			2,654			7,863			7,040
Total operating expenses		5,425			3,951			10,968			9,931
Loss from operations		(4,407	)		(3,592	)		(9,056	)		(9,071	)

Interest income		1			2			3			32
Interest expense		(400	)		(414	)		(798	)		(812	)
Other income, net		2,354			4			2,347			—
Net loss and comprehensive loss		(2,452	)		(4,000	)		(7,504	)		(9,851	)
Accretion of preferred stock dividends		(1,044	)		(967	)		(2,088	)		(1,934	)
Net loss applicable to common stockholders	$	(3,496	)	$	(4,967	)	$	(9,592	)	$	(11,785	)

Net loss per share attributable to common stockholders, basic and diluted	$	(0.04	)	$	(0.18	)	$	(0.10	)	$	(0.56	)
Weighted average common shares used to compute net loss per share, basic and diluted		95,352			27,310			93,404			20,963

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 March 31, 2020		48,503	$	—		16,821,359	$	17	$	358,577		$	(354,186	)	$	4,408
Issuance of common stock in public offerings, net of commissions and issuance costs		—		—		34,490,000		34		7,740			—			7,774
Issuance of common stock under officers and directors purchase plan and vesting of restricted stock units		—		—		27,665		—		9			—			9
Employee stock-based compensation		—		—		—		—		325			—			325
Accretion of Series A preferred stock dividends		—		—		—		—		(967	)		—			(967	)
Net and comprehensive loss		—		—		—		—		—			(4,000	)		(4,000	)
Balance at June 30, 2020		48,503	$	—		51,339,024	$	51	$	365,684		$	(358,186	)	$	7,549

	Convertible Preferred Stock				Common Stock				Additional Paid-in			Accumulated			Total Stockholders’
	Shares		Amount		Shares		Amount		Capital			Deficit			Equity
Balance at March 31, 2021		52,276	$	—		95,351,502	$	95	$	392,773		$	(372,393	)	$	20,475
Issuance of common stock under officers and directors purchase plan and vesting of restricted stock units		—		—		1,500		—		—			—			—
Employee stock-based compensation		—		—		—		—		303			—			303
Accretion of Series A preferred stock dividends		—		—		—		—		(1,044	)		—			(1,044	)
Net and comprehensive loss		—		—		—		—		—			(2,452	)		(2,452	)
Balance at June 30, 2021		52,276	$	—		95,353,002	$	95	$	392,032		$	(374,845	)	$	17,282

See accompanying notes.

AVINGER, INC.

CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY (CONTINUED)

(unaudited)

(In thousands, except share data)

	Convertible Preferred Stock				Common Stock				Additional Paid-in			Accumulated			Total Stockholders’
	Shares		Amount		Shares		Amount		Capital			Deficit			Equity
Balance at December 31, 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		—		—		40,918,572		41		11,595			—			11,636
Issuance of common stock under officers and directors purchase plan and vesting of restricted stock units		—		—		55,789		—		27			—			27
Employee stock-based compensation		—		—		—		—		776			—			776
Accretion of Series A preferred stock dividends		—		—		—		—		(1,934	)		—			(1,934	)
Net and comprehensive loss		—		—		—		—		—			(9,851	)		(9,851	)
Balance at June 30, 2020		48,503	$	—		51,339,024	$	51	$	365,684		$	(358,186	)	$	7,549

	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		—			—		54,873		—		—			—			—
Employee stock-based compensation		—			—		—		—		721			—			721
Accretion of Series A preferred stock dividends		—			—		—		—		(2,088	)		—			(2,088	)
Net and comprehensive loss		—			—		—		—		—			(7,504	)		(7,504	)
Balance at June 30, 2021		52,276		$	—		95,353,002	$	95	$	392,032		$	(374,845	)	$	17,282

See accompanying notes.

AVINGER, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(unaudited)

(In thousands)

	Six Months Ended June 30,
	2021			2020
Cash flows from operating activities
Net loss	$	(7,504	)	$	(9,851	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		367			453
Amortization of debt issuance costs and debt discount		44			84
Stock-based compensation		721			776
Noncash interest expense and other charges		753			728
Change in right of use asset		68			86
Provision for excess and obsolete inventories		22			253
Other non-cash charges		10			(29	)
Gain on extinguishment of debt		(2,353	)		—
Changes in operating assets and liabilities:
Accounts receivable		(314	)		382
Inventories		(241	)		(465	)
Prepaid expenses and other current assets		(762	)		(532	)
Other assets		(44	)		4
Accounts payable		343			261
Accrued compensation		(36	)		(631	)
Accrued expenses and other current liabilities		95			76
Other long-term liabilities		287			10
Net cash used in operating activities		(8,544	)		(8,395	)

Cash flows from investing activities
Purchase of property and equipment		(18	)		—
Net cash used in investing activities		(18	)		—

Cash flows from financing activities
Proceeds from borrowings, net of issuance costs		—			2,330
Proceeds from the issuance of common stock in public offerings, net		13,077			11,636
Proceeds from the issuance of common stock under officers’ and directors’ purchase plan		—			36
Net cash provided by financing activities		13,077			14,002

Net change in cash and cash equivalents		4,515			5,607
Cash and cash equivalents, beginning of period		22,185			10,943
Cash and cash equivalents, end of period	$	26,700		$	16,550

Supplemental disclosure of cash flow information

Noncash investing and financing activities:
Accretion of Series A preferred stock dividends	$	2,088		$	1,934
Reclassification of right of use asset to prepaid rent	$	(68	)	$	(86	)
Transfers between inventory and property and equipment	$	(23	)	$	(32	)

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 catheter products include its non-imaging catheters, Wildcat and Kittycat2, 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 June 30, 2021, the Company had an accumulated deficit of $374.8 million. The Company expects to incur losses for the foreseeable future. The Company believes that its cash and cash equivalents of $26.7 million at June 30, 2021 and expected revenues and funds from operations will be sufficient to allow the Company to fund its current operations through 2022. The Company received net proceeds of approximately $3.9 million from the sale of its common stock in its 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 its common stock in April and May 2020, $5.5 million from the sale of its common stock in June and July 2020, $11.3 million from the sale of its common stock in August and September 2020, and approximately $13.1 million from the sale of its 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 its existing stockholders. Given the volatility in the Company’s stock price, any financing that it may undertake in the next twelve months could cause substantial dilution to its 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 its business, which included reduction of discretionary costs, reduction of base salaries for all of its non-manufacturing employees by 20% and reduction of hours worked by its 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, the Company completed a public offering of 6,428,572 shares of common stock at an offering price of $0.70 per share. As a result, the Company 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, the Company 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 the Company 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, the Company 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, the Company 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 the Company 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, the Company 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, the Company 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 the Company 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, the Company 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, the Company 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 the Company 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, the Company 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, the Company 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, the Company 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 and six months ended June 30, 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 June 30, 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 June 30, 2021 and December 31, 2020, there was one customer that represented 16% and 14% of the Company’s accounts receivable, respectively. For the three and six months ended June 30, 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 June 30,						Six Months Ended June 30,
	2021			2020			2021			2020
Beginning balance	$	211		$	221		$	193		$	215
Warranty provision		21			50			41			111
Usage/Release		(1	)		(50	)		(3	)		(105	)
Ending balance	$	231		$	221		$	231		$	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 June 30, 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 June 30,						Six Months Ended June 30,
	2021			2020			2021			2020
Net loss applicable to common stockholders	$	(3,496	)	$	(4,967	)	$	(9,592	)	$	(11,785	)
Weighted average common stock outstanding, basic and diluted		95,352			27,310			93,404			20,963
Net loss per share attributable to common stockholders, basic and diluted	$	(0.04	)	$	(0.18	)	$	(0.10	)	$	(0.56	)

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 June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Common stock warrants equivalents		2,753,999		2,753,999		2,753,999		2,753,999
Common stock options		6,739		7,133		6,755		7,200
Convertible preferred stock		52,276		48,503		52,302		48,503
Unvested restricted stock units		422,758		839,804		421,812		856,749
		3,235,772		3,649,439		3,234,868		3,666,451

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 June 30, 2021 and 2020, 94% and 93%, respectively, of the Company’s revenues were in the United States. For the six months ended June 30, 2021 and 2020, 94% and 96%, 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 Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 June 30, 2021 and December 31, 2020, cash equivalents were all categorized as Level 1 and consisted of money market funds. As of June 30, 2021 and December 31, 2020, there were no financial assets and liabilities categorized as Level 2 or Level 3. There were no transfers between fair value hierarchy levels during the three months ended June 30, 2021.

4. Inventories

Inventories consisted of the following (in thousands):

	June 30,		December 31,
	2021		2020
Raw materials	$	1,974	$	1,904
Work-in-process		423		180
Finished products		1,721		1,792
Total inventories	$	4,118	$	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

SEC Form 10-Q filed by Avinger, Inc.