AVINGER, INC. 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 theSEC onMarch 22, 2022 titled "Risk Factors." Overview We are a commercial-stage medical device company that designs, manufactures and sells real-time image-guided, minimally invasive 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 real-time image-guided system available in this market. We design, manufacture, and sell a suite of products inthe United States and select international markets. We are located inRedwood City, California . Our current Lumivascular platform consists of products including our Lightbox imaging console, the Ocelot and Tigereye family of catheters, which are image-guided catheters 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 catheters which are designed to allow physicians to precisely remove arterial plaque in PAD patients. We are in the process of developing CTO crossing devices to target the coronary CTO market. The market for medical devices in the coronary artery disease ("CAD") market is highly competitive, dynamic, and marked by rapid and substantial technological development and product innovation and there is no guarantee that we will be successful in developing and marketing any new CAD product. We are working on understanding market requirements and beginning the development process for the new CAD product. We anticipate that we will incur additional expenses as we continue to evaluate and develop potential CAD products. We received CE Marking for our original Ocelot product inSeptember 2011 and received from theU.S. Food and Drug Administration , or FDA, 510(k) clearance inNovember 2012 . We received 510(k) clearance from the FDA for commercialization of Pantheris inOctober 2015 . We received an additional 510(k) clearance for an enhanced version of Pantheris inMarch 2016 and commenced sales of Pantheris inthe United States and select European countries promptly thereafter. InMay 2018 , we received 510(k) clearance from the FDA for our current next-generation version of Pantheris. InApril 2019 , we received 510(k) clearance from the FDA for our Pantheris SV, a version of Pantheris targeting smaller vessels, and commenced sales inJuly 2019 . InSeptember 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. InJanuary 2022 , we received 510(k) clearance from the FDA for our Lightbox 3 imaging console, a version of our Lightbox presenting significant reductions in size, weight and cost in comparison to the incumbent version. InJuly 2022 , we submitted a 510(k) application to the FDA for the Tigereye ST catheter, a next generation CTO crossing system. Tigereye ST is a line extension of our Ocelot and Tigereye family of CTO crossing catheters. This new image-guided catheter has an integrated outer spinning tip that pairs with the rotation of the inner tip to penetrate challenging blockages and CTO caps. Tigereye ST incorporates an advanced shaft design for pushability and torque response and a three-marker system, similar to Ocelot's, to facilitate consistent image interpretation across the platform. Tigereye ST continues to provide the high definition, real-time intravascular imaging, user-controlled deflectable tip, and faster rotational speeds introduced to Avinger's CTO portfolio with the commercial launch of Tigereye in early 2021. The low-profile Tigereye ST has a working length of 140 cm and 5 French sheath. 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. 19
-------------------------------------------------------------------------------- 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 ourAugust 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 inMay 2017 , and we released the final 12- and 24-month results for a total of 89 patients inJuly 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 inOctober 2017 and was completed inJuly 2021 . Patient outcomes were evaluated at thirty days, six months and one year following treatment. InNovember 2021 , we received 510(k) clearance from the FDA for a new clinical indication for treating in-stent restenosis with Pantheris using the data collected and analyzed from INSIGHT. We expect this will expand our addressable market for Pantheris to include a high-incidence disease state for which there are few available indicated treatment options. We are pursuing additional clinical data programs including a post-market study, IMAGE-BTK, that is designed to evaluate the safety and efficacy of Pantheris SV in the treatment of PAD lesions below-the-knee. We are currently enrolling patients, and we expect to complete enrollment in the first half of 2023. We focus our direct sales force, marketing efforts and promotional activities on interventional cardiologists, vascular surgeons and interventional radiologists. We also work on developing strong relationships with physicians and hospitals that we have identified as key opinion leaders. Although our sales and marketing efforts are directed at these physicians because they are the primary users of our technology, we consider the hospitals and medical centers where the procedure is performed to be our customers, as they typically are responsible for purchasing our products. We are designing additional future products to be compatible with our Lumivascular platform, which we expect to enhance the value proposition for hospitals to invest in our technology. Pantheris qualifies for existing reimbursement codes currently utilized by other atherectomy products, further facilitating adoption of our products. We have assembled a team with extensive medical device development and commercialization experience in both start-up and large, multi-national medical device companies. We assemble all of our catheter products at our manufacturing facility but certain critical processes, such as coating and sterilization, are performed by outside vendors. Our Lightbox 3 imaging console is assembled through a qualified contract manufacturer. We expect our current manufacturing facility inCalifornia , will be sufficient through at least 2023. We generated revenues of$8.8 million in 2020 and$10.1 million in 2021. The lower revenues in 2020 was primarily due to the adverse effects of COVID-19 on our customers as hospitals deferred elective procedures. Revenues in 2020 and 2021 fluctuated significantly due to COVID-19 and continue to do so in 2022. 20 --------------------------------------------------------------------------------
Recent Developments
COVID-19 and Hospital Capacity Update
As a result of the effects of the COVID-19 pandemic and hospital staffing shortages, we experienced a significant decline in sales, particularly as individuals, as well as hospitals and other medical providers, deferred elective procedures in response to COVID-19. We have continued to experience fluctuating sales as practitioners in certain jurisdictions were able to perform elective procedures while other jurisdictions were continuing to experience capacity issues. While at present, a majority of jurisdictions have eased restrictions on performing elective procedures, we cannot be certain that such restrictions will not be adopted again in the future. Some jurisdictions have experienced and continue to experience a resurgence in COVID-19 cases, which could prompt 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. Further, hospital staffing shortages, including issues independent of COVID-19-related capacity issues, have had and are likely to continue to have adverse impacts our business and results of operations. This situation has created a significant amount of volatility in the medical industry which makes future developments and results difficult to predict. We believe COVID-19 and the related burdens on the hospital systems have had and will continue to have an adverse effect on our ability to generate sales due to the fluctuating and unpredictable levels of capacity medical providers have to perform procedures that require the use of our products as was the case during the nine months endedSeptember 30, 2022 . Consequently, it is unclear whether any reduction in sales from levels experienced during COVID-19 is temporary and whether such sales may be recoverable in the future. In addition, we have experienced disruptions in our manufacturing and supply chain, as well as delays in site initiation and patient enrollment for our clinical studies. If we are unable to successfully complete these or other clinical studies, our business and results of operations could be harmed. The COVID-19 pandemic, staffing and capacity challenges at hospitals, 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 us in the future. These and other factors could adversely affect our ability to effectively manage our available cash and other resources. Global Supply Chain We are closely monitoring the impacts of the COVID-19 pandemic and general economic conditions on global supply chain, manufacturing, and logistics operations. As inflationary pressures increase, we anticipate that our production and operating costs may similarly increase, including costs and availability of materials and labor. In addition, COVID-19 and other events, including port closures or labor shortages, have resulted in manufacturing and shipping constraints generally. While we have had sufficient inventory on-hand to meet our current production requirements and customer demand, we have experienced some constraints with respect to the availability of certain materials and extended lead times from certain key suppliers. We have also experienced some delays in shipping products to our customers. Any significant delay or interruption in our supply chain could impair our ability to meet the demands of our customers in the future and could harm our business. We may need to identify and qualify new suppliers in response to disruptions and difficulties experienced by some of our current suppliers. The process of identifying and qualifying suppliers is lengthy with no guarantee of ultimately mitigating the current issues experience by the Company. This process can include but is not limited to delays in qualification, quality issues on components, and higher costs to source these components. All of these issues may impair our ability to meet the demands of our customers in the future. Reverse Stock Split OnMarch 11, 2022 , our Board of Directors approved an amendment to our amended and restated certificate of incorporation to effect a 1-for-20 reverse stock split of our issued and outstanding common stock. The reverse stock split became effective onMarch 14, 2022 . The par value of the common stock and preferred stock was not adjusted as a result of the reverse stock split. All common stock, stock options, and restricted stock units, and per share amounts in the financial statements have been retroactively adjusted for all periods presented to give effect to the reverse stock splits.
Principal Financial and Accounting Officer
As previously disclosed, our prior Chief Financial Officer left the Company onMay 12, 2022 . OnJuly 21, 2022 , our board of directors appointed Nabeel Subainati, who currently serves as our Vice President, Corporate Controller, as our Principal Financial Officer and Principal Accounting Officer. 21 --------------------------------------------------------------------------------
Financing During the three and nine months endedSeptember 30, 2022 our net loss and comprehensive net loss was$4.1 million and$13.4 million , respectively; during the years endedDecember 31, 2021 and 2020, it was$17.4 million and$19.0 million , respectively. We have not been profitable since inception, and as ofSeptember 30, 2022 , our accumulated deficit was$398.2 million . Since inception, we have financed our operations primarily through private and public placements of our preferred and common securities and, to a lesser extent, debt financing arrangements. InSeptember 2015 , we entered into a Term Loan Agreement, or Loan Agreement, withCRG 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 beforeMarch 29, 2017 , subject to certain terms and conditions. We borrowed$30.0 million onSeptember 22, 2015 and an additional$10.0 million onJune 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 onSeptember 22, 2015 at a price of$111,928 per share, which represents the 10-day average of closing prices of our common stock ending onSeptember 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. OnFebruary 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 sinceSeptember 2015 , the most recent of which was entered into onAugust 10, 2022 . The Amendments, among other things: (1) extended the interest-only period throughDecember 31, 2023 ; (2) extended the period during which we may elect to pay a portion of interest in payment-in-kind, or PIK, interest payments throughDecember 31, 2023 so long as no default has occurred and is continuing; (3) permitted us to make our entire interest payments in PIK interest payments throughDecember 31, 2023 so long as no default has occurred and is continuing; (4) extended the maturity date toDecember 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 2022; (8) added minimum revenue covenants of$10 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" toDecember 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 us and our subsidiaries due to the outbreak of COVID-19 will not constitute a Material Adverse Change; and (11) provided CRG with board observer rights.
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 withU.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 nine months endedSeptember 30, 2022 , 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 theSEC onMarch 22, 2022 . 22 --------------------------------------------------------------------------------
Components of Our Results of Operations
Revenues All of our revenues are currently derived from sales of our various PAD catheters inthe United States and select international markets, Lightbox consoles, and related services. For the three and nine months endedSeptember 30, 2022 , there was one customer that represented 11% and 13% of revenues, respectively. For the three and nine months endedSeptember 30, 2021 , there were no customers that represented 10% or more of revenues. Revenues may fluctuate from quarter to quarter due to a variety of factors including capital equipment purchasing patterns that are typically increased towards the end of the calendar year and decreased in the first quarter and our ability to have product available in light of supply chain challenges. In addition, during the first quarter, our results can be harmed by adverse weather and by resetting of annual patient healthcare insurance plan deductibles, both of which may cause patients to delay elective procedures. In the third quarter, the number of elective procedures nationwide is historically lower than other quarters throughout the year, which we believe is primarily attributable to the summer vacations of physicians and their patients. Additionally, we believe COVID-19 and hospital capacity and staffing issues have had and will continue to have an adverse effect on our ability to generate sales due to the fluctuating and unpredictable levels of capacity medical providers have to perform procedures that require the use of our products.
Cost of Revenues and Gross Margin
Cost of revenues consists primarily of costs related to manufacturing overhead, materials and direct labor. We expense all warranty costs and inventory provisions as cost of revenues. We periodically write down inventory for estimated excess, obsolete and non-sellable inventories based on assumptions about future demand, past usage, changes to manufacturing processes and overall market conditions. A significant portion of our cost of revenues currently consists of manufacturing overhead costs. These overhead costs include the cost of quality assurance, material procurement, inventory control, facilities, equipment and operations supervision and management. We expect overhead costs as a percentage of revenues to become less significant as our production volume increases. Cost of revenues also includes depreciation expense for production equipment, depreciation and related maintenance expense for placed Lightboxes held by customers and certain direct costs such as those incurred for shipping our products. We calculate gross margin as gross profit divided by revenues. Our gross margin has been and will continue to be affected by a variety of factors, primarily production volumes, manufacturing costs, product yields, headcount, charges for excess and obsolete inventories and cost-reduction strategies. We intend to use our design, engineering and manufacturing capabilities to further advance and improve the efficiency of our manufacturing processes, which we believe will reduce costs and increase our gross margin. In the future, we may seek to manufacture certain of our products outsidethe 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 and additional costs
related to corporate matters.
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Interest Expense, Net Interest expense, net consists primarily of interest incurred on our outstanding indebtedness and non-cash interest related to the amortization of debt discount and issuance costs associated with our debt agreement.
Other (Expense) Income, Net
Other (expense) income, net primarily consists of gains and losses resulting
from the remeasurement of foreign exchange transactions and other miscellaneous
income and expenses.
Results of Operations:
Three Months Ended Nine Months Ended
September 30, September 30,
2022 2021 2022 2021
(in thousands, except percentages)
Revenues $ 2,252 $ 2,366 $ 6,272 $ 7,727
Cost of revenues 1,462 1,566 4,301 5,015
Gross profit 790 800 1,971 2,712
Gross margin 35 % 34 % 31 % 35 %
Operating expenses:
Research and development 1,086 1,397 3,244 4,502Selling, general and administrative 3,384 3,892 10,862
11,755
Total operating expenses 4,470 5,289 14,106 16,257
Loss from operations (3,680 ) (4,489 ) (12,135 ) (13,545 )
Interest expense, net (407 ) (419 ) (1,286 ) (1,214 )
Other (expense) income, net - (4 ) (20
) 2,343
Net loss and comprehensive loss
Comparison of Three Months Ended
Revenues. For the three months endedSeptember 30, 2022 , revenue decreased by approximately$0.1 million or 5% compared to the three months endedSeptember 30, 2021 . The decrease in revenues reflects the fluctuating demand primarily due to the adverse impacts of COVID-19 and hospital staffing shortages as capacity limitations in hospitals have limited the ability of practitioners to perform elective surgical procedures using our products in certain jurisdictions. During the quarter endedSeptember 30, 2021 , we experienced increases in revenue largely due to easing restrictions from COVID-19 prompting the performance of a backlog of elective procedures that were previously deferred during 2020. We anticipate that COVID-19, hospital staffing and hospital capacity challenges could continue to impact demand for our products, for the foreseeable future.
Cost of Revenues and Gross Margin.
For the three months endedSeptember 30, 2022 , cost of revenues decreased by approximately$0.1 million or 7% compared to the three months endedSeptember 30, 2021 . This decrease was primarily attributable to the decrease in revenues. Stock-based compensation expense within cost of revenues totaled$4,000 and$24,000 for the three months endedSeptember 30, 2022 and 2021, respectively. Gross margin for the three months endedSeptember 30, 2022 increased to 35%, compared to 34% during the three months endedSeptember 30, 2021 . The increase in gross margin was primarily due to changes in product mix.
Research and Development Expenses ("R&D").
R&D expenses for the three months endedSeptember 30, 2022 decreased$0.3 million or 22% compared to the three months endedSeptember 30, 2021 primarily due to the completion of our development efforts on the Lightbox 3 last fiscal year. Stock-based compensation expense within R&D totaled approximately$11,000 and$78,000 for the three months endedSeptember 30, 2022 and 2021, respectively. 24
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Selling, General and Administrative Expenses ("SG&A").
SG&A expenses for the three months endedSeptember 30, 2022 decreased by approximately$0.5 million or 13%, compared to the three months endedSeptember 30, 2021 , primarily due to decreased variable compensation which include retention bonuses and decreased selling and marketing ancillary costs. Stock-based compensation expense within SG&A totaled approximately$24,000 and$137,000 for the three months endedSeptember 30, 2022 and 2021, respectively. Interest Expense, Net. Interest expense, net for the three months endedSeptember 30, 2022 decreased by less than$0.1 million or 3%, compared to the three months endedSeptember 30, 2021 , primarily due to increases in interest income due to the rising money market interest rates, largely offset by higher interest expense resulting from a higher CRG loan balance as PIK interest is being compounded. Other (Expense) Income, Net. Other (expense) income, net primarily consists of gains and losses resulting from the remeasurement of foreign exchange transactions, which are typically a small percentage of transaction volume, and other miscellaneous income and expenses. Other income, net for the three months endedSeptember 30, 2022 decreased less than$0.1 million or 100% resulting from fluctuations in foreign exchange remeasurement.
Comparison of Nine Months Ended
Revenues. For the nine months endedSeptember 30, 2022 , revenue decreased by$1.5 million or 19% compared to the nine months endedSeptember 30, 2021 . The decrease in revenues reflect the fluctuating demand primarily due to the adverse impacts of COVID-19 and hospital staffing shortages as capacity limitations in hospitals have limited the ability of practitioners to perform elective surgical procedures using our products in certain jurisdictions. During the nine months endedSeptember 30, 2021 , we experienced increases in revenue largely due to easing restrictions from COVID-19 prompting the performance of a backlog of elective procedures that were previously deferred during 2020. We anticipate that COVID-19, hospital staffing shortages and hospital capacity challenges could continue to impact demand for our products, for the foreseeable future.
Cost of Revenues and Gross Margin.
For the nine months endedSeptember 30, 2022 , cost of revenues decreased by$0.7 million or 14% compared to the nine months endedSeptember 30, 2021 . This decrease was primarily attributable to the decrease in revenues. Stock-based compensation expense within cost of revenues totaled$18,000 and$93,000 for the nine months endedSeptember 30, 2022 and 2021. Gross margin for the nine months endedSeptember 30, 2022 decreased to 31%, compared to 35% in the nine months endedSeptember 30, 2021 . The decrease in gross margin was primarily due to the decrease in revenues and consequently a decrease in economies of scale relating to the decreased levels of production.
Research and Development Expenses ("R&D").
R&D expenses for the nine months endedSeptember 30, 2022 decreased by$1.3 million or 28%, compared to the nine months endedSeptember 30, 2021 primarily due to the completion of our development efforts on the Lightbox 3 last fiscal year. Stock-based compensation expense within R&D totaled approximately$37,000 and$274,000 for the nine months endedSeptember 30, 2022 and 2021, respectively. We expect R&D expense to fluctuate based on the ongoing product development of our coronary device and future iterations of existing product lines.
Selling, General and Administrative Expenses ("SG&A").
SG&A expenses for the nine months endedSeptember 30, 2022 decreased by$0.9 million or 8%, compared to the nine months endedSeptember 30, 2021 , primarily due to decreased variable compensation which include retention bonuses and decreased selling and marketing ancillary costs, partially offset by increased third-party expenses resulting from corporate and administrative activities. Stock-based compensation expense within SG&A totaled approximately$72,000 and$593,000 for the nine months endedSeptember 30, 2022 and 2021, respectively. 25
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Interest Expense, Net. Interest expense, net for the nine months endedSeptember 30, 2022 increased by approximately$0.1 million or 6%, compared to the nine months endedSeptember 30, 2021 , primarily due to the higher CRG loan balance from PIK interest being compounded, partially offset by increases in interest income due to the recent rising money market interest rates. Other (Expense) Income, Net. Other (expense) income, net primarily consists of gains and losses resulting from the remeasurement of foreign exchange transactions, which are typically a small percentage of transaction volume, and other miscellaneous income and expenses. Other income, net for the nine months endedSeptember 30, 2022 decreased approximately$2.4 million or 101% in comparison to the nine months endedSeptember 30, 2021 as the PPP loan was fully forgiven resulting in a gain on extinguishment of that debt, a one-time occurrence during the prior year period. Both periods also included remeasurement gains and losses from foreign exchange transactions resulting in nominal changes between periods.
Liquidity and Capital Resources
As ofSeptember 30, 2022 , we had cash and cash equivalents of$17.3 million and an accumulated deficit of$398.2 million , compared to cash and cash equivalents of$19.5 million and an accumulated deficit of$384.8 million as ofDecember 31, 2021 . We expect to incur losses for the foreseeable future. We believe that our cash and cash equivalents of$17.3 million atSeptember 30, 2022 and expected revenues, debt and financing activities and funds from operations will be sufficient to allow us to fund our current operations through the third quarter of 2023. To date, we have financed our operations primarily through net proceeds from the issuance of our preferred stock, common stock and debt financings, our At The Market program, our initial public offering, or IPO, our follow-on public offerings and warrant issuances. We do not know when or if our operations will generate sufficient cash to fund our ongoing operations. 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 us. While we have taken certain actions to manage our available cash and other resources to mitigate the effects of COVID-19 and hospital staffing shortages, and related hospital capacity issues, on our business, there can be no assurance that such strategies will be successful in mitigating the negative impacts resulting from the COVID-19 pandemic on our liquidity and capital resources. Equity Financings OnFebruary 2, 2021 , under the shelf registration statement, we completed a bought deal offering of 500,000 shares of common stock at an offering price of$28.80 per share. As a result, we received aggregate net proceeds of approximately$13.0 million after underwriting discounts, commissions, legal and accounting fees, and other ancillary expenses.January 2022 Offering OnJanuary 14, 2022 , we entered into a securities purchase agreement with several institutional investors pursuant to which we agreed to sell and issue, in a registered direct offering ("January 2022 Offering"), an aggregate of 7,600 shares of the our Series D Convertible Preferred Stock, par value of$0.001 per share, at an offering price of$1,000 per share which was convertible into common stock at a conversion price of$8.00 per share. Concurrently, we agreed to issue to these investors warrants to purchase up to an aggregate of 807,500 shares of our common stock (the "Common Warrants"). As a result, we received aggregate net proceeds of approximately$6.7 million after underwriting discounts, commissions, legal and accounting fees, and other ancillary expenses. During the nine months endedSeptember 30, 2022 , all 7,600 shares issued of Series D preferred stock were converted into a total of 950,000 shares of common stock. Consequently, there were no shares of Series D preferred stock outstanding as ofSeptember 30, 2022 . 26 -------------------------------------------------------------------------------- The 807,500 Common Warrants have an exercise price of$9.60 per share and became exercisable beginningJuly 14, 2022 . The Common Warrants will expire five years following the time they become exercisable, orJuly 14, 2027 . We also issued to the Placement Agent or its designees warrants to purchase up to an aggregate of 66,500 shares of common stock (the "Placement Agent Warrants"). The Placement Agent Warrants are subject to the same terms as the Common Warrants, except that the Placement Agent Warrants have an exercise price of$10.00 per share and a term of five years from the commencement of the sales pursuant to theJanuary 2022 Offering, orJanuary 12, 2027 .
At The Market Offering Agreement
OnMay 20, 2022 , we entered into an At The Market Offering Agreement (the "ATM Agreement") withH.C. Wainwright & Co., LLC (the "Agent"), as sales agent, pursuant to which we may offer and sell shares of common stock, par value$0.001 per share (the "Shares") up to an aggregate offering price of$7,000,000 from time to time, in an at the market public offering. Sales of the Shares are to be made at prevailing market prices at the time of sale, or as otherwise agreed with the Agent. The Agent will receive a commission from us of 3.0% of the gross proceeds of any Shares sold under the ATM Agreement. The Shares sold under the ATM Agreement are offered and sold pursuant to the Company's shelf registration statement on Form S-3, which was initially filed with theSecurities and Exchange Commission (the "SEC") onMarch 29, 2022 and declared effective onApril 7, 2022 , and a prospectus supplement and the accompanying prospectus relating to the At The Market Offering filed with theSEC onMay 20, 2022 . During the quarter endedSeptember 30, 2022 , we sold 259,137 shares of common stock at an average price of$1.56 per share for aggregate proceeds of$0.4 million , of which approximately$12,000 was paid in the form of commissions to the Agent. During the nine months endedSeptember 30, 2022 , we sold 585,603 shares of common stock pursuant to the ATM Agreement at an average price of$1.67 per share for aggregate proceeds of$1.0 million , of which approximately$29,000 was paid in the form of commissions to the Agent. Other than the ATM Agreement, we currently do not have any commitments to obtain additional funds. OnAugust 3, 2022 , we suspended sales under the ATM Agreement. While we may resume sales in the future, there can be no assurance that we will be successful in acquiring additional funding through these means.August 2022 Offering OnAugust 4, 2022 , we entered into a securities purchase agreement with a single institutional investor for the issuance and sale of 1,484,019 shares of its common stock in a registered direct offering ("RD" or "Registered Direct") at a purchase price of$1.752 per share, or pre-funded warrants in lieu thereof. In a concurrent private placement, we also agreed to issue and sell to the investor 1,369,864 shares of common stock at the same purchase price as in the registered direct offering, or pre-funded warrants in lieu thereof ("Private Placement" and together with the Registered Direct offering the "August 2022 Offering"). As a result, we received aggregate net proceeds of approximately$4.4 million after underwriting discounts, commissions, legal and accounting fees, and other ancillary expenses. As a result, in the Registered Direct offering, we issued (i) 700,000 shares of common stock, and (ii) pre-funded warrants in lieu of common stock to purchase up to an aggregate of 784,019 shares of common stock (the "RD Pre-Funded Warrants") and in the Private Placement, pre-funded warrants to purchase up to an aggregate of 1,369,864 shares of common stock (the "Private Pre-Funded Warrants" and together with the RD Pre-Funded Warrants the "August 2022 Pre-Funded Warrants"). In addition, we issued to the investor in theAugust 2022 Offering Series A preferred investment options to purchase up to 2,853,883 additional shares of our common stock and Series B preferred investment options to purchase up to 2,853,883 additional shares of our common stock (the "Preferred Investment Options"). The Series A preferred investment options have an exercise price of$1.502 per share, are immediately exercisable, and will expire five and one-half years from the date of issuance, orFebruary 8, 2028 , and the Series B preferred investment options have an exercise price of$1.502 per share, are immediately exercisable, and will expire two years from the date of issuance, orAugust 8, 2024 . We also issued to the Placement Agent or its designees preferred investment options to purchase up to an aggregate of 171,233 shares of common stock (the "Placement Agent Preferred Investment Options"). The Placement Agent Preferred Investment Options are subject to the same terms as the Preferred Investment Options, except that the Placement Agent Preferred Investment Options have an exercise price of$2.19 per share and a term of five years from the commencement of the sales pursuant to theAugust 2022 Offering, orAugust 3, 2027 . PPP Loan OnApril 23, 2020 , we received loan proceeds of$2.3 million (the "PPP Loan") pursuant to the PPP under the CARES Act. The PPP Loan, which was in the form of a promissory note, datedApril 20, 2020 (the "Promissory Note"), between us andSilicon Valley Bank ("SVB") as the lender, was set to mature onApril 20, 2022 and bore interest at a fixed rate of 1% per annum. 27 --------------------------------------------------------------------------------
As previously disclosed, the PPP was administered by theU.S. Small Business Administration (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. We applied for debt forgiveness inDecember 2020 . OnApril 17, 2021 , we were notified by SVB that its PPP Loan had been fully forgiven by the SBA and that there was no remaining balance on the PPP Loan. We recorded the forgiveness as other income inApril 2021 in the amount of$2.4 million , of which approximately$23,000 was accrued interest. Contractual Obligations Our principal obligations consist of the operating lease for our facility, our Loan Agreement with CRG and non-cancelable purchase commitments. The following table sets out, as ofSeptember 30, 2022 , our contractual obligations due by period (in thousands): Payments Due by Period More Less Than 2 - 3 Than 5 1 Year Years 4-5 Years Years Total Operating lease obligations (1)$ 1,193 $ 1,441 $ - $ -$ 2,634 CRG Loan (2) - 15,200 4,184 - 19,384 Noncancelable purchase commitments (3) 1,462 27 23 - 1,512$ 2,655 $ 16,668 $ 4,207 $ -$ 23,530
(1) Operating lease obligations primarily consist of leased office, laboratory,
and manufacturing space under a non-cancelable operating lease. In addition
to the minimum future lease commitments presented above, the lease requires
the Company to pay property taxes, insurance, maintenance, and repair costs.
The lease will expire on
(2) The total CRG Loan amount, shown as borrowings on the balance sheet as of
table above of
be accrued but not paid in cash as well as a
paid in
For more information, see Part I, Item 1 "Unaudited Financial Statements,
Footnote 5. Borrowings."
(3) Noncancelable purchase commitments consist of agreements to purchase goods
and services entered into in the ordinary course of business.
Cash Flows
Nine Months Ended September 30,
2022 2021
(in thousands)
Net cash (used in) provided by:
Operating activities $ (14,043 ) $ (12,166 )
Investing activities (31 ) (18 )
Financing activities 11,919 13,077Net change in cash and cash equivalents $ (2,155 ) $
893
Net cash used in operating activities for the nine months endedSeptember 30, 2022 was$14.0 million , consisting primarily of a net loss of$13.4 million and an increase in net operating assets of$2.5 million , partially offset by non-cash charges of$1.9 million . Non-cash charges largely related to non-cash interest expense of$1.3 million . The increase in net operating assets was primarily due to the increase in inventory of$1.2 million due to purchases of inventory components in anticipation of forecasted demand in light of extended lead times and a decrease in accounts payable due to timing of payments and overall, less expenditures. These increases were partially offset by the increase in other long-term liabilities as certain variable compensation continues to accrue. 28
-------------------------------------------------------------------------------- Net cash used in operating activities for the nine months endedSeptember 30, 2021 was$12.2 million , consisting primarily of a net loss of$12.4 million and an increase in net operating assets of approximately$0.3 million , and net non-cash gains of$0.6 million . We recognized a non-cash gain on extinguishment of debt due to the forgiveness of the PPP Loan of$2.4 million . This gain was partially offset by non-cash charges related to stock-based compensation of$1.0 million , non-cash interest expense of$1.2 million , and depreciation of$0.5 million . The increase in net operating assets was primarily due to the increase in inventory and prepaid expenses, and a decrease in accrued compensation; partially offset by an increase in accounts payable and other long-term liabilities.
Net cash used in investing activities during both the nine months ended
Net Cash Provided by Financing Activities
Net cash provided by financing activities in the nine months endedSeptember 30, 2022 of$11.9 million primarily relates to proceeds of$6.7 million from the issuance of preferred stock and warrants in theJanuary 2022 Offering, net of commissions and various issuance costs, and proceeds of$4.4 million from the issuance of common stock and preferred investment options in theAugust 2022 Offering. We also received approximately$0.8 million , net of commissions and various issuance costs, from the sale of common stock pursuant to the ATM Agreement. Net cash provided by financing activities in the nine months endedSeptember 30, 2021 of$13.1 million relates to proceeds from the issuance of common stock in ourFebruary 2021 public offering, net of various issuance costs. 29
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