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



Overview



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



We design, manufacture, and sell a suite of products in the United States and
select international markets. We are located in Redwood City, California. Our
current Lumivascular platform consists of products including our Lightbox
imaging console, the Ocelot and Tigereye family of devices, which are
image-guided devices designed to allow physicians to penetrate a total blockage
in an artery, known as a chronic total occlusion ("CTO"), and the Pantheris
family of catheters, our image-guided atherectomy catheters which are designed
to allow physicians to precisely remove arterial plaque in PAD patients.



We are in the process of developing CTO crossing devices to target the coronary
CTO market. However, the market for medical devices in the coronary artery
disease ("CAD") space is highly competitive, dynamic, and marked by rapid and
substantial technological development and product innovation and there is no
guarantee that we will be successful in developing and commercializing any new
CAD product. At this stage, we are working on understanding market requirements,
and initiated the development process for the new CAD product, which we
anticipate will require additional expenses.



We 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 Small Vessel ("SV"), a version of Pantheris targeting smaller
vessels, and commenced sales in July 2019. In September 2020, we received 510(k)
clearance of Tigereye, a next-generation CTO crossing system utilizing Avinger's
proprietary image-guided technology platform. Tigereye is a product line
extension of Avinger's Ocelot family of image-guided CTO crossing catheters. In
January 2022, we received 510(k) clearance from the FDA for our Lightbox 3
imaging console, an advanced version of our Lightbox that allows for easy
portability and offers significant reductions in size, weight, and production
cost in comparison to the incumbent version.



In July 2022, we submitted a 510(k) application to the FDA for the Tigereye
Spinning Tip ("ST") device, 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.



In January 2023, we submitted a 510(k) application to the FDA for the Pantheris
LV device, a next generation image guided atherectomy system for the treatment
of larger vessels, such as the superficial femoral artery ("SFA") and popliteal
arteries. Pantheris LV is a line extension of our Pantheris and Pantheris SV
family of atherectomy products. This catheter offers higher speed plaque
excision for efficient removal of challenging occlusive tissue and multiple
features to streamline and simplify user-operation, including enhanced tissue
packing and removal, a radiopaque gauge to measure volume of plaque excised
during the procedure, and enhanced guidewire management.



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



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



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



During the fourth quarter of 2017, we began enrolling patients in INSIGHT, a
clinical trial designed to support a submission to the FDA to expand the
indication for our Pantheris atherectomy device to include the treatment of
in-stent restenosis. Patient enrollment began in October 2017 and was completed
in July 2021. Patient outcomes were evaluated at thirty days, six months and one
year following treatment. In November 2021, we received 510(k) clearance from
the FDA for this new clinical indication for treating in-stent restenosis with
Pantheris using the data collected and analyzed from INSIGHT. We expect this
will expand our addressable market for Pantheris to include a high-incidence
disease state for which there are few available indicated or effective treatment
options.



We are pursuing additional clinical data programs including a post-market study,
IMAGE-BTK, that is designed to evaluate the safety and efficacy of Pantheris SV
in the treatment of PAD lesions below-the-knee. We are currently enrolling
patients, and we expect to complete enrollment in 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 in California, will be sufficient through at least 2023. We generated
revenues of $8.8 million in 2020, $10.1 million in 2021 and $8.3 million in
2022. Revenue in 2020 was adversely affected by COVID-19 as hospitals deferred
elective procedures, which among other things, created unpredictability in case
volume. This unpredictability created more volatility in our revenues which
continued to adversely affect our business in 2021 and 2022. The decline in
revenue in 2022 was also attributable to the adverse effects of staffing
shortages, resource constraints on our customers as hospitals deferred elective
procedures, and the impact of a very competitive market for talent on the
retention of our commercial team.



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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 on our business and results of operations. This situation has
created a significant amount of volatility in the medical industry which makes
future developments and results difficult to predict.



We believe COVID-19 and the related burdens on the hospital systems have had and
may continue to have an adverse effect on our ability to generate sales due to
the fluctuating and unpredictable levels of capacity medical providers have to
perform procedures that require the use of our products, as was the case since
the onset of the pandemic in 2020. Consequently, it is unclear whether any
reduction in sales from levels experienced during COVID-19 are 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



On March 11, 2022, our board of directors approved an amendment to our amended
and restated certificate of incorporation to effect a 1-for-20 reverse stock
split of our issued and outstanding common stock. The reverse stock split became
effective on March 14, 2022. 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 on
May 12, 2022. On July 21, 2022, our board of directors appointed Nabeel
Subainati, who currently serves as our Vice President, Finance, as our Principal
Financial Officer and Principal Accounting Officer.



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Financing



During the years ended December 31, 2022 and 2021, our net loss and
comprehensive loss was $17.6 million and $17.4 million, respectively. We have
not been profitable since inception, and as of December 31, 2022, our
accumulated deficit was $402.4 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 (the "Loan Agreement")
with CRG Partners III L.P. and certain of its affiliated funds (collectively,
"CRG"), under which we were able to borrow up to $50.0 million on or before the
end of the twenty-fourth (24th) month period commencing on the first Borrowing
Date (as defined in the Loan Agreement), subject to certain terms and
conditions. Under the Loan Agreement we borrowed $30.0 million on September 22,
2015 and an additional $10.0 million on June 15, 2016. Contemporaneously with
the execution of the Loan Agreement, we entered into a Securities Purchase
Agreement with CRG (the "Securities Purchase Agreement"), pursuant to which CRG
purchased 44 shares of our common stock on September 22, 2015 at a price of
$111,928 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 (collectively, the "Amendments") to the
Loan Agreement with CRG since September 2015, the most recent of which, was
entered into on August 10, 2022. The Amendments, among other things:
(1) extended the interest-only period through December 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 through December 31, 2023 so long as
no Default (as defined in the Loan Agreement) has occurred and is continuing;
(3) permitted us to make our entire interest payments in PIK interest payments
through December 31, 2023 so long as no Default has occurred and is continuing;
(4) extended the Stated Maturity Date (as defined in the Loan Agreement) to
December 31, 2025; (5) reduced the minimum liquidity covenant to $3.5 million at
all times; (6) eliminated the minimum revenue covenant for 2018, 2019 and 2020;
(7) reduced the minimum revenue covenant to $8 million for 2021 and 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" to December 31, 2020; (10)
amended the on-going stand-alone representation and stand-alone Event of Default
(as defined in the Loan Agreement) regarding Material Adverse Change such that
any adverse change in or effect upon the revenue of us and our subsidiaries due
to the outbreak of COVID-19 will not constitute a Material Adverse Change; and
(11) provided CRG with board observer rights.

Components of our Results of Operations





Revenues



All of our revenues are currently derived from sales of our various PAD
catheters in the United States and select international markets, Lightbox
consoles, and related services. We expect our revenues to increase in 2023 due
to the introduction of our Tigereye ST and Pantheris LV products (provided that
they receive 510(k) clearance), investments in sales personnel and easing
conditions involving hospital staffing and capacity issues. For the year ended
December 31, 2022, there was one customer that represented approximately 14% of
revenues. For the year ended December 31, 2021, there was one customer that
represented approximately 10% 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.



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Cost of Revenues and Gross Margin





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



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

Research and Development Expenses





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

Selling, General and Administrative Expenses





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



Interest Expense, Net



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

Other (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.



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Results of Operations:



                                        Year Ended December 31,
                                          2022             2021
(in thousands)
Revenues                              $      8,273       $  10,130
Cost of revenues                             5,619           6,706
Gross profit                                 2,654           3,424
Gross margin                                    32 %            34 %

Operating expenses:
Research and development                     4,390           5,900

Selling, general and administrative 14,221 15,625 Total operating expenses

                    18,611          21,525
Loss from operations                       (15,957 )       (18,101 )
Interest expense, net                       (1,665 )        (1,648 )
Other (expense) income, net                     (1 )         2,337

Net loss and comprehensive loss $ (17,623 ) $ (17,412 )

Comparison of Years Ended December 31, 2022 and 2021





Revenues.



Revenues decreased $1.9 million, or 18%, to $8.3 million during the year ended
December 31, 2022. The decrease in revenues reflects the fluctuating demand
partially due to the adverse impacts of COVID-19 and hospital staffing shortages
as capacity limitations in hospitals have limited the ability of practitioners
to perform elective surgical procedures using our products in certain
jurisdictions. In addition, we have experienced attrition and turnover of our
sales professionals which has resulted in a less experienced sales team and
limited our ability to maintain an adequate presence in some markets. The
attrition and turnover are largely attributable to the increasingly competitive
labor market landscape, which has had an adverse effect on our ability to
generate revenues for the year ended December 31, 2022.



During the year ended December 31, 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,
and the attrition and turnover of sales professionals could continue to impact
demand for our products, for the foreseeable future.

Cost of Revenues and Gross Margin.





Cost of revenues decreased $1.1 million, or 16%, to $5.6 million during the year
ended December 31, 2022. This decrease was primarily attributable to the
decrease in revenues. Stock-based compensation expense within cost of revenues
totaled $18,000 and $101,000 for the years ended December 31, 2022 and 2021,
respectively.



Gross margin for the year ended December 31, 2022 decreased to 32% compared to
34% in the prior year. 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, partially offset by favorable changes in
product mix.

Research and Development Expenses.





R&D expenses decreased $1.5 million or 26%, to $4.4 million during the year
ended December 31, 2022. The decrease is primarily due to the completion of our
development efforts on the Lightbox 3 last fiscal year. Stock-based compensation
expense within R&D totaled $37,000 and $287,000 for the years ended December 31,
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 expenses decreased $1.4 million, or 9%, to $14.2 million during the year
ended December 31, 2022. This decrease was primarily due to decreased variable
compensation which include retention bonuses and decreased selling and marketing
ancillary costs resulting from the decline in revenues. Stock-based compensation
expense within SG&A totaled $72,000 and $627,000 for the years ended
December 31, 2022 and 2021, respectively. We expect SG&A expense to fluctuate
during 2023 largely due to variable compensation related to fluctuations in
revenues.



                                       57

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Interest Expense, Net.



Interest expense, net is comprised of interest expense net of interest income.
Interest expense remained flat compared to the prior year 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 year ended December 31, 2022 decreased
approximately $2.3 million or 100%, in comparison to the prior year as the loan
pursuant to the Paycheck Protection Program under the CARES Act (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 of December 31, 2022, we had cash and cash equivalents of $14.6 million and
an accumulated deficit of $402.4 million, compared to cash and cash equivalents
of $19.5 million and an accumulated deficit of $384.8 million as of December 31,
2021. We expect to incur losses for the foreseeable future. We believe that our
cash and cash equivalents of $14.6 million at December 31, 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 ("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.



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



Equity Financings



On February 2, 2021, under our 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.



                                       58
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January 2022 Offering



On January 14, 2022, we entered into a securities purchase agreement with
several institutional investors pursuant to which we agreed to sell and issue,
in a registered direct offering ("January 2022 Offering"), an aggregate of 7,600
shares of our Series D Convertible Preferred Stock, par value of $0.001 per
share, at an offering price of $1,000 per share which was convertible into
common stock at a conversion price of $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 year ended December 31, 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 of
December 31, 2022.



The 807,500 Common Warrants have an exercise price of $9.60 per share and became
exercisable beginning July 14, 2022. The Common Warrants will expire five years
following the time they become exercisable, or July 14, 2027. We also issued to
the Placement Agent or its designees warrants to purchase up to an aggregate of
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 the January
2022 Offering, or January 12, 2027.

At The Market Offering Agreement





On May 20, 2022, we entered into an At The Market Offering Agreement (the "ATM
Agreement") with H.C. Wainwright & Co., LLC (the "Agent"), as sales agent,
pursuant to which we may offer and sell shares of common stock, par value $0.001
per share (the "Shares") up to an aggregate offering price of $7,000,000 from
time to time, in an at the market public offering. Sales of the Shares are to be
made at prevailing market prices at the time of sale, or as otherwise agreed
with the Agent. The Agent will receive a commission from us of 3.0% of the gross
proceeds of any Shares sold under the ATM Agreement. The Shares sold under the
ATM Agreement are offered and sold pursuant to our shelf registration statement
on Form S-3, which was initially filed with the SEC on March 29, 2022 and
declared effective on April 7, 2022, and a prospectus supplement and the
accompanying prospectus relating to the at the market program filed with the SEC
on May 20, 2022. During the year ended December 31, 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. On August 3,
2022, we suspended sales under the ATM Agreement. We plan to reactivate the ATM
Agreement in March 2023 and may resume sales in the future. However, there can
be no assurance that we will be successful in acquiring additional funding
through these means.



August 2022 Offering



On August 4, 2022, we entered into a securities purchase agreement with a single
institutional investor for the issuance and sale of 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.



On August 4, 2022, we entered into a securities purchase agreement with a single
institutional investor, pursuant to which 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 in a registered direct offering (
the "Registered Direct Offering") at a purchase price of $1.752 per share. In a
concurrent private placement, we also issued and sold to the investor pre-funded
warrants to purchase up to an aggregate of 1,369,864 shares of common stock at
the same purchase price as in the Registered Direct Offering (the "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.



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In addition, we issued to the investor in the August 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, or February 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, or August 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 the August 2022 Offering, or August 3,
2027.



PPP Loan



On April 23, 2020, we received PPP loan proceeds of $2.3 million. The PPP Loan,
which was in the form of a promissory note, dated April 20, 2020 (the
"Promissory Note"), between us 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.



As previously disclosed, the PPP was administered by the U.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 in December 2020. On April 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
in April 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 of December 31, 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)   $     1,203     $   1,138     $           -     $         -     $   2,341
CRG Loan (2)                                -        19,384                 -               -        19,384
Noncancelable purchase
commitments (3)                         1,079            34                 -               -         1,113
                                  $     2,282     $  20,556     $           -     $         -     $  22,838

(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 November 30, 2024.

(2) The total CRG Loan amount, shown as borrowings on the balance sheet as of

December 31, 2022, is $14.2 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.

Refer to Item 8, Financial Statements and Supplementary Data, Footnote 7 for

additional details.

(3) Noncancelable purchase commitments consist of agreements to purchase goods


    and services entered into in the ordinary course of business.




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CRG Loan



We have entered into several amendments to the Loan Agreement (the "Amendments")
with CRG since September 2015, the most recent of which was entered into on
August 10, 2022. The Amendments, among other things: (1) extended the
interest-only period through December 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 through December 31, 2023 so long as no Default (as defined in
the Loan Agreement) has occurred and is continuing; (3) permitted us to make the
entire interest payments in PIK interest payments for through December 31, 2023
so long as no Default has occurred and is continuing; (4) extended the Stated
Maturity Date (as defined in the Loan Agreement) to December 31, 2025; (5)
reduced the minimum liquidity covenant to $3.5 million at all times; (6)
eliminated the minimum revenue covenant for 2018, 2019 and 2020; (7) reduced the
minimum revenue covenant to $8 million for 2021 and 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" to December 31, 2020; (10)
amended the on-going stand-alone representation and stand-alone Event of Default
(as defined in the Loan Agreement) regarding Material Adverse Change such that
any adverse change in or effect upon our revenue 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. The total Loan amount under the Loan
Agreement (the "CRG Loan"), shown as short-term borrowings on the balance sheet
as of December 31, 2022, is $14.2 million. However, upon maturity of the
obligations under the Loan Agreement in December 2025, we will be obligated to
pay $19.4 million under the Loan Agreement, which 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 to the
maturity date. Due to the substantial doubt about our ability to continue
operating as a going concern and the "Material Adverse Change" clause under the
Loan Agreement, the entire amount of outstanding borrowings at December 31, 2022
and 2021 is classified as current. CRG has not purported that any Event of
Default (as defined in the Loan Agreement) has occurred as a result a "Material
Adverse Change" under the Loan Agreement. Refer to Item 8, Financial Statements
and Supplementary Data, Footnote 7 for additional details.



Lease Agreements



Our operating lease obligations primarily consist of leased office, laboratory,
and manufacturing space under a non-cancelable operating lease. In addition to
the minimum future lease commitments presented below, the lease requires us to
pay property taxes, insurance, maintenance, and repair costs. The lease includes
a rent holiday concession and escalation clauses for increased rent over the
lease term. Rent expense is recognized using the straight-line method over the
term of the lease.

The lease will expire on November 30, 2024. We are obligated to pay a total approximately $5.8 million in base rent payments through November 2024, which began on December 1, 2019. The weighted average remaining lease term as of December 31, 2022 is 1.9 years.





Cash Flows:



                                            Year Ended December 31,
                                              2022             2021
 (in thousands)
Net cash (used in) provided by:
Operating activities                      $    (16,760 )     $ (15,697 )
Investing activities                               (51 )           (34 )
Financing activities                            11,917          13,043

Net change in cash and cash equivalents $ (4,894 ) $ (2,688 )

Net Cash Used in Operating Activities





Net cash used in operating activities for the year ended December 31, 2022 was
$16.8 million, consisting primarily of a net loss of $17.6 million and an
increase in net operating assets of $1.7 million, partially offset by non-cash
charges of $2.6 million. Non-cash charges largely related to non-cash interest
expense of $1.9 million. The increase in net operating assets was primarily due
to the increase in inventory of $1.4 million due to purchases of inventory
components in anticipation of forecasted demand in light of extended lead times
and a decrease in accounts payable due to timing of payments and overall, less
expenditures. These increases were partially offset by the increase in other
long-term liabilities as certain variable compensation continues to accrue.



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Net cash used in operating activities for the year ended December 31, 2021 was
$15.7 million, consisting primarily of a net loss of $17.4 million and a
decrease in net operating assets of approximately $0.4 million, partially offset
by net non-cash charges of $1.3 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 $1.6 million, and
depreciation of $0.7 million. The decrease in net operating assets was primarily
due to an increase in accounts payable and other long-term liabilities;
partially offset by the increase in inventory and a decrease in accrued
compensation.

Net Cash Used in Investing Activities

Net cash used in investing activities during both the years ended December 31, 2022 and 2021 consisted of purchases of property and equipment.

Net Cash Provided by Financing Activities





Net cash provided by financing activities for the year ended December 31, 2022
of $11.9 million primarily relates to proceeds of $6.7 million from the issuance
of preferred stock and warrants in the January 2022 Offering, net of commissions
and various issuance costs, and proceeds of $4.4 million from the issuance of
common stock and preferred investment options in the August 2022 Offering. We
also received approximately $0.8 million, net of commissions and various
issuance costs, from the sale of common stock pursuant to the ATM Agreement.



Net cash provided by financing activities for the year ended December 31, 2021
of $13.0 million relates to proceeds from the issuance of common stock in our
February 2021 public offering, net of various issuance costs.

Critical Accounting Policies and Estimates





Management's discussion and analysis of our financial condition and results of
operations is based on our financial statements, which have been prepared in
accordance with U.S. generally accepted accounting principles. The preparation
of these financial statements requires us to make estimates and assumptions for
the reported amounts of assets, liabilities, revenues, expenses and related
disclosures of contingent assets and liabilities. Our estimates are based on our
historical experience and on various other factors that we believe are
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying value of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions and any such differences may
be material.



While our significant accounting policies are more fully described in Note 2 of
our financial statements included in this Annual Report on Form 10-K, we believe
the following discussion addresses our most critical accounting policies, which
are those that are most important to our financial condition and results of
operations and require our most difficult, subjective and complex judgments.



Revenue Recognition



The Company's revenues are derived from (1) sale of Lightbox consoles, (2) sale
of disposables, which consist of catheters and accessories, and (3) sale of
customer service contracts and maintenance. The Company sells its products
directly to hospitals and medical centers as well as through distributors. The
Company accounts for a contract with a customer when there is a legally
enforceable contract between the Company and the customer, the rights of the
parties are identified, the contract has commercial substance, and
collectability of the contract consideration is probable. The Company's revenues
are measured based on consideration specified in the contract with each
customer, net of any sales incentives and taxes collected from customers that
are remitted to government authorities. For all sales, the Company uses either a
signed agreement or a binding purchase order as evidence of an arrangement. The
Company's revenue recognition policies generally result in revenue recognition
at the following points:

1. Lightbox console sales: Provided all other criteria for revenue recognition

have been met, the Company recognizes revenue for Lightbox console sales

directly to end customers when delivery and acceptance occurs, which is

defined as receipt by the Company of an executed form that the installation


     process is complete.

2. Sales of disposables: Disposable revenues consist of sales of the Company's

catheters and accessories and are recognized when the product has shipped,

risk of loss and title has passed to the customer and collectability is


     reasonably assured.

  3. Service revenue: Service contract revenue consists of preventative
     maintenance, upgrades, and service contracts. Service contracts are
     recognized ratably over the term of the service period and maintenance

contract revenue is recognized when work is completed. To date, service


     revenue has been insignificant.




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The Company offers its customers the ability to purchase or lease the Lightbox
console. In addition, the Company provides a Lightbox under a limited commercial
evaluation program to allow accounts to install and utilize the Lightbox for a
limited trial period. When a Lightbox is placed under a lease agreement or under
a commercial evaluation program, the Company retains title to the equipment and
it remains capitalized on its balance sheet under property and equipment.
Depreciation expense on these placed Lightboxes is recorded to cost of revenues
on a straight-line basis. The costs to maintain these placed Lightboxes are
charged to cost of revenues as incurred.



The Company evaluates its lease and commercial evaluation program agreements and
accounts for these contracts under the guidance in Accounting Standards
Codification ("ASC") 842, Leases and ASU No. 2014 09, Revenue from Contracts
with Customers (Topic 606). The guidance requires arrangement consideration to
be allocated between a lease deliverable and a non-lease deliverable based upon
the relative selling-price of the deliverables.



The Company assessed whether the embedded lease is an operating lease or
sales-type lease. Based on the Company's assessment of the guidance and given
that any payments under the lease agreements are dependent upon contingent
future sales, it was determined that collectability of the minimum lease
payments is not reasonably predictable. Accordingly, the Company concluded the
embedded lease did not meet the criteria of a sales-type lease and accounts for
it as an operating lease. The Company recognizes revenue allocated to the lease
as the contingent disposable product purchases are delivered and are included in
revenues within the statement of operations and comprehensive loss.



For sales through distributors, the Company recognizes revenue when control of
the product transfers from the Company to the distributor. The distributors are
responsible for all marketing, sales, training and warranty in their respective
territories. The standard terms and conditions contained in the Company's
distribution agreements do not provide price protection or stock rotation rights
to any of its distributors. In addition, its distributor agreements do not allow
the distributor to return or exchange products, and the distributor is obligated
to pay the Company upon invoice regardless of its ability to resell the product.



Inventories



Inventories are valued at the lower of cost or net realizable value. Cost is
determined using the first-in, first-out method for all inventories. The
Company's policy is to write down inventory that has expired or become obsolete,
inventory that has a cost basis in excess of its expected net realizable value,
and inventory in excess of expected requirements. At each balance sheet date,
management evaluates inventories for excess quantities, and obsolescence. This
evaluation by management includes analysis of historical sales levels by
product, projections of future demand, the risk of technological or competitive
obsolescence for products, general market conditions, as well as the feasibility
of reworking or using excess or obsolete products or components in the
production or assembly of other products that are not obsolete or for which
there are not excess quantities in inventory. To the extent that management
determines there are excess or obsolete inventory, management adjusts the
carrying value to estimated net realizable value. When quantities on hand exceed
sales forecasts, a write-down is recorded for such excess inventories along with
a corresponding charge to cost of revenues. The estimate of excess quantities is
subjective and primarily dependent on the estimates of future demand for a
particular product. Specifically, the future demand is derived based on our
historical experience, from discussion with users of our products and general
market conditions. Changes in assumptions of product demand could have a
significant impact on the amount of write-down recorded. Inventory used in
clinical trials is expensed at the time of production and recorded as research
and development expense if the inventory is contractually being provided at no
cost to the clinical site. The cost of inventories are regularly reviewed
against estimated market value and record a lower of cost or market reserve for
inventories that have a cost in excess of estimated market value, which could
have a material impact on our gross margin and inventory balances based on
additional write-downs to net realizable value or a benefit from inventories
previously written down.



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