You should read the following discussion and analysis of our financial condition
and results of operations together with the unaudited financial statements and
related notes included elsewhere in this Quarterly Report on Form 10-Q. This
discussion and other parts of this Quarterly Report on Form 10-Q contain
forward-looking statements that involve risks and uncertainties, such as
statements of our plans, objectives, expectations and intentions, that are based
on the beliefs of our management, as well as assumptions made by, and
information currently available to, our management. Our actual results could
differ materially from those discussed in these forward-looking statements.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed in the sections of this Quarterly Report on
Form 10-Q and our Annual Report on Form 10-K filed with the SEC on March 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 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
real-time imaging console, the Ocelot 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 family of catheters
which is 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 in September 2011 and
received from the U.S. Food and Drug Administration, or FDA, 510(k) clearance in
November 2012. We received 510(k) clearance from the FDA for commercialization
of Pantheris in October 2015. We received an additional 510(k) clearance for an
enhanced version of Pantheris in March 2016 and commenced sales of Pantheris in
the United States and select European countries promptly thereafter.



In May 2018, we received 510(k) clearance from the FDA for our current
next-generation version of Pantheris. In April 2019, we received 510(k)
clearance from the FDA for our Pantheris SV, a version of Pantheris targeting
smaller vessels, and commenced sales in July 2019. In September 2020, we
received 510(k) clearance of Tigereye, a next-generation CTO crossing system
utilizing Avinger's proprietary image-guided technology platform. Tigereye is a
product line extension of Avinger's Ocelot family of image-guided CTO crossing
catheters. In January 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.



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



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



                                       16
--------------------------------------------------------------------------------




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



During the fourth quarter of 2017, we began enrolling patients in INSIGHT, a
clinical trial designed to support a submission to the FDA to expand the
indication for our Pantheris atherectomy device to include in-stent restenosis.
Patient enrollment began in October 2017 and was completed in July 2021. Patient
outcomes are being evaluated at thirty days, six months and one year following
treatment. In November 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 focus our direct sales force, marketing efforts and promotional activities on
interventional cardiologists, vascular surgeons and interventional radiologists.
We also work on developing strong relationships with physicians and hospitals
that we have identified as key opinion leaders. Although our sales and marketing
efforts are directed at these physicians because they are the primary users of
our technology, we consider the hospitals and medical centers where the
procedure is performed to be our customers, as they typically are responsible
for purchasing our products. We are designing additional future products to be
compatible with our Lumivascular platform, which we expect to enhance the value
proposition for hospitals to invest in our technology. Pantheris qualifies for
existing reimbursement codes currently utilized by other atherectomy products,
further facilitating adoption of our products.



We have assembled a team with extensive medical device development and
commercialization experience in both start-up and large, multi-national medical
device companies. We assemble all of our products at our manufacturing facility
but certain critical processes, such as coating and sterilization, are performed
by outside vendors. We expect our current manufacturing facility in California,
will be sufficient through at least 2022. 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 2021 and 2022 continue to fluctuate due to
COVID-19.



Recent Developments



COVID-19 Update



As a result of the effects of the COVID-19 pandemic, 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 or are in the process of lifting
restrictions on performing elective procedures, we cannot be certain that other
jurisdictions in the United States will do so in the near future, or 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 has
prompted certain hospitals and other medical providers in such areas to again
defer elective procedures or further prolong or reinstate existing restrictions
on such procedures. If other jurisdictions experience a resurgence in COVID-19
cases, these jurisdictions may also prolong restrictions on elective procedures.
This situation has created a significant amount of volatility in the medical
industry which makes future developments and results difficult to predict. We
believe COVID-19 has 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 three months ended March 31, 2022.
Consequently, it is unclear whether any reduction in sales from levels
experienced prior to 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 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.



                                       17
--------------------------------------------------------------------------------


Nasdaq Delisting Notice



On September 22, 2021, we received a letter from Nasdaq's Listing Qualifications
Department notifying us that we were not in compliance with Nasdaq Listing Rule
5550(a)(2), as the minimum bid price for our listed securities was less than $1
for the previous 30 consecutive business days. We had a period of 180 calendar
days, or until March 21, 2022, to regain compliance with the rule referred to in
this paragraph. We did not regain compliance with the minimum bid price
requirement by March 21, 2022. In accordance with Nasdaq Listing Rule
5810(c)(3)(A), we provided written notice to Nasdaq of our intent to cure the
deficiency and, on March 22, 2022, we received notice that Nasdaq granted us an
additional 180 calendar days, or until September 19, 2022, to regain compliance.



On March 29, 2022, we received a letter from Nasdaq notifying us that the Staff
had determined that the closing bid price of our common stock had been at $1.00
per share or greater for at least 10 consecutive business days and, accordingly,
that we had regained compliance with the minimum bid price requirement for
continued listing on the Nasdaq Stock Market and that the matter is now closed.
While we have regained compliance with the minimum bid price requirement, there
can be no assurance that we will be able to maintain compliance with the minimum
bid price requirement or Nasdaq's other continued listing requirements in the
future.



Global Supply Chain



We are closely monitoring the impacts of COVID-19 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.



Financing



During the three months ended March 31, 2022, our net loss and comprehensive net
loss was $5.1 million; during the years ended December 31, 2021 and 2020, it was
$17.4 million and $19.0 million, respectively. We have not been profitable since
inception, and as of March 31, 2022, our accumulated deficit was $389.9 million.
Since inception, we have financed our operations primarily through private and
public placements of our preferred and common securities and, to a lesser
extent, debt financing arrangements.



In September 2015, we entered into a Term Loan Agreement, or Loan Agreement,
with CRG Partners III L.P. and certain of its affiliated funds, collectively
CRG, under which we were able to borrow up to $50.0 million on or before March
29, 2017, subject to certain terms and conditions. We borrowed $30.0 million on
September 22, 2015 and an additional $10.0 million on June 15, 2016 under the
Loan Agreement. Contemporaneously with the execution of the Loan Agreement, we
entered into a Securities Purchase Agreement with CRG, pursuant to which CRG
purchased 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.



                                       18
--------------------------------------------------------------------------------




We have entered into several amendments to the Term Loan Agreement (the
"Amendments") with CRG since September 2015, the most recent of which, was
entered into on January 22, 2021. The Amendments, among other things: (1)
extended the interest-only period through December 31, 2023; (2) extended the
period during which 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 has occurred and is continuing; (3) permitted us to make our entire
interest payments in PIK interest payments for through December 31, 2023 so long
as no default has occurred and is continuing; (4) extended the maturity date to
December 31, 2025; (5) reduced the minimum liquidity requirement to $3.5 million
at all times; (6) eliminated the minimum revenue covenant for 2018, 2019 and
2020; (7) reduced the minimum revenue covenant to $8 million for 2021, $10
million for 2022; (8) added minimum revenue covenants for of $12 million for
2023, $14.5 million for 2024 and $17 million for 2025; (9) changed the date
under the on-going stand-alone representation regarding no "Material Adverse
Change" to December 31, 2020; (10) amended the on-going stand-alone
representation and stand-alone event of default regarding Material Adverse
Change such that any adverse change in or effect upon the revenue of 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.



Significant Accounting Policies and Estimates



Management's discussion and analysis of our financial condition and results of
operations is based on our financial statements, which have been prepared in
accordance with U.S. generally accepted accounting principles. The preparation
of these financial statements requires us to make estimates and assumptions for
the reported amounts of assets, liabilities, revenues, expenses and related
disclosures of contingent assets and liabilities. Our estimates are based on our
historical experience and on various other factors that we believe are
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying value of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions and any such differences may
be material. There have been no significant and material changes in our critical
accounting policies during the three months ended March 31, 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 the SEC on March 22, 2022.



Components of our operating results


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. For the three months ended March 31, 2022, there
was one customer that represented 14% of revenues. For the three months ended
March 31, 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 has 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.



Revenue Cost 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.



                                       19
--------------------------------------------------------------------------------




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 costs



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.



Interest Expense, net



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



Other Income, net



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



Results of Operations:



                                         Three Months Ended March 31,
                                           2022                 2021

Revenues                              $        1,888       $        2,559
Cost of revenues                               1,364                1,665
Gross profit                                     524                  894
Gross margin                                      28 %                 35 %
Operating expenses:
Research and development                       1,072                1,598
Selling, general and administrative            4,148                3,945
Total operating expenses                       5,220                5,543
Loss from operations                          (4,696 )             (4,649 )
Interest expense, net                           (439 )               (396 )
Other expense, net                                (5 )                 (7 )

Net loss and comprehensive loss ($5,140) ($5,052)

                                       20
--------------------------------------------------------------------------------

Comparison of the three months ended March 31, 2022 and 2021


Revenues.



For the three months ended March 31, 2022, revenue decreased by $0.7 million or
26% compared to the three months ended March 31, 2021. The decrease in revenues
reflect the fluctuating demand primarily resulting from uncertainties due to
COVID-19 as capacity limitations in hospitals have limited the ability of
practitioners to perform elective surgical procedures using our products in
certain jurisdictions. We anticipate that COVID-19 could continue to impact
hospital capacities, and related demand for our products, for the foreseeable
future.


Revenue cost and gross margin.



For the three months ended March 31, 2022, cost of revenues decreased by $0.3
million or 18% compared to the three months ended March 31, 2021. This decrease
was primarily attributable to the decrease in revenues. Stock-based compensation
expense within cost of revenues totaled $7,000 and $34,000 for the three months
ended March 31, 2022 and 2021, respectively.



Gross margin for the three months ended March 31, 2022 decreased to 28%,
compared to 35% in the three months ended March 31, 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 (“R&D”) Expenses.



R&D expense for the three months ended March 31, 2022 decreased $0.5 million or
33% compared to the three months ended March 31, 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 $13,000 and
$0.1 million for the three months ended March 31, 2022 and 2021, respectively.



Selling, general and administrative (“SG&A”) expenses.



SG&A expense for the three months ended March 31, 2022 increased by $0.2 million
or 5%, compared to the three months ended March 31, 2021 primarily due to an
increase in third-party professional services and other ancillary expenses.
Stock-based compensation expense within SG&A totaled approximately $33,000 and
$0.3 million for the three months ended March 31, 2022 and 2021, respectively.



Interest Expense, Net.



Interest expense, net for the three months ended March 31, 2022 increased by 11%
or $42,000, compared to the three months ended March 31, 2021, primarily due to
the higher CRG loan balance from interest being compounded. Interest income
remains low due to the decline in the money market interest rates.



Other Expense, Net.



Other expense, net primarily consists of gains and losses resulting from the
remeasurement of foreign exchange transactions and other miscellaneous income
and expenses. Other expense, net for the three months ended March 31, 2022
remained flat in comparison to the three months ended March 31, 2021 as both
periods consisted primarily of remeasurement gains and losses from foreign
exchange transactions which are typically a small percentage of transaction
volume, thus resulting in nominal changes between periods.



Cash and capital resources



As of March 31, 2022, we had cash and cash equivalents of $20.0 million and an
accumulated deficit of $389.9 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 $20.0 million at March 31, 2022 and expected
revenues, debt and financing activities and funds from operations will be
sufficient to allow us to fund our current operations into the second quarter of
2023.



                                       21
--------------------------------------------------------------------------------




To date, we have financed our operations primarily through net proceeds from the
issuance of our preferred stock and debt financings, our "at-the-market"
program, our initial public offering, or IPO, our follow-on public offerings and
warrant issuances. 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 on our business, there can be no assurance that
such strategies will be successful in mitigating the negative impacts of the
COVID-19 pandemic on our liquidity and capital resources.



Equity Financings



On February 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



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. 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.



In connection with the January 2022 Offering and in accordance with the
securities purchase agreement, we held a special meeting of stockholders on
March 11, 2022 to consider a proposal (the "Proposal") to amend to our Amended
and Restated Certificate of Incorporation, as amended (the "Charter") to effect
a reverse split of the outstanding shares of our common stock at a ratio between
1-for-5 and 1-for-20 (the "Reverse Split Amendment"). Our stockholders approved
the Reverse Split Amendment at the special meeting. On March 11, 2022, following
receipt of stockholder approval, our Board of Directors approved a reverse split
ratio of 1-for-20 and we filed an amendment to our Charter to effect such
reverse stock split, effective as of 5:00 pm Eastern Time on March 14, 2022.



Pursuant to the purchase agreement, we filed a certificate of designation (the
"Certificate of Designation") with the Secretary of State of Delaware
designating the rights, preferences and limitations of the shares of Series D
preferred stock, which became effective on January 14, 2022. The Certificate of
Designation provided, in particular, that the Series D preferred stock will have
no voting rights, other than the right to vote as a class on certain matters,
except that each share of Series D preferred stock had the right to cast 37,500
votes per share of Series D preferred stock on the Proposal (the "Supermajority
Voting Rights"); provided, that the votes cast by the holders of the Series D
preferred stock must be counted in the same proportion as the aggregate shares
of common stock voted on the Proposal. Because the Proposal was approved by our
stockholders at the special meeting held on March 11, 2022, the Series D
preferred stock no longer has Supermajority Voting Rights.



The holders of the Series D preferred stock are entitled to dividends, on an
as-if converted basis, equal to dividends actually paid, if any, on shares of
Common Stock. The Series D preferred stock is convertible into shares of common
stock at a conversion price of $8.00 per share, as adjusted for the most recent
reverse stock split. The conversion price can be adjusted pursuant to the
Certificate of Designation for stock dividends and stock splits, subsequent
rights offerings, pro rata distributions of dividends or the occurrence of a
fundamental transaction (as defined in the Certificate of Designation). The
Series D preferred stock can be converted at the option of the holders at any
time. In addition, subject to the satisfaction of certain conditions, we may
cause the holders of the Series D preferred stock to convert their shares of
Series D preferred stock; provided, that shares of Series D preferred stock
cannot be converted to common stock if the applicable holder would beneficially
own in excess of 4.99% (or, upon election by such holder prior to the issuance
of any shares of Series D preferred stock, 9.99%) of our outstanding common
stock. A holder of Series D preferred stock may, upon notice to us, increase or
decrease such beneficial ownership limitation, but not in excess of 9.99%. In
March 2022, after the effectiveness of the Reverse Split Amendment, 5,200 shares
of Series D preferred stock were converted into an aggregate of 650,000 shares
of common stock.



                                       22
--------------------------------------------------------------------------------




The Common Warrants have an exercise price of $9.60 per share and become
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.



PPP Loan



On April 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, 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. The Company
applied for debt forgiveness in December 2020. On April 17, 2021, the Company
was 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. The Company 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 March 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)                           $     1,173     $    2,041     $         -     $          -     $    3,214
CRG Loan (2)                            -         11,153           8,230                -         19,383
Noncancelable purchase
commitments (3)                     1,158             30              26                -          1,214
                              $     2,331     $   13,224     $     8,256     $          -     $   23,811



(1) Obligations under operating leases consist mainly of offices, laboratories,

and manufacturing space under a non-cancellable operating lease. besides

to the minimum future commitments presented above, the lease provides

the Company to pay property taxes, insurance, maintenance and repair costs.

The lease will expire on November 30, 2024.

(2) The total amount of the CRG Loan, presented under borrowings on the balance sheet

March 31, 2022is $12.7 million. The contractual obligation in the table

above $19.4 million under the CRG loan includes future interest payable

accrued but not paid in cash as well as a $2.2 million return costs to be

paid in December 2025 at maturity of the CRG loan which is being capitalised.

For more information, see Part I, Item 1 “Unaudited Financial Statements,

Footnote 5. Loans.”

(3) Non-cancellable purchase commitments consist of contracts for the purchase of goods

      and services entered into in the ordinary course of business.




                                       23
--------------------------------------------------------------------------------


Cash Flows



                                             Three Months Ended March 31,
                                               2022                 2021
                                                    (in thousands)
Net cash (used in) provided by:
Operating activities                      $       (6,181 )     $       (4,803 )
Investing activities                                 (31 )                (11 )
Financing activities                               6,721               13,077

Net change in cash and cash equivalents $509 $8,263

Net cash used in operating activities



Net cash used in operating activities for the three months ended March 31, 2022
was $6.2 million, consisting primarily of a net loss of $5.1 million and an
increase in net operating assets of $1.6 million, partially offset by non-cash
charges of $0.5 million. Non-cash charges largely related to non-cash interest
expense of $0.4 million. The increase in net operating assets was primarily due
to the increase in prepaid expenses and other current assets due to annual
renewals of certain expenses, including insurance coming due; and purchases of
inventory components. These increases were partially offset by the increase in
accrued compensation and other long-term liabilities due to timing of payments.



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


Net cash used in investment activities

Net cash used in investing activities during the three months ended March 31, 2022 and 2021 corresponded to purchases of property, plant and equipment.

Net cash provided by financing activities



Net cash provided by financing activities in the three months ended March 31,
2022 of $6.7 million relates to proceeds from the issuance of preferred stock
and warrants in the January 2022 Offering, net of commissions and various
issuance costs.



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



                                       24

————————————————– ——————————

© Edgar Online, source Previews

About The Author

Related Posts