Notes to Condensed Financial Statements
1. Organization
Organization, Nature of Business
Avinger, Inc. (the “Company”), a Delaware corporation, was incorporated in March 2007. The Company designs, manufactures and sells image-guided, catheter-based systems that are used by physicians to treat patients with peripheral artery disease (“PAD”). Patients with PAD have a build-up of plaque in the arteries that supply blood to areas away from the heart, particularly the pelvis and legs. The Company manufactures and sells a suite of products in the United States (“U.S.”) and in select international markets. The Company has developed its Lumivascular platform, which integrates optical coherence tomography ( “OCT”) visualization with interventional catheters and is the industry’s only system that provides real-time intravascular imaging during the treatment portion of PAD procedures. The Company’s Lumivascular platform consists of a capital component, our Lightbox console, as well as a variety of disposable catheter products. The Company’s current catheter products include its non-imaging catheters, Wildcat and Kittycat2, as well as its Lumivascular platform products, Ocelot, Ocelot PIXL, Ocelot MVRX and Tigereye, all of which are designed to allow physicians to penetrate a total blockage in an artery, known as a chronic total occlusion (“CTO”). The Company also has image-guided atherectomy solutions under its suite of Lumivascular products, Pantheris and Pantheris SV, which are designed to allow physicians to precisely remove arterial plaque in PAD patients. The Company is located in Redwood City, California.
Liquidity Matters
In the course of its activities, the Company has incurred losses and negative cash flows from operations since its inception. As of September 30, 2021, the Company had an accumulated deficit of $379.8 million. The Company expects to incur losses for the foreseeable future. The Company believes that its cash and cash equivalents of $23.1 million at September 30, 2021 and expected revenues and funds from operations will be sufficient to allow the Company to fund its current operations through 2022. The Company received net proceeds of approximately $3.9 million from the sale of its common stock in its January 2020 offering, $2.3 million of loan proceeds in April 2020 pursuant to the Paycheck Protection Program (“PPP”) under the Coronavirus Aid, Relief and Economic Security (“CARES”) Act, which was forgiven in April 2021, $3.0 million from the sale of its common stock in April and May 2020, $5.5 million from the sale of its common stock in June and July 2020, $11.3 million from the sale of its common stock in August and September 2020, and approximately $13.1 million from the sale of its common stock in February 2021. The Company does not have any immediate plans to raise additional funds through future equity or debt financings. However, the Company may decide to raise additional funds to meet its operational needs and capital requirements for product development, clinical trials and commercialization or other strategic objectives.
The Company can provide no assurance that it will be successful in raising funds pursuant to additional equity or debt financings or that such funds will be raised at prices that do not create substantial dilution for its existing stockholders. Given the volatility in the Company’s stock price, any financing that it may undertake in the next twelve months could cause substantial dilution to its existing stockholders, there can be no assurance that the Company will be successful in acquiring additional funding at levels sufficient to fund its various endeavors. In addition, the COVID-19 pandemic and responses thereto have resulted in reduced consumer and investor confidence, instability in the credit and financial markets, volatile corporate profits, restrictions on elective medical procedures, and reduced business and consumer spending, which could increase the cost of capital and/or limit the availability of capital to the Company. During the second quarter of 2020, the Company took certain actions to manage available cash and other resources to mitigate the effects of COVID-19 on its business, which included reduction of discretionary costs, reduction of base salaries for all of its non-manufacturing employees by 20% and reduction of hours worked by its manufacturing workers by 20%. Salaries and hours worked largely returned to prior levels by July 2020.
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 have a period of 180 calendar days, or until March 21, 2022, to regain compliance with the rule referred to in this paragraph. To regain compliance, the bid price of our common stock must close at $1 or more for a minimum of ten consecutive business days. The notice has no present impact on the listing of our securities on Nasdaq. If Nasdaq delists our common stock from trading on its exchange and we are not able to list our securities on another national securities exchange, we could face significant material adverse consequences including among other things, a decreased ability to issue additional securities or obtain additional financing in the future, a limited availability of market quotations for our securities, reduced liquidity for our securities.
If the Company is unable to raise additional capital in sufficient amounts or on terms acceptable to it, the Company may have to significantly reduce its operations or delay, scale back or discontinue the development of one or more of its products. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. The Company’s ultimate success will largely depend on its continued development of innovative medical technologies, its ability to successfully commercialize its products and its ability to raise significant additional funding.
Public Offerings
On January 31, 2020, the Company completed a public offering of 6,428,572 shares of common stock at an offering price of $0.70 per share. As a result, the Company received net proceeds of approximately $3.9 million after underwriting discounts, commissions, legal and accounting fees, and other ancillary expenses. Due to anti-dilution provisions, the conversion price of the outstanding shares of Series B preferred stock, which was issued in our February 2018 offering, was reduced to $0.70 per share.
On April 30, 2020, the Company completed a public offering of 12,600,000 shares of common stock at an offering price of $0.25 per share. On May 6, 2020 the Company issued an additional 1,890,000 shares of common stock at the same offering price pursuant to the exercise in full of the underwriter’s over-allotment option in connection with the aforementioned offering. As a result, the Company received aggregate net proceeds of approximately $3.0 million after underwriting discounts, commissions, legal and accounting fees, and other ancillary expenses. Due to anti-dilution provisions, the conversion price of the outstanding shares of Series B preferred stock, which was issued in our February 2018 offering, was reduced to $0.25 per share.
On June 26, 2020, the Company completed a public offering of 20,000,000 shares of common stock at an offering price of $0.27 per share. On July 9, 2020 the Company issued an additional 3,000,000 shares of common stock at the same offering price pursuant to the exercise in full of the underwriter’s over-allotment option in connection with the aforementioned offering resulting in $0.7 million of additional net proceeds. As a result, the Company received aggregate net proceeds of approximately $5.5 million including the overallotment option and after underwriting discounts, commissions, legal and accounting fees, and other ancillary expenses.
On August 6, 2020, under our universal shelf registration statement filed on March 7, 2019 (the “Shelf Registration Statement”), the Company completed a public offering of 15,789,474 shares of common stock at an offering price of $0.38 per share. On August 11, 2020 the Company issued an additional 2,368,421 shares of common stock at the same offering price pursuant to the exercise in full of the underwriter’s over-allotment option in connection with the aforementioned offering. As a result, the Company received aggregate net proceeds of approximately $6.2 million after underwriting discounts, commissions, legal and accounting fees, and other ancillary expenses.
On August 25, 2020, under the Shelf Registration Statement, the Company completed a public offering of 11,063,830 shares of common stock at an offering price of $0.47 per share. On September 1, 2020 the Company issued an additional 1,000,000 shares of common stock at the same offering price pursuant to the exercise in full of the underwriter’s over-allotment option in connection with the aforementioned offering. As a result, the Company received aggregate net proceeds of approximately $5.1 million after underwriting discounts, commissions, legal and accounting fees, and other ancillary expenses.
On February 2, 2021, under the Shelf Registration Statement, the Company completed a bought deal offering of 10,000,000 shares of common stock at an offering price of $1.44 per share. As a result, the Company received aggregate net proceeds of approximately $13.1 million after underwriting discounts, commissions, legal and accounting fees, and other ancillary expenses.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) and pursuant to the rules and regulations of the SEC (“SEC”). The accompanying unaudited condensed interim financial statements have been prepared on the same basis as the annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for a fair statement of the Company’s financial information. The results for the three and nine months ended September 30, 2021 are not necessarily indicative of results to be expected for the year ending December 31, 2021, or for any other interim period or for any future year. The December 31, 2020 condensed balance sheet data has been derived from audited financial statements. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to SEC rules and regulations relating to interim financial statements. These unaudited condensed financial statements and notes should be read in conjunction with the financial statements included in the Company’s Form 10-K for the fiscal year ended December 31, 2020, which was filed with the SEC on March 11, 2021. The Company’s significant accounting policies are more fully described in Note 2 of the Notes to Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts and disclosures reported in the financial statements. Management uses significant judgment when making estimates related to its stock-based compensation, accruals related to compensation, the valuation of the common stock warrants, provisions for doubtful accounts receivable and excess and obsolete inventories, clinical trial accruals, and its reserves for sales returns and warranty costs. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Although these estimates are based on the Company’s knowledge of current events and actions it may undertake in the future, actual results may ultimately materially differ from these estimates and assumptions.
Concentration of Credit Risk, and Other Risks and Uncertainties
Financial instruments that potentially subject the Company to credit risk consist of cash and cash equivalents and accounts receivable to the extent of the amounts recorded on the balance sheets.
The Company’s policy is to invest in cash and cash equivalents, consisting of money market funds. These financial instruments are held in Company accounts at one financial institution. The counterparties to the agreements relating to the Company’s investments consist of financial institutions of high credit standing.
The Company provides for uncollectible amounts when specific credit problems arise. Management’s estimates for uncollectible amounts have been adequate, and management believes that all significant credit risks have been identified at September 30, 2021 and December 31, 2020.
The Company’s accounts receivable are due from a variety of healthcare organizations in the United States and select international markets. At September 30, 2021 and December 31, 2020, there was one customer that represented 11% and 14% of the Company’s accounts receivable, respectively. For the three and nine months ended September 30, 2021 and 2020, there were no customers that represented 10% or more of revenues. Disruption of sales orders or a deterioration of financial condition of its customers would have a negative impact on the Company’s financial position and results of operations.
Disruption of our supply chain capabilities due to trade restrictions, political instability, severe weather, natural disasters, public health crises such as the ongoing COVID-19 pandemic, terrorism, product recalls, labor supply or stoppages, the financial or operational instability of key suppliers and carriers, government restrictions or measures, or other reasons could impair our ability to distribute our products. Many industries, including our own, face supply chain challenges as a result of COVID-19 and other macroeconomic issues, including reduced freight availability and increased costs, port disruption, manufacturing facility closures, labor shortages and other supply chain disruptions. To the extent we are unable to mitigate the likelihood or potential impact of such events, there could be a material adverse effect on our operating and financial results.
Product Warranty Costs
The Company typically offers a one-year warranty on its products commencing upon the transfer of title and risk of loss to the customer. The Company accrues for the estimated cost of product warranties upon invoicing its customers, based on historical results. Warranty costs are reflected in the statement of operations and comprehensive loss as a cost of revenues. The warranty obligation is affected by product failure rates, material usage and service delivery costs incurred in correcting a product failure. Should actual product failure rates, material usage or service delivery costs differ from these estimates, revisions to the estimated warranty liability would be required. Periodically the Company assesses the adequacy of its recorded warranty liabilities and adjusts the amounts, as necessary. Warranty provisions and claims are summarized as follows (in thousands):
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Beginning balance
|
|
$
|
231
|
|
|
$
|
221
|
|
|
$
|
193
|
|
|
$
|
215
|
|
Warranty provision
|
|
|
5
|
|
|
|
13
|
|
|
|
46
|
|
|
|
124
|
|
Usage/Release
|
|
|
(40
|
)
|
|
|
(35
|
)
|
|
|
(43
|
)
|
|
|
(140
|
)
|
Ending balance
|
|
$
|
196
|
|
|
$
|
199
|
|
|
$
|
196
|
|
|
$
|
199
|
|
Net Loss per Share Attributable to Common Stockholders
Basic net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period, without consideration for potential dilutive common shares. Diluted net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholder by the weighted average number of shares of common stock and dilutive potential shares of common stock outstanding during the period. Any common stock shares subject to repurchase are excluded from the calculations as the continued vesting of such shares is contingent upon the holders’ continued service to the Company. As of September 30, 2021 and 2020, there were no shares subject to repurchase. Since the Company was in a loss position for both periods presented, basic net loss per share attributable to common stockholders is the same as diluted net loss per share attributable to common stockholders as the inclusion of all potentially dilutive common shares would have been anti-dilutive.
Net loss per share attributable to common stockholders was determined as follows (in thousands, except per share data):
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Net loss applicable to common stockholders
|
|
$
|
(5,956
|
)
|
|
$
|
(5,492
|
)
|
|
$
|
(15,548
|
)
|
|
$
|
(17,277
|
)
|
Weighted average common stock outstanding, basic and diluted
|
|
|
95,382
|
|
|
|
69,459
|
|
|
|
94,071
|
|
|
|
37,246
|
|
Net loss per share attributable to common stockholders, basic and diluted
|
|
$
|
(0.06
|
)
|
|
$
|
(0.08
|
)
|
|
$
|
(0.17
|
)
|
|
$
|
(0.46
|
)
|
The following potentially dilutive securities outstanding have been excluded from the computations of diluted weighted average shares outstanding because such securities have an anti-dilutive impact due to losses reported:
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Common stock warrants equivalents
|
|
|
2,682,185
|
|
|
|
2,753,999
|
|
|
|
2,729,798
|
|
|
|
2,753,999
|
|
Common stock options
|
|
|
6,661
|
|
|
|
6,903
|
|
|
|
6,723
|
|
|
|
7,100
|
|
Convertible preferred stock
|
|
|
52,276
|
|
|
|
48,503
|
|
|
|
52,293
|
|
|
|
48,503
|
|
Unvested restricted stock units
|
|
|
379,226
|
|
|
|
749,512
|
|
|
|
407,461
|
|
|
|
820,743
|
|
|
|
|
3,120,348
|
|
|
|
3,558,917
|
|
|
|
3,196,275
|
|
|
|
3,630,345
|
|
Segment and Geographical Information
The Company operates and manages its business as one reportable and operating segment. The Company’s chief executive officer, who is the chief operating decision maker, reviews financial information on an aggregate basis for purposes of allocating resources and evaluating financial performance. Primarily all of the Company’s long-lived assets, which are comprised of property and equipment, are based in the United States. For each of the three months ended September 30, 2021 and 2020, 94% of the Company’s revenues were in the United States. For each of the nine months ended September 30, 2021 and 2020, 94% of the Company’s revenues were in the United States based on the shipping location of the external customer.
Recent Accounting Pronouncements
Recently adopted accounting standards
In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which among other things, eliminates certain exceptions in the current rules regarding the approach for intraperiod tax allocations and the methodology for calculating income taxes in an interim period, and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The standard was adopted by the Company on January 1, 2021. This new standard did not have a material impact on the Company’s financial statements.
Recent accounting standards not yet adopted
In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which among other things, simplifies the accounting models for the allocation of proceeds attributable to the issuance of a convertible debt instrument. As a result, after adopting the ASU’s guidance, entities will not separately present in equity an embedded conversion feature in such debt. Instead, they will account for a convertible debt instrument wholly as debt, and for convertible preferred stock wholly as preferred stock (i.e., as a single unit of account), unless (i) a convertible instrument contains features that require bifurcation as a derivative under ASC 815 or (ii) a convertible debt instrument was issued at a substantial premium. The standard becomes effective for the Company in the first quarter of 2022 and early adoption is permitted. This new standard is not expected to have a material impact on the Company’s financial statements.
3. Fair Value Measurements
The Company measures certain financial assets and liabilities at fair value on a recurring basis. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. A three-tier fair value hierarchy is established as a basis for considering such assumptions and for inputs used in the valuation methodologies in measuring fair value:
Level 1 — Quoted prices in active markets for identical assets or liabilities.
Level 2 — Inputs other than quoted prices included within Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
As of September 30, 2021 and December 31, 2020, cash equivalents were all categorized as Level 1 and consisted of money market funds. As of September 30, 2021 and December 31, 2020, there were no financial assets and liabilities categorized as Level 2 or Level 3. There were no transfers between fair value hierarchy levels during the three and nine months ended September 30, 2021.
4. Inventories
Inventories consisted of the following (in thousands):
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
Raw materials
|
|
$
|
2,188
|
|
|
$
|
1,904
|
|
Work-in-process
|
|
|
558
|
|
|
|
180
|
|
Finished products
|
|
|
1,773
|
|
|
|
1,792
|
|
Total inventories
|
|
$
|
4,519
|
|
|
$
|
3,876
|
|
5. Borrowings
CRG
On September 22, 2015, the Company entered into a Term Loan Agreement, as amended (the “Loan Agreement”) with CRG under which, subject to certain conditions, the Company had the right to borrow up to $50 million in principal amount from CRG on or before March 29, 2017. The Company borrowed $30 million on September 22, 2015. The Company borrowed an additional $10 million on June 15, 2016 under the Loan Agreement.
On February 14, 2018, the Company and CRG further amended the Loan Agreement concurrent with the conversion of $38 million of the principal amount of the senior secured term loan (plus $3.8 million in back-end fees and prepayment premium applicable thereto) into a newly authorized Series A convertible preferred stock (see below).
On March 2, 2020, the Company entered into Amendment No. 3 to the Loan Agreement to, among other things:
|
●
|
extend the period that the Company can make interest payments in payment in kind (“PIK”) to June 30, 2021;
|
|
●
|
lower the Minimum Revenue Covenants to $10 million for 2020, $12 million for 2021, and $15 million for 2022;
|
|
●
|
insert certain terms to clarify that all fees, including the prepayment premium, are due if the obligations are accelerated; and
|
|
●
|
insert a new provision to make clear that to the extent the Company divides its assets/liabilities into divisions, such assets/liabilities will be treated as transferred to a third party.
|
On May 12, 2020, the Company entered into Amendment No. 4 to the Loan Agreement to, among other things:
|
●
|
grant to the Company the right to optionally prepay in whole or in part the outstanding principal amount of the Loans for the Redemption Price, subject to certain conditions; and
|
|
●
|
waive the Company’s requirement to comply with the Minimum Revenue Covenant for 2020.
|
On January 22, 2021, the Company entered into Amendment No. 5 to the Loan Agreement to, among other things:
|
●
|
extend the maturity date of the Loan Agreement from June 30, 2023 to December 31, 2025;
|
|
●
|
extend the interest only payment period and the period that the Company can make interest payments in PIK to December 31, 2023;
|
|
●
|
lower the Minimum Revenue Covenants to $8 million and $10 million for 2021 and 2022, respectively and establish revenue covenants of $12 million for 2023; $14.5 million for 2024, and $17 million for 2025;
|
|
●
|
change the date under the on-going stand-alone representation regarding no Material Adverse Change to December 31, 2020; and
|
|
●
|
amend the on-going stand-alone representation and stand-alone event of default regarding “Material Adverse Change” such that any adverse change in or effect upon the revenue of the Company and its subsidiaries due to the outbreak of COVID-19 will not constitute a Material Adverse Change.
|
Under the amended Loan Agreement, no cash payments for either principal or interest are due until the first quarter of 2024. The accrued interest will be accrued and included in the debt balance based (to the extent not paid) on principal amounts outstanding at the beginning of the quarter at an interest rate of 12.5%. Beginning in the first quarter of 2024, the Company will be required to make quarterly principal payments (in addition to the interest) of $1.9 million with total principal payments of $7.5 million in 2024 and $7.5 million in 2025. The maturity date of the Loan is December 31, 2025.
The Company may voluntarily prepay the borrowings in full, with a prepayment premium beginning at 5.0% and declining by 1.0% annually thereafter, with no premium being payable if prepayment occurs after seven and half years of the loan. Each tranche of borrowing required the payment, on the borrowing date, of a financing fee equal to 1.5% of the borrowed loan principal, which is recorded as a discount to the debt. In addition, a facility fee equal to 15.0% of the amounts borrowed plus any payment-in-kind (“PIK”) is to be payable at the end of the term or when the borrowings are repaid in full. A long-term liability is being accreted using the effective interest method for the facility fee over the term of the Loan Agreement with a corresponding discount to the debt. The borrowings are collateralized by a security interest in substantially all of the Company’s assets.
The Loan Agreement requires that the Company adheres to certain affirmative and negative covenants, including financial reporting requirements, certain minimum financial covenants for pre-specified liquidity and revenue requirements and a prohibition against the incurrence of indebtedness, or creation of additional liens, other than as specifically permitted by the terms of the Loan Agreement. In particular, the covenants of the amended Loan Agreement included a covenant that the Company maintain a minimum of $3.5 million of cash and certain cash equivalents, and the Company has to achieve certain minimum revenues. If the Company fails to meet the applicable minimum revenue target in any calendar year, the Loan Agreement provides the Company with a cure right if it prepays a portion of the outstanding principal equal to 2.0 times the revenue shortfall. In addition, the Loan Agreement prohibits the payment of cash dividends on the Company’s capital stock and also places restrictions on mergers, sales of assets, investments, incurrence of liens, incurrence of indebtedness and transactions with affiliates. CRG may accelerate the payment terms of the Loan Agreement upon the occurrence of certain events of default set forth therein, which include the failure of the Company to make timely payments of amounts due under the Loan Agreement, the failure of the Company to adhere to the covenants set forth in the Loan Agreement, the insolvency of the Company or upon the occurrence of a material adverse change.
As of September 30, 2021, the Company was in compliance with all applicable covenants under the Loan Agreement.
As of September 30, 2021, principal, final facility fee and PIK payments under the Loan Agreement, which incorporates all aforementioned amendments, were as follows (in thousands):
Year Ending December 31,
|
|
|
|
|
2021 (remaining three months of the year)
|
|
$
|
—
|
|
2022
|
|
|
—
|
|
2023
|
|
|
—
|
|
2024
|
|
|
9,045
|
|
2025
|
|
|
10,339
|
|
|
|
|
19,384
|
|
Less: Amount of PIK additions and final facility fee to be incurred subsequent to September 30, 2021
|
|
|
(7,177
|
)
|
Less: Amount representing debt issuance costs
|
|
|
(354
|
)
|
Borrowings, long term portion, as of September 30, 2021
|
|
$
|
11,853
|
|
In connection with drawdowns under the Loan Agreement, the Company recorded aggregate debt discounts of $1.3 million as contra-debt. The debt discounts are being amortized as non-cash interest expense using the effective interest method over the term of the Loan Agreement. As of September 30, 2021 and December 31, 2020, the balance of the aggregate debt discount was approximately $354,000 and $418,000, respectively. The Company’s interest expense associated with the amortization of debt discount was approximately $21,000 and $42,000 during the three months ended September 30, 2021 and 2020, respectively. The Company’s interest expense associated with the amortization of debt discount was approximately $65,000 and $127,000 during the nine months ended September 30, 2021 and 2020, respectively. For the three months ended September 30, 2021 and 2020, the Company incurred interest expense of approximately $419,000 and $427,000, respectively. For each of the nine months ended September 30, 2021 and 2020, the Company incurred interest expense of approximately $1.2 million.
As of September 30, 2021, all of the CRG borrowings and associated aggregate debt discount were classified as non-current.
Paycheck Protection Program
On April 23, 2020, the Company received loan proceeds of $2.3 million (the “PPP Loan”) pursuant to the PPP under the CARES Act.
The Loan, which was in the form of a promissory note, dated April 20, 2020 (the “Promissory Note”), between the Company and Silicon Valley Bank (“SVB”) as the lender, was set to mature on April 20, 2022 and bore interest at a fixed rate of 1% per annum, payable monthly commencing six months from the date of the Loan. The Company may voluntarily prepay the borrowings in full with no associated penalty or premium.
As previously disclosed, the PPP was administered by the SBA. The SBA was given the authority under the PPP to forgive loans if all employees were kept on the payroll for a required period and the loan proceeds were used for payroll, rent and utilities. The Company applied for debt forgiveness in December 2020.
On April 17, 2021, the Company was notified by SVB that its PPP Loan had been fully forgiven by the U.S. Small Business Administration (the “SBA”) and that there was no remaining balance on the PPP Loan. The Company recorded the forgiveness as other income in April 2021 in the amount of $2.4 million, of which approximately $23,000 was accrued interest.
For the three months ended September 30, 2021, the Company incurred no interest expense. For the nine months ended September 30, 2021, the Company incurred interest expense of approximately $7,000 related to the PPP Loan. For the three and nine months ended September 30, 2020, the Company recognized interest expense of approximately $4,000 and $10,000, respectively, related to the PPP Loan.
6. Leases
The Company’s operating lease obligations primarily consist of leased office, laboratory, and manufacturing space under a non-cancelable operating lease. In addition to the minimum future lease commitments presented below, the lease requires the Company to pay property taxes, insurance, maintenance, and repair costs. The lease includes a rent holiday concession and escalation clauses for increased rent over the lease term. Rent expense is recognized using the straight-line method over the term of the lease. The Company records deferred rent calculated as the difference between rent expense and the cash rental payments.
The lease will expire on November 30, 2024. The Company is obligated to pay approximately $5.8 million in base rent payments through November 2024, beginning on December 1, 2019. The weighted average remaining lease term as of September 30, 2021 is 3.2 years.
The operating lease is included on the balance sheet at the present value of the future base payments discounted at a 6.5% discount rate using the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term and amount equal to the lease payments in a similar economic environment as the lease does provide an implicit rate.
For the three months ended September 30, 2021, our operating lease expense, excluding variable maintenance fees and other expenses paid by the Company on a monthly basis, was approximately $105,000. Rent expense for both the three months ended September 30, 2021 and 2020 was approximately $314,000. Rent expense for both the nine months ended September 30, 2021 and 2020 was approximately $942,000. Operating right-of-use asset amortization for the three months ended September 30, 2021 and 2020 was approximately $256,000 and $242,000, respectively. Operating right-of-use asset amortization for the nine months ended September 30, 2021 and 2020 was approximately $758,000 and $718,000, respectively. Due to payments being made in excess of operating lease expense recognized, the Company recorded approximately $189,000 as prepaid rent included in other assets on the condensed balance sheet as of September 30, 2021.
The following table presents the future operating lease payments and lease liability included on the condensed balance sheet related to the Company’s operating lease as of September 30, 2021 (in thousands):
Year Ending December 31,
|
|
|
|
|
2021 (remaining three months of the year)
|
|
$
|
283
|
|
2022
|
|
|
1,162
|
|
2023
|
|
|
1,203
|
|
2024
|
|
|
1,138
|
|
|
|
|
3,786
|
|
Less: Imputed interest
|
|
|
(378
|
)
|
Leasehold liability as of September 30, 2021
|
|
$
|
3,408
|
|
The following table shows ROU assets and lease liabilities, and the associated financial statement line items, as of September 30, 2021 and December 31, 2020 (in thousands):
Lease-Related Assets and Liabilities
|
|
Financial Statement Line
Items
|
|
September 30, 2021
|
|
|
December 31, 2020
|
|
Right of use assets:
|
|
|
|
|
|
|
|
|
|
|
Operating lease
|
|
Right of use asset
|
|
$
|
3,408
|
|
|
$
|
4,063
|
|
Total right of use assets
|
|
$
|
3,408
|
|
|
$
|
4,063
|
|
Lease liabilities:
|
|
|
|
|
|
|
|
|
|
|
Operating lease
|
|
Leasehold liability, current portion
|
|
$
|
959
|
|
|
$
|
806
|
|
|
|
Leasehold liability, long-term portion
|
|
|
2,449
|
|
|
|
3,257
|
|
Total lease liabilities
|
|
$
|
3,408
|
|
|
$
|
4,063
|
|
7. Commitments and Contingencies
Purchase Obligations
Purchase obligations consist of agreements to purchase goods and services entered into in the ordinary course of business. The Company had non-cancelable commitments to suppliers for purchases totaling approximately $1.6 million as of September 30, 2021.
Indemnification
In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and may provide for indemnification of the counterparty. The Company’s exposure under these agreements is unknown because it involves claims that may be made against it in the future, but have not yet been made. To date, the Company has not been subject to any claims or been required to defend any action related to its indemnification obligations.
The Company indemnifies each of its directors and officers for certain events or occurrences, subject to certain limits, while the director is or was serving at the Company’s request in such capacity, as permitted under Delaware law and in accordance with its certificate of incorporation and bylaws. The term of the indemnification period lasts as long as a director may be subject to any proceeding arising out of acts or omissions of such director in such capacity. The maximum amount of potential future indemnification is unlimited; however, the Company currently holds director liability insurance. This insurance allows the transfer of risk associated with the Company’s exposure and may enable it to recover a portion of any future amounts paid. The Company believes that the fair value of these indemnification obligations is minimal. Accordingly, it has not recognized any liabilities relating to these obligations for any period presented.
Legal Proceedings
The Company is not currently involved in any pending legal proceedings that it believes could have a material adverse effect on our financial condition, results of operations or cash flows. From time to time, the Company may be involved in legal proceedings or investigations, which could harm our reputation, business and financial condition and divert the attention of our management from the operation of our business.
8. Stockholders’ Equity
Convertible Preferred Stock
As of September 30, 2021, the Company’s certificate of incorporation, as amended and restated, authorizes the Company to issue up to 5,000,000 shares of convertible preferred stock with $0.001 par value per share, of which 52,276 shares were issued and outstanding.
Series A Convertible Preferred Stock
Under the terms of the Series A Purchase Agreement, the holders of Series A preferred stock are entitled to receive annual accruing dividends at a rate of 8%, payable in additional shares of Series A preferred stock or cash, at the Company’s option. The shares of Series A preferred stock have no voting rights and rank senior to all other classes and series of the Company’s equity in terms of repayment and certain other rights. In January 2019, December 2019 and December 2020, 2,945, 3,580 and 3,866 additional shares, respectively, were issued to CRG as payment of dividends accrued through December 31, 2020. As of September 30, 2021, 52,191 shares of Series A preferred stock were outstanding. The Series A preferred stock accrued additional dividends of approximately $1.0 million and $967,000 during the quarters ended September 30, 2021 and 2020, respectively and approximately $3.1 million and $2.9 million during the nine months ended September 30, 2021 and 2020, respectively.
Series B Convertible Preferred Stock
The Series B preferred stock has a liquidation preference of $0.001 per share, full ratchet price based anti-dilution protection, has no voting rights and is subject to certain ownership limitations. The Series B preferred stock is immediately convertible at the option of the holder, has no stated maturity, and does not pay regularly stated dividends or interest. During the quarter ended March 31, 2021, 93 of these shares converted into 372,000 shares of common stock. As of September 30, 2021 and December 31, 2020, 85 shares and 178 shares of Series B preferred stock remained outstanding, respectively, which are currently convertible at $0.25 per share.
Common Stock
As of September 30, 2021, the Company’s certificate of incorporation, as amended and restated, authorizes the Company to issue up to 100,000,000 shares of common stock with $0.001 par value per share, of which 95,562,955 shares were issued and outstanding.
Common Stock Warrants
As of September 30, 2021, the Company had outstanding warrants to purchase common stock as follows:
|
|
Total
Outstanding
and
Exercisable
|
|
|
Underlying
Shares of
Common
Stock
|
|
|
Exercise
Price per
Share
|
|
Expiration Date
|
Series 1 Warrants issued in February 2018 Series B financing
|
|
|
8,979,000
|
|
|
|
897,900
|
|
|
$
|
20.00
|
|
February 2025
|
Series 2 Warrants issued in February 2018 Series B financing
|
|
|
8,709,500
|
|
|
|
870,950
|
|
|
$
|
20.00
|
|
February 2025
|
Warrants issued in November 2018 financing
|
|
|
8,768,395
|
|
|
|
876,840
|
|
|
$
|
4.00
|
|
November 2023
|
Total
|
|
|
26,456,895
|
|
|
|
2,645,690
|
|
|
|
|
|
|
As of September 30, 2021 and December 31, 2020, warrants to purchase an aggregate of 2,645,690 and 2,753,999 shares of common stock were outstanding, respectively. The 1,083,091 Series B financing warrants to purchase 108,309 shares of common stock expired in July 2021.
Stock Plans
In January 2015, the Board of Directors adopted and the Company’s stockholders approved the 2015 Equity Incentive Plan (“2015 Plan”). As of September 30, 2021, 167,429 shares were available for grant under the 2015 Plan.
Stock option activity under the Plans is set forth below:
|
|
Number of
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Life
(in years)
|
|
|
Intrinsic
Value
(in
thousands)
|
|
Balance at December 31, 2020
|
|
|
6,821
|
|
|
$
|
1,241.59
|
|
|
|
5.81
|
|
|
$
|
—
|
|
Expired
|
|
|
(165
|
)
|
|
|
2,801.92
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2021
|
|
|
6,656
|
|
|
$
|
1,202.91
|
|
|
|
5.16
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at September 30, 2021
|
|
|
6,656
|
|
|
$
|
1,202.91
|
|
|
|
5.16
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at September 30, 2021
|
|
|
6,656
|
|
|
$
|
1,202.91
|
|
|
|
5.16
|
|
|
$
|
—
|
|
There were no options granted or exercised during the nine months ended September 30, 2021 or 2020. For the three months ended September 30, 2021 and 2020, stock-based compensation expense recognized associated with stock options vesting was approximately $0 and $9,000, respectively. For the nine months ended September 30, 2021 and 2020, stock-based compensation expense recognized associated with stock options vesting was approximately $4,000 and $51,000, respectively. As of September 30, 2021, there is no remaining unamortized stock-based compensation expense associated with unvested stock options. Because of the Company’s net operating losses, the Company did not realize any tax benefits from share-based payment arrangements for the three and nine months ended September 30, 2021 and 2020.
The Company measures the fair value of RSUs using the closing stock price of a share of the Company’s common stock on the grant date and is recognized as expense on a straight-line basis over the vesting period of the award. A summary of all RSU activity is presented below:
|
|
Number of
Shares
|
|
|
Weighted
Average
Grant Date
Fair Value
|
|
|
Weighted
Average
Remaining
Contractual
Term
|
|
Awards outstanding at December 31, 2020
|
|
|
412,642
|
|
|
$
|
3.84
|
|
|
|
0.98
|
|
Awarded
|
|
|
90,000
|
|
|
$
|
1.61
|
|
|
|
|
|
Released
|
|
|
(265,826
|
)
|
|
$
|
5.22
|
|
|
|
|
|
Forfeited
|
|
|
(32,364
|
)
|
|
$
|
2.68
|
|
|
|
|
|
Awards outstanding at September 30, 2021
|
|
|
204,452
|
|
|
$
|
1.25
|
|
|
|
0.97
|
|
As of September 30, 2021, there was approximately $0.2 million of remaining unamortized stock-based compensation expense associated with RSUs, which will be expensed over a weighted average remaining service period of approximately one year. The 204,452 outstanding non-vested and expected to vest RSUs have an aggregate fair value of approximately $0.2 million. The Company used the closing market price of $0.74 per share at September 30, 2021, to determine the aggregate fair value for the RSUs outstanding at that date. For the nine months ended September 30, 2021 and 2020, the fair value of RSUs vested was approximately $0.3 million and $0.1 million, respectively. Stock-based compensation expense recognized associated with RSUs vested for the three months ended September 30, 2021 and 2020, was $0.2 million and $0.4 million, respectively. Stock-based compensation expense recognized associated with RSUs vested for the nine months ended September 30, 2021 and 2020 was $1.0 million and $1.1 million, respectively.
2018 Officer and Director Share Purchase Plan
There was no common stock issued under the Company’s Officer and Director Share Purchase Plan (“ODPP”) during the nine months ended September 30, 2021. As of September 30, 2021, there were 92,170 shares reserved for issuance under the ODPP.
9. Stock-Based Compensation
Total noncash stock-based compensation expense relating to the Company’s stock options and RSUs recognized during the three and nine months ended September 30, 2021 and 2020, is as follows (in thousands):
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Cost of revenues
|
|
$
|
24
|
|
|
$
|
36
|
|
|
$
|
93
|
|
|
$
|
97
|
|
Research and development expenses
|
|
|
78
|
|
|
|
116
|
|
|
|
274
|
|
|
|
354
|
|
Selling, general and administrative expenses
|
|
|
137
|
|
|
|
232
|
|
|
|
593
|
|
|
|
709
|
|
|
|
$
|
239
|
|
|
$
|
384
|
|
|
$
|
960
|
|
|
$
|
1,160
|
|
17