8-K: Avinger Converts $11 Million of Debt to Equity, Bolstering Balance Sheet

Avinger, Inc. has converted $11 million of its debt with CRG Partners III L.P. into a new series of convertible preferred stock, significantly improving its balance sheet.

Summary

• Avinger, Inc. entered into a Securities Purchase Agreement with CRG Partners III L.P. and related entities to convert $11 million of outstanding debt into equity.
• The debt was converted into 11,000 shares of a newly authorized Series H convertible preferred stock.
• Each share of Series H Preferred Stock has a stated value of $1,000 and is initially convertible into approximately 259 shares of common stock at a conversion price of $3.86 per share.
• The conversion is expected to close on or about May 16, 2024, subject to customary closing conditions.
• The Series H Preferred Stock carries an 8% per year cumulative dividend, compounded annually, payable in cash or additional shares of Series H Preferred Stock at the company's election.
• The company believes this transaction will result in stockholders equity of at least $2.5 million, as required by Nasdaq Listing Rule 5550(b)(1).
• Following the conversion, the outstanding principal amount of debt with CRG is $2.6 million.

Sentiment

Score: 7

Explanation: The document is generally positive due to the significant debt reduction and improved balance sheet. However, the potential dilution from the convertible preferred stock and the ongoing risks associated with the business temper the overall sentiment.

Positives

• The conversion of debt to equity significantly strengthens Avinger's balance sheet.
• The transaction reduces the company's debt burden by $11 million.
• The company believes it has met the Nasdaq minimum stockholders equity requirement of $2.5 million.
• The Series H Preferred Stock has a cumulative dividend, which is senior to other classes of stock.

Negatives

• The Series H Preferred Stock has a cumulative dividend of 8% per year, which could be a cash drain if paid in cash.
• The Series H Preferred Stock has a separate class vote on certain matters, which could give the holders significant influence.
• The conversion price of $3.86 per share is subject to adjustments, which could lead to dilution.

Risks

• The company's ability to pay dividends on the Series H Preferred Stock may be limited by available funds.
• The conversion of debt to equity may not be sufficient to ensure long-term financial stability.
• The company's stock price may be affected by the issuance of new shares upon conversion of the Series H Preferred Stock.
• The company is still subject to the risks described in its Annual Report on Form 10-K, including dependency on a limited number of products and the outcome of clinical trials.

Future Outlook

The company aims to expand its image-guided technology to new markets and advance its coronary artery disease platform. The debt conversion is expected to support Avinger's efforts to regain compliance with Nasdaq's stockholder equity standard for continued listing.

Management Comments

• Jeff Soinski, Avinger's President and CEO, stated, 'We appreciate CRG's continued support as we expand our proprietary image-guided technology to new markets and advance the development of our innovative coronary artery disease platform.'
• Jeff Soinski also noted that converting the majority of the outstanding debt to equity strengthens the balance sheet and supports efforts to regain compliance with Nasdaq's stockholder equity standard.

Industry Context

This announcement comes as Avinger is focused on developing and marketing its Lumivascular platform for the treatment of vascular disease. The debt conversion provides financial flexibility to support these efforts and address Nasdaq listing requirements. The company is also developing its first product application for the treatment of coronary artery disease, which is a large and underserved market.

Comparison to Industry Standards

• The conversion of debt to equity is a common strategy for companies facing financial challenges or seeking to improve their balance sheet.
• The terms of the Series H Preferred Stock, including the 8% cumulative dividend and conversion price, are typical for this type of financing.
• The company's focus on image-guided, catheter-based systems for vascular disease aligns with industry trends towards minimally invasive procedures.
• Avinger's development of a coronary artery disease platform is a significant opportunity, as this is a large and underserved market, similar to companies such as Cardiovascular Systems, Inc. (CSII) and Shockwave Medical, Inc. (SWAV) which are also focused on innovative solutions for vascular disease.

Stakeholder Impact

• Shareholders will benefit from the improved balance sheet and reduced financial risk.
• Employees may experience increased job security due to the company's improved financial position.
• Customers may benefit from the company's continued investment in its products and technology.
• Creditors will have a reduced exposure to the company's debt.

Next Steps

• The company will close the transaction on or about May 16, 2024, subject to customary closing conditions.
• The company will work to maintain its listing on the Nasdaq Capital Market.
• The company will continue to develop and market its Lumivascular platform and advance its coronary artery disease platform.

Key Dates

Keywords

debt conversion, preferred stock, Series H Preferred Stock, equity, balance sheet, Nasdaq compliance, CRG Partners, convertible preferred stock, stockholders equity, term loan agreement