UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
Or
For the transition period from to
Commission file number:
(Exact name of registrant as specified in its charter)
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(Address of principal executive offices) |
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Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
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Name of Exchange on Which Registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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Accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
The number of shares of common stock, $0.01 par value, issued and outstanding as of November 8, 2024 was
TABLE OF CONTENTS
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Item 1. |
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5 |
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Unaudited Condensed Consolidated Balance Sheets as of September 28, 2024 and December 30, 2023 |
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Unaudited Condensed Consolidated Statements of Operations for the three and nine months ended September 28, 2024 and September 30, 2023 |
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Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 28, 2024 and September 30, 2023 |
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Notes to Unaudited Condensed Consolidated Financial Statements |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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48 |
2
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential,” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans, or intentions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:
3
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations, and prospects. You should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q and have filed with the Securities and Exchange Commission (“SEC”) as exhibits to this Quarterly Report on Form 10-Q with the understanding that our actual future results, levels of activity, performance and events and circumstances may be materially different from what we expect. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and other factors described in and should be read in conjunction with the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. We cannot assure you that the results, events, and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements.
The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which such statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to conform such statements to actual results or revised expectations, except as required by law. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments we may make.
As used in this Quarterly Report on Form 10-Q, the terms “Company,” “IRIDEX,” “we,” “us” and “our” refer to IRIDEX Corporation, and its consolidated subsidiaries.
4
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited)
IRIDEX Corporation
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands except share and per share data)
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September 28, 2024 |
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December 30, 2023 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable, net |
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Receivable from related party |
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Inventories |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Intangible assets, net |
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Goodwill |
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Operating lease right-of-use assets, net |
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Other long-term assets |
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Total assets |
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$ |
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$ |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Payable to related party |
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Accrued compensation |
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Accrued expenses |
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Convertible note payable, current |
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Other current liabilities |
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Deferred revenue, current |
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Operating lease liabilities, current |
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Total current liabilities |
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Long-term liabilities: |
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Deferred revenue |
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Operating lease liabilities |
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Convertible note payable |
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Other long-term liabilities |
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Total liabilities |
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Stockholders’ equity: |
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Preferred stock, $ |
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Common stock, $ |
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Authorized: |
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Issued and outstanding |
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Additional paid-in capital |
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Accumulated other comprehensive income (loss) |
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Accumulated deficit |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
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$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
5
IRIDEX Corporation
Condensed Consolidated Statements of Operations
(Unaudited, in thousands except per share data)
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Three Months Ended |
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Nine Months Ended |
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September 28, 2024 |
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September 30, 2023 |
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September 28, 2024 |
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September 30, 2023 |
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Total revenues |
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$ |
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$ |
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$ |
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$ |
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Cost of revenues |
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Gross profit |
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Operating expenses: |
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Research and development |
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Sales and marketing |
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General and administrative |
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Total operating expenses |
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Loss from operations |
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Other income (expense), net |
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( |
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( |
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( |
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Loss from operations before provision for income taxes |
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( |
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( |
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( |
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Provision for income taxes |
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Net loss |
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$ |
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$ |
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$ |
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$ |
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Net loss per share: |
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Basic |
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$ |
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$ |
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$ |
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$ |
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Diluted |
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$ |
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$ |
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$ |
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$ |
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Weighted average shares used in computing net loss per common share: |
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Basic |
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Diluted |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
6
IRIDEX Corporation
Condensed Consolidated Statements of Comprehensive Loss
(Unaudited, in thousands)
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Three Months Ended |
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Nine Months Ended |
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September 28, 2024 |
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September 30, 2023 |
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September 28, 2024 |
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September 30, 2023 |
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Net loss |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
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Change in foreign currency translation adjustments |
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Comprehensive loss |
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$ |
( |
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$ |
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$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
7
IRIDEX Corporation
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited, in thousands, except share data)
For the three months ended September 28, 2024 |
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Common Stock |
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Additional |
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Accumulated |
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Accumulated |
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Total Stockholders |
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Shares |
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Amount |
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Capital |
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Loss |
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Deficit |
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Equity |
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Balances, June 29, 2024 |
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$ |
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$ |
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$ |
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$ |
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$ |
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Issuance of common stock under the stock option plan |
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— |
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— |
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— |
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Issuance of incentive shares under convertible note |
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— |
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— |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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Release of restricted stock, net of taxes paid |
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( |
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— |
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— |
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( |
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Net loss |
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— |
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— |
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— |
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— |
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( |
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( |
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Balances, September 28, 2024 |
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$ |
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$ |
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$ |
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$ |
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$ |
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For the nine months ended September 28, 2024 |
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Common Stock |
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Additional |
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Accumulated |
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Accumulated |
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Total Stockholders |
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Shares |
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Amount |
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Capital |
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Loss |
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Deficit |
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Equity |
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Balances, December 30, 2023 |
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$ |
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$ |
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$ |
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$ |
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$ |
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Issuance of common stock under the stock option plan |
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— |
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— |
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— |
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Issuance of incentive shares under convertible note |
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— |
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— |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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Release of restricted stock, net of taxes paid |
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( |
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— |
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— |
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( |
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Other comprehensive income |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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Balances, September 28, 2024 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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For the three months ended September 30, 2023 |
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Common Stock |
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Additional |
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Accumulated |
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Accumulated |
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Total Stockholders |
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Shares |
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Amount |
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Capital |
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Loss |
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Deficit |
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Equity |
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Balances, July 1, 2023 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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Release of restricted stock, net of taxes paid |
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( |
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— |
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— |
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( |
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Other comprehensive income |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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Balances, September 30, 2023 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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For the nine months ended September 30, 2023 |
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Common Stock |
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Additional |
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Accumulated |
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Accumulated |
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Total Stockholders |
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Shares |
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Amount |
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Capital |
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Loss |
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Deficit |
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Equity |
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Balances, December 31, 2022 |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
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Adoption of ASU 2016-13 |
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— |
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— |
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— |
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— |
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Issuance of common stock under the stock option plan |
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— |
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— |
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— |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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Release of restricted stock, net of taxes paid |
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( |
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— |
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— |
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( |
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Other comprehensive income |
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— |
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— |
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— |
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|
— |
|
|
|
|
||
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Balances, September 30, 2023 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
8
IRIDEX Corporation
Condensed Consolidated Statements of Cash Flows
(Unaudited, in thousands)
|
|
Nine Months Ended |
|
|||||
|
|
September 28, 2024 |
|
|
September 30, 2023 |
|
||
Operating activities: |
|
|
|
|
|
|
||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
|
|
|
|
||
Amortization of operating lease right-of-use assets |
|
|
|
|
|
|
||
Accretion of original issue discount |
|
|
|
|
|
|
||
Amortization of debt issuance costs |
|
|
|
|
|
|
||
Stock-based compensation |
|
|
|
|
|
|
||
Changes in operating assets and liabilities: |
|
|
|
|
|
|
||
Accounts receivable |
|
|
|
|
|
|
||
Receivable from related party |
|
|
|
|
|
|
||
Inventories |
|
|
( |
) |
|
|
|
|
Prepaid expenses and other current assets |
|
|
( |
) |
|
|
|
|
Other long-term assets |
|
|
|
|
|
( |
) |
|
Accounts payable |
|
|
|
|
|
( |
) |
|
Payable to related party |
|
|
|
|
|
( |
) |
|
Accrued compensation |
|
|
|
|
|
( |
) |
|
Accrued expenses |
|
|
( |
) |
|
|
( |
) |
Deferred revenue |
|
|
( |
) |
|
|
( |
) |
Operating lease liabilities |
|
|
( |
) |
|
|
( |
) |
Other liabilities |
|
|
|
|
|
|
||
Net cash used in operating activities |
|
|
( |
) |
|
|
( |
) |
Investing activities: |
|
|
|
|
|
|
||
Acquisition of property and equipment |
|
|
( |
) |
|
|
( |
) |
Net cash used in investing activities |
|
|
( |
) |
|
|
( |
) |
Financing activities: |
|
|
|
|
|
|
||
Net proceeds from issuance of convertible note payable |
|
|
|
|
|
|
||
Cash paid for debt issuance costs |
|
|
( |
) |
|
|
|
|
Proceeds for stock option exercises |
|
|
|
|
|
|
||
Taxes paid related to net share settlements of equity awards |
|
|
( |
) |
|
|
( |
) |
Net cash provided by (used in) financing activities |
|
|
|
|
|
( |
) |
|
Effect of foreign exchange rate changes |
|
|
|
|
|
|
||
Net decrease in cash and cash equivalents |
|
|
( |
) |
|
|
( |
) |
Cash and cash equivalents, beginning of period |
|
|
|
|
|
|
||
Cash and cash equivalents, end of period |
|
$ |
|
|
$ |
|
||
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
||
Cash paid during the period for income taxes |
|
$ |
|
|
$ |
|
||
Supplemental disclosure of non-cash activities: |
|
|
|
|
|
|
||
Transfer of inventory to property and equipment |
|
|
|
|
$ |
|
||
ROU assets obtained with extension of operating lease |
|
|
|
|
$ |
|
||
Issuance of incentive shares under convertible note payable |
|
$ |
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
9
IRIDEX Corporation
Notes to Unaudited Condensed Consolidated Financial Statements
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of IRIDEX Corporation (“IRIDEX”, the “Company”, “we”, “our”, or “us”) have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and pursuant to the instructions to Form 10-Q and Article 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation of the financial statements have been included.
The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto, together with management’s discussion and analysis of the Company’s financial condition and results of operations, contained in our Annual Report on Form 10-K for the fiscal year ended December 30, 2023, which was filed with the SEC on March 29, 2024. The results of operations for the three and nine months ended September 28, 2024 and September 30, 2023 are not necessarily indicative of the results for the fiscal year ending December 28, 2024 or any future interim period. The three months ended September 28, 2024 and September 30, 2023 each had 13 weeks. For purposes of reporting the financial results, the Company’s fiscal years end on the Saturday closest to the end of December. Periodically, the Company includes a 53rd week to a year in order to end that year on the Saturday closest to the end of December.
Liquidity and Management Plans
The accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern. For the nine months ended September 28, 2024, the Company implemented cost savings initiatives to increase operational efficiencies across all departments, which the Company expects will decrease its operating expenses and increase working capital through January 3, 2026. Based on these cost savings initiatives implemented by the Company and the closing of the $
2. Summary of Significant Accounting Policies
The Company’s significant accounting policies are disclosed in our Annual Report on Form 10-K for the year ended December 30, 2023, which was filed with the SEC on March 29, 2024.
Financial Statement Presentation
The unaudited condensed consolidated financial statements include the accounts of the Company and our wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses and the related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that we believe 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. Actual results may differ from these estimates. In addition, any change in these estimates or their related assumptions could have an adverse effect on our operating results.
Revenue Recognition
Our revenues arise from the sale of laser consoles, delivery devices, consumables, service, and support activities. We also derive revenue from royalties from third parties which are typically based on the licensees’ net sales of products that utilize our technology. Our revenue is recognized in accordance with Accounting Standards Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers.” The Company recognizes revenue using the five-step model: (1) identifying the contract with the customer, (2) identifying the performance obligations in the contract, (3) determining expected transaction price, (4) allocating the transaction price to the distinct performance obligations in the contract, and (5) recognizing revenue when (or as) the performance obligations are satisfied.
The Company has the following revenue transaction types: (1) Product Sale Only, (2) Service Contracts, (3) System Repairs (outside of warranty), (4) Royalty Revenue and (5) Exclusive Distribution Rights.
10
The Company recognizes revenue from product sales at a point in time subject to the allocation of transaction price to additional performance obligations, if any.
The Company recognizes revenue from service contracts ratably over the service period. Revenue recognition for the sale of a service contract is largely dependent on the timing of the sale as follows:
The Company recognizes revenue from system repairs (outside of warranty) at a point in time. When the customer requests repairs from the Company subsequent to the expiration of the standard warranty and outside of a service contract, these repair contracts are considered separate from the initial sale. As such, revenue is recognized as the repair services are rendered and the performance obligation satisfied.
The arrangements with three customers are for sales-based licenses of intellectual property, for which the guidance in paragraph ASC 606-10-55-65 applies. Therefore, the Company recognizes revenue at a point in time, only as the subsequent sale occurs. However, the Company notes that such sales being reported by the licensee with a quarter in arrears, such revenue is recognized at the time it is reported and paid by the licensee given that any estimated variable consideration would have to be fully constrained due to the unpredictability of such estimate and the unavoidable risk that it may lead to significant revenue reversals. For the arrangement with one customer, the Company had concluded that there is one combined performance obligation to be satisfied. Therefore, the Company recognizes revenue related to this arrangement over time.
11
5. Exclusive Distribution Rights: On March 2, 2021, the Company and Topcon Corporation (“Topcon”) entered into a distribution agreement (“Distribution Agreement”), pursuant to which the Company granted Topcon the exclusive right to distribute the Company’s retina and glaucoma products in certain geographies outside the United States. The exclusivity arrangement with Topcon obligates the Company to provide training, customer support, and exclusive territorial rights to Topcon for certain international regions, for a period of 10 years, commencing upon regulatory approval to transfer existing (non-exclusive) distribution rights from the current distributors in those regions to Topcon. The Company has the right to terminate the exclusive distribution rights granted to Topcon for any of the regions at any point in time during the 10 year exclusivity term for a termination fee that is based on a multiple of 1.2 times the revenue generated by the Company in 2019 for the respective region. Management has determined that the exclusivity rights, training, and customer support represents a single combined performance obligation for each region, to be recognized as exclusivity fee revenue on a straight-line basis over the 10 year period for each region, commencing on the date that regulatory approval is obtained for each region, based on the standalone selling price for such combined performance obligation for each region. The estimated fair value of the exclusive distribution rights for all regions combined totaled approximately $
Costs of Obtaining Revenue Contracts
The Company recognized assets from certain costs incurred to obtain revenue contracts. These costs relate to sales commissions arising from the sale of our products. The costs are considered incremental and recoverable of obtaining revenue contracts with customers. These deferred costs are amortized on a straight-line basis over the estimated period of benefit, which typically ranges from
Sales commissions that do not represent incremental and recoverable costs of obtaining a contract are expensed as incurred. As a practical expedient, the Company will not recognize such sales commission as a contract asset but rather recognize as an expense when incurred if the amortization period of the asset that the Company would have otherwise recognized is one year or less.
Contract Fulfillment Costs
The Company recognized an asset from the costs incurred to fulfill a contract. These costs relate directly and must be incurred to satisfy performance obligations on certain specific contract with a customer. These costs are expected to be recovered over time and are amortized on a systematic basis that is consistent with the recognition of revenue to which it relates. As of September 28, 2024, the Company recognized deferred costs incurred to fulfill a contract with a customer, net of accumulated amortization, of $
Leases
We determine if an arrangement is a lease at inception. Operating leases are included in Operating lease right-of-use (“ROU”) assets, net and Operating lease liabilities in our condensed consolidated balance sheets. As of September 28, 2024 and December 30, 2023, the Company was not a party to any finance lease arrangements.
ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on information available at the commencement date in determining the present value of lease payments. We use the implicit rate when readily determinable. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
Under the available practical expedient, we account for the lease and non-lease components as a single lease component.
Concentration of Credit Risk and Other Risks and Uncertainties
Our cash and cash equivalents are deposited in demand and money market accounts. Deposits held with banks may exceed the amount of insurance provided on such deposits. Generally, these deposits may be redeemed upon demand.
12
We market our products to distributors and end-users throughout the world. Sales to international distributors are generally made on open credit terms and letters of credit. Management performs ongoing credit evaluations of our customers and maintains a provision for potential credit losses. Historically, we have not experienced any significant losses related to individual customers or a group of customers in any particular geographic area. For the three and nine months ended September 28, 2024,
Taxes Collected from Customers and Remitted to Governmental Authorities
Total revenues are recognized net of taxes collected from customers and remitted to governmental authorities in the accompanying condensed consolidated statements of operations.
Shipping and Handling Costs
Our shipping and handling costs billed to customers are included in revenues and the associated expense is recorded in cost of revenues for all periods presented.
Deferred Revenue
Deferred revenue represents contract liabilities and exclusivity fees. Revenue related to service contracts is deferred and recognized on a straight-line basis over the period of the applicable service contract. Costs associated with these service arrangements are recognized as incurred. Revenue related to exclusivity fees is deferred and recognized over the related exclusivity period.
A reconciliation of the changes in the Company’s deferred revenue balance for the nine months ended September 28, 2024 and September 30, 2023, is as follows:
|
|
Nine Months Ended |
|
|||||
|
|
September 28, 2024 |
|
|
September 30, 2023 |
|
||
Balance, beginning of period |
|
$ |
|
|
$ |
|
||
Additions to deferral |
|
|
|
|
|
|
||
Revenue recognized |
|
|
( |
) |
|
|
( |
) |
Balance, end of the period |
|
|
|
|
|
|
||
Non-current portion of deferred revenue |
|
|
|
|
|
|
||
Current portion of deferred revenue |
|
$ |
|
|
$ |
|
During the nine months ended September 28, 2024 and September 30, 2023, approximately $
Warranty
The Company currently provides a
As warranty reserves do not meet the criteria to have separate captions on the face of the condensed consolidated balance sheet, we removed these captions and included those amounts in other current and long-term liabilities.
Implementation Costs Incurred in a Cloud Computing Service Arrangement
The Company has implemented a new enterprise resource planning (“ERP”) system. The new ERP system operates in a cloud-based environment. The Company concluded that this cloud computing arrangement does not include a license, and therefore, will account for this arrangement as one that is a service contract. The Company capitalized $
Recent Accounting Standards Not Yet Adopted
In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023-07 “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures”, which expands annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses. ASU 2023-07 is effective for our annual periods beginning after December 15, 2023, and for interim periods beginning after December 15, 2024, with
13
early adoption permitted. The Company is currently evaluating the potential effect that the updated standard will have on its financial statement disclosures.
In December 2023, the FASB issued ASU 2023-09 “Income Taxes (Topics 740): Improvements to Income Tax Disclosures” to expand the disclosure requirements for income taxes, specifically related to the rate reconciliation and income taxes paid. ASU 2023-09 is effective for the Company’s annual periods beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the potential effect that the updated standard will have on its condensed consolidated financial statement disclosures.
3. Accounts Receivable and Provision for Credit Losses
The Company has trade receivables with various individual customers such as private businesses, hospitals, universities, government and non-profit entities, and distributors. The Company has determined that geography is the similar risk characteristic to pool our trade receivables balances, and accordingly, groups such balances into either the domestic pool or the international pool. The domestic pool is primarily comprised of individual customers, and the international pool is primarily comprised of distributors.
The provision for credit losses represents an estimate of the lifetime expected credit losses inherent in trade receivables as of the consolidated balance sheet date. We assess the adequacy of the provision for credit losses on a quarterly basis based on historical information and current economic conditions and forecasts. Subsequent changes in the provision for credit losses are recorded in current earnings and reversal of previous losses are permitted under the current guidance.
While we believe we have exercised prudent judgment and applied reasonable assumptions, there can be no assurance that in the future, changes in economic conditions or other factors would not cause changes in the financial health of our customers. If the financial health of our customers deteriorates, the timing and level of payments received could be impacted and therefore, could result in a change to our estimated losses.
The following table presents the activity in the provision for credit losses for accounts receivable by pool type for the nine months ended September 28, 2024 (in thousands):
|
|
Domestic |
|
|
International |
|
|
Total |
|
|||
Balance, beginning of period |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Change to provision |
|
|
|
|
|
|
|
|
|
|||
Balance, end of period |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
4. Related Party - Topcon
As of September 28, 2024, Topcon holds a
Topcon resells certain of our products as our exclusive distributor in certain international regions. At the same time, the Company also purchases certain raw materials from Topcon. During the three and nine months ended September 28, 2024, the Company’s revenues related to Topcon amounted to approximately $
5. Inventories
The components of the Company’s inventories as of September 28, 2024 and December 30, 2023 are as follows:
|
|
September 28, 2024 |
|
|
December 30, 2023 |
|
||
Raw materials |
|
$ |
|
|
$ |
|
||
Work in process |
|
|
|
|
|
|
||
Finished goods |
|