LENSAR, Inc. [LNSR] Filings

10-Q 1 lnsr-20230331.htm 10-Q 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2023

☐ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission File Number: 001-39473

LENSAR, INC.

(Exact name of registrant as specified in its charter)


Delaware	32-0125724
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

2800 Discovery Drive

Orlando, Florida 32826

(Address of principal executive offices and Zip Code)

(888) 536-7271

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	LNSR	The Nasdaq Stock Market LLC

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. Yes ☒ No ☐

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). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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	☐	Accelerated Filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☒

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 ☒

As of April 30, 2023, there were 11,102,611 shares of the registrant’s Common Stock outstanding.

Table of Contents


		Page
	Forward-Looking Statements	iii
	Risk Factor Summary	v
PART I – FINANCIAL INFORMATION		1
Item 1.	Financial Statements	1
	Condensed Statements of Operations (Unaudited)	1
	Condensed Balance Sheets (Unaudited)	2
	Condensed Statements of Cash Flows (Unaudited)	3
	Condensed Statements of Changes in Stockholders’ Equity (Unaudited)	5
	Notes to the Condensed Financial Statements (Unaudited)	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26
Item 4.	Controls and Procedures	26
PART II – OTHER INFORMATION		27
Item 1.	Legal Proceedings	27
Item 1A.	Risk Factors	27
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	65
Item 3.	Defaults Upon Senior Securities	65
Item 4.	Mine Safety Disclosures	65
Item 5.	Other Information	65
Item 6.	Exhibits	66
Signatures		67

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (the “Quarterly Report”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts contained in this Quarterly Report, including without limitation statements regarding our business model and strategic plans for our products, technologies and business, including our implementation thereof; the impact on our business, financial condition and results of operation from the global COVID-19 pandemic and related macroeconomic conditions; the timing of and our ability to obtain and maintain regulatory approvals and certifications; our expectations about our ability to successfully develop and commercialize our next generation system, the ALLY® Adaptive Cataract Treatment System (“ALLY System”), and the timing thereof; the sufficiency of our cash and cash equivalents; and the plans and objectives of management for future operations and capital expenditures are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

Without limiting the foregoing, in some cases, you can identify forward-looking statements by terms such as “aim”, “may,” “will,” “should,” “expect,” “exploring,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential,” “seeks,” or “continue” or the negative of these terms or other similar expressions, although not all forward-looking statements contain these words. No forward-looking statement is a guarantee of future results, performance, or achievements, and one should avoid placing undue reliance on such statements.

Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to us. Such beliefs and assumptions may or may not prove to be correct. Additionally, such forward-looking statements are subject to a number of known and unknown risks, uncertainties and assumptions, and actual results may differ materially from those expressed or implied in the forward-looking statements due to various factors, including, but not limited to, those identified in Part I. Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Part II. Item 1A. “Risk Factors” in this Quarterly Report. These risks and uncertainties include, but are not limited to:

•

our history of operating losses and ability to achieve or sustain profitability;

•

our ability to develop, receive and maintain regulatory clearance or certification of and successfully commercialize the ALLY System and to maintain our LENSAR Laser System;

•

the impact to our business, financial condition, results of operations and our suppliers and distributors as a result of the COVID-19 pandemic and global macroeconomic conditions;

•

the willingness of patients to pay the price difference for our products compared to a standard cataract procedure covered by Medicare or other insurance;

•

our ability to grow our U.S. sales and marketing organization or maintain or grow an effective network of international distributors;

•

our future capital needs and our ability to raise additional funds on acceptable terms, or at all;

•

the impact to our business, financial condition and results of operations as a result of a material disruption to the supply or manufacture of our systems or necessary component parts for such system or material inflationary pressures affecting pricing of component parts;

•

our ability to compete against competitors that have longer operating histories, more established products and greater resources than we do;

•

our ability to address the numerous risks associated with marketing, selling and leasing our products in markets outside the United States;

•

the impact to our business, financial condition and results of operations as a result of exposure to the credit risk of our customers;

•

our ability to accurately forecast customer demand and our inventory levels;

•

the impact to our business, financial condition and results of operations if we are unable to secure adequate coverage or reimbursement by government or other third-party payors for procedures using our ALLY System or our other future products, or changes in such coverage or reimbursement;

•

the impact to our business, financial condition and results of operations of product liability suits brought against us;

iii

•

risks related to government regulation applicable to our products and operations; and

•

risks related to our intellectual property and other intellectual property matters.

Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties.

You should read this Quarterly Report and the documents that we reference in this Quarterly Report completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. Except as required by applicable law, we have no obligation to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.

Unless otherwise stated or the context requires otherwise, references to “LENSAR,” the “Company,” “we,” “us,” and “our,” refer to LENSAR, Inc.

We own or have rights to certain trademarks, trade names, copyrights and other intellectual property used in our business, including LENSAR, the LENSAR logo, LENSAR Cataract Laser with Augmented Reality logo, Streamline, IntelliAxis, IntelliAxis Refractive Capsulorhexis, and ALLY Adaptive Cataract Treatment System, each of which is considered a trademark. All other company names, product names, trade names and trademarks included in this Quarterly Report are trademarks, registered trademarks or trade names of their respective owners.

RISK FACTOR SUMMARY

Our business is subject to numerous risks and uncertainties, including those described in Part II, Item 1A. “Risk Factors” in this Quarterly Report. You should carefully consider these risks and uncertainties when investing in our common stock. The principal risks and uncertainties affecting our business include the following:

•

We expect to incur operating losses for the near-term future and we cannot assure you that we will be able to generate sufficient revenue to achieve or sustain profitability.

•

We have historically derived our revenue from the sale or lease of our LENSAR Laser and ALLY Systems as well as the associated procedure licenses and sale of consumables used in each procedure involving our systems. The future commercial success of our ALLY System will depend upon receipt of additional regulatory clearances or certifications and our ability to maintain and grow significant market acceptance for it.

•

Our growth depends on our ability to gain regulatory clearances and certifications, as well as our ability to meet production goals for our ALLY System.

•

Global health developments and economic uncertainty resulting from COVID-19 have adversely impacted, and may continue to adversely impact, our business, results of operations, cash flows and financial position.

•

Patients may not be willing to pay for the price difference between a standard cataract procedure and an advanced cataract procedure in which a laser system such as ours is used, an increment which is typically not covered by Medicare, private insurance or other third-party payors.

•

If we are not able to effectively grow our U.S. sales and marketing organization or maintain or grow an effective network of international distributors, our business prospects, results of operations and financial condition could be adversely affected.

•

Our future capital needs are uncertain and we may need to raise additional funds in the future, and such funds may not be available on acceptable terms or at all.

•

If the supply or manufacture of our systems or other products associated with the systems is materially disrupted, including by supply chain shortages and price increases, it may adversely affect our ability to manufacture products and could negatively affect our operating results.

•

Our results have been in the past, and could be in the future, adversely affected by economic uncertainty or deteriorations in economic conditions.

•

We currently compete, and expect to compete in the future against other companies, some of which have longer operating histories, more established products or greater resources than we do.

•

To successfully market, sell and lease our products in markets outside of the United States, we must address many international business risks with which we have limited experience.

•

Our products and operations are subject to extensive government regulation and oversight both in the United States and abroad, and our failure to comply with applicable requirements could harm our business.

•

We may not receive, or may be delayed in receiving, the necessary clearances, certifications or approvals for our future products, or modifications to our current products, and failure to timely obtain necessary clearances, certifications or approvals for our ALLY System and future products or modifications to our current products would adversely affect our ability to grow our business.

•

Our success will depend on our ability to obtain, maintain and protect our intellectual property rights.

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

LENSAR, Inc.

CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except per share amounts)


	Three Months Ended March 31,
	2023			2022
Revenue
Product	$	5,658		$	6,969
Lease		1,629			1,399
Service		965			972
Total revenue		8,252			9,340
Cost of revenue (exclusive of amortization)
Product		2,299			2,694
Lease		494			474
Service		1,139			1,480
Total cost of revenue		3,932			4,648
Operating expenses
Selling, general and administrative expenses		6,755			6,278
Research and development expenses		1,650			4,788
Amortization of intangible assets		276			309
Operating loss		(4,361	)		(6,683	)
Other income
Other income, net		89			9
Net loss	$	(4,272	)	$	(6,674	)
Net loss per share:
Basic and diluted	$	(0.40	)	$	(0.67	)
Weighted-average number of shares used in calculation of net loss per share:
Basic and diluted		10,716			9,967

The accompanying notes are an integral part of these condensed financial statements

LENSAR, Inc.

CONDENSED BALANCE SHEETS

(Unaudited)

(In thousands, except per share amounts)


	March 31, 2023			December 31, 2022
Assets
Current assets:
Cash and cash equivalents	$	7,970		$	14,674
Accounts receivable, net of allowance of $43 and $56, respectively		4,660			6,040
Notes receivable, net of allowance of $4 and $4, respectively		203			200
Inventories		15,668			11,740
Prepaid and other current assets		1,474			1,062
Total current assets		29,975			33,716
Property and equipment, net		520			563
Equipment under lease, net		6,248			6,316
Notes and other receivables, long-term, net of allowance of $16 and $9, respectively		768			442
Intangible assets, net		11,845			12,122
Other assets		2,605			2,685
Total assets	$	51,961		$	55,844
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	4,923		$	5,422
Accrued liabilities		3,493			4,700
Deferred revenue		1,032			768
Operating lease liabilities		544			531
Total current liabilities		9,992			11,421
Long-term operating lease liabilities		2,171			2,272
Other long-term liabilities		360			167
Total liabilities		12,523			13,860
Commitments and contingencies (Note 8)
Stockholders’ equity:
Preferred stock, par value $0.01 per share, 10,000 shares authorized at March 31, 2023 and December 31, 2022; no shares issued and outstanding at March 31, 2023 and December 31, 2022		—			—
Common stock, par value $0.01 per share, 150,000 shares authorized at March 31, 2023 and December 31, 2022; 11,103 and 11,093 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively		111			111
Additional paid-in capital		141,107			139,381
Accumulated deficit		(101,780	)		(97,508	)
Total stockholders’ equity		39,438			41,984
Total liabilities and stockholders’ equity	$	51,961		$	55,844

The accompanying notes are an integral part of these condensed financial statements

LENSAR, Inc.

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)


	Three Months Ended
	March 31,
	2023			2022
Cash flows from operating activities
Net loss	$	(4,272	)	$	(6,674	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		578			541
Amortization of intangible assets		276			309
Non-cash operating lease cost		133			130
Provision for expected credit losses		(6	)		134
Stock-based compensation expense		1,726			1,607
Changes in operating assets and liabilities:
Accounts receivable		1,393			1,037
Prepaid and other current assets		(427	)		192
Inventories		(4,381	)		1,116
Accounts payable		(499	)		158
Accrued liabilities		(1,197	)		(1,198	)
Other		(20	)		41
Net cash used in operating activities		(6,696	)		(2,607	)
Cash flows from investing activities
Purchase of property and equipment		(8	)		(46	)
Net cash used in investing activities		(8	)		(46	)
Net decrease in cash and cash equivalents		(6,704	)		(2,653	)
Cash and cash equivalents at beginning of the period		14,674			31,637
Cash and cash equivalents at end of the period	$	7,970		$	28,984

The accompanying notes are an integral part of these condensed financial statements

LENSAR, Inc.

CONDENSED STATEMENTS OF CASH FLOWS, continued

(Unaudited)

(In thousands)


	Three Months Ended March 31,
	2023			2022
Supplemental cash flow information
Cash paid for interest	$	1		$	—

Supplemental schedule of non-cash investing and financing activities
Transfer from Inventories to Equipment under lease, net	$	881		$	1,060
Transfer from (to) Inventories to (from) Property and equipment, net	$	(428	)	$	34

The accompanying notes are an integral part of these condensed financial statements

LENSAR, Inc.

CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

(In thousands)


	Common Stock					Additional Paid-in		Accumulated			Total Stockholders’
	Shares			Amount		Capital		Deficit			Equity
Balance as of December 31, 2022		11,093		$	111	$	139,381	$	(97,508	)	$	41,984
Stock-based compensation		—			—		1,726		—			1,726
Common stock issued		15			—		—		—			—
Restricted stock awards cancelled		(5	)		—		—		—			—
Net loss		—			—		—		(4,272	)		(4,272	)
Balance as of March 31, 2023		11,103		$	111	$	141,107	$	(101,780	)	$	39,438


						Additional					Total
	Common Stock					Paid-in		Accumulated			Stockholders’
	Shares			Amount		Capital		Deficit			Equity
Balance as of December 31, 2021		10,990		$	110	$	132,363	$	(77,594	)	$	54,879
Stock-based compensation		—			—		1,607		—			1,607
Restricted stock awards cancelled		(5	)		—		—		—			—
Net loss		—			—		—		(6,674	)		(6,674	)
Balance as of March 31, 2022		10,985		$	110	$	133,970	$	(84,268	)	$	49,812

The accompanying notes are an integral part of these condensed financial statements

NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS
(Unaudited)
(Dollars and shares in thousands)

Note 1. Overview and Basis of Presentation

Overview and Organization

LENSAR, Inc. (“LENSAR” or the “Company”) is a global medical device business focused on the design, development and commercialization of advanced technology for the treatment of cataracts and management of astigmatism to achieve improved visual outcomes for patients. The Company is a public company whose stock is listed and trading under the symbol “LNSR” on The Nasdaq Stock Market LLC (“Nasdaq”). The Company’s revenue is derived from the sale and lease of the Company’s laser systems, which may include equipment, a consumable referred to as the Patient Interface Device (“PID”), procedure licenses, training, installation, limited warranty and maintenance agreements through extended warranty. The Company has developed its next-generation ALLY® Adaptive Cataract Treatment System (“ALLY System”), which combines all of the features from the LENSAR Laser System with a dual-pulse laser, integrated in a small, compact cataract treatment system that is designed to allow surgeons to perform a sterile femtosecond laser assisted cataract procedure in a single operating room or in-office surgical suite. The ALLY System, which has received clearance from the U.S. Food and Drug Administration (“FDA”), enables cataract surgeons to complete the femtosecond-laser-assisted cataract surgery (“FLACS”) procedure in a single, sterile environment. The Company executed a controlled and targeted initial launch of the ALLY System beginning in August 2022. The ALLY System is now available to U.S. cataract surgeons and has also received regulatory clearance in India. In addition, we submitted the ALLY System for certification in the European Union, or EU, in September 2022 and intend to submit additional marketing or certification applications outside the United States in an effort to commercialize the ALLY System in additional countries and operating regions. The Company’s ability to place systems in 2022 was limited by supply chain constraints that delayed the delivery of certain ALLY System raw materials and the completion and testing of ALLY Systems for use as launch-stock inventory.

The Company has incurred recurring losses and operating cash outflows since its inception and, as of March 31, 2023, had an accumulated deficit of $101,780. The Company expects to continue to incur losses and cash outflows from operating activities for the near-term future. In addition, the Company’s results of operations, financial condition and cash flows have been adversely affected by the COVID-19 pandemic, including supply chain shortages, inflationary pressures and price increases that originated during the pandemic. The Company has experienced some supply chain disruptions and increased costs or unavailability of various component parts needed for the development and supply of the ALLY System originally connected with the COVID-19 pandemic, including increasing lead times required for the ordering of component parts to meet targeted production goals and unpredictability with respect to the availability and delivery timing of these parts. The extent to which the COVID-19 outbreak, and current or future variants, will further negatively impact the Company’s business or operating results cannot be determined with certainty at this time. To date, the Company has maintained sufficient inventory to mitigate significant adverse impact from such disruptions and unavailability in the near-term and to facilitate the launch of the ALLY System. If supply chain shortages and disruptions continue or worsen, or the Company is unable to find suitable alternative component parts, there is no guarantee the Company will be able to meet customer demand for the ALLY System following its launch. In addition, pricing increases in component parts for the ALLY System resulting from inflationary pressures and related macroeconomic conditions may necessitate an increase in overall cost to customers, which in turn may have an adverse impact on customer demand.

Management believes the Company’s cash and cash equivalents on hand, together with cash generated from the future sale and lease of products and expected issuance and sale of preferred stock and warrants, will provide sufficient funds for its operating, investing, and financing cash flows for a period of at least twelve months from the date of issuance of these financial statements. Refer to Note 12, Subsequent Event, for further details related to the Company’s entrance into a Securities Purchase Agreement, dated as of May 12, 2023, providing for the sale of preferred stock and warrants to NR-GRI Partners, LP. With the commercial launch of the ALLY System, the Company expects annual revenue and selling, general and administrative expenses to increase from current levels. In addition, the successful commercialization of the ALLY System depends in part on the Company’s ability to produce the ALLY System in sufficient quantities, within requested timelines and at an acceptable price to satisfy customer demand. The Company’s liquidity needs will be largely determined by the Company’s ability to successfully commercialize its products and the progression, additional regulatory clearances or certifications and launch of the ALLY System in additional jurisdictions in the future. Such success will depend in part on the availability of the necessary component parts for the ALLY System. In the future, the Company may need to raise additional capital through equity or debt financings, borrowings under credit facilities or from other sources in the future. The Company may issue securities, including common stock, preferred stock, warrants, and/or debt securities through private placement transactions or registered public offerings in the future. The Company’s ability to raise additional funds will depend, among other factors, on financial, economic and market conditions, many of which are outside of the Company’s control, and the Company may be unable to raise financing when needed, or on terms favorable to the Company. If the necessary funds are not available from these sources, the Company may have to delay, reduce or suspend the scope of its sales and marketing efforts, research and development activities, or other components of its operations.

NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS
(Unaudited)
(Dollars and shares in thousands)

Basis of Presentation

These condensed financial statements of the Company are unaudited and have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and pursuant to the regulations of the U.S. Securities and Exchange Commission (“SEC”) for interim financial information and, therefore, omit or condense certain footnotes and other information normally included. The condensed financial statements include all adjustments (consisting only of normal recurring adjustments) that management of the Company believes are necessary for a fair statement of the periods presented. These interim financial results are not necessarily indicative of results expected for the full fiscal year. The December 31, 2022 condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP.

The accompanying unaudited condensed financial statements and related financial information should be read in conjunction with the Company’s annual audited financial statements and the related notes thereto for the fiscal year ended December 31, 2022, included in the Annual Report on Form 10-K (the “Annual Report”) as filed with the SEC.

Note 2. Summary of Significant Accounting Policies

Other than policies noted below, there have been no significant changes to the significant accounting policies disclosed in Note 2, Summary of Significant Accounting Policies, of the annual audited financial statements included in the Annual Report.

Accounting Estimates

The preparation of condensed financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed financial statements and accompanying notes to the condensed financial statements. The accounting estimates that require management’s most significant, difficult and subjective judgments include, but are not limited to, revenue recognition and allowance for expected credit losses, the valuation of notes receivable and inventory, the assessment of recoverability of intangible assets and their estimated useful lives, the valuation and recognition of stock-based compensation, operating lease right-of-use assets and liabilities, and the recognition and measurement of current and deferred income tax assets and liabilities. Management evaluates its estimates on an ongoing basis as there are changes in circumstances, facts, and experience. Changes in estimates are recorded in the period in which they become known. Actual results could differ from these estimates.

The COVID-19 pandemic and global macroeconomic conditions originating during the pandemic continue to directly and indirectly impact the Company’s business, results of operations and financial condition, including revenue, expenses, reserves and allowances. The Company continues to monitor developments that are highly uncertain, including supply chain disruptions and price increases, as well as the economic impact on domestic and international suppliers, customers, and markets. The Company assessed certain accounting matters that require consideration of forecasted financial information, including, but not limited to, its current expected credit losses, the carrying value of the Company's intangible assets and other long-lived assets, and valuation allowances in context with the information reasonably available to the Company and the unknown future impacts of COVID-19 as of March 31, 2023 and through the date of this report. As a result of these assessments, there were no impairments or material increases in expected credit losses or valuation allowances that impacted the Company's condensed financial statements as of and for the three months ended March 31, 2023 and 2022. However, the Company's future assessment of the magnitude and duration of COVID-19, as well as other factors, could result in material impacts to the condensed financial statements in future reporting periods.

As of the date of issuance of these unaudited condensed interim financial statements, the Company is not aware of any specific event or circumstance that would require the Company to update estimates, judgments or revise the carrying value of any assets or liabilities.

Fair Value Measurement

The fair value of the Company’s financial instruments are estimates of the amounts that would be received if the Company were to sell an asset or the Company paid to transfer a liability in an orderly transaction between market participants at the measurement date or exit price. The assets and liabilities are categorized and disclosed in one of the following three categories:

•

Level 1—based on quoted market prices in active markets for identical assets and liabilities.

•

Level 2—based on observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS
(Unaudited)
(Dollars and shares in thousands)

•

Level 3—based on unobservable inputs using management’s best estimate and assumptions when inputs are unavailable.

Fair value measurements are classified in their entirety based on the lowest level of input that is significant to their fair value measurement.

The carrying value of the Company’s cash, cash equivalents, accounts receivable, accounts payable, accrued liabilities, and other current liabilities approximate fair value based on the short-term maturities of these instruments. The carrying value of the Company’s notes receivable also approximates fair value based on the associated credit risk.

Income Taxes

Income tax expense/(benefit) from continuing operations for the three months ended March 31, 2023 and 2022 was $0 in each period, which resulted primarily from maintaining a full valuation allowance against the Company’s deferred tax assets.

Recently Issued Accounting Pronouncements Not Yet Adopted

The Company reviewed recent pronouncements issued by the FASB and other authoritative standards groups with future effective dates and concluded the pronouncements are either not applicable to the Company or are not expected to have a material impact on the Company’s financial position or results of operations.

Note 3. Revenue from Contracts with Customers

Disaggregation of Revenue

The following table summarizes the Company’s product and service revenue disaggregated by geographic region, which is determined based on customer location, for the three months ended March 31, 2023 and 2022:


	Three Months Ended March 31,
	2023		2022
United States	$	4,264	$	3,970
South Korea		9		1,434
Europe		1,538		1,619
Asia (excluding South Korea)		708		780
Other		104		138
Total1	$	6,623	$	7,941

The table above does not include lease revenue of $1,629 and $1,399 for three months ended March 31, 2023 and 2022, respectively. Substantially all lease revenue originates from the United States. Refer to Note 5, Leases.

Contract Balances

The following table provides information about receivables and contract liabilities from contracts with customers:


	Classification	As of March 31, 2023		As of December 31, 2022
Accounts receivable, current	Accounts receivable, net	$	4,660	$	6,040
Notes receivable, current	Notes receivable, net	$	203	$	200
Notes receivable, long-term	Notes and other receivables, long-term, net	$	768	$	442
Contract asset, current	Prepaid and other current assets	$	404	$	332
Deferred revenue, current	Deferred revenue	$	1,032	$	768
Deferred revenue, non-current	Other long-term liabilities	$	198	$	17
Contract liability, long-term	Other long-term liabilities	$	161	$	150

Accounts Receivables, Net – Accounts receivables, net, include amounts billed and due from customers. The amounts due are stated at their net estimated realizable value and are classified as current or noncurrent based on the timing of when the Company expects to receive payment. Most customers are on pre-paid or 30-day payment terms, depending on the product purchased. The Company

NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS
(Unaudited)
(Dollars and shares in thousands)

maintains an allowance for expected credit losses to provide for the estimated amount of receivables that will not be collected. The allowance is based upon an assessment of customer credit worthiness, historical payment experience, the age of outstanding receivables, collateral to the extent applicable and reflects the possible impact of current conditions and reasonable forecasts not already reflected in historical loss information.

The following table summarizes the activity in the allowance for accounts receivable:


	Amount
Accounts receivable, allowance for credit losses as of December 31, 2022	$	56
Provision for credit losses		(13	)
Write-offs		—
Accounts receivable, allowance for credit losses as of March 31, 2023	$	43

Accounts receivable, allowance for credit losses as of December 31, 2021	$	47
Provision for credit losses		3
Write-offs		(16	)
Accounts receivable, allowance for credit losses as of March 31, 2022	$	34

Notes Receivables, Net – Notes receivable, net includes amounts billed and due from customers under extended payment terms with a significant financing component. Interest rates on notes receivable range from 5.0% to 7.0%. The Company recorded interest income on notes receivable during the three months ended March 31, 2023 and 2022 of $12 and $6, respectively, in other income, net in the statement of operations.

The following table summarizes the activity in the allowance for notes receivable:


	Amount
Notes receivable, allowance for credit losses as of December 31, 2022	$	13
Provision for credit losses		7
Write-offs		—
Notes receivable, allowance for credit losses as of March 31, 2023	$	20

Notes receivable, allowance for credit losses as of December 31, 2021	$	63
Provision for credit losses		129
Write-offs		(11	)
Notes receivable, allowance for credit losses as of March 31, 2022	$	181

Contract Assets – The Company's contract assets represent revenue recognized for performance obligations completed before an unconditional right to payment exists, and therefore invoicing has not yet occurred. The Company classifies contract assets in Prepaid and other current assets in the Company's condensed balance sheets.

The following table provides information about contract assets from contracts with customers:


	Amount
Contract assets as of December 31, 2022	$	332
Contract assets recognized		117
Payments received		(45	)
Contract assets as of March 31, 2023	$	404

NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS
(Unaudited)
(Dollars and shares in thousands)

Contract Liabilities – The Company’s contract liabilities represent services and products sold to customers for which the performance obligation has not been completed by the Company. The Company classifies contract liabilities as current or noncurrent based on the timing of when it expects to recognize revenue. The noncurrent portion of contract liabilities is included in other long-term liabilities in the Company’s condensed balance sheets.

The following table provides information about contract liabilities from contracts with customers:


	Amount
Contract liabilities as of December 31, 2022	$	935
Billings not yet recognized as revenue		823
Beginning contract liabilities recognized as revenue		(367	)
Contract liabilities as of March 31, 2023	$	1,391

Contract liabilities as of December 31, 2021	$	970
Billings not yet recognized as revenue		432
Beginning contract liabilities recognized as revenue		(361	)
Contract liabilities as of March 31, 2022	$	1,041

Transaction Price Allocated to Future Performance Obligations

At March 31, 2023, the revenue expected to be recognized in future periods related to performance obligations that are unsatisfied for executed contracts with an original duration of one year or more was approximately $8,974. The Company expects to satisfy its remaining performance obligations by December 31, 2027, with $2,947 to be satisfied by December 31, 2023, $2,639 to be satisfied by December 31, 2024, $1,865 to be satisfied by December 31, 2025, $883 to be satisfied by December 31, 2026 and $640 to be satisfied thereafter. The Company does not disclose the value of unsatisfied performance obligations for (i) contracts with original expected lengths of one year or less or (ii) contracts for which the Company recognizes revenue at the amount to which it has the right to invoice for the products delivered or services performed.

Note 4. Inventories

Inventory balances were as follows:


	As of March 31, 2023		As of December 31, 2022
Finished Goods	$	5,397	$	4,002
Work-in-process		1,912		797
Raw Materials		8,359		6,941
Total	$	15,668	$	11,740

Note 5. Leases

Lessor Arrangements

The Company has operating leases for the LENSAR Laser System. The Company’s leases have remaining lease terms of less than one year to six years. Lease revenue for the three months ended March 31, 2023 and 2022 was as follows:


	Three Months Ended March 31,
	2023		2022
Lease revenue	$	1,629	$	1,399

NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS
(Unaudited)
(Dollars and shares in thousands)

Note 6. Intangible Assets

The components of intangible assets were as follows:


	As of March 31, 2023							As of December 31, 2022
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount	Accumulated Amortization	Net Carrying Amount
Finite-lived intangible assets:
Customer relationships 1,2	$	4,292	$	(2,113	)	$	2,179	$