10-Q 1 lnsr-20240331.htm 10-Q 10-Q
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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, 2024

or

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, 2024, there were 11,396,950 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 Redeemable Convertible Preferred Stock and 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

20

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

28

Item 4.

Controls and Procedures

28

PART II – OTHER INFORMATION

29

Item 1.

Legal Proceedings

29

Item 1A.

Risk Factors

29

Item 2.

Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities

68

Item 3.

Defaults Upon Senior Securities

68

Item 4.

Mine Safety Disclosures

68

Item 5.

Other Information

68

Item 6.

Exhibits

69

Signatures

70

 

 


 

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 macroeconomic conditions; the timing of and our ability to obtain and maintain regulatory approvals and certifications; our expectations about our ability to successfully commercialize and further develop our next generation system, the ALLY® Adaptive Cataract Treatment System (“ALLY System”), and the timing thereof; the ALLY System's performance and market impact; the sufficiency of our cash and cash equivalents; industry trends and conditions impacting various markets in which we operate; 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 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 registered rights to certain trademarks, trade names, copyrights and other intellectual property used in our business, including LENSAR, the LENSAR logo, STREAMLINE, INTELLIAXIS, INTELLIAXIS REFRACTIVE CAPSULORHEXIS, ALLY Adaptive Cataract Treatment System, and the ALLY Adaptive Cataract Treatment System logo, 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.

 

iv


 

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:

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

v


 

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,

 

 

 

2024

 

 

2023

 

Revenue

 

 

 

 

 

 

Product

 

$

7,433

 

 

$

5,658

 

Lease

 

 

1,947

 

 

 

1,629

 

Service

 

 

1,208

 

 

 

965

 

Total revenue

 

 

10,588

 

 

 

8,252

 

Cost of revenue (exclusive of amortization)

 

 

 

 

 

 

Product

 

 

2,590

 

 

 

2,299

 

Lease

 

 

603

 

 

 

494

 

Service

 

 

1,731

 

 

 

1,139

 

Total cost of revenue

 

 

4,924

 

 

 

3,932

 

Operating expenses

 

 

 

 

 

 

Selling, general and administrative expenses

 

 

6,796

 

 

 

6,755

 

Research and development expenses

 

 

1,444

 

 

 

1,650

 

Amortization of intangible assets

 

 

274

 

 

 

276

 

Operating loss

 

 

(2,850

)

 

 

(4,361

)

Other income

 

 

 

 

 

 

Change in fair value of warrant liabilities

 

 

495

 

 

 

 

Other income, net

 

 

198

 

 

 

89

 

Net loss

 

 

(2,157

)

 

 

(4,272

)

Other comprehensive loss

 

 

 

 

 

 

Change in unrealized loss on investments

 

 

(5

)

 

 

 

Net loss and comprehensive loss

 

$

(2,162

)

 

$

(4,272

)

Net loss per common share:

 

 

 

 

 

 

Basic and diluted

 

$

(0.19

)

 

$

(0.40

)

Weighted-average number of common shares used in calculation of net loss per share:

 

 

 

 

 

 

Basic and diluted

 

 

11,387

 

 

 

10,716

 

 

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

1


 

LENSAR, Inc.

CONDENSED BALANCE SHEETS

(Unaudited)

(In thousands, except per share amounts)

 

 

 

March 31, 2024

 

 

December 31, 2023

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

13,958

 

 

$

20,621

 

Short-term investments

 

 

3,952

 

 

 

3,443

 

Accounts receivable, net of allowance of $44 and $62, respectively

 

 

4,023

 

 

 

4,001

 

Notes receivable, net of allowance of $7 and $7, respectively

 

 

329

 

 

 

323

 

Inventories

 

 

17,816

 

 

 

15,689

 

Prepaid and other current assets

 

 

2,357

 

 

 

2,367

 

Total current assets

 

 

42,435

 

 

 

46,444

 

Property and equipment, net

 

 

747

 

 

 

679

 

Equipment under lease, net

 

 

7,727

 

 

 

7,459

 

Long-term investments

 

 

1,236

 

 

 

492

 

Notes and other receivables, long-term, net of allowance of $24 and $26, respectively

 

 

1,174

 

 

 

1,279

 

Intangible assets, net

 

 

10,751

 

 

 

11,025

 

Other assets

 

 

2,064

 

 

 

2,207

 

Total assets

 

$

66,134

 

 

$

69,585

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

4,120

 

 

$

4,007

 

Accrued liabilities

 

 

4,180

 

 

 

5,717

 

Deferred revenue

 

 

1,582

 

 

 

1,349

 

Operating lease liabilities

 

 

564

 

 

 

559

 

Total current liabilities

 

 

10,446

 

 

 

11,632

 

Long-term operating lease liabilities

 

 

1,607

 

 

 

1,750

 

Warrant liabilities

 

 

7,962

 

 

 

8,457

 

Other long-term liabilities

 

 

537

 

 

 

570

 

Total liabilities

 

 

20,552

 

 

 

22,409

 

Commitments and contingencies (Note 10)

 

 

 

 

 

 

Series A Redeemable Convertible Preferred Stock, par value $0.01 per share, 20 shares authorized at March 31, 2024 and December 31, 2023; 20 shares issued and outstanding at March 31, 2024 and December 31, 2023; aggregate liquidation preference of $20,000 at March 31, 2024 and December 31, 2023

 

 

13,747

 

 

 

13,747

 

Stockholders’ equity:

 

 

 

 

 

 

Preferred stock, par value $0.01 per share, 9,980 shares authorized at March 31, 2024 and December 31, 2023; no shares issued and outstanding at March 31, 2024 and December 31, 2023

 

 

 

 

 

 

Common stock, par value $0.01 per share, 150,000 shares authorized at March 31, 2024 and December 31, 2023; 11,395 and 11,327 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively

 

 

114

 

 

 

113

 

Additional paid-in capital

 

 

145,770

 

 

 

145,203

 

Accumulated other comprehensive (loss) income

 

 

(1

)

 

 

4

 

Accumulated deficit

 

 

(114,048

)

 

 

(111,891

)

Total stockholders’ equity

 

 

31,835

 

 

 

33,429

 

Total liabilities, redeemable convertible preferred stock, and stockholders’ equity

 

$

66,134

 

 

$

69,585

 

 

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

2


 

LENSAR, Inc.

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2024

 

 

2023

 

Cash flows from operating activities

 

 

 

 

 

 

Net loss

 

$

(2,157

)

 

$

(4,272

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

Depreciation

 

 

647

 

 

 

578

 

Amortization of intangible assets

 

 

274

 

 

 

276

 

Non-cash operating lease cost

 

 

134

 

 

 

133

 

Provision for expected credit losses

 

 

4

 

 

 

(6

)

Write-down of inventory

 

 

144

 

 

 

 

Stock-based compensation expense

 

 

652

 

 

 

1,726

 

Change in fair value of warrant liabilities

 

 

(495

)

 

 

 

Amortization on investments, net

 

 

(51

)

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

(13

)

 

 

1,393

 

Notes receivable

 

 

86

 

 

 

(336

)

Prepaid and other current assets

 

 

9

 

 

 

(427

)

Inventories

 

 

(3,129

)

 

 

(4,381

)

Accounts payable

 

 

6

 

 

 

(499

)

Accrued liabilities

 

 

(1,491

)

 

 

(1,197

)

Deferred revenue

 

 

205

 

 

 

445

 

Operating lease liabilities

 

 

(138

)

 

 

(133

)

Other

 

 

6

 

 

 

4

 

Net cash used in operating activities

 

 

(5,307

)

 

 

(6,696

)

Cash flows from investing activities

 

 

 

 

 

 

Purchase of property and equipment

 

 

(20

)

 

 

(8

)

Purchase of investments

 

 

(2,206

)

 

 

 

Investment maturities

 

 

1,000

 

 

 

 

Net cash used in investing activities

 

 

(1,226

)

 

 

(8

)

Cash flows from financing activities

 

 

 

 

 

 

Payment of accrued offering costs allocable to preferred stock

 

 

(52

)

 

 

 

Proceeds from issuance of common stock through option exercises

 

 

5

 

 

 

 

Net settlement of stock-based compensation awards

 

 

(83

)

 

 

 

Net cash used in financing activities

 

 

(130

)

 

 

 

Net decrease in cash and cash equivalents

 

 

(6,663

)

 

 

(6,704

)

Cash and cash equivalents at beginning of the period

 

 

20,621

 

 

 

14,674

 

Cash and cash equivalents at end of the period

 

$

13,958

 

 

$

7,970

 

 

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

3


 

LENSAR, Inc.

CONDENSED STATEMENTS OF CASH FLOWS, continued

(Unaudited)

(In thousands)

 

 

 

Three Months Ended
March 31,

 

 

 

2024

 

 

2023

 

Supplemental cash flow information

 

 

 

 

 

 

Cash paid for taxes

 

$

 

 

$

1

 

Cash paid for interest

 

$

13

 

 

$

 

 

 

 

 

 

 

 

Supplemental schedule of non-cash investing and financing activities

 

 

 

 

 

 

Transfer from Inventories to Equipment under lease, net

 

$

858

 

 

$

881

 

Transfer from (to) Inventories to (from) Property and equipment, net

 

$

 

 

$

(428

)

Accounts payable for purchases of Property and equipment, net

 

$

(106

)

 

$

 

 

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

4


 

LENSAR, Inc.

CONDENSED STATEMENTS OF CHANGES IN REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY

(Unaudited)

(In thousands)

 

 

 

Series A

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

Redeemable Convertible

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

Other

 

 

Total

 

 

 

Preferred Stock

 

 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

Comprehensive

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

(Loss) Income

 

 

Equity

 

Balance as of December 31, 2023

 

 

20

 

 

$

13,747

 

 

 

 

11,327

 

 

$

113

 

 

$

145,203

 

 

$

(111,891

)

 

$

4

 

 

$

33,429

 

Exercise of stock options under the Incentive Plans

 

 

 

 

 

 

 

 

 

2

 

 

 

 

 

 

5

 

 

 

 

 

 

 

 

 

5

 

Issuance of common stock under the Incentive Plans, net of forfeitures

 

 

 

 

 

 

 

 

 

66

 

 

 

1

 

 

 

(90

)

 

 

 

 

 

 

 

 

(89

)

Stock-based compensation under the Incentive Plans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

652

 

 

 

 

 

 

 

 

 

652

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,157

)

 

 

 

 

 

(2,157

)

Change in unrealized gain (loss) on investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5

)

 

 

(5

)

Balance as of March 31, 2024

 

 

20

 

 

$

13,747

 

 

 

 

11,395

 

 

$

114

 

 

$

145,770

 

 

$

(114,048

)

 

$

(1

)

 

$

31,835

 

 

 

 

 

Series A

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

Redeemable Convertible

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

Other

 

 

Total

 

 

 

Preferred Stock

 

 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

Comprehensive

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

(Loss) Income

 

 

Equity

 

Balance as of December 31, 2022

 

 

 

 

$

 

 

 

 

11,093

 

 

$

111

 

 

$

139,381

 

 

$

(97,508

)

 

$

 

 

$

41,984

 

Stock-based compensation under the 2020 Plan

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,726

 

 

 

 

 

 

 

 

 

1,726

 

Issuance of common stock under the 2020 Plan, net of forfeitures

 

 

 

 

 

 

 

 

 

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

 

 

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

 

 

 

5


 

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. 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 available to U.S. cataract surgeons and has also received regulatory clearance in India and the Philippines. In addition, the Company submitted the ALLY System for certification in the European Union, or EU, in September 2022 and, in 2023, submitted documentation to distributors in South Korea, Taiwan, and China for additional marketing or certification applications.

The Company has incurred recurring losses and operating cash outflows since its inception and, as of March 31, 2024, had an accumulated deficit of $114,048. The Company expects to continue to incur losses and cash outflows from operating activities for the near-term future. 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, 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. The Company expects annual revenue and selling, general and administrative expenses to increase from current levels associated with the increase in ALLY System placements. In addition, the Company's growth 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. 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.

Basis of Presentation

These condensed financial statements 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, 2023 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, 2023, included in the Annual Report on Form 10-K (the “Annual Report”) as filed with the SEC.

6


 

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, the recognition and measurement of current and deferred income tax assets and liabilities, and the valuation of warrant 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.

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.

Derivative Financial Instruments

The Company evaluates financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives in accordance with ASC Topic 815, Derivatives and Hedging (“ASC 815”). For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the condensed statements of operations. Warrants issued by the Company that do not meet the criteria for equity treatment are recorded as liabilities. We do not use financial instruments or derivatives for any trading purposes.

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.
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.

Related Parties

The Company follows ASC 850, Related Party Disclosures, for the identification of related parties and disclosure of related party transactions.

In May 2023, the Company completed the Private Placement (as defined in Note 11, Redeemable Convertible Preferred Stock) with NR-GRI Partners, LP (“NR-GRI”), an affiliate of North Run Capital, LP (“North Run”). Pursuant to the terms of the Private Placement, Thomas B. Ellis and Todd B. Hammer, co-managing partners of North Run, joined the Company’s Board of Directors following the Company’s 2023 Annual Meeting of Stockholders. Refer to Note 9, Warrant Liabilities, and Note 11, Redeemable Convertible Preferred Stock, for more details related to the Private Placement.

In June 2023, the Company entered into an international distribution agreement in India with a company owned by an employee at that time. As of April 1, 2024, the owner is no longer an employee of the Company. The Company established the distributor relationship to gain regulatory and operational efficiencies, as well as to establish consistent operations with all other international markets where it conducts business. During the year ended December 31, 2023, the Company began transitioning transactions with customers in India to the distributor. The Company recognized $290 in product revenue, $301 in cost of product sales, and $119 in selling, general and

7


 

administrative expenses for the three months ended March 31, 2024 associated with its Indian operations. There were no amounts due from, or due to, the distributor at March 31, 2024.

Income Taxes

Income tax expense/(benefit) from continuing operations for the three months ended March 31, 2024 and 2023 was $0 in each period, which resulted primarily from maintaining a full valuation allowance against the Company’s net deferred tax assets.

Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended (the “Code”), certain substantial changes in the Company’s ownership may result in a limitation on the amount of net operating loss and tax credit carryforwards that may be used in future years. During the second quarter of 2023, the Company experienced a change in control event resulting from the Private Placement of Series A Redeemable Convertible Preferred Stock, triggering the application of Section 382 of the Code. Refer to Note 11, Redeemable Convertible Preferred Stock, for more details related to the Private Placement. The Company has not completed an analysis to determine whether any additional limitations have been triggered under Sections 382 and 383 of the Code as of March 31, 2024. The Company computed and applied limitations of tax deductions in the income tax provision computation for the year ended December 31, 2023; however, these limitations do not have a material impact on the financial statements. Due to the existence of the valuation allowance, future changes in the Company’s deferred taxes will not impact its effective tax rate or balance sheet.

Recently Issued Accounting Pronouncements Not Yet Adopted

In November 2023, the FASB issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires enhanced disclosures about segment expenses on an annual and interim basis. This standard is effective for the Company’s annual financial statements for the year ending December 31, 2024 and for interim periods beginning in 2025. The Company is currently evaluating the impact of this standard on the financial statements.

 

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvement to Income Tax Disclosures, which requires (1) disclosure of specific categories in the rate reconciliation and (2) additional information for reconciling items that meet a quantitative threshold. Additionally, the amendment requires disclosure of certain disaggregated information about income taxes paid, income from continuing operations before income tax expense (benefit) and income tax expense (benefit). The standard is effective for the Company’s annual financial statements for the year ending December 31, 2025. The Company is currently evaluating the impact of this standard on the financial statements.

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, 2024 and 2023:

 

 

Three Months Ended
March 31,

 

 

 

2024

 

 

2023

 

United States

 

$

6,010

 

 

$

4,264

 

South Korea

 

 

278

 

 

 

9

 

Europe

 

 

1,415

 

 

 

1,538

 

Asia (excluding South Korea)

 

 

884

 

 

 

708

 

Other

 

 

54

 

 

 

104

 

Total1

 

$

8,641

 

 

$

6,623

 

 

1 The table above does not include lease revenue of $1,947 and $1,629 for the three months ended March 31, 2024 and 2023. Substantially all lease revenue originates from the United States. Refer to Note 6, Leases.

8


 

Contract Balances

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

 

 

Classification

 

As of
March 31, 2024

 

 

As of
December 31, 2023

 

Accounts receivable, current

 

Accounts receivable, net

 

$

4,023

 

 

$

4,001

 

Notes receivable, current

 

Notes receivable, net

 

$

329

 

 

$

323

 

Notes receivable, long-term

 

Notes and other receivables, long-term, net

 

$

1,174

 

 

$

1,279

 

Contract asset, current

 

Prepaid and other current assets

 

$

785

 

 

$

982

 

Deferred revenue, current

 

Deferred revenue

 

$

1,582

 

 

$

1,349

 

Deferred revenue, non-current

 

Other long-term liabilities

 

$

321

 

 

$

350

 

Contract liability, long-term

 

Other long-term liabilities

 

$

214

 

 

$

220

 

 

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 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, 2023

 

$

62

 

Change in provision for credit losses

 

 

(18

)

Write-offs

 

 

 

Accounts receivable, allowance for credit losses as of
   March 31, 2024

 

$

44

 

 

 

 

 

Accounts receivable, allowance for credit losses as of
   December 31, 2022

 

$

56

 

Change in provision for credit losses

 

 

(13

)

Write-offs

 

 

 

Accounts receivable, allowance for credit losses as of
   March 31, 2023

 

$

43

 

 

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 7.0% to 8.0%. The Company recorded interest income on notes receivable during the three months ended March 31, 2024 and 2023 of $29 and $12, 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, 2023

 

$

33

 

Change in provision for credit losses

 

 

(2

)

Write-offs

 

 

 

Notes receivable, allowance for credit losses as of
   March 31, 2024

 

$

31

 

 

 

 

 

Notes receivable, allowance for credit losses as of
   December 31, 2022

 

$

13

 

Change in provision for credit losses

 

 

7

 

Write-offs

 

 

 

Notes receivable, allowance for credit losses as of
   March 31, 2023

 

$

20

 

 

9


 

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, 2023

 

$

982

 

Contract assets recognized

 

 

488

 

Payments received

 

 

(635

)

Write-off due to contract modification

 

 

(50

)

Contract assets as of March 31, 2024

 

$

785

 

 

 

 

 

Contract assets as of December 31, 2022

 

$

332

 

Contract assets recognized

 

 

117

 

Payments received

 

 

(45

)

Contract assets as of March 31, 2023

 

$

404

 

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, 2023

 

$

1,919

 

Billings not yet recognized as revenue

 

 

776

 

Beginning contract liabilities recognized as revenue

 

 

(578

)

Contract liabilities as of March 31, 2024

 

$

2,117

 

 

 

 

 

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

 

Transaction Price Allocated to Future Performance Obligations

At March 31, 2024, 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 $23,005. The Company expects to satisfy its remaining performance obligations by December 31, 2029, with $6,721 to be satisfied by December 31, 2024, $6,287 to be satisfied by December 31, 2025, $4,400 to be satisfied by December 31, 2026, $3,430 to be satisfied by December 31, 2027, $2,010 to be satisfied by December 31, 2028, $157 to be satisfied by December 31, 2029. 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. Fair Value of Financial Instruments

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.

The Company classifies money market funds, U.S. treasury bills, certificates of deposit, and U.S. government securities as Level 1 within the fair value hierarchy as the fair value is based on quoted prices. The Company classifies U.S. government agency bonds as Level 2 within the fair value hierarchy as the fair value is based upon quoted market prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active for which all significant inputs are observable in the market or can be corroborated by observable market data for substantially the full term of the assets. The Company classifies its warrant derivative liabilities as Level 3 within the fair value hierarchy as the Company estimates the fair value of the warrant liabilities using

10


 

recently quoted market prices of the Company's common stock and the Black-Scholes option pricing model, refer to Note 9, Warrant Liabilities.

 

The following table sets forth by level, within the fair value hierarchy, the Company's assets and liabilities at fair value as of March 31, 2024 and December 31, 2023:

 

 

 

March 31, 2024

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

10,115

 

 

$

 

 

$

 

 

$

10,115

 

U.S. treasury bills

 

 

2,973

 

 

 

 

 

 

 

2,973

 

Certificates of deposit

 

 

1,226

 

 

 

 

 

 

 

1,226

 

U.S. government securities

 

 

489

 

 

 

 

 

 

 

489

 

U.S. government agency bonds

 

 

 

 

500

 

 

 

 

 

500

 

Total assets

 

$

14,803

 

 

$

500

 

 

$

 

 

$

15,303

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Warrant derivative liabilities

 

$

 

 

$

 

 

$

7,962

 

 

$

7,962

 

Total liabilities

 

$

 

 

$

 

 

$

7,962

 

 

$

7,962

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2023

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

11,171

 

 

$

 

 

$

 

 

$

11,171

 

U.S. treasury bills

 

 

5,942

 

 

 

 

 

 

 

5,942

 

Certificates of deposit

 

 

983

 

 

 

 

 

 

 

983

 

Total assets

 

$

18,096

 

 

$

 

 

$

 

 

$

18,096

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Warrant derivative liabilities

 

$

 

 

$

 

 

$

8,457

 

 

$

8,457

 

Total liabilities

 

$

 

 

$

 

 

$

8,457

 

 

$

8,457

 

There were no assets or liabilities measured at fair value as of March 31, 2023. There were no transfers between fair value hierarchy levels during three months ended March 31, 2024.

11


 

The fair value of the Company’s financial assets that are measured at fair value on a recurring basis as of March 31, 2024 are as follows:

 

 

March 31, 2024

 

 

 

Amortized Cost

 

 

Unrealized Gains

 

 

Unrealized Losses

 

 

Fair Value

 

Cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

  Money market funds

 

$

10,115

 

 

$

 

 

$

 

 

$

10,115

 

Short-term investments

 

 

 

 

 

 

 

 

 

 

 

 

  U.S. treasury bills

 

 

2,974

 

 

 

 

 

 

(1

)

 

 

2,973

 

  Certificates of deposit

 

 

490

 

 

 

 

 

 

 

 

 

490

 

U.S. government securities

 

 

490

 

 

 

 

 

 

(1

)

 

 

489

 

Long-term investments

 

 

 

 

 

 

 

 

 

 

 

 

  Certificates of deposit

 

 

735

 

 

 

1

 

 

 

 

 

 

736

 

U.S. government agency bonds

 

 

500

 

 

 

 

 

 

 

 

 

500

 

Total

 

$

15,304

 

 

$

1

 

 

$

(2

)

 

$

15,303

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2023

 

 

 

Amortized Cost

 

 

Unrealized Gains

 

 

Unrealized Losses

 

 

Fair Value

 

Cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

  Money market funds

 

$

11,171

 

 

$

 

 

$

 

 

$

11,171

 

  U.S. treasury bills

 

 

2,989

 

 

 

1

 

 

 

 

 

 

2,990

 

Short-term investments