What changed in this filing

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Item 1. Legal Proceedings

2024-05-14 compared with 2023-11-20 · 132 added, 159 removed, 524 unchanged (36% of the section changed)

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Investing in our common stock involves a high degree of risk.

and our condensed consolidated financial statements and related notes, before making a decision to invest in our common stock.

You should carefully consider the risks and uncertainties described below, together with all of the other information in this Quarterly Report on Form 10-Q, including the sections titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our condensed consolidated financial statements and related notes, before making a decision to invest in our common stock.

Our business, financial condition, results of operations, or prospects could also be harmed by risks and uncertainties not currently known to us or that we currently do not believe are material.

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Operational factors

• we may need additional funding and may not be able to raise capital when needed, which could force us to delay or reduce commercialization efforts;

• our financial condition raises serious doubt as to our ability to continue to operate as a going concern;

• the success of our relationship with our strategic partner and main distributor Topcon;

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• competition in our industry;

• the loss of key personnel;

• the collaborative relationships used to enhance products and applications;

• costs, sales volumes, results of operations, and revenues;

the loss of key personnel;

• meeting product demand;

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• patents and proprietary rights related to our intellectual property;

compliance with government regulations, including the FDA’s quality system regulation and laser performance standards;

• compliance with government regulations, including the FDA’s quality system regulation and laser performance standards;

• regulatory approval for clinical trials;

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• divestitures of our businesses or product lines;

efforts to acquire additional companies or product lines;

raising additional capital;

• provisions in our charter documents, Delaware law and contractual provisions that could delay or prevent an acquisition or sale of our company.

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Risks Relating to our Business

The current macroeconomic conditions, including the effects of the COVID-19 pandemic and efforts to mitigate its impact have disrupted, and may continue to disrupt, our operations, including our ability to manufacture and supply products and perform research and development activities, and our customers’

usage of our products as demand declined in elective surgeries in response to the COVID-19 pandemic, all of which have had and may continue to have a material and adverse effect on our business, future revenues and financial condition.

We are unable to predict the extent to which any future global pandemic or other public health emergencies or outbreaks and related macroeconomic impacts may continue to adversely impact our business operations, financial performance, results of operations, financial position and the achievement of our strategic objectives .

We may need additional funding and may not be able to raise capital when needed, which could force us to delay or reduce our commercialization efforts.

We are actively engaged in a review of our near-, medium- and long-term financing needs, which includes seeking to raise additional capital through strategic alternatives, equity offerings and debt financings.

Such additional financing may not be available to us on acceptable terms or at all.

Given the current market price of our common stock, any equity financing would result in

significant dilution to our existing stockholders.

In addition, any additional equity or debt financing that we raise may contain terms that are not favorable to us or our stockholders.

For example, if we raise funds by issuing equity or equity-linked securities, the issuance of such securities could result in dilution to our stockholders.

Any equity securities issued may also provide for rights, preferences, or privileges senior to those of holders of our common stock.

In addition, the issuance of additional equity securities by us, or the possibility of such issuance, may cause the market price of our common stock to decline.

In addition, the terms of debt securities issued, or borrowings, could impose significant restrictions on our operations including restrictive covenants, such as limitations on our ability to incur additional debt or issue additional equity, limitations on our ability to pay dividends, limitations on our ability to acquire or license intellectual property rights, and other operating restrictions that could adversely affect our ability to conduct our business.

In the event that we enter into collaborations or licensing arrangements to raise capital, we may be required to accept unfavorable terms, such as relinquishment or licensing of certain technologies or products that we otherwise would seek to develop or commercialize ourselves, or reserve for future potential arrangements when we might otherwise be able to achieve more favorable terms.

If we are unable to obtain adequate financing on terms satisfactory to us when we require it, we may terminate or delay sales and marketing efforts or other activities necessary to commercialize our products.

If this were to occur, our ability to grow and support our business and to respond to market challenges could be significantly limited, which could have a material adverse effect on our business, financial condition, and results of operations.

There is substantial doubt regarding our ability to continue as a going concern.

We will need to raise additional funding, which may not be available on acceptable terms, or at all.

Failure to obtain this necessary capital when needed may force us to delay, limit or terminate our commercial programs, product development efforts or other operations.

Developing and commercializing products for the ophthalmology market is expensive, and we have incurred significant operating losses as result.

Based on our current business plan as of the date hereof, there is substantial doubt regarding our ability to continue as a going concern.

Our recurring losses, negative cash flows, ongoing strategic alternatives, and the need for additional financing raise doubt about our ability to continue to execute our business plan as currently intended.

Furthermore, our cash forecasts are based on assumptions that may prove to be wrong, and we could use out available capital resources earlier than we currently expect.

Changing circumstances could cause us to consume capital significantly faster than we currently anticipate, and we may exhaust our available capital sooner than planned.

See Part I, Item 2 "Management's Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources" of this Quarterly Report on Form 10-Q for a discussion of our expected cash runway.

Moreover, as a result of recent volatile market conditions, the cost and availability of capital has been and may continue to be adversely affected.

Continued turbulence in the U.S.

market and economy may adversely affect our liquidity and financial condition, including our ability to access the capital markets to meet liquidity needs.

To fund further operations, the Company will need to raise additional capital.

The Company’s ability to continue as a going concern or meet the minimum liquidity requirements in the future is dependent on its ability to raise additional capital, of which there can be no assurance.

If we are unable to obtain funding on a timely basis, increase sales or reduce expenses, we will be unable to continue to fund our operations, continue to sell our products, realize value from our assets, or discharge our liabilities in the normal course of business.

Although management plans to reduce cash expenditures to alleviate such ongoing concerns, if we become unable to continue as a going concern, we could have to liquidate our assets, and potentially realize significantly less than the values at which they are carried on our financial statements, and stockholders could lose all or part of their investment.

Additionally, our financial statements have been prepared assuming that we will continue to operate as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

Thus, our financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.

The current macroeconomic conditions have disrupted, and may continue to disrupt our operations, including our ability to manufacture and supply products and perform research and development activities, and our customers’ usage of our products, all of which have had and may continue to have a material and adverse effect on our business, future revenues and financial condition.

We are unable to predict the extent to which any future global pandemic or other public health emergencies or outbreaks and related macroeconomic impacts may adversely impact our business operations, financial performance, results of operations, financial position and the achievement of our strategic objectives .

Our business, results of operation and financial performance were negatively impacted by the COVID-19 pandemic and related public health responses, such as travel restrictions in countries and regions in which we have operations or manufacturing partners.

Due to these impacts and measures, we have experienced and may continue to experience significant and unpredictable interruptions in the supply of raw materials, components and sub-assemblies necessary to manufacture and assemble our products and reductions in the demand for our products as healthcare customers continue to divert medical resources and priorities towards the treatment of COVID-19.

In addition, our customers may delay, cancel or redirect planned capital expenditures in order to focus resources on any future outbreak of disease, global pandemic or in response to macroeconomic disruption related to any future global pandemic.

For example, during the fiscal year ended January 2, 2021, we experienced significant decline in treatment and procedure volume worldwide, as healthcare systems diverted resources to meet the increasing demands of managing COVID-19.

In the near term COVID-19 pandemic may continue to negatively impact the use of our products and the number of ophthalmic treatments and procedures performed.

If the volume of elective procedures continues to remain lower than normal, our results of operations and financial condition will continue to be adversely affected.

The COVID-19 pandemic has caused disruption and delays in our ability to operate and manufacture, test and assemble products in our internal facilities, particularly in our Mountain View, California facility, and has limited our ability to continue certain research and development activities which could materially and adversely affect our ability to develop new products and technologies on the timelines we previously anticipated.

On May 11, 2023, the federal government ended the COVID-19 public health emergency, which ended a number of temporary changes made to federally funded programs while some continue to be in effect.

The volatile macroeconomic environment, including the COVID-19 pandemic has created economic uncertainty and volatility in the financial markets around the world, resulting in an economic downturn that has affected and may likely continue to affect demand for our products and impact our results of operations.

Due to these impacts and measures, we have experienced and may continue to experience significant and unpredictable interruptions in the supply of raw materials, components and sub-assemblies necessary to manufacture and assemble our products and reductions in the demand for our products if healthcare customers divert medical resources and priorities towards the treatment of COVID-19 or any future outbreak of disease.

In the near term, a future outbreak of disease or global pandemic may negatively impact the use of our products and the number of ophthalmic treatments and procedures performed.

If the volume of elective procedures declines, our results of operations and financial condition will be adversely affected.

The volatile macroeconomic environment has created economic uncertainty and volatility in the financial markets around the world, resulting in an economic downturn that has affected and may likely continue to affect demand for our products and impact our results of operations.

As a result, this may lead to a period of regional, national, and global economic slowdown or regional, national, or global recessions that would curtail or delay spending by hospitals and affect demand for our products as well as increase the risk of customer defaults or delays in payments.

Our customers may terminate or amend their agreements for the purchase, lease, or service of our products due to bankruptcy, lack of liquidity, lack of funding, operational failures, or other reason.

The ultimate impact of the volatile macroeconomic conditions, including the COVID-19 pandemic and other public health emergencies or outbreaks, on our operations and financial performance depends on many factors that are not within our control, including, but not limited, to:

The ultimate impact of the volatile macroeconomic conditions on our operations and financial performance depends on many factors that are not within our control, including, but not limited, to:

the recommendations by medical authorities on whether hospitals should and may perform elective surgical procedures;

hospitals’

abilities and willingness to devote resources to elective surgical procedures;

governmental, business and individuals’

actions that have been and may continue to be taken in response to any future resurgence of the COVID-19 pandemic or other public health emergencies or outbreaks (including restrictions on travel and transport and workforce pressures);

the impact of the COVID-19 pandemic and actions taken in response on global and regional economies, travel, and economic activity;

hospitals’ abilities and willingness to devote resources to elective surgical procedures;

governmental, business and individuals’ actions that have been and may continue to be taken in response to any future resurgence of the COVID-19 pandemic or other public health emergencies or outbreaks (including restrictions on travel and transport and workforce pressures);

the impact of other public health emergencies or any future outbreak of disease and actions taken in response on global and regional economies, travel, and economic activity;

the availability of federal, state, local or non-U.S.

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global economic conditions and levels of economic growth;

and the pace of recovery when the current volatile macroeconomic conditions, including the impact of the COVID-19 pandemic, subside.

Although the magnitude of the impact of the COVID-19 pandemic on our business operations remains a highly dynamic situation, we have experienced and may continue to experience in subsequent periods, disruptions to our business that may adversely impact our business, financial condition and results of operations.

and the pace of recovery when the current volatile macroeconomic conditions subside.

We have experienced and may continue to experience in subsequent periods, disruptions to our business that may adversely impact our business, financial condition and results of operations.

Divestitures of our businesses or product lines may materially and adversely affect our financial condition, results of operations or cash flows and require us to raise additional capital to replace revenue from those business units or product lines.

We have two main businesses:

glaucoma and retina, domestic and international operations within each and many product lines within the two businesses.

We periodically evaluate the performance and strategic fit of our businesses and may sell businesses or product lines.

Divestitures involve risks, including difficulties in the separation of operations, services, products and personnel, the diversion of management’s attention from other business concerns, the disruption of our business, the potential loss of key employees and the retention of uncertain environmental or other contingent liabilities related to the divested business.

In addition, divestitures may result in significant asset impairment charges, including those related to goodwill and other intangible assets, and the loss of revenue which could have a material adverse effect on our financial condition and results of operations.

In addition, we may not realize the expected value from the divestiture of a business or product lines and may need to raise additional capital to replace the revenue generated from the business or product line that is divested.

We can provide no assurance that such capital will be available or available on terms that are acceptable to us.

We cannot assure you that we will be successful in managing these or any other significant risks that we encounter in divesting a business or product line, and any divestiture we undertake could materially and adversely affect our business, financial condition, results of operations and cash flows, and may also result in a diversion of management attention, operational difficulties and losses.

We may not be successful in our strategic partnership with Topcon and the relationship may divert resources away from existing operations or expose us to liabilities, which could adversely affect our business, results of operations and financial condition.

On March 2, 2021, we entered into a series of strategic transactions with Topcon, Topcon America Corporation (the “Investor”) and Topcon Medical Laser Systems, Inc., a subsidiary of Topcon (“TMLS”), which included (i) an asset purchase agreement with TMLS, pursuant to which we acquired substantially all the assets (except for cash and cash equivalents) of TMLS, including rights to the PASCAL product (the “Asset Purchase Agreement”), (ii) a distribution agreement dated March 2, 2021, pursuant to which we granted Topcon the exclusive right to distribute our retina and glaucoma products in certain geographies outside the United States (the “Distribution Agreement”), and (iii) an investment agreement dated March 2, 2021 (the “Investment Agreement”), pursuant to which we sold the Investor 1,618,122 shares of our common stock for an aggregate purchase price of $10 million.

Pursuant to the Asset Purchase Agreement, the transferred assets include substantially all of TMLS’

assets including the rights to the PASCAL product (the “Transferred Assets”).

Pursuant to the Asset Purchase Agreement, the transferred assets include substantially all of TMLS’ assets including the rights to the PASCAL product (the “Transferred Assets”).

We assumed only those liabilities arising after the closing in connection with the Transferred Assets.

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Topcon agreed to use commercially reasonable efforts to commercialize our products in each region throughout the territory, including achieving certain sales baselines by product category and region.

If Topcon fails to achieve the baselines in a region, we will have the right to, subject to payment of a fee, terminate Topcon’s appointment in such region.

The Distribution Agreement and Topcon’s appointment will, unless terminated earlier, continue on a country-by-country basis for a period of ten (10) years from the date exclusivity is granted.

If Topcon fails to achieve the baselines in a region, we will have the right to, subject to payment of a fee, terminate Topcon’s appointment in such region.

The Distribution Agreement and Topcon’s appointment will, unless terminated earlier, continue on a country-by-country basis for a period of 10 years from the date exclusivity is granted.

The Distribution Agreement includes customary termination rights and effects of termination, including a termination for convenience right in favor of Topcon and, subject to payment of a fee, a termination right in our favor upon a change of control of our company, as well as customary indemnification provisions.

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The manufacture of our lasers, laser products and systems involves a highly complex and precise process.

As a result of the technical complexity of our products, changes in our or our suppliers’

manufacturing processes or the inadvertent use of defective materials by us or our suppliers could result in a material adverse effect on our ability to achieve acceptable manufacturing yields and product reliability.

As a result of the technical complexity of our products, changes in our or our suppliers’ manufacturing processes or the inadvertent use of defective materials by us or our suppliers could result in a material adverse effect on our ability to achieve acceptable manufacturing yields and product reliability.

To the extent that we do not achieve such yields or product reliability, our business, operating results, financial condition and customer relationships would be adversely affected.

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Currently our direct and independent sales forces within the United States consist of approximately 30 employees and one independent representatives, respectively, and our direct sales force in Germany consists of one employee.

Our international independent distributors are managed by a team of six people.

Our international independent distributors are managed by a team of seven people.

We generally grant our distributors exclusive territories for the sale of our products in specified countries and regions.

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We derive, and expect to continue to derive, a large portion of our revenues from international sales.

For the third fiscal quarter of fiscal year 2023, our international sales were $6.7 million, or 52.2% of total revenues.

For the first quarter of fiscal year 2024, our international sales were $6.4 million, or 54.8% of total revenues.

We anticipate that international sales will continue to account for a significant portion of our revenues in the foreseeable future.

All of our international revenues and costs for the third fiscal quarter of 2023 have been denominated in U.S.

All of our international revenues and costs for the first quarter of fiscal year 2024 have been denominated in U.S.

dollars except for sales transacted through our German subsidiary.

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• impact of international conflicts, terrorist and military activity, civil unrest;

foreign certification requirements, including continued ability to use the “CE”

mark in Europe, and other local regulatory requirements;

• foreign certification requirements, including continued ability to use the “CE” mark in Europe, and other local regulatory requirements, pending MDR approvals;

• differing local product preferences and product requirements;

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Our products are typically purchased by doctors, clinics, hospitals and other users, which bill various third-party payers, such as governmental programs and private insurance plans, for the health-care services provided to their patients.

Changes in government legislation or regulation or in private third-party payers’

policies toward reimbursement for procedures employing our products may prohibit adequate reimbursement.

Changes in government legislation or regulation or in private third-party payers’ policies toward reimbursement for procedures employing our products may prohibit adequate reimbursement.

There have been a number of legislative and regulatory proposals to change the healthcare system, reduce the costs of healthcare and change medical reimbursement policies.

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Further proposed legislation, regulation and policy changes affecting third-party reimbursement are likely.

Among other things, Congress has in the past proposed changes to and the repeal of the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010, collectively, the “Affordable Care Act”, and the current U.S.

presidential administration has announced certain policy changes that could impact the availability of benefits under the Affordable Care Act.

For example, tax reform legislation enacted at the end of 2017 eliminated the tax penalty for individuals who did not maintain sufficient health insurance coverage beginning in 2019 (the “individual mandate”).

We anticipate continued Congressional interest in modifying provisions of the Affordable Care Act.

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While we believe that the laser procedures using our products have generally been reimbursed, payers may deny coverage and reimbursement for our products if they determine that the device was not reasonable and necessary for the purpose used, was investigational or was not cost-effective.

As discussed above, the MACs have published “Local Coverage Determination L39620 Micro-Invasive Glaucoma Surgery (MIGS)”

in October and November 2023.

Based on our initial analysis, this LCD imposes additional requirements for reimbursement, which will likely materially limit the types of patients for which WPS will reimburse cyclophotocoagulation procedures after the effective date.

A number of physicians have expressed concerns regarding the potential restriction on their patients’

access to transscleral cyclophotocoagulation laser therapy (“TLT”) under this LCD.

Although this LCD does not deny coverage, it is unclear how this LCD will be interpreted or applied by the MACs in practice, or how our customers will interpret or perceive this LCD when

making purchasing decisions.

As such, the full impact of this LCD on our glaucoma business in the United States is unclear.

We and other stakeholders intend to challenge the scope of this LCD.

Additionally, we plan to work with participating physicians to collect additional data to demonstrate the value of the MicroPulse technology to patients.

We can provide no assurance that the level of coverage or reimbursement, market share and demand, and/or revenues for any of our products will be maintained.

We will continue to assess and adjust our domestic glaucoma operations as appropriate in response to any changes in reimbursement policies that materially impact our ability to maintain and expand our glaucoma business in the United States.

If we are unable to obtain or maintain adequate levels of third-party coverage and reimbursement for the procedures using our products, if third parties rescind or modify their coverage or impose greater restrictions reimbursement criteria, or if patients are left with significant out-of-pocket costs, it would have a material adverse effect on our business, financial condition and results of operations.

If we fail to develop and successfully introduce new products and applications or fail to improve our existing products, our business prospects and operating results may suffer.

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Our research and development process is expensive, prolonged, and entails considerable uncertainty.

Due to the complexities and uncertainties associated with ophthalmic research and development, products we are currently developing may not complete the development process or obtain the regulatory approvals required to market such products successfully.

Due to the complexities and uncertainties associated with ophthalmic research and development, products we are currently developing may not complete the

development process or obtain the regulatory approvals required to market such products successfully.

Should the current macroeconomic conditions worsen, it could delay and disrupt our research and development processes even further.

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Any failure in our ability to successfully develop and introduce new products or enhanced versions of existing products and achieve market acceptance of new products and new applications could have a material adverse effect on our operating results and would cause our net revenues to decline.

Growth in our sales and marketing organization may increase costs and create operational challenges without immediately offsetting benefits.

We continue to increase our internal sales and marketing functions.

This growth may place a strain on our management, operating and financial systems and our sales, marketing and administrative resources as well as increase operating costs.

For example, if we are unable to efficiently or effectively provide adequate training for our expanding sales force and marketing organization, we may not be able to immediately or fully utilize marketing resources, generate new sales and offset operational challenges such as the cost of recruiting and hiring sales and marketing personnel.

If we cannot effectively manage our expanding operations and our costs, our business may not be able to grow effectively or we may grow at a slower pace.

We are exposed to risks associated with worldwide economic slowdowns and related uncertainties.

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and worldwide economy including inflationary pressures that may cause the cost of manufacturing our products or servicing our products to increase.

Concerns about consumer and investor confidence, volatile corporate profits and reduced capital spending, uncertainty in the global banking and financial services market, international conflicts, terrorist and military activity, civil unrest and pandemic-related illness could reduce customer orders or cause customer order cancellations.

Concerns about consumer and investor confidence, the upcoming presidential election in the United States, volatile corporate profits and reduced capital spending, uncertainty in the global banking and financial services market, international conflicts, terrorist and military activity, civil unrest and pandemic-related illness could reduce customer orders or cause customer order cancellations.

For example, any future global pandemic or other public health emergencies may cause adverse impacts on global economic activity which could negatively impact our business.

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Factors contributing to these fluctuations include the following:

general macroeconomic conditions, including inflationary pressures and rising interest rates, uncertainty in the global banking and financial services market, potential federal government shutdown, global pandemics and responsive measures and the wars between Russia-Ukraine and Israel-Hamas;

• general macroeconomic conditions, including inflationary pressures and heightened interest rates, uncertainty in the global banking and financial services market, upcoming presidential election in the United States, global pandemics and responsive measures and the wars between Russia-Ukraine and Israel-Hamas;

• changes in the prices at which we can sell our products, including the impact of changes in foreign currency exchange rates;

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• our long and highly variable sales cycle;

changes in customers’

or potential customers’

budgets as a result of, among other things, reimbursement policies of government programs and private insurers for treatments that use our products;

• changes in customers’ or potential customers’ budgets as a result of, among other things, reimbursement policies of government programs and private insurers for treatments that use our products;

• variances in shipment volumes as a result of product, supply chain due to global constraints or other factors and training issues;

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If sales levels in a particular quarter do not meet expectations, we may be unable to adjust operating expenses quickly enough to compensate for the shortfall of sales, and our results of operations may be adversely affected.

In addition, we have historically made a significant portion of each quarter’s product shipments near the end of the quarter.

If that pattern continues, any delays in shipment of products could have a material adverse effect on results of operations for such quarters.

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We believe that continued and increased sales, if any, of these medical laser systems is dependent upon a number of factors including the following:

the impact of any future resurgence any future global pandemic or other public health emergencies on timing of ophthalmic treatment procedures;

• the impact of any future resurgence of any future global pandemic or other public health emergencies on timing of ophthalmic treatment procedures;

• acceptance of product performance, features, ease of use, scalability and durability, including with respect to our MicroPulse laser photocoagulation systems, and our PASCAL product;

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We face strong competition in our markets and expect the level of competition to grow in the foreseeable future.

Competition in the market for laser systems and delivery devices used for ophthalmic treatment procedures is intense and is expected to increase.

Competition in the market for laser systems and delivery devices used for ophthalmic treatment procedures is expected to increase.

This market is also characterized by technological innovation and change.

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enhanced product performance and clinical outcomes, ease of use, durability, versatility, customer training services and rapid repair of equipment.

Our principal ophthalmic laser competitors are Alcon Inc., Novartis AG, Bausch Health Companies Inc., Carl Zeiss Meditec AG, Lumenis Ltd., Nidek Co.

Ltd., Lumibird, and Norlase.

We also compete with alternative glaucoma surgical device companies such as Alcon, Inc., Allergan, Inc., Glaukos Corporation, New World Medical, Inc.

and Ivantis, Inc.

Our principal ophthalmic laser competitors are Alcon Inc., Bausch Health Companies Inc., Carl Zeiss Meditec AG, Lumenis Ltd., Nidek Co.

Ltd., Lumibird, ARC Gmbh, Meridian, OD-OS GmBh and Norlase.

We also compete with alternative glaucoma surgical device companies such as Alcon, Inc., Novartis AG, Allergan, Inc., Glaukos Corporation and New World Medical, Inc.

Pharmaceuticals represent alternative treatments to our laser procedures.

Some of our principal pharmaceutical competitors are Alcon, Inc., Allergan, Inc., Astellas Pharma Inc., Pfizer Inc., Regeneron Pharmaceuticals, Inc., Roche Holding Ltd.

(Genentech) and Bausch Health Companies Inc.

Some of our principal pharmaceutical competitors are Alcon, Inc., Allergan, Inc., Astellas Pharma Inc., Pfizer Inc., Regeneron Pharmaceuticals, Inc., and Roche Holding Ltd.

Some of our competitors have substantially greater financial, engineering, product development, manufacturing, marketing and technical resources than we do.

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Any such developments could have a material adverse effect on our business, financial condition and results of operations.

We have two main businesses:

glaucoma and retina, domestic and international operations within each and many product lines within the two businesses.

We periodically evaluate the performance and strategic fit of our businesses and may sell businesses or product lines.

We can provide no assurance that such capital will be available or available on terms that are acceptable to us.

We cannot assure you that we will be successful in managing these or any other

significant risks that we encounter in divesting a business or product line, and any divestiture we undertake could materially and adversely affect our business, financial condition, results of operations and cash flows, and may also result in a diversion of management attention, operational difficulties and losses.

If we lose key personnel or fail to integrate replacement personnel successfully, our ability to manage our business could be impaired.

Our future success depends upon the continued service of our key management, technical, sales, and other critical personnel.

Our officers and other key personnel are employees-at-will, and we cannot provide assurance that we will be able to retain them.

Key personnel have left our company in the past, and there likely will be additional departures of key personnel from time to time in the future.

Additionally, our common stock is currently trading at a price below the exercise price of many of our outstanding options.

As a result, these “underwater” options are less useful as a motivation and retention tool for our existing employees.

The loss of any key employee could result in significant disruptions to our operations, including adversely affecting the timeliness of product releases, the successful implementation and completion of company initiatives, and the results of our operations.

Competition for these individuals is intense, and we may not be able to attract, assimilate or retain highly qualified personnel.

Competition for qualified personnel in our industry and the San Francisco Bay Area, as well as other geographic markets in which we recruit, is highly competitive and characterized by increasing salaries, which may increase our operating expenses or hinder our ability to recruit qualified candidates.

In addition, the integration of replacement personnel could be time consuming, may cause additional disruptions to our operations, and may be unsuccessful.

If we fail to comply with healthcare laws, we could face substantial penalties and financial exposure, and our business, operations and financial condition could be adversely affected.

While we do not bill directly to Medicare, Medicaid or other third-party payors, because payment is in many cases available for our products from such payors, many healthcare laws place limitations and requirements on the manner in which we conduct our business (including our sales and promotional activities and interactions with healthcare professionals and facilities) and could result in liability and exposure for us.

The laws that may affect our ability to operate include (i) the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual for, or the purchase, order or recommendation of, any good or service for which payment may be made under federal healthcare programs such as Medicare or Medicaid, (ii) federal false claims laws which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other third-party payors that are false or fraudulent, and which may apply to entities like us if we provide coding and billing advice to customers, or under theories of “implied certification”

where the government and qui tam relators may allege that device companies are liable where a product that was paid for by the government in whole or in part was promoted “off-label,”

lacked necessary clearance or approval, or failed to comply with good manufacturing practices or other laws;

(iii) transparency laws and related reporting and disclosures requirements such as the federal Sunshine Act, now known as Open Payments;

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Any penalties, damages, fines, curtailment or restructuring of our operations could adversely affect our ability to operate our business and our financial results.

The risk of our operations being found in violation of these laws is increased by the fact that the government’s provisions are open to a variety of evolving interpretations and enforcement discretion.

Compliance with Open Payments, commonly known as the Sunshine Act, has presented a number of challenges to companies such as ours, in terms of interpretation of the law and its implementation.

Under the Sunshine Act, Centers for Medicare & Medicaid Services (“CMS”) has the potential to impose penalties of up to $1.26 million per year for violations, depending on the circumstances and adjusted annually for inflation, although enforcement has been negligible to date.

Compliance with Open Payments, commonly known as the Sunshine Act, has

presented a number of challenges to companies such as ours, in terms of interpretation of the law and its implementation.

Payments reported under the Sunshine Act also have the potential to draw scrutiny on payments to and relationships with physicians, which may have implications under the Anti-Kickback Statute and other healthcare laws.

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Further, while safe harbors may in some instances be available and utilized by companies to reduce risks associated with the Anti-Kickback Statute and certain other healthcare laws, we have not necessarily utilized such safe harbors nor fully followed all elements required to claim the benefit of such safe harbors in all possible instances.

Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business.

We depend on collaborative relationships to develop, introduce and market new products, product enhancements and applications.

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Federal Trade Commission, the Department of Justice, the CMS, other divisions of the Department of Health and Human Services and state and local governments.

Other parties, including private plaintiffs, also are commonly bringing suit against pharmaceutical and medical device companies, alleging off-label marketing and other violations.

Other parties, including private plaintiffs, also are commonly initiating lawsuits against pharmaceutical and medical device companies, alleging off-label marketing and other violations.

We may be subject to liability based on the actions of individual employees and contractors carrying out activities on our behalf, including sales representatives who may interact with healthcare professionals.

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We file patent applications to protect technology, inventions and improvements that are significant to the development of our business.

As of September 30, 2023, our patent portfolio includes 62 active United States patents and 85 active international patents on the technologies related to our products and processes.

In addition, as of September 30, 2023, we have 11 patent applications pending in the United States and 21 international patent applications pending.

As of March 30, 2024, our patent portfolio includes 67 active United States patents and 84 active international patents on the technologies related to our products and processes.

In addition, as of March 30, 2024, we have 12 patent applications pending in the United States and 19 international patent applications pending.

Our patent applications may not be approved.

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An adverse determination in a judicial or administrative proceeding and failure to obtain necessary licenses or develop alternate technologies could prevent us from manufacturing and selling our products, which would have a material adverse effect on our business, results of operations and financial condition.

If we lose key personnel or fail to integrate replacement personnel successfully, our ability to manage our business could be impaired.

Our future success depends upon the continued service of our key management, technical, sales, and other critical personnel.

Our officers and other key personnel are employees-at-will, and we cannot provide assurance that we will be able to retain them.

Key personnel have left our company in the past, and there likely will be additional departures of key personnel from time to time in the future.

Additionally, our common stock is currently trading at a price below the exercise price of many of our outstanding options.

As a result, these “underwater”

options are less useful as a motivation and retention tool for our existing employees.

Competition for these individuals is intense, and we may not be able to attract, assimilate or retain highly qualified personnel.

In addition, the integration of replacement personnel could be time consuming, may cause additional disruptions to our operations, and may be unsuccessful.

If we fail to accurately forecast demand for our product and component requirements for the manufacture of our product, we could incur additional costs or experience manufacturing delays and may experience lost sales or significant inventory carrying costs.

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If we overestimate the demand for our product, we may have excess inventory, which would increase our costs.

If we underestimate demand for our product and consequently, our components, materials and fully assembled products requirements, we may have inadequate inventory, which could interrupt our manufacturing, delay delivery of our product to our customers and result in the loss of customer sales.

If we underestimate demand for our product and consequently, our components, materials and fully assembled product requirements, we may have inadequate inventory, which could interrupt our manufacturing, delay delivery of our product to our customers and result in the loss of customer sales.

Any of these occurrences would negatively impact our business and operating results.

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California can experience earthquakes, catastrophic wildfires, and intermittent power outages.

Any such loss at any of our facilities caused by fires, flooding, power outages, or earthquakes could disrupt our operations, delay production, shipments and revenue and result in large expense to repair and replace our facilities.

If we experience a significant disruption in our information technology systems or breaches of data security, our business could be adversely affected.

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Our information technology systems and those of our third-party service providers are potentially vulnerable to disruption, breakdown, damage, service interruption, system malfunction, power outage, natural disaster, malicious intrusion, ransomware, denial-of-service attacks, phishing attacks, social engineering, computer viruses, security breaches and other cyber-attacks.

For example, companies have experienced an increase in phishing and spoofing attacks from third parties in connection with working remotely, either permanently or temporarily, due to the COVID-19 pandemic or due to political uncertainty and military actions associated with the significant military action against Ukraine launched by Russia.

For example, companies have experienced an increase in phishing and spoofing attacks from third parties in connection with working remotely, either permanently or temporarily.

If we were to experience a prolonged system disruption in our information technology systems, it could negatively impact the coordination of our sales, planning and manufacturing activities, which could adversely affect our business.

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Before a new device can be introduced into the market, the product must be shown to meet regulatory requirements established by the FD&C Act and implemented by the FDA.

Unless otherwise exempt, a device manufacturer must obtain marketing “clearance”

through the 510(k) premarket notification process, or “approval”

through the lengthier premarket approval application (“PMA”) process or other processes such as the “de novo”

Unless otherwise exempt, a device manufacturer must obtain marketing “clearance” through the 510(k) premarket notification process, or “approval” through the lengthier pre-market approval application (“PMA”) process or other processes such as the “de novo” process.

Not all devices are eligible for the 510(k) clearance process.

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The FDA imposes a broad range of additional requirements on medical device companies.

Our products must be produced in compliance with the Quality System Regulation (“QSR”) and our manufacturing facilities are subject to establishment registration and device listing requirements from the FDA, and similar requirements from certain state authorities, and ongoing periodic inspections by the FDA, including unannounced inspections for compliance with applicable requirements.

We are subject to monitoring, recordkeeping, and reporting obligations for medical device adverse events and malfunctions;

notification of our products’

defects or failure to comply with the FDA’s laser regulations;

notification of our products’ defects or failure to comply with the FDA’s laser regulations;

and reporting of recalls, corrections, or removals of our products.

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The Federal Trade Commission has jurisdiction over the advertising of all of our products, which are non-restricted devices, and exercises oversight in coordination with the FDA.

Noncompliance with the applicable requirements can result in, among other things, regulatory citations (including “483 Observations”) and warning letters, fines, injunctions, civil penalties, recall or seizure of products, total or partial suspension of production, withdrawal of marketing approvals, and criminal prosecution.

The FDA also has the authority to request repair, replacement or refund of the cost of any device we manufacture or distribute.

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In addition, we are also subject to varying product standards, packaging requirements, labeling requirements, tariff regulations, duties and tax requirements.

As a result of our sales in Europe, we are required to have all medical device products “CE”

marked, an international symbol, affixed to all our medical device products demonstrating compliance with the European Medical Device Directives and/or Medical Device Regulations (“MDR”) and all applicable standards.

As a result of our sales in Europe, we are required to have all medical device products “CE” marked, an international symbol, affixed to all our medical device products demonstrating compliance with the European Medical Device Directives and/or Medical Device Regulations (“MDR”) and all applicable standards.

While currently all our released medical device products are CE marked, continued certification is based on the successful review of our quality system by our European Registrar during their periodic audits.

Any loss of certification would have a material adverse effect on our business, results of operations and financial condition.

There are several major regulatory changes occurring in the regulation of medical devices in the European Union (the “EU”).

The revision of the quality system regulation (ISO 13485:2016) has been released that substantially increased the requirements for a medical device quality system.

The MDR has replaced the medical device directives (93/42/EEC), and it substantially changes the way that medical devices are brought to market in the EU and how they maintain compliance throughout the product’s life cycle.

Due to the UK’s exit from EU (“Brexit”), different rules will apply in Great Britain (England, Wales and Scotland), Northern Ireland and the EU after the Brexit transition period, which began January 1, 2021.

Similarly, Switzerland has changed its relationship with the EU and in May 2022, will require medical device manufacturers, including us, to contract with a Swiss authorized representative.

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We, the FDA, or another regulatory authority could suspend or terminate clinical trials at any time if we or they believed the trial participants faced unacceptable health risks.

If we fail to comply with the FDA’s quality system regulation and laser performance standards, our manufacturing operations could be halted, and our business would suffer.

We are currently required to demonstrate and maintain compliance with the FDA’s QSR.

If we fail to comply with the FDA’s quality system regulation and laser performance standards, our manufacturing operations could be halted, and our business would suffer.

We are currently required to demonstrate and maintain compliance with the FDA’s QSR.

The QSR is a complex regulatory scheme that covers the methods and documentation of the design, testing, control, manufacturing, labeling, quality assurance, packaging, storage and shipping of our products.

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• difficulties integrating any acquired products into our existing business;

difficulties in integrating an acquired company’s technologies, services, employees and other service providers, customers, partners, business operations and administrative and software management systems with ours;

• difficulties in integrating an acquired company’s technologies, services, employees and other service providers, customers, partners, business operations and administrative and software management systems with ours;

• delays in realizing the benefits of the acquired products;

diversion of our management’s time and attention from other business concerns;

• diversion of our management’s time and attention from other business concerns;

• adverse customer reaction to the product acquisition;

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Moreover, we cannot assure you that the anticipated benefits of any acquisition or investment would be realized or that we would not be exposed to unknown liabilities.

In connection with these types of transactions, we may issue additional equity securities that would dilute the ownership interest of existing investors or earnings per share, use cash that we may need in the future to operate our business, incur debt on terms unfavorable to us or that we are unable to repay, incur large charges or substantial liabilities, encounter difficulties integrating diverse business cultures and become subject to adverse tax consequences, substantial depreciation or deferred compensation charges.

or deferred compensation charges.

These challenges related to acquisitions or investments could adversely affect our business, operating results and financial condition.

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A recall would harm our reputation and adversely affect our operating results.

other cases we may determine that we will recall a product because we have determined that the product is violative, in order to avoid further enforcement action and protect the public health.

The FDA and similar governmental authorities in other countries in which we market and sell our products have the authority to require the recall of our products in the event of material deficiencies or defects in the design or manufacture of our products, or in other cases we may determine that we will recall a product because we have determined that the product is violative, in order to avoid further enforcement action and protect the public health.

A government mandated recall, or a voluntary recall by us, could occur as a result of actual or potential component failures, adverse event reports, manufacturing errors or design defects, including defects in labeling.

Furthermore, we may from time to time initiate a recall of a component or set of components comprising a portion of our laser systems, which could increase customer returns, warranty claims and associated reserve levels.

A recall could divert management’s attention, cause us to incur significant expenses, harm our reputation with customers and negatively affect our future sales and financial results.

For example, on February 23, 2018, we initiated a worldwide voluntary recall of a specific laser accessory called the TruFocus LIO Premiere ® (“LIO”).

The LIO is a head-mounted indirect ophthalmoscope that connects to our laser console and is used to view and perform laser treatment on a patient’s retina.

This recall was prompted after we received reports of three adverse events from one physician in the United States, resulting in focal cataracts and iris burns occurring during procedures in which the TruFocus LIO Premiere was used.

We identified several potential root causes for the adverse events, including use error.

On March 22, 2019, we provided the FDA with a request for termination of Recall Number Z-1075-2018.

On September 22, 2023, the FDA notified the Company that the FDA concluded that the recall has been completed, there has been proper disposition of the recalled product, and, therefore, FDA considers the recall terminated.

A recall could divert management’s attention, cause us to incur significant expenses, harm our reputation with customers and negatively affect our future sales and financial results.

If product liability claims are successfully asserted against us, we may incur substantial liabilities that may adversely affect our business or results of operations.

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A successful claim brought against us in excess of our insurance coverage could have a material adverse effect on our business, results of operations and financial condition.

Any growth in our sales and marketing organization may increase costs and create operational challenges without immediately offsetting benefits.

Any growth in our sales and marketing organization may place a strain on our management, operating and financial systems and our sales, marketing and administrative resources as well as increase operating costs.

For example, if we are unable to efficiently or effectively provide adequate training for our sales force and marketing organization, we may not be able to immediately or fully utilize marketing resources, generate new sales and offset operational challenges such as the cost of recruiting and hiring sales and marketing personnel.

If we cannot effectively manage our operations and our costs, our business may not be able to grow effectively or we may grow at a slower pace.

If we fail to manage growth effectively, our business could be disrupted which could harm our operating results.

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We cannot predict future trade policy or the terms of any renegotiated trade agreements and their impacts on our business.

The adoption and expansion of trade restrictions, the occurrence of a trade war, or other governmental action related to tariffs or trade

agreements or policies has the potential to adversely impact demand for our products, our costs, our customers, our suppliers, and the United States economy, which in turn could adversely impact our business, financial condition and results of operations.

The adoption and expansion of trade restrictions, the occurrence of a trade war, or other governmental action related to tariffs or trade agreements or policies has the potential to adversely impact demand for our products, our costs, our customers, our suppliers, and the United States economy, which in turn could adversely impact our business, financial condition and results of operations.

Changes in U.S.

tax laws could have a material adverse effect on our business, consolidated cash flow, results of operations or financial conditions.

The comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”) was enacted in the United States on December 22, 2017 and includes, among other items, a reduction in the federal corporate income tax rate from 35% to 21%, certain interest expense deduction limitations and changes in the timing of certain taxable income.

We are required to recognize the effect of the tax law changes in the period of enactment, such as re-measuring our U.S.

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On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No.

118 (“SAB 118”) which provides guidance on accounting for the tax effects of the Tax Act.

We have completed our analysis and accounting with respect the Tax Act, and identified no additional changes from amounts previously recorded.

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Additionally, challenges to or investigation into our practices could cause adverse publicity and be costly to respond to and thus could harm our business.

The Dodd-Frank Wall Street Reform and Consumer Protection Act requires us to track and disclose the source of certain metals used in manufacturing which may stem from minerals (so called “conflict minerals”) which originate in the Democratic Republic of the Congo or adjoining regions.

The Dodd-Frank Wall Street Reform and Consumer Protection Act requires us to track and disclose the source of certain metals used in manufacturing which may stem from minerals (so-called “conflict minerals”) which originate in the Democratic Republic of the Congo or adjoining regions.

These metals include tantalum, tin, gold and tungsten.

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These changes could have an adverse impact on our ability to manufacture and market our devices and products.

Our ability to raise capital in the future may be limited, and future sales and issuances of securities could negatively affect our stock price and dilute the ownership interest of our existing investors.

Our business and operations may consume resources faster than we anticipate.

We may need in the future to raise additional funds through future equity or debt financings to meet our operational needs and capital requirements for product development, clinical trials and commercialization and may subsequently require additional fundraising.

Additional financing may not be available on favorable terms, if at all.

If adequate funds are not available on acceptable terms, we may be unable to invest in future growth opportunities, which could seriously harm our business and operating results.

Future sales or issuances of securities by us could decrease the value of our common stock, dilute stockholders’

voting power and reduce future potential earnings per share.

To raise capital, we may sell common stock, convertible securities or other equity-linked securities in one or more transactions at prices and in a manner we determine from time to time.

If we sell additional equity securities, our existing stockholders may be materially diluted.

Additionally, new investors could gain rights, preferences and privileges senior to those of existing holders of our common stock.

We may also issue debt securities, which may impose restrictive covenants on our operations or otherwise adversely affect the holdings or the rights of our stockholders.

We may sell shares or other securities in any offering at a price per share that is less than the price per share paid by existing investors, and investors purchasing shares or other securities in the future could have rights superior to existing stockholders.

The price per share at which we sell additional shares of our common stock, or securities convertible or exchangeable into common stock, in future transactions may be higher or lower than the price per share paid by existing investors.

If we fail to comply with environmental requirements, our business, financial condition, operating results and reputation could be adversely affected.

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Failure to meet these standards could limit the ability to market our products in those regions which require compliance with such standards or subject us to fines and penalties.

Examples of such standards include laws governing the hazardous material content of our devices and products, such as the EU Directive 2015/863 which is known as “RoHS 3”

and that relates to Restrictions on the Use of Certain Hazardous Substances and the EU Directive 2012/19/EU on Waste Electrical and Electronic Equipment.

Examples of such standards include laws governing the hazardous material content of our devices and products, such as the EU Directive 2015/863 which is known as “RoHS 3” and that relates to Restrictions on the Use of Certain Hazardous Substances and the EU Directive 2012/19/EU on Waste Electrical and Electronic Equipment.

Similar laws and regulations have been passed or are pending in several other jurisdictions and may be enacted in other regions, including in the United States, and we are, or may in the future be, subject to these laws and regulations.

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The trading price of our common stock has been subject to wide fluctuations in response to a variety of factors, some of which are beyond our control, including changes in foreign currency exchange rates, quarterly variations in our operating results, announcements by us or our competitors of new products or of significant clinical achievements, changes in market valuations of other similar companies in our industry and general market conditions, including deteriorating market conditions due to investor concerns regarding inflation and hostilities between Russia-Ukraine and Israel-Hamas.

During the third quarter of fiscal year 2023, the trading price of our common stock fluctuated from a low of $1.33 per share to a high of $2.54 per share.

During the first quarter of fiscal year 2024, the trading price of our common stock fluctuated from a low of $2.35 per share to a high of $3.10 per share.

There can be no assurance that our common stock trading price will not suffer declines.

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As a public company, we are obligated to develop and maintain proper and effective internal control over financial reporting.

We may not complete our analysis of our internal control over financial reporting in a timely manner, or these internal controls

may not be determined to be effective, which may adversely affect investor confidence in our company and, as a result, the value of our common stock.

We may not complete our analysis of our internal control over financial reporting in a timely manner, or these internal controls may not be determined to be effective, which may adversely affect investor confidence in our company and, as a result, the value of our common stock.

We are required, pursuant to Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting.

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We may experience difficulty in meeting these reporting requirements in a timely manner, particularly if material weaknesses or significant deficiencies were to persist.

Our independent registered public accounting firm will not be required to formally attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 while we are a “smaller reporting company”

as defined in the Exchange Act.

If we are unable to comply with the requirements of Section 404 in a timely manner, the market price of our stock could decline and we could be subject to sanctions or investigations by the Nasdaq Stock Market, the SEC or other regulatory authorities, which could require additional financial and management resources.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Legal Proceedings