What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-08 compared with 2024-05-14 · 57 added, 32 removed, 88 unchanged (50% of the section changed)

42 unchanged sentences

Impact of Macroeconomic Conditions to our Business

Current macroeconomic conditions exhibit challenges that can affect capital equipment purchasing demand and timing, including recessionary fears, inflation concerns, heightened interest rates as a result of government actions to combat inflation, and uncertainty in the global banking and financial services market, concerns related to the upcoming presidential election in the United States, as well as other geopolitical developments, have impacted and may continue to impact business spending and the economy as a whole.

Current macroeconomic conditions exhibit challenges that can affect capital equipment purchasing demand and timing, including recessionary fears, inflation concerns, changing interest rates, concerns related to the upcoming presidential election in the United States, as well as other geopolitical developments, have impacted and may continue to impact business spending and the economy as a whole.

As a result, we have seen customers extend purchase decision cycles.

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The macroeconomic conditions on our business and operations remain uncertain, and it is not possible for us to predict the duration and extent to which they will affect our business, future results of operations, and financial condition.

For more information on risks associated with the current macroeconomic conditions, see the sections titled “Risk Factors” in Item 1A of Part II.

For more information on risks associated with the current macroeconomic conditions, see the section titled “Risk Factors” in Item 1A of Part II.

Results of Operations

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Three Months Ended

March 30, 2024

April 1, 2023

Six Months Ended

June 29, 2024

Cost of revenues

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Provision for income taxes

The following comparisons are between the three months ended March 30, 2024 and April 1, 2023 (in thousands):

The following comparisons are between the three months ended June 29, 2024 and July 1, 2023 (in thousands):

Three Months Ended

March 30, 2024

April 1, 2023

June 29, 2024

Total revenues

Our total revenues decreased by $0.2 million, or 1.7%, from $12.9 million to $12.6 million.

The decrease was driven by an overall softer demand in our product lines, and lower royalties due to the expiration of licensed patents.

While we believe that market for our products remains strong, however the overall capital expenditure landscape within hospitals, surgical centers and physician offices may continue to be negatively impacted by persistent macroeconomic concerns.

The decrease was driven by overall softer demand in our Glaucoma "Cyclo G6" product lines, partially offset by increases in Medical Retina PASCAL products, and lower royalties due to the expiration of licensed patents.

While we believe that the market for our products remains strong, the overall capital expenditure landscape within hospitals, surgical centers and physician offices may continue to be negatively impacted by persistent macroeconomic concerns.

Gross Profit and Gross Margin

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Gross margin decreased by 1% from 41.7% to 40.7%.

The decrease in gross margin was the result of lower overhead absorption in the current period and a more favorable product mix in the same period in the prior year.

The decrease in gross margin was driven by lower royalty revenues.

Gross margins may fluctuate due to changes in the relative proportion of domestic and international sales, the product mix of sales, introduction of new products, manufacturing variances, total unit volume changes that lead to greater or lesser production efficiencies and other factors.

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General and administrative expenses increased by $0.6 million, or 29.7% from $2.2 million to $2.8 million.

The increase is a result of higher consulting costs.

The increase is a result of higher consulting costs and deal related legal expenses.

Other Income (Expense), Net

Other income (expense), net was $0.1 million for the three months ended March 30, 2024 compared to other income (expense), net, of $0.3 million for the three months ended April 1, 2023.

Other expense, net was $22 thousand for the three months ended June 29, 2024 compared to other income, net, of $0.1 million for the three months ended July 1, 2023.

Other income (expense), net, consisted primarily of interest income or expense and foreign currency gain or loss.

We recorded an income tax provision of $38 thousand and $12 thousand for the three months ended March 30, 2024 and April 1, 2023, respectively.

We recorded an income tax provision of $19 thousand and $10 thousand for the three months ended June 29, 2024 and July 1, 2023, respectively.

The following comparisons are between the six months ended June 29, 2024 and July 1, 2023 (in thousands):

Six Months Ended

June 29, 2024

Total revenues

Our total revenues decreased by $2.2 million, or 8.2%, from $26.6 million to $24.4 million.

The decrease was driven by softer demand in our Glaucoma product lines, partially offset by increases in Medical Retina PASCAL products, and lower royalties due to the expiration of licensed patents.

Gross Profit and Gross Margin

Gross profit decreased $1.7 million, or 3.2%, from $11.3 million to $9.6 million.

Gross margin decreased by 3.2% from 42.5% to 39.3%.

The decrease in gross margin was driven by lower revenues and manufacturing overhead absorbed by less royalty revenue.

Research and Development

Research and development expenses decreased by $0.6 million, or 15.5%, from $3.6 million to $3.0 million.

Spending on investment in PASCAL product line and on new and expanded product portfolio decreased as we completed these new projects.

We implemented cost savings measures including reductions in workforce that resulted in lower headcount expenses.

Sales and Marketing

Sales and marketing expenses decreased by $1.3 million, or 15.4%, from $8.5 million to $7.2 million.

The decrease was related to the reduction in headcount and lower consulting and travel expenses.

General and Administrative

General and administrative expenses increased by $0.9 million, or 19.4%, from $4.4 million to $5.3 million.

The increase is a result of higher consulting costs and deal related legal expenses.

Other Income (Expense), Net

Other expense, net increased by $0.6 million from net income of $0.4 million to net other expense, net of $0.2 million for the six months ended June 29, 2024.

Other income (expense), net, consisted primarily of interest income or expense and foreign currency gain or loss.

We recorded an income tax provision of $57 thousand and $22 thousand for the six months ended June 29, 2024 and July 1, 2023, respectively.

Liquidity, Capital Resources and Management Plans

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In addition, liquidity includes the ability to obtain appropriate financing or to raise capital.

As of March 30, 2024, we had cash and cash equivalents of $5.4 million and working capital of $11.5 million compared to cash and cash equivalents of $7.0 million and working capital of $14.5 million as of December 30, 2023.

Net cash used in operating activities was $1.6 million in the three months ended March 30, 2024 compared to net cash used in operating activities of $2.8 million in the three months ended April 1, 2023.

The decrease in net cash used in operating activities, expressed in direct cash flow terms, was primarily due to cash provided by inventory, accounts receivable from related parties, prepaids, and other long-term assets, offset by increases in cash used in accounts payable and deferred revenue.

For the three months ended March 30, 2024, net cash used in investing activities was $3 thousand, which consisted of capital expenditures.

For the three months ended April 1, 2023, net cash used in investing activities was $43 thousand, which consisted of capital expenditures.

For the three months ended March 30, 2024, no net cash was used in financing activities.

For the three months ended April 1, 2023, net cash provided by financing activities was $37 thousand, primarily from payroll taxes related to net share settlement of equity awards partially offset by the net proceeds arising from the proceeds from stock option exercises.

As of June 29, 2024, we had cash and cash equivalents of $4.1 million and working capital of $8.9 million compared to cash and cash equivalents of $7.0 million and working capital of $14.5 million as of December 30, 2023.

Net cash used in operating activities was $3.0 million in the six months ended June 29, 2024 compared to net cash used in operating activities of $4.0 million in the six months ended July 1, 2023.

The decrease in net cash used in operating activities, expressed in direct cash flow terms, was primarily due to cash provided by inventory, prepaids, and other current assets and accrued expenses, offset by increases in cash used in accounts payable.

For the six months ended June 29, 2024, and July 1, 2023 net cash used in investing activities was $3 thousand and $59 thousand, respectively, which consisted of capital expenditures.

For the six months ended June 29, 2024, no net cash was used in financing activities.

For the six months ended July 1, 2023, net cash used in financing activities was $26 thousand, primarily for taxes related to net share settlement of equity awards partially offset by the net proceeds arising from stock option exercises.

We have historically funded our operations primarily through sales of our products to customers, sales of our common stock and borrowing arrangements.

As of March 30, 2024, our principal sources of liquidity consisted of cash and cash equivalents of $5.4 million.

We have incurred net losses over the last several years, and as of March 30, 2024, have an accumulated deficit of approximately $82.5 million.

As of June 29, 2024, our principal sources of liquidity consisted of cash and cash equivalents of $4.1 million.

We have incurred net losses over the last several years, and as of June 29, 2024, have an accumulated deficit of approximately $85.2 million.

We expect to continue to incur operating losses and negative cash flows from operations.

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The accompanying condensed consolidated financial statements have been prepared assuming we will continue as a going concern.

However, we have sustained operating losses in the current quarter and expect to incur losses in the next five quarters.

Accordingly, we concluded there was substantial doubt about our ability to continue as a going concern for 12 months from the date of

the filing of this Quarterly Report on Form 10-Q.

However, management currently believes that it has plans in place to reduce cash expenditure and can alleviate this substantial doubt as of the date of this filing.

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

We may obtain additional financing in the future through the issuance of common stock, other equity or debt financing.

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

If the necessary financing is not obtained or achieved, we will likely be required to reduce our planned expenditures, which could have a material adverse impact on our results of operations, financial condition and our ability to achieve our strategic objective.

There can be no assurance that financing will be available on acceptable terms, or at all.

In addition, any debt financing obtained by us in the future could also involve restrictive covenants relating to our capital-raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities.

For the six months ended June 29, 2024, we implemented cost savings initiatives to increase operational efficiencies across all departments, which we expect will decrease our operating expenses and increase working capital over the next five quarters.

Based on these cost savings initiatives implemented by us and the closing of the $3.4 million Note with Lind (with an option to have an additional $1.5 million Subsequent Note), management believes we have alleviated substantial doubt about our ability to satisfy our liquidity needs over the next 12 months.

Subsequent to the second quarter close, on August 7, 2024, we closed a Note with Lind and raised net proceeds of approximately $3.4 million.

These funds are sufficient to meet our immediate and near-term capital requirements.

Our future capital requirements will depend on many factors, including our strategic alternatives, the timing and extent of our spending to support research and development activities, the timing and cost of establishing additional sales and marketing capabilities, the introduction of new and enhanced products and our costs to implement new manufacturing technologies.

In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all.

Any debt financing obtained by us in the future could also involve restrictive covenants relating to our capital-raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions.

Additionally, if we raise additional funds through further issuances of equity, our existing stockholders could suffer dilution in their percentage ownership of our company, and any new equity securities we issue could have rights, preferences and

privileges senior to those of holders of our common stock.

If we are unable to obtain adequate financing or financing on terms satisfactory to us, when we require it, our ability to continue to grow or support our business and to respond to business challenges could be limited.

Off-Balance Sheet Arrangements

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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 2. Management’s Discussion and Analysis