What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-05-13 compared with 2024-11-12 · 42 added, 74 removed, 75 unchanged (61% of the section changed)

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In the offices and clinics, ophthalmologists use our laser systems with either an indirect laser ophthalmoscope or a slit-lamp adapter.

Our products are sold in the United States and Germany predominantly through a direct sales force and internationally (aside from Germany) primarily through independent distributors.

Our products are sold in the United States and Germany predominantly through a direct sales force and internationally (aside from Germany, Italy, UK (Glaucoma), India, and other smaller markets) primarily through Topcon Corporation (“Topcon”) and other independent distributors.

Sales to international distributors are made on open credit terms or letters of credit and are currently denominated in U.S.

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Sales to direct end users transacted through our German office are denominated in Euros and are subject to risks associated with currency fluctuations.

Cost of revenues consists primarily of our direct manufacturing costs which include the cost of components and sub-systems, assembling, packaging, shipping and testing components at our facility, direct labor and associated overhead, warranty, royalty and

amortization of intangible assets and depot service costs.

For certain of our products, we are responsible for the cost of the fully assembled product that is manufactured by a third-party.

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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, 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.

Current macroeconomic conditions exhibit challenges that can affect capital equipment purchasing demand and timing, including recessionary fears, inflation concerns, tariffs and retaliatory responses, trade wars, heightened interest rates as a result of government actions to combat inflation, and uncertainty in the global banking and financial services market, 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 section titled “Risk Factors” in Item 1A of Part II.

For more information on risks associated with the current macroeconomic conditions, see the sections titled “Risk Factors” in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 28, 2024.

Results of Operations

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Three Months Ended

Nine Months Ended

September 28, 2024

September 30, 2023

September 28, 2024

September 30, 2023

March 29, 2025

March 30, 2024

Cost of revenues

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Provision for income taxes

The following comparisons are between the three months ended September 28, 2024 and September 30, 2023 (in thousands):

The following comparisons are between the three months ended March 29, 2025 and March 30, 2024 (in thousands):

Three Months Ended

September 28, 2024

September 30, 2023

March 29, 2025

March 30, 2024

Total revenues

Our total revenues decreased by $1.3 million, or 9.9%, from $12.9 million to $11.6 million.

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

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.

Our total revenues increased by $0.1 million, or 1.1%, from $11.8 million to $11.9 million.

The increase was driven by an increase in our glaucoma product group and in services and other revenue, partially offset by a decrease in our retina products.

Gross Profit and Gross Margin

Gross profit decreased $1.3 million, or 23.1% from $5.6 million to $4.3 million.

Gross margin decreased by 6.4% from 43.7% to 37.3%.

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.

Gross profit increased $0.6 million, or 13.4% from $4.5 million to $5.1 million.

Gross margin increased by 4.6% from 37.9% to 42.5%.

The increase in gross margin was the result of lower manufacturing expenses and a more favorable product mix.

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, responses to the evolving macroeconomic and geopolitical uncertainty, including tariffs and trade wars, and other factors.

Research and Development

Research and development expenses decreased by $0.7 million, or 43.0% from $1.6 million to $0.9 million.

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

The decrease was related to our cost savings measures we implemented, resulting in lower headcount expenses.

Spending on investment in new and expanded products was also curtailed.

Sales and Marketing

Sales and marketing expenses decreased $1.3 million, or 34.5%, from $3.7 million to $2.5 million.

The decrease was related to lower sales costs associated with lower commissions and reduction on headcount.

General and Administrative

General and administrative expenses increased by $0.3 million, or 15.6% from $1.9 million to $2.2 million.

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

Other Income (Expense), Net

Other expense, net was $46 thousand for the three months ended September 28, 2024 compared to other expense, net, of $58 thousand for the three months ended September 30, 2023.

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

We recorded an income tax provision of $17 thousand and $8 thousand for the three months ended September 28, 2024 and September 30, 2023, respectively.

The following comparisons are between the nine months ended September 28, 2024 and September 30, 2023 (in thousands):

Nine Months Ended

September 28, 2024

September 30, 2023

Total revenues

Our total revenues decreased by $3.4 million, or 8.7%, from $39.4 million to $36.0 million.

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

Gross Profit and Gross Margin

Gross profit decreased $3.0 million, or 17.8%, from $16.9 million to $13.9 million.

Gross margin decreased by 4.2% from 42.9% to 38.7%.

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

Research and Development

Research and development expenses decreased by $0.8 million, or 15.6%, from $5.1 million to $4.3 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 $2.5 million, or 20.1%, from $12.4 million to $9.9 million.

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

The decrease was related to our cost savings measures, including reductions in workforce that resulted in lower headcount expenses, lower consulting expenses, travel expenses, lower tradeshows and public relations expenses, and lower clinical studies expenses.

General and Administrative

General and administrative expenses increased by $1.2 million, or 18.3%, from $6.3 million to $7.5 million.

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

General and administrative expenses decreased by $0.5 million, or 21.8% from $2.5 million to $1.9 million.

The decrease is a primarily due to a decrease in consulting costs and deal related legal expenses.

Other Income (Expense), Net

Other expense, net increased by $0.5 million from net income of $0.3 million to net other expense, net of $0.2 million for the nine months ended September 28 2024.

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

We recorded an income tax provision of $74 thousand and $30 thousand for the nine months ended September 28, 2024 and September 30, 2023, respectively.

Other expense, net, was $1.5 million for the three months ended March 29, 2025, driven primarily by the costs associated with the Lind Note payable settlement.

Other expense, net, was $0.1 million for the three months ended March 30, 2024, consisting primarily of interest and amortization of loan expenses related to the Lind Note transaction.

We recorded an income tax provision of $12 thousand and $38 thousand for the three months ended March 29, 2025 and March 30, 2024, 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 September 28, 2024, we had cash and cash equivalents of $3.9 million and working capital of $8.5 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 $6.0 million in the nine months ended September 28, 2024 compared to net cash used in operating activities of $5.8 million in the nine months ended September 30, 2023.

The increase in net cash used in operating activities, expressed in direct cash flow terms, was primarily due to cash used in inventory, prepaids, and other current assets and accrued expenses, partially offset by decreases in cash paid to accounts payable and increased cash collections from accounts receivable.

For the nine months ended September 28, 2024, and September 30, 2023 net cash used in investing activities was $4 thousand and $141 thousand, respectively, which consisted of capital expenditures.

For the nine months ended September 28, 2024, net cash $2.8 million was provided by financing activities of issuance of convertible notes, net.

For the nine months ended September 30, 2023, net cash used in financing activities was $50 thousand.

As of March 29, 2025, we had cash and cash equivalents of $7.2 million and working capital of $14.3 million compared to cash and cash equivalents of $2.4 million and working capital of $7.0 million as of March 30, 2024.

Net cash used in operating activities was $1.1 million in the three months ended March 29, 2025 compared to net cash used in operating activities of $1.6 million in the three months ended March 30, 2024.

The increase in net cash provided by operating activities was primarily due to reduction in net loss and reduction in inventory, offset by decreases in collections of accounts receivable and a paydown of liabilities.

For the three months ended March 29, 2025, net cash used in investing activities was $11 thousand, which consisted of capital expenditures.

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 March 29, 2025, net cash from financing activities was $6.0 million.

We received $10 million in issuance of convertible preferred shares and convertible debt, offset by $4.0 million in early prepayment of convertible debt.

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

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

As of September 28, 2024, our principal sources of liquidity consisted of cash and cash equivalents of $3.9 million.

We have incurred net losses over the last several years, and as of September 28, 2024, have an accumulated deficit of approximately $89.6 million.

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

Management evaluates whether there are relevant conditions and events that, in the aggregate, raise substantial doubt about the Company’s ability to continue as a going concern and to meet its obligations as they become due within one year after the date that the financial statements are issued.

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

For the nine months ended September 28, 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 through January 3, 2026.

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 in a Subsequent Note), management believes we have alleviated substantial doubt about our ability to satisfy our liquidity needs over the next 12 months.

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.

As of March 29, 2025, our principal sources of liquidity consisted of cash and cash equivalents of $7.2 million.

We have incurred net losses over the last several years, and as of March 29, 2025, have an accumulated deficit of approximately $89.6 million.

On March 19, 2025, the Company entered into the Novel Securities Agreement and a Note Purchase Agreement and the Novel Note Purchase Agreement with Novel.

Pursuant to the Novel Securities Agreement and the Novel Note Purchase Agreement, Novel

has the right to purchase additional convertible promissory notes (the “Growth Notes”) in an aggregate principal amount of $10,000,000.

The Growth Notes are issuable in three installments, with one third of the aggregate principal amount issuable upon each yearly anniversary of the March 19, 2025.

Notwithstanding any provision in the Transaction Documents (as defined in the Initial Novel Note) to the contrary, in no circumstance shall the Company be required to deliver to Novel any shares of Series B Preferred Stock or common stock pursuant to the terms of the Transaction Documents to the extent that (i) the aggregate of all such shares issued by the Company would exceed 19.99% of either (a) the total number of shares of common stock outstanding as of March 19, 2025 or (b) the total voting power of the Company’s securities outstanding as of March 19, 2025 that are entitled to vote on a matter being voted on by holders of the common stock, or (ii) such delivery would cause the holder to become, directly or indirectly, a “beneficial owner” (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended) of more than 19.99% of either (a) the total number of shares of common stock outstanding as of such date or (b) the total voting power of the Company’s securities outstanding as of such date that are entitled to vote on a matter being voted on by holders of the common stock, in each case, unless shareholder approval has been obtained

We believe our existing cash and cash equivalents will be sufficient to meet our anticipated cash needs over the next 12 months.

Our future capital requirements will depend on many factors, including our growth rate, 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.

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.

Additionally, if we raise additional funds through further issuances of equity, our existing stockholders could suffer significant 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.

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