What changed in this filing

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Item 1A. Risk Factors

2020-08-07 compared with 2020-05-12 · 43 added, 45 removed, 545 unchanged (14% of the section changed)

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In addition, our customers may delay, cancel or redirect planned capital expenditures in order to focus resources on COVID-19 or in response to economic disruption related to COVID-19.

For example, in the last month of the fiscal quarter ended March 28, 2020, we experienced significant decline in treatment and procedure volume worldwide, as healthcare systems diverted resources to meet the increasing demands of managing COVID-19.

For example, during the six months ended June 27, 2020, 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 addition, the American College of Surgeons, U.S.

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This 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.

The COVID-19 pandemic has created economic uncertainty and volatility in the financial markets around the wo rld, resulting in an economic downturn that has affected and will 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 pur chase, lease, or service of our products due to bankruptcy, lack of liquidity, lack of funding, operational failures, or other reason.

The COVID-19 pandemic has creat ed economic uncertainty and volatility in the financial markets around the world, resulting in an economic downturn that has affected and will likely continue to affect demand for our products and impact our results of operations.

As a result, this may lea d 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 i n 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 COVID-19 pandemic 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 proce dures;

governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic (including restrictions on travel and transport and workforce pressures);

hospi tals abilities and willingness to devote resources to elective surgical procedures;

governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic (including restrictions on travel and transport and work force pressures);

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

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funding programs;

general economic uncertainty in key global markets and financial market volatility;

general economic uncertainty in key global m arkets and financial market volatility;

global economic conditions and levels of economic growth;

and the pace of recovery when the COVID-19 pandemic subsides.

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

Although the magnitude of the impact of COVID-19 on our business operations remains uncertain an d difficult to predict, and this remains a highly dynamic situation, we have experienced and will continue to experience in subsequent periods, disruptions to our business that will likely continue to adversely impact our business, financial condition and results of operations.

We have incurred indebtedness under the CARES Act which may be subject to audit, may not be forgivable and may eventually have to be repaid.

Any repayment of such indebtedness may limit the funds available to us and may restrict our flexibility in operating our business or otherwise adversely affect our results of operations.

In April 2020, the Company received a $2.5 million U.S.

In April 2020, the Company received an aggregate principal amount of approximately $2.5 million U.S.

Small Business Administration Loan (the “SBA Loan”) pursuant to the Payroll Protection Program (“PPP”), established under the CARES Act.

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For example, we have contracted with a manufacturing company located in Wuhan, China for certain laser systems scheduled for release in the latter half of 2020.

Due to the COVID-19 or coronavirus outbreak in China, release of our manufacturing process and launch of these new laser systems may be delayed or disrupted, and we may need to incur costs to replace or shift this manufacturing process elsewhere.

Due to the COVID-19 or coronavirus outbreak, release of our manufacturing process and launch of these new laser systems may be delayed or disrupted, and we may need to incur costs to replace or shift this manufacturing process elsewhere.

These issues have caused, and may in the future cause, us to reduce or delay the shipment of our products and incur costs to service or replace products already shipped to customers.

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Currently our direct and independent sales forces within the United States consist of approximately 16 employees and one independent representative, respectively and our direct sales force in Germany consists of one employee.

Our international independent distributors are managed by a team of 5 people.

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

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

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Our international sales are largely dependent on the efforts of these third parties.

If any distributor breaches the terms of its distribution agreement with

us or fails to generate sales of our products, we may be forced to replace the distributor and our ability to sell our products into that exclusive sales territory would be adversely affected.

If any distributor breaches the terms of its distribution agreement with us or fails to generate sales of our products, we may be forced to replace the distributor and our ability to sell our products into that exclusive sales territory would be adversely affected.

We do not have any long-term employment contracts with the members of our direct sales force.

We may be unable to replace our direct sales force personnel with individuals of equivalent technical expertise and qualifications, which may harm our revenues and our ability to maintain market share.

Similarly, our independent and distributor agreements are generally terminable at will by either party and independents and distributors may terminate their relationships with us, which would affect our sales and results of operations.

We may be unable to recruit and retain qualified personnel in Germany as part of our direct sales team.

We may be unable to replace our direct sales force personnel with in dividuals of equivalent technical expertise and qualifications, which may harm our revenues and our ability to maintain market share.

Similarly, our independent and distributor agreements are generally terminable at will by either party and independents an d distributors may terminate their relationships with us, which would affect our sales and results of operations.

Any loss of the members of our existing direct or indirect sales organizations, or any failure to execute on our plans to further develop our sales function, could have an adverse impact on our business, results of operations and financial condition.

Additionally, our sales forces’ operations have been disrupted by the COVID-19 pandemic, as many are no longer allowed to travel and must instead perform their services from home, which could have an impact on their ability to sell and distribute our products.

Additionally, our sales forces’ operations have been disrupted by the COVID-19 pandemic, as many are no longer allowed to travel and must instead p erform their services from home, which could have an impact on their ability to sell and distribute our products.

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

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

For the first quarter of fiscal year 2020, our international sales were $4.6 million, or 50.8% of total revenues.

For the second quarter of fiscal year 2020, our international sales were $3.0 million, or 49.0% 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 first quarter of fiscal year 2020 have been denominated in U.S.

All of our international revenues and costs for the second quarter of fiscal year 2020 have been denominated in U.S.

dollars except for a sale transacted through our German subsidiary.

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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.

In addition, our research and development process has been slowed by the impact of COVID-19, and should the COVID-19 pandemic continue, it could delay and disrupt our research and development processes even further.

In addition, our research and development process has been slowed by the impact of COVID-19, and should the COVID-19 economic restrictions worsen, it could delay and disrupt our research and development processes even further.

Successful commercialization of new products and new applications will require that we effectively transfer production processes from research and development to manufacturing and effectively coordinate with our suppliers.

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level of reimbursement for treatments administered with our products.

In addition, we derive a meaningful portion of our sales in the form of recurring revenues from selling consumable instrumentation, including our MP3 and EndoProbe devices.

In addition, we derive a meaningful portion of our sales in the form of recurring revenues from selling consumable instrumentation, including our Cyclo G6 probe and EndoProbe devices.

Our ability to increase recurring revenues from the sale of consumable products will depend primarily upon the features of our current products and product innovation, the quality of, ease of use and prices of our products, including the relationship to prices of competing products.

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Sales or issuances of a substantial amount of securities, or the perception that such sales could occur, may adversely affect prevailing market prices for our common stock.

As of March 28, 2020, we had 13,787,969 shares of common stock outstanding, all of which shares were, and continue to be, eligible for sale in the public market, subject in some cases to compliance with the requirements of Rule 144, including the volume limitations and manner of sale requirements.

As of June 27, 2020, we had 13,856,969 shares of common stock outstanding, all of which shares were, and continue to be, eligible for sale in the public market, subject in some cases to compliance with the requirements of Rule 144, including the volume limitations and manner of sale requirements.

Future resales of our common stock by our existing stockholders could cause the market price of our common stock to decline.

As of March 28, 2020, holders of an aggregate of 973,204 shares of our common stock have rights, subject to some conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or our other stockholders.

As of June 27, 2020, holders of an aggregate of 973,204 shares of our common stock have rights, subject to some conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or our other stockholders.

In addition, the shares of common stock subject to outstanding options and Restricted Stock Units under our 2008 Equity Incentive Plan and the shares reserved for future issuance under the Incentive Plan may become eligible for sale in the public markets in the future, subject to certain legal and control limitations.

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and/or (iv) state law equivalents of each of the above federal laws, including, without limitation anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payor, including commercial insurers, many of which differ from their federal counterparts in significant ways, thus complicating compliance efforts.

If our operations are found to be in violation of any of the laws described above or any other governmental regulations that apply to us, we may be subject to penalties, including civi l and criminal penalties, exclusion from participation in government healthcare programs, damages, fines and the curtailment or restructuring of our operations.

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

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

Complia nce 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 $1.15 million per year for violations, depending on the circumstances, although enforcement has been negligible to date.

If our operations are found to be in violation of any of the laws described above or any other governmental regulations that apply to us, w e may be subject to penalties, including civil and criminal penalties, exclusion from participation in government healthcare programs, damages, fines and the curtailment or restructuring of our operations.

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

The risk of our being found in violation of these laws is increased by the fact that their provisions are open to a variety of evolving interp retations 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, C enters for Medicare & Medicaid Services (“CMS”) has the potential to impose penalties of up to $1.15 million per year for violations, depending on the circumstances, although enforcement has been negligible to date.

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.

The risk that we are our being found in violation of these laws may be increased by the fact that we do not have a formal healthcare compliance program in place.

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 s uch 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.

The risk that we are our being found in violation of these laws may be increa sed by the fact that we do not have a formal healthcare compliance program in place.

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 health care 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 ag ainst 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 new applications.

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

Our patent portfolio includes 23 active United States patents and 6 active foreign patents on the technologies related to our products and processes.

In addition, we have 4 patent applications pending in the United States and 12 foreign patent applications pending.

Our patent portfolio includes 23 active United States patents and six active foreign patents on the technologies related to our products and processes.

In addition, we have six patent applications pending in the United States and 12 foreign patent applications pending.

Our patent applications may not be approved.

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

We depend on sole source or lim ited source suppliers.

We depend on sole source or limited source suppliers.

We rely on third parties to manufacture substantially all of the components used in our products, including optics, laser diodes and crystals.

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If we fail to maintain our relationships with health care providers, customers may not buy our products and our revenue and profitability may decline.

At the same time, relationships with these individuals and entities are the subject of heightened scrutiny and may present the potential for healthcare compliance risks.

At the same time, relationships with these individuals and entities are the subject of heightened scrutiny and may present the poten tial for healthcare compliance risks.

We market our products to numerous health care providers, including physicians, hospitals, ASCs, government affiliated groups and group purchasing organizations.

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Failure to comply with these changes can have an adverse effect on our ability to release new products in a timely manner.

Any clinical trials necessary that we may undertake for regulato ry approval or marketing reasons will be an expensive, lengthy, costly, and uncertain process, and could result in delays in new product introductions or even an inability to release a product.

Any clinical trials necessary that we may undertake for regulatory approval or marketing reasons will be an expensive, lengthy, costly, and uncertain process, and could result in delays in new product introductions or even an inability to release a product.

We may be required to undertake clinical trials often required to obtain regulatory approvals or may choose to undertake such trials for marketing or other reasons.

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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 gov ernment 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 ini tiate 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.

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Our termination request is pending.

We recently obtained FDA clearance for an updated TruFocus LIO Premiere™ device.

We obtained FDA clearance for an updated TruFocus LIO Premiere™ device.

The updated device includes expanded user instructions and minor design changes.

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Changes in U.S.

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

tax laws could have a material adverse effect on our bu siness, 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 remeasuring our U.S.

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

deferred tax assets and liabilities and reassessing the net realizability of our deferred tax assets and liabilities.

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

Divestitures of some of our businesses or product l ines 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.

Divestitures of some 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 capi tal to replace revenue from those business units or product lines.

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

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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.

During the first fiscal quarter fiscal year 2020, the trading price of our common stock fluctuated from a low of $1.40 per share to a high of $3.64 per share.

During the second quarter of fiscal year 2020, the trading price of our common stock fluctuated from a low of $1.40 per share to a high of $2.58 per share.

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

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Ownership of our common stock is concentrated among a few investors, which may affect the ability of a third party to acquire control of us.

Substantial sales by such investors could cause our stock pri ce to decline.

Our directors, executive officers, current five percent or greater stockholders and affiliated entities together beneficially own a significant portion of our common stock outstanding as of March 28, 2020 .

Substantial sales by such investors could cause our stock price to decline.

Having such a concentration of ownership may have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from seeking to acquire, a majority of our outstanding common stock or control of our board of directors through a proxy solicitation.

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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 1A. Risk Factors