What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2021-03-23 compared with 2020-03-13 · 105 added, 89 removed, 141 unchanged (58% of the section changed)

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Our common stock is currently quoted on the Nasdaq Global Market under the symbol “IRIX”.

As of February 27, 2020, there were approximately 33 holders of record (not in street name) of our common stock.

As of March 15, 2021, there were approximately 33 holders of record (not in street name) of our common stock.

Because many of our shares of common stock are held by brokers and other institutions on behalf of our stockholders, we are unable to estimate the total number of stockholders represented by these record holders.

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Our laser probes consist of the following product lines:

Glaucoma – Probes used in our glaucoma product line include our recently patented MicroPulse P3 (“MP3”) probe, G-Probe and G-Probe Illuminate;

Glaucoma – Probes used in our glaucoma product line include our recently patented MicroPulse P3 ® Probe, G-Probe ® and G-Probe Illuminate ® ;

Surgical Retina – Our surgical retina probes include our EndoProbe ® family of products used in vitrectomy procedures.

Ophthalmologists typically use our laser systems in hospital ORs and ambulatory surgical centers (“ASCs”), as well as their offices and clinics.

In ORs and ASCs, ophthalmologists use our laser systems with either an indirect laser ophthalmoscope or a consumable, single use MP3 probe, G-Probe or EndoProbe.

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.

In ORs and ASCs, ophthalmologists use our laser systems with either an indirect laser ophthalmoscope or a consumable, single use MicroPulse P3 Probe, G-Probe , G-Probe Illuminate or EndoProbe.

In 2020 and 2019, our products were sold in the United States and Germany predominantly through a direct sales force and internationally (aside from Germany) primarily through independent distributors.

Total revenues in 2020 and 2019 were $36.3 million and $43.4 million, respectively.

We generated net losses of $8.8 million and $12.8 million in 2019 and 2018.

We generated net losses of $6.3 million and $8.8 million in 2020 and 2019, respectively.

Cost of revenues consists primarily of 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.

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General and administrative expenses consist primarily of costs of personnel, legal, accounting and other public company costs, insurance and other expenses not allocated to other departments.

Impact of COVID-19 to our Business

The outbreak of the COVID-19 has been declared a pandemic by the World Health Organization and continues to spread globally.

The spread of COVID-19 has caused public health officials to recommend, and governments to enact, precautions to mitigate the spread of the virus, including travel restrictions and bans, extensive social distancing guidelines and issuing a “shelter-in-place” order in many regions of the world.

The pandemic and these related responses have caused, and are expected to continue to cause a global slowdown of economic activity (including the decrease in demand for a broad variety of goods and services), disruptions in global supply chains and significant volatility and disruption of financial markets.

We have adopted several measures in response to the COVID-19 outbreak including instructing employees to work from home while under shelter-in-place orders, slowing our manufacturing operations, and restricting non-critical business travel by our employees.

Furthermore, we cannot be certain that these actions will mitigate some or all of the negative effects of the pandemic on our business.

The extent of the negative effects of COVID-19 on our financial condition or results of operations remains uncertain.

Any actual effects on our financial condition or results of operations may differ from any estimates reflected in our financial statements, and such effects may not be fully reflected in our financial condition or results of operations until future periods, if at all.

The Company has been deemed an essential business and therefore, has continued to operate in a more limited capacity during the pandemic.

In April and May 2020 , following shelter-in-place orders, the Company operated with limited personnel at our facilities to continue essential operations.

In June 2020, we implemented return-to-work phases in conjunction with a social distancing protocol to safely continue essential operations to best meet customer demands in light of the pandemic.

We will continue to actively monitor the situation and may take further actions altering our business operations that we determine are in the best interests of our employees, customers, communities, business partners, suppliers, and shareholders, or as required by federal, state, or local authorities.

Our total revenues decreased $7.1 million or 16.3% from $43.4 million in 2019 to $36.3 million in 2020.

This decrease was primarily attributed to the decrease in surgical elective procedures using our products, in part caused by limitations on the availability of such procedures and hospitals’ capacities to provide them and delays in capital purchases caused by the general uncertainty in the near term business environment.

The extent to which our operations will be impacted by the outbreak will depend largely on future developments, which are highly uncertain and cannot be accurately predicted, including new information which may emerge concerning the severity of the outbreak and actions by government authorities, hospitals and private businesses to contain the outbreak or recover from its impact, among other things.

Due to the nature of our business, the availability of elective surgical procedures and customers’ ability to make capital purchases directly impacts our revenue and operations.

We are actively monitoring the ongoing impact of the COVID-19 pandemic and its impact on elective surgical procedures throughout the U.S.

We expect our results of operations to be impacted for so long as the COVID-19 pandemic continues.

For more information on risks associated with the COVID-19 outbreak, see the section titled “Risk Factors” in Item 1A of Part I.

Results of Operations - 2020 and 2019

Our fiscal year ends on the Saturday closest to December 31.

Fiscal 2019 ended on December 28, 2019 and fiscal 2018 ended on December 29, 2018.

Fiscal years 2019 and 2018 each included 52 weeks of operations.

Fiscal 2020 ended on January 2, 2021 and fiscal 2019 ended on December 28, 2019.

Fiscal years 2020 and 2019 included 53 weeks and 52 of operations, respectively.

The following table sets forth certain operating data as a percentage of revenue for the periods indicated.

Percentage of Revenue

December 28, 2019

January 2, 2021

December 28, 2019

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Comparison of 2020 and 2019

Our total revenues increased $0.8 million or 2.0% from $42.6 million in 2018 to $43.4 million in 2019.

The increase is primarily due to an increase in sales of our G6 products and other revenues, partially offset by a decrease in sales of our retina products.

Revenues from G6 products increased 10.6% driven by an increase in both domestic and international sales.

Revenues from retina products decreased 3.5% driven by a decrease in both domestic and international sales.

Other revenues, comprising of service, royalty, freight and legacy G probes, increased 6.0% due mainly to an increase in our service and royalty revenues .

(in thousands)

Total revenues

Our total revenues decreased $7.1 million or 16.3% from $43.4 million in 2019 to $36.3 million in 2020.

Our business was impacted by the onset of the COVID-19 pandemic at the beginning of the year with sales of our retina products most impacted.

Revenues from G6 products decreased 13.7% with a decrease in both Cyclo G6 systems and probes sales.

Revenues from retina products decreased by 20.9% driven by a decrease in both domestic and international sales as capital equipment sales were especially impacted by the pandemic.

Other revenues, comprised of service, royalty, freight and legacy G probes, decreased 6.8% due mainly to a decrease in legacy G probes and royalty revenues .

While we believe that demand for our products remains and our revenue will recover, overall capital expenditures within hospitals, surgi-centers and physician offices has been impacted by the general level of uncertainty brought about by COVID-19.

Until this stabilizes, we anticipate capital expenditures may continue to be deferred.

Gross Profit .

Gross profit increased $0.5 million or 2.7% from $17.5 million in 2018 to $17.9 million in 2019.

Gross margin increased 0.3 percentage points from 41.0% in 2018 to 41.3% in 2019.

The improvement in gross margin is primarily attributable to a decrease in manufacturing overhead spending, partially offset by decreases driven by a shift in geographical mix and an increase in manufacturing overhead variances .

Gross profit decreased $2.4 million or 13.3% from $17.9 million in 2019 to $15.5 million in 2020.

Gross margin increased 1.5% from 41.3% in 2019 to 42.8% in 2020.

The increase in gross margin was primarily attributable to favorable geographic and product mix, partially offset by an increase in manufacturing overhead rate as a result of fixed overhead expenditures being absorbed over a lower sales volume.

Gross margins are expected to continue to fluctuate due to changes in the relative proportions of domestic and international sales, the product mix of sales, manufacturing variances, total unit volume changes that lead to greater or lesser production efficiencies, sales return and a variety of other factors.

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R&D expenses decreased $0.4 million or 10.9% from $3.7 million in 2019 to $3.3 million in 2020.

The decrease was attributable primarily to a decrease in bonus accrual, salaries and related costs as a result of decrease in headcount and a decrease in general engineering expenses.

The decrease was attributable primarily to a decrease in consulting expenses and a decrease in personnel costs due to reduction in headcount.

Sales and Marketing.

Sales and marketing expenses decreased $2.6 million or 17.6%, from $14.9 million in 2019 to $12.2 million in 2020.

The decrease was primarily attributable to a decrease in bonus accrual, salaries and related costs due to a decrease in headcount, lower commission expense and lower sales and marketing programs expenses.

The decrease was primarily attributable to a decrease in personnel costs as a result of a reduction in headcount, lower commission expense due to lower sales, lower travel expenses and lower marketing program expenses as a consequence of the COVID-19 pandemic reducing business activity.

General and Administrative.

General and administrative expenses decreased $1.8 million or 21.0% from $8.4 million in 2019 to $6.6 million in 2020.

The decrease in spending was primarily attributable to decreases in legal expenses, audit expenses, consulting expenses, bonus accrual, share-based compensation expense and salaries and related costs due to a decrease in headcount.

The decrease was primarily attributable to a decrease in personnel costs as a result of a reduction in headcount and lower legal expenses.

Management anticipates operating with the reduction in headcount and consequently lower costs for the foreseeable future as it continues to focus on managing expenses.

Other Income, Net.

Other income, net amounted to $0.3 million in 2020 and $0.2 million in 2019.

Other income, net consisted primarily of interest income and the change in expense associated with the fair value re-measurement of the contingent earn-out liabilities.

Other income, net, consisted primarily of interest income or expense, foreign currency gain or loss and the change in expense associated with the re-measurement of contingent liabilities.

Income Taxes.

We recorded a provision for income taxes of $48 thousand for the year ended December 28, 2019 compared to $37 thousand for the year ended December 29, 2018.

We recorded a provision for income taxes of $26 thousand for the year ended January 2, 2021 compared to $48 thousand for the year ended December 28, 2019.

The effective tax rate for the year ended December 2, 2021 was negative 0.41% compared to an effective tax rate of negative 0.46% for the year ended December 28, 2019.

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Comparison of 2020 and 2019

As of December 28, 2019, we had cash and cash equivalents of $12.7 million, no debt and working capital of $20.8 million compared to cash and cash equivalents of $21.2 million, no debt and working capital of $29.1 million as of December 29, 2018.

As of January 2, 2021, we had cash and cash equivalents of $11.6 million and working capital of $16.7 million compared to cash and cash equivalents of $12.7 million and working capital of $20.8 million as of December 28, 2019.

Net cash used in operating activities was $3.2 million in 2020 compared to $7.9 million in 2019.

The decrease in net cash used in operating activities was primarily due to changes in working capital, driven by higher cash collections and decreases in operating expenses.

During 2019, net cash used in investing activities was $0.5 million, which consisted of $0.1 million for capital expenditures and $0.4 million payments of the contingent earn-out liability.

Net cash used in investing activities during 2018 was $0.8 million, which consisted of $0.4 million for capital expenditures and $0.4 million for payment of the contingent earn-out liability.

During 2018, net cash used in financing activities was $0.2 million for payroll taxes related to net share settlement of equity awards.

Net cash provided by financing activities during 2018 was $10.4 million, which consisted of $10.5 million net proceeds arising from the issuance of common stock and $0.1 million proceeds from stock option exercises, partially offset by $0.2 million payroll taxes related to net share settlement of equity awards.

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

The decrease in net cash used in operating activities, expressed in direct cash flow terms, was primarily due to lower vendor payments and lower employee compensation, partially offset by a reduction in cash receipts from customers.

During 20 20 , net cash used in investing activities was $0.

1 million , which consisted of capital expenditures.

Net cash used in investing activities during 201 9 was $0.

5 million, which consisted of $0.

1 million for capital expenditures and $0.4 million for payment of the contingent earn-out liability.

During 2020, net cash provided by financing activities was $2.5 million, primarily from the proceeds from a U.S.

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

Net cash used in financing activities during 2019 was $0.2 million, which consisted of payroll taxes related to net share settlement of equity awards.

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

As of January 2, 2021, our principal sources of liquidity consisted of cash and cash equivalents of $11.6 million.

We have incurred net losses over the last several years, and as of January 2, 2021, have an accumulated deficit of approximately $56.9 million.

We expect to continue to incur operating losses and negative cash flows from operations at least through January 1, 2022.

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.

Critical Accounting Policies

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Our revenue is recognized in accordance with Accounting Standards Codification (“ASC”) 606, “Revenue from Contracts with Customers.”

The Company has the following revenue transaction types:

(1) Product Sale Only, (2) Laser Advantage Program (LAP), (3) Extended Warranty, (4) System Repairs (outside of warranty) and (5) Royalty Revenue.

We have the following revenue transaction types:

(1) Product Sale Only, (2) Laser Advantage Program (LAP), (3) Service Contracts, (4) System Repairs (outside of warranty) and (5) Royalty Revenue.

Product Sale Only:

The Company’s products consist of laser consoles, delivery devices and consumable instrumentation, including laser probes.

The Company’s products are currently sold for use by ophthalmologists specializing in the treatment of glaucoma and retinal diseases.

Our products consist of laser consoles, delivery devices and consumable instrumentation, including laser probes.

Our products are currently sold for use by ophthalmologists specializing in the treatment of glaucoma and retinal diseases.

Inside the United States and Germany the products are sold directly to the end users.

In other countries outside of the United States and Germany, the Company utilizes independent, third-party distributors to market and sell the Company’s products.

There is no continuing obligation subsequent to the shipment to the distributors.

The Company recognizes revenue from product sale at a point in time.

When a system or disposables are sold, the Company recognizes revenue using the five-step model:

In other countries outside of the United States and Germany, we utilize independent, third-party distributors to market and sell our products.

There is no continuing obligation subsequent to the shipment to these distributors .

We recognize revenue from product sale at a point in time.

When a system or disposables are sold without any additional deliverables, we recognize revenue using the five-step model:

(1) identifying the contract with the customer, (2) identifying the performance obligations in the contract, (3) determining expected transaction price, (4) allocating the transaction price to the distinct performance obligations in the contract, and (5) recognizing revenue when (or as) the performance obligations are satisfied .

The Company sometimes enters into LAP contracts with customers.

LAP Program (Discontinued in the second quarter of fiscal year 2019):

We entered into LAP contracts with certain customers.

Under the LAP program, the system is given away free of charge and title is transferred after the customer purchases the minimum required number of boxes of probes (classified as disposables).

Customers with older machines have the ability to trade in their old machines for the most current laser equipment offered in the program (G6 Laser) a nd receive a discount on the program’s minimum purchase requirements.

Customers with older machines have the ability to trade in their old machines for the most current laser equipment offered in the program (Cyclo G6 Laser) and receive a discount on the program’s minimum purchase requirements.

Under ASC 606, this non-cash consideration must be included in the transaction price.

However, the Company has determined that there is no value associated with the old machine and the t rade in is essentially offered to encourage customers to purchase more consumables under the program.

The Company recognizes revenue from product sales under the LAP program at a point in time.

The Company allocates the transaction price of the distinct performance obligations in the contract by determining stand-alone selling price using historical pricing net of any variable consideration or discounts to specifically allocate to a particular performance obligation.

Extended Warranty:

The Company offers a standard two-year warranty on all system sales.

The Company also offers an extended warranty which is sold to customers in incremental, one-year warranty periods which begin subsequent to the expiration of the standard two-year warranty.

The customer can opt to purchase the extended warranty at the time of the system sale or after the initial system sale.

The Company recognizes revenue from extended warranty ratably over the warranty period.

Revenue recognition for the sale of an extended warranty is largely dependent on the timing of the sale as follows:

Extended Warranty Sale in Conjunction with System Sale:

If the customer opts to purchase an extended warranty at the time of the system sale, the Company allocates the transaction price of the distinct performance obligations in the contract by determining stand-alone selling price using historical pricing net of any variable consideration or discounts to specifically allocate to a particular performance obligation.

Extended Warranty Sale Subsequent to System Sale:

If the customer opts to purchase an extended warranty after the initial system sale, the Company determines the amount of time that has elapsed since the initial system sale.

If the extended warranty is purchased within 60 days of the initial sale, the Company considers this sale to be an additional element of the original sale and allocates the transaction price of the distinct performance obligations in the contract by determining stand-alone selling price using historical pricing net of any variable consideration or discounts to specifically allocate to a particular performance obligation.

If the extended warranty is purchased subsequent to sixty days after the initial sale, the sale of the extended warranty is deemed a separate contract and is deferred at the selling price and recognized ratably over the extended warranty period as the performance obligation is satisfied.

However, we have determined that there is no value associated with the old machines and the trade-in is essentially offered to encourage customers to purchase more consumables under the program .

We recognize revenue from product sales under the LAP program at a point in time.

We allocate the transaction price of the distinct performance obligations in the contract by determining stand-alone selling price using historical pricing net of any variable consideration or discounts to specifically allocate to a particular performance obligation .

Service Contracts:

We offer a standard two-year warranty on all system sales.

We also offer a service contract which is sold to customers in incremental, one-year periods which begin subsequent to the expiration of the standard two-year warranty.

The customer can opt to purchase the service contract at the time of the system sale or after the initial system sale.

We recognize revenue from service contracts ratably over the service period.

Revenue recognition for the sale of a service contract is largely dependent on the timing of the sale as follows:

Service Contract Sale in Conjunction with System Sale:

If the customer opts to purchase a service contract at the time of the system sale, we allocate the transaction price of the distinct performance obligations in the contract by determining stand-alone selling price using historical pricing net of any variable consideration or discounts to specifically allocate to a particular performance obligation .

Service Contract Sale Subsequent to System Sale:

If the customer opts to purchase a service contract after the initial system sale, we determine the amount of time that has elapsed since the initial system sale.

If the service contract is purchased within 60 days of the initial sale, we consider this sale to be an additional element of the original sale and allocates the transaction price of the distinct performance obligations in the contract by determining stand-alone selling price using historical pricing net of any variable consideration or discounts to specifically allocate to a particular performance obligation.

If the service contract is purchased subsequent to sixty days after the initial sale, the sale of the service contract is deemed a separate contract and is deferred at the selling price and recognized ratably over the extended warranty period as the performance obligation is satisfied .

System Repairs (outside of warranty):

Customers will occasionally request repairs from the Company subsequent to the expiration of the standard warranty and outside of an extended warranty contract.

The Company recognizes revenue from system repairs (outside of warranty) at a point in time.

When the customer requests repairs from the Company subsequent to the expiration of the standard warranty and outside of an extended warranty contracts, these repair contracts are considered separate from the initial sale, and as such, revenue is recognized as the repair services are rendered and the performance obligation satisfied.

Customers will occasionally request repairs from us subsequent to the expiration of the standard warranty and outside of a service contract .

We recognize revenue from system repairs (outside of warranty) at a point in time.

When the customer requests repairs from us subsequent to the expiration of the standard warranty and outside of a service contract, these repair contracts are considered separate from the initial sale, and as such, revenue is recognized as the repair services are rendered and the performance obligation satisfied .

Royalty Revenue:

The Company has royalty agreements with two customers related to the sale of the Company’s intellectual property.

Under the terms of these agreements, the customer is to remit a percentage of sales to the Company.

Since these arrangements are for sales-based licenses of intellectual property, for which the guidance in paragraph ASC 606-10-55-65 applies, the Company recognizes revenue only as the subsequent sale occurs.

However, the Company notes that such sales being reported by the licensee with a quarter in arrear, such revenue is recognized at the time it is reported and paid by the licensee given that any estimated variable consideration would have to be fully constrained due to the unpredictability of such estimate and the unavoidable risk that it may lead to significant revenue reversals.

The Company elected the practical expedient allowing it to not recognize as a contract asset the commission paid to its salesforce on the sale of its products as an incremental cost of obtaining a contract with a customer but rather recognize such commission as expense when incurred as the amortization period of the asset that the Company would have otherwise recognized is one year or less.

We have royalty agreements with two customers related to sale of our intellectual property.

Under the terms of these agreements, the customer is to remit a percentage of sales to us.

Since these arrangements are for sales-based licenses of intellectual property, for which the guidance in paragraph ASC 606-10-55-65 applies, we recognize revenue only as the subsequent sale occurs.

However, we note that such sales being reported by the licensee with a quarter in arrears, such revenue is recognized at the time it is reported and paid by the licensee given that any estimated variable consideration would have to be fully constrained due to the unpredictability of such estimate and the unavoidable risk that it may lead to significant revenue reversals .

We elected the practical expedient allowing it to not recognize as a contract asset the commission paid to its salesforce on the sale of its products as an incremental cost of obtaining a contract with a customer but rather recognize such commission as expense when incurred as the amortization period of the asset that we would have otherwise recognized is one year or less.

Inventories are stated at the lower of cost or net realizable value and include on-hand inventory physically held at our facility, sales demo inventory and service loaner inventory.

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We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments.

The allowance for doubtful accounts is based on past payment history with the customer, analysis of the customer’s current financial condition, the aging of the accounts receivable balance, customer concentration and other known factors.

The allowance for

doubtful accounts is based on past payment history with the customer, analysis of the customer’s current financial condition, the aging of the accounts receivable balance, customer concentration and other known factors.

We provide reserves for the estimated cost of product warranties at the time revenue is recognized based on historical experience of known product failure rates and expected material and labor costs to provide warranty services.

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Alternatively, if estimates are determined to be greater than the actual amounts necessary, we may reverse a portion of such provisions in future periods .

Actual warranty costs incurred have not materially differed from those accrued.

Our warranty policy is applicable to products which are considered defective in their performance or fail to meet the product specifications.

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The factors used to assess the likelihood of realization include our forecast of future taxable income and available tax planning strategies that could be implemented to realize the net deferred tax assets.

As of December 28, 2019, based on the Company's recent history of losses and its forecasted losses, management believes on the more likely than not basis that a full valuation allowance is required.

Accordingly, as of December 28, 2019, the Company provided a full valuation allowance on its federal and states deferred tax assets.

As of January 2, 2021, based on our recent history of losses and its forecasted losses, management believes on the more likely than not basis that a full valuation allowance is required.

Accordingly, as of January 2, 2021, we provided a full valuation allowance on our federal and state deferred tax assets.

Accounting for Uncertainty in Income Taxes.

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In accordance with our accounting policy, we recognize accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense.

There was no accrued interest and penalties during the year ended December 28, 2019.

There was no accrued interest and penalties during the year ended January 2, 2021.

Accounting for Stock-Based Compensation .

We account for stock-based compensation granted to employees and directors, including employees’ stock option awards, restricted stock and restricted stock units at grant date, based on the fair value of the award.

We account for stock-based compensation granted to employees and directors, including employees’ stock option awards and restricted stock units at grant date, based on the fair value of the award.

Stock-based compensation is recognized as expense on a ratable basis over the requisite service period of the award.

We value options using the Black-Scholes option pricing model.

Restricted stock and time-based restricted stock units are valued at the grant date fair value of the underlying common shares.

Performance-based restricted stock units are valued using a Monte Carlo simulation model.

The Black-Scholes option pricing model requires the use of highly subjective and complex assumptions which determine the fair value of share-based awards, including the option’s expected term and the price volatility of the underlying stock.

Time-based restricted stock units are valued at the grant date fair value of the underlying common shares.

Performance-based restricted stock units without market conditions are valued at grant date fair value of the underlying common shares.

Performance-based RSUs granted with market conditions and performance-based stock options with market conditions are valued using the Monte Carlo simulation model.

The Black-Scholes option pricing model requires the use of highly subjective and complex assumptions which determine the fair value of stock-based awards, including the option’s expected term and the price volatility of the underlying stock.

The Monte Carlo simulation model incorporates assumptions for the holding period, risk-free interest rate, stock price volatility and dividend yield.

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Operating leases are included in Operating lease right-of-use (“ROU”) assets, net and Operating lease liabilities in our consolidated balance sheets.

As of December 28, 2019, the Company was not a party to finance lease arrangements.

As of January 2, 2021, we were not a party to finance lease arrangements.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease.

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Under the available practical expedient, we account for the lease and non-lease components as a single lease component.

Recently Adopted Accounting Standards.

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, “Leases,” which, along with amendments issued in 2018, modified lessee accounting guidance under Topic 840.

This new standard establishes a ROU model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months.

Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement.

ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.

Early adoption is permitted.

In July 2018, the FASB issued ASU 2018-11 which provides an alternative transition method that allows entities to apply the new leases standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.

The Company adopted the requirements of ASU 2016-02 on December 30, 2018, the first day of its fiscal year 2019, using the optional transition method.

The Company elected not to reassess whether any expired or existing contracts are or contain leases, not to reassess the lease classification for any expired or existing leases, not to reassess initial direct costs for any existing leases and not to separate non-lease components from lease components and instead account for each separate lease component and the non-lease components associated with that lease component as a single lease component for new or modified leases.

At adoption date, there was an increase in assets of $4.0 million and liabilities of $4.5 million due to the recognition of the required ROU asset and corresponding liability for all lease obligations that are currently classified as operating leases with the difference of $0.5 million related to existing deferred rent that reduced the ROU asset recorded.

The standard did not have an impact in our consolidated statements of operations.

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820):

Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement,” which removes, modifies and adds certain disclosure requirements on fair value measurements.

The new guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.

Early adoption is permitted.

The Company early adopted this standard in fiscal year 2019 and the standard did not have a material impact on our consolidated financial statements.

Recent Accounting Standards Not Yet Adopted.

In December 2019, the FAB issued ASU 2019-12, “Income Taxes (Topic 740):

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12, “Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes” as part of its initiative to reduce complexity in the accounting standards.

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The standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020.

Early adoption is permitted.

The Company is currently evaluating the impact that this guidance will have on its financial position and results of operations, if any.

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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-K

Item 5. Market for Registrant’s Common Equity