What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-12 compared with 2021-05-12 · 67 added, 30 removed, 74 unchanged (57% of the section changed)

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Three Months Ended

April 3, 2021

March 28, 2020

Six Months Ended

June 27, 2020

Total revenues

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Other income, net

Loss from operations before provision for

Income (loss) from operations before provision for

Provision for income taxes

The following comparisons are between the three months ended April 3, 2021 and March 28, 2020:

Net income (loss)

The following comparisons are between the three months ended July 3, 2021 and June 27, 2020:

Three Months Ended

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(in thousands)

April 3, 2021

March 28, 2020

June 27, 2020

Total revenues

Our total revenues increased by $7.2 million, or 115.9%, from $6.2 million to $13.4 million.

Revenues from retina products increased 61.1%, primarily due to inclusion of PASCAL product revenue from our acquisition of TMLS assets and strength of Iridex Retina products, particularly in the international markets .

Revenues from Cyclo G6 products increased 14.6%, as a result of strong performance of our Cyclo G6 Probes in both the US and Internationally.

Other revenues, comprised of service, royalty, freight and legacy G probes, was flat year over year.

While we believe that demand for our products remains and our outlook has improved, the overall capital expenditure landscape within hospitals, surgi-centers and physician offices is still being impacted by the general level of uncertainty brought on by COVID-19.

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

The increase is primarily due to the increase in sales of our retina products, Cyclo G6 products and other revenues compared to the prior year when our business was severely impacted by the COVID-19 pandemic.

Revenues from retina products increased 190.5%, primarily driven by an increase in sales of our Iridex Retina products in both domestic and international markets compared to the prior year when capital equipment sales were especially impacted by the COVID-19 pandemic, and an increase due to the inclusion of PASCAL product revenue from our acquisition of TMLS assets, particularly in international markets .

Revenues from Cyclo G6 products increased 70.3%, driven primarily by an increase in Cyclo G6 probes sales.

Other revenues, comprised of service, royalty, freight, legacy G probes and revenue related to exclusive distribution rights, increased 50.3% primarily due to an increase in service and legacy G probes revenues and the revenue related to exclusive distribution rights.

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

Gross Profit and Gross Margin.

Gross profit increased by $3.7 million, or 153.9%, from $2.4 million to $6.1 million.

Gross margin decreased by 2.1 percentage points from 43.4% to 41.3%.

The decrease in gross margin was primarily attributable to a shift in geographic mix and product mix.

Gross margin increased by 6.8% from 38.7% to 45.5%.

The increase in gross margin was primarily attributable to a decrease in manufacturing overhead rate because of higher sales volume and a shift in product mix.

Gross margins are expected to 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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Research and development (“R&D”) expenses increased by $0.9 million, or 107.2%, from $0.8 million to $1.7 million.

The increase in spending was primarily attributable to increased level of spending on laser systems and inclusion of R&D expense from our acquisition of PASCAL Business.

The increase in spending was primarily attributable to an increased level of spending on laser systems and inclusion of R&D expense from our acquisition of the PASCAL Business.

Sales and Marketing.

Sales and marketing expenses decreased by $0.2 million, or 5.4%, from $3.2 million to $3.0 million.

The decrease was primarily attributable to ongoing pause in marketing activities due to COVID-19 relative to prior year.

Sales and marketing expenses increased by $0.9 million, or 35.4%, from $2.7 million to $3.6 million.

General and Administrative.

General and administrative expenses increased by $0.2 million, or 14.0%, from $1.7 million to $1.9 million.

The increase in spending was primarily attributable to an increase in legal and consulting expenses associated with PASCAL Business acquisition and execution of the Exclusive Distribution agreement with Topcon.

The increase in spending was primarily attributable to an increase in legal and consulting expenses associated with acquisition of the PASCAL Business and execution of the Exclusive Distribution Agreement with Topcon.

Other Income (Expense), Net.

Other expense, net was $0.2 million, compared to other income, net of $9 thousand.

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

Other income, net was $2.5 million, compared to $9 thousand.

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

We recognized a $2.5 million gain on PPP Loan forgiveness as other income during the quarter ended July 3, 2021.

Income Taxes.

We recorded an income tax provision of $8 thousand and $5 thousand, respectively.

The following comparisons are between the six months ended July 3, 2021 and June 27, 2020:

Six Months Ended

(in thousands)

June 27, 2020

Total revenues

Our total revenues increased by $10.1 million, or 66.6%, from $15.2 million to $25.4 million.

The increase is primarily due to the increase in sales of our retina products, Cyclo G6 products and other revenues compared to prior year when our business was severely impacted by the COVID-19 pandemic.

Revenues from retina products increased 111.1%, primarily driven by an increase in sales of our Iridex Retina products in both domestic and international markets compared to the prior year when capital equipment sales were especially impacted by the COVID-19 pandemic, and an increase due to the inclusion of PASCAL product revenue from our acquisition of TMLS assets, particularly in the international markets .

Revenues from Cyclo G6 products increased 38.0%, driven primarily by an increase in Cyclo G6 probes sales.

Other revenues, comprised of service, royalty, freight, legacy G probes and revenue related to exclusive distribution rights, increased 21.4% primarily due to an increase in service revenue and the revenue related to exclusive distribution rights.

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

Gross Profit and Gross Margin.

Gross profit increased by $4.7 million, or 74.7%, from $6.3 million to $11.0 million.

Gross margin increased by 2.0% from 41.5% to 43.5%.

The increase in gross margin was primarily attributable to a decrease in manufacturing overhead rate with higher sales volume and a shift in product mix.

Research and Development.

Research and development (“R&D”) expenses increased by $1.3 million, or 85.9%, from $1.5 million to $2.8 million.

The increase in spending was primarily attributable to an increased level of spending on laser systems and inclusion of R&D expense from our acquisition of the PASCAL Business.

Sales and Marketing.

Sales and marketing expenses increased by $0.8 million, or 13.4%, from $5.8 million to $6.6 million.

The increase was primarily attributable to higher commission expense because of higher sales and higher travel expenses compared to the prior year when the COVID-19 pandemic greatly reduced our business activity, partially offset by a decrease in marketing activities due to COVID-19 relative to the first quarter of prior year.

General and Administrative.

General and administrative expenses increased by $1.2 million, or 34.6%, from $3.4 million to $4.6 million.

Other Income (Expense), Net.

Other income, net was $2.4 million, compared to $18 thousand.

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

We recognized a $2.5 million gain on PPP Loan forgiveness as other income during the six months ended July 3, 2021.

Income Taxes.

We recorded an income tax provision of $16 thousand and $12 thousand, respectively.

Liquidity and Capital Resources.

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

As of April 3, 2021, we had cash and cash equivalents of $28.0 million and working capital of $31.5 million compared to cash and cash equivalents of $11.6 million and working capital of $16.7 million as of January 2, 2021.

Net cash provided by operating activities was $11.8 million in the three months ended April 3, 2021 compared to net cash used in operating activities of $1.5 million in the three months ended March 28, 2020.

The increase in net cash provided by operating activities, expressed in direct cash flow terms, was primarily due to the payment received for the distribution exclusivity fee and timing of vendor payments.

For the three months ended April 3, 2021, net cash used in investing activities was $5.4 million, which consisted primarily of the purchase of PASCAL Business.

Net cash used in investing activities for the three months ended March 28, 2020 was $0.1 million, which consisted of capital expenditures.

For the three months ended April 3, 2021, net cash provided by financing activities was $9.9 million, primarily from the net proceeds arising from the issuance of common stock .

For the three months ended March 28, 2020, net cash used in financing activities was immaterial.

As of July 3, 2021, we had cash and cash equivalents of $26.3 million and working capital of $32.8 million compared to cash and cash equivalents of $11.6 million and working capital of $16.7 million as of January 2, 2021.

Net cash provided by operating activities was $10.6 million in the six months ended July 3, 2021 compared to net cash used in operating activities of $3.4 million in the six months ended June 27, 2020.

For the six months ended July 3, 2021, net cash used in investing activities was $5.5 million, which consisted primarily of the purchase of PASCAL Business.

Net cash used in investing activities for the six months ended June 27, 2020 was $0.1 million, which consisted of capital expenditures.

For the six months ended July 3, 2021, net cash provided by financing activities was $9.5 million, primarily from the net proceeds arising from the issuance of common stock, partially offset by payroll taxes related to net share settlement of equity awards .

For the six months ended June 27, 2020, net cash provided by financing activities was $2.5 million, reflecting the proceeds from the PPP loan.

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

As of April 3, 2021, our principal sources of liquidity consisted of cash and cash equivalents of $28.0 million.

We have incurred net losses over the last several years, and as of April 3, 2021, have an accumulated deficit of approximately $58.9 million.

We expect to continue to incur operating losses and negative cash flows from operations through April 2, 2022.

As of July 3, 2021, our principal sources of liquidity consisted of cash and cash equivalents of $26.3 million.

We have incurred net losses over the last several years, and as of July 3, 2021, have an accumulated deficit of approximately $57.6 million.

We expect to continue to incur operating losses and negative cash flows from operations through July 2, 2022.

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

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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.

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 significantly limited.

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 significantly 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