What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-03-15 compared with 2021-03-23 · 198 added, 130 removed, 616 unchanged (35% of the section changed)

Financial Statements and Supplementary Data.

Our consolidated balance sheets as of January 2, 2021 and December 28, 2019 and the consolidated statements of operations, comprehensive income, stockholders’ equity and cash flows for each of our fiscal years 2020 and 2019 together with the related notes and the report of our independent registered public accounting firm, are on the following pages.

Our consolidated balance sheets as of January 1, 2022 and January 2, 2021 and the consolidated statements of operations, comprehensive loss, stockholders’ equity and cash flows for each of our fiscal years 2021 and 2020 together with the related notes and the report of our independent registered public accounting firm, are on the following pages.

Additional required financial information is described in Item 15.

2 unchanged sentences

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of IRIDEX Corporation (a Delaware corporation) and its subsidiaries (the “Company”) as of January 2, 2021 and December 28, 2019, and the related consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows for each of the two years in the period ended January 2, 2021, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of January 2, 2021 and December 28, 2019, and the results of its operations and its cash flows for each of the two years in the period ended January 2, 2021, in conformity with accounting principles generally accepted in the United States of America.

We have audited the accompanying consolidated balance sheets of IRIDEX Corporation (a Delaware corporation) and its subsidiaries (the “Company”) as of January 1, 2022 and January 2, 2021, and the related consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows for each of the two years in the period ended January 1, 2022, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of January 1, 2022 and January 2, 2021, and the results of its operations and its cash flows for each of the two years in the period ended January 1, 2022, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

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The Company’s inventories include demonstration units (“demos”) to facilitate the sale of products to prospective customers and loaners for existing customers to use while their product is under repair.

The principal considerations for our determination that performing procedures relating to net realizable value adjustments to inventories is a critical audit matter are the significant amount of judgement by management in developing the assumptions of the forecasted changes in demand, product life cycle and development plans, component cost trends, product pricing, physical deterioration and quality issues, which in turn led to significant auditor judgement, subjectivity, and effort in performing audit procedures and evaluating audit evidence relating to these factors.

The principal considerations for our determination that performing procedures relating to net realizable value adjustments to inventories is a critical audit matter are the significant amount of judgment by management in developing the assumptions of the forecasted changes in demand, product life cycle and development plans, component cost trends, product pricing, physical deterioration and quality issues, which in turn led to significant auditor judgment, subjectivity, and effort in performing audit procedures and evaluating audit evidence relating to these factors.

Additionally, for certain new product launches there may be limited historical data with which to evaluate forecasts.

10 unchanged sentences

January 1, 2022

December 28, 2019

January 2, 2021

Current assets:

Cash and cash equivalents

Accounts receivable, net of allowance for doubtful accounts of $244 as of January 2, 2021 and $187 as of December 28, 2019

Accounts receivable, net of allowance for doubtful accounts of $ 268 as of January 1, 2022 and $ 244 as of January 2, 2021

Receivable from related party

Prepaid expenses and other current assets

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Accounts payable

Payable to related party

Accrued compensation

Accrued expenses

Other current liabilities

Current portion of PPP loan

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30,000,000 shares;

Issued and outstanding 13,899,683 and 13,785,233 shares as of January 2, 2021 and December 28, 2019, respectively

Issued and outstanding 15,876,171 and 13,899,683 shares as of January 1, 2022 and January 2, 2021, respectively

Additional paid-in capital

8 unchanged sentences

January 1, 2022

December 28, 2019

January 2, 2021

Total revenues

16 unchanged sentences

January 1, 2022

December 28, 2019

January 2, 2021

Change in foreign currency translation adjustments

7 unchanged sentences

Balances, December 28, 2019

Issuance of common stock under stock option plan

Employee stock-based compensation expense

1 unchanged sentence

Other comprehensive income

Balances, December 28, 2019

Balances, January 2, 2021

Issuance of common stock, net of issuance costs

Issuance of common stock under stock option plan

Employee stock-based compensation expense

7 unchanged sentences

January 1, 2022

December 28, 2019

January 2, 2021

Operating activities:

Adjustments to reconcile net loss to net cash used in operating activities:

Loss on disposal of property and equipment

Gain on PPP loan forgiveness

Depreciation and amortization

Change in fair value of earn-out liability

Loss on disposal of property and equipment

Stock-based compensation

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Accounts receivable

Receivable from related party

Prepaid expenses and other current assets

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Accounts payable

Payable to related party

Accrued compensation

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Other long-term liabilities

Net cash used in operating activities

Net cash provided by (used in) operating activities

Investing activities:

Acquisition of property and equipment

Cash paid for business combination, net

Proceeds from sale of property and equipment

Payment on earn-out liability

Net cash used in investing activities

Financing activities:

Proceeds from PPP loan

Proceeds from issuance of common stock, net of issuance costs

Proceeds for stock option exercise

Taxes paid related to net share settlements of equity awards

Net cash provided by (used in) financing activities

Proceeds from PPP loan

Net cash provided by financing activities

Effect of foreign exchange rate changes

Net decrease in cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents, beginning of year

1 unchanged sentence

Supplemental disclosure of cash flow information:

Cash (received) paid during the year for:

Cash paid (received) during the year for:

Supplemental disclosure of non-cash activities:

Transfer of inventory to property and equipment

ROU assets obtained with the modification of operating lease

The accompanying notes are an integral part of these consolidated financial statements.

9 unchanged sentences

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

Fiscal 2020 ended on January 2, 2021 (“FY 2020”) and Fiscal 2019 ended on December 28, 2019 (“FY 2019”).

Fiscal 2021 ended on January 1, 2022 (“FY 2021”) and Fiscal 2020 ended on January 2, 2021 (“FY 2020”).

Fiscal years 2021 and 2020 included 52 weeks and 53 weeks of operations, respectively.

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Our provision for sales returns is recorded net of the associated costs.

There was no provision for sales returns as of January 2, 2021 and $264 thousand as of December 28, 2019, which was recorded within the deferred revenue accounts in the consolidated balance sheets.

There was no provision for sales returns as of either January 1, 2022 and January 2, 2021.

Similarly management must make estimates regarding the uncollectibility of accounts receivable.

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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.

A reconciliation of the changes in our allowance for doubtful accounts balances for the years ended January 2, 2021 and December 28, 2019 are as follows (in thousands):

A reconciliation of the changes in our allowance for doubtful accounts balances for the years ended January 1, 2022 and January 2, 2021 are as follows (in thousands):

Allowance for doubtful accounts Years ended

January 1, 2022

December 28, 2019

January 2, 2021

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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The amortization of the demos is charged to sales and marketing expense while the amortization on the loaners is charged to cost of revenues.

The gross value of demos and loaners was $1.9 million and $2.8 million and the accumulated amortization was $1.7 million and $1.4 million as of January 2, 2021 and December 28, 2019, respectively.

The gross value of demos and loaners was $ 2.0 million and $ 1.9 million and the accumulated amortization was $ 1.7 million and $ 1.7 million as of January 1, 2022 and January 2, 2021, respectively.

The net book value of demos and loaners is charged to cost of revenues when such demos or loaners are sold.

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The Company has 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.

(1) Product Sale Only, (2) Laser Advantage Program (“LAP”), (3) Service Contracts, (4) System Repairs (outside of warranty), (5) Royalty Revenue and (6) Exclusive Distribution Rights.

Product Sale Only:

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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 these distributors .

There is no continuing obligation after shipment is made to these distributors .

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

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(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 .

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

The Company entered into LAP contracts with certain customers.

The Company entered into LAP contracts with 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).

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If the service contract 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 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 .

If the service contract is purchased subsequent to 60 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):

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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 .

Exclusive Distribution Rights:

In March 2021, the Company entered into a distribution agreement with Topcon, pursuant to which the Company granted Topcon the exclusive right to distribute the Company’s retina and glaucoma products in certain geographies outside the United States.

The exclusivity arrangement with Topcon obligates the Company to provide training, customer support, and exclusive territorial rights to Topcon for certain international regions, for a period of 10 years, commencing upon regulatory approval to transfer existing (non-exclusive) distribution rights from the current distributors in those regions to Topcon.

The agreement further stipulates that $ 2.0 million of arrangement fee is held back and will not be paid in the event that regulatory approval for the Japan region is not obtained within nine months from the date of execution of the agreement.

The Company has the right to terminate the exclusive distribution rights granted to Topcon for any of the regions at any point in time during the 10-year exclusivity term for a termination fee that is based on a multiple of 1.2 times the revenue generated by the Company in 2019 for the respective region.

Management has determined that the exclusivity rights, training, and customer support represents a single combined performance obligation for each region, to be recognized as exclusivity fee revenue on a straight-line basis over the 10-year period for each region, commencing on the date that regulatory approval is obtained for each region, based on the SSP for such combined performance obligation for each region.

The estimated fair value of the exclusive distribution rights for all regions combined totaled approximately $ 14.8 million.

Of this amount, management has fully-constrained the arrangement fee allocated to Belarus (approximately $ 0.2 million, recorded as customer deposit under other current liabilities) because obtaining the necessary regulatory approvals and termination of existing distributor relationship is not feasible.

As of January 1, 2022, $ 0.6 million in revenue related to the exclusive distribution rights was recorded for the fiscal year then ended.

In January 2022, the Company received approximately $ 1.8 million from Topcon, representing the $ 2.0 million previously held back, net of the approximately $ 0.2 million that the Company constrained for Belarus.

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.

The Company recognized an asset from the costs incurred to fulfill a contract.

These costs relate directly and must be incurred to satisfy performance obligations on certain specific contract with a customer.

These costs are expected to be recovered over time and will be amortized on a systematic basis that is consistent with the recognition of revenue to which it relates.

As of January 1, 2022, recognized deferred costs incurred to fulfill a contract with a customer amounted to $ 0.3 million, included in Prepaid expenses and other current assets and Other long-term assets in the Company’s consolidated balance sheets.

There was no amortization during fiscal year 2021.

Taxes Collected from Customers and Remitted to Governmental Authorities.

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Costs associated with these service arrangements are recognized as incurred.

A reconciliation of the changes in our deferred revenue balances for the years ended January 2, 2021 and December 28, 2019 are as follows (in thousands):

A reconciliation of the changes in our deferred revenue balances for the years ended January 1, 2022 and January 2, 2021 are as follows (in thousands):

Balance as of December 28, 2019

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Deductions from reserves

Balance as of December 28, 2019

Balance as of January 2, 2021

Additions to deferral

Revenue recognized

Deductions from reserves

Balance as of January 1, 2022

During each of the twelve months ended January 2, 2021 and December 28, 2019, approximately $1.3 million was recognized pertaining to amounts deferred as of both December 28, 2019 and December 29, 2018.

During each of the twelve months ended January 1, 2022 and January 2, 2021, approximately $ 0.9 million and $ 1.3 million were recognized pertaining to amounts deferred as of January 2, 2021 and December 28, 2019, respectively.

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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Warranty costs are reflected in the consolidated statements of operations as costs of revenues.

A reconciliation of the changes in our warranty liability for the years ended January 2, 2021 and December 28, 2019 are as follows (in thousands):

A reconciliation of the changes in our warranty liability for the years ended January 1, 2022 and January 2, 2021 are as follows (in thousands):

Balance as of December 28, 2019

2 unchanged sentences

Adjustment to pre-existing warranties

Balance as of December 28, 2019

Balance as of January 2, 2021

Accruals for product warranties

4 unchanged sentences

Our shipping and handling costs billed to customers are included in revenues and the associated expense is recorded in cost of revenues for all periods presented.

Shipping and handling costs billed to customers amounted to $0.2 million during each of fiscal years 2020 and 2019.

Shipping and handling costs billed to customers amounted to $ 0.3 million and $ 0.2 million during fiscal years 2021 and 2020, respectively.

Research and Development.

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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 were no accrued interest and penalties during the years ended January 2, 2021 and December 28, 2019.

There were no accrued interest and penalties during the years ended January 1, 2022 and January 2, 2021.

Accounting for Stock-Based Compensation.

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Historically, we have not experienced any significant losses related to individual customers or a group of customers in any particular geographic area.

For the years ended January 2, 2021 and December 28, 2019, no single customer accounted for greater than 10% of total revenues.

As of January 2, 2021, one customer accounted for over 10% of our accounts receivable, representing 13%.

As of December 28, 2019, one customer accounted for more than 10% of accounts receivable balance, representing 11%.

For the year ended January 1, 2022, one customer, Topcon, accounted for greater than 10 % of total revenues, representing 21 %.

For the year ended January 2, 2021, no single customer accounted for greater than 10 % of total revenues.

As of January 1, 2022, two customers, including Topcon, accounted for over 10 % of our accounts receivable, representing 31 % and 11 %, respectively.

As of January 2, 2021, one customer accounted for more than 10 % of accounts receivable balance, representing 13 %.

Our products require approvals from the Food and Drug Administration and international regulatory agencies prior to commercialized sales.

Our future products may not receive required approvals.

If we were denied such approvals, or if such approvals were delayed, it would have a material adverse impact on our business, results of operations and financial condition.

If we were denied such approvals, or if such

approvals were delayed, it would have a material adverse impact on our business, results of operations and financial condition.

Reliance on Certain Suppliers.

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The reclassifications had no impact on previously reported net loss, accumulated deficit, total assets, or total liabilities.

Recent Accounting Standards Not Yet Adopted.

Foreign Currency

Assets and liabilities of foreign operation with non-U.S.

Dollar functional currency are translated to U.S.

Dollars using exchange rates in effect at the end of the period.

Revenue and expenses are translated to U.S.

Dollars using rates that approximate those in effect during the period.

The resulting translation adjustments are included in the Company’s Consolidated Balance Sheets in the stockholders’ equity section as a component of accumulated other comprehensive loss (loss).

Recently Adopted Accounting Standards.

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

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The standard also clarifies and simplifies other aspects of the accounting for income taxes.

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.

The Company adopted ASU 2019-12 in fiscal year 2021 and the standard did not have a material impact on its consolidated financial statements.

Significant Transactions

On March 2, 2021, the Company entered into a series of strategic transactions with Topcon, headquartered in Tokyo, Japan, in which (i) the Company purchased substantially all of the tangible and intangible assets of Topcon Medical Laser Systems, Inc.

(“TMLS”) related to laser products previously manufactured and sold by TMLS, including the Pattern Scanning Laser (“PASCAL”) products, under the tradename “PASCAL” (altogether, the “PASCAL Business”);

(ii) Topcon acquired an equity interest in the Company, comprised of the issuance of 1,618,122 shares of the Company’s common stock at $ 6.18 per share (as determined based on the average of the Nasdaq Official Closing Price of the Company’s common stock for the five trading days immediately preceding March 2, 2021);

(iii) the Company granted Topcon the exclusive right to distribute certain of its products (including the PASCAL products) in certain international regions (the “Exclusive Distribution Rights”) and (iv) Topcon and the Company entered into the Manufacturing Services Agreement regarding transition of regulatory authorizations relating to, and manufacturing and supply of, the PASCAL products for a specified post-closing transition period.

The transaction is expected to result in net proceeds to the Company of approximately $ 19.5 million (of which $ 17.5 million was received on March 10, 2021 with the remaining $ 2.0 million received on January 31, 2022.

The net proceeds have been allocated on a fair value basis as follows (in thousands):

1) Issuance of common stock (before issuance costs)

2) Grant of exclusive distribution rights

3) Purchase of tangible and intangible assets

The purchase of tangible and intangible assets has been recognized as an acquisition of a business with the relative fair value of the net consideration allocated to the tangible and intangible assets based on their preliminary estimated fair values as of the acquisition date.

Refer to Note 2.

Summary of Significant Accounting Policies for the recognition of revenue under ASC 606 for the grant of exclusive distribution rights.

Acquisition of substantially all of TMLS’ assets including the rights to the PASCAL product .

On March 10, 2021, the Company completed the purchase of substantially all of the tangible and intangible assets of TMLS, which was an established leader in manufacturing and selling laser products under the tradename “PASCAL.” The acquisition has been recognized as an acquisition of a business and the purchase price (approximately $ 5.3 million) has been preliminarily allocated to tangible and identified intangible assets acquired based on their estimated fair values.

As additional information becomes available, the Company may further revise the preliminary purchase price allocation during the remainder of the measurement period (which will not exceed 12 months from March 10, 2021).

Any such revisions or changes may be material.

The following table presents the preliminary allocation of the total purchase price:

Estimated Fair

(in thousands)

Computers and Software

Manufacturing and Office Equipment

Other tangible assets

Developed Technology

In-process Research and Development (IPR&D)

Trade names and Trademarks

Customer Relationships

Developed technology relates to PASCAL products, a pattern scanning laser used for retinal treatments, and was valued using the multi-period excess earnings method under the income approach.

This method reflects the present value of the projected cash flows that are expected to be generated by the developed technology less charges representing the contribution of other assets to those cash flows.

The economic useful life is estimated to be seven years , as determined based on the technology cycle related to the developed technology, and the estimated cash flows over the forecast period.

IPR&D pertains to an upcoming release of PASCAL products and has been valued using the multi-period excess earnings method under the income approach.

Trade names and Trademarks pertain to the “PASCAL” trade name, and the fair value was determined by applying the relief-from-royalty method under the income approach.

The economic useful life is estimated to be nine years , based on the expected life of the trade name and the cash flows anticipated over the forecast period.

Customer relationships represent the fair value of future projected revenue that will be derived from sales of products to existing customers of the PASCAL Business, with an estimated useful life of seven years .

Goodwill is primarily attributable to the assembled workforce and anticipated synergies and economies of scale expected from the integration of the PASCAL Business.

Substantially all goodwill is deductible for tax purposes.

Related Party - Topcon

Topcon holds 10.2 % voting interest in the Company, which qualifies it to be a principal owner considered a related party, even though it currently does not have significant influence over the Company’s operations.

Topcon resells certain of our products as our exclusive distributor in certain international regions.

At the same time, the Company also purchases certain raw materials from Topcon.

During fiscal year 2021, the Company’s revenues related to Topcon amounted to approximately $ 11.1 million, including $ 0.6 million recognized exclusive distribution rights revenue.

The Company’s purchases from Topcon during fiscal year 2021 amounted to $ 1.1 million.

As of January 1, 2022, the amounts receivable from and payable to Topcon were $ 3.1 million and $ 0.6 million, respectively.

Fair Value Measurement

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In determining fair value, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considers counterparty credit risk in our assessment of fair value.

The carrying amounts of our financial assets and liabilities, including cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses as of January 2, 2021 and December 28, 2019, approximate fair value because of the short maturity of these instruments.

The carrying amounts of our financial assets and liabilities, including cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses as of January 1, 2022 and January 2, 2021, approximate fair value because of the short maturity of these instruments.

The carrying amount of the Company’s PPP Loan as of January 2, 2021, approximates its fair value based on the specified interest rate.

As of January 2, 2021 and December 28, 2019, financial assets and liabilities measured and recognized at fair value on a recurring basis and classified under the appropriate level of the fair value hierarchy as described above was as follows (in thousands):

As of January 1, 2022 and January 2, 2021, financial assets and liabilities measured and recognized at fair value on a recurring basis and classified under the appropriate level of the fair value hierarchy as described above was as follows (in thousands):

As of January 1, 2022

As of December 28, 2019

As of January 2, 2021

Fair Value Measurements

6 unchanged sentences

January 1, 2022

December 28, 2019

January 2, 2021

Raw materials

5 unchanged sentences

January 1, 2022

December 28, 2019

January 2, 2021

Leasehold improvements

2 unchanged sentences

Depreciation expense related to property and equipment was $ 640 thousand and $ 488 thousand for the fiscal years 2021 and 2020, respectively.

The carrying value of goodwill was $533 thousand as of January 2, 2021 and December 28, 2019, respectively.

Goodwill is tested for impairment at least annually or whenever there is a change in circumstances that indicates the carrying value of these assets may be impaired.

The carrying value of goodwill was $ 965 thousand and $ 533 thousand as of January 1, 2022 and January 2, 2021, respectively.

In March 2021, the Company recorded approximately $ 0.4 million goodwill in connection with its purchase of the PASCAL Business.

Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in a business combination.

The Company reviews goodwill for impairment on an annual basis or whenever events or changes in circumstances indicate the carrying value may not be recoverable.

The Company performs an annual impairment test by comparing the fair value of a reporting unit with its carrying amount.

An impairment charge should be recognized for the amount by which the carrying amount exceed the reporting unit’s fair value;

however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.

In addition, income tax effects from any tax-deductible goodwill carrying amount of the reporting unit should be considered when measuring the goodwill impairment loss, if applicable.

The Company has determined that it has a single reporting unit for purposes of performing its goodwill impairment test.

As the Company uses the market approach to assess impairment, its common stock price is an important component of the fair value calculation.

If the Company’s stock price continues to experience significant price and volume fluctuations, this will impact the fair value of the reporting unit and can lead to potential impairment in future periods.

The Company performed its annual impairment test during the second quarter of fiscal year 2021 and determined that its goodwill was not impaired.

The determination of whether any potential impairment of goodwill exists is based upon an impairment test performed in accordance with ASC 350.

3 unchanged sentences

Customer relations

The components of our purchased intangible assets as of December 28, 2019 are as follows (in thousands):

Developed technology

In-process R&D

Not applicable

The components of our purchased intangible assets as of January 2, 2021 are as follows (in thousands):

Customer relations

Aggregate amortization expense for each of the fiscal years 2020 and 2019 was $16 thousand.

The amortization of customer relations was charged to sales and marketing expense.

Aggregate amortization expense for fiscal years 2021 and 2020 were $ 163 thousand and $ 16 thousand, respectively.

The amortization of developed technology was charged to research and development expense and the customer relations and trade names were charged to sales and marketing expense.

Estimated future amortization expense for purchased intangible assets is as follows (in thousands):

Accrued Expenses

The components of our accrued expenses are as follows (in thousands):

Accrued Expenses and Other Current Liabilities

The components of our accrued expenses and other current liabilities are as follows (in thousands):

January 1, 2022

December 28, 2019

Customer deposits

Royalties payable

January 2, 2021

Legal and professional fees

Sales and marketing expenses

Professional fees

Legal expenses

Temporary help and consulting

Royalties payable

Other accrued expenses

Total accrued expenses

In July 2020, the Company agreed with its landlord for its Mountain View, California operating facility to defer rent for six weeks in August and September 2020 totaling approximately $169 thousand without interest to be paid in equal monthly installments from September 2021 to February 2022.

In accordance with the “SEC Staff Q&A – Topic 842 and Topic 840:

Accounting for lease concessions related to the effects of the COVID-19 pandemic”, the Company has accounted for this transaction as if no changes to the lease contract were made, and therefore not as a modification to the original lease.

As such, the Company has recorded the rent expense during the deferral period.

On April 23, 2020, the Company qualified for and received a loan pursuant to the Paycheck Protection Program, a program implemented by the U.S.

Small Business Administration under the Coronavirus Aid, Relief, and Economic Security Act, from a qualified lender (the “PPP Lender”), for an aggregate principal amount of approximately $ 2.5 million (the "PPP Loan").

January 1, 2022

January 2, 2021

Customer deposits

Other miscellaneous

Total other current liabilities

Paycheck Protection Program (“PPP”) Loan

On April 23, 2020, the Company qualified for and received a loan pursuant to the PPP, a program implemented by the U.S.

Small Business Administration (the “SBA”) under the Coronavirus Aid, Relief, and Economic Security Act, from a qualified lender (the “PPP Lender”), for an aggregate principal amount of approximately $ 2.5 million (the "PPP Loan").

The PPP Loan bears interest at a fixed rate of 1.0 % per annum, with the first six months of interest deferred, has a term of two years , and is unsecured and guaranteed by the U.S.

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On September 22, 2020, the Company submitted the PPP Loan forgiveness application for the entire amount of approximately $ 2.5 million.

The accrued interest is $17 thousand as of January 2, 2021.

The Company cannot provide assurance that principal and interest amounts under the PPP Loan will be forgiven.

To the extent that all or part of the PPP Loan is not forgiven, the Company will be required to pay interest on the PPP Loan at a rate of 1.0% per annum, and starting in September 2021 principal and interest payments will be required through the maturity date in April 2022.

To the extent that all or part of the PPP Loan is not forgiven, the Company would have been required to pay interest on the PPP Loan at a rate of

1.0 % per annum.

The terms of the PPP Loan provide for customary events of default including, among other things, payment defaults, breach of representations, and insolvency events.

Department of the Treasury has announced that it will conduct audits for PPP loans that exceed $2 million.

Should we be audited or reviewed by the U.S.

Department of the Treasury or the U.S.

Small Business Administration as a result of the SBA Loan or filing an application for forgiveness or otherwise and receive an adverse outcome in such an audit, we could be required to return the full amount of the SBA Loan and may potentially be subject to civil and criminal fines and penalties.

In June 2021, the Company was notified by Silicon Valley Bank that its PPP Loan, including accrued interest, has been fully forgiven by the SBA.

We recognized a $ 2.5 million gain on PPP Loan forgiveness, included in Other income, net in the consolidated statements of operations for the fiscal year ended January 1, 2022.

Commitments and Contingencies

1 unchanged sentence

We lease our operating facilities in Mountain View, California, under a non-cancelable operating lease through February 28, 2022 .

There are no remaining options to extend or renew the terms of this lease.

On April 30, 2021, we amended our lease to reduce the portion of the premises leased by the Company and extend the lease term through August 31, 2024 .

There are no further options or rights to extend the term of this lease.

Our operating lease commitments consist of facility and office equipment leases.

Operating lease expense for fiscal years 2020 and 2019 was approximately $ 1.

3 million and $ 1 .

4 million, respectively.

Operating lease expense for fiscal years 2021 and 2020 was approximately $ 1.1 million and $ 1.3 million, respectively.

The weighted average discount rate used in calculating the present value of lease payments was 4.8 %.

7 unchanged sentences

Our purchase commitments consist primarily of non-cancellable purchase orders with vendors to manufacture certain components and ophthalmic instruments.

Future minimum payments for our purchase commitments as of January 2, 2021 are summarized as follows (in thousands):

Future minimum payments for our purchase commitments as of January 1, 2022 were approximately $ 18.0 million.

License Agreements.

We are obligated to pay royalties equivalent to 5% of sales on certain products under certain license agreements with termination dates through the end of 2021.

We are obligated to pay royalties equivalent to 1 % to 5 % of sales on certain products under certain license agreements with termination dates through the end of 2033 .

Royalty expense, charged to cost of revenues, was approximately $ 0.4 million and $ 0.3 million for fiscal years 2021 and 2020, respectively.

11 unchanged sentences

From time to time, we may be involved in legal proceedings arising in the ordinary course of business.

In general, management believes that ordinary course of business matters will not have a material adverse effect on our financial position or results of operations and are adequately covered by our liability insurance.

However, it is possible that cash flows or results of operations could be materially affected in any particular period by the unfavorable resolution of one of more of these contingencies or because of the diversion of management’s attention and the incurrence of significant expenses.

In general, management believes that ordinary course of business matters will not have a material adverse effect on our financial position

or results of operations and are adequately covered by our liability insurance.

Stockholders’ Equity

6 unchanged sentences

Balances as of December 28, 2019

Additional shares reserved

Options granted

2 unchanged sentences

Awards cancelled

Balances as of December 28, 2019

Balances as of January 2, 2021

Additional shares reserved

Options granted

7 unchanged sentences

January 1, 2022

December 28, 2019

January 2, 2021

Cost of revenues

13 unchanged sentences

Options cancelled or forfeited

Balances as of December 28, 2019

Balances as of January 2, 2021

Options granted

38 unchanged sentences

This amount is subject to change due to changes to the fair market value of our common stock.

The total intrinsic value of options exercised for each of fiscal years 2020 and 2019 was approximately $0 thousand.

The total intrinsic value of options exercised for fiscal years 2021 and 2020 were approximately $ 251 thousand and $ 0 thousand, respectively.

Restricted Stock Units

13 unchanged sentences

These net-share settlements had the effect of share repurchases as they reduced and retired the number of shares that would have otherwise been issued as a result of the release and did not represent an expense to us.

For the fiscal year ended January 2, 2021 , 128,624 shares of

restricted stock units were released with an intrinsic value of approximately $ 0 .

For the fiscal year ended January 1, 2022 , 381,974 shares of restricted stock units were released with an intrinsic value of approximately $ 2.7 million.

We withheld 89,842 shares to satisfy approximately $ 629 thousand of employees’ minimum tax obligation on the released restricted stock units.

Information regarding the RSU activity during the years ended January 2, 2021 and December 28, 2019 is summarized below:

Information regarding the RSU activity during the years ended January 1, 2022 and January 2, 2021 is summarized below:

Grant Date Fair

3 unchanged sentences

Restricted stock units forfeited

Outstanding as of December 28, 2019

Outstanding as of January 2, 2021

Restricted stock units granted

3 unchanged sentences

During the year ended January 1, 2022, the Company awarded 171,598 restricted stock units at a weighted average grant date fair value of $ 6.78 per share.

There were no grants for performance-based shares that are subject to service and performance vesting conditions.

Of this amount, 5,000 performance-based shares that are subject to service and performance vesting conditions with a weighted average grant date fair value of $ 8.34 per share.

During fiscal year 2021, 56,900 stock awards were modified to clarify the performance condition.

The total incremental expense for these modifications resulted in an additional stock-based compensation expense of $ 0.4 million recorded within cost of sales and operating expenses on the consolidated statement of operations for the fiscal year 2021.

Employee Benefit Plan

2 unchanged sentences

The plan also provides for Company contributions at the discretion of the Company.

The Company did not make matching contributions during 2020.

In 2019, total matching contributions made by the Company was $219 thousand.

In 2021, the Company made $ 201 thousand worth of total matching contributions.

The Company did no t make matching contribution during 2020.

Loss from operations before provision for income taxes was comprised of the following:

January 1, 2022

December 28, 2019

January 2, 2021

United States

1 unchanged sentence

January 1, 2022

December 28, 2019

January 2, 2021

Provision for income taxes

1 unchanged sentence

January 1, 2022

December 28, 2019

January 2, 2021

Income tax provision at statutory rate

7 unchanged sentences

January 1, 2022

December 28, 2019

January 2, 2021

Net operating losses

20 unchanged sentences

In the event of a change in ownership as defined by IRC sections 382 and 383, the usage of the above mentioned NOLs and credits may be limited.

The Company accounts for uncertain tax positions in accordance with ASC 740, “Income Taxes”.

ASC 740 seeks to reduce the diversity in practice associated with certain aspects of measurement and recognition in accounting for income taxes.

The Company accounts for uncertain tax positions in accordance with ASC 740, “Income Taxes.” ASC 740 seeks to reduce the diversity in practice associated with certain aspects of measurement and recognition in accounting for income taxes.

ASC 740 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax provision that an entity takes or expects to take in a tax return.

5 unchanged sentences

January 1, 2022

December 28, 2019

January 2, 2021

Balance at the beginning of the year

14 unchanged sentences

The Third Amendment to the Loan Agreement was executed in December 2020 to extend the term through April 1, 2022 .

As of January 2, 2021 and December 28, 2019, there were no amounts outstanding.

As of January 1, 2022 and January 2, 2021, there were no amounts outstanding.

Business Segments and Geographical Information

We operate in one segment, ophthalmology.

Substantially all of our long-term assets are located in the U.S.

We develop, manufacture and market medical devices.

2 unchanged sentences

January 1, 2022

December 28, 2019

January 2, 2021

Total revenues

(1) Other includes service contract revenues of $ 1,386 and $ 1,263 recognized during fiscal years 2021 and 2020, respectively.

Also includes $ 615 recognized revenue related to the exclusive distribution rights during fiscal year 2021.

Other also includes revenues from paid service, royalty, freight and legacy G probes.

1 unchanged sentence

January 1, 2022

December 28, 2019

January 2, 2021

United States

Americas, excluding the U.S.

Asia/Pacific Rim

Americas, excluding the U.S.

Revenues are attributed to countries based on location of end customers.

For fiscal years 2020 and 2019 no individual country accounted for more than 10% of our sales, except for the United States, which accounted for 53.1% and 51.3% of revenues in 2020 and 2019, respectively.

Other than the United States, Japan accounted for more than 10 % of the Company’s revenues during fiscal year 2021, representing 13.5 %.

The United States accounted for 47.4 % of revenues in 2021.

For fiscal year 2020 no individual country accounted for more than 10 % of our sales, except for the United States, which accounted for 53.1 %.

Computation of Basic and Diluted Net Loss Per Common Share

1 unchanged sentence

January 1, 2022

December 28, 2019

January 2, 2021

Weighted average shares of common stock (basic)

3 unchanged sentences

Diluted net loss per share

As of January 2, 2021 and December 28, 2019, stock options, restricted stock units and restricted stock awards of 1,407,410 and 1,162,049 shares, respectively, were excluded from the computation of diluted weighted average shares outstanding because to do so would have been anti-dilutive.

Subsequent Events

On March 2, 2021, the Company entered into a series of strategic transactions with Topcon Corporation (“Topcon”), Topcon America Corporation (the “Investor”) and Topcon Medical Laser Systems, Inc.

(the “Seller”), pursuant to which (i) the Company and the Seller entered into an asset purchase agreement dated March 2, 2021, pursuant to which the Company acquired substantially all the assets (except for cash and cash equivalents) of the Seller (the “Transferred Assets”) (the “Asset Purchase Agreement”), (ii) Topcon and the Company entered into a distribution agreement dated March 2, 2021, pursuant to which the Company granted Topcon the exclusive right to distribute the Company’s retina and glaucoma products in certain geographies outside the United States (the “Distribution Agreement”), (iii) pursuant to an investment agreement dated March 2, 2021 (the “Investment Agreement”) the Investor acquired 1,618,122 shares of the Company’s Common Stock for an aggregate purchase price of $10 million (the “Shares”) and (iv) the Company and Investor entered into a registration rights agreement dated March 2, 2021 (the “Registration Rights Agreement”) with respect to the registration of the Shares for resale.

Pursuant to the Asset Purchase Agreement, the transferred assets include substantially all of the Seller’s assets including the rights to the Seller’s PASCAL product (the “Transferred Assets”).

The Company assumed only those liabilities arising after the closing in connection with the Transferred Assets.

In the Asset Purchase Agreement, the Company and the Seller made certain customary representations and warranties and agreed to certain customary covenants.

The Agreement provides that the Company and the Seller will each indemnify the other for losses arising from certain breaches of the Agreement and for certain other liabilities subject to customary caps and deductibles.

The Company plans to offer employment to certain of the employees of the Seller and sublease the Seller’s current Livermore facility from Topcon.

The Closing occurred on March 10, 2021.

Pursuant to the Distribution Agreement, the Company appointed Topcon as the exclusive distributor of the Company’s glaucoma and retina products, including Seller’s PASCAL product, in certain countries outside of the United States.

Topcon agreed to use commercially reasonable efforts to commercialize the Company’s products in each region throughout the territory, including achieving certain sales baselines by product category and region.

If Topcon fails to achieve the baselines in a region, the Company will have the right to, subject to payment of a fee, terminate Topcon’s appointment in such region.

The Distribution Agreement and Topcon’s appointment will, unless terminated earlier, continue on a country-by-country basis for a period of ten (10) years from the date exclusivity is granted .

The Distribution Agreement includes customary termination rights and effects of termination, including a termination for convenience right in favor of Topcon and, subject to payment of a fee, a termination right in favor of the Company upon a change of control of the Company.

The net proceeds to the Company from the transactions reflected in the Asset Purchase Agreement and the Distribution Agreement are $ 9.5 million .

Pursuant to the Investment Agreement, Shares are subject to a six-month lockup.

In the six months following the purchase of the Shares, the Investor shall have the right to participate on a pro rata basis in subsequent issuances of Common Stock or equivalents by the Company or any of its subsidiaries.

Pursuant to the Registration Rights Agreement the Company has committed to register the Shares for resale within the same period of time and there are standard penalty provisions if the Company fails to register the Shares for resale within such period.

The Investment Agreement and the Registration Rights Agreement are subject to customary representations and warranties, covenants and indemnification provisions.

As of January 1, 2022 and January 2, 2021, stock options, restricted stock units and restricted stock awards of 1,655,218 and 1,407,410 shares, respectively, were excluded from the computation of diluted weighted average shares outstanding because to do so would have been anti-dilutive.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

1 unchanged sentence

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 8. Financial Statements and Supplementary Data