What changed in this filing

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Item 1A. Risk Factors

2022-05-12 compared with 2021-11-12 · 89 added, 84 removed, 555 unchanged (24% of the section changed)

Investing in our common stock involves a high degree of risk.

You should carefully consider the risks and uncertainties described below, together with all of the other information in this Quarterly Report on Form 10-Q, including the sections titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our condensed consolidated financial statements and related notes, before making a decision to invest in our common stock.

Our business, financial condition, results of operations, or prospects could also be harmed by risks and uncertainties not currently known to us or that we currently do not believe are material.

If any of the risks actually occur, our business, financial condition, results of operations, and prospects could be adversely affected.

In that event, the market price of our common stock could decline, and you could lose part or all of your investment.

Risk Factor Summary

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Operational factors

our relationship with our strategic partner and distributor, Topcon;

our relationship with our strategic partner and main distributor, Topcon;

quality control and production issues;

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developments in trade policies;

federal, state and foreign laws;

federal, state and foreign laws, including changes to those laws;

environmental requirements.

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We are unable to predict the extent to which the pandemic and related impacts will continue to adversely impact our business operations, financial performance, results of operations, financial position and the achievement of our strategic objectives.

Our business, results of operation and financial performance have been negatively impacted by the COVID-19 pandemic and related public health responses, such as shelter-in-place orders, social distancing protocols, and travel restrictions in many of the countries and regions in which we have operations or manufacturing partners.

Due to these impacts and measures, we have experienced and may continue to experience significant and unpredictable reductions in the demand for our products as healthcare customers divert medical resources and priorities towards the treatment of diseases related to COVID-19.

Our business, results of operation and financial performance have been negatively impacted by the COVID-19 pandemic and related public health responses, such as social distancing protocols, and travel restrictions in countries and regions in which we have operations or manufacturing partners.

Due to these impacts and measures, we have experienced and may continue to experience significant and unpredictable interruptions in the supply of raw materials, components and sub-assemblies necessary to manufacture and assemble our products and reductions in the demand for our products as healthcare customers continue to divert medical resources and priorities towards the treatment of COVID-19.

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

For example, during the fiscal year ended January 2, 2021, we experienced significant decline in treatment and procedure volume worldwide, as healthcare systems diverted resources to meet the increasing demands of managing COVID-19.

In addition, the American College of Surgeons, U.S.

surgeon general, and medical societies are evaluating the risks of minimally invasive surgeries in the presence of infectious diseases, which we expect will continue to negatively impact the usage of our products and the number of ophthalmic treatments and procedures performed.

If these recommendations continue to remain in

place and the volume of elective procedures remains low, our results of operations and financial condition will continue to be adversely affected.

As a result of the COVID-19 outbreak around the world, we have adopted several measures 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.

In April and May of 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.

This pandemic has caused disruption and delays in our ability to operate and manufacture, test and assemble products in our internal facilities, particularly in our Mountain View, California facility, and has limited our ability to continue certain research and development activities which could materially and adversely affect our ability to develop new products and technologies on the timelines we previously anticipated.

In the near term, we expect COVID-19 will continue to negatively impact the use of our products and the number of ophthalmic treatments and procedures performed.

If the volume of elective procedures continues to remain lower than normal, our results of operations and financial condition will continue to be adversely affected.

As a result of the COVID-19 outbreak around the world, we have adopted several measures including allowing employees to work from home, slowing our manufacturing operations, and restricting non-critical business travel by our employees.

The COVID-19 pandemic has caused disruption and delays in our ability to operate and manufacture, test and assemble products in our internal facilities, particularly in our Mountain View, California facility, and has limited our ability to continue certain research and development activities which could materially and adversely affect our ability to develop new products and technologies on the timelines we previously anticipated.

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

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

We may not be successful in our strategic partnership with Topcon Corporation and the relationship may divert resources away from existing operations or expose us to liabilities, which could adversely affect our business, results of operations and financial condition.

On March 2, 2021, we entered into a series of strategic transactions with Topcon Corporation (“Topcon”) Topcon America Corporation (the “Investor”) and Topcon Medical Laser Systems, Inc., a subsidiary of Topcon (the “Seller”), which included an asset purchase agreement with the Seller, pursuant to which we acquired substantially all the assets (except for cash and cash equivalents) of the Seller, including rights to the PASCAL product (the “Asset Purchase Agreement”), (ii) Topcon and our company entered into a distribution agreement dated March 2, 2021, pursuant to which we granted Topcon the exclusive right to distribute our 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 our Common Stock for an aggregate purchase price of $10 million (the “Shares”).

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

We may not be successful in our strategic partnership with Topcon and the relationship may divert resources away from existing operations or expose us to liabilities, which could adversely affect our business, results of operations and financial condition.

On March 2, 2021, we entered into a series of strategic transactions with Topcon, Topcon America Corporation (the “Investor”) and Topcon Medical Laser Systems, Inc., a subsidiary of Topcon ( “TMLS”), which included an asset purchase agreement with TMLS, pursuant to which we acquired substantially all the assets (except for cash and cash equivalents) of TMLS, including rights to the PASCAL product (the “Asset Purchase Agreement”), (ii) Topcon and our company entered into a distribution agreement dated March 2, 2021, pursuant to which we granted Topcon the exclusive right to distribute our 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 our Common Stock for an aggregate purchase price of $10 million (the “Shares”).

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

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

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

The Agreement provides that our 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.

In the Asset Purchase Agreement, our company and TMLS made certain customary representations and warranties and agreed to certain customary covenants.

The Agreement provides that our company and TMLS 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.

If there are claims under the indemnification provisions for which we are liable we will need to use some or all our cash to settle those claims.

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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 our favor upon a change of control of our company.

As a result of the Distribution Agreement, we anticipate terminating our relationships with our current distributors in certain geographies and using Topcon as our exclusive distributor.

If we are unable to terminate our existing relationships with current distributors, or if Topcon is unable to generate as much revenue under the Distribution Agreement as we receive from our current

distributors, our business, results of operations and financial condition could be adversely affected.

If there are claims under the indemnification provisions of the Distribution Agreement for which we are liable or we are unable to terminate our relationships with our current distributors, we will need to use some or all our cash to settle those claims or make payments to Topcon pursuant to the terms of the Distribution Agreement.

As a result of the Distribution Agreement, we terminated our relationships with our prior distributors in certain geographies and we are using Topcon as our exclusive distributor.

If Topcon is unable to generate as much revenue under the Distribution Agreement as we received from our prior distributors, our business, results of operations and financial condition could be adversely affected.

If there are claims under the indemnification provisions of the Distribution Agreement for which we are liable, we will need to use some or all our cash to settle those claims or make payments to Topcon pursuant to the terms of the Distribution Agreement.

We are investing a substantial amount of time, resources and efforts in connection with our relationship with Topcon, including commercializing our products in certain geographies and working to achieve certain sales baselines by product category and region.

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In the past several years, we have experienced supply chain, production and training issues as we have expanded our product lines and sales volumes, and may experience similar issues in the future as we continue to grow our business.

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

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

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

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

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

The amount and timing of resources dedicated by our distributors to the sales of our products is not within our control.

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

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

Additionally, our sales forces’ operations have been disrupted by the COVID-19 pandemic, as travel is restricted and some services are being performed from home, all of which could have an impact on our ability to sell and distribute our products.

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

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

For the third fiscal quarter of fiscal year 2021, our international sales were $6.4 million, or 48.0% of total revenues.

For the first fiscal quarter of fiscal year 2022, our international sales were $6.6 million, or 49.1% of total revenues.

We anticipate that international sales will continue to account for a significant portion of our revenues in the foreseeable future.

All of our international revenues and costs for the third fiscal quarter of fiscal year 2021 have been denominated in U.S.

All of our international revenues and costs for the first fiscal quarter of fiscal year 2022 have been denominated in U.S.

dollars except for sales transacted through our German subsidiary.

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Due to the complexities and uncertainties associated with ophthalmic research and development, products we are currently developing may not complete the development process or obtain the regulatory approvals required to market such products successfully.

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

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

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

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We are subject to macro-economic fluctuations in the U.S.

and worldwide economy.

and worldwide economy including inflationary pressures that may cause the cost of manufacturing our products or servicing our products to increase.

Concerns about consumer and investor confidence, volatile corporate profits and reduced capital spending, international conflicts, terrorist and military activity, civil unrest and pandemic illness could reduce customer orders or cause customer order cancellations.

For example, the COVID-19 pandemic has and may continue to cause adverse impacts on global economic activity which could negatively impact our business.

In addition, political and social turmoil related to international conflicts and terrorist acts may put further pressure on economic conditions in the United States and abroad.

In addition, political and social turmoil related to international conflicts, such as that occurring in Russia and Ukraine, and terrorist acts may put further pressure on economic conditions in the United States and abroad.

Weak economic conditions and declines in consumer spending and consumption may harm our operating results.

Purchases of our products are often discretionary.

During uncertain economic times, customers or potential customers may delay, reduce or forego their purchases of our products and services, which may impact our business in a number of ways, including lower prices for our

products and services and reducing or delaying sales.

There could be a number of follow-on effects from economic uncertainty on our business, including insolvency of key suppliers resulting in product delays, delays in customer payments of outstanding accounts receivable and/or customer insolvencies, counterparty failures negatively impacting our operations, and increasing expense or inability to obtain future financing.

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Factors contributing to these fluctuations include the following:

general economic uncertainties and political concerns, including the impact of COVID-19;

general economic uncertainties, inflationary pressures and political concerns, including the impact of COVID-19 and the war between Russia and Ukraine;

changes in the prices at which we can sell our products, including the impact of changes in exchange rates;

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changes in customers’ or potential customers’ budgets as a result of, among other things, reimbursement policies of government programs and private insurers for treatments that use our products;

variances in shipment volumes as a result of product, supply chain and training issues;

variances in shipment volumes as a result of product, supply chain due to global constraints or other factors and training issues;

increased product innovation costs.

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the impact of COVID-19 pandemic on timing of ophthalmic treatment procedures;

acceptance of product performance, features, ease of use, scalability and durability, including with respect to our MicroPulse laser photocoagulation systems;

acceptance of product performance, features, ease of use, scalability and durability, including with respect to our MicroPulse laser photocoagulation systems and our PASCAL product;

recommendations and opinions by ophthalmologists, other clinicians, and their associated opinion leaders;

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level of reimbursement for treatments administered with our products.

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

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

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

The level of our service revenues will depend on the quality of service we provide and the responsiveness and the willingness of our customers to request our services rather than purchase competing products or services.

Any significant decline in market acceptance of our products or our revenues derived from the sales of laser consoles, delivery devices, consumables or services may have a material adverse effect on our business, results of operations and financial condition.

The level of our service revenues will depend on the quality of service we provide and the responsiveness and the willingness of our customers to use our products and services rather than purchase competing products or services.

Any significant decline in market acceptance of our products or our revenues associated therewith may have a material adverse effect on our business, results of operations and financial condition.

We face strong competition in our markets and expect the level of competition to grow in the foreseeable future.

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Any such developments could have a material adverse effect on our business, financial condition and results of operations.

Our ability to raise capital in the future may be limited, and future sales and issuances of securities could negatively affect our stock price and dilute the ownership interest of our existing investors.

Our business and operations may consume resources faster than we anticipate.

We may need in the future to raise additional funds through future equity or debt financings to meet our operational needs and capital requirements for product development, clinical trials and commercialization and may subsequently require additional fundraising.

Additional financing may not be available on favorable terms, if at all.

If adequate funds are not available on acceptable terms, we may be unable to invest in future growth opportunities, which could seriously harm our business and operating results.

Future sales or issuances of securities by us could decrease the value of our common stock, dilute stockholders’ voting power and reduce future potential earnings per share.

To raise capital, we may sell common stock, convertible securities or other equity-linked securities in one or more transactions at prices and in a manner we determine from time to time.

If we sell additional equity securities, our existing stockholders may be materially diluted.

Additionally, new investors could gain rights, preferences and privileges senior to those of existing holders of our common stock.

We may also issue debt securities, which may impose restrictive covenants on our operations or otherwise adversely affect the holdings or the rights of our stockholders.

We may sell shares or other securities in any offering at a price per share that is less than the price per share paid by existing investors, and investors purchasing shares or other securities in the future could have rights superior to existing stockholders.

The price per share at which we sell additional shares of our common stock, or securities convertible or exchangeable into common stock, in future transactions may be higher or lower than the price per share paid by existing investors.

Our operating results may be adversely affected by uncertainty regarding healthcare reform measures and changes in third-party coverage and reimbursement policies.

Our products are typically purchased by doctors, clinics, hospitals and other users, which bill various third-party payers, such as governmental programs and private insurance plans, for the health care services provided to their patients.

Changes in government legislation or regulation or in private third-party payers’ policies toward reimbursement for procedures employing our products may

prohibit adequate reimbursement.

Changes in government legislation or regulation or in private third-party payers’ policies toward reimbursement for procedures employing our products may prohibit adequate reimbursement.

There have been a number of legislative and regulatory proposals to change the healthcare system, reduce the costs of healthcare and change medical reimbursement policies.

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We are unable to predict what legislation or regulation, if any, relating to the health care industry or third-party coverage and reimbursement may be enacted in the future at the state or federal level, or what effect such legislation or regulation may have on us.

Furthermore, existing legislation and regulation related to the health care industry and third-party coverage reimbursement, including the Affordable Care Act, has been subject to judicial challenge, and may be subject to similar challenges from time to time in the future (such as the ongoing California v.

Denial of coverage and reimbursement of our products, or the revocation or changes to coverage and reimbursement policies, could have a material adverse effect on our business, results of operations and financial condition.

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Under the Sunshine Act, Centers for Medicare & Medicaid Services (“CMS”) has the potential to impose penalties of up to $1.15 million per year for violations, depending on the circumstances, although enforcement has been negligible to date.

Payments reported under the Sunshine Act also have the potential to draw scrutiny on payments to and relationships with physicians, which may have implications under the Anti-Kickback Statute and other healthcare laws.

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

Further, while safe harbors may in some instances be available and utilized by companies to reduce risks associated with the Anti-Kickback Statute and certain other healthcare laws, we have not necessarily utilized such safe harbors nor fully followed all elements required to claim the benefit of such safe harbors in all

possible instances.

Payments reported under the Sunshine Act also

have the potential to draw scrutiny on payments to and relationships with physicians, which may have implications under the Anti-Kickback Statute and other healthcare laws.

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

Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business.

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

As of October 2, 2021, our patent portfolio includes 59 active United States patents and 93 active foreign patents on the technologies related to our products and processes.

In addition, as of October 2, 2021, we have 13 patent applications pending in the United States and 22 foreign patent applications pending.

As of April 2, 2022, our patent portfolio includes 59 active United States patents and 96 active international patents on the technologies related to our products and processes.

In addition, as of April 2, 2022, we have 11 patent applications pending in the United States and 23 international patent applications pending.

Our patent applications may not be approved.

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Key personnel have left our company in the past, and there likely will be additional departures of key personnel from time to time in the future.

Additionally, our common stock is currently trading at a price below the exercise price of many of our outstanding options.

As a result, these “underwater” options are less useful as a motivation and retention tool for our existing employees.

The loss of any key employee could result in significant disruptions to our operations, including adversely affecting the timeliness of product releases, the successful implementation and completion of company initiatives, and the results of our operations.

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Moreover, we cannot assure you that the anticipated benefits of any acquisition or investment would be realized or that we would not be exposed to unknown liabilities.

In connection with these types of transactions, we may issue additional equity securities that would dilute the ownership interest of existing investors or earnings per share, use cash that we may need in the future to operate our business, incur debt on terms unfavorable to us or that we are unable to repay, incur large charges or substantial liabilities, encounter difficulties integrating diverse business cultures and become subject to adverse tax consequences, substantial depreciation or deferred compensation charges.

encounter difficulties integrating diverse business cultures and become subject to adverse tax consequences, substantial depreciation or deferred compensation charges.

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

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We use quarterly and annual forecasts based primarily on our anticipated product orders to plan our manufacturing efforts and determine our requirements for components and materials.

It is very important that we accurately predict both the demand for our

product and the lead times required to obtain or manufacture the necessary components, materials, and fully assembled products.

It is very important that we accurately predict both the demand for our product and the lead times required to obtain or manufacture the necessary components, materials, and fully assembled products.

Lead times for components and fully assembled products vary significantly and depend on numerous factors, including the specific supplier, the size of the order, contract terms and current market demand for such products.

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failure of suppliers to manufacture and assemble components and products to our specifications, and potentially reduced quality;

inability to obtain components and products at acceptable prices.

inability to obtain components and products in a timely manner or at acceptable prices due to global supply chain constraints or other factors.

Our business and operating results may suffer from the lack of alternative sources of supply for critical sole and limited source components and fully-assembled products.

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We rely on information technology systems to keep financial records and corporate records, communicate with staff and external parties and operate other critical functions, including sales and manufacturing processes.

Our information technology systems are potentially vulnerable to disruption due to breakdown or malicious intrusion and computer viruses.

If we were to experience a prolonged system disruption in our information technology systems, it could negatively impact the coordination of our sales, planning and manufacturing activities, which could adversely affect our business.

In addition, in order to maximize our information technology efficiency, we have physically consolidated our primary corporate data and computer operations.

Our information technology systems and those of our third-party service providers are potentially vulnerable to disruption, breakdown, damage, service interruption, system malfunction, power outage, natural disaster, malicious intrusion, ransomware, denial-of-service attacks, phishing attacks, social engineering, computer viruses, security breaches and other cyber-attacks.

For example, companies have experienced an increase in phishing and spoofing attacks from third parties in connection with working remotely due to the COVID-19 pandemic.

If we were to experience a prolonged system disruption in our information technology systems, it could negatively impact the coordination of our

sales, planning and manufacturing activities, which could adversely affect our business.

In addition, to maximize our information technology efficiency, we have physically consolidated our primary corporate data and computer operations.

This concentration, however, exposes us to a greater risk of disruption to our internal information technology systems.

Although we maintain offsite back-ups of our data, if operations at our facilities were disrupted, it may cause a material disruption in our business if we are not capable of restoring function on an acceptable time frame.

In addition, our information technology systems are potentially vulnerable to cyber-attacks or other data security breaches-whether by employees or others-which may expose sensitive data to unauthorized persons.

In addition, our information technology systems and those of our third-party service providers are potentially vulnerable to cyber-attacks or other data security breaches-whether by employees or others-which may expose sensitive data to unauthorized persons.

Such data security breaches could lead to the loss of trade secrets or other intellectual property, or could lead to the public exposure of sensitive and confidential information of our employees, customers, suppliers and others, any of which could have a material adverse effect on our business, financial condition and results of operations.

While we have implemented a number of protective measures, including firewalls, antivirus and malware detection tools, patches, log monitors, routine back-ups, system audits, routine password modifications and disaster recovery procedures, such measures may not be adequate or implemented properly to prevent or fully address the adverse effect of such events, and in some

cases we may be unaware of an incident or its magnitude and effects.

If we are unable to prevent such security breaches or privacy violations or implement satisfactory remedial measures, our operations could be disrupted, and we may suffer loss of reputation, financial loss and other regulatory penalties because of lost or misappropriated information.

While we have implemented a number of protective measures, including firewalls, antivirus and malware detection tools, patches, log monitors, routine back-ups, system audits, routine password modifications and disaster recovery procedures, we have experienced and may in the future experience spoofing attacks.

In addition, our measures to secure our information technology systems may not be adequate or implemented properly to prevent or fully address the adverse effect of such events, and in some cases we may be unaware of an incident or its magnitude and effects.

If we are unable to, or perceived or reported to have been or be unable to, prevent such security breaches or privacy violations or implement satisfactory remedial measures, our operations could be disrupted, and we may be exposed to claims, demands, and litigation or governmental investigations and other proceedings and suffer loss of reputation, financial loss and other regulatory penalties because of lost or misappropriated information.

In addition, these breaches and other inappropriate access can be difficult to detect, and any delay in identifying them may lead to increased harm of the type described above.

Furthermore, we may not have adequate insurance coverage to protect us from, or adequately mitigate, liabilities or damages resulting from cyber-attacks or security breaches.

The successful assertion of one or more large claims against us that exceeds our available insurance coverage, or results in changes to our insurance policies (including premium increases or the imposition of large deductible or co-insurance requirements), could have an adverse effect on our business.

In addition, we cannot be sure that our existing insurance coverage will continue to be available on acceptable terms or that our insurers will not deny coverage as to any future claim.

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

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In addition, we are also subject to varying product standards, packaging requirements, labeling requirements, tariff regulations, duties and tax requirements.

As a result of our sales in Europe, we are required to have all products “CE” marked, an international symbol affixed to all products demonstrating compliance with the European Medical Device Directives and all applicable standards.

While currently all of our released products are CE marked, continued certification is based on the successful review of our quality system by our European Registrar during their annual audit.

As a result of our sales in Europe, we are required to have all medical device products “CE” marked, an international symbol affixed to all our medical device products demonstrating compliance with the European Medical Device Directives and/or Medical Device Regulations (“MDR”) and all applicable standards.

While currently all our released medical device products are CE marked, continued certification is based on the successful review of our quality system by our European Registrar during their periodic audits.

Any loss of certification would have a material adverse effect on our business, results of operations and financial condition.

There are a number of major regulatory changes occurring in the regulation of medical devices in the EU.

A new revision of the quality system regulation (ISO 13485:2016) has been released that substantially increases the requirements for a medical device quality system.

The Medical Device Regulation (“MDR”) will replace the current medical device directives (93/42/EEC), and it substantially changes the way that medical devices are brought to market in the EU and how they maintain compliance throughout the product’s life cycle.

There are several major regulatory changes occurring in the regulation of medical devices in the EU.

The revision of the quality system regulation (ISO 13485:2016) has been released that substantially increased the requirements for a medical device quality system.

The MDR has replaced the medical device directives (93/42/EEC), and it substantially changes the way that medical devices are brought to market in the EU and how they maintain compliance throughout the product’s life cycle.

Due to the UK’s exit from EU (“Brexit”), different rules will apply in Great Britain (England, Wales and Scotland), Northern Ireland and the EU after the Brexit transition period, which began January 1, 2021.

Additionally, the new revision 4 of the clinical evaluation report guidance document (MEDDEV 2.7.1) severely restricts the use of substantial equivalence for new products, resulting in the need for formal clinical trial data for most new products.

Similarly, Switzerland has changed its relationship with the EU and in May 2022, will require medical device manufacturers such as Iridex to contract with a Swiss Authorized Representative.

These changes will increase the cost for compliance and for product development, and they lengthen product introduction cycles.

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The LIO is a head-mounted indirect ophthalmoscope that connects to our laser console and is used to view and perform laser treatment on a patient’s retina.

This recall was prompted after we received reports of three adverse events from one physician in the U.S., resulting in focal cataracts and iris burns occurring during procedures in which the TruFocus LIO Premiere was used.

This recall was prompted after we received reports of three adverse events from one physician in the United States, resulting in focal cataracts and iris burns occurring during procedures in which the TruFocus LIO Premiere was used.

We identified several potential root causes for the adverse events, including use error.

On March 22, 2019, we provided the FDA with a request for termination of Recall Number Z-1075-2018.

We submitted a follow up request for termination on September 29, 2021.

Our termination request is pending.

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If physician use of our updated LIO results in serious adverse events, we may have to initiate another recall or utilize additional resources to further evaluate the design of the LIO device.

Furthermore, in light of the recall, we cannot provide any assurance that the updated LIO, once launched, will achieve market acceptance.

Furthermore, in light of the recall, we cannot provide any assurance that the updated LIO, will achieve market acceptance.

We will be required to devote significant resources to launch and market the updated LIO and cannot provide any assurance that these activities will generate revenue as anticipated.

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A successful claim brought against us in excess of our insurance coverage could have a material adverse effect on our business, results of operations and financial condition.

Significant developments resulting from recent and potential changes in United States trade policies could have a material adverse effect on us.

Significant developments resulting from recent and potential changes in U.S.

trade policies could have a material adverse effect on us.

Certain of our materials may be subject to the effects of various trade agreements, treaties and tariffs.

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We sell a significant majority of our products into countries outside the United States and we purchase a significant portion of equipment and supplies from suppliers outside the United States.

These measures could also result in increased costs for goods imported into the U.S.

or may cause us to adjust our worldwide supply chain.

These measures could also result in increased costs for goods imported into the United States or may cause us to adjust our worldwide supply chain.

Any of these effects could require us to increase prices to our customers which may reduce demand, or, if we are unable to increase prices, may result in lowering our margin on products sold.

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These changes could have an adverse impact on our ability to manufacture and market our devices and products.