RxSight, Inc. 10-Q

Item 1: Financial Statements (Unaudited) RxSIGHT, INC. CONDENSED CONSOLIDATED BA LANCE SHEETS (In thousands, except share and per share amounts) March 31, December 31, 2022 2021 (Unaudited) Assets Current assets: Cash and cash equivalents $ 24,132 $ 24,361 Short-term investments 119,715 134,971 Accounts receivable 5,626 4,862 Inventories 8,490 8,032 Prepaid and other current assets 3,184 4,069 Total current assets 161,147 176,295 Property and equipment, net 10,915 11,217 Operating leases right-of-use assets 4,057 4,284 Restricted cash 811 811 Other assets 132 114 Total assets $ 177,062 $ 192,721 Liabilities and stockholders' equity Current liabilities: Accounts payable $ 2,587 $ 1,689 Accrued expenses and other current liabilities 6,409 7,859 Lease liabilities 1,663 1,529 Total current liabilities 10,659 11,077 Long-term lease liabilities 3,350 3,642 Term loan, net 39,890 39,760 Total liabilities 53,899 54,479 Commitments and contingencies ( Note 10) Stockholders' equity: Common stock, $ 0.001 par value, 900,000,000 shares authorized, 27,485,685 shares issued and outstanding as of March 31, 2022 and 27,366,746 shares issued and outstanding as of December 31, 2021 27 27 Preferred stock, $ 0.001 par value, 100,000,000 shares authorized, no shares issued and outstanding as of March 31, 2022 and December 31, 2021 — — Additional paid-in capital 620,106 617,511 Accumulated other comprehensive loss ( 98 ) ( 20 ) Accumulated deficit ( 496,872 ) ( 479,276 ) Total stockholders' equity 123,163 138,242 Total liabilities and stockholders' equity $ 177,062 $ 192,721 See accompanying notes to unaudited condensed consolidated financial statements. 4 RxSIGHT, INC. CONDENSED CONSOLIDATED STATEMEN TS OF OPERATIONS AND COMPREHENSIVE LOSS (UNAUDITED) (In thousands, except share and per share amounts) Three Months Ended March 31, 2022 2021 Sales $ 8,942 $ 3,484 Cost of sales 5,181 2,365 Gross profit 3,761 1,119 Operating expenses: Selling, general and administrative 13,620 5,611 Research and development 6,719 6,643 Total operating expenses 20,339 12,254 Loss from operations ( 16,578 ) ( 11,135 ) Other income (expense), net: Expiration of warrant — 5,018 Interest expense ( 1,060 ) ( 698 ) Interest and other income 46 17 Loss before income taxes ( 17,592 ) ( 6,798 ) Income tax expense 4 7 Net loss $ ( 17,596 ) $ ( 6,805 ) Other comprehensive income (loss) Unrealized (loss) income on short-term investments ( 74 ) 7 Foreign currency translation loss ( 4 ) ( 4 ) Total other comprehensive (loss) income ( 78 ) 3 Comprehensive loss $ ( 17,674 ) $ ( 6,802 ) Net loss per share: Attributable to Series G common stock, basic and diluted $ — $ ( 0.16 ) Attributable to common stock, basic and diluted $ ( 0.64 ) $ ( 1.70 ) Weighted-average shares used in computing net loss per share: Attributable to Series G common stock, basic and diluted — 1 Attributable to common stock, basic and diluted 27,425,610 3,996,173 See accompanying notes to unaudited condensed consolidated financial statements. 5 RxSIGHT, INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED) (In thousands, except number of shares) Three Months Ended March 31, 2022 Accumulated other Common stock Additional paid-in comprehensive Accumulated Total stockholders' Shares Amount capital loss deficit equity Balance at December 31, 2021 27,366,746 $ 27 $ 617,511 $ ( 20 ) $ ( 479,276 ) $ 138,242 Shares issued for the exercise of stock options and vesting of restricted stock units 145,922 - 308 - - 308 Shares redeemed for employee tax withholdings ( 26,983 ) - ( 362 ) - - ( 362 ) Stock-based compensation expense - - 2,649 - - 2,649 Unrealized loss on short-term investments and cash equivalents, net of tax - - - ( 74 ) - ( 74 ) Foreign currency translation adjustment - - - ( 4 ) - ( 4 ) Net loss - - - - ( 17,596 ) ( 17,596 ) Balance at March 31, 2022 27,485,685 $ 27 $ 620,106 $ ( 98 ) $ ( 496,872 ) $ 123,163 See accompanying notes to unaudited condensed consolidated financial statements 6 RxSIGHT, INC. CONDENSED CONSOLIDATED statements of REDEEMABLE COMMON STOCK, STOCK OPTIONS, CONVERTIBLE PREFERRED STOCK AND stockholders’ equity (DEFICIT) (UNAUDITED) (In thousands, except number of shares) Three Months Ended March 31, 2021 Notes receivable for redeemable Convertible Notes receivable Accumulated Redeemable common stock common stock Redeemable preferred stock Common stock Additional paid-in for common stock other comprehensive Accumulated Total stockholders' Shares Amount issued stock options Shares Amount Shares Amount capital issued loss deficit deficit Balance at December 31, 2020 3,813,450 $ 80,780 $ ( 803 ) $ 53,085 14,376,272 $ 353,300 1 $ - $ - $ - $ ( 3 ) $ ( 430,588 ) $ ( 430,591 ) Exercise of stock options 280,545 6,922 - ( 5,715 ) - - - - - - - - - Stock-based compensation expense - - - - - - - - 1,239 - - - 1,239 Unrealized gain on short-term investments and cash equivalents, net of tax - - - - - - - - - - 7 - 7 Foreign currency translation adjustment - - - - - - - - - ( 4 ) - ( 4 ) Change in notes receivable for common stock issued - - ( 14 ) - - - - - - - - - - - Reclassification of 4,093,995 shares of redeemable common stock to 4,093,995 shares of common stock ( 4,093,995 ) ( 87,702 ) 817 - - - 4,093,995 4 87,698 ( 817 ) - - 86,885 Reclassification of redeemable common stock options to common stock options - - - ( 47,370 ) - - - - 47,370 - - 47,370 Net loss - - - - - - - ( 6,805 ) ( 6,805 ) Balance at March 31, 2021 - $ - $ - $ - 14,376,272 $ 353,300 4,093,996 $ 4 $ 136,307 $ ( 817 ) $ - $ ( 437,393 ) $ ( 301,899 ) See accompanying notes to unaudited condensed consolidated financial statements 7 RxSIGHT, INC. CONDENSED CONSOLIDATED STATEMEN TS OF CASH FLOWS (In thousands) Three Months Ended March 31, 2022 2021 Operating Activities: Net loss $ ( 17,596 ) $ ( 6,805 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 1,016 958 Amortization of right-of-use lease assets 19 8 Amortization of debt issuance costs and premium 130 114 Gain on expiration of warrant — ( 5,018 ) Amortization of discount on short-term investments ( 47 ) ( 10 ) Stock-based compensation 2,649 1,239 Provision for excess and obsolete inventory 73 ( 7 ) Change in operating assets and liabilities: Accounts receivable ( 764 ) 600 Inventories ( 530 ) ( 1,465 ) Prepaid and other assets 814 ( 89 ) Accounts payable 701 721 Accrued expenses and other liabilities ( 1,450 ) ( 498 ) Net cash used in operating activities ( 14,985 ) ( 10,252 ) Investing Activities: Purchase of property and equipment ( 370 ) ( 498 ) Maturity of short-term investments 90,000 20,000 Purchases of short-term investments ( 74,771 ) ( 4,999 ) Net cash provided by investing activities 14,859 14,503 Financing Activities: Proceeds from term loan — 5,000 Payments of debt issuance costs — ( 40 ) Payments for employee taxes related to stock compensation ( 362 ) — Principal payments on finance lease liabilities ( 44 ) ( 9 ) Change in notes receivables for redeemable common stock issued — ( 14 ) Proceeds from exercise of stock options 308 1,207 Net cash (used in) provided by financing activities ( 98 ) 6,144 Effect of foreign exchange rate on cash, cash equivalents and restricted cash ( 5 ) ( 4 ) Net (decrease) increase in cash, cash equivalents and restricted cash ( 229 ) 10,391 Cash, cash equivalents and restricted cash - beginning of period 25,172 14,455 Cash, cash equivalents and restricted cash - end of period $ 24,943 $ 24,846 Supplemental disclosure of cash flow information: Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases 499 294 Cash paid for income taxes — 11 Cash paid for interest on financing leases 3 2 Cash paid for interest on term loan 925 582 Non-cash investing and financing activities: Right-of-use assets obtained in exchange for lease obligations: Operating lease 87 — Finance lease 192 — Lease obligations recorded for right-of-use assets: Operating lease 87 — Finance lease 166 — Acquisition of property and equipment included in accounts payable and accrued expenses and other current liabilities 197 60 Payment-in-kind interest income added to principal of notes receivable — 13 Reclassification of 4,093,995 shares of redeemable common stock to 4,093,995 shares of common stock — 87,702 Reclassification of redeemable common stock options to common stock options — 47,370 See accompanying notes to unaudited condensed consolidated financial statements. 8 RxSIGHT, INC. NOTES TO CONDENSED CONSOLIDATED F INANCIAL STATEMENTS Note 1 - Organization and Basis of Presentation Description of Business RxSight®, Inc. (the “Company”) is a Delaware corporation headquartered in Aliso Viejo, California with one wholly owned subsidiary located in Amsterdam, Netherlands. The wholly owned subsidiary has a registered branch in the United Kingdom and a wholly owned subsidiary located in Germany. The Company is engaged in the research and development, manufacture and sale of light adjustable intraocular lenses used in cataract surgery along with capital equipment used with the lenses. The Company’s products, which include the light adjustable lens (“LAL”®) and a specially designed machine for delivering light to the eye, the Light Delivery Device (“LDD™”), are approved by the United States (“U.S.”) Food and Drug Administration (“FDA”) for sale in the U.S. and have regulatory approval in the U.S and Europe. The Company began marketing its products in the U.S. during the second quarter of 2019 and in Europe during the third quarter of 2019. The LAL is a premium intraocular lens (“IOL”) which is partially reimbursable under Medicare. The Company competes with other IOLs in the premium market in the U.S. and Europe. The accompanying unaudited condensed consolidated financial statements include the accounts of RxSight, Inc. and its wholly owned subsidiaries, RxSight, B.V. and RxSight GmbH. All significant inter-company balances and transactions have been eliminated in consolidation. Basis of Presentation and Principles of Consolidation The Company’s condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and pursuant to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (“SEC”). Accordingly, the accompanying unaudited condensed consolidated financial statements do not include all of the information and notes required by GAAP for complete financial statements. The unaudited interim financial statements reflect all adjustments which, in the opinion of management, are necessary for a fair statement of the results for the periods presented. All such adjustments are of a normal and recurring nature. The December 31, 2021 balance sheet data was derived from audited financial statements; however, the accompanying notes to the condensed consolidated financial statements do not include all of the annual disclosures required under GAAP and should be read in conjunction with the Company’s 2021 Annual Report on Form 10-K filed with the SEC on March 8, 2022. The operating results presented in these unaudited condensed consolidated financial statements are not necessarily indicative of the results that may be expected for any future periods. Initial Public Offering ( “ IPO ” ) and Reverse Stock Split On July 22, 2021, the Company’s Board of Directors approved an amendment to the Company’s Certificate of Incorporation to effect a reverse split of shares of the Company’s common stock, excluding Series G and Series W common stock, and convertible preferred stock on a 1-for-10.33 basis (the “Reverse Stock Split”). The par values of the common stock and convertible preferred stock were not adjusted as a result of the Reverse Stock Split. The Reverse Stock Split was effected on July 23, 2021. Accordingly, all common stock, excluding Series G and Series W common stock, options to purchase common stock, convertible preferred stock, share data, per share data and related information contained in the accompanying condensed consolidated financial statements and notes have been retrospectively adjusted to reflect the effect of the Reverse Stock Split for all periods presented. Outstanding stock options were proportionately reduced and the respective exercise prices, if applicable, were proportionately increased. The Reverse Stock Split resulted in an adjustment to the convertible preferred stock conversion prices to reflect a proportional decrease in the number of shares of common stock to be issued upon conversion. On July 29, 2021 , the Company completed its IPO which resulted in the issuance and sale of 8,248,549 shares of its common stock at a price of $ 16.00 per share. The aggregate net proceeds from the offering, which included 898,549 common shares sold upon the partial exercise of the underwriters’ over-allotment option, after deducting underwriting discounts and commissions of $ 9.2 million and other offering costs of $ 3.2 million, were approximately $ 119.6 million. On July 29, 2021, the Company amended and restated its certificate of incorporation and bylaws which provide for, among other things, the Company’s authorized capital stock to consist of 9 900,000,000 shares of common stock, par value $ 0.001 per share, and 100,000,000 shares of convertible preferred stock, par value $ 0.001 per share. The amended and restated certificate defines the voting rights, dividends, liquidation rights and preferences of each class of stock. Immediately prior to the completion of the IPO, (i) 14,376,272 outstanding shares of the Company's convertible preferred stock were converted into an aggregate of 14,725,309 shares of common stock and (ii) 225,945 warrants to purchase Series H convertible preferred stock were exercised and converted into 100,261 shares of common stock. Liquidity and Financial Position As of March 31, 2022 and December 31, 2021 the Company had cash, cash equivalents and short-term investments of $ 143.8 million and $ 159.3 million, respectively. The Company began generating revenue from its principal operations in 2019. The Company has a limited operating history, and the revenue and income potential of the Company’s business and market are unproven. The Company has experienced recurring net losses and negative cash flows from operating activities since its inception. For the three months ended March 31, 2022 and 2021, the Company incurred losses from operations of $ 16.6 million and $ 11.1 million, respectively. Due to the Company’s continuing research and development activities and expansion of its sales and marketing activities, the Company expects to continue to incur net operating losses into the foreseeable future. Successful transition to attaining profitable operations is dependent upon gaining market acceptance of the Company’s products and achieving a level of revenues adequate to support the Company’s cost structure. The accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern. The Company believes that existing capital resources, including the net proceeds from the IPO in July 2021, will be sufficient to meet projected operating requirements for at least 12 months from the date of issuance of the accompanying condensed consolidated financial statements, though the Company expects to continue to incur operating losses and negative cash flows. The Company plans to continue to fund its losses from operations using its cash, cash equivalents and short-term investments as of March 31, 2022 and meet its future capital funding needs through equity or debt financings, other third-party funding, collaborations, strategic alliances and licensing arrangements or a combination of these. If the Company raises additional funds by issuing equity securities, its stockholders may experience dilution. Any future debt financing into which the Company enters may impose additional covenants that restrict operations, including limitations on its ability to incur liens or additional debt, pay dividends, repurchase common stock, make certain investments or engage in certain merger, consolidation or asset sale transactions. Any debt financing or additional equity raise may contain terms that are not favorable to the Company or its stockholders. If the Company is required to enter into collaborations and other arrangements to address its liquidity needs, it may have to give up certain rights that limit its ability to develop and commercialize product candidates or may have other terms that are not favorable to the Company or its stockholders, which could materially and adversely affect its business and financial prospects. There can be no assurance that the Company will be able to obtain additional financing on acceptable terms, or at all. If the Company is not able to secure adequate additional funding, the Company may be forced to make reductions in spending, extend payment terms with suppliers, liquidate assets where possible and/or suspend or curtail planned programs. Any of these actions could materially harm the Company’s business, results of operations and future prospects. Note 2 - Summary of Accounting Policies Use of Estimates The preparation of consolidated financial statements in conformity with GAAP requires management to make informed estimates, judgments and assumptions that affect the reported amounts in the condensed consolidated financial statements and disclosures in the accompanying notes as of the date of the accompanying condensed consolidated financial statements. On an on-going basis, management evaluates the most critical estimates and assumptions for continued reasonableness. Actual results may differ materially from the estimates used in the 10 preparation of the accompanying condensed consolidated financial statements under different assumptions or conditions. Significant Accounting Policies There have been no significant changes to the accounting policies during the three months ended March 31, 2022 , as compared to the significant accounting policies described in Note 2 of the “Notes to Consolidated Financial Statements” in the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K filed with the SEC on March 8, 2022. Cash Equivalents Cash equivalents consist of investments in money market accounts. The Company considers all highly liquid investments with original maturities of three months or less at the date of purchase that can be liquidated without prior notice or penalty to be cash equivalents. Short-term Investments Short-term investments are classified based on the maturity date of the related securities. Based on the nature of the assets, the Company’s short-term investments, which are government securities, are classified as available-for-sale and are recorded at their estimated fair value as determined by prices for identical or similar securities at the balance sheet date. The Company’s short-term investments consist of Level 2 financial instruments in the fair value hierarchy. Unrealized gains and losses are recorded as a component of Other comprehensive loss within Stockholders’ Equity on the Condensed Consolidated Balance Sheets. Realized gains and losses are included as other income (expense) in the accompanying Condensed Consolidated Statements of Operations and Comprehensive Loss. The cost basis for realized gains and losses on available-for-sale securities is determined on a specific identification basis. Management determines the appropriate classification of its investments at the time of purchase and reevaluates such determination at each balance sheet date. The Company periodically reviews its investments for unrealized losses other than credit losses and whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. In determining whether the carrying value is recoverable, management considers the following factors: • whether the investment has been in a continuous loss position for over 12 months; • the duration to maturity of investments; • intention and ability to hold the investment to maturity and if it is not more likely than not that the Company will be required to sell the investment before recovery of the amortized cost basis; • the credit rating, financial condition and near-term prospects of the issuer; and • the type of investments made. The Company had $ 83,000 and $ 9,000 of unrealized losses related to short-term investments as of March 31, 2022 and December 31, 2021 , respectively. Concentration of Credit Risk and Other Risks and Uncertainties Financial instruments which potentially subject the Company to concentration of credit risk consist primarily of cash, cash equivalents, short-term investments and accounts receivable. The Company’s policy is to invest cash in institutional money market funds and marketable securities of the U.S. government to limit the amount of credit exposure. The Company currently maintains a portfolio of cash equivalents and short-term investments in money market funds and U.S. treasury bills. Additionally, the Company has established guidelines regarding diversification of its investments and their maturities, which are designed to maintain principal and maximize liquidity. The Company has not experienced material losses on cash equivalents and short-term investments. The Company’s products require approval from the FDA and foreign regulatory agencies before commercial sales can commence. There can be no assurance that the Company’s products will receive any of these required approvals. The denial or delay of such approvals may have a material adverse impact on the Company’s business 11 and may impact business in the future. In addition, after approval by the FDA, there is still an ongoing risk of adverse events that did not appear during the device approval process. The Company is subject to risks common to companies in the medical device industry, including, but not limited to, new technological innovations, clinical development risk, establishment of appropriate commercial partnerships, protection of proprietary technology, compliance with government and environmental regulations, uncertainty of market acceptance of the Company's products, product liability and the need to obtain additional financing. The Company is subject to the risks related to the global pandemic associated with COVID-19, including local, state, federal and other world-wide mandates imposed to reduce the spread of the virus which could interrupt or reduce the number of cataract surgeries, limit access to ambulatory surgery centers, doctors’ offices and manufacturing facilities, and the expansion of global lead times, particularly in Europe and Asia, leading to a supply interruption from the Company's suppliers. In addition, the Company is currently experiencing inflation and longer lead times and limited availability in its supply chain for certain components and has continued exposure to price and supply risk related to anticipated purchases of certain commodities, materials and products used in its business. Accounts Receivable The Company has a diverse customer base and as of March 31, 2022 , had only one customer who individually accounted for 10 % of accounts receivable. As of December 31, 2021 , the Company had no customers who individually accounted for more than 10 % of accounts receivable. The Company maintains an allowance for credit losses resulting from the inability of its customers, including ambulatory surgery centers, to make required payments. After evaluation of the collectability of accounts receivable, the Company did no t record any significant allowance for credit losses as of March 31, 2022 or December 31, 2021 . Fair Value of Financial Instruments The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The Company’s financial instruments consist principally of cash, cash equivalents, short-term investments, accounts receivable, accounts payable, operating lease liabilities and a term loan. Fair value is measured as the price that would be received from the sale of an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques that are consistent with the market, income or cost approach are used to measure fair value. The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three levels: Level 1—Observable inputs such as unadjusted quoted prices in active markets that are accessible at the measurement date for identical unrestricted assets or liabilities. Level 2—Inputs (other than quoted prices included in Level 1) that are either directly or indirectly observable for the asset or liability, for substantially the full term of the asset or liability, through correlation with market data. These include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active and inputs to valuation models or other pricing methodologies that do not require significant judgment because the inputs used in the model, such as interest rates and volatility, can be corroborated by readily observable market data. Level 3—One or more significant inputs that are unobservable and supported by little or no market activity and reflect the use of significant management judgment and assumptions. Level 3 assets and liabilities include those whose fair value measurements are determined using pricing models, discounted cash flow methodologies or similar valuation techniques and significant management judgment or estimation. These include the Black-Scholes option-pricing model which uses inputs such as expected volatility, risk-free interest rate and expected term to determine fair market valuation. Assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurements. The Company reviews the fair value hierarchy classification at each reporting date. Changes in the ability to observe valuation inputs may result in a reclassification of levels for certain assets or liabilities within the fair value hierarchy. The Company did not have any transfers of assets and liabilities between the levels of the fair value measurement hierarchy during the years presented. 12 Inventories Inventories consist of raw materials, work-in-process and finished goods. Raw materials are comprised of chemicals and parts used in the production of the Company's lenses, cartridges, and LDDs. Finished goods are comprised of lenses, cartridges, accessories and LDDs. Inventories are valued at the lower of cost or net realizable value. Cost is computed using standard cost, which approximates actual cost on a first-in, first-out basis. The carrying value of inventories is reviewed for potential impairment whenever indicators suggest that the cost of inventories exceeds the carrying value and management adjusts the inventories to its net realizable value. The cost of finished goods and work-in-process is comprised of raw materials, direct labor, other direct costs and related production overhead to the extent that these costs do not exceed the net realizable value of the goods produced. The Company periodically reviews inventories for potential impairment, estimated losses from obsolescence, material expirations or unmarketable inventories or excess inventories and writes down the cost of inventories to net realizable value at the time such determinations are made. Net realizable value is determined using the estimated selling price, in the ordinary course of business, less estimated costs to complete and dispose. Leases Lease right-of-use assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized when the Company takes possession of the leased property (the “Commencement Date”) based on the present value of lease payments over the lease term. The Company estimates the incremental borrowing rate based upon the cost of its own debt financing, current market interest rates and quoted offerings or the rate implicit in the lease. Operating lease right-of-use assets also include any lease payments made at or before lease commencement and exclude any lease incentives received. The lease terms used to calculate the right-of-use asset and related lease liability include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Rent expense on noncancelable leases containing known future scheduled rent increases is recorded on a straight-line basis over the term of the respective leases beginning on the Commencement Date. The difference between rent expense and rent paid is accounted for as a component of operating lease right-of-use assets on the accompanying condensed consolidated balance sheets. Landlord improvement allowances and other such lease incentives are recorded as property and equipment and as reduction of the right-of-use leased assets and are amortized on a straight-line basis as a reduction to operating lease costs. Leases with an initial term of 12 months or less are expensed as incurred and are not recorded as right-of-use assets on the condensed consolidated balance sheets. Deferred Offering Costs In connection with the IPO the Company capitalized deferred offering costs consisting of all direct and incremental legal, professional, accounting and other third-party fees incurred of $ 3.2 million which were offset against IPO proceeds and reclassified to additional paid-in capital in the accompanying Condensed Consolidated Balance Sheets. Net Loss per Share The Company computes basic net loss per share for common stock using the two-class method required for companies with participating securities based upon the weighted-average number of common shares outstanding during the period. Diluted net loss per share assumes the conversion, exercise or issuance of all potential common stock equivalents, unless the effect of inclusion would be anti-dilutive. For purposes of this calculation, common stock equivalents include the Company’s stock options, warrants and the shares issuable upon the conversion of the preferred stock. For stock options and preferred stock, the calculation of diluted loss per share requires an adjustment for the additional share of undistributed earnings. For warrants that are recorded as a liability in the condensed consolidated balance sheets, the calculation of diluted loss per share requires that, to the extent the average market price of the underlying shares for the reporting period exceeds the exercise price of the warrants and the presumed exercise of the warrants is dilutive to the loss per share for the period, an adjustment is made to net loss used in the calculation to remove the change in fair value of the warrants from the numerator for the period. Likewise, an adjustment to the denominator is required to reflect the related dilutive shares, if any, under the treasury stock method. 13 For the three months ended March 31, 2022 and 2021, as a result of the Company’s net loss, basic and diluted net loss per share are the same. The following outstanding potentially dilutive securities were excluded from the calculation of diluted net loss per share attributable to common stockholders because their impact under the “treasury stock method” and “if-converted method” was anti-dilutive for the periods presented: Three Months Ended March 31, 2022 2021 Preferred stock and warrants — 15,076,938 Stock options issued and outstanding under the Calhoun Vision, Inc. 2006 Stock Plan, Calhoun Vision, Inc. 2015 Equity Incentive Plan and 2021 Equity Incentive Plan 1,986,088 4,103,694 Restricted stock units 53,545 — Stock issuable in offering period under the Employee Stock Purchase Plan 46,733 — Revenue Recognition The Company’s revenue is generated from the sale of LALs used in cataract surgery along with a specifically designed machine for delivering light to the eye, the LDD, to adjust the lens post-surgery, as needed. Revenue is recognized from sales of products in the U.S. and Europe. Customers are primarily comprised of ambulatory surgery centers, hospitals, and physician private practices. The Company recognizes revenues when promised goods or services are transferred to customers at a transaction price that reflects the consideration to which the Company expects to be entitled in exchange for those goods and services. Specifically, the Company applies the following five steps to recognize revenue: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when, or as, the Company satisfies a performance obligation. The Company applies the five-step model to contracts when it is probable that it will collect the consideration to which it is entitled in exchange for the goods or services it transfers to the customer. At contract inception, the Company assesses the goods promised within each customer contract to determine the individual deliverables in its product offerings as separate performance obligations and assesses whether each promised good or service is distinct. The transaction price is determined based on the consideration expected to be received, based either on the stated value in contractual arrangements or the estimated cash to be collected in non-contracted arrangements. The Company recognizes revenue as the amount of the transaction price that is allocated to the respective performance obligation when, or as, the performance obligation is satisfied, considering whether or not this occurs at a point in time or over time. The Company elected to account for shipping costs as fulfillment costs rather than a promised service and excludes from revenue any taxes collected from customers that are remitted to government authorities. The Company’s LDD contracts contain multiple performance obligations bundled for one transaction price, with all obligations generally satisfied within one year. For these bundled arrangements, the Company accounts for individual products and services as separate performance obligations if they are distinct, that is, if a product or service is separately identifiable from other items in the bundled package, and if a customer can benefit from it on its own or with other resources that are readily available to the customer. The Company’s LDD contracts include a combination of the following performance obligations: (1) LDD capital asset and related components, (2) training and (3) device service (initial year). Each of these three performance obligations are considered distinct. The LDD capital asset is distinct because the customer can benefit from it together with other resources that are readily available to the customer. Training on the use of the machine is offered as a distinct activity after installation of the LDD to enhance the customer’s ability to utilize the machine by having an industry professional provide best practices and customize training to the specific needs of the customer. Each LDD comes with a twelve-month manufacturer’s warranty (service-type) that includes preventative maintenance, unscheduled service (labor and parts) and software updates. After the first year, service contracts can be purchased separately on a standalone basis. The Company recognizes revenue as performance obligations are satisfied by transferring control of the product or service to a customer. Specifically, revenue for the LDD capital asset is recognized at a point in time at installation. Revenue for training is also recorded at a point in time, generally 60 days after installation. Revenue 14 for the device service is recognized ratably over time after installation, generally 12 months. The Company has determined that the transaction price is the invoice price, net of adjustments, if any. The allocation to the separate performance obligations is based upon the relative standalone selling price. Standalone selling prices are based on observable prices at which the Company separately sells the products or services. The Company estimates the standalone selling price using the market assessment approach considering market conditions and entity-specific factors including, but not limited to, features and functionality of the products and services, geographies, type of customer and market conditions. The Company regularly reviews and updates standalone selling prices as necessary. LALs are held at customer sites on consignment. The single performance obligation is satisfied, and revenue from sales is recognized for LALs upon customer notification that the LALs have been implanted in a patient. For the three months ended March 31, 2022 and 2021, credits related to returns and rebates on list prices were not significant. The Company adopted the practical expedient permitting the direct expensing of costs incurred to obtain contracts where the amortization of such costs would occur over one year or less, and it applied to substantially all the Company’s contracts. For the three months ended March 31, 2022 and 2021, revenue from contracts with customers consisted of the following (in thousands): Three Months Ended March 31, 2022 2021 LDD (including training) $ 4,569 $ 1,837 LAL 4,105 1,529 Service warranty, service contracts, and accessories 268 118 $ 8,942 $ 3,484 As of March 31, 2022 and December 31, 2021, the Company recognized contract liabilities on its condensed consolidated balance sheets of $ 622,000 and $ 540,000 respectively, related to the service agreement performance obligation. Revenue for service agreements is recognized ratably over the term of each contract. The following table represents the contract liabilities from sales activity for the three months ended March 31, 2022 and 2021, respectively (in thousands): Three Months Ended March 31, 2022 2021 Balance at beginning of period $ 540 $ 345 Additions during the period 326 95 Revenue recognized during the period ( 244 ) ( 110 ) Balance at end of period $ 622 $ 330 For the three months ended March 31, 2022 and 2021, the Company had no customers who individually accounted for more than 10 % of revenue. Stock-Based Compensation Expense The Company has three stock-based incentive compensation plans, the Calhoun Vision, Inc. 2006 Stock Plan (“2006 Plan”), the Calhoun Vision, Inc. 2015 Equity Incentive Plan (“2015 Plan”), and the 2021 Equity Incentive Plan (“2021 Plan”), which are collectively referred to as the (“Plans”). The Company also has an Employee Stock Purchase Plan (“ESPP”), the 2021 Employee Stock Purchase Plan (“2021 ESPP”). The purpose of the 2021 Plan and 2021 ESPP plan is to provide a means by which eligible recipients of stock awards may be given an opportunity to benefit from increases in the value of the common stock in order to retain or 15 procure the services of the employees, members of the Board of Directors and consultants and provide them with an incentive to promote the Company’s success and accomplish corporate goals. Stock option awards are generally granted with an exercise price of no less than 100% of estimated fair market value on the date of grant. Time based awards generally vest over four years as follows: one fourth of the total number of shares vest and become exercisable on the one-year anniversary; 1/48th of the total number of shares subject to the option vest and become exercisable on each monthly anniversary thereafter for the remaining three years. Prior to the Company's shares being traded on the Nasdaq Global Market, the fair value of the Company’s common stock was determined by the Company’s Board of Directors at the time of each option grant by considering a number of objective and subjective factors. The factors included, but were not limited to: (i) third-party valuations of the Company’s common stock; (ii) the Company’s stage of development; (iii) the status of research and development efforts; (iv) the rights, preferences and privileges of the Company’s convertible preferred stock relative to those of the Company’s common stock; (v) the Company’s operating results and financial condition, including the Company’s levels of available capital resources; (vi) equity market conditions affecting comparable public companies; (vii) general U.S. market conditions and (viii) the lack of marketability of the Company’s common stock. After completion of the Company’s IPO in July 2021, the fair value of common stock is based on the closing price of the Company’s common stock as reported on the Nasdaq Global Market. In determining the fair value of the stock options granted, the Company uses the Black-Scholes option-pricing model and requires the use of assumptions about a number of variables as discussed below. Each of these inputs is subjective and generally requires significant judgment. Expected term —The Company’s expected term represents the period that the Company’s stock-based awards are expected to be outstanding. The Company used the simplified method (based on the mid-point between the vesting date and the end of the contractual term) to determine the expected term. Expected volatility —Prior to the completion of the Company ’ s IPO, when the Company was privately held and did not have any trading history for its common stock, the expected volatility was estimated based on the average historical volatilities for comparable publicly traded medical device companies over a period equal to the expected term of the stock option grants. The comparable companies were chosen based on their similar size, stage in the life cycle and area of specialty. The Company will continue to apply this process until a sufficient amount of historical information regarding the volatility of its own stock price becomes available. Risk-free interest rate —The risk-free interest rate used is based on the published U.S. Department of Treasury interest rates in effect at the time of stock option grant for zero coupon U.S. Treasury notes with maturities approximating each grant’s expected term. Dividend yield —The Company has never paid dividends on its common stock and has no plans to pay dividends on its common stock. Therefore, the Company used an expected dividend yield of zero. Recent Accounting Pronouncements Changes to GAAP are established by the Financial Accounting Standards Board (“FASB”) in the form of accounting standards updates (“ASU”). ASUs not listed below were assessed and determined not to be applicable or are expected to have minimal impact on the Company’s consolidated financial statements. In June 2020, the FASB issued ASU No. 2020-06, “Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, ” ( “ ASU No. 2020-06”) which is intended to simplify the accounting for convertible instruments. This new guidance eliminates certain models that require separate accounting for embedded conversion features and eliminates certain of the conditions for equity classification for contracts in an entity’s own equity. Accordingly, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost, as long as no other features require bifurcation and 16 recognition as derivatives. The new guidance can be adopted through either a modified retrospective method of transition or a fully retrospective method of transition. ASU 2020-06 is effective for public business entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company adopted ASU 2020-06 effective January 1, 2022, and the adoption does not have a material impact on the Company’s consolidated financial statements. Emerging Growth Company Status The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. The Company has irrevocably elected to not take this exemption and, as a result, will adopt new or revised accounting standards on the relevant effective dates on which adoption of such standards is required for other public companies that are not emerging growth companies. Note 3 – Short-Term Investments Short-term investments, principally U.S. Treasury bills, are available-for-sale and consisted of the following (in thousands): As of March 31, 2022 Amortized Cost Unrealized Loss, Net Estimated Fair Value Government securities $ 119,798 $ ( 83 ) $ 119,715 As of December 31, 2021 Amortized Cost Unrealized Loss, Net Estimated Fair Value Government securities $ 134,980 $ ( 9 ) $ 134,971 All available-for-sale securities held as of March 31, 2022 and December 31, 2021 had a maturity of less than one year . The Company has classified all marketable securities, regardless of maturity, as short-term investments based upon the Company’s ability and intent to use any and all of those marketable securities to satisfy the Company’s liquidity requirements. Note 4 – Inventories Inventories consisted of the following (in thousands): March 31, December 31, 2022 2021 Finished goods $ 4,164 $ 4,451 Raw materials 2,773 2,828 Work-in-process 1,721 868 8,658 8,147 Less: reserve for excess and obsolete inventory ( 168 ) ( 115 ) $ 8,490 $ 8,032 At March 31, 2022 and December 31, 2021, finished goods included $ 2.4 million and $ 1.8 million of inventory held on consignment at customer sites, respectively. Note 5 – Fair Value Measurements The table and disclosures below (in thousands) present the Company’s assets and liabilities measured at fair value on a recurring basis and indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value. 17 As of March 31, 2022 Level I Level II Total Assets: Money market securities $ 20,619 $ — $ 20,619 Government securities — 119,715 119,715 Total assets at fair value $ 20,619 $ 119,715 $ 140,334 As of December 31, 2021 Level I Level II Total Assets: Money market securities $ 21,390 $ — $ 21,390 Government securities — 134,971 134,971 Total assets at fair value $ 21,390 $ 134,971 $ 156,361 The Series W warrant fair value was determined by management, with input and assistance from a third-party valuation specialist, upon issuance and was revalued as of each reporting date until expiration. The Series W warrant expired unexercised on March 31, 2021 and the remaining fair value of $ 5.0 million was recorded in the Condensed Consolidated Statement of Operations and Comprehensive Loss for the three months ended March 31, 2021. The fair value of the preferred stock warrants was determined by management, with input and assistance from a third-party valuation specialist using a probability weighted expected return model/option pricing model (“PWERM/OPM”) hybrid valuation model. This method essentially utilizes a combination of market and income method approaches for each part of the calculation of enterprise value using assumptions and financial data prepared by the Company and combines them in a probabilistic manner. The valuation considered several future scenarios for the Company, each of which assumed a shareholder exit either through initial public offering, sale (“M&A”) or dissolution. Based upon the current initial public offering market, M&A values for private companies and the historical likelihood of dissolution or no exit, the Company concluded that the probabilities and time frames were reasonable. Implicit in the timing used in the application of the PWERM/OPM Hybrid Method is also the possibility of no exit. The option pricing model's significant unobservable inputs included: (1) the assumed time until a liquidity event, (2) the risk-free interest rate over the period until the assumed liquidity event, (3) the assumed volatility in the value of the equity of the company (which corresponds to the model's underlying asset volatility), (4) the enterprise value and preferred investment amount and (5) the key price points in the Company's capital structure in terms of exit levels on the assumed liquidation date. A significant increase (decrease) in any of these inputs in isolation, particularly the estimated price of the Company’s preferred stock, would have resulted in a significantly higher (lower) fair value measurement. Upon completion of the Company's IPO in July 2021 all of the 14,376,272 issued and outstanding shares of Convertible Preferred Stock outstanding were converted to common stock and 225,945 warrants to purchase Series H convertible preferred stock were exercised and converted into 100,261 shares of common stock. The following table sets forth changes in the estimated fair values for the Company’s warrant liabilities measured using significant unobservable inputs (in thousands): Three Months Ended Three Months Ended March 31, 2022 March 31, 2021 Beginning of period $ — $ 8,846 Expiration of common stock warrant — ( 5,018 ) Change in fair value of preferred stock warrants — — End of period $ — $ 3,828 Note 6 – Term Loan In October 2020, the Company entered into a loan facility (“Term Loan”) with an initial draw of $ 25 million. Proceeds were used to help fund the Company’s ongoing operations. As part of the Term Loan, Oxford Finance LLC, (“Oxford Finance”) committed to providing further loans of up to $ 35 million to the Company at its election (or for one specific draw, upon occurrence of a revenue milestone) during various draw periods in the future, provided the Company is not in default at the time of the additional loan draws. In March 2021, the Company drew 18 an additional $ 5 million from the facility for the purpose of funding ongoing operations. In June 2021, the Company drew an additional $ 10 million from the facility for the purpose of funding ongoing operations. As of March 31, 2022 and December 31, 2021, the Company was in compliance with all covenants. For the three months ended March 31, 2022 and 2021 the cash interest rate paid for all borrowings under the Term Loan was 9.25 % . The effective interest rate during the three months ended March 31, 2022 and 2021 was 10.72 % and 11.32 % , respectively. As of March 31, 2022 future principal payments due under the Term Loan were as follows (in thousands): Year Ended December 31, 2022 (remainder) $ — 2023 1,739 2024 20,870 2025 17,391 2026 — Total 40,000 Less: unamortized issuance costs and exit fee ( 110 ) Term loan, net $ 39,890 Note 7 – Stock-Based Compensation Expense The Company has three stock-based incentive compensation plans, the 2006 Plan, the 2015 Plan, and the 2021 Plan. The Company also has an ESPP Plan, the 2021 ESPP. 2006 Plan The Company’s 2006 Stock Plan was originally adopted by the Company's Board of Directors and approved by the Company’s stockholders in 2006. The Company’s 2006 Plan was terminated in 2015 in connection with the adoption of the Company’s 2015 Plan and as a result no new awards may be issued under the 2006 Plan. However, the 2006 Plan will continue to govern the terms and conditions of the outstanding awards previously granted under the 2006 Plan. 2015 Plan The Company’s 2015 Plan was originally adopted by the Company’s Board of Directors and approved by the Company’s stockholders in 2015. The 2015 Plan was most recently amended in March 2021. In July 2021, upon completion of the IPO, the 2015 Plan terminated immediately prior to effectiveness of the 2021 Plan with respect to the grant of future awards. However, the 2015 Plan will continue to govern the terms and conditions of the outstanding awards previously granted under the 2015 Plan. 2021 Plan On July 28, 2021, the Company’s 2021 Plan, was adopted and approved by the Company’s Board of Directors and stockholders and became effective. The 2021 Plan provides for the grant of incentive stock options to employees and any subsidiary corporations’ employees, and for the grant of nonstatutory stock options, stock appreciation rights, restricted stock, restricted stock units, or (“RSUs”), and performance awards to employees, directors, and consultants and subsidiary corporations’ employees and consultants. The number of shares of the Company’s common stock available for issuance under the 2021 Plan is equal to 2,420,135 shares of common stock plus any shares subject to awards granted under the 2015 Plan and the 2006 Plan that, after the effectiveness of the 2021 Plan, expire or otherwise terminate without having been exercised in full, are tendered to or withheld by the Company for payment of an exercise price or for tax withholding obligations, or are forfeited to or repurchased by the Company due to failure to vest, with the maximum number of shares to be added to the 2021 Plan from the 2015 Plan and 2006 Plan is equal to 4,569,530 shares of common stock. The number of common shares reserved for issuance under the 2021 Plan will be increased automatically on the first day of each fiscal year beginning with the 2022 fiscal year and ending on the ten year anniversary of the date the Board of Directors approved the 2021 Plan, by a number equal to the least of: (i) 7,260,406 shares of common 19 stock; (ii) 4 % of the outstanding shares of common stock on the last day of the Company's immediately preceding fiscal year; or (iii) such lesser number of shares of common stock as the administrator may determine. The 2021 Plan is administered by the Company’s Board of Directors. 2021 ESPP On July 28, 2021, the Company’s Board of Directors and stockholders adopted and approved the Company’s 2021 ESPP. There are 757,694 shares of the Company’s common stock available for issuance under the 2021 ESPP. The 2021 ESPP provides eligible employees of the Company and its subsidiaries with the opportunity to purchase shares of the Company’s common stock at a purchase price equal to 85 % of the common stock’s fair market value on the first trading day or last trading day of each purchase period, whichever is lower. The 2021 ESPP provides for two six-month purchase periods every twelve months: May 1 through October 31 and November 1 through April 30. The initial purchase period began on November 1, 2021. The number of common shares reserved for issuance under the 2021 ESPP plan are increased automatically on the first day of each fiscal year beginning with the Company's 2022 fiscal year, by a number equal to the least of: (i) 1,452,081 shares; (ii) 1 % of the outstanding shares of common stock on the last day of the Company's immediately preceding fiscal year; or (iii) such other amount as the administrator may determine. The 2021 ESPP is administered by the Board of Directors. Registration of Shares for Future Issuance On March 8, 2022, the Company filed on Form S-8 under the Securities Act to register the issuance of 1,094,670 shares of common stock subject to options or other equity awards issued or for future issuance under the 2021 Plan and 273,667 shares reserved for future issuance under the 2021 ESPP. Stock Plan Activities A summary of stock option activities for the three months ended March 31, 2022 is as follows: Number of Options Weighted Average Exercise Price Weighted Avg Remaining Contractual Life (Years) Options outstanding as of December 31, 2021 5,754,005 $ 11.64 5.20 Issued Granted 531,640 12.85 Exercised ( 75,859 ) 4.06 Forfeited ( 24,269 ) 15.04 Expired ( 35,115 ) 16.82 Options outstanding as of March 31, 2022 6,150,402 11.80 6.95 Exercisable as of March 31, 2022 3,413,821 $ 9.64 5.19 A summary of non-vested restricted stock unit activities for the three months ended March 31, 2022 is as follows: Weighted Average Number of Grant Date Shares Fair Value Unvested at December 31, 2021 640,479 $ 15.46 Granted 19,196 11.33 Vested ( 70,063 ) 15.38 Forfeited ( 22,578 ) 15.38 Unvested at March 31, 2022 567,034 $ 15.33 20 As of March 31, 2022 and December 31, 2021 the intrinsic value of options vested was $ 16.4 million and $ 14.7 million, respectively, and of all options outstanding was $ 16.4 million and $ 14.7 million, respectively. During the three months ended March 31, 2022 and 2021 , the total cash received from the exercise of stock options was $ 0.3 million and $ 1.2 million, respectively. The total fair value less strike price of these options was $ 0.6 million and $ 3.1 million, respectively. Stock-based compensation expense was classified in the accompanying Condensed Consolidated Statements of Operations and Comprehensive Loss as follows (in thousands): Three Months Ended March 31, 2022 2021 Research and development $ 774 $ 597 Selling, general and administrative 1,655 463 Cost of goods sold 220 179 $ 2,649 $ 1,239 As of March 31, 2022 and December 31, 2021 , there were 2,736,581 and 2,437,649 unvested options, respectively. Total unrecognized expense related to unvested stock options was approximately $ 22.0 million and $ 20.1 million as of March 31, 2022 and December 31, 2021, respectively. Amounts as of March 31, 2022 and December 31, 2021 are expected to be recognized over a weighted average period of approximately 3.0 and 3.0 years. As of March 31, 2022 , there was $ 8.0 million of total unrecognized compensation costs related to non-vested restricted stock units granted under the 2021 Plan. The unrecognized compensation cost is expected to be recognized over a weighted average period of 3.2 years. The following table presents the range and weighted-average assumptions, used in the Black-Scholes option pricing model to determine the fair value of stock options: Three Months Ended March 31, 2022 2021 Range Weighted Average Range Weighted Average Expected volatility 62.5 % 62.5 % 62.3 % to 63.6 % 63.6 % Risk-free interest rate 2.0 % 2.0 % 0.6 % to 1.7 % 1.1 % Expected life (in years) 6 years 6 years 5.52 to 10 years 6.03 years Expected dividend yield 0.0 % 0.0 % 0.0 % 0.0 % Grant date fair value $ 12.85 $ 12.85 $ 1.51 $ 1.51 Common Stock Each share of common stock is entitled to one vote. Common stock reserved for future issuance consisted of the following: March 31, 2022 December 31, 2021 Stock options issued and outstanding under the 2006, 2015 and 2021 plans 6,150,402 5,754,005 Restricted stock units 567,034 640,479 Employee stock purchase plan 757,694 484,027 Total shares of common stock reserved 7,475,130 6,878,511 On January 3, 2022, the Board of Directors approved the issuance of 19,196 restricted stock units to a non-employee director. The award will vest over three years of service. Note 8 – Stockholders’ Equity On July 29, 2021, the Company restated its certificate of incorporation and bylaws which provide for, among other things, the Company’s authorized capital stock to consist of 900,000,000 shares of common stock, par value 21 $ 0.001 per share, and 100,000,000 shares of convertible preferred stock, par value $ 0.001 per share. The restated certificate defines the voting rights, dividends, liquidation rights and preferences of each class of stock. There are 900,000,000 shares of common stock authorized, 27,485,685 issued and outstanding at March 31, 2022 and 27,366,746 issued and outstanding at December 31, 2021. There are 100,000,000 shares of preferred stock authorized and none issued or outstanding at March 31, 2022 and December 31, 2021. Prior to the IPO, the Amendment authorized eight classes of preferred stock, Series A through F, the “Prior Preferred Stock” and Series G and H, the “Senior Preferred Stock”. Upon completion of the Company's IPO in July 2021 all of the 14,376,272 issued and outstanding shares of Convertible Preferred Stock outstanding were converted to common stock. Note 9 – Leases The Company has operating and finance leases for facilities and certain equipment. Leases with an initial term of 12 months or less are not recorded on the Condensed Consolidated Balance Sheets. Lease expense for operating leases is recognized on a straight-line basis over the lease term. The Company does not combine lease and non-lease components in the recognition of lease expense. As of March 31, 2022 the Company held four leases for office, manufacturing and warehouse facilities in Aliso Viejo, California. The four leases are for approximately 121,000 square feet in the aggregate and expire between August 31, 2024 and January 31, 2026 . For one of the facilities operating leases, the lessor provided $ 900,000 in tenant allowances. The following table presents the lease balances within the condensed consolidated balance sheets as of March 31, 2022 and December 31, 2021 (in thousands): March 31, December 31, Leases Classification 2022 2021 Assets Operating Operating leases right-of-use assets 4,057 $ 4,284 Finance Property and equipment, net 206 $ 33 Total lease assets 4,263 4,317 Liabilities Current Operating Lease liabilities 1,588 1,509 Finance Lease liabilities 75 20 Noncurrent Operating Long-term lease liabilities 3,265 3,625 Finance Long-term lease liabilities 84 17 Total lease liabilities $ 5,012 $ 5,171 22 For the three months ended March 31, 2022 and 2021, the components of operating and finance lease expenses were as follows (in thousands): Three Months Ended March 31, Lease Cost Classification 2022 2021 Operating lease cost Cost of sales $ 3 $ 3 Research and development 74 79 Selling, general and administrative 403 402 Finance lease cost Research and development 14 — Selling, general and administrative 5 8 Finance lease cost Interest expense 3 2 Maturities of the Company’s operating and finance lease liabilities as of March 31, 2022 were as follows (in thousands): Operating Finance Year Ended December 31, Leases Leases 2022 (remainder) $ 1,526 $ 58 2023 1,724 108 2024 1,456 9 2025 951 — 2026 80 — 2027 — — Total lease payments 5,737 175 Less: imputed interest 883 16 Total lease liabilities $ 4,853 $ 159 The weighted average remaining lease term and weighted average discount rate used to determine lease liabilities related to the Company’s operating and finance leases as of March 31, 2022 and December 31, 2021 were: March 31, December 31, Lease Term and Discount Rate 2022 2021 Weighted average remaining lease term (years) Operating leases 3.07 3.30 Finance leases 1.70 1.72 Weighted average discount rate Operating leases 10.5 % 10.5 % Finance leases 9.5 % 10.5 % Note 10 – Commitments and Contingencies Letter of credit The Company has a standby letter of credit, expiring September 30, 2024, issued by a financial institution as required security for one operating lease. The aggregate amount of the letter of credit was $ 310,000 as of March 31, 2022 and December 31, 2021. Legal Matters From time-to-time, the Company may be involved in certain legal proceedings or regulatory matters arising in the ordinary course of business, including without limitation, actions with respect to intellectual property, employment, regulatory, product liability and contractual matters. In connection with these proceedings or matters, 23 the Company regularly assesses the probability and amount (or range) of possible issues based on the developments in these proceedings or matters. A liability is recorded in the consolidated financial statements if it is determined that it is probable that a loss has been incurred, and that the amount (or range) of the loss can be reasonably estimated. Because of the uncertainties related to any pending proceedings or matters, the Company is currently unable to predict their ultimate outcome and, with respect to any legal proceeding or regulatory matter where no liability has been accrued, to make a reasonable estimate of the possible loss (or range of loss) that could result from an adverse outcome. At March 31, 2022 and December 31, 2022 , there were no legal proceedings, regulatory matters, or other disputes or claims for which a material loss was considered probable or for which the amount (or range) of loss was reasonably estimable. However, regardless of the outcome, legal proceedings, regulatory matters, and other disputes and claims can have an adverse impact on the Company because of legal costs, diversion of management time and resources, and other factors. Note 11 – Subsequent Events Term Loan On May 3, 2022, the Company entered into a Second Amendment the (“Second Amendment”) to its existing loan and security agreement (as amended through the Second Amendment, the (“Amended Term Loan”) dated as of October 29, 2020 (“Term Loan”), with Oxford Finance, as the lender and collateral agent thereunder. The Amended Term Loan increased the loan and security agreement to $ 60.0 million, of which $ 40.0 million was fully funded as of May 3, 2022. Under the Amended Term Loan, the Company may borrow an additional term loan of up to $ 10.0 million through June 30, 2023, provided the Company satisfies the applicable drawdown conditions and achieves trailing twelve-month sales revenues of not less than $ 40,000,000 for the measurement period ending February 28, 2023, the measurement period ending March 31, 2023 or the measurement period ending April 30, 2023. Subject to the terms and conditions of the Amended Term Loan, the Company may also borrow another term loan of up to $ 10.0 million through September 30, 2023, provided the Company satisfies the applicable drawdown conditions and achieves trailing twelve-month sales revenues of not less than $ 50.0 million for the measurement period ending May 31, 2023, the measurement period ending June 30, 2023 or the measurement period ending July 31, 2023. The Amended Term Loan bears interest at a rate per annum equal to the greater of (i) 9.25 % or (ii) 1-Month Term SOFR (or, if greater, 0.16 %) plus an applicable margin of 9.09 %. If an event of default under the Amended Term Loan is continuing, additional interest of 5 % applies . The Amended Term Loan extends the maturity date of the loan and security agreement, which was due to expire on October 1, 2025, to February 1, 2027 . The Company refers to its $60 million Amended Term Loan as its credit facility. The Amended Term Loan is secured by substantially all of the Company's personal property other than its intellectual property, but includes any accounts receivable, other amounts owed and any proceeds of intellectual property. The Company also entered into a negative pledge arrangement with the collateral agent and lenders where the Company agreed not to encumber any of its intellectual property. The Amended Term Loan also includes certain customary representations and warranties, affirmative and negative covenants, and events of default, including a financial performance to plan covenant that requires the Company to achieve certain minimum net sales revenues, measured on a trailing twelve month basis, as set forth in the Second Amendment. The Amended Term Loan requires 36 months of interest-only payments, followed by 22-months of amortization. If the Company is in compliance with its performance to plan covenant through April 1, 2025 and has not provided an IP lien election notice before May 1, 2025, the interest-only period is extended by 12 months, and the amortization period is reduced to nine months. Payments are due on the first day of each month in arrears. All unpaid amounts under the Amended Term Loan mature on February 1, 2027. The Company may elect to prepay the loans under the credit facility at any time in full or in part; however, the Company may only elect to prepay the loans in part once, in an amount not less than $ 5.0 million. Any amounts prepaid may not be subsequently reborrowed. Under the Amended Term Loan, a final payment (the “Final Payment”) will be due at the earlier of the maturity date, acceleration of the loans, or a voluntary or mandatory prepayment of the loans, in an amount equal to (a) if the Final Payment is due on or after January 1, 2022 through and including October 31, 2022, three percent (3.00%) of the original principal amount (or, in the case of a partial prepayment, the amount of principal to be prepaid) of the loans, (b) if the Final Payment is due on or after November 1, 2022 through and including October 31, 2023, four percent (4.00%) of the original principal amount (or, in the case of a partial prepayment, the amount of principal to be prepaid) of the loans, and (c) if the Final Payment is due on or after November 1, 2023, five percent (5.00%) of the original principal amount (or, in the case of a partial prepayment, the amount of principal to be prepaid) of the 24 loans. The Final Payment is being accreted to the carrying value of the debt as a debt premium and interest expense over the life of the loan using the effective interest method. The Company is required to pay an amendment fee of $ 125,000 to the lenders that is directly attributable to execution of the Amended Term Loan transaction. These issuance costs will be recorded as a discount to the carrying amount of the debt and will be amortized to interest expense over the effective term of the debt using the effective interest method. The loans may be accelerated by Oxford Finance in the event of a default. Sublease On April 4, 2022, the Company entered into a thirty-four-month sublease agreement for a portion of the 5 Columbia Building, in Aliso Viejo, CA. The sublease commencement date is June 1, 2022 and will expire on March 31, 2025 . The base rent receivable is $ 11,410 per month. 25 Item 2: M ANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes to those statements included elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and related notes thereto for the year ended December 31, 2021, included in our Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission on March 8, 2022. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. See “Special Note Regarding Forward-Looking Statements.” We are a commercial-stage medical technology company dedicated to improving the vision of patients following cataract surgery. Our proprietary RxSight system, comprised of our LAL, LDD and accessories, is the first and only commercially available IOL technology that enables doctors to customize and optimize visual acuity for patients after cataract surgery. Our LAL is made of proprietary photosensitive material that changes shape in response to specific patterns of ultraviolet light generated by our LDD. With the RxSight system, the surgeon performs a standard cataract procedure to implant the LAL, determines refractive error with patient input after healing is complete, and then uses the LDD to modify the lens with the exact amount of visual correction needed to achieve the patient’s desired vision outcomes. Alternative IOL technologies, in contrast, are not adjustable following the procedure and therefore require patients to make pre-operative choices about their visual preferences, which can often result in patient dissatisfaction when visual outcomes fail to meet expectations. We designed our RxSight system to maximize patient and doctor satisfaction through superior visual outcomes. In the pivotal study that formed the basis for our FDA approval, the observed rate of eyes with 20/20 or better uncorrected distance visual acuity for our LAL was 70.1%. This compares favorably to the results of pivotal studies with similar study designs and patient populations that supported FDA approval of Alcon’s Acrysof Toric (38.4%), and J&J’s Tecnis Toric (43.6%). We began commercializing our solution in the United States in the third quarter of 2019 and are focused on establishing the RxSight system as the standard of care for premium IOL procedures. As of March 31, 2022, we had an installed base of 246 LDDs in ophthalmology practices, and since our inception, surgeons have performed over 20,000 surgeries with our RxSight system. We compete in the IOL market in the U.S. The LAL is a premium IOL which is partially reimbursable under Medicare, and in some cases by private payors. Premium IOLs are sold at a higher price point than conventional IOLs, as they provide refractive correction of vision unlike a conventional IOL that only replaces the natural lens with a clear lens (which is the standard for Medicare reimbursement). Our products are also approved for sale in Europe and Mexico. We are not actively marketing our products for sale in Europe or Mexico; however, we have approval in both for improving uncorrected visual acuity by adjusting the LAL power to correct residual postoperative refractive error. We have one customer in Germany and one in Mexico, both of which have participated in our clinical studies and perform commercial cases. We are a Delaware corporation, headquartered in Aliso Viejo, California, and have one wholly owned subsidiary. Our subsidiary is located in Amsterdam, Netherlands, which itself has one wholly owned subsidiary in Germany and a registered branch in the United Kingdom. Our commercial strategy involves a “razor and razor blade” sales model, through which we aim to drive adoption of our RxSight system by increasing our installed base of LDDs, which enable consumable revenues from the sale of our LALs. We believe this commercial strategy over time may provide a degree of predictability in terms of our commercial growth and a consumable revenue stream from sales of our LALs. We are currently focused on driving adoption with surgeons performing a high volume of premium cataract procedures. According to the 2021 Premium Cataract Surgery Market Report (the “Market Scope 2021 Premium Report”), approximately 10,000 surgeons perform cataract surgeries in the United States and we estimate that as many as 3,000 surgeons performed approximately 70% to 80% of the premium procedures in the United States in 2021. We believe this provides an attractive and concentrated market opportunity addressable with a focused sales force. We currently employ a sales team that, as of March 31, 2022 includes 19 LDD sales personnel, 16 LAL sales personnel, and a group of approximately 73 clinical specialists, field service, customer service, and marketing personnel. Our sales personnel generally have relevant experience selling cataract surgery products, as well as medical device service and clinical experience. We believe increasing the number of sales representatives, practice development personnel and clinical 26 trainers will help facilitate further adoption of our products among existing customer accounts as well as broaden awareness of our products to new accounts. While we intend to initially focus our growing commercial efforts in the U.S., in the future, we may selectively pursue commercial expansion in Asia, Europe, Australia or other geographies with significant market opportunity for premium IOLs, leveraging our CE and FDA approvals. Our near-term research and development activities are focused on improving customer experience, expanding our indications for use, reducing manufacturing costs and lifecycle management and enhancements to the RxSight system to improve clinical outcomes to drive product adoption. We believe that over time, our adjustable lens solution can be used to address a broad range of cataract surgery patients, including those that would otherwise elect for a conventional cataract procedure today. Additional development and clinical studies that are designed to provide clinical evidence of the safety and effectiveness of our existing and future generations of products are also anticipated. Finally, we may in the future seek to acquire or invest in additional businesses, products or technologies that we believe could complement or expand our portfolio, enhance our technical capabilities or otherwise offer growth opportunities. On July 29, 2021, we completed our Initial Public Offering (“IPO”), which resulted in the issuance and sale of 8,248,549 shares of common stock, including 898,549 shares sold pursuant to the exercise of the underwriters’ over-allotment option at the IPO price of $16.00 per share. We received net proceeds of approximately $119.6 million from the IPO, after deducting underwriters’ discounts and commissions of $9.2 million and offering costs of $3.2 million. Prior to our IPO, our primary sources of capital had been private placements of preferred stock, a structured transaction with a strategic partner, debt financing and revenue from sales of our products. Since inception, we raised a total of $191.3 million in net proceeds from private placements of preferred stock, $120 million from a strategic partner, approximately $39.2 million in net proceeds from a credit facility, and approximately $11.3 million from issuance of common stock primarily from stock option exercises. As of March 31, 2022, we had cash and cash equivalents of $24.1 million, short-term investments of $119.7 million, long-term debt of $39.9 million and an accumulated deficit of $496.9 million. We generated net sales of $8.9 million and had a net loss of $17.6 million for the three months ended March 31, 2022, as compared to sales of $3.5 million and net loss of $6.8 million for the three months ended March 31, 2021. We have made, and intend to continue to make significant investments in our sales and marketing organization, primarily sales representatives, clinical applications specialists and technical service personnel to support new customers and upgrades and practice development personnel to facilitate adoption of use of our LALs among existing accounts. We will expand our marketing efforts with additional advertising and customer tools to expand their local advertising. We will also continue to make significant investments in research and development and clinical expenses to make enhancements in our current products. As a public company, we have incurred, and will continue to incur costs that we have not previously incurred or have previously incurred at lower rates, including increased costs for employee-related expenses, director and officer insurance premiums, audit and legal fees, investor relations fees, fees to members of our Board of Directors and expenses for compliance with public-company reporting requirements. Because of these and other factors, we expect to continue to incur substantial net losses and negative cash flows from operations for at least the next several years. Key business metrics We regularly review several operating and financial metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate our business plan and make strategic decisions. We believe the number of LDDs installed, LALs implanted and the number of doctors performing surgery with our products are indicators of our ability to drive adoption and generate revenue. We believe these are important metrics for our business. Due to our limited commercial history, all but eight months of which have occurred during the COVID-19 pandemic, we are not yet able to assess seasonality and other trends, and we will continue to evaluate our business in the future using these and other financial metrics as we observe trends in our business. We believe the number of LDDs sold in each quarter and our LDD installed base at the end of each period are important metrics as they represent an installed base into which we can sell our LALs. 27 2022 2021 Q1 Q1 Q2 Q3 Q4 LDDs Sold 40 13 25 31 45 Installed Base at End of Period 246 105 130 161 206 We believe the number of LALs sold (reported as implanted in a patient) in each quarter is an important metric indicative of adoption and utilization of our RxSight system. While an important metric, the COVID-19 pandemic and severe weather in the first quarter 2021 impacted trends in our business. The U.S. saw a resurgence in COVID-19 cases attributed to holiday travel and gatherings and severe weather in Texas and other southern states, resulting in reduced LAL sales for such period. During the quarter ended March 31, 2022, we saw increased LDD sales of 27 and increased LAL sales of 2,599 when compared to March 31, 2021 from strong adoption of our RxSight technology by practices and doctors combined with an increased LDD installed base. 2022 2021 Q1 Q1 Q2 Q3 Q4 LALs Sold 4,166 1,567 1,825 1,977 2,959 Components of results of operations Sales Our sales consists of the sale of LALs used in cataract surgeries, the LDDs for delivering light to the LALs to adjust the lens post-surgery, as needed, and service and accessories. Revenue is derived from sales of products primarily in the U.S. and sales to a single customer in each of Germany and Mexico. Customers are primarily comprised of ophthalmic practices (LDD sales) and ambulatory surgery centers (LAL sales). We expect revenue to increase in absolute dollars as we expand our sales organization and sales territories, add customers, expand the base of doctors that are trained to use our products, and expand awareness of our products including our ActivShield™ Technology with new and existing customers and as doctors perform more procedures using our products. LALs are held at customer sites on consignment. The single performance obligation is satisfied, and revenue is recognized for LALs upon customer notification that the LALs have been implanted in a patient. Our LDD contracts contain multiple performance obligations bundled into one transaction price, with all obligations generally satisfied within one year. The LDD capital asset and related components revenue is recognized upon installation and customer acceptance, training is recognized upon completion of training by at least one doctor, and the initial warranty and service agreement are recognized ratably over the service period. After the first year, service contracts can be purchased separately on a standalone basis. The Company recorded contract liabilities of $622,000 and $540,000 related to such service agreements as of March 31, 2022 and December 31, 2021, respectively. Revenue for such service agreements will be recognized over the term of each contract. For the three months ended March 31, 2022 and 2021, sales from contracts with customers consisted of the following: Three Months Ended March 31, 2022 2021 (in thousands) LDD (including training) $ 4,569 $ 1,837 LALs 4,105 1,529 Accessories and Service Warranty 268 118 $ 8,942 $ 3,484 For the three months ended March 31, 2022 and 2021 we did not have any one customer who individually accounted for more than 10% of revenue. Cost of sales Cost of sales consists of materials, labor and manufacturing overhead internally to produce the Company’s products as well as the cost of shipping and handling. Overhead costs include the cost of quality assurance, material procurement, inventory control, facilities, equipment and operations supervision and management, including stock-based compensation. Cost of sales also includes depreciation expense for production equipment and certain direct 28 costs such as shipping costs and royalty and license fee expense. Shipping costs billed to customers are included in sales. We expect cost of sales to increase in absolute dollars as our revenue grows and more of our products are sold. We calculate gross margin as gross profit/loss divided by sales. Our gross margin has been and will continue to be affected by a variety of factors, including average selling prices, product sales mix, production and ordering volumes, manufacturing costs, product yields, headcount and cost-reduction strategies. Our gross margin could fluctuate from quarter to quarter as we introduce new products, and as we adopt new manufacturing processes and technologies. Our LDD, as is typical of many medical device capital equipment products, has a low gross margin, as the material cost of the LDD is significant, representing over 60% of the total cost to manufacture. In addition, we do not mark up our LDD substantially, as LDDs, as sold, generate LAL procedures. Our LAL gross margin is higher, with low material cost but high fixed overhead costs. As our manufacturing volume of the LAL increases, we expect the gross margin may improve significantly. Operating expenses Selling, general and administrative expenses Selling, general and administrative, or SG&A, expenses consist primarily of personnel-related expenses, including wages, incentive bonuses, stock-based compensation and benefits related to administrative, selling and marketing functions, education programs for doctors, commercial operations and analytics, finance, information technology and human resource functions. Other SG&A expenses include sales commissions, travel expenses, promotional activities, marketing initiatives, market research and analysis, conferences and trade shows, training for doctors, professional services fees such as legal, patent registration costs, accounting, audit and tax fees, board of directors’ expenses , insurance costs, general corporate expenses and facilities-related expenses. We expect SG&A expenses to continue to increase in absolute dollars as we expand our sales and marketing organization and infrastructure to both drive and support the anticipated growth in revenue and due to additional legal, accounting audit and tax fees, insurance and other expenses associated with being a public company. Research and development expenses Research and development expenses consist of expenses incurred in performing research and development and engineering activities for new products and technology, clinical studies and regulatory submissions and compliance. The expenses include personnel-related expenses, including wages, incentive bonuses, stock-based compensation and benefits, costs incurred at clinical trial sites, regulatory and manufacturing engineering costs, including those related to various laboratory and research equipment and supplies, expense of pre-approved inventory utilized for clinical trial and research purposes, costs incurred in the development of manufacturing processes in excess of capitalizable value, fees paid to consultants and contract clinical organizations and direct FDA related costs and costs related to FDA premarket approval submission preparation. Research and development expenses are expensed as incurred. We expect R&D expenses as a percentage of revenue to vary over time depending on the level and timing of our new product development efforts, as well as our clinical development, clinical trials and registries and other related activities. Change in fair value of warrants Change in fair value of warrants consists of gains and losses resulting from the remeasurement of the fair value of our preferred stock warrant liabilities at each balance sheet date. We continued to record adjustments to the estimated fair value of the preferred stock warrants until the conversion of the underlying convertible preferred stock into common stock which occurred immediately prior to the completion of our IPO in July 2021. There was no change in fair value of warrants for the three months ended March 31, 2021. Interest expense Interest expense consists primarily of interest incurred on our outstanding indebtedness and non-cash interest related to the amortization of debt discount and issuance costs associated with our indebtedness. Interest and other income, net Interest and other income, net consists primarily of interest income earned on our cash and cash equivalents. 29 Comprehensive loss All components of comprehensive loss, including net loss, are reported in the condensed consolidated financial statements in the period in which they are recognized. Comprehensive loss is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources, including unrealized gains and losses on short-term investments and foreign currency translation adjustments. Results of operations Comparison of the three months ended March 31, 2022 and 2021 The following table summarizes our results of operations for the three months ended March 31, 2022 and 2021 together with the dollar increase or decrease and percentage change in those items. Three Months Ended March 31, Change (in thousands, except share amounts, per-share data and percentages) 2022 2021 ($) (%) Sales $ 8,942 $ 3,484 $ 5,458 156.6 % Cost of sales 5,181 2,365 2,816 119.1 Gross profit $ 3,761 $ 1,119 $ 2,642 236.1 % Operating expenses: Selling, general and administrative 13,620 5,611 8,009 142.8 Research and development 6,719 6,643 76 1.1 Total operating expenses 20,339 12,254 8,085 66.0 Loss from operations $ (16,578 ) $ (11,135 ) $ (5,443 ) 48.9 % Other income (expense), net: Expiration of warrant — 5,018 (5,018 ) (100.0 )% Interest expense (1,060 ) (698 ) (362 ) 51.9 Interest and other income 46 17 29 172.0 Total other (expense) income, net: (1,014 ) 4,337 (5,351 ) (123.4 )% Loss before income taxes (17,592 ) (6,798 ) (10,794 ) 158.8 Income tax expense 4 7 (3 ) (46.5 ) Net loss $ (17,596 ) $ (6,805 ) $ (10,791 ) 158.6 % Other comprehensive income (loss) Unrealized (loss) income on short-term investments (74 ) 7 (81 ) (1,156.9 ) Foreign currency translation loss (4 ) (4 ) 0 (2.4 ) Total other comprehensive (loss) income (78 ) 3 (81 ) (2,696.3 ) Comprehensive loss $ (17,674 ) $ (6,802 ) $ (10,872 ) 159.8 % Sales Sales increased by $5.4 million, or 156.6%, to $8.9 million for the three months ended March 31, 2022, from $3.5 million for the three months ended March 31, 2021. The increase in total sales was primarily due to sales of 2,599 more LALs and 27 more LDDs from strong adoption of our RxSight technology by practices and doctors combined with an increased LDD installed base. Cost of sales Cost of sales increased by $2.8 million, or 119.1%, to $5.2 million for the three months ended March 31, 2022, from $2.4 million for the three months ended March 31, 2021, primarily due to the increase in the number of LALs and LDDs sold during the period. Gross margin increased to 42.1% in the three months ended March 31, 2022, from 32.1% for the three months ended March 31, 2021 due to improved operating leverage. 30 Selling, general and administrative expenses Selling, general and administrative expenses increased by $8.0 million, or 142.8%, to $13.6 million for the three months ended March 31, 2022, from $5.6 million for the three months ended March 31, 2021. This increase was primarily attributable to an increase in selling and marketing personnel costs of $5.8 million mainly due to increased salaries, sales commissions, incentive bonuses and employee benefits of $3.4 million, $0.5 million of increased stock-based compensation expense due to increased headcount, $1.0 million in additional post market study costs, new customer acquisition costs and IPO related costs and increased travel costs of $0.7 million due to travel restrictions during the first quarter of 2021 due to COVID-19 when compared to the three months ended March 31, 2021. General and administrative expenses increased by $2.2 million due primarily to $1.0 million in increased costs related to operating as a public company, increased personnel costs of $0.5 million due to increased salaries, reinstatement of incentive bonuses and employee benefits due to increased headcount and $0.8 million of increased stock-based compensation expense due to increased headcount as well as temporary reductions in salaries that were in place for the three months ended March 31, 2021. Research and development expenses Research and development expenses increased by $0.1 million, or 1.1%, to $6.7 million for the three months ended March 31, 2022, from $6.6 million for the three months ended March 31, 2021. This increase was primarily attributable to increased clinical study costs. Other income (expense), net Other income (expense), net, decreased by $5.3 million to a loss of $1.0 million for the three months ended March 31, 2022 from income of $4.3 million for the three months ended March 31, 2021 due to the expiration of the warrants on March 31, 2021 of $5.0 million and an increase in interest expense of $0.4 million on our term loan. Liquidity and capital resources Sources of liquidity We have incurred significant operating losses and negative cash flows from operations since our inception, and we anticipate that we will incur significant losses for at least the next several years. As of March 31, 2022, we had cash, cash equivalents and short-term investments of $143.8 million. For the three months ended March 31, 2022, and 2021, our loss from operations was $16.6 million and $11.1 million, respectively. We had an accumulated deficit of $496.9 million as of March 31, 2022. Prior to our IPO, which we completed in July 2021, our primary sources of capital were private placements of preferred stock, a structured transaction with a strategic partner, debt financing and from sales of our products. On July 29, 2021, we completed our IPO which resulted in the issuance and sale of 8,248,549 shares of common stock at a price of $16.00 per share. The aggregate net proceeds from the offering, inclusive of an additional 898,549 common shares sold pursuant to the partial exercise of the underwriters’ over-allotment option, after deducting underwriting discounts and commissions and other offering expenses, were approximately $119.6 million. On July 29, 2021, we restated our Certificate of Incorporation and bylaws which provide for, among other things, that our authorized capital stock consist of 900,000,000 shares of common stock, par value $0.001 per share, and 100,000,000 shares of convertible preferred stock, par value $0.001 per share. The restated certificate defines the voting rights, dividends, liquidation, rights and preferences of each class of stock. Term Loan On May 3, 2022, we entered into a Second Amendment the (“Second Amendment”) to our existing loan and security agreement (as amended through the Second Amendment, the (“Amended Term Loan”) dated as of October 29, 2020 (“Term Loan”), with Oxford Finance LLC, (“Oxford Finance”), as the lender and collateral agent thereunder. The Amended Term Loan increased the loan and security agreement to $60.0 million, of which $40.0 million was fully funded as of May 3, 2022. Under the Amended Term Loan, we may borrow an additional term loan of up to $10.0 million through June 30, 2023, provided we satisfy the applicable drawdown conditions and achieve trailing twelve-month sales revenues of not less than $40,000,000 for the measurement period ending February 28, 2023, the measurement period ending March 31, 2023 or the measurement period ending April 30, 2023. Subject to the terms and conditions of the Amended Term Loan, we may also borrow another term loan of up to $10.0 million through September 30, 2023, provided we satisfy the applicable drawdown conditions and achieve 31 trailing twelve-month sales revenues of not less than $50.0 million for the measurement period ending May 31, 2023, the measurement period ending June 30, 2023 or the measurement period ending July 31, 2023. The Amended Term Loan bears interest at a rate per annum equal to the greater of (i) 9.25% or (ii) 1-Month Term SOFR (or, if greater, 0.16%) plus an applicable margin of 9.09%. If an event of default under the Amended Term Loan is continuing, additional interest of 5% applies. The Amended Term Loan extends the maturity date of the loan and security agreement, which was due to expire on October 1, 2025, to February 1, 2027. We refer to our $60 million Amended Term Loan as our credit facility. The Amended Term Loan is secured by substantially all of our personal property other than our intellectual property, but includes any accounts receivable, other amounts owed and any proceeds of intellectual property. We also entered into a negative pledge arrangement with the collateral agent and lenders where we agreed not to encumber any of our intellectual property. The Amended Term Loan also includes certain customary representations and warranties, affirmative and negative covenants, and events of default, including a financial performance to plan covenant that requires us to achieve certain minimum net sales revenues, measured on a trailing twelve month basis, as set forth in the Second Amendment. The Amended Term Loan requires 36 months of interest-only payments, followed by 22-months of amortization. If we are in compliance with its performance to plan covenant through April 1, 2025 and have not provided an IP lien election notice before May 1, 2025, the interest-only period is extended by 12 months, and the amortization period is reduced to nine months. Payments are due on the first day of each month in arrears. All unpaid amounts under the Amended Term Loan mature on February 1, 2027. We may elect to prepay the loans under the credit facility at any time in full or in part; however, we may only elect to prepay the loans in part once, in an amount not less than $5.0 million. Any amounts prepaid may not be subsequently reborrowed. Under the Amended Term Loan, a final payment (the “Final Payment”) will be due at the earlier of the maturity date, acceleration of the loans, or a voluntary or mandatory prepayment of the loans, in an amount equal to (a) if the Final Payment is due on or after January 1, 2022 through and including October 31, 2022, three percent (3.00%) of the original principal amount (or, in the case of a partial prepayment, the amount of principal to be prepaid) of the loans, (b) if the Final Payment is due on or after November 1, 2022 through and including October 31, 2023, four percent (4.00%) of the original principal amount (or, in the case of a partial prepayment, the amount of principal to be prepaid) of the loans, and (c) if the Final Payment is due on or after November 1, 2023, five percent (5.00%) of the original principal amount (or, in the case of a partial prepayment, the amount of principal to be prepaid) of the loans. The Final Payment is being accreted to the carrying value of the debt as a debt premium and interest expense over the life of the loan using the effective interest method. We are required to pay an amendment fee of $125,000 to the lenders that is directly attributable to execution of the Amended Term Loan transaction. These issuance costs will be recorded as a discount to the carrying amount of the debt and will be amortized to interest expense over the effective term of the debt using the effective interest method. The loans may be accelerated by Oxford Finance in the event of a default. A copy of the Second Amendment is attached hereto as Exhibit 10.3. The foregoing description of the Second Amendment and Amended Term Loan do not purport to be complete and are qualified in their entirety by reference to the Second Amendment. Funding requirements Our future liquidity and capital funding requirements will depend on numerous factors, including: • our sales growth; • our research and development efforts; • our sales and marketing activities; • our ability to raise additional funds to finance our operations; • the outcome, costs and timing of any clinical trial results for our current or future products; • the emergence and effect of competing or complementary products; • our ability to maintain, expand, enforce and defend our intellectual property portfolio, including the amount and timing of any payments we may be required to make, or that we may receive, in connection with the licensing, filing, prosecution, maintenance, defense and enforcement of any patents or other intellectual property rights; 32 • our ability to retain our current employees and the need and ability to hire additional management, sales, research and development, scientific and customer support personnel; • the terms and timing of any collaborative, licensing or other arrangements that we have or may establish; • debt service requirements; • operating and finance lease payments for our facilities; • the extent to which we acquire or invest in businesses, products or technologies; and • the impact of the COVID-19 pandemic. Based on our current planned operations, we expect that our current cash, cash equivalents and short-term investments will be sufficient to fund our operations for the next 12 months after the date our most recent financial statements were issued. Our ability to continue as a going concern is dependent upon our ability to successfully secure sources of financing from equity or debt securities, loans or collaborative agreements and ultimately achieve profitable operations. In the long-term it is likely we will require additional financing from debt or equity to satisfy our liquidity requirements, fund working capital and pay our obligations. There can be no assurance that we will be successful in acquiring additional funding at levels sufficient to fund our operations or on terms favorable to us, if at all. If adequate funds are not available on acceptable terms when needed, we may be required to significantly reduce operating activities, which may have a material adverse effect on our business and/or results of operations and financial condition. If we do raise additional capital through public or private equity or convertible debt offerings, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our existing stockholders’ rights. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. Additional capital may not be available on reasonable terms, or at all. See the section of this Quarterly Report on Form 10-Q titled “Risk Factors” for additional risks associated with our substantial capital requirements. Summary statement of cash flows The following table sets forth the primary sources and uses of cash, cash equivalents, and restricted cash for each of the periods presented below: For the three months ended March 31, (unaudited) 2022 2021 Net cash (used in) provided by: Operating activities $ (14,985 ) $ (10,252 ) Investing activities 14,859 14,503 Financing activities (98 ) 6,144 Effect of foreign exchange rate on cash, cash equivalents and restricted cash (5 ) (4 ) Net (decrease) increase in cash, cash equivalents and restricted cash $ (229 ) $ 10,391 Cash used in operating activities Net cash used in operating activities for the three months ended March 31, 2022, was $15.0 million, consisting primarily of a net loss of $17.6 million and a net increase in operating assets and a net decrease in operating liabilities of $1.2 million, which was partially offset by non-cash stock-based compensation of $2.6 million and depreciation and amortization of $1.0 million. Net cash used in operating activities for the three months ended March 31, 2021, was $10.3 million, consisting primarily of net loss of $6.8 million, a non-cash gain on expiration of an unexercised warrant of $5.0 million, an increase in operating assets and liabilities of $0.7 million, offset by non-cash stock-based compensation of $1.2 million and depreciation and amortization of $1.0 million. 33 Cash used in investing activities Net cash provided by investing activities for the three months ended March 31, 2022, was $14.9 million, consisting primarily of net maturities of short-term investments of $15.2 million. Net cash provided by investing activities for the three months ended March 31, 2021, was $14.5 million, consisting of net maturities of short-term investments of $15.0 million, offset by net purchases of property and equipment of $0.5 million. Cash from financing activities Net cash used in financing activities for the three months ended March 31, 2022, was $0.1 million, primarily consisting of payments for employee taxes related to stock compensation of $0.4 million offset by proceeds from stock options exercised of $0.3 million. Net cash provided by financing activities for the three months ended March 31, 2021, was $6.1 million, consisting primarily of proceeds from a draw on the Company’s term loan of $5.0 million and proceeds from stock options exercised of $1.2 million. Contractual obligations and commitments We have a standby letter of credit, expiring September 30, 2024, issued by a financial institution as a required security for one operating lease. The aggregate amount of the letter of credit was $0.3 million as of March 31, 2022 and December 31, 2021. Critical accounting policies, significant judgments and use of estimates Our management’s discussion and analysis of financial condition and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America, (“GAAP”). The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions, which may affect our future financial statement presentation, financial condition, results of operations and cash flows. Our significant accounting policies are more fully described in the notes to our financial statements included in our Annual Report on Form 10-K filed with the SEC on March 8, 2022. We believe that the accounting policies we use are critical to the process of making significant judgments and estimates in the preparation of our financial statements and understanding and evaluating our reported financial results. There were no material changes to our critical accounting policies or in the methodology used for estimates from those described in “Management's Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K filed with the SEC on March 8, 2022. We believe that the accounting policies we use are critical to the process of making significant judgments and estimates in the preparation of our financial statements and understanding and evaluating our reported financial results. Indemnification agreements We enter into standard indemnification arrangements in the ordinary course of business. Pursuant to these arrangements, we indemnify, hold harmless and agree to reimburse the indemnified parties for losses suffered or incurred by the indemnified party, in connection with any trade secret, copyright, patent or other intellectual property infringement, misappropriation or other violation claim by any third party with respect to its technology. The term of these indemnification agreements is generally perpetual any time after the execution of the agreement. The maximum potential amount of future payments we could be required to make under these arrangements is not determinable. We have never incurred costs to defend lawsuits or settle claims related to these indemnification agreements. As a result, we believe the fair value of these agreements is minimal. 34 Recent accounting pronouncements See the section titled “Summary of Significant Accounting Policies—Recent Accounting Pronouncements” in Note 2 to our financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information. Emerging growth company and smaller reporting company status We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As such, we are eligible for exemptions from various reporting requirements applicable to other public companies that are not emerging growth companies, including, but not limited to not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation, and an exemption from the requirements to obtain a non-binding advisory vote on executive compensation or golden parachute arrangements. We have elected to take advantage of certain of the reduced disclosure obligations in this Quarterly Report on Form 10-Q and may elect to take advantage of other reduced reporting requirements in our future filings with the SEC. As a result, the information that we provide to our stockholders may be different than you might receive from other public reporting companies in which you hold equity interests. The JOBS Act permits an “emerging growth company” such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. However, we have chosen to irrevocably “opt out” of such extended transition period, and as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. We will remain an emerging growth company until the earliest of: (i) the last day of the fiscal year following the fifth anniversary of the consummation of our initial public offering (i.e. December 31, 2026); (ii) the last day of the fiscal year in which we have total annual gross revenue of at least $1.07 billion; (iii) the last day of the fiscal year in which we are deemed to be a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock held by non-affiliates exceeded $700.0 million as of the last business day of the second fiscal quarter of such year; or (iv) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period. We are also a “smaller reporting company” as defined in the Exchange Act. We may continue to be a smaller reporting company even after we are no longer an emerging growth company. We may take advantage of certain of the scaled disclosures available to smaller reporting companies and will be able to take advantage of these scaled disclosures for so long as our voting and non-voting common stock held by non-affiliates is less than $250.0 million measured on the last business day of our second fiscal quarter, or our annual revenue is less than $100.0 million during the most recently completed fiscal year and our voting and non-voting common stock held by non-affiliates is less than $700.0 million measured on the last business day of our second fiscal quarter. COVID-19 pandemic We are subject to the continuing risks related to the public health crises, primarily the global pandemic associated with COVID-19. The COVID-19 outbreak has negatively impacted and may continue to negatively impact our operations and revenues and overall financial condition by decreasing the number of our RxSight systems sold. The number of our RxSight systems sold, similar to other ophthalmic procedures, has decreased as health care organizations globally have prioritized the treatment of patients with COVID-19. For example, in the United States, governmental authorities have recommended, and in certain cases required, that elective, specialty and other procedures and appointments, including those related to cataract treatments, be suspended or canceled to avoid non-essential patient exposure to medical environments and potential infection with COVID-19 and to focus limited resources and personnel capacity toward the treatment of COVID-19. These measures and challenges may continue for the duration of the pandemic, which is uncertain, and will reduce our revenue and continue to interrupt the commercialization of our products while the pandemic continues. Further, once the pandemic subsides, we anticipate there will be a substantial backlog of patients seeking appointments with doctors and surgeries to be performed at ophthalmic practices and ambulatory surgery centers relating to a variety of medical conditions, and as a result, patients seeking to receive, or who have received, our LAL will have to navigate limited provider capacity. We believe this limited provider capacity could have an adverse effect on our sales following the end of the pandemic. 35 As we continue to actively advance our clinical, discovery and research programs, we are in close contact with the third parties we engage with, who are primarily located in the United States, and are assessing the impact of the COVID-19 pandemic on each of our programs, expected timelines and costs on an ongoing basis. In light of ongoing developments relating to the COVID-19 pandemic, the focus of healthcare providers on fighting the virus, and consistent with the FDA’s industry guidance for conducting clinical trials, we and our contract research organizations have made certain adjustments to the operation of our clinical trials in an effort to ensure the monitoring and safety of patients and minimize risk to trial integrity during the pandemic and generally. Further, the expansion of global lead times related to the COVID-19 pandemic, has resulted in the lack of availability of raw materials, including semiconductors, computers, monitors electronic parts, metals, packaging, adhesives, resins and subcontract painted components. Certain suppliers have passed on higher prices, surcharges and expedited shipping fees to defray the higher commodity prices they are paying due to short supply. Our suppliers may cease producing the components we purchase from them or otherwise decide to cease doing business with us. Any supply interruption from our suppliers or failure to obtain additional suppliers for any of the components or subcomponents used in our products would limit our ability to manufacture our current and new products and could have a material adverse effect on our business, financial condition and results of operations. While the potential economic impact brought by and the duration of COVID-19 may be difficult to assess or predict, the widespread pandemic has resulted in, and may continue to result in, significant disruption of global financial markets, reducing our ability to access capital, which could in the future negatively affect our liquidity. We expect any new shelter-in-place policies and restrictions on elective surgical procedures worldwide to have a substantial near-term impact on our revenue. During the COVID-19 pandemic, our customers, including doctors, have experienced financial hardship and some of them may not fully recover. This could lead to some of these customers temporarily or permanently shutting down, filing for bankruptcy or being acquired by larger health systems, leading to reduced procedures and/or additional pricing pressure on our products. The COVID-19 pandemic has also resulted in a significant increase in unemployment in the United States which may continue even after the pandemic. The occurrence of any such events may lead to reduced disposable income and access to health insurance which could adversely affect the number of RxSight systems sold after the pandemic has ended. ITEM 3. QUANTITATIVE AND QUALITAT IVE DISCLOSURES ABOUT MARKET RISK Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, we are not required to provide disclosure under this item.