UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-K
(Mark One)
☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 30, 2023
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission File Number 0-27598
IRIDEX CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
77-0210467
(I.R.S. Employer Identification No.)
1212 Terra Bella Avenue
Mountain View, CA
(Address of principal executive offices)
(650) 940-4700
(Registrant’s telephone number, including area
code)
94043
(Zip Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, par value $0.01 per share
Trading Symbol
IRIX
Name of Exchange on Which Registered
Nasdaq Global Market
Securities registered pursuant to Section 12(g) of the Act:
None.
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act of 1933. Yes ☐ No ☑
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 (the
“Exchange Act”). Yes ☐ No ☑
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12
months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑
No ☐
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an
emerging growth company. See the definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule
12b-2 of the Exchange Act.:
Large accelerated filer
Non-accelerated filer
Emerging growth company
☐
☑
☐
Accelerated filer
Smaller reporting company
☐
☑
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control
over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit
report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing
reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by
any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
The aggregate market value of the voting common equity held by non-affiliates of the Registrant was approximately $28,380,052 as of July 1, 2023, the last
business day of the Registrant’s most recently completed second fiscal quarter, based on the closing price reported for such date on the Nasdaq Global Market. The
registrant did not have any non-voting common equity outstanding. For purposes of this disclosure, shares of common stock held by each executive officer and director
and by each holder of 5% or more of the outstanding shares of common stock have been excluded from this calculation, because such persons may be deemed to be
affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.
As of March 15, 2024, Registrant had 16,252,813 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Certain parts of the Proxy Statement for the Registrant’s 2024 Annual Meeting of Stockholders (the “Proxy Statement”) are incorporated by reference into Part
III of this Annual Report on Form 10-K. The 2024 Proxy Statement will be filed with the U.S. Securities and Exchange commission within 120 days after the end of
the fiscal year to which this report relates.
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which statements
involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future
financial or operating performance. In some cases, you can identify forward-looking statements because they contain words
such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,”
“believes,” “estimates,” “predicts,” “potential,” or “continue” or the negative of these words or other similar terms or
expressions that concern our expectations, strategy, plans, or intentions. Forward-looking statements contained in this Annual
Report on Form 10-K include, but are not limited to, statements about:
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our future financial performance, including our expectations regarding our revenue, cost of revenue, gross profit
or gross margin, operating expenses (including changes in sales and marketing, research and development and
general and administrative expenses), and our ability to achieve and maintain future profitability;
macroeconomic conditions, including impact of global pandemics or other public health emergencies or
outbreaks, foreign exchange fluctuation, inflation concerns, heightened interest rates and recessionary fears and
uncertainty in the global banking and financial services market, on our business and results of operations;
customer acceptance and purchase of our existing products and new products;
our ability to maintain and expand our customer base;
competition from other products;
the impact of foreign currency exchange rate and interest rate fluctuations on our results and sales;
the pace of change and innovation in the markets in which we participate and the competitive nature of those
markets;
our business strategy and our plan to build our business;
our ability to effectively manage our growth;
the success of our strategic partnership with Topcon Corporation;
our costs of manufacturing and reliance on third party manufacturers;
our ability to forecast and meet product demand;
our ability to discover defects in our products and systems;
our international expansion and sales strategy;
our operating results and cash flows;
our beliefs and objectives for future operations;
our relationships with third parties;
our ability to maintain, protect, and enhance our intellectual property rights;
our ability to maintain, protect, and enhance our information technology systems and data;
our ability to maintain our facilities in good working order;
our ability to recover the carrying value of goodwill;
the impact of expensing stock options and other equity awards;
our ability to successfully defend litigation brought against us;
our ability to indemnify our directors and officers;
our ability to repay indebtedness and have indebtedness forgiven;
our ability to successfully expand in our existing markets and into new markets;
sufficiency of cash to meet cash needs for at least the next 12 months;
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our ability to comply with laws, policies, and regulations that currently apply or become applicable to our
business both in the United States and internationally;
our ability to attract and retain qualified employees and key personnel, and source suppliers;
our ability to raise additional capital;
the future trading prices of our common stock; and
our ability to pay dividends in the future.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject.
These statements are based upon information available to us as of the date of this Annual Report on Form 10-K, and while we
believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and
our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially
available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon
these statements.
You should not rely upon forward-looking statements as predictions of future events. We have based the forward-
looking statements contained in this Annual Report on Form 10-K primarily on our current expectations and projections
about future events and trends that we believe may affect our business, financial condition, results of operations, and
prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and
other factors described in the section titled “Risk Factors” and elsewhere in this Annual Report on Form 10-K. Moreover, we
operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and
it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements
contained in this Annual Report on Form 10-K. We cannot assure you that the results, events, and circumstances reflected in
the forward-looking statements will be achieved or occur, and actual results, events, or circumstances could differ materially
from those described in the forward-looking statements.
The forward-looking statements made in this Annual Report on Form 10-K relate only to events as of the date on which
such statements are made. We undertake no obligation to update any forward-looking statements made in this Annual Report
on Form 10-K to reflect events or circumstances after the date of this Annual Report on Form 10-K or to conform such
statements to actual results or revised expectations, except as required by law. We may not actually achieve the plans,
intentions, or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our
forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions,
mergers, dispositions, joint ventures, or investments we may make.
As used in this Annual Report on Form 10-K, the terms “Company,” “Iridex,” “we,” “us” and “our” refer to IRIDEX
Corporation, and its consolidated subsidiaries.
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Table of Contents
Part I
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 1C. Cybersecurity
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
Part II
Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters, and Issuer Purchases of
Equity Securities
Item 6. [Reserved]
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Part III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accountant Fees and Services
Part IV
Item 15. Exhibits and Financial Statement Schedules
Signatures
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Item 1. Business
Overview
PART I
IRIDEX Corporation (“Iridex”) is an ophthalmic medical technology company focused on the development and
commercialization of breakthrough products and procedures used to treat sight-threatening eye conditions, including
glaucoma and retinal diseases.
Our propriety MicroPulse® Technology and Endpoint Management™ Technology are used for the treatment of
glaucoma and retina disorders. Both technologies are offered as optional treatment modes in select laser consoles in addition
to the standard continuous-wave (“CW”) treatment mode. They allow low-energy, subvisible, tissue-sparing laser therapy by
different means: MicroPulse technology uses short, microsecond-long laser pulses that allow tissue to cool between pulses
giving physicians finer control of thermal elevation to minimize tissue damage. Endpoint Management technology uses a
delivery algorithm to titrate the laser energy. CW laser photocoagulation can stabilize vision over the long term but can also
result in varying degrees of vision loss. Both MicroPulse and Endpoint Management technologies have demonstrated clinical
efficacy with a safer profile compared to standard high-energy CW laser for the treatment of both retinal diseases and
glaucoma.
Our products consist of laser consoles, delivery devices and consumable probes.
Our laser consoles consist of the following product lines:
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Glaucoma – Our primary glaucoma console line is the Cyclo G6® laser system with MicroPulse technology. In
addition, our medical retina consoles have features supporting glaucoma laser treatments.
Medical Retina – Our medical-retina product line includes our portable IQ 532® and IQ 577® laser systems with
MicroPulse technology; and the Pattern Scanning Laser (“PASCAL”) System, an integrated workstation with
Endpoint Management technology and MicroPulse technology. These systems are ideal for multispecialty
practices because these lasers also can be used to treat glaucoma, i.e., single-spot laser trabeculoplasty using
MicroPulse technology, iridotomy, and iridectomy using the IQ lasers; and pattern scanning laser trabeculoplasty
(PSLT) using the PASCAL laser system.
Surgical Retina – Our surgical-retina product line includes our OcuLight® TX and OcuLight® SLx (with
MicroPulse technology) laser photocoagulation systems. These systems are often used in vitrectomy procedures,
which are used to treat proliferative diabetic retinopathy, macular holes, retinal tears and detachments.
Our business generates recurring revenues through sales of consumable products, predominantly single-use laser probe
devices and other instrumentation, as well as repair, service and extended service contracts for our laser systems.
Our laser probes consist of the following product lines:
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Glaucoma – Probes used in our glaucoma product line include our patented single-use delivery devices -
MicroPulse P3®, G-Probe®, and G-Probe Illuminate®.
Surgical Retina – Probes used in our surgical retina product line include our family of single-use EndoProbe®
handpieces.
Ophthalmologists typically use our laser systems in hospital operating rooms and ambulatory surgical centers, as well
as their offices and clinics. In operating rooms and ambulatory surgical centers, ophthalmologists use our laser systems with
either an indirect laser ophthalmoscope or a single-use consumable probe, including MicroPulse P3®, G-Probe® and G-Probe
Illuminate® delivery devices, and EndoProbe handpieces. In the offices and clinics, ophthalmologists use our laser systems
with either an indirect laser ophthalmoscope or a slit-lamp adapter.
In 2023 and 2022, our products were sold in the United States and Germany predominantly through a direct sales force
and internationally (aside from Germany, Italy, UK (Glaucoma), India, and other smaller markets) primarily through Topcon
Corporation (“Topcon”) and other independent distributors. Total revenues in 2023 and 2022 were $51.9 million and $57.0
million, respectively. We generated net losses of $9.6 million and $7.5 million in 2023 and 2022, respectively.
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IRIDEX Corporation was incorporated in California in February 1989 as IRIS Medical Instruments, Inc. In January
1996, we changed our name to IRIDEX Corporation and reincorporated in Delaware. Our executive offices are located at
1212 Terra Bella Avenue, Mountain View, California 94043-1824, and our telephone number is (650) 940-4700. We can also
be reached at our website at www.Iridex.com; however, the information on, or that can be accessed through, our website is
not part of this report.
Impact of Macroeconomic Conditions to our Business
Current macroeconomic conditions present challenges that can affect capital equipment purchasing demand and timing,
including recessionary fears, inflation concerns, heightened interest rates as a result of government actions to combat
inflation, and uncertainty in the global banking and financial services market, as well as other geopolitical developments,
have impacted and may continue to impact business spending and the economy as a whole. As a result, we have seen
customers extend their purchasing decisions. We have also experienced some demand softness due to pricing effects from the
strength of the U.S. dollar that have impacted and may continue to impact our operations.
The macroeconomic conditions on our business and operations remains uncertain, and it is not possible for us to predict
the duration and extent to which they will affect our business, future results of operations, and financial condition.
For more information on risks associated with the current macroeconomic conditions, see the section titled “Risk
Factors” in Item 1A of Part I. For more information on the impact of macroeconomic conditions, on our business, see the
section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operation” in Item 7 of Part II.
Our Market Opportunity
The global ophthalmology market is experiencing significant growth, driven by the aging population and the increasing
prevalence of chronic diseases. Our focus is on the glaucoma and retina disease markets, which represent a significant portion
of this market.
Glaucoma
Glaucoma is a progressive, chronic disease most recognized by high intraocular pressure (“IOP”). Elevated IOP is
often caused by too much aqueous humor (the thin watery fluid that fills the front of the eye) being produced, not enough
being drained, or a combination of both. It is a leading cause of blindness worldwide, with an estimated 80-100 million
candidates for treatment. Although reducing IOP is the only proven treatment, the traditional options of pharmaceuticals and
incisional surgery have significant shortcomings, such as poor patient compliance, financial burden, impact to lifestyle, and
side-effects more invasive than MP laser treatments. These limitations create an unmet medical need in the management of
glaucoma patients. Given these limitations, there is a growing interest in alternative approaches that can provide comparable
or better outcomes with a better safety profile at a lower cost. Our company is poised to address this unmet medical need and
capture a significant market opportunity.
Medical Retina
Our medical retina business is focused on providing innovative and effective treatments for retinal disorders, which if
left untreated, can lead to vision loss and blindness. It is estimated that 463 million people worldwide had diabetes in 2019,
and this number is expected to increase to 578 million by 2030 and as many as 700 million by 2045, according to the
International Diabetes Federation. Previous clinical studies have shown that 28.5% of diabetic patients may develop some
form of diabetic retinopathy.
For some retinal disorders, traditional treatments such as standard CW laser photocoagulation and injected
pharmaceuticals have significant shortcomings. CW laser photocoagulation can stabilize vision over the long term but can
also result in varying degrees of vision loss, while pharmaceuticals require repeated painful injections that may cause side
effects including an increased risk of eye infections. Furthermore, the repeated injections are demanding on physicians,
patients, and the healthcare system in terms of time and cost. As a result, there is a growing interest in alternative approaches
that can provide comparable or better patient outcomes with an improved safety profile at lower costs. Our medical retina
business is dedicated to developing and providing such innovative and effective treatments for retinal diseases.
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Our Solution
Our traditional laser technology was developed to perform laser photocoagulation by using a mode that delivers
continuously-on laser light, which is referred to as CW mode. Laser photocoagulation generates a local healing response and
has been demonstrated to be a safe and effective therapy with long-term benefits for certain ophthalmic procedures. However,
use of the CW mode typically leads to local tissue damage and can cause loss of visual function, which limits the applications
of the technology.
Our solutions build on traditional CW laser and innovative technology, such as:
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Our proprietary MicroPulse technology chops a CW laser beam into an envelope of repetitive short “ON” pulses
with longer “OFF” periods that allow tissue to cool between pulses. CW laser is analogous to holding your hand
still over a candle flame; your hand will quickly burn. MicroPulse is analogous to moving your hand quickly in
and out of the candle flame; your hand has time to cool between passes to avoid burning. MicroPulse has been
clinically proven to be effective and safe for the treatment of glaucoma and retinal diseases, with a growing body
of clinical evidence published over the past decade. We have developed three applications of our MicroPulse
technology for the treatment of eye diseases, providing a range of options for physicians and patients seeking
improved outcomes with reduced risks.
Our Endpoint Management technology allows clinicians to titrate the laser to subvisible, tissue-sparing levels
using a proprietary energy delivery algorithm for the treatment of retinal diseases and glaucoma. By use of this
formula, heat induced changes in the retina are controlled as Endpoint Management simultaneously modulates
the laser power and duration providing linear control over a non-linear process.
Our pattern scanning laser technology efficiently delivers large laser patterns reducing treatment time and patient
discomfort during treatment. PASCAL represents an improvement in ophthalmic treatment technology and is
committed to helping physicians deliver effective results for patients. Ophthalmologists choose PASCAL because
of its speed and ease of use.
Market Opportunities with Iridex' Technology Solutions
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Market Opportunities
Iridex Technologies
Laser Systems, Delivery Devices & Overview
Glaucoma
MicroPulse
Increase outflow via
uveoscleral pathway
Glaucoma
MicroPulse
Increase outflow via
trabecular meshwork
Glaucoma
PSLT
Increase outflow via
trabecular meshwork
Glaucoma
CW
Reduce inflow
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Treats glaucoma using our Cyclo G6 laser system
and MicroPulse P3 delivery device. MicroPulse P3
is Iridex’s proprietary, single-use, disposable probe. It
delivers MicroPulse laser transsclerally (through the
white of the eye) to target the ciliary body inside the
eye. The ciliary body controls various ocular
functions including aqueous humor production, and it
helps facilitate the reduction of aqueous humor via
outflow channels.
Transscleral laser therapy (“TLT”) using MicroPulse
technology is a non-incisional treatment that is
believed to reduce IOP primarily through uveoscleral
outflow. Numerous peer-reviewed published clinical
studies have demonstrated MicroPulse TLT as a safe
and clinically effective treatment to lower patients’
IOP and reduce the number of topical eye drops and
oral medications across a wide spectrum of glaucoma
types and disease severity. Glaucoma specialists and
comprehensive ophthalmologists incorporate
MicroPulse TLT prior to, concurrent with, and after
other surgical therapies. It’s a repeatable procedure
which doesn’t impact the patient’s quality of life nor
does it inhibit future interventions.
Treats glaucoma with our IQ laser
systems. MicroPulse laser is delivered through a
mechanical and optical delivery device and targets the
trabecular meshwork. Physicians describe the
technique as MicroPulse Laser Trabeculoplasty
(“MLT”). It is believed that the MLT procedure
improves trabecular meshwork outflow and thus
lowers IOP. We believe that the MLT procedure
provides incremental clinical benefits relative to other
laser trabeculoplasty procedures such as SLT.
Pattern Scanning Laser Trabeculoplasty (PSLT) is
a computer-guided therapy that provides precise
placement of laser patterns along the trabecular
meshwork, independent of the visibility of lesions.
PSLT provides rapid, precise, and subvisible
computer-guided treatment with exact placement of
the patterns for the lowering of IOP.
Treats glaucoma using our Cyclo G6 laser system
and G-Probe or G-Probe Illuminate delivery
device. The Iridex G-Probe is a fiber-optic laser
delivery device used to selectively ablate ciliary
processes in patients who require treatment for
refractory glaucoma. Delivery is transscleral (through
the white of the eye). The G-Probe Illuminate
provides built-in transillumination for optimized
probe placement and therapeutic outcome.
Medical Retina
MicroPulse
Medical Retina
CW
Endpoint Management
MicroPulse
Surgical Retina
CW
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Treats Retinal Disorders with our IQ laser system.
MicroPulse laser is administered through our TxCell
Pattern Scanning Slit Lamp Adapter or standard slit
lamp adapter. Studies have demonstrated that for the
treatment of retinal disorders, MicroPulse laser
therapy has several competitive advantages over
alternate therapies with respect to long term vision
stability, visual function, and cost effectiveness.
Treats Retinal Disorders with our PASCAL laser
system. PASCAL efficiently delivers large laser
patterns reducing treatment time and patient
discomfort during treatment of retinal disorders using
standard CW laser therapy or sub-threshold Endpoint
Management.
MicroPulse laser is administered through the
integrated slit lamp on our PASCAL laser system.
Studies have demonstrated that for the treatment of
retinal disorders, MicroPulse laser therapy has several
competitive advantages over alternate therapies with
respect to long term vision stability, visual function,
and cost effectiveness.
The Iridex EndoProbe is used with our IQ and
OcuLight lasers. EndoProbe handpieces are used to
treat proliferative diabetic retinopathy, macular holes,
retinal tears and detachments. These disposable
probes are available in tapered, angled, stepped,
aspirating, illuminating, and adjustable styles, as well
as a wide variety of sizes. The EndoProbe is a sterile
disposable product.
Our Strategy
As a global leader in developing, manufacturing, marketing, selling and servicing innovative medical laser systems and
associated instrumentation for the treatment of sight-threatening eye diseases, we aim to capitalize on our strong brand and
distribution network within the ophthalmology market. Our goal is to promote MicroPulse as a credible treatment option for
glaucoma and retinal diseases, while also commercializing a range of products that enhance therapeutic outcomes for
patients, streamline physician efficiency, reduce costs, and provide economic benefits to healthcare systems. We are
committed to pursuing a variety of organic initiatives, with potential acquisitions serving as a complementary strategy and
complementary inorganic initiatives. Through the successful execution of this strategy, we anticipate driving profitable
growth and creating increased shareholder value.
To achieve these goals, we are pursuing several organic initiatives that we anticipate will be supplemented from time to
time by acquisitions, such as the asset acquisition completed with one of the subsidiaries for Topcon. We anticipate that the
successful execution of this strategy will lead to profitable growth and enhanced shareholder value.
Our Products
Our products are designed with a system approach in mind, with each system consisting of a laser console that
generates laser energy, along with a range of interchangeable delivery devices or single-use disposable probes for use in
specific clinical applications. This enables our customers to invest in a basic laser system and expand their therapeutic
capabilities over time, with the ability to add additional delivery devices or disposable probes as needed. Our product line
currently comprises three main categories: (1) laser consoles, (2) delivery devices, which are optical-mechanical products that
can be mounted to ophthalmologists' diagnostic equipment and transmit the laser energy, and (3) single-use disposable
probes, which deliver the laser energy to targeted regions inside the eye.
Laser Consoles
Our laser consoles, which are identified below, incorporate the economic and technical benefits of solid state and
semiconductor laser technology to design small, portable and reliable lasers.
Glaucoma:
Cyclo G6 Laser System. The Cyclo G6 is an infrared (810nm) laser designed to treat patients diagnosed with a range of
glaucoma disease states. The Cyclo G6 system is sold with a family of probes that are disposable, including our patented
MicroPulse P3 probe that utilizes our MicroPulse technology, our G-Probe and G-Probe Illuminate.
PASCAL Laser System. The new Iridex PASCAL is available in either 532 nm or 577 nm wavelengths. Pattern
Scanning Laser Trabeculoplasty (“PSLT”) is a tissue-sparing laser treatment for reducing IOP in open angle glaucoma. PSLT
provides a rapid, precise, and minimally traumatic computer-guided treatment that applies a sequence of patterns onto the
trabecular meshwork.
Medical retina:
IQ Laser System. Our IQ laser systems offer our MicroPulse technology but also have CW capabilities. Our IQ 577
delivers visible yellow (577nm) laser light and our IQ 532 delivers visible green (532nm) laser light. Our IQ laser systems are
typically used with our TxCell® Scanning Laser Delivery System and our Slit Lamp Adapters when used to treat retinal
disorders with MicroPulse.
PASCAL Laser System. The new Iridex PASCAL is available in either 532 nm or 577 nm wavelengths. It offers the
ultimate combination of pattern scanning, Endpoint Management Technology, Pattern Scanning Laser Trabeculoplasty, and
now, MicroPulse Technology, providing physicians with expanded treatment capabilities in a smaller, ergonomically-
optimized laser platform.
Surgical retina: Our OcuLight TX laser delivers visible green (532nm) laser light. Our OcuLight SLx laser delivers
infrared (810 nm) laser light.
Delivery Devices
The following delivery devices are typically used with our IQ and OcuLight laser systems:
Slit Lamp Adapter (“SLA”). These adapters allow the physician to utilize a standard slit lamp in both diagnosis and
treatment procedures. Physicians can install an SLA in a few minutes and convert standard diagnostic slit lamps into a
therapeutic laser delivery system. SLAs are used in treatment procedures for both retinal diseases and glaucoma.
Laser Indirect Ophthalmoscope (“LIO”). The indirect ophthalmoscope is designed to be worn on the physician’s head
and to be used in procedures to treat peripheral retinal disorders, particularly in infants or adults requiring treatment in the
supine position. This product can be used in both diagnosis and treatment procedures at the point-of-care.
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Single-use disposable probes
The following delivery device is typically used with our IQ laser systems:
TxCell Scanning Laser Delivery System (“TxCell”). TxCell allows the physician to perform multi-spot pattern scanning
for efficient delivery of MicroPulse laser therapy.
MicroPulse P3 Probe. The MicroPulse P3 delivery device is used with our Cyclo G6 laser system to perform
transscleral laser therapy (“TLT”) using MicroPulse technology. The MicroPulse P3 probe is used on an anesthetized eye in
the doctor’s office or in the operating rooms. The non-incisional procedure takes just a few minutes and results in minimal
post-operative recovery for the patient. MicroPulse TLT may be used to treat a wide variety of glaucoma types, including
open-angle and closed-angle glaucoma, and a broad range of disease severity.
Since the launch of the MicroPulse P3 probe in 2015, we have worked with physicians to optimize treatment
techniques and clinical outcomes. During our collaborations, we learned that minor ergonomic probe modifications could
facilitate easier use and result in more consistent clinical outcomes. In Q4 2019, we released a revised MicroPulse P3 probe
that reflects these modifications. Initial feedback from approximately 150 physicians has been very positive in terms of better
viewing of the treatment area, ease of treating small eyes and deep-set eyes, more intuitive probe orientation and placement,
better stabilization of the probe on the eye, and improved light coupling to the tissue. In addition, physicians have continued
to observe excellent safety profiles and good preliminary clinical results.
In 2021, an international panel of 10 glaucoma experts was formed to provide peer-driven contemporary clinical
guidance on the use and indications of the revised MicroPulse P3 Probe and Cyclo G6 Laser System for the treatment of
glaucoma. They performed a complete analysis of MicroPulse TLT clinical, technical, and practical experience to date, and
then conducted a three-round Delphi method to develop recommendations for its clinical application. Two peer-reviewed
manuscripts from Clinical Ophthalmology, an international peer-reviewed journal, document their findings and
recommendations, and conclude that used with proper energy settings, techniques and treatment indications, MicroPulse TLT
is a safe and effective treatment for many cases of glaucoma and is a useful addition to the glaucoma treatment
armamentarium.
G-Probe®. The G-Probe is used in procedures to treat uncontrolled glaucoma, typically described as “refractory
glaucoma.” The G-Probe delivers CW laser to the ciliary body and is believed to stop the production of aqueous humor, thus
reducing IOP. The G-Probe’s non-invasive procedure takes approximately ten minutes and is performed on an anesthetized
eye in the doctor’s office or operating rooms. The G-Probe is a sterile disposable product.
G-Probe Illuminate®. The G-Probe Illuminate is also used in procedures to treat refractory glaucoma. The proprietary
illumination feature allows for more targeted treatment and may offer additional clinical benefits. The G-Probe Illuminate is a
sterile disposable product.
EndoProbe® Handpieces. Our EndoProbe family of products are used for endophotocoagulation, a retinal treatment
procedure performed in the hospital operating rooms or ambulatory surgical centers during a vitrectomy procedure.
Vitrectomy procedures are performed to treat proliferative diabetic retinopathy, macular holes, retinal tears and detachments.
These disposable probes are available in tapered, angled, stepped, aspirating, illuminating, and adjustable styles, as well as a
wide variety of sizes. The EndoProbe is a sterile disposable product.
Research and Development
We have close working relationships with researchers, clinicians and practicing physicians around the world who
provide new ideas, evaluate prototypes and assist us in validating new products and new applications before they are
introduced.
Our internal research and development (“R&D”) activities are performed by a current team of 18 engineers and
regulatory professionals with experience in various aspects of medical products, laser systems, delivery devices, clinical
techniques, and regulatory affairs with a focus on introducing innovative products which satisfy the unmet and emerging
needs of our customers. The core competencies of the team include: mechanical engineering, electrical engineering, optics,
lasers, fiber optics, software, and industrial designs. The R&D process integrates all of the necessary disciplines from product
inception through customer acceptance. This process facilitates reliable new product innovations and a consistent pipeline of
innovative products for our customers.
Our research activities are managed internally by our R&D staff. We supplement our internal R&D staff by hiring
consultants or partnering with physicians known for their expertise. Research efforts are directed toward the development of
new products, as well as the identification of markets not currently addressed by our products.
We believe that it is important to make a substantial contribution to improving clinical outcomes. For instance, we have
made substantial investments in improving the treatment of serious eye diseases such as glaucoma and retinal disease. The
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objectives of developing new treatments and applications are to expand the patient population, to better and more
economically treat diseases, to treat patients earlier in the treatment regimen and to reduce the side effects of treatment.
We consider clinical projects to be a component of our R&D efforts and they may or may not result in additional
commercial opportunities.
Customers and Customer Support
Our products are currently sold for use by ophthalmologists specializing in the treatment of eye disease in retina,
glaucoma and pediatric eye diseases. Other customers include research and teaching hospitals, government installations,
surgical centers, hospitals, veterinary practices, and office clinics (outpatient).
We seek to provide superior customer support and service and believe that our customer service and technical support
distinguish our product offerings from those of our competitors. We provide depot service at our Mountain View facility for
our products. Our customer support representatives assist customers with orders, warranty returns and other administrative
functions. Our technical support engineers provide customers with answers to technical and product-related questions. We
maintain an “around-the-clock” telephone service line to service our customers. If a problem with a depot serviceable product
cannot be diagnosed and resolved by telephone, a service loaner is shipped overnight to domestic customers under warranty
or service contract, and by the most rapid delivery means available to our international customers, and the problem unit is
returned to us. The small size and rugged design of our products allows for economical shipment and quick response to
customers worldwide.
Sales and Marketing
Our sales and marketing strategies for 2023 focused on the United States and Germany, primarily through our direct
sales team, while we worked with independent distributors for international sales (excluding Germany). We have 30 direct
sales personnel in the United States, one in Germany, and seven team members dedicated to managing our distribution sales
efforts globally. Sales operations are managed from our headquarters in Mountain View, California. In 2023, international
sales accounted for 49.8% of our revenues, respectively. We anticipate that our international sales will remain a significant
contributor to our revenue in the future. Our customers are located in Europe, Asia, the Pacific Rim, the Middle East, Africa,
Canada and Latin America. We usually enter into exclusive distribution agreements with our international distributors that
can be terminated by either party with a 90-day notice.
International sales may be affected by factors such as currency fluctuations, governmental controls, export technology
restrictions, political instability, trade restrictions, tariff changes, tax treaties, and economic conditions in each country where
we sell our products.
To support our sales activities, we utilize various marketing programs including our in-person business site visits,
website, social media, email marketing, clinical education, trade shows, public relations, market research, key opinion leader
collaborations, and advertising in trade and academic journals and newsletters. We also participate in annual trade shows
worldwide, which allow us to showcase our products to existing and potential customers.
Our marketing programs help us collaborate with customers to identify new product ideas and applications that address
their needs, enabling us to develop new products, identify new applications for our products, and validate new procedures
using our products. Our customers include key opinion leaders in ophthalmology, often heads of departments or university
professors. We believe that these experts are critical to the successful introduction of new products and their subsequent
acceptance in the market. The validation and commercialization of our new products depend on early adoption by these
opinion leaders.
Clinical Affairs
We have established a Clinical Affairs group to facilitate clinical research opportunities, provide specialized ophthalmic
surgeon training and credentialing for our proprietary MicroPulse products, develop strong relationships with prominent key
opinion leaders, and ensure the accuracy and consistency of our messaging to the market. We recognize that a robust research
program and professional training for our customers are essential in driving the application of our technology for widespread
and consistent use, and our Clinical Affairs group is dedicated to achieving these goals.
Operations
The manufacture of our visible light and infrared laser consoles and the related delivery devices is a highly complex
and precise process. Completed systems must pass quality control testing and quality assurance review before shipment. Our
manufacturing activities consist of specifying, sourcing, assembling and testing of components and certain subassemblies for
assembly into our final product. Currently we have a total of 17 employees engaged in manufacturing activities for these
products.
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The medical devices we manufacture are subject to extensive regulation by numerous governmental authorities,
including federal, state, and foreign governmental agencies. The principal regulators in the United States are the Food and
Drug Administration (“FDA”) and the California Department of Public Health, Food and Drug Branch. In April 1998, we
received certification for ISO 9001/EN 46001, which is an international quality system standard that documents compliance
to the European Medical Device Directives. In 2004, we were certified to ISO 13485:2003, which replaced ISO
9001/EN46001 as the international standard for quality systems as applied to medical devices. In 2018, we were certified to
ISO 13485:2016, which superseded the 2003 version of the standard. In 2008, we received FDA 510(k) clearance on our
family of Iridex IQ laser systems. This clearance covers the Iridex IQ 532 Laser and IQ 577 Laser and their associated
delivery devices to deliver laser energy in either CW or MicroPulse mode. In January 2015, we received FDA 510(k)
clearance for Cyclo G6 Laser. In 2022 and 2023 we received FDA 510(k) clearance for the Iridex Pascal (532 nm and 577 nm
models) laser system and the Iridex Laser (532 nm and 577 nm models). These laser systems are intended for a wide range of
specific applications in the medical specialties of ophthalmology.
International regulatory bodies often establish varying product standards, packaging requirements, labeling
requirements, tariff regulations, duties and tax requirements. As a result of our sales in Europe, we are required to have all
products “CE” marked, an international symbol affixed to all our medical device products demonstrating compliance to the
European Medical Device Directives and/or Medical Device Regulations and all applicable standards. In 1998, we received
CE mark certification under Annex II guidelines, the most stringent path to CE certification. With Annex II CE mark
certification, we have demonstrated our ability to both understand and comply with all applicable standards under the
European Medical Device Directives. In May 2021, the Medical Device Directives were superseded by the Medical Device
Regulations (“MDR”), with a transition period for our Class IIa and IIb products lasting in effect until May 2024, which
allows Iridex to market these products during transition period. In February 2023, the European Parliament voted to extend
the MDR transition deadline from 2024 to 2028 for our products. The Company will obtain certification of compliance to the
Medical Device Regulations before the transition deadline. Currently, all of our products marketed within the EU are CE
marked. Continued certification is based on successful review of quality management systems by our European Registrar
(Notified Body) during its periodic audits. Any loss of certification could have a material adverse effect on our business,
results of operations and financial condition. We rely on third parties to manufacture substantially all of the components used
in our products, although we assemble critical subassemblies and the final product at our facility in Mountain View,
California. Some of these suppliers and manufacturers are sole source. We have some long-term or volume purchase
agreements with our suppliers but currently purchase most components on a purchase order basis. These components may not
be available in the quantities required, on reasonable terms, or at all. Financial or other difficulties faced by our suppliers or
significant changes in demand for these components or materials could limit their availability. Any failures by our third-party
suppliers to adequately perform may delay the submission of products for regulatory approval, impair our ability to deliver
products on a timely basis or otherwise impair our competitive position.
Competition
Competition in the market for laser systems and delivery devices used for ophthalmic treatment procedures is intense
and is expected to increase. This market is also characterized by technological innovation and change. We compete by
providing features and services that are valued by our customers such as: enhanced product performance and clinical
outcomes, ease of use, durability, versatility, customer training services and rapid repair of equipment.
Our principal ophthalmic laser competitors are Alcon Inc., DORC, Bausch Health Companies Inc., Carl Zeiss Meditec
AG, Lumenis Ltd., Nidek Co. Ltd., Lumibird, ARC Gmbh, Meridian, OD-OS GmBh and Norlase. We also compete with
alternative glaucoma surgical device companies such as Alcon, Inc., Novartis AG, Allergan, Inc., Glaukos Corporation and
New World Medical, Inc. Pharmaceuticals represent alternative treatments to our laser procedures. Some of our principal
pharmaceutical competitors are Alcon, Inc., Allergan, Inc., Astellas Pharma Inc., Pfizer Inc., Regeneron Pharmaceuticals,
Inc., and Roche Holding Ltd. (Genentech). Some of our competitors have substantially greater financial, engineering, product
development, manufacturing, marketing and technical resources than we do. Some companies also have greater name
recognition than us and long-standing customer relationships. In addition, other medical companies, academic and research
institutions, or others, may develop new technologies or therapies, including medical devices, surgical procedures or
pharmacological treatments and obtain regulatory approval for products utilizing such techniques that are more effective in
treating the conditions targeted by us, or are less expensive than our current or future products. Our technologies and products
could be rendered obsolete by such developments. Any such developments could have a material adverse effect on our
business, financial condition and results of operations.
Patents and Proprietary Rights
Our success and ability to compete is dependent in part upon our proprietary information. We rely on a combination of
patents, trade secrets, copyright and trademark laws, nondisclosure and other contractual agreements and technical measures
to protect our intellectual property rights. These are either developed internally or obtained from acquisitions that we make.
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We file patent applications to protect technology, inventions and improvements that are significant to the development of our
business. Our patent portfolio includes 66 active United States patents and 84 active international patents on the technologies
related to our products and processes. In addition, we have 12 patent applications pending in the United States and 18
international patent applications pending. Our patent applications may not be approved.
In addition to patents, we rely on trade secrets and proprietary know-how which we seek to protect, in part, through
proprietary information agreements with employees, consultants and other parties. Our proprietary information agreements
with our employees and consultants contain provisions requiring such individuals to assign to us, without additional
consideration, any inventions conceived or reduced to practice by them while employed or retained by us, subject to
customary exceptions. We can provide no assurance that our employees and consultants will abide by the provisions of these
agreements and that our confidential information and trade secrets will be protected.
Government Regulation
The medical devices marketed and manufactured by us are subject to extensive regulation by numerous governmental
authorities, including federal, state, and foreign governmental agencies. Pursuant to the Federal Food, Drug, and Cosmetic
Act (“FD&C Act”), as amended, and the regulations promulgated thereunder, the FDA serves as the principal federal agency
within the United States with authority over medical devices and regulates the research, clinical testing, manufacture,
labeling, distribution, sale, marketing and promotion of such devices. Noncompliance with applicable requirements can result
in, among other things, warning letters, fines, injunctions, civil penalties, recall or seizures of products, total or partial
suspension of production, failure of the government to grant pre-market clearance or approval for devices, withdrawal of
marketing approvals, and criminal prosecution. The FDA also has the authority to request repair, replacement or refund of the
cost of any medical device manufactured or distributed by us.
In the United States, medical devices are classified into one of three classes - Class I, II or III. The class to which the
device is assigned determines, among other things, the type of pre-marketing submission/application required for FDA
clearance to market. If the device is classified as Class I or II, and if it is not exempt, a 510(k) pre-market notification will be
required for marketing. Under FDA regulations, Class I devices are mostly subject to general controls (for example, labeling,
pre-market notification and adherence to Quality System Regulations (“QSRs”) requirements). Class II devices typically
receive marketing clearance through a 510(k) pre-market notification. For Class III devices, a pre-market approval (“PMA”)
application will be required unless the device is a pre-amendments device (on the market prior to the passage of the medical
device amendments in 1976, or substantially equivalent to such a device) and PMAs have not been called for. In that case, a
510(k) will be the route to market. A 510(k) clearance will be granted if the submitted information establishes that the
proposed device is substantially equivalent to a legally marketed Class I or II medical device, or to a Class III medical device
for which the FDA has not called for a PMA. The FDA may determine that a proposed device is not substantially equivalent
to a legally marketed device or that additional information or data are needed before a substantial equivalence determination
can be made. A request for additional data may require that clinical studies and/or non-clinical studies of the device’s safety
and effectiveness be performed.
In the United States, commercial distribution of a device for which a 510(k) notification is required can begin only after
the FDA issues an order finding the device to be substantially equivalent to a previously cleared device. The FDA has
recently been requiring a more rigorous demonstration of substantial equivalence than in the past. Even in cases where the
FDA grants a 510(k) clearance, it can take the FDA between one and six months from the date of submission to grant a
510(k) clearance, but it may take longer.
A “not substantially equivalent” determination, or a request for additional information, could delay the market
introduction of new products that fall into this category and could have a material adverse effect on our business, financial
condition and results of operations. For any of our products that are cleared through the 510(k) process, modifications or
enhancements that could significantly affect the safety or effectiveness of the device or that constitute a major change to the
intended use of the device will require new 510(k) submissions.
We have obtained 510(k) clearances for all of our medical device products marketed within the United States that
require 510(k) clearance. We have also modified aspects of our products since receiving regulatory clearance, and we have
submitted 510(k)s for those modifications as required by FDA regulations. After a device receives a 510(k) clearance or a
PMA, any modification that could significantly affect its safety or effectiveness, or that would constitute a major change in its
intended use, will require a new clearance or approval. The FDA requires each manufacturer to make this determination
initially, but the FDA can review any such decision and can disagree with a manufacturer’s determination. If the FDA
disagrees with our determination not to seek a new 510(k) clearance or PMA, the FDA may retroactively require us to seek
510(k) clearance or pre-market approval. The FDA could also require us to cease marketing and distribution and/or recall the
modified device until a 510(k) clearance or a PMA approval is obtained. Also, in these circumstances, we may be subject to
significant regulatory fines or penalties.
Any products manufactured or distributed by us pursuant to FDA clearances or approvals are subject to pervasive and
continuing regulation by the FDA, including record keeping requirements and reporting of adverse experiences with the use
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of the device. Device manufacturers are required to register their establishments and list their devices with the FDA and
certain state agencies, and are subject to periodic inspections by the FDA and certain state agencies. The FD&C Act requires
devices to be manufactured to comply with applicable QSR regulations which impose certain procedural and documentation
requirements upon us with respect to design, development, manufacturing and quality assurance activities. We are subject to
unannounced inspections by the FDA and the Food and Drug Branch of the California Department of Public Health, to
determine our compliance with the QSR and other regulations, and these inspections may include the manufacturing facilities
of our subcontractors.
Labeling and promotion activities are subject to scrutiny by the FDA and in certain instances, by the Federal Trade
Commission. The FDA actively enforces regulations prohibiting marketing of products for unapproved uses. We and our
products are also subject to a variety of state laws and regulations in those states or localities where our products are or will
be marketed. Any applicable state or local regulations may hinder our ability to market our products in those states or
localities. Manufacturers are also subject to numerous federal, state and local laws relating to such matters as safe working
conditions, manufacturing practices, environmental protection, fire hazard control and disposal of hazardous or potentially
hazardous substances. We may be required to incur significant costs to comply with such laws and regulations now or in the
future. Such laws or regulations may have a material adverse effect upon our ability to do business.
Export of our products is regulated by the FDA and subject to the FD&C Act, 21 U.S.C. §§321-397, and other statutes
FDA administers, which greatly expanded the export of approved and unapproved United States medical devices. However,
some foreign countries require manufacturers to provide a specific type of FDA export certificate (such as a Certificate to
Foreign Government or Certificate of Exportability) which requires the device manufacturer to certify to the FDA that the
product has been granted pre-market clearance in the United States and that the manufacturing facilities appeared to be in
compliance with QSR at the time of the last QSR inspection. The FDA will refuse to issue any export certificate if significant
outstanding QSR violations exist.
We are also regulated under the Radiation Control provisions (originally enacted as the Radiation Control for Health
and Safety Act of 1968) which are located in Sections 531 through 542 of the FD&C Act, which requires laser products to
comply with performance standards, including design and operation requirements, and manufacturers to certify in product
labeling and in reports to the FDA that their products comply with all such standards. The law also requires laser
manufacturers to file new product and annual reports, maintain manufacturing, testing and sales records and report product
defects. Various warning labels must be affixed and certain protective devices installed, depending on the class of the
product.
The introduction of our products in foreign markets will also subject us to foreign regulatory clearances which may
impose substantial additional costs and burdens. International sales of medical devices are subject to the regulatory
requirements of each country. The regulatory review process varies from country to country. Many countries also impose
product standards, packaging requirements, labeling requirements and import restrictions on devices. In addition, each
country has its own tariff regulations, duties and tax requirements. The approval by the FDA and foreign government
authorities is unpredictable and uncertain. The necessary approvals or clearances may not be granted on a timely basis, if at
all. Delays in receipt of, or a failure to receive, such approvals or clearances, or the loss of any previously received approvals
or clearances, could have a material adverse effect on our business, financial condition and results of operations. There are a
number of major regulatory changes occurring in the regulation of medical devices in the European Union. The revision of
the quality system regulation (ISO 13485:2016) has been released that substantially increased the requirements for a medical
device quality system. The Medical Device Regulation (“MDR”) has replaced the medical device directives (93/42/EEC),
and it substantially changed the way that medical devices are brought to market in the European Union and how they
maintain compliance throughout the product’s life cycle. Additionally, the new revision 4 of the clinical evaluation report
guidance document (MEDDEV 2.7.1) and the Medical Device Coordination Group (MDCG) guidance document “Regulation
(EU) 2017/745: Clinical evidence needed for medical devices previously CE marked under Directives 93/42/EEC or
90/385/EEC” (MDCG 2020-6) severely restricts the use of substantial equivalence for new products, resulting in the need for
formal clinical trial data for many new products. These changes will increase the cost for compliance and for product
development, and they lengthen product introduction cycles. Failure to comply with these changes can have an adverse effect
on our ability to release new products in a timely manner.
In order to maintain a Canadian Medical Device License (“MDL”), which is needed to sell a medical device in Canada,
the holder of the MDL (the “regulatory manufacturer”) must obtain an ISO 13485:2016 certificate through the Medical
Device Single Audit Program (“MDSAP”). The MDSAP requirement is new to Canada, and manufacturers that received an
MDL prior to adoption of this requirement are required to transition to the MDSAP. To address this Canadian medical device
licensing requirement, Iridex transferred its MDLs to Salient Medical Solutions (“Salient”), Iridex’s distributor in Canada and
an entity that is certified under MDSAP. Iridex continues to fabricate the devices as Salient’s contract manufacturer. Salient is
now the regulatory manufacturer, and has the licenses necessary to import and sell Iridex’s products into Canada.
Changes in existing requirements or adoption of new requirements or policies by the FDA or other foreign and
domestic regulatory authorities could adversely affect our ability to comply with regulatory requirements. Failure to comply
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with regulatory requirements could have a material adverse effect on our business, financial condition and results of
operations. We may be required to incur significant costs to comply with laws and regulations in the future. These laws or
regulations may have a material adverse effect upon our business, financial condition or results of operations.
Reimbursement
The cost of a significant portion of medical care in the United States is funded by government programs, health
maintenance organizations and private insurance plans. Our ophthalmology products are typically purchased by doctors,
clinics, hospitals and other users, which bill various third-party payers, such as government programs and private insurance
plans, for the health care services provided to their patients. Government imposed limits on reimbursement of hospitals and
other health care providers have significantly affected the spending budgets of doctors, clinics and hospitals to acquire new
equipment, including our products. Under certain government insurance programs, a health care provider is reimbursed for a
fixed sum for services rendered in treating a patient, regardless of the actual charge for such treatment. The Center for
Medicare and Medicaid Services reimburses hospitals on a prospectively-determined fixed amount basis for the costs
associated with an in-patient hospitalization based on the patient’s discharge diagnosis, regardless of the actual costs incurred
by the hospital or physician in furnishing the care and regardless of the specific devices used in that procedure.
Private third-party reimbursement plans are also developing increasingly sophisticated methods of controlling health-
care costs by imposing limitations on reimbursable procedures and the exploration of more cost-effective methods of
delivering health care. In general, these government and private measures have caused health care providers, including our
customers, to be more selective in the purchase of medical products. In addition, changes in government regulation or in
private third-party payers’ policies may limit or eliminate reimbursement for procedures employing our products, which
could have a material adverse effect on our business, results of operations and financial condition.
Doctors, clinics, hospitals and other users of our products may not obtain adequate reimbursement for use of our
products from third-party payers. While we believe that the laser procedures using our products have generally been
reimbursed, payers may deny coverage and reimbursement for our products if they determine that the device was not
reasonable and necessary for the purpose used, was investigational or was not cost-effective.
Backlog and Seasonality
We generally do not maintain a material level of backlog. As a result, we do not believe that our backlog at any
particular time is indicative of future sales levels. Our quarterly results have been, and are expected to continue to be, affected
by seasonal factors. For example, our European sales during the third quarter are generally lower due to many businesses
being closed for the summer vacation season.
Human Capital
Our employees are our human capital and they are our greatest strength and most valuable resource. As of December
30, 2023, we had a total of 111 full-time equivalent employees engaged in our ongoing operations, including 45 in operations
(including manufacturing, quality, logistics and service), 38 in sales and marketing, 18 in R&D and 10 in finance and
administration. We also employ, from time to time, a number of temporary and part-time employees as well as consultants on
a contract basis. As of December 30, 2023, we had 28 such persons serving in such roles.
Our human capital resources objectives include identifying, recruiting, retaining, incentivizing and integrating our
existing and new employees, advisors and consultants. We continuously invest in our workforce by seeking to create a
diverse, inclusive, and safe work environment where our employees can learn, innovate, and deliver their best. We are
committed to being inclusive to enable our workforce and customers to succeed.
Our employees are not represented by a collective bargaining organization, and we have never experienced a work
stoppage or strike. We consider our employee relations to be good.
Available Information
Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to
reports pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are available, free of charge,
through the U.S. Securities and Exchange Commission’s (“SEC”) website. These periodic reports and amendments are also
available, free of charge, on our website, as soon as reasonably practicable after such reports are electronically filed with the
SEC.
Investors and others should note that we announce material financial information to our investors using SEC filings,
press releases, our investor relations website, public conference calls and webcasts. We use these channels as well as social
media to communicate with investors, customers and the public about our company, our products and other issues. It is
possible that the information we post on social media channels could be deemed to be material information. We encourage
investors, our customers, and others interested in Iridex to review the information we post on our Facebook page
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(www.facebook.com/Iridex) and X feed (https://twitter.com/Iridex). Any information on, or that can be accessed through, our
website and social media channels is not part of this report.
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Item 1A. Risk Factors
Risk Factor Summary
Our business operations are subject to numerous risks, factors and uncertainties outside of our control that could
cause our actual results to be harmed, including risks regarding the following:
General economic factors
•
general macroeconomic conditions, including inflationary pressures and rising interest rates, uncertainty in the
global banking and financial services market, potential U.S. government shutdown, global pandemics and
responsive measures and the wars between Russia-Ukraine and Israel-Hamas.
Operational factors
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
the success of our relationship with our strategic partner and main distributor Topcon;
quality control and production issues;
the complexity of our laser systems;
defects in our laser systems;
direct and independent sales forces and a network of international distributors to sell our products;
dependence on international sales;
new products and applications and improving existing products;
fluctuations in our sales and operating results;
the ophthalmology market;
competition in our industry;
the loss of key personnel;
the collaborative relationships used to enhance products and applications;
costs, sales volumes, results of operations, and revenues;
meeting product demand;
dependence on sole source and limited source suppliers;
catastrophic loss;
disruptions to our information technology system and breaches of data security;
maintaining relationships with health care providers;
the misuse of our products;
our reputation and brand;
the inability of our customers to obtain credit or material increases in interest rates;
adverse developments affecting financial institutions, including bank failures;
recalls of our products; and
managing growth effectively.
Regulatory and legal factors
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•
•
•
•
healthcare reform measures and changes in third-party coverage and reimbursement policies;
compliance with healthcare laws;
our compliance with potential governmental, regulatory and other legal proceedings relative to advertising,
promotion and marketing;
patents and proprietary rights related to our intellectual property;
compliance with government regulations, including the FDA’s quality system regulation and laser performance
standards;
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•
•
•
•
•
•
regulatory approval for clinical trials;
compliance with product liability claims;
developments in trade policies;
tax laws;
federal, state and foreign laws, including changes to those laws; and
environmental requirements.
Financing and transactional risks
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•
•
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divestitures of our businesses or product lines;
efforts to acquire additional companies or product lines;
raising additional capital; and
provisions in our charter documents, Delaware law and contractual provisions that could delay or prevent an
acquisition or sale of our company.
Governance risks and risks related to ownership of our common stock
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•
•
•
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the volatility of the trading price of our common stock;
our intention not to pay dividends for the foreseeable future;
the publication of research about us by analysts;
the concentration of ownership of our common stock; and
our ability to maintain an effective system of internal control over financial reporting
Factors That May Affect Future Results
In addition to the other information contained in this Annual Report Form 10-K, we have identified the following risks
and uncertainties that may have a material adverse effect on our business, common stock price, financial condition or results
of operations. You should carefully consider the risks described below before making an investment decision.
Risks Relating to our Business
The current macroeconomic conditions have disrupted, and may continue to disrupt our operations, including
our ability to manufacture and supply products and perform research and development activities, and our customers’
usage of our products, all of which have had and may continue to have a material and adverse effect on our business,
future revenues and financial condition. We are unable to predict the extent to which any future global pandemic or other
public health emergencies or outbreaks and related macroeconomic impacts may adversely impact our business
operations, financial performance, results of operations, financial position and the achievement of our strategic
objectives.
Our business, results of operation and financial performance were negatively impacted by the COVID-19 pandemic
and related public health responses, such as travel restrictions in countries and regions in which we have operations or
manufacturing partners. Due to these impacts and measures, we have experienced and may continue to experience significant
and unpredictable interruptions in the supply of raw materials, components and sub-assemblies necessary to manufacture and
assemble our products and reductions in the demand for our products if healthcare customers divert medical resources and
priorities towards the treatment of COVID-19 or any future outbreak of disease. In addition, our customers may delay, cancel
or redirect planned capital expenditures in order to focus resources on any future outbreak of disease, global pandemic or in
response to macroeconomic disruption related to any future global pandemic. For example, during the fiscal year ended
January 2, 2021, we experienced significant decline in treatment and procedure volume worldwide, as healthcare systems
diverted resources to meet the increasing demands of managing COVID-19. In the near term, a future outbreak of disease or
global pandemic may negatively impact the use of our products and the number of ophthalmic treatments and procedures
performed. If the volume of elective procedures declines, our results of operations and financial condition will be adversely
affected.
The volatile macroeconomic environment has created economic uncertainty and volatility in the financial markets
around the world, resulting in an economic downturn that has affected and may likely continue to affect demand for our
products and impact our results of operations. As a result, this may lead to a period of regional, national, and global economic
slowdown or regional, national, or global recessions that would curtail or delay spending by hospitals and affect demand for
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our products as well as increase the risk of customer defaults or delays in payments. Our customers may terminate or amend
their agreements for the purchase, lease, or service of our products due to bankruptcy, lack of liquidity, lack of funding,
operational failures, or other reason. The ultimate impact of the volatile macroeconomic conditions on our operations and
financial performance depends on many factors that are not within our control, including, but not limited, to: the
recommendations by medical authorities on whether hospitals should and may perform elective surgical procedures;
hospitals’ abilities and willingness to devote resources to elective surgical procedures; governmental, business and
individuals’ actions that have been and may continue to be taken in response to any future resurgence of the COVID-19
pandemic or other public health emergencies or outbreaks (including restrictions on travel and transport and workforce
pressures); the impact of other public health emergencies or any future outbreak of disease and actions taken in response on
global and regional economies, travel, and economic activity; the availability of federal, state, local or non-U.S. funding
programs; general economic uncertainty in key global markets and financial market volatility; global economic conditions
and levels of economic growth; and the pace of recovery when the current volatile macroeconomic conditions subside.
Although the magnitude of the impact of the COVID-19 pandemic on our business operations remains a dynamic situation,
we have experienced and may continue to experience in subsequent periods, disruptions to our business that may adversely
impact our business, financial condition and results of operations.
We may not be successful in our strategic partnership with Topcon and the relationship may divert resources away
from existing operations or expose us to liabilities, which could adversely affect our business, results of operations and
financial condition.
On March 2, 2021, we entered into a series of strategic transactions with Topcon, Topcon America Corporation (the
“Investor”) and Topcon Medical Laser Systems, Inc., a subsidiary of Topcon (“TMLS”), which included (i) an asset purchase
agreement with TMLS, pursuant to which we acquired substantially all the assets (except for cash and cash equivalents) of
TMLS, including rights to the PASCAL product (the “Asset Purchase Agreement”), (ii) a distribution agreement dated March
2, 2021, pursuant to which we granted Topcon the exclusive right to distribute our retina and glaucoma products in certain
geographies outside the United States (the “Distribution Agreement”), and (iii) an investment agreement dated March 2, 2021
(the “Investment Agreement”), pursuant to which we sold the Investor 1,618,122 shares of our common stock for an
aggregate purchase price of $10 million.
Pursuant to the Asset Purchase Agreement, the transferred assets include substantially all of TMLS’ assets including
the rights to the PASCAL product (the “Transferred Assets”). We assumed only those liabilities arising after the closing in
connection with the Transferred Assets. In the Asset Purchase Agreement, our company and TMLS made certain customary
representations and warranties and agreed to certain customary covenants. The Agreement provides that our company and
TMLS will each indemnify the other for losses arising from certain breaches of the Agreement and for certain other liabilities
subject to customary caps and deductibles. If there are claims under the indemnification provisions for which we are liable
we will need to use some or all our cash to settle those claims.
Pursuant to the Distribution Agreement, we appointed Topcon as the exclusive distributor of our glaucoma and retina
products, including PASCAL product, in certain countries outside of the United States. Topcon agreed to use commercially
reasonable efforts to commercialize our products in each region throughout the territory, including achieving certain sales
baselines by product category and region. If Topcon fails to achieve the baselines in a region, we will have the right to,
subject to payment of a fee, terminate Topcon’s appointment in such region. The Distribution Agreement and Topcon’s
appointment will, unless terminated earlier, continue on a country-by-country basis for a period of 10 years from the date
exclusivity is granted. The Distribution Agreement includes customary termination rights and effects of termination,
including a termination for convenience right in favor of Topcon and, subject to payment of a fee, a termination right in our
favor upon a change of control of our company, as well as customary indemnification provisions.
As a result of the Distribution Agreement, we terminated our relationships with our prior distributors in certain
geographies and we are using Topcon as our exclusive distributor. If Topcon is unable to generate as much revenue under the
Distribution Agreement as we received from our prior distributors, our business, results of operations and financial condition
could be adversely affected. If there are claims under the indemnification provisions of the Distribution Agreement for which
we are liable, we will need to use some or all our cash to settle those claims or make payments to Topcon pursuant to the
terms of the Distribution Agreement.
We are investing a substantial amount of time, resources and efforts in connection with our relationship with Topcon,
including commercializing our products in certain geographies and working to achieve certain sales baselines by product
category and region. All of these actions divert resources away from our other initiatives and operations particularly with
respect to product sales in the United States. These efforts may not result in the anticipated additional products, efficiencies or
revenues for our company, which could adversely affect our business, operating results and financial condition as a result.
We may face quality control and other production issues that could materially and adversely impact our sales and
financial results and the acceptance of our products.
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The manufacture of our infrared and visible laser consoles and related delivery devices is a highly complex and precise
process. We may experience manufacturing difficulties, quality control issues or assembly constraints.
If our sales increase substantially, we may need to increase our production capacity and may not be able to do so in a
timely, effective or cost-efficient manner. We may not be able (ourselves or through third parties) to manufacture or supply
sufficient quantities of our products, which may require that we qualify other manufacturers for our products. Furthermore,
we may experience delays, disruptions, capacity constraints or quality control problems in our manufacturing operations.
In the past several years, we have experienced supply chain, production and training issues as we have expanded our
product lines and sales volumes, and may experience similar issues in the future as we continue to grow our business. These
issues have caused, and may in the future cause, us to reduce or delay the shipment of our products and incur costs to service
or replace products already shipped to customers. We have also incurred, and may in the future incur, additional costs to
rectify or prevent similar issues in the future. Our efforts to address these supply chain, production and training issues may
not be successful, and if we are unable to address these issues in a timely and cost-effective manner, product shipments to our
customers could be delayed, our sales levels may suffer and manufacturing and operational costs may increase, any of which
would negatively impact our business, results of operations and financial condition.
Some of our laser systems are complex in design and may contain defects that are not detected until deployed by our
customers, which could increase our costs and reduce our revenues.
Laser systems are inherently complex in design and require regular maintenance. The manufacture of our lasers, laser
products and systems involves a highly complex and precise process. As a result of the technical complexity of our products,
changes in our or our suppliers’ manufacturing processes or the inadvertent use of defective materials by us or our suppliers
could result in a material adverse effect on our ability to achieve acceptable manufacturing yields and product reliability. To
the extent that we do not achieve such yields or product reliability, our business, operating results, financial condition and
customer relationships would be adversely affected. We provide warranties on certain of our product sales, and allowances
for estimated warranty costs are recorded during the period of sale. The determination of such allowances requires us to make
estimates of failure rates and expected costs to repair or replace the products under warranty. We currently establish warranty
reserves based on historical warranty costs. If actual return rates and/or repair and replacement costs differ significantly from
our estimates, adjustments to recognize additional cost of revenues may be required in future periods.
Our customers may discover defects in our products after the products have been fully deployed and operated under
peak stress conditions. In addition, some of our products are combined with products from other vendors, which may contain
defects. As a result, should problems occur, it may be difficult to identify the source of the problem. If we are unable to
identify and fix defects or other problems, we could experience, among other things:
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increased costs of product returns and warranty expenses;
damage to our brand reputation;
failure to attract new customers or achieve market acceptance;
diversion of development and engineering resources; and
legal actions by our customers.
The occurrence of any one or more of the foregoing factors could seriously harm our business, financial condition and
results of operations.
We rely on our direct and independent sales forces and international distributors to sell our products and if we lose
our sales force or distributor relationships, it could harm our business.
Our ability to sell our products and generate revenues depends upon our direct and independent sales forces within the
United States, direct sales force in Germany and relationships with independent international distributors. Currently our direct
and independent sales forces within the United States consist of approximately 30 employees and one independent
representatives, respectively, and our direct sales force in Germany consists of one employee. Our international independent
distributors are managed by a team of seven people. We generally grant our distributors exclusive territories for the sale of
our products in specified countries and regions. The amount and timing of resources dedicated by our distributors to the sales
of our products is not within our control. Our international sales are largely dependent on the efforts of these third parties. If
any distributor breaches the terms of its distribution agreement with us or fails to generate sales of our products, we may be
forced to replace the distributor and our ability to sell our products into that exclusive sales territory could be adversely
affected.
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We do not have any long-term employment contracts with the members of our direct sales force. We may be unable to
replace our direct sales force personnel with individuals of equivalent technical expertise and qualifications, which may harm
our revenues and our ability to maintain market share. Similarly, our independent contractor and distributor agreements are
generally terminable at will by either party and independent contractors and distributors may terminate their relationships
with us, which would affect our sales and results of operations. Any loss of the members of our existing direct or indirect
sales organizations, or any failure to execute on our plans to further develop our sales function, could have an adverse impact
on our business, results of operations and financial condition.
We depend on international sales for a significant portion of our operating results.
We derive, and expect to continue to derive, a large portion of our revenues from international sales. For the fiscal year
2023, our international sales were $25.8 million, or 49.8% of total revenues. We anticipate that international sales will
continue to account for a significant portion of our revenues in the foreseeable future. All of our international revenues and
costs for the fiscal year 2023 have been denominated in U.S. dollars except for sales transacted through our German
subsidiary. As a result, an increase in the value of the U.S. dollar relative to foreign currencies makes our U.S. dollar-
denominated products more expensive and thus less competitive in foreign markets and may negatively affect our reported
revenue in any particular reporting period. Our international operations and sales are subject to a number of risks and
potential costs, including:
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macroeconomic conditions, including the impact of any future global pandemic on the global economy and
financial markets;
fluctuations in foreign currency exchange rates;
uncertainty in the global banking and financial services market;
product and production issues;
performance of our international channel of distributors;
longer accounts receivable collection periods;
impact of recessions in global economies and availability of credit;
political and economic instability;
change in international regulatory agreements and requirements;
trade sanctions and embargoes;
impact of international conflicts, terrorist and military activity, civil unrest;
foreign certification requirements, including continued ability to use the “CE” mark in Europe, and other local
regulatory requirements, pending MDR approvals;
differing local product preferences and product requirements;
cultural differences;
changes in foreign medical reimbursement and coverage policies and programs;
reduced or limited protections of intellectual property rights in jurisdictions outside the United States;
potentially adverse tax consequences, such as those related to changes in tax laws or tax rates or their
interpretations;
protectionist, adverse and changing foreign governmental laws and regulations;
greater risk of our employees failing to comply with both U.S. and foreign laws, including anti-trust regulations,
the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act of 2010 and any trade regulations designed to
ensure fair trade practices; and
compliance costs and risks of non-compliance with multiple regulatory regimes governing the production,
marketing, sale and use of our products.
Any one or more of these factors stated above could have a material adverse effect on our business, financial condition
or results of operations.
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As we expand our existing international operations, we may encounter new risks in addition to the above factors. For
example, as we focus on building our international sales and distribution networks in new geographic regions, we must
continue to develop relationships with qualified local distributors and trading companies. If we are not successful in
developing these relationships, we may not be able to grow sales in these geographic regions. These or other similar risks
could adversely affect our revenues, profitability and the price of our common stock.
Our operating results may be adversely affected by uncertainty regarding healthcare reform measures and changes
in third-party coverage and reimbursement policies.
Our products are typically purchased by doctors, clinics, hospitals and other users, which bill various third-party
payers, such as governmental programs and private insurance plans, for the health care services provided to their patients.
Changes in government legislation or regulation or in private third-party payers’ policies toward reimbursement for
procedures employing our products may prohibit adequate reimbursement. There have been a number of legislative and
regulatory proposals to change the healthcare system, reduce the costs of healthcare and change medical reimbursement
policies. Doctors, clinics, hospitals and other users of our products may decline to purchase our products to the extent there is
uncertainty regarding reimbursement of medical procedures using our products and any healthcare reform measures. Further
proposed legislation, regulation and policy changes affecting third-party reimbursement are likely. Among other things,
Congress has in the past proposed changes to and the repeal of the Patient Protection and Affordable Care Act and the Health
Care and Education Reconciliation Act of 2010, collectively, the “Affordable Care Act”, and the current U.S. presidential
administration has announced certain policy changes that could impact the availability of benefits under the Affordable Care
Act. For example, tax reform legislation enacted at the end of 2017 eliminated the tax penalty for individuals who did not
maintain sufficient health insurance coverage beginning in 2019 (the “individual mandate”). We anticipate continued
Congressional interest in modifying provisions of the Affordable Care Act. At this time, it remains unclear whether there will
be any changes made to or any repeal of the Affordable Care Act, with respect to certain of its provisions or in its entirety or
related administrative policies. Various healthcare reform proposals have also emerged at the state level.
We are unable to predict what legislation or regulation, if any, relating to the health care industry or third-party
coverage and reimbursement may be enacted in the future at the state or federal level, or what effect such legislation or
regulation may have on us. Furthermore, existing legislation and regulation related to the health care industry and third-party
coverage reimbursement, including the Affordable Care Act, has been subject to judicial challenge, and may be subject to
similar challenges from time to time in the future (such as the California v. Texas case). In June 2021, the U.S. Supreme
Court held that Texas and other challengers had no legal standing to challenge the Affordable Care Act, dismissing the case
on procedural grounds without specifically ruling on the constitutionality of the Affordable Care Act. Denial of coverage and
reimbursement of our products, or the revocation or changes to coverage and reimbursement policies, could have a material
adverse effect on our business, results of operations and financial condition.
Third-party payers are increasingly scrutinizing and continue to challenge the coverage of new products and the level
of reimbursement for covered products. Doctors, clinics, hospitals and other users of our products may not obtain adequate
reimbursement for use of our products from third-party payers. While we believe that the laser procedures using our products
have generally been reimbursed, payers may deny coverage and reimbursement for our products if they determine that the
device was not reasonable and necessary for the purpose used, was investigational or was not cost-effective.
If we fail to develop and successfully introduce new products and applications or fail to improve our existing
products, our business prospects and operating results may suffer.
Our ability to generate incremental revenue growth will depend, in part, on the successful outcome of research and
development activities, which may include clinical trials that lead to the development of new products and new applications
using our products. Our research and development process is expensive, prolonged, and entails considerable uncertainty. Due
to the complexities and uncertainties associated with ophthalmic research and development, products we are currently
developing may not complete the development process or obtain the regulatory approvals required to market such products
successfully. Should the current macroeconomic conditions worsen, it could delay and disrupt our research and development
processes even further.
Successful commercialization of new products and new applications will require that we effectively transfer production
processes from research and development to manufacturing and effectively coordinate with our suppliers. In addition, we
must successfully sell and achieve market acceptance of new products and applications and enhanced versions of existing
products. The extent of, and rate at which, market acceptance and penetration are achieved by future products is a function of
many variables, which include, among other things, price, safety, efficacy, reliability, marketing and sales efforts, the
development of new applications for these products, the availability of third-party reimbursement of procedures using our
new products, the existence of competing products and general economic conditions affecting purchasing patterns.
Our ability to market and sell new products is subject to government regulation, including approval or clearance by the
FDA and foreign government agencies. Any failure in our ability to successfully develop and introduce new products or
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enhanced versions of existing products and achieve market acceptance of new products and new applications could have a
material adverse effect on our operating results and would cause our net revenues to decline.
Divestitures of our businesses or product lines may materially and adversely affect our financial condition, results of
operations or cash flows and require us to raise additional capital to replace revenue from those business units or product
lines.
We have two main businesses: glaucoma and retina, domestic and international operations within each and many
product lines within the two businesses. We periodically evaluate the performance and strategic fit of our businesses and may
sell businesses or product lines. Divestitures involve risks, including difficulties in the separation of operations, services,
products and personnel, the diversion of management’s attention from other business concerns, the disruption of our business,
the potential loss of key employees and the retention of uncertain environmental or other contingent liabilities related to the
divested business. In addition, divestitures may result in significant asset impairment charges, including those related to
goodwill and other intangible assets, and the loss of revenue which could have a material adverse effect on our financial
condition and results of operations. In addition, we may not realize the expected value from the divestiture of a business or
product lines and may need to raise additional capital to replace the revenue generated from the business or product line that
is divested. We can provide no assurance that such capital will be available or available on terms that are acceptable to us. We
cannot assure you that we will be successful in managing these or any other significant risks that we encounter in divesting a
business or product line, and any divestiture we undertake could materially and adversely affect our business, financial
condition, results of operations and cash flows, and may also result in a diversion of management attention, operational
difficulties and losses.
We are exposed to risks associated with worldwide economic slowdowns and related uncertainties.
We are subject to macroeconomic fluctuations in the U.S. and worldwide economy including inflationary pressures that
may cause the cost of manufacturing our products or servicing our products to increase. Concerns about consumer and
investor confidence, volatile corporate profits and reduced capital spending, uncertainty in the global banking and financial
services market, international conflicts, terrorist and military activity, civil unrest and pandemic-related illness could reduce
customer orders or cause customer order cancellations. For example, any future global pandemic or other public health
emergencies may cause adverse impacts on global economic activity which could negatively impact our business. In addition,
political and social turmoil related to international conflicts, such as that occurring in Russia-Ukraine and Israel-Hamas, and
terrorist acts may put further pressure on economic conditions in the United States and abroad.
Weak economic conditions and declines in consumer spending and consumption may harm our operating results.
Purchases of our products are often discretionary. During uncertain economic times, customers or potential customers may
delay, reduce or forgo their purchases of our products and services, which may impact our business in a number of ways,
including lower prices for our products and services and reducing or delaying sales. There could be a number of follow-on
effects from economic uncertainty on our business, including insolvency of key suppliers resulting in product delays, delays
in customer payments of outstanding accounts receivable and/or customer insolvencies, counterparty failures negatively
impacting our operations, and increasing expense or inability to obtain future financing. In addition, negative macroeconomic
conditions in the United States (including elevated interest rates) have had, and may continue to have, an adverse impact on
capital market conditions, which could limit our ability to obtain additional debt or equity financing on acceptable terms or at
all.
If economic uncertainty persisted, or if the economy entered a prolonged period of decelerating growth, our results of
operations may be harmed.
We maintain cash deposits in excess of federally insured limits. Adverse developments affecting financial
institutions, including bank failures, could adversely affect our liquidity and financial performance.
We maintain cash deposits in financial institutions that may be higher than the $250,000 limit insured by the FDIC or
similar agencies. Bank failures, events involving limited liquidity, defaults, non-performance, or other adverse developments
that affect financial institutions, or concerns or rumors about such events, may lead to liquidity constraints. For example, on
March 10, 2023, SVB failed and was taken into receivership by the FDIC. The failure of a bank, or other adverse conditions
in the financial or credit markets impacting financial institutions at which we maintain balances, could adversely impact our
liquidity and financial performance. There can be no assurance that our deposits in excess of the FDIC or other comparable
insurance limits will be backstopped by the U.S. or applicable foreign government, or that any bank or financial institution
with which we do business will be able to obtain needed liquidity from other banks, government institutions, or by
acquisition in the event of a failure or liquidity crisis.
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Our operating results may fluctuate from quarter to quarter and year to year.
Our sales and operating results may vary significantly from quarter to quarter and from year to year in the future. Our
operating results are affected by a number of factors, many of which are beyond our control. Factors contributing to these
fluctuations include the following:
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general macroeconomic conditions, including inflationary pressures and heightened interest rates, uncertainty in
the global banking and financial services market, potential federal government shutdown, global pandemics and
responsive measures and the wars between Russia-Ukraine and Israel-Hamas;
changes in the prices at which we can sell our products, including the impact of changes in foreign currency
exchange rates;
introduction of new products, product enhancements and new applications by our competitors, including new
drugs, entry of new competitors into our markets, pricing pressures and other competitive factors;
any delays or reductions in product shipments, or product recalls, resulting from manufacturing, distribution or
other operational issues;
the timing of the introduction and market acceptance of new products, product enhancements and new
applications;
changes in demand for our existing line of ophthalmology products;
the cost and availability of components and subassemblies, including the willingness and ability of our sole or
limited source suppliers to timely deliver components at the times and prices that we have planned;
our ability to maintain sales volumes at a level sufficient to cover fixed manufacturing and operating costs;
fluctuations in our product mix within ophthalmology products and foreign and domestic sales;
the effect of regulatory approvals and changes in domestic and foreign regulatory requirements;
our long and highly variable sales cycle;
changes in customers’ or potential customers’ budgets as a result of, among other things, reimbursement policies
of government programs and private insurers for treatments that use our products;
variances in shipment volumes as a result of product, supply chain due to global constraints or other factors and
training issues; and
increased product innovation costs.
In addition to these factors, our quarterly results have been, and are expected to continue to be, affected by seasonal
factors.
Our expense levels are based, in part, on expected future sales. If sales levels in a particular quarter do not meet
expectations, we may be unable to adjust operating expenses quickly enough to compensate for the shortfall of sales, and our
results of operations may be adversely affected. In addition, we have historically made a significant portion of each quarter’s
product shipments near the end of the quarter. If that pattern continues, any delays in shipment of products could have a
material adverse effect on results of operations for such quarters. Due to these and other factors, we believe that quarter to
quarter and year to year comparisons of our past operating results may not be meaningful. You should not rely on our results
for any quarter or year as an indication of our future performance. Our operating results in future quarters and years may be
below expectations, which would likely cause the price of our common stock to fall.
We rely on continued market acceptance of our existing products and any decline in sales of our existing products
would adversely affect our business and results of operations.
We currently market visible and infrared medical laser systems and delivery devices to the ophthalmology market. We
believe that continued and increased sales, if any, of these medical laser systems is dependent upon a number of factors
including the following:
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the impact of any future resurgence any future global pandemic or other public health emergencies on timing of
ophthalmic treatment procedures;
acceptance of product performance, features, ease of use, scalability and durability, including with respect to our
MicroPulse laser photocoagulation systems, and our PASCAL product;
recommendations and opinions by ophthalmologists, other clinicians, and their associated opinion leaders;
marketing and clinical study outcomes;
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price of our products and prices of competing products and technologies, particularly in light of the current
macro-economic environment where healthcare systems and healthcare operators are becoming increasingly
price sensitive;
availability of competing products, technologies and alternative treatments; and
level of reimbursement for treatments administered with our products.
In addition, we derive a meaningful portion of our sales in the form of recurring revenues from selling consumable
instrumentation, including our probe for the Cyclo G6 Laser and EndoProbe devices. Our ability to increase recurring
revenues from the sale of consumable products will depend primarily upon the features of our current products and product
innovation, the quality of, ease of use and prices of our products, including the relationship to prices of competing products.
The level of our service revenues will depend on the quality of service we provide and the responsiveness and the willingness
of our customers to use our products and services rather than purchase competing products or services. Any significant
decline in market acceptance of our products or our revenues associated therewith may have a material adverse effect on our
business, results of operations and financial condition.
We face strong competition in our markets and expect the level of competition to grow in the foreseeable future.
Competition in the market for laser systems and delivery devices used for ophthalmic treatment procedures is expected
to increase. This market is also characterized by technological innovation and change. We compete by providing features and
services that are valued by our customers such as: enhanced product performance and clinical outcomes, ease of use,
durability, versatility, customer training services and rapid repair of equipment.
Our principal ophthalmic laser competitors are Alcon Inc., DORC, Bausch Health Companies Inc., Carl Zeiss Meditec
AG, Lumenis Ltd., Nidek Co. Ltd., Lumibird, ARC Gmbh, Meridian, OD-OS GmBh and Norlase. We also compete with
alternative glaucoma surgical device companies such as Alcon, Inc., Novartis AG, Allergan, Inc., Glaukos Corporation and
New World Medical, Inc. Pharmaceuticals represent alternative treatments to our laser procedures. Some of our principal
pharmaceutical competitors are Alcon, Inc., Allergan, Inc., Astellas Pharma Inc., Pfizer Inc., Regeneron Pharmaceuticals,
Inc., and Roche Holding Ltd. (Genentech). Some of our competitors have substantially greater financial, engineering, product
development, manufacturing, marketing and technical resources than we do. Some companies also have greater name
recognition than us and long-standing customer relationships. In addition, other medical device companies, academic and
research institutions, or others, may develop new technologies or therapies, including medical devices, surgical procedures or
pharmacological treatments and obtain regulatory approval for products utilizing such techniques that are more effective in
treating the conditions targeted by us, or are less expensive than our current or future products. Our technologies and products
could be rendered obsolete by such developments. Any such developments could have a material adverse effect on our
business, financial condition and results of operations.
If we lose key personnel or fail to integrate replacement personnel successfully, our ability to manage our business
could be impaired.
Our future success depends upon the continued service of our key management, technical, sales, and other critical
personnel. Our officers and other key personnel are employees-at-will, and we cannot provide assurance that we will be able
to retain them. Key personnel have left our company in the past, and there likely will be additional departures of key
personnel from time to time in the future. Additionally, our common stock is currently trading at a price below the exercise
price of many of our outstanding options. As a result, these “underwater” options are less useful as a motivation and retention
tool for our existing employees. The loss of any key employee could result in significant disruptions to our operations,
including adversely affecting the timeliness of product releases, the successful implementation and completion of company
initiatives, and the results of our operations. Competition for these individuals is intense, and we may not be able to attract,
assimilate or retain highly qualified personnel. Competition for qualified personnel in our industry and the San Francisco Bay
Area, as well as other geographic markets in which we recruit, is highly competitive and characterized by increasing salaries,
which may increase our operating expenses or hinder our ability to recruit qualified candidates. In addition, the integration of
replacement personnel could be time consuming, may cause additional disruptions to our operations, and may be
unsuccessful.
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If we fail to comply with healthcare laws, we could face substantial penalties and financial exposure, and our
business, operations and financial condition could be adversely affected.
While we do not bill directly to Medicare, Medicaid or other third-party payors, because payment is in many cases
available for our products from such payors, many healthcare laws place limitations and requirements on the manner in which
we conduct our business (including our sales and promotional activities and interactions with healthcare professionals and
facilities) and could result in liability and exposure for us. The laws that may affect our ability to operate include (i) the
federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting,
receiving, offering or paying remuneration, directly or indirectly, in exchange for or to induce either the referral of an
individual for, or the purchase, order or recommendation of, any good or service for which payment may be made under
federal healthcare programs such as Medicare or Medicaid, (ii) federal false claims laws which prohibit, among other things,
individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid,
or other third-party payors that are false or fraudulent, and which may apply to entities like us if we provide coding and
billing advice to customers, or under theories of “implied certification” where the government and qui tam relators may
allege that device companies are liable where a product that was paid for by the government in whole or in part was promoted
“off-label,” lacked necessary clearance or approval, or failed to comply with good manufacturing practices or other laws; (iii)
transparency laws and related reporting and disclosures requirements such as the federal Sunshine Act, now known as Open
Payments; and/or (iv) state law equivalents of each of the above federal laws, including, without limitation anti-kickback and
false claims laws which may apply to items or services reimbursed by any third-party payor, including commercial insurers,
many of which differ from their federal counterparts in significant ways, thus complicating compliance efforts.
If our operations are found to be in violation of any of the laws described above or any other governmental regulations
that apply to us, we may be subject to penalties, including civil and criminal penalties, exclusion from participation in
government healthcare programs, damages, fines and the curtailment or restructuring of our operations. Any penalties,
damages, fines, curtailment or restructuring of our operations could adversely affect our ability to operate our business and
our financial results. The risk of our operations being found in violation of these laws is increased by the fact that the
government’s provisions are open to a variety of evolving interpretations and enforcement discretion. Compliance with Open
Payments, commonly known as the Sunshine Act, has presented a number of challenges to companies such as ours, in terms
of interpretation of the law and its implementation. Under the Sunshine Act, Centers for Medicare & Medicaid Services
(“CMS”) has the potential to impose penalties of up to $1.26 million per year for violations, depending on the circumstances
and adjusted annually for inflation, although enforcement has been negligible to date. Payments reported under the Sunshine
Act also have the potential to draw scrutiny on payments to and relationships with physicians, which may have implications
under the Anti-Kickback Statute and other healthcare laws. The risk that we may be found in violation of these laws may be
increased by the fact that we do not have a formal healthcare compliance program in place. Further, while safe harbors may in
some instances be available and utilized by companies to reduce risks associated with the Anti-Kickback Statute and certain
other healthcare laws, we have not necessarily utilized such safe harbors nor fully followed all elements required to claim the
benefit of such safe harbors in all possible instances. Any action against us for violation of these laws, even if we successfully
defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation
of our business.
We depend on collaborative relationships to develop, introduce and market new products, product enhancements
and applications.
We depend on both clinical and commercial collaborative relationships. We have entered into collaborative
relationships with academic medical centers and physicians in connection with the research and innovation and clinical
testing of our products. Commercially, we have licensing agreements with strategic partners. The failure to obtain any
additional future clinical or commercial collaborations and the resulting failure or success of such collaboration relationships
could have a material adverse effect on our ability to introduce new products or applications and therefore could have a
material adverse effect on our business, results of operations and financial condition.
If we cannot increase our sales volumes, reduce our costs or introduce higher margin products to offset potential
reductions in the average unit price of our products, our operating results may suffer.
The average unit price of our products may decrease in the future in response to changes in product mix, competitive
pricing pressures, new product introductions by our competitors or other factors. If we are unable to offset the anticipated
decrease in our average selling prices by increasing our sales volumes or through new product introductions, our net revenues
will decline. In addition, to maintain our gross margins we must continue to reduce the manufacturing cost of our products. If
we cannot maintain our gross margins our business could be seriously harmed, particularly if the average selling price of our
products decreases significantly without a corresponding increase in sales.
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Our promotional practices are subject to extensive government scrutiny. We may be subject to governmental,
regulatory and other legal proceedings relative to advertising, promotion and marketing that could have a significant
negative effect on our business.
We are subject to governmental oversight and associated civil and criminal enforcement relating to drug and medical
device advertising, promotion, and marketing, and such enforcement is evolving and intensifying. In the United States, we
are subject to potential enforcement from the FDA, the U.S. Federal Trade Commission, the Department of Justice, the CMS,
other divisions of the Department of Health and Human Services and state and local governments. Other parties, including
private plaintiffs, also are commonly initiating lawsuits against pharmaceutical and medical device companies, alleging off-
label marketing and other violations. We may be subject to liability based on the actions of individual employees and
contractors carrying out activities on our behalf, including sales representatives who may interact with healthcare
professionals.
We rely on patents and proprietary rights to protect our intellectual property and business.
Our success and ability to compete is dependent, in part, upon our proprietary information. We rely on a combination of
patents, trade secrets, copyright and trademark laws, nondisclosure and other contractual agreements and technical measures
to protect our intellectual property rights. We file patent applications to protect technology, inventions and improvements that
are significant to the development of our business. As of December 30, 2023, our patent portfolio includes 66 active United
States patents and 84 active international patents on the technologies related to our products and processes. In addition, as of
December 30, 2023, we have 12 patent applications pending in the United States and 18 international patent applications
pending. Our patent applications may not be approved. Any patents granted now or in the future may offer only limited
protection against potential infringement and development by our competitors of competing products. Moreover, our
competitors, many of which have substantial resources and have made substantial investments in competing technologies,
may seek to apply for and obtain patents that will prevent, limit or interfere with our ability to make, use or sell our products
either in the United States or in international markets. Patents have a limited lifetime and once a patent expires competition
may increase.
In addition to patents, we rely on trade secrets and proprietary know-how which we seek to protect, in part, through
proprietary information agreements with employees, consultants and other parties. Our proprietary information agreements
with our employees and consultants contain industry standard provisions requiring such individuals to assign to us, without
additional consideration, any inventions conceived or reduced to practice by them while employed or retained by us, subject
to customary exceptions. Proprietary information agreements with employees, consultants and others may be breached, and
we may not have adequate remedies for any breach. Also, our trade secrets may become known to or independently
developed by competitors.
The laser and medical device industry is characterized by frequent litigation regarding patent and other intellectual
property rights. Companies in the medical device industry have employed intellectual property litigation to gain a competitive
advantage.
Numerous patents are held by others, including academic institutions and our competitors. Patent applications filed in
the United States generally will be published eighteen months after the filing date. However, since patent applications
continue to be maintained in secrecy for at least some period of time, both within the United States and internationally, we
cannot provide assurance that our technology does not infringe any patents or patent applications held by third parties. We
have, from time to time, been notified of, or have otherwise been made aware of, claims that we may be infringing upon
patents or other proprietary intellectual property owned by others. If it appears necessary or desirable, we may seek licenses
under such patents or proprietary intellectual property. Although patent holders commonly offer such licenses, licenses under
such patents or intellectual property may not be offered or the terms of any offered licenses may not be reasonable.
Any claims, with or without merit, and regardless of whether we are successful on the merits, would be time-
consuming, result in costly litigation and diversion of technical and management personnel, cause shipment delays or require
us to develop non-infringing technology or to enter into royalty or licensing agreements. An adverse determination in a
judicial or administrative proceeding and failure to obtain necessary licenses or develop alternate technologies could prevent
us from manufacturing and selling our products, which would have a material adverse effect on our business, results of
operations and financial condition.
If we fail to accurately forecast demand for our product and component requirements for the manufacture of our
product, we could incur additional costs or experience manufacturing delays and may experience lost sales or significant
inventory carrying costs.
We use quarterly and annual forecasts based primarily on our anticipated product orders to plan our manufacturing
efforts and determine our requirements for components and materials. It is very important that we accurately predict both the
demand for our product and the lead times required to obtain or manufacture the necessary components, materials, and fully
assembled products. Lead times for components and fully assembled products vary significantly and depend on numerous
factors, including the specific supplier, the size of the order, contract terms and current market demand for such products. If
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we overestimate the demand for our product, we may have excess inventory, which would increase our costs. If we
underestimate demand for our product and consequently, our components, materials and fully assembled products
requirements, we may have inadequate inventory, which could interrupt our manufacturing, delay delivery of our product to
our customers and result in the loss of customer sales. Any of these occurrences would negatively impact our business and
operating results.
We depend on sole source or limited source suppliers.
We rely on third parties to manufacture substantially all of the components used in our products, including optics, laser
diodes and crystals. We have some long term or volume purchase agreements with our suppliers and currently purchase
components and fully-assembled products on a purchase order basis. Some of our suppliers and manufacturers are sole or
limited source suppliers. In addition, some of these suppliers are relatively small private companies whose operations may be
disrupted or discontinued at any time. There are risks associated with the use of independent manufacturers, including the
following:
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the impact of macroeconomic conditions, including any future global pandemic and inflationary pressures on
global supply chains and market stability;
unavailability of shortages or limitations on the ability to obtain supplies of components and products in the
quantities that we require, or that satisfy the environmental requirements to which we are subject;
delays in delivery or failure of suppliers to deliver critical components and products on the dates we require;
failure of suppliers to manufacture and assemble components and products to our specifications, and potentially
reduced quality; and
inability to obtain components and products in a timely manner or at acceptable prices due to global supply chain
constraints or other factors.
Our business and operating results may suffer from the lack of alternative sources of supply for critical sole and limited
source components and fully-assembled products. The process of qualifying suppliers is complex, requires extensive testing
with our products, and may be lengthy, particularly as new products are introduced. New suppliers would have to be educated
in our production processes. In addition, the use of alternate components may require design alterations to our products and
additional product testing under FDA and relevant foreign regulatory agency guidelines, which may delay sales and increase
product costs. Any failures by our vendors to adequately supply limited and sole source components or products may impair
our ability to offer our existing products, delay the submission of new products for regulatory approval and market
introduction, materially harm our business and financial condition and cause our stock price to decline. Establishing our own
capabilities to manufacture these components or products would be expensive and could significantly decrease our profit
margins. Our business, results of operations and financial condition would be adversely affected if we are unable to continue
to obtain components or fully-assembled products in the quantity and quality desired and at the prices we have budgeted.
If our facilities were to experience catastrophic loss, our operations would be seriously harmed.
Our facilities could be subject to catastrophic loss such as fire, flood, unpredictable power outages, or earthquake. All
of our research and development activities, manufacturing, our corporate headquarters and other critical business operations
are located near major earthquake faults in Mountain View, California. California can experience earthquakes, catastrophic
wildfires, and intermittent power outages. Any such loss at any of our facilities caused by fires, flooding, power outages, or
earthquakes could disrupt our operations, delay production, shipments and revenue and result in large expense to repair and
replace our facilities.
If we experience a significant disruption in our information technology systems or breaches of data security, our
business could be adversely affected.
We rely on information technology systems to keep financial records and corporate records, communicate with staff
and external parties and operate other critical functions, including sales and manufacturing processes. Our information
technology systems and those of our third-party service providers are potentially vulnerable to disruption, breakdown,
damage, service interruption, system malfunction, power outage, natural disaster, malicious intrusion, ransomware, denial-of-
service attacks, phishing attacks, social engineering, computer viruses, security breaches and other cyber-attacks. For
example, companies have experienced an increase in phishing and spoofing attacks from third parties in connection with
working remotely, either permanently or temporarily. If we were to experience a prolonged system disruption in our
information technology systems, it could negatively impact the coordination of our sales, planning and manufacturing
activities, which could adversely affect our business. In addition, to maximize our information technology efficiency, we have
physically consolidated our primary corporate data and computer operations. This concentration, however, exposes us to a
greater risk of disruption to our internal information technology systems. Although we maintain offsite back-ups of our data,
if operations at our facilities were disrupted, it may cause a material disruption in our business if we are not capable of
restoring function on an acceptable time frame.
In addition, our information technology systems and those of our third-party service providers are potentially
vulnerable to cyber-attacks or other data security breaches-whether by employees or others-which may expose sensitive data
to unauthorized persons. Such data security breaches could lead to the loss of trade secrets or other intellectual property, or
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could lead to the public exposure of sensitive and confidential information of our employees, customers, suppliers and others,
any of which could have a material adverse effect on our business, financial condition and results of operations.
While we have implemented a number of protective measures, including firewalls, antivirus and malware detection
tools, patches, log monitors, routine back-ups, system audits, routine password modifications and disaster recovery
procedures, we have experienced and may in the future experience spoofing attacks. In addition, our measures to secure our
information technology systems may not be adequate or implemented properly to prevent or fully address the adverse effect
of such events, and in some cases we may be unaware of an incident or its magnitude and effects. If we are unable to, or
perceived or reported to have been or be unable to, prevent such security breaches or privacy violations or implement
satisfactory remedial measures, our operations could be disrupted, and we may be exposed to claims, demands, and litigation
or governmental investigations and other proceedings and suffer loss of reputation, financial loss and other regulatory
penalties because of lost or misappropriated information. In addition, these breaches and other inappropriate access can be
difficult to detect, and any delay in identifying them may lead to increased harm of the type described above.
Furthermore, we may not have adequate insurance coverage to protect us from, or adequately mitigate, liabilities or
damages resulting from cyber-attacks or security breaches. The successful assertion of one or more large claims against us
that exceeds our available insurance coverage, or results in changes to our insurance policies (including premium increases or
the imposition of large deductible or co-insurance requirements), could have an adverse effect on our business. In addition,
we cannot be sure that our existing insurance coverage will continue to be available on acceptable terms or that our insurers
will not deny coverage as to any future claim.
If we fail to maintain our relationships with health care providers, customers may not buy our products and our
revenue and profitability may decline. At the same time, relationships with these individuals and entities are the subject of
heightened scrutiny and may present the potential for healthcare compliance risks.
We market our products to numerous health care providers, including physicians, hospitals, ambulatory surgical
centers, government affiliated groups and group purchasing organizations. We have developed and strive to maintain close
relationships with members of each of these groups who assist in product research and development and advise us on how to
satisfy the full range of surgeon and patient needs. We rely on these groups to recommend our products to their patients and
to other members of their organizations. The failure of our existing products and any new products we may introduce to
retain the support of these various groups could have a material adverse effect on our business, financial condition and results
of operations. In addition, our interactions, communications, and financial relationships with these individuals and entities
present potential healthcare compliance risks.
We are subject to government regulations which may cause us to delay or withdraw the introduction of new products
or new applications for our products.
The medical devices that we market and manufacture are subject to extensive regulation by the FDA and by foreign
and state governments. Under the FD&C Act and the related regulations, the FDA regulates the design, development, clinical
testing, manufacture, labeling, sale, distribution and promotion of medical devices. Before a new device can be introduced
into the market, the product must be shown to meet regulatory requirements established by the FD&C Act and implemented
by the FDA. Unless otherwise exempt, a device manufacturer must obtain marketing “clearance” through the 510(k)
premarket notification process, or “approval” through the lengthier pre-market approval application (“PMA”) process or
other processes such as the “de novo” process. Not all devices are eligible for the 510(k) clearance process. Depending upon
the type, complexity and novelty of the device and the nature of the disease or disorder to be treated, the PMA process can
take several years, require extensive clinical testing and result in significant expenditures. Even if regulatory clearance or
approval is obtained, later discovery of previously unknown safety issues may result in restrictions on the product, including
withdrawal of the product from the market. Other countries also have extensive regulations regarding clinical trials and
testing prior to new product introductions. Our failure to obtain government approvals or any delays in receipt of such
approvals would have a material adverse effect on our business, results of operations and financial condition.
The FDA imposes a broad range of additional requirements on medical device companies. Our products must be
produced in compliance with the Quality System Regulation (“QSR”) and our manufacturing facilities are subject to
establishment registration and device listing requirements from the FDA, and similar requirements from certain state
authorities, and ongoing periodic inspections by the FDA, including unannounced inspections for compliance with applicable
requirements. We are subject to monitoring, recordkeeping, and reporting obligations for medical device adverse events and
malfunctions; notification of our products’ defects or failure to comply with the FDA’s laser regulations; and reporting of
recalls, corrections, or removals of our products. The FDA also imposes requirements for the labeling of our products, and
places limitations on claims we are permitted to make about our products in promotional labeling. The Federal Trade
Commission has jurisdiction over the advertising of all of our products, which are non-restricted devices, and exercises
oversight in coordination with the FDA.
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Noncompliance with the applicable requirements can result in, among other things, regulatory citations (including “483
Observations”) and warning letters, fines, injunctions, civil penalties, recall or seizure of products, total or partial suspension
of production, withdrawal of marketing approvals, and criminal prosecution. The FDA also has the authority to request repair,
replacement or refund of the cost of any device we manufacture or distribute. Any of these actions by the FDA would
materially and adversely affect our ability to continue operating our business and the results of our operations. Such
enforcement action can also result in negative publicity.
In addition, we are also subject to varying product standards, packaging requirements, labeling requirements, tariff
regulations, duties and tax requirements. As a result of our sales in Europe, we are required to have all medical device
products “CE” marked, an international symbol, affixed to all our medical device products demonstrating compliance with
the European Medical Device Directives and/or Medical Device Regulations (“MDR”) and all applicable standards. While
currently all our released medical device products are CE marked, continued certification is based on the successful review of
our quality system by our European Registrar during their periodic audits. Any loss of certification would have a material
adverse effect on our business, results of operations and financial condition. There are several major regulatory changes
occurring in the regulation of medical devices in the European Union (the “EU”). The revision of the quality system
regulation (ISO 13485:2016) has been released that substantially increased the requirements for a medical device quality
system. The MDR has replaced the medical device directives (93/42/EEC), and it substantially changes the way that medical
devices are brought to market in the EU and how they maintain compliance throughout the product’s life cycle. Due to the
UK’s exit from EU (“Brexit”), different rules will apply in Great Britain (England, Wales and Scotland), Northern Ireland and
the EU after the Brexit transition period, which began January 1, 2021. Similarly, Switzerland has changed its relationship
with the EU and in May 2022, will require medical device manufacturers, including us, to contract with a Swiss authorized
representative. Additionally, the new revision 4 of the clinical evaluation report guidance document (MEDDEV 2.7.1) and the
Medical Device Coordination Group (MDCG) guidance regarding clinical evidence (MDCG 2020-6) severely restricts the
use of substantial equivalence for new products, resulting in the need for formal clinical trial data for many products. These
and future changes will increase the cost for compliance and for product development, and they lengthen product introduction
cycles. Failure to comply with these changes and any future changes can have an adverse effect on our ability to release new
products in a timely manner.
Any clinical trials necessary that we may undertake for regulatory approval or marketing reasons will be an
expensive, lengthy, costly, and uncertain process, and could result in delays in new product introductions or even an
inability to release a product.
We may be required to undertake clinical trials often required to obtain regulatory approvals or may choose to
undertake such trials for marketing or other reasons. Clinical trials for products such as ours are complex and expensive and
their outcomes are uncertain. Any clinical trials that we may undertake would require the investment of significant financial
and administrative resources. Moreover, the results of clinical trials are uncertain, and inconclusive or negative results may
not support, or may impair, the sale and adoption of our products. We may suffer significant setbacks in clinical trials, even
after earlier clinical trials showed promising results. Any of our products could produce undesirable side effects that could
cause us or regulatory authorities to interrupt, delay or halt clinical trials of a product candidate. We, the FDA, or another
regulatory authority could suspend or terminate clinical trials at any time if we or they believed the trial participants faced
unacceptable health risks.
If we fail to comply with the FDA’s quality system regulation and laser performance standards, our manufacturing
operations could be halted, and our business would suffer.
We are currently required to demonstrate and maintain compliance with the FDA’s QSR. The QSR is a complex
regulatory scheme that covers the methods and documentation of the design, testing, control, manufacturing, labeling, quality
assurance, packaging, storage and shipping of our products. Because our products involve the use of lasers, our products also
are covered by a performance standard for lasers set forth in FDA regulations. The laser performance standard imposes
specific recordkeeping, reporting, product testing and product labeling requirements. These requirements include affixing
warning labels to laser products, as well as incorporating certain safety features in the design of laser products. The FDA
enforces the QSR and laser performance standards through periodic unannounced inspections. We have been, and anticipate
in the future being, subject to such inspections. Our failure to take satisfactory corrective action in response to an adverse
QSR inspection or our failure to comply with applicable laser performance standards could result in enforcement actions,
including a public warning letter, a shutdown of our manufacturing operations, a recall of our products, civil or criminal
penalties, or other sanctions, which would cause our sales and business to suffer.
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If we modify one of our FDA cleared devices, we may need to submit a new 510(k), or potentially a PMA, and if
clearance or approval is not obtained, it would prevent us from selling our modified products or cause us to redesign our
products.
Any modifications to an FDA-cleared device that would significantly affect its safety or effectiveness or that would
constitute a major change in its intended use would require a new 510(k) clearance or possibly a PMA. We may not be able to
obtain additional 510(k) clearances or premarket approvals for new products or for modifications to, or additional indications
for, our existing products in a timely fashion, or at all. Delays in obtaining future clearances would adversely affect our
ability to introduce new or enhanced products in a timely manner, which in turn would harm our revenues and future
profitability. We have made modifications to our devices in the past and may make additional modifications in the future that
we believe do not or will not require additional clearances or approvals. If the FDA disagrees, and requires new clearances or
approvals for the modifications, we may be required to recall and to stop marketing the modified devices, which could harm
our operating results and require us to redesign our products.
Efforts to acquire additional companies or product lines may divert our managerial resources away from our
business operations, and if we complete additional acquisitions, we may incur or assume additional liabilities or
experience integration problems.
As part of our growth strategy, we seek to acquire businesses or product lines for various reasons, including adding new
products, adding new customers, increasing penetration with existing customers, adding new manufacturing capabilities or
expanding into new geographic markets. Our ability to successfully grow through acquisitions depends upon our ability to
identify, negotiate, complete and integrate suitable acquisitions and to obtain any necessary financings. These efforts could
divert the attention of our management and key personnel from our business operations. If we complete future acquisitions,
we may also experience:
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difficulties integrating any acquired products into our existing business;
difficulties in integrating an acquired company’s technologies, services, employees and other service providers,
customers, partners, business operations and administrative and software management systems with ours;
delays in realizing the benefits of the acquired products;
diversion of our management’s time and attention from other business concerns;
adverse customer reaction to the product acquisition; and
increases in expenses.
Moreover, we cannot assure you that the anticipated benefits of any acquisition or investment would be realized or that
we would not be exposed to unknown liabilities. In connection with these types of transactions, we may issue additional
equity securities that would dilute the ownership interest of existing investors or earnings per share, use cash that we may
need in the future to operate our business, incur debt on terms unfavorable to us or that we are unable to repay, incur large
charges or substantial liabilities, encounter difficulties integrating diverse business cultures and become subject to adverse tax
consequences, substantial depreciation or deferred compensation charges. These challenges related to acquisitions or
investments could adversely affect our business, operating results and financial condition.
Our products may be misused, which could harm our reputation and our business.
We market and sell our products for use by highly skilled physicians with specialized training and experience in the
treatment of eye-related disorders. We, and our distributors, generally offer but do not require purchasers or operators of our
products to attend training sessions, nor do we supervise the procedures performed with our products. The physicians who
operate our products are responsible for their use and the treatment regime for each individual patient. In addition, non-
physicians, particularly in countries outside of the United States, or poorly trained or inexperienced physicians, may make
use of our products. Our efforts to market our MicroPulse systems as a fovea-friendly alternative to traditional continuous
wavelength systems or alternative treatment methods may result in users failing to implement adequate safety precautions
and thereby increase the risks associated with the misuse of our products. The lack of training and the purchase and use of our
products by non-physicians or poorly trained or inexperienced physicians may result in product misuse and adverse treatment
outcomes, which could harm our reputation and expose us to costly product liability litigation, or otherwise cause our
business to suffer.
Inability of customers to obtain credit or material increases in interest rates may harm our sales.
Some of our products are sold to health care providers in general practice. Many of these health care providers
purchase our products with funds they secure through various financing arrangements with third-party financial institutions,
including credit facilities and short-term loans. If availability of credit becomes more limited, or interest rates increase, these
financing arrangements may be harder to obtain or become more expensive for our customers, which may decrease demand
for our products. Any reduction in the sales of our products would cause our business to suffer.
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Our products could be subject to recalls even after receiving FDA approval or clearance. A recall would harm our
reputation and adversely affect our operating results.
The FDA and similar governmental authorities in other countries in which we market and sell our products have the
authority to require the recall of our products in the event of material deficiencies or defects in the design or manufacture of
our products, or in other cases we may determine that we will recall a product because we have determined that the product is
violative, in order to avoid further enforcement action and protect the public health.
A government mandated recall, or a voluntary recall by us, could occur as a result of actual or potential component
failures, adverse event reports, manufacturing errors or design defects, including defects in labeling. Furthermore, we may
from time to time initiate a recall of a component or set of components comprising a portion of our laser systems, which
could increase customer returns, warranty claims and associated reserve levels. A recall could divert management’s attention,
cause us to incur significant expenses, harm our reputation with customers and negatively affect our future sales and financial
results.
For example, on February 23, 2018, we initiated a worldwide voluntary recall of a specific laser accessory called the
TruFocus LIO Premiere® (“LIO”). The LIO is a head-mounted indirect ophthalmoscope that connects to our laser console
and is used to view and perform laser treatment on a patient’s retina. This recall was prompted after we received reports of
three adverse events from one physician in the United States, resulting in focal cataracts and iris burns occurring during
procedures in which the TruFocus LIO Premiere was used. We identified several potential root causes for the adverse events,
including use error. On March 22, 2019, we provided the FDA with a request for termination of Recall Number Z-1075-2018.
On September 22, 2023, the FDA notified the Company that the FDA concluded that the recall has been completed, there has
been proper disposition of the recalled product, and, therefore, FDA considers the recall terminated.
If product liability claims are successfully asserted against us, we may incur substantial liabilities that may adversely
affect our business or results of operations.
We may be subject to product liability claims from time to time. Our products are highly complex and the risk of
significant patient injury is more likely with products and procedures involving the eye. Use of our products incorrectly can
result in temporary or permanent loss in vision, burns, scarring, blind spots or other injuries of the eye and we may
periodically become subject to product liability lawsuits as a result. We believe we maintain adequate levels of product
liability insurance to cover such claims subject to certain deductibles. However, product liability insurance is expensive and
we might not be able to obtain product liability insurance in the future on acceptable terms or in sufficient amounts to protect
us, if at all. A successful claim brought against us in excess of our insurance coverage could have a material adverse effect on
our business, results of operations and financial condition.
Any growth in our sales and marketing organization may increase costs and create operational challenges without
immediately offsetting benefits.
Any growth in our sales and marketing organization may place a strain on our management, operating and financial
systems and our sales, marketing and administrative resources as well as increase operating costs. For example, if we are
unable to efficiently or effectively provide adequate training for our sales force and marketing organization, we may not be
able to immediately or fully utilize marketing resources, generate new sales and offset operational challenges such as the cost
of recruiting and hiring sales and marketing personnel. If we cannot effectively manage our operations and our costs, our
business may not be able to grow effectively or we may grow at a slower pace.
If we fail to manage growth effectively, our business could be disrupted which could harm our operating results.
We have experienced and may in the future experience growth in our business, both organically and through the
acquisition of businesses and products. We have made and expect to continue to make significant investments to enable our
future growth through, among other things, new product innovation and clinical trials for new applications and products. We
must also be prepared to expand our work force and to train, motivate and manage additional employees as the need for
additional personnel arises. Our personnel, systems, procedures and controls may not be adequate to support our future
operations. Any failure to effectively manage future growth could have a material adverse effect on our business, results of
operations and financial condition.
Significant developments resulting from recent and potential changes in U.S. trade policies could have a material
adverse effect on us.
Certain of our materials may be subject to the effects of various trade agreements, treaties and tariffs. The prior U.S.
presidential administration has imposed tariffs on various goods from various countries, including China, Canada and the EU.
As a result, Canada, the EU, China and other countries responded with retaliatory tariffs on certain United States exports. We
cannot predict the effect these and potential additional tariffs will have on our business, including in the context of escalating
trade tensions. Further tariffs, additional taxes, or trade barriers, both domestically and internationally, may affect our selling
and/or manufacturing costs and margins, the competitiveness of our products, or our ability to sell products or purchase
necessary equipment and supplies, and consequently affect our business, results of operations, or financial conditions. To the
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extent that trade tariffs and other restrictions imposed by the United States increase the price of, or limit the amount of, raw
materials and finished goods imported into the United States, the costs of our raw materials may be adversely affected and the
demand from our customers for products and services may be diminished, which could adversely affect our revenues and
profitability.
In addition, these potential developments and any market perceptions concerning these and related issues and the
attendant regulatory uncertainty regarding, for example, the posture of governments with respect to international trade, could
have a material adverse effect on global trade and economic growth which, in turn can adversely affect our business.
Furthermore, changes in United States trade policy have resulted and could result in additional reactions from United States
trading partners and other countries, including adopting responsive trade policies that make it more difficult or costly for us to
export our products to those countries. We sell a significant majority of our products into countries outside the United States
and we purchase a significant portion of equipment and supplies from suppliers outside the United States. These measures
could also result in increased costs for goods imported into the United States or may cause us to adjust our worldwide supply
chain. Any of these effects could require us to increase prices to our customers which may reduce demand, or, if we are
unable to increase prices, may result in lowering our margin on products sold.
We cannot predict future trade policy or the terms of any renegotiated trade agreements and their impacts on our
business. The adoption and expansion of trade restrictions, the occurrence of a trade war, or other governmental action related
to tariffs or trade agreements or policies has the potential to adversely impact demand for our products, our costs, our
customers, our suppliers, and the United States economy, which in turn could adversely impact our business, financial
condition and results of operations.
Changes in U.S. tax laws could have a material adverse effect on our business, consolidated cash flow, results of
operations or financial conditions.
The comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”) was enacted in
the United States on December 22, 2017 and includes, among other items, a reduction in the federal corporate income tax rate
from 35% to 21%, certain interest expense deduction limitations and changes in the timing of certain taxable income. We are
required to recognize the effect of the tax law changes in the period of enactment, such as re-measuring our U.S. deferred tax
assets and liabilities and reassessing the net realizability of our deferred tax assets and liabilities.
On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) which provides guidance
on accounting for the tax effects of the Tax Act. We have completed our analysis and accounting with respect the Tax Act,
and identified no additional changes from amounts previously recorded. However, changes in law, interpretations, and facts
may result in adjustments to these amounts. Based on our net operating loss carryovers and valuation allowance, there is no
impact to its consolidated financial statements as a result of the accounting for the tax effects of the Tax Act.
Subsequent legislation, guidance, regulations or audits that differ from our prior assumptions and interpretations, or
other factors which were not anticipated at the time we estimated our tax provision could have a material adverse effect on
our business, cash flow, results of operations or financial condition.
We are subject to federal, state and foreign laws governing our business practices which, if violated, could result in
substantial penalties. Additionally, challenges to or investigation into our practices could cause adverse publicity and be
costly to respond to and thus could harm our business.
The Dodd-Frank Wall Street Reform and Consumer Protection Act requires us to track and disclose the source of
certain metals used in manufacturing which may stem from minerals (so called “conflict minerals”) which originate in the
Democratic Republic of the Congo or adjoining regions. These metals include tantalum, tin, gold and tungsten. These metals
are central to the technology industry and are present in some of our products as component parts. In most cases no
acceptable alternative material exists which has the necessary properties. It is not possible to determine the source of the
metals by analysis but instead a good faith description of the source of the intermediate components and raw materials must
be obtained. The components which incorporate those metals may originate from many sources and we purchase fabricated
products from manufacturers who may have a long and difficult-to-trace supply chain. As the spot price of these materials
varies, producers of the metal intermediates can be expected to change the mix of sources used, and components and
assemblies which we buy may have a mix of sources as their origin. We are required to carry out a diligent effort to determine
and disclose the source of these materials. There can be no assurance we can obtain this information from intermediate
producers not willing or not able to provide this information or further identify their sources of supply or to notify us if these
sources change. These metals are subject to price fluctuations and shortages which can affect our ability to obtain the
manufactured materials we rely on at favorable terms or from consistent sources. These changes could have an adverse
impact on our ability to manufacture and market our devices and products.
34
Our ability to raise capital in the future may be limited, and future sales and issuances of securities could negatively
affect our stock price and dilute the ownership interest of our existing investors.
Our business and operations may consume resources faster than we anticipate. We may need in the future to raise
additional funds through future equity or debt financings to meet our operational needs and capital requirements for product
development, clinical trials and commercialization and may subsequently require additional fundraising. Additional financing
may not be available on favorable terms, if at all. If adequate funds are not available on acceptable terms, we may be unable
to invest in future growth opportunities, which could seriously harm our business and operating results. Future sales or
issuances of securities by us could decrease the value of our common stock, dilute stockholders’ voting power and reduce
future potential earnings per share.
To raise capital, we may sell common stock, convertible securities or other equity-linked securities in one or more
transactions at prices and in a manner we determine from time to time. If we sell additional equity securities, our existing
stockholders may be materially diluted. Additionally, new investors could gain rights, preferences and privileges senior to
those of existing holders of our common stock. We may also issue debt securities, which may impose restrictive covenants on
our operations or otherwise adversely affect the holdings or the rights of our stockholders.
We may sell shares or other securities in any offering at a price per share that is less than the price per share paid by
existing investors, and investors purchasing shares or other securities in the future could have rights superior to existing
stockholders. The price per share at which we sell additional shares of our common stock, or securities convertible or
exchangeable into common stock, in future transactions may be higher or lower than the price per share paid by existing
investors.
If we fail to comply with environmental requirements, our business, financial condition, operating results and
reputation could be adversely affected.
Our products and operations are subject to various federal, state, local and foreign environmental laws and regulations,
including those governing the use, storage, handling, exposure to, and disposal of hazardous materials and a large and
growing body of international standards which govern the design, manufacture, materials content and sourcing, testing,
certification, packaging, installation, use and disposal of our products. We must continually keep abreast of these standards
and requirements and integrate compliance to these with the development and regulatory documentation for our products.
Failure to meet these standards could limit the ability to market our products in those regions which require compliance with
such standards or subject us to fines and penalties. Examples of such standards include laws governing the hazardous material
content of our devices and products, such as the EU Directive 2015/863 which is known as “RoHS 3” and that relates to
Restrictions on the Use of Certain Hazardous Substances and the EU Directive 2012/19/EU on Waste Electrical and
Electronic Equipment. Similar laws and regulations have been passed or are pending in several other jurisdictions and may be
enacted in other regions, including in the United States, and we are, or may in the future be, subject to these laws and
regulations.
Our failure to comply with past, present and future similar laws could result in reduced sales of our devices and
products, inventory write-offs, reputational damage, penalties and other sanctions, any of which could harm our business and
financial condition. We also expect that our devices and products will be affected by new environmental laws and regulations
on an ongoing basis. New environmental laws and regulations will likely result in additional costs and may increase penalties
associated with violations or require us to change the content of our devices and products or how they are manufactured,
which could have a material adverse effect on our business, operating results and financial condition.
Risks Relating to Ownership of Our Common Stock
Our stock price has been and may continue to be volatile and an investment in our common stock could suffer a
decline in value.
The trading price of our common stock has been subject to wide fluctuations in response to a variety of factors, some of
which are beyond our control, including changes in foreign currency exchange rates, quarterly variations in our operating
results, announcements by us or our competitors of new products or of significant clinical achievements, changes in market
valuations of other similar companies in our industry and general market conditions, including deteriorating market
conditions due to investor concerns regarding inflation and hostilities between Russia-Ukraine and Israel-Hamas. During the
fourth quarter of fiscal year 2023, the trading price of our common stock fluctuated from a low of $1.90 per share to a high of
$3.28 per share. During the fiscal year 2023, the trading price of our common stock fluctuated from a low of $1.33 per share
to a high of $3.28 per share. There can be no assurance that our common stock trading price will not suffer declines. Our
common stock may experience an imbalance between supply and demand resulting from low trading volumes and therefore
35
broad market fluctuations could have a significant impact on the market price of our common stock regardless of our
performance.
Because we do not intend to pay dividends, stockholders will benefit from an investment in our common stock only if
it appreciates in value.
We expect to retain any earnings for use to further develop our business, and do not expect to declare cash dividends on
our common stock in the foreseeable future. The declaration and payment of any such dividends in the future depends upon
our earnings, financial condition, capital needs and other factors deemed relevant by the board of directors, and may be
restricted by future agreements with lenders. As a result, the success of an investment in our common stock will depend
entirely upon any future appreciation. There is no guarantee that our common stock will appreciate in value or even maintain
the price at which stockholders have purchased their shares.
If securities or industry analysts do not continue to publish research or publish incorrect or unfavorable research
about our business, our stock price and trading volume could decline.
The trading market for our common stock depends in part on the research and reports that securities or industry
analysts publish about us, our market and our competitors. If no or few securities or industry analysts cover our company, the
trading price for our stock could be negatively impacted. If one or more of the analysts who covers us downgrades our stock
or publishes incorrect or unfavorable research about our business, our stock price could decline. If one or more of these
analysts ceases coverage of our company or fails to publish reports on us regularly, demand for our stock could decrease,
which could cause our stock price or trading volume to decline.
Ownership of our common stock is concentrated among a few investors, which may affect the ability of a third party
to acquire control of us. Substantial sales by such investors could cause our stock price to decline.
Our directors, executive officers, current five percent or greater stockholders and affiliated entities together beneficially
own a significant portion of our common stock outstanding. Having such a concentration of ownership may have the effect of
making it more difficult for a third party to acquire, or of discouraging a third party from seeking to acquire, a majority of our
outstanding common stock or control of our board of directors through a proxy solicitation.
As a public company, we are obligated to develop and maintain proper and effective internal control over financial
reporting. We may not complete our analysis of our internal control over financial reporting in a timely manner, or these
internal controls may not be determined to be effective, which may adversely affect investor confidence in our company
and, as a result, the value of our common stock.
We are required, pursuant to Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on, among
other things, the effectiveness of our internal control over financial reporting. This assessment must include disclosure of any
material weaknesses identified by our management in our internal control over financial reporting. We may experience
difficulty in meeting these reporting requirements in a timely manner, particularly if material weaknesses or significant
deficiencies were to persist. Our independent registered public accounting firm will not be required to formally attest to the
effectiveness of our internal control over financial reporting pursuant to Section 404 while we are a “smaller reporting
company” as defined in the Exchange Act. If we are unable to comply with the requirements of Section 404 in a timely
manner, the market price of our stock could decline and we could be subject to sanctions or investigations by the Nasdaq
Stock Market, the SEC or other regulatory authorities, which could require additional financial and management resources.
Any failure to develop or maintain effective controls, or any difficulties encountered in their implementation or
improvement, could harm our operating results or cause us to fail to meet our reporting obligations. Any failure to implement
and maintain effective internal controls also could adversely affect the results of periodic management evaluations regarding
the effectiveness of our internal control over financial reporting. Ineffective disclosure controls and procedures or internal
control over financial reporting could also cause investors to lose confidence in our reported financial and other information,
which could likely have a negative effect on the trading price of our common stock.
Implementing any appropriate changes to our internal controls may require specific compliance training of our
directors, officers and employees, entail substantial costs in order to modify our existing accounting systems, and take a
significant period of time to complete. Such changes may not, however, be effective in maintaining the adequacy of our
internal controls, and any failure to maintain that adequacy, or consequent inability to produce accurate financial statements
on a timely basis, could increase our operating costs and could materially impair our ability to operate our business. In the
event that we are not able to demonstrate compliance with Section 404 of the Sarbanes-Oxley Act in a timely manner, that
our internal controls are perceived as inadequate or that we are unable to produce timely or accurate financial statements,
investors may lose confidence in our company and our stock price could decline.
36
Our charter documents, anti-takeover provisions of Delaware law, and contractual provisions could delay or prevent
an acquisition or sale of our company.
Our certificate of incorporation empowers the board of directors to establish and issue a class of preferred stock, and to
determine the rights, preferences and privileges of the preferred stock. These provisions give the board of directors the ability
to deter, discourage or make more difficult a change in control of our company, even if such a change in control could be
deemed in the interest of our stockholders or if such a change in control would provide our stockholders with a substantial
premium for their shares over the then-prevailing market price for the common stock. Our certificate of incorporation and
bylaws contain other provisions that could have an anti-takeover effect, including the following:
•
•
•
•
•
the authorized number of directors may be changed only by resolution of our board of directors;
only our board of directors is authorized to fill vacant directorships, including newly created seats;
special meetings of our stockholders may be called only by our board of directors, the chairman of the board,
chief executive officer or president, thus prohibiting a stockholder from calling a special meeting;
stockholders must give advance notice to nominate directors or propose other business; and
stockholders are not permitted to cumulate votes in the election of directors.
In addition, we are generally subject to the anti-takeover provisions of Section 203 of the Delaware General
Corporation Law, which regulates corporate acquisitions. These provisions could discourage potential acquisition proposals
and could delay or prevent a change in control transaction. They could also have the effect of discouraging others from
making tender offers for our common stock or prevent changes in our management.
Item 1B. Unresolved Staff Comments
None.
Item 1C. Cybersecurity
Risk Management and Strategy
We have established policies and processes for assessing, identifying, and managing material risk from cybersecurity
threats, and have integrated these processes into our overall risk management systems and processes. We routinely assess
material risks from cybersecurity threats, including any potential unauthorized occurrence on or conducted through our
information systems that may result in adverse effects on the confidentiality, integrity, or availability of our information
systems or any information residing therein. Process documentation is maintained by third party software provider through
our document control department.
We conduct periodic risk assessments to identify cybersecurity threats and cybersecurity incidents, as well as
assessments in the event of a material change in our business practices that may affect information systems that are
vulnerable to such cybersecurity threats. These risk assessments include identification of reasonably foreseeable internal and
external risks, the likelihood and potential damage that could result from such risks, and the sufficiency of existing policies,
procedures, systems, and safeguards in place to manage such risks.
Following these risk assessments, we re-design, implement, and maintain reasonable safeguards to minimize identified
risks; we reasonably address any identified gaps in existing safeguards; and we regularly monitor the effectiveness of our
safeguards. We devote our resources and designate high-level personnel, including our internal Senior IT manager who
reports to our Chief Operational Officer, to manage the risk assessment and mitigation process.
As part of our overall risk management system and in collaboration with human resources, IT, and management, we
monitor, test, and train our employees on our safeguards. We inform and train personnel across all levels of our cybersecurity
policies.
We engage third parties in connection with our risk assessment processes. These service providers assist us to design
and implement our cybersecurity policies and procedures, as well as to monitor and test our safeguards. We require each
third-party service provider to certify that it has the ability to implement and maintain appropriate security measures,
consistent with all applicable laws, to implement and maintain reasonable security measures in connection with their work
with us, and to promptly report any suspected breach of its security measures that may affect our company.
Governance
37
The audit committee of our Board of Directors (the “Audit Committee”) has oversight responsibility for risks and
incidents relating to cybersecurity threats, including compliance with disclosure requirements, cooperation with law
enforcement, and related effects on financial and other risks, and it reports any findings and recommendations, as appropriate,
to the full Board for consideration. Senior management regularly discusses cyber risks and trends and, should they arise, any
material incidents with the Audit Committee.
Our business strategy, results of operations and financial condition have not been materially affected by risks from
cybersecurity threats, including as a result of previously identified cybersecurity incidents, but we cannot provide assurance
that they will not be materially affected in the future by such risks or any future material incidents. For more information on
our cybersecurity related risks, see Item 1A Risk Factors of this Annual Report on Form 10-K.
Item 2. Properties
We leased a 37,166 square feet facility in Mountain View, California pursuant to a Triple Net Lease dated April 26,
2017 that expired in February 2022. On April 30, 2021, the First Amendment to the Triple Net Lease (“First Amendment”)
was executed, among other things, that reduced the portion of the premises leased by the Company to approximately 29,830
square feet and extended the lease term through August 31, 2024. On August 29, 2022 the Second Amendment to the Triple
Net Lease (“Second Amendment”) was executed. On September 23, 2023, the Third Amendment to the Triple Net Lease
(“Third Amendment”) was executed that extended the lease term through August 31, 2026.
This facility is being substantially utilized for all of our manufacturing, research and development efforts and also
serves as our corporate headquarters. Management believes that these facilities are adequate for our current needs and that
suitable additional space or an alternative space would be available as needed in the future on commercially reasonable terms.
Item 3. Legal Proceedings
From time to time, we may be involved in legal proceedings arising in the ordinary course of business. Although the
results of litigation and claims cannot be predicted with certainty, we currently believe that the final outcome of these
ordinary course matters will not have a material adverse effect on our business, consolidated operating results, financial
condition or cash flows. Regardless of the outcome, litigation can have an adverse impact on us because of defense and
settlement costs, diversion of management resources and other factors. We are not currently party to any material legal
proceedings.
Item 4. Mine Safety Disclosures
Not applicable.
38
PART II
Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters, and Issuer Purchases of Equity
Securities
Market Information for Common Equity
Our common stock is currently quoted on the Nasdaq Global Market under the symbol “IRIX”.
As of February 29, 2024, there were approximately 33 holders of record (not in street name) of our common stock.
Because many of our shares of common stock are held by brokers and other institutions on behalf of our stockholders, we are
unable to estimate the total number of stockholders represented by these record holders.
Dividend Policy
We have never paid cash dividends on our common stock. We currently intend to retain any earnings for use in our
business and do not anticipate paying cash dividends in the foreseeable future.
Sales of Unregistered Securities
None.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Not applicable.
Item 6. [Reserved]
39
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
IRIDEX is an ophthalmic medical technology company focused on the development and commercialization of
breakthrough products and procedures used to treat sight-threatening eye conditions, including glaucoma and retinal diseases.
Our propriety MicroPulse® Technology and Endpoint Management™ Technology are used for the treatment of
glaucoma and retina disorders. Both technologies are offered as optional treatment modes in select laser consoles in addition
to the standard continuous-wave (“CW”) treatment mode. They allow low-energy, subvisible, tissue-sparing laser therapy by
different means: MicroPulse technology uses short, microsecond-long laser pulses that allow tissue to cool between pulses
giving physicians finer control of thermal elevation to minimize tissue damage. Endpoint Management technology uses a
delivery algorithm to titrate the laser energy. CW laser photocoagulation can stabilize vision over the long term but can also
result in varying degrees of vision loss. Both MicroPulse and Endpoint Management technologies have demonstrated clinical
efficacy with a safer profile compared to standard high-energy CW laser for the treatment of both retinal diseases and
glaucoma.
Our products consist of laser consoles, delivery devices and consumable probes.
Our laser consoles consist of the following product lines:
•
•
•
Glaucoma – Our primary glaucoma console line is the Cyclo G6® laser system with MicroPulse technology. In
addition, our medical retina consoles have features supporting glaucoma laser treatments.
Medical Retina – Our medical-retina product line includes our portable IQ 532® and IQ 577® laser systems with
MicroPulse technology; and the Pattern Scanning Laser (“PASCAL”) System, an integrated workstation with
Endpoint Management technology and MicroPulse technology. These systems are ideal for multispecialty
practices because these lasers also can be used to treat glaucoma, i.e., single-spot laser trabeculoplasty using
MicroPulse technology, iridotomy, and iridectomy using the IQ lasers; and pattern scanning laser trabeculoplasty
(“PSLT”) using the PASCAL laser system.
Surgical Retina – Our surgical-retina product line includes our OcuLight® TX and OcuLight® SLx (with
MicroPulse technology) laser photocoagulation systems. These systems are often used in vitrectomy procedures,
which are used to treat proliferative diabetic retinopathy, macular holes, retinal tears and detachments.
Our business generates recurring revenues through sales of consumable products, predominantly single-use laser probe
devices and other instrumentation, as well as repair, service and extended service contracts for our laser systems.
Our laser probes consist of the following product lines:
•
•
Glaucoma – Probes used in our glaucoma product line include our patented single-use delivery devices -
MicroPulse P3®, G-Probe®, and G-Probe Illuminate®.
Surgical Retina – Probes used in our surgical-retina product line include our family of single-use EndoProbe®
handpieces.
Ophthalmologists typically use our laser systems in hospital operating rooms and ambulatory surgical centers, as well
as their offices and clinics. In operating rooms and ambulatory surgical centers, ophthalmologists use our laser systems with
either an indirect laser ophthalmoscope or a single-use consumable probe, including MicroPulse P3®, G-Probe® and G-Probe
Illuminate® delivery devices, and EndoProbe handpieces. In the offices and clinics, ophthalmologists use our laser systems
with either an indirect laser ophthalmoscope or a slit-lamp adapter.
In 2023 and 2022, our products were sold in the United States and Germany predominantly through a direct sales force
and internationally (aside from Germany) primarily through independent distributors. Total revenues in 2023 and 2022 were
$51.9 million and $57.0 million, respectively. We generated net losses of $9.6 million and $7.5 million in 2023 and 2022,
respectively.
Sales to international distributors are made on open credit terms or letters of credit and are currently denominated in
U.S. dollars and accordingly, are not subject to risks associated with currency fluctuations. However, increases in the value of
the U.S. dollar against any local currencies could cause our products to become relatively more expensive to customers in a
particular country or region, leading to reduced revenue or profitability in that country or region. Sales to direct end users
transacted through our German office are denominated in Euros and are subject to risks associated with currency fluctuations.
Cost of revenues consists primarily of our direct manufacturing costs which include the cost of components and sub-
systems, assembling, packaging, shipping and testing components at our facility, direct labor and associated overhead,
warranty, royalty and amortization of intangible assets and depot service costs. For certain of our products, we are responsible
for the cost of the fully assembled product that is manufactured by a third-party.
40
Research and development expenses consist primarily of personnel costs, materials to support new product
development and research support provided to clinicians at medical institutions developing new applications which utilize our
products and regulatory expenses. Research and development costs have been expensed as incurred.
Sales and marketing expenses consist primarily of costs of personnel, sales commissions, travel expenses, advertising
and promotional expenses.
General and administrative expenses consist primarily of costs of personnel, legal, accounting and other public
company costs, insurance and other expenses not allocated to other departments.
Impact of Macroeconomic Conditions to our Business
Current macroeconomic conditions exhibit challenges that can affect capital equipment purchasing demand and timing,
including recessionary fears, inflation concerns, heightened interest rates as a result of government actions to combat
inflation, and uncertainty in the global banking and financial services market, as well as other geopolitical developments,
have impacted and may continue to impact business spending and the economy as a whole. As a result, we have seen
customers extend purchase decision cycles. We have also experienced some demand softness due to pricing effects from the
strength of the U.S. Dollar that have impacted and may continue to impact our operations.
The macroeconomic conditions on our business and operations remains uncertain, and it is not possible for us to predict
the duration and extent to which they will affect our business, future results of operations, and financial condition.
For more information on risks associated with the current macroeconomic conditions, see the sections titled “Risk Factors” in
Item 1A of Part I.
Results of Operations - 2023 and 2022
Our fiscal year ends on the Saturday closest to December 31. Fiscal 2023 ended on December 30, 2023 and fiscal 2022
ended on December 31, 2022. Fiscal years 2023 and 2022 each included 52 weeks of operations.
The following table sets forth certain operating data as a percentage of revenues for the periods indicated.
Total revenues
Cost of revenues
Gross margin
Operating expenses:
Research and development
Sales and marketing
General and administrative
Total operating expenses
Loss from operations
Other income, net
Loss from operations before provision for income taxes
Provision for income taxes
Net loss
FY 2023
December 30,
2023
FY 2022
December 31,
2022
100.0 %
58.0 %
42.0 %
13.2 %
31.3 %
16.9 %
61.40 %
(19.4 %)
1.0 %
(18.4 %)
0.2 %
(18.6 %)
100.0 %
55.5 %
44.5 %
12.6 %
31.9 %
13.3 %
57.8 %
(13.3 %)
0.1 %
(13.2 %)
0.1 %
(13.3 %)
Comparison of 2023 and 2022
Revenues
(in thousands)
Cyclo G6
Retina
Other
Total revenues
FY 2023
FY 2022
Change in $
Change in %
$
$
13,461 $
29,445
8,963
51,869 $
41
14,694 $
31,657
10,621
56,972 $
(1,233 )
(2,212 )
(1,658 )
(5,103 )
(8.4 %)
(7.0 %)
(15.6 %)
(9.0 %)
Our total revenues decreased by $5.1 million or 9.0% from $57.0 million in 2022 to $51.9 million in 2023. The
decrease was driven by an overall softer demand in our retina product line, and lower royalties due to the expiration of
licensed patents.
While we believe that demand for our products remains strong, however the overall capital expenditure landscape
within hospitals, surgical centers and physician offices may continue to be negatively impacted by persistent macroeconomic
concerns.
Gross Profit
Gross profit decreased by $3.6 million or 14.0% from $25.4 million in 2022 to $21.8 million in 2023. Gross margin
increased by 2.5% from 44.5% in 2022 to 42.0% in 2023. The decrease in gross margin was the result of lower overhead
absorption in the current period and a more favorable product mix in the prior year.
Gross margins may fluctuate due to changes in the relative proportion of domestic and international sales, the product
mix of sales, introduction of new products, manufacturing variances, total unit volume changes that lead to greater or lesser
production efficiencies and other factors.
Research and Development
R&D expenses decreased by $0.3 million or 4.8% from $7.2 million in 2022 to $6.8 million in 2023. Spending on
investment in PASCAL product line and on new and expanded product portfolio decreased as we completed these projects.
Sales and Marketing
Sales and marketing expenses decreased by $1.9 million or 10.7%, from $18.2 million in 2022 to $16.2 million in
2023. The decrease was related to lower marketing and advertising costs as we recently completed the release of a new
system product in the fourth quarter of fiscal 2022.
General and Administrative
General and administrative expenses increased by $1.2 million or 15.8% from $7.6 million in 2022 to $8.7 million in
2023. The increase was attributable to increases in higher personnel and other related expenses, including separation costs
incurred in the second fiscal quarter of fiscal year 2023 and legal expenses for general corporate matters.
Other Income, Net
Other income, net amounted to $0.5 million in 2023 and $60 thousand in 2022. Other income, net, consisted primarily
of interest income or expense and foreign currency gain or loss.
Income Taxes
We recorded a provision for income taxes of $90 thousand for the year ended December 30, 2023 compared to $65
thousand for the year ended December 31, 2022. The effective tax rate for the year ended December 30, 2023 was negative
0.8% compared to an effective tax rate of negative 0.9% for the year ended December 31, 2022. Our effective tax rate
increase is due mainly to the change in valuation allowance. The income tax valuation allowance was $25.4 million at the end
of 2023 compared to $23.1 million at the end of 2022.
Liquidity and Capital Resources
Liquidity is our ability to generate sufficient cash flows from operating activities to meet our obligations and
commitments. In addition, liquidity includes the ability to obtain appropriate financing or to raise capital.
Comparison of 2023 and 2022
As of December 30, 2023, we had cash and cash equivalents of $7.0 million and working capital of $14.5 million
compared to cash and cash equivalents of $13.9 million and working capital of $23.3 million as of December 31, 2022.
Net cash used in operating activities was $6.7 million in 2023 compared to net cash used in operating activities of $9.5
million in 2022. The decrease in net cash used in operating activities, expressed in direct cash flow terms, was primarily due
to cash provided by inventory, receivable from related party, prepaids, and other long-term assets, offset by increases in cash
used in accounts payable and deferred revenue. During 2022, the company added approximately $3.5 million to inventory
and prepaid materials to mitigate supply chain constraints, which were resolved in 2023.
During 2023, net cash used in investing activities was $109 thousand for capital expenditures. During 2022, net cash
used in investing activities was $0.3 million for capital expenditures.
During 2023, net cash used in financing activities was $5 thousand, primarily from payroll taxes related to net share
settlement of equity awards partially offset by the net proceeds arising from the proceeds from stock option exercises. During
42
2022, net cash used in financing activities was $0.1 million, primarily from payroll taxes related to net share settlement of
equity awards partially offset by the net proceeds arising from the proceeds from stock option exercises.
We have historically funded our operations primarily through sales of our products to customers, and through common
stock and borrowing arrangements. As of December 30, 2023, our principal sources of liquidity consisted of cash and cash
equivalents of $7.0 million. We have incurred net losses over the last several years, and as of December 30, 2023, have an
accumulated deficit of approximately $79.0 million. We expect to continue to incur operating losses and negative cash flows
from operations.
We had a Loan and Security Agreement (“Loan Agreement”) with Silicon Valley Bank providing for up to $8.0 million
secured revolving loan facility which expired on December 1, 2023. We are currently in the process of negotiating the
renewal and new terms for the Loan Agreement.
We believe our existing cash and cash equivalents will be sufficient to meet our anticipated cash needs over the next 12
months. Our future capital requirements will depend on many factors, including our growth rate, the timing and extent of our
spending to support research and development activities, the timing and cost of establishing additional sales and marketing
capabilities, the introduction of new and enhanced products and our costs to implement new manufacturing technologies. In
the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us
or at all. Any debt financing obtained by us in the future could also involve restrictive covenants relating to our capital-
raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional
capital and to pursue business opportunities, including potential acquisitions. Additionally, if we raise additional funds
through further issuances of equity, our existing stockholders could suffer significant dilution in their percentage ownership
of our company, and any new equity securities we issue could have rights, preferences and privileges senior to those of
holders of our common stock. If we are unable to obtain adequate financing or financing on terms satisfactory to us, when we
require it, our ability to continue to grow or support our business and to respond to business challenges could be significantly
limited.
Critical Accounting Policies
Revenue Recognition
Our revenues arise from the sale of laser consoles, delivery devices, consumables, service, and support activities. We
also derive revenue from royalties from third parties which are typically based on licensees’ net sales of products that utilize
our technology. Our revenue is recognized in accordance with ASC 606, “Revenue from Contracts with Customers.” We
recognize revenue using the five-step model: (1) identifying the contract with the customer, (2) identifying the performance
obligations in the contract, (3) determining expected transaction price, (4) allocating the transaction price to the distinct
performance obligations in the contract, and (5) recognizing revenue when (or as) the performance obligations are satisfied.
We have the following revenue transaction types: (1) Product Sale Only, (2) Service Contracts, (3) System Repairs
(outside of warranty), (4) Royalty Revenue and (5) Exclusive Distribution Rights.
(1)
Product Sale Only: Our products consist of laser consoles, delivery devices and consumable instrumentation,
including laser probes. Our products are currently sold for use by ophthalmologists specializing in the treatment
of glaucoma and retinal diseases. Inside the United States and Germany, the products are sold directly to the end
users. In other countries outside of the United States and Germany, we utilize independent, third-party
distributors to market and sell our products. There is no continuing obligation after shipment is made to these
distributors.
We recognize revenue from product sale at a point in time subject to the allocation of transaction price to
additional performance obligations, if any.
(2)
Service Contracts: We offer a standard two-year warranty on all system sales. We also offer a service contract
which is sold to customers in incremental, one-year periods which begin subsequent to the expiration of the
standard two-year warranty. The customer can opt to purchase the service contract at the time of the system sale
or after the initial system sale.
We recognize revenue from service contracts ratably over the service period. Revenue recognition for the sale of
a service contract is largely dependent on the timing of the sale as follows:
a.
Service Contract Sale in Conjunction with System Sale: If the customer opts to purchase a service contract
at the time of the system sale, we allocate the transaction price of the distinct performance obligations in
the contract by determining stand-alone selling price using historical pricing net of any variable
consideration or discounts to specifically allocate to a particular performance obligation.
43
b.
Service Contract Sale Subsequent to System Sale: If the customer opts to purchase a service contract after
the initial system sale, we determine the amount of time that has elapsed since the initial system sale. If the
service contract is purchased within 60 days of the initial sale, we consider this sale to be an additional
element of the original sale and allocate the transaction price of the distinct performance obligations in the
contract by determining stand-alone selling price using historical pricing net of any variable consideration
or discounts to specifically allocate to a particular performance obligation. If the service contract is
purchased subsequent to 60 days after the initial sale, the sale of the service contract is deemed a separate
contract and is deferred at the selling price and recognized ratably over the extended warranty period as the
performance obligation is satisfied.
(3)
System Repairs (outside of warranty): Customers will occasionally request repairs from us subsequent to the
expiration of the standard warranty and outside of a service contract.
We recognize revenue from system repairs (outside of warranty) at a point in time. When the customer requests
repairs from us subsequent to the expiration of the standard warranty and outside of a service contract, these
repair contracts are considered separate from the initial sale, and as such, revenue is recognized as the repair
services are rendered and the performance obligation satisfied.
(4) Royalty Revenue: We have royalty agreements with four customers related to sale of our intellectual property.
Under the terms of these agreements, three customers are required to remit a percentage of sales to us as the sales
occur and one customer made an upfront prepayment for royalties.
(5)
The arrangements with three customers are for sales-based licenses of intellectual property, for which the
guidance in paragraph ASC 606-10-55-65 applies. Therefore, we recognize revenue at a point in time, only as the
subsequent sale occurs. However, we note that such sales being reported by the licensee with a quarter in arrear,
such revenue is recognized at the time it is reported and paid by the licensee given that any estimated variable
consideration would have to be fully constrained due to the unpredictability of such estimate and the unavoidable
risk that it may lead to significant revenue reversals. For the arrangement with one customer, we concluded that
there is one combined performance obligation to be satisfied. Therefore, we recognize revenue related to this
arrangement over time.
Exclusive Distribution Rights: In March 2021, we entered into a distribution agreement with Topcon, pursuant to
which we granted Topcon exclusive right to distribute our retina and glaucoma products in certain geographies
outside the United States. The exclusivity arrangement with Topcon obligates us to provide training, customer
support and exclusive territorial rights to Topcon for certain international regions, for a period of 10 years,
commencing upon regulatory approval to transfer existing (non-exclusive) distribution rights from the current
distributors in those regions to Topcon. We have the right to terminate the exclusive distribution rights granted to
Topcon for any of the regions at any point in time during the 10-year exclusivity term for a termination fee that is
based on a multiple of 1.2 times the revenue generated by us in 2019 for the respective region. We determined
that the exclusivity rights, training and customer support represents a single combined performance obligation for
each region, to be recognized as exclusivity fee revenue on a straight-line basis over the 10-year period for each
region, commencing on the date that regulatory approval is obtained for each region, based on the Standalone
Selling Price (“SSP”) for such combined performance obligation for each region. The estimated fair value of the
exclusive distribution rights for all regions combined totaled approximately $14.8 million. Of this amount, we
fully constrained and returned to Topcon the arrangement fee allocated to Belarus (approximately $0.2 million
recorded as customer deposit under Other current liabilities) because obtaining the necessary regulatory
approvals and termination of existing distributor relationship was not feasible. During fiscal years ended 2023
and 2022, $1.5 million and $1.3 million in revenue related to the exclusive distribution rights was recorded,
respectively.
Costs of Obtaining Revenue Contracts
We recognized assets from certain costs incurred to obtain revenue contracts. These costs relate to sales commissions
arising from the sale of our products. The costs are considered incremental and recoverable of obtaining revenue contracts
with customers. These deferred costs are amortized on a straight-line basis over the estimated period of benefit, which
typically ranges from 2 to 3 years. As of December 30, 2023 and December 31, 2022, we recognized deferred costs incurred
to obtain revenue contracts with customers, net of accumulated amortization, of $0.2 million and $0.2 million, respectively,
and included these amounts in Prepaid expenses and other current assets and Other long-term assets in our consolidated
balance sheets. Amortization expense was $105 thousand and $36 thousand, respectively, for the fiscal years ended
December 30, 2023 and December 31, 2022. There were no impairment expenses for both the fiscal years ended December
30, 2023 and December 31, 2022, respectively.
44
Sales commissions that do not represent incremental and recoverable costs of obtaining a contract are expensed as
incurred. As a practical expedient, we will not recognize such sales commission as a contract asset but rather recognize as
expense when incurred if the amortization period of the asset that we would have otherwise recognized is one year or less.
Contract Fulfillment Costs
We recognized an asset from the costs incurred to fulfill a contract. These costs relate directly and must be incurred to
satisfy performance obligations on certain specific contract with a customer. These costs are expected to be recovered over
time and are amortized on a systematic basis that is consistent with the recognition of revenue to which it relates. As of
December 30, 2023 and December 31, 2022, we recognized deferred costs incurred to fulfill a contract with a customer, net
of accumulated amortization, of $0.7 million and $0.8 million, respectively, and included these amounts in Prepaid expenses
and other current assets and Other long-term assets in the Company’s consolidated balance sheets. Amortization expense was
$83 thousand and $62 thousand, respectively, for the fiscal years ended December 30, 2023 and December 31, 2022. There
were no impairment expenses for both the fiscal years ended December 30, 2023 and December 31, 2022, respectively.
Inventories
Inventories are stated at the lower of cost or net realizable value and include on-hand inventory physically held at our
facility, sales demo inventory and service loaner inventory. Cost is determined on a standard cost basis which approximates
actual cost on a first-in, first-out (“FIFO”) method. Lower of cost or net realizable value is evaluated by considering
obsolescence, excessive levels of inventory, deterioration and other factors. Adjustments to reduce the cost of inventory to its
net realizable value, if required, are made for estimated excess, obsolete or impaired inventory and are charged to cost of
revenues. Once the cost of the inventory is reduced, a new lower-cost basis for that inventory is established, and subsequent
changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis. Factors
influencing these adjustments include changes in demand, product life cycle and development plans, component cost trends,
product pricing, physical deterioration and quality issues. Revisions to these adjustments would be required if these factors
differ from our estimates.
Provision for Credit Loss and Sales Returns
We estimate future sales returns related to current period product revenue. We analyze historical returns, and changes in
customer demand and acceptance of our products when evaluating the adequacy of the sales returns allowance. Significant
management judgment and estimates must be made and used in connection with establishing the sales returns allowance in
any accounting period. Material differences may result in the amount and timing of our revenue for any period if management
made different judgments or utilized different estimates. Our provision for sales returns is recorded net of the associated
costs.
Similarly, management must make estimates regarding the collectibility of accounts receivable. We are exposed to
credit risk in the event of non-payment by customers to the extent of amounts recorded on the consolidated balance sheets. As
sales increase the level of accounts receivable would likely also increase. In addition, in the event that customers were to
delay their payments to us, the levels of accounts receivable would likely also increase. We maintain provision for credit
losses for estimated losses resulting from the inability of our customers to make required payments. The provision for credit
losses is based on past payment history with the customer, analysis of the customer’s current financial condition, the aging of
the accounts receivable balance, customer concentration and other known factors.
Warranty
We provide reserves for the estimated cost of product warranties at the time revenue is recognized based on historical
experience of known product failure rates and expected material and labor costs to provide warranty services. We generally
provide a two-year warranty on our products. Additionally, from time to time, specific warranty accruals may be made if
unforeseen technical problems arise. Alternatively, if estimates are determined to be greater than the actual amounts
necessary, we may reverse a portion of such provisions in future periods. Our warranty policy is applicable to products which
are considered defective in their performance or fail to meet the product specifications. Warranty costs are reflected in the
consolidated statements of operations as cost of revenues.
Income Taxes
We account for income taxes in accordance with ASC 740, “Income Taxes” (“ASC 740”), which requires that deferred
tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between the book and
tax bases of recorded assets and liabilities. Under ASC 740, the liability method is used in accounting for income taxes.
Deferred tax assets and liabilities are determined based on the differences between financial reporting and the tax basis of
assets and liabilities, and are measured using the enacted tax rates and laws that will be in effect when the differences are
expected to reverse. ASC 740 also requires that deferred tax assets be reduced by a valuation allowance if it is more likely
than not that some or all of the deferred tax asset will not be realized. We annually evaluate the realizability of our deferred
tax assets by assessing our valuation allowance and by adjusting the amount of such allowance, if necessary. The factors used
to assess the likelihood of realization include our forecast of future taxable income and available tax planning strategies that
could be implemented to realize the net deferred tax assets. As of December 30, 2023, based on our recent history of losses
45
and its forecasted losses, management believes on the more likely than not basis that a full valuation allowance is required.
Accordingly, as of December 30, 2023, we provided a full valuation allowance on our federal and state deferred tax assets.
Accounting for Uncertainty in Income Taxes
We account for uncertain tax positions in accordance with ASC 740. ASC 740 seeks to reduce the diversity in practice
associated with certain aspects of measurement and recognition in accounting for income taxes. ASC 740 prescribes a
recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax provision
that an entity takes or expects to take in a tax return. Additionally, ASC 740 provides guidance on de-recognition,
classification, interest and penalties, accounting in interim periods, disclosures, and transition. Under ASC 740, an entity may
only recognize or continue to recognize tax positions that meet a "more-likely-than-not" threshold. In accordance with our
accounting policy, we recognize accrued interest and penalties related to unrecognized tax benefits as a component of income
tax expense. There was no accrued interest and penalties during the year ended December 30, 2023.
Accounting for Stock-Based Compensation
We account for stock-based compensation granted to employees and directors, including employees’ stock option
awards and restricted stock units at grant date, based on the fair value of the award. Stock-based compensation is recognized
as expense on a ratable basis over the requisite service period of the award.
We value options using the Black-Scholes option pricing model. Time-based restricted stock units are valued at the
grant date fair value of the underlying common shares. Performance-based restricted stock units without market conditions
are valued at grant date fair value of the underlying common shares. Performance-based restricted stock units granted with
market conditions and performance-based stock options with market conditions are valued using the Monte Carlo simulation
model. The Black-Scholes option pricing model requires the use of highly subjective and complex assumptions which
determine the fair value of stock-based awards, including the option’s expected term and the price volatility of the underlying
stock. The Monte Carlo simulation model incorporates assumptions for the holding period, risk-free interest rate, stock price
volatility and dividend yield.
Leases
We determine if an arrangement is a lease at inception. Operating leases are included in Operating lease right-of-use
(“ROU”) assets, net and Operating lease liabilities in our consolidated balance sheets. As of December 30, 2023, we were not
a party to finance lease arrangements.
ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation
to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement
date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate,
we use our incremental borrowing rate based on information available at commencement date in determining the present
value of lease payments. We use the implicit rate when readily determinable. The operating lease ROU asset also includes
any lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease
when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-
line basis over the lease term.
Under the available practical expedient, we account for the lease and non-lease components as a single lease
component.
Foreign Currency
Assets and liabilities of foreign operations with non-U.S. Dollar functional currency are translated to U.S. Dollars using
exchange rates in effect at the end of the period. Revenue and expenses are translated to U.S. Dollars using rates that
approximate those in effect during the period. The resulting translation adjustments are included in our Consolidated Balance
Sheets in the stockholders’ equity section as a component of accumulated other comprehensive income (loss).
Recently Adopted Accounting Standards
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.
2016-13 “Measurement of Credit Losses on Financial Instruments,” which amended the current approach to estimate credit
losses on certain financial assets, including trade and other receivables, available-for-sale securities, and other financial
instruments. Generally, this amendment requires entities to establish a valuation allowance for the expected lifetime losses of
these certain financial assets. In November 2019, the FASB issued ASU No. 2019-10, “Financial Instruments - Credit Losses
(Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842),” which amended the effective date for certain
qualified entities to fiscal years beginning after December 15, 2022. On January 1, 2023, the Company adopted ASU No.
2016-13, using the modified retrospective approach by applying a cumulative effect adjustment of $0.2 million to the opening
balance of accumulated deficit.
46
Recent Accounting Standards Not Yet Adopted
In November 2023, the Financial Standards Accounting Board (FASB) issued Accounting Standards Update (ASU)
2023-07 "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures" which expands annual and
interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment
expenses. ASU 2023-07 is effective for our annual periods beginning January 1, 2024, and for interim periods beginning
January 1, 2025, with early adoption permitted. We are currently evaluating the potential effect that the updated standard will
have on our financial statement disclosures.
In December 2023, the FASB issued ASU 2023-09 "Income Taxes (Topics 740): Improvements to Income Tax
Disclosures" to expand the disclosure requirements for income taxes, specifically related to the rate reconciliation and income
taxes paid. ASU 2023-09 is effective for our annual periods beginning January 1, 2025, with early adoption permitted. We are
currently evaluating the potential effect that the updated standard will have on our financial statement disclosures.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
As a “smaller reporting company,” as defined in Rule 12b-2 of the Exchange Act, we are not required to provide the
information called for by this Item.
Item 8. Financial Statements and Supplementary Data.
Our consolidated balance sheets as of December 30, 2023 and December 31, 2022 and the consolidated statements of
operations, comprehensive loss, stockholders’ equity and cash flows for each of our fiscal years 2023 and 2022 together with
the related notes and the report of our independent registered public accounting firm, are on the following pages. Additional
required financial information is described in Item 15.
47
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of IRIDEX Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of IRIDEX Corporation (a Delaware corporation)
and its subsidiaries (the “Company”) as of December 30, 2023 and December 31, 2022, and the related consolidated
statements of operations, comprehensive loss, stockholders’ equity, and cash flows for each of the two years in the period
ended December 30, 2023, and the related notes (collectively referred to as the “consolidated financial statements”). In our
opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as
of December 30, 2023 and December 31, 2022, and the results of its operations and its cash flows for each of the two years in
the period ended December 30, 2023, in conformity with accounting principles generally accepted in the United States of
America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is
to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting
firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material
misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit
of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal
control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our
audits also included evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable
basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated
financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to
accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging,
subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the
consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below,
providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Inventory Valuation - Adjustments for Excess or Obsolete Inventories
As described in Notes 2 and 5 to the consolidated financial statements, the Company has inventories with a carrying
value of $9.9 million as of December 30, 2023. The Company’s inventories are stated at the lower of cost or net realizable
value. Cost is determined on a standard cost basis which approximates actual cost on a first-in, first-out (“FIFO”) method.
Lower of cost or net realizable value is evaluated by considering obsolescence, excessive levels of inventory, deterioration,
and other factors. Adjustments to reduce the cost of inventory to its net realizable value, if required, are made for estimated
excess, obsolescence or impaired inventory and are charged to cost of revenues. The Company’s inventories include
demonstration units (“demos”) to facilitate the sale of products to prospective customers and loaners for existing customers to
use while their product is under repair.
The principal considerations for our determination that performing procedures relating to net realizable value
adjustments to inventories is a critical audit matter are the significant amount of judgment by management in developing the
assumptions of the forecasted changes in demand, product life cycle and development plans, component cost trends, product
pricing, physical deterioration and quality issues, which in turn led to significant auditor judgment, subjectivity, and effort in
performing audit procedures and evaluating audit evidence relating to these factors. Additionally, for certain new product
launches there may be limited historical data with which to evaluate forecasts.
48
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming
our overall opinion on the consolidated financial statements. These procedures included obtaining an understanding of the
Company’s inventory reserve review process, including the assumptions and data underlying the excess and obsolete
inventory valuation. The procedures also included, among others, testing management’s process for developing the estimate
of the adjustments for excess or obsolete inventories, testing the completeness and accuracy of the underlying data used in the
estimate, and evaluating management’s assumptions of forecasted product demand. Evaluating management’s demand
forecast for reasonableness involved considering historical sales by product, comparing prior period estimates to actual
results, and determining whether the demand forecast used was consistent with evidence obtained in other areas of the audit.
/s/ BPM LLP
We have served as the Company’s auditor since 2007.
San Jose, California
March 29, 2024
49
Iridex Corporation
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
FY 2023
FY 2022
December 30, 2023 December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable, net
Receivable from related party
Inventories
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Intangible assets, net
Goodwill
Operating lease right-of-use assets, net
Other long-term assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
Payable to related party
Accrued compensation
Accrued expenses
Other current liabilities
Accrued warranty
Deferred revenue
Operating lease liabilities
Total current liabilities
Long-term liabilities:
Accrued warranty
Deferred revenue
Operating lease liabilities
Other long-term liabilities
Total liabilities
Commitments and contingencies (Note 10)
Stockholders’ equity:
Preferred stock, $0.01 par value, 2,000,000 shares authorized, no shares issued and
outstanding
Common stock, $0.01 par value:
Authorized: 30,000,000 shares;
Issued and outstanding 16,252,813 and 15,989,662 shares as of December 30,
2023 and December 31, 2022, respectively
Additional paid-in capital
Accumulated other comprehensive loss
Accumulated deficit
Total stockholders’ equity
Total liabilities and stockholders’ equity
$
$
$
7,034 $
6,727
2,927
9,906
856
27,450
351
1,642
965
2,632
1,396
34,436 $
4,499 $
228
1,619
1,996
925
308
2,404
995
12,974
138
10,025
1,751
26
24,914
13,922
6,229
3,539
10,608
1,468
35,766
462
1,977
965
1,665
1,455
42,290
3,858
15
2,448
1,548
968
168
2,411
1,037
12,453
106
11,742
732
26
25,059
—
—
172
88,444
(52 )
(79,042 )
9,522
34,436 $
169
86,802
(24 )
(69,716 )
17,231
42,290
$
The accompanying notes are an integral part of these consolidated financial statements.
50
Iridex Corporation
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Total revenues
Cost of revenues
Gross profit
Operating expenses:
Research and development
Sales and marketing
General and administrative
Total operating expenses
Loss from operations
Other income, net
Loss from operations before provision for income taxes
Provision for income taxes
Net loss
Net loss per share:
Basic
Diluted
Weighted average shares used in computing net loss per common share:
Basic
Diluted
FY 2023
Year Ended
December 30, 2023
$
FY 2022
Year Ended
December 31, 2022
56,972
31,604
25,368
51,869 $
30,062
21,807
6,829
16,237
8,748
31,814
(10,007 )
527
(9,480 )
90
(9,570 ) $
(0.59 ) $
(0.59 ) $
16,128
16,128
7,175
18,178
7,557
32,910
(7,542 )
60
(7,482 )
65
(7,547 )
(0.47 )
(0.47 )
15,938
15,938
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
51
Iridex Corporation
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)
FY 2023
Year Ended
FY 2022
Year Ended
Net loss
Change in foreign currency translation adjustments, net of taxes
Comprehensive loss
December 30, 2023 December 31, 2022
(7,547 )
$
(69 )
(7,616 )
(9,570 ) $
(28 )
(9,598 ) $
$
The accompanying notes are an integral part of these consolidated financial statements.
52
Iridex Corporation
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except share data)
Common Stock
Additional
Paid-in
Accumulated
Other
Comprehensive
Accumulated
Balances, January 1, 2022
Issuance of common stock under
stock option plan
Stock-based compensation
Release of restricted stock, net of
taxes paid
Other comprehensive loss
Net loss
Balances, December 31, 2022
Adoption of ASU 2016-13
Issuance of common stock under
stock option plan
Stock-based compensation
Release of restricted stock, net of
taxes paid
Other comprehensive loss
Net loss
Balances, December 30, 2023
Shares
15,876,171 $
Amount
Capital
Income (Loss)
Deficit
Total
Stockholders
' Equity
168 $
85,255 $
45 $
(62,169 ) $
23,299
9,692
—
—
—
21
1,621
103,799
—
—
15,989,662
—
1
—
—
169
—
(95 )
—
—
86,802
—
37,839
—
—
—
82
1,650
225,312
—
—
16,252,813 $
3
—
—
172 $
(90 )
—
—
88,444 $
—
—
21
1,621
—
—
—
(69 )
—
(24 )
—
—
—
—
—
(7,547 )
(69,716 )
244
—
—
—
(28 )
—
(52 ) $
—
—
(9,570 )
(79,042 ) $
(94 )
(69 )
(7,547 )
17,231
244
82
1,650
(87 )
(28 )
(9,570 )
9,522
The accompanying notes are an integral part of these consolidated financial statements.
53
Iridex Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
FY 2023
Year Ended
FY 2022
Year Ended
December 30, 2023 December 31, 2022
$
(9,570 ) $
(7,547 )
Operating activities:
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization
Amortization of operating lease right-of-use assets
Stock-based compensation
Provision for credit losses
Changes in operating assets and liabilities:
Accounts receivable
Receivable from related party
Inventories
Prepaid expenses and other current assets
Other long-term assets
Accounts payable
Payable to related party
Accrued compensation
Accrued expenses
Accrued warranty
Deferred revenue
Operating lease liabilities
Other liabilities
Net cash used in operating activities
Investing activities:
Acquisition of property and equipment
Net cash used in investing activities
Financing activities:
Proceeds for stock option exercises
Taxes paid related to net share settlements of equity awards
Net cash used in financing activities
Effect of foreign exchange rate changes
Net decrease in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Income taxes
Supplemental disclosure of non-cash activities:
Transfer of inventory to property and equipment
ROU assets obtained with the modification of operating lease
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
54
1,098
934
1,650
—
(254 )
612
644
612
(427 )
641
213
(829 )
448
172
(1,723 )
(924 )
(42 )
(6,745 )
(109 )
(109 )
82
(87 )
(5 )
(29 )
(6,888 )
13,922
7,034 $
53 $
(9 ) $
1,901 $
485
899
1,621
187
196
(433 )
(3,019 )
(397 )
(1,185 )
1,086
(612 )
(744 )
(25 )
116
868
(886 )
(129 )
(9,519 )
(286 )
(286 )
21
(94 )
(73 )
(52 )
(9,930 )
23,852
13,922
73
5
—
Iridex Corporation
Notes to Consolidated Financial Statements
1. Organization
Description of Business.
IRIDEX Corporation (“Iridex,” the “Company,” “we,” “us” or “our”) is a leading worldwide provider of therapeutic
based laser systems, delivery devices and consumable instrumentation used to treat sight-threatening eye diseases in
ophthalmology. The Company's ophthalmology products are sold in the United States and Germany predominantly through a
direct sales force and internationally (aside from Germany) primarily through independent distributors.
2. Summary of Significant Accounting Policies
Financial Statement Presentation
The consolidated financial statements include the accounts of Iridex and the Company's wholly owned subsidiary. All
significant intercompany accounts and transactions have been eliminated in consolidation. We have reclassified certain prior
period amounts to conform to current period presentation.
The Company's fiscal year ends on the Saturday closest to December 31. Fiscal 2023 ended on December 30, 2023
(“FY 2023”) and Fiscal 2022 ended on December 31, 2022 (“FY 2022”). Fiscal years 2023 and 2022 each included 52 weeks
of operations.
Use of Estimates.
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the
United States of America (“U.S. GAAP”) requires us to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues, and expenses and the related disclosure of contingent assets and liabilities. We base our estimates
on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from these estimates. In addition, any change in these estimates or
their related assumptions could have an adverse effect on our operating results.
Cash and Cash Equivalents
We consider all highly liquid debt instruments with insignificant interest rate risk and an original maturity of three
months or less when purchased to be cash equivalents. Our cash equivalents consist primarily of cash deposits in money
market funds that are available for withdrawal without restriction.
Accounts Receivable and Provision for Credit Losses
The Company has trade receivables with various individual customers such as private businesses, hospitals,
universities, government and non-profit entities, and distributors. The Company has determined that geography is the similar
risk characteristic to pool our trade receivables balances, and accordingly, groups such balances into either the domestic pool
or the international pool. The domestic pool is primarily comprised of individual customers, and the international pool is
primarily comprised of distributors. The total receivables as of January 1, 2023 and January 2, 2022 were $9.8 million and
$9.7 million, respectfully.
The provision for credit losses represents an estimate of the lifetime expected credit losses inherent in trade receivables
as of the consolidated balance sheet date. We assess the adequacy of the provision for credit losses on a quarterly basis based
on historical information and current economic conditions and forecasts. Subsequent changes in the provision for credit
losses are recorded in current earnings and reversal of previous losses are permitted under the current guidance.
While we believe we have exercised prudent judgment and applied reasonable assumptions, there can be no assurance
that in the future, changes in economic conditions or other factors would not cause changes in the financial health of our
customers. If the financial health of our customers deteriorates, the timing and level of payments received could be impacted
and therefore, could result in a change to our estimated losses.
The following table presents the activity in the provision for credit losses for accounts receivable by pool type for the
year ended December 30, 2023 (in thousands):
55
Balance, beginning of period
Impact of adoption of ASU 2016-13
Balance, end of period
$
$
(235 ) $
141
(94 ) $
(155 ) $
103
(52 ) $
(390 )
244
(146 )
Domestic
International
Total
Sales Returns Allowance
When determining the transaction price, we estimate the variable consideration as the most likely amount to which we
expect to be entitled, and we include the estimated amounts in the transaction price to the extent it is probable that a
significant reversal of cumulative revenue will not occur when the uncertainty associated with the variable consideration is
resolved. Material differences may result in the amount and timing of our revenue for any period if management made
different judgments or utilized different estimates. Our provision for sales returns is recorded net of the associated costs.
There was no provision for sales returns as of December 30, 2023 and December 31, 2022.
Inventories
Inventories are stated at the lower of cost or net realizable value and include on-hand inventory physically held at our
facility, sales demo inventory and service loaner inventory. Cost is determined on a standard cost basis which approximates
actual cost on a FIFO method. Lower of cost or net realizable value is evaluated by considering obsolescence, excessive
levels of inventory, deterioration and other factors. Adjustments to reduce the cost of inventory to its net realizable value, if
required, are made for estimated excess, obsolescence or impaired inventory and are charged to cost of revenues. Once the
cost of the inventory is reduced, a new lower-cost basis for that inventory is established, and subsequent changes in facts and
circumstances do not result in the restoration or increase in that newly established cost basis. Factors influencing these
adjustments include changes in demand, product life cycle and development plans, component cost trends, product pricing,
physical deterioration and quality issues. Revisions to these adjustments would be required if these factors differ from our
estimates.
As part of our normal business, we generally utilize various finished goods inventory as either sales demos to facilitate
the sale of our products to prospective customers, or as loaners that we allow our existing customers to use while we repair
their products. We are amortizing these demos and loaners over an estimated useful life of four years. The amortization of the
demos is charged to sales and marketing expense while the amortization on the loaners is charged to cost of revenues. The
gross value of demos and loaners was $2.3 million and $1.9 million and the accumulated amortization was $1.9 million and
$1.7 million as of December 30, 2023 and December 31, 2022, respectively. The net book value of demos and loaners is
charged to cost of revenues if and when such demos or loaners are sold.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and
amortization are calculated on a straight–line basis over the estimated useful lives of the assets, which is generally three year.
Leasehold improvements are amortized over the lesser of their estimated useful lives or the lease term. Repairs and
maintenance costs are expensed as incurred.
Leases
We determine if an arrangement is a lease at inception. Operating leases are included in Operating lease right-of-use
(“ROU”) assets, net and Operating lease liabilities in our consolidated balance sheets. As of December 30, 2023, the
Company was not a party to finance lease arrangements.
Operating lease ROU assets represent our right to use an underlying asset for the lease term and lease liabilities
represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are
recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do
not provide an implicit rate, we use our incremental borrowing rate based on information available at commencement date in
determining the present value of lease payments. We use the implicit rate when readily determinable. The operating lease
ROU asset also includes any lease payments made and excludes lease incentives. Our lease terms may include options to
extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments
is recognized on a straight-line basis over the lease term.
Under the available practical expedient, we account for the lease and non-lease components as a single lease
component.
56
Valuation of Goodwill and Intangible Assets
Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible
assets acquired in a business combination. The Company reviews goodwill for impairment on an annual basis or whenever
events or changes in circumstances indicate the carrying value may not be recoverable. The Company performs an annual
impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be
recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized
should not exceed the total amount of goodwill allocated to that reporting unit. In addition, income tax effects from any tax
deductible goodwill carrying amount of the reporting unit should be considered when measuring the goodwill impairment
loss, if applicable. The Company has determined that it has a single reporting unit for purposes of performing its goodwill
impairment test. As the Company uses the market approach to assess impairment, its common stock price is an important
component of the fair value calculation. If the Company’s stock price continues to experience significant price and volume
fluctuations, this will impact the fair value of the reporting unit and can lead to potential impairment in future periods. The
Company performed its annual impairment test during the second quarter of fiscal 2023 and determined that its goodwill was
not impaired. As of December 30, 2023, we had not identified any factors that indicated there was an impairment of our
goodwill and determined that no additional impairment analysis was then required.
Intangible assets with definite lives are amortized over the useful life of the asset. We review our amortizing intangible
assets for impairment whenever events or changes in circumstances indicate that their carrying value may not be recoverable.
An asset is considered impaired if its carrying amount exceeds the future non-discounted net cash flow the asset is expected
to generate. If an asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the asset exceeds its fair value. In such circumstances, we conduct an impairment analysis in accordance
with Accounting Standards Codification (“ASC”) 350, “Intangibles – Goodwill and Other” (“ASC 350”).
Revenue Recognition
Our revenues arise from the sale of laser consoles, delivery devices, consumables, service, and support activities. We
also derive revenue from royalties from third parties which are typically based on the licensees’ net sales of products that
utilize our technology. Our revenue is recognized in accordance with Accounting Standards Codification (“ASC”) Topic 606,
“Revenue from Contracts with Customers.” The Company recognizes revenue using the five-step model: (1) identifying the
contract with the customer, (2) identifying the performance obligations in the contract, (3) determining expected transaction
price, (4) allocating the transaction price to the distinct performance obligations in the contract, and (5) recognizing revenue
when (or as) the performance obligations are satisfied.
The Company has the following revenue transaction types: (1) Product Sale Only, (2) Service Contracts, (3) System
Repairs (outside of warranty), (4) Royalty Revenue and (5) Exclusive Distribution Rights.
(1)
Product Sale Only: The Company’s products consist of laser consoles, delivery devices and consumable
instrumentation, including laser probes. The Company’s products are currently sold for use by ophthalmologists
specializing in the treatment of glaucoma and retinal diseases. Inside the United States and Germany the products
are sold directly to the end users. In other countries outside of the United States and Germany, the Company
utilizes independent, third-party distributors to market and sell the Company’s products. There is no continuing
obligation after shipment is made to these distributors.
The Company recognizes revenue from product sale at a point in time subject to the allocation of transaction
price to additional performance obligations, if any.
(2)
Service Contracts: The Company offers a standard two-year warranty on all system sales. The Company also
offers a service contract which is sold to customers in incremental, one-year periods which begin subsequent to
the expiration of the standard two-year warranty. The customer can opt to purchase the service contract at the
time of the system sale or after the initial system sale.
The Company recognizes revenue from service contracts ratably over the service period. Revenue recognition for
the sale of a service contract is largely dependent on the timing of the sale as follows:
57
a.
b.
Service Contract Sale in Conjunction with System Sale: If the customer opts to purchase a service contract
at the time of the system sale, the Company allocates the transaction price of the distinct performance
obligations in the contract by determining stand-alone selling price using historical pricing net of any
variable consideration or discounts to specifically allocate to a particular performance obligation.
Service Contract Sale Subsequent to System Sale: If the customer opts to purchase a service contract after
the initial system sale, the Company determines the amount of time that has elapsed since the initial system
sale. If the service contract is purchased within 60 days of the initial sale, the Company considers this sale
to be an additional element of the original sale and allocates the transaction price of the distinct
performance obligations in the contract by determining stand-alone selling price using historical pricing net
of any variable consideration or discounts to specifically allocate to a particular performance obligation. If
the service contract is purchased subsequent to 60 days after the initial sale, the sale of the service contract
is deemed a separate contract and is deferred at the selling price and recognized ratably over the extended
warranty period as the performance obligation is satisfied.
(3)
System Repairs (outside of warranty): Customers will occasionally request repairs from the Company subsequent
to the expiration of the standard warranty and outside of a service contract.
The Company recognizes revenue from system repairs (outside of warranty) at a point in time. When the
customer requests repairs from the Company subsequent to the expiration of the standard warranty and outside of
a service contract, these repair contracts are considered separate from the initial sale, and as such, revenue is
recognized as the repair services are rendered and the performance obligation satisfied.
(4) Royalty Revenue: The Company has royalty agreements with four customers related to sale of the Company’s
intellectual property. Under the terms of these agreements, two customers are to remit a percentage of sales to the
Company as the sales occur and one customer made an upfront prepayment for royalties.
The arrangements with three customers are for sales-based licenses of intellectual property, for which the
guidance in paragraph ASC 606-10-55-65 applies. Therefore, the Company recognizes revenue at a point in time,
only as the subsequent sale occurs. However, the Company notes that such sales being reported by the licensee
with a quarter in arrears, such revenue is recognized at the time it is reported and paid by the licensee given that
any estimated variable consideration would have to be fully constrained due to the unpredictability of such
estimate and the unavoidable risk that it may lead to significant revenue reversals. For the arrangement with one
customer, the Company had concluded that there is one combined performance obligation to be satisfied.
Therefore, the Company recognizes revenue related to this arrangement over time.
(5) Exclusive Distribution Rights: On March 2, 2021, the Company and Topcon Corporation (“Topcon”) entered into
a distribution agreement (“Distribution Agreement”), pursuant to which the Company granted Topcon the
exclusive right to distribute the Company’s retina and glaucoma products in certain geographies outside the
United States. The exclusivity arrangement with Topcon obligates the Company to provide training, customer
support, and exclusive territorial rights to Topcon for certain international regions, for a period of 10 years,
commencing upon regulatory approval to transfer existing (non-exclusive) distribution rights from the current
distributors in those regions to Topcon. The Company has the right to terminate the exclusive distribution rights
granted to Topcon for any of the regions at any point in time during the 10-year exclusivity term for a
termination fee that is based on a multiple of 1.2 times the revenue generated by the Company in 2019 for the
respective region. Management has determined that the exclusivity rights, training, and customer support
represents a single combined performance obligation for each region, to be recognized as exclusivity fee revenue
on a straight-line basis over the 10-year period for each region, commencing on the date that regulatory approval
is obtained for each region, based on the standalone selling price for such combined performance obligation for
each region. The estimated fair value of the exclusive distribution rights for all regions combined totaled
approximately $14.8 million. Of this amount, management has fully-constrained and returned to Topcon the
arrangement fee allocated to Belarus (approximately $0.2 million) because obtaining the necessary regulatory
approvals and termination of existing distributor relationship was not feasible. During fiscal years ended 2023
and 2022, $1.5 million and $1.3 million in revenue related to the exclusive distribution rights was recorded,
respectively.
Costs of Obtaining Revenue Contracts
The Company recognized assets from certain costs incurred to obtain revenue contracts. These costs relate to sales
commissions arising from the sale of our products. The costs are considered incremental and recoverable of obtaining
revenue contracts with customers. These deferred costs are amortized on a straight-line basis over the estimated period of
benefit, which typically ranges from 2 to 3 years. As of December 30, 2023 and December 31, 2022, we recognized deferred
costs incurred to obtain revenue contracts with customers, net of accumulated amortization, of $0.2 million and $0.2 million,
respectively, and included these amounts in Prepaid expenses and other current assets and Other long-term assets in the
Company’s consolidated balance sheets. Amortization expense was $105 thousand and $36 thousand, respectively, for the
58
fiscal years ended December 30, 2023 and December 31, 2022. There were no impairment expenses for both the fiscal years
ended December 30, 2023 and December 31, 2022, respectively.
Sales commissions that do not represent incremental and recoverable costs of obtaining a contract are expensed as
incurred. As a practical expedient, the Company will not recognize such sales commission as a contract asset but rather
recognize as expense when incurred if the amortization period of the asset that the Company would have otherwise
recognized is one year or less.
Contract Fulfillment Costs
The Company recognized an asset from the costs incurred to fulfill a contract. These costs relate directly and must be
incurred to satisfy performance obligations on certain specific contract with a customer. These costs are expected to be
recovered over time and are amortized on a systematic basis that is consistent with the recognition of revenue to which it
relates. As of December 30, 2023 and December 31, 2022, we recognized deferred costs incurred to fulfill a contract with a
customer, net of accumulated amortization, of $0.7 million and $0.8 million, respectively, and included these amounts in
Prepaid expenses and other current assets and Other long-term assets in the Company’s consolidated balance sheets.
Amortization expense was $83 thousand and $62 thousand, respectively, for the fiscal years ended December 30, 2023 and
December 31, 2022. There were no impairment expenses for both the fiscal years ended December 30, 2023 and December
31, 2022, respectively.
Taxes Collected from Customers and Remitted to Governmental Authorities
Taxes collected from customers and remitted to governmental authorities are recognized on a net basis in the
accompanying consolidated statements of operations.
Deferred Revenue
Deferred revenue represents contract liabilities and exclusivity fees. Revenue related to service contracts is deferred
and recognized on a straight-line basis over the period of the applicable service contract. Costs associated with these service
arrangements are recognized as incurred. Revenue related to exclusivity fees is deferred and recognized over the related
exclusivity period.
A reconciliation of the changes in our deferred revenue balances for the years ended December 30, 2023 and December
31, 2022 are as follows (in thousands):
Balance as of January 1, 2022
Additions to deferral
Revenue recognized
Balance as of December 31, 2022
Additions to deferral
Revenue recognized
Balance as of December 30, 2023
$
$
13,285
4,051
(3,183 )
14,153
1,417
(3,141 )
12,429
59
During each of the twelve months ended December 30, 2023 and December 31, 2022, approximately $2.5 million and
$2.3 million were recognized pertaining to amounts deferred as of December 31, 2022 and as of January 1, 2022,
respectively.
Warranty
The Company currently provides a two-year full warranty on its products. The associated costs of these warranties are
accrued for upon shipment of the products. The Company’s warranty policy is applicable to products which are considered
defective in their performance or fail to meet the product specifications. Warranty costs are reflected in the consolidated
statements of operations as costs of revenues.
A reconciliation of the changes in our warranty liability for the years ended December 30, 2023 and December 31,
2022 are as follows (in thousands):
Balance as of January 1, 2022
Accruals for product warranties
Cost of warranty claims
Adjustment to pre-existing warranties
Balance as of December 31, 2022
Accruals for product warranties
Cost of warranty claims
Adjustment to pre-existing warranties
Balance as of December 30, 2023
Shipping and Handling Costs
$
$
158
132
(232 )
216
274
146
(410 )
436
446
The Company's shipping and handling costs billed to customers are included in revenues and the associated expense is
recorded in cost of revenues for all periods presented. Shipping and handling costs billed to customers amounted to $0.2
million and $0.3 million during fiscal years 2023 and 2022, respectively.
Research and Development
Research and development expenditures are charged to operations as incurred.
Advertising
Advertising and promotion costs are expensed as they are incurred; such costs were approximately $0.2 million in 2023
and $0.4 million in 2022 and are included in sales and marketing expenses in the accompanying consolidated statements of
operations.
Income Taxes
The Company accounts for income taxes in accordance with ASC 740, “Income Taxes” (“ASC 740”), which requires
that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between
the book and tax bases of recorded assets and liabilities. Under ASC 740, the liability method is used in accounting for
income taxes. Deferred tax assets and liabilities are determined based on the differences between financial reporting and the
tax basis of assets and liabilities, and are measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse. ASC 740 also requires that deferred tax assets be reduced by a valuation allowance if it is
more likely than not that some or all of the deferred tax asset will not be realized. We annually evaluate the realizability of
our deferred tax assets by assessing our valuation allowance and by adjusting the amount of such allowance, if necessary. The
factors used to assess the likelihood of realization include our forecast of future taxable income and available tax planning
strategies that could be implemented to realize the net deferred tax assets. As of December 30, 2023, based on the Company's
recent history of losses and its forecasted losses, management believes on the more likely than not basis that a full valuation
allowance is required. Accordingly, as of December 30, 2023, the Company provided a full valuation allowance on its federal
and states deferred tax assets.
60
Accounting for Uncertainty in Income Taxes
The Company accounts for uncertain tax positions in accordance with ASC 740. ASC 740 seeks to reduce the diversity
in practice associated with certain aspects of measurement and recognition in accounting for income taxes. ASC 740
prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a
tax provision that an entity takes or expects to take in a tax return. Additionally, ASC 740 provides guidance on de-
recognition, classification, interest and penalties, accounting in interim periods, disclosures, and transition. Under ASC 740,
an entity may only recognize or continue to recognize tax positions that meet a "more-likely-than-not" threshold. In
accordance with our accounting policy, we recognize accrued interest and penalties related to unrecognized tax benefits as a
component of income tax expense. There were no accrued interest and penalties during the years ended December 30, 2023
and December 31, 2022.
Accounting for Stock-Based Compensation
The Company accounts for stock-based compensation granted to employees and directors, including employees stock
option awards and restricted stock units in accordance with ASC 718, “Compensation – Stock Compensation” (“ASC 718”).
Accordingly, stock-based compensation cost is measured at grant date, based on the fair value of the award. Stock-based
compensation is recognized as expense on a ratable basis over the requisite service period of the award.
The Company values options using the Black-Scholes option pricing model. Time-based restricted stock units are
valued at the grant date fair value of the underlying common shares. Performance-based restricted stock units without market
conditions are valued at grant date fair value of the underlying common shares. Performance-based restricted stock units
granted with market conditions and performance-based stock options with market conditions are valued using the Monte
Carlo simulation model. The Black-Scholes option pricing model requires the use of highly subjective and complex
assumptions which determine the fair value of stock-based awards, including the option’s expected term and the price
volatility of the underlying stock. The Monte Carlo simulation model incorporates assumptions for the holding period, risk-
free interest rate, stock price volatility and dividend yield.
Concentration of Credit Risk and Other Risks and Uncertainties
The Company's cash and cash equivalents are deposited in demand and money market accounts. Deposits held with
banks may exceed the amount of insurance provided on such deposits. Generally, these deposits may be redeemed upon
demand and therefore, bear minimal risk.
The Company markets its products to distributors and end-users throughout the world. Sales to international
distributors are generally made on open credit terms and letters of credit. Management performs ongoing credit evaluations of
our customers and maintains an allowance for potential credit losses. Historically, we have not experienced any significant
losses related to individual customers or a group of customers in any particular geographic area. For the year ended
December 30, 2023, one customer, Topcon, accounted for greater than 10% of total revenues, representing 30%. For the year
ended December 31, 2022, one customer, Topcon, accounted for greater than 10% of total revenues, representing 28%. For
the year ended December 30, 2023, one customer, Topcon, accounted for over 10% of our receivables, representing 30%. As
of December 31, 2022, one customer, Topcon, accounted for over 10% of our receivables, representing 37%.
Our products require approvals from the Food and Drug Administration and international regulatory agencies prior to
commercialized sales. Our future products may not receive required approvals. If we were denied such approvals, or if such
approvals were delayed, it would have a material adverse impact on our business, results of operations and financial
condition.
Reliance on Certain Suppliers
Certain components and services used to manufacture and develop our products are presently available from only one
or a limited number of suppliers or vendors. The loss of any of these suppliers or vendors would potentially require a
significant level of hardware and/or software development efforts to incorporate the products or services into our products.
Net Income (Loss) per Share
Basic net income (loss) per share is based upon the weighted average number of common shares outstanding during the
period. Diluted net income per share is based upon the weighted average number of common shares outstanding and dilutive
common stock equivalents outstanding during the period. Common stock equivalents consist of incremental common shares
issuable upon the exercise of stock options and release (vesting) of restricted stock units and awards and are calculated under
the treasury stock method. Common stock equivalent shares from unexercised stock options and unvested restricted stock
units are excluded from the computation for periods in which we incur a net loss or if the exercise price of such options is
greater than the average market price of our common stock for the period as their effect would be anti-dilutive. See Note 16 -
Computation of Basic and Diluted Net Loss Per Common Share.
Foreign Currency
61
Assets and liabilities of foreign operations with non-U.S. Dollar functional currency are translated to U.S. Dollars using
exchange rates in effect at the end of the period. Revenue and expenses are translated to U.S. Dollars using rates that
approximate those in effect during the period. The resulting translation adjustments are included in the Company’s
Consolidated Balance Sheets in the stockholders’ equity section as a component of accumulated other comprehensive income
(loss).
Implementation Costs Incurred in a Cloud Computing Service Arrangement
The Company has implemented a new enterprise resource planning (“ERP”) system. The new ERP system operates in
a cloud-based environment. The Company concluded that this cloud computing arrangement does not include a license, and
therefore, will account for this arrangement as one that is a service contract. The Company capitalized $1.1 million in
implementation costs and began utilizing the ERP system near the end of the third quarter of 2023 and is recognizing
amortization of the capitalized implementation costs over five years on a straight-line basis. For the year ended December 30,
2023, approximately $0.2 million of amortization expenses were recognized. There were no amortization expenses for the
year ended December 31, 2022.
Recently Adopted Accounting Standards
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.
2016-13 “Measurement of Credit Losses on Financial Instruments,” which amended the current approach to estimate credit
losses on certain financial assets, including trade and other receivables, available-for-sale securities, and other financial
instruments. Generally, this amendment requires entities to establish a valuation allowance for the expected lifetime losses of
these certain financial assets. In November 2019, the FASB issued ASU No. 2019-10, “Financial Instruments - Credit Losses
(Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842),” which amended the effective date for certain
qualified entities to fiscal years beginning after December 15, 2022. On January 1, 2023, the Company adopted ASU No.
2016-13, using the modified retrospective approach by applying a cumulative effect adjustment of $0.2 million to the opening
balance of accumulated deficit.
In December 2020, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2019-12, “Income Taxes
(Topic 740): Simplifying the Accounting for Income Taxes.” as part of its initiative to reduce complexity in the accounting
standards. The standard eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology
for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences.
The standard also clarifies and simplifies other aspects of the accounting for income taxes. The standard is effective for fiscal
years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company had adopted the
pronouncement in the current year and has an immaterial impact to the financial statements.
Recent Accounting Standards Not Yet Adopted
In November 2023, the Financial Standards Accounting Board (FASB) issued Accounting Standards Update (ASU)
2023-07 "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures" which expands annual and
interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment
expenses. ASU 2023-07 is effective for our annual periods beginning January 1, 2024, and for interim periods beginning
January 1, 2025, with early adoption permitted. The Company is currently evaluating the potential effect that the updated
standard will have on its financial statement disclosures.
In December 2023, the FASB issued ASU 2023-09 "Income Taxes (Topics 740): Improvements to Income Tax
Disclosures" to expand the disclosure requirements for income taxes, specifically related to the rate reconciliation and income
taxes paid. ASU 2023-09 is effective for the Company's annual periods beginning January 1, 2025, with early adoption
permitted. The Company is currently evaluating the potential effect that the updated standard will have on its financial
statement disclosures.
3. Related Party - Topcon
As of December 30, 2023, Topcon holds a 10.1% voting interest in the Company, which qualifies it to be a principal
owner considered a related party, even though it currently does not have significant influence over the Company’s operations.
Topcon resells certain of our products as our exclusive distributor in certain international regions. At the same time, the
Company also purchases certain raw materials from Topcon. During fiscal year 2023, the Company’s revenues related to
Topcon amounted to approximately $14.3 million, including $1.5 million recognized exclusive distribution rights revenue.
During fiscal year 2022, the Company’s revenues related to Topcon amounted to approximately $15.9 million, including $1.3
million recognized exclusive distribution rights revenue. The Company’s purchases from Topcon during fiscal year 2023 and
2022 amounted to $0.3 million and $1.0 million, respectively. As of December 30, 2023, the amounts receivable from and
payable to Topcon were $2.9 million and $0.2 million, respectively. As of December 31 2022, the amounts receivable from
and payable to Topcon were $3.5 million and $15 thousand, respectively.
62
4. Fair Value Measurement
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The fair value hierarchy distinguishes between (1) market
participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an
entity’s own assumptions about market participant assumptions developed based on the best information available in the
circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority
to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to
unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:
•
•
•
Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or
liabilities.
Level 2: Directly or indirectly observable inputs as of the reporting date through correlation with market data,
including quoted prices for similar assets and liabilities in active markets and quoted prices in markets that are
not active. Level 2 also includes assets and liabilities that are valued using models or other pricing methodologies
that do not require significant judgment since the input assumptions used in the models, such as interest rates and
volatility factors, are corroborated by readily observable data from actively quoted markets for substantially the
full term of the financial instrument.
Level 3: Unobservable inputs that are supported by little or no market activity and reflect the use of significant
management judgment. These values are generally determined using pricing models for which the assumptions
utilize management’s estimates of market participant assumptions.
In determining fair value, we utilize valuation techniques that maximize the use of observable inputs and minimize the
use of unobservable inputs to the extent possible as well as considers counterparty credit risk in our assessment of fair value.
The carrying amounts of our financial assets and liabilities, including cash and cash equivalents, accounts receivable,
accounts payable, and accrued expenses as of December 30, 2023 and December 31, 2022, approximate fair value because of
the short maturity of these instruments.
As of December 30, 2023 and December 31, 2022, financial assets and liabilities measured and recognized at fair value
on a recurring basis and classified under the appropriate level of the fair value hierarchy as described above was as follows
(in thousands):
(in thousands)
Assets:
As of December 30, 2023
Fair Value Measurements
Level 1 Level 2 Level 3
Total
As of December 31, 2022
Fair Value Measurements
Level 1 Level 2 Level 3
Total
Money market funds
$
43 $ — $ — $
43 $ 12,496 $ — $ — $12,496
The Company’s Level 1 financial assets are money market funds whose fair values are based on quoted market prices.
The Company does not have any Level 2 and Level 3 financial assets or liabilities.
5. Inventories
The components of our inventories are as follows (in thousands):
FY 2023
Raw materials
Work in process
Finished goods
Total inventories
December 30, 2023
$
FY 2022
December 31,
2022
5,820
320
4,468
10,608
5,288 $
156
4,462
9,906 $
$
63
6. Property and Equipment
The components of our property and equipment are as follows (in thousands):
FY 2023
December 30,
2023
FY 2022
December 31,
2022
Equipment
Leasehold improvements
Less: accumulated depreciation and amortization
$
Property and equipment, net
$
11,597 $
2,494
(13,740 )
351 $
11,527
2,494
(13,559 )
462
Depreciation expense related to property and equipment was $277 thousand and $257 thousand for the fiscal years
2023 and 2022, respectively.
7. Goodwill
The carrying value of goodwill was $965 thousand as of both December 30, 2023 and December 31, 2022.
Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible
assets acquired in a business combination. The Company reviews goodwill for impairment on an annual basis or whenever
events or changes in circumstances indicate the carrying value may not be recoverable. The Company performs an annual
impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be
recognized for the amount by which the carrying amount exceed the reporting unit’s fair value; however, the loss recognized
should not exceed the total amount of goodwill allocated to that reporting unit. In addition, income tax effects from any tax-
deductible goodwill carrying amount of the reporting unit should be considered when measuring the goodwill impairment
loss, if applicable. The Company has determined that it has a single reporting unit for purposes of performing its goodwill
impairment test. As the Company uses the market approach to assess impairment, its common stock price is an important
component of the fair value calculation. If the Company’s stock price continues to experience significant price and volume
fluctuations, this will impact the fair value of the reporting unit and can lead to potential impairment in future periods. The
Company performed its annual impairment test during the second quarter of fiscal year 2023 and determined that its goodwill
was not impaired. The determination of whether any potential impairment of goodwill exists is based upon an impairment test
performed in accordance with ASC 350. There was no impairment of goodwill recognized during fiscal years 2023 and 2022.
8. Intangible Assets
The components of our purchased intangible assets as of December 30, 2023 are as follows (in thousands):
Customer relations
Developed technology
Trade names
Patents
Useful
Lives
15 Years
7 Years
9 Years
Varies
$
$
FY 2023
Annual
Amortization
Gross
Carrying
Value
Accumulated
Amortization
Net
Carrying
Value
30 $
270
33
—
333 $
340 $
1,899
300
600
3,139 $
260 $
543
94
600
1,497 $
80
1,356
206
—
1,642
Useful Lives
Remaining
3.43 Years
5.13 Years
6.17 Years
Varies
64
The components of our purchased intangible assets as of December 31, 2022 are as follows (in thousands):
Customer relations
Developed technology
Trade names
Patents
Useful
Lives
15 Years
7 Years
9 Years
Varies
$
$
FY 2022
Annual
Amortization
Gross
Carrying
Value
Accumulated
Amortization
Net
Carrying
Value
30 $
165
33
—
228 $
340 $
1,900
300
600
3,140 $
230 $
272
61
600
1,163 $
110
1,628
239
—
1,977
Useful Lives
Remaining
4.21 Years
6.10 Years
7.17 Years
Varies
Aggregate amortization expense for fiscal years 2023 and 2022 were $333 thousand and $228 thousand, respectively.
The amortization of developed technology was charged to research and development expense and the amortization of
customer relations and trade names was charged to sales and marketing expense. We started amortization of in-process R&D
in the fourth fiscal quarter of 2022, as it was related to the release of a new system.
Estimated future amortization expense for purchased intangible assets is as follows (in thousands):
Fiscal Year:
2024
2025
2026
2027
2028
Thereafter
Total
$
$
335
323
319
319
200
146
1,642
9. Accrued Expenses and Other Current Liabilities
The components of our accrued expenses and other current liabilities are as follows (in thousands):
$
Legal and professional fees
Sales and marketing expenses
Temporary help and consulting
Royalties payable
Tax payable
Accrued expenses for ERP system implementation
Other accrued expenses
Total accrued expenses
$
FY 2023
December 30,
2023
FY 2022
December 31,
2022
227 $
117
140
149
100
940
323
1,996 $
384
96
196
106
65
—
701
1,548
Customer deposits
Total other current liabilities
10. Leases and Commitments and Contingencies
Operating Leases
FY 2023
December 30,
2023
FY 2022
December 31,
2022
$
$
925 $
925 $
968
968
We lease our operating facilities in Mountain View, California, under a non-cancelable operating lease through August
31, 2026. There are no further options or rights to extend the term of this lease.
Our operating lease commitments consist of facility and office equipment leases. Operating lease expense for fiscal
years 2023 and 2022 was approximately $1.0 million and $1.0 million, respectively. The weighted average discount rate used
in calculating the present value of lease payments was 4.7%. As of December 30, 2023, the weighted average remaining lease
term for our operating leases was 2.7 years.
65
The following represents maturities of operating lease liabilities as of December 30, 2023 (in thousands):
Fiscal Year
2024
2025
2026
2027
Total lease payments
Less: Imputed interest
Total lease liabilities
Non-current portion of lease liabilities
Current portion of lease liabilities
Operating
Lease Payments
1,081
1,111
762
—
2,954
(208 )
2,746
(1,751 )
995
$
$
Purchase Commitments.
Our purchase commitments consist primarily of non-cancellable purchase orders with vendors to manufacture certain
components and ophthalmic instruments. As of December 30, 2023, our future minimum payments through fiscal year 2024
for our purchase commitments were approximately $7.2 million, with $1.8 million committed for the next 12 months.
License Agreements.
We are obligated to pay royalties equivalent to 1% to 5% of sales on certain products under certain license agreements
with termination dates through the end of 2033. Royalty expense, charged to cost of revenues, was approximately $0.4
million and $0.4 million for fiscal years 2023 and 2022, respectively.
Indemnification Arrangements.
We enter into standard indemnification arrangements in our 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 parties (generally our business partners or customers) in connection with any trade secret, copyright, patent
or other intellectual property infringement claim by any third-party with respect to our products. 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 agreements 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
estimated fair value of these agreements is minimal.
We have entered into indemnification agreements with our directors and officers that may require us to indemnify our
directors and officers against liabilities that may arise by reason of their status or service as directors or officers, other than
liabilities arising from willful misconduct of a culpable nature. These agreements also require us to advance their expenses
incurred as a result of any proceeding against them as to which they could be indemnified and to make good faith
determination whether or not it is practicable for us to obtain directors and officers insurance. We currently have directors and
officers liability insurance.
Legal Proceedings.
From time to time, we may be involved in legal proceedings arising in the ordinary course of business. In general,
management believes that ordinary course of business matters will not have a material adverse effect on our financial position
or results of operations and are adequately covered by our liability insurance. However, it is possible that consolidated cash
flows or results of operations could be materially affected in any particular period by the unfavorable resolution of one of
more of these contingencies or because of the diversion of management’s attention and the incurrence of significant expenses.
11. Stockholders’ Equity
2008 Equity Incentive Plan.
On June 11, 2008, the shareholders approved the adoption of the 2008 Equity Incentive Plan, (the “Incentive Plan”).
There are no material changes in the Incentive Plan from the 1998 Stock Plan (the “1998 Plan”). In 2014, 2017, 2018, 2019,
2021 and 2023, the stockholders approved an amendment to the Incentive Plan for purposes of complying with Section
162(m) of the Internal Revenue Code of 1986, as amended, to increase the share reserve under the Incentive Plan, and to
make certain other amendments to the terms of the Incentive Plan. The maximum aggregate number of shares that may be
awarded and sold under the Incentive Plan, as amended is 5,850,000 shares plus any shares subject to stock options or similar
awards granted under the 1998 Plan that expire or otherwise terminate without having been exercised in full and shares
66
issued pursuant to awards granted under the 1998 Plan that are forfeited to us on or after February 23, 2008, which was the
date the 1998 Plan expired.
The following table represents the shares activity and the total number of shares available for grant under the Incentive
Plan:
Balances as of January 1, 2022
Options granted
Restricted stock granted
Options cancelled or forfeited
Awards cancelled
Balances as of December 31, 2022
Shares added
Options granted
Restricted stock granted
Options cancelled or forfeited
Awards cancelled
Balances as of December 30, 2023
Shares
Available
for Grant
1,122,381
(577,613 )
(547,305 )
107,575
9,957
114,995
1,000,000
(808,410 )
(294,503 )
245,617
75,294
332,993
Restricted stock units with a per share or unit purchase price lower than 100% of the fair market value of the
Company's common stock on the date of grant under the Incentive Plan, as amended, are counted against shares
authorized under the plan as one and one-half shares of common stock for each share. When cancelled, these shares are
added back to the Incentive Plan, as amended, as one and one-half shares.
The following table shows stock-based compensation expenses by functional area in the consolidated statements of
operations for 2023 and 2022 (in thousands):
Cost of revenues
Research and development
Sales and marketing
General and administrative
Total stock-based compensation expense
FY 2023
Year Ended
FY 2022
Year Ended
December 30, 2023 December 31, 2022
246
213 $
$
155
217
400
378
820
842
1,621
1,650 $
$
Stock-based compensation expense capitalized to inventory was immaterial for 2023 and 2022.
As of December 30, 2023, there was $3.1 million of total unrecognized compensation cost related to non-vested share-
based compensation arrangements under the Incentive Plan. The cost is expected to be recognized over a weighted-average
period of 2.07 years.
Summary of Stock Options
The following table summarizes information regarding activity in our stock option plans during the fiscal years ended
2023 and 2022 (in thousands except share and per share data):
Balances as of January 1, 2022
Options granted
Options exercised
Options cancelled or forfeited
Balances as of December 31, 2022
Options granted
Options exercised
Options cancelled or forfeited
Balances as of December 30, 2023
67
Outstanding Options
Number
of Shares
1,772,621
577,613
(9,692 )
(107,575 )
2,232,967 $
808,410
(37,839 )
(245,617 )
2,757,921 $
Weighted
Average
Exercise
Price
5.07
2.53
2.20
8.22
4.27
2.13
2.18
5.04
3.60
The following table summarizes information with respect to stock options outstanding and exercisable as of December
30, 2023:
Range of Exercise Prices
$1.50 - $2.12
$2.13 - $2.13
$2.17 - $2.27
$2.28 - $2.28
$2.30 - $4.86
$4.92 - $4.92
$4.98 - $6.58
$6.76 - $9.54
$11.16 - $11.16
$14.61 - $14.61
$1.50 - $14.61
Options Outstanding
Weighted
Average
Remaining
Contractual
Life (years)
Weighted
Average
Exercise
Price
Options Vested and Exercisable
Number of
Shares
Exercisable
Weighted
Average
Exercise
Price
Number of
Shares
Outstanding
51,475
1,037,809
70,000
380,620
162,338
600,000
376,779
55,500
3,400
20,000
2,757,921
5.79 $
5.83 $
4.20 $
5.82 $
3.80 $
4.39 $
3.75 $
3.24 $
0.32 $
0.18 $
4.97 $
1.99
2.13
2.22
2.28
3.39
4.92
6.19
7.90
11.16
14.61
3.60
12,051 $
303,464 $
46,970 $
126,867 $
119,233 $
300,000 $
284,274 $
41,159 $
3,400 $
20,000 $
1,257,418 $
1.99
2.13
2.23
2.28
3.43
4.92
6.10
8.00
11.16
14.61
4.25
The determination of the fair value of options granted is computed using the Black-Scholes option pricing model with
the following weighted average assumptions:
Average risk free interest rate
Expected life (in years)
Dividend yield
Average volatility
Employee Stock Option Plan
FY 2022
FY 2023
4.57 %
4.40 years
—
77.0 %
3.82 %
4.50 years
—
76.0 %
The weighted average grant date fair value of options granted as calculated using the Black-Scholes option pricing was
$1.32 and $1.55 per share for the fiscal years 2023 and 2022, respectively.
Option pricing models require the input of various subjective assumptions, including the option’s expected life and the
price volatility of the underlying stock. The expected stock price volatility is based on analysis of our stock price history over
a period commensurate with the expected term of the options, trading volume of our stock, look-back volatilities and
Company specific events that affected volatility in a prior period. The expected term of employee stock options represents the
weighted average period the stock options are expected to remain outstanding and is based on the history of exercises and
cancellations on all past option grants made, the contractual term, the vesting period and the expected remaining term of the
outstanding options. The risk-free interest rate is based on the U.S. Treasury interest rates whose term is consistent with the
expected life of the stock options. No dividend yield is included as we have not issued any dividends and does not anticipate
issuing any dividends in the future.
Information regarding stock options outstanding, exercisable and expected to vest as of December 30, 2023 is
summarized below:
Options outstanding
Options vested and expected to vest
Options exercisable
Number of
Shares
2,757,921
2,671,222
1,257,418
Weighted Average
Exercise Price
$
$
$
3.60
3.64
4.25
Weighted
Average
Remaining
Contractual
Life (years)
Aggregate
Intrinsic
Value
(thousands)
4.97 $
4.92 $
3.63 $
1,020
967
335
68
The aggregate intrinsic value in the table above represents the total pretax intrinsic value (the difference between our
closing stock price on the last trading day of fiscal 2023 and the exercise price, multiplied by the number of in-the-money
options) that would have been received by the option holders had all option holders exercised their options on December 30,
2023. This amount is subject to change due to changes to the fair market value of our common stock. The total intrinsic value
of options exercised for fiscal years 2023 and 2022 were approximately $20 thousand and $23 thousand, respectively.
Restricted Stock Units
Effective for the 2018 fiscal year and thereafter, each non-employee member of the Board of Directors receives an
annual equity award of either restricted stock or restricted stock units, at the election of such Board member, in each case
equal to $75 thousand worth of our common stock (determined at the fair market value of the shares at the time such award is
granted) under our Incentive Plan. Each equity award vests in full on the earlier of the one-year anniversary of the date of
grant or the Company’s next annual meeting of stockholders, provided that the non-employee member continues to serve on
the Board through such date.
Summary of Restricted Stock Units
We recognize the estimated compensation expense of restricted stock units, net of estimated forfeitures, over the
vesting term. The estimated compensation expense is based on the fair value of our common stock on the date of grant.
Information regarding the restricted stock units outstanding, vested and expected to vest as of December 30, 2023 is
summarized below:
Restricted stock units outstanding
Restricted stock units vested and expected to vest
353,212
340,595
Weighted
Average
Remaining
Contractual
Life (years)
Number of
Shares
Aggregate
Intrinsic
Value (thousands)
993
957
0.65 $
0.64 $
The intrinsic value of the restricted stock units is calculated based on the closing price of our shares as quoted on the
Nasdaq Global Market on the last trading day of the fiscal year, December 29, 2023, of $2.81.
The majority of the restricted stock units that were released in fiscal year 2023 were net-share settled such that we
withheld shares with value equivalent to the employees’ minimum statutory obligation for the applicable income and other
employment taxes, and remitted the cash to the appropriate taxing authorities. The total shares withheld were based on the
value of the restricted stock units on their release date as determined by our closing stock price. These net-share settlements
had the effect of share repurchases as they reduced and retired the number of shares that would have otherwise been issued as
a result of the release and did not represent an expense to us. For the fiscal year ended December 30, 2023, 265,956 shares of
restricted stock units were released with an intrinsic value of approximately $540 thousand. We withheld 40,644 shares to
satisfy approximately $88 thousand of employees’ minimum tax obligation on the released restricted stock units.
Information regarding the restricted stock unit activity during the years ended December 30, 2023 and December 31,
2022 is summarized below:
Outstanding as of January 1, 2022
Restricted stock units granted
Restricted stock units released
Restricted stock units forfeited
Outstanding as of December 31, 2022
Restricted stock units granted
Restricted stock units released
Restricted stock units forfeited
Outstanding as of December 30, 2023
69
Weighted
Average
Grant Date
Fair
Value
3.50
2.45
4.88
5.08
3.13
1.91
3.10
3.22
2.46
Number of
Shares
253,761 $
364,870 $
(138,964 ) $
(6,638 ) $
473,029 $
196,335 $
(265,956 ) $
(50,196 ) $
353,212 $
During the year ended December 30, 2023, the Company awarded 196,335 restricted stock units at a weighted average
grant date fair value of $1.91 per share. During the year ended December 31, 2022, the Company awarded 364,870 restricted
stock units at a weighted average grant date fair value of $2.45 per share.
12. Employee Benefit Plan
We have a plan known as the Iridex Corporation Profit Sharing/401(k) Plan to provide retirement benefits through the
deferred salary deductions for substantially all U.S. employees. Employees may contribute up to 15% of their annual
compensation to the plan, limited to a maximum amount set by the Internal Revenue Service. The plan also provides for
Company contributions at the discretion of the Company. In 2023, the Company made $238 thousand worth of total matching
contributions. In 2022, the Company made $230 thousand worth of total matching contributions.
13. Income Taxes
Loss from operations before provision for income taxes was comprised of the following:
FY 2023
Year Ended
FY 2022
Year Ended
United States
Foreign
Total
The provision for income taxes includes:
Current:
Federal
State
Foreign
Deferred:
Federal
State
Provision for income taxes
December 30, 2023 December 31, 2022
(7,544 )
$
62
(7,482 )
(9,673 ) $
193
(9,480 ) $
$
FY 2023
Year Ended
FY 2022
Year Ended
December 30, 2023 December 31, 2022
$
$
$
— $
31
58
89
1
—
1
90 $
—
47
18
65
1
(1 )
—
65
Our effective tax rate differs from the statutory federal income tax rate as shown in the following schedule:
Income tax provision at statutory rate
State income taxes, net of federal benefit
Permanent differences
SBC
Rate change impact
Research and development credits
Change in valuation allowance
Foreign rate differential
Other
Effective tax rate
70
FY 2023
Year Ended
FY 2022
Year Ended
December 30, 2023 December 31, 2022
21.0 %
3.2 %
(0.3 )%
(1.4 )%
(0.9 )%
1.3 %
(24.0 )%
(0.7 )%
1.0 %
(0.8 )%
21.0 %
5.1 %
(0.4 )%
(1.7 )%
(1.1 )%
1.5 %
(24.0 )%
(0.1 )%
(1.2 )%
(0.9 )%
The tax effect of temporary differences and carryforwards that give rise to significant portions of the net deferred tax
assets are presented below (in thousands):
FY 2023
Year Ended
FY 2022
Year Ended
December 30, 2023 December 31, 2022
Deferred tax assets:
Net operating losses
Research and development credits
Accruals and reserves
Deferred revenue
Property and equipment
Intangible assets
Section 174 research and experimental expenditures
capitalization
Stock compensation
Other tax credits
Total deferred tax asset
Less: Valuation allowance
Total deferred tax assets, net
Deferred tax liabilities:
Goodwill
Total deferred tax liabilities
Net deferred tax liabilities
$
$
13,268 $
4,225
1,573
2,593
237
281
2,544
725
1
25,447
(25,357 )
90
(116 )
(116 )
(26 ) $
11,264
3,904
2,505
2,640
283
344
1,500
717
1
23,158
(23,078 )
80
(104 )
(104 )
(24 )
Our accounting for deferred taxes involves the evaluation of a number of factors concerning the realizability of our
deferred tax assets. Assessing the realizability of deferred tax assets is dependent upon several factors, including the
likelihood and amount, if any, of future taxable income in relevant jurisdictions during the periods in which those temporary
differences become deductible. Our management forecasts taxable income by considering all available positive and negative
evidence including our history of operating income or losses and our financial plans and estimates which are used to manage
the business. These assumptions require significant judgment about future taxable income. The amount of deferred tax assets
considered realizable is subject to adjustment in future periods if estimates of future taxable income are reduced.
As of December 30, 2023, based on the Company's recent history of losses and its forecasted losses, management
believes on the more likely than not basis that a full valuation allowance is required. Accordingly, in the fourth quarter of
fiscal year 2023, the Company provided a full valuation allowance on its federal and state deferred tax assets. The Company's
change in valuation allowance form prior year was $2.3 million. As of December 30, 2023, the Company had federal and
state net operating loss (“NOL”) carry forwards of $53.6 million and $27.1 million, respectively. The federal NOL and the
state NOL will begin to expire in 2032.
The Company has federal and state research credit carry forwards of approximately $2.5 million and $3.7 million,
respectively. The federal research credit will begin to expire in 2024 and the state research credit can be carried forward
indefinitely. In the event of a change in ownership as defined by IRC sections 382 and 383, the usage of the above mentioned
NOLs and credits may be limited.
The Company accounts for uncertain tax positions in accordance with ASC 740, “Income Taxes.” ASC 740 seeks to
reduce the diversity in practice associated with certain aspects of measurement and recognition in accounting for income
taxes. ASC 740 prescribes a recognition threshold and measurement attribute for the financial statement recognition and
measurement of a tax provision that an entity takes or expects to take in a tax return. Additionally, ASC 740 provides
guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosures, and transition.
Under ASC 740, an entity may only recognize or continue to recognize tax positions that meet a "more likely than not"
threshold. In accordance with our accounting policy, we recognize accrued interests and penalties related to unrecognized tax
benefits as a component of income tax expense. There is no accrued interest and penalty during the year ended December 30,
2023.
71
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
FY 2023
Year Ended
December 30, 2023
Balance at the beginning of the year
$
Additions based upon tax positions related to the current year
Reductions based upon tax positions related to the prior year
Balance at the end of the year
1,368 $
104
(36 )
1,436 $
$
FY 2022
Year Ended
December 31,
2022
1,308
110
(50 )
1,368
If the ending balance of $1.4 million of unrecognized tax benefits as of December 30, 2023 were recognized, $0 of the
recognition would affect the income tax rate. The Company does not anticipate any material change in our unrecognized tax
benefits over the next twelve months. The unrecognized tax benefits may change during the next year for items that arise in
the ordinary course of business.
The Company files U.S. federal and state returns. The tax years 2012 to 2022 remain open in several jurisdictions, none
of which have individual significance.
On August16, 2022, President Biden signed into law the Inflation Reduction Act, with tax provisions primarily focused
on implementing a 15% minimum tax on global adjusted financial statement income and a 1% excise tax on share
repurchases. The majority of the provisions of the Inflation Reduction Act of 2022 became effective beginning in 2023.
Under US GAAP, changes in income tax rates and law are accounted for in the period of enactment. For US federal
purposes, the enactment date for US GAAP is the date the President signs the bill into law.
Management has reviewed the majority of the material provisions that would impact the Company and have
determined that certain provisions in the IRA require accounting in the period of enactment but the majority of the provisions
in the IRA with accounting implications will impact financial statements prospectively. We have reviewed the above
provisions and based on the implication date and the application to the business, we don’t anticipate there to be any material
impact of the tax law changes to the financial statements in 2023 or in the future.
14. Loan and Security Agreement
The Company had a Loan and Security Agreement (“Loan Agreement”) with Silicon Valley Bank providing for up to
$8.0 million secured revolving loan facility which expired on December 1, 2023. The Company is currently in the process of
negotiating the renewal and new terms for the Loan Agreement.
As of December 31, 2022, there were no amounts outstanding.
15. Business Segments and Geographical Information
We operate in one segment, ophthalmology. Substantially all of our long-term assets are located in the U.S. We
develop, manufacture and market medical devices. Our revenues arise from the sale of consoles, delivery devices,
consumables, service and support activities.
Revenue information shown by product is as follows (in thousands):
Cyclo G6
Retina
Other(1)
Total revenues
FY 2023
FY 2022
Year Ended
December 30, 2023
Year Ended
December 31, 2022
13,461 $
29,445
8,963
51,869 $
14,694
31,657
10,621
56,972
$
$
72
(1) Includes service contract revenues of $1,534 thousand and $1,509 thousand recognized during fiscal years 2023 and 2022,
respectively. Includes $1,455 thousand and $1,348 thousand recognized revenue related to the exclusive distribution rights
during fiscal years 2023 and 2022. Other also includes revenues from paid service, royalty, freight and legacy G probes.
Revenue information shown by geographic region is as follows (in thousands):
United States
Europe, Middle East and Africa
Asia/Pacific Rim
Americas, excluding the U.S.
FY 2023
Year Ended
December 30, 2023
FY 2022
Year Ended
December 31, 2022
$
$
26,054 $
13,519
10,234
2,062
51,869 $
29,179
13,801
10,931
3,061
56,972
Revenues are attributed to countries based on location of end customers.
Other than the United States, The Netherlands accounted for more than 10% of the Company’s revenues during fiscal
year 2023, representing 14.0%. The United States accounted for 50.2% of revenues in 2023. Other than the United States,
The Netherlands accounted for more than 10% of the Company’s revenues during fiscal year 2022, representing 14.4%. The
United States accounted for 51.2% of revenues in 2022.
16. Computation of Basic and Diluted Net Loss Per Common Share
A reconciliation of the numerator and denominator of basic and diluted net loss per common share is provided as
follows (in thousands, except per share amounts):
Numerator:
Net loss
Denominator:
FY 2023
Year Ended
December 30, 2023
FY 2022
Year Ended
December 31, 2022
$
(9,570 ) $
(7,547 )
Weighted average shares of common
stock (basic)
16,128
15,938
Weighted average shares of common
stock (diluted)
Per share data:
Basic net loss per share
Diluted net loss per share
$
$
16,128
(0.59 ) $
(0.59 ) $
15,938
(0.47 )
(0.47 )
As of December 30, 2023 and December 31, 2022, stock options, restricted stock units and restricted stock awards of
2,821,990 and 1,834,930 shares, respectively, were excluded from the computation of diluted weighted average shares
outstanding because to do so would have been anti-dilutive.
73
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures.
Our management, with the participation of our Principal Executive Officer and Principal Financial Officer, evaluated
the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Exchange Act. In designing and
evaluating our disclosure controls and procedures, management recognizes that disclosure controls and procedures, no matter
how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure
controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management was required
to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of
any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events,
and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Based on management’s evaluation, our Principal Executive Officer and Principal Financial Officer concluded that, as
of December 30, 2023, our disclosure controls and procedures are designed at a reasonable assurance level and are effective
to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the
Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms,
and that such information is accumulated and communicated to our management, including our Principal Executive Officer
and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control over Financial Reporting.
Our management is responsible for establishing and maintaining adequate internal control over the Company’s
financial reporting. There are inherent limitations in the effectiveness of any internal control, including the possibility of
human error and the circumvention or overriding of controls. Accordingly, even any effective internal control can provide
only reasonable assurance with respect to financial statement preparation. Further, because of changes in conditions, the
effectiveness of any internal control may vary over time. Our management assessed the effectiveness of the company’s
internal control over financial reporting as of December 30, 2023. In making this assessment, we used the criteria set forth by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated
Framework (2013). Based on our assessment using those criteria, our management concluded that, as of December 30, 2023,
our internal control over financial reporting is effective.
This Annual Report on Form 10-K does not include an attestation report of our independent registered public
accounting firm regarding internal control over financial reporting. Management’s report is not subject to attestation by our
independent registered public accounting firm.
Changes in Internal Control over Financial Reporting.
There were no changes in our internal control over financial reporting that occurred during the fourth quarter of fiscal
year 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting,
as defined in Rule 13a-15(f) and 15(d)-15(f) under the Exchange Act.
Inherent Limitations on Effectiveness of Controls.
Our management, including our Principal Executive Officer and Principal Financial Officer, believes that our
disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance
of achieving their objectives and are effective at the reasonable assurance level. However, our management does not expect
that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud.
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource
constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any,
have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that
breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts
of some persons, by collusion of two or more persons or by management override of the controls. The design of any system
of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may
become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may
deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may
occur and not be detected.
74
Item 9B. Other Information
Securities Trading Plans of Directors and Executive Officers.
During the three months ended December 30, 2023, the Company did not adopt or terminate, and no directors or
officers, as defined in Rule 16a-1(f), adopted or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1
trading arrangement,” each as defined in Regulation S-K Item 408.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not applicable.
75
PART III
Certain information required by Part III has been omitted from this Form 10-K. This information is instead
incorporated herein by reference to our definitive Proxy Statement, which we will file within 120 days after the end of our
fiscal year pursuant to Regulation 14A in time for our Annual Meeting of Stockholders to be held in 2024.
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this item will be contained in our definitive proxy statement to be filed with the SEC in
connection with our 2024 Annual Meeting of Stockholders (the “Proxy Statement”), which is expected to be filed not later
than 120 days after the end of our fiscal year ended December 30, 2023 and is incorporated in this report by reference.
Item 11. Executive Compensation
The information required by this item will be set forth in the Proxy Statement and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item will be set forth in the Proxy Statement and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this item will be set forth in the Proxy Statement and is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services.
The information required by this item will be set forth in the Proxy Statement and is incorporated herein by reference.
76
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a)
The following documents are filed in Part II of this Annual Report on Form 10-K:
77
1. Index to Financial Statements
Report of Independent Registered Public Accounting Firm (PCAOB ID: 207)
Consolidated Balance Sheets as of December 30, 2023 and December 31, 2022
Consolidated Statements of Operations for the years ended December 30, 2023 and December 31, 2022
Consolidated Statements of Comprehensive Loss for the years ended December 30, 2023 and December 31,
2022
Consolidated Statements of Stockholders’ Equity for the years ended December 30, 2023 and December 31,
2022
Consolidated Statements of Cash Flows for the years ended December 30, 2023 and December 31, 2022
Notes to Consolidated Financial Statements
Page in
Form 10-K
Report
48
50
51
52
53
54
55
2. Financial Statement Schedule
Schedules have been omitted because they are either not required, not applicable, or the required information is
included in the consolidated financial statements or notes thereto.
3. Exhibits
Exhibit Index
Exhibit
No.
Description
Form
Incorporated by Reference
File No.
Exhibit
Filing Date
Filed Herewith
3.1
Amended and Restated Certificate of
Incorporation of Registrant filed on February 22,
1996.
X
3.2
Amended and Restated Bylaws of Registrant.
8-K
000-27598
4.1
Investor Rights Agreement, dated as of August
31, 2007, by and among the Registrant, BlueLine
Capital Partners, LP; BlueLine Capital Partners
III, LP and BlueLine Capital Partners II, LP.
8-K
000-27598
3.1
4.2
April 1, 2019
September 7,
2007
4.2
Amendment No. 1 to Investor Rights Agreement,
dated as of March 31, 2009.
8-K
000-27598
4.1
April 6, 2009
4.3
Description of Capital Stock.
10-K
000-27598
4.3 March 13, 2020
10.1
10.2
10.2.1
10.2.2
10.2.3
10.2.4
Form of Indemnification Agreement with
directors and officers.
Lease Agreement dated December 6, 1996 by and
between Zappettini Investment Co. and the
Registrant, as amended pursuant to Amendment
No. 1 dated September 15, 2003 and Amendment
No. 2 dated December 22, 2008.
Third Amendment to Lease Agreement dated
August 4, 2014 by and between Zappettini
Investment Co. and the Registrant.
Fourth Amendment to Lease Agreement dated
January 31, 2016 by and between ZIC 1212 Terra
Bella LLC and the Registrant.
Triple Net Lease dated April 26, 2017 by and
between ZIC 1212 Terra Bella LLC and the
Registrant.
First Amendment to Triple Net Lease by and
between ZIC 1212 Terra Bella LLC and the
Registrant, executed on April 30, 2021.
78
10-K
000-27598
10.2 March 15, 2022
10-K
000-27598
10.2
April 1, 2009
10-Q
000-27598
10.1
November 3,
2014
10-K
000-27598
10.1 March 31, 2016
8-K
000-27598
10.1 May 1, 2017
10-Q
000-27598
10.1
August 12,
2021
Exhibit
No.
10.2.5
10.2.6
Description
Second Amendment to Triple Net Lease by and
between ZIC 1212 Terra Bella LLC and the
Registrant, dated on August 29, 2022.
Third Amendment to Triple Net Lease by and
between ZIC 1212 Terra Bella LLC and the
Registrant, dated on September 21, 2023.
Form
10-Q
Incorporated by Reference
File No.
000-27598
Exhibit
10.1 November 20,
Filing Date
2023
10-Q
000-27598
10.2 November 20,
2023
Filed Herewith
10.3*
2005 Employee Stock Purchase Plan.
DEF 14A 000-27598
April 30, 2004
10.4*
2008 Equity Incentive Plan, as amended.
8-K
000-27598
10.1
June 15, 2023
10.5*
Form of 2008 Equity Incentive Plan Option
Agreement.
S-8
333-155598
99.1 November 21,
10.6*
Form of Stand-Alone Stock Option Agreement.
SC TO-I 005-48169
2008
July 30, 2009
99.(d)
(5)
10.7
10.8*
10.9*
10.10
10.10.1
10.10.2
10.10.3
Securities Purchase Agreement, dated August 31,
2007, by and among BlueLine Capital Partners,
LP, BlueLine Capital Partners III, LP, BlueLine
Capital Partners II, LP and the Registrant.
Form of 2008 Equity Incentive Plan Restricted
Stock Award Agreement.
Form of 2008 Equity Incentive Plan Restricted
Stock Unit Award Agreement.
8-K
000-27598
10.1
September 7,
2007
10-Q
000-27598
10.1 August 4, 2011
10-Q
000-27598
10.2 August 4, 2011
Loan and Security Agreement, dated as of
November 2, 2016, between IRIDEX Corporation
and Silicon Valley Bank.
8-K
000-27598
10.1
November 3,
2016
First Amendment to Loan and Security
Agreement between IRIDEX Corporation and
Silicon Valley Bank, executed on December 3,
2019.
Second Amendment to Loan and Security
Agreement between IRIDEX Corporation and
Silicon Valley Bank, executed on January 8, 2020.
Third Amendment to Loan and Security
Agreement between IRIDEX Corporation and
Silicon Valley Bank, executed on December 31,
2020.
10-K
000-27598 10.19.1 March 13, 2020
10-K
000-27598 10.19.2 March 13, 2020
10-K
000-27598 10.19.3 March 23, 2021
10.10.4
Fourth Amendment to Loan and Security
Agreement between IRIDEX Corporation and
Silicon Valley Bank, executed on March 24, 2022.
10.10.5
Fifth Amendment to Loan and Security
Agreement between IRIDEX Corporation and
Silicon Valley Bank, executed on June 15, 2022.
10-Q
000-27598
10.1
10-Q
000-27598
10.1
August 15,
2022
August 15,
2022
10.11*
Offer Letter between the Company and Mr. Bruce
effective as of May 20, 2019.
8-K/A 000-27598
10.1
June 14, 2019
10.12*
10.13*
Change in Control Severance Agreement dated as
of October 25, 2019, between the Company and
Mr. Bruce.
Change in Control Severance Agreement dated as
of October 25, 2019, between the Company and
Mr. Mercer.
8-K
000-27598
10.1
8-K
000-27598
10.2
October 28,
2019
October 28,
2019
79
Exhibit
No.
10.14
10.15
10.16
10.17
21.1
23.1
24.1
31.1
31.2
32.1
32.2
97.1*
99.1
99.2
101.INS
Description
Asset Purchase Agreement dated as of March 2,
2021, among the Company, Topcon Medical
Laser Systems, Inc. and Topcon America
Corporation.
Distribution Agreement dated as of March 2,
2021, by and between the Company and Topcon
Corporation.
Investment Agreement dated as of March 2, 2021,
by and between the Company and Topcon
America Corporation.
Registration Rights Agreement dated as of March
2, 2021, by and between the Company and
Topcon America Corporation.
Subsidiaries of Registrant
Consent of BPM LLP, Independent Registered
Public Accounting Firm.
Power of Attorney (included on signature page).
Certification of Principal Executive Officer
pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
Certification of Principal Financial Officer
pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
Certification of Principal Executive Officer
pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
Certification of Principal Financial Officer
pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
Compensation Recovery Policy of Registrant as
adopted on November 20, 2023.
Verified Petition for Relief Pursuant to 8 Del. C. §
205 of the Registrant, filed October 2, 2023.
Incorporated by Reference
File No.
Form
8-K/A 000-27598
Exhibit
10.1
Filing Date
March 4, 2021
8-K/A 000-27598
10.2 March 4, 2021
8-K/A 000-27598
10.3 March 4, 2021
8-K/A 000-27598
10.4 March 4, 2021
Filed Herewith
X
X
X
X
X
X
X
X
8-K
000-27598
99.1
October 18,
2023
November 7,
2023
Order entered by the Delaware Court of Chancery
on November 1, 2023.
8-K
000-27598
99.1
Inline XBRL Instance Document – the instance
document does not appear in the Interactive Data
File as its XBRL tags are embedded within the
Inline XBRL document.
101.SCH
Inline XBRL Taxonomy Extension Schema With
Embedded Linkbase Document.
104
Cover Page formatted as Inline XBRL and
contained in Exhibit 101
*
Indicates a management contract or compensatory plan or arrangement.
80
Trademark Acknowledgments
Iridex, the Iridex logo, IRIS Medical, MicroPulse, OcuLight, EndoProbe, MicroPulse P3, G-Probe, G-Probe Illuminate,
TruFocus LIO Premiere, IQ 577, IQ532, Cyclo G6, and TxCell are our registered trademarks. All other trademarks or trade
names appearing in this Annual Report on Form 10-K are the property of their respective owners.
81
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Mountain View,
State of California, on the 29th day of March 2024.
SIGNATURES
IRIDEX CORPORATION
By:
/s/ David I. Bruce
David I. Bruce
President and Chief Executive Officer
/s/ Fuad Ahmad
Fuad Ahmad
Interim Chief Financial Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and
appoints David I. Bruce and Fuad Ahmad, jointly and severally, their attorney-in-fact, each with full power of substitution,
for him in any and all capacities, to sign on behalf of the undersigned any amendments to this Annual Report on Form 10-K,
and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange
Commission, and each of the undersigned does hereby ratifying and confirming all that each of said attorneys-in-fact, or his
substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1934, this report has been signed by the following persons in the
capacities and on the dates indicated.
Signature
Title
/s/ David I. Bruce
(David I. Bruce)
/s/ Fuad Ahmad
(Fuad Ahmad)
/s/ Scott Shuda
(Scott Shuda)
/s/ Nandini Devi
(Nandini Devi)
/s/ Robert Grove
(Robert Grove)
/s/ Beverly A. Huss
(Beverly A. Huss)
/s/ Kenneth E. Ludlum
(Kenneth E. Ludlum)
President and Chief Executive Officer
(Principal Executive Officer)
Interim Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
Date
March 29, 2024
March 29, 2024
Chairperson of the Board
March 29, 2024
Director
Director
Director
Director
82
March 29, 2024
March 29, 2024
March 29, 2024
March 29, 2024
EXHIBIT 3.1
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 12: 30 PM 02/22/1996
960050834 - 2563599
IRIDEX CORPORATION
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
IRIDEX Corporation, a corporation organized and existing under the laws of the State of
Delaware (the "Corporation"), hereby certifies that
A. The name of this Corporation is IRIDEX Corporation, originally incorporated under
the name of Trilogy Medical Systems, Inc.
B The date of filing of this Corporation's original Certificate of Incorporation with the
Secretary of State of Delaware was November 21, 1995
C Pursuant to Sections 241 and 245 of the Delaware General Corporation Law, this
Amended and Restated Certificate of Incorporation restates, integrates and amends the
provisions of the Corporation's Certificate of Incorporation as follows:
FIRST. The name of this corporation is IRIDEX Corporation.
SECOND. The address of the corporation's registered office in the State of Delaware is
1209 Orange Street, Wilmington, County of New Castle, Delaware 19801. The name of its
registered agent at such address is The Corporation Trust Company
THIRD. The purpose of this corporation is to engage in any lawful act or activity for
which corporations may be organized under the General Corporation Law of Delaware.
FOURTH. This corporation is authorized to issue two classes of shares to be designated
respectively Preferred Stock ("Preferred") and Common Stock ("Common"). The total number
of shares of Preferred this corporation shall have authority to issue shall be 2,000,000, $.01 par
value, and the total number of shares of Common which this corporation shall have the authority
to issue shall be 30,000,000, $.01 par value.
The Preferred Stock may be issued from time to time in one or more series pursuant to a
resolution or resolutions providing for such issue duly adopted by the Board of Directors
(authority to do so being hereby expressly vested in the Board). The Board of Directors is further
authorized to determine or alter the rights, preferences, privileges and restrictions granted to or
imposed upon any wholly unissued series of Preferred Stock and, to fix the number of shares of
any such series of Preferred Stock and the designation of any such series of Preferred Stock. The
Board of Directors is authorized, within the limits and restrictions stated in any resolution or
resolutions of the Board of Directors originally fixing the number of shares constituting any
series, to increase or decrease (but not below the number of shares thereof then outstanding) the
number of shares of any such series subsequent to the issue of shares of that series, to determine
the designation of any series, and to fix the number of shares of any series.
FIFTH. The corporation is to have perpetual existence.
SIXTH. The Board of Directors of the corporation is expressly authorized to adopt,
amend or repeal the bylaws of the corporation, but the stockholders may make additional bylaws
and may alter or repeal any bylaw whether adopted by them or otherwise.
SEVENTH. Elections of directors need not be by written ballot except and to the extent
provided in the by-laws of the corporation.
EIGHTH. A director of the corporation shall not be liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director, except to the
extent such exemption from liability or limitation thereof is not permitted under the Delaware
General Corporation Law as the same exists or may hereafter be amended. Any repeal or
modification of this Article EIGHTH shall not adversely affect any right or protection of a
director of the corporation existing hereunder with respect to any act or omission occurring prior
to such repeal or modification.
IN WITNESS WHEREOF, IRIDEX Corporation has caused this Amended and Restated
Certificate of Incorporation to be signed by Theodore A. Boutacoff, its President, and attested by
Judith M. O'Brien, its Secretary, this 22nd day of February 1996.
IRIDEX CORPORATION
/s/ Theodore A. Boutacoff
Theodore A. Boutacoff, President
Attested:
/s/ Judith M. O'Brien
Judith M. O'Brien, Secretary
Subsidiaries of IRIDEX Corporation
(as of December 30, 2023)
EXHIBIT 21.1
NAME OF SUBSIDIARY
COUNTRY OF FORMATION
IRIDEX Europe GmbH
Germany
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (333-257807, 333-213094)
and Form S-8 (333-272983, 333-257808, 333-233628, 333-226358, 333-219448, 333-197934, 333-183513, 333-161630, 333-155598,
333-147866, 333-135822, 333-127716, 333-117885, 333-107700, 333-97541, 333-67480, 333-45736, 333-86091, 333-57573, 333-
32161) of our report dated March 29, 2024 relating to the consolidated financial statements of IRIDEX Corporation as of December
30, 2023, which appears in this Annual Report on Form 10-K.
EXHIBIT 23.1
/s/ BPM LLP
San Jose, California
March 29, 2024
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO SECTION 13(a) or 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, David I. Bruce, certify that:
EXHIBIT 31.1
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of IRIDEX Corporation;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
b)
c)
d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report
is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
Disclosed in this report any changes in the registrant’s internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect the registrant’s internal control over financial
reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
a)
b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: March 29, 2024
By: /s/ DAVID I. BRUCE
Name: David I. Bruce
Title: President and Chief Executive Officer
(Principal Executive Officer)
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 13(a) or 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Fuad Ahmad, certify that:
EXHIBIT 31.2
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of IRIDEX Corporation;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
b)
c)
d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report
is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
Disclosed in this report any changes in the registrant’s internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect the registrant’s internal control over financial
reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
a)
b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: March 29, 2024
By: /s/ FUAD AHMAD
Name: Fuad Ahmad
Title: Interim Chief Financial Officer
(Principal Financial Officer)
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 32.1
I, David I. Bruce, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
certify that the Annual Report of IRIDEX Corporation on Form 10-K for the fiscal year ended December 30, 2023 (i) fully complies
with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) that information contained in such
Annual Report on Form 10-K fairly presents, in all material respects, the financial condition and results of operations of IRIDEX
Corporation.
Date: March 29, 2024
By: /s/ DAVID I. BRUCE
Name: David I. Bruce
Title: President and Chief Executive Officer
(Principal Executive Officer)
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 32.2
I, Fuad Ahmad, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
certify that the Annual Report of IRIDEX Corporation on Form 10-K for the fiscal year ended December 30, 2023 (i) fully complies
with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) that information contained in such
Annual Report on Form 10-K fairly presents, in all material respects, the financial condition and results of operations of IRIDEX
Corporation.
Date: March 29, 2024
By: /s/ FUAD AHMAD
Name: Fuad Ahmad
Title: Interim Chief Financial Officer
(Principal Financial Officer)
IRIDEX CORPORATION
COMPENSATION RECOVERY POLICY
As adopted on November 20, 2023
EXHIBIT 97.1
IRIDEX Corpora on (the “Company”) is commi ed to strong corporate governance. As part of this
commitment, the Company’s Nomina ng and Governance Commi ee has recommended adop on of and the Board
of Directors (the “Board”) has adopted this clawback policy called the Compensa on Recovery Policy (the “Policy”).
The Policy is intended to further the Company’s pay-for-performance philosophy and to comply with applicable laws
by providing rules rela ng to the reasonably prompt recovery of certain compensa on received by Covered Execu ves
in the event of an Accoun ng Restatement. The applica on of the Policy to Covered Execu ves is not discre onary,
except to the limited extent provided below, and applies without regard to whether a Covered Execu ve was at fault.
Capitalized terms used in the Policy are defined below, and the defini ons have substan ve impact on its applica on
so reviewing them carefully is important to your understanding.
The Policy is intended to comply with, and will be interpreted in a manner consistent with, Sec on 10D of the
Securi es Exchange Act of 1934 (the “Exchange Act”), with Exchange Act Rule 10D-1 and with the lis ng standards of
the na onal securi es exchange (the “Exchange”) on which the securi es of the Company are listed, including any
official interpre ve guidance.
Persons Covered by the Policy
The Policy is binding and enforceable against all “Covered Execu ves.” A Covered Execu ve is each individual
who is or was ever designated as an “officer” by the Board in accordance with Exchange Act Rule 16a-1(f) (a “Sec on
16 Officer”). The Commi ee may (but is not obligated to) request or require a Covered Execu ve to sign and return to
the Company an acknowledgement that such Covered Execu ve will be bound by the terms and comply with the
Policy. The Policy is binding on each Covered Execu ve whether or not the Covered Execu ve signs and/or returns any
acknowledgment.
Administra on of the Policy
The Compensa on Commi ee (the “Commi ee”) of the Board has full delegated authority to administer the
Policy. The Commi ee is authorized to interpret and construe the Policy and to make all determina ons necessary,
appropriate, or advisable for the administra on of the Policy. In addi on, if determined in the discre on of the Board,
the Policy may be administered by the independent members of the Board or another commi ee of the Board made
up of independent members of the Board, in which case all references to the Commi ee will be deemed to refer to
the independent members of the Board or the other Board commi ee. All determina ons of the Commi ee will be
final and binding and will be given the maximum deference permi ed by law.
Accoun ng Restatements Requiring Applica on of the Policy
If the Company is required to prepare an accoun ng restatement due to the material noncompliance of the
Company with any financial repor ng requirement under the securi es laws, including any required accoun ng
restatement to correct an error in previously issued financial statements that is material to the previously issued
financial statements, or that would result in a material misstatement if the error were corrected in the current period
or le uncorrected in the current period (an “Accoun ng Restatement”), then the Commi ee must determine the
Excess Compensa on, if any, that must be recovered. The Company’s obliga on to recover Excess Compensa on is not
dependent on if or when restated financial statements are filed.
Compensa on Covered by the Policy
The Policy applies to certain Incen ve-Based Compensa on (certain terms used in this Sec on are defined
below) that is Received on or a er October 2, 2023 (the “Effec ve Date”), during the Covered Period while the
Company has a class of securi es listed on a na onal securi es exchange. Such Incen ve-Based Compensa on is
considered “Clawback Eligible Incen ve-Based Compensa on” if the Incen ve-Based Compensa on is Received by a
person a er such person became a Sec on 16 Officer and the person served as a Sec on 16 Officer at any me during
the performance period for the Incen ve-Based Compensa on. “Excess Compensa on” means the amount of
Clawback Eligible Incen ve-Based Compensa on that exceeds the amount of Clawback Eligible Incen ve-Based
Compensa on that otherwise would have been Received had such Clawback Eligible Incen ve-Based Compensa on
been determined based on the restated amounts. Excess Compensa on must be computed without regard to any
taxes paid and is referred to in the lis ngs standards as “erroneously awarded compensa on”.
To determine the amount of Excess Compensa on for Incen ve-Based Compensa on based on stock price or
total shareholder return, where it is not subject to mathema cal recalcula on directly from the informa on in an
Accoun ng Restatement, the amount must be based on a reasonable es mate of the effect of the Accoun ng
Restatement on the stock price or total shareholder return upon which the Incen ve-Based Compensa on was
Received and the Company must maintain documenta on of the determina on of that reasonable es mate and
provide that documenta on to the Exchange.
“Incen ve-Based Compensa on” means any compensa on that is granted, earned, or vested based wholly or
in part upon the a ainment of a Financial Repor ng Measure, including any compensa on awarded under the
Company’s annual Short-Term Incen ve Plan or the 2008 Equity Incen ve Plan, as amended. For the avoidance of
doubt, no compensa on that is poten ally subject to recovery under the Policy will be earned un l the Company’s
right to recover under the Policy has lapsed.
“Financial Repor ng Measures” are measures that are determined and presented in accordance with the
accoun ng principles used in preparing the Company’s financial statements, and any measures that are derived wholly
or in part from such measures. Stock price and total shareholder return are also Financial Repor ng Measures. A
Financial Repor ng Measure need not be presented within the financial statements or included in a filing with the
Securi es and Exchange Commission.
Incen ve-Based Compensa on is “Received” under the Policy in the Company’s fiscal period during which the
Financial Repor ng Measure specified in the Incen ve-Based Compensa on award is a ained, even if the payment,
ves ng, se lement or grant of the Incen ve-Based Compensa on occurs a er the end of that period. For the
avoidance of doubt, the Policy does not apply to Incen ve-Based Compensa on for which the Financial Repor ng
Measure is a ained prior to the Effec ve Date.
“Covered Period” means the three completed fiscal years immediately preceding the Accoun ng Restatement
Determina on Date. In addi on, Covered Period can include certain transi on periods resul ng from a change in the
Company’s fiscal year.
“Accoun ng Restatement Determina on Date” means the earliest to occur of: (a) the date the Board, a
commi ee of the Board, or one or more of the officers of the Company authorized to take such ac on if Board ac on
is not required, concludes, or reasonably should have concluded, that the Company is required to prepare an
Accoun ng Restatement; and (b) the date a court, regulator, or other legally authorized body directs the Company to
prepare an Accoun ng Restatement.
Repayment of Excess Compensa on
The Company must recover Excess Compensa on reasonably promptly and Covered Execu ves are required to
repay Excess Compensa on to the Company. Subject to applicable law, the Company may recover Excess
Compensa on by requiring the Covered Execu ve to repay such amount to the Company by direct payment to the
Company or such
other means or combina on of means as the Commi ee determines to be appropriate (these determina ons do not
need to be iden cal as to each Covered Execu ve). These means include (but are not limited to):
a)
b)
c)
d)
requiring reimbursement of cash Incen ve-Based Compensa on previously paid;
seeking recovery of any gain realized on the ves ng, exercise, se lement, sale, transfer, or other disposi on
of any equity-based awards (including, but not limited to, me-based ves ng awards), without regard to
whether such awards are Incen ve-Based Compensa on or vest based on the achievement of performance
goals;
offse ng the amount to be recovered from any unpaid or future compensa on to be paid by the Company
or any affiliate of the Company to the Covered Execu ve, including (but not limited to) payments of
severance that might otherwise be due in connec on with a Covered Execu ve’s termina on of
employment and without regard to whether such amounts are Incen ve-Based Compensa on;
cancelling outstanding vested or unvested equity awards (including, but not limited to, me-based ves ng
awards), without regard to whether such awards are Incen ve-Based Compensa on; and/or
e)
taking any other remedial and recovery ac on permi ed by law, as determined by the Commi ee.
The repayment of Excess Compensa on must be made by a Covered Execu ve notwithstanding any Covered
Execu ve’s belief (whether or not legi mate) that the Excess Compensa on had been previously earned under
applicable law and therefore is not subject to clawback.
In addi on to its rights to recovery under the Policy, the Company or any affiliate of the Company may take
any legal ac ons it determines appropriate to enforce a Covered Execu ve’s obliga ons to the Company or to
discipline a Covered Execu ve. Failure of a Covered Execu ve to comply with their obliga ons under the Policy may
result in (without limita on) termina on of that Covered Execu ve’s employment, ins tu on of civil proceedings,
repor ng of misconduct to appropriate governmental authori es, reduc on of future compensa on opportuni es or
change in role. The decision to take any ac ons described in the preceding sentence will not be subject to the
approval of the Commi ee and can be made by the Board, any commi ee of the Board, or any duly authorized officer
of the Company or of any applicable affiliate of the Company. For avoidance of doubt, any decisions of the Company
or the Covered Execu ve’s employer to discipline a Covered Execu ve or terminate the employment of a Covered
Execu ve are independent of determina ons under this Policy. For example, if a Covered Execu ve was involved in
ac vi es that led to an Accoun ng Restatement, the Company’s decision as to whether to not terminate such Covered
Execu ve’s employment would be made under its employment arrangements with such Covered Execu ve and the
requirement to apply this no-fault and non-discre onary clawback policy will not be determina ve of whether any
such termina on is for cause, although failure to comply with the Policy might be something that could result in a
termina on for cause depending on the terms of such arrangements.
Limited Excep ons to the Policy
The Company must recover the Excess Compensa on in accordance with the Policy except to the limited
extent that any of the condi ons set forth below is met, and the Commi ee determines that recovery of the Excess
Compensa on would be imprac cable:
a)
b)
The direct expense paid to a third party to assist in enforcing the Policy would exceed the amount to be
recovered. Before reaching this conclusion, the Company must make a reasonable a empt to recover such
Excess Compensa on, document such reasonable a empt(s) to recover, and provide that documenta on to
the Exchange; or
Recovery would likely cause an otherwise tax-qualified re rement plan, under which benefits are broadly
available to employees of the Company, to fail to meet the legal requirements as such.
Other Important Informa on in the Policy
The Policy is in addi on to the requirements of Sec on 304 of the Sarbanes-Oxley Act of 2002 that are
applicable to the Company’s Chief Execu ve Officer and Chief Financial Officer, as well as any other applicable laws,
regulatory requirements, rules, or pursuant to the terms of any exis ng Company policy or agreement providing for
the recovery of compensa on.
Notwithstanding the terms of any of the Company’s organiza onal documents (including, but not limited to,
the Company’s bylaws), any corporate policy or any contract (including, but not limited to, any indemnifica on
agreement), neither the Company nor any affiliate of the Company will indemnify or provide advancement for any
Covered Execu ve against any loss of Excess Compensa on. Neither the Company nor any affiliate of the Company
will pay for or reimburse insurance premiums for an insurance policy that covers poten al recovery obliga ons. In the
event that the Company is required to recover Excess Compensa on pursuant to the Policy from a Covered Execu ve
who is no longer an employee, the Company will be en tled to seek recovery in order to comply with applicable law,
regardless of the terms of any release of claims or separa on agreement that individual may have signed.
The Commi ee or Board may review and modify the Policy from me to me.
If any provision of the Policy or the applica on of any such provision to any Covered Execu ve is adjudicated
to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability will not affect any
other provisions of the Policy or the applica on of such provision to another Covered Execu ve, and the invalid, illegal
or unenforceable provisions will be deemed amended to the minimum extent necessary to render any such provision
or applica on enforceable.
The Policy will terminate and no longer be enforceable when the Company ceases to be listed issuer within
the meaning of Sec on 10D of the Exchange Act.
ACKNOWLEDGEMENT
•
•
•
•
•
•
•
•
I acknowledge that I have received and read the Compensa on Recovery Policy (the “Policy”) of IRIDEX
Corpora on (the “Company”).
I understand and acknowledge that the Policy applies to me, and all of my beneficiaries, heirs, executors,
administrators or other legal representa ves and that the Company’s right to recovery in order to comply
with applicable law will apply, regardless of the terms of any release of claims or separa on agreement I
have signed or will sign in the future.
I agree to be bound by and to comply with the Policy and understand that determina ons of the
Commi ee (as such term is used in the Policy) will be final and binding and will be given the maximum
deference permi ed by law.
I understand and agree that my current indemnifica on rights, whether in an individual agreement or the
Company’s organiza onal documents, exclude the right to be indemnified for amounts required to be
recovered under the Policy.
I understand that my failure to comply in all respects with the Policy is a basis for termina on of my
employment with the Company and any affiliate of the Company as well as any other appropriate
discipline.
I understand that neither the Policy, nor the applica on of the Policy to me, gives rise to a resigna on for
good reason (or similar concept) by me under any applicable employment agreement or arrangement.
I acknowledge that if I have ques ons concerning the meaning or applica on of the Policy, it is my
responsibility to seek guidance from the Head of Human Resources or my own personal advisers.
I acknowledge that neither this Acknowledgement nor the Policy is meant to cons tute an employment
contract.
Please review, sign and return this form to the Head of Human Resources.
Covered Execu ve
(print name)
(signature)
(date)