LENSAR, INC. The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our financial statements and the
related notes included elsewhere in this Annual Report. Some of the information
contained in this discussion and analysis or set forth elsewhere in this Annual
Report, including information with respect to our plans and strategy for our
business, includes forward-looking statements that involve risks, uncertainties
and other factors that could cause actual results to differ materially from
those made, projected or implied in the forward-looking statements. Please see
the "Risk Factors Summary" and "Risk Factors" sections for a discussion of the
uncertainties, risks and assumptions associated with these statements. A
discussion of the year ended
Spin-Off
On
Our financial statements prior to
The cash flows related to payables due to PDL for these certain historical cross
charge cost allocations were reflected in our statements of cash flows as
operating activities. The cash flows, prior to our recapitalization related to
the note payable due to PDL and our Series A Preferred Stock were reflected in
our statements of cash flows as financing activities since these balances
represent amounts financed by PDL. Transactions with PDL that were not
historically settled in cash or were not expected to be settled in cash have
been included in the balance sheets as a component of equity and are reflected
in our statements of cash flows as financing activities. On
Overview
We are a commercial-stage medical device company focused on designing, developing and marketing an advanced femtosecond laser system for the treatment of cataracts and the management of pre-existing or surgically induced corneal astigmatism. Our LENSAR Laser System incorporates a range of proprietary technologies designed to assist the surgeon in obtaining better visual outcomes, efficiency and reproducibility by providing advanced imaging,
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simplified procedure planning, efficient design and precision. We believe the cumulative effect of these technologies results in a laser system that can be quickly and efficiently integrated into a surgeon's existing practice, is easy to use and provides surgeons the ability to deliver improved visual outcomes.
Our current product portfolio consists of the LENSAR Laser System with Streamline IV and IntelliAxis and its associated consumable components. The consumable portion of the system consists of a disposable patient interface device ("PID kit") and a procedure license. Each procedure on each system requires the use of a PID kit. The PID kit includes a suction ring, vacuum filter and fluidic connection that are designed to facilitate placement of the laser while minimizing a patient's discomfort, intraocular pressure and trauma to the retina and maintaining corneal integrity. The procedure license is downloaded onto the system as required or as purchased by the customer. The system will not perform a procedure without a valid license. We sell licenses individually and also offer licenses in a subscription package with minimum monthly obligations and the ability to increase procedure numbers as the practice grows to address occasional increases in demand. We believe this structure allows the surgeon to implement a budget while also providing us with a predictable revenue stream.
We are focused on continuous innovation and are currently preparing to launch
our proprietary next generation ALLY Adaptive Cataract Treatment System ("ALLY"
or "ALLY system"). The ALLY system is designed to combine our existing
femtosecond laser technology with enhanced capabilities and a
phacoemulsification system into a single unit that allows surgeons to perform
each of the critical steps in a cataract procedure in a single operating room
using one device. We expect this system will provide significant administrative
and financial benefit to a surgeon's practice. The
We have built and are continuing to grow our commercial organization, which
includes a direct sales force in
Our revenue increased from
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Factors to Consider
We operate in a highly competitive environment that involves a number of risks, some of which are beyond our control. We are subject to risks common to medical device companies, including risks inherent in:
• our laser system development and commercialization efforts;
• clinical trials;
• uncertainty of regulatory actions and marketing approvals;
• reliance on a network of international distributors and a network of
suppliers;
• levels of coverage and reimbursement by government or other third-party
payors for procedures using our products;
• patients' willingness and ability to pay for procedures with significant
costs not covered by or reimbursable through government or other
third-party payors;
• enforcement of patent and proprietary rights;
• the need for future capital;
• the ongoing impact of the COVID-19 pandemic and all safety requirements
and suggestions regarding patient treatment as required or suggested by
health care authorities;
• clearance by regulatory agencies, including the FDA, for our ALLY system;
• supply chain shortages and price increases resulting from the COVID-19; and
• competition associated with our products.
We cannot provide assurance that we will generate significant revenues or achieve and sustain profitability in the future. In addition, we can provide no assurance that we will have sufficient funding to meet our future capital requirements.
Our revenues and operating expenses are also difficult to predict and depend on several factors, including the level of ongoing research and development requirements necessary to complete development and obtain regulatory clearance of our ALLY system, the number of laser systems we manufacture, sell, and lease on an annual basis, the availability of capital and direction from regulatory agencies, which are difficult to predict. We may be able to control the timing and level of research and development and selling, general and administrative expenses, but many of these expenditures will occur irrespective of our actions due to contractually committed activities and payments.
On
To date, the temporary suspension of non-essential medical services significantly impacted our revenues and cash flows in 2020 as well as increasing our inventories, and the pandemic continues to disrupt our commercial operations. Although procedure volume in 2021 has returned to pre-pandemic levels, the COVID-19 pandemic continues to influence our operations. We have also experienced some supply chain disruptions and unavailability of various component parts needed for our LENSAR Laser System and the development of our ALLY system, including increasing lead times required for the ordering of component parts to ensure timely delivery as well as an increase of costs associated with certain raw materials and component parts. To date, we have maintained sufficient inventory to
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mitigate significant adverse impact from such disruptions and unavailability; however, we are continuing to monitor developments with respect to the outbreak and its potential impact on our operations and to our employees, distributors, partners, suppliers, and regulators. The lingering impacts of COVID-19 into 2022 have impeded global supply chains, resulted in longer lead times and delays in procuring component parts and raw materials, and resulted in inflationary cost increases in certain raw materials, labor and transportation. These broad-based inflationary impacts have negatively impacted the Company's financial condition, results of operations and cash flows throughout 2020 and 2021. We expect these inflationary impacts to continue for the foreseeable future. As a result of these and other factors, our historical results are not necessarily indicative of future performance, and any interim results we previously presented are not indicative of the results that may be expected for the full fiscal year.
Components of Our Results of Operations
Revenue
Total revenue comprises product revenue, service revenue and lease revenue. We
derive product revenue from the sale of our laser systems and sales of our PIDs
and procedure licenses to our surgeon customers and to our distributors outside
Cost of Revenue
Total cost of revenue comprises cost of product revenue, cost of lease revenue and cost of service revenue.
Cost of product revenue primarily consists of the raw materials used in the manufacture of our products, plant overhead, personnel costs, such as salaries and wages, including stock-based compensation and benefits, packaging costs, depreciation expense, freight and other related costs, which include shipping, inspection and excess and obsolete inventory charges. Cost of service revenue primarily consists of costs associated with providing maintenance services under our standard limited warranty as well as extended warranty contracts. Cost of lease revenue primarily consists of depreciation expense associated with leased equipment and shipping costs associated with delivery of these systems.
Selling, General and Administrative Expense
Our selling, general and administrative expenses consist primarily of personnel costs, such as salaries and wages, including stock-based compensation and benefits, professional fees, marketing, insurance, travel and other expenses.
We are continuing to grow our sales efforts of the LENSAR Laser System in
Research and Development Expense
Our research and development expenses consist primarily of engineering, product development, clinical studies to develop and support our products, personnel costs, such as salaries and wages, including stock-based compensation and benefits, regulatory expenses, and other costs associated with products and technologies that are in development. Currently, our research and development expense primarily consists of costs associated with the continued development of our next generation system, the ALLY system, which is designed to combine our existing femtosecond laser technology with a phacoemulsification system into an integrated cataract treatment system. Until future
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commercialization of our ALLY system is considered probable and the future economic benefit is expected to be realized, the Company recognizes pre-launch inventory costs as research and development expenses.
Amortization of Intangible Assets
Intangible assets with finite useful lives consist primarily of acquired trademarks, acquired technology, and customer relationships. Acquired trademarks and acquired technology are amortized on a straight-line basis over their estimated useful lives of 15 to 20 years. Customer relationships are amortized on a straight-line basis or a double declining basis over their estimated useful lives up to 20 years, based on the method that better represents the economic benefits to be obtained.
Interest Expense
Prior to the Spin-Off, interest expense primarily consisted of interest expense associated with the Series A Preferred Stock and a note payable to PDL. The Series A Preferred Stock was classified as a liability on our balance sheet and related dividends were recorded as interest expense using the effective interest method.
Results of Operations
Comparison of the Years Ended
Change
from Prior
(Dollars in thousands) 2021 2020 Year %
Revenue:
Product $ 26,246 $ 19,831 32.3 %
Lease 4,966 3,601 37.9 %
Service 3,247 2,950 10.1 %
Total revenue $ 34,459 $ 26,382 30.6 %
Cost of revenue (excluding intangible
amortization):
Product $ 11,845 $ 8,303 42.7 %
Lease 1,375 1,136 21.0 %
Service 3,406 2,868 18.8 %
Total cost of revenue $ 16,626 $ 12,307 35.1 %
Revenue
Total revenue for the year ended
Product revenue for the year ended
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The following table provides information about procedure volume:
2021 2020 2019
Q1 28,122 23,225 24,594
Q2 30,966 18,265 26,275
Q3 30,765 25,078 25,154
Q4 41,642 30,503 32,007
Total contractual obligations 131,495 97,071 108,030
Service revenue for the year ended
Geographically,
Lease revenue for the year ended
Cost of Revenue
Total cost of revenue for the year ended
Cost of product revenue for the year ended
Cost of service revenue for the year ended
Cost of lease revenue for the year ended
Operating Expenses
Selling, General and Administrative. Selling, general and administrative
expenses for the year ended
Research and Development. Research and development expenses were
Amortization of Intangible Assets. Amortization of intangible assets was
approximately
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Interest Expense
Interest expense decreased by
Income Taxes
Prior to the Spin-Off, we were included in the consolidated federal tax return of PDL. Under the "separate return" method, we were assumed to file a separate return with the applicable tax authority(ies). The provision was the amount of tax payable or refundable on the basis of a hypothetical, current-year separate return. Deferred taxes were provided on temporary differences and on any attributes being carried forward that could be claimed on the hypothetical return. The need for a valuation allowance was assessed on a separate company basis and on projected separate return assets.
Subsequent to the Spin-Off, we are no longer included in the consolidated
federal tax return of PDL and file tax returns for the periods following the
Spin-Off as a separate company. The provision for income taxes for the years
ended
We maintain a full valuation allowance against our deferred tax assets.
Non-GAAP Financial Measures
We prepare and analyze operating and financial data and non-GAAP measures to assess the performance of our business, make strategic and offering decisions and build our financial projections. The key non-GAAP measures we use, EBITDA and Adjusted EBITDA, are reconciled to net loss below for the years endedDecember 31, 2021 and 2020. Year Ended December 31, (Dollars in thousands) 2021 2020 Net loss$ (19,601 ) $ (19,774 ) Add: Interest expense - 1,340 Less: Interest income (51 ) (68 ) Add: Depreciation expense 1,524 1,309 Add: Amortization expense 1,240 1,256 EBITDA (16,888 ) (15,937 ) Add: Stock-based compensation expense 6,866 9,026 Adjusted EBITDA$ (10,022 ) $ (6,911 )
EBITDA is defined as net loss before interest expense, interest income, income tax expense, depreciation and amortization expenses. EBITDA is a non-GAAP financial measure. EBITDA is included in this filing because we believe that EBITDA provides meaningful supplemental information for investors regarding the performance of our business and facilitates a meaningful evaluation of actual results on a comparable basis with historical results. Adjusted EBITDA is also a non-GAAP financial measure. We believe Adjusted EBITDA, which excludes stock-based compensation expense, provides meaningful supplemental information for investors when evaluating our results and comparing us to peer companies as stock-based compensation expense is a significant non-cash charge due to the recapitalization of the Company. We use these non-GAAP financial measures in order to have comparable financial results to analyze changes in our underlying business from quarter to quarter. However, there are a number of limitations related to the use of non-GAAP measures and their nearest GAAP equivalents. For example, other companies may calculate non-GAAP measures differently, or may use other measures to calculate their financial performance and, therefore, any non-GAAP measures we use may not be directly comparable to similarly titled measures of other companies.
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Liquidity and Capital Resources
Overview
For the years ended
As discussed above, the ongoing COVID-19 pandemic has negatively affected our capital requirements and more operating capital may be needed to fund our operations in the future.
In
We issued 30,000 shares of Series A Preferred Stock to PDL in
In
Following the Spin-Off, our primary sources of liquidity are our cash on hand,
cash from the sale and lease of our systems and the sale of our consumables. We
may raise additional capital from equity or debt financings or from other
sources. As of
As we near the commercial launch of ALLY, anticipated to be second half of 2022, we expect selling, general and administrative expenses to increase from current levels. Clearance of the ALLY system and its subsequent anticipated launch in 2022 is contingent on the regulatory review and discretion of the FDA and is not entirely within our control.
Our liquidity needs will be largely determined by the success of our operations regarding the successful commercialization of our existing products and the progression, anticipated clearance and launch of the ALLY system in the future. We expect we will need to raise additional capital through equity or debt financings, borrowings under credit facilities or from other sources to continue our operations beyond 2023. We may issue securities, including common stock, preferred stock, warrants, and/or debt securities through private placement transactions or registered public offerings in the future. If we issue equity securities to raise additional capital, our existing stockholders may experience dilution, and the new equity securities may have rights, preferences and privileges senior to those of our existing stockholders. Debt financing, if available, may involve covenants restricting our operations or our ability to incur additional debt. Any debt financing or additional equity that we raise may contain terms that are not favorable to us or our stockholders. In addition, if we raise additional capital through collaboration, licensing or other similar arrangements, it may be necessary to relinquish valuable rights to our products, potential products or proprietary technologies, or grant licenses on terms that are not favorable to us.
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Our ability to raise additional funds will depend, among other factors, on financial, economic and market conditions, many of which are outside of our control and we may be unable to raise financing when needed, or on terms favorable to us. If the necessary funds are not available from these sources, we may have to delay, reduce or suspend the scope of our sales and marketing efforts, research and development activities, or other components of our operations. Any of these events could adversely affect our ability to achieve our business and financial goals or to achieve or maintain profitability and could have a material adverse effect on our business, financial condition and results of operations. Additionally, the extent and duration of the impact the COVID-19 pandemic may have on our stock price and on those of other companies in our industry is highly uncertain and may make us look less attractive to investors and, as a result, there may be a less active trading market for our common stock, our stock price may be more volatile, and our ability to raise capital could be impaired, which could in the future negatively affect our liquidity and financial position.
We expect our revenue and expenses to increase in connection with our on-going activities, particularly as we continue to execute on our growth strategy, including expansion of our sales and customer support teams. The primary factors determining our cash needs are the funding of operations, which we expect to continue to expand as the business grows, and enhancing our product offerings through the research, development, and regulatory clearance of ALLY, our next generation integrated cataract treatment system. Our future liquidity needs, and ability to address those needs, will largely be determined by the success of our commercial efforts and those of our distributors; the ongoing impact of COVID-19 on our business; the timing, scope and magnitude of our commercial and development activities; and the timing of regulatory clearance of ALLY.
Our material contractual obligations and commercial commitments at
We currently have an effective shelf registration statement on Form S-3 ( No.
333-255136 ) filed with the
Cash Flows
The following table summarizes, for the periods indicated, selected items in our statements of cash flows:
Year Ended December 31,
(Dollars in thousands) 2021 2020
Net cash used in operating activities $ (8,969 ) $ (13,791 )
Net cash used in investing activities (354 ) (326 )
Net cash provided by financing activities 361 50,001
Net increase in cash, cash equivalents and restricted cash
Operating Activities
Net cash used in operating activities for the year ended
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Net cash used in operating activities for the year ended
Investing Activities
Net cash used in investing activities for the year ended
Net cash used in investing activities for year ended
Financing Activities
Net cash provided by financing activities for the year ended
Net cash provided by financing activities for the year ended
Stock-Based Incentive Plan
The 2020 Incentive Award Plan provides for the grant of stock options,
restricted stock, restricted stock unit awards and other stock-based awards to
recipients. During 2020, we granted restricted stock awards to directors and
employees to maintain proportionate ownership after the Spin-Off. During the
year ended
AtDecember 31, 2021 , there was approximately$7.5 million and$2.2 million of total unrecognized compensation expense related to restricted stock awards and stock options, respectively, which is expected to be recognized over a weighted-average period of 0.9 years and 2.6 years, respectively. Total unrecognized stock-based compensation expense is expected to be amortized as follows: (Dollars in thousands) Amount 2022$ 5,607 2023 3,497 2024 470 2025 99 2026 - Thereafter -
Total unrecognized stock-based compensation expense
The amounts included in this table are based on restricted stock awards and
stock options outstanding at
In
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Critical Accounting Estimates
The preparation of financial statements and related disclosures in conformity
with
We describe our significant accounting policies in Note 1, Summary of Significant Accounting Policies, of the notes to the financial statements. We believe the following accounting policies are the most critical in understanding the estimates and judgments that are involved in preparing our financial statements and the uncertainties that could impact our results of operations, financial condition, and cash flows.
Product and Service Revenue Recognition
Revenue is recognized from the sale of products and services when we transfer control of such promised products and services. The amount of revenue recognized reflects the consideration we expect to be entitled to receive in exchange for these products and services. A five-step model is utilized to achieve the core principle and includes the following steps: (1) identify the customer contract; (2) identify the contract's performance obligations; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations; and (5) recognize revenue when the distinct performance obligations are satisfied.
We principally derive our revenue from the sale and lease of the LENSAR Laser System and the sale of other related products and services, including PIDs, procedure licenses, and extended warranty service agreements. A procedure license represents a one-time right to utilize the LENSAR Laser System surgical application in connection with a surgery procedure. Without separately procuring procedure licenses granted by us, either together with the purchase of the LENSAR Laser System or under separate subsequent contracts, the customer does not have the right to use the surgical software application to perform surgical procedures. Typically, returns are not allowed.
Our contracts with customers often include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately may require significant judgment. Judgment is required to determine the level of interdependency between the LENSAR Laser System and the sale of other related products and services. We evaluate each product or service promised in a contract to determine whether it represents a distinct performance obligation. A performance obligation is distinct if (1) the customer can benefit from the product or service on its own or with other resources that are readily available to the customer and (2) the product or service is separately identifiable from other promises in the contract.
For contracts involving the sale or lease of the LENSAR Laser System, our performance obligations generally include the LENSAR Laser System, PID, procedure license, and extended warranty service agreements. In addition, our customer contracts contain provisions for installation and training services, which are not assessed as performance obligations as they are determined to be immaterial promises in the context of the contract and are required for a customer to use the LENSAR Laser System.
We have determined that the LENSAR Laser System, PID and procedure license are each capable of being distinct because they are each sold separately and the customer can benefit from these products with the other readily available resources that are sold by us. In addition, we have determined each are separately identifiable because the LENSAR Laser System, PID and procedure license (1) are not highly interdependent or interrelated; (2) do not modify or customize one another; and (3) do not include a significant service of integrating the promised goods into a bundled output. This is because we are able to fulfill each promise in the contract independently of the others and we would be able to fulfill our promise to transfer the LENSAR Laser System even if the customer did not purchase a PID or procedure license or to fulfill our promise to provide the PID or the procedure license even if the customer acquired the LENSAR Laser System separately.
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The extended warranty, unlike our standard product warranty, is a performance obligation because it provides an incremental service that is beyond ensuring the product delivered will be consistent with stated contractual specifications.
When a contract contains multiple performance obligations, revenue is allocated to each performance obligation based on its relative standalone selling price.
We recognize revenue as the performance obligations are satisfied by transferring control of the product or service to a customer as described below. We record a contract liability, or deferred revenue, when we have an obligation to provide a product or service to the customer and payment is received or due in advance of our performance.
Product revenue. We recognize revenue for the sale of the products at a point in time when control is transferred to customers.
Equipment. LENSAR Laser System sales are recognized as Product revenue when the Company transfers control of the system. This usually occurs after the customer signs a contract, we install the system, and we perform the requisite training for use of the system for direct customers. LENSAR Laser System sales to distributors are recognized as revenue upon shipment.
PID and procedure licenses. The LENSAR Laser System requires both a PID and a procedure license to perform each procedure. We recognize Product revenue for PIDs when we transfer control of the PID. We recognize Product revenue for procedure licenses, which represent a one-time right to utilize the LENSAR Laser System surgical software application, at the point in time when control of the procedure license is transferred to the customer. Control transfers at the time a customer receives the license key. For the sale of PIDs and procedure licenses, we may offer volume discounts to certain customers. To determine the amount of revenue that should be recognized at the time control over these products transfers to the customer, we estimate the average per unit price, net of discounts.
Service revenue. We offer an extended warranty that provides additional maintenance services beyond the standard limited warranty. We recognize Service revenue from the sale of extended warranties over the warranty period on a ratable basis. Customers have the option of renewing the warranty period, which is considered a new and separate contract.
Lease Revenue
We lease equipment to customers under operating lease arrangements. At contract inception we perform an evaluation to determine if a lease arrangement conveys the right to control the use of an identified asset. To the extent such rights of control are conveyed, we further make an assessment as to the applicable lease classification. The identification of specified assets and determination of appropriate lease classification may require the use of management judgment.
Some of our operating leases include a purchase option for the customer to purchase the leased asset at the end of the lease arrangement, subject to a new contract. We do not believe the purchase price qualifies as a bargain purchase option.
For lease arrangements with lease and non-lease components where we are the lessor, we allocate the contract's transaction price (including discounts) to the lease and non-lease components on a relative standalone selling price, which requires judgments. For those leases with variable lease payments, the variable lease payment is typically based upon use of the leased equipment or the purchase of procedure licenses and PIDs used with the leased equipment.
For operating leases, rental income is recognized on a straight-line basis over the lease term as lease revenue. Depreciation expense associated with the leased equipment under operating lease arrangements is reflected in cost of lease in the statements of operations.
Lessee leases
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Lessee operating leases are included in other current liabilities and long-term operating lease liabilities in our balance sheets. We do not have lessee finance leases.
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. Lease payments are discounted using our incremental borrowing rate as of the commencement date of each lease. Our remaining 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 as operating expense in our statements of operations over the lease term.
Inventory
Inventory, which consists of raw materials, work-in-process and finished goods, is stated at the lower of cost or net realizable value. Inventory levels are analyzed periodically on a first-in, first-out basis and written down to their net realizable value if they have become obsolete, have a cost basis in excess of its expected net realizable value or are in excess of expected requirements. We analyze current and future product demand relative to the remaining product shelf life to identify potential excess inventory. We build demand forecasts by considering factors such as, but not limited to, overall market potential, market share, market acceptance and patient usage.
JOBS Act Accounting Election
Section 107 of the JOBS Act provides that an "emerging growth company" may take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. Therefore, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.
We intend to rely on other exemptions provided by the JOBS Act, including without limitation, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act.
We will remain an emerging growth company until the earliest to occur of:
(1) the last day of our first fiscal year in which we have total annual gross
revenues of more than
Recently Issued Accounting Standards
See Note 2, Summary of Significant Accounting Policies, to our financial
statements included elsewhere in this Annual Report for a discussion of recently
adopted accounting pronouncements and recently issued accounting pronouncements
not yet adopted as of
We had cash and cash equivalents of
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10% change in interest rates would not have had a material impact on the value
of our cash and cash equivalents as of
Financial instruments that potentially subject us to concentrations of credit
risk principally consist of accounts receivable and notes receivable. We limit
our credit risk with respect to accounts receivable and notes receivable by
performing credit evaluations when deemed necessary, but we do not require
collateral to secure amounts owed to us by our customers. We do have the ability
to disable the LENSAR Laser System's ability to operate for lack of payment and,
in the case of notes receivable, repossess the LENSAR Laser System if scheduled
payments lapse. As of
Inflationary factors, such as increases in our costs of revenues and operating expenses, may adversely affect our operating results. Although we do not believe inflation has had a material impact on our financial condition, results of operations or cash flows to date, a high rate of inflation in the future may have an adverse effect on our ability to maintain and increase our gross margin or decrease our operating expenses as a percentage of our revenues if our selling prices of our products do not increase as much or more than our increase in costs.
We currently have limited exposure to foreign currency fluctuations and do not engage in any hedging activities as part of our normal course of business. Item 8. Financial Statements and Supplementary Data.
The financial statements required to be filed pursuant to this Item 8 are appended to this Annual Report and are incorporated herein by reference. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure.
None.
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