UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 28, 2020

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

 

77-0210467

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

 

 

1212 Terra Bella Avenue

Mountain View, California

 

94043-1824

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code: (650) 940-4700

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Class

 

Trading Symbol

 

Name of Exchange on Which Registered

Common Stock, par value $0.01 per share

 

IRIX

 

Nasdaq Global Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

 

 

 

Non-accelerated filer

 

  

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth 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 is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes        No   

 

The number of shares of common stock, $0.01 par value, issued and outstanding as of April 23, 2020 was 13,788,160.

 

 

 


TABLE OF CONTENTS

 

Items

 

 

Page

 

 

 

 

PART I. FINANCIAL INFORMATION

4

 

 

 

 

Item 1.

 

Condensed Consolidated Financial Statements (Unaudited)

4

 

 

 

 

 

 

Unaudited Condensed Consolidated Balance Sheets as of March 28, 2020 and December 28, 2019

4

 

 

 

 

 

 

Unaudited Condensed Consolidated Statements of Operations for the three months ended March 28, 2020 and March 30, 2019

5

 

 

 

 

 

 

Unaudited Condensed Consolidated Statements of Comprehensive Loss for the three months ended March 28, 2020 and March 30, 2019

6

 

 

 

 

 

 

Unaudited Condensed Consolidated Statements of Stockholder's Equity for the three months ended March 28, 2020 and March 30, 2019

7

 

 

 

 

 

 

Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 28, 2020 and March 30, 2019

8

 

 

 

 

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

9

 

 

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

19

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures about Market Risk

22

 

 

 

 

Item 4.

 

Controls and Procedures

22

 

 

 

 

PART II. OTHER INFORMATION

23

 

 

 

 

Item 1.

 

Legal Proceedings

23

 

 

 

 

Item 1A.

 

Risk Factors

23

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

40

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

40

 

 

 

 

Item 4.

 

Mine Safety Disclosures

40

 

 

 

 

Item 5.

 

Other Information

40

 

 

 

 

Item 6.

 

Exhibits

41

 

 

 

 

Signatures

42

 

 

 

 

2


NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q 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 Quarterly Report on Form 10-Q include, but are not limited to, statements about:

 

 

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;

 

the impact of the COVID-19 pandemic and related responses of business and governments to the pandemic on our operations and personnel, and on commercial activity and demand of our products, business operations 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;

 

our costs of manufacturing and reliance on third party manufacturers;

 

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;

 

the impact of expensing stock options and other equity awards;

 

our ability to successfully defend litigation brought against us;

 

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;

 

our ability to comply with laws 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

 

the future trading prices of our common stock.

 

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 Quarterly Report on Form 10-Q, 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 Quarterly Report on Form 10-Q 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 Quarterly Report on Form 10-Q. 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 Quarterly Report on Form 10-Q. 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 Quarterly Report on Form 10-Q 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 Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q 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 Quarterly Report on Form 10-Q, the terms “Company,” “IRIDEX,” “we,” “us” and “our” refer to IRIDEX Corporation, and its consolidated subsidiaries.

3


PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (Unaudited)

IRIDEX Corporation

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited, in thousands except share and per share data)

 

 

 

March 28, 2020

 

 

December 28, 2019 (1)

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

11,139

 

 

$

12,653

 

Accounts receivable, net of allowance for doubtful accounts of

$229 as of March 28, 2020 and $187 as of December 28, 2019

 

 

6,987

 

 

 

9,323

 

Inventories

 

 

8,158

 

 

 

8,174

 

Prepaid expenses and other current assets

 

 

691

 

 

 

401

 

Total current assets

 

 

26,975

 

 

 

30,551

 

Property and equipment, net

 

 

707

 

 

 

730

 

Intangible assets, net

 

 

80

 

 

 

84

 

Goodwill

 

 

533

 

 

 

533

 

Operating lease right-of-use assets, net

 

 

2,461

 

 

 

2,764

 

Other long-term assets

 

 

140

 

 

 

151

 

Total assets

 

$

30,896

 

 

$

34,813

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,501

 

 

$

2,592

 

Accrued compensation

 

 

1,716

 

 

 

2,398

 

Accrued expenses

 

 

1,547

 

 

 

1,544

 

Accrued warranty

 

 

259

 

 

 

380

 

Deferred revenue

 

 

1,382

 

 

 

1,450

 

Operating lease liabilities

 

 

1,430

 

 

 

1,414

 

Total current liabilities

 

 

7,835

 

 

 

9,778

 

Long-term liabilities:

 

 

 

 

 

 

 

 

Accrued warranty

 

 

137

 

 

 

156

 

Deferred revenue

 

 

320

 

 

 

360

 

Operating lease liabilities

 

 

1,436

 

 

 

1,795

 

Other long-term liabilities

 

 

19

 

 

 

19

 

Total liabilities

 

 

9,747

 

 

 

12,108

 

Commitments and contingencies (Note 6)

 

 

 

 

 

 

 

 

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 13,787,969 and 13,785,233 shares

as of March 28, 2020 and December 28, 2019, respectively

 

 

147

 

 

 

147

 

Additional paid-in capital

 

 

73,186

 

 

 

73,093

 

Accumulated other comprehensive income

 

 

82

 

 

 

80

 

Accumulated deficit

 

 

(52,266

)

 

 

(50,615

)

Total stockholders’ equity

 

 

21,149

 

 

 

22,705

 

Total liabilities and stockholders’ equity

 

$

30,896

 

 

$

34,813

 

 

(1)

Derived from the audited consolidated financial statements included in the Annual Report on Form 10-K filed with the SEC for the year ended December 28, 2019.

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

 

4


IRIDEX Corporation

Condensed Consolidated Statements of Operations

(Unaudited, in thousands except per share data)

 

 

 

Three Months Ended

 

 

 

March 28, 2020

 

 

March 30, 2019

 

Total revenues

 

$

9,021

 

 

$

10,595

 

Cost of revenues

 

 

5,105

 

 

 

6,338

 

Gross profit

 

 

3,916

 

 

 

4,257

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

 

719

 

 

 

958

 

Sales and marketing

 

 

3,152

 

 

 

4,091

 

General and administrative

 

 

1,698

 

 

 

2,244

 

Total operating expenses

 

 

5,569

 

 

 

7,293

 

Loss from operations

 

 

(1,653

)

 

 

(3,036

)

Other income (expense), net

 

 

9

 

 

 

(6

)

Loss from operations before provision for income taxes

 

 

(1,644

)

 

 

(3,042

)

Provision for income taxes

 

 

7

 

 

 

6

 

Net loss

 

$

(1,651

)

 

$

(3,048

)

Net loss per share:

 

 

 

 

 

 

 

 

Basic

 

$

(0.12

)

 

$

(0.22

)

Diluted

 

$

(0.12

)

 

$

(0.22

)

Weighted average shares used in computing net loss

   per common share:

 

 

 

 

 

 

 

 

Basic

 

 

13,786

 

 

 

13,630

 

Diluted

 

 

13,786

 

 

 

13,630

 

 

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

 

5


IRIDEX Corporation

Condensed Consolidated Statements of Comprehensive Loss

(Unaudited, in thousands)

 

 

 

Three Months Ended

 

 

 

March 28, 2020

 

 

March 30, 2019

 

Net loss

 

$

(1,651

)

 

$

(3,048

)

Foreign currency translation adjustments

 

 

2

 

 

 

8

 

Comprehensive loss

 

$

(1,649

)

 

$

(3,040

)

 

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

6


IRIDEX Corporation

Condensed Consolidated Statements of Stockholders' Equity

(Unaudited, in thousands, except share data)

 

For the three months ended March 28, 2020

 

Common Stock

 

 

Additional

Paid-in

 

 

Accumulated

Other

Comprehensive

 

 

Accumulated

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income

 

 

Deficit

 

 

Total

 

Balances, December 28, 2019

 

 

13,785,233

 

 

$

147

 

 

$

73,093

 

 

$

80

 

 

$

(50,615

)

 

$

22,705

 

Employee stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

95

 

 

 

 

 

 

 

 

 

 

 

95

 

Release of restricted stock, net of taxes paid

 

 

2,736

 

 

 

 

 

 

 

(2

)

 

 

 

 

 

 

 

 

 

 

(2

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2

 

 

 

 

 

 

 

2

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,651

)

 

 

(1,651

)

Balances, March 28, 2020

 

 

13,787,969

 

 

$

147

 

 

$

73,186

 

 

$

82

 

 

$

(52,266

)

 

$

21,149

 

 

For the three months ended March 30, 2019

 

Common Stock

 

 

Additional

Paid-in

 

 

Accumulated

Other

Comprehensive

 

 

Accumulated

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income

 

 

Deficit

 

 

Total

 

Balances, December 29, 2018

 

 

13,602,052

 

 

$

145

 

 

$

71,548

 

 

 

70

 

 

$

(41,802

)

 

$

29,961

 

Issuance of common stock under stock option plan

 

 

208

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

615

 

 

 

 

 

 

 

 

 

 

 

615

 

Release of restricted stock, net of taxes paid

 

 

31,379

 

 

 

 

 

 

 

(93

)

 

 

 

 

 

 

 

 

 

 

(93

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8

 

 

 

 

 

 

 

8

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,048

)

 

 

(3,048

)

Balances, March 30, 2019

 

 

13,633,639

 

 

$

145

 

 

$

72,070

 

 

$

78

 

 

$

(44,850

)

 

$

27,443

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

7


IRIDEX Corporation

Condensed Consolidated Statements of Cash Flows

(Unaudited, in thousands)

 

 

 

Three Months Ended

 

 

 

March 28, 2020

 

 

March 30, 2019

 

Operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(1,651

)

 

$

(3,048

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

143

 

 

 

186

 

Change in fair value of earn-out liability

 

 

 

 

 

74

 

Stock-based compensation

 

 

95

 

 

 

615

 

Provision for doubtful accounts

 

 

42

 

 

 

25

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

2,292

 

 

 

638

 

Inventories

 

 

(35

)

 

 

66

 

Prepaid expenses and other current assets

 

 

(290

)

 

 

(221

)

Operating lease right-of-use assets

 

 

302

 

 

 

307

 

Other long-term assets

 

 

11

 

 

 

9

 

Accounts payable

 

 

(1,091

)

 

 

(116

)

Accrued compensation

 

 

(681

)

 

 

(1,417

)

Accrued expenses

 

 

1

 

 

 

(523

)

Accrued warranty

 

 

(140

)

 

 

(153

)

Deferred revenue

 

 

(108

)

 

 

43

 

Operating lease liabilities

 

 

(343

)

 

 

(282

)

Net cash used in operating activities

 

 

(1,453

)

 

 

(3,797

)

Investing activities:

 

 

 

 

 

 

 

 

Acquisition of property and equipment

 

 

(68

)

 

 

(67

)

Payment on earn-out liability

 

 

 

 

 

(96

)

Net cash used in investing activities

 

 

(68

)

 

 

(163

)

Financing activities:

 

 

 

 

 

 

 

 

Taxes paid related to net share settlements of equity awards

 

 

(2

)

 

 

(93

)

Net cash (used in) provided by financing activities

 

 

(2

)

 

 

(93

)

Effect of foreign exchange rate changes

 

 

9

 

 

 

34

 

Net (decrease) increase in cash and cash equivalents

 

 

(1,514

)

 

 

(4,019

)

Cash and cash equivalents, beginning of period

 

 

12,653

 

 

 

21,194

 

Cash and cash equivalents, end of period

 

$

11,139

 

 

$

17,175

 

Supplemental disclosure of non-cash activities:

 

 

 

 

 

 

 

 

Transfer of inventory to property and equipment

 

$

48

 

 

$

17

 

 

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

 

8


IRIDEX Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

 

 

1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of IRIDEX Corporation (“IRIDEX”, the “Company”, “we”, “our”, or “us”) have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and pursuant to the instructions to Form 10-Q and Article 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation of the financial statements have been included.

The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto, together with management’s discussion and analysis of the Company’s financial condition and results of operations, contained in our Annual Report on Form 10-K for the fiscal year ended December 28, 2019, which was filed with the Securities and Exchange Commission (“SEC”) on March 13, 2020. The results of operations for the three months ended March 28, 2020 and March 30, 2019 are not necessarily indicative of the results for the fiscal year ending January 2, 2021 or any future interim period. The three months ended March 28, 2020 and March 30, 2019, each had 13 weeks. For purposes of reporting the financial results, the Company’s fiscal years end on the Saturday closest to the end of December. Periodically, the Company includes a 53rd week to a year in order to end that year on the Saturday closest to the end of December.

Liquidity.

We have historically funded our operations primarily through sales of our products to customers, and through common stock and borrowing arrangements. As of March 28, 2020, our principal sources of liquidity consisted of cash and cash equivalents of $11.1 million. We have incurred net losses over the last several years, and as of March 28, 2020 have an accumulated deficit of approximately $52.3 million. We expect to continue to incur operating losses and negative cash flows from operations through March 31, 2021.

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.

 

2. Summary of Significant Accounting Policies

The Company’s significant accounting policies are disclosed in our Annual Report on Form 10-K for the year ended December 28, 2019, which was filed with the SEC on March 13, 2020.

Financial Statement Presentation.

The unaudited condensed consolidated financial statements include the accounts of the Company and our wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates.

The preparation of consolidated financial statements in conformity with 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.

9


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 Accounting Standards Codification (“ASC”) 606, “Revenue from Contracts with Customers.”

The Company has the following revenue transaction types: (1) Product Sale Only, (2) Laser Advantage Program (LAP), (3) Extended Warranty, (4) System Repairs (outside of warranty) and (5) Royalty Revenue.

 

(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 subsequent to the shipment to the distributors.

The Company recognizes revenue from product sale at a point in time. When a system or disposables are sold without any additional deliverables, 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.

 

(2)

LAP Program: The Company sometimes enters into LAP contracts with customers. Under the LAP program, the system is given away free of charge and title is transferred after the customer purchases the minimum required number of boxes of probes (classified as disposables). Customers with older machines have the ability to trade in their old machines for the most current laser equipment offered in the program (G6 Laser) and receive a discount on the program’s minimum purchase requirements. Under ASC 606, this non-cash consideration must be included in the transaction price. However, the Company has determined that there is no value associated with the old machine and the trade in is essentially offered to encourage customers to purchase more consumables under the program.

The Company recognizes revenue from product sales under the LAP program at a point in time. 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.

 

(3)

Extended Warranty: The Company offers a standard two-year warranty on all system sales. The Company also offers an extended warranty which is sold to customers in incremental, one-year warranty periods which begin subsequent to the expiration of the standard two-year warranty. The customer can opt to purchase the extended warranty at the time of the system sale or after the initial system sale.

The Company recognizes revenue from extended warranty ratably over the warranty period. Revenue recognition for the sale of an extended warranty is largely dependent on the timing of the sale as follows:

 

a.

Extended Warranty Sale in Conjunction with System Sale: If the customer opts to purchase an extended warranty 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.

 

b.

Extended Warranty Sale Subsequent to System Sale: If the customer opts to purchase an extended warranty after the initial system sale, the Company determines the amount of time that has elapsed since the initial system sale. If the extended warranty 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 extended warranty is purchased subsequent to sixty days after the initial sale, the sale of the extended warranty 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.

 

(4)

System Repairs (outside of warranty): Customers will occasionally request repairs from the Company subsequent to the expiration of the standard warranty and outside of an extended warranty 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 an extended warranty contracts, 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.

10


 

(5)

Royalty Revenue: The Company has royalty agreements with two customers related to sale of the Company’s intellectual property. Under the terms of these agreements, the customer is to remit a percentage of sales to the Company.

Since these arrangements are for sales-based licenses of intellectual property, for which the guidance in paragraph ASC 606-10-55-65 applies, the Company recognizes revenue only as the subsequent sale occurs. However, the Company notes that such sales being reported by the licensee with a quarter in arrear, such revenue is recognized at the time it is reported and paid by the licensee given that any estimated variable consideration would have to be fully constrained due to the unpredictability of such estimate and the unavoidable risk that it may lead to significant revenue reversals.

The Company elected the practical expedient allowing it to not recognize as a contract asset the commission paid to its salesforce on the sale of its products as an incremental cost of obtaining a contract with a customer but rather recognize such commission as expense when incurred as the amortization period of the asset that the Company would have otherwise recognized is one year or less.

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 condensed consolidated balance sheets. As of March 28, 2020 and as of December 28, 2019, the Company was 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.

Concentration of Credit Risk.

Our 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.

We market our 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 three months ended March 28, 2020, one customer accounted for over 10% of total revenues, representing 13%. For the three months ended March 30, 2019, no single customer accounted for more than 10% of total revenues. As of March 28, 2020, one customer accounted for over 10% of our accounts receivable, representing 17%. As of December 28, 2019, one customer accounted for more than 10% of our accounts receivable, representing 11%.  

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 condensed consolidated statements of operations.

Shipping and Handling Costs.

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

Deferred Revenue.

Deferred revenue represents contract liabilities. Revenue related to extended 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.

11


A reconciliation of the changes in the Company’s deferred revenue balance for the three months ended March 28, 2020 and March 30, 2019 is as follows:

 

 

 

Three Months Ended

 

 

 

March 28, 2020

 

 

March 30, 2019

 

Balance, beginning of period

 

$

1,810

 

 

$

2,225

 

Additions to deferral

 

 

433

 

 

 

575

 

Revenue recognized

 

 

(535

)

 

 

(532

)

Deductions from reserves

 

 

(6

)

 

 

-

 

Balance, end of period

 

 

1,702

 

 

 

2,268

 

Non-current portion of deferred revenue

 

 

320

 

 

 

526

 

Current portion of deferred revenue

 

$

1,382

 

 

$

1,742

 

 

During both the three months ended March 28, 2020 and March 30, 2019, approximately $0.4 million were recognized pertaining to amounts deferred as of December 28, 2019 and December 29, 2018.

 

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 statement of operations as cost of revenues.

A reconciliation of the changes in the Company’s warranty liability for the three months ended March 28, 2020 and March 30, 2019 is as follows:

 

 

 

Three Months Ended

 

 

 

March 28, 2020

 

 

March 30, 2019

 

Balance, beginning of period

 

$

536

 

 

$

860

 

Accruals for product warranties

 

 

31

 

 

 

109

 

Cost of warranty claims

 

 

(78

)

 

 

(111

)

Adjustment to pre-existing warranties

 

 

(93

)

 

 

(151

)

Balance, end of period

 

$

396

 

 

$

707

 

 

Reclassifications.

Certain reclassifications have been made to the prior year financial statements included in these condensed consolidated financial statements to conform to the current year presentation. The reclassifications had no impact on previously reported net loss or accumulated deficit.

Recent Accounting Standards Not Yet Adopted.

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 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. Early adoption is permitted. The Company is currently evaluating the impact that this guidance will have on its financial position and results of operations, if any.

3. Inventories

The components of the Company’s inventories as of March 28, 2020 and December 29, 2018 are as follows:

 

 

 

March 28, 2020

 

 

December 28, 2019

 

Raw materials

 

$

2,600

 

 

$

2,043

 

Work in process

 

 

747

 

 

 

1,111

 

Finished goods

 

 

4,811

 

 

 

5,020

 

Total inventories

 

$

8,158

 

 

$

8,174

 

 

12


4. Goodwill and Intangible Assets

Goodwill.

The carrying value of goodwill was $0.5 million as of March 28, 2020 and December 28, 2019.

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 2019 and determined that its goodwill was not impaired. As of March 28, 2020, the Company had not identified any factors that indicated there was an impairment of its goodwill and determined that no additional impairment analysis was then required.

Intangible Assets.

The following table summarizes the components of gross and net intangible asset balances (in thousands):

 

 

 

March 28, 2020

 

 

 

 

December 28, 2019

 

 

 

Gross

Carrying

Amount

 

 

Accumulated

Amortization

 

 

Net

Carrying

Amount

 

 

Remaining

Amortization Life

 

Gross

Carrying

Amount

 

 

Accumulated

Amortization

 

 

Net

Carrying

Amount

 

Customer relationships

 

 

240

 

 

 

160

 

 

 

80

 

 

5.00 Years

 

 

240

 

 

 

156

 

 

 

84

 

 

For the three months ended March 28, 2020 and March 30, 2019, amortization expense totaled $4 thousand for each period.

The amortization of customer relationships was charged to sales and marketing expense. Future estimated amortization expense (in thousands):

 

Fiscal Year:

 

 

 

 

2020 (nine months)

 

$

12

 

2021

 

 

16

 

2022

 

 

16

 

2023

 

 

16

 

2024

 

 

16

 

Thereafter

 

 

4

 

Total

 

$

80

 

 

5. Fair Value Measurements

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.

13


 

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, the Company utilizes 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 its assessment of fair value.

The carrying amounts of the Company’s financial assets and liabilities, including cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses as of March 28, 2020 and December 29, 2018, approximate fair value because of the short maturity of these instruments.

As of March 28, 2020 and December 28, 2019, financial assets measured and recognized at fair value on a recurring basis and classified under the appropriate level of the fair value hierarchy as described above were as follows:

 

 

 

As of  March 28, 2020

 

 

As of December 28, 2019

 

 

 

Fair Value Measurements

 

 

Fair Value Measurements

 

(in thousands)

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

9,743

 

 

$

 

 

$

 

 

$

9,743

 

 

$

10,711

 

 

$

 

 

$

 

 

$

10,711

 

 

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.

6. Commitments and Contingencies

COVID-19.

The COVID-19 pandemic has created and may continue to create significant uncertainty in global markets, which has disrupted and harmed, and may continue to disrupt and harm, the Company's business, financial condition, and results of operations. The extent of the impact of COVID-19 on the Company's operational and financial performance will depend on certain developments, including but not limited to the duration and spread of the outbreak, duration of local, state and federal issued public health orders, impact on our customers and our sales cycles, impact on our employees and impact on regional and worldwide economies and markets in general, all of which are uncertain and cannot be predicted.

Operating Lease Commitments.

Our operating lease commitments consist of facility and office equipment leases. Operating lease expenses for the three months ended March 28, 2020 and March 30, 2019 were approximately $0.3 million. The weighted average discount rate used in calculating the present value of lease payments was 5.4%. As of March 28, 2020, the weighted average remaining lease term for our operating leases was 2.0 years.

The following represents maturities of operating lease liabilities as of March 28, 2020 (in thousands):

 

Fiscal Year

 

Operating

Lease Payments

 

Remainder of 2020 (9 months)

 

$

1,169

 

2021

 

 

1,540

 

2022

 

 

318

 

2023

 

 

 

2024

 

 

 

Total lease payments

 

 

3,027

 

Less: Imputed interest

 

 

(161

)

Total lease liabilities

 

$

2,866

 

 

Purchase Commitments.

Our purchase commitments consist primarily of non-cancellable purchase commitments with vendors to manufacture certain components and ophthalmic instrumentation. As of March 28, 2020, our future minimum payments through fiscal year 2021 for our purchase commitments was approximately $10.5 million.

14


Indemnities.

We enter into standard indemnification arrangements in the ordinary course of business. Pursuant to these arrangements, we indemnify, hold harmless, and agree to reimburse the indemnified parties for losses suffered or incurred by the indemnified 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 that 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. 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, 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.

 

 

7. Stockholders’ Equity and Stock-Based Compensation

Stock-Based Compensation

The Company accounts for stock-based compensation granted to employees and directors, including employees stock option awards, restricted stock 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, and is recognized as expense over the employee’s service period. The Company recognizes compensation 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 (“RSUs”) are valued at the grant date fair value of the underlying common shares. Performance-based RSUs without market conditions are valued at grant date fair value of the underlying common shares. Performance-based RSUs 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.

2008 Equity Incentive Plan.

The terms of awards granted during the three months ended March 28, 2020 were consistent with those described in the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 28, 2019.

The following table shows stock-based compensation expenses included in the condensed consolidated statements of operations for the three months ended March 28, 2020 and March 30, 2019:

 

 

 

Three Months Ended

 

(in thousands)

 

March 28, 2020

 

 

March 30, 2019

 

Cost of revenues

 

$

24

 

 

$

19

 

Research and development

 

 

(31

)

 

 

103

 

Sales and marketing

 

 

39

 

 

 

163

 

General and administrative

 

 

63

 

 

 

330

 

 

 

$

95

 

 

$

615

 

 

Stock-based compensation expense capitalized to inventory was immaterial for the three months ended March 28, 2020 and March 30, 2019.

Occasionally, the Company will grant stock-based instruments to non-employees. During the three months ended March 28, 2020 and March 30, 2019, the amount of stock-based compensation related to non-employee options and RSUs was not material.

15


As of March 28, 2020, there was $2.5 million of total unrecognized compensation cost, net of expected forfeitures, related to non-vested stock-based compensation arrangements. The cost is expected to be recognized over a weighted average period of 2.7 years.  

Summary of Stock Options.

The following table summarizes stock options information during the three months ended March 28, 2020:

 

 

 

Number of

Shares

 

 

Weighted

Average

Exercise Price

Per Share

 

 

Aggregate

Intrinsic

Value

(thousands)

 

Outstanding as of December 28, 2019

 

 

1,383,552

 

 

$

6.11

 

 

 

 

 

Granted

 

 

51,000

 

 

$

2.27

 

 

 

 

 

Exercised

 

 

 

 

$

 

 

 

 

 

Canceled or forfeited

 

 

(132,102

)

 

$

6.76

 

 

 

 

 

Outstanding as of March 28, 2020

 

 

1,302,450

 

 

$

5.89

 

 

$

 

 

The weighted average grant date fair value of the options granted was $1.05 and $1.70 per share for the three months ended March 28, 2020 and March 30, 2019, respectively.

The Company uses the Black-Scholes option-pricing model to estimate the fair value of stock-based awards (options) with the following weighted average assumptions:

 

 

 

 

 

 

 

March 28, 2020

 

 

March 30, 2019

 

Average risk free interest rate

 

 

0.46

%

 

 

2.15

%

Expected life (in years)

 

4.55 years

 

 

4.55 years

 

Dividend yield

 

 

%

 

 

%

Average volatility

 

 

57

%

 

 

44

%

 

Performance stock options granted with market conditions are valued using a Monte Carlo simulation model in combination with a Black-Scholes option pricing model.

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 the Company’s stock price history over a period commensurate with the expected term of the options, trading volume of the Company’s 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 by the Company, 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 the Company has not issued any dividends and does not anticipate issuing any dividends in the future.

Information regarding stock options outstanding, vested, expected to vest, and exercisable as of March 28, 2020 is summarized below:

 

 

 

Number of

Shares

 

 

Weighted

Average

Exercise Price

 

 

Weighted

Average

Remaining

Contractual

Life (Years)

 

 

Aggregate

Intrinsic Value

(thousands)

 

Options outstanding

 

 

1,302,450

 

 

$

5.89

 

 

 

5.13

 

 

$

 

Options vested and expected to vest

 

 

1,131,040

 

 

$

6.09

 

 

 

4.98

 

 

$

 

Options exercisable

 

 

373,116

 

 

$

8.57

 

 

 

2.78

 

 

$

 

 

The aggregate intrinsic value in the table above represents the pre-tax intrinsic value, based on the Company’s closing price as of March 28, 2020, that would have been received by option holders had all option holders exercised their stock options as of that date. This amount changes based on the fair market value of the Company’s common stock. The total intrinsic value of options exercised for the three months ended March 28, 2020 and March 30, 2019 was approximately $0 thousand.  

16


Summary of Restricted Stock Units and Awards

Information regarding the restricted stock units (“RSUs”) activity for the three months ended March 28, 2020 is summarized below:

 

 

 

Number

of Shares

 

Outstanding as of December 28, 2019

 

 

411,133

 

Restricted stock units granted

 

 

 

Restricted stock units released

 

 

(3,499

)

Restricted stock units forfeited

 

 

(95,785

)

Outstanding as of March 28, 2020

 

 

311,849

 

 

8. Income Taxes

Provision for Income Tax.

The Company calculates its interim tax provision in accordance with the provisions of ASC 740-270, Income Taxes; Interim Reporting. For interim periods, the Company estimates its annual effective income tax rate and applies the estimated rate to the year-to-date income or loss before income taxes. The Company also computes the tax provision or benefit related to items reported separately and recognizes the items net of their related tax effect in the interim periods in which they occur. The Company also recognizes the effect of changes in enacted tax laws or rates in the interim periods in which the changes occur. The Company recorded a provision for income tax of $7 thousand and $6 thousand for the three months ended March 28, 2020 and March 30, 2019, respectively.

Deferred Income Taxes.

The Company accounts for income taxes in accordance with ASC topic 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. 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 assets will not be realized. As of the fourth quarter of fiscal year 2019, 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, the Company continues to provide a full valuation allowance on its federal and states deferred tax assets.

Uncertain Tax Positions.

The Company accounts for its uncertain tax positions in accordance with ASC 740. As of December 28, 2019, the Company had $1.2 million of unrecognized tax benefits, none of the unrecognized tax benefits would result in a change in the Company’s effective tax rate if recognized in future years.

The Company is not aware of any other uncertain tax positions that could result in significant additional payments, accruals, or other material deviation in this estimate during the fiscal year.

CARES Act.

On March 27, 2020, the “Coronavirus Aid, Relief and Economic Security (CARES) Act” (the “CARES Act”) was signed into law. The CARES Act includes provisions relating to refundable payroll tax credits, deferment of the employer portion of certain payroll taxes, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. These provisions are not expected to have a material effect on the Company’s consolidated financial statements.

The Company is subject to United States federal income tax as well as to income taxes in state jurisdictions. The Company’s federal and state income tax returns are open to examination by tax authorities for three years and three-to-five years, respectively.   

 

9. Computation of Basic and Diluted Net Loss Per Common Share

Basic and diluted net loss per share is based upon the weighted average number of common shares outstanding during the period. Common stock equivalents consist of incremental common shares issuable upon the exercise of stock options, and the 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 and awards 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.

For the three months ended March 28, 2020 and March 30, 2019, potential shares from stock options and RSUs totaling 1,215,607 and 1,111,010 shares, respectively, were excluded from the computation of diluted weighted average shares outstanding.

17


A reconciliation of the numerator and denominator of basic and diluted net loss per common share is provided as follows:

 

 

 

Three Months Ended

 

(in thousands except per share data)

 

March 28, 2020

 

 

March 30, 2019

 

Numerator:

 

 

 

 

 

 

 

 

Net loss

 

$

(1,651

)

 

$

(3,048

)

Denominator:

 

 

 

 

 

 

 

 

Weighted average shares of common stock (basic)

 

 

13,786