LENSAR Inc

Previous wording

Our current product portfolio includes the LENSAR Laser System, or LLS, and ALLY® Adaptive Cataract Treatment System, or ALLY System (collectively, the Systems) and its associated consumable components. The consumable portion of the system consists of a disposable patient interface device kit, or PID kit, and the system also requires 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.

Current wording

Our current product portfolio includes the LENSAR Laser System, or LLS, and ALLY Robotic Cataract Laser System™, or ALLY System (collectively, the Systems) and its associated consumable components. The consumable portion of the system consists of a disposable patient interface device kit, or PID kit, and the system also requires 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.

Previous wording

We are focused on continuous innovation and have launched our proprietary next generation ALLY System. The ALLY System enables cataract surgeons to complete the laser-assisted cataract surgery seamlessly in a single, sterile environment. Our ALLY System received clearance from the U.S. Food and Drug Administration (“FDA”) in June 2022, and we executed a controlled and targeted initial launch of the ALLY System beginning in August 2022. The ALLY System is available to all U.S. and European Union, or EU, cataract surgeons and has also received regulatory clearance in India, Taiwan, as well as certain other countries. In 2022, we transitioned from manufacturing and selling our LLS to focus on our ALLY System. In addition, we have submitted the ALLY System for certification through distributors in South Korea and China for additional marketing or certification applications. Our growth, market presence and ability to sell the ALLY System will depend on whether the ALLY System receives regulatory clearance in other regions outside the United States and the timing of these clearances or certifications, among other factors. Our future revenue and cash flows will depend on, among other factors, our installed base of Systems and the timing of and applicable clearances for our ALLY System.

Current wording

We are focused on continuous innovation and have launched our proprietary next generation ALLY System. The ALLY System is designed to transform premium cataract surgery by utilizing our advanced robotic technologies with the ability to perform the entire procedure in a sterile operating room or in-office surgical suite, delivering operational efficiencies and reducing overhead. Our ALLY System received clearance from the U.S. Food and Drug Administration (“FDA”) in June 2022, and we executed a controlled and targeted initial launch of the ALLY System beginning in August 2022. The ALLY System is available to all U.S. and European Union, or EU, cataract surgeons and has also received regulatory clearance in India, Taiwan, as well as certain other countries. In 2022, we transitioned from manufacturing and selling our LLS to focus on our ALLY System. In addition, we are pursuing additional marketing or certification applications through our distributors in South Korea and China, but this process could take multiple years. Our growth, market presence and ability to sell the ALLY System will depend on whether the ALLY System receives additional regulatory clearances or certifications and the timing of these clearances or certifications, among other factors. Our future revenue and cash flows will depend on, among other factors, our installed base of Systems and the timing of and applicable clearances for our ALLY System.

Previous wording

We have built and are continuing to grow our commercial organization, which includes a direct sales force in the United States and distributors in Germany, China, India, South Korea and other targeted international markets. We believe there is significant opportunity for us to expand our presence in these countries and other markets and regions, subject to applicable regulatory clearance or certification. In the United States, we sell our products through a direct sales organization that, as of June 30, 2024, consisted of approximately 60 commercial professionals, including regional sales managers, clinical applications and outcomes specialists, field service, marketing, technical and customer support personnel. We manufacture our Systems at a facility in Orlando, Florida. We purchase custom and off-the-shelf components from a number of suppliers, including some single-source suppliers. We purchase the majority of our components and major assemblies through purchase orders with limited long-term supply agreements and generally do not maintain large volumes of finished goods. We strive to maintain enough inventory of our various component parts to avoid the impact of potential disruptions in the supply chain; however, availability of these components can be outside of our control.

Current wording

We have built and are continuing to grow our commercial organization, which includes a direct sales force in the United States and distributors in Germany, China, India, South Korea and other targeted international markets. We believe there is significant opportunity for us to expand our presence in these countries and other markets and regions, subject to applicable regulatory clearance or certification. In the United States, we sell our products through a direct sales organization that, as of September 30, 2024, consisted of approximately 65 commercial professionals, including regional sales managers, clinical applications and outcomes specialists, field service, marketing, technical and customer support personnel. We manufacture our Systems at a facility in Orlando, Florida. We purchase custom and off-the-shelf components from a number of suppliers, including some single-source suppliers. We purchase the majority of our components and major assemblies through purchase orders with limited long-term supply agreements and generally do not maintain large volumes of finished goods. We strive to maintain enough inventory of our various component parts to avoid the impact of potential disruptions in the supply chain; however, availability of these components can be outside of our control.

Previous wording

Our revenue increased from $12.0 million for the three months ended June 30, 2023 to $12.6 million for the three months ended June 30, 2024, representing an increase of 5%, primarily due to increased ALLY System sales and procedure volume. Our net loss was $9.0 million and $8.8 million for the three months ended June 30, 2024 and 2023, respectively. Net loss for the three months ended June 30, 2024 included a $3.7 million impairment charge on intangible assets. Our revenue increased from $20.3 million for the six months ended June 30, 2023 to $23.2 million for the six months ended June 30, 2024, representing an increase of 15%, primarily due to increased ALLY System sales and procedure volume. Our net loss was $11.2 million and $13.0 million for the six months ended June 30, 2024 and 2023, respectively. Net loss for the six months ended June 30, 2024 included a $3.7 million impairment charge on intangible assets. Our installed base of Systems is approximately 330 as of June 30, 2024.

Current wording

Our revenue increased from $9.8 million for the three months ended September 30, 2023 to $13.5 million for the three months ended September 30, 2024, representing an increase of 38%, primarily due to increased ALLY System sales and procedure volume. Our net (loss) profit was ($1.5 million) and $2.6 million for the three months ended September 30, 2024 and 2023, respectively. Our revenue increased from $30.1 million for the nine months ended September 30, 2023 to $36.8 million for the nine months ended September 30, 2024, representing an increase of 22%, primarily due to increased ALLY System sales and procedure volume. Our net loss was $12.7 million and $10.5 million for the nine months ended September 30, 2024 and 2023, respectively. Net loss for the nine months ended September 30, 2024 included a $3.7 million impairment charge on intangible assets. Our installed base of Systems is approximately 355 as of September 30, 2024.

Previous wording

Total revenue comprises product revenue, service revenue and lease revenue. We derive product revenue from the sale of our Systems and sales of our PIDs and procedure licenses to our surgeon customers and to our distributors outside the United States. A PID and procedure license, which may also be referred to as an application license, is required to perform each procedure using our laser system. A procedure license represents a one-time right to utilize the system surgical application in connection with a surgery procedure. Service revenue is derived from the sale of extended warranties for our Systems that provide additional maintenance and service beyond our standard limited warranty. In some situations, we lease our Systems to surgeons, primarily through non-cancellable leases with a fixed lease payment. We consider all components of our revenue to be recurring source revenue, with the exception of sales of our Systems. For the three and six months ended June 30, 2024, approximately 79% and 84% of our revenue was attributable to recurring sources, respectively, compared to 70% and 79% for the three and six months ended June 30, 2023, respectively.

Current wording

Total revenue comprises product revenue, service revenue and lease revenue. We derive product revenue from the sale of our Systems and sales of our PIDs and procedure licenses to our surgeon customers and to our distributors outside the United States. A PID and procedure license, which may also be referred to as an application license, is required to perform each procedure using our laser system. A procedure license represents a one-time right to utilize the system surgical application in connection with a surgery procedure. Service revenue is derived from the sale of extended warranties for our Systems that provide additional maintenance and service beyond our standard limited warranty. In some situations, we lease our Systems to surgeons, primarily through non-cancellable leases with a fixed lease payment. We consider all components of our revenue to be recurring source revenue, with the exception of sales of our Systems. The following table provides information about revenue and revenue attributable to recurring sources, which we consider to be all components of our revenue except for sales of our systems:

Previous wording

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 combines all of the features from our LLS with a dual-pulse laser, integrated in a small, compact cataract treatment system that is designed to allow surgeons to perform a sterile laser-assisted cataract surgery in a single operating room or in-office surgical suite.

Current wording

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 combines all of the features from our LLS with a dual-modality laser, integrated in a small, compact cataract treatment system that is designed to allow surgeons to perform a sterile laser-assisted cataract surgery in a single operating room or in-office surgical suite.

Previous wording

Changes in our tax rates or exposure to additional tax liabilities could adversely affect our earnings and financial condition. Beginning in 2022, the Tax Cuts and Jobs Act eliminated the option of expensing all research and development expenditures in the current year, instead requiring amortization over five years for expenditures in the United States and over fifteen years for foreign-based expenditures, pursuant to Section 174 of the Code, or Section 174. On September 8, 2023, the Internal Revenue Service, or the IRS, issued Notice 2023-63 providing non-binding guidance regarding the capitalization and amortization of research and experimental expenditures for U.S. tax purposes that became effective in 2022. On December 22, 2023, the Treasury Department, or Treasury, and the IRS issued Rev. Proc. 2024-9, which provides procedural guidance for taxpayers to make accounting method changes to apply the provisions of Notice 2023-63. IRS and Treasury concurrently released Notice 2024-12, which modifies certain provisions of Notice 2023-63. The impact of Section 174 on the Company’s cash from operations depends primarily on the amount of research and development expenditures incurred, however, Section 174 has not had a material impact to the Company since its effective date. The Company will continue to review the applicability of new notices to its operations and will review any proposed legislation and regulations and adjust the estimates as necessary.

Current wording

Changes in our tax rates or exposure to additional tax liabilities could adversely affect our earnings and financial condition. Beginning in 2022, the Tax Cuts and Jobs Act eliminated the option of expensing all research and development expenditures in the current year, instead requiring amortization over five years for expenditures in the United States and over fifteen years for foreign-based expenditures, pursuant to Section 174 of the Code, or Section 174. The impact of Section 174 on the Company’s cash from operations depends primarily on the amount of research and development expenditures incurred. Section 174 has not had a material impact on the Company since its effective date. The Company will continue to review the application of Section 174 (together with any relevant Internal Revenue Service guidance, proposed legislation and Treasury Department regulations relevant thereto) and any impact on the Company’s cash from operations, and will adjust the estimates as necessary.

Previous wording

Comparison of the Three and Six Months Ended June 30, 2024 and 2023

Current wording

Comparison of the Three and Nine Months Ended September 30, 2024 and 2023

Previous wording

Product revenue for the six months ended June 30, 2024 increased by $1.9 million, or 13%, compared to the six months ended June 30, 2023. The increase was primarily attributable to increased procedure volume of $2.5 million offset by decreased Systems revenue of $0.6 million due to decreased LLS sales somewhat offset by increased ALLY System sales.

Current wording

Product revenue for the three months ended September 30, 2024 increased by $3.4 million, or 48%, compared to the three months ended September 30, 2023. The increase was primarily attributable to increased ALLY System sales of $1.7 million due to 11 ALLY Systems sold outside the United States following regulatory certification and clearance in the European Union and Taiwan in August 2024 and increased procedure volume of $1.7 million.

Previous wording

Service revenue for the three months ended June 30, 2024 increased by $0.2 million, or 22%, compared to the three months ended June 30, 2023. Our U.S. sales represented 72% and 69% of product and service revenue for the three months ended June 30, 2024 and 2023, respectively.

Current wording

Service revenue for the three months ended September 30, 2024 increased by $0.1 million, or 11%, compared to the three months ended September 30, 2023. Our U.S. sales represented 52% and 69% of product and service revenue for the three months ended September 30, 2024 and 2023, respectively.

Previous wording

Product revenue for the three months ended June 30, 2024 increased by $0.2 million, or 2%, compared to the three months ended June 30, 2023. The increase was primarily attributable to increased procedure volume of $1.2 million offset by decreased Systems revenue of $1.0 million due to decreased LLS sales somewhat offset by increased ALLY System sales.

Current wording

Product revenue for the nine months ended September 30, 2024 increased by $5.4 million, or 24%, compared to the nine months ended September 30, 2023. The increase was primarily attributable to increased procedure volume of $4.2 million and increased ALLY System sales of $1.2 million.

Previous wording

Service revenue for the six months ended June 30, 2024 increased by $0.4 million, or 24%, compared to the six months ended June 30, 2023. Our U.S. sales represented 71% and 69% of product and service revenue for the six months ended June 30, 2024 and 2023, respectively.

Current wording

Service revenue for the nine months ended September 30, 2024 increased by $0.6 million, or 19%, compared to the nine months ended September 30, 2023. Our U.S. sales represented 64% and 69% of product and service revenue for the nine months ended September 30, 2024 and 2023, respectively.

Previous wording

Cost of product revenue for the three months ended June 30, 2024 increased by $0.2 million, or 5%, compared to the three months ended June 30, 2023. The increased cost of product revenue was attributable to increased Systems sales, which have a lower gross margin than procedure licenses, as well as the full costing of raw materials for ALLY Systems as all raw materials previously charged to research and development expenses have been utilized in production.

Current wording

Cost of product revenue for the three months ended September 30, 2024 increased by $1.5 million, or 53%, compared to the three months ended September 30, 2023. The increased cost of product revenue was attributable to increased Systems sales, which have a lower gross margin than procedure licenses, as well as the full costing of raw materials for ALLY Systems as raw materials in 2024, whereas raw materials were previously charged to research and development expenses.

Previous wording

Cost of service revenue for the three months ended June 30, 2024 increased by $0.2 million, or 20%, compared to the three months ended June 30, 2023, primarily due to the increased number of Systems placements.

Current wording

Cost of service revenue for the three months ended September 30, 2024 increased by $0.5 million, or 38%, compared to the three months ended September 30, 2023, primarily due to the increased number of Systems placements.

Previous wording

Cost of lease revenue for the three months ended June 30, 2024 increased by $0.2 million, or 34%, compared to three months ended June 30, 2023.

Current wording

Cost of lease revenue for the three months ended September 30, 2024 increased by $0.3 million, or 51%, compared to three months ended September 30, 2023.

Previous wording

Cost of lease revenue for the six months ended June 30, 2024 increased by $0.3 million, or 28%, compared to the six months ended June 30, 2023.

Current wording

Total cost of revenue for the nine months ended September 30, 2024 increased by $3.9 million, or 28%, compared to the nine months ended September 30, 2023.

Previous wording

Cost of product revenue for the six months ended June 30, 2024 increased by $0.5 million, or 8%, compared to the six months ended June 30, 2023. The increased cost of product revenue was attributable to increased Systems sales, which have a lower gross margin than procedure licenses, as well as the full costing of raw materials for ALLY Systems as all raw materials previously charged to research and development expenses have been utilized in production.

Current wording

Cost of product revenue for the nine months ended September 30, 2024 increased by $2.0 million, or 23%, compared to the nine months ended September 30, 2023. The increased cost of product revenue was attributable to increased Systems sales, which have a lower gross margin than procedure licenses, as well as the full costing of raw materials for ALLY Systems as raw materials in 2024, whereas raw materials were previously charged to research and development expenses.

Previous wording

Cost of service revenue for the six months ended June 30, 2024 increased by $0.8 million, or 36%, compared to the six months ended June 30, 2023.

Current wording

Cost of lease revenue for the nine months ended September 30, 2024 increased by $0.5 million, or 36%, compared to the nine months ended September 30, 2023.

Previous wording

Research and Development. Research and development expenses for the three months ended June 30, 2024 decreased by $0.2 million, or 10%, compared to three months ended June 30, 2023.

Current wording

Research and Development. Research and development expenses for the three months ended September 30, 2024 decreased by $0.3 million, or 21%, compared to three months ended September 30, 2023.

Previous wording

Research and Development. Research and development expenses for the six months ended June 30, 2024 decreased by $0.4 million, or 11%, compared to six months ended June 30, 2023.

Current wording

Research and Development. Research and development expenses for the nine months ended September 30, 2024 decreased by $0.7 million, or 15%, compared to nine months ended September 30, 2023.

Previous wording

Amortization of Intangible Assets. Amortization of intangible assets was $0.5 million for the six months ended June 30, 2024, consistent with the six months ended June 30, 2023.

Current wording

Amortization of Intangible Assets. Amortization of intangible assets for the nine months ended September 30, 2024 decreased by $0.1 million, or 10%, primarily due to the impairment recorded in the three months ended June 30, 2024.

Previous wording

Impairment of Intangible Assets. In April 2024, the Company notified its third-party supplier of the phacoemulsification component in the ALLY System the Company would no longer pursue integration with the supplier’s phacoemulsification unit. This resulted in a triggering event impacting certain acquired technology intangible assets and contract liabilities associated with the phacoemulsification component. During the three months ended June 30, 2024, the Company determined that the carrying value of the intangible assets exceeded the estimated recoverable amount of $0 and recorded an impairment of intangible assets of $3.9 million. The impairment charge was offset with the write-off of contract liabilities associated with the intangible assets of $0.2 million.

Current wording

Impairment of Intangible Assets. In April 2024, the Company notified its third-party supplier of the phacoemulsification component in the ALLY System the Company would no longer pursue integration with the supplier’s phacoemulsification unit. This resulted in a triggering event impacting certain acquired technology intangible assets and contract liabilities associated with the phacoemulsification component. During the nine months ended September 30, 2024, the Company determined that the carrying value of the intangible assets exceeded the estimated recoverable amount of $0 and recorded an impairment of intangible assets of $3.9 million. The impairment charge was offset with the write-off of contract liabilities associated with the intangible assets of $0.2 million.

Previous wording

Non-operating income and expenses, net for the three months ended June 30, 2024 were $3.8 million as compared to $5.9 million for the three months ended June 30, 2023. Non-operating income and expenses consisted primarily of the change in fair value of warrant liabilities in each period.

Current wording

Non-operating income and expenses, net for the three months ended September 30, 2024 were $0.3 million of expense as compared to $4.6 million of income for the three months ended September 30, 2023. Non-operating income and expenses consisted primarily of the change in fair value of warrant liabilities in each period.

Previous wording

Non-operating income and expenses, net for the six months ended June 30, 2024 were $3.1 million as compared to $5.8 million for the six months ended June 30, 2023. Non-operating income and expenses consisted primarily of the change in fair value of warrant liabilities in each period.

Current wording

Non-operating income and expenses, net for the nine months ended September 30, 2024 were $3.3 million as compared to $1.2 million for the nine months ended September 30, 2023. Non-operating income and expenses consisted primarily of the change in fair value of warrant liabilities in each period.

Previous wording

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 three and six months ended June 30, 2024 and 2023.

Current wording

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 three and nine months ended September 30, 2024 and 2023.

Previous wording

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 is defined as EBITDA and further excluding stock-based compensation expense, change in fair value of warrant liabilities and impairment of intangible assets, provides meaningful supplemental information for investors when evaluating our results and comparing us to peer companies as stock-based compensation expense and change in fair value of warrant liabilities are significant non-cash charges and impairment of intangible assets is a non-cash charge that is not indicative of our core operating results. 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. Investors should not consider our non-GAAP financial measures in isolation or as a substitute for an analysis of our results as reported under GAAP.

Current wording

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 is defined as EBITDA and further excluding stock-based compensation expense, change in fair value of warrant liabilities, impairment of intangible assets and the Employee Retention Credit, provides meaningful supplemental information for investors when evaluating our results and comparing us to peer companies as stock-based compensation expense and change in fair value of warrant liabilities are significant non-cash charges and impairment of intangible assets is a non-cash charge that is not indicative of our core operating results and the Employee Retention Credit is not recurring. 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. Investors should not consider our non-GAAP financial measures in isolation or as a substitute for an analysis of our results as reported under GAAP.

Previous wording

For the six months ended June 30, 2024 and 2023, we had net losses of $11.2 million and $13.0 million, respectively, and as of June 30, 2024, we had an accumulated deficit of $123.1 million. The change in fair value of warrant liabilities decreased net loss by $3.4 million in the six months ended June 30, 2024, and it is difficult to predict how the fair value of warrant liabilities will impact our future results. We expect to continue to incur losses and operating cash outflows for the near-term future as we continue to build our commercial and clinical infrastructure and pursue further regulatory clearances of our ALLY System.

Current wording

For the nine months ended September 30, 2024 and 2023, we had net losses of $12.7 million and $10.5 million, respectively, and as of September 30, 2024, we had an accumulated deficit of $124.6 million. The change in fair value of warrant liabilities increased net loss by $3.8 million in the nine months ended September 30, 2024, and it is difficult to predict how the fair value of warrant liabilities will impact our future results. We expect to continue to incur losses and operating cash outflows for the near-term future as we continue to build our commercial and clinical infrastructure and pursue further regulatory clearances of our ALLY System.

Previous wording

In 2022, we transitioned from manufacturing and selling our LLS to focus on our ALLY System. The ALLY System has received regulatory approval in the United States, EU, India, Taiwan, as well as certain other countries. In addition, we have submitted the ALLY System for certification through distributors in South Korea and China for additional marketing or certification applications. Our growth, market presence and ability to sell the ALLY System will depend on whether the ALLY System receives regulatory clearance in other regions outside the United States and the timing of these clearance or certifications, among other factors. In addition, our future revenue and cash flows will depend on, among other factors, our installed base of Systems and the timing of and applicable clearances for our ALLY System.

Current wording

In 2022, we transitioned from manufacturing and selling our LLS to focus on our ALLY System. The ALLY System has received regulatory approval in the United States, EU, India, Taiwan, as well as certain other countries. In addition, we are pursuing additional marketing or certification applications through our distributors in South Korea and China, but this process could take multiple years. Our growth, market presence and ability to sell the ALLY System will depend on whether the ALLY System receives additional regulatory clearances or certifications and the timing of these clearance or certifications, among other factors. In addition, our future revenue and cash flows will depend on, among other factors, our installed base of Systems and the timing of and applicable clearances for our ALLY System.

Previous wording

Our material contractual obligations and commercial commitments at June 30, 2024 primarily consist of $2.0 million in operating lease liabilities for our facility lease and $2.2 million in remaining minimum purchase obligations for inventory components for the manufacture and supply of certain components within the next nine months. Our contractual obligations have increased due to supply chain issues that have necessitated us to enter into longer-term and more expensive per unit contracts to build and source inventory to satisfy the expected commercial demand for the ALLY System, if approved by regulatory authorities or certified by notified bodies in the applicable regions. We expect to meet these requirements through cash and cash equivalents and cash provided by operations. Some of these amounts are based on management’s estimates and assumptions about these obligations, including their duration, timing, anticipated actions by third parties and other factors. Because these estimates and assumptions are necessarily subjective, the obligations we will actually pay in future periods may vary from those described.

Current wording

Our material contractual obligations and commercial commitments at September 30, 2024 primarily consist of $1.9 million in operating lease liabilities for our facility lease and $9.3 million in remaining minimum purchase obligations for inventory components for the manufacture and supply of certain components within the next 18 months. Our contractual obligations have increased due to supply chain issues that have necessitated us to enter into longer-term and more expensive per unit contracts to build and source inventory to satisfy the expected commercial demand for the ALLY System, if approved by regulatory authorities or certified by notified bodies in the applicable regions. We expect to meet these requirements through cash and cash equivalents and cash provided by operations. Some of these amounts are based on management’s estimates and assumptions about these obligations, including their duration, timing, anticipated actions by third parties and other factors. Because these estimates and assumptions are necessarily subjective, the obligations we will actually pay in future periods may vary from those described.

Previous wording

The Company previously filed a shelf registration statement on Form S-3 (No. 333-255136), or the Registration Statement, which provided for the Company’s offering of its securities in an amount of up to $100.0 million in the aggregate, and previously entered into a sales agreement providing for the offering, issuance and sale by the Company of up to an aggregate $35.0 million of its common stock from time to time in “at-the-market”, or ATM, offerings under the Registration Statement. No shares were sold under the ATM during the quarters ended June 30, 2024 and 2023, and the Registration Statement ceased to be effective in April 2024.

Current wording

The Company previously filed a shelf registration statement on Form S-3 (No. 333-255136), or the Registration Statement, which provided for the Company’s offering of its securities in an amount of up to $100.0 million in the aggregate, and previously entered into a sales agreement providing for the offering, issuance and sale by the Company of up to an aggregate $35.0 million of its common stock from time to time in “at-the-market”, or ATM, offerings under the Registration Statement. No shares were sold under the ATM during the quarter ended September 30, 2023, and the Registration Statement ceased to be effective in April 2024.

Previous wording

Net cash used in operating activities for the six months ended June 30, 2024 was $9.1 million, consisting primarily of a net loss of $11.2 million and a decrease in net operating assets of $8.5 million, partially offset by non-cash charges of $10.6 million. The decrease in net operating assets was primarily due to changes in accounts receivable, inventories, and accrued liabilities. Non-cash charges primarily consisted of impairment of intangible assets, depreciation, amortization, stock-based compensation, and change in fair value of warrant liabilities.

Current wording

Net cash used in operating activities for the nine months ended September 30, 2024 was $5.9 million, consisting primarily of a net loss of $12.7 million and a decrease in net operating assets of $6.0 million, partially offset by non-cash charges of $12.7 million. The decrease in net operating assets was primarily due to changes in inventories. Non-cash charges primarily consisted of impairment of intangible assets, depreciation, amortization, stock-based compensation, and change in fair value of warrant liabilities.

Previous wording

Net cash used in operating activities for the six months ended June 30, 2023 was $8.8 million, consisting primarily of a net loss of $13.0 million and an increase in net operating assets of $7.3 million and non-cash charges of $11.5 million. The increase in net operating assets was primarily due to changes in notes receivables and inventories offset by changes in accounts receivable. Non-cash charges primarily consisted of depreciation, amortization, stock-based compensation, and change in fair value of warrant liabilities.

Current wording

Net cash used in operating activities for the nine months ended September 30, 2023 was $9.2 million, consisting primarily of a net loss of $10.5 million and a decrease in net operating assets of $8.2 million, partially offset by non-cash charges of $9.4 million. The decrease in net operating assets was primarily due to changes in inventories, accounts payable and prepaid and other current assets offset by changes in accounts receivable. Non-cash charges primarily consisted of depreciation, amortization, stock-based compensation, and change in fair value of warrant liabilities.

Previous wording

Net cash used in investing activities for the six months ended June 30, 2024 was $3.2 million, consisting primarily of the purchase of investments, offset by investment maturities. Investing activities for the six months ended June 30, 2023 were immaterial.

Current wording

Net cash used in investing activities for the nine months ended September 30, 2024 was $4.2 million, consisting primarily of the purchase of investments, offset by investment maturities. Investing activities for the nine months ended September 30, 2023 were not significant.

Previous wording

Net cash used in financing activities for the six months ended June 30, 2024 was not significant.

Current wording

Net cash used in financing activities for the nine months ended September 30, 2024 was not significant.

Previous wording

Net cash provided by financing activities for the six months ended June 30, 2023 was $19.8 million, primarily due to the net proceeds from issuance of Series A Redeemable Convertible Preferred Stock and Warrants of $19.7 million.

Current wording

Net cash provided by financing activities for the nine months ended September 30, 2023 was $19.6 million, primarily due to the net proceeds from issuance of Series A Redeemable Convertible Preferred Stock and Warrants of $19.5 million.

Previous wording

The 2020 Incentive Award Plan and 2024 Employment Inducement Incentive Award Plan provide for the grant of stock options, restricted stock, restricted stock unit awards, performance stock unit awards and other stock-based awards to recipients. During 2022, 2023 and the six months ended June 30, 2024, we granted stock options, restricted stock units and performance stock units to directors, employees and non-employees. We intend to grant stock options. restricted stock units and performance stock units as part of our overall compensation package to directors, employees, and non-employees.

Current wording

The 2020 Incentive Award Plan and 2024 Employment Inducement Incentive Award Plan provide for the grant of stock options, restricted stock, restricted stock unit awards, performance stock unit awards and other stock-based awards to recipients. During 2022, 2023 and the nine months ended September 30, 2024, we granted stock options, restricted stock units and performance stock units to directors, employees and non-employees. We intend to grant stock options. restricted stock units and performance stock units as part of our overall compensation package to directors, employees, and non-employees.

Previous wording

At June 30, 2024, there was approximately $2.2 million and $1.6 million of total unrecognized compensation expense related to restricted stock units and performance stock units and stock options, respectively, which is expected to be recognized over a weighted-average period of 2.2 years and 1.9 years, respectively. Total unrecognized stock-based compensation expense is expected to be amortized as follows:

Current wording

At September 30, 2024, there was approximately $1.9 million and $1.4 million of total unrecognized compensation expense related to restricted stock units and performance stock units and stock options, respectively, which is expected to be recognized over a weighted-average period of 2.1 years and 1.7 years, respectively. Total unrecognized stock-based compensation expense is expected to be amortized as follows: